Taking it as granted that fast-moving technology development will continue to shape the banking industry in 2018, where will it matter most?
An unscientific gathering of various techno-seers collectively points to the following general themes. While these sound familiar, they clearly will intensify.
Security. Customer experience. Artificial intelligence. Blockchain. Scarce talent.
While all these sound familiar, the incredible acceleration of the development, adoption, and refinement of all these will usher in entirely new scenarios in terms of focus and importance.
At least, that’s how it looks now. Here’s a compendium of prognostications to consider, either one by one or in the aggregate.
Disruption to accelerate
Major dynamics—To set the stage here, Forrester issued a simple list of “major dynamics that favor those taking aggressive action and create existential risks for those still holding on to old ways of doing business.”
Included on this list are:
• Performance expectations for customer experience.
• Success rate of digital transformation efforts
• How scarce talent affects the market.
• The evolution and pace of artificial intelligence.
• The evolution and pace of blockchain.
• How security evolves to confront threats without degrading customer experience.
There are more items on this list but you get the idea.
Netwrix Corp., which specializes in behavior analysis and risk mitigation, sees the primary security threat to organizations coming from insiders.
“We expect that in 2018, the main focus will be on insider threats, since rogue or negligent employees and intruders with stolen credentials may pose a bigger risk to security than outsider hackers,” says Michael Fimin, CEO. “Organizations will likely do their best to minimize insider risks by keeping a closer watch on user activities, analyzing user behavior, and regularly assessing risks to proactively spot weaknesses and improve their security posture.”
Specifically, it points out these:
• Blockchain for IT security—Due to its ability to quickly identify the data that has been manipulated, blockchain may become the core technology for highly regulated industries, like banking.
• Focus on insider threats—The need to keep sensitive information secure and prevent insider breaches will force organizations to make more efforts to establish stricter control over user activity in their IT environments.
• Continuous Adaptive risk and Trust Assessment (CARTA)—This approach sees security as a continuous process that changes all the time and must be reviewed regularly.
• Growing demand for advanced analytics—Organizations need advanced analytics to gain a complete picture of what’s going on in their IT environments.
• Organization-specific approach to IT security—Organizations will expect vendors to offer more personalized security solutions that address specific pain points depending on a company’s size, IT environment complexity, and budget.
KPMG outlines specific issues that board member and senior leadership need to have on their front burners in this year.
“Navigating near-term risks and opportunities while staying focused on long-term performance will be particularly challenging in 2018,” says Dennis Whalen, leader of the KPMG board Leadership Center. “Whether it’s digital disruption or cyber security, the business implications of environmental and social issues, or designing the right board for the company’s future, the year ahead will require focused, yet flexible board agendas.”
Its list includes:
• Helping the company keep focused on long-term performance.
• Expecting disruption to continue full-force with technology and digital at its core.
• Being sensitive to risks posed by the tone at the top and organizational culture.
• Learning to live with cyber risk and refining boardroom discussions about cyber risk and security.
• Promoting effective shareholder engagement, including engagement with activists.
• Focusing on building a board that is designed to align with a company’s future needs, recognizing that diversity and healthy turnover are key.
Mediant, which provides investor communications solutions, polled a number of financial services leaders, including broker-dealers, solution providers, bankers clearing/settlement companies, and fund companies.
“It is clear that the evolution of fintech is creating opportunities across the entire financial services industry,” says Stacey Robinson, chief technology officer. “The survey results … show that in years to come, fintech will continue to be crucial for reducing costs, optimizing internal processes, maintaining regulatory compliance, and meeting investors’ needs.”
• More than three quarters of firms planned to invest more in fintech this year than in previous years.
• Top factors driving tech investment plans are managing operational risk, and keeping up with new and changing regulations.
• The most impact from technology will come from artificial intelligence, notably machine learning.
• The impact of blockchain technologies will grow over the next five years
• Mobile and digital solutions are crucial for shareholder engagement.
