Home Banking What’s Ahead for Open Source and Financial Services in 2020

What’s Ahead for Open Source and Financial Services in 2020

by internationalbanker

By Alessandro Petroni, Director of Financial Services, Red Hat

It is hard to believe that we just wrapped up another year. The beginning of a new year is one of the best times to both reflect on the previous years successes, while looking ahead at what the biggest challenges, priorities and opportunities will be for companies as they enter the new year. While it can seem overwhelming to look at every single business trend, it is important to understand which ones could have the most impact on your financial services organization, and how to get ahead of them.

Connected banking could get, well, more connected 

Connected banking – defined as a hosted or utility-based ecosystem of products and services that allow banks to ultimately provide customers with top notch customer services and experiences, regardless of the channel – is on the rise. While it does share some similarities with Open Banking, connected banking is a digital first ecosystem that assembles best-in-class apps that communicate with each other and can run anywhere – removing costly infrastructure and diversion from non-differentiating activities. Connected banking was born out of banks needing to deliver on customers increasing demands for what they expect out of their banks – better connection to their everyday life. Connected banking works to proactively improve customer expectations, with embedded benefits while also saving time and money on the infrastructure and backend, by leveraging streamlined business processes, being able to easily plug into data sources and capabilities that are already successful, extending their utility. It also helps to shift banks away from legacy technologies through the use of open APIs to introduce innovation.

We anticipate that the drivers and success of connected banking will transfer to other industries, and in the near term, the insurance industry, as insurance companies continue to adapt and modernize to better align with customer expectations. Insurance companies will begin opening up their APIs to help drive innovation, enhancing not only traditional products with more relevance, but as a way to offer new products and services, like event-based, short term insurance (mimicking mileage-based insurance for a broader range of life events), on-demand. In order for this to happen, insurance firms will continue to leverage the likes of the Internet of Things and embedded intelligence.

Most, if not all, software companies will try to become banks 

It should not come as a surprise that software companies like to try their hand in many different industries, and it was only a matter of time before the most popular ones decided to start offering financial and banking services. Google’s recent announcement that it will start to offer “smart checking accounts” comes right on the heels of Facebook’s Libra currency announcement, and we anticipate that this trend will just continue. The biggest reason is that banking continues to happen where customers are already shopping, and/or where social networking occurs – ultimately serving to streamline the customer experience and to permit spending and lending to happen faster and in places the customer already spends a significant amount of time.

A short cut for many of these software companies will likely come from white labelling pre-existing offerings from others – whether it be credit cards, digital accounts, mobile payment systems, insurance offerings, etc. As long as the software company is partnering with the right bank partner, and has the backend ecosystem in place, the customer is still getting a top-notch, regulated banking product/ experience. And surveys show that customers don’t really care who they do banking with, as long as it meets their needs. In fact, a recent survey by Accenture found that 78% of respondents who describe themselves as being digitally active (about 38% of overall survey responders) are open to banking with non-traditional providers. Given the robust partner ecosystem, banking is an industry that software providers are able to expand into, quickly and cost effectively. In order for traditional banks to not lose customers to these emerging ways of doing finances, banks need to be more innovative in both understanding and responding to changing customer needs, and seizing the opportunity with partners.

Automation will continue to take over 

In 2019, we saw automation continue to find its place in mainstream banking and financial services offerings. In 2020, this trend will only continue, with automation deepening across the organization to further integrate activities. Some examples of potential areas in which automation will make an impact include:

  • Through the use of chatbots, which was a common early application of automation, and mimics personal interactions through the use of a learned, automated algorithm.
  • Using rules and process automation to drive operational efficiencies in back-end banking systems to organize the workflow and allow for a seamless customer experience.
  • Automate the integration of different services – from different providers, partners and third parties – to be able to orchestrate on-demand data exchanges from APIs.

As the scope of offerings from banks and financial services organizations continues to increase, automation will have an important role in allowing the new services to scale.

Data will begin to be used in more meaningful ways

Data is what drives banking – from understanding how customers use and interact with their banks, to what services they would benefit from in the life events they will have. The issue for banks is not collecting data, but how it is stored and how to best use it. Instead of banks focusing on AI/ML in 2020, we anticipate that there will be a focus on going back to basics and better addressing the data that banks have collected about customers and competitors. While AI/ML can be powerful for overseeing business operations, it often does so in a very generic way. Getting a better understanding of data is expected to also unlock more opportunities for personalized “tracks” for customers – for example, if a bank sees that a customer is inquiring about a mortgage, they will be interested in insurance plans, and maybe a new credit card to pay for furnishing their new house. Such customer tracks would intelligently (eventually, anyway), identify a different set of data to collect. Then that data would also be used to better assess and understand through cognitive interchange, what new upsell or partnered opportunities make the most sense for that specific customer, doing so in a way that feels unique to them.

These are just some of the main trends in financial services we anticipate coming to fruition in the year ahead. We are entering an exciting time for financial services overall, and banking in particular, and are looking forward to what this year holds!

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