Imagine a bank or credit union that lets its account holders execute payments in the blink of an eye. (Taking full advantage of the latest FedNow clearing capability.) Where transaction fees are not an issue, regardless of size or urgency. (Because it’s the customer’s money, after all.) Where, when the account holder initiates a transaction, they know their personal data won’t be exposed, even to the payee. (Because, why would it need to be?)
And customer service? That’s equally seamless. It’s powered by intelligent technology that understands what the account holder wants, before they ask. So a pre-approved auto loan is ready by the time they’re seated at the salesperson’s desk. And CD roll-over options are offered ahead of the competition — at the right moment, with the right terms.
This isn’t some distant dream. It’s a blueprint for the industry’s future and it’s what keeps Tyfone Chief Executive Siva Narendra up at night. In a good way.
Narendra talks about the progression from Moore’s Law (32x more computing power, every two years); to Nielsen’s Law (60x faster digital networks, every decade); to Huang’s Law (300x more digital AI computing power, every ten years).Then he considers what effect those growth curves might have on banking — not just the likes of Chase and Bank of America — but community banks and credit unions.
Narendra’s blueprint goes far beyond just having a good app or online platform. To truly compete in this world, financial institutions must embrace a different strategy—one that not only enhances digital capabilities but also includes instant payments executed natively and intelligent, AI-powered banking services.
“Every financial institution knows they need digital banking, but that’s not sufficient. If you’re worrying today about how I implement digital banking, you’re a decade behind,” Narendra said in an interview. “Digital banking, in my opinion, should be a commodity but today it’s a walled garden because there are no standards. That will change and when it does, digital banking will become table stakes. Then, the future of digital will be giving account holders digital banking plus instant payments, plus intelligent banking.”
Inspiring these account holders, satisfying their needs, is the real engine driving the future that Narendra sees. And it is powered by three technology transformations that together will reshape the financial sector.
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Digital Banking: Solidifying the Foundation
The computing power of integrated circuits has followed a well-known path of exponential growth — aka Moore’s Law. Every two years, technology doubles in power, and that is what has allowed all industries to offer increasingly sophisticated digital services. Banking today is already heavily digital. More than half of all customers manage their finances primarily through mobile apps, while a significant portion prefers online banking through their computers. The traditional ways of banking — such as visiting branches or using ATMs — are becoming less popular every year. Banks and credit unions, especially smaller institutions, are under constant pressure to cost-effectively keep pace with competitors.
“The sad reality,” Narendra says, “is that most customers today would prefer to do business with a community institution, but they often don’t pick their local bank or credit union because their digital technology is simply not at the cutting edge.”
To stay relevant, institutions must continuously invest in both maintaining their current digital offerings and preparing for the future of instant payments.
Instant Payments: Achieving Immediacy
Over the past decade, processing power and network speeds have increased dramatically at a rate that has been quantified in Nielsen’s Law. This leap forward is enabling the development of instant push payment systems — solutions that allow money to move between accounts in real-time, 24/7. For financial institutions, keeping pace with this advancement is crucial. The challenge is not just offering instant payments but integrating them seamlessly into digital banking platforms.
Instant payments mean greater liquidity — customers retain their funds longer before making payments, which is crucial for individuals living paycheck to paycheck. Businesses, too, will benefit from faster cash flows, which can be a game-changer in managing finances and planning for growth.
Instant payments are already transforming how banks and credit unions handle transactions, offering an inexpensive and efficient way to move money. This became possible with the launch last year of the Federal Reserve’s FedNow Service, which allows institutions to process payments instantly, eliminating the need for multiple steps such as sending a message to initiate a transfer and a separate confirmation of receipt. So, for example, a car loan that needs to be funded can be funded instantly.
By enabling real-time “push” payments and settlement, thanks to tokenization and direct account exchanges, FedNow also, critically, enhances security. Fraud checks, such as OFAC and AML screenings, are conducted in real-time, and customers receive a security code to authorize the transaction instantly. Confidential banking information is never shared, just the actual funds.
By widely deploying FedNow, financial institutions can also achieve substantial cost savings. Moving money through this system can reduce fraud by four times compared to other instant payment methods, and it offers a 50 percent reduction in fraud compared to same-day ACH. It can also slash reconciliation costs by as much as 75 percent, according to Narendra. This in turn frees bank and credit union staff from rote record-keeping work, allowing them to focus on delivering more valuable, personalized services to customers.
In a world where payments happen in real time, old ways of doing things will quickly fall away in favor of faster, more efficient methods. Even familiar concepts such as stored value cards could become obsolete. Why load money onto a separate card when instant payments allow for the same, if not greater, convenience?
Intelligent Banking is About Elevating the Experience
Artificial intelligence is today driving the latest revolution in computing, increasing productivity at an unprecedented rate. This growth curve has a law, too: Huang’s Law. In the banking world, this translates into the ability to offer “intelligent” banking services — services that can analyze data in real time, anticipate customer needs and offer personalized, proactive solutions. Fueled by AI, digital banking becomes more than just a convenient interface; it becomes an indispensable, personalized experience.
Instead of interacting with rigid, outdated systems, customers will engage with AI-driven platforms that can understand and respond to their needs with human-like intuition. “The future interaction of digital,” Narendra says, “will no longer be a click-through experience, but a natural language experience.”
With AI, open banking’s personalization potential will increasingly be realized. Financial institutions will be able to integrate data from customers’ social accounts (with permission). AI agents will be able to analyze a customer’s viewing habits and recent searches to determine their readiness to buy that car. This might trigger personalized loan offers through social media direct message, email or text. Customers may soon be able to order a car online, schedule a home test drive and receive loan pre-approval — all seamlessly integrated.
“Imagine a search bar with recommendations under it that automatically come not just based on your transactions, but through connections to your social media activities,” Narendra says — provided “digital trust is built properly.”
It’s a critical caveat. Narendra expects digital trust will extend seamlessly across a person’s devices, from their laptop and phone to their car and watch, with each being recognized as part of your personal, trusted ecosystem. “If digital trust is built properly, I don’t need to visit a digital branch, that’s not the future of digital. The future of digital is being able to interact with any of my devices and telling my financial institution what I want,” he said.
The underpinnings of this future are already in the works, too. This fall the Consumer Financial Protection Board will finalize standardized industry rules related to Personal Financial Data Rights with the goal of giving consumers ownership of their financial data, enhanced consumer protection and consistency about how data can be accessed and used while also facilitating open banking innovation. It will require FIs and payment facilitators to make financial data available to consumers and certain third-party data recipients.
Narendra is confident that these progressive innovations — digital banking, instant payments, intelligent banking — will reward institutions, consumers and small businesses. But, thinking bigger still, he sees that they will have broader economic impacts, as cash flows accelerate across societies, enhancing financial inclusion and boosting productivity. Countries like Brazil and India have already seen this effect, with digital advances helping more people engage with the traditional banking system.
At its core, the future of banking is about productivity. In the past, economic growth relied on expanding populations, but the future will be driven by how efficiently we can use technology to increase output. By embracing instant payments and intelligent banking, financial institutions, even smaller ones, can be leaders in this new era.
Mark Egan has held leadership roles at Brookfield Asset Management, Allianz Global Investors, Guggenheim Partners and Bloomberg. Egan began his career at Reuters, where he worked as a journalist for nearly 20 years and won two Reuters Journalist of the Year awards. He has a Masters in economics from Trinity College Dublin and lives in Montclair, New Jersey.