Open banking, artificial intelligence, and Blockchain are just a few of the technology trends banks should be considering in 2019. We look at how these trends are impacting the banking ecosystem.
Banks have their work cut out for them as we move through the latter half of 2019. Technology continues to be a primary hurdle for these institutions, with many relying on legacy systems that hinder agility and scalability. Some have opted to partner with fintechs to leverage technology expertise and embrace digital technology. As artificial intelligence and machine learning continue to play a pivotal role in streamlining processes and better serving customers, it will be an additional component weighing on banks.
Customer preferences are also changing at a lightning-fast pace, with an increased demand for tech-friendly services and financial management apps that can layer on top of bank accounts. Banks still face a learning curve when it comes to meeting millennials and Gen Z at the intersection of high-tech services and security
Banks must carefully consider how emerging technology trends could impact their business model and the financial ecosystem in which they co-exist. In many cases, new technologies can help banks streamline operations and improve customer-centricity. The good news is that regulators continue to hold a friendly stance towards fintech-bank partnerships and innovation, making it a promising time for banks to explore how top technology trends can positively impact their organizations
Large banks are already leveraging artificial intelligence (AI) to streamline work processes and automate wherever possible. In addition to reducing reliance on manual labor, AI will help banks establish more uniform procedures and potentially save tens of thousands of dollars annually. Capgemini predicts that the financial services industry could contribute $512 billion in global revenue by 2020 via intelligent automation (a combination of robotic automation processing (RPA), AI, and business process optimization); $269 of that billion will likely be attributed to banking and capital markets.
Open banking is law in the U.K.; however, how the trend will play out in the U.S. remains open to interpretation. By allowing third-party developers to build applications and services that tap into the technology and data of a traditional financial institution, they can build customer-centric financial tools through the use of APIs. Understandably, banks in the U.S. are hesitant to share data about their customers. On the other hand, open banking also opens up new opportunities for banks. As customer-centricity becomes a top differentiator, open banking affords financial institutions the ability to position themselves as providers of better products and experiences while widening market scope and opening up new revenue streams.
Open banking is synonymous with innovation, which is a necessity in this competitive era of fintechs and challenger banks. According to PwC, 64% of consumers in the UK will be enmeshed in tools built on open banking platforms within the next three years. If U.S. financial institutions were to move in this direction, it could remodel the entire ecosystem. Banks should consider how they may be able to collaborate with reliable fintechs in the area of data sharing and innovation.
The movement behind real-time payments in North America has been making waves over the past several years. Demand for streamlined movement of money between banks, businesses and consumers is only increasing. The Clearing House has already created a system for RTP, with some of the biggest banks leveraging this system in a limited capacity.
Currently, most fund disbursements in North America occur via direct deposit, checks, and cash. Seventy percent of the total dollar value of funds disbursements happen with first-generation electronic payment methods or paper-based payment methods. Visa posits that moving away from checks to electronic payments for these disbursements could save the North American economy between US$1.2 billion and US$2.4 billion
While several large banks have filed blockchain-related patents, public testing or release of related products have failed to materialize. Additionally, many top executives struggle to separate blockchain from its relation to cryptocurrency, which has seen wild swings in value over the past several years.
Blockchain’s future may be murky, but it is not something that banks can afford to entirely ignore. Blockchain shows promise when it comes to greater efficiencies, specifically in cross-border payments. Crypto-enabled transactions can reduce both friction and remittance costs while remaining KYC-compliant.
Banks have a friendlier attitude towards some of these technology trends than others. Regardless, keeping a finger on the pulse of major forces changing the industry should be a top priority for financial institutions who cannot afford to fall behind the competition. Whether the end goal is to provide better products and services to customers or to reduce costs and streamline operations, banks must carefully consider how technology can help them achieve their objectives.