Banking is evolving continuously, and this pace will only be
faster than ever in 2017. We, at Infosys Finacle believe that there are six
strategic trends that will reshape banking in the coming year. Only banks that
proactively disrupt themselves to manage these trends will be successful in
their journey from digital to #TrulyDigital. Listed below are our top picks for
strategic trends that will transform banking in 2017:
Customer experience will make winners and
Economics of the business ecosystem will come
Moving a step closer toward autonomous banking
Security will be more pervasive, adaptive, and
You must bank on insights - every time,
What is Brazil's Bradesco Bank doing with a blockchain-based
digital wallet from a local startup? Why has UK challenger bank Metro tied up
with peer-to-peer (P2P) lending pioneer Zopa? How does one explain India's
state-owned Bank of Baroda - the country's second-largest player - partnering
with financial technology (fintech) startups, such as FundsTiger and KredX,
instead of fighting them?
Blockchain technology underlying the 'Bitcoin' crypto
currency has created lot of buzz in the technology landscape compared to any
other technology in the past. Perhaps, blockchain is considered to be the
biggest disruption post 'internet'.
Some of you might have heard of Blockchain. You might have
read that it could disrupt and change banking, payments and other financial
services forever. Perhaps you are wondering how it might affect you, especially
if you are employed in the financial services industry.
One of the hallmarks of truly digital banking - which is the theme for the Finacle track at Confluence - is the role of the vast banking ecosystem. As a variety of banking and non-banking players collaborate and co-create to offer customers universal banking services, they would need a robust, secure mechanism to facilitate their interactions.
One of that mechanism is very likely, the Blockchain. There is a huge amount of interest in this technology, which has the potential to transform the way the industry works. Investment in Blockchain projects is expected to surpass USD 1 billion next year, and a number of banks are already experimenting with it quite seriously. Barclays, for instance, has a partnership with P2P payments provider Circle, which uses the Blockchain network. Then there's Visa, one of the participants in a USD 30 million investment in Chain, a Blockchain development platform. There are several ways in which Blockchain technology can improve capital market transactions, and a consortium of 42 banks is already working with Fintech firm R3 to examine some of them.
Cybersecurity threats are the unpleasant consequence of increasing digitization. The more connected the world becomes, the more points of entry there are for cybercriminals. Over the past few years there have been many disconcerting revelations of billions of dollars being skimmed off some of the largest financial institutions in the world. There have also been a series of extremely critical data breaches at some of the most technologically savvy banks.
Creating the world's largest transportation company without owning cars or the world's largest hospitality company without owning a single property - digital technologies have not merely transformed entire industries, they have managed to upturn many established business models and mindsets.
Complexity - in the form of legacy architectures, system silos and un-orchestrated applications - was one of the biggest challenges that the banking sector had to address en route to a digital future. Now it seems that we might inadvertently be cloning digital versions of some of those very same complications into our digital ecosystems.
Payments were arguably ground zero for non-native technology-led disruption in the banking industry. Having originated there, the movement has since cascaded over to a range of financial activities to include mobile wallets, information aggregation services, personal financial management tools and crowdsourced lending, to name a few.
The digital revolution is beginning to look more and more like a mobile revolution, at least in banking. The maturity of a bank's mobile services portfolio is increasingly becoming the metric that drives customers to choose or switch service providers. And banks are returning the favor by placing mobility right at the top of their innovation priorities.
Mobility is no longer a concept whose potential can be defined merely by enumerating handsets shipped, connections created, apps launched or data consumed. It is a phenomenon that is estimated to have generated a total economic value of almost US$ 10 trillion last year, which makes it the third largest economy in the world after the U.S. and China. I should also probably mention the 11 million jobs that it was directly responsible for creating around the globe.So, how has the mobile phenomenon changed banking and other financial service verticals?
Is complexity the natural byproduct of sophistication? Definitely not, if complexity drives up costs, drags down value and shuts out a potential 20% in profits. But that is exactly what complexity is doing to banking, a sector that ranks 6th on a global complexity index featuring 26 industries.
On the one side there is the legacy; a complex patchwork of disparate technologies integrated at random, upgraded incrementally and rooted in an era when product-centric silos were avant-garde. On the other is the new paradigm of banking under unrelenting pressure from customers, regulators and competitors.
