Top technology transformation drivers for banking

Uber, Airbnb, and Amazon are strong examples of successful aggregators who are innovatively adapting to the dynamic needs of today’s consumers. So, why not banks?

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Technology Banking

By Mohit Joshi

A glance at some of the most popular services voraciously consumed today through digital channels is enough to reveal a lot.

What one sees is that most of these are novel platforms developed by innovative players who have discovered smart ways to aggregate and offer services and products in an intuitive fashion.

Uber, Airbnb, and Amazon are strong examples of successful aggregators who are innovatively adapting to the dynamic needs of today’s consumers. So, why not banks?

Today, banks are getting savvier – and application program interface (API) and the open banking economy are paving the way to aggregated banking platforms. The effect of this can be seen at two levels.

At the micro level, we see organizations increasingly using APIs to open up internal systems that can then talk to and communicate with each other to maximize operational efficiency.

Machine Learning

At the macro level, banks are using open banking to create an open marketplace with the extended banking community. Here, the key is collaboration.

Over the next three years, APIs and open banking will allow banks to collaborate with a plethora of partners including other banks, fintech players, and third parties to create a unified platform that is as disruptive to established models as it is to how customers now use banking services.

‘Data is the new oil’ is a common adage of this age. And this is very true for the banking industry as rising volumes of data are being generated across every interaction and transaction – whether real or virtual.

Today, big data analytics is a popular tool for companies across industries to derive value from data. However, in the near future, banks will take it one step further by marrying analytics with artificial intelligence to unlock granular insights that can be used for everything from customer service and product design to fraud prevention. The key here is personalisation.

Deep analytics-driven personalization will transform how banks interact with customers, partners, and stakeholders by enabling contextualised service delivery.

Another emerging trend is that of paperless trade finance. We have blockchain and the Internet-of-Things (IoT) to thank for this.

Blockchain with its secure, auditable, digital, and distributed ledger systems has numerous applications in the banking world, many of which cannot even be visualized at this point in time.

But naturally, banks are wary of the degree of disruption and are probing the benefits through unique pilot projects. For example, several banks are testing blockchain’s value by digitizing letters of credit. As the number of successful pilots and proofs of concept increase, we can expect blockchain to become a much-sought-after technology in the banks of the future.

Unarguably, blockchain will inject new efficiency into many banking processes and lifecycles. But, when paired with IoT, its applications take a quantum leap.

For example, imagine how the lifecycle of executing a trade will transform with blockchain-driven smart contracts and IoT-enabled product tracking. Soon, near real-time updates and granular visibility will transform banking as we know it by enabling new capabilities.

A recent report by Infosys offers clear evidence into the real-world applications of these new trends. It reveals that a whopping 86 percent of banks are investing in machine learning algorithms for fraud prevention, underscoring the deep personalization enabled by analytics.

Significant investments are also being planned for robo-advisors to enhance customer service followed by predictive automation for back-end systems. Many companies are also investigating the value of digitizing and consolidating core systems to prepare themselves for the digital disruption in the years ahead.

Simply put, the onset of digital helps banks achieve three main goals – improve operations, solve new problems and discover new opportunities.

The Infosys report throws further light on how banks are doing this. For instance, a majority of banks are using mainframe modernization and APIs to improve existing operations.

Not surprisingly, IoT is the most popular tool of choice when it comes to solving new problems. Finally, big data analytics and IoT are among the top 3 technologies used to uncover new business opportunities.

The amalgamation of these initiatives will help banks derive unprecedented value in the next three years.

Banks are racing to find better ways to optimize their internal application landscape so that they can better predict and deliver what customers want.

Stoking this drive is the rising competition from incumbent players and challenger banks with their lean, agile and platform-based business models that can upstage age-old institutions very quickly.

Thus, virtualization, modernization, and innovation are vital for banks to up their game. Moreover, new and evolving regulations are shifting the focus from competition to collaboration, providing greater opportunities for mutual growth.

Ultimately, the convergence of personalization, collaboration, and paperless trade finance is reshaping the banking landscape by infusing new-age capabilities and enabling smarter business models.