Owing to Covid-19, the past few years have been quite turbulent for many businesses. Companies witnessed the collapse of traditional business and work models because of the pandemic; the rapidly transforming technology; and the new fast-growing, technology-driven startups.
The following years are going to be extremely crucial as they will determine which businesses will be able to survive and prosper in this dynamic environment. The key factors behind the rapidly changing technology and the rise of tech-driven startups are the increasing demand for services that can be accessed quickly and instantly from anywhere through smartphones, and an upsurge of data that is being generated due to our digitally active lifestyle.
Let us have a look at the top five tech trends that will be influencing the financial service companies over the next twelve months.
Digitization of Account Openings
What’s taking the industry so long to implement digital account opening in 2022? This should have been done a long time ago. This isn’t rocket science. According to Alex Johnson, Cornerstone Advisors‘ Director of Fintech Research and author of the Fintech Takes newsletter – Financial institutions place far too much emphasis on digital account opening, as if providing an excellent digital account opening experience will magically drive customer acquisition. That is absurd. Changing the colour of your storefront’s exterior paint every year will not increase sales if customers don’t like the product you’re selling.
Chatbots
Looking ahead to 2022, one out of every four financial institutions intends to invest in or deploy a chatbot. So far, only 18% of banks and credit unions have invested in chatbots.
It’s taken some time, but the industry is finally realising that chatbots—or, more broadly, conversational AI—have become a competitive necessity. The need for chatbots is driven by three factors:
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Process Quality
The abandonment rate for digital product applications in banking is exorbitant. Even worse, only a small percentage of institutions contact prospective students within one business day. That is not acceptable. Banks must incorporate chatbots into critical business processes (such as account opening) rather than simply using them as generic sales and service tools.
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Data
Attempts to codify and store “data” gathered from human interactions—and even clickstream data—are insufficient, generally inaccessible to other applications that could benefit from the data, and difficult to analyse. Data gleaned from chatbot interactions can help to compensate for these flaws. Chatbots must be integrated into banks’ data management strategies, not just their sales and service strategies.
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Personalization
Personalization is too often thought of in terms of personalised messages by banks. Smart banks recognise that good personalization necessitates personalised conversations. They are still grappling with how to get the data to deliver good personalization and how to create opportunities for personalised conversations.
Machine Learning
We’ve been hearing about how artificial intelligence, specifically machine learning, will transform the banking industry. So far, only 12% of banks and credit unions have deployed these technologies in their mid-sized financial institutions.
However, things are changing. In 2022, one out of every four banks and credit unions plans to invest in machine learning tools and technologies. This surge is being driven by two use cases:
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Credit Modelling
According to a 2020 study conducted by Cornerstone Advisors, 20% of financial institutions with more than $1 billion in assets planned to make significant investments – or enter into strategic partnerships – in new credit modelling and advanced decisioning tools.
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Fraud Risk & Management
In Cornerstone’s 2022 study, the percentage of bank and credit union executives citing fraud, risk, and cybersecurity concerns increased significantly from the previous year. Many people are looking to machine learning tools and technologies to assist them in dealing with these concerns.
According to McKinsey – “Some aspects of model risk are amplified by machine-learning models.” Despite the fact that many banks have validation frameworks and practises in place to assess and mitigate the risks associated with traditional models, these are frequently insufficient to deal with the risks associated with machine-learning models.”
Tools and apps from companies such as Zest.ai and ComplyAdvantage are assisting banks in overcoming these obstacles, propelling machine learning into the top 5 technologies for 2022.
P2P Payment
Although only 15% of financial institutions have deployed real-time payments, 28% expect to do so in 2022, with another 26% doing so in 2023. P2P payments are the most frequently cited use case for financial institutions’ faster payment programs.
The launch of CHUCKTM, an open network for instant payments from the Alloy Labs Alliance, a consortium of banks, is one potential accelerant of banks’ P2P payments transformation. Customers will be able to do the following thanks to the network – Send money from their banking app (desktop or mobile) and let recipients choose where the money should be sent, including some popular payment networks. When it comes to providing instant payment capabilities, financial institutions now have a choice and do not have to settle for an expensive, restrictive, and closed network.
The new network, which will be integrated into the mobile banking apps of community banks, will eliminate the need for consumers to move money between apps or log in to their bank account to check their balance just to transfer funds from another application.
Digital Loan Origination
Daryl Jones, Senior Director at Cornerstone Advisors, wrote in May 2018 – “Digital lending is the future, and the ability to capture and engage borrowers effectively throughout the lending process is critical.” However, the movement of banks and credit unions to these platforms is not as strong as many believe.”
With deposit levels surging, the industry’s focus has shifted back to lending, and digital loan origination systems have finally cracked the top 5 list, which is great news for tech firms like Numerated, Blend, and Boss Insights.
The Bottomline
In 2022, we will see tough competition between service providers who will try to make themselves stand out by taking full advantage of the technology trends for improving the customers’ experience. The traditional businesses that have not yet implemented the use of the above-mentioned technologies will find it difficult to survive as they will face tough competition from agile, technology-based companies.
Because of the increasing demand for digital services by the customers, many apps are now available with built-in artificial intelligence assistants that assist the customers to effectively handle their money by categorizing spending patterns and giving automatic suggestions about where customers could make more efficiencies. Other technology trends include using chatbots, voice interfaces, and personalization to improve the user’s experience by providing tailor-made products and services to the customers. These technology trends are reaching new heights of sophistication where they can be both- extremely beneficial for service providers and improve the lives of customers as well.