Download PDF

---

The breakneck speed of technological change continues to drive new possibilities. If Google’s DeepMind AI beating top players at a complex board game “Go” in 2017 was any indication of how far we have come, clearly 2018 is set to mark the beginning of staggering things to come.

In banking, 2017 saw remarkable progress around the adoption of emerging technologies such as Artificial Intelligence (AI), blockchain, the Internet of Things, and the maturity of related underlying technologies of cloud and analytics. Several banks launched bots to help customers transact, and resolve their service enquiries. RPA continued to drive efficiencies with extensive application in repetitive tasks. The use of AI solutions for fraud management and risk management also demonstrated compelling benefits. And blockchain clearly stepped out of the lab and got into production with leading banks such as Emirates NBD and ICICI Bank harnessing blockchain networks for their remittance transactions across the world’s largest remittances corridor.

But the unprecedented pace of development is not just a result of new technologies driving efficiency for greater business outcomes. The technological revolution is fundamentally altering the way we live, work, and conduct business. In 2017, new innovative business models emerged, and ecosystems came into sharper focus. Technology giants, and start-ups continued to disrupt the industry with unique solutions, considerably evolving customer expectations in the process. In China, digital start-ups rose to 25% share of the unsecured lending market, up from 1% in 2013. In the UK, several new challenger banks entered the market, including ClearBank, the country’s first purpose-built clearing bank in 250 years. Rather than compete, traditional banks saw an opportunity to collaborate with the new entrants and leverage each other’s strengths. Progressive banks such as DBS Singapore experimented with the platform business model and forayed into the e-commerce space with online buyer-to-seller car marketplace, to address the primary requirements of their consumers.

Although fraught with geopolitical and macroeconomic uncertainties, and the influx of new competition, the financial services industry made significant headway towards transforming into a digital business in 2017.

In 2018, we believe the confluence of environmental factors, technology evolution and forces of digitization will further accelerate change. The pace of change will be even more rapid and the scope more disruptive. This creative disruption in the industry presents banks with the unique opportunity to reimagine banking. To capitalize on it, banks need to be in lockstep with the developments and trends in the industry. What you see here is a compilation of ten such trends that we believe will shape the industry in 2018.

We hope you find them valuable in crafting your strategy for 2018, and enjoy reading about them as much as we did putting them together for you.

Strategic Trends #1: Customer Journey #Reimagined – From customer centric to customer specific

A year ago, we predicted that customer experience would determine the winners and laggards among banks in 2017. In 2018, it is the turn of a reimagined customer journey to determine which banks survive and which will fall by the wayside. In 2018, banks will pursue a nuanced goal – understanding the individual journeys of customers at the same life stage, and partnering them through that cycle. To do that, they must gear up for the following:

More channels of engagement, including bank-owned, partner-owned and third-party channels, all working to make banking as invisible as possible. Going forward, everything will be virtual, as intelligent assistants start to deal with banks on their owners’ behalf. This is yet another change in the customer journey that banks should prepare for.

Reimagining customer journeys will be as important for corporate banking business, as it is for the retail business in 2018.

Progressive banks will abandon incremental change to pull out all the stops, using all the modern technologies at their disposal, right from analytics to AI to augmented reality to IoT, to be ready for these scenarios. The offering of banking services through Alexa, Amazon’s smart virtual assistant, is just a preview of things to come. In 2018, expect to see more of this and much more as banks reimagine the customer journey riding the digital wave of confluence of technologies.

Strategic Trend #2: Business #Reimagined – From platforms for business to the business of platforms

The world’s top 15 public platform businesses account for $2.6 trillion in market capitalization. Playing catch-up are about 140 unicorn companies, currently valued at more than $500 billion. In 2018, we see banks riding this trend to shift faster from a pipeline business to a platform model.

Under the platform model, banks will no longer stick to manufacturing and distributing their own products and services through their own channels. Rather, they will expand their portfolio with complementary products sourced from partners, such as insurance companies; products co-created with fintech firms; non-financial products ranging from movie tickets to cars; and even competing (and superior) products from third parties. Secondly, banks will go from being monolithic institutions selling products designed in-house and distributed through owned channels, to acting as aggregators selling a host of financial and non-financial offerings in a single marketplace. Thirdly, banks will bring third party channels on par with their own. So, in addition to distributing via their network of branches, mobile channels, agents, kiosks, wearables, smart virtual assistants, etc., they will use APIs to sell through third party apps, fintech companies, other partners, and even other banks.

