Two years of the pandemic has led to a fundamental change in the banking industry as traditional methods are no more effective. The Banking and Financial Services industry looks to becoming more adaptive, innovative and tech-savvy to reduce human contact and enable banking with technology.
Throughout 2021, financial institutions were busy reassessing and rearranging their operations and strategies to become more proactive and continue serving their customers digitally and cost effectively. Last year we saw that banks accelerated their digital banking transformation efforts and invested heavily on online banking, including digital payments, data, advanced analytics and above all “Customer Experience”.
We see immense opportunities and an incredible future for the banking industry in 2022. Here are six trends we have identified that will shape the banking industry this year.
Intelligent Process Automation
Robotic process automation (RPA) and digital process automation (DPA) will enjoy a healthy growth in 2022 as banking institutions realize the benefits of process automation tools beyond improved efficiency. New account opening, customer onboarding and loan application management can be made more efficient with the use of RPA. AI blended with ML will enhance analytics for improved decision-making, customer behavioural pattern analysis, credit history analysis and fraud detection.
Core Banking in the Cloud
According to an IBM Study, 91% of financial institutions were using cloud services as of 2021 but only 9% of mission-critical regulated banking workloads have been deployed in a cloud environment. However, the historical reluctance to adopt cloud for core banking systems is vanishing rapidly. In 2021, banks realized that rigid operating models with on-premises, legacy IT systems fail to keep up with modern digital operations and customer demands. Also, on-prem infrastructure is increasingly becoming costlier to update and maintain. Thus in 2022, core banking will be a prime target for cloud adoption as cloud-based infrastructure can help banks react to marketplace changes instantly. Hybrid cloud adoption is also set to go up. Hybrid cloud computing allows banks to safely store sensitive information but still scale by dividing this between private cloud (in-house data centre) and cost-effective and efficient public clouds with key controlled access for maximum security.
Cloud core banking solutions are also available to smaller banks and credit unions enabling them to provide similar technology-enabled services as larger banks, helping them compete.
According to research conducted by PayVision, retail mobile payments are believed to rise to over $2.7 billion by 2022. While contactless payments have already won a special place in everyday routines, thanks to the pandemic, QR Code Payments are steadily getting integrated into the world of ecommerce through loyalty programs that thrive on point redemption and deferred payment options. Finally, embedded payment services through Mobile Pay and Hybrid Wallets for cross-platform transactions are set to skyrocket contemporary business transformations. The total transaction value worldwide in the Digital Payments segment is projected to reach US $7,860,739m in 2022. But to further deepen the penetration of non-cash transactions, regulatory bodies have been laying down frameworks for offline digital payments. Payment companies are also deploying offline solutions to help overcome network constraints.
Buy Now Pay Later
Flexible payment options such as BNPL are growing popular rapidly globally. Worldpay’s 2021 Global Payments Report found that BNPL had grown to account for 2.1% of all global e-commerce transactions in 2020. Now, this figure is expected to double by 2024 when BNPL will account for 4.2% of all global e-commerce sales.
However, financial institutions and merchants need a well-rounded understanding of BNPL, including integration requirements, onboarding customers and seamless checkout experience. For merchants, BNPL integrations are straightforward and technically similar to other popular options like cards or digital wallets.
Banks see BNPL for what it is – a short term loan. Technology will guide the customer through the process while gathering sufficient data, online and in real-time, to enable checks via national databases to confirm identity and assess credit score and affordability risks. With automated Open Banking processes, the BNPL provider can run an automated checks of customers income and outgoings in minutes and take a call on enrolling the customer.
Making every customer feel equally valued is of utmost necessity and hyper-personalization is the only medium that truly reflects this. Sophisticated wealth management and financial advisory tools provide stakeholders with the bespoke and sought-after experience. Automating regular transactions and tailoring the end-to-end digital journey not only impacts investments and financial decisions, but it also puts every customer first and goes beyond to maximize your knowledge of your customers. Additionally, Customer Data Platforms make real-time data accessible and actionable, paving the path for personalized recommendations and stories. Beyond data governance, CDPs also deliver campaigns based on anticipated intent, to supercharge the lead funnel besides providing personalised services for the existing customer.
Expansion of Open Banking APIs
The Open Banking ecosystem grew tremendously during 2021 and will continue to evolve at pace in 2022. US President Joe Biden’s 2021 executive order to prioritize regulations that would make it simpler for customers to access data and transfer it to other banks and fintechs is a blessing for the Open Banking ecosystem. Banks and credit unions are also investing heavily in developing APIs to enable open banking. The number of banks and credit unions that have invested in or developed APIs has grown from 35% in 2019 to 47% in 2021, and another 25% plan to invest in or develop APIs in 2022. These developments will elevate open banking in 2022 leading to an exponential rise in customer adoption.
BaaS is a tremendous opportunity for financial institutions to capture new revenue growth at a low cost. The nature of BaaS is such that it is easily scalable and agile which makes it highly suitable for entering new markets and then expanding heavily. BaaS allows financial institutions to team up with non-financial businesses like Amazon, Apple and Google etc. and reach more customers.
BaaS has brought in thrilling possibilities in the banking ecosystem. For a financial institution, it is an opportunity to reach a greater number of customers at a lower cost. The cost of acquiring a customer is typically in the range of $100 to $200, according to an Oliver Wyman analysis. With a new BaaS technology stack, the cost can range between $5 and $35. For the distributor, offering products opens new revenue lines at attractive margins, who can then deepen relationships with customers and capitalize on cross-selling opportunities.
The acceleration of digitization, including automation and APIs will lead to more companies adopting BaaS in 2022. Any company with a large customer base will start embedding financial services into their own business in collaboration with financial institutions through BaaS.
In a nutshell, keeping up with the inflated appetite of a dynamic digital world, while recovering from the massive setback of the global pandemic requires a focused journey to surpass historical backlogs and perspectives. Digital contactless transactions are here to stay even after the pandemic. There is no going back to old ways anymore as fintech has now become an integral part of the banking ecosystem ushering in a new normal in the financial world.
Aspire Systems is a global technology services firm serving as a trusted technology partner for more than 200 customers across the globe. We work with banks and financial institutions by helping them leverage technology across every step of their digital transformation journey. Contact us to know more about Aspire’s BFS offerings and how we can help you stay updated with modern technology and be in sync with current trends.
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