A long decade after the global banking crisis, the banking the industry has started to evolve to be customer-oriented and digitally driven. With technology, banks are now more capable of bringing solutions to customers based on their needs and requirements. E.g., banks today enjoy a worldwide presence, thus, operate across the globe easily. The cloud technology has made it possible to share data anytime and anywhere easily. This has significantly added to the convenience of banking for customers around the world.
While technology has brought interesting changes to the banking industry, Fintechs and non-banking companies have gained a strong foothold in the financial landscape. According to a recent study, Fintech businesses constitute about 33% of the total financial services revenue globally. They are now perceived as a driver of innovation in the industry.
How will these developments evolve in the coming years? Let’s explore the top three innovation trends that might drive banking in the near future.
Expansion of open banking and API framework
For decades, banks have enjoyed a vertical position in the finance sector offering services from top to bottom. With the implementation of PSD2, the scenario seems to change as the market will witness the entrance of non-bank service providers for various services. Banks will be enforced to share access to data to third-party service providers through open APIs. These service providers will process and analyze the data to power new solutions increasing competition in the finance industry. Pushing on to the open banking and API framework, banks might redefine their strategies and evolve their roles as service creators, data aggregators, marketplace operators, or a combination of all.
Open banking APIs will accelerate collaboration, leading to expanded banking ecosystems that could make a consumer’s banking experience better. Consequently, consumers will have greater freedom and control over how they interact with their accounts.
AI-driven predictive banking
Artificial Intelligence is proving to be the most exciting trend that is transforming every single industry. It is fast evolving as a go-to technology for the banking sector. Many banks and non-banks have already started incorporating AI in their processes to make them smooth and error-free.
At the core, the technology could help to bring insightful decisions by processing the vast data available after the implementation of PSD2. Ultimately, helping the industry to consolidate the data to make more accurate predictions about the users, thereby, enhancing the chances of better business decisions.
AI has already proved to be a remarkable technology to analyze the accounting, credit, and payment data about the users in order to build more personalized solutions. Leveraging the full potential, the technology could bring drastic changes in how banks interpret consumers’ needs and build services for them.
Data privacy and security
With more AI-based solutions and open data access to third-party providers, cybersecurity will remain in focus for many coming years. Cyberheists will continue to target AI-based solutions to exploit vast user data. Hence, we expect banks and Fintechs to take certain measures to combat security threats that might come in the future. A recent survey by Deloitte predicts that cyber monitoring and operations will account for the largest investments, followed by network security.
Blockchain could be a game-changer in the banking sector making things secure and transparent. Different public and private blockchains could be implemented worldwide to avail a wide range of benefits including enhanced data privacy.
The road ahead
Banks and Fintech businesses must place consumers at the centre and innovation as the top priority. They must understand that technology is constantly changing and adopting one cannot guarantee success. However, they must anticipate customer needs and innovate in ways that will prioritize the most effective mix of regulations, processes and most importantly, people.
Increased commitment towards innovation and meeting customers’ expectations are the two main pillars of the growth prospects of the banking sector. New regulations and evolving technology are intensifying the competition, meanwhile, opening new ways for the sector to innovate.