Strategic Trend #3: Security #Reimagined – It is everybody’s business

2017 witnessed one of the worst cyber security breaches of all time when U.S. credit agency Equifax lost sensitive data, including Social Security Numbers, that could impact as many as 143 million people. So, there is absolutely no doubt that security will take center stage in most enterprises in the New Year.

Amidst growing digitization, concerns about protecting customer information and interest are intensifying. An important part of that will be to make banking systems compliant with the new rules, and in the case of new investments, make security an integral part of the architecture design itself.

With more technologies coming up and then coming together, both the quantum and sophistication of cyber-attacks will increase. A single-pointed, analytics-based security application is inadequate protection against such multifaceted threats, which can only be combated by a solution combining the power of AI, machine learning, analytics and big data with biometric devices and other anti-fraud technologies. 2018, the year of AI versus AI.

2018 is also the year when banking ecosystems will multiply and unprecedented amounts of data will be shared within and between ecosystems. Hence in the years to come, security will be everybody’s responsibility in the bank.

Strategic Trend #4: Workforce #Reimagined – From the right talent for strategy to the right strategy for talent

With automation increasingly taking over routine and repetitive manual jobs in banks across functions, where does that leave the banking professional? A view that is gaining ground is that emerging digital technologies will create a demand for new professional skills, and increase reliance on innately human capabilities such as critical thinking, empathy and problem solving.

Banks’ multigenerational human resources will tilt towards youth, with the millennials set to account for 72 percent of the global workforce by 2025. With the boundaries between business and technology breaking down in banking operations, the same will happen at the individual employee level to create multidisciplinary talent with an appreciation of both domains.

Progressive banks will move towards empowering their employees to work in multidisciplinary teams by using Agile principles at scale across IT and product management. Unfortunately, on current form, banks will find it challenging to attract the right talent for this new kind of workforce. Therefore, in 2018, banks will need to effectively articulate their purpose, to tap into the progressive millennial talent that is inclined towards impacting a change and associating with a purpose.

Strategic Trend #5: Organization #Reimagined – Cultural readiness fills the gap between business and technology readiness

In 2018, organization transformation for a culture that embraces change, innovation, customer-centricity, and lifelong learning will be a top priority for banks. Progressive banks are instituting programs to train their employees to view customer journeys, to enable them to see realities differently, and to help them connect the dots for creative solutions to deliver value to their customers as well as the end consumer.

In a culture where continuous learning is a way of life, to upskill and cross-skill their employees, banks are discarding the traditional class-room training programs in favor of unconventional ways. For example, DBS Singapore hires people with the required skills and capabilities and pairs top performers with the new hires to quickly multiply these capabilities across the organization.

Banking organization of the future will be very different from what it has traditionally been. Progressive banks want to operate like the leading platform companies and digital organizations of the world that thrive on diverse ecosystems. To that end, banks will increasingly diversify their human capital, adopt cross-industry processes and transform into cross-cultural organizations. 2018 marks the beginning of this transformative trend.

Technology Trend #1: Ecosystems #Reimagined – The rise of the API economy

Regulations the world over are fostering and encouraging API-led innovation. Even in regions where it is not a regulatory requirement yet, banks and financial services providers are proactively taking the plunge into the API economy.

Banks that have already launched their API stores, have somewhere between 5 to 50 APIs. As banks look to cultivate rich ecosystems and platforms, we predict this trend to grow stronger and more diverse in nature. This year, APIs will increase in breadth as well as depth i.e. not only will we see more APIs allowing digital firms, FinTechs and other developers to build real world applications but also more APIs with production data.

The rise of APIs has heralded creative disruption in the financial services industry, of which the payments space has seen the maximum action. In the New Year we will see API innovation going beyond payments, wallets, and P2P transfers to areas such as corporate lending, corporate deposits, mortgages and loans. In 2018, banks will also further increase their collaboration with non-banking partners in that they will not just be a provider of APIs, but also a consumer of APIs from other ecosystem players.

