The pace of transformation in the banking sector is startling as financial institutions work overtime to leverage digital transformation to spur efficiencies and make profits. Even as this happens, what are the emerging issues that will shape banking operations this year? Read on.
FIGHTING FRAUD AND FINANCIAL CRIME
Despite the fact that financial crimes is not a new phenomenon to many banks, the speed at which this is taking place has pushed many banks to reevaluate how they are going to do business, particularly on their security procedures and fraud responses. Criminals are creating more complex ways of stealing cash and personal information but also the bank’s reputation.
The shift to online platforms means that thieves are now targeting a variety of industries, including traditional banking and fintech. Those seeking to gain access to consumer identities or accounts can often adapt and move at a faster pace than the practices and policies meant to combat their efforts.
The banking sector is now more focused than ever on the introduction of technology to re-establish trust with their clients, especially after events like the global financial crisis. Blockchain has become critical for banks to provide faster settlement to clients through efficient banking systems and processes.
This is because blockchain is a distributed ledger system that enables transactions to be verified and approved by all participants in the exchange before it becomes part of the chain.
Crypto is affecting the banking system by establishing a decentralized ledger for payments (e.g., Bitcoin), blockchain technology could facilitate faster payments at lower fees than banks. Distributed ledgers can reduce operational costs and bring us closer to real-time transactions between financial institutions.
Optimization is a core objective that helps lenders boost their operational performance. When it comes to lending, optimization has led to quicker credit approval and loan disbursals from days to minutes. It has also replaced manual form filling with digital data grabs, automating evaluations using artificial intelligence (AI) machine leaning as well as minimal in-person visits which has further led to saving time. There is also enhanced tracking and reporting of loans.
The use of digital payments and remittances has increased globally. This happened even in countries where digital financial services usage was relatively high before the pandemic, due to the forced conversion of people who previously avoided the market, for example, the elderly and those in rural areas.
It is predicted that by 2025, 85 per cent of banks will offer digital banking services - up from just 60 per cent in 2018. And the global digital banking market is expected to reach $27 trillion (Sh3,510 trillion) by 2023. A lot of processes have been automated and these services can reduce certain banking fees such as maintenance and transaction fees.
Consequently, it leads to customers getting higher interest rates for their accounts. Digital payments presence will solve many of the obstacles and physical barriers associated with global payments, like convenience, transfer rates, currency exchanges as well as security.
NEXT LEVEL PERSONALIZATION
There is an increase in the number of customers demanding personalized banking products and services. Personalization can assist banks to improve their customer reducing costs, and retention rates and increasing revenue.
Presently, advances in technology has also been crucial in assisting banks, be able to collect data, and use them to understand their customers’ needs better and recommend products that they may be interested in. For instance, product recommendations for a high-yield savings account, and customized dashboards to show customers their account balances as well as their recent transactions. They can also predict their customers’ needs and personalize loan offers and provide personalized financial management.
MIGRATION AND MODERNIZATION
Modernization of the legacy financial systems assists in the improvement of the level of service in banks encourages product innovation and facilitates faster seamless customer on-boarding. It also saves the users from crashes and slowdowns linked with outdated systems while improving customer experience. But for the evolution of digital financial services to continue over the next 10 years, providers will need to look deeper, focusing on modernizing the underlying core systems that power those offerings. They might also seek to integrate with popular payment platforms such as Apple Pay, Google Pay, and PayPal for efficiency.
INJECTING RESPONSIBLE AI
Artificial intelligence has the potential to lead to massive cost savings in banks. According to a study by Accenture, banks can leverage AI banking tools to increase their transactions by two and half times using the same headcount.
AI can also assist banks in fraud detection, and improvement of customer service experience as well as monitor customer behaviour to a more personalized service. Artificial intelligence streamlines bank processes make smarter decisions as far as banking is concerned, and manages customer service requests with fewer resources. Responsible AI entails designing, developing, and deploying AI with good intentions to empower employees and clients by creating AI that acts responsibly as far as customer data is concerned.
Ecosystem banking is a relationship model where banks bring additional products and experiences to banking. Through partnerships with third-party banking and non-banking technology providers, banks can leverage existing, best-in-class services rather than building products and services from scratch. Ecosystems are driven by open APIs, which act as an interface between applications, enabling them to communicate with one another.
At the moment, legacy tech makes it challenging for banks to give their clients a clear, accurate, and timely picture of their overall banking relationship.
ENVIRONMENTAL, SOCIAL GOVERNANCE
Environmental, social and governance (ESG) associated opportunities and risks are becoming more and more relevant among financial institutions. Not only do ESG considerations make sense for the environment, but sustainable operations are also linked with better economic performance.
Climate change affects the safety of our banking sector through physical risks, such as extreme weather events, as well as transition risks, such as uncertainties relating to the shift towards a low-carbon economy.
CLIMATE CAMPAIGN CHALLENGES TELL
Commercial banks to act urgently and decisively to help limit global warming to 1.5°C by ending finance for the fossil fuel industry and phasing out all financed emissions to net zero by 2050. Banks must be instrumental in leading the way, they can start by being more sustainable themselves and expand this philosophy to their customers.
They can invest in eco-friendly companies that supply sustainable products. Most importantly, they can put pressure on companies to be more sustainable when approving loans.