Innovation | 06.19.19
6 Top Tech Trends for Banking in 2019
Spotting trends in banking technology can require a big tent atop multiple framing poles: macro, micro, front office, back and middle, as well as a multi-quilted canopy of perspectives. You could look at customer experience improvement, data leveraging, scaling and business model optimization. On the to-delve list are myriad angles and alleyways, including communication apps, compliance robotics, interactive wealth-advisory portals, cybersecurity, fintech at large, which means crypto and its enabler: blockchain technology.
Strip away all of the buzz, and blockchain is just an accounting technology, points out Crystal Stranger, author of “The Crypto Island Tax Guide.”
A blockchain ecosystem, like the one underpinning the virtual wealth-storage unit otherwise known as Bitcoin, gets created via a community of coders contributing to a shared, digital, decentralized ledger. Therefore, for the concept to be properly understood, it needs to be couched in accounting references, Stranger has insisted, writing in Cryptoweek: “Rather than having a dual-entry bookkeeping system that has to be tediously balanced and checked for errors, instead each transaction verifies the transaction behind it, forming the chain as one long audit trail. Simple. The fact that something so pedantic could become a hot trend amazes me.”
When JPMorgan Chase & Co. said it would launch JPM Coin in February 2019, many players and pundits in the banking industry rose to attention. CEO Jamie Dimon long ranked among Bitcoin’s most ardent bashers, and now America's largest bank was rolling out its own cryptocurrency?
“Whenever a JP Morgan-type institution does something brand new or controversial, the rest of the industry has to pay attention,” said Ben Marzouk, attorney with Eversheds Sutherland. “At a minimum, there will be ripple effects for the rest of the year as bank executives start asking what they should be doing in this area.”
The birth of JPM Coin certainly does not mean that blockchain is suddenly ready to revolutionize banking (although in the long run it very well could). For now, one could argue, JPM Coin needn’t be viewed as digital token in the Bitcoin sense, what with its value pegged one-to-one to the dollar and with its primary function purely being settling payments between the bank’s largest clients. Viewed this way, it’s a glorified wire-transfer system involving digital units otherwise known as deposits.
It’s true JPM Coin will run on a blockchain network called Quorum, but Quorum requires users to be approved by JP Morgan. Closed networks are not associated with cryptocurrencies — rooted in open ones — so, perhaps let’s “stop calling JPM Coin a crypto,” said Finextra’s Madhvi Mavadiya.
From a macro level, it seems Dimon has put aside vexing questions of how to value or transact with a cryptocurrency like Bitcoin and instead seems more closely drawn to the underlying usefulness of blockchain. If JP Morgan can start to transfer cross-border payments or corporate debt issuance services on to the blockchain, Mavadiya said, it could have a significant impact on the banking industry.
One of the ways blockchain can most dramatically impact banking in the year ahead will be in the ever-vigilant crusade by banks to combat 21st-century Willie Suttons.
“I think the industry back office is moving toward decentralized data, which can be less penetrable than massive centralized-data systems,” Marzouk said.
But not all types of data can be considered suitable for blockchains. And digital-token-abetting accounting fintech carries its own set of baggage, such as a “51 percent hack,” or what can happen to a decentralized digital ledger that is shared with peers and functions on encryption that keeps individual users from going backward to cook or sabotage the book — unless, that is, a majority of them agree to sign off on a retroactive change.
“It’s pitched as being better than having one trusted central party keep track of the list and make corrections when needed, because the trusted central party usually charges money for the service,” cybersecurity writer Maria Korolov said. “So, for example, banks can get together and move money from one to another without any centralized gatekeeper. Security experts seem to agree that the technology has a lot of potential in their space.”
Biometrics will take a firm spot in the banking security space with fingerprint, iris and facial recognition technologies growing more common, said Michelle Feinstein, director, Technology and Client Engagement, BNY Mellon’s Pershing.
“The industry is increasingly focused on simplification: providing investors with the transparency, choice and flexibility to take action and initiate tasks. A good example of this is biometric authentication,” Feinstein said.
Tasks such as gaining access to secure, sensitive information were bound to get easier one of these days. Goodbye passwords, it's been nice mixing up numbers, letters and symbols with you.
