Recently, the Wall Street Journal released a series of graphics that gave us a window into how dramatically the global landscape will change by the year 2050. We’re faced with just how powerful the forces of increased urbanization, the aging population and rapid innovation are when it comes to our everyday lives.
For many of us who are inundated by news of volatility in the global market, plummeting commodity prices and questions about another recession, it can be a difficult exercise to pull away from “watch mode” and shift to thoughts about the future. So I’m not focusing on the next 50 years, I’m zeroing in on the not-so-distant future, to the next four, specifically in the banking industry.
Here is my forecast of what we’ll see in banking by the year 2020.
Bigger players, smaller field
We’ve been experiencing a steady and significant decline in the number of banks overall, with one in four community banks disappearing since 2008 In the next three to five years, I expect we’ll see these banks further condense and remain with about half as many banks as we have in existence today. While we’ll have a fewer number of banks, what we consider a “small” bank will become much bigger . These larger banks will be better equipped to digest the increasing regulatory demands banks are faced with while offering increased capability to their clients
Overall, there will be much less differentiation between the largest and smaller banks, as the entire banking system becomes more uniform. Technology is, for better or for worse, the great leveler of playing fields – and widespread advancements in tech stand to benefit the smallest institutions the most while inevitably increasing their size and scope.
Convergence through innovation
Expanding banking capabilities through fintech is a theme I’ve discussed regularly, as its implications continue to become more apparent. We are moving toward a widespread unification of banks and fintech companies, and increasingly, convergence will be key. 2020’s bankers will rely on innovations that meet the distinct needs of their client base and conform to their operating systems, as the already-outdated notion of technology for banking being ‘one-size-fits-all’ slips further into obscurity. This dependence is not a one-way street, however – fintech companies will continue to rely on banks as the ultimate source of capital/liquidity to make their loans.
In terms of innovation in lending, among the most considerable changes I expect to see by 2020 is the impact of new technologies on small dollar loans. New technologies in this space will allow for a more automated process, removing cost and allowing for a more efficient and speedier process without affecting credit guidelines. Increased technology will allow banks to handle hundreds of thousands or millions of loans at once, no longer viewing small clients through an individualized lens, but rather as components of one great, substantial whole.
On the payment side, anything and everything is up for grabs. Banks are constantly looking for new technology solutions that transform the way we manage and move our money, with an avid focus on safety and security. With many consumers turning to popular apps like Venmo while others continue writing paper checks, we haven’t reached the apex of innovation yet – but by 2020, I anticipate a significant amount of banking’s technology to be dependent on fitech platforms with virtually all transaction based activity moving running on these technologies.
New means to the same ends
The greatest changes to come for the banking system will most likely not be derived from shifts in the needs of its key constituencies. Volatility within the global market will not significantly impact the “man on the street,” who stands to benefit from a low-interest rate environment and a relatively healthy U.S. economy in terms of job creation and wages. While the basic customer requirements – the ability to accept deposits, manage assets and sales, help with expansion, etc. – will remain more or less the same in the next few years, the channels through which banks meet these fundamental needs will inevitably change.
Banks need to be especially attuned to how the Millennial population operates; currently standing at over 75 million strong and comprising the largest U.S. demographic group, they are widely categorized as a tech-savvy generation that demands simplicity, speed and efficiency.
With the oldest Millennials in their late 30s by 2020, I foresee some of the same needs and characteristics of previous generations resurfacing as they form households, buy cars and create families. We can even expect to see these hyper-urban apartment dwellers head back to the suburbs to buy and build homes, helping construction lending maintain its steady pulse. In fact, 2015 survey results show that 66 percent of Millennials plan to live in single-family suburban homes.
2020 stands to be a landmark year for banking – not because the vital components of the industry are changing, but because of the ways in which we approach these fundamental aspects of business most certainly are. With technology serving as the great unifier, we’ll see increased capability in the size and scope of banks, their processes and operations, and among fintech companies and banks themselves. And as banks rise to meet the needs of their most tech-obsessed clientele, we’ll find that the “typical banker” will still exist – just a shinier, new version of him, her or even “it” self.