Banking as we know it will cease to exist in 2017, and regulators and governments have recognized the need for open banking initiatives in the current environment. The Indian Government recently launched the United Payments Interface (UPI), and the European Union passed the PSD 2 regulation to promote open banking. With open banking initiatives and regulations coming into play in the global arena, it is a clear sign for banks to change their traditional mindset and collaborate to innovate.
In the new age of financial services, banks will be the ones to enable customers to share their data securely with third party service providers; this will not only give the customers full control over their own data to get the most out of the service providers, but also allow customers to manage their financial information on one single interface. Customers will be able to find relevant offerings/products easily in an environment where they can share their data freely and will be empowered to make better financial decisions. Banks will also be able to reap the rewards of freely available customer behavior data when it comes to implementing fraud management processes or creating terms for banking services.
Financial institutions will be able to compete with each other through enhanced applications created through collaboration with third party service providers. With an engaged developer ecosystem at their disposal, banks will be able to innovate in the domain of financial services/products. This experience in banking will be the new norm, and will be enabled by the developer ecosystem with a foundation that will be built on multiple bank APIs. Progressive banks are already making strides in collaborating with third party developers and more often than not, it is not surprising to see banks having a proprietary application market place where APIs are provided freely to the developer ecosystem.
Banks will no longer wait for regulators to enforce open banking, but will take their own steps to collaborate in this environment of innovation and open banking. The open banking ecosystem will be driven by open APIs, applications, app stores, and the extended developer ecosystem that will be built by a partnership between banks and third party service providers. Both banks and service providers will benefit equally by this partnership as data will flow freely between the partners to help them to fine tune their customers’ experiences. The biggest beneficiaries will be the customers, who will have the power to pick and choose offerings/products that are relevant to them.
In the past few years there has been rapid evolution and adoption of digital technology that is disrupting established banking business. But digitization has also thrown open significant number of opportunities for banks to deliver sophisticated customer experience, smarter decisions and operational excellence. We believe that banks need to implement a bold and comprehensive “Truly Digital” transformation strategy to succeed in 2017; and we have identified six technology trends that banks need to address in 2017 to be TrulyDigital:
Unleashing innovation with open APIs and open banking
Banking in cloud-first strategy
Blockchain: The race to production begins
AI – your sci-fi movie imagination is turning into a reality
More things to bank on
Banking Architecture – driving value with simplicity
You can read in detail about the top trends reshaping banking here.
The Infosys Finacle – Efma report on retail banking mentions that 53% of the banks feel that pervasive automation will be one of the key drivers for digital transformation in the coming year. While this makes a good case on behalf of automation, the foremost question on everyone’s mind at the moment is, how are technologies like automation along with artificial intelligence, will impact the workforce.
This new wave of automation will free up the workforce from mundane and repetitive tasks, and enable them to focus on adding innovations to the business value chain. The first wave of automation belonged to simple workflow automation, with flexible rule-based processing that spanned across multiple departments. Next was robotic automation for some applications that were part of a larger process, and this needed some amount of human support. With these automation systems in place, a lot of the tedious business processes within an organization were streamlined, and the amount of busy work for the workforce was reduced. This in turn resulted in an improvement in efficiency and performance and brought down staffing issues and expenses.
Now that the processes were streamlined and human intervention was reduced, the next wave is the era of self-learning machines. These machines learn automatically as they execute processes and modify business rules to become smarter. As these machines learn and make processes more efficient, they enable businesses to provide a more consistent experience to their customers. Cognitive machines that can learn and act are already implemented in the financial services sector to provide financial advice and security against fraud. With time, these cognitive machines will leverage the data gathered from customers to provide them with financial advice and help banks to innovate their value chain.
Automation will not be limited to just within the organization, but in this open ecosystem banks will use blockchain as an enabler for inter-organizational automation. This will be the driver for banks to act as a value aggregator for the consumers and their partners. 2017 will be the year where machines and humans will work in tandem for better business outcomes.
Artificial intelligence (AI) is going to become the competitive advantage for banks in the future. In fact, a majority of banks feel that AI is going to have a significant impact in the coming year as a disruptive technology. Progressive banks are getting on board the AI train, and now intelligent digital assistants are omnipresent in banking – from payments, to money management, and financial advice as well. While progressive and challenger banks are already off the starting block, it is expected that their traditional counterparts will soon follow suit.
AI will not only transform the front end, customer facing technology, but also the back end technology platforms. On the front end, banking will transform by implementing an AI platform that uses machine learning; digitally savvy customers will be treated to a differentiated customer experience that’ll get better, the more they interact with the bank on different platforms. In terms of internal processes, banks will drive efficiency with the automation and innovation brought in by these self-learning platforms. Employees will be freed up from doing mundane tasks to focus more on product/service innovation.
