More than a year after much of the world went into some form of lockdown, many customers previously resistant to digital banking have grown accustomed to it, and most do not plan to return to their old banking habits. A survey of people in the US aged 18 to 65, conducted by Chase Bank, found that four in five now prefer to manage their finances digitally rather than in person, and three-quarters are likely to continue using digital payment options even after the covid-19 threat subsides. These findings are mirrored in many other countries around the world.

“Overnight people became digital, when it was supposed to take ten years,” says Michal Kissos Hertzog, chief executive of Pepper, an Israeli digital bank, of the impact of the covid-19 pandemic. “It doesn’t matter if you are Gen X or Gen Z—everyone became digital.” 

Banks have been forced to adapt as a result. “All banks have had to up their game, so competition has become stronger,” says Ms Kissos Hertzog. The shift to online brought by the pandemic has proven a boon for digital-only banks. As of January 2021, 14m Brits (27% of UK adults) had a digital-only bank account—16% growth from January 2020 and a threefold increase compared to January 2019.

The shift has brought forward expectations of the demise of the branch, traditionally the centre of the retail banking experience. According to our annual global banking survey, supported by Temenos, 65% of bankers now believe that the traditional branch-based banking model will be “dead” within five years, while 71% expect cash to represent less than 5% of all retail transactions globally by 2025.

Senior executives report that technology is driving customer experience. Survey respondents cited changing customer behaviours and demands around digital banking, the new technologies needed to understand and serve customers better, and regulation on digital technology (including data protection, which dictates how banks can interact with customers and their data) as the top three trends that will have the biggest impact on banks in their countries by 2025.

Consequently, survey respondents’ top strategic priorities by 2025 are all customer-focused: improving customer experience and engagement, including personalisation and intimacy; mastering digital marketing; and migrating client usage from physical to digital channels.

At Pepper, the focus has been personalisation. When individual customers open the bank’s app, they see a homepage personalised to their specific actions, says Ms Kissos Hertzog. “Different customers will see different products, will receive different marketing.” The goal is a “segment of one”, tailoring the experience precisely to the individual consumer based on their activity and preferences. “The more personalised the service is, the more engaged customers are.”

Technology investment

According to survey respondents, banks’ top investments in customer-related technology include developing artificial intelligence (AI) platforms, such as digital advisors and voiceassisted engagement channels, and advanced and predictive data analytics for customer experience. 

Adoption of this technology starts with data, says Ms Hertzog. “Banks are sitting on a humongous amount of data, but they are not doing a good job [of using it],” she says. “I want to use data to give customers a better understanding of their money, to help them decide how to save, to budget, whether they should invest in the stock market."

But she cautions against focusing investment on specific technologies just because they are the latest trend. “I’ve never heard my users saying, ‘I chose you because you have the best artificial intelligence of all banks’. What they care about is that they will have good service, that they’ll see the benefits from their bank, and that we meet their needs,” she says. 

“When we speak about technology, it’s important to understand that the technology is not the target, it’s a means to an end. Of course, we have to have great AI, and we are implementing machine learning and blockchain—we’re doing all of that. But we are doing all of that in order to give the best customer experience.”

In his latest letter to shareholders, JPMorgan Chase chief executive Jamie Dimon does not hold back in his embrace of cloud technology. “We cannot overemphasise the extraordinary importance of new technology in the new world,” he writes, referring to the turbocharging effect that covid-19 has had on the adoption of the cloud and artificial intelligence (AI) in financial services.

Before the pandemic, not all banks were quick to spot the advantages in offloading applications to the cloud, where virtually unlimited computing power allows enormous efficiencies. Banks have generally been slower to take to cloud computing than other sectors. But the adoption of software as a service (SaaS) and cloud infrastructure—for additional processing capacity, improved service capabilities and to outsource data storage—has accelerated since the start of the pandemic, as banks seize an opportunity to cut costs and ramp up their digital transformation projects.

Last year saw a flurry of deals. HSBC committed to using Amazon Web Services to develop new digital products and support security and compliance standards, while Wells Fargo has signed on Microsoft and Google as public cloud providers. Google has agreed similar partnerships with Goldman Sachs and Deutsche Bank. 

This comes as established banks figure out how to use incumbency to fend off fintechs and “challenger” banks, while the newer entrants use the cloud to advance quickly into new market opportunities.

In a new survey of IT executives in the banking sector, conducted by The Economist Intelligence Unit and supported by Temenos, more than seven in ten (72%) report that incorporating the cloud into their organisation’s products and services will help them to achieve their business priorities. Just under half (47%) say that it will do so “to a great extent”, with Latin American respondents the most bullish (see Figure 1). 

Microsoft, a large player in cloud services, believes that the pandemic has accelerated cloud adoption in four ways that go beyond cost considerations. The first is creation of economic efficiency, by moving away from reliance on a clunky computer mainframe environment. Second is enabling agility and speed to market by, for example, improving the customer onboarding experience in retail banking. Third is reimagining the modern workplace and process modernisation to increase productivity, while fourth is digital innovation through, for instance, the adoption of AI. 

In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.

Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.

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Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.