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The Bottom Line

Most know that fewer and fewer people are using cash to pay for goods and services.  The actual rate of decline and habits around the use of cash or payment cards varies from country to country.  Our colleagues across the pond at SRM Europe in London recently shared with us how this trend is manifesting in the United Kingdom and why the thought of a cashless society is not necessarily a welcomed development for some. 

Our CEO, Brad Downs recently shared SRM’s key fintech trends for 2019, with a focus on items that banks and credit unions should factor into their near-term planning. Allow me to build upon those by looking more specifically at payments trends while also applying a broader time horizon, isolating the macro-level developments that have been underway for some time and continue to shape the industry.

Sometimes it seems as if all there is to be said about financial institutions and their response to the digital age is that they are woefully behind and show little sign of “getting it” in the near term when making strategic sourcing decisions.  Certainly, banks and credit unions have struggled with the unique challenges of serving consumer that increasing live their lives through the ubiquitous devices that are available to them. 

A debate has raged for some time as to whether fintech companies are friends or foes to financial institutions. In our view, the question itself is a cynical oversimplification of the situation. While there are some aggressive startups intent on stealing business from financial institutions, there are more fintechs that want to partner with banks and credit unions to help them modernize their service offerings.

Despite several well-publicized bumps in the road, the U.S. migration to EMV-based chip cards has undeniably reduced payment fraud at the physical point of sale. That’s the good news. On the flipside, increasing fraud rates in the rapidly growing card not present (CNP) channel have the potential to more than offset gains in card present (CP), perpetuating an overall upward trend in card fraud.

Assuming you can drown out the blockchain chatter, artificial intelligence (AI) is this year’s hottest financial services topic. Although IBM’s Watson and Google’s Deep Mind remain somewhat abstract concepts from a mass market perspective, consumer breakthroughs like Siri and Amazon Alexa have begun to set expectations for banking interactions, leading to high-profile rollouts like Bank of America’s virtual assistant, Erica.

Most of the early-stage rollouts, focusing on chatbots and fraud detection, are coming from the industry’s largest players. Credit unions and community banks cannot afford to fall too far behind the curve and need ample opportunity to participate in exploratory ventures. At the same time, it’s important to remain mindful of AI’s potential downsides if not properly implemented.  

At SRM, we take the time – every six months or so – to step back from our various engagements with clients to identify the general trends we have seen in our work and consider how they might play out in the coming six months. Just past the midpoint in 2018, there are several forces in play worth mentioning.

It’s no longer a question of “if”, but rather how and when. For an increasing number of consumers, the primary means of interacting with their financial institution is the mobile banking app that lives on their smartphone, not the physical branch. And this segment of the population will only continue to expand. Younger tech-savvy generations will continue to age into the need for banking services while, at the same time, other demographics gain more comfort with digital channels.

Last week, we presented the first half of two key considerations for how a bank or credit union committed to a mobile first strategy can best stay current in offering state-of-the-art mobile services.

If an institution is not counted among the largest of FIs, answering this question will likely involve evaluating an array of options to determine which best fits a bank or credit union’s goal. This environment is different from what has been seen in the past where a few very large providers controlled most of the offerings. This gives FIs of every size the chance to shake free of the constraints of legacy third-party solutions and become competitive again.

Let’s delve a bit deeper into what that exactly means.

Reality Check

The future of banking is digital. Period. Hopefully we’ve progressed to a point in financial services where this statement is accepted wisdom and no longer needs to be debated.  There are reams of data that support this and nothing about the future as it is unfolding now suggests otherwise.

Another given is that all digital engagement strategies should now be “mobile first.”  From the looks of some mobile banking apps deployed today, this has not yet reached the level of accepted wisdom in our industry.