More Things to Bank on

Mobile has been the key driver for innovation in the digital space, and banks have long since moved from the “mobile-also” to “mobile-first” strategy. While this strategy has helped banks to transform for their digital journey, nowadays with the rapidly evolving capabilities of mobile phones, technology has proved to be somewhat of a moving target to keep up with.
Banks have realized that as things stand currently, just being innovative with a “mobile-first” strategy is no longer good enough. Along with smart mobile phones, there is a new breed of connected devices that have captured the imagination of the digitally savvy masses. Fitness trackers to wearable technologies, there is a connected device for every aspect of your life, and the customers love it. The issue for banks in this ever evolving world of technology is being present in all the channels that their customers are in. As a result, in 2017, banks will be working towards crafting an omnichannel strategy that enables them to provide contextual and relevant solutions on all channels that their customers use; banks will look to find more things to bank on.
Banks and other financial services institutions are already providing services/products, like healthcare insurance, which are tailored to fit the customer based on their fitness tracker activity. Even as the range of connected entities are growing, the humble mobile phone has also gotten a makeover. Now customers are interacting with virtual private assistants (VPAs) instead of apps present on their phones; VPAs have made it possible for banks to reach customers, who otherwise aren’t very digitally savvy. Banks are also leveraging the extended capabilities offered by mobile to create immersive experiences for customers – augmented reality, and chat bots for personal finance management are two very good examples of banks reaching out to customers through innovative offerings.
With the number of things to bank on steadily increasing and the mobile phones becoming smarter every day, 2017 will see the banks investing in the creation of a robust omnichannel hub for service delivery. This will be a chance for banks to re-imagine their business processes and reach customers on the channels that are the most relevant to them. A big challenge for banks in the coming year would be to keep track of the new, and old channels that customers have traditionally used – brick & mortar branches, ATMs, call centers etc. The answer would be to design a strategy around all the channels, old and new included, and create offerings that are relevant, irrespective of
the channel. Banks will have to run in the age of evolving technologies, to even stand still.

The Beacon Beckons: Banks and the Internet of Things

Has the milk-ordering-refrigerator symbolism of the Internet of Things distracted other businesses from seeing its true significance? As an example, consider the banking industry, which hasn’t paid much attention to the IoT so far. A leading analyst’s prediction that about half of all sensors installed by 2020 could be relevant to financial services, should make them sit up and take notice. 

Several industries, such as manufacturing, have already seen the light. This sector is championing the Industrial Internet of Things (IIoT), which offers enormous potential to digitalize, automate and integrate processes across the manufacturing value chain, to not just maximize the life of assets, but also, someday soon, predict when a jet engine turbine will fail.  No wonder then that the IIoT is expected to receive US$60 trillion in investments by 2030.

What applies to manufacturing – or any other business for that matter – holds equally for banking and financial services. Financial institutions can tap into the IoT to automate, integrate and build intelligence into each of their processes to create immense value at every stage.

IoT for smart customer experiences

Let us illustrate this by considering a typical customer journey. A bank can use the data from sensors and connected devices to enable smart experiences in a variety of scenarios – during a branch visit, while fulfilling a product purchase, for rewarding an action, and so on. Now consider each of these use cases in turn. New Zealand’s Westpac uses beacons to enable branch staff to identify customers (who have opted in for this facility) and greet and serve them personally. Automobile insurance has become smarter thanks to the IoT: sensors fitted in cars give out valuable information on driving habits and behavior patterns that many providers are using to calculate the appropriate risk premium for each customer. Then there’s US Bank, which rewards customers who fulfil their commitment to achieving a certain body weight. 

IoT for efficiency

Every successive wave of technology has enabled the financial services industry to further improve its operational performance. At present, the operations at leading banks are already optimized to the extent possible, making it very hard to score further improvement. But now the IoT is giving them new opportunities to enhance productivity and efficiency. Take the ATM, which hasn’t changed that much over the years. By connecting their networks to the IoT, banks can track a variety of parameters, such as total withdrawal or footfall, in each ATM and use that information to schedule cash replenishment or decide new ATM locations. Transaction authentication is another clear use case. In the case of a remote payment, knowing that the device being used is physically close to some of the other devices known to belong to the customer is good proof of it being genuine. The IoT can also ease the laborious and costly activity of collateral and loan arrangement verification by allowing banks to easily track the raw material, work-in-progress and finished goods inventory of corporate customers using sensors, to verify that they are adhering to the terms of the loan agreement.

