Trends - Banking Products
Some of the latest trends around banking products include artificial intelligence, big data, cloud computing, and challenger banks. The future trends around these products include internet of things and blockchain.
TRENDS IN BANKING PRODUCTS
- As years go by, it is becoming more important for banks to deploy AI solutions. The AI revolution in banking started showing early signs in 2015, when banks like Ally Bank began incorporating the technology.
- These banks wanted to target more consumers and improve the experience of their old customers. They found that AI tools are important for behavior analysis and figuring out customer demands.
- In 2019, conversational AI - specifically chatbots - dominated the digital banking space. These chatbots are being incorporated into bank initiatives to help answer basic questions, thus freeing customer service agents to answer more complex questions. They save banks more than 25% in customer support costs as banks can delegate some of their work to them.
- AI tools like chatbots are allowing financial institutions to offer more efficient instantaneous, 24/7 customer service.
- More than 75% of financial institutions see chatbots as a feasible commercial solution now or in the nearest future (the next one to two years), with at least 50% of financial institutions stating that they already have chatbot projects in place. Most of these companies see a significant share of customer conversations handled by bots in five years or fewer.
- Currently, over 30% of banks in the US have an active AI project in place, while 15% currently use AI and 26% have plans to incorporate AI technology within the next year.
- In 2019, AI tools like chatbots saved banks about $209 million. By 2023, bank cost savings through these tools is expected to surpass $7 billion. This represents a 3400% growth in operational savings from 2019.
- The COVID-19 pandemic has led to an intensified use of AI in the banking sector as more banks are turning to these tools to handle the increased customer service queries precipitated by the COVID-19 pandemic. Based on a study by Dock9, roughly 70% of financial institutions are considering AI tools due to the COVID-19 pandemic.
- In 2015, Ally Bank introduced Ally Assist to its mobile banking app, making it one of the first banks to integrate a chatbot. With the virtual assistant, customers can perform functions like transferring money, making payments, and making deposits using voice or text. Ally Assist can also predict the needs of customers by examining their transactions and accounts to present them with "context-aware topics and messages to customers."
- Wells Fargo is the first US bank to launch an artificial intelligence chatbot on Facebook Messenger. Its virtual banking assistant replies natural language messages from customers, such as where the closest ATM is, questions about credit and debit cards, and the amount of money left in their accounts. The bank claims it developed the chatbot to serve customers directly on social media, deliver information in the moment, and assist its users in making better informed financial decisions.
- Finextra defines big data as technologies used to gather and analyze large "large, diverse (structured and unstructured) and complex sets of data."
- According to IDC, the banking industry is already one of the top investors in big data. For more than ten years, banks have been investing heavily in data collection and processing technologies.
- Banks generate large amounts of data daily, specifically in activities involving credit scores, ATM withdrawals, and credit card transactions. Being able to leverage this data to make effective business decisions is helping several financial institutions stay competitive in their industry.
- Banks are using big data to make operational decisions in real time for sales management, fraud management, product cross-selling, and customer feedback reporting.
- Through big data, banks are better positioned to offer personalized customer experience as it allows them to learn and predict the spending patterns and purchase preferences of customers.
- Banks are also using big data as an additional source of revenue as some sell their holdings to "third party organizations that provide commercial services."
- Big data is allowing banks to offer new, innovative solutions to customers. It also provides banks with more extensive cost savings and risk coverage. It can be used to attain risk intelligence in fraud management and credit management among others.
- The global market size of big data solutions is $166 billion and is forecast to be $260 billion by 2020. Almost 65% of banks agree that big data is important to their success.
- Citibank is one financial institution that is going bullish on big data technologies. It is investing in promising big data technology startups like Feedzai. Citibank also uses the big data solution provided by this startup to easily trace any suspicious transactions.
Neo & Challenger Banks
- Also known as Neo banks, challenger banks are digital-only financial institutions. Customers using these banks can do everything online. Unlike traditional banks, these banks invest heavily in advanced fraud detection systems, risk assessment tools, and other revolutionary technologies.
- Neo banks began after the financial crisis in the UK. Struggling with "heavy financial losses, banks could no longer lend each other money, so the government changed regulations allowed neo-banks to raise capital and build online infrastructure before obtaining a full banking license."
- This resulted in a boost in startup activity, positioning fintech companies like Revolut and Monzo as competitors to traditional banks. They quickly became popular, especially among young individuals who seek convenience and are digital natives.
- Young people in the US no longer want to deal with the "bureaucracy and lack of flexibility of traditional banks." They also want to be able to get things done quickly without leaving their homes. Neo banks have also become popular among young entrepreneurs and small business owners who do not qualify for traditional loans.
- Although they have not been in the US market for so long, these banks saw a 50% growth from 2016 to 2020. These banks are redefining the "approach that financial institutions should have towards banking services." They are also changing consumer perception of banking.
