1.     Fintech will continue to erode the trust advantage 

Historically, consumers have been less inclined to trust new, dynamic technology businesses with their money. But attitudes are changing. This year, a study from EY found FinTechs were more trusted than regional or national banks by consumers under the age of 65, with over twice as many 18-24 year olds declaring higher levels of trust in contemporary digital financial services than incumbent banks.

Trust is invariably derived from people’s hope that their expectations will be met. Historically, these expectations were more primitive concerns about not losing deposits, but as these base expectations are met, they have evolved to centre around higher level goals such as good service provision and customer experiences.

Evidenced by the results of customer satisfaction, FinTechs and challenger banks are winning trust by consistently delivering greater customer satisfaction than their incumbent competitors. Incumbent banks understand that their greater heritage and physical presence are diminishing factors in the challenge of winning trust and will rise to the challenge of competing on customer experience.

2.     Financial services will accelerate investments to enhance consumer acquisition

Big tech has given the banking industry plenty of things to worry about, largely founded on its ability to create and maintain attention with large audiences. With such audiences in place, you create a fertile environment to sell additional services. With $2.2billion of M&A activity in FinTech in 2020, payments and other financial services are firmly in big tech’s cross hairs.

2022 will likely see financial institutions take a leaf from big tech’s playbook and look to invest heavily to curate an ecosystem that helps build and maintain relationships with their customers. JP Morgan recently bought the restaurant review site The Infatuation, and Stripe bought IndieHackers.

Big financial institutions have long maintained that ultimately, they are really technology companies. Whilst these acquisitions seem strange, they are consistent with the school of thought that all tech companies should become media companies to facilitate direct conversations with their customers. With an issue so critical to an industry countering the threat of disintermediation from their customers, it will be interesting to see how activity in this space evolves. 

3.     Banks will accelerate digital transformation

The Operational Resilience legislation (ORI) announced by the UK’s Prudential Regulation Authority will provide a litmus test for the operational awareness of large swathes of the financial industry. Specifically, Capital Requirement Regulation (CRR) firms will be required to demonstrate “…the ability to prevent, adapt, respond to, recover, and learn from operational disruptions…”.

To achieve this objective, firms will need to become far more connected to significantly advance their operational awareness. Connectedness does not just apply to the operational IT systems, but also how these system support processes and people to deliver critical financial services. This is digital transformation, albeit wearing different shoes. The Covid pandemic has significantly accelerated digital transformation, but regulatory pressures such as the ORI will see this trend continued in 2022.

4.     Financial inclusion will broaden

Historically, financial inclusion hasn’t been prominent topic of conversation, but the tide is changing. The Bank of England recently noted that 42% of the population visited a retail outlet that did not accept cash. Without a compelling digital banking solution, over one million of the adult UK population who are currently unbanked will increasingly become marginalised and disadvantaged – both financially and practically - as cash transactions diminish.

Fortunately, serving the unbanked and underbanked is becoming increasingly viable with the help of technology and industry participation. Digitised banking means that people can increasingly access financial services without permanent access to physical branches, and customer data can be more easily shared to extend lines of credit to people who might once not have been able to take out a loan. HSBC’s collaboration with homeless charities in 2019 spawned it’s new No Fixed Abode banking service, which has opened over 1,100 accounts since its inception. 2022 will likely see an acceleration in the number of the 1.2 million unbanked UK adults brought into the financial mainstream.

 5.     Net zero finance and a growing green market

Net zero finance is on the rise, with the UK planning to become the world’s first ‘net zero finance centre’. To get there, new treasury rules have been introduced that require all financial institutions and companies listed on the London Stock Exchange to create net-zero plans, which will be published from 2023 onwards. This marks a shift from the ‘carrot’ of positive sentiments surrounding green initiatives, to the ‘stick’ of new rules that compel the largest financial institutions to quantify their carbon footprint and plot out their path to reducing it.

In turn, customers who want to receive returns on their money in an environmentally friendly way will have more options than ever before. Investment managers will increasingly offer ‘green’ portfolios, while banks will create new green savings accounts and bonds for customers. This should be accompanied by rigorous measurement of products’ environmental impact. Although there are some who question the extent to which firms will be held accountable on their green claims, the UK’s Transition Plan Taskforce will supposedly prevent firms from conducting so-called ‘greenwashing’. With any luck, 2022 will be the year that claims of ‘green’ credentials will need to be backed up by data – not only will the market grow, but the maturity of the ‘green’ classification will increase.