The banking industry has always been at the forefront of innovation, and the past few years have been no exception. In 2022, we have seen a number of significant innovations that are transforming the way banks operate and serve their customers.
One of the biggest trends in the banking industry has been the increased use of artificial intelligence (AI) and machine learning. Banks are using these technologies to improve fraud detection, assess and manage risk, and provide personalized recommendations to customers. They are also being used to automate certain tasks and processes within the bank, such as data entry and analysis, to improve efficiency and reduce errors.
Another major trend has been the development of mobile banking super-apps and online account management tools. These tools allow customers to access their accounts and perform banking transactions anytime, anywhere, using their smartphone or computer. Many banks have also introduced biometric authentication methods, such as fingerprint scanning and facial recognition, to enhance the security of these digital services.
Besides traditional banking services, we have also seen an increase in the development of new financial products and services that meet the changing needs of customers. This includes the rise of Robo-advisors, which use algorithms to provide personalized investment recommendations, and the development of new payment methods, such as mobile payment platforms and cryptocurrency.
Yes, blockchain technology will gain a larger foothold in the banking industry as well. Banks will start using it for cross-border payments.
Sustainable finance has also emerged as a major focus for many banks in 2022. In response to increasing demand from customers and investors, banks are developing financial products and services that support environmental, social, and governance (ESG) goals. This includes green bonds, which fund projects that have a positive impact on the environment and impact investing, which aims to generate both financial returns and positive social or environmental impacts.
Another trend in the banking industry has been the use of data analytics and customer insights to improve the customer experience. By analyzing data on customer behaviour and preferences, banks are able to offer more personalized and targeted services, such as personalized recommendations for financial products and services. The AI-based conversation chatbots have been the focus of customer delight. It uses the cognitive ability to understand and respond to customers instantly based on a vast knowledge of the financial industry. Mind you; it’s not just chatbots, it is artificial intelligent chatbots that will make waves in the coming days through hyper-personalization and automation.
Generative AI is one which is not talked about much today because of limited adoption, but soon it will become a trend in the banking industry, with the coming year starting its early adoption in the banking industry.
Besides these trends, we have also seen several other innovations in the banking industry in 2022. For example, many banks have implemented virtual reality (VR) and augmented reality (AR) technologies to enhance customer training and education. Some banks have also introduced chatbots and virtual assistants that can help customers with common inquiries, freeing up human customer service representatives to handle more complex issues.
The race towards “metaverse bank” has started, and banks want to provide virtual branch experience to new younger audiences who are more experienced in NFTs. With few banks already having launched metaverse banks in this year, next year is going to see widespread adoption of the metaverse ecosystem.
Overall, the banking industry has seen several significant innovations in 2022, with a focus on the use of technology, the development of new financial products and services, and the promotion of sustainable finance. These trends are helping banks to improve efficiency, reduce costs, and enhance the customer experience, and they are likely to continue driving innovation in the industry in the years ahead.
With CBDC launched, we need to see how many banks remain relevant in the coming years.
Not to forget that all financial institutions will become a technology company in the coming years !!!!
One might remember banking experiences three-four decades back. When you go to the bank to update the passbook, you drop it in a basket and go back the next day to collect it. The process took so long since the banker had to reconcile entries from a huge B4 size ledger book and manually update the entries in the passbook. Gone are those days!!! The banking industry has come a long way from the 80s and 90s. Today, digital banking gives us notifications on a real-time basis with a tap on mobile or wearables – be it transactions, bank balance, or statements.
While banks have transformed themselves with innovative digital offerings, several incumbent and Neo banks have made a significant dent in traditional revenue with their innovative digital transformation initiatives. To sustain high growth and customer retention, traditional banks need to traverse the extra mile and develop hyper-personal relationships with customers turning apathy into emotional connection.
These days, a frictionless digital banking experience is inevitable to maintain or increase the market share of the banks. Omni-channel experiences, smart onboarding, microservices-based architecture, cloud-native approach, or automation – these are de facto expectations from the banks. The main reason behind these high expectations is Fintechs, raising the bar for banks in the post-pandemic world. Millennial and Gen-Z customers are now looking for an exceptional banking experience in all areas, not isolated service.
