The past decade has seen upheaval, as banks that came out of the Great Recession on shaky ground were immediately met with a growing army of disruptors getting in between them and their customers.
As we enter the ’20s, that disintermediation will continue. New entrants will target customers with better deposit products; corporate banks will compete on digital experience; and banking regulators globally will bring in more regulation to rebalance the playing field in ways that tend to favor new players.
Forrester’s global banking research team recently laid out several predictions for the market shifts and bold moves that we’ll witness in 2020. Here are three of them:
- New brands will entice customers as the battle for deposits rages. Along with new digital banks such as KakaoBank, Monzo, N26, Nubank, Revolut, and Tinkoff Bank, telcos like T-Mobile and robo-advisors like Betterment have launched deposit products. We predict Apple will follow suit and, in partnership with Goldman Sachs, begin offering a digital deposit account to accompany Apple Card. It’s not a huge stretch to imagine a brand such as Starbucks leveraging its digital wallet and huge customer base into banking — it already holds around $1.6 billion in customers’ money on preloaded cards and in its payment app. Low interest rates make it tricky for incumbents to respond with competitive offers, and this onslaught will exert further pressure on banks’ net interest margins.
- Leading banks will experiment with new pricing models and revenue streams. Many providers will find new revenue sources by monetizing APIs. For example, in the UK, Capital One already earns revenue from marketing its QuickCheck API to other firms. But just a handful of firms will offer entirely new pricing models. Customers of the fintech Honeyfi, for example, pay in voluntary, recurring “tips” based on how much value they feel they’re getting. And Charles Schwab has announced a new subscription-based model in which customers pay $30 a month for a wealth of content and services. These experiments, while unlikely to generate big revenues anytime soon, will test customers’ appetite to pay directly for specific financial products or services.
- Fintech firms will beat incumbents for the gig economy business. The gig economy is blurring the line between consumer and business financial services. The income, cash flow, and tax needs of gig economy workers demand different tools — and different experiences — from what’s available for retail clients. Incumbents will miss out on the opportunity to serve this segment as fintech launches innovative new services in this area. For example, Portify offers gig workers a view of their cash flow, emergency funding, and tax budgeting tools via an app. Qwil provides flat-fee-based working capital for gig workers.
The good news is that most banking executives have grown accustomed to the fast pace of innovation and change in the industry. The bad news is they will need to brace for even more — and even faster — change in 2020. Bank executives and their teams will need to take a dynamic, iterative approach to exploring adjacent innovations while defending what used to be their “home turf.” That once-familiar ground is increasingly a set of ecosystems with many participants.
To understand the major dynamics that will impact firms across industries next year, download Forrester’s Predictions 2020 guide.