Three years ago if anyone had said, “I am going to hire an AI to manage my schedules” there would be sniggers. Who could afford it? And why use AI for trivial things like managing birthday greetings, lunch with the marketing team or a dinner date? But that is what AI is doing now. You don’t even need to “buy” AI. Your smart phone has it, many of your applications already have it and even your bank bot has it. 2018 has been a year of dramatic change for the financial services industry: banks, cards, insurance and payments companies have been soaking up technology like AI just as quickly as the consumer goods, retail, entertainment and the travel industry. Clearly, financial services appear to be discarding their cloak of caution. They are taking bold new steps using technology.
You can be sure the financial services industry won’t want to miss a single trick in the Book of New Technologies for 2019.
The industry will be investing in everything, from AI to blockchain to collaboration. Large banks will invest in their own technology exploration and development. Many of them will chart their journey into the future with nimble FinTechs partners.
We have also seen the inevitable march of digital transformation. Rising regulatory requirements, incredible pressure from customers demanding the convenience of digital touch points and the lack of time to visit brick-and-mortar branches is driving the digitization of banks. It is paying off as well. While profits may have remained stagnant, the market cap of digital banks such as DBS is significantly better than traditional banks. The signals are evident: Financial services must not step off the pedal in their digital transformation journey.
As 2018 comes to a close, understanding the Top Five Trends that have been developing in financial services helps understand what we need to watch out for in 2019:
- Blockchain: 2018 saw blockchain turn from an interesting idea to serious implementation. Payments processors like Mastercard and central banks in the US, Canada, China, UK, Australia, France, South Africa and Singapore are leading the way with investments in blockchain to bring in new ways to manage payments, clearing and settlement. Mainstream adoption is getting closer, and the potential of distributed ledger technology to unlock efficiencies, get rid of traditional bottlenecks and reduce the cost of regulatory compliance has become apparent. One clear area where blockchain can find quick implementation in the industry is the KYC process. A Thomson Reuters study found that financial organizations, on average, spend $60 million on KYC with some spending up to $600 million. These spends can be quickly checked with blockchain. The technology allows customer verification completed by one organization to become available to the entire network of services. A recent World Economic Forum report predicted that 10% of global GDP will be stored in blockchain by 2025. Financial institutions have begun to warm up to such forecasts.
- Collaboration: For centuries, banks had the luxury of keeping their customer data to themselves. It was among their most powerful assets. Now, regulations and Open Banking are changing this. Banks should stay watchful, otherwise FinTechs will start taking away customers. FinTechs will unbundle products, use new technologies and crowdsourcing to make entirely new services possible. For example, FinTechs make it possible for young investors to try out their investing skills with a small corpus without brokerage fees; others allow individuals to spend money from their mobile device and provide feedback that helps them live and save smarter; others provide tools for peer-to-peer lending and ways to manage credit. In a digital world, these are financial service that every business in the industry can offer. Banks like Santander and BBVA, Goldman Sachs and JP Morgan Chase realize this and are investing in startups or collaborating with them to see how technology can improve their traditional capabilities. They are arming themselves with technology for the future. Most banks will perhaps end up collaborating with a technology provider who can provide FinTech labs for product development, talent and a start-up culture to accelerate innovation. Which means collaboration must take priority in 2019.
- Security: With the growing number of networks, devices, operating systems, collaborators, third party plug-and-play systems and touch points, security is becoming a major concern. Malicious attackers now have access to a larger attack surface and their techniques are evolving very rapidly. From January to August of 2018, financial services firms saw almost three times as many breaches as they did over the same period in 2016. There were 103 breaches reported during 2018 compared to 37 in 2016. This means financial services can’t afford to let down their guard. Newer and more adaptive security architectures must be explored to keep pace with threats. Reliable and smart security will allow financial institutions to leverage the scale presented by digital systems without affecting the user experience. One of the biggest changes in security will be the use of AI to create adaptive authentication and authorization mechanisms. AI will help introduce smart, context-aware, multi-factor and multi-modal authentication. Our forecast is that security will become an intrinsic part of DevOps, making it central to development itself.
- Cloud: It appears the forecasts for cloud adoption will continue to be adjusted upwards for the next couple of years. Cloud computing spends have already been growing steadily at over 4X of IT spending for the last few years and are expected to grow at 6X of IT spending by 2020. The prohibitive cost on on-premise infrastructure and the need for agility will continue to drive financial institutions to migrate to cloud. Cloud doesn’t just lower cost, it also provides flexibility and the ability to innovate—both being central to the success of financial services going into the future. Just moving the world’s 1.2 billion deposit accounts to cloud could reduce cost by $109 billion a year. There are even bigger advantages of leveraging cloud: All the risks associated with data privacy and security, disaster recovery and business continuity and availability of resources can be transferred to the cloud provider, getting rid of a major headache that has hounded IT functions of financial institutions for years.
- Design Thinking: The big buzz around “Design Thinking” continues to grow. The science and psychology of creating business solutions based on emotional connects is bound to come centre stage in 2019. How can Design Thinking help banks and insurance companies improve business? This becomes an important question when you think of the FinTechs eroding the traditional importance of banks. Design Thinking considers everything, from a customer’s needs to the social environment as well as technology availability/affordability. While data provides us a view of what a customer did, Design Thinking tells us why a customer opted for a specific decision. In essence, instead of training the customer to use an application, Design Thinking creates applications that are customer oriented. Be sure, you will hear a lot more about Design Thinking in 2019.
References:
- https://thefinanser.com/2017/11/proving-digital-transformation-works-shareholder-returns.html/l=[ lmo
- https://www.thomsonreuters.com/en/press-releases/2016/may/thomson-reuters-2016-know-your-customer-surveys.html
- http://www3.weforum.org/docs/WEF_GAC15_Technological_Tipping_Points_report_2015.pdf#page=24
- https://www.robinhood.com/
- https://moven.com/
- https://www.creditkarma.com/
- https://globenewswire.com/news-release/2018/10/02/1588510/0/en/Bitglass-2018-Financial-Services-Breach-Report-Number-of-Breaches-in-2018-Nearly-Triple-That-of-2016.html
- http://www.salesforce.com/assets/pdf/misc/IDC-salesforce-economy-study-2016.pdf
- https://www.temenos.com/globalassets/mi/wp/wp130919_temenos-cloud.pdf
