Digital transformation is a priority for the banking sector – and it represents both a challenge and an opportunity. Here are Synechron’s top five areas that we believe banks will be thinking about and investing in this year from a technology point of view.
- Open Banking, Open APIs and Banking as a Service
Open Banking, OpenAPIs and ‘Banking as A Service’should disrupt traditional ways of working and drive adoption of digital banking services. Banks are now in the process of enabling each other and authorized third parties – including tech companies and fintechs- to have access to their customers’ account transaction data with full read and write functionality. This could be the initiative that brings one or more of Google, Apple and Facebook in to transform banking as we know it, without having to ‘become’ banks themselves.
Many financial institutions are launching their own Open APIs to monetise their core value propositions. Banks can generate new fees by offering new products and services. Exchanges, bespoke research firms, and investment institutions will also all be looking at ways to build an open API strategy.
- Redefining work
2018 will also see the industry building a new culture and productivity model in a move to ‘Google-esque’ office environments and cultures to attract skilled talent and drive productivity. The war for attracting and retaining technology talent will only get more competitive. Furthermore, banks will spend time honing their employer value propositions and work atmospheres toward the values and environments they believe millennials will favour, hopefully bringing out the ‘intrapreneur’ in every employee. This is critical for workforce planning given that millennials will constitute roughly 72% of the global workforce within the next decade
- Voice Commerce, Natural language processing and generation
More than 50% of all internet searches will be voice-initiated by 2020. In fact, in countries like China, where typing on a mobile phone is less convenient than speaking, there is already a tendency towards voice-first. In banking, there is a trend toward voice banking and payments, with AI solutions like Synechron’s Neo, Kasisto, Clinq, Nuance and Personetics leading the way.
With Amazon Show, Synechron has an inbuilt touch screen and front-facing camera that allows for easy authentication on our voice banking app. Other voice-based technologies like ‘hotwords’ will help shape banking innovation in 2018 as smartphones and devices monitor our conversations for more targeted advertising. Hotwords are also capable of transforming areas like financial advice, customer service, compliance, and even real-time personal finance management.
- Biometrics and the Internet of Me
In 2018, biometric adoption will go mainstream due to the out-of-the-box integration with smartphones, wearables, and IoT devices. CCS Insight has predicted this market to be more than US$40 billion by 2020. This is driving a new trend – the Internet of Me – where we are connecting our bodies and brains to the internet to better understand our health, behaviour, and more.
Banks and insurance companies are using the IoM to access lifestyle data and spending patterns, and the market for financial applications and solutions from banks and insurers will increase exponentially – supported by cloud-based delivery and effective bigdata infrastructure. Such convergence in technology is likely to lead to the amalgamation of B2B and B2C business models into new “business-to-business-to-consumer” (B2B2C) models where data can be used for behavioral targeting, modification and authentication.
- Cognitive Automation
Cognitive Automation is the natural evolution of Robotic Process Automation, which learns from mouse clicks and other desktop PC patterns using clever techniques and screen scraping, and combines it with the power of data science, machine learning and cognitive computing. Unlike RPA, cognitive automation focuses on meta-human automation which compliments humans and makes them quicker, smarter, better employees. Ultimately, the goal is taking the robot out of employees so that they get more time to do strategic work, talk to each other, andinnovate. The challenge is it involves considerably more variables to be effective, often involves neural networks and requires a more refined skillset.
2018 will be another exciting year for technology in the banking sector. Banks which do not make significant digital progress in 2018 will find it hard to compete and may show signs of lower revenues, customer attrition and shareholder discontent. The pace and variety of new technologies that are coming together means that banks have plenty of choice on how to innovate and differentiate themselves to an increasingly growing digital customer base – now they need to make it happen.
Bank of England’s Haldane warns inflation “tiger” is prowling
By Andy Bruce
LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, adding that central banks may need to respond.
In a clear break from other members of the Monetary Policy Committee who are more relaxed about the outlook for inflation, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.
“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online.
“But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”
Haldane’s comments prompted British government bond prices to fall and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation.
“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.
(Editing by David Milliken)
BOJ to highlight climate risks as key theme of bank tests this year – sources
By Leika Kihara and Takahiko Wada
TOKYO (Reuters) – The Bank of Japan will for the first time highlight climate change risks as among key themes in its bank examinations this year, sources said, joining major peers moving to gain research clout on the effects of global warming.
In guidelines on the examinations due next month, the BOJ will clarify its readiness to coordinate with Japan’s banking regulator in analysing the impact of climate risks on financial institutions, said three sources familiar with the matter.
The central bank will also beef up cooperation with the regulator, the Financial Services Agency (FSA), in studying European examples and specific ways to measure financial risks associated with climate change, they said.
The moves are part of Japan’s efforts to follow in the footsteps of an increasing number of countries working on or considering stress-testing financial institutions on climate risks.
“For the BOJ, green QE is still off the radar. The more approachable and near-term focus is to assess climate change risks on the financial system,” one of the sources said, a view echoed by two other sources.
“Climate change is a key theme for the BOJ this year,” another source said, adding that stress-testing climate risks on financial institutions is “not imminent, but something Japan needs to aim for in the future.”
The BOJ conducts hearing and on-site monitoring in voluntary examinations on financial institutions. But it does not have regulatory authority, which falls under the FSA. Neither the BOJ nor the FSA stress-tests banks on climate risks.
Officials of the two institutions have been discussing climate change as among topics that could affect Japan’s banking system. But progress toward stress-testing financial institutions has been slow because of a lack of data and models.
The BOJ began to gear up efforts on climate change after Prime Minister Yoshihide Suga last year pledged to make “green” investment a key pillar of his growth strategy.
The Biden administration’s focus on battling climate change, and the Federal Reserve’s decision in December to join an international central banks’ group focused on climate risks, also prodded the BOJ to engage more, the sources said.
But actual roll-out of stress tests will take at least another year as policymakers work out guidelines and details, including whether they will ask banks to conduct a “self-assessment,” the sources said.
(Reporting by Leika Kihara and Takahiko Wada. Editing by Gerry Doyle; Editing by Chang-Ran Kim)
ECB watching yield surge but not controlling curve: Lane
FRANKFURT (Reuters) – The European Central Bank is monitoring the recent surge in government bond borrowing costs but will not try to control the yield curve, ECB chief economist Philip Lane told a Spanish newspaper on Friday.
Yields have soared, particularly over the past week, partly driven by rising U.S. Treasury yields. Verbal intervention by key ECB officials, including ECB chief Christine Lagarde, has failed to stem the rally.
“At this stage, an excessive tightening in yields would be inconsistent with fighting the pandemic shock to the inflation path,” Lane said in an interview with Expansión.
“But at the same time, it is crystal clear that we are not engaged in yield curve control, in the sense that we want to keep a particular yield constant,” he added.
Ten-year Bund yields, a key benchmark for the 19-country euro zone, now yield -0.223%, up from around -0.60% at the start of the year.
Lane added that while inflation is indeed rebounding, the increase was not yet what the ECB was looking for after a decade of undershooting its target.
“What we’re seeing now is not a significant and persistent change in the path of inflation,” he said, arguing that price growth was still too low and required ECB stimulus.
Lane predicted that the bloc would start rebounding from its pandemic-induced slump already in the second quarter and the impact of the current lockdowns would be less severe than a year ago.
(Reporting by Balazs Koranyi; Editing by Shri Navaratnam and Ana Nicolaci da Costa)
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