By Poonam Garg 

During the COVID pandemic, especially in 2021, digitization in banking was thrown into the pressure cooker. At the same time, it was a banner year for global fintech growth and investment. Insider Intelligence predicted that fintech funding will exceed the $132 billion raised in 2021 and jump past $150 billion in 2022. Advancements will not stop there. In the next 10 years, there are several key technologies that will not only drive efficiency and business growth, but also lead to business model reinventions that put the customer first, while shaping the competitive landscape of the financial industry. They include artificial intelligence applications, decentralized finance, cloud computing, embedded banking and finance, and enhanced cybersecurity protocols.

The state of today’s banking institutions and fintech

While there are ongoing debates about the relevance of traditional banking, financial institutions have long been leading the charge of technological advancement. This means technology in the banking industry is traditional. Banks have seen phenomenal growth in digitization with the merging of various industries’ related, siloed technologies, navigation of intertwined ecosystems, and awareness of ever-changing product development and customer expectations.

When widespread marketplace disruptions occur, customer expectations become more important than ever, but also more unpredictable and subject to fluctuation. The Covid-19 pandemic tested the resilience of today’s banking institutions and propelled the need for digitization to new heights, resulting in new challenges, but also new innovations, and a customer base ready for change. As the dust settles and the new normal is established, crucial technologies stemming from that pressure cooker prioritize alignment with customer pain points, needs, and new expectations alongside efficient workflow processes and business growth for financial institutions. Customer priorities that seek empowerment through technology today and into the next ten years include transparent business activities, secure exchanges from any location or device, accessible and flexible interfaces, especially when brick-and-mortar locations aren’t reliably available, and personalized financial interactions that leverage ample data and predictive analytics to best understand customer segments. Not only will these technologies foster better customer and vendor relationships, but they also result in efficiency for financial institutions to incite business model innovations that make shared values a natural part of ongoing business.

• Artificial intelligence and machine learning empower processes from front to back.

With the depth of data banks have access to, AI and ML applications across front- to back-end banking allow data to be wielded for decision making, efficient, automated workflow processes, and empowered customer experience. According to a 2022 survey by USM Systems of financial and banking service providers, nearly 50% of respondents are already using AI in their processes, showing adoption of AI in the banking sector is significant, but with a wide margin for growth. Front-end uses for AI and ML can enable customer identification and authentication through biometrics such as face and voice recognition, offer customer service solutions through chatbots and voice assistants, and deepen customer relationships through personalized communication, predictions, and recommendations. AI applications can also be leveraged at the mid- and back-end to ensure compliance with internal and external laws and regulations, as well as enable better fraud detection systems and applications that support customers and institutions of all sizes from criminal activity. AI-augmentation enables automated processes, which are proven to save money. More than that, automation creates an environment where employees boost productivity and focus on problem-solving and innovative solutions by automating repetitive tasks.

AI does augment technology, but even more so, it augments the people behind and interacting with that technology, both inside and outside the organization. For AI to accomplish these goals, efficient data collection, analysis, and machine learning processes must be in place. Analysis can be empowered through AI, but all institutions require a team with the expertise to evaluate that data for better decision-making, or else risk siloed data that can’t be leveraged for customer or business-oriented growth.

• Decentralized finance invites a peer-driven ecosystem.

Decentralized finance (DeFi) is an emerging financial technology based on secure peer-to-peer ledgers to record and verify financial transactions, using technology similar to the blockchain technology used by cryptocurrencies. DeFi aims to include cryptocurrency in its ecosystem, alongside other various currencies with ease of exchange, enabling a new kind of global connectivity across diverse communities.

Customers using DeFi will benefit from ease of approval and reduced or eliminated fees by removing third parties and gatekeepers in the transaction process. Without middlemen, users have a secure digital wallet as opposed to a banking institution and the ability to transfer funds in minutes or seconds from anywhere to anywhere and across international currencies. Anything from lending to borrowing and trading can be put directly in the hands of the average person by decentralizing and demystifying transactions via a peer-driven, encrypted, public ledger that offers anonymity and verification of payments and record.

DeFi is still growing, and in its unregulated state, there is still high risk for organizational disruptions, hacks, or scams. The volatility of cryptocurrencies is well known, but other concerns include carbon footprint, sustainability, system stability, and maintenance. That said, growth in this sector is rapid, meaning in the next ten years, that volatility is likely to subside as interest in decentralized exchanges, e-wallets, NFTs, and flash loans is already on the rise.

• Cloud computing fosters connectivity.

Cloud-based banking refers to implementing and managing banking infrastructure so that businesses can utilize core banking operations and financial services on cloud-based platforms, without physical servers. The cloud serves as a destination for banks and other financial organizations to store data, but digital transformation empowered by the cloud is much more than storage. The cloud has become a hub for innovative, advanced applications to be easily accessed and integrated into banking business models. Cloud-based banking services include

• infrastructure-as-a-service (IaaS)
• software-as-a-service (SaaS)
• platform-as-a-service (PaaS)
• business-process-as-a-service (BPaaS).

