Advancements in technology and easy access to the internet have altered the delivery and consumption model of financial services. The current state of digital banking not only reflects significant progress from early years but also underscores the vast potential that lies ahead. To remain relevant in this dynamic scenario, banks and other financial institutions have to swiftly embed into the digital ecosystem and harness its transformative impact on consumer banking practices. Adaptation to this shift necessitates that traditional banks and other financial institutions to embrace modern technologies such as artificial intelligence, facilitating real-time and personalized engagement with customers and members.
The banking industry a few years down the line will look very different from what it looks like today. According to the recent Customer Loyalty Survey conducted by PwC, a substantial 82 percent of respondents expressed their willingness to disclose personal data in return for an enhanced customer experience. Needless to say, the focal point of success in the banking ecosystem will be the priority placed on delivering a well-rounded customer experience. While predictions into the future are always fraught with uncertainty, it is safe to say that the landscape is poised to become far more competitive, innovative, and efficient while delivering autonomous experiences to consumers that were not possible until now. Crucial to this will be understanding how technology is reshaping the way people live, think, and work, and embracing this insight to help consumers manage increasingly complex lives while giving them the confidence that their data is secure and protected. But how can they do so effectively?
Transitioning antiquated systems into a banking-as-a-service model.
Banks need not regard a complete overhaul of their legacy systems as the only solution to aligning with the ongoing digital transformation in the industry. Instead, the focus should be on connecting legacy systems with new capabilities through adaptable automated platforms. This approach effectively transforms the core systems, enhancing functionality beyond their current capacities and providing a more accessible and cost-effective route for banks to keep pace with industry changes.
One compelling example of transitioning legacy systems into a Banking-as-a-Service (BaaS) model is the journey of BBVA, a prominent Spanish multinational bank. Facing the challenge of adapting to rapidly evolving customer expectations and industry trends, BBVA embarked on a comprehensive digital transformation strategy.
Instead of opting for a complete overhaul of its legacy systems, BBVA adopted a modular and API-driven approach to transform its traditional banking infrastructure. The bank leveraged modern technologies, including cloud computing, advanced analytics, and artificial intelligence, to enhance its capabilities and offer more flexible and personalized financial services.
Through this transition, BBVA successfully implemented a BaaS model, enabling it to provide a range of financial services through APIs. This shift allowed BBVA to seamlessly integrate with fintech partners, third-party developers, and other businesses. By opening up its banking infrastructure through APIs, BBVA enhanced its digital ecosystem, offering services beyond traditional banking to meet the diverse needs of its customers.
It is clear from the example that intelligent automation platforms play a crucial role in bridging the gap between legacy systems and new technologies. This integration facilitates the introduction of new products, including the adoption of banking-as-a-service (BaaS). Leveraging BaaS, non-bank businesses can provide digital banking services without holding a banking license, enabling banks to broaden their customer base and revenue streams.
Mitigating financial crime
In today’s evolving landscape of financial threats, bolstered risk management tools become imperative. Heightened geo-political tensions, exemplified by the Russia-Ukraine conflict and strained US-China relations, intensify the pressure on banks to navigate straight-through payment processing efficiently while concurrently reducing operational costs. Notably, with sanctions currently imposed on Russian residents and businesses, effective risk mitigation strategies are critical.
To address these challenges, financial service operators must ensure a modern and adaptable service infrastructure capable of advanced risk management. This involves proactively managing the escalating risks of financial crime and sanctions while simplifying account servicing. Achieving this requires adopting a best-of-breed approach that integrates investments in legacy systems with newer AI-based automation technologies. The incorporation of intelligent automation and AI into this process facilitates operational cost savings and compliance efficiency through increased automation of backend systems. This approach enhances the detection and management of financial crime.
Global banking giant, HSBC, has implemented an integrated approach that combines enhanced risk management with intelligent automation and artificial intelligence (AI). The bank utilizes sophisticated fraud detection algorithms, sanctions screening tools, and case management platforms to streamline its workflow efficiently. By connecting these tools, HSBC has strengthened its ability to detect and prevent financial crimes, including money laundering and fraudulent activities.
One notable initiative by HSBC involves using machine learning algorithms to analyze patterns in customer transactions, identifying anomalies that could indicate potential illicit activities. This proactive approach enables the bank to stay ahead of emerging threats and adapt its risk management strategies in real time.
Transformation for sustainability
To facilitate the transition towards sustainability, banks can initiate the process by integrating sustainability assessments into their lending and supply chain operations. This involves incorporating environmental, social, and corporate governance (ESG) guidelines and data feeds into lending decisions and pricing strategies. When combined with intelligent automation-driven solutions such as ‘know your customer’ (KYC) and ‘know your vendor’ (KYV), banks can effectively navigate the dynamic regulatory landscape while simultaneously optimizing costs associated with lending, pricing, and supply chain processes.
