‘Smart’ is being integrated into a lot of words nowadays — from smart cities to smart homes — indicating the intelligent development of these areas through technologies. In the banking sector, several innovations are being adopted, especially with the rise of financial technology (fintech). But how do such technologies make banking smart?
There are several descriptions as to what makes a thing incorporated with technological advancements a smart one, ranging from the ability to collect data, to connect with other devices, to the ability to improve efficiency, among others. With the help of technologies, banking is thus becoming smart through enhancing banking operations and customer experience.
Banks in the Philippines, particularly the traditional ones, have adopted digital transformation with the further development of their mobile applications. But this is still deemed far from implementing digital finance’s more revolutionary features.
“To date, their (established banks) efforts have largely focused on creating mobile apps for existing customers and digitizing legacy processes,” management consulting firm McKinsey & Company remarked in an article published on its website. “However, mounting pressure from fintech firms is spurring innovation in the traditional banking sector.”
Operating in the cloud and leveraging emerging technologies such as artificial intelligence (AI) and blockchain were seen to hold significant potential to transform banking.
“Smart banks” are expected to migrate their core systems to the cloud, Accenture Managing Directors Nicole Lanza and Keri Smith noted. This is to keep pace with, as mentioned, the rise of new players in the market that are already harnessing cloud technology to provide financial services.
The cloud enables data storage and access over the Internet. However, to bring the core processes of banks like account transactions to the cloud might appear challenging for them.
“Core systems are both the engine and the heart of a bank, so it’s not surprising that banks can get nervous about making significant changes to them,” Ms. Lanza wrote in an article published in Accenture’s website.
“Banks make decisions based on risk — and smart banks will consider the risk of moving to the cloud too slowly,” she also noted.
By allowing core processes to operate in the cloud, it is anticipated that banks, especially their employees, could put further attention to producing more innovations.
Aside from the cloud, harnessing technologies to make banking smarter could be made through AI.
AI is thought to disrupt various industries, including the banking sector. McKinsey prospected AI technologies to bring an additional value of up to $1 trillion annually for global banking.
Banks could utilize AI to enhance the experience of their individual clients through personalization. For instance, McKinsey envisioned banking’s transformation through AI by being able to understand the previous behavior of customers and leverage this to deliver offers and money management solutions to them.
The firm also perceived AI’s potential to improve the banking experience of enterprise clients, among which are through customizing lending solutions, assisting in inventory and receivables management, and having a virtual adviser powered by AI.
Apart from customer experience, McKinsey sees AI’s potential in helping banks in their office operations. The technology could provide support in their processes such as employing facial scanning for transactions or biometrics for authentication, as well as furthering cybersecurity by identifying fraud patterns or potential attacks through machine learning.
Another emerging technology especially seen to revolutionize financial services is blockchain. While it is usually associated with cryptocurrency, blockchain technology is also touted for its potential to provide several benefits for banks such as improving transaction and security.
Since its utilization involves automating processes, blockchain can provide better efficiency for banks. And through applying cryptography, it enables a secure collection of transaction information.
Moreover, being a chain, one of the notable advantages seen from blockchain technology is bettering traceability, which could help in addressing fraud. Another benefit of blockchain is that the technology makes it too complex for data to be altered or removed, thus furthering transparency as well.
From traceability to transparency, which then could further accountability, harnessing an emerging technology like blockchain can enhance the security of banks in fulfilling their processes.
As financial institutions are among the industries most at risk for security concerns, especially with the accelerating digitalization in the sector, boosting their defense through innovations that provide not only better efficiency but also security could be another smart move to make for banks. — Chelsey Keith P. Ignacio