Banking is one of the world’s oldest businesses. It’s been with us in one form or another since the merchants of Ancient Babylon started offering grain loans to farmers who needed to transport goods between towns.

It wasn’t until 14th century Italy that banking as we recognise it today developed: In fact the oldest bank still trading today (the Monte dei Paschi di Siena) was founded in 1472.

The speed that modern technology has developed has meant that the traditionally slow-moving financial institutions have had to invest billions to remain relevant to customers and competitive in the marketplace.

So, which aspects of technology have caused the biggest disruptions – and which have changed the way banking works in the 21st century?

• Five Ways the Banking Industry has been Transformed by IT
• What is Current Industry Trend in Banking?
• Which Technology is used in Banking Sector?
• What Should Banks Focus on?
• How will the Banking Industry look like in 5 Years?

Five Ways the Banking Industry has been Transformed by IT

As innovation enhances, your financial institution can offer better service and more accommodation for its clients. The following are ways that technology has changed banking for eternity.

Read Also: Innovation in the Banking System of the United States in the Digital Age

There are the ways technology has changed banking. Let’s get started!

1. No more queuing

If you are over 30, you’ve probably spent hours in interminable bank queues over lunchtimes or on a Saturday mornings, to withdraw money or pay in a cheque.

Banks have leaped on the opportunities offered by online – and now mobile – banking. It’s possible to do everything online, from simple transactions to complicated issues such as applying for a mortgage.

A new study by YouGov reveals that one in three retail banking customers feel their bank’s mobile app isn’t as good as their online banking provision however.

This, coupled with the fact that more people are relying on their phones to access their banking, is sure to be a focus for high street banks in the coming years.

Some banks are now only available virtually – banks like Smile in the UK and Simple in the US don’t have any physical branches at all (although they’re partnered with existing institutions which ensures the funds are completely safe).

2. One quick tap and you’re done

Although Mobil first issued contactless cards for customers to use at their petrol stations in the US as early as 1997, the very first contactless cards associated with banks were given out by Barclaycard in 2008.

Now there are well over 32 million in circulation in the UK. By 2011, mobile technology had merged with contactless, and the first wave of apps that allowed their owners to pay by tapping the phone against the terminal were born.

Google Wallet is now one of the most popular in the world, allowing users to store debit, credit, loyalty gift and store cards on their phones.

A few years ago London buses opened their doors to contactless technology – you can now pay your fare with a quick tap of your card as you step onto the bus.

3. Cybersecurity and data protection

In the first half of 2015, 400 data breaches took place in the US, according to the US-based Identity Theft Resource Center, with 117,576,693 personal records put at risk. 10% of these breaches were in the banking sector – and that is an 85% jump from the same period in the previous year.

Keeping financial information safe is one of the biggest areas of investment for banks, and it is also a responsibility for customers.

Easy passwords, public computers and “phishing” scams are some of the most common ways we are separated from our money.

4. A different sort of customer service

2015’s World Retail Banking Report spelled out some bad news for high street banks: Positive customer experiences had fallen for the second year in a row. Younger, Generation-Y, bank customers are less likely than their parents to show loyalty to one particular bank.

Customers are generally less willing to take their bank’s word for which secondary products such as mortgages and investments they should take, preferring to do research themselves. Online banking and mobile banking mean that generic customer services are no longer needed.

Customers expect a more tailored and personalised experience when they – on rare occasions – need to contact their bank by phone or by chat, or even in person at a branch.

The IT research company Gartner suggests that gamification will become increasingly important for customer service in the coming years.

Customers will need to be more engaged digitally through the use of the sort of mechanics usually only seen in video games, combined with virtual reality technology such as gesture recognition and head-mounted displays.

5. More competition and bigger challengers

One of the biggest changes to happen to the banking sector is the opening up of competition to some of the processes that were only ever available in-bank before.

Take Transferwise, which can save you on the fee your bank would charge you for an international money transfer, as an example. It will be interesting to see how banking evolves in the future, and which institutions will be flexible and nimble enough to keep up with the demands of today’s society.

What those demands will be and what banking will look like in five or ten years time is an exciting proposition.

What is Current Industry Trend in Banking?

The banking industry is in a much healthier place now than it was after the financial crisis of 2008. Total global assets climbed to $124 trillion in 2018, according to The Banker’s Top 1000 World Banks Ranking for 2018. 

