How Banks Can Unlock Their Full Potential

As fintechs continue to deliver real-time, 24/7 banking services, legacy banks risk being left behind. But how can these banks implement the technology solutions needed to compete in such a disruptive landscape?

The past five years have witnessed a tectonic shift in consumer banking services, as bricks-and-mortar bank branches give way to comprehensive, 24/7 online services. The pivot is testament to the ongoing digital transformation in banking: a movement redefining convenience and accessibility in financial services, anytime, anywhere.

As pressure mounts from the fintech space, incumbent banks — especially regional and community institutions — risk losing their relevance. So how can banks quickly and effectively move to implement robust digital banking platforms meet changing customer expectations and fend off the competition? Banking-as-a-service (BaaS), by which banking products are provided to third parties via APIs, offers an answer.

Banking on Gen Z

As Generation Z — the first digital native generation born between 1997 and 2012 — comes of age, service delivery and customer engagement are undergoing a sea change. On-demand, mobile-centric services are now a basic requirement that touches all aspects of our daily life; not least the ways in which we interact with our finances.

Meeting this need requires not just an upgrade to banks’ existing services but a complete reinvention of how banks operate and deliver value. It means providing customers with a seamless experience across various digital channels and ensuring that banking services are as readily available on a smartphone as they are within the traditional high street bank. A Forrester Research report evidences this telling shift, as 77% of Canada’s bank customers now use online banking services at least once a month with comparative figures of 71% for America and 69% for Spain.^[i]

As part of this transformation, banks are working to break down traditional barriers to innovate customer experiences and enhance business capabilities. A recent report from America’s Cornerstone Advisors finds that 42% of US banks undertaking digital transformation have seen a 5% increase in productivity for opening deposit accounts, with 33% reporting similar gains in loan processing. These advancements mark the beginning of a shift towards a comprehensive digital banking ecosystem.

But not all banks are created equal. And while this transition has not happened overnight, the speed of change has still left many banks behind the curve – especially in adopting emerging technologies that underpin these platforms, such as machine learning, artificial intelligence AI, cloud computing, and robotic process automation (RPA).

The next wave of banking

The banking sector has undergone five distinctive stages of technological advancement: the newest and most exciting phase is known as BankTech Wave 5, marking a new era of development and innovation that is revolutionising how banks operate and offer value to clients. Its focus is banking marketplaces, where banks use cloud computing to provide a range of financial services and products on a single platform. This makes it possible to create original, scalable solutions that enhance customer convenience, transparency and choice, while also boosting bank productivity and profitability. The elements of Wave 5: architecture, microservices, composability, embedded AI, hyper-personalisation and ecosystem building must become a priority for banks if they aim to survive in the current digital era.

FinTech companies are regularly making changes within the critical area of payment orchestration and transformation. In response, banks are moving towards using the events driven, BaaS solutions now available to keep up with the growing burden of regulatory changes and the increasing rollout of new payment products. Banks can quickly get their technology stack up to speed, without needing to invest heavily in building such capabilities in house. These technologies give control to the bank’s IT teams in addressing customers’ needs, with agility and reduced dependency on their IT partner ecosystem.

The emergence of AI

The past year has witnessed a surge in the use of Generative AI, regarded by McKinsey and other industry analysts as an important tool in helping banks to manage risk by synthesizing enterprise risk management summaries from existing data and reports. GenAI solutions are central to enhancing customer interactions, boosting productivity, empowering employees, and revolutionizing creative processes. Virtual Assistants and chatbots have, for example, become ubiquitous in-service platforms, augmenting the customer experience by leveraging AI to analyze individual data and deliver personalized banking services.

AI’s role in optimizing payment processes and detecting fraud is also reshaping the industry, promising more efficient transactions and enriched user experiences, as niche solutions like payment enrichment and validation gain traction through their ability to provide structured remittance information and enhance straight-through processing.

Looking ahead, the banking industry will evolve further, driven by technological advancements and changing customer expectations. Traditional revenue streams face challenges, necessitating a focus on efficiency, security, and tailored solutions. Amid this innovation wave, the way forward is to “work smarter, not harder” — and collaborating with industry partners able to move the needle for your bank will be key to success.

About the Author: 
SV Ramanan is the Chief Executive Officer, India & South Asia, for Intellect Design Arena

^[i] https://www.forrester.com/report/the-state-of-digital-banking