Strategic Trends Reshaping Banking in 2017
Puneet Chhahira, Global Head of Marketing, Infosys Finacle
Rajashekara V Maiya, Head, Product Strategy, Infosys Finacle
Banking is evolving continuously and in the coming year this change will be faster than ever. The change in the banking industry is driven primarily by the slow global macroeconomic climate, increase in regulatory, capital, and operating costs, and lowered interest rates and return on equity (ROE) in developed markets. There has also been a marked increase in non-performing assets in several growth markets; all of these factors have contributed to a weakened global economy and a drop in profitability levels for banks.And it is not only the economic factors that are contributing to the drop in profits for banks. The new breed of fintech startups have managed to chip away at the more profitable niches for banks; in fact, it is expected that fintechs will impact the banks’ profitability by 7 to 9 percent, leading to more than 70 percent reduction on traditional revenue streams.
Banks will have to reimagine their processes and transform into a sustainable truly digital business to counter these environmental factors.
We believe that there are six strategic trends that will help banks in reshaping their business and achieve a truly digital transformation in 2017 and beyond.
Customer experience will make winners and laggards
2017 will see the gap widening between those who understand how to use digital technologies to empower customers and enhance service experience, and those who don’t. Historically, banks have always lagged behind in terms of customer experience; and with more than three billion smartphone and internet users around the world, this isn’t an area that banks can afford to ignore any longer. 2017 will see progressive banks make strides in adopting technology that adapts to consumer behavior rather than the other way round.
Artificial intelligence and big data will be the primary drivers for providing contextual and real-time customer experiences.
Banks will focus on the customer journey to articulate its evolution in future and create offerings to add further value to their customers.
Economics of the business ecosystem will come into play
Ecosystems will be one of the primary drivers for banking transformation and economics will underpin a bank’s ecosystem strategy in 2017. In recent years, with the advent of digitization, collaborative ecosystem has begun to emerge as the new universal bank and this will continue in 2017 and beyond. Banks will now have to elaborate on their ecosystem strategy in terms of their participation in global, regional, or local ecosystems. The second decision that banks will have to make needs more refinement – banks need to pick between building or nurturing ecosystems. All of these decisions will of course depend on the fundamental question of the profitability of ecosystems. In 2017, banks will lean towards ecosystems that ultimately add more to the banks’ bottom-line. For example, progressive banks like Citibank, Goldman Sachs, and Bank of America are already investing in fintech accelerators to enable innovation for the open banking era.
Moving a step closer toward autonomous banking
In recent times, automation has taken a huge leap into the realm of self-learning systems that learn automatically as processes keep getting executed and they tweak business rules accordingly. We are heading into the future of banking wherein these machines will function without any human intervention and banking will be completely autonomous. With smart machines at the helm, there will be a gamut of smart services on offer – from investment advice, to threat detection, to personal finance management.
As these machines keep getting smarter with every customer interaction, or with every process executed, banks will relegate more and more business processes to these intelligent machines in 2017.
This will provide an opportunity for bank employees and machines to engage more effectively; and empower employees to focus on producing better business outcomes. In fact, usage of machine learning to improve efficiency, and raise the level of customer service is already prevalent in banks; Pepper is a robotic concierge at Mizuho Bank in Japan, which is used to assist customers. Another example of a self-learning machine is Bank of America’s chatbot Erica that generates personalized recommendations for customers.
Security will be more pervasive, adaptive, and integral
2016 was characterized by some spectacular data breaches, with the tally amounting to 1.6 billion leaked customer records. In an era of a staggering number of security breaches, self-learning machines will hold the key to counter these attacks. These intelligent machines will be able to process data, with a vast capacity, and learn to monitor every instance of data or application usage. They will be able to provide security in real-time and tweak surveillance accordingly. With this kind of adaptive security in place, organizations too, will have to change their approach to security in 2017.
Security will cease to be a compliance check-box and will be interweaved into every aspect of the organization.
Organizations will have to look at security that is pervasive across all application layers and not just around the perimeters of the organization itself. In 2017, security will be integral to all business units within an organization, and will be driven by smart applications that will learn to secure themselves.
