Digital Banking and FinTech Trends to watch in 2020 (and beyond)

Original article can be found here (source): Artificial Intelligence on Medium

Digital Banking and FinTech Trends to watch in 2020 (and beyond)

What are the most frequently mentioned trends in Digital Banking and FinTech? Here are my insights:

Banks want to become more digital in multiple ways. Be it the improvement of the customer experience or the increase of efficiency through automation. They just cannot stay un-digital in the future for two main reasons:

  1. Customer expect to interact with their bank through fully-digitalized channels — whether it be opening an account or applying for a loan. Cumbersome paperwork and slow processes are no longer acceptable.
  2. Banks cannot afford to ignore digitalisation because of growing pressure on costs and efficiency of legacy structures. Manual processes with system discontinuity create friction and are extremely expensive.

Digital Banking has many faces. Here are my top 6 digitalisation trends that will dominate 2020 and beyond:

Increased Use of Artificial Intelligence (AI)

Generally, banks use AI technology to prevent fraud, promote financial literacy, improve customer service, model credit risk and optimize back-office processes. According to The Financial Brand, AI and Machine Learning are expected to lower operating expenses in the banking sector by 22 percent.

AI is having a significant impact on the banking industry, and we know this is just the beginning. Considering that intelligent technologies are not easy to implement, and the ‘one-size-fits-all’ approach doesn’t work here, institutions will look more closely at fintech consulting companies with AI expertise to meet the demand.

Due to the disruptive effect of AI, banks must start teaching employees how to work collaboratively with AI assistants. Also, it’s high time you began recruiting in-house specialists to handle AI-related complications.

Cloud Adoption

The number of banks and fintechs choosing a cloud services provider is growing at a steady pace. The majority of fintechs are cloud native. Cloud means organisations achieve greater agility and scale, since they don’t need to spend time managing infrastructure and data centres. The adoption of cloud computing is growing, as more financial institutions recognize the benefits and begin their program to migrate to a cloud solution.

The ability to quickly innovate and offer customer-centric services is the core of the financial revolution, and this is not possible without cloud computing technologies. The migration to the cloud is inevitable.

Blockchain Technology and Smart Contracts

Blockchain and smart contracts have not yet fully arrived in our everyday life but have the capability to simply digitalize trust in a way that makes transactions robust, safe and enforceable anywhere. The banking industry has been slower than expected to embrace the potential of distributed ledger technologies. Many believe 2020 will be different. But there are still some things to solve such as regulations, scalability and interoperability.

Though I believe it is a great invention, blockchain suffers from an image problem rather than a technology issue. The future will show how brave we are as to whether we deploy such technologies and the substantial benefits of decentralization, immutability, security, and transparency.

Use of APIs and Open Banking

Open Banking, with the help of APIs, is considered to be one of the biggest advancements in the banking industry. It has provided businesses and consumers easy access to custom banking services while also ensuring complete safety and enhanced efficiency. Open banking enables third parties to develop new products and services. By working together and taking advantage of APIs, banks and fintech firms can leverage their complementary strengths, enhancing the customer experience much more than either entity could do on its own.

Driven by external regulations, open banking is pushing banks to quickly get up to speed with application programming interfaces (APIs). By working together, both banks and fintechs can use APIs to enhance the customer experience.

While APIs are not new to banking and are nothing more than a structure for how software applications should interact, they provide the gateway for innovative, contextual solutions that would be difficult to offer without open banking. With many different API types being launched by banks, API banking services are only expected to get more popular in the future. If you run a business, get in touch with a reputed bank offering such services to know more about how the APIs can benefit you.

Payment Innovations

Only a few years ago, payment and money transfer were one of the most unsexy topics in banking. This has completely changed. Customers have so much more choice when it comes to payments than they ever had under the traditional banking-controlled payment methods such as invoice, direct debit and credit card payments. Choices that sit outside traditional banking such as PayPal, Giropay, SOFORT Überweisung, Amazon Pay, Klarna, Apple Pay, Google Pay, Zelle, Venmo, Revolut and the list goes on.

Payment innovations in fintech have multiple components. These are mobile payments, contactless payments, mobile wallets, smart speaker systems, identity verification technologies, AI and machine learning for security.

Improved commercial payments technologies provide opportunities for banks to enhance customer experiences and grow profit through increased transactions and fees. But as more digital players enter the B2B payments space, incumbents will need to act quickly to avoid being left behind by more nimble competitors.

Cyber Security

As the economy digitizes, so do criminals. The digitalisation of the banking industry is a long-term trend, and it implicates particular vulnerability to fraudulence, identity theft, espionage, and money laundering. Therefore, efficient and effective cybersecurity strategies should be embedded at every level of an institution and at the outset of any new offering. Banks will need to continuously assess their risk and take action to maximize the return on their cybersecurity investments.

Conclusion: Digital-only? Or is there an alternative?

Digital-only banks have a lot going for them: there’s no need to spend one moment to visit any brick-and-mortar bank, no lines to test your patience, and no agonizing paperwork to deal with. And they’re growing in numbers and revenue all over the world. Fintech mobile wallets, online global transfers, and AI financial assistants are on the frontlines of the digital banking wave. To prevent customer churn and stay in play, financial institutions have no other option but to leverage the latest fintech innovations.

But is there a way out for traditional banks or are they trapped? Traditional banks have (in comparison to neo banks) a large customer base. In many cases they are long-standing customers who are extremely loyal. This is an asset that banks should use. At the same time, banks must reinvent themselves in order not to be left behind. they must become customer centric, modernize their legacy systems and fully exploit their customer channels (branch, online, social media). The problem is: Due to their size and their complex organisation structure they are often slow in making decisions and time is what they do not have.

There is only one main recommendation to banks left: See Digitalisation and its impact as a chance, not as a threat. Every single bank has the chance to be better and faster in providing great customer experience and in adopting new technologies than the other. We will see winners of that game, but we will see losers as well.