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Disruptive Technologies Driving Digital Banking Transformation

Kanika Hope
Kanika Hope – Chief Strategy Officer

Today, a nexus of disruptive technologies is becoming omnipresent in banking. In a survey[1] we commissioned with the Economist Intelligence Unit (EIU) with 305 global banking executives relating to the digitization of banking, 66% said that new technologies will continue to drive global banking in the next five years, over regulation and changing customer behaviour.

Cloud/SaaS, microservices, APIs and DevOps are already seeing widespread adoption in banking as they lead to increased agility, elasticity, resilience and connectedness. Big Data and Artificial Intelligence (AI) are predicted to be a game changer for banking in the future. AI, and specifically Explainable AI, is predicated on automation and digitalization which result in the accumulation of more and more data about customers and products combined with the easy availability of analytic tools enabling banks to draw commercially useful conclusions very quickly. AI’s efficacy depends on the depth of data (better accuracy) and breadth of data (more complex use cases). Then there is Blockchain which has not yet been widely adopted in retail banking but nevertheless has uses in cross-border remittances, KYC/ID fraud prevention, and risk scoring.

What is worth pointing out is that all these technologies are mutually reinforcing. Cloud provides greater processing power for AI, blockchain receives decision making for smart contracts from AI and AI improves security for cloud.

[1] EIU Report 2020: “Forging new frontiers: advanced technologies will revolutionize banking  

Retail banking pressures intensify

The widespread uptake of the disruptive technologies, taken together, is exacerbating the pressures facing the retail banking industry – demanding customers, rise of new competitors and increasing levels of regulation, while market conditions have been significantly worsened by the COVID-19 crisis. Retail customers today are less loyal and happy to shop around for a better quality of user experience and better value for money. They expect banks to look after their financial wellbeing and go beyond banking to support lifestyle needs, while ensuring data security and transparency. The new entrants –fintechs, technology giants or neobanks, are all consumer-oriented, technology-driven companies that are leveraging the disruptive technologies to develop compelling propositions for their customers. Meanwhile, regulators are looking at these technologies to identify and manage risks and regulate the activities of players interacting in a broader ecosystem across borders and in order to protect customers. They are actively driving innovation and competition through open banking, issuance of new banking licences, and creation of technology sandboxes.

The continued rise of digital and open banking

The disruptive technologies and their impact on industry drivers is in turn driving a fundamental change in the structure of the industry: digital transformation as well as the disintermediation of the banking value chain and the divergence of manufacturing and distribution.

Disruptive technologies facilitate repeated and increasing customer interactions at multiple touchpoints both inside and outside the bank. Banks need to cater for today’s customers journeys – non-linear, complex, individual, spontaneous, and unpredictable. They can no longer hardwire these into their processes, IT systems, and organization structures. The COVID-19 pandemic has rapidly changed consumer mindsets regarding digital banking, driving banks to both accelerate and scale digital transformation and customer experience across complex product and customer journeys.

As the disruptive technologies mature in financial services, the unbundling of the banking value chain will gather pace making it necessary for banks to co-exist with and collaborate with other players in a wider eco-system. Open banking will focus banks on what is really core to them i.e. which business segments and geographies they want to operate in and where they want to partner with third parties.

To learn more about our predictions for the future of retail banking, download our new whitepaper The Future of Retail Banking and the Case for Digital Transformation.

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Kanika Hope
Kanika Hope – Chief Strategy Officer