Banking's systemic complexity is often cited as one of the principal causes of the 2008 financial crisis. But the tidal wave of regulation set off by that event is, ironically, secreting a new layer of complexity on the business. Apart from adding complexity, emerging regulatory norms will considerably inflate the cost of compliance for banks. For instance, US multinational JPMorgan Chase now expects compliance costs to touch US$2 billion in 2014, almost doubling its previous projections.
According to a 2013 analyst report, the banking sector ranked second, behind media & communications, in terms of Big Data investments. The report estimated that 34% of banks were already invested, while an additional 24% expected to do so in the near term.
For a lot of customers, mobile banking is no longer just a convenient fallback option to check balances and receive account alerts. They are increasingly expecting their banking applications to enable much more than the basics. The versatility of mobile banking services - which is tied to the mobile app - rather than just availability, is becoming a determining factor in customer choice as well as satisfaction.
A recent report from Credit Suisse predicts that wearable technologies could be a USD 3-5 billion market over the next three years, ten times what it is today. As the market for these new technologies explodes, it will set off user expectations for an instantaneous seamless transition of everyday digital activities - banking included - to these new devices.
The emphasis on innovation has never been more acute; that has been clearly established based on the findings of this year's Efma-Infosys Innovation in Retail Banking study. But the study has also found that the innovation effort in most banks is not supported by a designated central resource or by an organizational framework that brings together employees from across functions and business lines.
Even as traditional banks concentrate on strengthening their online and mobile channels as a viable alternative to their core brick & mortar proposition, a new breed of direct-only competitors are making their presence felt among retail banking customers. A new study reveals that direct-only is the only category in banking to gain market share amongst customers establishing or shifting their financial loyalties. It is estimated that over the past five years, deposits in this emerging category have grown three times the industry average.
Open innovation, the process of encouraging ideation across all stakeholders to drive enterprise innovation, is gaining traction in a diverse range of business applications - from automotive design to drug discovery. Two banks that are harnessing the power of Open Innovation to drive organization change were featured in the most recent edition of the Efma-Infosys Innovation in Retail Banking study.
Can personalization deliver sustainable competitive advantage for retail banks? It would seem so if one references a study in which up to 70% of global banking customers expressed willingness to even offer up personal data if it could positively influence personalization and service.
Between risk management, regulation and compliance, innovation in banking is essentially an iterated combination of the possible, the practical and the permissible. But then those are the ground rules. And yet 'Culture' trumped 'Regulation' in a bankers' list of the biggest barriers to innovation compiled by the Efma-Infosys Innovation in Retail Banking Study 2013.
Current legacy IT systems have emerged as the most significant barrier for innovation, across banks of all sizes, according to the Efma-Infosys Innovation in Retail Banking Study 2013. Well, not all banks; IT systems ranked either 5th or 6th as problem areas at around 20% of large and medium sized banks that participated in the study. Nonetheless, they are still the exceptions - either because they have up-to-date systems or are focused on non-IT dependent innovation - that prove the rule.
The intent is definitely there and so are the strategies and investments to realize it. The metrics are in place to assess performance and over three-quarters of the respondents indicate that they are getting better at it. That, in short, is the current status of banking innovation according to the 5th edition of the annual Efma-Infosys Innovation in Retail Banking Study.
If unhappy customers are indeed the greatest source of learning, then the banking sector is sitting on a gold mine. Since 2011, the proportion of customers planning to switch banks has risen from 7% to 12%. Only 37 % are satisfied with their banks' understanding of their needs and preferences and only 44% think that products and services are adapted to their needs. A majority is just not thrilled with their banking experience.
Towards the end of last year, an IT trade body in the UK released a report calling for financial regulators to force banks to overhaul their technology infrastructure. This came on the heels of a massive tech outage at one of the country's largest banks that locked nearly 12 million customers out of their accounts for almost a week.
Even as the banking industry grapples with sweeping changes in policy, regulation and customer expectations, a 'big bang' transformation in strategy or host systems may not be on the cards this year. A peripheral, step-by-step, incremental agenda will be beneficial for banks in 2013. But don't be swayed by the word 'incremental'. Each of the trends in this infographic has the potential to deliver significant business value.