As there are advances in technology, there is an increase in the number of attacks on customer data. AI has stepped up to the plate in the area of banking security as well. Progressive banks have already interweaved AI into their security framework that uses machine learning to upgrade the security measures in real-time; this provides banks with a sizable protection from theft and fraud. While AI is going to be one amongst the game-changing technologies for 2017, banks will need to understand that the success driven by AI depends on the adroit execution of digital technologies, such as bid data, automation, and cloud to name a few. Banks will be looking to integrate AI into their omni channel strategy to create more conversational interfaces for their customers; it won’t be a far stretch of the imagination to say that 2017 might just be the year for intelligent robo advisors for all your financial queries.
There is distribution, decentralization and disintermediation of assets brought on by digitization in today’s world. This is the brave new world of the sharing economy, and businesses are partnering with other service providers to bring value to consumers in a scalable and flexible manner. When banking becomes truly digital, it will resemble the business models of today’s successful platform businesses like Alibaba, Uber, etc. There is no other industry that is as pervasive as the financial services sector when it comes to consumers; hence this makes a solid case for having a banking service option embedded in all applications.
There are platform businesses that have embraced the platform economy wholeheartedly – for example, Uber opened up its APIs to developers and since then it has been integrated into many popular apps with complementary services like Google maps, United Airlines, TripAdvisor. Uber currently as a valuation of $62.5B and this integration has enabled Uber to provide its customers with a convenient and differentiated experience. Banks will have to come around to this new business model of partnership and sharing and shed its traditional mentality of owning all assets. Taking part in the business ecosystem will take a two-part approach from banks – banks will have to first figure out which ecosystem they want to be a part of, and then the kind of ecosystem they want to build and support. While the first decision is fairly easy, the latter half requires a bit more thought from banks as they are looking to provide a platform to connect two parties to share value amongst themselves.
While this distributed ownership of assets to provide the best value to the consumer sounds like a great idea, banks will also have to keep an eye whether an ecosystem is turning a profit. Only a minority of the customers bring in a bigger part of the profits, which in turn means that not all ecosystems will be profitable. Banks will need to make economics the foundation of their ecosystem strategy to make sure that they thrive and flourish in the coming year.
Customer experience has been the talking point whenever trends forecast for any industry come up. The fate of any banking institution largely depends on the quality of customer experience it provides and the year 2017 is no different. In the Infosys Finacle – Efma report on emerging banking business models, more than 70% banks mentioned that creating a customer centric organization and enhancing channels to give an omnichannel digital experience were top priorities in the coming year. However, it seems that banks are falling short on this objective; in a recent survey of about 700 millennials, 75% said that they were dissatisfied with their banking experience.
The current customer experience conversation has moved on from enabling a 360-degree view to figuring out where the customer is in their journey and then providing contextual and relevant services/product offerings aligned with their journey. There is a certain shift in the dynamic between technology and consumer, and now technology is adapting to consumer needs rather than the other way around. Banks are reimagining their banking processes to align with the customer journey and create inspiring experiences. Banks are also getting a helping hand from technology – artificial intelligence, machine learning, augmented & virtual reality, and analytics – in creating contextual, personalized, and unforgettable customer experiences.
In the coming year, customer experience will revolve around conversations between humans and self-learning machines; these machines will interact with customers and learn from them to provide a better quality, consistent, and efficient experience. Banks will have to take into account that there are various customer segments and one size does not fit all – this will be the year of marketing for the segment of one. With the emergence of sharing economy and new technologies banks will be looking to become the next generation of platform providers to delight their customers with unforgettable experiences and convenience.
Data science has been evolving ever since it has come into the picture for businesses and the year 2017 is no different. This evolution is driven by the sheer volume of data being generated and affordable computing power along with maturing algorithms. Business analytics is borrowing analytical advances from pure science and is making strides in generating actionable outcomes.
While earlier analytics meant making sure of the data integrity and managing the various sources of data, now it is more about predictive and prescriptive analytics. Analytics now is characterized by fast data, and the need to gather customer, product, location and user insights, among others, and act upon it in real-time. As current use cases are getting more mature, there are newer use cases emerging to harness the power of data – a certain financial services organization improved the way it used text analytics on incoming customer communication by leveraging algorithms that were originally built for matching DNA sequences. This helped it to prioritize and redirect messages to the right service personnel.
In 2017 most of the analytics investments will be open source – banks in the past have struggled with finding a sizable return on investment for big data & analytics, but now this cost is driven down due to open source technologies such as Hadoop. It is no surprise then that in the Infosys Finacle – Efma Innovation in Retail Banking report 64% of the banks indicated that they were open to investing in open source stacks for application development.
Banks are also realizing the importance of analytics being available to all personnel and not just the top management. Actionable insights driven by analytics not only provide valuable inputs to the human decision-making process, but also provide the right feedback for self-learning machines. There is now an awareness amongst banks on how analytics can be used to teach AI platforms to deal with human interactions as well as detect fraudulent transactions in real time; and this has been the primary driver for making analytics capabilities accessible to all functions within the organization.
As 2017 progresses, banks will move on from descriptive, to prescriptive analytics as algorithms mature within the organization. Banks will empower their employees to harness the power of data, based on which an enterprise analytics strategy will be defined. Furthermore, analytics will be built into the operational framework of the banking organization to make it more agile.
