As we near the end of 2022, the Canadian banking system is experiencing multiple forces that are propelling it toward a once-in-a-generation transformation. Within the next five years, four major factors — portable identity, data portability, richer and faster payments, and digital currencies — are expected to come together to create major disruption at the core of Canada’s financial services industry.
While reckoning with the coming changes will challenge banks and other financial institutions across the country, it also presents an important opportunity for growth and innovation.
The Great ConvergenceThe digital age has already transformed the financial landscape to a considerable degree, and it’s just getting started. Though the what of banking hasn’t changed much, the how has drastically evolved. Financial services industry observers are calling the next phase of this journey “the great convergence” — a coming together of four distinct but interconnected factors.
Portable identity puts control in the customer’s hands
At the centre of modern financial services are real people and companies — and the digital identities that represent them. In the past, every organization an individual might come across would issue each consumer a unique ID, meaning a consumer would have several IDs at any given time. But as we move into the future we are marching toward a self-sovereign identity (SSI) that will put the control of personal information back in the hands of the individual, so they can share a singular ID with any organization that they trust to identify themselves. With one portable digital identity for each consumer, banks and financial institutions will be able to create faster, more convenient and increasingly secure experiences for their customers.
Data portability unlocks customer benefits and innovation
As the social contracts that underpin our increasingly digital society become more fluid, so too does the portability of our data. At its most basic level, data portability refers to customers’ ability to securely share their personal data between different vendors, institutions, and other organizations. This means customers have more control over their data and the value they get out of it. It also means transitioning from one provider to another will become much easier — a trend that’ll ultimately heighten competition between financial institutions, resulting in better overall service for Canadians.
Richer, faster payments drive efficiency and opportunity
Modern advances in digital banking have brought real-time payments, such as e-transfer or QR code payments, to the forefront. Customers have become accustomed to instant or nearly instant transactions, and with digital receipts they can immediately access a record of their transactions. These advances and others like them provide more convenience for customers, and more efficiency for financial institutions.
Digital currencies enable financial inclusion and stability
Unlike cryptocurrency, Central Bank Digital Currency (CBDC) is a government-backed, digital form of a country’s fiat currency, represented by digital tokens. In a world where cash use is declining, digital payments are expanding and payment networks are constantly challenged to keep up, CBDCs can eliminate the need for intermediaries. Additionally, stablecoins — cryptocurrencies whose value and supply are both tied to an external reference — represent a huge potential benefit for banks and customers. Both these new, less volatile, better regulated forms of digital currency can change the game for financial institutions and their customers, functioning as cash substitutes and representing new avenues for increasing financial inclusion among the underbanked.
The importance of data
You might have noticed a central pillar that ties these four factors together — data. As the digital age continues to evolve, the use of data will continue to grow, providing more and more value for both customers and financial institutions. With more data use comes less friction, more personalization, and better, faster access to advice, tools, services and more.
Underpinning all of this is a circle of trust between customers and financial institutions. As Canadians provide more data to their financial institutions, those institutions will in turn be equipped to provide better services to their customers. In a digital ecosystem, protecting this customer data is of paramount importance. Only by maintaining trust and providing value can banks ensure customers are comfortable with providing their data and adopting new, innovative technologies.
A monumental shift
As a whole, these four factors are on track to lay a brand-new foundation for the financial services industry to build upon in the years ahead. With this foundation in place, banking will become safer, cheaper and more convenient for customers. This rising tide of innovation will lift all boats.
Banks and financial institutions must follow the trends and adopt a data-centric model of business; but above all, they must prioritize a secure, convenient customer experience. Only by winning and keeping their customers’ trust can banks gain access to the digital data they need to innovate on a large scale. Those that do will reap significant rewards.
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