With so much money to manage, major banks such as JPMorgan Chase, Bank of America, Wells Fargo, and more are releasing new features to attract new customers and retain their existing ones.

On top of that, startups and neobanks with disruptive technologies are breaking into the scene, and traditional banks are either competing with them or merging with them to improve their service.

So let’s dive into the banking industry, the challenges it faces, and the road ahead.

Banking Industry Trends

The most prevalent trend in the banking industry today is the shift to digital, specifically mobile and online banking (more on each of those in a bit). In today’s era of unprecedented convenience and speed, consumers don’t want to have to trek to a physical bank branch to handle their transactions.

This is especially true of Millennials and the older members of Gen Z, who have started to become the dominant players in the workforce (and the biggest earners).

This digital transformation has led to increased competition from tech startups, as well as consolidation of smaller banks and startups. In 2018, overall fintech funding hit $32.6 billion by the end of Q3, up 82% from 2017’s total figure of $17.9 billion, according to CB Insights. 

Mobile Banking

To be frank, mobile banking is all but a requirement for consumers at this point. In Business Insider Intelligence’s Mobile Banking Competitive Edge Study in 2018, 89% of respondents said they use mobile banking, up from 83% in 2017.

When broken down by generation, 97% of millennials use it (up from 92% in 2017)  91% of Gen Xers (up from 86%) and 79% of Baby Boomers (up from 69%).

Critically for the banks themselves, 64% of mobile banking users said that they would research a bank’s mobile capabilities before opening an account, and 61% say they would change banks if their bank offered a poor mobile banking experience.

But we’ve now reached the point where simply having a mobile app isn’t enough for banks to attract and keep customers.

Additional tools and features – such as the ability to put temporary holds on cards, view recurring charges, or scanning a fingerprint to log into an account –  are becoming increasingly necessary. Take a look at the chart to the right to see how valuable these features and more are to consumers.

Online Banking

Online banking is extremely convenient, and is understandably one of the two main ways that consumers interact with their banks (along with mobile banking). But there is still a significant contingent of banking customers who want physical branches.

Despite an overwhelming reliance on digital banking channels overall, and the resulting decline in branch visits, consumers have maintained a preference for depositing checks in-branch, according to a recent Fiserv study.

More than half (53%) of respondents said their top reason for visiting a branch in the past month was to deposit a check, compared with 41% who went to withdraw cash, and 36% who went to deposit cash.

Still, there’s no denying the rising prevalence of online banking, which has led to other innovations such as open banking.

This system, implemented in the U.K., involves sharing customers’ financial information electronically and securely, but only under conditions that customers approve.

Open banking forces lenders to offer a digital “fire hose” of data that any third party can use to get standardized access — provided the startup is registered with the UK Financial Conduct Authority (FCA) and the customer agrees to share their data.

Investment Banking

Investment banking is a type of financial service in which a person or company advises individuals, businesses, or even governments on how and where to invest their money. For decades, this has been a human-to-human process that led to a mutually beneficial relationship.

But now, with the rise of robo-advisors, artificial intelligence (AI) is starting to infiltrate the money management space. Predictive analytics can help investors make wiser and more profitable decisions before the market moves.

AI can, in some cases, also help identify M&A targets. Lastly, AI can help validate an investment banker’s hypothesis and lead to more informed future decisions.

Banking as a Service (BaaS)

Because of tight regulations (particularly in the U.S.), not everyone can just open a bank. This is where banking as a service (BaaS) comes in to fill the gap.

BaaS platforms enable fintechs and other third parties to connect with banks’ systems via APIs to build banking offerings on top of the providers’ regulated infrastructure.

So, launching BaaS platforms helps banks benefit from fintechs entering the finance space, as it turns them into customers rather than just competitors.

While BaaS technically falls under the umbrella of open banking, it shouldn’t be confused with the aforementioned Open Banking system in the U.K.  Open banking encompasses all actions in which a bank opens its APIs to third parties and gives those players access to data or functionality.

The UK’s Open Banking focuses on providing third parties with data from incumbent banks, while BaaS looks at how these players can get access to banks’ services.

Banking Regulations

Banking is involved in almost every aspect of American life, from consumers to businesses to stocks.