Cloud first strategy is no longer a pipe dream, but a reality. Banks are still coming around to the idea that with the digital disruption of business models, the new open ecosystem will be banking on the cloud. Cloud will be the biggest driver for technologies that are currently changing the face of business – – blockchain, artificial intelligence (AI), open APIs, server – less computing, IoT etc. Progressive banks will move beyond non-mission-critical systems on cloud to supporting production workloads on the cloud.
In the past year, there has been a huge push towards cloud, and now, by design new infrastructure and applications are launched cloud first. Most public cloud vendors have become more compliance centric, which has ebbed some of the distrust that the financial service industry had against public cloud. In 2017, banks will be looking to re-design and not just re-deploy their applications, while moving to the cloud and provide a platform for innovation. There will be hybrid cloud models that banks will be relying on to carry out their business – peak-load processing will be handled with ‘cloud-bursts’, whereas routine operations will still continue to be processed in-house.
Banks will see a reduction in capital and operational expenses, that will be driven by the pay-as-you-go model for cloud. The other area that banks will begin to see a marked difference in, will be in implementation; application implementation cost and efforts will be driven down by a sizable margin as banks will be able to leverage new innovations from the shared ecosystem. The day is not far when banks will transform into platform providers that will provide APIs to third party developers to create applications to deliver great value for consumers. This partnership will not only create delightful experiences for the end-user, but will also drive the bottom line revenue for all the partners in the ecosystem. Banks that create a well-planned strategy to move into the cloud, with a long-term vision to be truly-digital, will be poised to become the leaders in this disruptive environment.
One of the biggest challenges that banks face today in their digital transformation is the absence of right people, culture, and organizational structure. Hence, to complete a truly digital transformation one of the key priorities for banks in 2017 will be finding the right set of people, and empowering them to carry forward with the transformation strategy.
People who have a varied skill set, and know the right balance between business and technology will be invaluable when it comes to organizational change. Needless to say, change must be driven top down and this will be concomitant on the presence of generalists with a positive attitude for transformation at the summit. Banks should be on the lookout for people who have the right mindset – i.e. people who are not afraid to rock the boat and embrace change within the organization.
To complete a truly digital transformation, banks must be empathetic to their customers and create experiences for them that transform them from rationally satisfied customers to emotionally satisfied customers. Employees play an important part in this transformation as their disposition determines where the customers end up at in their journey. Hence, it is important to have emotionally satisfied employees to have customers that are true brand advocates.
Cross-functional teams are the cornerstone for any change that an organization goes through and it is no different for banks. Teams that can collaborate across the length and breadth of the banking organization will be the linchpin in a bank’s digital transformation and will need to have the correct technical expertise to see these changes through. Uncovering the right talent becomes a significant task in such scenarios, and banks can collaborate with fintechs and other startups to overcome the challenge of having the right person at the right place.
Culture will be the biggest challenge in any bank’s transformation process, and they will have to instill a practice of lifelong learning and design thinking into their organizations. In an age where change is swift and unforgiving, it is a priority for banks to keep learning and evolve along with the environment.
From a bank’s perspective, the glass is both half empty and half full as we head into a new year. The financial services industry continues to experience unprecedented change. One set of factors is purely environmental – sluggish global macroeconomic growth that shows no signs of picking up, rising regulatory capital and operating costs, depressed interest rate environments in developed markets, large non-performing assets in developing economies, and devalued currencies in several pockets, to name a few. This is putting further strain on the banking business, which is already bogged down by a marked slowdown in growth and profitability.
The second set of change drivers can be summarized in one word, namely, digitization. The rapid evolution and adoption of digital technology is posing a very real threat of disruption to the established banking business as customers continuously reset their expectations based on their experience in other businesses, and new competitors prove more agile than incumbents in fulfilling those demands. Regulators, once sworn to protect banks, are now gradually lowering the barriers by encouraging innovative and disruptive digital business models through open banking initiatives. But at the same time, digitization has also thrown open undreamt of opportunity. It has smashed the cost and efficiency benchmarks in banking operations. It has enabled unprecedented service and experience delivery. And it has enriched decision making with real-time, actionable intelligence.
Banks are therefore trapped in a delicate situation where they must transform into sustainable digital entities while battling serious environmental headwinds.Our viewpoint is that they can succeed in this parallel agenda only by implementing a bold and comprehensive “Truly Digital” transformation strategy. The time for playing at the fringes is clearly past.
We are working with several client organizations to accelerate their Truly Digital transformation journeys. This is a journey destined towards customer-first banking, towards empowering every part of the banking organization with real-time analytical insight, and towards extreme collaboration with a variety of ecosystems. Truly Digital banks are those that rest on a solid technological foundation, with their business and technology arms operating almost seamlessly. They are committed to using automation and artificial intelligence to improve operations as far as possible. And they know that the key to realizing their goals is to empower employees by building a culture of lifelong learning and innovation.
For 2017, we have identified 6 strategic and 6 technology trends linked to the Truly Digital theme that we believe will be the most influential in determining the future of banking organizations. We are delighted to share these with you through this Point of View.