By Alessandro Petroni, Head of Strategy, Financial Services, Red Hat
With the new year comes new priorities for business and technology leaders, new trends to look out for and new best practices and ideas. While it can be hard to sift through all of the information to understand what it is that will have the biggest, most positive impact on your financial organization, it is important to at least eyeball some of the new trends to figure out which ones do indeed make sense for you to look into.
Open Banking and the way it is changing the financial industries landscape
In 2018, open banking continued to make strides in terms of enterprise adoption, collaboration, innovation, and benefits it offers to banks and their relationships with third parties. As a result, there has been an increase in joint development activity across partnerships, fintechs, traditional financial institutions and open source communities growing, which can lead to the increase the ecosystem of players focused on the same goals. At the heart of this effort is using well-managed APIs to allow enterprises to build new and innovative products in a modular, plug-and-play way – which, in turn, can help to improve the speed of new and better customer experiences to market – the heart of the objective of open banking.
In fact, open APIs are becoming a key part of not just an open banking platform, but the complete modern digital go-to-market strategy as well. Open APIs provide the missing link between digital-first FinTech organizations and traditional banks – helping the integration process between the two, and opening up new revenue streams for the bank and new services for consumers, even faster. We anticipate that open banking is only just in its infancy and will continue to develop as a crucial, competitive strategy for banks and fintechs alike. Collaborations between technology vendors and fintechs and banks are just getting started, and we believe that in 2019, we will see even more co-development and collaboration to capture market advantage and new growth opportunities.
The importance of digital in banking
Another big buzzword recently is digital transformation. While this is not a new term, and in fact, often overused, the implications are very real and we are just scratching the surface of the implications for financial companies to have a robust digital transformation strategy in place. Digital transformation – which is a combination of technology, processes and culture – is becoming more important to create differentiated services for competitive advantage. Fundamentally, it’s the speed that digital transformation can bring to rapidly adapt to changing customer needs which in turn, requires a shift to the digital-first landscape and the corresponding culture. Digital transformation also, in a way, forces the conversation between business executives and the technology organization to better understand what the collective organization need is, and how technology can help. We anticipate that 2019 will be the year that digital transformation strategies and plans continue to take shape and that more banks will expand their implementation strategies.
Even for challenger banks, who started as digital-first and do not need to worry about shifting away from existing technologies and processes because they never had them in the first place, digital transformation practices can help with the scaling of services across geographies and markets.
Payments and processing automation
As banks continue to become digital-first, with customers demanding that they do everything on their mobile devices, payments processing is responding by becoming fully automated. In the United States, as well as other countries, there are compliance policies and regulations that banking institutions need to follow. Associations like The Clearing House, owned by large commercial banks, which operates one of the core payment processing systems in the US. The Clearing House provides multiple, distinct, payment systems that work to ensure banks are staying compliant and secure while using the next generation of payments systems. This is important because the payments landscape is constantly evolving, with new innovations, risks and competitors being added to the mix as customer expectations and demand are constantly changing. We feel that the overall goal of payments processing is a landscape where payments happen seamlessly and securely, anywhere and on any device, all through cloud technologies
New payment processing is also expected to address competitive market challenges from up and coming and digital-only natives, like eWallet processors. Blockchain vendors, providing distributed ledger technology, crypto-currency solutions and crypto to fiat currency exchanges are also expected to play a disruptive role here as a digital-only processor.
Additionally, faster payments means people get their money sooner, which is obviously a big draw. Already, we have seen new form of payments solutions being used in providing a means to engage the under-banked, and those with limited, if any, digital identity, as inclusion is at the heart of this customer engagement. Peer to peer processing is expected to lower the fees merchants and end users pay. Extending this to corporate payments is likely to be the next iteration of payments development, possibly having the ability to disrupt payroll processors.
The increased role of financial services communities
The past few years have seen the rise of communities and organizations being created for open source projects in the financial services industry. These organizations, such as the Fintech Open Source Foundation (FINOS), are both driving open source innovation in financial services and creating a space for industry experts to come together to share knowledge and experiences on banking and technology. In 2019, we expect that open community groups will continue to be trailblazers when it comes to setting the standard for new open source banking technologies, blueprints and guidance including defining new common controls requirements to accelerate adoption of public cloud services.