High-street banks are being forced to re-evaluate and redevelop the services they offer to consumers by a new breed of fintechs dubbed âchallenger banksâ. These digital innovators â including the likes of Monzo, Revolut, Starling Bank and Atom â 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 banksâ lower operating cost. Others â like the ability to set savings goals, organise money between different pots and see real-time balance notifications â 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 âautonomous financeâ will help shape the next wave of product developments and features that customers can expect to enjoy.
In short, âautonomous financeâ or âautonomous bankingâ 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.
âThat 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 âshould you automate this? Should you set up a standing order?â You can start to have a conversation with your customers in a way that you wouldnât have done in the past. You would have just let them continue to do what theyâve been doing.
âWhat you can then do, is you can then extend it and say âif 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 âis there other things that we, as a bank, could do to reduce the stress of that customer?â That might be making credit lines available, changing the way they manage their deposits⌠thereâs a whole variety of tools at the [disposal] of the banks. Itâs about changing the way banks have conversations with customers.â
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 â itâs the systems theyâre using that are holding them back.
âMost legacy banks have so much technology that was put in during the 1980s and 90s that they donât have the technology in place to actually make this happen,â Klein tells MoneyNext. âIs the consumer going to move towards autonomous banking and autonomous spend controls? Yes. Are the legacy banks going to be able to keep up? Thatâs 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.â
However, once theyâve moved beyond their outdated IT systems, the benefits to banks in terms of both customer experience and retention could be huge.
âAutonomous finance is extremely exciting because the way that banks have communicated with customers hasnât basically changed for probably the whole life of the banking environment â yes, itâs moved online, yes itâs moved to call centres, but the way that you would engage with your teller from back in the day hasnât changed,â Klein continues.
âThis 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 thatâs really exciting. Itâs banking rediscovering their customers.
Thereâs going to land up being an arms race, frankly, because youâre going to get banks that get it right â 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 theyâre able to personalise their relationships with their customers, are going to win.â
When customers see change, itâs natural to expect that thereâll be a certain amount of hesitation and unease â 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 â 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 isnât used nefariously, Klein says that banks must focus on communicating to consumers about how personal data is used.
âEthics, for me, are about being very transparent with your customer about what you are doing with their data, allowing them to look at what youâre doing with their data and what youâre 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.
âTransparency⌠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 theyâre using it.
For banks, adopting greater automation and improving digital services for customers are two things that are easier said than done. ZĂźhlke 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.
