Do you remember the ‘90s? Back then, banks started to launch transactional websites for internet banking. By 2006, 80 percent of U.S. banks offered online banking.
Two decades later, people began using smartphones for transactions; e-Wallets gained popularity.
Nowadays, facial recognition to authenticate mobile payments is becoming a trend – particularly in Asia – after Chinese eCommerce giant Alibaba launched this solution in 2017.
The relationship between banking and technology has become tighter throughout time, and the evolution has been huge since the ‘90s. Last year’s pandemic sped up the adoption of new technologies – the COVID-19 crisis forced banks and their customers to use digital tools amid closures of branches, offices and call centers.
Today, one question emerges: what tech trends is the $5 trillion+ banking industry acting on today to build winning strategies for tomorrow? We have selected five from across the globe:
The pressure on traditional banks is coming from Big Tech and neobanks – who came up with seamless and user-friendly customer digital experience. One trend in retail banking derives from this challenge, particularly from changing consumer expectations. “An increasing demand for a digital banking experience from millennials and Gen Zers is transforming how the entire banking industry operates”, writes Business Insider.
The industry is facing a surge in new banking technologies – such as Banking-as-a-Service (BaaS) – that are reshaping the entire retail banking business. BaaS is often viewed as an API (application programming interface) strategy that is part of a larger concept: open banking, a collaborative model in which banking data is shared with third parties to deliver enhanced capabilities and services in the marketplace. KPMG, the consulting firm, urges organizations to design partner ecosystems using open platforms and APIs “to enable flexible, dynamic engagement with external partners”.
Who is leveraging the new open API ecosystem? Fintechs, big techs and traditional banks alike. As an example, BBVA was the first bank to pre-install its app in Xiaomi mobile phones in Europe, at the end of 2020. Xiaomi claims to be the third largest smartphone brand in Europe and the world, “and has established the world’s largest consumer IoT (Internet of Things) platform”.
“This is Xiaomi’s first alliance in Europe with a bank”, BBVA wrote on its website last December.
Blockchain, one of the most important technological breakthroughs of the decade, received many definitions since its early days. In short, as Euromoney.com puts it, blockchain is “a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system”. It is a technology which provides a ledger that nobody administers and is essential for specific financial services, like (real-time) payments or securitization.
DLT (Distributed Ledger Technology) is a related technology that some organizations use to establish better governance and standards around data sharing and collaboration.
Some analysts think blockchain technology can save $billions and reduce risk. According to research conducted by Accenture, blockchain could “cut costs and deliver savings of more than 30% across the middle and back office”. Insider Intelligence thinks alike: banks are exploring blockchain technology “in hopes of streamlining processes and cutting costs”.
In this report, CB Insights explains how blockchain technology and DLT have “a massive opportunity” to disrupt the banking industry by disintermediating the key services that banks provide, including: payments; clearance and settlement systems; fundraising; securities; loans and credit; trade finance; customer KYC; and fraud prevention.
AI (Artificial Intelligence) was the 2019 buzzword in financial services. The adoption of AI in banking is transforming the industry to its very roots. AI enables instant and more personalized experiences to customers, and also enhances conversations with robo-assistants and chatbots that are available for customers 24/7. These are powered by a subset of machine learning technology called natural language processing (NLP).
Machine learning tools bring other advantages to banks: time and money. For example, Deutsche Bank saved about “680,000 hours of manual work”, said Mark Matthews, the Head of Operations of the Corporate Investment Bank at Deutsche Bank, in an interview with Financial News in 2019. The bank also used bots to process 5 million transactions in its corporate bank and performed 3.4 million checks within the investment bank.
Generally speaking, the cost savings achieved through AI applications across financial services are expected to reach $1 trillion by 2023, according to Autonomous Next, quoted by Fintech Futures. More than $440 billion of this would be achieved in the banking sector alone.
What is the expected outcome? The perception among banking executives is striking: 74% of them believe AI will transform their industry completely, according to Insider Intelligence.
“The rise of video collaboration/marketing into the top 5 was a long time coming”, Ron Shevlin, the Managing Director of Fintech Research at Cornerstone Advisors writes in this article for Forbes. Why? The pressures of digital disruption and the innovation race challenged the traditional way of doing business. Banks realized the potential of game-changing video collaboration technologies.
One sponsored study quoted in the article mentioned above found that more than three-quarters of bank execs surveyed (before the pandemic) said that video technology: “1) accelerated decision making; 2) improved productivity; 3) boosted product innovation; and 4) improved the customer experience”.
Yet, video comes with risks. As noted in this article on the EY website, as banks shift from the pandemic crisis mode, “their boards need to address new emerging risks, such as video and voice communication surveillance with everyone using Zoom and other platforms ”.
In an article on how quantum computing could change financial services, McKinsey & Company noted that “fully scaled quantum technology is still a way off, but some banks are already thinking ahead to the potential value”.
Several banks are already turning to a new generation of processors “that leverage the principles of quantum physics to crunch vast amounts of data at superfast speed”.
In 2020, CaixaBank, one of the highest-rated banks in the world, announced that it advanced its quantum computing strategy and developed a machine learning algorithm to classify customers according to their credit risk. With this project, CaixaBank claimed to be “one of the first banks in the world to incorporate quantum computing into its services”.
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MAIN PHOTO Credit: Pexels
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This article is part of a series of articles dedicated to the banking industry. FintechOS talked to leading companies from incumbents and startups to accelerators and consultants, to get to the heart of the questions: What does digital transformation look like?
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