There’s little doubt that the future of finance is tech-enabled. At our recent Finastra Corporate Banking Conference, industry experts highlighted the key digital transformation and technology trends shaping financial services, and discussed how financial institutions (FIs) can overcome some of the challenges associated with the shift to digital.
Fuelled by continuous innovation and increased awareness of the benefits offered by open banking, APIs and other technologies, the payments, credit and lending, and trade and supply chain finance spaces are all being disrupted.
FIs are also increasingly using tech to reach new customer segments and tackle the challenges associated with talent acquisition, regulation and risk management, as well as the environmental, social, and governance (ESG) agenda.
1. The ecosystem ‘play’
The needs of both FIs and their customers are driving the rationalisation of multiple channels – and the move towards an ecosystem approach.
As Microsoft’s Digital Transformation Advisor Tiffany Carpenter explains: “FIs need to unify their systems and services to achieve a holistic, on-demand, streamlined view of their customers and their businesses. This requires a flexible ecosystem that can take advantage of automation, artificial intelligence (AI), machine learning (ML) and open banking – core modernisation, interoperability and integration are key.
“At the same time, customers expect a digital experience that offers consistency and continuity – they want a frictionless banking environment and a seamless omnichannel experience.”
Sudip Gupta, Senior Partner and UKI Banking Industry Lead at IBM Consulting, adds: “Whether it's embedded finance or banking-as-a-service, the ecosystem ‘play’, is now an integral part of the corporate banking value chain. The likes of Stripe and Pay SME are helping to put working capital financing solutions at the heart of business operations, almost like embedded finance.”
To benefit from this ecosystem, banks are increasingly collaborating with fintechs. “These partnerships range from fintechs acting as technology platform providers for different vertical stacks, to FIs seeking a managed service whereby a fintech runs a whole book of business,” says Sudip.
2. The rise of AI and autonomous technologies
From helping to improve front-end activities such as hyper-personalisation, customer targeting, conversation banking and credit scoring, to reducing risk and streamlining back-office processes, AI and ML, along with emerging technologies such as the Internet of Things (IoT), are increasingly impacting the entire corporate banking value chain.
As David Palmer, Blockchain Lead at Vodafone, says: “AI is helping to optimise automated and real-time decision-making for FIs, while the growth of IoT is also increasing demand for embedded, connected and automated finance.”
“Corporate lending is being transformed from a linear set of activities to a continuous assessment of real-time data signals that inform better decisions and improve risk management processes, such as credit assessment and KYC,” Tiffany suggests, “And, within payments, technology is enabling real-time execution, forecasting and reconciliation, while also helping to create a more secure end-to-end payments environment.”
Anders Johansson, Product Management Corporate Loans at SEB, adds: “These technologies are already enabling the consumer finance and SME markets to move toward self-service interfaces, where the credit decision is part of an automated process. Similarly, the syndicated loans market is increasingly using model-based number crunching and information crunching techniques.”
The cloud plays a key role in helping to deliver these technologies, Sudip says: “Automation is also supported by cloud computing, which offers many benefits, such as on-demand capabilities, elastic scalability and reduced capital overheads.”
3. New ways to deliver return on investment
All of these technologies are helping FIs to rethink and diversify their services to capitalise on new opportunities – finding new ways to deliver return on investment.
“For example,” says Tiffany, “Technology is supporting the move from a transactional offering to a service-based offering. FIs are using AI and ML to leverage their data and insights to better segment customers and reveal new customer segments, and to approach customers in a very personal way.”
Tiffany suggests there is also an increased focus on how technology can support product innovation: “This is particularly true for sustainable finance products. FIs can now use transactional data to generate very specific industry, regional and other ESG KPIs, which can help clients secure preferential financing”. To learn more about the latest-and-greatest in ESG lending, visit Finastra’s market-leading new ESG Service hub and download our ESG research with over 250 responses from ESG Heads across the globe’s most important banks.
These technologies are also having a positive impact on the trade and supply chain finance space, enabling automated, interconnected, end-to-end capabilities and the convergence of supply chain finance with logistics. "Digitising legal agreements and other trade finance documentation is leading to increased efficiencies and instantaneous execution. In other words, real-time trade and settlement,” explains David.
Overcoming technology adoption challenges
As with any form of organisational change, adopting a more tech-enabled approach comes with its challenges for all FIs.
“Data poses one of the biggest challenges for traditional banks,” says Anders. “They tend to have large amounts of it, but often lack the capacity to leverage or capitalise on it.”
Mike Carter, Head of Capital & Investment and Platform Lending at Innovate Finance, suggests that fintechs face the opposite problem: “Obtaining customer data can be relatively difficult for new players. For example, many data sources used to credit assess customers aren't open to challenger banks and non-bank lenders.”
Mike also highlights how technology can unintentionally alienate certain customers, particular in consumer lending. “By increasing automation, FIs might leave out certain market segments. For example, applicants might not be able to access finance simply because they can’t complete digital forms or have inaccessible data. FIs also need to be aware of unintentional bias in an automated decision-making process, as it’s only as good as the data.”
Sudip suggests three strategies to help FIs successfully undergo a digital transformation:
1. Put people first. “FIs that make people a priority throughout the transformation process face less resistance and confusion. Employees who are included in the process are more likely to embrace the digital change and leverage the new capabilities. Driving adoption through people is the most critical lever to success.”
2. Develop an innovation culture. “Implementing a new digital capability needs to be the start of your transformation, not the end of it. Providing space to test and iterate allows your teams to explore new process improvements and growth opportunities, reduce inefficiencies, and even possibly inspire new business strategies altogether.”
3. Take an organisation-wide approach. “Digitalisation and automation should never be an ‘IT-only’ initiative – success requires the orchestration of capabilities across all business functions. Similarly, developing your operating model at the same time as your digital strategy will drive maximum benefits, as interoperability is key.”
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