At a time when technological advances seem to be a daily occurrence and customers expect immediate service, what are the technologies banks are using to avoid being left behind?
In business everything changes, and banks are facing the disruptive threat of both new and nimble companies, the so-called “fintechs,” as well as technology giants such as Google, Amazon, Facebook, Apple and Alibaba, which offer innovative payment systems, loans or asset management services.
“The biggest challenge for banking in this era of disruption will be to break with the patterns and comfort levels of the past and accept the realities of the new digital market. “The expectations for a new generation of banking consumers are not being set by banks,” says Jim Marous, co-editor of The Financial Brand and owner and editor of Digital Banking Report.
Next, we’ll take a look at some of the technologies that will be key for banks to capture 21st century customers.
Blockchain technology records transactions made between two parties (P2P). It is not under the umbrella of an institution, such as a central bank. It is decentralized and freely accessible. The cryptographic algorithm prevents the alteration of transactions. The system traces any transaction and ultimately identifies the "property" unequivocally. Its great advantage is that it allows transactions to be completed at a faster pace, with lower risk and cost and greater transparency.
Banks are already testing the use of blockchain in cross-border interbank transfers. The pioneers have created cryptocurrencies for institutional use to exchange assets around the world quickly and securely. Other entities have opted for existing crytocurrencies to make international transfers, such as Ripple.
Spanish banking giant BBVA made the first real international transfer pilot based on Ripple blockchain technology a year ago. The bank said it managed to carry out transactions between Spain and Mexico that normally take up to four days to process in a matter of seconds.
Artificial Intelligence (AI) and 'Machine Learning'
Thanks to its ability to process huge amounts of data at very high speeds, machine learning will impact banks in areas such as credit risk management, financial information and security, according to Accenture, an international consultancy.
Machine learning can help shore up security, as platforms can be coded to identify patterns of use and detect unusual behaviors, an essential function when confronting cyber-attacks that are often disguised with data or codes that look normal. It can also operate automatic tasks that meet changing regulatory requirements.
As in other sectors, we will increasingly see the use of machine learning to develop more customized services.
By 2020, consumers will manage 85% of their communication with a company through chatbots, or chat robots, without interacting with a human, predicts a report from technology consulting firm Gartner.
Chatbots are also an entry point into a wider world of services that operate with artificial intelligence, where machines could automate payments based on credit card data and manage real time transactions. They could also identify customers who access the products they offer, authorizing transactions and helping business clients manage cards and organize complex accounts.
They are digital currencies that are based on the blockchain system. Payments made in cryptocurrencies are formalized instantly. In addition, there are no intermediaries: transactions are made from one person to another in no more than four seconds and at a fraction of the previous cost. Banks are starting to use or develop their own cryptocurrencies. For example, Mitsubishi UFJ Financial Group (MUFG), the largest financial group in Japan and the fourth in the world, plans to launch its cryptocurrency this year. Banco Santander is using blockchain and cryptocurrency technologies to reduce costs and make transactions more efficient. The Spanish bank is working with the Ripple network and its cryptocurrency.
Ripple's technology allows cross-border payments to be completed within 10 to 15 seconds at an insignificant amount compared to the system currently used by banks, the Swift network, created 45 years ago. Currently, banking transactions in the Swift network take about three to four days to complete and cannot be done on non-business days, compared to cryptocurrencies, whose operations can be carried out every day and at any time.