Originally posted in The Financial Brand Bank and credit union executives more than ever need to keep up with fast-changing technology. Dozens of tech trends could be listed, but experts emphasize the importance of the five covered in this report. While not every institution will be impacted equally, collectively the trends point to where banking is headed. Where once banks and credit unions routinely left technology to specialists, the subject now has become elevated to the highest-ranking issue impacting retail banking. Research by The Economist Intelligence Unit (EIU) for Temenos finds that coping with new technology is the top concern of retail bankers, ahead of changing consumer behavior, political and economic instability and dealing with bad loans, among other factors. No institution can afford to ignore the combination of new competition from fintechs and big technology companies, multiple new technologies, and soaring consumer expectations is bringing unprecedented change to retail banking that And few are ignoring it, as the EIU survey indicates. However, the how quickly and how extensively organizations respond varies sharply by institution and sometimes even by country. In a study of 161 publicly traded banking institutions around the world, Accenture found that just over half are “digital laggards,” with no plans to go digital or just “half-hearted efforts.” About 40% are digitally active, doing many things right but still lacking true institutional commitment to digital transformation. Just 19 financial institutions (12%) from the group studied were “fully committed to transforming themselves into digital-centric institutions,” according to Accenture. The following five technology trends collectively signal that the transformation in what it means to be in the banking business is far from over.
1. Open Banking and Banking-as-a-Service: More Than an EU IssueMany financial institutions, particularly in the U.S., view open banking as a European issue. Some also see it as threat — and in a way it is — to traditional business practices. This viewpoint isn’t helped by the fact that the terminology is confusing. Terms such as “open banking,” “banking-as-a-service,” “banking-as-a-platform,” “open APIs,” “API banking” and “ecosystem banking” are often used interchangeably — incorrectly because they are not all synonymous. As described in a BBVA blog, banking-as-a-service (BaaS) is an API (application programming interface) strategy that falls under the broader umbrella of open banking. “Generally, open banking refers to any initiative by a bank to open its APIs to third parties and give those third parties access to the bank, whether that be access to data or access to functionality.” While it’s true there are no specific regulations in the U.S. duplicating the U.K. Open Banking initiative and the European Union’s Payment Services Directive (PSD2), which require financial institutions to allow third parties to have access to customer data, the underlying concept of transparency and giving consumers more control of their data is a growing focus at multiple governmental levels. It’s also a competitive consideration — a good example being the difference in approach to handling consumer data used by Apple versus Facebook and Google. The concept of open banking in its broadest sense encompasses the need for banks and credit unions to respond to consumer demands for simple and painless experiences, whether that be to buy a home, pay another person or get paid, or manage their financial lives. Fintechs and big tech companies already are leveraging the new open API ecosystem to offer financial services. And while most financial institutions don’t have the capability to duplicate what Amazon and Facebook do, there are steps they can take, one of which is to partner with a fintech provider. Going even further, data from the Temenos/EIU survey indicates that more than four out of ten (41%) retail banking executives see their institutions’ digital business model evolving to be a true digital ecosystem in which they would offer their own and third-party banking products to their own customers and to other financial services providers. That may seem like blue sky to many in the industry. However, as shown in the chart, launching an open banking strategy — the number seven priority now — is expected to be the top priority by 2025 among the largest segment of banking executives at 30%.
Closely Related Trend: Security. The movement to increasing partnerships with fintechs and other parties means financial institutions will have to simultaneously implement even stronger forms of authentication and data protection measures than they currently use. In its Banking Technology Vision 2019 report, Accenture considers security as one of four major trends. “As the spider web of interconnectivity grows,” the report states, “the potential points of weakness and vulnerability also multiply.” The firm found that despite a clear trend toward open banking, only half (51%) of banking executives surveyed believe customer trust in partners their institutions use is extremely important. Even more startling, Accenture found that only 31% of banking execs know for a fact that their third-party partners are working diligently on security issues. The rest “trust and hope” that is the case. That lack of certainty must change, the firm maintains.
2. Always-On, ‘Invisible’ BankingMany experts believe the business world is entering the post-digital age. Accenture sums it up in a banking context this way: “Despite all the talk of digital transformation, banking — like the rest of the world — is entering a post-digital age where the priorities of the last few years are fast becoming the table stakes of the future.” Capgemini refers to the trend as “invisible banking,” in which financial institutions seamlessly integrate financial services into consumers’ daily lives. In a way, the concept, like most in business, is not completely new, direct deposits being an example of an invisible transaction. But now the scope is far greater and the speed much closer to immediate. Technology has created an always-on world, where business opportunities appear quickly and evaporate just as quickly. Accenture mentions how auto insurance can now be bought by the mile or by the hour; how Alibaba can provide Chinese businesses micro-loans within minutes to finance working capital for only a few hours, and how Rocket Mortgage can offer initial mortgage loan decisions in as little as eight minutes.
“Nearly nine in ten banking executives agree that always-on capability will underpin future competitive advantage. Yet a mere one in ten are prioritizing on-demand delivery.” — Accenture“The bar is being raised to the point where being competitive will mean not only having the right products and services but being able to recognize the exact point in time when they are needed,” Accenture states. Its research finds that nearly nine in ten banking executives (87%) agree that this always-on capability will underpin future competitive advantage. Yet only 38% say their institution is prioritizing a customized approach to delivering products and services. A mere 9% are prioritizing on-demand delivery.
Closely Related Trend: 5G Network Rollout. Mobile providers are racing to implement 5G service, the next-generation communication technology, reported to be anywhere from 10 to 100 times faster than 4G LTE. Experts emphasize that 5G capabilities will have an major impact on banking, and will also be used by fintechs to enhance their service offerings. Accenture reports that 55% of banking executives believe 5G will have a significant impact on their industry within one to three years.
3. Intelligent Assistants and Voice BankingThe rapid consumer adoption of voice assistants and digital assistants makes it imperative for all banks and credit unions to seriously consider implementing such a service. Some statistics help build the case:
- The number of smart speakers (e.g. Amazon’s Echo and Echo Dot) in use in the U.S. grew 78% in one year to 118 million, according to NPR and Edison Research.
- Juniper Research predicts there will be 8 billion people using digital voice assistants (Siri, Cortana, Alexa, etc.) by 2023.
- Bank of America’s digital assistant Erica, used by more than seven million of the bank’s customers, handled 50 million interactions in its first year.
- Nearly one quarter of retail banking customers today prefer to use a voice assistantinstead of visiting a physical location, according to Capgemini, which predicts this figure will jump to two out of five in three years.