3 things this blog covers:
- The state of financial services technology in 2018
- How digital banking has grown in popularity
- New technologies that threaten the way banks do business
In our ongoing posts covering the big technology trends that are affecting a variety of industries, a pattern is starting to emerge. The pattern shows that at the intersections of technology, competitive differentiation, and advancement is data. But in order to reap the rewards of data and data-driven business processes, organizations must re-evaluate their IT infrastructure and ability to actually leverage the technology and gain business benefits.
Additionally, that pattern doesn’t seem to be showing any sign of slowing down in any industry. Much like logistics and healthcare, the financial services industry is more reliant on data- and technology-driven strategies than ever before. New technologies, such as blockchain, threaten the way banks do business, while digital-only banking continues to grow.
So, the question becomes – how does the financial services industry take advantage of new technology while guaranteeing the same level of security and usability that customers depend on? Read on to learn about the top trends affecting financial services organizations in 2018.
1. Emerging Technologies
Online banking is everywhere you look. From depositing a check using only your smartphone to apps like Apple Pay and Venmo, consumers have more convenient options for their financial needs than ever before. And while not every customer is aboard the mobile banking train, for the younger generations that have always grown up with technology and the internet, it’s simply a way of life now. A financial services organization must offer a mobile app for its customers and usually must extend a variety of banking services tailored to each customer’s needs.
Financial institutions have realized just how much the digital disruption will transform the way they offer services to customers and have invested accordingly. In fact, mobile banking is only going to get easier for consumers to use, and that’s because financial institutions have made a commitment to deploying technology that improves internal processes and external offerings. It’s why digitization and IT modernization initiatives are top priorities for CIOs and other financial services executives going forward.
2. Open Banking
Open Banking aims to encourage innovation by making it easier to aggregate every piece of a consumer’s financial data, history, and spending power. The idea is to be able to manage all financial accounts via one digital platform, with applications and plug-ins designed to personalize each experience. Through Open Banking, third parties can safely and securely access accounts after a customer gives his or her consent. Those third parties can then gather transactional data or create payments on behalf of the customer, through an open application programming interface (API).
The U.K. recently required all nine of its largest banks to implement some form of Open Banking, while financial institutions in the United States will keep a close eye on the way these U.K. institutions deliver new services. Banks and financial technology companies essentially will join forces to provide better consumer experiences and services. Data-sharing technologies will be standardized, and an entirely new market of third-party providers will almost certainly surface to capitalize on the promise of Open Banking.
Customers have more information available at their fingertips than ever before, and they can easily find a banking provider that better meets their needs than their current one, and financial institutions will have to embrace these open APIs to adapt and evolve their customer-experience processes. Financial technology companies are increasingly becoming a part of the customer journey, and customers already realize this. The companies that recognize this and become more innovative and more user-friendly will succeed in 2018 and beyond.
3. Blockchain and Artificial Intelligence
It seems regardless of the industry, the next disruptive technologies that companies must prepare for are artificial intelligence (AI) and blockchain. The year 2017 saw blockchain pilots in the financial industry, but 2018 has already seen blockchain’s decentralized, distributed digital ledgers put into production. But in order to capitalize on the promise of blockchain, financial institutions must place a stronger emphasis on its architecture and the interoperability that is necessary to support the growing technology.
Over the last few years, many financial firms have slowly begun to add new forms of AI to offerings. These solutions ranged from artificial intelligence surveillance tools to prevent financial crimes to machine learning for tax purposes. Investing also can be automated over multiple channels within the supply chain. Even in financial planning, AI-powered platforms can perform asset management by way of algorithms to offer investors more detailed and educated information than ever before.
4. Alternative Lenders
Ever since the 2008 financial crisis, banks and other legacy financial institutions were at a great disadvantage with credit-challenged customers. This left the door open for alternative and non-traditional lenders to take advantage of technology-based algorithms that assess the credit profile of customers. Additionally, these alternative lenders also have the capabilities to leverage “alternative data” through social media, GPS data, online purchases, mobile data, and much more.
Many small businesses are using third-party lenders for their loans, and the online lenders have more ways than ever to determine whether a business is credit-worthy. If a business is a merchant on Amazon, for example, that online lender can look through customer reviews and learn everything about that business. Conversely, small businesses can compare online lenders against one another and get the lowest rates available.
There’s always concern that new regulations will put a stranglehold on these alternative lenders and of just how reliable these online organizations are. But for traditional financial organizations, the increased competition from alternative lenders has forced them to re-evaluate their approaches and evolve with the times. Banks and financial institutions, rather than develop their own technology in-house, are partnering with tech companies to enhance their loan approval process and upgrade other service offerings.
5. Digital-Only Banks
Digital-only banks are also proving to be stiff competition for financial institutions. New types of online banking providers, such as Ally and HelloBank, are defying the conventional banking model by offering innovative products and services that appeal to tech-savvy customers. Online-only banks also can offer a level of personalization tailored to a person’s specific needs. Most consumers don’t need to set foot inside a bank at all anymore, so a digital-only bank where they can get all their banking needs done using only a smartphone certainly has some appeal.
Digital-only banks are also upping their game via marketplaces that allow customers to sort through different third-party insurers, pension providers, and mortgage brokers. For those traveling abroad, many online-only banks offer multi-currency accounts so customers can easily move money between countries for a very small fee. While traditional banks still have a credibility advantage – most consumers still trust them to secure their personal data and protect their privacy – online banks are closing the gap by offering personalized services in a very agile way.
Where are We Headed?
The bottom line is that consumers want a good user experience and a variety of smart service offerings designed for their personal needs. Technology has changed the way people handle their banking needs, and traditional financial institutions must continue to evolve and adapt. That’s not to say that banks are not evolving and adapting already; there are many financial institutions that offer easy-to-use mobile apps and new services that take advantage of emerging technologies and strategies. But the banks and credit unions that will not just survive but flourish will be the ones that continue to embrace innovation, evolve with the changing consumer, and strive to provide a premium experience that customers not only demand but expect.