COVID-19 has forced businesses and society to adapt to new realities. From big-name Wall Street banks to up-and-coming financial technology start-ups, the pandemic has forced individuals and corporations to look at how business is conducted through a different lens amid ever-changing consumer behaviours. Two years into the pandemic, financial institutions continue to trim their branch footprint and adopt a digital-first approach. The result is a boom in card payments, the expansion of digital channels, and a significant increase in online banking users.
The effect on retail banking consumers
US banks and thrifts permanently closed 233 branches in July. According to US branches as of July 31. However, even as the financial incentives to do so disappear, banks will need to maintain a physical presence to cater to older customers who may not be online, rural communities, and unbanked individuals; banks are more than a place where people keep money: they can be a vital community hub.
COVID-19 could prove to be a catalyst for the acceleration of the trends we’ve seen towards the increased uptake of digitised services, but it will be some time before changes wrought by the pandemic harden. Some current banking trends — including an affinity to use digital channels and online payment tools — will stick post-pandemic, while others will fizzle out and turn out to be a temporary fix. But people who are new to online and mobile banking channels are finding out that it is easy and quick. Banks will have to make investments to build awareness about options available to customers to make current banking habits stick.
The pandemic has put a spotlight on the importance of digitisation. A traditional bank will always maintain a physical presence, but branches are expensive to operate. Financial technology companies, unburdened by complex legacy systems, are primed to benefit from the shift to digital. A loan from a traditional banking institution can take over a week to complete, but neo banks — with their online-only operations that avoid the costs and complexities of traditional banking — can do that in just a few hours.
Rising infections are accelerating the use of online channels, particularly mobile, to view and manage finances. Fintechs, with their cloud-native approach, are purpose-built for the mobile channel, giving them an edge as a greater number of financial transactions are conducted through digital channels.
Digital payment and e-wallet services are expected to boom in a post-COVID world, as fintechs offer tech solutions in the cyber security space as the pandemic has increased cyber security incidents because of the increase in remote/hybrid working. With new digital finance technology comes new entry points for cyber actors to gain access to confidential data.
Ultimately, human intelligence can only spot and stop a finite number of cyber breaches. Therefore, the implementation and integration of Data Science (DS) applications into established financial systems are crucial for survival in the age of digital payments and e-wallets. Its use can help improve banking cybersecurity by:
- Automating the threat hunting process to improve cyber threat detection rates.
- Learning from previous threat patterns and leveraging the information to look for early signs of any potential attack in the future.
- Predicting cyber breaches before they happen.
- Securing and flagging potential threats and sending a notification to the IT team to resolve them.
DS already plays an integral role in business operations. Thus, extending it to improve cybersecurity should be a logical and simple transition to execute. However, with new digital finance applications and the increased use of remote devices to share financial data, mobile banking cyber threats are a growing concern. FIs who fail to integrate DS into their cyber security strategy risk financial and reputational devastation.
COVID’s impact on artificial intelligence in banking
The Bank of England published survey results in December 2020 which aimed to gauge banks’ appetite for machine learning and DS amid the pandemic. Overall, half of the surveyed banks expected an increase in the importance of machine learning and DS for future operations due to COVID-19.
While banks’ appetite for artificial intelligence doesn’t seem to be waning, the pandemic may prove to be a short-term hurdle as investment capacity is strained. Machine learning is only as good as the data it relies on, but with ultra-low interest rates and weakened revenue, the present is not necessarily indicative of the future. But banks may look to re-train machine-learning models to perform better under adverse economic conditions.
Importance of DS in fintech
Financial technology companies use DS-powered solutions to meet the demands of customers who want convenient and safe ways to help with their problems. Help with credit decisions, managing risk, quantitative trading, personalised banking, cybersecurity and fraud detection are just some areas DS is helping fintechs in. Because DS can quickly analyse large quantities of data to deliver important insights and information, it is used to create efficiencies and recognise patterns that help with decision making.
Cybersecurity in fintech vs banking
The pandemic has brought about an increase in cyber security incidents as bad cyber actors double down on their attacks through ransomware, malware and social engineering. Hastily implemented cloud data processes and security needs have failed to keep up with technological innovations which may have left financial data exposed. And as digital banking channels are adopted at an increasing pace, fintech users are more at risk than ever. Multi-cloud data storage, AI fraud detection, Secure Access Service Edge networks, blockchain systems and regulatory technologies are among trending innovations that can make fintechs secure and help keep financial data safe amid a rising tide of cybercrimes.
According to a cybersecurity report by Boston Consulting Group, banking and financial institutes are 300 times more likely to be at risk of a cyberattack than other companies. In the current world of remote workers and remotely connected workplaces, cybersecurity is arguably more important than ever before. Un-encrypted data, malware, third-party services that aren’t secure and spoofing are some of the biggest threats to a bank’s cyber security. Much of a bank or financial institution’s operations utilise technology. But without cyber security measures in place, sensitive data could be at risk. These attacks can be countered by using firewalls, multi-factor authentication, biometrics, training, automated solutions and outsourcing.
Companies that are able to predict how changing consumer behaviours will play out after the pandemic will be better positioned to seize opportunities. Understanding these changes can help companies determine what new behaviours are likely to be permanent and which might revert to their pre-COVID patterns. Businesses that can quickly identify and cater for these behaviour shifts will emerge from the crisis better positioned for growth.