In today’s highly competitive landscape, banks are facing an ever demanding challenge from an increasing cost base and declining revenues, coupled with rising compliance costs and capital requirements.
At the same time, increasing customer demands, internal pressures to identify new streams of fee-based revenue and competition from the fintech industry are driving a desire for evolution.
At the heart of this modern-day Darwin evolution are a number of digital technologies from (i) Industry Utilities, (ii) Cloud Technology and (iii) Artificial Intelligence that will enable businesses to digitise and simplify their existing business processes:
Top tier banks are increasingly looking to adopt new utility based service models to drive down costs and increase efficiency in the middle and back office functions, such as risk management and compliance.
From 2012 to 2014, JPMorgan Chase added 13,000 new employees to support regulatory, compliance and control efforts, at a cost of $2 billion. Today, approximately 1 in 6 members of staff at the bank work directly in a control and governance function.
The emergence of new industry utilities, would allow organisations, such as JP Morgan, to migrate labour intensive control functions to a trusted third party. Key areas of focus for these new industry utilities include control functions such as customer onboarding, anti-money laundering and trade surveillance.
By making key functions such as risk management and compliance less complex and capacity-demanding, new industry utilities could free capital, improve the quality and efficiency of supervision, and reduce risk in the system.
Key to the success of this new digital utility will be cloud technology and artificial intelligence.
2. Cloud Technology
It is only now, with Cloud technology in its second decade that the perceived infrastructure, security and regulatory risks are starting to recede that banks are starting to accelerate their journey to the cloud.
Banks have traditionally kept close control of their infrastructure, building their own data centres and supporting large in house technology teams. This is set to change as Banks are under increasing pressure to reduce infrastructure costs and increase flexibility. Use of the public cloud enables a bank to increase its agility, without having to invest in capital intensive infrastructure, shortening the time to market for new products and services.
Global banks are now investing heavily in building out their public cloud platforms, engaging with multiple Hyper Scale cloud server providers, such as Google, Amazon and Microsoft, to maintain a competitive cloud ecosystem, that is based on open standards, avoiding by design proprietary technology and potential vendor lockin.
3. Artificial Intelligence
The combination of new cloud enabled utilities alongside artificial intelligence will enable a number of new propositions to be developed to provide improved customer insights with more informed commercial decisions.
One of the most interesting developments is “conversational commerce”, commonly known as a chat bot. A chat bot is a software program that you can talk to from a messaging application, voice or website and are typically used in dialogue systems including customer service and information acquisition.
Conversational commerce, can turn dialogue and the verbal exchange of information, into a meaningful discussion with consumers and businesses alike.
The electronic brain behind the chat bot, is powered by Artificial Intelligence & Advanced Machine Learning. These systems have been developed to learn, adapt and respond autonomously rather than simply execute predefined instructions.
Within a bank a chat bot can help onboard a new customer, perform KYC (know your client) compliance checking through to executing a new trade, all at the pace of an instant message.
In conclusion, new industry utilities that are powered by cloud technology and artificial intelligence, will enable banks to reinvent the customer experience whilst also cutting down on costs for routine control functions that are manually employee intensive and ripe for automation.
It’s definitely exciting times as digital reboots the banking landscape.
Email : ian@IanAlderton.com
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