Technology is rapidly advancing and is changing almost every aspect of our lives—how we get from point A to point B; how we stay in touch with our friends and family; how we do our shopping; how we relax and are entertained. Technology is also becoming smarter all the time, as companies harness the power of data to personalise the products and services they offer.
But the impact of technology and data is going to be different in financial services because of the distinct aspects of this industry—for example, because of the need to protect people against borrowing money they can’t afford; to stop them from making complex and risky retirement investments they don’t fully understand; or to protect them, and the financial system, against fraud and financial crime.
Financial services is an industry inherently based on managing risk, unlike other consumer-facing industries. Regulation is fundamental to ensuring good conduct, upholding the integrity of the financial system and protecting it against threats. Technology and data introduce new complexities to an already complicated risk-management landscape. On the one hand, technology can help both banks and regulators manage risk in the sector more effectively; while on the other, new challenges are introduced to the system.
Finding this careful balance between opportunity and challenge was the focus of HSBC’s recent report, Banking of the Future.
Over the past decade, banking apps on smartphones have given people the freedom to manage their finances when and how they have wanted to. But even bigger benefits are just around the corner. Within the next 10 years, new technologies will offer customers hyper-personalised service.
Customers will start to take much more control of their own personal data through digital identification (ID) profiles. At the same time, banks will aim to become “trust brokers” in the management, development and safeguarding of these digital IDs—and access to third-party services outside financial services, such as utilities and retailers.
Banks are already in a strong position to take on this enhanced role—research from Boston Consulting Group/Capgemini shows that 80 percent of people trust banks to manage their data securely, compared with just 5 percent for consumer-technology businesses.
A key factor driving change in banking is the fact that artificial intelligence is coming of age. By mastering new data sources and analytical technologies, banks can build up a deeper understanding of customers’ needs—and how they can help them—as well as unlocking new revenue streams.
Within a decade, this could lead to banking becoming largely frictionless for consumers. Instead of assessing each product category individually, such as savings, borrowings and investments, to find the best options, they will be optimised in the background based on a customer’s data profile.
Mobile-banking services could also incorporate new technologies such as augmented reality and voice activation. Imagine looking for a new home: you point your phone at the house of your dreams and talk directly into your banking app. Your bank could tell you not only how much your monthly mortgage repayments might be but also, by drawing from public information, details about local services and taxes.
Part of the puzzle about the future of banking customer experience may well lie in the development of technologies that currently have little application in finance—such as 5G—which could drastically increase the volume and speed of data crunching and accelerate the creation of data-driven models in banking. Quantum computing, which is only gradually making the transition from theory to reality, may also have huge benefits, whether in the near or distant future.
Banks will need to find a careful balance between taking advantage of what technology and data can enable to meet customers’ expectations with the need to actively address risks to their wellbeing and to protect the financial system.
At a fundamental level, banking is based on trust. While customers often want banking services to be modern and responsive, they also want to be certain that their money and their information are safe. And they want banks to help them make informed and appropriate decisions. It is vital that automated programs do not encourage people to take on debts they cannot repay, for example, or make investments that do not meet their needs.
Financial-services providers must demonstrate that they are using new technologies such as artificial intelligence (AI) and big data in an ethical way. As well as securing the consent of regulators and investors, it is important that we communicate clearly with customers and give them meaningful choices about the use of their information.
For example, further steps need to be taken to standardise work in artificial intelligence, how information is collected, presented and explained to consumers. Much greater international coordination will be required to truly take advantage of new technologies, which are by and large borderless.
The good news is that technology is also opening up new ways of keeping people and the financial system safe. Automated programs are already capable of carrying out security checks speedily and accurately, helping spot criminal activity, combat fraud and ensure product suitability. Such tools are likely to become even smarter and more widely used in the future.
For example, each month at HSBC, we screen more than 650 million transactions across more than 200 million accounts for signs of money laundering and other financial crime. In 2019, the bank launched a machine-learning (ML) solution called Cog-I for transaction monitoring, which reduces the time that analysts spend analysing transactions for signs of unusual activity and improves the quality of transaction reviews while ensuring greater consistency.
Artificial intelligence is also helping us to ensure that we make the right product recommendations by conducting timely and thorough post-sale quality checks. Previously a manual exercise, with staff members reviewing complex mortgage documentation to spot discrepancies, we have now developed a bot that assembles and interrogates the documentation and identifies high-risk cases for staff follow-up. Even better, it operates in real-time during the mortgage process.
And in the area of data privacy, banks are investing heavily in technology to help customers keep their personal information secure, including fingerprint or face recognition. Around half of our customers now use this technology to access mobile banking. As people’s digital identities become increasingly important, the role of banks could expand to include helping customers prove who they are safely to other organisations online.
These advances make it an exciting time to be in financial services. It is no surprise that new competitors are keen to enter the market. But while digital technology is transforming the industry, it takes much more than just this to succeed in banking. Technology has the potential to offer unprecedented speed and convenience in banking. But the banks that thrive in the future will be those that match great tech with thoughtful risk management and, above all, excellent customer experiences.
References Boston Consulting Group, Capgemini survey, Bank of England Future of Finance Report, p60.