Bigtechs swoop in, banks go on the offensive and cryptocurrency stalls
By Rahul Singh, president of financial services at HCL Technologies
We've finished a very exciting decade in financial services, with new technologies and new ideas shaking up an industry that had previously been slow to change and evolve. Although some technologies, such as blockchain, are taking more time to make an impact than was originally predicted, others such as Artificial Intelligence (AI) are already playing an increasingly influential role. We are also set to see a lot more jostling for position at a strategic level, as old hands and newcomers alike try to figure out exactly how they can gain a foothold in a rapidly changing market.
There are five key trends likely to have the biggest impact on the financial services industry in 2020:
- Bigtechs like Amazon and Google are circling the financial services industry. Banks should be aware that the likes of Amazon and Google are circling the financial services sector, potentially causing disruption in 2020. Although the Bigtechs don't appear to have a desire to actually become banks, they are taking a keen interest in the data banking activity generates. If they can gain access to this information, Bigtechs can put their unparalleled data and analytics capabilities to work on it, providing something never seen before in the banking industry. If given the opportunity, they could offer more sophisticated, highly personalised financial products and services to customers than existing market players could dream of.
- Traditional 'big' banks will launch new brands to 'challenge the challengers'. Some big banks have come to realise that they can tackle two of their biggest weaknesses – legacy technology and a lack of innovation, by simply starting afresh and creating a brand-new challenger bank that's completely separate to the rest of the organisation.
This can take a fairly radical form, using a 'skunkworks' style approach that sees a small group of people removed from the rest of the organisation and put in an environment that allows them to get their heads down and innovate. In the short term the big bank will hope the new challenger brand will be a success in its own right, but in the longer term, they will be looking to use it as the building blocks for the established brand to build on. The new technology stacks that have been created could have the potential to free the wider organisation from its legacy technology shackles once and for all.
- Banks will focus on payment platform partnerships rather than account holders. At the moment, most banks are trying to sign up as many account holders as possible, but it doesn't have to be this way. Could they place less emphasis on individuals and focus on becoming the underlying payment platform of choice for specific partners instead? Of course banks will always need a healthy number of account holders, but it's certainly food for thought as we head into the new decade.
In 2020, we will see more banks coming to realise the value strategic partnerships can bring, enabling them to become the preferred payment platform of choice. This can have a truly transformational effect, by opening up access to data from a much wider pool of people than ever before. If a bank is able to partner with a property platform and become its first port of call for customers, it could be in line to jump to the front of the queue for large transactions, such as mortgage applications and leasing.
- More banks will rely on AI to detect fraud. Banks face two big battles when it comes to fraud: of course they have to prevent fraud from happening in the first place, but they also need to analyse fraudulent activity and have an element of 'explainability' to hand. Regulators not only want to know what has happened, but also why. In 2020 an increasing number of banks will realise that AI can help quickly identify the root cause of fraudulent activity so they can move on from fighting a losing battle in a game of 'whack a mole' and cut off the problem at its source.
- Regulators will block cryptocurrencies' path to mainstream success. In the last few years cryptocurrencies were heralded as a new dawn, with people proudly announcing which crypto they were investing in. Meanwhile, currency founders were elevated to celebrity status and the value of different digital coinage regularly made national news headlines. This progress has slowed in recent months, and the talk of cryptocurrencies getting serious will continue to cool in 2020. This is due in no small part to regulators and governments rejecting them. Facebook's Libra, for example, seemed to have real momentum back in the summer, but the picture is now very different, with authorities asking probing questions and partners including Visa and MasterCard pulling out of the project. If an organisation as powerful as Facebook is struggling to make headway, it seems unlikely that another cryptocurrency project will break through to the mainstream in 2020.
The waves of disruption will continue to crash against the financial services shore in 2020. Banks must be willing to innovate and continually improve customer experience, keep on top of regulatory changes, and build stronger ties with technology partners if they want to ride the waves to success.