- The fact that these banks allow people to get loans or set up savings accounts with lower fees and better terms contributes to their popularity.
- Based on a recent survey, the main reasons consumers are now turning to challenger bank solutions include how easy it is to set up an account (43%), more attractive rates (15%), access to a wide range of products and services (12%), better experience (11%), and better quality of services (10%).
- Challenger banks like Chime and Simple are achieving strong growth. In 2018, Chime had just a million users. Currently, it has almost 10 million users, most of whom come from traditional banks.
- Cloud computing is also known as cloud storage. The new technology allows for data storage over the internet. It is a hybrid technology of "computing various services like servers, software, networking, storage, databases, analytics and many more over the internet."
- In simpler words, it is the delivery of computer services like storage, analytics, and servers. Executives at financial services companies are increasingly beginning to focus on this technology.
- At least 25% of financial institutions plan to invest in cloud computing technologies before the end of 2020, with almost 50% saying that they have already implemented these technologies.
- Cloud computing allows banks to develop new capabilities and services. Transformative solutions within the banking industry like enterprise resource management and customer relationship management are cloud based.
- It can help banks stay updated on the "ever-revolving regulatory reporting requirements in several operating jurisdictions." Through cloud solutions, banks can conduct "intraday liquidity and risk calculations, and mine trade surveillance data to detect anti-money laundering and other fraud issues."
- Cloud computing is saving banks a lot of money. Sending data to the cloud means banks do not need any physical infrastructure for local storage. Banks also have better control of their data, which in turn allows them to gather more information about customer habits and preferences.
- A study by ActiveViam pointed out that at least 50% of banks are already using public cloud service. JP Morgan is one bank that is using cloud. The bank uses the cloud solutions offered by Amazon Web Services to manage high-volume, complex "computations at sometimes irregular intervals."
- TD Bank is using Microsoft Azure to offer its technology and design teams with "tools designed for secure, agile and flexible access to data and AI resources." According to the bank's CEO, Microsoft Azure is helping the bank "accelerate and fuel new and innovative banking experiences for customers, clients, and colleagues."
FUTURE TRENDS IN BANKING PRODUCTS
- Internet of things (IoT) is a network of connected smart devices offering rich, substantial data. It encompasses everything that is connected to the internet. The future of banking is increasingly shifting towards digital and IoT is a critical part of this shift.
- As described by Business Insider, retail banks have been using an early prototype of IoT for years, the automated teller machine (ATM). These machines have since been adopted rapidly and make banks more efficient by eliminating the need for long wait times at physical locations.
- However, IoT has several other use cases, most of which have not been fully explored yet. Banks are expected to use IoT solutions to enhance user experiences within the next few years. This technology can empower new payment tools like smart cards and biometric tokens.
- Some of the largest banks in the world are already capitalizing on IoT to design products that meet the needs of customers. The future of IoT in banking "means loan providers will get detailed data on customers: credit debt and history, asset details and value, as well as the yield of commodities a client produces (crucial for agricultural companies relying on banks for loan services)."
- IoT is also enabling the entrance of smart speakers into the banking sector. Banking with smart speakers allows customer to issue voice instructions. In 2019, NatWest, a UK based financial institution, introduced a voice banking feature via Google assistant. The feature "was compatible with the Google Home smart speaker and allowed customers to inquire about account balances, latest transactions, and pending transactions."
- Capital One is another bank that is making accommodations for this technology. It currently allows customers to pay their bills using Amazon's Alexa.
- By 2025, there will be over 60 billion IoT devices worldwide, up from 10 billion in 2018. IoT in the financial services industry is forecast to be worth $2 billion by 2025. Experts predict that at least 60% of financial institutions will make wearables the commonplace payment mediums in the next few years.
- Blockchain is a distributed database that can help trace transactions securely. This technology, which emerged in 2008, is predicted to disrupt banks within the next few years due to the fact that it is relatively more secure, affordable to operate, and transparent.
- There are different use cases for blockchain in banking. For one, it eliminates the need for middle men or intermediaries during transactions. Through blockchain, customers can transfer money securely without involving the bank.
- It takes away third parties in the "loans and credit system, while also making it more secure to borrow money and lowering interest rates" It could also put an end to manual data reconciliation for ledgers.
- Blockchain could potentially make cross border payments faster and more affordable. With third parties, remittance costs for these types of payment incur 5% to 20% of the total amount. With blockchain, only 2% to 3% is required.
- It also allows banks to utilize tools like smart contracts, which "could potentially automate manual processes, from compliance and claims processing, to distributing the contents of a will."
- Blockchain can help reduce the operational costs of several financial institutions. It can also develop capital markets that are interoperable and efficient.
- In 2018, seven international banks, including BNP Paribas, BNY Mellon, HSBC, ING, Natixis and State Street, united to "support Fusion LenderComm by Finastra, a blockchain platform for syndicated loans."