To ‘provide value for the money’ or exhibit customer-centricity, banks ought to step up their game plan by increasing their focus on innovative offerings. With over 26,000 Fintechs operating worldwide, banks have to go beyond their usual territory and provide hyper-personal curated banking experience by embracing ML, NLP, and open APIs. Not only do legacy banks need to innovate and implement, but even central authorities like RBI should become liberal and revise their policies to promote healthy competition and innovation culture across the BFSI segment. Several innovative initiatives are becoming mainstream because of Fintechs, which can be adopted by banks in a phased manner. Banks can embrace following leading-edge technology to remain ahead of the cut-throat competition.
- Enable Composable banking whereby the customer is not tied to a specific vendor, product, or technology. For an instance, Mambo provides over 4000 products from different banks, NBFC, and Fintechs on its platform.
- Augment innovation quotient like ENBD, which provides an additional interest rate based on the number of daily steps (5k or more) taken by individuals. They are also planning similar benefits for other exercises like swimming, etc.
- Enable community banking by providing Value-added services to Gig workers, LGBTQ, senior citizens, or disabled customers to cater to their specific needs.
- Implement platform banking by integrating value-added services from Fintechs or others to provide a holistic experience to maintain customer loyalty.
- Increase customer engagement through gamification to attract kids and teens to build brand loyalty early on.
- Develop AR Tool for personal finance management as done by Westpac.
- Provide AR/VR experience to the customer whereby they can visit the virtual mall for a shopping experience through All-in-one SuperApp.
- Provide 24×7 chatbots using AI and ML.
- Combine AR/VR with AI to create seamless, immersive experiences for the customer, say for virtual branch visits, thereby creating loyalty, brand building, and arresting customer attrition.
- Use alternative data for taking decisions, like predicting default risk. This can be innovatively inferred based on behaviour and personality traits captured in social media. This can help the bank speed up recovery or restrict future lending.
- Bring assurance or options to customers that the bank’s profits or part of it will be invested only in “Clean energy” to reverse the climate crisis like Swipe.
- Develop an algorithm to link likes on social media to the interest rate.
- Provide Goal-based savings options to facilitate healthy savings.
- Provide multi-lingual AI and Robo advisors, ranging from personal finance to goal-based investments.
- Boost customers’ credit scores by providing micro-loans to step up their borrowing capacity.
- Propose smart vehicle insurance which can adjust your premium amount depending on your usage, location, driving style, and discipline.
- Use of IoT in ATMs to sense queue length and provide an option to an exception in authentication based on a customer’s past transaction history.
- Use of smart contracts to allow users to take out a short-term loan using Ether as collateral.
- Bring out voice-enabled payments for visually impaired or handicapped people.
- Automate claim payment minus manual filing, in case a flight gets delayed beyond a certain agreed duration as per insurance policy .
- Use novel biometric security like iris recognition, palm vein patterns, or retinal scanning.
- Offer contact-less, gesture-based ATM transactions like the one developed by Motion Gestures.
- Embedded Rounding off to nearest pre-defined unit to create either investment pot with delta money or help achieve goals that emotionally engage them.
- Implement blockchain for immutable records and security and speed up money flows for a variety of transactions like property registrations, funds transfer, supply chain, trade finance, and payments transactions.
Few of these suggestions will certainly bring loyalty among happy and satisfied customers. This type of digital transformation will also increase employee engagement. This results in higher productivity, accurate predictions, and decision-making.
Digital transformation is full of risks and challenges. Organizational challenges, data governance, data privacy, cultural mindset, compliance risks, regulatory risks, or lack of skilled resources can become roadblock but it can be addressed in innovative ways. But this puts brakes on the delivery and execution of the initiatives. However, for the larger benefit of shareholders and investors, banks need to show the same agility as Fintechs to survive and grow.
As Darwin’s law of Survival of the Fittest suggests, only Agile and customer-centric futuristic banks will flourish and fare well in the future; rest will get acquired.
Banks have always taken great care to remain competitive in the market despite the other stressors that come with this category of business. The latest one on top of their list is Web 3.0, otherwise known as Virtual Reality, Augmented Reality, and Artificial Intelligence — all of which are just different flavors of the same thing: a much closer interaction between people and computers.
The main impact of Web 3.0 on the banking sector may not be as pronounced as expected, but it is more likely to be negative than positive. The banking sector has always been technology-driven and, with the help of Web 3.0, these banks may find it difficult to adapt to this environment.
