By Ryan Hoopes
In Part 1 of this five-part blog series, we discussed how the war for talent is driving change in the banking and financial service industry. Today, we’ll explore how another significant factor, financial technology, is also causing a dramatic evolution throughout the industry.
Around the globe, advancements in financial technology, or FinTech, are having a profound impact on the banking and financial services industry. Just consider the extent to which the core functions of a bank have changed in the last 10 or 20 years. Not long ago, you would have to go to a physical bank location—or settle in for a long phone call—to move or access your funds, make deposits or open a new account.
Today, you can seamlessly pay bills, deposit checks, transfer funds, apply for credit cards and send money to individuals, with just a few clicks on your smartphone. In the digital age, banking has become faster and more convenient than ever. Meanwhile, the forces behind the “consumerization” of banking are also fundamentally changing the role of real estate for the industry.
A Fast-Evolving Industry
As customers, we love the convenience and speed of digitized banking. It naturally follows our growing demand for the simplicity and ease-of-use offered by digitized retail and travel. We want banking and investing to be just as easy as shopping online. FinTech is what makes that possible.
As customer demand continues to drive the adoption of FinTech, the ripple effects throughout the industry are significant. Customers are demanding increasingly accessible and integrated services from their mobile devices—they simply don’t want to have to use multiple, siloed systems that don’t seamlessly work together. And a growing number of consumers are seeing the appeal of “open banking” platforms, which effortlessly share financial information with third-party apps and services in order to enhance the customer experience.
As a result of this shift in demand, banking and financial services firms are rushing to implement FinTech that integrates disparate systems and provides users the seamless experience they demand. Firms are beginning to break down siloed IT departments as a way to drive innovation and efficiency, and automation is a priority for those companies looking to integrate their technology systems. FinTech companies, which prioritize seamless integration, are challenging some of the entrenched methods of even the most well-established institutions, because they are by nature free of siloed and legacy IT systems.
The banking and financial services industry is clearly in a time of flux. Other large verticals, such as law and pharmaceuticals, are adopting a more mobile, cloud-based technological approach. There’s no doubt that banking is going to follow.
As consumerization overtakes the banking and financial services industry, many firms are outsourcing technology development in order to stay ahead of the curve. In other cases, banks are developing their own incubator and accelerator programs to foster internal or “arms-length” FinTech growth. Others are opting to acquire fast-growing FinTech companies instead of developing the systems themselves. Regardless of the approach, it’s clear that technology is factoring heavily into banks’ overall strategies for the future.
Real Estate Strategy
So, how exactly is FinTech affecting real estate strategy in the banking industry? Several factors are at play:
The rise of automation
As banks rapidly adopt technology to automate and streamline processes, many middle and back-office jobs are shrinking or disappearing. This is causing a significantly reduced need for corresponding real estate. Consider that back-office functions, such as record maintenance or regulatory compliance, represent 40-50% of headcount—a percentage that is being rapidly reduced by automation of processes and workflows. Oxford University predicted 47% of jobs across the sector could be automated in next 20 years. And this evolution will have a huge impact on the bottom line: Research suggests banks can remove 20-25% of their cost basis by leveraging automation, representing a potential 40-90% decrease of internal processes.
A more mobile workforce
In banking and financial services—as well as a variety of other industries—greater acceptance of technology allows for more use of personal or company-owned devices outside of the workplace. As a result, some firms are requiring fewer dedicated desks and, overall, less office space.
Demand for digitized services
As consumer demand for digitized financial services only continues to grow, firms require fewer brick-and-mortar locations. Footfall in retail branches continues to fall at dramatic rates, as many customers can now access their finances anywhere in the world, at any time, via technology. Digitized banking challenges the need for geographically-dispersed regional property portfolios, so in the future, as firms continue to expand their service offerings and product portfolios, they won’t need to also expand their physical footprint.
A Race to Innovate
With FinTech being developed at a break-neck pace, banking and financial services firms must move fast to stay on top of the innovation. Unfortunately, many established banking and financial services firms aren’t responding quickly enough to the rise of FinTech. In our digital age, those firms that fail to invest significantly into technology will suffer compared to those that are leading in innovation. Now is the time for every financial institution to consider the role that FinTech will play in their future success.
Next month, look for Part 3 in my blog series, which explores how geography is also pushing banking and financial services to evolve.
Ryan Hoopes is a Director within Cushman & Wakefield’s Tenant Advisory Group. He is a principal leader with the firm’s Banking and Financial Services practice in Dallas, which focuses on real estate strategy and advisory in the rapidly-changing environments of both traditional financial institutions and fast-growing financial technology (fintech) companies.