By Frode Berg, Managing Director – EMEA, Provenir
Today’s financial services industry is defined by rapid technological advances and a fast-evolving regulatory ecosystem that’s working hard to keep up.
Against this dynamic backdrop, the pressure on banks to remain both competitive and compliant has never been so intense. In an era shaped by the likes of Netflix and Just Eat, consumers are expecting the same seamless user experience and speed of delivery from their financial services providers.
Banks’ ability to survive and thrive in the new economy will therefore depend on their ability to successfully embrace digital thinking and the smarter artificial intelligence (AI) innovations that we are now seeing enter the market at pace.
A pressing need for a new mindset
What this means is that digital transformation is perfectly poised for significant acceleration in 2024.
Fuelled by the widespread adoption of hyper automation and the integration of AI-driven decision-making processes, digital transformation will further empower financial institutions to streamline their operations, boost efficiency, and harness the power of data analytics for more informed, precise, and strategic decision-making.
This can ultimately propel ambitious financial institutions to new heights of innovation and customer satisfaction.
But it will depend on their ability to fully grasp the opportunity. Banks and other financial institutions must start thinking of the digital journey as a non-stop set of continuous interactions with their customers.
It starts from the first point of contact, whether it’s a customer browsing a website or applying for a financial product on their mobile device. It’s imperative that providers maximise every digital interaction along the journey. And to do that, banks will need to ensure they have the technological capabilities as well as a thorough understanding of the customers’ needs. This will ensure frictionless and personalised interactions which are quick and informative for all consumers.
Data is imperative in ensuring that banks understand consumers, with the growing use of Big Data and the evolution of technologies such as AI and machine learning, the amount of data available to banks is unlimited. Banks should be using technology and data to understand what a consumer needs and when during every interaction of the consumer journey.
True digital transformation goes far beyond simply moving from paper or legacy technology to online systems. It’s much more than simply digitising processes. It requires a shift in a company’s mindset to discover how it can create more engaging and memorable digital banking experiences.
Harvesting the rich data landscape
The good news is that the building blocks are already in place.
Thanks to open banking, there is now a plethora of rich data for banks to draw on. Recent figures from Open Banking Limited highlight that 11% of British consumers are now active users of open banking as the country warms up to the proposition. According to recent CMA9 data, in January 2023, 7 million consumers and SMEs used open banking services.
This trend is being mirrored globally, with open banking particularly gaining traction in Brazil where Pix, the country’s open banking-powered instant payment scheme, outnumbered credit and debit card payments in the first quarter of 2023.
The entry of major consumer-focused players into the open banking space indicates that mass adoption is on the horizon, and I’d expect that the arrival of PSD3 will help mitigate the remaining regulatory challenges and further enable financial services organisations to explore innovative data-led strategies.
The reality for open banking is that the industry has experienced difficulties getting past hurdles such as consent, whilst struggling to truly convey the benefits of open banking to customers. Customer journeys often appear cumbersome due to the need to redirect to external banking providers, which often leads to attrition or loss of revenue.
Consumers are also cognizant of the negative outcomes of sharing data raising concerns around data security. However, there is optimism with the banking sector that open banking will continue to be game-changing in terms of customer-centric, tailored, real-time decisioning.
Rise of the machines
There will also be more significant strides in technology in 2024. As AI continues to mature, there is likely to be a shift towards using more precise language, using alternative terms such as robotics and machine learning that are more fitting to its capabilities.
As these technologies evolve and develop, banks are enabled to review all the key data they receive, allowing them to tailor their products to consumers’ individual needs and identify opportunities. Machine learning could be pivotal in ensuring that financial services firms move away from a ‘one-size-fits-all’ mentality and identifythe key trends in behaviour at the right point in time for individual customers.
In fact, according to McKinsey: “The cumulative benefits are so great that the annual potential value of AI and analytics for global banking might be as high as $1 trillion.”
And consumer expectations around customer experience are also likely to rise even further, given that they are increasingly reaping the benefits of convenience brought by AI in various aspects of their lives.
Banks are also increasingly leveraging the power of AI to combat fraud, as well as to fight off competition from smaller and more agile rivals. By 2025, it’s expected that the banking sector will spend an extra $31 billion on embedding AI into their existing systems, which really drives home just how indispensable AI technologies will become to the sector.
Whether banks now choose to partner with fintechs to speed up their digital journey or compete against them, one thing is certain: we are on the cusp of the real ‘big bang’ moment in digital transformation.
Many point to partnerships and strategic collaboration as the best approach for financial services to efficiently accelerate digital transformation, but it’s down to each organisation to perhaps now take the time to consider their options and the path that best suits them.
