2018 promises to be the year we see the culmination of some key technologies — from blockchain and intelligent AI, to design thinking and the cloud. Here are the 10 biggest trends identified by reports from Synechron and Capgemini.
1. Massive Investments in Digital Transformation
Experiences with non-banking industries such as retail and communications have shaped consumers’ expectations from banks and credit unions. As customers become more digital, more demanding and more tech-savvy, legacy bank infrastructure is strained to support new modes of engagement and grow digital efforts significantly. In response to increasing competitive pressures and people’s rising expectations, financial institutions around the world are investing aggressively in digital transformation projects.
2. The Frontiers of Innovation: AI & Blockchain
According to a report from Synechron, blockchain and artificial intelligence (AI) will continue to disrupt the financial services industry. AI development will focus on cognitive use in the sales, marketing, investments, wealth management and compliance sectors of the financial services industry. This is a critical step in moving from advanced robotic technologies like machine learning and predictive analytics to real growth in cognitive computing. Synechron also predicts that robo-investors will become the centralized fintech platform for wealth managers.
3. Digital-Only Banks Become a Real Threat
With the entire banking industry shifting to digital channels, digital-only players will pose more and more challenges to the historical dominance of traditional banks and credit unions. According to Capgemini’s Top 10 Technology Trends in Retail Banking, this new breed of banking providers has defied the conventional model with highly innovative products and services with mass appeal to today’s digitally-savvy consumer. These challenger banks will fuel increased competition in the industry, forcing traditional financial institutions to improve their digital offerings and extend their reach to fend off these disruptors.
4. Design Thinking
Synechron says that “design thinking” needs to be combined with creative engineering to bring the UX vision to reality. Banking providers will focus on a few key use cases and technologies where customer-first design is key, like account opening and augmented reality. Augmented Reality (AR) and Virtual Reality (VR) will benefit from developments in immersive UX design aimed at improving the customer experience. The account onboarding process will see a boost from UX design technologies in the form of a more interactive and gamified experience with natural language processing and machine learning.
5. Real-Time Risk Decisions
AI will also support risk management by improving the enterprise-wide risk analysis needed to fulfill the changing needs of the organization. Given the pace at which the financial services industry moves, the goal for 2018 is real-time risk through AI/automation while operating within compliance and regulatory parameters.
6. Alternative Lenders Leverage Alternative Data
Capgemini says that the 2008 financial crisis left banks and credit unions at a disadvantage with credit challenged consumers. This — combined with the emergence of online lending technology and streamlined lending processes — made room for alternative lenders to thrive in this environment. According to Capgemini’s report, “these non-traditional lenders use technology-based algorithms and software integrations to assess credit profiles of customers and are also leveraging alternative data such as social media photos and check-ins, GPS data, e-commerce and online purchases, mobile data, and bill payments.”
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With an increasingly complex regulatory environment, financial institutions will also start looking at AI to gain meaning from larger and larger volumes of regulatory data. With newer regulations like Fundamental Review of Trading Book (FRTB) and Consolidated Audit Trail (CAT) compliance, a tech-first approach will become necessary. RegTech has a vital role to play as firms move beyond initial MiFID II compliance and gain more long-term benefits from the regulation and take a tech-first approach to their compliance efforts. This will lay the foundation for greater economies of scale across data, analytics, and related risks.
8. Big Data Gets Even Bigger
Big data initiatives are pushing more sophisticated and more open business models with better data tools and visualizations. While the beginning efforts for data standardization have already started, financial institutions are still relying on legacy data architecture and infrastructure. Stepping forward with future systems is a priority for data in 2018. Additionally, this requires new data infrastructure to comply with the upcoming new data requirements like General Data Protection Regulation (GDPR) and Payment Services Directive II (PSD2). With those changes, new ways of extracting additional value from data have emerged, such as data virtualization, data lineage, and data visualization.
9. Connecting With Third-Party Providers to Drive Customer-Centricity
Through open APIs, banks and credit unions will go through significant changes in the way they provide CX-based processes. Fintech companies are becoming players in the customer journey, and banks and credit unions are no longer in control of the customer journey. Customers are increasingly adopting fintech offerings for better services, leaving banks and credit unions no choice but to adapt – or get left behind.
10. The Cloud: Creeping Into Every Corner
In 2018, adoption of the cloud in banking will increase, but with the focus on security and regulatory compliance continuing to be front and center. Expect to see enterprise-wide middle- and bank-office applications start to move into the cloud. Banks and credit unions will feel the push to create more cloud-enabled business models in 2018, while the use of open APIs will drive consumer applications to the cloud even more.