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Never too early to predict fintech future

Payments, AI, blockchain, and more poised for quick advances

Bank tech trends can make your head spin. So regularly longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.” Bank tech trends can make your head spin. So regularly longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.”

With more than a third of the year to go, it may seem odd to chronicle what many different industry observers conclude will be significant, near-term technology trends. But that's the nature of the ever-accelerating innovation revolution—a collection of trends that seems bent on condensing time itself.

What follows is a roundup of observations and predictions concerning tech trends that at least some see fast approaching—meaning, within the next four months to three years.

Specific technologies making headway

Immediate payments—66% of banks in markets that have immediate payment schemes view them as a revenue driver. Also, 61% of banks believe that immediate payments will enhance their service and proposition to customers. And 60% of banks expect immediate payments will reduce costs.

So says a survey by ACI Worldwide and Ovum, which teamed up on a global study of 1,475 executives from retail banking and merchant-acquiring organizations.

Key conclusion:

Overall IT investment is up, as 57% of all banks are growing their IT investments in 2017, up from 53% in 2016.

“The market is rapidly changing. Banks must invest wisely in core payments platforms and infrastructure to take advantage of relevant opportunities,” says Kieran Hines, head of industries, at Ovum. “Financial institutions that proactively shape strategies around open APIs, fraud prevention, and immediate payments will reap the benefits when it comes to both consumer experience and revenue.”

Small business digital channel development—A survey of 441 small business owners by ath Power Consulting found that digital channels have become primary for two thirds of small business banking customers; meanwhile, branches still pay an important role, as 28% consider them their primary channel.

“Many small business owners feel that the small business mobile apps currently available to them are largely undeveloped, with one third of those citing dissatisfaction, saying that mobile functionality is too limited for business use,” according to the report. “This finding indicates opportunities for financial institutions to improve and expand their small business mobile banking solutions.”

ACH transactions—Credit and account receivables professionals anticipate ACH transactions will surpass checks as the leading form of payment received from business customers by 2020, according to a survey by Credit Research Foundation in partnership with NACHA.

Currently, checks account for almost 50% of payments (down from 63% in 2014). ACH accounts for 32% (up from 22% in 2014). Cards account for 11% (up from 8% in 2014). Cash and wire account for 8% (up from 7% in 2014).

By 2020, the projections are that ACH will account for 45% of payments, followed by checks (34%), cards (12.5%), and cash and wire (8.5%).

“Because they are electronic, allow for remittance in a variety of formats to be sent with the payment, are more cost-effective than some other payments options, and can be received quickly, ACH payments are becoming a very attractive option to both accounts payable and accounts receivable professionals,” says Rob Unger, senior director, corporate relations and product management, NACHA.

Artificial intelligence and IoT—Within the next six to 12 months, 57% of organizations with customer contact centers intend to support or offer Internet of Things/connected technologies, according to the International Customer Management Institute and Oracle. The two organizations released a research report that concludes that with regard to artificial intelligence, 41% of respondents expect their contact centers’ use of bots/AI to increase in the next 12 to 18 months.

“The increased presence of connected devices and artificial intelligence in the contact center is inevitable,” says Justin Robbins, group director, content and community, ICMI. “Contact centers are wise to look toward the future and make it a priority to adopt new technologies that support these capabilities. The benefits of adopting these new technologies will be realized from the executive office to the frontline employee to the individual customer and will have a major impact on the entire customer service experience.”

Blockchain—A survey by Juniper Research of executives from 400 large corporations (defined as having more than 20,000 employees) finds that 57% are either actively considering or are in the process of deploying blockchain technology. Of those companies that have reached the proof of concept stage, 66% expect blockchain to be integrated into their systems by the end of 2018.

The primary applications would be associated with settlement, land registry, and digital fiat currency. Driving such a move are: a need for transparency and clarity in transactions, a current dependence on paper-based legacy storage systems, and a high volume of transmitted information.

Hurdles remain, according to the research, namely the need to establish interoperability and persuading clients to embrace blockchain systems.

Corporate plans for fintech

Now, to shift gears a bit.

Broadening the tech trends prognostication scope, here’s a roundup of research by three major analytic firms that have looked into corporate plans to invest in new fintech solutions.

Accenture—More than half (53%) of 800 financial services executives across North America, Europe, and Asia, say they plan to increase their investments in major corporate transformation initiatives over the next 12 months due to cost pressures, new regulations, increased customer expectations, and digital disruption.

Also, 83% of financial services firms are currently dedicating moderate or significant resources to so-called “change programs.”

“Most financial services organizations realize that the disruption of their marketplaces will intensify in the years ahead,” says Andy Young, in Accenture’s Financial Services Talent and Organization practice. “They understand that their ability to change rapidly and continually will be increasingly vital to their ability to compete in the digital economy. That’s why many are focusing on the speed of returns on these investments and applying agile change methodologies to meet shareholder expectations of a payback within one year.”

EY—Financial technology adoption among consumers has surged globally over the past 18 months and is poised to be embraced by the mainstream, according to recent research. The firm found that an average of 33% of digitally active consumers now use fintech. The U.S. has the highest adoption rates regarding three of the top five fintech categories: financial planning tools, savings and investments, and borrowing.

“The fintech industry continues to thrive and we see adoption increasing, as innovative offerings draw U.S. consumers with their simplicity, convenience, and novel uses of technology,” says Matt Hatch, partner, Ernst and Young LLP and the EY Americas fintech leader. “This adoption will likely increase with the next evolution of fintechs, focused on data sharing, open application programming interfaces, biometrics, and application of artificial intelligence and robotics.”

Aite Group—According to its recent research, an increasingly demanding customer base and growing expectations around technology and the user experience are challenging banks to evolve their technology-based strategies.

It found that key bank executives at many large financial institutions have abandoned the concept of building all their technology in-house in pursuit of a competitive edge in the marketplace. Instead, Aite says institutions today have become far more open to considering offerings built by technology partners.

“Fintech companies and banks are beginning to realize the benefits of working together to deliver innovative solutions and superior customer experiences to an increasingly digital customer,” says Christine Barry, Aite Group research director. “Banks are looking at broadening product portfolios and potential partnerships with fintech firms.”

So there it is. It seems summer vacation is already over and everybody in the financial technology world has to get back to work—early.

Sources for this article include:

Large Banks And Technology Buying: An Evolving Mindset

EY Fintech Adoption Index: Fintech Services Poised For Mainstream Adoption In The U.S. With 1 In 3 Digitally Active Consumers Using Fintech

Majority Of Financial Institutions to Ramp Up “Change Programs” Over The Next Year To Reduce Costs, Enhance Customer Experience And Support Digital Innovation, Says Accenture Survey

Nearly 6 In 10 Large Corporations Considering Blockchain Deployment

Eighty-Five Percent Of Organizations Want Artificial Intelligence: New Research Report From ICMI and Oracle

ACH Transactions to Top Checks as Top Form of B2B Payment by 2020: New Survey

New Study Reveals Significant Opportunities for Banks to Improve The Small Business Customer Experience Across Channels

Immediate payments are a key revenue driver for 66 percent of banks in markets with IP schemes

John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected].

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