The top 10 innovative technologies disrupting the finance industry
In the last few decades, the financial industry has undergone several changes. Both functionally, and in day-to-day operations. But recent years have propelled the industry towards digital disruption like never before. Innovative FinTech companies have introduced various banking solutions, making banks and consumers alike more accessible and dynamic.
The growing need for FinTech disruption
Earlier, new market entrants found difficulties stepping into the financial and banking industry. Today, FinTech disruptors are finding strong footholds. They’re smart enough to target the most profitable elements, leaving lesser margins for their traditional competitors. According to the Kpmg top fintech companies list, some of the most significant players in the global scene are Ant Financial, Grab, JD Digits, GoJek etc. India is claimed to have a fintech adoption rate of 59% with companies like Paytm, Phonepe, MobiKwik, PayU etc. But what’s significant is that the same technology that threatens legacy institutions is the same thing that can save them. By leveraging technologies that are being introduced, institutions must learn to wade through the changing waves of customer expectations.
It’s fair to say that banks themselves are fading out of focus and the banking experience is becoming more important.
Customers’ reliance on a physical location of a bank for meeting their banking requirements is diminishing exponentially. Everything is available on the go, at the tip of their fingers. More and more customers are now looking for services from the bank which conventionally required an employee assistance- to be made available at a click.
Some evidence for this is the introduction of peer-to-peer transactions and the evolution of the digital wallet which is now replacing most existing payment options for customers. Customers expect all of this without compromising on the security that they’re offered by means of the institution. To create convenience with quality is a challenge. The sharing economy opportunities are knocking hard at the doors of the legacy institutions and they shouldn’t fail to open it.
Here are the top 10 of such opportunities that they need to get on with:
Artificial intelligence
The ABC’s of disruption seems like a good place to start. Artificial intelligence and the industrial revolution 4.0 has been the talk of the town in recent years. It’s left no business sector untouched. The banking and financial industry are trying to keep up with the pace. The enormous amount of data available and increasing processing capabilities has enabled AI to benefit all areas of banking including operations, marketing, and product delivery, and customer experience, risk management and also cost reduction.
However, these are challenged by existing data silos and the question of data security. But whatever risks AI puts forth, it is also building and updating solutions for it. According to a PwC study, ‘AI and digital labor in financial services’, 52% of decision makers in financial institutions have confirmed that they are making substantial investments in AI.
Using AI and data for personalization is helping the industry become more customer centric. maya.ai, created by Singapore based Crayon Data is the world’s first AI engine dedicated to personalizing digital engagement between enterprises and their customers. They have developed a unique digital, big-data based personalization engine that engages customers with taste-led personalization to increase conversion rates for enterprises.
Blockchain technology
The big B in the ABC of disruptive technologies is blockchain. Blockchain technology is being pushed to the forefront of fintech disruption and is significantly changing the traditional financial and banking ecosystem. It is being used to create a variety of trading, traceability, payment and remittance platforms. It is also expected to improve security and customer experience by preventing cyber-attacks and frauds.
One of the aspects of blockchain, which makes it extremely attractive to financial institutions, is cost reduction. It helps cut back on infrastructure expenses which comes through the elimination of overheads for confirming authenticity of transactions. Understanding crypto currencies, weighing the security of public ledgers and regulatory challenges are prerequisites to successful adoption and implementation of blockchain technology.
Numerous companies from different sectors have successfully adopted blockchain technology. For example, shipping giant FedEx, one of the largest logistics management companies in the world became the first in the industry to adopt blockchain technology. They joined the block chain in transport alliance in 2018. The application of block chain in FedEx is in dispute resolution, where the firm doesn’t have all the information to make decisions, the customers in the block chain platform can speak in a common language to resolve the dispute. Swiss investment banks UBS has created its own block chain lab. Standard Chartered, Societe Generale, Deutsche bank , The Bank of England, DBS bank and several other such banks have started investing and deploying block chain technology.
Big data
Following up with the next B, we have big data. According to the IDC Semi-annual Worldwide Big Data and Analytics Spending Guide, the banking and financial sector is one of the top investors in big data and analytics solutions. There is an enormous amount of data collected and stored by banks and financial institutions. Utilizing this data securely, to the benefit of both the customers and the institution, is achieved by big data tools and technology.
The technology enables banks and financial institutions to improve capabilities and become more customer centric by helping identify new services, trends and requirements while parallely focusing on cost reduction. Big data use cases in banking include creating personalized customer experience, user segmentation and targeting, business process optimization and automation, better employee performance management and improved risk and cybersecurity management.
Risks associated with money lending can be identified using business intelligence tools. It also helps to deliver personalized banking solutions to customers and tracking individual applications from customers for validation and regulatory compliances. It also helps in handling customer feedback.
Cloud computing
The big C in the ABC of disruptive technologies is cloud computing. The rising momentum around cloud based technology means that traditional legacy institutions need to catch up soon if they don’t want to miss out on the party.
Cloud technology complements all the other elements in the ABC perfectly. It increases efficiency and security by automating workflows and operations. An increasing number of financial institutions have already started using cloud based SaaS applications for business processes. It helps boost computing power and aids faster development of products and services. The British Bankers Association identified three key factors for banks adopting public cloud based services. These are: agile innovation, risk mitigation and cost benefits.
The scalability of cloud is also a prime motivator for technology adoption. None of these benefits come without risks though. So, there must be an ability to ensure service continuity even in cases of cloud mishaps. Going in line with the statement made by Microsoft in the Financial times, a tight partnership between regulators, financial institutions and cloud providers will ensure that the right frameworks, programs and processes are in place as financial services providers increase their usage of cloud services. Numerous banks have adopted cloud technology varyingly. According to the Deloitte article, there are investment banks using cloud for regulatory reporting solutions and financial services firms creating trading apps on public cloud.
