3 Inflection Points Transforming the Banking Industry
Between 2010 and 2017, personal loans by FinTech start-ups as a proportion of total loans leapt from 1 percent to 36 percent. That jump alone caused a lot of consternation in traditional banking. And it’s estimated that technology disruption could affect up to 80 percent of revenue for traditional retail banks beyond 2020. The changing face of global commerce is also reflected in a 2018 Cisco study, which estimates that the highest cloud traffic growth between 2016 and 2021 will be seen in the Middle East and Africa region at 41 percent, followed by 38 percent growth in Europe and 33 percent in North America. So what are the inflection points that are driving the banking industry to invest in digital banking technology?
#1 Customer Experience
The increasing importance of customer experience is one of the major drivers forcing banks to make a significant investment in digital banking technology and commit to supporting mobile, web, and digital platforms. This need to offer consumers an engaging and streamlined experience has already led to the introduction of customer-facing artificial intelligence solutions such as chatbots, which can assist with routine tasks such as balance inquiries or making payments.
A Forbes 2017 survey revealed that 86 percent of banks believe that online banking innovations represent their most important technology investments. Consumer banking behaviour has changed, which is one way in which increasing competition from digital challenger banks and online payment service providers is forcing traditional banks to keep pace with customers’ expectations of how they want to interact with their banking services.
#2 Open Banking
A second driver is the advent of open banking and the necessity for banks to be able to move from a closed banking model to a more customer-centric one. Open banking will drive collaboration between financial services partners to support customer requests to share their data securely with trusted third-parties. This type of service can only be delivered using a cloud-based approach that can adhere to industry standards and interfaces to securely share data with partners efficiently and cost-effectively.
#3 Real-time and Predictive Analytics
The increased focus on customer experience and a 360 degree customer-centric data architecture are the cornerstones of real-time and predictive analytics, which is the third driver of increased investment. Existing data stores can be enriched by the quantity and quality of more granular detail acquired in real time, generated by a more captivating user experience and the ability to track customer journeys across a range of digital platforms. Chief Marketing Officers (CMOs) can now design AI solutions that exploit this data to identify patterns and opportunities for targeted advertising in real time, which gives them the ammunition they need to increase revenue and reduce customer churn.
Capturing, analyzing, and then effectively making use of the significant volumes of additional data that will be generated requires the flexibility and scalability of infrastructure and services that cloud is ideally suited to provide.
The growing level of investment in real-time and predictive analytics is highlighted in a 2018 joint banking study in which almost half the respondents reported “significant” increases in investment in real-time analytics, and an astonishing 74 percent say they have seen “significant increases in customer retention and loyalty.” Most importantly, 55 percent of respondents reported that investment in real-time analytics had resulted in “significant increases in growth and revenue generation.”
Emerging Ecosystems & Technologies
We continue to see new ecosystems emerging in financial services, and they continue to evolve along with new technologies and business channels to drive change in how enterprises use and manage their data and deliver their services to the public.
The inflection points we see today in financial services markets, accompanied by transformative technology changes, are driving the industry to deliver services that capitalise on the benefits of emerging technologies. How quickly can the banking industry move to new technologies remains to be seen, but I expect cloud adoption to be in their future, accompanied by a corresponding adoption of microservices and containers.