Since mobile, online and digital took over from in-branch banking earlier this century, the rate of change in the finance industry has risen exponentially.
The emergence of fintechs is a big part of this growth. According to a Juniper Research study, the number of mobile banking users is set to double in the next couple of years while, from a virtual standing start, 35% of UK adults now have an account with a digital-only bank like Monzo or Starling.
This means that change will only continue to accelerate as new products, services and ways of working are developed – putting an increasing pressure on tech leaders within the financial services industry to keep up.
To help you navigate the next 12 to 18 months, we’ve identified four key topics that will be critical to your business in 2024 and beyond.
AI: Risk And Opportunity
It’s long been discussed as a game-changer for all kinds of industries, including finance and banking, but recent high-profile developments mean Artificial Intelligence is now firmly entrenched in the lexicon of the general public too.
AI is far from a new concept in the industry – even today, more than 80% of market trading accounts are powered by AI and Machine Learning rather than humans – but now that it’s mainstream, every organisation should be thinking about how and why it uses AI.
There are huge opportunities – especially in terms of cost savings. Reducing staff overheads with intelligent machines, in call centres and customer service desks for example, could save billions across the industry and they’re becoming more intuitive and seamless from a customer point of view.
According to a recent McKinsey estimate, AI technologies could deliver up to $1 trillion of additional value every year, predominantly in marketing, sales and risk. Part of this process will see lots of the manual security checks currently carried out by humans being outsourced to AI, so becoming comfortable in this changing landscape will be crucial to every organisation.
AI’s emergence alongside open finance and open data also gives a much broader palate for third-party services to tap into a fintech market that, according to Deloitte, will be valued at £213 billion by 2024. This will give rise to niche services that can use the industry’s abundant (and growing) number of APIs to do things quicker, smarter and centred on the customer’s needs.
For example, organisations like TrueLayer and Thread Bank are already providing single, easy-to-use platforms where consumers can consolidate lots of financial products – and more will follow in their footsteps (including many we haven’t even conceived yet).
For all the benefits, there is significant risk in AI though – especially because the technology is still in its relative infancy. Regulation will be a large part of mitigating those risks and it’s likely this will be done using a risk-based approach that ensures institutions use AI in a responsible manner – regulating the outcomes rather than the technology itself.
AI is also certain to become an arms race, of sorts, between banks and fraudsters. Not every actor in finance is a good one and scam artists will have more tools at their disposal as technology progresses. Impersonation of individuals using deep-fake videos and voice mimicking software is likely to be a particularly dangerous area where fraudsters attempt to outfox existing anti-fraud measures.
That said, there’s certainly more ways to prevent fraud using machine learning too – recognising customer behaviour patterns, identifying unusual transactions and carrying out consistent and constant checks. Investment on behalf of the industry’s ‘good guys’ will be imperative to stay one step ahead.
New Regulations For Security, Sustainability And Data-Sharing
The Payment Services Directive 2 (PSD2), which came into effect in 2015, introduced some big changes to the banking sector – not least setting the standards for open banking that govern a lot of the work tech leaders focus on today.
PSD3 is the proposed regulation that will update and improve upon PSD2 and, while conservative estimates suggest it might be 2025 or 2026 before it is fully implemented, tech teams should be laying the groundwork now so they’re ready when it comes in.
Without delving too much into the detail, PSD3 is going to improve security and fraud prevention, increase innovation in payments and further bolster consumer rights to determine how their own data is shared. But to deliver these benefits, banking technology is going to be doing some heavy lifting.
Tech stacks will have to cope with significantly higher loads when it comes to requests and they’ll also need to pass stringent new security protections imposed by the regulators. All of that needs preparation work so businesses should be starting as soon as possible.
The other major piece of regulation that tech leaders should note is the Sustainable Finance Disclosure Regulation (SFDR), which is due in July 2024. This mandates financial organisations to disclose how eco-friendly they are as part of the UK government’s drive for the sector to be net-zero before the end of the decade.
In practice, this means tech teams will be managing migrations from old-style data centres to the cloud and implementing smarter tech solutions to help meet these targets. If they aren’t already then tech teams should be thinking about the implications of this before the end of 2023 at the latest.
Reining In Cloud Costs
Although cloud technology is going to be a big part of any solution for businesses in the future, another trend we’re starting to see at Openbox – and one that’s likely to be increasingly prevalent in 2024 as well – is for organisations to take stock of their cloud costs.
For almost every financial organisation, using the cloud has changed the way they work for the better. But, if off-site migration isn’t done correctly, costs can spiral and that’s common for many who’ve never quite got to grips with it.
Migration to the cloud is still happening but we’re seeing businesses pausing or slowing this process to take stock and figure out the smartest, rather than the quickest, way they can use it. Although there can be upfront costs to doing these audits, they are something that can have huge cost benefits further down the line.
How Fresh-Faced Customers Are Driving Fresh Approaches To Innovation
Innovation is certainly not a new or emerging fintech trend. However, we’ve seen huge changes in the way businesses – especially traditional ones like high street banks – are focusing on their pursuit of progress and it’s becoming more widespread than ever.
Since open banking in 2018, more customers of neobank Monzo have granted permission for their data to be shared with third parties than those of any other major financial institution. This is largely down to the innovative, customer-centric services their customers can access as a result. In turn, those services come about through Monzo’s agile approach to innovation, which helps them keep pace with the rapid changes in banking and customer behaviour.
This open approach to digital is a trend led by Generation Z – 41% of that demographic hold an account with a digital-only bank compared with just over a quarter among the wider population. But this attitude does now seem to be permeating beyond that niche too.
A 2022 Woodhurst study showed 90% of people are comfortable sharing data if it helps manage their finances and there’s little doubt that having a customer base who will join you on an innovation journey gives you a headstart on the competition.
High street banks and other ‘traditional’ institutions have cottoned on and are now following Monzo’s lead in trying to attract these sorts of customers because they’ve seen the dividends it pays to do so.
It means centuries-old banks are now adopting working practices to match – internal hackathons, incentivising employees for their innovative ideas and cyclical development sprints – and building on them.
This all stems from Open Banking and will only be accelerated by Open Finance and Open Data in the next couple of years.
About Kevin Ryan and Openbox
Kevin Ryan is Co-Founder of Openbox, the premium digital experience partner to the financial services industry that seamlessly connects technology and customer. He has been leading and delivering technical projects for the likes of JP Morgan, Clydesdale Bank and RBS for more than 20 years and is invaluable for his ability to simplify and explain complex concepts to stakeholders at all levels.
Openbox is armed with decades of experience and our consultants work with you to deliver high quality digital experiences that meet industry regulations and customer expectations, every time. Our dedication to exceptional collaboration and communication, paired with our deep industry knowledge, sets us apart from other digital experience partners. We work with you to drive successful digital adoption, strengthening your customer acquisition and retention. Be the only choice for your customer with Openbox by your side and be the digital experience leader in financial services.