Wealth transfer, AI and real-time payments: Planning strategically for banking’s next big challenges

Financial services organizations have big decisions ahead of them, including adopting or refining mobile banking, artificial intelligence, cloud migration, real-time payments, open banking, digital wallets and more. And bankers need to bear down on the generational transfer of wealth now underway that will total in the tens of trillions.

Jack Henry’s Carlos Lopez, who has expertise in both digital and core banking, tells BAI that the first steps to maximize these opportunities are to frame a vision and define a strategy that meet the unique needs of the institution.

A massive generational transfer of wealth is underway. What steps should banks take to ensure those assets are deposited in their institutions?

Experts estimate that $30 trillion to $70 trillion in assets owned by Baby Boomers are being transferred to their heirs. Financial services organizations must recognize the risks and opportunities of this great wealth transfer. For many consumers in their 30s and 40s, this will likely be the largest lump sum of their lifetimes. They are expecting cash or real estate, but it’s likely to be a mixture of many types of assets—annuities, equities, rental properties, a small business or even a hard asset like jewelry. The heirs are digital natives, attracted to institutions with strong mobile and digital capabilities. Many are comfortable with fintechs, but they might consider legacy banking institutions with stronger guardrails. More than three-quarters plan to move their inherited wealth into a new financial institution or financial advisor.

To seize on these opportunities, banks must define their digital strategies. And they must develop expertise in handling the transfer of various types of assets. Banks should also benchmark themselves against their peers handling the movement of these assets. They should conduct a risk assessment to develop a truly successful strategy.

What banking features are most attractive to younger consumers?

Unequivocally, it’s mobile banking. It’s the number-one factor Gen Z and younger Millennials check when considering a new institution for opening an account. Younger consumers are more likely to go to mobile banking first, except for bigger tasks like applying for a mortgage or an auto loan. But there’s an important caveat to attracting younger consumers with mobile banking: new accounts that do not require funding when opened have a higher success rate with this audience because many don’t have assets to deposit immediately. Hyper-personalization is also important for younger consumers eager to learn about building savings, establishing credit and applying for a loan. They’re looking for a detailed financial snapshot to help them reach their long-term goals.

Banking’s digital transformation continues at a torrid pace. But can a bank afford to modernize every element of its business?

A bank must first modernize its infrastructure instead of focusing on distinct endpoint solutions. Otherwise, they will lose the ability to take advantage of systemwide modern security features, modern compliance features and real-time analytics across all products. Modernization has become much easier because of cloud-native solutions available via APIs that reduce risks and costs associated with modernization. A bank can modernize at its own pace, but not before the creation of a strategic road map.

Open banking is making great strides, especially in Europe. But are U.S. banks keeping pace, and what are the advantages of open banking?

The U.S. is ahead of the European Union on a per-capita basis. The U.S. has the advantage of being a single country rather than an alliance of many countries. Open banking just seems more fragmented in the U.S. because we have so many institutions. Open banking offers many advantages, such as API-based data transfer, which eliminates risks associated with screen scraping. And it gives consumers more control over their data. Financial institutions benefit from open banking because they can use its rails and collect data from different sources to combat financial fragmentation. That allows traditional institutions to take back some of the power they’ve lost to fintechs.

What strategies should banks be developing to attract and retain small and medium-sized businesses?

Definitely payments. The ability to get paid faster gives businesses much more control over their cash flow and helps them avoid overages. Banks also need to provide small businesses with cash-flow visualization to give them a detailed understanding of their monthly expenses. Businesses can then confidently project expectations six months into the future. Many are still using pen and paper or Excel. And some are utilizing QuickBooks. But what they need is a cash-flow solution from their primary banking institution.

Carlos Lopez is Lead Analyst, Digital for Corporate Strategy at Jack Henry.