How is the banking industry changing as a result of developing technology?
4 titans of the banking sector were asked for their opinions on the most critical trends influencing the banking business and why they are so significant.
Since the last ten years have seen significant changes in the banking industry, we now have quite different expectations of what a bank is and where it should be positioned. Technology has unquestionably been the main driver of this development. In light of this, we requested opinions on the technology that is most influencing banking from four senior industry executives.
By Prakash Pattni, MD Financial Services Digital Transformation at IBM
The Fintech sector has expanded quickly on a worldwide scale as banks attempt to modernize in the face of changing rules and regulations. In order to keep up with today’s tech-savvy consumers, many banks will collaborate with agile fintechs and use the cloud in 2023 to produce innovative goods and services.
There will be obstacles to go over before these collaborations can reach their full potential. As regulatory scrutiny increases, it will be crucial for incumbent banks that their fintech partners do not add systemic risk to their supply chains. Adopting a hybrid cloud strategy, which uses industry-specific clouds with built-in security and compliance controls, can support the secure modernization the banking industry needs to manage the shifting market. In the coming year, fintech should collaborate with reputable technology suppliers to investigate the adoption of sector cloud platforms that aid in removing obstacles within collaborations that stifle agile innovation.
Financial authorities are becoming increasingly interested in one area: ESG reporting. I anticipate fintech companies implementing ESG reporting into their business models throughout the course of the coming year to assist banking clients in assessing and minimizing their environmental effect. In order to draw on multiple data sources and provide real-time tracking for things like energy use and carbon emissions, firms can use other capabilities, such as software powered by AI, which can be accessed through a hybrid cloud architecture.
By Prema Varadhan, Chief Product and Technology Officer at Temenos
Banks require a platform for agility, scale, and innovation in order to survive and prosper. What kind of platform, then, ought banks to employ? The solution is modular, cloud-native, and data-driven, yet in a comprehensible and expandable way.
The focus of the new business models in banking is on swiftly developing new products and delivering them to market. This is made possible by composeability, which divides services into distinct capabilities. While connecting to an ecosystem of third-party solutions that expands choice and fosters innovation, it maximizes freedom, speed, and flexibility.
For a better understanding of the importance of composability, banks should study some of the most prosperous B2B technology firms. Think of Salesforce for CRM or ServiceNow for workflow management as examples of how these businesses have taken a certain function and developed a full suite of software capabilities that are available through a single platform.
If a firm chooses to enable all the modules at once or progressively over time, they have everything they need once they are connected to these platforms. And all of this happens without the platform provider having to bear the responsibility of integrating, updating, localizing, and inventing.
Composable banking will probably be adopted gradually by large institutions. They must gradually renovate in order to deplete their legacy investments rather than simply abandoning their existing technologies. In order to scale quickly, challenger banks, fintechs, and non-banks will seek to adopt particular capabilities that have been pre-designed for particular use-cases like SME lending or digital mortgages.
AI, data and privacy
By Adam Lieberman, Head of AI and Machine Learning at Finastra
The banking sector is developing exponentially, from the use of chatbots to ML-powered risk and decisioning models. Financial institutions’ data stockpiles are expanding at the same rate that their businesses are expanding and utilizing new technology. The most severe control is imposed on financial data since it frequently contains sensitive and individually identifiable information. However, with tremendous data comes great responsibility. This stifles innovation because banks must work together and exchange information in order to tackle the most difficult financial issues, like AML or fairness in credit decisioning.
Banks now have a range of privacy-enhancing tools (PETs) to collaborate at scale and solve these urgent financial challenges jointly without the need for physical dataset sharing, relocating data, or manual partner agreements, thanks to developing technology in the field of private AI. With the help of PETs, they can work together to answer questions and create models using data that they cannot see in a fully decentralized manner for remote data research and analysis. This enables external model developers and software engineers to work with data in a private manner and build models and apps without needing physical access to datasets, enabling banks to own their own data, which never leaves their servers. The future of collaboration and innovation in financial services is being driven by private AI and the suite of PETs, which are giving data its invisibility cloak.
By Abhishek Bhattacharya, Group Vice-President at Publicis Sapient
Coreless architectures are being facilitated by contemporary, cloud-based core banking systems (CBS), which will spur innovation and revolutionize the customer experience in the banking industry.
Moving to a contemporary, cloud-based CBS was listed as the top objective to achieve operational transformation (indicated by 37%) in the 2022 Publicis Sapient Global Banking Benchmark Study, which polled 1,000 senior banking leaders. 48% of respondents who led the largest institutions (those with assets over US$1 trillion) ranked this as their top objective.
The shift to coreless architecture is many banks’ top goal for 2023, and modern, cloud-based CBS systems are commonly viewed as the way forward. This is due to the outdated method of banks managing legacy CBSs having reached its end. It is highly challenging to develop new skills or innovate on existing systems, and they are tough to change. Banking architectures are going through a significant shift that will result in a whole new, “minimalist” approach to the CBS.
How about coreless architecture, though? In a “coreless” design, the essential components—such as accounts, transactions, and product definitions—are located in the “core,” while all other components are located outside of the core and link to it through APIs. This is hardly comparable to legacy systems, which performed a wide variety of presumably onerous tasks.
Source: Fintech Magazine