Because of this, the federal government has instituted numerous regulations on the banking industry, though the severity of those restrictions has waxed and waned in the last decade.

After the financial crisis of 2008, the Obama administration enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010. Dodd-Frank overhauled the U.S. financial regulation system in the aftermath of the crash. The most sweeping and impactful changes from the act included:

• The elimination of the Office of Thrift Supervision
• The creation of the Consumer Financial Protection Bureau (CFPB) to protect consumers against abuses and unfair practices tied financial services and products such as credit cards and mortgages
• The reassignment of responsibilities for agencies such as the Federal Deposit Insurance Corporation
• The creation of the Financial Stability Oversight Council and the Office of Financial Research to analyze potential threats to U.S. financial stability
• The expansion of the Federal Reserve’s powers to regulate particular institutions

In 2018, current President Donald Trump signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), which rolled back some of the Dodd-Frank changes.

Specifically, EGRRCPA raised the threshold under which the federal government deems banks too important to the financial system to fail from $50 billion to $250 billion.

It also eliminated the Volcker Rule (a federal regulation that largely forbade banks from conducting particular investment activities with their own accounts and restricted their dealings with hedge funds and private equity funds) for small banks with less than $10 billion in assets.

Despite the rollbacks, it’s still difficult in the U.S. to get a banking license, which has hampered some banking startups. On the other hand, this has increased mergers and acquisitions activity. As a result, regulation will be a key focal point for the banking industry in the coming years.

Which Technology is used in Banking Sector?

The pace of technological advancements continues to transform industries, from healthcare to manufacturing and retail. These technological progresses now set to disrupt the banking industry.

New technology is transforming the financial sector, and the traditional banking landscape is rapidly changing.

As technology advances, banks need to deploy new tools frequently in order to stay competitive as well as defensive.

So, let’s take a tour of the top 5 new technologies that are worth investing in for the banking sector.

Blockchain

Blockchain technology is set to fundamentally transform banking and financial services as it decentralizes financial management from a central authority to a prevalent network of computers.

Banks and other financial institutions that deploy blockchain technologies into their strategies reduce their costs significantly. The technology is worth investing in for the banking industry.

Leveraging blockchain technology can enable banks to easily enhance their processes for payments, remittances, and traceability goals. It can also enhance data-sharing procedures while bolstering collaboration within institutions.

Artificial Intelligence

Artificial intelligence impacts a broad array of technologies including Data Science, Internet of Things (IoT) and Natural Language Programming (NLP). All these technologies advance financial institutions’ operations.

Most banks leverage AI to enhance their customer processes as the technology already showed its potential to other industries. Taking these factors at the top, banks need to invest in this banking technology.

Mobile Banking

As consumers use their smartphones to make purchases on a daily basis, they also utilize them to check their bank account balances. Several top banks in the industry listen to their customers’ pleas and have begun to develop mobile apps.

Mobile banking technologies are also worth investing in for the banking industry because these apps enable customers to check their account balances and make a mobile deposit from anywhere.

Simultaneously, employees get more time to complete other tasks as the apps take care of a lot of the services, they were previously responsible for. Investing in mobile banking can boost banks’ reputations and saves workers time as well.

Customer Relationship Management (CRM)

Over the past two years, there has been a resurgence in investments in CRM solutions among banks and credit unions, making it hardly a new technology. Investing in CRM solutions, CEOs are also increasing their cash flows.

Banks, as well as credit unions, continue to gain good returns as it offers convenient and attractive services to consumers. As customers want to receive quality customer service at all times of the day, banks need to invest heavily in this solution to avoid the fear of losing customers.

Cybersecurity

Security is indispensable not only for banks but for all industries. When customers open their account and join a bank, they expect the financial institution to keep their information and their capital safe from cyberattacks.

But maintaining quality cybersecurity processes is becoming more and more difficult for banks. As a result, customers in various areas across the world are dealing with fraudulent activity regularly.

To thwart such instances affecting customers, banks need more preventative procedures in place, including multi-layered security, analytics insights, and adaptive security measures. So, cybersecurity is most worth investing in for the banking sector.

What Should Banks Focus on?

The banking sector faces a pivotal moment, with digitization transforming business models and processes in new and greater ways. In 2021, banks must innovate and invest in advanced technologies to remain in the market.

