The UK banking sector in five years' time

The pace of change in the global banking sector worldwide has been remarkable in the last five years. The future of banking is evolving, and at a pace that shows no signs of abating in the coming years. This is also true of the British banking industry. This transformation is occurring in several areas and among the most significant are;

• The impact of ‘open banking’
• Direct digital banking and the shift to ‘virtual’ banking, causing the disappearance of our common conception of what 'banks' are.
• A lower-cost base through stringent cost management and product customisation
• A downsized workforce and a shift towards IT processes and sub-processes driven by innovations in Artificial Intelligence.

Open banking

The Competition and Markets Authority set up open banking on behalf of the UK Government. Its aim was to bring more competition and innovation to financial services. This role will, no doubt, become more significant over the coming years.In many ways, it is becoming a game-changer in the way we access financial services. Put simply, it is a secure way to give providers access to your financial information, paving the way for new products and services that will help customers and SMEs get better and more customised financial products rather than generic ‘off-the-shelf’ solutions.It will also increasingly allow customers to gain a greater measure of control and information over their financial affairs. Conversely, it will allow financial institutions to mine and harvest greater amounts of data from customers (with their permission) to offer more personalised products and services.

Virtualisation and digitalisation

Direct, digital access to customers will place further pressure on existing branch networks and shift attention towards investment in technology, process infrastructure, and technology talent management.Banks have already significantly reduced their physical branch networks and this trend will only increase. The branch will not die, but its function will move towards being a place for showcasing technology and bespoke services, offering information and advice focused on high-value products. We should get used to a world of even more apps and services from providers regulated by the Financial Conduct Authority (FCA).

Lower cost-base

A recent PwC report observed that banks need to reduce costs by some 15- to 20% and in some cases by as much as 30-40% to remain competitive. Therefore, banks of the future will need to be a lot leaner in pursuit of efficiency and productivity.Meanwhile, the traditional high-street branded banks are accelerating their change strategies and investing heavily in customer service, technology, and data analytics. Of course, this means a significant reduction in the physical workload and far less need for personnel carrying out routine tasks and sub-processes which can be carried out much cheaper using technology.To summarise, in as little as five years, we're looking at a UK retail banking sector that can expect:

• A diverse and more modular market with specialist providers offering niche banking services and products.
• Increased customer choice and a more ‘savvy’ customer base (as in many other industries). This new breed of customer will be demanding seamless digital delivery, outstanding customer service, and greater personalisation as standard.
• Growth in the number of digital-only providers, whose IT architecture is free of legacy systems. These small and ambitious players will be agile and responsive, making them attractive partners or even investment opportunities.