The exciting future of banking technology
February 2017 | EXPERT BRIEFING | BANKING & FINANCE
As waves of technological change continue to sweep across the banking industry and innovative FinTech companies introduce new technologies, 2017 promises to continue the trend of disruption we have seen in recent years. Clearly, what we think of as the ‘traditional’ banking business is evolving, but what can we expect to see emerging in this important sector over the next year?
The most widely recognised changes have been innovations in payment technology. Industry leaders such as Apple and Google have recently introduced services which take some aspects of consumer banking away from established institutions and put it into the hands of the tech world. Similar trends are continuing in the lending space, with small, disruptive firms such as SmartBiz and FundBox eating into the market share of larger lenders. This trend will only continue, as FinTech startups snap at the heels of large banks and leverage technology to provide services faster, more efficiently and with a more personalised approach.
This does not mean big banks are sitting by and allowing their domains to be picked off one-by-one. Increasingly, they are setting up labs to mimic the environment of a small startup and to get cosy with the FinTech sector. We also expect to see larger banks pushing back and muscling in on technology areas which were previously the preserve of startups. Large banks have figured out models to ‘collaborate’ with FinTechs, thus expanding their services to existing clients as well as reaching out to new customers. Some of this is also coming up via regulations like PSD2 in Europe.
Another ongoing development for 2017 is, of course, automation. We expect that the forward march of automation and AI will encompass new processes that were previously handled manually by human employees at their desks. 2017 will see the greater prevalence of ‘robo-advisers’ – automated financial consultants able to give tips on investment portfolios and advise bank customers. A number of large players have already embraced robo-adviser automation to enable their customers to make better investment decisions, including investment heavyweights BlackRock and Vanguard. A report by ATKearney stated that fund managers which do not implement robotic advisers potentially could lose up to $90bn annually to firms that have made the leap to automation.
A less glamorous but equally important change which we expect to continue is the digital transformation of core banking operations toward ‘agile architecture’. This means that banks can more easily integrate new technology like the blockchain or new payment technologies into their existing product offerings. With so many new, smaller and agile players in the marketplace, the ability to quickly put new technology to work is key. Time to market is an imperative for big banks, as the early adoption of a new technology is often the differentiating factor for consumers when choosing who to bank with.
Tied into upgrading legacy systems is the fact that threats to infrastructure integrity will become more and more intense in the coming years, forcing banks to invest in measures which protect their customers’ data. 2016 saw a series of high profile outages which shook customer confidence, and undoubtedly increased concerns among the banks about the security of their operations. Banks should not have to experience the pain of an outage before realising the need to upgrade their legacy systems. The fact that the Internet of Things continues to grow as a part of the banking landscape also represents a great opportunity for banks, but it means that data will be spread over far more devices.
A report by CCS Insight estimates that there are 10 million wearable devices in use in the UK, which will triple to over 33 million devices in 2020. The potential usage for these devices in banking is immense. Payments, online banking and authentication technologies can all be built into wearables, and banks will need to quickly integrate them into their existing infrastructure. This is part of a growing trend toward a cashless society that will put a far greater emphasis on streamlined transactions with minimal bank interaction.
Finally, despite the move to digital, we are seeing a development in banking customer service which seeks to bring the human element back to the client/bank relationship. More banks are exploring video banking, which means that customers are able to have a virtual meeting with their adviser online. This has the potential to overhaul existing call centre models, and will hopefully enable customers to build stronger relationships with their banks.
With so many changes happening in the industry, it is imperative for banks to keep abreast of new developments. However, for many banks this may not necessarily mean a look forward to what new technologies they hope to implement. It may involve a look back at the systems and infrastructure that have served them well over the course of many years.
Therefore, banks must ask themselves: ‘Does our existing IT infrastructure have the ability to support the new innovations it takes to compete in tomorrow’s marketplace?’
Traditional banks have the assets it takes to succeed – a strong customer base, scale, brand and industry knowledge are chief among them. Success in the digital age is as much about changing minds as it is about changing models. In the coming year, banks should take an honest look inwards to determine if they are on the right path, if they have the right mindset and what tough decisions need to be made in order to keep moving forward.
V.S. Raj is senior vice president and head of Banking and Financial Services at Syntel.
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