The financial sector is traditionally one of the most cautious and risk averse industries, which is why it’s not generally seen as a hotbed of technological innovation. Thanks to the massive changes to customer’s behavior and expectations and influx of specialized technologies, however, modern banking is veering away from this stereotype. In a quest to remain competitive in spite of the fluid market, leading banking institutions are increasingly adopting a more open-minded approach when it comes to innovative technology and services.
As we move closer to 2020, certain trends are slowly but surely emerging in the banking sector, outlining the path forward. Here are some of the most notable tendencies that are already taking hold and can be expected to strengthen over the next 18 months of so.
1. The rise of blockchain
Most people first learned about blockchain a few years ago when Bitcoin was attracting a lot of mainstream attention, but this technology has many applications that go beyond crypto-currencies and the dark web. In fact, major financial institutions are quickly realizing that inherent security of this decentralized technology could potentially be very valuable to them. In 2020, blockchain can be expected to become an essential tool that major financial institutions are comfortable using for a variety of purposes. There is still some resistance to overcome – but this was true for online banking when it first appeared, and it’s now the widely accepted standard.
2. AI integration
There has been talk about artificial intelligence for a few decades, but in recent years some of the more advanced systems are actually accomplishing amazing results. AI systems are indispensable for big data mining and analysis, and with adequate training they can be specialized for a particular type of data. Since modern banking institutions rely on big data for many different aspects of their operations from risk assessment to marketing, they are among business entities that stand to reap the greatest benefits from further improvements of AI capacities. 2020 could be the year when commercial applications that also include physical sensors and ‘smart’ robots start being deployed on a mass scale.
3. Open banking
Traditionally, banks have been quite unwilling to share data with anyone other than the regulators, and have mostly relied on vendor-specific solutions that discouraged wide-ranging collaboration. As online payments are becoming more complex than ever, financial providers are faced with the need for improved data sharing. To this end, they are increasingly adopting new, open-model API’s that greatly simplify multi-centric communication and facilitate faster transfers and more transparent relationships. Tech companies like Amazon and Facebook are taking initiative when it comes to open banking, which could prove to be the pebble that starts an avalanche.
4. Faster strategic cycles
Business models are evolving as quickly as the technology, so banks need to apply innovative thinking during the strategic planning phase as well. It’s become evident that business cycles are shortening, and the banks will have to adjust to the faster tempo of the business sector. Banks have to launch new products faster, handle customer engagement in real time and respond more urgently to unexpected challenges. This might require more flexibility than conventional business models currently allow, motivating banking institutions to seek new organizational formats and adopt more of a short-term focus.
5. Renewed focus on data protection
Deeper digitalization of financial services and growing importance of the cloud brings many questions about cyber security. The challenges are immense, since the intruders have access to the same AI technology that the banks are using. Data privacy is another area that deserves attention, as leaks of private information can cause devastating damage and ruin a bank’s reputation. Development of more effective defensive systems and data storage procedures must go hand in hand with adoption of new technology, so this factor could be considered a precondition for innovation. That’s why data security products will probably be in high demand in the financial sector in 2020.