Contact us anytime to know more - Kuldeep K., Founder & CEO CISIN
Here are some examples of how incumbents can be seized:
- Online payments and credit cards will be replaced by Apple, Amazon, Google Paytm, Wechat, and Alipay.
- Digital wallets replace cash/cards, and there is no need to visit ATMs.
- Peer-to-peer (P2P) lending platforms (e.g., Lending Club, are becoming more appealing than traditional lending.
- Monzo and N26 are two examples of challenger banks that offer attractive current accounts with mobile-first features.
This disruption is based on service design that "starts at the end." With a laser-focused health & safety focus on customer experience and habits and then builds backward to meet these requirements. The concept of "Design Thinking" is to get to know the customer and their preferences, then make the product to enhance and add value to the customer's experience. This contrasts with traditional banking channels, which tend to offer products based only on their strategic interests and current capabilities. These products may sometimes be less beneficial to customers.
Factors That Saves From Disruption in Digital Banking
Design Thinking Methodology
New entrants to the banking ecosystem can enjoy a new level of freedom thanks to emerging digital technologies. This creates a "David Vs. Compared to traditional banks, they have the ability to develop swiftly because of the "David and Goliath" dynamic. Over the past decade, we have witnessed similar scenarios in other consumer markets like transportation, hotels, and media.
Many industries have been affected by new technologies, but banking/fintech has remained protected. This is mainly because it is a crucial and highly regulated industry that houses liquidity and is safe for individuals and corporations. Because the source of truth influences economic stability, it can be difficult for new players to transform due to its regulation and strategic importance.
How the Financial Sector Can Change Itself
This article will discuss ideas for digital banking innovation. It will also address how to separate the conflicting objectives of "liquidity," risk, and regulation from "innovation," disruption, and "transformation."
This article will be presented in two parts. The first section of this article is a diagnostic that examines some trends affecting how businesses are conducted. It then delves into specific issues relating to the banking/fintech sector and ends with a telescopic vision of how the "bank of tomorrow" might emerge from the current environment. The second section of this article is prognostic and forward-looking and will focus on predicting the future direction of the banking industry in the next five to 10 years.
Global Business Trends
The way businesses are conducted has been fundamentally changed by the advent of digital technologies over the past decade. These are some single sources of the evident themes:
People all over the globe are interacting more seamlessly and transacting across borders than ever before. They travel more, live, and shop internationally. Another example is the rise of gig economies, which allows people to live anywhere in the world and work on projects without any geographical restrictions. What is the reason for this?
- Seamless Integration: Internet-facilitated technologies enable better oversight and execution of supply and demand and supply digital bank's chain fulfillment operations.
- Mobile Connectivity: Mobile networks are cheaper than their fixed-line counterparts. They have also allowed for rapid infrastructure building, which has enabled large portions of the "consumption economy" to be reached.
- Greater Data Availability: The shift to digital methods has brought about significant increases in data availability. This includes both financial (e.g., traditional data) and non-financial data (e.g., geotagging, AI-based models, social media, etc.
- Lower Cost of Servicing and Acquiring Clients: Digital technologies allow digital banks to lower their acquisition/service costs by automating tasks previously performed by humans.
- Trust-based transactions: New ways to identify and track customers, as well as monitor, assess, score, and score them, are possible with digital social identities. A digital footprint's objective nature provides significant incentives to be fair and straight and align transactional parties.
- Cloud > Physical Infrastructure: The physical location of businesses, particularly in the services sector, has been eliminated as a barrier to geographical growth. Companies from one part of the globe can now service and onboard customers in the other.
- Scaling up Businesses: It is now easier thanks to cloud-based distributed, "pay-as-you-go" scalable infrastructure that allows rapid business building at low fixed CAPEX.
- Future Predictions
Through mergers, acquisitions, and spinoffs, we believe the number of traditional banks that will survive the next ten to five years will drop by at least half. As the banking industry grew, new services were added to serve customers better. However, this was done in a fragmented and piecemeal manner, eventually leading to an unwieldy, complex paradigm of "universal Banking." This consolidated financial industry services from all areas. In the past half-century, there was a lot of consolidation and growth in the banking business transformation. Large universal banks worldwide provide access to all services through one source.
But technology has made it possible to see a new paradigm. Physical location is no longer an essential factor. The new way of servicing customers is to adopt new technologies and use iterative improvements quickly to provide tailored service. These are some of the hallmarks of agile, new-age organizations, according to a study.
Framework for Agile Organisations
The banking industry is facing the same problems and is in the midst of a transformation. These are some of the factors that have led to disruption in the banking sector:
Branching out into physical forms is no longer necessary
What was the last time that you went to a bank branch? When was the last time you logged in to an online banking app?
