Digital innovations in banking and financial services

The banking sector is constantly evolving, new technology is continuously being introduced into banking systems and leaders in the banking industry are continuing to implement ground-breaking financial products and services. There has been strategic investment in banking innovations through crowdsourcing, piloting, collaborations and partnering to develop revolutionary banking solutions. With the ever-changing banking sector new regulations and revised banking standards have been developed. Digital-only banking is perhaps the most significant change that has happened in the financial industry in the last few years.

 

Innovation in online banking

Public buying behavior and modes of payment have changed dramatically over the past decade, and they are rapidly phasing out paper-based and cash dependencies, and moving to online, mobile and internet business. Banks and financial institutions are reacting by providing a wide range of appropriate new features and facilities.  This new ‘cashless economy’ now works electronically using the internet as a gateway. Account owners can manage most aspects of their accounts over the internet, rather than having to visit a ‘bricks-and-mortar’ local branch or speaking to someone the telephone.

 

  • Digital banking extends all of the online features offered by regular banks to include the activities undertaken by the business world directly, like booking travel tickets and purchasing a product or service online – everything that falls under the heading of ‘e-commerce’.
  • Smartphone applications – AKA mobile banking – adds a lot of scope in the virtual banking space and encompasses transactions through mobile wallets, digital payment modes, prepaid debit cards etc. These are easier to design, build and sell, which means that they are more flexible, offer a wider range of features, and are generally cheaper than traditional computer-based applications. There are many mobile apps which offer safe and secure transactions and many financial institutions are committed to further development of cutting-edge services.

 

New banking technology innovations

Allowing a customer access to full banking services in real time, through any channel they choose is one of the results coming out of EU legislation known as the second Payment Services Directive (PSD2). Whether it’s from an online terminal in a bank branch, an ATM, a voice call or online it allows customers the freedom of choice to access their accounts whenever and from wherever they choose.

 

Traditional banks are spending vast amounts of money to develop new systems and features so that they can keep up with the rapidly changing demands of their customers. As well, the institutions are looking for ways to streamline their own operations, improve performance and reduce overheads – any bank that fails to do this will quickly lose out in the face of competition both from traditional banks and from the new fintech players.

 

Completely ‘digital only’ financial institutions also provide customers with seamless access to the whole range of activity, even though these banks do not compete with traditional banks in regular business fields such as credit, overdrafts, mortgages and so on. They can generally offer several distinct advantages over brick-and-mortar banks in the form of reduced costs, user friendly interfaces, wider range of features and easy account openings.

What are the new technologies in banking sector?

  1. In the area of services offered, smart analytics is being used to understand customers’ requirements better. Artificial Intelligence (AI) feeds into this, with the net result that each customer gets to see the services that are best suited to his own specific requirements.
  2. In the field of cost reduction, banks are concentrating on innovations like Robotic Process Automation, which reduces dependence on human interaction with customers; migrating data processing to the cloud so that the growing dependence for state-of-the-art computing power becomes a manageable OPEX factor rather than the heavy CAPEX burden which is especially difficult for the newer, leaner financial institutions to carry.
  3. API platforms are being provided so that third-party service providers such as credit card suppliers, mobile application developers etc. can easily tap into the bank’s own services thereby providing a revenue flow and introductions to new customers.

What is the role of technology in banking?

Companies that specialize in new-wave fintech platforms or social media make excellent partners for traditional banks that need to enhance their own customer experience. Although banks are already investing heavily in technology, financial innovation in the future is likely going to involve partnership with other strategic players. Tailoring services to meet changing customer demand is the central feature of new banking.

What new technologies are used in money and financial systems?

  1. One of the most important new technologies being introduced now is biometric authentication of ATM transactions with advanced technologies including iris recognition and fingerprinting. These are being used to help overall bank security while they extend the range of activities that can be initiated from remote terminals and kiosks.
  2. Mobile and internet access to all banking businesses is already growing explosively. Banks are committed to investing heavily in digital banking technology, developing mobile, web and digital platforms for their customers’ use.
  3. Increasingly, the movement of funds between individuals, companies, organizations and financial institutions has shifted to paperless paths, and electronic funds transfer (EFT) has almost completely taken over from the older formats. Systems such as SWIFT/IBAN in Europe, ACH/CHIPS in USA and CHAPS in Sterling have almost completely replaced telegraphic transfer.

What are the recent trends in financial innovation?

Financial service providers – AKA Fintech – are introducing cutting-edge financial technology that they have been able to innovate more rapidly than traditional banks, thanks to smaller and more agile management hierarchies. As well, they are not regulated in the same way as the banking industry and so they can devote a greater percentage of their assets to developing new technology and so to innovate more rapidly than traditional banks.

