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Digital banking technology & trends

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Digital banking trends and technologies that help you future-proof your bank

Banks and other financial institutions should now have the means to explore and make the switch to the new digital age, while still being able to comply with regulatory demands and security threats. On this page, you’ll discover the key trends and technologies in digital banking. What does the future of digital banking look like?

Digital banking trends and technologies

1. Digitization in banking

To provide customers with excellence in experience and to cope with regulation, existing investments, and cost structure, a full digitization switch is key. Banks need to take digitization as their leading strategy, which is why it is still a key trend in digital banking.

Undergoing a digitization process in banking does not simply mean to automate an existing process: banks must reinvent the entire business process with updated goals, such as:

  • Removing human dependent tasks;
  • Increase the speed and seamlessness of digital customer experience;
  • Increase the awareness and capacity to analyze and react to existing data;
  • Development of automated decision making;
  • Adaptation to new regulatory and fraud challenges.

Digitization in banking is more than a technology-based change. It also has an impact on the business side to meet the reinvented processes, market, and regulatory needs. The existing knowledge has to be adapted and immersed in technology standards without being lost. Also, on the technical part, data models, reports, and interfaces should be adjusted and rebuilt to enable better decision making.

The change from paper and manual processes to automatic processes combined with the ability to collect data to better understand customers, cost drivers and risks is a business enabler for the years to come. The benefits of digitization in banking are enormous and a definite requirement to keep a place in a highly competitive and evolving market.

Read more about digitization in banking here

2. Banking as a platform

Banks should invest heavily in processes and methods that derive value and insights from their data to deliver true customer experience. This is a huge task for some banks as many have built their core operations on fragmented systems aligned to products or they rely on legacy core systems.

This fragmented systems paradigm has created a situation where customer data is distributed across multiple platforms that don’t directly support new technologies, such as open APIs, cloud computing or artificial intelligence.

As a result, banks should develop strategies to build an Enterprise Data Architecture which rationalizes and cleans their fragmented data stores to switch to a business model based on service offerings. This allows banks to undertake a full digitization, target growth in select markets and invest in technologies that enhance customer experience and simplify operations.

Banking as a platform

3. Cognitive banking

Today’s banking requires banking services to be agile, adaptive and scalable. To ensure this, the use of cognitive computing systems will increase. These systems can learn in real-time as data and information changes and requirements evolve. They can easily interact with other devices, data sources and users to adapt.

Unlike legacy systems that were modeled under preconfigured calculations and rules, cognitive banking systems are dynamic and learn from the information that is available to them. Cognitive systems are helping banks to be agile, so that they can manage the ever-changing demands of customers, security, and regulation.

Cognitive banking has several benefits:

  • Increased customer satisfaction due to real-time response and insights
  • Machine learning helps banks to predict financial needs and act proactively upon them
  • Enabling leveraging a lifetime of customer data to personalize services
Cognitive banking

4. Bank & Fintech collaboration

Collaboration between banks and fintechs becomes increasingly important for banks to retain a competitive place in the market. Banks who’ve already embraced this have improved customer experience while reducing operational costs.

We will see an increase in banks that incorporate partner fintechs or their pre-existing outsourced shared services into the direct management sphere via the creation of challenging projects.

Collaboration between banks and fintechs will focus on the following areas:

  • Emphasis on agility: Banks and fintechs can’t ‘rest’, they must ensure that their systems continue to adapt to market and customer changes.
  • Emphasis on the dialogue: Banks and fintechs should continue to interact and make use of their strengths, which enables them to be strategically aligned.
  • Emphasis on innovation: The innovation process must be a requisite, making sure banks are ahead of customer needs.
  • Emphasis on cultural dynamics: Banks and fintechs should strive to incentivize cultures that adapt to business and regulatory change.
  • Emphasis on regulatory responsibility: Banks should request a position from their fintech partners where they are both up to date on compliance, regulation, and licensing information that could affect the collaboration.
  • Emphasis on security: Banks should continue to be demanding on security with their partners, focusing on awareness and security testing.
  • Emphasis on risk management: Banks and fintechs should work together in testing business resiliency to be highly vigilant regarding existing customer data, new big data models, and automated decision risks.