Customers no longer need to visit a branch. Most services can be done online via self-service or text-assisted models. Even a tiny startup can provide services to many customers despite having fewer offices. Many "digital-only" banks offer online services. Revolut has six million customers worldwide and no branches.
Unbundling/Disintermediation Using Specialized Offerings
Traditional banks have tried to offer a universal service for everyone. This has led to some compromises in meeting specific consumer needs. Fintechs, on the other hand, has grown slowly by offering one service and then only expanding when they have perfected it to meet their customers' needs. Because they focus on solving a specific problem, individual product-focused apps/fintech are better at taking business away from traditional banks.
Also, fintech is solving problems more engagingly. Instead of focusing on boring focus groups, fintech has engaged with their users more genuinely and used unconventional (to the industry) practices such as design thinking.
Architecture for Cloud-Based Technologies
The legacy technology used by traditional banks to build their systems and processes for decades had been a competitive advantage. The advent of cloud-based technology has changed the game. Scalable, modular (agile) approaches to building platforms with plug-and-play functionalities (APIs) have revolutionized the industry. The new digital architecture of the 21st century is modular and plug-and-play. Customers can choose and build the service they want in a way almost like "lego," which may not be understandable by "old school" financial services managers.
Banks can be decoupled from Liquidity/Risk/KYC Management
A customer today only requires a bank to keep its "liquidity" safe and make sure that credit is adequately priced and assessed. Everything else can be done by a downstream company. This will result in a much-needed industry decoupling that will give banks more credibility as they won't have to deal with a conflict between the safety of customer money and increasing shareholder returns.
Collaborative Ecosystem
Banking ecosystems should work more collaboratively. Players should be encouraged to accept simple API-based integrations via marketplaces. This will create a more interdependent banking industry where customers are the ultimate arbitrators of which products they want to use for their financial service needs.
Predict, Engage and Offer Personalized Solutions
Significant data developments can enable banks to offer more personalized banking services to customers based on their transaction history and lifestyle. Big data can provide insight into life stages, and banks may be able to offer products that fit the customer's life cycle (e.g., Student and mortgage loans. They will use the data they have but have not previously mined as extensively.
Read More: FinTech Build Your Banking Solutions, Personal Finance Software, and Accounting App, or Payment App
Financial Inclusion - Increased Access and Lower Prices
This will allow for an increase in alternative credit models and large welcome numbers of the unbanked to the bankable economy. This will finally remove the obstacles to financial inclusion.
Challengers as Partners
One reason fintech startups have been successful is their innovative use of modern and more modern measures to improve customer experience (CX). Banks will likely partner with (or buy) disruptive companies to accelerate their digital banking innovation journey. They might also embrace open-source platforms and work with third-party providers to improve integrations between their apps and banking platforms. This will increase CX and increase the value.
Developing a Layered Industry
These factors, in my opinion, are positive developments that will help the industry correct a historical structural imbalance caused by universal banking's need-based, serendipitous evolution.
Decoupling services and ring-fencing the three core functions (liquidity risk management and KYC) will give the value chain the freedom to innovate and experiment with cutting-edge solutions. This will make the world more financially inclusive, from the most developed cities to the farthest corners of the globe.
Next, the next step in this transformation will be how financial services will be layered in the future. We will soon see a new bank ecosystem divided into layers, each layer focusing on the specific needs of the financial service ecosystem.
The following lines can be used to visualize a broad architecture of the same:
- Central Banks: Financial mandates and regulatory oversight
- Warehouse banks: Risk management and liquidity
- Platform Banks: Marketplace aggregators
- Fintechs: App-based banking
- Management of Identity/KYC
We are now entering an age where artificially intelligent assistants can give us financial advice, mobile applications immerse us in virtual reality, and self-driving vehicles park better than human drivers.
These innovations make digital banking possible and change how people see their finances.
Forward-thinking banks should be at the epicenter of technology, using new levels of online, mobile, and omnichannel services to meet customer needs.
More than high-tech thinking is needed in an era with the most famous inventions.
Each bank's future depends on its ability to leverage innovations to address customer needs, wants, and behaviors.
Customers' services will repay banks with loyalty and trust in return for their support and recommendations.
This post will cover ten key trends and technologies that banks can use to provide digital banking services that are future-oriented and seamless. They also help users feel inspired, innovative, and loved.
Digital Banking: Technological Trends
1. Advanced Self-Service Capabilities
Consumers need more patience today to wait in long lines at physical branches and fill out tons of paperwork.
Mainly when digital self-service solutions for banking are available that offer a user-friendly, low-effort, quick, and pleasant experience through the device of choice.
Consumers of all generations have become more confident using digital banking channels. Many will never return to their branch again because of the Covid-19 crisis.
Self-service capabilities do not refer to just everyday activities like the ability to transfer money or check account balances online.
