Online and mobile in 2021: what’s to come?
Digital banking’s sales potential continues to climb in the next few years, to no one’s surprise. By 2021, nearly three billion people will use retail banking services through smartphones, tablets, PCs and smartwatches, Juniper predicts. This will be a whopping 53% increase compared to 2017. And while we’re on numbers, here’s another one: banking revenues are expected to rise to a staggering $5.4 trillion in 2020 from an estimated $4.8 trillion, digital transformation advisor N-iX says. How of much of this will pour in through online and mobile sales channels is still unclear, but there are a couple of major trends analysts say we’ll see leading up to 2021:
- Global payments revenues will average at a 7% annual growth through 2021 and will rise to $2.2 trillion from $1.6 trillion in 2016 (McKinsey). Digital wallets will step in to replace credit cards and bank transfers as the preferred online payment method by 2021 (Worldpay).
- Card spending in e-commerce, however, will more than double to $6 trillion by 2021. No wonder: with the rise of net and mobile penetration, more merchants sell online, and one-click checkouts and suggested additional items make the whole transaction process much easier (RBR).
- Every second consumer in the US, 129 million people in total, will have used online or mobile peer-to-peer (P2P) payment by 2021, up from one in three consumers in 2016 (Javelin). P2P and marketplace lenders will double annual new loan origination to $63 billion in 2021 compared to 2016 (S&P Global).
- Total consumer banking revenue in the US will jump to $1,200 billion in 2023 from $870 billion in 2017. The impact of digital disruption on this revenue will increase to 17% from only 5% (Citi).
- Unsecured consumer loans that use artificial intelligence or machine learning technology will grow by 960% until 2021 and potentially become a $17 billion business for fintechs (Juniper).
Things between digital banking and consumers are about to get serious: more and more people go for banks who offer the convenience of fast, multi-channel digital services. This means that financial industry players had better focus on delivering a hassle-free digital experience to their customers. If they want to remain market leaders, that is, Juniper Research says.
Digital banking warming up
Will banks be able keep up with competitors and finally boost digital sales? There are traditional banks out there who are already making huge progress in digitization, and they will probably come out as winners. Let’s see a few great examples from leaders in innovation and digital readiness:
- Bank of America raised the share of digital to 51% ($324 billion) in consumer payment transactions in July-September 2017 from 44% ($250 billion) three years earlier. Some 21% of its deposits are now placed through mobile channels, up from 10% in 2014. Peer-to-peer payment value in the BoA mobile app quadrupled to $4 billion in the same period.
- JP Morgan Chase saved $100 million in 2014-16 by digital adoption and boosted the number of digital customers by about 20%. Approximately 77% of its new credit card accounts came through mobile in 2016 and the share of mobile credit card applications within digital rose by 28 percentage points in 2012-16. Mobile log-ins of small business customers rose by 32% in 2014-16.
- BBVA increased the share of digital in total sales to 25.4% in September 2017 (more than 3.5 million units sold digitally in July-September) from 16.8% in December 2016. The value of digital consumer loans rose to €1.36 billion in January-September 2017 from €828 million a year earlier. About 92% of BBVA’s products were available through mobile at the end of 2017.
While banks are eager to go digital, they’re less eager to publish their digital sales targets. An exception, Canadian-US lender Scotiabank, is aiming for a digital customer adoption rate of at least 70% and a 50% share of digital retail sales in the medium term. And no price is too high for them: the bank’s ready to spend $1.3 billion over the next three years to achieve this.
But the outlook is a bit gloomier for the rest of the banking sector. On average, only 28% of all banking products are currently available via digital channels, and financial institutions have only enabled 43% of their personal banking products for mobile customer acquisition, according to the latest Avoka annual digital sales report.
Fintechs getting in on personal loans
The more banks fail to pump up their digital banking sales capabilities, the better for fintech disruptors. Most of the industry veterans surveyed by PwC in 2017 believe that consumer banking will remain the epicentre of disruption through 2021. Bankers see personal loans (64%) and personal finance (50%) most at risk of moving into fintech hands.
A good example is the US personal loans market, where fintech lenders are about to get bigger in the next few years. The share of unsecured personal loans extended by fintechs already rocketed from 4% in 2012 to 32% in the first half of 2017, TransUnion points out in a report. This compares with a drop in the market share of traditional banks from 35% to 29% in the same period.
But personal finance is far from being the only area, where fintechs will see big growth. Their global transaction value is forecast to double to a staggering $4.46 trillion in digital payment services by 2021, according to Trend One and Statista. Mobile payments carried out through fintechs will increase eight-fold by 2021 from about $106 billion in 2016.
So bank executives have every reason to worry about fintechs eating away at their revenues. In fact, some 84% of those surveyed by PwC suspected that their customers had already chosen payment services offered by fintechs. Many also thought their customers were already using fintechs for fund transfers (68%), personal finances (60%) and personal loans (56%).
Big techs eying payments
Banks are getting more and more cozy with fintechs to beef up their own digital offerings, which might put the brakes on their direct competition in the longer term. But they’re still not out of the woods: a bigger competitive threat is fast approaching from big technology firms like Google, Facebook, Amazon or Alibaba. And some of these already offer payment, deposit and lending services.
Alibaba has launched its online bank MYbank and experts now speculate if, or rather when Amazon will pull the same move. Chinese tech firm Tencent’s WeChat will become a contender for the leadership of the payments space by 2021, Juniper predicts. And in Japan, e-commerce giant Rakuten is betting on a projected fintech revenue growth to $742.8 million in 2021 from $174.7 million in 2017, eMarketer says.
Apple and Google are expected to go for a bigger slice from the European payments market. The two largest digital wallets in the region, Apple Pay and Android Pay, will together account for nearly €3.8 billion in digital goods payments in Europe by 2021, or 10.5% of all card transactions by value, according to Juniper and Dimoco.