IoT for innovation

The IoT supports innovation of financial products, services and business models. The healthy savings account – a new take on the checking account – is a good example. Account holders agree to let their bank track their fitness parameters using a wearable device, which monitors physical activity. The more active customers are rewarded with a higher interest rate. Banks can also take a more proactive approach to consumer finance – for instance, offer favorable terms when the bank sees from sensor data that a customer’s domestic appliance is nearing the end of its useful life. They can also adopt smarter vehicle leasing practices. By studying sensor data from fleet vehicles, banks can figure out their condition, and apply a discount or penalty when a lease expires.

These use cases only hint at the potential of the IoT, a potential that is still unfolding. Yet, one thing is clear, which is that banks must tap into the IoT to stay relevant in the future. Banks that begin their IoT journey now stand to gain early advantage. On the other hand, laggards may well see their customers, accustomed to smart experiences in retailing and other spheres, gravitate to financial services providers who offer similar experiences. Fintech startups and challenger banks have already shown what they are capable of doing with technology. They will certainly look to replicate that success in the Internet of Things. 

Blockchain: The Race to Production Begins

In the past year the banking industry has been buzzing with the benefits that blockchain technology offers and progressive banks took a step further to implement blockchain pilots to test out these benefits. 2017 is going to be the year when blockchain will move out of its pilot phase, and into production. This is going to be the year when blockchain will be mainstream, and the giants of the financial services industry have already indicated that blockchain is here to stay.

The Infosys Finacle – Efma report mentioned that 21% of the banks perceive blockchain/distributed ledger will have an impact on emerging retail banking business models; and there is enough evidence to support this perception. Financial services institutions have identified areas in which private blockchain could be a game changer, for e.g. remittances, trade finance, cross-border payments, contract and document management, treasury functions etc. Use cases in these areas are already in the works for most progressive banks in the form of pilot projects. Banks are either choosing to be a part of a larger consortium (R3, Ripple etc.), or forming a partnership with another bank (ICICI Bank and Emirates ENBD) to explore the possibilities offered by blockchain and pilot project implementations. Blockchain technology also has the capability to serve as a driver in reduction of infrastructure costs that banks incur from compliance, cross-border payments, and securities trading.

It is not only financial service institutions that are looking to blockchain for operation efficiency and inter-organizational collaboration. Regulators are beginning to see the advantages that blockchain technology offers, and they are wholeheartedly getting behind it. Regulatory bodies in Dubai, India, and Singapore have given their seal of approval to blockchain and are providing support for either pilot projects or research studies with blockchain.

Progressive financial institutions are already investing big on blockchain, and they are moving beyond proof-of-concept pilot projects to production. 2017 is going to see blockchain as the answer for various real-life issues in the banking sector, albeit on a smaller scale.

Blockchain in Banking: Moving from Hype to Reality in 2017

Blockchain has been a topic of discussion ever since its inception in 2009 as the underlying technology for Bitcoin. The industry has seen intense debate and deliberation on the potential of blockchain, with many claiming, that it is as foundational, as the internet. Some banks state that they have moved past deliberation stage on blockchain, and are starting proof of concepts around this technology.

As with any disruptive technology, there are questions in its wake – where do we stand as an industry with respect to blockchain technology after eight years? How much of blockchain is still hype and how much of it is now a reality? What is the way forward with this technology? To find answers to these questions, Infosys Finacle partnered with Let’s Talk Payments (LTP) on a research surveying more than 100 business and technology leaders from over 75 financial institutions.

When it came to investing in this technology, 50% of the banks surveyed have already invested in blockchain technology, or will do so in 2017. In terms of degrees of adoption of blockchain technology, 15% of the banks are innovators, 35% are early followers. The rest (50%) that are waiting for the technology to mature, are late adopters. While average investment in blockchain projects in 2017 is expected to be $1 million, the innovators have already invested funds over $10 million. These investments not only support blockchain initiatives, but also explore use cases beyond the traditional realm of cross-border remittances, clearing, and settlement.

