The digital revolution in banking continues. The next couple of years will see profound changes in banking as we know it, especially driven by innovations resulting from the COVID-19 pandemic. In part 1 of this two-part blog series, we covered some of the trends we expect to see more of due to the crisis and the constant development of new technology. The areas discussed included how banks are driving new deposits and loan growth, conversational interfaces in customer interactions and integration and open banking. In this blog, we’ll cover how banks are harnessing the power of data analytics to provide personalized services and to predict customers’ behaviors and why cyber-security remains a top focus of digital investment.
Data, AI, and Machine Learning
Thanks to enhanced connectivity and digitization, financial institutions have the opportunity to gather troves of customer data, both structured and unstructured (e.g., videos). With this they are harnessing the power of big data to do big things in banking. Financial institutions store all of this data in databases and servers and then process it using CPU/GPUs and AI algorithms to detect patterns. From this they can gather actionable insights and generate predictive signals about customer behavior. Big data, AI, and machine learning (automating tasks based on patterns detected by algorithms) are shaping banks’ activity in a wide array of areas, including customer support, risk and fraud management, sales and marketing, personalization of digital offerings, credit underwriting, wealth management and advisory services and cash and liquidity management.
With better data analytics, financial institutions can offer faster and enhanced underwriting processes to absorb peak volumes like were recently seen with PPP loans. Additionally, they can provide personalized experiences and targeted products and services to better compete with online banking alternatives.
Security and Member Authentication
It stands to reason that economic stress will cause an increase in financial crime. Cyber-security remains a top priority for financial institutions’ digital investment. Efma Infosys Finacle’s Digital Banking Report of 2018 found that 71 percent of banks surveyed cited cyber-security as the main focus of their digital investment. Cyber-security technology is moving away from passwords and toward biometrics (fingerprints, facial recognition, voice recognition, etc.) and soft tokens (a software-based security token that generates a single-use login PIN and is stored on a device). Call centers are identifying and authenticating customers by their voice and phone number. And some banks are experimenting with or deploying blockchain-based security solutions, which address a fundamental weakness in most security solutions: the human factor. Blockchain’s distributed ledger technology eliminates the risk associated with a single point of failure and provides end-to-end privacy and encryption for users.
Growing in popularity are Customer Identity and Access Management (CIAM) solutions, which allow FIs to securely capture and manage their customers’ identity and profile data and thus to control customers’ access to applications and services. These solutions allow banks to better balance security with the customer experience. Customers can access all of their applications (even partner apps or apps in the cloud) through a single login and set of credentials, and banks can share customer profile information across channels, seamlessly.
The digitization of banking has propelled banks to the forefront of technological innovation. Just a few years ago, who would have guessed that banks would be leading the charge toward digitizing everyday consumer activities, or gathering and harvesting some of the world’s most valuable consumer data? With the disruption financial institutions have experienced due to COVID-19, we can expect even more innovation in the coming months and years.