The current macro-level mantra in banking bears meditative repeating: Take routine tasks. Simplify them.
“The largest banks are automating work anywhere they can, especially routine work like cutting and pasting data from one app to another,” American Banker said in its technology trends round-up.
U.S. Bank, Wells Fargo, BBVA Compass and Banco Popular all have dedicated excellence centers designed to find ways to streamline work processes and establish more uniform procedures.
4. Artificial Intelligence
Amazon’s voice assistant, Alexa, continues to shape our expectations for how technology can save time, the ultimate scarcity. Alexa’s multi-tasking and intuition skills have improved during the past few years, thanks to machine-learning techniques, specifically a subset called active learning, used by Amazon engineers, in which the system identifies areas it needs help from a human expert, according to Wired's Brian Barrett.
In banking, artificial intelligent (AI) chatbots are going to be used to handle more mundane tasks tied to opening and onboarding new accounts, predicted Randy Reynolds, managing director, Business Development, BNY Mellon’s Pershing.
“Routine, paper-based processes, for say, a customer who needs to order a new book of checks…that can be re-imagined so that, in this example, there’s an auto-push allowing that customer to initiate the request that gets executed without any human interaction. That’s the kind of thing that will increasingly become automated in the industry-wide push to improve customer experience,” Reynolds said.
Meanwhile, another subset of AI, predictive analytics, will be used more extensively for prospecting and picking up timely opportunities for extra-mile client service; targeting those potential or existing clients whose behaviors and activities suggest they are ready for some human assistance. Similar programs can be used by bank-channel managers to pick up patterns of activity forecasting a high probability that a registered representative or advisor is on the verge of decamping for another firm. This type of data harnessing and leveraging is one of the major, big-picture macro trends driving numerous micro trends across a cross-section of exciting fintech fields.
5. Data Analytics
The first AI system to capture the world's imagination was IBM's Deep Blue, a machine that beat Gary Kasparov at chess in 1996. Fifteen years later, Deep Blue’s descendent, Watson, beat Ken Jennings on the syndicated television quiz show Jeopardy!
Almost a full decade after that milestone, Watson can be rented out by cancer researchers looking to quickly absorb and distill the contents of every medical journal ever written. Tapping, usefully, all of the real-time data gushing from our smartphones will become exponentially more feasible due to advancements in data science.
Maneeza Malik, senior advanced analytics and AI marketing manager for Intel, told SAS's David Wallace that banks are ramping up their investments in real-time analytics for one obvious reason: results. Wallace, an SAS global financial services marketing manager, surveyed banks and found that around three-fourths had seen “significant” increases in customer retention and loyalty owing to upgraded data analytics capabilities. More than half reported significant increases in growth and revenue generation.
For going on a decade, asset managers and analysts have been touting new abilities to scrape for buy/sell signals using so-called Big Data. Our universe is awash in terabytes: GPS-tracked movements, web histories, calls, texts, comments, transactions, clicks, clicks and more clicks, an ocean of data that gets classified as unstructured, semi-structured and, increasingly, due to advancements in data science, structured, thus allowing for more pragmatic sips from the proverbial firehose.
“As banks move toward understanding customers in the digital world, they need to combine the small data view with large data approaches to get a better understanding of their customers,” Wallace said.
Banks and credit unions can choose to build new apps — such as one to allow a retirement saver to instantly see a pictograph depicting up-to-the-moment progress toward their lifetime income goals — or buy one. Or, more realistically, they can form partnerships with third-party fintech providers.
Expect banks to establish more partnerships with fintech players in the coming year to do all varieties of things, such as giving their customers an Amazon-esque, wow-that-was-easy digital loan. Whether it’s a new wealth management account aggregation system or some state-of-the-art performance report generator, the bank and credit union channel is routinely being reminded to pick their spots, and to be flexible and to integrate.
“An optimal experience involves the full technology ecosystem,” Pershing’s Feinstein said. “It’s not just about the front end. You have got to get the back end right as well.”
Added Reynolds: “That means compliance, onboarding, reporting, analytics, everything. The battleground has shifted from ‘what are my competitors doing?’ to ‘what does the consumer want?’”