Facts and studies done on the impact of Web 3.0 in banking sector
The recent BFA study was commissioned by the National Consumer Law Center (NCLC) and the American Bankers Association. It studied how banks were preparing for Web 3.0, which they identified as a major area of concern among banks.
The study surveyed over 300 banks and gathered their perspectives on how they were planning to adapt to Web 3.0. They found that most banks had already taken a proactive approach in addressing the future needs of consumers, but some major upcoming challenges need to be considered.
This includes technological limitations, operating costs, and legal constraints. One of the biggest worries is that customers will naturally gravitate towards payment methods with better customer service and security, such as credit cards or electronic wallets, instead of using their bank accounts.
Blockchain can enhance this process and lower these costs. Using blockchain for KYC purposes could reduce personnel requirements for banks by 10%, equating to cost savings of up to $160 million annually.
Web 3.0 will largely be built on three new layers of emerging technologies – edge computing, decentralised data networks and AI.
There is a growing application of ML to analyse large data sets in security. As attackers use ML, we need machines that can respond in seconds.
The cycle of change is undoubtedly constant, but its speed has certainly sped up during the pandemic. Going forward, Web 3.0 and transition towards decentralization, digital currencies, ability to monetize data effectively and stronger ecosystem collaborations for customer-centric service will continue to drive the evolution of the financial services industry.
Blockchain and crypto tokens can bring many potential benefits, such as faster and cheaper cross-border payments and trade finance, but they need to be more stable in value and have a credible backing.
Decentralized finance (Defi) refers to digital assets and financial smart contracts, protocols, and decentralized applications (DApps). Also based on distributed ledger and blockchain technology, Defi challenges the centralized financial system by disempowering the middlemen and focusing on peer-to-peer networks. The ‘total value locked in Defi’, which shows how much money is currently working in different DeFi protocols, has increased significantly in the last two years. There are several use cases of DeFi and they are continuously growing. It lets one send money around the globe, stream money around the globe, access stable currencies, borrow funds with or without collateral, start crypto savings, trade tokens, buy insurance, and manage one’s complete financial portfolio under one system.
There are several benefits of even Defi Insurance as below:
- Protection of Defi Deposits
- Protection against crypto volatility and flash crash
- Immediate redemption of tokenized crypto
- Protection against the risk of theft and attack on crypto wallets
- Protection of funds from hacks on exchange platform
- Identify fraudulent claims
- Increased reliability of medical history
- Reduced overhead cost because of efficiency and speed in the claim processing
Disadvantages of Web 3.0 in the banking sector
Blockchain technology has many advantages, but one prominent disadvantage is that it’s inherently secure without specific third-party support, since the system relies on a “trusted” third party—a node—to make sure the ledger is secure and that no one tries to tamper with it.
Therefore, blockchain developers have been working on a method of maintaining security after the protocol itself has been implemented. This is called “consensus,” and it enables the system to be secure even when some nodes operate independently.
The problem arises when only one node can maintain consensus and therefore make sure that the ledger remains secure. If that node goes offline or is compromised by an attacker, then the entire system can fall apart.
On other side, thefts and frauds are rampant on Web3. In 2021, crypto scams and theft are totally to $14 billion losses. So, security is the biggest threat in the Web3 world for BFSI segment.
In an article about Web 3.0, when discussing the impact of augmented reality on society, The Economist also included that “banking would be affected too” (The Economist 2011). The writer said that this technology would allow people to peer into their bank accounts without even logging in. It could also authenticate people remotely and control their finances at the same time.
To fully understand the present banking sector, it is necessary to acknowledge that its nature has always been technology-driven since banking was first formed. As a result, all banks have also invested in new technologies to facilitate the operations and services that they offer to their customers. They have developed faster processing systems, better internet banking platforms, more reliable ATMs, and quicker payment gateways.
Realization should temper the urge to dismiss Web 3.0 financial services as fringe efforts that many in banking missed the potential of PayPal and Chime until they became huge competitive threats
The future of banking lies in Web 3.0. Someone will felt soon the impact of these technologies on the industry, especially for banks that are still rooted in their traditional business model. Web 3.0 is transforming the financial landscape and will, most likely, affect how banks operate.