Top 8 Emerging Trends for Banking in 2020
Banking is not how it used to be and the way the trends are shaping up the current face of the industry might appear archaic ten years down the line. As 2020 marks the beginning of a new decade, the industry is expected to shun the same old same old and take a step towards integrating the new normal. This new normal consists of an unsurprising interest of the Big Tech into financial services that share the spotlight with the penetration of Artificial Intelligence (AI), Machine Learning (ML), and blockchain. Let us closely examine the expected through-puts of each development on the industry as a whole.
1. Conversational User Interface
Chatbots UI is a computer program designed to stage human-to-human interaction over the internet. These programs store a repository of answers to common customer questions, triggered when a user enters a particular keyword in the chat window. Automated responses declutter the customer service experience by circumventing human interaction, and offering to-the-point answers. User attention span is short, and businesses aren’t playing around when they cut to the chase with Chatbots.
Their viability has been proven on the ROI-side. As per Gartner, Chatbots will handle more than 85% of customer service interactions in 2020. Juniper Research estimates by 2023, operational savings from the deployment of conversational AI will amount to 7.3 billion. In other words, this is equivalent of a saved time of 862 million hours or half a million working years. The technology has branched out to banking corporations of all sizes giving a glimpse into the future where tech substitutes unintelligent, repetitive human tasks. A few use cases include the Bank of America, Capital One, and American Express. On a collective level, the banking industry stands to save $443 Billion by 2023 through Artificial Intelligence of which conversational interfaces form an extension.
2. Big Data Analytics
Big Data Analytics offers tremendous scope to conclude meaningful, actionable insights from chunks of information. Banking is supported by numerous divisions that could materialize immediate benefits from such insights. This includes Risk management, where programmed codes could sift through past trends and point out interest rate variations to nullify inconsistencies within the capital markets. Big data analytics mitigates the threshold for human error and discrepancies in customer information leading to advance the diagnosis of possible fraud. It could reveal insights in consumer-buying, providing critical data points to model new financial products.
Big Data analytics can also be applied to stimulate error-free regulatory measures and monitor thousands of customer feedback to identify key action points. These could be customized to suit consumer preferences. The same holds for customer attrition that could be predicted in advance conditioning steps to avoid the same. A strong use case of it is American Express and its application of Big Data. The financial company claims to predict 24% of the accounts that will close in the 4-months with accuracy. Its estimates are based around a hundred variables.
Defamed initially for its use case in crypto-currencies, the under-current principle behind blockchains is high on the radar of banking and financial corporations. This distributed ledger technology offers multi-purpose use cases in payments, security, fraud detection and trade finance. The tech is acting as an enabler of near real-time fund transfer advantaging a cutting edge over legacy payment transmission systems that take days to do so. Commercial applications of blockchains are already underway.
Leading examples include 12 of the 26 publicly listed Chinese banks that have adopted blockchains for varying needs.
Some of these include the Bank of China, Agricultural Bank of China and the China Construction Bank. This is an ongoing trend where blockchain applications are gaining mainstream momentum. India’s Yes Bank, State Bank of India and Axis Bank have similar roadmaps ahead. PwC reports, 77% of financial institutions will implement blockchain-based solutions for intra-organization needs in 2020. World governments are also keen to source the power of decentral networks for archiving citizen records. As per Gartner, by 2022, over 1 billion people will have some part of their public information stored on a government-backed blockchain network. Blockchains’ secure architecture has much to unfold in terms of cyber-security not just for financial institutions but for businesses universally, which brings us to our next point.
The Banking and finance industry is a primary target for sophisticated phishing attacks. Among these, and fresh in the recent memory, are ransomware attacks. Such attacks target the consumers exploiting software layers or lack thereof. The rising sophistication in phishing attacks makes such ongoing adversarial exercises hard to detect. Of all the industries, the need for cybersecurity services is felt in banking the most.
