Every year brings something that becomes a hot topic in the banking world and makes the industry crazy about it. When a new feature, service, product or approach is successfully embraced by one or more institutions, the rest wants to follow – and this is exactly how a trend is set.
What trends are supposed to be on the top of the 2017 wishlist for banks? Let’s see.
Even though banks went online quite some time ago, they are still bound to many offline procedures. Take opening a new account for instance: is it possible to do it entirely online in all banks? No – and, unfortunately, this applies to MOST financial institutions. The main obstacle is the KYC process, which often requires branch based ID verification, hand-written signatures or providing some extra documentation. In order to simplify and streamline this user experience, banks should make more efforts towards leveraging new methods of client verification, so that a new customer can apply online and won’t bother with visiting a bank branch. These techniques may be based on APIs for importing data from user’s existing accounts in other institutions, or they can rely on solutions provided by third parties, such as biometrics (face/voice/fingerprint recognition), capturing of ID information, digitization of paper documents and so on.
The application process – not only for new accounts but also for products within an open account – must also be truly multichannel. When you start something with a mobile device, you would want to have an option to finish it on your laptop’s browser when you are back home, or vice versa. Or just to save the half-filled form for now and resume it later without the need of re-entering the same data from scratch. Surprisingly, in many cases, this is not an obvious feature.
Speaking of mobile, there should be no features, products or services accessible only to full desktop browser users. With mobile browsing surpassing desktop browsing, it’s at least not very smart to discriminate customers because of their device preferences – and not to leverage the fact that a mobile device is in use most of the time during the day. Moreover, thanks to localization services, it can be used to present a user with special offers for a particular place he or she is around. A mobile device can also replace credit/debit cards, which brings us to the next trend.
Mobile banking in 2017 should also become more focused on cardless payments: NFC-capable smartphones with HCE will hit the budget segment this year and wearables are supposed to have this feature as well. And then there’s a growing number of peer-to-peer transfers/payments directly from mobile apps – and they’re not even banking apps. Banks need to embrace this trend in their apps if they don’t want to lose some part of the market to the competition.
AI, or machine learning, is already here. It’s on your smartphone in the form of Siri, Cortana, and other personal assistants, it drives an autonomous car, helps you shop online or choose a movie for a perfect evening. In banks, it helps detect possible frauds, takes care of risk assessment and crunches big data to find patterns and trends that could better align the business with customers’ needs. Machine learning is also being adopted for fast and accurate credit scoring.
But the possibilities of AI in banking aren’t limited just to back office. Customer experience can also be improved dramatically thanks to chatbots, which can communicate with users in a natural language, providing assistance and answers just like a real person would do. Virtual branches, now being simply traditional call centers with more communication channels available (chat and video besides a regular voice), will gradually transform into AI-driven virtual assistants in equally virtual environments presented in VR or AR. And voice control is the natural choice for the next generation of mobile banking apps.
In the EU, the year 2017 is the last one when banks can keep all of their clients' data unavailable to other institutions. European banks are preparing for the PSD2, which unleashes banking data to third parties through APIs. What seemed to be a threat to the established traditional banking industry, now looks more like the future of it. All because of FinTechs – new players on the market, who came from the outside and disrupted the game.
FinTech companies offer innovative products and services, which either replace existing solutions offered by banks or create whole new quality and experiences for customers. Although FinTechs are miniature compared to banks, they are able to respond faster to people’s needs and technological advances. With an access to clients’ banking data through APIs, they could compete with their big opponents almost on equal terms – no wonder banks were reluctant to such changes.
“If you can’t fight them, join them”, the proverb says, so now banks know that FinTechs are not enemies, but rather allies – if handled properly. The trend for this year will be to cooperate with these small challengers: banks will open access to their clients’ data, but in return, they will be able to offer their own products and services to new customers or use innovative features otherwise requiring lots of in-house development time, effort and money.
Partnerships between banks and FinTechs will bring mutual benefits and should change the banking industry forever. API-based banking means flexibility: FinTechs can use banking infrastructure and data from different providers to build the perfect mix for particular clients, while banks can reach more customers, as well as embrace new technologies, services and features much faster than in the case of closed, proprietary systems.
The PSD2 is not the only regulation banks should take into consideration for 2017, when planning their strategies. Starting from January 1, 2018, the MiFID II directive will impose serious limitations on making profits from offering third party investment funds by banks. The incomes from selling IFs will be severely reduced, so banks have to adjust their business models accordingly.
The other regulation, which needs to be addressed, is Basel III. It forces banks to increase their capital ratios based on risk-weighted assets. This means less capital to be invested and therefore fewer profits.
This year will surely reveal some new solutions for banking, which should become trends for next year. Nevertheless, it will be fascinating to see how banks implement today’s trends and technologies and what the results are.