James Buckley, VP and Europe Director, Infosys Finacle
The last few years have seen several non-banking companies such as technology majors, digital upstarts and FinTechs steadily expand their foothold in the financial services space. A 1recent study revealed that FinTechs now constitute about 33% of the financial services revenue globally. The recent Infosys Efma study found that non-banking players are perceived as drivers of innovation in the industry.
How will these developments evolve in 2019? In this article, we explore six business trends that will shape and influence banking over the next 12 months and beyond.
1. Open banking and business model innovation pick up steam
The 2018 EFMA Infosys Finacle Innovation in Retail Banking report offered a preview of the near future by predicting that the full-stack bank would give way to the distributor and marketplace models in the open economy. Business model innovation and open banking figure among the top trends in banking in 2019. Pushed on to this path by open banking legislation in 2018, banks will refine their vision and strategy this year, and also evolve their roles as product manufacturers, marketplace operators, distributors or a combination of the three.
Those choosing to build banking products will take the API route to co-innovate along with their ecosystem partners. In the role of marketplace operator, banks will expand their partnerships to bring the best products and services available on board. They will hope to emulate the likes of Amazon – which gets 40 percent of its business through recommendations – by using extensive analytics to improve their understanding of customer expectations and fulfill them with contextual and personalized offerings. The distributor model will get banks and non-banks to collaborate to create new value, especially through innovative use of channels. Banks will sell products through their own channels and those of third parties, including partners, Fintech companies, and even other banks.
2. Customer journeys move ahead
In 2019, banks will find a clear correlation between their quality of customer experience and business performance metrics. In July last year, the Institute of Customer Service published that banks with a higher UKCSI (United Kingdom Customer Satisfaction Index) score than the norm for the sector gained 8,675 current accounts on average compared to the rest, who lost an average 3,457 accounts. With customer journey mapping deemed a crucial customer experience skill, the customer journey will join the evergreen customer experience as a key trend for this year. In 2019, we expect customer journeys to transform for the digital age.
The customer journey will start earlier, at the point of intent or primary need, well before the customer starts looking for a banking product or service. So, from a bank’s point of view, the journey of a mortgage customer will begin when he goes house hunting, not when he approaches them for a loan. Teams in charge of the customer journey will become more diverse, drawing experts from domains ranging from user experience to consumer psychology who will be responsible for devising journeys for different personas. Banks will embed AI and harness analytics insights throughout to craft and design customer journeys that are highly customer-specific.
3. APIs begin to mature
In 2018, regulations such as PSD2 and the opening of banking, in general, allowed qualified third parties to transact on behalf of retail and corporate banking customers. As the primary lever of open banking, the API will mature further this year. With customers expecting greater value propositions from banks, the API will be key to customer-centric innovation and enhanced offerings. Findings of the EFMA Infosys Finacle 2018 research confirm this view. Respondents named open banking APIs as the top technology for the future of innovation, ahead of artificial intelligence, chatbots and machine learning.
Banks will also use APIs to integrate data from different external sources into various products and services on their menu.
The proliferation of APIs will create a challenge in the form of multiple API standards, creating a need for API brokers to help banks adjust to the situation.
4. Security faces new threats
Security will remain in focus in 2019.
Cyber threat will continue to intensify in 2019, as hackers target AI-based solutions with AI-based attacks in a reminder of the 2016 offensive on the Microsoft chatbot Tay that led to it sending out objectionable Tweets.
Hence we expect banks to up their investment in security tools significantly, with large institutions acquiring cybersecurity solutions to counter both deterministic and probabilistic hacking methods. 2A Deloitte survey predicts cyber monitoring and operations to account for the largest investments, followed by endpoint and network security. Apart from security technology, banks will need to invest in talent to combat the serious security skills shortage that will prevail in 2019.
This year, banks should be prepared to face unprecedented threats, such as malicious exploitation of their blockchain network’s hashing power. They must also strengthen governance to secure their and their customers’ interests in an increasingly open banking world.
5. Workforce changes culture
2019 will bring several changes in the banking workforce and culture as GenZ joins the ranks. Digitization will create demand for skills in cyber security, data science, and automation. Since universities rarely produce market-ready graduates, banks will need to bridge the gap with training and collaboration with academia to align curriculums with market needs, and expose students to real-world challenges through live projects. In 2019, we expect more action in the latter.
We also anticipate that banks will aspire to a well-rounded workforce that combines knowledge of business, industry, customer and organizational issues. Banks will need to adapt their culture to accommodate a multigenerational workforce of GenZ, millennial, and older representatives. Designing practices to enable employees to work on short-term projects is a key element here. So is embracing diversity, and banks will hire talent from different industries and disciplines. The new culture will value continuous learning and customer-centricity more than ever. Training programs will become more accessible on mobile devices. The trend will be to use real-time feedback to align banking practices with organizational objectives and increase customer-centricity.
6. Privacy is priority
With nearly 1.5 billion records getting compromised in the first quarter of 2018, protecting data and privacy will be a top priority in 2019. Conflicting mandates – to share customer data under open banking and to protect it under GDPR – will pose a serious challenge that will get compounded as transactions migrate from bank-owned channels to third-party modes.
Banks will have no choice but to take responsibility for securing data as it passes from their hands to third-party users, and also for meeting compliance requirements. This year, some banks will distinguish themselves in data and privacy protection by implementing the following: strong controls and governance, robust systems to capture customer consent, encryption and security standards, third-party authentication processes, real-time transaction processing, and security-by-design.