Jayakumar Venkataraman, Partner, Banking, Financial Services and Insurance, Infosys Consulting
1.2020, the year of the Ecosystem Approach and the API Economy
“In 2020, we will see the rise of the ecosystem approach in creating new propositions and delivering banking and financial services to customers. Globally, open banking and PSD2 have enabled newer players to enter the market and gain access to customers’ data that was previously the sole preserve of the banks. This has given rise to many third-party providers (TPPs) that are developing more exciting product propositions for customers, particularly in personal financial management, using customers’ financial data from the banks.
“We will see this approach growing significantly in the world of Trade Finance. As well as this, banks will bring together multiple players such as shipping companies, local chambers of commerce and insurance companies to create richer product and service propositions for their customers. We will see blockchain-based solutions continue their pivotal role in helping bring a digital ecosystem’s players together.
“All of this will be underpinned by rapid growth of the ‘API economy’, where banks and the other players in the ecosystem are exposing APIs for all their key capabilities, using this to integrate and orchestrate new products and services for their customers.”
2. In 2020, data will drive more customer insights than ever
“In the last few years, we have seen a significant rise in digitalisation and the amount of data that is collected on customers and their preferences, transactions, and market and industry data.
“In 2020, we will see the emphasis shift to using this data to drive a much richer understanding of customers, predicting and responding to their needs and transactional patterns. This will generate much greater insight into their lifecycle stage, and help create personalised offers that address their needs. Equally critical will be the use of this good quality data in risk assessments, compliance and fraud monitoring, to deliver safe banking services to customers.
“For commercial customers, banks will bring together the vast amounts of transactional data across multiple product lines – such as lending, trade finance and payments – to create a much richer understanding of transactional patterns, business seasonality and the resultant impact on their financial needs. This means that they too can proactively engage their customer with tailored propositions.
“To make this intensive, customer-centric approach to data work, we will see more banks adopting AI and machine learning technologies across their businesses to make sense of all their data. These initiatives are currently constrained by the availability of good quality data, which does not help in building models that are robust and yield correct decisions. In 2020, we will see banks scale their investment in data initiatives that focus on improving the comprehensiveness, availability and the quality of data, so that AI and ML can be used effectively and reliably.”
3. Operational resilience needs the right technologies
“Operational resilience is emerging as one of the top agenda items for senior executives in banks – and also for the regulator, to avoid the threat to their individual and organisational brand. Certainty and continuity of service availability is very important for customers, so it is important for regulators too. Operational resilience relies on tightening controls and governance around business and IT operations, while continuing to invest in the infrastructure for the future.
“Modernisation and transformation of the IT infrastructure in banks – in particular the adoption of cloud and migrating the hosting and delivery of key capabilities in the cloud – is emerging as a major strategic direction. As well as eliminating the costs from maintaining their own data centre operations, migration to the cloud also offers resilience, agility and flexibility, advanced analytics, and innovative applications that are built on a cloud-first approach. All of this significantly improves integrated working and removes some serious challenges.”
4. Fintech acquisitions on the horizon for banks
“The trend of fintech firms disrupting the way banks and financial services players deliver products and services to their customers is here to stay. The way banks think about the fintech players has also undergone a significant shift. While they were once seen as fringe players, this year, banks will be looking at using fintechs to fill gaps in their own offerings, giving much richer propositions to their customers.
“Banks are acting as investors, incubators, collaborators and strategic partners. Banks have set aside formal bandwidth to engage with the fintech community to identify the upcoming stars, to understand how their capabilities can be integrated into their product propositions, and to ensure they don’t fall behind their competitors. In some cases, banks have also bought out the fintech firms outright, as a move to gain competitive advantage over their competitors. Santander’s acquisition of ebury is one such example, and we will see many more acquisitions of fintechs by banks in 2020.”
5. Regulatory compliance and the growth of Regtech
“Regulatory compliance will continue to be a top spend area for banks, as the need to comply with existing and emergent regulatory and industry initiatives continue. There are plenty on the agenda: FRTB, EU Anti-Money Laundering Directives and other industry initiatives such as ISO20022 adoption and IBOR Transition, as well as a slew of other national and regional requirements. With all of this, banks will have their hands full in 2020. Banks will be looking to be efficient about how they approach these initiatives, to then structure their programmes of work so as to minimise duplication and rework in their efforts.
“The emergence of RegTech firms is a key development that can aid the banks in their compliance initiatives. Estimates on the size and the growth of the RegTech industry vary significantly, but we know that this sector is set for rapid growth. Regtech firms are focused on developing solutions in data collection and reporting, decisioning, predictive analytics and risk identification and management. Like with fintechs, we expect banks will co-opt these firms to aid their compliance initiatives.”
6. New ways to reduce costs
Given the recent trend of results posted by the banks, cost reduction and rationalisation will be an important focus for 2020. As opposed to outsourcing and offshoring of work to lower cost locations, and the adoption of automation and RPA to drive costs down, in 2020, cost rationalisation will focus on a more fundamental operational transformation.
“This will involve a radical rethink of the way banking processes are designed and delivered, and the adoption of an automation-first approach. This approach will be supported by a much smaller team of multi-skilled expert operations teams that oversee business processes, and can jump in to manage any exceptions or incidents with expertise.
“As well as a radical redesign of operations, we will also see banks drive operational costs down through the monetisation of assets and mutualisation of costs. Banks will carve out operations and technology capabilities to a strategic partner that also offers such services to other banking clients. We have already seen some of these deals executed, and we will see these conversations picking up scale in the coming year.”