This transformation is already underway through platform solutions available in the market. These platforms actively collaborate with organizations to drive carbon reduction efforts using artificial intelligence and case management. For businesses, these solutions offer support in monitoring capabilities through a guided maturity journey, while customers can proactively take actions to reduce their carbon footprint. Additionally, these solutions address obstacles hindering digital transformation in businesses and effectively tackle ESG challenges. The simplification of backend processes not only enhances supply chain management but also contributes to reductions in direct impact areas, such as paper and fuel consumption.
Axis Bank, one of India’s prominent private sector banks, has demonstrated a commitment to ESG practices. The bank has focused on incorporating environmental and social considerations into its lending decisions. Axis Bank has introduced various sustainable finance products, including green bonds and loans for renewable energy projects. Additionally, the bank has been involved in community development initiatives, aligning with social responsibility goals.
Movement to the Cloud
With the rapid adoption of digital platforms and emphasis placed on data security, there will be an acceleration in shifting banking workloads to public and hybrid cloud platforms. Banks are strategically adopting two to three leading cloud platforms to avoid vendor lock-in, localize potential disruptions, and meet compliance, security, and resiliency requirements. Growing data demands, quicker innovation cycles, improved sustainability through energy-efficient practices, and lower costs by replacing on-premises infrastructure with cloud solutions are some of the factors driving this transition, which ultimately aligns with mounting ESG pressures.
In the face of disruptions driven by open banking and embedded finance, traditional banks must harness the agility, innovation, sustainability, and improved customer experiences offered by leading cloud providers to stay competitive. The imperative now includes migrating core systems and data capabilities to the cloud for sustained relevance and growth.
The future of banking: Customers’ perspective
1. Increased Demand for Digital Engagement:
- Mobile Banking Apps: Consumers increasingly prefer managing their finances through mobile banking apps. Features such as account balance tracking, transaction history, and fund transfers accessible at their fingertips contribute to the growing reliance on mobile platforms. For example, the widespread use of apps like “Chime” or “Revolut” showcases the trend of consumers adopting digital-first banking experiences.
- Digital payments to repay debt: With the widespread adoption of online platforms, debt collection teams are leveraging digital payment technologies to facilitate seamless transactions. This includes the integration of various payment methods, such as credit / debit cards, mobile wallets, and electronic fund transfers. The automation of digital payment processes not only accelerates the debt recovery cycle but also enhances the overall customer experience by providing flexibility and accessibility. Additionally, digital payment platforms contribute to increased transparency, reducing the likelihood of errors and disputes in debt settlement. Billzy Payments is a digital platform by Credgenics, designed for efficient debt collections, allowing borrowers to make swift and secure online payments. The platform empowers collections teams by integrating a seamless digital debt payment process, ensuring hassle-free bill settlements for borrowers.
- Online Account Management: The convenience of online account management, including activities like bill payments, fund transfers, and setting financial goals, has become a standard expectation. Online interfaces provided by traditional banks and digital-only banks alike align with this trend.
2. Emphasis on Personalization and Customization:
- AI-Powered Recommendations: Banks are leveraging artificial intelligence to offer personalized product recommendations based on individual financial behaviors. For instance, if a customer consistently saves money, the banking app might suggest suitable investment options. The use of AI for personalized financial advice exemplifies this trend.
- Customized Alerts and Notifications: Consumers appreciate real-time, personalized alerts regarding their account activity. For example, a notification for unusual spending patterns or a reminder to pay upcoming bills. Banking apps utilize such features to enhance customer engagement and satisfaction.
What is next?
A strategic framework that helps banks and other financial institutions position themselves at the forefront of digital ecosystems is essential. Firstly, the imperative is to evolve into a seamless one-stop destination for both financial and non-financial services, achieved by facilitating the integration of third-party offerings alongside proprietary products. This involves the development of an open architecture utilizing APIs to enhance accessibility and the user experience.
Secondly, the significance of mastering internal data to deliver hyper-personalized experiences, fostering increased customer engagement cannot be ignored. Leveraging AI-driven insights is crucial to comprehending users’ needs and offering recommendations tailored to their preferences, thereby enhancing the overall customer experience. Thirdly, building collaborative relationships with fintechs and third-party solution providers is advocated to swiftly implement cutting-edge innovations within the banking sector. This includes the incorporation of technologies such as AI, cloud capabilities, blockchain, and quantum computing to stay at the forefront of industry advancements.
Despite the challenges, banks can strengthen core relationships and trust-based loyalty in the face of digital disruption. The key lies in transitioning to platform models with expansive ecosystems that seamlessly integrate owned and third-party solutions.
If you are looking to transform your debt collections strategy with the power of digital and data powered insights, reach out to us to request an exploratory session at sales@credgenics.com or visit us at www.credgenics.com.