It is no longer a question of achieving a competitive advantage. It’s table stakes.

In the future, the banks that survive and thrive will use these advanced technologies to make the transition from delivering financial services to enabling financial betterment.

To this end, we see several priority areas on which banks should focus their efforts, to succeed in the next decade.

Innovation of customer experience

Customers increasingly expect tailored products and services delivered to them in real time, in tune with their moods and behaviors.

To do this, banks will need to fuse artificial intelligence (AI) and human judgement to turn the troves of customer data they possess into actionable insights that help customers improve their financial wellbeing.

Banks’ capital in the last decade has largely been spent on compliance, risk management, and stress testing, rather than on designing new customer experiences.

Some banks, though, are recognizing the importance of building an attractive experience for their customers, as they are challenged by new market entrants. In 2021 and beyond, banks should focus on innovation of customer experience.

This holds true for both retail and commercial banks. Increased competition and changing demands are forcing banks to focus more heavily on the customer journey.

Yet recent Genpact research found that while 41% of commercial banking leaders say growing customer satisfaction is a top priority, just 35% have mapped the customer journey across both treasury and lending product lines.

This, despite the fact that commercial banking executives identified the growth of these areas, respectively, as their company’s first and second priorities.

Shifting to an ethics-driven approach

In the future, banks will need to become more like partners to their clients, using AI and analytics to make helpful nudges and interventions to encourage healthy spending habits and make recommendations on how to reach life goals sooner.

Adopting this approach will require banks to restructure services and products around the short and long-term impact of financial decisions, helping customers to make more purposeful investments and purchases.

Until now, banks have been authoritative and functional, but this perception is starting to shift as they are required to take a more supportive and emotional role in their customers’ lives.

They will therefore need to reskill their employees and adapt their recruitment process to create a workforce that takes a more advisory role, working alongside technology to add the empathetic human touch to customer interactions.

The ethics-driven approach relies heavily upon AI and analytics, meaning that a greater emphasis will need to be placed on the morality behind the decisions taken by machines to ensure the decisions they make are fair, unbiased, and in the best interest of the customer.

Considering the whole system

Given the current climate, we’re seeing consumers – in particular, millennials – demanding that enterprises take an active and ethics-driven role within their communities, shifting their focus from economic growth at any cost to sustainable goals that put people and planet first.

Evidence of this is the European Union’s planned mandate for financial advisers to tell clients about environmental, social, and governance investment options. Banks can have a positive impact not only on individuals and communities, but also on global-scale issues, such as climate change.

For example, the challenger bank Aspiration allows customers to track their spending against the bank’s ethical index, which provides a ‘planet score’ based on how sustainable a brand’s processes and practices are.

Banks will also need to consider how to protect their own ecosystems, looking into new strategies for diversifying and de-risking.

This may include brokering partnerships with businesses previously considered as competitors, which would create a stronger, safer banking ecosystem.

Using data to add value

The one thing that these themes have in common is data. Genpact has studied these trends, which will impact banks in the future, in our banking the age of instinct report.

To succeed in the next decade, financial institutions need to focus on learning to connect, predict, and adapt at speed, placing data at their core and embedding AI throughout their organization.

With competition growing every day, incumbent banks should consider new business models and potential partnerships to develop strategies to compete with nimbler fintechs and challenger banks.

Placing the customer, the community, and the planet at the heart of the services banks provide will be key in the years to come.

How will the Banking Industry look like in 5 Years?

As many traditional banks and financial institutions are filing for bankruptcy, we are also seeing a significant rise of new innovations in the banking industry.  New players are coming in with big promises  of better services, efficiency and more to the ever-evolving financial industry.

The rise in the popularity of cryptocurrency/blockchain is adding more dimensions and lot to think about for customers. Additionally the current financial volatility creates an opportunity  for extraordinary innovations that can fulfill the ever changing demand of customers.

The state of banking as we know….

Anyone who is over 30 years old may recall walking into a bank branch and seeing a dozen human tellers. Nowadays, the human tellers are disappearing fast and in no time, we might just see the hole in the wall. Banking systems as we know of are centralized today.

That means that banks control individuals’ money, right to access, and use a complicated and inefficient swift system for money transfers, is exposed to hacking and fraud, and excludes over 2 billion people from the financial markets.