Cybersecurity
As already mentioned in the previous point, cybersecurity and its improvement is the root for setting up all other technologies and platforms. As an industry dealing with sensitive, personal and financial information, banking and other financial institutions should make significant investments and give top priority to data security. And share their best practices with each other to build a more secure ecosystem.
Suspicious transactions are monitored and tracked using technologies like machine learning, Artificial intelligence and big data. Identification and authentication processes are being strengthened. Cyber systems for defense are learning how to detect anomalies by combining big data and machine learning. An increasing number of ‘false positives’ generated after the defense systems are deployed reduces the efficiency and is an area of further research and development being worked on.
Due to multiple technology enabled platforms customers deal with, third party vendors and cross-border data exchanges have increased their vulnerability. This, along with the growth of IoT networks, has put upfront a new set of challenges. One the bright side, the technology that created this threat also holds its solution. Institutions can use big data analytics to monitor for covert threats. The advancements in smart technology has also made biometric, voice and facial recognition security more practical.
Robotic process automation
The human mind is capable of processing complex information and decision making. Yet there are a multitude of people employed in mundane, repetitive jobs. This is especially true in the banking sector. But advancements in robotic process automation (RPA) and its implementation can help banks utilize human labor more efficiently and employ robots and bots to serve customers in low priority requirements and queries.
According to a TCS report, there are use cases of global banks deploying robots for ATM testing. UK based bank using robots for transaction processing and sweep operations and banks using RPA for extracting information from input forms and feeding it into host applications for bank account opening processes.
This is already being implemented as a part of processing insurance claims and even application processing for credit cards. There are RPA tools with drag and drop technology that enable workflow automations with minimal coding. Some benefits of implementing RPA are scalability, cost effectiveness, risk and compliance reporting, agile business with reduced business response time. DBS partnered with IBM to create a Centre of Excellence in RPA in 2017 to expand it beyond back end operations.
Voice interfaces
With the increasing popularity of voice controlled intelligent personal assistants like Alexa and Google Assistant; it’s natural that more customers will begin to expect the same levels of service from different industries. This includes the banking sector. Which is why voice-first banking, or conversational banking, is now a potential disruptive technology.
It is expected that a bulk of credit unions will transition to transaction handling and setting up account notifications, enabled through voice commands. Institutions have already allied with Amazon’s Alexa to empower consumers to fulfil certain banking requirements. Improving voice technology and additional service means more and more customers will shift to voice engagement. JP Morgan, Wells Fargo, Mastercard uses Kasisto’s KAI, a conversational AI Platform. FSS, based in India, provides end to end payment solutions. They developed FSS Voice Commerce, enabling customers to make transactions through voice capable devices by Amazon, Google, Apple etc.
API platforms
APIs in banking is a set of routines or protocols that gives other financial institutions and third party platforms access to a bank’s services. It runs parallel to banks embracing the ‘open banking’ initiative. Adopting and deploying APIs can help banks extend their native services and offerings by introducing native fintech solutions in a plug and play manner. It can help improve overall customer engagement and increase digital revenue.
It is claimed that around one-third of existing banking customers are using external fintech applications. Open banking strategies with API-led connectivity can help banks gain market share in the software developing world, with the help of a repository of architects across the world to design and deploy the API’s.
ICICI Bank allows third party platforms, like Cashfree, limited and secure access to their core banking systems to execute functions like balance enquiry, checking account information, enable transactions etc. In 2019, Mastercard launched its open banking platform through a program “Open Banking Solutions” to improve API standards.
Instant payments
Rising up to consumer expectations is an endless task. However, banks and financial institutions have managed to catch up with fintech players in terms of instant payment. Despite the lack of proper technological infrastructure, banks and financial institutions are offering instant payment services to customers. This means less cash and more digital transactions which are more user-friendly and less expensive. There is also the prospect of creating an innovative portfolio of new services in e-commerce and m-commerce banks and credit unions. Savings on terminal upkeep, cash management and interchange fees will help retailers reduce prices, by means of implementation of immediate payments at point of sales.
The technology in this area contributes to running the payment infrastructure. Which is why it’s critical. It’s a great opportunity to create a competitive advantage. A PwC report mentions that to speed up cross-border payments in countries like China, Canada, Australia, Netherlands, Singapore, Thailand and Luxembourg, the domestic faster payments systems in these countries have been linked (GPI instant) by SWIFT.
Chatbots
Chatbots have now become a common word. We assume chatbots are something that’s not too hot to handle. But looking back at just how far we have come and ahead at how much further we can go makes us want to talk about this. Owing to advancements in AI and data analytics, we can now equip services with better chat bots.
A report by Gartner states that more than 85% of customer service interactions will be handled by chatbots in 2020. Chatbots have evolved from a simple digital tool, to a conversation analytics platform, to a digital assistant which can initiate actions on its own. Round-the-clock availability, standard customer experience, instant responses, providing proactive suggestions to customers, simple interface providing better interactions with higher efficiency are some of the advantages of employing chatbots in the banking industry. Chatbots use API’s to integrate with platforms that are involved in data management. According to a PwC report, chatbots can be used to create a cognitive financial institution, i.e an ‘insights driven bank’.
That’s how we counted down the top 10 disruptive technologies in banking and financial sector. With every day and every year countless possibilities are worked on and new technology is always around the corner to disrupt the existing setup. Looking out for these changes and being flexible and adaptable to embrace it will keep the industries running. We’ll keep a look out for these changes till our next countdown.
