Sophie Guibaud, VP of European expansion at Fidor Bank looks back at the key banking tech trends of 2016 and what we can expect to rise to the top in the year ahead.
Year In Review: 2016
1. Emergence of new business models for banks
Historically, bank CEO’s haven’t pushed innovation hard enough, preferring to satisfy shareholders than to bring new methods to customers. However, in 2016 in particular they’re now fully realising they fall short when it comes to innovation, and are gobbling up small fintech startups faster than ever. Now a quarter (25%) of global banks would buy a fintech company, and 60% would partner with one - I consider this to be incredibly positive both for businesses and customers alike.
2. PSD2, Open Banking
The very idea of sharing banking data could set alarm bells ringing in the minds of many ordinary consumers in terms of security and privacy. As a result, the use of APIs in banking has largely been limited. However, Open Banking really ramped up this year and will give the European banking industry the shake up it needs in the coming year.
The benefits of sharing this data, which gained real traction this year due to PSD2 - with customer consent - greatly outweigh the risks as it will help increase transparency, competitiveness and foster innovation that should ultimately benefit consumers.
This year saw the take off a wide variety of biometric security measures from financial organisations. From fingerprints to facial recognition are moving beyond the realm of science fiction to our everyday banking transactions. Passwords are problematic, and in the digital age customers struggle to keep track of their many passwords for different services which can, in many cases, easily be hacked.
Biometric authentication is undeniably the future of mobile security and it’s a hugely positive step that big players are starting to put customer experience at the heart of their processes. For example, HSBC this year announced its plan to introduce selfie authentication for setting up customer accounts, while Mastercard has built fingerprint sensors into cards, offering increased security and a smoother banking experience at the same time.
Year Ahead: 2017
1. Artificial intelligence / Chatbots
Up to this point artificial intelligence (AI) in banking has been a critical, but mainly ‘backroom’ technology used by financial organisations, especially challenger banks, to unearth deep customer insights and offer them personalised products.
However, we’re now in an era where customers expect quicker, more responsive services from their banks and this coming year will see the full roll out of AI-driven solutions which aim to meet these heightened expectations, while also ensuring consumers receive the personalised approach they also demand.
Chatbots, which answer customers’ inquiries and resolve their problems, will become the new norm for banking customers around the world next year. We’ve seen a number of test cases deployed in 2016 but many of the big players including Mastercard, will be jumping head first into offering chatbot services for their customers in 2017.
From an industry perspective, next year will be a big opportunity to really prove how effective consumer-facing AI solutions such as chatbots can be, when applied to everyday customer service.
2. Account aggregation / PSD2 premises
With the Payments Services Directive (PSD2) scheduled to be enforced in 2017, it will grant access to customer bank accounts and transaction data to third-party providers via a dedicated set of application program interfaces (APIs). As customer data opens up across Europe, account aggregation, whereby compiling information from disparate, different financial accounts for a consumer, will likely be a key growth area.
In practice, what this means is that financial institutions can become central to a customer’s daily transactions, regardless of what accounts they might come from. Meanwhile for the industry, organisations can gain deeper insights into individual consumers and what financial products might appeal to them currently, or in the future. Also, the wealth of data available will result in continued innovation of financial products which will put the customer at the heart of their development.
3. SME banking
While fintech innovation in the last number of years has been primarily focused on the retail banking sector, this will change markedly in 2017, as corporate banking comes to the fore.
One segment on this market which will be affected will be smaller to medium-sized firms. The UK is home to over five million SMEs, yet 85% of business current accounts (BCA) and almost 90% of business loans are provided by four providers currently, with just a 4% annual BCA switching rate.
Some challenges SMEs currently experience with incumbent banks are lengthy and complex procedures to open bank accounts preventing them to run their operations smoothly meantime or the fact that the accounts they offer are fitted to large corporation needs and not SME’s. This is where fintech is ideally placed in the coming year to take on established financial institutions and offer real value to SMEs to enable their businesses to thrive in a challenging environment.