The banking industry is changing. In the words of sci-fi author William Gibson, “the future is already here – it’s just not evenly distributed.” In China, a payments revolution is underway that constitutes a true “Great Leap Forward.” While the U.S. is still mapping the path to real-time payments, and scrutinizing the disappointing penetration of mobile payments, China is well on the way to being a cardless, as well as a cashless, society. Nearly 50% of WeChat’s billion users have now paid at a retail store using a QR code, while Alipay (with another 500 million users) is seeking to bypass the phone entirely with its “pay with a smile” facial recognition system.
Part of the reason we see radical change in markets like China is the lack of inertia associated with well-established banking business models. But the “it won’t happen here” brigade in developed markets are beginning to see enough signs of disruption to be worried. In Europe, the leading fintech “challengers” are passing the 1 million customer threshold. In the U.S., more than one-third of small- and medium-sized businesses now borrow from non-traditional lenders, and traditional banks are few and far between in the list of top 10 mortgage originators. In U.S. consumer deposits, the story is less about disruption from the outside than consolidation within the industry, with the top banks now seeing returns from their massive investments in the digital customer experience. In 2017, the top 3 U.S. banks controlled 32% of deposits, up from 20% in 2007, and also took 50% of new account openings. If you are a small U.S. regional bank, that feels pretty disruptive, even if it isn’t Amazon taking your customers (or at least not yet).
In this year’s edition of our Banking Technology Vision, Accenture has tried to go beyond these current visible trends and identify what’s next in terms of things that could disrupt the retail and commercial banking industry. To do so, we surveyed nearly 800 bankers in more than 25 countries and identified 5 technology trends that every bank should understand and incorporate into their planning.
Citizen AI: When a technology becomes the centerpiece of the World Economic Forum agenda in Davos, you know it has arrived. AI has now definitively moved from lab to production and banks are using these tools to automate repetitive, rule-based manual tasks – from anti-money laundering monitoring to credit card fraud detection. Next up is cognitive AI that will sense, comprehend, act, and learn to interact naturally with customers, either through a banks’ own channels or via third-party platforms like Amazon’s Alexa. But as any viewer of HBO’s Westworld will know, smart machines bring their own challenges. According to 79% of bankers, collaborative robots (cobots) will be working alongside humans in their banks within two years, and will eventually be the first point of contact for most bank-customer interactions. As AI takes center stage, its behavior and decision making is going to come under intense scrutiny from both customers and regulators. 90% of bankers believe customers will want to understand the reasons for AI-based decisions, and 29% expect full transparency within two years. The survey reveals the three biggest upsides from AI are improving customer trust and confidence (71%), cost saving and improving operations (63%) and better compliance with regulations (62%). But most banks are still wrapping their heads around how to truly achieve a symbiotic and compliant relationship between human and machine.
Extended Reality: Use-cases are emerging for extended reality (XR) technologies — virtual reality (VR), augmented reality (AR) and mixed reality (MR) — that could result in more meaningful customer engagements and improved workforce performance. A case in point is South Korea's Hana Bank, which is delivering mobile mortgages to customers via augmented-reality applications on their phones, and Fidelity, which is using virtual reality to test empathy among investment associates handling customer calls. Among bankers, 82% say XR solutions can close the physical gap between employees and customers and create immersive and engaging experiences that have the potential to make banking less of a chore.
Data Veracity: Bankers are feeling anxious about the conflicting desires to make more and more data driven decisions while also wanting to ensure the veracity of the data they are using. More than 84% say they are increasingly using data to drive critical and automated decision-making. However, 77% say they are not prepared to confront the problems and poor decisions that will result from bad data infiltrating their systems, either as a result of unverified data coming from vendors or via mischief from hackers. That’s a serious problem, as bad data can produce decisions that are questionable, risky or even illegal.. 28% of bankers do not validate or examine data from their ecosystem or strategic partners most of the time, and 5% do not validate at all or rarely do. Yet, 78% say automated systems create new risks, such as fake data, external data manipulation and inherent bias. In the new digital economy, where data is both the raw material and the finished good of any digital business, banks need to make major improvements in how they verify and manage that critical asset.
Frictionless business: The digital economy and the age of open banking are forcing banks to become more promiscuous, with 44% of banks having more than twice the number of fintech partners than they had two years ago (compared to 36% in other industries). However, many banks struggle to work with partners as their inflexible legacy systems create impediments. Two technologies — microservices and blockchain — can help banks create more ‘plug and play’ solutions. Banks can transform their traditional monolithic software architecture by using microservices that create a series of smaller software services that talk to each other via application program interfaces. Among bankers, 82% see microservices as critical for improving innovation through partnerships and 73% plan to increase investment in microservices over the next year. Similarly, 70% of bankers say blockchain will become a critical technology within the next three years. The distributed ledger technology can also facilitate ‘plug and play’ architecture that can help banks decommission many legacy systems. Banks are going to need to learn to play well with others in many aspects of their business and technology will be a key enabler of those conversations.
Internet of thinking: In the future, banks will have to deliver intelligence by using data to learn more about customer behavior and preferences and then use AI-powered processing to produce real-time insights that offer customers the services they want just as they need them. We’re moving from the age of mobile banking to the age of digital voice-enabled banking, where (with consumer consent) banks can use AI-based, digital voice-enabled devices to execute processes, like information about balances, payments and loan processing—instantly, 24/7. To be as responsive as customers expect will mean pushing processing from the center to the edge of the network. While still mastering the journey to cloud, banks will also need to master the journey to the edge and think about how analytics and processing can be done on phones, wearable devices and static contact points like ATMs to ensure that customers get the ‘in the moment’ experience that will truly delight them.
As all of this plays out, there will be successes and failures. But by planning ahead and spending time peering into the future, Banks can avoid the type of rapid reversal of fortunes suffered by Nokia, Blockbuster, Blackberry, MySpace and Kodak and have a true technology vision.
