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Whitepaper: 5 Trends Impacting the Financial Services Sector

November 28, 2018

Financial customers today want access to their financial information and be able to conduct transactions anywhere, anytime. As a result, banks and financial services firms have embraced technology as a way to further their business and compete effectively and wholly against their online competitors. As a result, they now engage with their customers via whatever means the customer prefers: in-person or online, self-service or with assistance from a banking representative.

Introduction

The financial services industry has undergone massive transformation as competition from online service providers and changing customer behaviors have threatened the traditional banking structure. Gone are the days of “banker’s hours”—customers today want access to their financial information and be able to conduct transactions anywhere, anytime.

As a result, banks and financial services firms have embraced technology as a way to further their business and compete effectively and wholly against their online competitors. As a result, they now engage with their customers via whatever means the customer prefers: in-person or online, self-service or with assistance from a banking representative.

Indeed, this omnichannel banking experience is becoming more important as customer behaviors continue to change. According to one survey by PwC, 46 percent of consumers now prefer to do their banking solely online.1 At the same time, 62 percent still believe in the importance of bank branches.2 Such findings demonstrate the need for banks to provide services that meet the needs of all their customers, no matter how they interact.

At the same time, the threat of security breaches and the need to comply with regulatory requirements are putting an even greater emphasis on technology as a critical element in banks’ overall strategies. And, as new regulations affecting the financial services industry are enacted, it is at this intersection of customer, operations and management where technology plays a critical role.

Banks understand this and are taking action: According to research firm Gartner, the global banking industry will spend $519 billion on IT in 2018, a 4.1 percent increase from $499 billion in 2017.3 Many of these technologies will be chosen to help banks achieve their goals of security, compliance and customer-centricity.

Technology Trends in Financial Services

Banks have big challenges; however, new and emerging technologies can be a major driver in helping banks succeed. Five technologies in particular—artificial intelligence (AI), big data and advanced analytics, blockchain, APIs to promote open banking and biometrics—are shaping up to have a particular impact on the financial services space in 2018.

Artificial Intelligence
Artificial intelligence and machine learning are proving their worth in a wide range of industries, from retail to logistics and beyond. In the financial services sector, AI is already being used in various applications such as chatbots, mostly to answer customer questions automatically which frees customer service agents to focus on other, revenue-generating services. In 2018, however, chatbots will move into other areas including personal banking services, always-on customer support, gathering customer feedback, employee self-service and targeted marketing efforts.4

AI also can help banks forge deeper relationships with their customers by providing insights beyond gender, age, and location to behaviors, patterns and financial history. Such information can act as a road map for banks in offering products and services, developing marketing and financial programs or establishing channels of interaction.

In operations, AI has the potential to detect fraud by sifting through massive amounts of data and uncovering patterns that might signal illegal or unscrupulous actions. AI also can help banks save on operations costs and improve their operational efficiency by automatically modeling the variables in each system and determining the various impacts and outcomes, freeing teams from what otherwise can be a time-consuming and expensive undertaking.

Big Data and Advanced Analytics
Much of the power of artificial intelligence is the result of big data. However, big data and advanced analytics can offer more to the financial services sector than just AI, such as qualitative analysis for forecasting, bolstering security and even determining branch locations. A growing number of banks understand the power of big data and advanced analytics in helping them understand the trends impacting their business.

Big data is not a new technology, but its importance continues to expand in the financial services space. According to research firm Technavio, big data spending in the financial industry is set to grow 26 percent between 2018 and 2022.5

As banks further understand the ways in which big data can impact their business, they are investing in data visualization and extraction platforms to assist in uncovering opportunities and other actionable data to make intelligent business decisions.

Blockchain
The technology underlying bitcoin and other cryptocurrencies can have a tremendous impact on the banking industry, with bank spending on blockchain technology expected to reach $400 million by 2019.6

And with good reason: Blockchain can speed the processing of transactions, which can save financial institutions a lot of money. Cross-border transfers traditionally can take days, but blockchain technology can reduce that time to mere seconds. In a proof of concept trial, a Canadian financial services company used blockchain to transfer money from Alberta to ReiseBank in Germany. The transaction, which normally would have taken two to six days, was completed in 20 seconds, according to the bank, which has since improved its processes and reduced the transaction time to 10 seconds.7

Blockchain also reduces the amount of money financial institutions pay for “Know Your Client” regulations, which currently amount to $60 million to $500 million per year.8 Blockchain enables multiple organizations to utilize the independent verification of a client by one organization, so each organization doesn’t have to go through the process, which could help save on administrative and overhead costs related to KYC verification.

Other areas where blockchain could prove useful in financial services include smart contracts, stock trading and payments.9

APIs to Promote Open Banking
As banks increasingly become more customer-centric, they are looking to offer services that further promote an exceptional customer experience. In addition, as they seek to find more value in big data, advanced analytics and artificial intelligence, banks need ways to connect services and other technologies to their systems. Application programming interfaces (APIs) are becoming the preferred method to provide that integration.

