One of the famous quotes of Bill Gates that “banking is necessary, banks are not” has a lot of inbuilt message on how technology can redefine the entire banking sector. Indeed, there’s a new era of banking and financial services on the horizon. With the emergence of digital banking and fintech, the sector is facing a massive shift in the way people bank. Advancements in technology, including artificial intelligence and blockchain, has enabled banks and financial institutions to redefine what banking means to consumers today.
Opening up new channels of conversation
The biggest change in the industry is how banks interact with their customers. The face to face form of interaction – with live personnel sitting behind a counter, is quickly becoming obsolete. 2017 saw the rise of Conversational User Interfaces (CUI). Artificial intelligence has made it possible for people to hold meaningful and productive conversations with super-intelligent bots. Either through text or voice recognition interfaces.
This, of course, opens up new channels of customer service and engagement Conversational banking is a result of the integration of smart bots with customer engagement. Companies such as MasterCard and Google are already developing technology that will make it possible for people to conduct transactions with merely a voice command. Quite literally, customers can ‘converse’ with an AI bot either via text or by using voice recognition technology to keep track of and manage their financial assets.
Another major trend that took the financial and tech worlds by storm was cryptocurrency mining. And while a vast majority of individuals believe that Bitcoin is the next big thing, it is, in fact, the technology at the heart of cryptocurrency that will change the world. Blockchain technology is proving to be disruptive across industries. For banks, it provides a window of major opportunity, with the biggest impact on the payments sector.
Blockchain technology can be used for money transfers, record keeping, and various other back-end functions. By creating a clear and tamper-proof digital ‘paper’ trail, the technology helps wipe out the need for a physical one. It serves as a kind of decentralised digital ledger, subsequently reducing the price of processing transactions drastically. And saving the bank billions in transaction costs as well as reducing the number of inefficiencies in the system. In fact, according to analysts at Accenture, it could save the global banking sector as much as USD 20 billion by 2022.
A large number of banks are investing in smaller startups who develop services and products based on blockchain technology. The technology is not only pocket-friendly but also provides an easy solution for identifying financial fraud. For example, Japan’s biggest bank, Mitsubishi UFJ Financial Group Inc (MUFG) teamed up with Akamai, a tech company based in the US, earlier this year. Together, they’re developing a blockchain based payments platform, which aims to handle a million transactions per minute.
But of course, they are not the first (or only) companies to invest in blockchain. Long before anyone else, the U.K. based bank Santander were pioneers who developed an international payment app based on blockchain. Since then, major companies such as Goldman Sachs, Infosys, and several European banks have jumped on the blockchain bandwagon
One question that’s always on everyone’s mind when a new form of digital banking gains traction – is it safe? Cybersecurity and privacy have increasingly become a concern in recent years. As digital banking platforms become more open and increasingly connected, they also become more easily accessible by unrelated third parties. With the story of a new data leak scandal in the news every few months, it is no surprise consumers are wary of conducting financial transactions online.
However, fintech companies and financial institutions should see this as an opportunity. Advancements in technology have not only made it easier for consumers to connect and interact with their surroundings, but to do so in a secure environment.
Technology like blockchain is a perfect example of said opportunity. It provides a unique solution to how banks can improve the way they protect their customers’ digital privacy. In addition to being used as a filter to catch financial fraud, it serves as an effective barrier to data theft. Due to its decentralised system, customer data is stored in small distributed databases. Moreover, the data is secured using cryptography and can only be accessed using a system of three ‘keys’.
Biometrics is also one scientific authentication method that provides an additional layer of security to digital banking customers. Consumers of mobile banking are becoming increasingly comfortable using their fingerprints to authenticate payments and their voices to initiate transactions via mobile apps.
Artificial intelligence is another key player in the development of effective cybersecurity technology. With hackers and malicious actors using increasingly smarter AI-based technology to carry out attacks, it seems logical to fight fire with fire. Banks are investing in defense mechanisms which depend on machine learning algorithms to provide digital surveillance as well as automate other tasks. Earlier this year, HDFC Bank established an AI-based Cybersecurity Operations Centre. Having completed a successful pilot run, they plan to go live soon.
According to a Digital Banking Report, more than half of individuals consider banks as a ‘necessary utility’ instead of a ‘trusted partner’.. In order to break this mindset, and to grow and expand, it’s crucial for the banking sector to deliver on the promise of personalisation. To be able to anticipate the requirements of their customers, and provide timely and personalised offerings and services. But how can banks do this? The answer lies in leveraging their large customer databases.
Banks have already begun the transition of adopting new business models that focus on personalisation. The evolution of advanced analytical tools and techniques has only supported the effort to get to know individual customers, better. Big data technology has enabled customisation at scale hitherto unseen in banking.
Many Banks are teaming up with fintech startups who provide unique solutions and expertise in areas outside of the banks’ traditional scope. They offer a range of services ranging from consultation, analysis and technical support to the creation of digital platforms and apps. By breaking down and productising the latest analytical and machine learning tech, startups are helping banks meet their customers’ expectations of trusted financial advisors. The next logical step for banks to take will be to become trusted lifestyle advisors to their customers.
Evolving with the power of technology
Financial institutions and banks need to constantly evolve to meet the ever-changing expectations of their customers. Especially now, since traditional banks are facing considerable competition from the non-banking sector.
As technology is becoming more accessible, consumers are presented with a multitude of options for managing their financial transactions. Fintech companies such Paytm and TransferWise are providing payments related services are lower prices. Even the tech giant Amazon has come up with a range of digital platforms which aim to provide various financial services, right from payments to loans and insurance. In short, enterprises are developing affordable banking platforms without necessarily being an established bank.
So, it’s extremely important for the banking sector to adopt newer business models and invest in the technology to support these models. Whether they choose to do it through blockchain, artificial intelligence or other innovative technology, the verdict is out. They need to become catalysts for disruption, or risk redundancy.
Aarti Ramakrisnan is Director & CMO at Crayon Data.