The Changing Face of Banking Advice
Digital banking hasn’t really made much of a dent in the retail presence of banks, at least yet, although we’ve started so see all digital banks emerge, and even prosper, in recent years. Retail branches have hung around in largely their historical state mostly due to banks wanting to continue to serve their clients in the manner they prefer, and if this means their travelling to the bank, finding a parking spot, and waiting in line to be served in person for everyday transactions, so be it.
In many industries, customers are forced to various degrees to adopt new technologies and ways of doing business, but the banking industry is more accommodating in this regard, in spite of additional costs involved. This is a very competitive industry and it’s not that banks would not love to consolidate their retail presence more, but when they do, people very often just go down the street, and they lose a lot of business.
There is still a present need for face to face interactions in retail banking, at least until we further develop technologies to replace to a large degree the things that are provided in branches, for instance developing advisory applications so that one may receive as good or better financial advice from a computer than they can from a human representative.
This is one of the things that is on the horizon and is being worked on presently, and there is a lot of potential in such applications, especially given that software can provide a much deeper understanding of a client’s needs and preferences than you could ever get from an occasional face to face meeting.
Computers can enumerate preferences, track every movement you make in your financial life, and also track opportunities for enhancement. We already see some of this technology used in ad display on the internet, bringing your interests together with advertisers, and we’re working on developing much more complex models that could do the same thing with your finances.
This has the potential to not only be more effective but also bring third parties into the mix, the same way as online hotel sites track hotel room prices, and we even have financial sites doing that now for things like interest rates on savings and borrowing, although this is all delivered generically now, and the ultimate goal would be to use this technology to serve people in a much more specific and targeted way.
These enhancements serve to make the market more transparent, and the banking market historically has been anything but that, relying mostly on relationship building. Perhaps your Mom and Dad banked at a certain bank and they opened an account for you as a kid and you now bank there as well for instance, our your friends recommended a certain bank based upon their relationship there.
So banking hasn’t really been that price sensitive, and this is quite inefficient. There are more factors than price in deciding between banking services of course, but it’s more important than the role it plays now, but this will change. Once again though these changes take a long time to develop momentum and face to face advice and personal relationships will likely still dominate for a long time.
Banking Clients Will Continue to Become More Empowered
As ways that we can do banking increase, this serves to empower clients more, whether or not they choose to take advantages of any given empowerments. There are many clients who need and even demand that their hand be held at every step along the way by banks, and that’s their choice, and a legitimate one.
Others may seek to be more in control of things, and financial technology has stepped in to make this happen on a limited basis anyway already, and this will continue to develop in the coming years.
We’re set to see the banking industry become more segmented in the future, which the big banks of today may not like too much, but this is actually a very good thing for banking clients as it brings with it more transparency and better fit.
So while historically people very often give all of their banking business to a single bank, based once again on the relationship, and people really don’t shop around for banking these days, we’re going to see more and more people deal with multiple providers, and technology will serve to make this happen more readily.
People will also be in a better position to control their own banking destiny should they wish, much like people direct their own investments nowadays, where at one time you had to do business with a full service broker, because there wasn’t any other way to do it in the market.
We’re moving to seeing that with just about all aspects of personal banking, and we have the means now for instance for someone to get a mortgage not by going to a bank or even dealing with a broker, but to do it all themselves, and all electronically as well.
The gap that exists presently is looking to replace the personal advice that a banker can add to the experience, which is often quite important, and the investment industry has the same issues, but as we move along we will see artificial intelligence taking up the slack here and even providing better advice and better experiences for clients as the technology becomes more focused.
How Things Will Look In the Future
So this will all lead, eventually, to cutting back the physical presence of banks. This won’t be going away for a long time, as even if we could completely replace it now, it takes a very long time for changes like this to be fully implemented and fully accepted by the marketplace, but like other changes, we’re moving and will continue to move in that direction.
Some of this will involve things like consolidation, the closing down of branches for instance, where people will have to travel farther to get what they are looking for. This hasn’t happened a whole lot as of yet but will eventually have to whether banks like it or not, as if they don’t adapt, business conditions will force them to if they want to maintain profitability.
The main role of banking is to serve as a financial intermediary and we’re already seeing technology displace some of that, for instance with the emergence of some new fintech companies who aren’t banks but serve some of the role that banks play, bringing people together in other words, and this trend will continue to grow.
Banks will have to adapt to not lose too much market share, and given their structure, they really can only do so much, and the bank as we know it will be more of a niche player eventually than at present, particularly catering to those who prefer and demand good old fashioned banking as they have come to know it. So they will have to adapt, and are prepared to.
Things are more complicated than a lot of people realize though as far as wrestling away a lot of the business that traditional banks do, and banking isn’t like other businesses where you can just open up shop and start competing head to head with the big guys. The regulatory framework is very complex and it’s designed to keep the smaller players out of the market, to protect the public mostly, and banking without the proper regulation can be a risky proposition indeed, and governments don’t like having to pick up the pieces.
So a lot of this change, at least in the foreseeable future, will have to come from within the present structure, and large banks are already working hard to look to continue to adapt to face the future challenges that a more transparent and efficient market will bring.
All in all, things have improved a lot recently from the perspective of the client, and will continue to so as the technology continues to evolve.
Editor, MarketReview.com
John’s sensible advice on all matters related to personal finance will have you examining your own life and tweaking it to achieve your financial goals better.
Contact John: john@marketreview.com
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