Quite simply, APIs provide access to the core platforms so developers can develop more innovative products such as custom mobile apps and integrate existing technologies such as chatbots or voice recognition. Using APIs can streamline a company’s development process to speed time to market and expand the functionality of their applications and services.

In financial services, the benefits of using APIs are myriad and can have a profound impact on operations. For example, using APIs, banks can connect with third-party providers for services such as credit rating agencies to enable loan decisions in minutes, not days.

What’s more, access to system data and capabilities in API-driven environments occurs only through the APIs, making the data much more secure than using manual or file-driven processes.

Biometrics
As more customers move the majority of their banking online, biometrics is helping banks and financial services firms ensure customers are who they say they are and help decrease the possibility of fraud. Fingerprint, voice and even KYC verification via videoconference are some of the ways the financial sector is using biometrics to authenticate their customers online.

The adoption of fingerprint identification has increased since Apple, Samsung and other companies added the technology to their mobile devices. The initial concerns over privacy have since been usurped by the conventional fingerprint recognition offers.

As biometrics improves in both accuracy and sophistication, customers will further adopt the technology as a viable—and much more convenient—alternative to creating and remembering strong passwords.

Next-Gen Technologies: How the Network Matters

The technologies that have the power to transform the financial sector are wide-ranging and serve to make banking more secure, compliant and customer-centric. As new regulations that impact the financial services industry come into play, such as the European Union’s General Data Protection Regulation (GDPR), the financial sector is facing increased pressure to remain as such.

In moving to implement these transformative technologies, financial institutions first must prepare their networks to ensure they are able to handle the increase in traffic and demand for bandwidth. Big data, artificial intelligence, blockchain and other technologies will stress the bandwidth of traditional networks, leading to delays in response time, lags in performance or—in a worst-case scenario—even network crashes and downtime.

Banks and financial services firms, therefore, need to ensure they have the right foundation for both customer-centric and operational applications, as well as new opportunities yet to be imagined. Today’s efficient networks comprise multiple technologies and platforms all chosen to ensure the solutions they support to operate at peak performance without issue.

In building a network that supports these new technologies, providers should consider an environment that includes both on-premises and cloud, and networking technologies such as SD-WAN to ensure traffic is handled efficiently over any type of network. And networking components such as WiFi and unified communications can ensure users of the network—employees, customers and service providers—can interact and transact however and whenever they choose.

To help ease stress on a financial institution’s current network—and help speed the transformation process—managed services can be utilized to offer certain services without further impacting the network. Managed services can be used to help tie disparate systems and “fill in the gaps” as banks and financial institutions work to improve their functionality, and can prove useful even after networks have been upgraded.

Working with a network service provider can help ease the burden associated with building and maintaining a network capable of handling the bandwidth-intensive needs of the technologies pushing the financial services sector forward. By working with a third-party network services provider, banks and financial institutions can leverage virtual and physical private Ethernet connectivity to ensure there are no gaps in network performance and availability for critical applications. They also can receive all or some of their most critical connectivity functions as a managed service, including managed connectivity, WiFi, security, voice and business continuity, among others.

Conclusion

The financial services sector is transforming in response to changing customer behaviors, the constant and growing threat of data breaches and tighter regulatory controls. As technology evolves to address these growing concerns, an institution’s network must evolve, as well. Having the right network infrastructure in place to handle increasing bandwidth and data management needs will enable banks to achieve their goals of security, compliance and customer-centricity.



[1] “(Don’t) take it to the bank: What customers want in the digital age,” PwC, May 2017
https://www.pwc.com/us/en/financial-services/publications/assets/pwc-fsi-whitepaper-digital-banking-consumer-survey.pdf

[2] Ibid.

[3] “Forecast: Enterprise IT Spending for the Banking and Securities Market, Worldwide, 2015-2021, 3Q17 Update,” Gartner, Oct. 30, 2017,
https://www.gartner.com/document/3821565?ref=ddrec

[4] Veeranjaneyulu Chettupalli, “Important use cases of AI-powered chatbots in the banking industry,” Medium, Jan. 2, 2018
https://medium.com/swlh/important-use-cases-of-ai-powered-chatbots-in-the-banking-industry-19115411af54

[6] John Mason, “Why Blockchain will revolutionize the banking industry,” Brave New Coin, Dec. 27, 2017
https://bravenewcoin.com/news/why-blockchain-will-revolutionize-the-banking-industry/

[7] Ibid.

[8] Bernard Marr, “Practical Examples Of How Blockchains Are Used In Banking And The Financial Services Sector,” Forbes, Aug. 10, 2017
https://www.forbes.com/sites/bernardmarr/2017/08/10/practical-examples-of-how-blockchains-are-used-in-banking-and-the-financial-services-sector/#ea26c521a116

[9] Ibid.

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