In the last few years, a few sectors have evolved as dramatically as the business of banking. Banking is becoming more and more embedded in a customer’s life journey than ever before. The Aadhaar stack and advancements in India’s acceptance infrastructure are together transforming financial inclusion and digital payments. Digital banking penetration and digital channel usage frequency has grown rapidly, while big data, AI and process automation are transforming the front, back and middle office. This evolution is expected to see a continuous acceleration over the next few years. In fact, Union Finance Minister Nirmala Sitharaman recently said that the coming decade will be a ‘Techade’, and technology is going to drive us.
There are four primary trends that will shape the future of banking in this ‘techade.’
1. Banking as a service
Today, banks need to be present at each touchpoint of their customer’s lives, and banks are leveraging their ‘custodian of trust’ status while developing and orchestrate fin-tech and consumer ecosystems to grow their customer base. Very soon, many banks will be known as ‘technology companies’ in the business of banking. Banks have already started offering their products “as a service” to non-banking brands through embedded finance by consuming specific pieces of the banking stack (APIs). Although ‘Banking as a Service’ started off as a niche proposition, it is fast evolving into a mainstream concept, with banks using such arrangements to get access to a wider pool of customers and drive incremental growth and revenues. However, a key parameter to watch here is to see how banks can embed financial products into the front-end customer experience seamlessly.
2. Data as a growth currency
Data is changing financial services in a number of ways, including changing how companies think about risk, how they interact with customers, or how they tap growth opportunities. Banks have a competitive advantage over newer players with access to a wealth of data on their captive customer base and business operations over the years, but there is so much more data now than in the past, from so many more sources. In this context, the idea of data democratisation or open data is gaining steam, as organisations can shift time spent on aggregating data to analysing data, while incorporating new, varied datasets to existing processes for better decision making and outcomes. Open financial data ecosystems can help companies scale up much faster through better product design, targeting and personalisation, as well as servicing and monitoring.
3. Social and environmental conscience
The notion that businesses do not operate in a vacuum has been gaining ground over the last few years, with more and more people’s financial choices, especially millennials being linked to their personal environmental and social values. Not only are ESG considerations important from a footprint perspective, but also sustainable operations are increasingly being linked with a better economic performance. Banks have taken efforts to relay these considerations into their business operations, however a lot of room for mainstreaming remains. ESG, if used wisely, can serve as a source of strategic competitive advantage through the development of new ESG compliant products, deeper client or stakeholder relationships, leadership in certain ESG themes or focus sectors.
4. Doubling down on data and cyber security
Propelled by the COVID-19 crisis, many institutions have embraced a digital transformation in operations, distribution, and customer engagement. However, this has increased challenges around data security and balancing the scales on regulatory compliance. As banks shift toward digital solutions and become more reliant on third-party technologies, it becomes imperative to put in place strong security mechanisms at all stages of data collection, processing, and storage. At the same time, as cyberattacks continue to grow in number, scope, and sophistication, banks will also need to maintain robust risk management practices to identify, monitor, manage, and mitigate cybersecurity risks.
Given this dramatically shifting landscape, the role of today’s CFO is fundamentally different from the CFO of yesterday. In addition to traditional business functions and fiduciary responsibilities, the CFO is now a co-pilot to the CEO for driving business transformation and growth and is expected to be an internal consultant to business unit heads while also setting the tone for collaboration across the business. In order to do this, the CFO of the future will have to be versatile, digitally minded, and adaptable to change; whether it is supporting their company’s ability to enter a new market or exit an existing one, adapt to new regulations or forge new partnerships. In an increasingly global and volatile environment with additional regulatory burdens, it will also fall to the CFO to ensure adequate assessment and mitigation of risk as well as compliance with applicable regulatory requirements.