You must bank on insights – Every time, everywhere
Analytics has come a long way from being diagnostic and descriptive, to predictive and prescriptive. Now real-time, fast data is the norm and banks will look to harness the power of data through open source technologies, such as Hadoop, and self-learning machines. Banks already see analytics as an enabler for innovation and according to the Infosys Finacle – Efma Innovation in Retail Banking report, 66 percent of banks are planning to invest in big data and analytics. 2017 will see analytics being built into the operational framework of the bank to enable smart systems in providing assistance with a variety of decisions – ranging from customer service, predictive maintenance, inventory management, to credit approval, etc.
Banks will have to implement an enterprise analytics strategy to empower everyone – from employees, partners, customers, to even the self-learning machines in the background – with the required information to provide contextual recommendations to users within the organization and customers as well.
Empower your employees for digital transformation
As banks look to complete a truly digital transformation and beyond, one of the biggest challenges that they will face is the talent crunch in terms of the workforce. To be successful in their transformation, banks will need the right people in place; people that work at the crux of business, technology, and value. To carry on a digital transformation, these people should also have the right mindset – these people will not be unafraid to challenge the current status quo, and reimagine business processes. While such people are hard to find, banks can circumvent this challenge by partnering with fintechs and start-up firms that attract such kind of talent. A bigger challenge for banks would be the cultural transformation for digitization. This culture puts a high onus on design thinking, innovation, and customer focus.
Implementation of the Infosys’s Zero Distance philosophy, and design thinking for customer problems will go a long way in transforming the organizational culture for digital transformation.
The overarching theme of this trend stems from instilling a culture of continuous learning within the organization, that will form the foundation of employee empowerment.
With regulations like PSD2 in Europe, and initiatives such as UPI in the Indian subcontinent it is becoming increasingly clear that banks can no longer keep operating under the traditional models. The disruptive environment in banking – in the form of a sluggish macroeconomic climate and increasing cost pressures – has made it increasingly clear that banks will have to reimagine their strategy. To compete against the new crop of fintechs and startups, and remain relevant in the age of digitization banks will have to look at the aforementioned strategic trends very closely.
Technology Trends Reshaping Banking in 2017
Deepak N Hoshing, VP & Head of Architecture, Infosys Finacle
Rajashekara V Maiya, Head, Product Strategy, Infosys Finacle
In the past couple of years there has been a rapid evolution and adoption of digital technology that in part has been enabled by forward thinking regulators. This rapid digitization has also brought up a significant number of opportunities for banks to achieve operational excellence and provide a more sophisticated customer experience. With newer, more agile competitors coming into the mix and customer expectations rising with every passing day, it is imperative that banks embrace these technologies for achieving a truly digital transformation.
In 2017 and beyond, banking will be propelled into the new era of open ecosystems with technology, customers, and regulations as the main drivers.
There are six main technology trends, that we believe, will be the major drivers.
Unleashing innovation with open APIs and open banking
The future of TrulyDigital banking lies with open APIs and open banking. And banks are becoming more and more receptive to this idea – in the Infosys Finacle-Efma Innovation in Retail Banking report, 67 percent of the banks considered that open APIs are already having an impact on banking. Open APIs and open banking will allow financial institutions to collaborate with third party developers and create offerings that are more relevant to their customer base; this will not only help banks stay competitive in the current environment, but will also enable them to grow their share of wallet. The future of banking lies in open innovation and collaboration with the developer ecosystem, and progressive banks are no longer waiting for the regulators to force their hand – for example, both RBL and BBVA have an API portal that exposes the banking APIs to the developer ecosystem.
In 2017 and beyond, open banking will be driven by open APIs, applications, app stores, regulations like PSD2, and the extended developer ecosystem.
Banking in cloud-first strategy
The disruptive technologies of today will be enabled by cloud. In 2017, banks will have to follow a three-step strategy for cloud migration. Initially non-critical environments can be moved to cloud, and following this all new applications will be launched “cloud-first” by design. Banks will have to move past just re-deploying older applications on the cloud, and these applications will be re-designed for cloud adoption. The new world and its open ecosystem is banking on the cloud and banks will have to get on to the cloud bandwagon. Cloud will have to be leveraged extensively for flexibility, scalability, business agility, and ecosystem requirements in today’s disruptive environment. For example, Capital One is already using AWS for development and deployment of newer applications. Cloud can no longer be relegated to a second thought, but it has become an essential strategy for a bank’s truly digital transformation.