User-friendly banking apps online and on mobile devices can handle almost all basic banking transactions. Today, the typical in-bank customer can now find an ATM that interacts more directly with his money and its functions, similar to a tech kiosk.

The Future of Banking Technology

Customized Banking

With digital banking, back office cloud and analytics can provide customers with a customized user experience with everything from a customized user interface to customized support, fees and services. In the future banks will be able to fully customize their products and services to meet the needs of customers based on analytics and gathered customer information. Banks can create a customized end-to-end experience for their account holders. Each customer has his own personal banking needs and with a personalized banking experience banks and customers will benefit.

Monetization of Data in Banking

In the future banks will increasingly use their data analytics to make stock predictions; gain market insights; fuel AI tools for credit decisions; create marketing campaigns and to collaborate with retail companies to offer account holders special deals. Data monetization can include using data to gain new customers as well as creating new revenue streams and new products for existing customers. Customers are prepared to pay for financial data insights that can increase their profits.

Blockchain of the Future

Blockchain has been around for a while but it will be here for many years to come and the innovative technologies it brings with it will transform payment systems in the future. The changes in payment infrastructure will continue to increase payment volume thanks to the influence of digital valets; digital payments; the Internet of Things; direct corporate payments and payment apps. As the need for intermediaries decreases so will costs decrease.

Banking Technology Trends for 2021

Cyber Security

The banking industry is privy to personal financial information on a daily bases and for this reason it is vulnerable to security breaches from within and from external criminal elements. Banks, mobile apps, third-party financial service providers and web portals are all highly susceptible to cybercrime. One of the trends in banking technology for 2021 is the need for preventing or at least minimizing security breaches and cyberattacks by using advanced technology. Security standards need to be intensified; cyber-security programs adopted; comprehensive risk and compliance introduced and uniform security protocols need to be followed by banks around the world. This banking trend will include the emergence of new job titles in banking like Cyber Risk Manager and Online Security Director.

Banking Regulations

Profound changes are expected in banking regulation in 2021. With the introduction of innovative banking technology there is a need for new and revised regulations relating to data privacy, sustainability and accountability. One of the biggest changes in the last few years has been PSD2 enabling customers to use third-party providers for their financial management. This has opened up the market creating greater competition. Changes in regulations are forcing banks to upgrade their banking software making core banking technology an important issue for banks in the future.

Mobile Banking

The continued trend towards mobile banking is not slowing down. Mobile banking is destined to become one of the hottest issues in 2021 as financial institutions strive to keep up with consumer needs. Banking, as well as most other areas of our lives is now reliant to some extent on mobile devices. The expansion of mobile banking may mean fewer and smaller land-based banks and offer a solution to slow and heavy back office. The transformation to mobile banking is no secret; as a trend it is obvious to all players in the industry that this is the direction we are going in.

Voice Banking

Voice-controlled devices are a major trend in banking technology for 2021. With an increasing numbers of people using voice-controlled devices for online searches and digital interaction banks will need to adjust their products and services to meet this trend. Voice technology in banking can improve the customer experience especially for the new generation of customers that relies on technology for almost every aspect of their lives. In the future customers will be able to use voice technology in mobile banking to carry out basic banking processes like opening a new account and use chatbox solutions for customer service interactions.

Robotic Process Automation

One of the trends in banking for 2021 is RPA which can be used by financial institutions to reduce costs, minimize human errors, save time and offer customers a more efficient service. Robotic Process Automation can be used to provide virtual assistants; to handle simple and common enquiries; to ensure compliance and to perform repetitive and labor-intensive tasks without human intervention.

The Evolution of European Banking

The onset of digitalization and the rise of alternative financing poses a threat to large European corporate banks. To counter this and maintain their strong position European banks need to:

  • Identify the areas where they have a competitive advantage and build on that through partnerships or implementation of new technology.
  • Capture available client and product axis opportunities.
  • Traditional European banks need to decide where to put their efforts and develop a winning game plan.
  • The ultimate solution may lie in the cooperation between traditional European banks and alternative financial service providers.
  • Invest in current and future financial technology.

About the Author: Henry Kaye

Henry has extensive experience in business with a background in finance and investment, as well as high-tech computing, across three continents. In his career, he worked for several of the largest enterprises in the world, as well as several start-ups. In content writing, his brief is to try to bring new knowledge to our readers, with due diligence for factual, clear and understandable articles.   You can contact Henry at: https://www.linkedin.com/in/henry-kaye-dlc/

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