The latest banking technologies allow people to perform digital self-service jobs such as:
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Self-registration
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Remote account opening
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Origination of loans
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Insurance, including buying insurance.
Self-service banking solutions of the highest quality are available to all users at any time and from anywhere. They are quick, easy, transparent, and straightforward.
These processes require cutting-edge technology, which includes:
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Compliance with KYC
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Verify ID in real-time
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Verification and capture of a selfie
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Device verification
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Biometrics for fingerprint and facial biometrics
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Omnichannel capability (in-branch, mobile app, and website)
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Real-time credit bureau checks
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Instant approvals
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Interactive forms
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eSignatures and others.
Every digital tools process must go beyond filling out forms and provide seamless customer service across all channels.
2. APIs
The ability of banks to participate in and build digital ecosystems is key to their success in today's hyper-connected society. Integration of bank products and services with third-party enterprise application integration and services is a crucial prerequisite.
This is possible with APIs.
APIs (Application Programming Interfaces), by definition, allows two software systems, apps, or other services to communicate and share data.
APIs allow bank products to communicate securely with third-party and other products in real-time.
Core Banking Systems can receive money transfer requests from customers' mobile wallets, card system providers, payment switches, and other third-party financial service providers using APIs. APIs can be much more.
These essential tools unlock innovation and enable banks to adapt quickly to a changing customer-centric world. Customers want seamless integration among all types of devices and channels, apps, and services.
A good API strategy will help banks create an omnichannel connected experience that is first-class.
These are just a few of the many benefits APIs offer to digital banking transformation.
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Data insights: APIs allow banks to combine customer data to gain insight into consumer behavior. This will enable them to target the right market with the best financial services.
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New revenue: Banks can monetize raw data or banking services to generate new revenue.
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Agility: APIs accelerate the development and delivery of new products or services to market.
3. Instant Payments
Digital products are now second nature to consumers, and they expect nothing less when spending their money.
Banks are now offering instant payment solutions to meet these needs. These payments can be made instantly and are convenient and quick.
Instant payments are when money is electronically transferred between two accounts in seconds instead of the standard 1-3 business days.
Nearly immediately, both the payer and payee receive notification (via SMS or push information or any other means) that the transaction was completed successfully.
Instant payments can make it easier for the payer and the payee to split the bill at a restaurant or transfer money peer-to-peer.
Two main instant payment methods exist:
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A multi-bank instant payment scheme - To ensure that this instant payment solution is secure, regulations must be followed. SEPA Instant Credit Transfer scheme allows pan-European credit transfers, and funds are available to the account in less than ten seconds.
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In-line payment system with instant payment - This second concept is at the organizational level and requires an appropriate license. Financial service providers must provide innovative UX, flexible business parameters, and pricing to bring value to consumers and merchants. Technically, account management in a private ledger, as well as integrations with service providers for value-added and integrations to payment schemes for withdrawals or deposits, are required.
Read More: Digitalization of Wealth Management
4. Cloud Computing
Many new players are entering the financial markets, including fintech and BigTech.
Competitors must react quickly and with agility to compete successfully with them. Cloud technologies are being used by many to help them develop their digital strategies.
Cloud computing allows banks to store and access data, as well as applications, and then use scalable computing resources whenever needed via the internet.
A range of services is offered by the top public cloud providers, including Amazon Web Services (AWS), Google Cloud Platform, and Microsoft Azure. These allow banks to build and scale innovation quickly.
Cloud platforms:
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Reduce costs by avoiding significant investments in hardware and software infrastructure.
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Help banks respond faster to technological trends and client demand by making it easier to develop and launch new products.
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Banks can store large amounts of data and use powerful analytics to gain valuable insight into customer behavior.
5. Biometric Technology
Banks are trusted by customers with personal information. Customers expect the best security and protection.
Financial institutions can use biometric technology to provide seamless customer experiences by balancing security, speed, convenience, and security.
Biometrics can verify customers' identities using their physical characteristics, such as fingerprints, voice, or iris.
Biometric identifiers can be lost or forgotten much faster than passwords and PINs.
Nearly 2.6 billion people will use biometric payments by 2023 to authenticate their identities. Biometric technology will provide a seamless customer experience across all payment channels, from ATMs and smartphones to smart home devices. It is easy to use and accessible. These are the top ways banks can use biometric tech to enhance remote experiences.
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Mobile banking: To allow customers to safely transfer funds and access their bank accounts from their mobile phones, financial institutions use biometrics.
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Digital onboarding: Banks can simplify and accelerate due diligence and KYC processes with biometric authentication to reduce risks and provide excellent onboarding experiences.
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ATM transactions: To ensure that only authorized customers are able to use ATM services, banks can install biometric identifiers such as fingerprint scanners at ATMs.