5. New regulations in banking (PSD2 and GDPR)

In 2018, GDPR and PSD2 — and with them, major changes in processes, data management, and customer relations — will go live in the European Union. By resulting on a combination of technical and legal requirements, GDPR and PSD2 will be dominant subjects regarding challenges for banks.

PSD2 is focused on driving competition between the payment providers by opening up their APIs, allowing Third Party Providers. On the other hand, GDPR aims to strengthen and consolidate data protection for all individuals by giving them more control over personal data. Banks will have to be able to adopt both, coping with the promotion of data sharing coming from PSD2 and the management of data privacy forced by GDPR.

Since PSD2 promotes competition as it favors payments via non-bank financial service providers, banks face an additional challenge. They not only need to adapt to it but they also need to take new competitors into account.

New regulations in banking (PSD2 and GDPR)
PSD2 white paper

What are the real opportunities and options of PSD2 to banks?

Learn how to respond and what the best time is to start planning

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6. An increase of blockchain in banking

The blockchain technology gains more and more ground in the banking industry. Not just because of the explosion of ICOs and cryptocurrency usage and trade, but also due to the increasing effort in developing blockchain standards. The promise of blockchain as a trustless, disintermediated technology will continue its influence in several areas of banking and fintech, including:

  • Payments: By eliminating the need to rely on intermediaries to approve transactions between consumers, blockchain could facilitate faster payments at lower costs than banks.
  • Clearance and settlement systems: The blockchain technology and distributed ledgers can reduce operational costs and bring real-time transactions between financial institutions closer.
  • Fundraising: By providing companies immediate access to liquidity through initial coin offerings (ICOs), blockchain is creating a new, crypto economic model of funding that unbundles access to capital from traditional financial services.
  • Securities: Blockchain is upending the structure of capital markets by tokenizing traditional securities such as stocks, bonds, and alternative assets.
  • Loans and credit: By removing the need for gatekeepers in the loan and credit industry, blockchain can make it more secure to borrow money and provide lower interest rates.

7. Competition among Fintech hubs

Zürich, Amsterdam, Hong Kong, Abu Dhabi, Berlin, Singapore and Silicon Valley are all examples of fintech hub ecosystems that continue to evolve rapidly around the globe. We expect to see the competition between these hubs increase.

This is mainly because hubs will compete for investment by offering open and supportive regulation and legislation, better financial services infrastructures, access to prospective clients and especially access to funding (in many cases backed by governmental policies).

Competition among Fintech hubs

8. Mobile payments

With the introduction of new regulation like PSD2 and new technology like blockchain, a lot is going to change around mobile payments. These are the topics to watch out for:

  • Internet of payments:
    Customers are increasingly using mobile (and other Internet of Things) devices to perform payments, which banks need to adopt to. 
  • Wireless payments:
    We can expect payment acts to become more and more invisible. By using wireless technologies, services will eliminate the need for customers to pay via cash or a magnetic card band. Wireless payments via, for example, smartphone, the RFID chip in debit cards or facial or voice recognition will increase, and that’s something for banks to take into account.
  • Peer-to-peer payments:
    Payment processes will be integrated into peer-to-peer (P2P) systems. This will allow users to pay through a phone number, a name in their address book or an e-coin wallet address.
  • Real-time payments:
    Thanks to the SEPA Instant Credit Transfer scheme, the requisite European infrastructure has been in place since 21st November 2017. Additional banks are expected to join the scheme as market pressure increases.
Mobile payments

9. Cybersecurity

Cybersecurity will continue to play a major underlying role as digitization, real-time processing, automated decision and other machine related functionalities increase. The things we expect to see aren’t very different from what we have witnessed in recent years:

  • Big security breaches
  • More poor security practices
  • More crypto coin heists
  • Increase in ransomware and phishing
  • EU breach notifications