From the end of overdraft fees to the rise of banks that watch their customers' every move, there are several new banking trends on the horizon in 2019. Here are nine of the most impactful:
You can't count on overdraft fees forever
But that revenue may not last forever.
Two trends — competition from challenger banks and the emergence of real-time payments — threaten to eat away at the fees banks collect on overdrafts and bounced checks.
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Think outside the app
In countries where mobile payments have taken off faster than in the United States, big banks have staked out a presence in places outside of traditional banking apps. Customers and prospects spend hours of their time online, chatting with their friends on social media, or perusing online real estate listings. Being an organic part of that online experience requires fresh thinking and in some cases new services that are not strictly banking.
So the most forward banks are already experimenting with strategies to answer questions like these: How can a bank insert itself in a relevant way into an existing ecosystem where people gather for nonbanking activities? And does it make sense for a bank to create its own ecosystem of sorts?
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Stress-test for climate change
It’s not hard to imagine, for example, persistent droughts wiping out corn and soybean crops and forcing ski resorts to shorten their seasons. Intensifying hurricanes could cause severe property damage in major coastal cities and knock out offshore oil rigs, while wildfires in the Western U.S. not only threaten timber and wine production, they could worsen air quality, threatening people’s health and productivity. Eventually, rising sea levels could swamp picturesque beach towns, decimating tourism and real estate values.
The risks are real enough that some large global banks — though not enough of them, in the view of some investors — are now doing what’s called “scenario analysis” in an attempt to get a better grip on how warming temperatures might impact their loan and investment portfolios in the short term and long term.
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Get ready for the rise of the 'behavioral bank'
Instead of charging for services based on income and repayment practices, the South African bank wants to look at behavior more broadly, tracking the habits of its 4.4 million customers and offering better deals to those who live healthier lives. For example, those who use the company’s Vitality rewards program can earn points for visiting the gym, getting a flu shot or buying healthy groceries.
Other banks could soon follow suit.
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Give customers some control of their financial data
But there are signs that is beginning to change.
Some fintechs are testing apps that let customers gain greater control over how third parties use their data. Others are setting up ways to let consumers sell their own information.
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Keep an eye on quantum computing
Whereas a classical computer might take years to guess an encryption key through a brute force attack (that is, just repeatedly guessing wrong answers until it hits on the right one), a quantum computer could guess correctly with great speed, because it could comprehend the entire universe of possibilities at once. Virtually everything that is inaccessible online could be accessible instantly to whomever possesses a quantum computer.
If that is worrisome, the good news is that quantum computers don’t exist — experts suggest that the technology will probably be realized in the next decade, though others say it could be sooner.
But banks — as well as governments, the military and anyone else with a stake in cybersecurity — are increasingly devoting resources to quantum computing.
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Build a safety net for when the consumer debt balloon pops
While households are generally keeping up with their loan payments, they are also taking on more debt than ever, running the risk of becoming overextended.
So what can banks do to help customers dealing with unsustainable levels of debt avoid bankruptcy? Often, they will refer a customer to a third-party debt consolidator, which will then lend that customer the money to pay off various loans and consolidate the debt into a single payment. The problem with that model is that some borrowers will wind up in even deeper debt. The reason: Debt consolidators do not require their clients to close out credit card accounts they have just paid off, so it's not uncommon for these clients to max out their credit cards again.
But there may be a better way.
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Beware regulatory competition
The renewed competition is a marker of how far the proverbial pendulum has swung in the decade since the crisis. The practice, still in its early stages, may be a boon for some — foreign banks and financial technology companies are among those that seem poised to benefit. But skeptics fear that it will ultimately add risk to the financial system and harm consumers.
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It's time for auto financing to keep pace with digital banking
Several banks, working with fintechs, have automated the loan application process to allow consumers to secure financing for their next new or used car before they even go to a dealership. They can get approval within minutes from a desktop, laptop or mobile app.
It’s a potentially game-changing development that could put more car shoppers in the driver’s seat when it comes to controlling which bank or credit union finances their purchase.
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