From AI to Blockchain: Exploring the Latest Retail Banking Technology Trends

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Financial institutions are turning to AI, machine learning, and big data initiatives to enhance their operations and customer experience.

However, what are the current technologies used in banking, and which ones should be prioritised for future success?

This article delves into the essential retail banking trends that every financial professional must be aware of in order to safeguard their business operations.

Leveraging Data to Drive Smarter Decisions in Banking

Data has always played a crucial role in financial decision-making processes. However, as the volume and quality of data continue to grow, banks are turning to advanced analytics to make more precise decisions. By leveraging data-driven insights, financial institutions can enhance their risk modelling capabilities, detect fraudulent activities, and improve customer satisfaction.

With new data management and analytics tools, banks can expand their data fabric and unlock more accurate insights. This will enable them to make informed decisions and stay ahead of the competition in the rapidly evolving financial landscape.

The Rise of Automated Banking Operations
As digital retail banking becomes increasingly popular, banks adopt automation to streamline their processes. Robotic Process Automation (RPA) and Digital Process Automation (DPA) are quickly gaining momentum as financial institutions seek to eliminate redundancies and improve workflow efficiency.

According to McKinsey, the number of IoT devices will surpass 50 million by 2025. Advances in AI and machine learning also mean that more than 50% of all internal banking processes can be automated. Leading banks such as Capital One, Citi, and HSBC have already incorporated AI applications to run their digital retail banking operations. These financial giants also rely on AI-powered algorithms to authenticate customers’ identities.

Additionally, deep learning and natural language processing algorithms can help banks automate repetitive, human-reliant tasks, leading to improved efficiency. Customer service departments can use these technologies to assist customers in real-time and resolve issues more quickly.

Enhancing Customer Experience in the Banking Industry
In today’s world, customers demand a personalized touch when dealing with financial institutions, whether it’s for payments, information searches, or loan applications. Therefore, banks are now leveraging innovative technologies to create a seamless and delightful customer experience.

In the highly competitive banking sector, companies such as JP Morgan are prioritizing customer convenience by offering contactless payment options and investment solutions. Moreover, customer service is critical in shaping customer experience. Consequently, financial institutions are using data science and AI to optimize customer support and provide personalized solutions to meet individual needs.

With a growing number of millennials and Gen Z’s who prefer financial institutions that cater to their needs, banks are striving to create a customer-centric approach. By utilizing advanced technologies and incorporating customer feedback, banks can improve their customer experience and retain customers for the long term.

AI-powered Autosaving
The COVID-19 pandemic has caused younger generations to prioritize saving and investing their money. In a recent study by Chase, 40% of consumers expressed a willingness to explore new saving options to protect their finances from unforeseen circumstances.

The same study found that 91% of respondents credited autosaving technologies with helping them cut expenses and better manage their savings. In response, banks and financial institutions are adopting AI-powered technologies to automate the saving process for their customers.

One successful example is Chase Autosave, which allows users to manually save daily, save a percentage of every deposit, or save a specific amount over a chosen time frame. As mobile banking becomes the norm, integrating autosaving features into future banking apps will become increasingly necessary to meet customer demand.

Expanding Open Banking
Open banking is revolutionizing the banking industry by allowing third-party entities to access banks’ APIs. Banks can now provide these APIs as services and monetize their technological innovations through the banking as a service (BaaS) model, thanks to regulations like the Revised Payment Services Directive (PSD2).

Third-party entities using banks’ APIs fall under two categories: Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). This open banking philosophy ensures improved quality of services for customers, as fintech and insurtech companies can utilize open APIs to help customers conduct transactions, purchase insurance policies, and manage their finances.

Embedded Financial Services in Retail Banking
Embedded financial services have become a vital part of daily life and are expected to reach a valuation of 230 billion USD by 2025, according to Accenture. Retail banks and credit unions can benefit from this technology by using integrated services to retain customers on their platforms. According to the Plaid survey, digital banking services must address customers’ core problems to increase engagement, with 76% of customers stating this as a requirement.

Furthermore, non-financial companies such as Amazon can also use embedded finance to offer loans to sellers based on predetermined criteria. Such companies have increased engagement by 87.5% over the past five years.

In the future, embedded financial services will help small businesses process payments and loans more quickly. Additionally, banks and financial institutions will utilize embedded financial services to enhance customer satisfaction, trust, and loyalty.

Finance Decentralization
Decentralized finance, a new retail banking technology, has yet to be widely adopted by financial institutions due to its novelty. However, with government regulators working on guidelines for transactions within this framework, large financial companies are already exploring early versions of decentralized infrastructures.

JP Morgan’s Digital Investment Banking team is developing a platform that employs blockchain and distributed ledger technologies. In the years to come, more financial institutions will likely follow suit in decentralizing their operations and adapting to changing markets.

Banks can lend money to customers without worrying about credit risks if DeFi becomes the norm. Additionally, the transparency provided by DeFi platforms can reduce financial crimes such as fraud and theft.

Cloud Integration
Cloud integration has become a crucial part of the retail banking industry, with 90% of financial institutions using cloud services for some of their internal processes. Neobanks mostly use a hybrid multi-cloud setup to secure company data on the cloud. With the aid of AI, data fabrics, BaaS, and BaaP, banks can enhance their data protection infrastructure.

Cloud computing also makes banking infrastructures scalable, allowing banks to adapt to market changes faster. However, successful migration to cloud-based infrastructure depends on digital maturity, provider capability, and business case, according to IBM. Deloitte experts predict that cloud banking will enhance collaboration within financial organizations by providing access to shared datasets. Visit the linked article for more information about hybrid cloud solutions.

Financial Institutions Focus on Cybersecurity
Financial institutions are increasingly vulnerable to cyberattacks, with 23% of all cyberattacks over the last 18 months targeting them, as per CompTIA. In response, banks are beefing up security protocols and regulations to safeguard personal and financial data from such attacks.

To prevent these attacks, AI tools will become more crucial for banks in the future. Furthermore, adopting secure cloud solutions from trusted providers can help automate data security and enforce KYC and AML regulations for branchless banks. Passwords may also need to be replaced by other authentication protocols for improved security, with Microsoft and Google already leading the way with their Authenticator apps.

The Future of Retail Banking Technology

The future of retail banking technology is centred around enhancing customer experience, securing personal and financial data, and streamlining retail services. Open banking solutions will be prioritized to offer better customer service, data-driven decision-making, and improve workflow efficiency.

To stay ahead of future innovations and technological trends, Maveric Systems offers white-label software to help businesses build a future-proof, scalable, user-friendly, and robust digital retail bank.