By John Manning, International Banker
Banking across the globe has been going through a major transformation over the last few years, and this evolution looks set to continue well into 2018, and indeed beyond. The financial institution of today is more oriented towards the customer than ever before, and as such, a much larger proportion of its resources is being apportioned to making the customer experience as frictionless as possible.
Indeed, Deloitte’s 2018 Banking Outlook supports such a position, with the issue of Customer Centricity being given top billing among the themes and challenges banks will need to address this year in order to generate long-term growth. According to the report, such an objective will require “embracing innovation, managing talent differently, and pursuing key partnerships within a broader ecosystem to manufacture and deliver solutions for customers”. Additionally, the report highlights five other major themes for banks to address this year: Regulatory Recalibration, whereby compliance divisions are likely to undergo considerable modernisation; Technology Management, whereby new solutions from multiple vendors need to be integrated effectively and with minimal internal disruption; Cyber Risk Mitigation, FinTechs and Big Techs, whereby banks have to decide whether collaboration, competition or a mix of both is the optimal decision to take; and Reimagining the Workforce, whereby banks must consider changing the composition of skills within their workforces, given the increasing requirements for automation and the need for greater diversity.
To successfully achieve many of these challenges, it is perhaps of little surprise that technology will play a pivotal role, particularly as the buoyant fintech sector continues to disrupt the industry and attract a greater proportion of banking customers away from traditional financial institutions. Arguably, it will be the accelerated adoption of application programming interfaces (APIs) that will have the most pronounced technological impact on banks this year. Although such interfaces—which facilitate the connection of applications (including mobile apps) to the information-technology (IT) infrastructures of banks’ back offices—have been used by the financial-services industry for quite some time, the coming weeks and months are expected to witness marked growth in usage as banks look to increasingly partner with fintech companies. According to market-intelligence leader International Data Corporation, half of Tier 1 and 2 banks globally will offer at least five external APIs by the end of the year.
Much of this drive, moreover, is being prompted by new regulatory requirements; the Revised Payment Services Directive (or PSD2), in particular, is set to open the floodgates to any company seeking to access a bank’s customer-account information and payments services—something only the banks themselves were able to control previously. As such, customers will be able to use external non-bank third parties to manage their finances, while the third parties themselves will be able to leverage the use of banking infrastructure to offer their own financial services. With regulators pushing for more collaboration between banks and such fintech companies, therefore, APIs are being implemented to effectively facilitate the sharing of such data.
Artificial intelligence (AI) will be another distinctly transformative technology during the next few years. AI is increasingly helping to automate processes across many banking divisions, which in turn is improving efficiency and enhancing the overall customer experience. For instance, it is becoming increasingly feasible for banks to utilise data-driven, often automated decisions based on advanced data-gathering and machine-learning techniques; indeed, IT systems can analyse documentation and data as well as mine important information to make crucial decisions with steadily increasing competence. And such advancements are expected to gather pace during the coming year.
Chatbots are another example of relatively low-cost advancements in AI adoption within the banking industry. These computer programmes are designed to conduct live chats in order to resolve common queries and carry out specific tasks; and they are proving to be popular among customers. The growing appeal of messaging apps in particular is now driving much of the interest from banks in implementing and improving the capabilities of chatbots. Today, such virtual assistants can offer wealth-management advice, deliver increasingly complex data analyses, and detect potentially fraudulent behaviour. And what’s more, chatbot architecture is being touted to significantly improve in terms of sophistication and customer responsiveness, with Business Insider Intelligence recently asserting that such programmes “will evolve to the point that interactive AI will become standard for customer service”. It would thus appear that 2018 will experience much development for this burgeoning technology.
Blockchain is expected to continue making significant inroads into the banking industry. While many of the applications continue to remain in “test mode”, as opposed to being launched, all eyes will be on just how many use cases are actually turned into working products and services during the coming 12 months. Likely among them are blockchain solutions for payments, with companies such as IBM currently assisting banks to develop platforms based on distributed-ledger technology to help transfer value globally. As such, existing wire-transfer and payments services such as SWIFT are likely to experience mounting pressures as solutions to send fiat currencies instantly and at near-zero cost come to fruition.
Last year also saw a range of views being put forward by banking leaders on cryptocurrencies—the blockchain-based digital currencies that are growing rapidly in terms of investor interest. And as the price of bitcoin, et al., continued to climb during the year, much of the evidence suggests that banks’ overall positions on cryptocurrencies might soften in 2018. While JPMorgan Chase CEO Jamie Dimon appears to remain averse to this booming market—one that recently managed to briefly surpass $800 billion in total market capitalisation—December welcomed the news that Goldman Sachs is setting up a cryptocurrency trading desk, with reports suggesting that the business could be up and running by the end of June. Such a move is clearly a massive boon for the legitimacy of digital-currency markets, and Goldman’s increasing support for this new asset class could set a precedent for other banks to follow this year. Whether bitcoin continues to reign supreme remains to be seen; but with significant gains being made in recent weeks by Ripple, the cross-border payment solution for banks, the adoption of cryptocurrencies by the banking industry may well experience considerable growth in the months to come.
A whole host of additional technologies are bound to feature heavily within the banking industry in 2018, including the likely shift in preference to cloud-based storage over private-data centres; the ongoing normalisation of mobile banking through further security strengthening and improved customer convenience; and the greater adoption of biometrics for identity-authentication purposes including face, voice, fingerprint and behavioural components. As such, banking in 2018 is likely to be characterised by innovation and convenience, which ultimately puts the customer front and centre. As technologies continue to mature, therefore, this year looks set to be an exciting period for global banking.