The end of this year, the first almost post-pandemic year, marks a fundamental turning point for many sectors, including the banking sector, so it’s not too soon to start talking about the banking trends for 2022!
Knowing the trends on the horizon and being able to evaluate them in advance will be helpful in preparing for the challenges that will come in the next few years. Among other things, many of these challenges are based on the transformations that have taken place in this year.
This doesn’t mean, of course, that there won’t be changes, especially given that the future presents many profiles of uncertainty, across society, industry, and business.
This is all the more true for a sector such as banking, which has many challenges ahead, and which envisions some possibly radical changes in some of its “vital” and most central parts.
In the coming years, the banking sector is destined to play a key role, even more than in the past- given the new economic and social structures of the world. We can’t forget, for example, that the banking sector itself is an economic environment where, to a much greater extent than elsewhere, the most interesting applications of some of the most potential technologies that have developed in the past years will be implemented.
That said, before we get into our list of the top 5 banking trends for 2022, we need to get an overview of the industry so that we are clear on where we are starting from and have a better understanding of where we might be heading.
The banking industry post covid: what is the current state of play?
These months, i.e. the final months (hopefully) of the pandemic, will be a particularly delicate period for the entire economy and in particular for the banking sector, which unexpectedly survived the Covid phase better than many other sectors.
In fact, the banking system, which was under stress due to the contingencies, withstood the shock well, also thanks to the intervention of national and international authorities, which approved expansive fiscal and monetary policy measures in order to give strength and support to the incomes of companies and families, and liquidity to the markets.
This meant that the capital position of the banking sector was further strengthened last year and that even in the second half of last year loans to businesses increased by around €58 billion, while those households, which had been declining, remained stable overall.
Basically, the crisis induced by the pandemic has had a rather limited impact on Italian banks, given that, surprisingly, many indicators have improved, such as that of capital solidity or credit quality (which can be considered satisfactory, even if the risk of an increase in impaired loans in this second phase remains) or the liquidity available to institutions.
Apart from the profitability index, which was recorded in decline due to the increase in adjustments to receivables, it can be said that the situation is positive.
However, this does not mean that it is the moment to sing victory, on the contrary!
As Milano Finanza points out: “In this framework, according to experts, the banking sector, after having withstood one of the most drastic GDP collapses in history, is gambling with up to 25% of its revenues (€160 billion eros), while preparing to contribute to overcoming the new challenges brought by the pandemic.”
As we’ll see, part of these challenges correspond to the banking trends to watch for next year. And this is because, as Il Sole 24 Ore has noted: “The pandemic is destined to have long-term effects on the organization of banks, as emerges from the latest issue of Osservatorio Monetario (Università Cattolica and ASSBB), accelerating the dynamics of transformation already underway.”
The banking sector will also have to reckon with a general rethinking of how it’s organized, its business, and much more.
The first banking trend: Rethinking work
It may seem obvious, but one of the most important trends that the banking world will have to face is linked to its own internal organization and, in particular, that of its workers.
Even banks will have to carefully rethink how to set up their work and their internal flows, given that smart working is destined to remain a model that is still current, if not actually preferred by many realities.
Not to mention that, in many cases, it is the employees themselves who want to maintain smart working, even partially, having experienced such changes, that are, in many respects, more compatible with home and family life.
One of the institutions leading this transition and concretely imagining a new way of conceiving work is none other than Unicredit, which is implementing a pilot project to enable “sustainable hybrid work,” according to the bank’s group operating officer, Ranieri de Marchis.
In concrete terms, this could mean the possibility of establishing two days per week of smart working for administrative staff and one day per week for branch employees.
Such a choice has a significant impact from many points of view.
The first relates to costs: reducing “physical” jobs clearly has a positive impact on the accounts, since it is possible, over time, to reduce the costs associated with physical branches, perhaps by closing some and converting them to digital. The second aspect is linked to the actual operation and how tasks are performed.
There will be an increasing need to identify digital solutions that enable the management, even in a centralized manner, of information flows and that, above all, guarantee maximum security. And this brings us to the second banking trend for 2022.
The second banking trend: operations become digital
Even more so after the pandemic, digital transformation in the banking sector will see an acceleration that will lead all players to adopt certain innovative solutions, which will in time become the norm.
