Recent technological disruptions are triggering seismic changes in the banking industry. As more consumers use digital channels for banking, delivering seamless and personalized customer experiences at every touchpoint has become imperative for success. As a result, partnerships with fintechs, or financial technology firms, have increased. In fact, about 26% of traditional banking firms partner with one or more fintech companies.
The race to the top will take a new turn in 2020 as fintech firms gain ground with unique offerings, adding further pressure on banks to stay relevant and retain loyalty. This shift towards digitization is gradually integrating technology into the backbone of the financial sector, redefining not only offerings but also its banking models.
This article looks at the key emerging trends that are most likely to impact global banking in 2020.
Partnerships between incumbent banks and “big tech” firms to grow
The growing adoption of advanced technologies like AI, biometrics, and DLT (Distributed Ledger Technology) in the banking sector will drive incumbents to fortify their partnerships with technology providers. The rising popularity of fintechs will also translate to sustained relationships between these companies and banks in 2020 and beyond.
Global banks like Goldman Sachs, Citi, and J.P Morgan invested heavily in fintech in 2019, with a focus on analytics, and payment & settlements. This is likely to continue in 2020.
Moreover, regulatory pressures are likely to drive more collaboration between technology giants and banks. Current regulations are not favorable for big tech firms, such as Amazon, Google, and Facebook, to provide holistic banking products. When Facebook announced its cryptocurrency, Libra, for example, it faced pushback from several countries, including France and the US. In the same vein, Amazon decided to abandon its plans to provide checking accounts in America due to regulatory obstacles.
As such, collaborating with traditional banks will be the obvious way forward for tech giants. Apple has already collaborated with Goldman Sachs for offering credit cards, while Google is expected to introduce consumer bank accounts in partnership with Citi Bank.
New banking regulations around cryptocurrency, data privacy, and digital banks to emerge
As burgeoning fintech solutions gain acceptance, governments in several countries are looking to amend policies for regulating them.
Countries in Europe and Asia are designing a new regulatory framework to initiate banking licenses for fintechs in the coming years. Countries like Australia have already started offering digital licenses for neobanks in 2019 (Xinja and 86 400 have received digital banking licenses), while Singapore, Thailand, Malaysia, and Japan are expected to initiate this process in 2020.
Following GDPR implementations in Europe last year, the government in other countries are focusing on framing similar policies around data privacy and security. In the United States, the California Consumer Privacy Act (CCPA) took effect from January 01, 2020, while Brazil is set to implement its General Data Protection Law (LGPD) in August 2020.
The growing use cases of DLT will also push regulators to frame policies to counter potential threats fraud and criminal activity. European Union (EU) is coming up with Fifth Anti-Money Laundering Directive (AMLD5), which would impose stringent financial data reporting responsibilities on cryptocurrency firms. As crypto-assets like digital currencies gain momentum, they pose further threats to an economy’s financial stability, forcing regulatory bodies to define operational guidelines for such firms.
Flexibility and customization will be vital in designing bank offerings and services
Real-time solutions will be crucial as instant customer services become the new norm – be it payments, money transfer, or lending. Banks will need to incorporate technologies that support the delivery of convenient, more straightforward, and immediate offerings to gain a competitive edge. Banks are also positioning AI-powered digital assistants as the primary interface through which customers will conduct various banking services.
Open banking platforms will further facilitate innovations. Besides enabling real-time services, this will also allow banks to develop new digital-only products. Using the power of APIs, traditional banking functions will soon be possible to integrate payments and deposits within non-traditional banking organizations.
Growth in cognitive and immersive technology adoption
Customer intelligence-based platforms are coming of age. Tech giants like TCS offer IoT-enabled customer analytics enabling banks to provide real-time, personalized solutions based on the data gathered from retailers, banks, and communication providers. Australian digital bank UBank plans to make use of Electroencephalography (EEG) technology to study their customers’ brain wave activity to understand their financial decision-making patterns. Banks are also deploying AI solutions to help alleviate basic queries from customers, thus providing immediate resolutions.
In an effort to enhance customer experiences and reimage interactions for further seamlessness, this year will see a bevy of immersive applications. Banks are already focusing on establishing customer engagement scenarios through VR banking centers.
More investment in making workforces future-ready
Adoption of technologies like cloud, analytics, and AI is not only making banks more agile but also leading to downsizing. Mizuho Bank, Japan, had downsized approximately 19000 employees with its AI implementation. Bank of Montreal, Canada, has announced to cut-down its workforce by 2300 and accelerate its digitization initiatives. About 200,000 jobs are estimated to be lost in the US due to AI adoption in banking.
With a focus on improving operational efficiency and speed, banks will continue to automate manual processes and, instead, employ the workforce in more technical and strategic roles. This will drive banks to rebuild their skillsets and invest in training with an emphasis on data architecture, performance insight, data science, and engineering. Banks like JP Morgan Chase have announced a five-year global investment of USD 350 million for upskilling its employees into the future-ready workforce through training programs on digital and technical fronts.
As technology’s influence on banking and other financial services continues to grow, understanding which fintech technologies and entities are gaining ground and pose disruptive threats will be crucial for companies to inform their competitive moves. Netscribes offers these insights and more, through industry-leading research and analysis. To know more, contact firstname.lastname@example.org.