Banking is one of the oldest industries in the world and has weathered many crises over the centuries, including the one in 2008. The sector has remained stable and enjoyed a high degree of customer trust. This is one of the biggest advantages that modern banks have today. In the years to come, banks will continue to be financial intermediaries, even as they transform and grow the scope of their operations to become ecosystem orchestrators. The future of banking is more transparent, open, secure, seamless, real time, data driven, and deeply integrated with customer behavior. For this to happen, banks must integrate new technology into every aspect of functioning to deliver personalized customer experiences and build a comprehensive ecosystem of products and services.
Unfortunately, the rise of AI in banking will also result in greater threats as bad actors increasingly try to leverage AI to breach a bank’s defenses. Banks will need to implement processes to regulate the AI algorithms in use to minimize the risk of learned biases developed by the system itself. Of course, this is a significant challenge for regulators and the sector will have to monitor the developments closely over the next few years to identify the best strategies for minimizing risk.
Another important thing to note here is that fact, that as the sector moves forward with a focus on being ecosystem orchestrators, the scope of data will expand. Banks must increasingly use not just data from their own infrastructure but also from external sources to create a comprehensive map of their customer’s behavior patterns. Securing this data is of utmost importance. Technologies like blockchain will be critical in ensuring
Merchant data such as principal ownership, analysis of business cash flow, previous payment track record, bankruptcies etc. can be analyzed using in-house or third-party data analytic systems. This can help in faster decision making at the time of merchant on-boarding. Merchants also need to be continuously monitored to keep track of changing conditions and appropriate actions need to be taken. And like with customers, merchant risk information must be shared across the BNPL ecosystem via a common platform to identify and blacklist fraud merchants. Some BNPL providers are now contributing merchant data to Equifax to thicken their commercial credit file.
The widespread adoption of low latency and reliable 5G networks will open many new avenues for the banking industry as well, including cross-industry collaborations which were unthinkable in the past. The lightning-fast speeds, and greater reliability offered by 5G networks is essential for deploying cutting edge analytics solutions at scale and for powering technologies like IoT, VR, AR, AI and more. Another technology advancement to look forward to is WiFi6, which will improve local connectivity at home or at the office to accelerate the seamless use of digital devices for customers from anywhere.
Voice, NLP (Natural Language Processing) and Virtual Reality (VR) – Customers today want superlative experiences across all touchpoints. They want self- service, ease of use and seamless engagement across their banking journey. Voice technologies, NLP and even Virtual Reality technologies can be harnessed by banks to deploy contextual and intuitive services such as customer authentication and automated customer care. Banking platforms using voice-based technologies can greatly enhance customer journeys and embed the spirit and ethos of the brand into every customer interaction.
Over the next few years, banks must accelerate the pace of their digital transformation efforts. They must also prepare for the eventual shift to platform-based banking. But legacy core banking systems cannot support modern applications. Banks must consider adopting third party solutions to modernize or replace the core as they move to an ecosystem orchestrator role.
As the technology landscape evolves and matures further, newer more agile banking organizations will emerge to base their business models on technology innovations. The challenger banks could eventually become mainstream players in the industry. In fact, new age players like Monzo, Chime, Revolut and others are already offering customers services like savings and current accounts, payments, cards and loans, and many investment related products. Fintechs too will continue to consolidate their footprint in an increasingly competitive marketspace. But while these challenger banks and
fintechs are digital natives and have the expertise to leverage technology for focused and innovative offerings, they lack the massive customer network, depth of financial products and deep pockets that traditional banks enjoy. The real growth opportunity for banks lies establishing a symbiotic relationship with these new players. Banks can benefit from the agile technologically advanced platforms used by challenger banks and fintechs and on the other hand they can benefit from banks’ networks, and product portfolios. This decade will see far reaching transformation within the banking sector. The sector’s ability to use modern technology and data to make the customer experience contextual and real-time will determine the success of banks in the next decade. In addition to accelerated digitization there will also be a systemic change in how banks operate, how the sector is regulated and governed and how talent is identified, recruited and trained for the future of banking.
