Digital technologies have advanced to a point where, when used effectively, these can impact every facet of a financial institution’s business — from products to customer service as well as the internal operations. In the years to come, public and private cloud infrastructure, Artificial Intelligence (AI), Customer Data Platforms (CDPs), virtualization and quantum computing will have an outsized impact on the industry.
Behind-the-scenes, these five technologies are already making a big difference in the way banks can serve their customers.
Let’s explore the application of each of these technologies in the banking industry.
While cloud computing technologies have been around for over three decades, adoption of cloud infrastructure for production workloads, especially public cloud, is relatively new to the banking industry. The push towards BaaS gathered momentum when neo-banking challengers gained popularity among innovative companies from Bigtechs to Fintechs/start-ups and corporates in Europe.
In response, banks, financial institutions as well as retailers began embracing the advanced cloud architecture, leveraging specific technologies including immutable infrastructure, declarative code deployment, cloud-native processors, containers, microservices, serverless functions, and more, as well as leveraging BaaS products.
BaaS enables consumer brands and retailers to offer financial services without a full-fledged bank. This strategy benefits big retail brands who can offer their customers accounts, payments, short-term credit, housing loans, and other financial services. The collaboration between brands, banks, and Fintechs allows for a comprehensive solution that ensures sustainable growth, promoting a holistic customer experience.
As companies evaluate BaaS options for adoption, they should be aware of potential challenges including data security, vendor lock-in and regulatory compliance. However, with a thorough and thoughtful approach, they can set themselves and their customers for sustained success on the cloud.
Artificial intelligence (AI)
AI is the future of banking as it leverages advanced data analytics to deal with fraudulent transactions and improve compliance. Right from personalized banking services to detecting frauds and supporting the risk and compliance initiatives, AI algorithms help banks accomplish desired outcomes in a few seconds. It removes the lengthy process, in addition to managing huge volumes of data to derive valuable insights. Banks and financial institutions are leveraging a combination of adaptive, cognitive and Generative AI based approaches for serving customers with smarter decision-making and enhanced engagement.
Cognitive AI is designed to simulate natural human speech, which makes it especially well-suited to power customer service chatbots. These automated chatbots can expertly handle routine customer inquiries such as account balances, recent transactions, and other well-defined interaction in a much faster and consistent manner than their human counterparts. Cognitive AI can also automate the processing of customer transactions and reconciliation.
Adaptive AI is geared toward analysis and decision-making. As the name suggests, over time, it can learn from past human decisions. Banks and financial institutions are using this technology to assist in image/voice recognition to authenticate a customer when they deposit a check via mobile app.
Lately, Generative AI has grown in prominence with a potential to disrupt all industries including Financial Services. In the banking industry, Generative AI has the potential to further improve on efficiencies already delivered by artificial intelligence, ensure fraud detection, enhance customer experience, enhance decision making and automate regulatory reporting.
Customer Data Platforms (CDPs)
Banks offer a whole suite of products and solutions for specialized services such as loans & mortgage services, Funds remittance to wealth management, in comparison to FinTechs. While these offerings prove to be advantageous, it remains untapped due to the siloed functioning of departments. CDPs are unified and persistent customer databases accessible across a banking enterprise, which provide remarkable customer service and enhance acquisition and retention strategies. CDPs allow teams to gather and analyze personalized customer data while offering AI-driven intelligence to help teams boost customer retention and sharpen strategy.
At face value, CDPs may appear like customer relationship management (CRM) technologies. However, CRMs are based on decades-old technology and are primarily designed for customer service teams. CDPs, by contrast, are designed to seamlessly share information across departments, including key collaborators like marketing and sales. The main capabilities of these CDPs include, data management, data compliance, marketing campaign management, analytics, and third-party integration.
These platforms can be implemented by banks to ingest and stitch together prospect and customer data from disparate sources. It can normalize and build unique and unified profiles of each customer. For example, if an existing customer applies for a credit card, the required details for KYC can be pulled instantly from the bank’s CDP, instead of gathering the information again. With a more comprehensive approach to customer data, banks can ensure that customers receive consistent and personalized experience.
Era of Virtualization
Virtual Account Management is a powerful concept that has advanced in line with technological innovation. Virtual reference numbers have paved the way for more holistic virtual account offerings which streamline account structures. These offerings allow for end-to-end solutions that are fluid, accessible and integrated. They offer broad functionality and facilitate interconnectivity between payables, receivables, and liquidity solutions.
Virtual credit cards can be used just as their traditional counterparts, complete with a card number, a CVV, and other verifiable credentials. However, unlike traditional credit cards, virtual cards are not susceptible to fraud via credit card skimmers, which steal users’ information when they unwittingly insert their card into a reader that’s been tampered with. Additionally, it offers clients increased convenience, speed of service and reduced cost.
Virtualization of accounts allow for immediate liquidity concentration, thus eliminating the need for physical sweeps and resulting in cost savings. It helps segregate specific account activity, allowing for easier reporting and accounting for cash management. Virtual accounts can enable a very lean and smart treasury management function, allowing treasurers to work on strategic activities while streamlining and automating time-consuming tasks.
Quantum computing holds immense potential for the banking industry, particularly in cryptography, targeting and prediction, optimization, and risk profiling. Even while quantum computing evolves, it is important for banks to protect customer sensitive information (PII data) using quantum-safe cryptography. Quantum-safe card tokenization is a process that replaces sensitive credit card information with a unique identifier, called a token, and is secure from quantum deciphering. The token is unique for a combination of card, token requestor, and device. It is used for processing online, mobile Point of Sale, or in-app transactions instead of the actual credit card number. This token is dynamic, making it the most secure method for payments.
Specifically in the areas of customer acquisition, personalization and fraud detection, quantum computing is likely to be a game changer. The data modeling capabilities of quantum computers are expected to prove superior in finding patterns, performing classifications, and making predictions that are not possible today because of the challenges of complex data structures.
In the years to come, cloud-native architectures, AI, CDPs, virtualization and quantum computing will significantly shape the course of the banking and financial services industry. As these technologies continue to develop and improve, business leaders should assess their organization’s readiness to adopt these technologies that could transform their products and services, leading to highly engaged and satisfied customers.
Author Ram Khizamboor, Chief Delivery Officer — BFSI, LTIMindtree