6. Chatbots
On the road to a high Net Promoter Score (NPS), and customer satisfaction, there are many obstacles.
Any customer can leave a review online about strategic goals and their bad experience and share it with others in a digitalized society.
Artificial intelligence (AI) enables chatbots to solve some of these problems and improve bank customer service quality.
Chatbots are finance management software programs that simulate online conversations between people through different channels, such as websites or mobile apps.
They are personal digital assistants who answer customers' questions in real-time, provide 24/7 service and offer a personalized experience.
A chatbot can assist customers with daily banking tasks, such as tracking expenses and checking balances. It can also collect leads for marketing and cross-selling.
Chatbots can communicate with millions of customers at a lower cost than human agents and can be used to communicate with them.
A Juniper study estimates that chatbots could save banks as much as $7.3 billion by 2023. Chatbots are one of the most valuable innovations in the financial sector.
7. Automating Processes - RPA. AI. Machine Learning
Bank digital transformation is centered on optimizing processes and modernizing legacy systems.
Multiplier siloed departments and systems into one cohesive team come with challenges, workflow issues, and clunky processes.
All innovations, including integration and orchestration platforms (RPA), robotic processing automation (RPA), AI, and machine learning, are designed to deliver cost savings, productivity, and process improvement.
Accenture reports that North American financial institutions can save $140 billion by 2025 by using new automation technologies.
Automation refers to the process of replacing repetitive, manual tasks that are time-consuming and repetitive with automated systems. This allows banks to improve operational agility, reduce costs and provide better customer service. It also accelerates digital transformation. These are just a few of the areas in which process automation plays a crucial role in banking:
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Compliance
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Customer onboarding and KYC (Know Your Customers)
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Account opening
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Mortgage lending
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Automatic report generation
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Banking core operations
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Operation Credit Card
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Customer service
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SANC screening and AML
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Fraud detection
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Multiple payments and many other benefits
An integrated automation strategy begins with identifying key areas that need automation. This is where Process Mining and other promising innovations can be of assistance.
8. Micro-services
Many banking applications have been built over the monolithic architecture, which is a rigid one-for-all approach.
With the increase in mobile devices and changing customer demands, the market demanded more straightforward applications to develop, scale, and upgrade. The focus was on functionality and not coding.
Microservice architecture can help you achieve all of the above.
Microservices allow you to break down your entire banking application into separate services that can work independently but seamlessly together.
This is unlike monolithic architecture, where a single code error can have a considerable impact on the whole business, where one code bug can cause significant disruption to the rest of the service. This ensures excellent service reusability, business continuity, and better service reusability.
Microservices offer banks the ability to scale, improve business agility, continuously innovate and provide consistent user experiences across channels such as web, mobile, and IoT.
9. Internet of Things (IoT)
IoT is one innovation that will fundamentally alter our lives and banks' nature.
IoT can be defined as a network of connected devices over the internet. This includes smartphones, cars, and home appliances. Collect and transmit data.
IoT can be used in a variety of ways by banks. These are just a few examples.
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Payments: IoT technology allows consumers to pay for goods, such as coffee or food, by simply placing their smartwatches near the point of sale terminal. Wearables are also able to perform other transactions anywhere and anytime.
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Notifications: Wearables can be notified by banks about new offers and monthly statements.
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Wallet of Things: Customers can pay for products using digital wallets that are stored on their smartwatches or mobile phones.
The potential for IoT banking in a cashless society is limitless.
10. Big Data and Advanced Analytics
Banking and financial institutions have millions of customers. They are the most data-intensive in the global economy.
Banks that can continually generate personalized offers and experiences for customers will be the following winners of the digital banking race.
Understanding what customers want and need is possible by analyzing the data from different bank channels.
Banks can only listen to their customers by analyzing data and providing personalized financial services that are beneficial for them.
Banks can leverage data from many sources, including online and mobile payments, ATM withdrawals, IoT devices, IoT devices, customer information, KYC, biometric authentication, and more.
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Data insights enable banks to provide customized products to customers by allowing them to be more personal.
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Data can be used to predict future outcomes, risk, and customer decisions using next-best-action models, financial crime, and other data.
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Combining data and automation lowers operational risk and costs.
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Data insights can improve sales and marketing efficiency and help to develop innovative financial products.
Data-driven banks can make intelligent decisions and thrive in an age of innovation.
How Cyber Infrastructure Inc can assist you in implementing the future of digital banking today
Cyber Infrastructure Inc is driving the digital transformation of financial services providers worldwide. We are committed to creating innovative digital banking solutions that improve economic well-being and enhance customer experience.
We leverage our deep knowledge of cutting-edge technology to help banks and financial institutions take advantage of the digital future.
We innovate to meet the needs of the new decade by keeping the customer at the center of all we do. This includes memorable experiences, instant solutions, and robust security.
