The financial services sector continues to transform in line with technology innovation, new competition, regulation and changing customer expectations. But what will the big trends be in financial technology in 2020, what will drive further change and will it be the year when cloud and platform become the norm? We asked experts from banks, consultancies, analyst houses, industry bodies and technology firms for their views on what we’ll see in the next 12 months.
While there are different financial technology trends affecting organizations in the corporate and retail sectors, the need for simplicity, standardization and support for customers’ business models are common to both. In fact, our experts predict that lessons learned from financial technology reshaping the retail banking sector will have a significant impact on corporate banking processes such as treasury management and payments.
“Wholesale banking has been a relatively static world with most initiatives being regional, but movements such as real-time and faster payments will continue to drive change,” says David Bannister, Senior Analyst, Aite Group. “The limit on payment values will continue to rise, while standards like SWIFT will link domestic frameworks. Although there’s still work to be done, this will create a base infrastructure that will hugely benefit corporate customers.”
“Open banking will also impact the corporate banking sector, in which large organizations need to manage many different accounts with multiple banks. We are already starting to see strong activity with big players offering near real-time banking services, and there will be opportunities for banks to act as primary account aggregators.”
Cécile André Leruste, Managing Director, European Banking Lead, Accenture, says that more “processes-as-services” will begin to prevail, such as treasury management and payments. “There will be two priorities for banks in the next 12 months: to secure budget that will enable them to innovate at speed and become more disruptive; and to collaborate with partners to build solutions that are easy to manage.”
The digitization of banking processes will also continue apace, driven by robotics and automation. “We’re already seeing it happen, but wherever there’s a manual process we’ll see more automation,” says Keith Waterman, Co-founder of bankbi.com. “There will be greater adoption of platforms and ecosystems. Disruption will accelerate and agile challenger banks will continue to eat into the business of big fish financial institutions, who are still moving too slowly.”
Drivers for change
The emergence of neobanks and fintechs in recent years, as well as the steady-state, underlying threat of financial services market domination by GAFA and BAT big tech companies, will push more banks to change.
Customer behaviors and expectations from banks are evolving and this will continue to drive transformation in the near future. It’s likely that we will see more innovation from the big banks, with some setting up their own challenger banks so they have a foot in both camps. Open banking and different ways of handling payments will also drive change.
Daniel Garcia, Senior Research Analyst for Corporate Banking at IDC says that higher customer expectations will also have increasing relevance for banks serving corporates and SMEs.
“Banks will need to respond to higher expectations from big corporates to make banking easier to manage, and from SMEs who want more help from their banks to run their businesses,” he says. “Our research shows that corporations - including SMEs - will be looking for three things from their banks: better access to funding, risk management tools and boosts to operational efficiency.
“In this context, banks will step into the role of business advisors rather than traditional product pushers, but in order to accomplish this, they may need to build/buy or partner in the fintech ecosystem, enabling them to get closer to their customers.”
Regulation as well as innovation will be a key driver in the year ahead. Retail banks are looking at how they can offer products and services to customers, who now have a lot of choice in the providers they use. That thinking is fairly well advanced, but the challenge going forward is how to achieve it at pace to retain an advantage while maintaining compliance.
Yet even successful retail banks have some way to go and need to think back from customer needs, rather than predominantly focusing on industry regulation, says Vincent Brennan, Head of Group Payments and BCM at Bank of Ireland.
“The challenge for us is that our customers don’t spend much, if any, time thinking about things like anti-money laundering, they just want to get on with their lives and businesses. We need to be more focused on how banking is embedded in what customers are doing day-to-day.”
This will spark a further trend, which will be the need to attract the right skills and adopt collaborative working methods. A cross-functional approach will be required, especially in online retail banks, where an engineering team will be building technology in the cloud but will also include risk professionals.
Platform and cloud maturity
At a live poll at Finastra Universe in December, when asked what the biggest benefit for banks adopting a platform is the majority of delegates (41%) said ‘opening up new business models’, closely followed by ‘accelerating innovation’ (26%) and collaborating with the wider ecosystem (19%). While traditional banks use platforms and the cloud to extend functionality and improve customer experience, new banks in particular are building ‘digital-first’ operations.
“2020 will be the year when cloud becomes mainstream and all new challenger banks will be based on the public cloud,” says David Procter, CTO, revverbank. “We will launch without any on premise systems – it’s the first time organizations can use core cloud software that is secure, mature and resilient and that includes HR and ERP as well as banking platforms like Finastra’s. We’ll see more sophisticated approaches to integration using APIs and micro services. From our point of view, we will aim to target SMEs that are currently massively disadvantaged in terms of business lending.”
Aite’s Bannister adds that corporate banks as well as SMEs are starting to trust in the cloud: “It has taken a long time for corporate banks to move from mainframe systems to the cloud, but we’re seeing a growing desire to run native cloud services, not just containers. This trend will continue in 2020, driven by mature technology, rising costs and decreasing margins.”
Daniel Szmukler, Director, Euro Banking Association (EBA) says that the days of ‘walled gardens’ maintained by large banks are rapidly coming to an end: “The world right now is about open banking and opening up channels to more third parties. It’s also about putting more trust into a resilient ecosystem and less control of the entire value chain. You can’t easily create your own platform and ecosystem in today’s game of scale. We’ve seen many failed attempts in the past to achieve scale in a two-sided market. The mindset to succeed is collaboration.”
It’s clear that the 2020 to-do list is extensive. Changes are required at a cultural level, but also in recruitment and working methods. Closer working relationships with customers and a sharp focus on how financial management can expand from the transactional to truly add value will be needed. As technology continues to evolve, regulation has to keep pace – and customers will increasingly look for platforms and services that can help them address all of the above.