Swain: Navigating the future of global commercial banking

The $2 trillion global commercial banking industry is changing more now than ever before. An industry approximately the same size as the global oil and gas industry, three times the size of global airlines, and ten times the global market for beer manufacturing, is going through a major revolution as banking and technology collide.

With revenues split roughly 50/50 between retail and corporate banking ($1 trillion each) adopting value propositions to specific customer segments or customer demographics is becoming increasingly important.

A wave of global megatrends is creating a tailwind of opportunities for businesses and individuals willing to transform their approach and adapt solutions around rapidly changing customer needs.

The key megatrends impacting financial services right now are;

Demographic change which estimates 2.1 billion people will be over 60 years old by 2050. That’s up 320% from 0.5 billion in 1990.

Urbanisation which predicts that by 2050 the world’s population living in cities is expected to reach 4.9 billion. Currently there are 31 megacities with over 10 million inhabitants; in comparison to only two megacities in 1970 (New York and Tokyo).

Sustainability to support this global expansion. It is estimated that more energy, 40% more water and 35% more food is needed by 2030 based on the current trajectory; meanwhile, climate change and rising global temperatures pose graving problems to natural resources.

Technological development estimates internet-connected devices to increase by 244% between 2016 and 2020, towards a total of 21 billion.

Globalisation which has increased global trading by a factor of fifteen since 1960. Developing and emerging economies now account for over 40% of global exports.

and Entrepreneurship, the ‘job for life’ is no more, and a growing wave of entrepreneurs and freelancers are creating new industries and niche sectors, particularly in financial services.

HSBC is one example of a business leveraging these megatrend tailwinds through an aggressive approach in pursuing global trade flows and an emerging Asian growth story.

Citibank is placing a heavy focus on an emerging Mexico and strategically growing its credit card business there.

A wave of ‘super apps’ from Alipay, Wechat, PayTM, Grab and more are scooping up consumers in massive numbers across China, India and Asia more broadly. With Asia’s middle class alone expected to grow by over two billion people from 2017 to 2030, significant new revenue opportunities are ripe for tapping into.

These opportunities are coming along right at a time where established incumbent banks (who currently have the biggest share of the $2 trillion pie) are facing an emerging wave of industry challenges including; growing competition from within the industry, huge competition from outside the industry, increasing customer expectations, management of costly digital transformation, poor public perception and increased regulation.

Banking is moving from a business where the industry position has been “this is how we do things” to a customer now demanding “this is how we want things”, largely driven by customer experiences in other industries such as travel (Airbnb), online (Amazon), platform (Facebook) and boutique retail (Apple).

A wave of start ups has asked themselves these three critical questions and are building niche solutions and new value propositions on the back of the answers. First, what problem does my product or service solve? Next, why is it remarkable or different? Lastly, what is the compelling event for customer adoption?

TransferWise, who have developed an application programming interface (API)-based money transfer system, is a great example of a participant entering from outside the industry to claim market share.  This start up that set up in 2011 is now processing GBP2 billion in payments per month.

The successful financial services businesses of the future will be the ones who solve real problems for real customers and serve the customer in the way they want to be served.

Personally, I believe many banks are neglecting the importance of the demographic changes mentioned and need to appreciate every customer is not a 25-year-old millennial.

Many customers still expect and want personal service when it comes to the important aspect of managing their money, whether this is a well-designed retail lounge experience (like Apple) or call centres with real people to answer real enquiries.

One thing is for sure over the coming years, some individuals and companies will thrive, some will fail, many will exit the industry and many will also join the industry.

The banks and bankers of the future will be working virtually, supporting staff-less branches, moving around in driverless cars and obtaining real-time analytics yet thinking long term.

They will be supported by their own virtual assistants and work alongside new digital colleagues, with most interactions taking place over video.

Successful banks and employees will be the ones that focus squarely around rapidly evolving customer expectations for both their online and offline requirements.

With the $2 trillion global commercial banking pie set to grow further over the next few years, it’s a good time to ask yourself, how will I transform in the new era of financial services?

Mark Swain is a banking business advisor, fintech investor and author of Banking 2020