Banking
Transformation
The industry is transforming towards to a digital financial ecosystem where the primary channel is mobile, paper products are transformed to digital products on digital platforms, artificial intelligence is used to complement human interactions and finance is embedded seamlessly into everyday life. According to the seventh annual global banking survey conducted by The Economist Intelligence Unit in March, 45% of respondents said their strategic response to the COVID crisis was to build a “true digital ecosystem [1] .”
Digital-first Engagement
Attracting the digital consumer
The growing influence of BigTechs has raised the bar for customer service and awareness of digital channels. Digital is now the preferred engagement tool of choice. COIVD-19 has accelerated this.
Banks must deliver experiences with an eye to digital first. They need to understand the customer journey, exploit deep insights and develop a user experience across the customer lifecycle.
Banks also need to ensure that the human element is properly integrated into the customer journey rather than being an afterthought or point of last resort. This does not mean that branch cannot play a role, indeed it may evolve into a wealth management or advice centres for more complex financial transactions, with bookings managed through online/mobile app. However, customers also expect banks to work in the same hybrid way that they now operate, human interaction with a customer advisor/relationship manager may be done using remote techniques such as videoconferences.
Delivering end-to-end digital experiences will require the integration of networking, cloud, AI & analytics and security.
Digital Platforms
Simpler to buy and serve
Digital banking & payments have become the norm and these rely on underlying digital platforms. Many banks have made progress on digitising their own products, payments, and service but still lag BigTech, FinTechs and neobanks.
Nearly three-fourths of consumers prefer to make and receive payments via digital methods, including direct deposit and digital payments from P2P applications or mobile wallets. 65% of consumers believe digital payments are the most secure as opposed to other forms of payments, including money order, cash or cheque [1]. Banks therefore need to develop their consumer mobile apps to compete.
Businesses are increasingly digitally transforming their own operations and are seeking to integrate financials and banking processes into their own operational process to remove bottlenecks and reduce time. This means that banking plaforms need to interface digitally with their customer's business systems. Another area of development is digital payments, with considerable growth in B2B payments. This market will grow from $903 billion in 2021, to $1.6 trillion by 2028, at a CAGR of 10.20% [1]. Banks will upgrade their payments platforms to meet the new ISO20022 messaging standard being adopted by SWIFT for cross-border payments.
Banks are modernising their platforms to deliver an open API based architecture, leveraging cloud, AI & analytics and security. Firms will also need to build digital asset products and technology, including blockchain and DLT, into their infrastructure and digital platforms.
Intelligent Operations
Resilient and automated
Rising interest rates are improving the Net Interest Margin (NIM) in banking but competition from digital born neobanks will maintain pressure on profitability. Resilience is now also key.
Banks will focus on automation to complement a shift to higher-value human work as a necessity to reduce cost-to-serve and increase resilience. This will include the intelligent automation of transactional banking and a focus on digitial-assistance for more complex financial arrangements.
Banks with EU operations will need to consider the planned DORA operational resilience regulation expected to be implemented by 2024 [1]. This covers ICT risk management and resilience testing.
Banks are likely to need a customer's ESG data in future to asses areas such as Green Finance.
Digitisation, robotic process automation and artificial intelligence will work alongside a secure digital workplace supporting hybrid working.
Open Finance Ecosystems
Frictionless & convenient
Businesses are increasingly digitally transforming their own operations and are seeking to integrate financials and banking processes into their own operational process to remove bottlenecks and reduce time, whilst consumers want their finance to be embedded into their everyday life rather than having to be managed discretely.
The first step is Open Banking. The EU & UK regulators have mandated that banks open APIs to third parties. The New Payments Architecture (NPA) being implemented in the UK by 2024 is a step towards Open Banking 3.0 [1]. Other countries are adopting similar practices.
Open Banking allows access to near-real-time account balances and transaction data to provide timely insight into financial positions across the bank accounts that corporates may hold. Payment Initiation APIs, particularly using Faster Payments in the UK and Instant Payments in other jurisdictions may make account receivables cheaper and more efficient through quicker settlement as compared to card payments.
Banks will need to go further for businesses which will shift the focus from business banking to simplifying business processes using intelligent automation and as-a-service models.
Open Finance ecosystems will ultimately provide integrated financial experiences, estimated to be a $7 trillion market [2]. BigTech companies are using embedded finance, via payments, as an “on-ramp” to financial services.
Distributed Leger Technology (DLT), such as Blochchain, may also become a key part of a Open Finance ecosystem especially in the case of cross-border payments, digital assets custody and supply chain finance.
One-to-many API connectivity with market players, is key. Drives cloud, data analytics and security.