Even before Covid-19, banks were feeling the pressure of fintech competition to provide better customer service and usability. The inability to conduct in-person transactions put additional pressure on financial services institutions to increase the ability, ease, and scope of online transactions.
We see five trends coming this year that will most impact customer experiences. And machine learning and data analytics will prove to be the solution to providing the relevant experiences that customers have come to expect.
1. Increased access to online banking and removal of geographic hurdles to community banking
While bank branch closings decreased in 2020, likely because of regulatory concerns, branch closings accelerated between 2008 and 2019, according to Bank Dive. That’s probably because customers can do much of their banking online.
One industry expert told me on condition of remaining anonymous that he believes banks will “shut down 30 to 40 percent of traffic.”
Mobile banking spiked in April 2020, and 40 percent of surveyed customers said they planned to continue using mobile banking apps. As banks continue to close branches and fintech continues to evolve, we’ll see an increase in those offerings.
“Regardless of spend level, many commercial banks recognize that enhancing the digital client experience is a major theme for 2021 tech investment,” according to Novantas.
And enhancement isn’t just required on the front end. Given that an extraordinarily high number of employees are now working from home, pressure has been placed on organizations to improve their internal systems as well. “At present, most banks are reacting to pressure to be virtual and digital — simultaneously shifting more than 90 percent of their employees to work virtually while operating on legacy, on-prem core banking systems that have not yet migrated into the cloud,” Andreessen Horowitz says in its May 2020 newsletter.
As banks look to serve more customers with less risk, more products will move online. While banks have traditionally looked at the cloud as an anathema, Chief Information Security Officers (CISO) will be recalculating the risks between physical on-prem vulnerabilities vs multi-tenant cloud.
2. Seamless banking across apps/needs
Fintech apps have long aimed to give consumers more control over their finances. Despite this goal, many retail banks have failed to deliver seamless apps and some make multiple apps for different functions at their banks.
Other apps, such as “neobanks, marketplaces, lenders” give customers a better user experience than products already available, said Forbes.
But Fintech companies are aiming for self-driving money, meaning that consumers say what they want to achieve, and “the platform figures out how to get there quickly and safely.”
Unifying the experience across apps is key to making this happen – and machine learning is at the heart of the process.
The Andreessen Horowitz newsletter calls this idea the money button. “The idea behind the money button is that a single company will find product/market fit with a specific wedge — such as managing credit debt or financing a home — and will then cross-sell into a constellation of other financial products, eventually achieving 100 percent of its customers’ wallet share.” Adding that “…no fintech product has achieved meaningful scale with a second line of business, much less many lines of business.”
Unifying customer information across all product lines must become table stakes.
In 2021, we will see an increase in the number of apps that allow consumers to customize their finances — so instead of seeing one app to control them all, we’ll see many apps with specialties and customizations. These features will grant us more fine-tuned control over the aspects of our finances that we care about the most as individuals.
3. Banks focus more on security as fraud continues to rise with increased use of online banking products
With more banking moving online, security will continue to improve to fight a corresponding shift in fraud: Old school crimes will decrease, but other types of fraud will increase.
Online fraud is already easier to trace than physical fraud, my industry source said, “because there is much more transparency, and it is easier to see where money comes from and where it goes.”
But as more banking moves online, the reach of that fraud increases. For example, thieves may steal account and credit card data, which can then lead to identity fraud.
To combat that, banks are diversifying where their data is stored as well as how they’re protecting it. Companies are investing in a combination of on-premise and cloud solutions. No customer then is sitting in one data center. This has the benefit of multiple layers of security at each solution.
More banks are turning to machine learning to spot fraudulent activity. Machine learning analyzes thousands of transactions a second for fraudulent activity, such as logins from other countries and unusual purchases — allowing security experts to act before bad actors can strike.
4. The online payment system will become a commodity
Point of sale options are often dependent on the seller, with many being decades old. Even when more secure options are available, sellers do not upgrade to more sophisticated systems. The onus to increase options [for ways] to pay in person is on the banks.
Meanwhile, the online payment space is large and mature with many vendors, such as PayPal and Apple Pay, being household names.
But there is a change afoot for the online payment sector.
Machine learning already helps with transaction approval by providing real-time security for transactions. It also helps with customer service when there is a problem and can help predict delinquency in payments. As online payment systems become goods themselves, machine learning will make them more marketable and more secure.
5. Fintech and financial institutions will partner to keep up with innovation in the industry
According to Boston Consulting Group, 2021 is ripe for acquisitions. From its 2019 report on what it takes for banks to survive, it wrote: “Scale has always been a driver of value in banking, but it is more critical than ever because of the need for investment in technology and digital capabilities.”
FinTech magazine agrees, saying that fintechs offer the ability to solve problems that traditional financial service firms cannot, while the older companies bring customer loyalty and established networks to the table.
Of course, those acquisitions mean new challenges for unifying customer data, product lines, and making sure agents have visibility across the enterprise to answer customer questions.
As a result, machine learning combined with powerful search is driving new investment in fintech, and is expected to be worth $7,305.6 million by 2022. The ability of machine learning to learn and predict enables fintech providers to recognize new business opportunities and work out coherent strategies.
Financial service firms have huge amounts of data, which machine learning can parse for patterns. Fintech companies that leverage machine learning can apply them to “applications in finance, including for banking and credit offerings, payments and remittances, asset management, personal finance, and regulatory and compliance services,” according to Intellius.
Look for the traditional fintech ecosystem to continue maturing in the next year.
With more people online with higher expectations than ever before, financial services firms certainly need to deliver an exceptional digital experience. However, they also need to be prepared to handle customer issues that will inevitably arise as a result of this rapid digital shift.
To learn more about how to deliver the digital finserv experience customers expect and how to help them help themselves as they adapt, read Coveo for Financial Services: Become Their Most Trusted Advisor.