The banking sector is looking for a way to take advantage of the experience acquired during the COVID-19 pandemic period to promote digital banking with the innovation that is allowing it to continue obtaining important technological progress and in terms of business models. However, not only have the circumstances of COVID-19 maintained a process of forced change in the banking sector, but also the rise and consolidation of technology itself are allowing the consolidation of more profitable, efficient and agile companies as a result of the digital transformation. Randall Castillo Ortega, the founder of SME investor RACO Investment in Panama and Costa Rica, provides insight into how the financial industry is changing as a result of new innovation.
The adoption of the cloud will be defined by a better comprehensive technical approach (which includes different modalities of private, public, hybrid, virtual or community cloud as a whole) so that banks take advantage of the broadest benefits of each Tool Cloud in an integrated way that allows them to quickly and economically add new services, products, channels and digital applications.
Banking-as-a-service (Baas) allows banks to monetize their products and services through consumable APIs for third parties. Explains Castillo, “The BaaS platform model allows FinTechs and third parties to build financial offerings on top of a regulated banking infrastructure, and banks to share and monetize data and infrastructure, and co-create new products with faster time to market.”
Payment-as-a-Service (PaaS) is becoming popular. Banks and financial institutions are outsourcing their payment platform technology and operations to drive digital innovation and stay relevant in a competitive environment. According to Juniper Research, the number of open banking users is expected to grow in size to more than 40 million users by 2021.
The future is heading towards increased sustainable lending, as central banks and regulators have unrestrictedly recognized the serious macroeconomic consequences of climate change. Financing non-green projects will increase their cost, with higher reputational and regulatory risks for companies, focusing on managing climate risks, adopting green operations and developing green products.
The digitization of the financial sector will continue to imply the closure of offices and transfer of processes to the network of digital capabilities, leaving human interactions for the personal and business banking segments. In contrast, digital banks will continue to experience a mixed or hybrid model to continue winning customers. We will thus witness the emergence of the next generation of digital banks in markets such as Latin America, Singapore and Hong Kong willing to introduce a better human experience in their digital interactions to gain trust and generate emotional connections with customers.
Traditional retail banks will have to distinguish themselves from their fintech and big tech competitors to avoid tight margins, credit losses and the impact of slowing economies. The best possible way out is to focus on customer-centric consulting to gain their trust with radical transparency in banking services.
Predictive analytics and personalization are great tools for payment companies to examine security, compliance, and operational nuances, and Big Data has the potential to drive hyper-personalization of payment methods with a personalized experience. “The use of artificial intelligence and machine learning also drives personalized websites, real-time financial recommendations, and a higher level of testing and learning capabilities for the benefit of consumers,” adds Castillo.
Past metrics, such as credit quality, that led to banking sector losses will be replaced by profit metrics, making data-driven smart credit management the best performance differentiator. To boost profitability, banks will also have to be smart and aggressive in meeting the demand for new credit extensions.
Globally, cash use has declined by around 6%, a trend that promises to continue to reach 30% and 40% of current levels in Europe and then accelerate as central bank digital currencies are available. By 2030, the majority of cash transactions are projected to be made only through cards and digital payments, enabling consumers to bank without branches.
The launch of the Google Plex bank and Apple’s banking proposal for credit cards will take the West down the digital path without apps for financial institutions that will evolve B2C banking towards B2B2C banking. This service provides simple, fluid and personalized digital participation.
The widespread emergence of a new type of digital regulator where central banks will seek a balance between regulation and stimulation of innovation. Global Monetary and Financial Conduct Authorities are already prioritizing data innovation centers and regulatory sandboxes to support national innovation programs.
Cybersecurity and data privacy will become a unique selling proposition (USP) for many financial institutions and large technology organizations. Financial institutions will be the place where the identities of consumers are kept, who will be the final owners of their identity. The responsibility of the banks will be to comply with increasingly strict regulations on privacy, security and data protection.
The threats faced by the institutions in terms of money laundering expose them to serious image, legal and operational risks. To avoid them, it is necessary to automate all the controls and the use of powerful analysis tools.