Banking and Finance Innovations in February 2020 (Industry Digest) - ByteScout
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Banking and Finance Innovations in February 2020 (Industry Digest)

The financial services industry has been evolving with fintech disrupting the status quo across the entire spectrum of the industry. We analyze innovations across the front office (customer engagement), middle office (automation), and back-office (settlement processes).

Table of Contents:

  1. Summary
  2. Building and Communicating Customer Loyalty more effectively
  3. Micro-customization: Personalizing customer insights
  4. Augmented Reality to communicate card benefits
  5. Chatbots – Using voice & becoming interoperable
  6. Automating Middle Office Tasks using RPA
  7. Blockchain to secure transaction processing and make it simple

 

Banking and Finance Innovations

Summary

Organizations in the financial services industry have been re-architecting the entire firm – right from customer acquisition to back-office settlement tasks. In this article, we discuss the following major innovations

  1. Focus on customer loyalty using digital means- How firms are micro-customizing customer insights and communicating them to clients.
  2. Focus on optimizing middle office “what-if” tasks.
  3. Implementing blockchain in post-trade settlement to deliver higher security and enabling real-time information sharing

 

Building and Communicating Customer Loyalty more effectively

Banks are taking several digital approaches to build customer loyalty, which is necessitated by the changing demographics of its customers who are increasingly millennials and Generation Z. Competitive threats such as Fintechs expanding into the financial services space using unconventional business models are on the rise. Some of the focused innovations seen in 2019 in the space were on:

 

Micro-customization: Personalizing customer insights

Personalizing customer interactions has a high return on investment, up to 3x returns on its assets annually, according to BCG. We, therefore, continue to see banks invest in technologies that provide its customers precise and actionable insights – such as those on the spending behavior, upcoming bills, account balances, and highlighting possible duplicate transactions. An example of one such bank that launched this service in 2019 was Huntington Bank. The bank unveiled “Heads Up,” an AI-powered software that provides its customers personalized advice and alerts on their account status. We will see more action in this space in 2020.

 

Augmented Reality to communicate card benefits

Augmented Reality (AR) and Virtual Reality (VR) are slowly making an appearance in the financial services industry. An example of this is in Dec 2019, Mastercard rolled out its augmented reality app that allows its customers a visual view of their card’s loyalty benefits. Mastercard intends to drive business growth by amplifying the communication around card privileges to its clients. The benefits of a Mastercard that users often forget due to sub-optimal communication techniques such as mailers are once again re-established due to Augmented Reality.

 

Chatbots – Using voice and becoming interoperable

Financial institutions have quickly adopted chatbots over the past few years to supplement customer service and cut costs. The technology is now becoming smarter. Not only are chatbots able to communicate personalized financial advice to the end customer, but they can do so using voice. According to Gartner, 85% of all customer service interactions will happen over chatbots by the end of 2020. With devices like Alexa, voice is fast becoming the interaction medium of choice. Another buzzword for 2020 will be chatbot inter-operability. While organizations build chatbots for their apps and devices, there is a growing trend of chatbots needing to interact with bots from other applications to deliver a service. As an example, if the customer asks his bank-bot to pay a utility bill, then the bank bot should be able to communicate with a utility payment bot and execute this transaction. Such interoperability of bots will continue to break new grounds in 2020 and beyond.

 

Automating Middle Office Tasks using RPA

Robotic Process Automation (RPA) is a practice that automates mundane rules-based business processes, thereby letting workers focus on higher-value tasks. An example of RPA deployment is American Express – they use bots that have automated the task of canceling airline tickets based on client communication and processing refunds to their cards.

RPA, as an industry, is scaling up with Gartner forecasting the RPA market size in 2020 to be around $1 Billion. However, estimates from Forrester indicate that the market size could multiply to $23 Billion by 2023, a massive surge in growth. Several banks have been implementing RPA to manage costs. Japanese banks have started cutting jobs to reduce costs and are using RPA in response to the current negative interest rates in the country. The Japanese unit of Barclays Bank was one of the first to start using RPA in a big way, while banks such as Sumitomo Mitsui have followed suit. UiPath, the US-based start-up that has been implementing automation at Japanese banks, set up its local unit in 2017. Its corporate clients have since increased to 2000 in 2019 while its employee strength amplified to 270 from 3 in 2017.

 

Blockchain to secure transaction processing and make it simple

Several industry applications of blockchain have started to emerge globally. Visa has taken the lead in 2020, announcing the launch of a blockchain-based visa token service, with plans to take the service globally by the end of 2020. The service allows users to transact without needing to input their 16-digit card numbers or passwords by using alternative authentications such as biometrics and device bindings. In addition to improving user experience, using tokens and blockchain-based infrastructure to process this critical information enhances the secure nature of these transactions. Visa expects that by the end of 2020, this service will cater to a transactional volume of $1 trillion.

Innovations based on blockchain continued to be a theme in 2019. Following are a few examples of blockchain implementation in financial firms:

  1. The world’s largest financial services firms like Barclays, UBS, Banco Santander came together and invested £50 million into building a utility settlement coin (USC) under a venture named Fnality in mid-2019. Fnality aims to reduce settlement risk in the post-trade settlement process among major global currencies.
  2. To minimize friction in the cross border payments process, JP Morgan’s Interbank Information Network (IIN), first piloted in 2017, reached 365 partner banks by the end of 2019. IIN enables member banks to exchange information in real-time as a way to verify that the payment is approved.
  3. 2019 also marked the debut of Intercontinental exchange’s first bitcoin futures, Bakkt, focused on using blockchain technology for digital assets.

 

The bottom line

2019 has seen financial services firms across the globe invest in technology to stay competitive. No workflow across the front, middle, and back-office operations has remained immune to such changes. The trend is only likely to accelerate in 2020 and beyond.

Links and Sources:

  1. 7 Technology trends to disrupt financial services: https://www.forbes.com/sites/bernardmarr/2019/11/08/the-7-biggest-technology-trends-to-disrupt-banking–financial-services-in-2020/#52c8e9b72c42
  2. Mastercard AR tool: https://bankinnovation.net/allposts/biz-lines/payments/mastercard-turns-to-ar-to-visualize-loyalty-benefits/
  3. Utility Settlement Coin Company: https://www.finextra.com/newsarticle/33921/big-banks-create-utility-settlement-coin-company
  4. RPA in Japanese Banks: https://www.bloomberg.com/news/articles/2019-07-18/japanese-banks-turn-to-u-s-automation-startup-to-cut-costs
   

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