Imagine a future where banks don’t exist as we know it.

Imagine a future where humanity continues to exchange value, services and money but the currency of exchange is no more the green bills we are familiar with.

Imagine a future where we still need an institution to hold what each human safeguard as valuable but that is in the form of trust, consent or any form of asset token.

Imagine the banks of the future to be custodians of that trust, consent and value. A future where banking is blended into our lifestyles and is seamless, frictionless and more importantly invisible in everyday life. The roads exist, the rails exist, but we don’t interact with them, we interact with the vehicle that runs on the roads and rails. The pandemic situation has accelerated the need for relying on ‘digital proximity over physical proximity’ in every walk of life. Finance, banking and dealing with money is an important slide of our life that most certainly was moving towards digital and contactless mode, even before the pandemic. Branchless banking and digital only financial services that have been popular with millennials are being increasingly adopted by all segments of the society. It also goes without saying that, after communication, money is the next easiest thing to digitize. While services in banking are most certainly going to be digital in the future, the future of money itself is envisioned to be completely digital and cashless societies are no longer in the realm of fiction. As digitization becomes a reality in all spheres of our lives, interconnectedness of industries has increased, helping in the ‘blurring of lines’ among various industries. The human nature of centering our lifestyles around certain ‘attractive ecosystems’ makes these blurring even more evident and customer behavior and expectations for the bank of the future to blend into the dominant ecosystem is ever more important. The digitization has also fostered specialization of services to each industry and expectation from banks for catering to the specific industry segment has become real. Banking services are increasingly becoming verticalized to suit the need for industries like retail, manufacturing, healthcare, transport and entertainment.

 

The emerging connected ecosystem play of everything is creating new opportunities (and threats too) in the form of Open Banking revolution and Real Time Everything. Banking players are responding to Open Banking revolution by not only opening their assets to wider usage within the ecosystem but also making the integration among cross industry verticals easier by adopting open API culture.

More openness brings more of its own challenges with respect to standardization, bilateral arrangements and consortia formations. Banking industry has been addressing these by converging to a few standards(like ISO and BIAN) to simplify the enormous mesh of interconnectedness that has become characteristic of the banking IT landscape.

 

Rhythm of technology is changing the rhythm of business and banking industry is learning to adopt.

Emerging technologies like cloud, big data analytics, blockchain and AI have had a profound impact on how customers interact with the bank and how banks handle transaction processing and services in their middle and back offices for optimum cost and efficiency. Philosophy of centralization is giving way to distributed solutions and systems. Intelligence which once used to be preserved at the core is being pushed to the edges, thus ‘hollowing the core’, moving towards a concept of coreless banking. Distributed computing and technologies like Blockchain allow for exponentially scalable distributed trust mechanisms with embedded foolproof tracking and auditing, that forms of the

bedrock of many banking functions today.Flattening of the world in general has contributed to the enormous increase in trade across geographies and banking and cross border payments have had to adopt to the needs of international commerce. While in most part, banks have been able to hold on to the forte of cross border transactions, it is being increasingly dictated by the advancement in tracking, tracing, logistics, automation, risk management and of course, the speed of money transfers. Account receivables and supplier payments that take several days to weeks are becoming possible to do in real time due to the market infrastructure investments in many countries and adoption of ISO20022 standards. Coupled with anytime available payment initiation and tracking features, corporate businesses are being equipped by banks to conduct their business smoother, faster and securely. Of all the banking functions, retail banking is the first to get affected due to the customer expectations, evolving buying behavior patterns and the direct impact of customer touchpoint. The future of retail banking is likely to center around touchless commerce, frictionless payments, social tokens and authentications based on digital identity and biometrics. Alternate credit ratings and scoring mechanisms will augment and potentially replace the current credit-bureau based loan and mortgage

processes allowing for a more comprehensive, socially equitable and responsible distribution. Corporate banking and B2B payments are most likely to see the largest upheaval in terms of transformation in the future of banking. Automation and efficiency that are driving the changes to the corporate banking world help better integration with corporate treasury and enterprise systems. Single unified view of cashflow and risk provided by the corporate banks of the future allow CFO functions in the business to manage cost to capital along with efficient and timely resource management. Banking and Payment Data analytics of the future help the business houses to predict accurately and manage the resources efficiently. Dynamic price management systems, transaction analytics coupled with blockchain based information and instruction management systems of the future will help banks provide customized and segmented insights relevant to the customer’s industry vertical.

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While playbooks are rare for multifaceted challenges of the future, there are certain imperatives banks of the future could undertake to thrive and be relevant. Continuing to invest in ecosystems and gradually transform the bank to be an ecosystem player, embracing marketplace philosophies, enhance core but distribute intelligence towards edges, foster efforts to interoperable systems, machine first models, purpose centric products, becoming the best utility rails for money movement, custodian of trust and value are some of the imperatives that form the foundation for the Future of Banking.