At a time when financial industry analysts are seriously debating whether Amazon will get into banking, it’s clear the banking market is in a state of flux when it comes to technology.
Of course, mobile banking is nothing new, but it is now a “table stakes” experience, especially for younger bank customers, meaning it is a bare minimum all banks must now meet. If a bank does not have a solid mobile app, they are an also-ran, industry experts and analysts say.
That way of thinking will soon apply to lots of new and emerging technologies, as banks strive to keep pace with the likes of Apple, which earlier this month introduced Apple Pay Cash, allowing customers to send and receive money via Apple Pay.
“The big decision-makers are really leaning on the idea of, ‘Mobile technology is taking over and there is a digital-first movement that is taking hold in the marketplace,’” says Chris George, senior vice president of client strategy at NYMBUS, a core banking modernization company.
Here are five key banking technology trends to watch for in the next year as banks try to stay ahead of their competitors — traditional and otherwise:
1. Banks Will Enhance Services with External APIs
Banks have made use of application programming interfaces for years, but APIs — the software middlemen that connect applications, including mobile apps, to back-end office IT systems — will increasingly be used to enable new services. As The Financial Brand notes, APIs “provide the gateway for innovative, contextual solutions that would be difficult to offer without open banking.”
According to IDC, by the end of 2018, 50 percent of global Tier 1 and Tier 2 banks will offer at least five external APIs. Banks are increasingly partnering with financial technology companies via open APIs. Part of that will be driven by regulatory requirements.
“New banking regulations such as PSD2 that involve sharing of customer data are also facilitating collaboration, especially by APIs being leveraged to share this data,” consulting firm Capgemini notes in a report on 2018 banking trends. “Regulators are encouraging open banking initiatives, and banks are having to open up their systems via APIs to third parties in providing access to account information and to initiate payments.”
Banks, Capgemini says, “have a burning need to innovate faster but have not been very successful with digital innovation through in-house efforts.”
Capgemini notes that banks and FinTechs, businesses looking to present new forms of technology, need to collaborate to achieve their objectives. Banks seek new approaches to digital innovation while FinTechs seek “capital, scale, data, customer trust and regulatory support,” according to the report.
Marc DeCastro, research director for IDC Financial Insights, says that open APIs can allow banks to “develop a much more agile and a much more modernized experience for the customer.”
Over the last five years, financial technology firms have “gone from poacher to partner to platform” for banks, he says.
Banks still want to control the digital experience customers have, especially as they seek to protect their brand, DeCastro says. Banks still can control it, he says, but will need to open up their back ends via APIs.
2. Mobile Banking Will Become More Frictionless
Mobile banking is no longer novel, but will become easier to use and provide more functionality for customers.
“Mobile banking will continue to accelerate past standard banking in customer preference as their digital, user and customer experiences become more enriched and data-informed,” Kirk Borne, principal data scientist and executive advisor at consultancy company Booz Allen Hamilton, tells The Financial Brand. “This will include consumer-to-business frictionless digital banking, consumer-to-consumer one-click payments, new cryptocurrency opportunities, password-free biometrics, locational services and offers, and conversational interfaces.”
The fact that Apple is getting into direct peer-to-peer payments will push banks to make their own mobile offerings more seamless and easy to use, George says. Banks, he says, need to “keep up with the Joneses” in mobile apps and services.
“Banking is something you just do now,” he says, repeating a widely used phrase in the industry. “It’s not a destination anymore.”
Banks, George says, must “come up with apps and an online presence that competes with the ease of use that those other players have come up with. It’s no longer acceptable to have a mediocre app.”
3. Artificial Intelligence Will Improve the Customer Experience
Artificial intelligence will help banks automate processes and improve the customer experience, Mitch Siegel, national financial services strategy and transformation leader for consultancy firm KPMG, tells American Banker.
“We see organizations beginning to greatly simplify processes through intelligent automation, which in turn helps to expose enterprise data that has been traditionally trapped in complex core systems,” Siegel says.
“Organizations have traditionally offered products and services to large groups of customers who looked and felt similar, but who actually had quite different characteristics in their buying behaviors, motivators and satisfiers,” Siegel adds. “With data, it is becoming increasingly possible to create services and experiences tailored to each individual.”
DeCastro says that there will always be a need for a human and that there will be not totally AI-driven banking systems coming online anytime soon. However, AI can help automate repetitive processes and potentially improve customer service via chatbots.
“If it can get me something quicker and faster, then, by all means, I am all in favor of it,” he says. “But if something is complex, then I need to talk to the human.”
Capgemini says that robots are 50 to 90 percent less costly than offshore or onshore employees, and that banks will increasingly invest in AI to become more efficient while still maintaining strong customer service. “There is a growing demand to maintain lean operations while delivering exceptional customer experience at lower costs,” the firm says.
George adds that, over the next two or three years, banks will add AI capabilities to their apps. In the near future, he says, when a user asks whether they will have enough money to go out to a fancy dinner on Saturday night, these apps will be smart enough to know that the answer will be “yes” since the user will be paid a certain amount on Friday.
4. Security Will Become More Robust via Biometrics
Security is always a concern for banks and will continue to be in 2018. Banks will increasingly seek ways to add new layers of security to their services.
IDC predicts that in 2018, spending will rise by 20 percent on next-generation security-based authentication methods, as banks strive to build “digital trust” with their customers.
Customers, DeCastro says, have become more comfortable authenticating payments on their smartphones via thumbprints. Banks will extend that to facial recognition and voice prints, he says. As customers become overwhelmed with trying to remember numerous passwords, biometric authentication methods will help simplify security processes and provide more secure methods of authentication, he says.
“Anything that can further prove I am who I say I am, and is as easy as using voice, thumbprints or a facial scan, banks will start embracing that,” DeCastro says.
5. IoT Will Be Deployed on Small Scale
Banks have been dabbling with the Internet of Things and will continue to do so in 2018, DeCastro says. There will be more proof-of-concept deployments next year, as banks pick a few high-traffic branch locations to test IoT technologies. Banks, he says, need to see how customers will react to sensors in branches.
“I think, if done properly, it’s an enhancement and it can improve the overall customer experience,” he says.
For example, a customer could walk into a branch and a bank could use beacons or sensors to authenticate a customer via their biometrics. That could then send a signal to an ATM to pre-stage a cash withdrawal based on the customer’s preferences. As soon as the customer inputs their PIN number, the money would be dispensed. Such a frictionless transaction could give customers a “wow” factor and make them think highly of IoT, DeCastro says. ATM manufacturers are embedding these capabilities, he adds.