10 Technologies That Will Disrupt Financial Services In The Next 5 YearsNovember 28 2018
1. Hybrid Cloud
According to IBM, cloud computing has quickly become mainstream in banking, with most banks searching for the optimal mix of traditional IT, public and private clouds. Over time, more and more banks are moving to an enterprise-wide hybrid cloud strategy.
“With hybrid cloud, banks have the flexibility and benefits of both private and public cloud, while addressing data security, governance and compliance,” states IBM. The benefits of a hybrid cloud include reduced costs, improved operational efficiency and enhanced innovation.
It was found that at least 75% of bankers said their most successful cloud initiatives had already achieved expansion into new industries, creation of new revenue streams, and expansion of their product/services portfolio.
2. API Platforms
The combination of open platform banking and open APIs will change the entire banking ecosystem as we know it, from the products and services offered, to the delivery channels used and underlying partnerships that will shape innovation and customer experiences in the future. With public APIs, customers will have more options to interact with their bank.
In this scenario, the bank will serve as a platform, on top of which third-party companies can build their own applications using the bank’s data. Looking forward, the business model of retail banks, where checking accounts are used as a ‘hook’ to attract customers for more profitable lending products, may become unsustainable.
3. Robotic Process Automation (RPA)
Across financial services, robotic process automation (RPA) has helped banks and credit unions accelerate growth by executing pre-programmed rules across a range of structured and unstructured data. This intelligent automation gives processes the power to learn from prior decisions and data patterns to make decisions by themselves – reducing the cost of administrative and regulatory processes by at least 50% while improving quality and speed.
Robotic process automation in banking also simplifies compliance by keeping detailed logs of automated processes, automatically generating the reports an auditor needs to see, and eliminating human error. Since it’s intuitive and easy to re-configure software robots at any time, tweaking processes to fit new or updated regulations is never difficult.
4. Instant Payments
Technology has changed consumer and business expectations in payments. Instant payment options are available in many markets despite the lack of immediate payment infrastructures. In some countries, banks offering alternatives to immediate payments actively market apps to their own customers, and in some countries banks even partner together to offer an immediate P2P payment experience to a wider customer base.
The availability of an instant payments platform offers banks an enticing opportunity to achieve the transaction speed consumers expect of their banking experience and increase the customer satisfaction. With instant payments, more transactions will be made digitally instead of in cash, which means that payments will become less expensive and more user friendly. Finally, by expanding and combining instant capabilities with solutions in e- and m-commerce banks and credit unions could develop an innovative portfolio of new services.
5. Artificial Intelligence (AI)
Heightened interest in AI has occurred because of both capabilities and business needs. The explosive growth of structured and unstructured data, availability of new technologies such as cloud computing and machine learning algorithms, rising pressures brought by new competition, increased regulation and heightened consumer expectations have created a ‘perfect storm’ for the expanded use of artificial intelligence in financial services.
The benefits of AI in banks and credit unions are widespread, reaching back office operations, compliance, customer experience, product delivery, risk management and marketing to name a few. Suddenly, banking organizations can work with large histories of data for every decision made.
For those firms not adopting AI, challenges such as fear of failure, siloed data sets and regulatory compliance are cited. Two of the biggest challenges that remain in banking is the absence of people experienced in data collection, analysis and application and the existence of data silos. The good news is that many data firms now have the capability to do a ‘workaround’, collecting data from across the organisation.
Experts say blockchain could have a transformational impact on the banking industry. Many see banks adopting blockchain technology to improve efficiency, cost-effectiveness, and security throughout the entire spectrum of financial services.
Some financial institutions have already started testing the use of blockchain for inter-bank transfers, with others testing in the space of payments, fraud reduction, know your customer, and loan processing. Many see tremendous benefits to streamlining and automating processes through smart contracts. In the end, regulators will need to create clear guidelines for banks using blockchain technology.
7. Prescriptive Security
The nature and incidence of cyber risk is unique and changing without notice, meaning that typical approaches to risk management may not be appropriate. The potential sources of cyber threats and the attack footprint are impossible to eliminate, requiring organizations to be nimble in their approach to cyber security.
More and more, advanced analytics, real-time monitoring, AI and other tools are used to detect potential threats and stop them before they strike. In the short-term, digital disruption may result in new risks and increased instability in the financial system, but in the long term, prescriptive security may improve its effectiveness.
8. Augmented and Virtual Reality
If personal user experiences can be enhanced by augmented reality (AR) or virtual reality (VR), then it can also be institutionalised by banks to revolutionise the banking industry. The possibilities are are still in early embryonic stages, with testing being done worldwide.
For instance, the Commonwealth Bank of Australia targets bank customers looking to buy or sell a home. Augmented reality and rich data are used to provide historical information about property sales, price tendencies, current listings, and properties that have been sold in the area. This insight helps individuals make smart sale and purchase decisions.
According to analysts, augmented reality and virtual reality could be utilized to give bank customers autonomy in terms of at-home banking. Hybrid bank branches could also come into existence.
9. Quantum Computing
According toFedTech, quantum computing harnesses the laws of quantum mechanics to carry out complex data operations. While traditional computers use bits (represented as either binary 1s or 0s), quantum computing harnesses quantum bits, known as qubits. These can be read as 1s, 0s, or both, providing exponential computing power over traditional computers by creating shortcuts in the computing process.
Quantum computing represents a major leap forward in computing power, surpassing the potential of the cloud or blockchain. However, it will likely be years before it is widely used in business applications, due to many stability and security concerns. Despite this extended timeline, firms like JPMorgan and Barclays are part of a group investigating quantum computing potential in conjunction with IBM.
10. Smart Machines
The impact of smart machines (smart vision systems, virtual customer assistants, virtual personal assistants, smart advisors, other natural-language processing technologies, etc.) will have on financial institutions during the next few years is beginning to take shape.
From applications for Amazon’s Alexa to bank developed virtual assistants like Bank of America’s Erica, the future of smart machines acting as digital concierges on behalf of consumers is upon us. The banks and credit unions that invest in better digital engagement will have more profitable relationships with customers. At the end of the day, customers will continue to self-select the bank that provides the least amount of friction and the most relevant support and guidance.