By Dan McKinney, Co-Founder and Chief Marketing Officer of Finxact
Technology advancement is predictable, but the resulting transformation is not. The predictability of changes in the cost, power, and size of chips, and computing has propelled entire industries. However, the inability to predict the transformative power of technology has led to disruption of entire industries.
Banking is at a crossroads with trust and regulation on one side and consumer-driven technology disruption on the other. Recognizing the structural changes occurring is important as banks evolve their business models. Here is a look at some of the bigger changes we should expect to see in the next few years.
1. The Launch of New Banks
We now know that modern banking platforms are lowering the barrier to entry for new banks, and launching a new bank in parallel with legacy operations is not just an option, but will soon become a competitive necessity.
With new offerings like banking-as-a-service, and vendors with rich transactional and data APIs, we will see banks with technical resources custom-build their own services while banks without those resources utilizing off-the-shelf services. In both cases, these new building blocks will permit banks to create differentiated services at a fraction of what it took even a few years ago.
2. The Promise of AI and Biometrics to Reduce Fraud and Risk
According to Aite, card not present and account application fraud will continue to be leading drivers of fraud. As such, we’ll see more attention paid to account opening processes using real-time rich data patterns and tokens versus personal information.
More attention will also be paid to transaction and account monitoring with better,
real-time multifactor identification, such as voice, facial and randomly generated PINs for high-value transactions. There will soon be dynamic security measures will become dynamic based on the transaction value, and risk factors derived from behavior patterns.
3. A Rationalization of Cryptocurrency
Most consumers and businesses see currencies as a way to transact, not as an investment. Cryptocurrency should be no different and its role will need to become rationalized for legitimate transacting. This is important because some cryptocurrencies are being manipulated by nefarious actors who are profiting anonymously to further their black-market endeavors. The rise and fall of specific currencies will be driven by individual bubbles, or black-market use cases. In the end, the ubiquity of cryptocurrencies will be challenged as banks offer new digital currency capabilities. The value of cryptocurrency as a transactional currency may become minimized as banks begin to offer their customers single wallets holding multiple currencies. As banks enable real-time geo-located transacting that optimize currency exchange rates, we’ll see the role of digital wallets holding fiat currencies outpace cryptocurrencies.
4. Turning the Banking Business Model Upside Down
The most valuable companies have turned the traditional business models upside down. The world’s largest taxi firm, Uber, owns no cars. The world’s largest accommodation provider, Airbnb, owns no properties, and so on.
What these companies have in common is that they are focused on an experience: providing an almost invisible service to customers, that enables customers to just “do”. By providing a seamless service, they enable customers to enjoy the benefits of its service without having to think about the service itself.
In order to compete in today’s market, banks will do the same. Banks will become part of the fabric of doing, allowing customers to think less about banking and more about a service that allows them to go about their lives. This means not just safekeeping assets and transacting but also things like using AI and personal patterns and behaviors that predict and manage one’s wants and needs into a more seamless experience.
Dan McKinney is the chief marketing officer and a co-founder of Finxact, a company modernizing core bank processing in the cloud with Core as a Service. Mr. McKinney has been involved as an investor and operator, launching technology products and services, for companies including NextStage Capital and IBM.