Bringing New Tech to the Banks

By Frank-Jürgen Richter

April 20, 2022

Banks have been instrumental towards business and individual growth. Access to financial services has been a boon for populations worldwide. And governments in emerging economies have made commendable efforts to try and bring larger shares of their populations onto formal banking platforms.

Such efforts have also allowed authorities to directly credit welfare scheme payouts to beneficiaries. Organized financial services, meanwhile, have successfully kept away thousands from the clutches of vicious loan sharks notorious for charging crippling interest rates.

Increasing Adoption of Technology

To offer more efficient services, banks haveover the decadesinvested heavily in computer systems. In many cases now, their software is almost inflexible and difficult to merge with others. But, copying the application programming interfaces (API) of smartphones and tablets may enable financial institutions to achieve better flexibility. What changes in traditional banking services will benefit businesses, both large and small? How are businesses hampered by the inflexibility of big banks’? 

Horasis is organizing the Horasis Global Meeting on 19 May 2022 to examine and evaluate such developments. The one-day virtual event will see participation from a diverse range of people, spanning members of governments, businesses, academia, and the media. The goal is to deliberate on pressing issues that undermine progress and arrive at actionable solutions that can ensure shared prosperity.

The Advent of New Age Banks

Prior to the onset of COVID-19, a slew of digital banks were beginning to make a foray. Termed neo-banks, these financial institutions typically do not have a physical presence. To put this into perspective, neo-banks had already embraced the concept of remote working much before pandemic-led restrictions made it mandatory to find alternatives to face-to-face interactions.

Customers, on their part, were quick to adapt to mobile banking on their personal devices. It was common to experience artificial intelligence (AI) enabled customer support. In fact, in the majority of cases, a chatbot can address frequently asked queries, limiting the number of actual human interactions.

While such changes were already underway, the pandemic definitely accelerated their uptake. Huge advancements have been made in related tech spheres such as big data, AI and machine learning, and they are positively impacting the customer experience.

According to a recent Boston Consulting Group (BCG) report, “customers who had previously been digital holdouts are not going back to their pre-pandemic banking habits.” The organization also highlighted that between February and June 2020, when the most severe pandemic protocols were in force globally, there was a 34% surge in mobile banking. There was a corresponding 12% decline at physical branches. “Younger customers are increasingly willing to go all-digital, as are a significant share of older account holders,” the BCG report added.

Changes that will Benefit Businesses

Traditional banks are grappling with technology inadequacies on account of their legacy infrastructure. Despite their investments in tech uptake, their systems have largely not been able to keep pace with the nimble operations of neo-banks. Additionally, their less-modern processes serve as an impediment in building interfaces that seamlessly link with other systems that allow them to swiftly introduce new financial products or customer experiences.

However, traditional banks possess certain advantages – a key one being trust. They have been subject to strict regulations and given their presence for several decades in most cases, they enjoy a higher trust quotient. As a result, they also have enormous customer bases, implying higher deposit levels. Legacy banks and neo-banks can, therefore, explore synergies where both segments can leverage on either party’s competitive advantages. Both segments can co-exist and thrive.

For small businesses, access to credit remains a major pain point. In emerging economies particularly, numerous small business owners are unable to grow because of their inability to access affordable credit since such population subsets are also often unbanked. This is an ideal scenario where a neo-bank can leverage its AI or machine learning abilities to determine a borrower’s credit worthiness.

However, since neo-banks have lesser deposits, they can collaborate with traditional banks to ascertain their lending divisions are adequately funded. In sum, the financial system, as a whole, will receive a fillip from the coming together of advanced technology and legacy banking’s higher trust and deposit levels.

Enhancing the User Experience is Key

In a post-pandemic world, it is now well established that users have grown accustomed to banking on their devices. It is safe to say they are now familiar with using an app rather than visiting a physical branch. Traditional banks must double down on efforts that prioritize on enablers such as data analytics and AI to assist their processes.

In cases where it is considered less optimal to build in-house technology teams, traditional banks can collaborate with new-age fintechs. While major economic gains are a given for both segments, the user experience delivered will rank significantly higher.

Photo Caption: In a post-pandemic world, traditional banks must collaborate with fintechs to improve the customer experience.