By Sachin Wason
Do you remember the last time you actually visited your bank to withdraw cash or to apply for a loan? Can’t remember, right? All thanks to technology. You don’t have to stand in long queues anymore – everything from transferring money to applying for a loan can be done online. You can access your account at any time of the day, from anywhere in the world, using your mobile phone or computer.
Technology has completely changed how banks deliver and consumers consume financial services. Believe it or not, the digital disruption in the banking sector is just the beginning. New players from outside the financial sector are fast emerging as a competitive threat to the traditional incumbents. For instance, the mobile wallets offered by non-banking players are slowly replacing traditional payment methods.
So, what’s next? No doubt there will be more innovations as time goes by. There will be more trends that will change the banking system landscape.
We have identified some of the key trends that are likely to shape the year 2018 for the banking sector. Of course, technology will continue to be a driving factor, but issues like regulatory changes as well as competition from non-banking players will also take centre stage. Check them out:
1. Banks Taking Digital Leap With Blockchain
What merely started as a technology to enable cryptocurrencies is now seen as the way forward for banks as they look to offer real-time banking services while keeping a check on their costs. If you have no idea what blockchain is, imagine a spreadsheet that is shared across a network. But it’s not just any network. The network has been designed to keep this spreadsheet updated in real-time, while eliminating the risk of data loss/theft.
Wondering how this technology could impact banking? Traditional core banking is still not ready for the fast-moving and highly demanding digital economy. This leaves the banks with no option but to replace the ages-old systems with new, real-time systems. That’s where blockchain could help. With this technology, banks will not just cut online transaction costs but also enhance the security of transactions.
Also, at a time when banks are under increasing pressure from regulators to ensure the safety of consumer data, blockchain technology offers just the perfect solution. Since this digital ledger is distributed across the network, there is no centralised place for this data that could be hacked by cybercriminals.
2. Increase in Open APIs
The trend of Open Application Programming Interfaces (APIs) in banking, which is also known as open banking, is a continuation from 2017. As the name suggests, open banking allows third parties like fintechs to develop and offer new products and services to the consumers by using the data through APIs.
In the past, there were very few open APIs for fintechs to work with banks and offer enhanced services to the customers. However, now, as the number of digital banking transactions continue to increase, the need to provide a seamless experience across digital platforms has never been greater. To meet this requirement, banks are increasingly adopting open banking initiatives, thus releasing thousands of open APIs over a very short period of time. This number is going up every day. Thus, the year 2018 could see more and more APIs that could result in innovative new products for the consumers.
3. End-to-End Digitalisation
Digital banking is the future. A majority of consumers are already using smartphones/computers as their preferred mode of banking. Banks have also realised the importance of digitalisation and are already shifting their focus to convenience from conventional. Digitalisation presents a huge opportunity for the banks not just to maximise their customer base but also to streamline their operations and cut their costs.
The trend is expected to continue in 2018 and is expected to see banks offering all types of products through their digital platforms, making the entire process completely paperless. Also, given the growing competition from third-party providers, this may be the year when failure to provide end-to-end digitalisation exposes banks to the risk of being left behind.
4. Artificial Intelligence
Perhaps a bit late, but Artificial Intelligence (AI) is slowly making its way into the banking sector. Banks are already working out ways to implement AI in their processes to further improve the customer experience. Chatbots are being used to support customers and resolve their issues. Vast amount of unstructured customer data is being organised to create detailed profiles of the customers with the help of AI. Processes are being optimised by allowing AI to handle processes that don’t necessarily require human involvement.
Singapore-based DBS Bank recently became the first bank in Southeast Asia to introduce an AI-based hiring agent named Jim. DBS believes that Jim will help save up to 40 man hours a month by pre-screening candidates for job interviews and conducting psychometric assessments.
When it comes to sales, AI could prove really helpful in analysing the vast amount of data and providing meaningful insights into the behaviour of consumers.
The year 2018 will likely see banks accelerating the implementation of AI in various processes that could not only result in cost savings but also minimisation of risks related to fraud and errors.
5. The Relationship Between Banks and Fintechs
There’s no denying the fact that fintechs have made a huge impact on the banking sector. These technology providers have somewhat started a new era in the financial sector by experimenting with new, customer-friendly ways of delivering banking services.
Thus, it’s fair to say that fintechs have helped banks accelerate their growth. Going ahead, the focus is expected to remain on collaborative fintechs – the ones that support banks rather than compete against them. Experts expect banks to use this opportunity further to collaborate with fintechs and adapt to the changing landscape. The trend for this year indicates more collaborations between banks and fintechs.
The Road Ahead
With all the trends that appear to be taking shape in 2018, it’s clear that it will be another exciting year for the banking and financial sector. Digitalisation in banking is gathering momentum. With fintechs coming to the fore and incumbents looking ready to join hands with the technology providers, we are seeing a major transformation in the banking landscape.