7. Responding to Regulatory Changes
As competition increases along with digital technologies and the way consumers do their banking, regulations are being challenged from both legacy players and start-up fintech firms. Fintech firms have not been very successful in forcing changes in regulations to date, mainly because most of the regulations are not in place to stymie competition, but to protect consumers.
There is no arguing that regulation increases the cost of entry, and provides some protection to incumbents. But most of the regulations that protected legacy banking organizations in the US were swept away as a part of deregulation in the late 1980s and 1990s.
Most of what remains exists primarily to serve other purposes such as consumer protection or anti-money laundering (related to KYC due diligence). Thus, even if consumers would prefer regulations to change, most are in force to protect them.
Regulators have a variety of reasons to want to facilitate fintech growth that are not inconsistent with their overall regulatory goals. One reason for optimism is that most regulations are not principally about limiting competition.
There is continued discussion globally to allow for fintech entry while still achieving the goals of regulations. It is believed, in some cases, fintech could help existing financial services firms provide better services at lower cost. The hope is that lower-cost services will not only benefit existing financial services consumers but also help in reaching consumers who are currently unbanked or underbanked.
It is still unclear how regulators will balance the need for limiting risks with the desire to encourage innovation. It is clear, however, that the role of government regulations will increase in the foreseeable future, impacting partnerships, investments and innovation in the banking industry regionally and worldwide.
The very concept of what comprises fintech will shift. This new fintech era is being shaped by changes in market conditions, new regulations, and shifts in consumer demands and behaviors. Thus, the industry is becoming more cautious, even as it becomes more diverse across technologies and products.
“2017 will be the year of ‘Regtech’. Regulators are beginning to create environments where innovators and incumbents can find common ground before scaling their product or solution. Cross-pollination, and a more coordinated approach among regulators across geographies, will help fintech startups while facilitating a better collaboration with legacy financial institutions.”
“The new decision from the OCC in the US to grant Fintech firms limited bank charters should make things interesting as more firms will be able to connect and offer payments without going through banks.”
– John Owens, Global Senior Advisor for Digital Financial Services for Development
“Partially due to the US elections, expect changes to current regulatory constraints, with decision-makers willing to take more calculated risks to increase profitability, decrease human costs and invest in tech transformation.”
– Lisa Kuhn Phillips, VP of the Allied Payment Network
“We will see a war on cash as governments around the world appear to be suspiciously enthusiastic about moving their citizens to cashless. The loss of anonymous transactions will have a huge impact of civil liberties, with governments possibly not having our best interests at heart.”
– Chris Gledhill, CEO and Co-Founder of Secco
“With the announcement by the OCC that fintech companies can apply for national bank charters, I expect to see many try to go that route in 2017 – in particular online lenders.”
– Mary Beth Sullivan, Managing Partner of Capital Performance Group
“With a new administration governing in the US, all regulations will be on the table for review. And with the US having multiple regulatory bodies, plus a patchwork of state agencies covering financial services, we could see a complete rethinking of the overall US financial services regulatory approach.”
– Jim Van Dyke, CEO and Founder of Futurian.Digital
“Ideas of ‘partnerships’ between fintech start-ups and financial institutions could fly out the window as a new ‘lighter’ charter landscape is created. While new charters may allow fintech companies to buy money as cheaply as banks, increased regulatory scrutiny on non-bank fintech companies may also slow growth for those unable to adapt.”
“The potential of fewer regulatory and compliance requirements will save banks both staff time and money, that can be better spent improving digital channels for individuals and small businesses.”
– Lori Philo-Cook, Marketing and Communications Consultant at InnovoMarketing
“Under a Trump administration, it’s likely that regulations introduced since 2009 will be significantly rolled back, with Dodd-Frank repealed in part, which could boost investment and lending.”
– Don Peppers, Futurist and Co-Founder of CXSpeakers
“US regulators will encourage innovation in the financial service industry, as they ease off new regulation. Sandbox schemes, controlled tests, and encouragement of standards will be the specific activities that we will see in 2017.”
– Alex Jimenez, Digital Banking and Payments Specialist
“PSD2 will put massive pressure on the UK incumbents … global regulators will embrace fintech competition and regulatory concessions … Africa will embrace APIs … financial inclusion will become a mainstream and actionable topic … and the US will embrace change in the regulatory and political system.”
– David Brear, CEO and Founder of 11:FS
8. Exploring Advanced Technologies
Banking is becoming less a place you go, and more something that is hidden from view behind digital banking and commerce apps. Technologies like Apple’s Siri, Amazon’s Alexa or Samsung’s Viv will enable an even greater shift in banking. Instead of being hidden within apps, banking will become completely invisible to consumers.
