Rohit Bhosale, digital banking specialist, Persistent Systems
Last year saw increased digital adoption within the finance sector, with industry organisations recognising the need for innovative technologies that enable them to deliver greater value to customers.
However, while digitalisation was at an all-time high, in 2022, financial organisations were also faced with a series of stumbling blocks due to fallout from new Brexit legislation, the pandemic, and increased geopolitical tensions. These conditions meant many institutions had yet to experience the full benefits of digital adoption.
As we begin 2023, the sector finally stands to see the consistent benefits of its digital adoption, particularly with the proliferation of embedded finance and artificial intelligence and machine learning (AI/ML). Meanwhile, previously attractive cryptocurrencies will see a downturn in investment and the role of physical bank branches will continue to change.
Financial organisations have ripe opportunity to start gaining a competitive advantage this year by harnessing technologies that drive innovation, change, and new customer experiences.
Digital and embedded finance will become more prominent
We’re already bearing witness to the spread of embedded finance where third-party organisations offer financial services through a wide range of familiar applications. For example, when you’re shopping online with your favourite retailer and opt for Buy Now Pay Later (BNPL) via services such as Klarna. This will only become more prominent in the months ahead, with additional services poised to optimise a customer’s experience across the buying journey.
This is a positive trend for financial institutions that can leverage these new levels of digitisation to boost customer acquisition and garner new revenue streams. Retail and e-commerce platforms, and payments and lending, are major use cases for embedded finance solutions today, but expect growth in insurance, tax, accounting, and other services too.
Although this trend will also contribute toward greater fragmentation within the sector, with more customers seeking service through third parties rather than directly, investing in the right capabilities will lead to multiple new opportunities.
Relevance of voice assistants will increase
AI-based assistants have become more widely used. With smart speakers such as Amazon Alexa and Google Home becoming more popular with homeowners, there will be a race to offer more services via them. This presents an opportunity for finance organisations to increase customer touchpoints and satisfaction, with the development of technology that enables account holders to access their accounts and make transactions via voice input. Theoretically, this means they’ll be able to transact simply by issuing commands to their devices, without the need for mobile apps, but importantly would provide consistency regardless of which device account holders use.
When achieved, we’ll see AI/ML adoption across the sector, with banks developing a suite of chatbots and digital assistance functionalities to improve the customer experience (CX) further.
At the same time, it’s important to note that there are many challenges that need to be overcome before AI-based voice assistant becomes a widely adopted technology. For example, security and privacy concerns will need to be addressed, both financial organisations and third-party providers will need to consider how to standardise security measures across devices.
Cryptocurrency will lose its appeal
While cryptocurrencies may continue to be popular in 2023, it’s also possible that they could lose some of their appeal as other technologies and financial products emerge.
The extent of crypto investment will decline, despite the number of investors having remained high in previous years. A series of shutdowns and issues with independent cryptocurrencies over the last 12 months have prompted doubts around their viability.
This doesn’t necessarily mean the increase of digital currencies will halt though, as many nations’ central banks are opting to launch their own digital currencies. In the UK, The Bank of England is in discussions regarding the central-bank digital currency (CBDC) and state that it would be less volatile, with ten digital pounds always worth the same as £10 in cash.
It is important to note that cryptocurrencies are decentralised and not backed by central banks, while CBDCs are centralised and issued by central banks. Cryptocurrencies are primarily used for speculative purposes, while CBDCs are being developed with the aim of improving the efficiency of payment systems and increasing financial inclusion.
CBDCs are a relatively new trend, and their future role in the financial system is still uncertain but their comparison with cryptocurrencies will evolve as both technologies continue to mature and as the regulatory landscape for digital currencies develops.
Physical bank branches will need to adapt
It’s likely that physical bank branches will continue to play a role in the banking industry, but their role will evolve and become more focused on providing specialised services and support to customers. Banks may also use physical branches as a way to showcase their brand, provide a physical presence in the community, and build customer relationships.
This means in-branch bank experiences will need to move beyond the traditional services they have always provided. While some transactions will still need to be done in-person for now, such as identity checks for a change of name on an account in some cases, most branches will find themselves becoming training hubs for customers rather than actioning financial tasks.
Training customers who still lack the digital skills to use online banking via a website or app is crucial in building customer confidence and trust in digital journeys. This means staff working in-branch will need different skillsets to those previously required.
Going forward, the most successful banks will likely be those that can effectively balance their digital and physical offerings to meet the needs and preferences of their customers.
The geographical formation of branches will also shift, with fewer physical locations in metropolitan areas compared to rural communities, where the extent of digital adoption may be limited.
External subject matter experts will help organisations succeed
With an ongoing wave of digitalisation sweeping the financial sector, it’s clear that industry organisations will need to consider which among a range of new technologies are best suited to their needs. However, it can be challenging to manage budgetary challenges and the need for technical training, and to invest in the right choices that can scale within the rapid pace of transformation.
This is where an external technology subject matter expert is poised to deliver unique value, given their understanding of the tech and finance landscapes, and knowledge of developments before they reach market-level awareness. Through consultations with these experts, financial organisations will be empowered to stay ahead of the curve in the coming year.
As financial organisations strive for growth and to improve margins, reduce complexity and optimise operations, it is imperative to deliver new, differentiated experiences. Working in partnership with technology providers is crucial to meet the pace of change to systematically manage innovation, engineering, and management across an organisation’s platform roadmap and service offerings.
With the right digital strategy there is no need to be afraid to reimagine, develop and modernise experiences across the financial sector.