• Nanda Kumar, CEO at SunTec Business Solutions


• 12.12.2023 02:45 pm
#banking

Humans have always pushed boundaries. From searching for new worlds in the 15th century to exploring new planets today, the human race is constantly seeking change and innovation – and that’s no different in the banking world. Powered by the rapid development of technology, the banking sector has, and will continue, to change and evolve. 

In this era of digital transformation, banks are leveraging cutting-edge technologies such as artificial intelligence, blockchain, and data analytics to enhance their services. These innovations are not only streamlining banking operations but also creating a more personalized and responsive banking experience for customers. The all-pervasive technology layer continues to evolve, with the emergence of decentralized finance (DeFi) and open banking initiatives, which further empower customers by giving them more control over their financial data and allowing them to access a wider range of financial services.

As customers increasingly expect seamless and convenient banking solutions, banks are harnessing the power of automation and data-driven insights to provide tailored financial products and services. The advent of mobile banking apps, chatbots, and virtual assistants has brought banking services closer to customers' fingertips, making it easier for them to manage their finances on the go.

Customer centricity lies at the heart of banking and the future of banks hinges on the industry's ability to personalize services and embrace technological innovation.

Generation Alpha

Historically, banking has been the backbone of commerce, from trading in Renaissance Italy to the complex financial tools of today. The core mission remains the same, but the means and mechanisms are evolving. In 2024, banks are redefining their role, aiming to serve not just as financial centers but as holistic platforms developed specifically for customer engagement. 

The rise of Generation Alpha, those born from 2010 onwards, signifies a new chapter in consumer behavior. Generation Alpha will demand the most from the banking system, more than previous generations, over the next few decades and their sheer affinity to technology will force banks to utilize technology like they do and provide a technology first service that caters to their specific financial needs. This generation's familiarity with digital technology shapes their expectations of banking services. They seek platforms where transactions are not just transactions but experiences—seamless, immediate, empathetic and integrated into their digital lives.

To cater to this tech-savvy generation, banks must harness the power of data analytics and artificial intelligence (AI) to offer real-time, context-aware services. The concept of a static credit rating, for instance, is becoming outdated. Instead, dynamic credit assessments at the point of sale will become the norm, allowing for more accurate and immediate financial decisions. Credit assessments are no longer just transactional but take into account people’s social behavior and moral values as highlighted by China’s new social credit law. Credit must become contextual. 

The principles of intuitive design, intelligence, and individualization are key to the future of banking. Financial advice, once the realm of human experts, is being augmented by AI systems that can provide personalized financial plans with minimal human oversight. The goal is for banking services to anticipate customer needs and offer tailored solutions without the customer having to ask.

Technology first approach and digital collaboration

Technological infrastructure is critical in this new era, and the concept of convergence plays a pivotal role. With 5G technology, banks can offer not only faster but also exceptionally reliable services, ushering in a new era of seamless connectivity. This convergence of high-speed data transmission, the Internet of Things (IoT), and advanced analytics is just the beginning of a transformative wave of innovations that will continue to redefine the banking experience. As these technologies converge, they create a powerful collaboration that enables banks to provide customers with real-time, personalized, and context-aware financial solutions. 

This convergence isn't limited to just connectivity; it extends to the integration of various financial services across all industries, such as banking, payments, insurance, and investments, all accessible through a unified digital ecosystem. As a result, customers can expect an unprecedented level of convenience and efficiency in managing their financial affairs, setting the stage for a banking landscape that is more interconnected and customer-centric than ever before.

For example, ride sharing apps, where payments are automatic, demonstrate the developing partnership between the banking and transport industry. In the Shared Rides market, the number of users is expected to amount to 3,467.00m users by 2027 and revenue is projected to reach US$429.10bn in 2023. Ride-sharing apps have fundamentally changed the way we pay for transportation services. Gone are the days of searching for the nearest ATM before a ride. Instead, passengers can link their bank accounts or credit cards to these apps, allowing for automatic and cashless transactions. This integration not only simplifies the payment process but also enhances security.