Third-party applications have emerged as the new go-to option for banking corporations to outsource their software needs. Leading market vendors include Accenture Plc, Fiserv Inc., Infosys Ltd. and Oracle Corp to name a few.
Spectator banks would take a cue from the information hack of over 100 million customers of Capital One bank in 2019. Banks will tighten the screening layers for APIs and software architecture, to avoid the lasting impact of reputational damage or worse, monetary loss. The investment would also trickle into updating and up-keeping software, something that may be on a priority, especially for ATM terminals. The call for action grows dire as the software many ATMs are run on is Microsoft Windows 7, which the vendor stopped support for in January 2020.
5. Digital Banks
Banking is not just refining its predominant business models, but redefining it. Digital banks are on the rise. They are an alternative to branch-based banks offering the same services remotely over the internet with minimal paperwork. Their USP is that customers never have to visit the branch because there isn’t any, making such financial services digital-only. The regulatory climate for digital banks may be affected by geography and the level of digital transformation within the economy. Also, it may inhibit the extent of offered services, limiting core banking products (such as saving/checking account) to retail banks. Examples include Ally, CBD Now, Digibank and Finn. In India, such RBI introduced the Payments Bank category for digital banks. They can offer a digital bank account/digital savings account accepting deposits of up to INR 100, 000.
But one thing is for sure, the already public digital banks and those standing in line for a market-entry will ride an upward curve for growth.
6. Rising Big Tech Interest
The Big Tech colloquially refers to the team of the largest tech conglomerates in the world. This includes Facebook, Apple, Amazon, Alphabet (Google) and Microsoft. Being the flag-bearers for new-age technology, they turn around ideas into solutions faster than their immediate competition. For some time now, their interest in the financial services industry has been fuelled by the need to monetize their user base in multiple ways.
For instance, Apple introduced Apple Pay in 2015 and has since then galvanized its followers to rely on its Point of Sale (PoS) payment mechanism. Similarly, Google Pay is vying for market share with its outreach advantage of Android devices. Facebook wants to mobilize its social network for B2C selling with the Facebook Marketplace. Facebook Pay is a peer-to-peer payment network targeted towards its messenger audience (Facebook Messenger, WhatsApp, and Instagram).
The buck doesn’t stop here. Apple has partnered with Goldman Sachs to launch its Apple Card, Google wants to offer checking accounts via CitiGroup and Stanford Federal Credit Union. Ride-hailing big-wiz like Uber is leaving a similar trail in its stead as it offers bank account, debit card, and mobile banking in association with Green Dot.
2020 spells more of the same more from such corporations.
7. Responding to Gen Z
As of writing, Generation Z accounts for 32% of the world population (7.7 billion). In the US, they make up to 44% of the population and hold $44 billion in buying power. It can be surmised that legacy banking businesses would mean little to them, and swift digital service delivery everything. One of the pointers mentioned above, the digital banks, could bear a semblance of the trend that is inclining heavily towards Gen Z. With their priorities outlined in mobile banking, it is no surprise that they are the central figure for new product development and direct-to-consumer service delivery models.
8. Digital-Ready Workforce
Automation came knocking on business doors. Now, it is bulldozing the ones that aren’t readily open. As computational intelligence becomes smarter and sharper, complex/cognitive and not just repetitive jobs are beginning to fold up. With this looming danger, it is estimated that automation poses a risk to 1.3 million finance jobs in the US alone. Such professionals would either be handed the pink slips or reassigned. The consensus around the job security of such banks is on shaky grounds. Accenture estimates that by automating key roles, the banking, finance and the capital markets industry stands to save $140 billion by 2025. Therefore, a swift transition to retain the cream of the workforce and re-train/expand their existing credentials will be seen from 2020 onwards.
The banking industry is at a crossroads with the signboard indicating both the challenge and the opportunity. Our times will push legacy banks to scamper for transformation whereas the new-age banks have an open-field to capture market share. With new divisions arising in the century-old business model, it is intriguing to wait and watch from the sidelines what the future has in store.