Banks across the globe have begun their digital transformation journeys and this year we will see financial institutions focus on how to accelerate those journeys. According to Infosys Finacle's latest Digital Trends in Banking Report, Open Banking and API-led business models will play a key role.
To better understand the trends laid out in its report, TechRadar Pro spoke with the company's Global Head, Sanat Rao.
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What is the background to the Digital Trends in Banking Report?
The report is a reflection of Infosys Finacle’s experience of working with banks in over 100 countries; each year the Digital Trends report aims to inform business and technology leaders about the direction of the industry. The Digital Trends report has been created in collaboration with The Banking Visionaries’ Council.
Over the past ten years, banks have had to deal with extraordinary changes and shifting priorities – from restoring trust and meeting capital requirements to the emergence of new channels and devices, and more recently the rise of ecosystem-led business models. Thanks to the rapid evolution of digital technologies, the change has been rather exponential over the past few years.
Surviving and thriving in these times requires banks to be extremely responsive to market changes and customer expectations. The Digital Trends report sets out to help banks do just that at the beginning of every year. An agile customer-centric business needs the right technology foundation and enablers to capitalise on opportunities and minimise threats amid new digital realities. So the report features not only business transformation trends but also technology trends, to help banks make the trade-offs and choices right for the unique needs of their business.
How long has Finacle worked with the Banking Visionaries’ Council?
Infosys Finacle formed the council in January 2017. Today, the council’s members include over 20 distinguished banking and technology practitioners. The council has discussed some of the most pressing challenges and transformational trends in the industry.
The council has developed actionable points-of-view on topics such as the platform business model in banking, AI powered banking, banking on public cloud, and digitisation of corporate and SME banking. The council benefits from the body of experience of its members and creates value through exchange of varied industry perspectives. The members come together once every month and discuss one industry topic every quarter.
The report identifies 6 key tech trends. In your opinion, which is the most exciting and why?
The right technology enablers are extremely crucial for a business to flourish. That makes enabling technologies such as cloud, APIs, and blockchain exceedingly important and essential for any business. And these technologies are evolving rapidly. The agility, scale and speed of innovation that today’s realities demand cannot be achieved without the cloud. APIs are central to any ecosystem, whilst blockchain has brought in a level of transparency and immutability never seen before.
Having said that, emerging technologies such as AI, IoT and AR promise sci-fi like experiences. In fact, today these experiences lie more on the reality side of the evolution continuum which makes them exciting to watch and imperative to adopt. The report presents interesting use cases that are likely to take shape as early as December 2019. Banks are already using AI across their front, middle and back offices, and its applications will continue to make banking more customer-centric, immersive and yet invisible over the years to come. The confluence of AI, analytics, the Internet-of-Things, and AR will only compound and accelerate the ubiquity of banking. Scenarios such as our refrigerator ordering and purchasing groceries without any human intervention or such as those depicted in the movie “Her” are closer to reality than fantasy. Soon you will have visually interactive avatars of chatbots or AI.
As attractive as the above scenarios seem, achieving these requires a technological foundation that allows every application to deliver the value it is intended for and embraces the principles of deep business focus, comprehensive analytics, agnosticism, and automation-by-design. The technology trend of architectural evolution sums this up wonderfully and I would be remiss if I did not emphasise the importance of modern architecture.
The report also identifies 6 key business trends. In your opinion, which is the most exciting and why?
Again, I cannot single out a business trend, since ecosystem-led platform business models are changing the very business of banking as we know it, reimagining and digitising customer journeys is making unprecedented experiences possible, open banking is unlocking new value with data-sharing but also increasing security and privacy challenges. The organisational culture at banks is in for some exciting transformation as GenZ hits the workforce and new digital realities unfold.
These are truly exciting times for the industry.
How have banks changed their views on technology over the recent years?
It’s no secret that the heavily regulated and data-intensive industry of banking has largely lagged behind other industries when it comes to the adoption of digital technologies. And although banks have integrated new digital channels and functionalities over the last few years, they have taken a fragmented approach of incremental and peripheral changes to their legacy technology estates. This has led to unnecessary accumulation of technical debt over the years.
However, now there is a spreading recognition among banks of a truly digital transformation as opposed to transformation in pockets. Nearly all banks, large and small, leading and progressive, have embarked on a truly digital strategy.
This qualifies as the most evident as well as the most critical change in banks’ views about technology and transformation.
In terms of the tech trends identified, do you think banks will be open to these changes and the potential benefits they will bring?
I am highly positive of the willingness and openness on the part of banks. Banks are readily adopting emerging technologies and technology-led business models. Technologies such as AI and automation have found wide application already; cloud, analytics and blockchain continue to power new realities; and IoT and AR look set to revolutionise experiences.
Most importantly, the recognition of the need for digital transformation lends evidentiary support to the belief that banks are willing to embrace digital and tap into the fresh opportunities in the future. Not only advantages and benefits, banks are acutely aware of the new threats new digital technologies might bring in, and are trying to pre-empt malicious exposure with sophisticated techniques of defence.
When implementing these new technologies, what do you think the main challenges will be for challenger banks?
The absence of a global standard for APIs is a key challenge for banks, leaders and challengers alike. Today, every country has a different regulatory mandate for open sharing of data and APIs, and the status-quo is likely to continue for some time. This inhibits innovation and growth.
A key challenge for challenger banks will be finding and participating in the right ecosystems. As banking opens up fully, banks would have to differentiate by either being a consumer-centric marketplace, be an efficient supplier of banking products, or become an efficient distributor. Almost all small and medium-sized banks, who have largely been fast-followers so far, may potentially go through a crisis of identity in the new world since API-led network-gains will mostly head towards top banks with the highest distribution reach.
Additionally, in the open world where price is not a competitive differentiator, data is the currency banks trade in. Not being part of the right ecosystems – be it a blockchain network or other diverse ecosystems – can put banks at a massive disadvantage.
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