The driving forces of change in the banking landscape

Banks must invest in more holistic offerings that meet wider customer needs, to keep up. Photo:

Banks must invest in more holistic offerings that meet wider customer needs, to keep up. Photo:

Published Oct 3, 2023


A South African Banking Consumer study, released recently by Accenture, revealed that four major developments in banking are driving the reinvention of the industry’s business and operating models: ubiquitous technology, interest rate spikes, new competition from non-banks and the imperative to meet shifting consumer preferences based on the new realities of customers’ everyday lives.

“Major shifts are underway in the banking consumer space that are driven by interlinked technological and human forces,” said Innocent Dutiro, Financial Services lead for Accenture in Africa. The report draws from several recent international and local financial services studies by Accenture.

The forces of change in SA banking are validated by strong figures. Banks know that change requires new technology, which is why local banks have invested an estimated $1.6 billion (R30.5 billion) in new IT services in 2022, a 4% increase compared to 2019 (quoting a Gartner study). Banks are also no longer competing just with other banks. By 2025, non-banking channels will increase their revenue share of traditional banking products such as vehicle, personal and home loans by an estimated 3-5%. Banks must invest in more holistic offerings that meet wider customer needs to keep up.

Consumers want different things in the post-Covid world. In fact, Accenture found that 60% of people have fundamentally changed their values and life purpose in the past 12 months, and two-thirds say companies are not meeting their changing needs fast enough. Rising interest rates too are impacting customer needs. A 400bps hike in SA, a 450bps surge in the United States, and a 350bps hike in Europe since February 2022 have revealed weaknesses in the banking system.

“We discovered that customers want to feel understood – especially in these tough times. They want personalised attention and thoughtful user experiences. An interesting aspect to this is the enduring popularity of bank branches for that human experience, and generative AI’s role in infusing natural language into digital interactions.”

“To meet evolving consumer needs, every bank will need to embark on a journey of perpetual renewal – with a strong digital core at its centre,” said Dutiro. “Companies that use technology — including cloud, data and AI — along with new ways of working can build greater resilience and new paths for growth. Combining the power of technology and human ingenuity will enable them to reinvent how they go to market, operate, partner and create value.”

Dutiro explained: “In this age where customers are spoilt for choice, banks must make it their purpose to prioritise the customer relationship. Organisations that reinvent themselves in this way outperform their industry peers in terms of ‘experience’ metrics by 31%.”

Of 49 000 traditional banks’ customers surveyed globally, most felt shallow satisfaction or even frustration with service levels, they experienced digital channels as impersonal, and customers of all ages still enjoyed having a real bank branch where they could talk to a human about their more complex needs.

Higher interest rates play into these findings. “About 74% of people turn to branches to solve specific and complicated problems, and we’re finding that higher interest rates will only increase the need to discuss complex financial issues in person. More than half of people (51%) say the rising cost of living had significantly impacted their ability to repay loans in the past 12 months,” said Dutiro.

The rise of non-bank competitors is another emerging trend. At least 30% of banking industry revenues relating to traditional products such as payments, personal loans and credit cards are now sourced through non-banking third parties, and this figure is climbing. “Customers might have traditional bank accounts, but will other providers for buy now, pay later (BNPL), loans, or crypto currency trading. Banks that eradicate these siloes can build loyalty across a variety of product,” Dutiro explains.

Accenture found that banks often invest in “user experience journeys” without truly understanding the customer. “For banks to increase their relevance and effectiveness, they must shift from simply knowing basic demographic and financial information about a customer to comprehending their daily life, their aspirations and their intent behind obtaining certain financial products.”

Moving from pure core banking to more data-informed embedded finance offerings that meet customers’ real-time needs throughout the day, banks can create “lovable, dynamic digital experiences”, even exceeding the branch experience. Banks must become “life-centric” instead of utility focused, continuously earning customer loyalty that drives advocacy for the bank.

This approach makes business sense. “SA banks could see a revenue increase of up to 12% from primary customers by unlocking the multiplier effect between products and channels.”