The payments space
Mercator Advisory Group issued outlooks from its various advisory services groups. Excerpts from these include:
• “In early 2017, U.S. debit card transaction volume took an abrupt and steep decline. In 2018, issuers face a new normal with lower and unpredictable growth, compressed margins, and ever-changing fraud challenges … Person-to-person payment strategies will become more important to financial institutions as they seek to fend off competition from successful fintech products.” Sarah Grotta, director, Debit and Alternative Products
• “2018 will be a year for U.S. credit card issuers to tighten up lending and build on existing customer relationships as account delinquency begins to rise.” Brian Riley, director, Credit
• “For 2018, key questions for merchants and their payment providers, including acquirers, card networks, and issuers, will be: Where and how will consumers be making their purchases, and do the patterns and behavior revealed suggest what merchants should do?” Raymond Pucci, associate director, Research Services
• “The coming year will be defined by the integration of fintech into the fabric of banking service delivery by all types of financial institutions.” Joseph Walent, associate director, Customer Interaction
• “Digitization continues to spread across the cash cycle as the commercial payments industry better adapts to the need for faster and improved next-general technological capabilities while simultaneously improving fraud risk management.” Steve Murphy, director, Commercial and Enterprise Payments
• “Machine learning has become entangled in major hype, yet it has demonstrated that it can be applied very broadly, not just applied to big data and fraud, and so it demands even greater attention.” Tim Sloane, vice-president, Payments Innovation
Robert Half, in its semi-annual poll of chief information officers, expects IT hiring to continue to be strong in 2018.
“Technology leaders hope to get ahead on critical initiatives such as cybersecurity projects or digital upgrades in the new year by bringing on more professionals with specialized skills,” says John Reed, senior executive director. “Database, desktop support, development, and security skills are in high demand. To secure the best talent, tech leaders should act quickly when they find a great candidate and offer him or her a competitive compensation package.”
Top priorities as listed by the polled CIOs:
• Innovation that helps to grow the business.
• Upgrading existing systems for business efficiency.
• Technology innovation and investing in new technologies.
• Staff retention.
Five biggest trends (in IBM’s view)
As one might expect, that tech giant, IBM, has solid opinions about what the biggest trends will be in 2018.
It’s interesting, because they pretty much close the circle with those listed at the top of this article—with one exception.
Here’s what Susan Visser, social strategist for IBM, sees for 2018:
• Artificial intelligence. “In finance, AI is helping detect and fight fraud before it can be detected by humans. Stacks of new compliance regulations are being fed into artificial intelligence systems like IBM Watson to help businesses stay on top of the ever-changing rules. Chatbots built with AI are able to help agents satisfy customer questions with accuracy and speed.”
• APIs. “The benefits of creating applications using APIs as building blocks are being recognized as the best way to keep up with the tsunami of business and economic challenges facing the financial industry … To keep pace, banks are now investing heavily to improve their ability to create innovative mobile apps.”
• Blockchain. “Large financial players are collaborating in consortia to rebuild infrastructure based on this new technology to replace legacy and incompatible systems. From trade finance platforms, to cross-border payments and digital identification, eliminating inefficiencies created by lack of trust and transparency is a major selling point of implementing blockchain technology.”
• Human digital interfaces. “We’re already using our voice to make commands rather than touching our screen or typing. Passwords are being replaced by biometric finger, retinal, or face scans as security checks. Technology is gauging our emotional state based on our interactions with our devices. Gestures can be used to trigger an action. For the next few years, expect to see these interfaces showing up in more places and being perfected.”
And then she lists this:
• Quantum computing. “Quantum computers will not replace traditional computers, but will be able to solve computationally difficult problems such as maximizing returns for investments based on a given risk profile. In addition to finding answers fast, consider the accuracy achievable in artificial intelligence or machine learning. It might even make technology look intuitive. Technology to detect fraud or money laundering is an area well suited for quantum computing.”
Intuitive technology. What will they think of next?
- Goldman Sachs, J.P. Morgan and Citigroup Fintech Investments Growing Like Never Before
- U.S. Banks Leaders in Technology Innovation According to New Survey
- Beyond the Efficiency Ratio: Leveraging Automation to Improve Profitability and Experience
- The Real Reasons Bank Customers Move to Direct Banks
- What the shutdown of JPMorgan’s Finn can teach banks: Even though you build it, they might not come.