COVID-19 has impacted every industry. Take the financial world where banks and financial institutions have lent trillions of dollars as part of Paycheck Protection Programs while experiencing record low levels of interest rates. These factors and others have impacted overall profitability which is forcing banks to reinvent businesses with new offerings and capabilities to ensure their success in a post-pandemic world.
Here are five avenues we see financial institutions taking in 2021:
Open Banking API’s
The financial world we grew up with is fading thanks to the emergence of open banking and the rise of fintech. Traditionally viewed as a threat, traditional businesses will begin collaborating with fintech in 2021 to open up new business opportunities and revenue streams. For example, retail banks offering mortgage products will collaborate with fintech businesses such as Plaid and DocuSign, which offer account aggregation services that replace traditionally paper-intensive processes. Through these partnerships, loan issuance cycles will be cut by nearly 20 percent and free customers from the process altogether.
Focus on Financial Health and Customer Empathy
While traditionally our banking choices were decided by factors such as branch location, ATM fees, and online baking features, the most vital attribute in 2021 will be something else, financial health. This year, consumers will begin asking:
- Does your institution truly care about my financial health?
- What are you doing now doing to ensure it?
Driven by consumer demand, Financial Health Scores, and possible legislation, banks will begin addressing this for clients by integrating predictive modeling into their mobile apps. As a result, they will increase customer empathy and become more responsive as client needs change. For example, they will be able to:
- Compare existing interest rates to project the overall savings per annum
- Improve spending behaviors based on historical spend patterns and savings.
- Set savings goals with the best investment opportunities available.
- Provide advanced notice to ensure clients don’t incur unnecessary expenses as their financial situation changes.
- Protect users from financial fraud with real-time risk monitoring.
Improve Customer Experiences
Businesses will begin following the lead of the marketing realm by investing in solutions that enable them to understand and improve customer experiences. In fact, according to a recent Digital Banking Report, improving customer experience is second only to digital banking transformation when it comes to 2021 priorities.
The key will be analytics. Specifically, banks will use customer analytics to obtain a customer’s profile, ID their unique needs, monitor their journey, identify possible friction created at each touchpoint and address it in real-time. Through this type of insight, they can improve the customer experience and drive better adoption.
Focus on Digital Currencies and Distributed Ledger Technology (DLT)
A Boston Consulting Group (BCG) article asked readers to “imagine a digital currency that is as easy to share as an Instagram story or an e-payments platform as ubiquitous as smartphones.” While we are not at this point now, the reality will take shape over the next five years.
In our Virtusa innovation labs, we have partnered with multiple fintech’s to analyze and experiment on the impact of digital currencies in parallel to the cash economy. What we found is that while some banks and financial institutions have reservations about the adoption of digital currencies, six banks are working together to create their own right now. In 2021, these efforts will result in the emergence of proof of concept (POC) projects some of which will move to the product phase.
Embracing Artificial Intelligence:
When it comes to innovation, there’s little question that artificial intelligence (AI) will revolutionize the industry. AI momentum will hit full stride in 2021, with companies using it to power services, from real-time loan decisioning and fraud detection to stock predictions. We see several specific areas where AI will deliver the most value:
- AIOps: Allows businesses to avoid costly IT problems that could sour the customer experience in favor of maximum performance of investments.
- Pretrained Data Models and Real-Time Data Analytics: Institutions can create pre-trained data models that deliver insights that detect fraud, recommend the next best actions, reduce customer churn, and more.
- Natural Language Processing (NLP): in 2020, banks increased their commitment to offering customers powerful remote experiences. In 2021, while COVID-19 moves into our rearview mirror, the demand for these services will continue to grow. At the heart of it all with be NLP capabilities powered by AI.
The banking and financial services industry underwent some exciting and innovative changes, some of which resulted from COVID-19. Regardless of the trigger, we can expect this focus on innovation to continue in 2021 and beyond, and the team at Virtusa will be keeping a close eye on these developments and sharing our views along the way.
Praveen Sharma heads the BFS solutions for North America at Virtusa and is responsible for managing customer relationships, front-line growth, business advisory, innovation, and thought leadership.