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What will make the FinTech headlines in 2020?

Banks around the world are witnessing the winds of change. What do these trends mean from a boardroom’s perspective? Here is a holistic take, using the Balanced Scorecard framework and the priorities that banks would do well to take note of that banks are having to deal with demands from customers, regulators and new-age FinTech disruptors has been much written about. Be it the differentiated experience attributed to expectations from millennials, requirements from ever-increasing regulations or simply the pressure to compete or collaborate with FinTech innovative disruptors, the list has never before been this long.  

 With so much being predicted about FinTech-driven digital models and the financial system becoming a shared economy, we wanted to explore what all of this means to a bank, holistically. We use the Balanced Scorecard framework that allows for a comprehensive view of the enterprise to review this context across financial, customer, process and organisational perspectives.  

 Financial: Driving new-age efficiency  

 If there is one clear and globally consistent measure that could eventually help make sense for all the digital noise that the world is witnessing, it really has to be the cost of delivering every transaction. Be it with robotics-enabled process automation, cloud-hosted onthe tap platform used as a service or simply migrating customers from physical branches to digital branches, the objectives may be to do with reducing manpower or increasing the speed of delivery.  

 However, the end result eventually converges into one-simple bottom-line metric: cost efficiency. Close to $40 billion was reportedly invested in FinTech funding last year, driven by a positive growth outlook for the next few years. However, with all the digital banking investments across every spectrum in the financial services world, there is likely to be much higher scrutiny on the cost efficiency and related metrics – be it from a shareholder perspective or simply from any boardroom or management agenda. And what that means for every bank is to have not only a long-term survival perspective to embracing the digital journey, but also to ensure there are short term quick wins from a financial standpoint.   

 Customer: Data and analytics hold the key  

 No prizes for guessing how mobile and digital have taken centrestage when it comes to customer experience. With Gen-Y seen to be ‘digital-native’, banks are more likely to witness the share of digital, straight-through transactions quickly move upwards – be it simple enquiries, complex loan originations or dealing with e-wallets and digital payments. And that means an explosion of data that is available in the hands of banks to deal with: IDC, for instance, had predicted there would be 20 times more usable data in 2020 than in 2012. And therein lies the proverbial Holy Grail.  

 The bells and whistles of wearables and augmented reality experiences are already becoming commonplace. Yet, the key point to bear in mind is none of this would bear real benefits unless the technology stack and overall orientation is repositioned with the customer being at the centre. Implications include drawing observations of patterns in behaviour, driving predictions on what the customer needs, ability to create and offer micro-segment products, and enabling a seamless execution that brings the best experience. “A trend has been gaining pace over the last few years, where we really are seeing the customer put at the centre of business models and decision making,” says Elliott Limb, chief customer officer, Mambu. “The entire concept of a return to relationship banking is something that many banks are starting to embrace with their digital offerings. The AI space in this area will be very interesting to watch as individuals get what they need, when they need it and how they want it.”  

 Keeping the customer at the centre would become the mantra not only from a business and product strategy standpoint, but also in the building of business partnerships, design of the data architecture, focus on business intelligence and nurturing cognitive analytics.  

 A good case in point here would be the partnerships that are likely to be fostered between banks, data providers, credit bureaus and tech firms, all vying for the jewel in the crown – customer data – seeking to lower the cost of customer acquisition, increase revenue from cross and up-selling, optimise customer on-boarding and develop micro segmented product offerings. 2020 is likely to see more and more banks evolving policy frameworks that formalise alternative data and credit scoring. Regulators would also have their hands full, with sandbox initiatives that help sharpen the rules of the game better. 

 Process: Robotics and automation, the new mantra 

 Digital labour driven by robotic process automation (RPA) has permeated through back offices and customer service centres in most banks already. We are not talking just about regular and mundane activities at the back office, but also the smarter territories of real-time credit decision-making, risk management, compliance and regulatory reporting and investment advisory. The mantra is not just about speed, but also about accuracy. 

 Glue42, which focuses on providing simplified desktop experiences, believes that voice and assisted automation will remove mundane tasks and data entry. “Users will be able to quickly and easily create 

specific bots to perform administrative and repetitive tasks. These bots can be commanded through voice rather than typed using a keyboard, including the creation of the specific bots,” the firm said. 

Banks, therefore, can ill-afford to map their processing framework – be it from estimating the headcount of turnaround time commitments or cost-efficiency projections – without having a clear view on what role robotics would play. 

 Organisation: Powered by artificial intelligence and machine learning 

 Building the organisational fabric is not just about driving a performance-oriented culture, but also about nurturing learning and growth. And here is where the era of API banking, RPA, artificial intelligence and machine learning are making a difference to the traditional approach. Banks that do not have a digital innovation focused strategy function, or a formalised chief digital officer role, would soon be left behind.  

 With interoperability becoming the name of the game, we are no longer dealing just with employees of the bank, but an ecosystem of customers, extended partners and FinTech players dealing through myriad connectors established through APIs, self-service channels and a network enabled through interoperability. Governments around the world would be formalising the digital ecosystems, having the larger community participate in the FinTech evolution.  

 “Composable business architecture is how the market will deliver a framework for collaboration in order to support customer-centricity,” says Limb. “We also call it ‘composable banking’, which refers to the quick and flexible assembly of independent systems.”  

 And there-in comes the risk as well. Vulnerability extends beyond the physical world. Cybersecurity would see a new avatar as risks evolve. Perimeter security and device management will be part of layman vocabulary. User authentication, for example, is evolving from just personal identification numbers to one-time-passwords and further into biometric sensors – from fingerprints to retina scans. Digital payments will become more sensitised to anti-money laundering and fraud prevention. Mark Gazit, CEO of ThetaRay, said: “Institutions will become more cautious about potential money laundering, not just because of regulation and compliance, but because they will be under greater public scrutiny for their perceived role in these crimes.” And we cannot agree more!  

 In summary, we identify five common themes and priorities for banks to look at from a 2020 perspective:  

  • Develop a FinTech embedded business model
  • Drive market and product strategy, with the better harnessing of customer intelligence
  • Maximise share of digital within the operating model. STP is key
  • Protect the enterprise from cyber-risk: both internal and external
  • Build the organisation to thrive in a larger, shared ecosystem

As we move into 2020, we are likely to witness more and more banks metamorphosising from being physical and manual, into increasingly becoming digital and nimble. Winning would not so much be about why, but really about how!  

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