Open banking, artificial intelligence, and blockchain are just a few technology trends banks should consider in 2022. We look at how these trends are impacting the banking ecosystem.
Banks have their work cut out for them as we move through the latter half of 2022. Technology continues to be a primary hurdle for these institutions, with many relying on legacy systems that hinder agility and scalability. Some have opted to partner with FinTechs to leverage technology expertise and embrace digital technology. As artificial intelligence and machine learning continue to play a pivotal role in streamlining processes and better-serving customers, it will be an additional component weighing on banks.
Customer preferences are also changing at a lightning-fast pace, with an increased demand for tech-friendly services and the rise of financial management apps that can be layered on top of bank accounts. Banks still face a learning curve when it comes to meeting millennials and Gen Z at the intersection of high-tech services and security.
Banks must carefully consider how emerging technology trends could impact their business model and the financial ecosystem in which they co-exist. In many cases, new technologies can help banks streamline operations and improve customer-centricity. The good news is that regulators continue to hold a friendly stance towards FinTech-bank partnerships and innovation, making it a promising time for banks to explore how top technology trends can positively impact their organizations.
Large banks are already leveraging artificial intelligence (AI) to streamline work processes and automate wherever possible. In addition to reducing reliance on manual labor, AI will help banks establish more uniform procedures and potentially save tens of thousands of dollars annually. A report by McKinsey suggests that AI has the ability to deliver $1 trillion to the banking industry each year.
Understandably, banks in the U.S. are hesitant to share data about their customers. On the other hand, open banking also opens up new opportunities for banks. By allowing third-party developers to build applications and services that tap into the technology and data of a traditional financial institution, banks can build customer-centric financial tools through the use of APIs. As customer-centricity becomes a top differentiator, open banking allows financial institutions to position themselves as providers of better products and experiences. It will also help them widen the market scope and open up new revenue streams.
Open banking is synonymous with innovation, which is necessary for this competitive era of FinTech and challenger banks. A recent report suggests that the open banking market is expected to grow to $48.13 billion in 2026 at a CAGR of 25.9%. If U.S. financial institutions were to move in this direction, they could remodel the entire ecosystem. Banks should consider how they may be able to collaborate with reliable FinTech in the area of data sharing and innovation.
The movement behind real-time payments in North America has been making waves over the past several years. The demand for streamlined movement of money between banks, businesses, and consumers is only increasing.
Currently, most fund disbursements in North America occur via direct deposit, checks, and cash. This year, the real-time payments industry is expected to reach $16 billion.
While several large banks have filed blockchain-related patents, public testing or the release of related products has failed to materialize. Additionally, many top executives struggle to separate blockchain from its relationship to cryptocurrency, which has seen wild swings in value over the past several years.
Blockchain shows promise when it comes to greater efficiencies, specifically in cross-border payments. Crypto-enabled transactions can reduce both friction and remittance costs while remaining KYC-compliant.
Banks have a friendlier attitude toward some of these technology trends than others. Regardless, keeping a finger on the pulse of major forces changing the industry should be a top priority for financial institutions that cannot afford to fall behind the competition. Whether the end goal is to provide better products and services to customers or to reduce costs and streamline operations, banks must carefully consider how technology can help them achieve their objectives.
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