Blockchain: The race to production begins
There has been a frenzied rush towards implementing blockchain pilots in the past couple of years in the areas of KYC, trade-finance, remittances, smart contracts, digital identity management etc. Banks are beginning to perceive blockchain as a disruptive technology and they envision blockchain having an impact in the next three to four years. In the latest Infosys Finacle – Efma Innovation in Retail Banking report, 61 percent of banks agreed that blockchain/distributed ledger will have an impact on emerging banking business models in the next few years. 2017 will see blockchain move out of the pilot phase and into production. The potential of blockchain has been partly validated with proof-of-concepts; and the promise of differentiation offered with collaboration through a blockchain network is too hard to ignore for banks. Banks will explore blockchain technology either through partnering with other banks or by taking part in a consortium.
In fact, according to the recent survey conducted by Infosys Finacle – LTP, 50 percent of the banks considered that blockchain would see commercial adoption by 2020.
There has been a push towards blockchain from some forward thinking regulators too – such as Dubai and the Monetary Authority of Singapore (MAS). It is no secret that the opportunities blockchain offers in the areas of cross-industry and cross-functional collaboration are massive, and it is time that banks start thinking of real-time implementations with this disruptive technology.
AI – Your sci-fi movie imagination is turning into a reality
Artificial Intelligence (AI) is changing the way that businesses operate in today’s environment. From chat-bots to virtual assistants, the way that customers interact with businesses has been turned on its head. For example, Swedbank’s virtual assistant Nina achieved a first contact resolution rate of 78 percent, which in turn would let the customer service team focus on priority jobs. Banks are beginning to see the potential that this technology offers and 2017 will see them implementing AI across front, middle, and back office operations. Back office operations will be made more cost-effective and efficient by automating highly repetitive, high volume tasks that will free up the human workforce to focus on more value-added tasks. Security will also be strengthened riding on the backs of AI enabled self-learning programs that will offer real-time protection from theft and fraud. The success of all AI programs will of course depend on the banks’ ability to execute and implement all things digital – big data, automation and cloud computing.
More things to bank on
Imagine getting access to banking on the walls in your apartment; this is the future of banking that the world is moving towards as devices keep getting smarter with each passing day. It all started with the humble mobile getting a facelift, and then offering banking capabilities on the move. Next came the virtual private assistants on mobile phones, which offered voice banking capabilities. And these features offered on mobile don’t just end here – now many progressive banks are also offering immersive experiences through augmented reality and video. A few good examples would be the ‘Near Me’ feature offered by the Axis bank app, or video banking offered on mobile by Royal Bank of Canada. As technology capabilities keep expanding, banks have realized that they need to keep innovating at a break-neck pace to be present wherever their customers are.
This year progressive banks will take the lead and invest in omni-channel hubs to provide contextual offerings to their customers.
But the biggest challenge for banks will be the fact that even as newer channels for banking emerge, customers will not relinquish existing channels; banks will have to re-imagine customer journeys around all these channels – both old and new included.
Banking Architecture – Driving value with simplicity
In today’s disruptive environment, the importance of having an agile technology foundation cannot be stressed enough. In fact, according to our survey conducted a few years ago, 79 percent on bankers felt that the biggest barrier to infrastructure transformation was the complexity of current IT systems. The simplification of the complex IT infrastructure will allow banks to innovate in an agile fashion and be more compliant with the current regulations. Banks can look to simplify their IT landscape in two ways – either by leveraging cloud technologies, or by rationalizing applications by leveraging enterprise class components. The issue of infrastructure maintenance can be resolved with a cloud-first strategy and this also allows banks to introduce demand elasticity into their technology framework. Enterprise components allow banks to increase their operational efficiency by centralizing all business operations across all product lines.
2017 will see more and more progressive banks move away completely from traditional monolithic architecture and invest heavily in componentized application design with an ever increasing set of exposed micro services.
This move will allow decoupling of back and front-end capabilities and allow banks to innovate rapidly as the environment around them evolves.
As 2017 progresses, we will see more and more progressive banks follow into these trends as they look to achieve a TrulyDigital transformation. With newer, and more agile fintechs and technology startups causing disruption in the traditional way that banking has been done, it has become more important than ever for banks to march on ahead with their digital transformation journey; and we believe that these technology trends will be the key factors in providing banks with a much needed competitive advantage.