High-street banks are being forced to re-evaluate and redevelop the services they offer to consumers by a new breed of fintechs dubbed ‘challenger banks’. These digital innovators – including the likes of Monzo, Revolut, Starling Bank and Atom – have created new ways for their customers to think about money and what they expect from a bank.
Some developments, like being able to pay for goods and services abroad without charges, stem from the challenger banks’ lower operating cost. Others – like the ability to set savings goals, organise money between different pots and see real-time balance notifications – are built on the technology they use.
As a result, banks have had to adapt. Some are beginning to incorporate similar features into their apps and personal banking websites, while others have been slow to respond. This raises the question of how banking will change in the next 10-20 years, and whether a concept called ‘autonomous finance’ will help shape the next wave of product developments and features that customers can expect to enjoy.
What is autonomous finance?
In short, ‘autonomous finance’ or ‘autonomous banking’ is about trying to make it simpler for consumers to manage their money. As the name suggests, this is done by using technology such as automation, artificial intelligence (AI) and machine learning. This can help to identify patterns of behaviour or ways of banking, and consequently customers can be given more of what they need access to in an easier and quicker way.
As Dan Klein, Regional Director Data for Zühlke, explains: “Autonomous banking is about feedback loops at the end of the day. Fundamentally, you’re creating feedback loops between the customer and the way the bank interacts.
“That starts to get really interesting when you then think about how that affects how you engage with your customers. For example, if you can see that a customer keeps repeatedly sending money to a certain account, you can start suggesting to them ‘should you automate this? Should you set up a standing order?’ You can start to have a conversation with your customers in a way that you wouldn’t have done in the past. You would have just let them continue to do what they’ve been doing.
“What you can then do, is you can then extend it and say ‘if we have a feedback loop with the customer, we can also understand if the customer is getting stressed about their finances. Then you can say ‘is there other things that we, as a bank, could do to reduce the stress of that customer?’ That might be making credit lines available, changing the way they manage their deposits… there’s a whole variety of tools at the [disposal] of the banks. It’s about changing the way banks have conversations with customers.”
Will banking change in future?
Probably, yes. As challenger banks develop new features for customers and increasing the pressure on legacy banks even more, the need to adapt will become unavoidable. In fact, most mainstream banks recognise the need to move towards greater digitization – it’s the systems they’re using that are holding them back.
“Most legacy banks have so much technology that was put in during the 1980s and 90s that they don’t have the technology in place to actually make this happen,” Klein tells MoneyNext. “Is the consumer going to move towards autonomous banking and autonomous spend controls? Yes. Are the legacy banks going to be able to keep up? That’s open to debate, because I think they have an awful lot of technology which probably needs replacing, and which is probably really expensive to replace.”
However, once they’ve moved beyond their outdated IT systems, the benefits to banks in terms of both customer experience and retention could be huge.
“Autonomous finance is extremely exciting because the way that banks have communicated with customers hasn’t basically changed for probably the whole life of the banking environment – yes, it’s moved online, yes it’s moved to call centres, but the way that you would engage with your teller from back in the day hasn’t changed,” Klein continues.
“This is the opportunity for banking to finally go back to the old days when you had your bank manager in your local branch and they were a personal friend of yours who actually understood how you banked. Autonomous banking is finally almost coming full circle, and that’s really exciting. It’s banking rediscovering their customers.
There’s going to land up being an arms race, frankly, because you’re going to get banks that get it right – and there are already fintechs who are getting it right, and understanding how to help the consumer manage their finances better. The banks with the better offers, because they’re able to personalise their relationships with their customers, are going to win.”
Are there questions of ethics, bias and data ownership?
When customers see change, it’s natural to expect that there’ll be a certain amount of hesitation and unease – particularly when it involves something as personal as money. As automation becomes a more important part of banking, customers will likely take a closer look at the automation and machine learning that is supposed to help them – is it having any effect on my access to credit, for instance, or is it building a profile of me that could be used to discriminate against me later?
As well as ensuring that data isn’t used nefariously, Klein says that banks must focus on communicating to consumers about how personal data is used.
“Ethics, for me, are about being very transparent with your customer about what you are doing with their data, allowing them to look at what you’re doing with their data and what you’re learning about them. If you build machine-learning models that learn about the customer, you should be exposing to the customer what you are learning about them.
“Transparency… with all the machine-learning, is the thing that resolves [the question around] ethics. When it comes to things like data ownership, the customer owns their data. The customer owns the way they interact with the bank and the bank just needs to be transparent about how they’re using it.
For banks, adopting greater automation and improving digital services for customers are two things that are easier said than done. Zühlke takes a very specific view that legacy banks should build from new and then migrate their existing customers across later. The company says that it has case studies of how that has been achieved elsewhere.