Sometimes the hottest trends turn cold. Not because they failed. Just the opposite — they’ve become mainstream.
Case in point is APIs — application programming interfaces — which, in the words of a report by Forrester, “are virtually everywhere.” While APIs have been around for a couple of decades, today they are a basic building block for banks.
So what will be the next API? Going by the headlines you’d think it would be the Metaverse, virtual reality, the internet of things, quantum computing, and green tech. Not according to Forrester.
The definition of what’s really hot and what’s not in banking technology has very little to do with the volume of headlines about this technology or that on the internet. Forrester’s Jost Hoppermann and a team of the firm’s analysts study the trends every year, including conducting in-depth interviews with bank technology officers around the world, for an annual ranking.
Hoppermann says that he has found that the bankers interviewed can’t afford — literally — to become too enamored of the latest shiny toys, at least outside of any innovation lab their organization might sponsor.
“Most institutions have to devote a huge share of their tech budgets to old systems — as much as 60% to 80% goes to that,” says Hoppermann, Vice President and Principal Analyst. “They have to make the most out of what remains in their budgets for innovations that support the business the most. They can’t afford to spend on something that only reaches out to some customers and creates little added business value.”
The Price of Being the Incumbents:
Fintech startups can afford to put tons of venture capital funds on a bet on this technology or that. Banks don't have that luxury.
In putting together Forrester’s “Top Emerging Technologies in Banking in 2022” report, Hoppermann and his team bore this in mind. The bank technology report includes quotes from bank tech leaders in which they ask where the return on investment is for the particular technology being discussed.
In an interview with The Financial Brand Hoppermann defused some of today’s bank tech hype.
He also shares this yardstick that banks of all sizes should ask when deciding what new tech to invest in:
What edge will this investment bring you that your competitors can’t replicate, at least initially?
Cooling Down Metaverse Chatter
Forrester divides tech trends into “hot,” “on the radar,” and “hype.” The Metaverse is definitely in the last group, in spite of the opening of offices there by Chase and Fidelity Investments.
The report combines the responses of many executives interviewed into this composite quote: “Our board is very interested in the Metaverse, and we are just trying to figure out what it means for us.” It also includes this quote from fintech author David Birch: “I don’t want to visit a bank branch in the real world or the virtual one. … I don’t want to go into a bank branch at all.”
Hoppermann tells of his own experience, before the pandemic started, of visiting a major bank tech vendor’s lab and being shown a branch he could visit via virtual technology. The tech necessary to make this work was interesting, he says, but as a banking consumer Hoppermann shrugged.
“What’s the attraction? There are better ways to interact,” says Hoppermann.
In fact, he says, the idea of virtual branches you can visit as an avatar isn’t new. It goes back over 15 years to the Second Life virtual world created by Linden Lab, he says. And in the late 2000’s Linden Lab closed many institutions’ virtual offices when they couldn’t show that they were chartered banks.
Even as a case can be made for convenience for banking in the Metaverse, Hoppermann urges caution in making major investments, advising that tech chiefs think strategically. Institutions have opportunities to invest in tech that will give them a leg up over competitors, but often those situations rapidly turn into table stakes before long. Hoppermann suggests that websites make a good example. For a while they represented a competitive advantage. Now you have to have a good one just to be considered legit.
“The Metaverse would have to become a real enabler of better customer experience and business value for the banking industry itself at the same point in time.”
— Jost Hoppermann, Forrester
Just what this will look like, Hoppermann says he can’t really say. If he could, he jokes, “I would probably start implementing it and be looking for venture capitalists.”
Virtual reality is also on the hype list for much the same reason. As the head of innovation for a medium-sized bank told Forrester, “I like the concept and the potential value of virtual reality. However, we don’t have the budget to be an early adopter of a technology that still needs to provide proof of its broader business value.”
The Internet of Things remains an elusive yet attractive factor and continues to be on the firm’s hype list. “We still need to find the right use cases in banking,” said a banker interviewed. More damning, from Forrester analysts: “IoT in banking has few use cases with rich business value.” In fact, the most attractive cases, from the firm’s perspective, relate to banking areas like supply chain and trade finance, and have nothing to do with smart refrigerators and the like.
5G and Three Types of AI Are Hot Bank Technologies
For over half of the respondents to a separate study by Forrester, improved customer service is a major interest for using 5G cell service. The speed of delivery of banking services is part of the appeal, according to Forrester, but an advantage less visible to the public is enhanced security.
As one banker told the firm, “5G can enhance mobile capabilities with processing power in the cloud. This will improve digital banking security and prevent risk by using powerful — biometric — identification and authentication mechanisms that we could not implement on smartphones.” As fraud threats continue to escalate, this can be a major plus.
Hoppermann adds that 5G will help deliver better service in bank branches as well, by bringing state-of-the-art technology to the branch that doesn’t have to reside there. The technology will also help support advisors working for the bank in the field.
Of the three forms of artificial intelligence on Forrester’s hot list, the one ranked highest in terms of anticipated spending at banks interviewed is machine learning. The report notes that advantages include improved processes as diverse as loan origination and fraud detection.
Key AI Use Case for Banks:
Personalizing customer experience via machine learning is seen as a plus by a third of financial services respondents to a Forrester survey.
The two other forms of AI that made the hot list include computer vision and natural language processing and natural language understanding. The report notes that computer vision has helped improve identity verification — the term is literal.
Regarding natural language, something that came through in answers from the global sampling of executives is that natural language AI, while growing more important, requires a key adjustment.
This regards its ability to understand languages other than English. Observed a banking software vendor quoted in the report: “Many solutions deliver good results in English, but they are useless if they don’t understand local languages.”
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Technologies that Should Be On Banking’s Radar
Still more forms of artificial intelligence are on Forrester’s “on the radar” list.
These include natural language generation — which turns lengthy reports or large amounts of data into summaries. It also includes robotic process automation, which enables systems to learn on the fly, and deep learning
Deep learning is a form of machine-learning that is used with neural networks for such tasks as customer segmentation, credit scoring and detecting fraud.
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