Modern FinTech technologies have been a hype for a while now, and last year showed that even a little innovation can skyrocket a startup in the financial sector.
WHAT IS FINTECH IN RELATION TO BANKING?
Fintech is the introduction of technology into the finance industry. Concerning banking, this is many things. Technology allows financial institutions to completely transform how money is held, received, sent, invested, monitored, analyzed, and so much more.
1. VIRTUAL PAYMENTS
Payments continue to be one of the most disruptive and dynamic aspects to banking. Innovations are boosting customer expectations and intensifying competition globally. With friction endemic in almost every legacy payment system, the search for frictionless digital payment experiences continues. PayPal, for instance, crossed 250 million active users worldwide. Apple Pay and Amazon Go are adding new users rapidly. Similarly, Tencent and Alipay are setting new records for digital payment transactions in China. Contactless in-store payments were about $2 trillion globally and will triple by 2024.
Driving volume-based fee growth in payments is expected to become increasingly challenging for card issuers in 2023. Cheaper digital solutions from nontraditional players and expensive reward programs may make it difficult for card issuers to increase fee income. This challenge is facing banks in 2023. Banks will have to get faster, more efficient, and cheaper for both consumers and businesses.
Solution. Simple payment options increase the frequency of transactions and allow banks to grow their customerbase internationally, solving a major challenge. Mobile technology in financial services is the best way to hold and satisfy a customer. With advanced security like biometric authentication and new customer needs, payment systems are improving mobile services and online products by leveraging AI, big data, IoT, and blockchain.
Remember, over 70% of payments are fulfilled via mobile devices. 67% of millennials don’t have a physical card. These days, smartphones are often the only way people shop, entertain, do business, or do anything digital. Contactless cards are seen as the new normal.
The experts claim that the appearance of digital-only banking is the first step in the evolution of the entire Banking industry.
The banking sector is the most targeted area by hackers and fraudsters for apparent reasons. Casey Merolla says: “Banks face a delicate balance between customer experience and fraud management: while prevention practices can create friction and a declined customer is often an unhappy customer, fraud events can result in lost relationships.”
Financial crime costs the global economy $2.1 trillion yearly – more than the combined GDP of Saudi Arabia, Pakistan, Switzerland, and Ireland. AML compliance costs $83.5 billion a year. Approximately $2 trillion a year is laundered, with only 1% getting caught by regulators. Fraud detection and security issues are a big, costly headache for the banking industry.
Solution. Machine learning and predictive analytics are two great methods and technologies for helping banks and their customers remain protected in the digital age. These technologies can detect network intrusions, secure user authorization, analyze a company’s cybersecurity, and predict hacking. Biometric technologies are believed to address security and privacy issues with greater efficiency. The development of biometrics can help to prevent fraud and money laundering.
Moreover, users find instant authentication based on the iris and fingertips scanning more beneficial than the need for memorizing codes, pins, and passwords. Blockchain technology is also a great troubleshooter when it comes to cyber-security.
3. MAXIMIZING OPERATIONAL EFFICIENCY
To remain competitive in an increasingly saturated market – especially with the more widespread adoption of virtual banking – banking firms have had to find a way to deliver the best possible user experience to their customers. Internally, the challenge is to maximize efficiency and keep costs as low as possible while maintaining maximum security levels.
Automation is already significantly impacting asset management and other industries across the board. According to the International Federation of Robotics (IFR), at a global level, the adoption of automation is accelerating, driven by increased global competitiveness and the need to boost productivity and the quality of services.
Solution. Introducing Robotic Process Automation (RPA) in Banking processs has been validated by the biggest banks in the USA and Japan several years ago, proving that technology creates efficiency, helping large organizations save money. However, even small banks operate in a highly regulated industry and face high demands for auditing, security, data quality, and operational resilience.
RPA allows modern banks to meet these demands and achieve significant operational efficiency. Moreover, surveys show that implementing automated elements into financial ecosystems brings many benefits, such as high returns, enhanced cross-selling, faster product and service delivery, higher customer satisfaction, and stronger financial health in the short- and long run.
4. VIRTUAL CUSTOMER SERVICE
Customer service is a must for banks, whether they’re brick and mortar or virtual. Customer service is meant to solve customer problems in a friendly and quick manner while helping banks save money through speed and customer lifetime value. A major challenge in the banking industry is large departments that aren’t using their human resources wisely (too many people doing too little). The question has remained; how to enhance communication?
Solution. Chatbots in Banking have already proved they can help create a more positive experience. So what is a chatbot in banking, and how can it solve issues? Chatbot technologies offer an automated, easy-to-use, launch-and-maintain system that promises to reduce customer care call volumes and increase satisfaction while potentially helping change customers’ opinions of banks. Integrating chatbots into customer service systems increases clients’ loyalty, reduces processing time, and cuts administrative costs. Bots help to find transactions, send and receive money, lock and unlock debit cards and much more.