The ecommerce world is also working increasingly closely with banks. Amazon, for instance, has ventured into the financial services realm by offering co-branded credit cards and even exploring the concept of Amazon-branded checking accounts. These financial products not only deepen Amazon's engagement with its customer base but also position the company as a significant player in the financial sector. Moreover, Amazon Pay has extended its reach beyond Amazon's own platform, allowing customers to make payments on other e-commerce websites, thereby expanding its influence in the digital payments space.

We can anticipate further integration of banking services within the e-commerce ecosystem, blurring the lines between shopping and banking. As digital wallets, artificial intelligence, and blockchain technology continue to advance, customers may enjoy more personalized financial recommendations, flexible payment options, and enhanced security measures. Ultimately, this evolving collaboration is poised to reshape the way consumers shop and manage their finances. 

The same applies to other sectors, including the food and beverage industry. Traditionally, the collaboration mainly revolved around payment processing in restaurants and food delivery services. However, we’re now seeing the integration of biometric authentication methods, such as fingerprint recognition, into the payment process. The recent association between Mercedes and Mastercard, which offers fingerprint authentication for vehicle purchases, is just one example of how this technology is being utilized. This advancement opens the door to a future where customers can seamlessly and securely purchase groceries or dine out using biometric data, such as their fingerprints.

As technology continues to advance, we can anticipate further integration of biometric authentication across various touchpoints in the food and beverage industry. This could include fingerprint-enabled payment terminals in restaurants, self-checkout options at grocery stores, and even biometrically secured food delivery services. These innovations not only enhance security but also streamline the payment experience, making it more convenient and efficient for consumers. 

At the end of the day, banking becomes omnipresent. 

Fintech collaboration

The collaboration between banks and fintechs represents a pivotal shift in the financial services landscape. Banks, often burdened by legacy systems and traditional operational models, find themselves in need of significant digital upgrades to seamlessly integrate with the agile, tech-driven approaches of fintech companies. This integration pushes banks towards modernizing their IT infrastructure, adopting cloud computing, enhancing data analytics capabilities, and embracing open APIs for better interoperability. Meanwhile, fintechs must align with the stringent regulatory and security frameworks typical of the banking industry. This convergence not only accelerates the pace of innovation in financial services but also demands a cultural shift within traditional banking institutions, fostering a more collaborative and customer-centric approach. 

Fintech companies specialize in crafting user-friendly, digital-first experiences that resonate with today's tech-savvy consumers. Traditional banks are leveraging this expertise to revamp their legacy systems, moving away from cumbersome, paper-based processes toward agile, digital platforms. This transformation streamlines operations, reduces costs, and enhances the overall customer experience.

Furthermore, fintech partnerships enable banks to tap into cutting-edge technologies such as artificial intelligence (AI), blockchain, and data analytics. These technologies empower banks to offer more personalized services, real-time risk assessment, and efficient fraud prevention. As a result, customers benefit from quicker loan approvals, tailored investment recommendations, and enhanced security measures.

While there is ample reason to be optimistic about these collaborations, true success hinges on cultural synergy and the alignment of organizational outlooks. The recent divorce between Apple and Goldman Sachs, highlights the importance of aligning not just in terms of technology but also in terms of values and strategic vision to create a lasting and fruitful partnership.

Looking ahead

The banking sector's transition is underpinned by a shift from traditional profit models to ones focused on customer outcomes. Banks are looking beyond the spread between deposits and loans to measure success by the holistic value they provide to customers. This includes offering an integrated platform where banking, commerce, and lifestyle services converge seamlessly.

Banks are now expected to operate as agile entities, adapting to changes in customer behavior and technology. The bank of the future is customer-centric, transparent, data-driven, and adaptable. It must be ready to evolve its services in real-time, always prioritizing customer needs.

The models shaping the future of banking consist of three layers: a customer-centric approach at the top, innovative, flexible and agile products in the middle, and ever-changing robust technology as the foundation. This will drive the banking sector forward, with the potential to create a banking experience that is as natural and intuitive as the world around us. As banks embrace this transformative model, they are paving the way for a future where banking is not just a service, but a personalized journey towards financial empowerment and wellbeing.