Banks are now moving towards commercial adoption, and one in every three banks expects to see commercial adoption by 2018. While 50% of the surveyed banks expected to see commercial adoption only by 2020. Cross-border remittances, digital identity management, clearing and settlement, letter of credit processes, and syndication of loans are the most likely candidates for commercial adoption.

Based on preferences for blockchain adoption, private permissioned blockchain is the popular choice with a whopping 69% of banks in its favor. Partnerships come in second as the next preference for blockchain adoption.  About 50% of the banks are either working with a fintech startup or technology company to augment their blockchain capabilities, while another 30% are opting for the consortium model.

A section of the survey also dealt with the banks’ expectations from blockchain for the industry. Based on the responses from the surveyed banks, it can be concluded, that the banking industry should see blockchain projects going into production in 2017 itself – albeit in a small way and for simple use-cases. It is expected that blockchain adoption will start with the most convenient areas, and then it will slowly progress towards transformative and complicated areas. The phased approach towards blockchain implementation is preferred because banks and financial Institutions want to create networks with already established partners in the industry; partners that are already aligned with their process, or internally.

The first use cases that will see the light of the day in the next couple of years are intra bank use cases, or use cases, which can betested with incumbent inter-bank relationships. These are most likely to be in areas such as digital identification and cross border payments. Furthermore, the next 2-5 years will see more of inter-bank use cases, and cases that involve regulators – such as trade finance. Beyond 5 years, there will be widespread adoption of this technology in the financial services and banking ecosystem. Progressively, by 2020, the adoption of blockchain based applications will increase in several businesses. The larger part of the ecosystem adopting this technology will include players like the government, corporations from other industries, and possibly even end consumers.

Based on the findings of the report, it is no longer a question of whether banks will adopt blockchain; but more of whenand how they will implement it. This research reaffirms our belief that banks must experiment with the technology in a controlled environment to discover the value it can bring in their context and based on the outcomes of the experiments commit towards production deployments. We hope banks will find this report useful while crafting their organization’s blockchain adoption strategy.

Banking Architecture – Driving Value with Simplicity

On their journey towards a truly digital transformation, many banks stumble upon the barrier of outdated banking architecture. As Tom Groenfeldt, contributor to Forbes, says, “When 40-year old legacy banking systems meet the two-month old iPhone 6, the results aren’t pretty.” Banks are now looking for ways to bypass this barrier to keep up with the latest crop competitors and offer contextual customer experiences.
Most of the IT budgets in organizations today goes towards supporting existing business operations and organic growth. There is no room left for exploring new revenue streams or strategizing for business transformation. Most bankers feel that the biggest barriers to transformation are the complex IT landscape, and absence of skilled man power. To add to the woes of banks seeking digital transformation, complex IT landscapes also account for higher maintenance costs than usual.
These challenges make a very good case for simplification of the architectural landscape for banking transformation; and there are two methods that banks can implement – infrastructure simplification or simplification of the applications landscape.
Infrastructure simplification refers to leveraging cloud technologies to manage the challenge of infrastructure maintenance, and manage increased demand through the elasticity offered by cloud. Most banks will use a three phase strategy to migrate to the cloud – initially non-mission critical loads will be moved to cloud, followed by hybrid cloud models for peak load processing. The final phase would be the movement of production workloads to the cloud completely, and follow a cloud-first strategy.
Simplification of the applications landscape refers to rationalizing the applications across the organization by leveraging enterprise-class components. This not only reduces duplication of applications across business groups, but it also improves the business agility of the organization. With a centralized business operation across various product lines, operational efficiencies are increased and maintenance costs are reduced.
Banks are also turning towards componentized applications design instead of the traditional monolithic architecture to keep up with the demands for rapid modernization and upgrades. This componentized architecture along with a set of exposed micro-services, allows for decoupling of front-end and back-end capabilities for faster innovation.
In the coming year, innovation agility driven by a simplified architecture and operational efficiency will be the banks’ biggest competitive advantage in this world of ever evolving technology.