5. ADOPTION OF NEW TECHNOLOGY
A major challenge for banks today is the adoption of new technology. Due to legacy solutions and out-of-date business processes, larger organizations have a hard time adopting new proccesses and tools, making it – according to experts – the biggest challenge in the financial industry for 2023.
Despite proven effectiveness in other financial sectors, banks are in no hurry to apply artificial intelligence, blockchain, or cloud computing actively. Meanwhile, recent studies show that customers expect to receive service from banks with minimal participation of consultants. For the modern consumer, the autonomy and reliability of banking services are essential.
Solution. New technologies offer revolutionary solutions for the banking industry. A great example are AI chatbots. In addition to that, some banks in more digital parts of the world have already have implemented VIP solutions that include video and voice chat.
6. VIRTUAL TRANSACTION AUTHENTICATION AND SECURITY
Credit card fraud has severely affected 33% of small businesses in 2023 according to Forbes. With most of the population using credit cards as a primary form of payment, businesses all over the globe offer payment solutions that accept credit cards, however, due to the high fraud rate, banks are struggling to implement solutions that work with authenticating and securing virtual payments.
Solution. Blockchain is discussed as the solution to issues around official authentication and security of virtual payments. Extreme transparency and comprehensive codes are proving to be the safest form of transaction protection against fraud and hacking, increasing the reliability of banking transactions several times over.
Storing data is another regulatory concern banks are faced with. Cloud computing are a great way to assure maximum saftey and reliability.
7. INVESTMENT BANKING
In most cases, investment banks operate as intermediaries between parties needing capital and parties with money to invest. Economic and financial challenges have impacted investment banking performance. Investment banks, big or small, division or full-serviced, are now under strict regulations and substantial operational costs. Traditional investment banking models in the current market cannot achieve success. Therefore, there’s a critical need for re-balancing priorities, goals, and future resources.
Solution. Investment banks can reduce headcount and manage talent through effective technology incorporation, like AI Robo-advisors. For example, Edelman Financial Engines’ robo-advisor administered more than $290 billion in assets as of March 2022. The top six robo-advisors managed more than $20 billion each, according to Statista.
Specialization is a key and desirable trend among investors and capital seekers. Investment banking should focus on core business and collaboration with third parties.
The overall development of technology is both an opportunity and a challenge for investment banking. Product and service packages should include AI, blockchain, robotics, and security technology. In addition, it’llhelp uncover new sources of income.
8. CUSTOMER EXPECTATIONS
Currently, banks face a split opinion from customers about the service they want to receive: online vs. offline. That said, both types of customers want to receive benefits quickly, conveniently, cheaply, and to the fullest extent.
Whatever the case, customer expectations are what initiate transformation. Therefore, financial institutions must use scalable strategies to evolve.
Solution. It’s not enough for banks to be present online and have physical branches and ATMs. They must implement change on many levels: technology upgrades, staff training, and management changes.
The introduction and development of customer loyalty programs will help increase customer retention. At the same time, new customers need to be enticed through multi-channel marketing. For all these innovations to be introduced consistently and smoothly, the banking industry needs to improve staff digital literacy and top management digital expertise.
9. COMPETITION BETWEEN BANKS AND FINTECH COPMANIES
Fintech companies have rapidly gained momentum and can seriously compete with traditional financial institutions. Web and mobile apps can already give loans, operate with cryptocurrency, and even offer financial advice.
Solution. Fintech companies can’t fully compete with large international banks, but they can crush small regional ones. As a solution, smaller banks can offer cooperation with fintech tools to compliment the gaps within their organization.
Banks should incorporate more digital elements into their physical offices to outperform their competitors. Touchscreen technology, digital signgates, and video walls will help not only keep people interested but also engage them on the spot: inform them about the services, and update them on innovations. It’s not just an interactive element; it also allows for the elimination of paper content and catches the attention ofyounger generations.
10. SOCIAL MEDIA ENGAGEMENT
Social media is essential to business in 2023 and beyond. The graph shows monthly visits to social platforms by millions of people. Undoubtedly, social networks can become a mecca for any business. The main thing is to choose the right target audience. Can social media be a place to attract new customers for banks? To what extent can this industry’s audience be engaged through social media?
Solution. Simply registering an account on all social networks is not enough. Banks don’t need a presence for presence’s sake. However, there are platforms where this industry can bring significant growth to the sector through what the sector can give the customer for free—for example, helpful information on a YouTube channel with tips or advice on a particular topic. Various contests also stimulate audience engagement.
The banking industry has only begun to scratch the surface concerning the potential of AI, machine learning, chatbots, and advanced technology. At the foundation of these advances is the ability to collect insights and apply advanced analytics to benefit consumers and solve banking challenges in 2023.
Unfortunately, not every institution is ready to place new technology in the finance industry high on the priority list of investments. However, financial institutions should not ignore the potential of technology and how it can transform an organization.
However, if you are among those who are forward-looking, contact us at firstname.lastname@example.org, and we will help put your financial institution miles ahead of the competition
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