The year 2018 will officially usher banking in the API economy. And clearly with shrinking margins and unprecedented competition, ‘participate or peril’ is the writing on the wall for banks and financial institutions.

Technology Trend #2: Value #Reimagined – Cloud for cost efficiency to cloud for business enablement

After a decade of disruption, today cloud computing is a critical component of every enterprise’s IT strategy. Although the cost benefits remain undisputed, in 2018 banks will start to look beyond, and see cloud as an enabler of business rather than a driver for cost reduction.

In 2018, more banks will be comfortable with the public cloud. With proof of security of data on their application infrastructure, banks are looking to experiment with new public and private cloud arrangements.

By moving towards public cloud, banks can ensure seamless integration with FinTechs and third party APIs in the digital ecosystem. In addition to integration, banks also want to replicate the success that some of the new digital companies have seen with cloud, in terms of flexibility to scale and growing the fee based revenues. All the more reason for banks to look at cloud as a revenue lever than a cost lever in 2018 and beyond.

Networks #Reimagined – Blockchain for banking and beyond

In December 2016, we predicted that enterprises would take Blockchain out of the lab and into production in 2017; twelve months later, we can safely say that that prediction has come true.

A big development in 2018 will be the maturing of existing ecosystems and emergence of a number of new ones, buoyed by the results of pilot projects. The ecosystems that will emerge in 2018 will be richly diverse; there will be global, regional, local and even intra-group ecosystems which will range from purely “bank and bank” partnerships to large networks comprising financial and non-financial entities.

Our second big prediction for 2018 is a shift in regulatory attitude towards greater openness and a willingness to support blockchain ecosystems.

Blockchain action in 2017 was driven mainly by large, progressive banks. In the coming year, it will enjoy wider participation – from the leaders and early adopters for sure, but also from fast followers. And with regulators getting into the act, 2018 will see blockchain becoming serious business.

Technology Trend #4: Intelligence #Reimagined – AI comes of age

This is the year that we will refine our understanding of AI technology and begin to appreciate its diverse components and capabilities, central to which are a data and analytics foundation, machine learning, deep learning, natural language processing and generation, and visual recognition. Having gained early experience in using AI, in 2018, enterprises will talk specifics when discussing their future plans.

When it comes to applied solutions of artificial intelligence, some will fare better than others. Robotic Process Automation, which is entering its fifth year and is therefore quite mature – one survey claims 34 percent adoption in financial services3 – will continue to attract interest. So will machine learning and its subset, deep learning, which received 60 percent of AI investment in 2016⁴.

Natural language-based applications – chat bots, smart assistants etc. – will also find their way into banks that don’t have them yet.

This is the year that use cases will multiply beyond the established applications in risk management, fraud prevention and customer service. These are non-traditional credit scoring, documents classification, product recommendation and enhanced automatic trading among others. Indeed, AI will prove to be a huge differentiator for banks that understand the technology better and invest early.

Possibilities #Reimagined – More things to bank on

Technology Trend #5: Possibilities #Reimagined – More things to bank on

From branches and ATMs, to web properties and mobile assets, banking is consumed through a variety of touchpoints today. And these touchpoints are set to multiply with more and more connected devices in the future.

With connectivity and connected devices on an overdrive, banks are increasingly introducing solutions to blend banking in their customers’ everyday lives. An example is Ally bank’s mobile application ‘Splurge’ that sends the customer a warning to avoid making a purchase if monthly sundries exceed the budgeted.

But the hyper connected world of tomorrow will also have machines transacting on behalf of humans, and not just humans consuming services directly. In 2018, progressive banks will prepare for this future with services designed to talk to smart machines at the consumption end, i.e. at households, customer premises or customer assets.

In 2018 banks will harness data sources in a variety of consumer and industrial scenarios. For example, in trade finance an exporter of perishable goods need not worry about the inventory getting damaged due to weather or temperature, and hence the commercial value of the shipment going down.

As data inputs multiply rapidly, progressive banks will find opportunities to make use of this data, to introduce new products, modify existing products or reimagine existing products for better efficiencies. Progressive banks are working to improve the integration between their systems and data sets to make these possibilities happen.