For example, there will be an increasing move towards dematerialized document management, where the entire organization of flows will involve the production, exchange, and storage of digital documents. This will involve the necessary adoption of technologies that make all this possible in an effective and efficient way.
One of these is undoubtedly the cloud, which makes it possible to maintain a distributed centralization of document management, in the sense that all authorized operators will be able to access an archive at different levels according to their role and the activities to be performed.
Incidentally, since security concerns have been overcome and migration systems have become simpler and faster, many of the cloud-related doubts have also fallen away in the face of economic benefits.
Speaking of security, which is one of the most important issues when it comes to the digital transformation of the banking sector, especially given the robust turn towards dematerialization that is expected in the coming years, another digital solution that banking institutions will not be able to avoid implementing is undoubtedly Blockchain.
Blockchain is an innovative technology based on the concept of distributed consensus in validating the exchange and negotiation of transactions and on an unchangeable register of these transactions, thanks to the use of mathematical functions, advanced cryptographic algorithms, and some applications linked to game theory.
Since it allows the disintermediation of economic systems thanks to the specific configuration in equal nodes owned by independent subjects and to the consensus mechanism on which it is based, Blockchain appears to be one of the most interesting tools and towards which all operators will turn in order to safely carry out transactions and to manage the most important documents.
The third banking trend: as the bank becomes digital, so do the services
Another important trend concerns the relationship with clients and the types of services offered to them.
By now, consumers have become accustomed to performing most activities online, in many cases directly from their smartphones, and this has made them particularly demanding when it comes to the customer experience they expect to receive.
One of the necessary characteristics of this experience is disintermediation: more often, digitalization pushes users to want to “do it themselves” to carry out certain actions, calling an operator only if necessary.
From this point of view, the banking sector is no exception, on the contrary. In Italy, it’s been estimated that there will be an increase by 7% in the number of self-directed clients (i.e. those who research and choose products and services independently) by 2022.
For this reason, the banking sector will have to transform itself accordingly: it will be necessary to build online portals that allow many actions to be carried out simply and autonomously. In the same way, it will be necessary to develop mobile-friendly solutions, so as to allow customers to manage their accounts with a simple tap on their smartphone.
In the same way, it is necessary to rethink the very concept of customer care, which can no longer be carried out by tellers, but must be activated at the request of the user in a reactive and efficient manner, even by exploiting non-human support. And here, we turn to another trend.
The fourth banking trend: more and more room for Artificial Intelligence
If the bank becomes digital and so do the services it offers, it’s obvious that part of the relationship with customers must also become digital in order to be efficient and, above all, to live up to the expectations of those same customers.
To do this, it is necessary to implement Artificial Intelligence, which has several interesting applications for lenders.
The first of these is customer service, which can be managed directly through machine learning, “a subset of artificial intelligence (AI) that deals with creating systems that learn or improve performance based on the data they use,” to create intelligent chatbots.
There are now many examples of assistants of this type, which are able to accompany and help customers in the banking operations performed on the platform, but above all to track the behavior of the users themselves so as to learn and predict their own questions.
But there are many applications of this type of technology, such as for security.
Machine learning is capable of processing a large amount of data and learning from it: by doing so, it is possible to quickly identify trends or abnormal behaviors and consequently prevent any scams that can put the institution and customers’ savings at risk.
The fifth trend: competition goes digital
As we have seen, the common thread running through these trends is digitalization. One of the consequences of this digitization is the opening up of the market to unexpected players who, in a short space of time, have become highly respectable competitors, at times even aggressive, and capable of making even the most important groups worry.
This trend has also been identified by Deloitte, which has stressed how the competitive environment is changing rapidly in light of new players coming from non-financial sectors, bringing with them the risk of “an erosion of financial institutions’ margins, especially regarding commission income on payments and investments.”
These players are obviously start-ups and large technology companies, which can count on incredibly efficient digital tools and, above all, on the know-how that enables them to provide many of the services already offered by banks, but in a more convenient, intuitive, and user-friendly way.
In addition to the issue of revenues, which is certainly a nerve, this trend also reveals something else: more and more competition will be played out on the edge of technological innovation.
This means that digitization will not just be a useful tool for growing the business, but a formidable competitive lever that will favor players capable of developing and implementing digital technologies as quickly and effectively as possible, integrating them with the services offered to customers.