The banking industry as a whole will be radically different in 5 years thanks to changes being made all the way to the Central Banks. It’s important to specify that there are 2 sides to banking, retail and wholesale, and both are going through their own digital transformation.

The retail banking sector has been able to move into the digital space faster than the wholesale banking sector simply because of the financial “plumbing’ inherent in existing settlement processes.

Applications like Venmo, Zelle, Cash App and Apple Pay have already revolutionized payment processing for retail customers by letting them interact directly with each other, almost like using cash.

And gig economy companies like Uber Technologies have made it possible for drivers to have instant access to their funds by using an Instant Pay service.

Behind the scenes, though, additional processing is still being performed by the wholesale banks and their digital upgrade has lagged far behind. That is changing and upgrades are finally being made to some existing wholesale payment applications.

However, the processes themselves still use an outdated model of account based change that will make banking look radically different in 5 years will be the utilization of Central Bank Digital Currencies.

Utilization of Robotic Process Automation (RPA) By Banking Sector

There are many ways Robotic Process Automation (RPA) boosts efficiency in banking institutions. Automating manual processes is one element; mainly tasks that are repeatable and mundane.

The aim is to create standardised workflows, maintaining end-to-end consistency across processes so that they can be deployed throughout an organisation and executed in the same way, every time – otherwise known as a ‘single source of truth.’

A practical example of this can be found in regulatory codes. Banks are one of the most heavily regulated industries in the world, and staff are often tasked with manually interpreting long lists on complex regulatory standards.

With RPA, they can simply input the data into the appropriate process, and the correct and compliant output is automatically generated.RPA implementation begins with understanding existing processes.

Every process within an organisation leaves behind a digital footprint containing valuable data – be it manual or otherwise.

Process mining is a crucial step in effective RPA implementation because it allows organisations to drill-down into their data, revealing the habits, risks and process behaviours they are usually blind to.

This shows how an organisation can refine or standardise processes, revealing opportunities for streamlining and simplifying workflows.

Process mining also allows for data traces to be converted into dashboards and visualisations, enabling teams to monitor end-to-end processes continuously.

A clear picture means staff gain operational insights into potential risks and improvement opportunities, which can be shared across functions. RPA not only works from an internal process perspective, but from an external point of view too.

A significant shift in the banking and financial sector over the past decade is the realisation that customers, rather than product, are the priority. This has been accelerated by the rise of customer-centric fintechs that offer seamless, digital experiences to tech-literate and time-poor customers.

As a result, established financial institutions have had to shift their focus to a new way of doing business that puts the customer at the heart of innovation.

Customer-journey mapping (CJM) complements RPA by deriving insights from the different touchpoints of a customer. This is the outside-in approach to link CJM to the enabling processes driving customer-centricity.

It establishes processes to log and capture complaints before classifying them and addressing the root cause of the issue. This gives employees full visibility of the most common pain-points experienced by their customers, allowing them to build processes to respond accordingly.

Over time, this mapping then evolves into a positive cycle, where data is used continuously to improve customer satisfaction and speed up resolution.

This helps organisations understand customer behaviour and connect their processes to predict interactions across future customer journeys, giving them an ‘outside-in’ customer perspective.

A true Cashless Society?

The US and a lot of European countries were moving towards a cashless society prior to COVID-19, the crisis has only accelerated the process.

Automated POS systems designed to operate without cash would make it easier for small and medium enterprises to operate without cash. The  adoption rate of such systems will be even higher and faster.

As the world recovers from the pandemic these systems in use in no time would feel it was there forever.

Read Also: Best security practices for online banking and online transactions

Use of Cryptocurrencies such as bitcoin, Ethereum, ripple and others  gives customers the option to transfer funds more quickly and often at cheaper transfer fees compared to traditional banks.

A relatively new industry, crypto has already diversified from just currency and payments, to insurance, lending, investment, and other financial areas. As a result we will see more and more fintech startups  using  cryptocurrencies as a foundation of their service offerings.

eCommerce has been in use for a while. Due to COVID-19, we’ve witnessed furthermore use of eCommerce for most businesses which otherwise required physical presence of the customers.

We would soon see big eCommerce giant to offer financial, insurance and other transaction services using their own cryptocurrency.