In a new report, Forrester predicts that banks will invest aggressively in 2022 to make the most of the recovering market. It expects they will increase their spending on technology, talent, and fintech and pursue digital initiatives.
Banks are going to run into a severe shortage of the digital skills they need, and they have to compete with tech firms looking for people with the same skills.
The competition for talent with technical skills has been intense over the past years and has become even fiercer amidst the pandemic, said Aurelie L’Hostis, senior analyst at Forrester.
“With the increased digitization due to the COVID-19 pandemic, many financial services organizations have been facing shortages of workers with technology skills, such as developers, software engineers, and data scientists. They now have little choice: either they splurge on tech talent – but attracting these high-skilled workers is becoming much harder as banks find themselves in stiff competition with tech giants, tech startups, and even other industries trying to get a share of that talent pool – or they’ll need to train their staff with the skills required (data science, coding, etc.) which can also help them keep the hiring costs down.”
Forrester said Bank of America Is a leader here — more than 80 per cent of the hires at Cathy Bessant’s operations and technology division in the past 12 months came from within the company, up from 39 per cent before the pandemic.
“Adaptiveness and adaptive talent management are now crucial: to deal with permanent change, banks must expand their talent pool by tapping into skill adjacencies and proactively help employees develop new skills at speed. In the future though, dynamic adjustments of skill profiles and upgrading of available skills will become more of a challenge,” L’Hostis added.
The consultancy also thinks that sustainability will be a big issue in the year ahead.
“Banks will compete on sustainable product launches and they will need to get serious on assurance. As banks will try to outcompete each other on sustainability, they will need to fight accusations of greenwashing.”
According to Oliwia Berdak, VP and research director, bank sustainability programs will differ by region.
“While the US plays catch-up and will indeed see many accusations of greenwashing, Europe will begin to stamp out greenwashing, thanks to its slew of legislation on sustainable finance,” she wrote.
“In the last 12 months, the EU has: 1) adopted a climate adaptation policy; 2) introduced the first delegated act for its taxonomy stipulating what counts as environmental objectives for EU climate adaptation and mitigation; and 3) adopted a proposal to make corporate sustainability reporting standardized and mandatory for more companies from 2023.”
Greenwashers that have only embraced sustainability in their communications will struggle to adapt, she added, while EU consumers remain skeptical.
“Forrester’s 2021 data reveals that just 34% trust companies when they say they will commit to reducing climate change. In APAC, the picture differs country-by-country, but China recently announced a collaboration with the EU to adopt a common taxonomy for green investments, aiming to implement a mutually recognized classification system for the environmental activities of businesses by the end of 2021. As banks tackle these challenges, we expect them to hire more Chief Sustainability Officers and invest in better sustainability management tools and services.”
The predictive report sees a growing role for embedded finance —the issue for banks is whether they will drive this or become utilities.
“They will do both – and this will be a conscious choice – or should be,” wrote Jacob Morgan in response to the question.
“It’s theirs to decide! A benefit of the connected ecosystem and platform driven world we now live in is that banks can take multiple routes to market depending on the scenario. Some may find it more appealing to be the rails that power other firm’s financial services and turn that firm into an acquisition channel (think Goldman Sachs with Apple Card), others will fight for customer primacy. Banks like Capital One already build embeddable, modular services, like Eno, their intelligent agent, which can plug and play into a smartwatch, email, message platform, browser, and other channels.”
In Europe where regulation supports open banking — banks have to make their account information available to outside firms with the account owner’s consent — many banks are building on the investment they made in APIs to meet open banking requirements. Then they can offer APIs that enable corporates to embed bank data and payments within their own ERP solution, eg Deutsche Bank’s Access to Own Account (xs2oa) API.
“The important thing is for banks to think about their products and services and build (or re-architect) them in such a way to offer that plug and play optionality, and where a client will pay for the removal of that friction, or the elevated service.”
Bankers often say they are trusted, and regulated, but consumers give far more personal information to Facebook, Amazon or American Express than they offer to a bank where they have a checking account. Banks have tried to expand on this by offering secure storage for important documents, digital versions of safety deposit boxes. Not sure how well that has worked. Now, says Forrester, they want to provide secure identity credentials that an individual can take to multiple sites instead of memorizing 100 passwords.
“Banks will prioritize identity as they explore X-as-a-service business models. They will double down on core services with leading banks openinng their gambit for a bigger role in digitial identity through initiatives such as GAIN (Global Assured Identity Network).
In its white paper, the Institute of International Finance explains:
“Instead of logging in directly, an End-User asks a trusted and regulated provider (e.g., their bank, telecommunications provider, or another regulated entity) to verify that they are the person and/or have the credentials that they claim. Rather than managing over 100 passwords, people will bring their identities with them and exercise greater control over data about them. This high-trust identity assurance, therefore, introduces an accountability layer to the internet even as it increases privacy and security.”
Alyson Clarke, principal analyst at Forrester, has some doubts about whether banks are in the lead position for identity.
“Yes, banks are regulated, and supposedly consumers trust them more — but if any of the big tech were to move ahead it would be the phone hardware firms like Apple (look what\’s happened with Apple Pay). Plus Apple is going hard on privacy and security in all things it does. So I think Apple is well placed.”