Worldwide trends in financial technology are shaking up the retail banking industry from the inside out. New technologies emphasize sharing, openness and transparency — challenges that banking must embrace if it wants to stay competitive, but also tackle with a care for security and privacy.
Marc DeCastro, research director for consumer banking engagement strategies at IDC, considers open banking as the most significant banking trend in the industry. According to DeCastro and others, these are the top five trends in the industry right now.
1. More Banks Will Share APIs Through Open Banking
Open banking, or connected banking, is already well underway in Europe and several countries in the Asia/Pacific region, and has begun to take hold in the U.S. In open banking, financial institutions share their application programming interfaces, or APIs, with partners or other institutions. Research shows explosive growth in banking API development.
Sharing APIs makes it possible for non-banking companies to develop apps that make it easier for retailers, other institutions and end users to connect with banking information. For example, open APIs make it easier for Apple to get into the credit card business. Companies such as Facebook, Google and Amazon will be able to make transactions themselves, without relying on third-party intermediaries or credit card companies.
For customers, open banking offers choice. It provides new options for individuals as well as businesses to access their own data and make and receive payments. It also provides transparency for fees and transaction costs.
But open banking can’t happen without regulation. The European Union designed the Payment Services Directive, or PSD2, to level the playing field in an open banking system as well as to protect both payers and payees.
“Banks and regulators have to answer the question: ‘How do I unlock the front door but make my house safer?’” DeCastro says. “We’re making the customer experience easier, but at the same time the technology is more difficult. It needs to be tighter and more reliant on analytics.”
2. Voice Banking Will Become More Prominent
Although it is far from having fully adopted voice-enabled technology, some banks are experimenting with it. For example, voiceprint technology is gaining favor as a way to more securely authenticate callers. And many banks have begun deploying AI-powered bots to have conversations with customers.
PwC says voice tech could save the industry $3 billion. It notes that 80 percent of consumers are comfortable using their voice to shop, so why not to bank? The technology is available now, but the industry needs to find the right way to integrate voice technology with services that enhance the customer experience, PwC found.
“You have to go beyond current services that are mostly transactional in nature,” says DeCastro. “What would be better is something that’s more advisory.”
DeCastro describes a conversation like this:
Customer: Alexa, give me a financial snapshot. Alexa: Your electric bill came and it was $180. Customer: Is that a normal amount? Alexa: Your electric bill for the same month last year was $90, and it appears you didn’t get credited for last month’s payment. Do you want me to contact the electric company? Customer: Yes.
The process of developing voice banking may be slow, says DeCastro, but the more value it provides, the more likely customers will demand it.
3. Retail Banks Will Move from Studying Blockchain to Deploying It
Blockchain technology is widely used in trade finance, especially in cross-border transactions, but it’s still in the nascent stages in the retail and commercial banking worlds. A recent survey by Accenture found that while 90 percent of banks were exploring the use of blockchain or similar distributed-ledger technology in payments, just 13 percent were actually implementing it.
Blockchain technology works via a real-time, open-source platform that can help banks securely process and transmit payments. Like open banking, the challenge is collaboration: Banks need to build a shared network infrastructure to support it as well as develop rules and regulations to make the network fair and efficient.
According to the Accenture report, blockchain has the potential to “help banks not only reduce the cost of processing payments, but also create new products and services that can generate important new revenue streams.”
4. Banks Will Continue to Turn to Cloud Tech
Cloud technology already has a strong foothold in the banking industry. With 2019 spending in excess of $20 million, IDC’s Worldwide Semiannual Public Cloud Services Spending Guide names banking one of the top three industries spending the most on public cloud services.
“Banks are becoming much more comfortable using cloud technology and storage from vendors like Azure, Oracle, and IBM,” says DeCastro. “They know these companies can offer better access and security than they can themselves.”
5. Technology Will Drive Banks to Rethink Revenue and Costs
Open banking will require banks to change how they think about costs and revenue.
When deployed correctly, open-banking technology, such as AI, can help reduce low-return activities, cutting costs by as much as 30 to 40 percent in customer-facing, middle-, and back-office tasks, and fundamentally change how work is done, according to a study by McKinsey.
A Cisco RegTech Innovations blog reports that exposing banking microservices as open APIs in the cloud unlocks additional revenue streams where banks can partner with fintechs “to participate fully in the API economy.” Another report from Accenture indicated the value of open APIs in offering new products, such as data brokerage or authentication services.