The financial industry is in the middle of a seismic shift. Customers who were once fiercely loyal to their bank are now more interested in seeking secure, online methods of transactions with vendors quickly and seamlessly.

Accelerated by emerging technologies, their needs are driving the platformification of banking services, identity management technologies and purpose-driving banking. Payment vendors, financial institutions and retailers who adapt to take advantage of this transformation will be well positioned to lead their competition.

Shifting customer demand


Our increasingly interconnected and app-centered world has changed the way customers view the banking and payment industry. In the new world of open-banking, where digital platforms make transactions one-click away for most customers, banks are acting more like data marketplaces. However, one factor remains the same: trust.

The protection of personal and financial data, privacy and identity management endure as a central customer need. Safeguarding this trust will be critical for financial institutions, regardless of what other services they can offer.

The protection of personal and financial data, privacy and identity management endure as a central customer need. Safeguarding this trust will be critical for financial institutions, regardless of what other services they can offer.

Technology will be the binding factor between banks and customers in this trust relationship. Customers who lose trust can, with the click of a button, move to a different platform, a different provider or a different bank.

Open banking — and the powerful, shared application programming interfaces (APIs) that make it possible — allows customers to connect their bank accounts to each other and to vendors easily, cutting out the need for direct interaction with their bank, their bank’s app or their bank’s website. Customers can easily authenticate vendors, to connect directly to their bank account.

In addition, the rise of purpose-driven banking is another example of how customer demand is accelerating the change in the banking industry. To entice customers with endless and barrierless choices, banks can appeal to consumer consciousness of various social causes.

By supporting sustainability, engaging in circular economy practices and driving social issues, banks can bring an additional decision-point into the customer playbook.

The three phases of the future of payments


But this will not happen all at once. The change in customer behavior and industry acceptance of this future will come in three phases. Understanding, being prepared for and participating fully in each phase is critical to remaining a player in this new marketplace.

The first phase is accepting this new paradigm and decoupling from legacy models. Historically, most change in the banking industry is led by legislative or compliance requirements. These changes, however, require a voluntary adaptation to customer demands and an implementation of open banking solutions.

The second phase requires foresight and ingenuity. Banks will be required to innovate around open banking APIs to connect with other organizations who provide services the customer wants, such as goods delivery, data management and financial consulting, while trying to figure out what works for their organization and what doesn’t.

This requires knowledge sharing and openness, with trust again being a big part of that. Examples of this sort of innovation include the combining of non-banking processes, such as location-based recommendations and insurance-related services. Also, with so many vendors connecting to the same open APIs, customers will tend to favor the ones with the best user experience.

So that is going to be a feature organizations must elevate in importance. Where banks used to be able to rely on lower rates and special promotions to attract customers, they will need to offer interactions with the fewest clicks, lowest barriers to acceptance and highest demonstrable security.

The third phase is the decoupling of legacy services and collaborating with trusted vendors to provide them. This requires the tearing down of traditional business models and facilitating the offerings of third-party partners that consumers have adopted and accepted.

How UL can help

UL is at the forefront of the banking industry, having provided compliance and advisory services for decades. We have foreseen the coming transitions of the banking industry, and the larger implications to society as a whole, and we are ready to help our customers not only prepare for change but help lead them through it.

Our industry experts not only provide industry best practices, insights into trends, and security guidance with regard to authentication and onboarding, but also help customers design their own processes, procedures and APIs. It is this strategic perspective that sets us apart from others in the industry.

We are seeing a redistribution of risk, a change to the very business model of banking and a shift in the power of customers. Be a leader of this change, contact us today to talk about how you can rise to the challenge of what’s next.