Like their namesakes, each of these services leverages cloud-based computing to offer established cloud technologies that build on each other. At its foundation, successful cloud banking begins with cloud infrastructures, such as storage space, servers, and network elements, followed by adaptable cloud-based platforms to act as a home for operations, on-demand software of various types that can be hosted and maintained by the cloud, eventually leading to internal and customer-facing business processes via internet-based technologies, allowing for efficient coordination and automation, rather than relying solely on in-house capabilities.

Scalable to business needs and resources, options for cloud-based technologies are already abundant. That means leaders must identify the services will most benefit processes and customer relationships. Gartner has forecasted that worldwide spending on public cloud services will grow 20.4% in 2022 to total $494.7 billion, up from $410.9 billion in 2021. Adoption is happening quickly, but businesses cannot simply adopt any cloud technology and expect it to deliver results. Organizations must put the right team with the right expertise in place, making ongoing alignment across cloud business partnerships essential to success. Refined cloud capabilities and increasingly focused services are on the horizon in the next 10 years. Cloud-based banking offers affordable management and maintenance from cloud service vendors, compatibility, convenience, and data analytics that empower financial institutions and their clients.

• Embedded banking and finance create new levels of accessibility.

Embedded banking involves incorporating specific financial services into nonbank companies’ products or software, becoming part of a bigger bundle of services. Examples of such services include account management, compliance, fraud management, payments, personal investment, or lending services. Embedded finance fuels Banking as a Service (BaaS) for businesses looking to expand services offered to customers, and further customer loyalty, such as dedicated customers using credit cards offered by organizations such as Amazon or Uber whose main services they use often.

Concerns surrounding embedded banking include distancing banks from customer relationships, resulting in a lack of trust and transparency with financial systems. Organizations can avoid this through transparent communications and clear alignment with the services they embed with. In many cases, customers who prefer to take advantage of embedded banking do so to easily integrate banking services into the applications they already use, and the businesses they already know and trust. For embedded financial services to be successful, organizations involved must have clear alignment of organizational values, customer segments, and customer needs.

• Cybersecurity establishes a protected digital landscape.

Almost all the latest banking technologies move society further from cash, brick-and-mortar banks, and in-person exchanges. That means digital spaces and the growing metaverse, which both traditional banks and decentralized finance entered in early 2022, are now leading sites for financial interactions. Security across digital spaces becomes paramount to fintech, banking, and their clients. According to forecasts by Cybersecurity Ventures, Cybercrime will cost companies worldwide an estimated $10.5 trillion annually by 2025, up from $3 trillion in 2015. Financial institutions are motivated to increase cybersecurity preparedness, responsiveness, and resiliency to protect their customers alongside brand reputation.

Cybersecurity technology aims to grow at a faster rate than cybercrime. Accordingly, security for financial institutions today must be able to combat ransomware, AI-augmented and self-learning malware, cyberattack bots, deep-fakes, auto-dialers, and holes in automated processes exploited by cybercriminals. Improved technology for firewalls, intrusion detection systems, and user account encryptions remain important. Advanced security technologies for the end-user are a priority to ensure users know their information is protected. Biometrics allow banks and financial services to evaluate users’ fingerprints, facial recognition, or voice recognition, all the way down to the size of the speaker’s nasal passage. However, end-users are less likely to be the target for cyberattacks, since cyber criminals want access to information in bulk. Financial institutions have access to ample, sensitive information and must prioritize cybersecurity for their employees and data storage. Just as important as tackling today’s cybersecurity challenges is understanding and predicting the needs for tomorrow. Banks that empower their own defensive teams and artificial intelligence to evaluate activities and assist decision-making will have a competitive edge.

The future is customer-first banking models.

Banking and financial institutions are often the first to come under fire when marketplace disruptions and challenges arise. People and businesses need access to their assets, and today’s users are savvy and well-informed individuals that expect to know what’s happening behind the scenes. By leveraging the five leading technologies in the financial sphere, banking and financial organizations can enable ease of access with wide-reaching, global connectivity, alongside overall transparency, protection, and efficient processes. This leads to the alignment of business growth with user expectations. More than anything, these tools work together to create a future of banking and finances that put the customer first. This is not only limited to customer experience during banking interactions but throughout the lifetime of financial transactions of all shapes and sizes. Financial institutions that prioritize leveraging leading technology in the next 10 years will thus achieve greater customer accessibility, security, and loyalty.

About the Author:

Poonam Garg is an engineering leader at a Fortune 10 Fintech company. With 12+ years’ experience in IT, her technical skill sets including multiple scripting languages, programming languages, web technologies, Java frameworks, relational databases, operating systems, open-source tools, cloud technology, security tools, engineering architecture and more. She is a speaker at many tech-industry events, an advocate for women in technology, and an active member of the global Women in Technology (WIT) Network. She holds an M.B.A. from the University of Minnesota.

Produced in association with Poonam Garg