November 19, 2019

Prepare for Disruption: A Look into What’s Next for Digital Banking

Digital Banking

You don’t have to dig deep to find news stories on how financial institutions (FIs) are concerned about losing users to disruptors. But that doesn’t mean that banks and credit unions are throwing in the towel.

FIs are strategizing to stay relevant among emerging digital banking trends, developing new products and services that will engage their users and deepen relationships. In 2020, future-focused banks and credit unions will need to keep an eye on these trends.

Prepare for Disruption: A Look into What’s Next for Digital Banking

Big Tech’s Presence in Digital Banking

Though some financial experts may tell you Apple’s foray into banking isn’t an issue, others believe Silicon Valley’s interest in banking is cause for alarm. What’s the big deal about big tech companies like Amazon, even Uber, entering financial services? Aren’t these brands relying on financial institutions to handle the banking logistics for them?

While it’s true that big tech brands are partnering with financial institutions rather than rendering them obsolete, what matters for brands in this scenario is earning customer loyalty. So, white-label banking products for names like Apple or Uber certainly aren’t elevating banks or credit unions who provide support.

What’s more, as big brand names throw their weight around the banking space, they’re giving their equally massive competitors reason to follow in their footsteps. Google recently announced customer checking accounts in reaction to Amazon’s banking play.

Yet Big Tech doesn’t expect banking to earn any meaningful revenue for them. So what do these behemoth brands have to gain when they already maintain a strong position in their markets and with consumers? A lot more data that will prove useful as they build more products to keep users loyal. FIs may want to take a cue from their new big tech competitors regarding data.

Using Data to Drive More Profitable Users

Utilizing user data you already have helps FIs deepen relationships, market smarter, and achieve business objectives. This can be particularly effective in growing profitable business banking users.

According to Aite Group, “Banks recognize that new payment types and channels increase the complexity of the overall payments ecosystem, but they often hesitate to implement technology-driven processes that better align with the changing environment and make transactions more seamless.” Accurately predicting cash flows is challenging for 30% of small businesses, but as trust in technology grows among business banking users, FIs with the ability to make sense of user data to facilitate such predictions are at an advantage.

Data also feeds the growing artificial intelligence (AI) and machine learning trends in financial services. Deloitte found industry frontrunners recognize the critical strategic importance of AI adoption over four times more than their close competitors and over 12 times more than newcomers to the space.

But an FI’s AI is only as good as its data, and data is only insightful with the right data analytics strategy and tools. It takes some time to get a complete data strategy off the ground, so make sure you’re giving your plans the time they need to be most effective.

Integrations and Banking-as-a-Service

FIs who are unable to integrate with a wide range of third-party vendors will be lacking a crucial component of a competitive business banking strategy.

To deliver competitive offers to small businesses, FIs need to be as flexible as Megabanks who can afford to build everything themselves, including application program interface (API) integrations. These let you exchange information easily with third parties without customizing each integration to engage your core.

Having an open API layer in place where your digital banking platform can connect to necessary third-party services will be worth the time and investment as small businesses look for solutions that handle all their needs.

New security concerns arise when introducing integrations to your digital banking strategy, and the threat landscape changes every day. As transaction volume grows with APIs simplifying the process, cyber threat actors will be searching for weaknesses.

Designed for business-to-business (B2B) transactions, APIs once presented minimal risk. But as more FIs and users employ open APIs, data breach risks increase, requiring a more focused and radically different security approach.

Though the industry hasn’t seen much fraud attributable to open APIs yet, FIs will need to be ready to take a new approach to verification and validation, among other security methodologies, to protect user data in an open API environment.

Working Well with Fintechs

On the subject of integrations: the industry is now seeing more partnership than disruption from fintechs, and FIs will continue to take advantage of the ways fintechs can augment traditional services.

This isn’t just a heads up to digital banking providers who will need to offer those integrations. FIs will need to select a digital banking platform capable of carrying them into the future. We’ll see API integrations become more central to FIs’ strategy as they will need to accommodate fintech ecosystems with a digital banking solution optimized with the latest integrations via an open API layer.

Seeing fintechs as a potential partner could guide your roadmap or competitive strategy, so keep a close eye on this area.

New Approaches to Verification and Validation

FIs will soon need new ways to verify and provide access to who they’re banking with. While the industry has relied on passwords to authenticate, expect to see mobile phones take more responsibility for security. Phones present more secure ways to prove an individual’s identity as they feature ID tokens and facial or fingerprint recognition.

Though multi-factor identification driven by machine learning will become more prevalent, we see blockchain as the verification and validation approach that may get more buzz. Blockchain technology, typically the subject of improving data capability, can be a key component of ID management.

In their report, “Top 10 Trends in Retail Banking & Payments, 2019: Disruption Is the Norm” Aite Group claims that typically slow-to-upgrade organizations will be forced to catch up so their ID management doesn’t fall behind new national and international data protection laws. Blockchain is poised to accelerate advances across software, data, and regulation.

2020 will have its share of surprises, but preparing for all these trends will help get you in a position to grow and keep your data secure.

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