Fueled by improvements in advanced data analytics, AI, voice-controlled devices, API’s, cloud technology and the Internet of Things (IoT), banking will be able to be integrated seamlessly within a consumer’s everyday life. Ultimately being available ‘beyond the device,’ these technologies will allow banking, commerce, daily intelligence and decision making to be available to consumers 24/7/365 as a virtual, e-personal digital concierge.
In a vision presented by KPMG in their report, “Meet Eva – Your Enlightened Virtual Assistant and the Future Face of the Invisible Bank”,
Banking will become a disaggregated industry – with three distinct components.
- The first layeris the platform, leveraging a Siri-like device that combines the many services provided by smart tech with banking
- The second layer is the product, which becomes more flexible and customer-centric
- The third layer is the process layer that brings a new wave of utilities to operate the transactional infrastructure of banking
The technology required to build the Invisible Bank already exists today. Components such as APIs, cloud-based services, artificial intelligence and mass personalization are already becoming the foundation for the future at many financial institutions. But, in most cases, these technologies are being used in the peripheral systems rather than the core.
According to Brett King, founder and CEO of Moven and author of the book Augmented: Life in the Smart Lane, “Banking is becoming embedded in our life through a set of distinct experiences, whether that be access to credit in a store, a voice agent that can act as a money coach and tell us if we can afford to go out for dinner and then can reserve and pay for a restaurant booking, or an algorithm that will manage our portfolio. As banking becomes a set of embedded technology-based experiences, the artifacts associated with the bank disappear.”
A real shift in banking would require building out core platforms from scratch – and few banking CEOs have the risk appetite for that. The winners will be those that can utilize their data, drive down costs, build effective partnerships with a broad range of third parties, and provide robust cyber security.
“The most significant change in 2017 will be voice-mediated AI. This innovation will drive a deeper relationship that is more like a private banking relationship. AI and machine learning, with a Voice interface, will become a powerful way for banks to become more relevant with their customers, proactively recommending new products, on-demand finance and credit.”
“In 2017, hype will move away from fintech, with the new hype on robotics, AI, deep machine learning and its potential impact eliminating the relationship manager.”
– Alain Enault, General Manager and Program Director at Efma
“Customers will want and expect to access their bank via a chatbot on Facebook Messenger, or via a voice interface, such as Apple’s Siri and Amazon’s Alexa. This will start with basic information, customer servicing, and ‘simple’ transactions, and will get more sophisticated over time.”
“Banks will join Capital One in working with Amazon’s Alexa, while others will work with Apple’s Siri. Still others will build their own virtual assistants, as USAA and Standard Chartered are doing. Banks and nonbanks alike will be forced to provide intuitive, conversational interactions for customers banking over digital devices.”
– Penny Crosman, Editor at SourceMedia
“In the next year, machine learning and AI will be used to anticipate banking customer needs and proactively provide advice so they can make better financial decisions on a moment to moment basis. This will expand to biometrics, robotics, sensors, and the Internet of everything.”
– Luvleen Sidhu, Co-Founder and Chief Strategy Officer at BankMobile
“Supported by the opening of regulation, there will be new products, service offerings and an abundance of non-bank players with new approaches to old problems. Technologies like Blockchain, AI, Natural Language Interfaces (Alexa, Siri, Google Assistant), and Cloud will underpin almost every advancement.”
“Interactions with banks will be nothing different than a small talk with a friend. Conversational interfaces, in the form of AI-powered bots and Alexa-like devices, are going to remove any kind of friction, thus boosting digital adoption more than ever.”
– Ambrogio Terrizzano, Financial Services Lead for Accenture
“In 2017, more and more banks will embrace Robotic Process Automation (RPA) to help improve productivity and quality, while also offloading manual processing from employees. The result will include improved customer experience, as well as reduced cost of operations.”
– Jenni Palocsik, Director of Solutions Marketing at Verint
“Cloud hosted applications will make greater inroads in the financial services industry, with next year being an inflexion point as banks fast track this transformational initiative.”
– Arjun Ray Chaudhuri, Senior Project Manager at Oracle
“A hot trend for 2017 will be ‘Botification™’, as banks look to ‘botify’ their mobile banking-related service, marketing, and advice offerings with chatbots and AI technology.”
“Retail customers will start to feel the effects of API banking as their data is transformed into true capital. They’ll also realize that the more data is exposed/exchanged, the less capital value it has on the market. This may result in a lesson in capital assets, not necessarily in smoother transactions.”
– Ghela Boskovich, Director of Global Business Development at Zafin