By Madhur Kumar Jain, Senior Vice President and Global Head of Solution Consulting, SunTec Business Solutions

Will Banking As a Service become the norm in 2020?

As the banking industry continues to evolve, the cry for a customer experience revolution is stronger than ever. Does that mean Banking as a Service will dominate the next decade? Customers today are used to engaging with their vendors and buying everything they want online - from vehicles to fashion. They naturally expect the same experience when it comes to their bank - giving them all their options for products and providers in one place to compare, assess and purchase.

As the new decade begins, global banks will look to accelerate their digital transformation and deliver the optimal enhanced customer experience - without the need to replace costly legacy systems.

The Move towards Banking as a Service (BaaS): Customers today expect the same experience and convenience that they are able to get online from any marketplace to be delivered from a bank too. They want to plan, compare, assess and then only purchase what is a hyper-personalized offering for them, rather than take up any standardized product or service from the bank. With Open Banking and an API driven ecosystem, this is slowly becoming feasible and the banks are increasingly collaborating with fintechs, independent developers and non-financial lifestyle institutions like restaurants, retail outlets, etc. to make the move towards making BaaS a reality, sooner than later. 

The risk/opportunity with the entry of BigTechs: The strategic focus on customer experience has largely been driven by the pressure banks have experienced this year from the BigTech companies such as Google, Amazon, Facebook and Apple muscling their way into financial services and muddling the boundaries between industries. In order to truly compete with BigTech companies, banks need to transition from being a service provider to truly owning the customer value chain experience; offering empathetic banking by humanizing the banking experience. 

On the other side, there is also an opportunity to work together and collaborate to take advantage of each other's strengths rather than just compete. The fact that consumers' trust the banks to handle their financial data, their ubiquitous presence and industry expertise provides a good opportunity to collaborate with BigTechs which have expertise in handling big data, AI, analytics and building customer centricity.

Regulations set to become more prominent:  Open Banking, as well as entry of Fintechs and BigTechs has paved the way for the industry to own customer journeys by providing best in class customer experience rather than simply selling some random products or services. But what we have seen is that the advent of these technology transformations has increasingly put highly confidential customer data and privacy at risk.  In fact, with news about many high-profile data breaches the role that regulators have to play has become so significant and interestingly, they are quite involved too.

The recent scrutiny of Facebook's plan for launching Libra is a good example of how regulators across the world has a huge influence on the financial markets. It is remarkable to see how law makers have come together to ensure that as long as the digital currencies are not able to address key risks around data protection, financial security, money-laundering , investor protection etc., there is no way it will see the light of the day.

Regulations could vary depending on the maturity of the financial services industry in the region, but in general, the role that regulators play can never be ignored and could turn out to be the Joker in the pack, that can alter the way financial services will look in the future.

Increasing use of AI and Data Analytics: Although it will be take time for AI to be seamless enough to totally replace human customer service, today AI is increasingly used in customer facing areas like Chatbots, as well as back and middle office processes like underwriting, data processing and anti-money laundering. One key area that we feel will definitely will grow is Natural Language Processing, that can help utilize deep learning algorithms to understand language and generate responses in a more natural way.

With the Increasing use of RPA, AI & ML in financial institutions, another fascinating thing to note is the huge amount of customer interaction data that is being made available to these banks. But how do they make sense out of them and respond in real time?  This requires putting their existing data in order with big data analytics and an insights engine that could even identify and incorporate new sources of third-party information that could help, such as geographic and socioeconomic data as well. The result is an extremely personalized one to one relationship with the customer.

Increased focus on cost management: With Challenger banks, fintechs and BigTechs leading the disruption drive, there is no looking back for the industry or the consumer. They are innovating continuously, putting pressure on the large banks to see how they can meet the agility, create new offerings and reduce time to market to stay relevant as well as adopt AI/ML and other data/technology driven initiatives.  This pressure has actually made them look inward, especially where they are struggling to meet profitability targets, keep margins as well as not being boggled down by the legacy IT systems.

Across the board, we are finding that the banks we are working with are focusing on increasing margins by plugging revenue leakages, building partnerships and adopting a phase-wise, low risk digital transformation approach, which is seen to be more preferred over an abrupt rip and replace of the core systems to meet the market pressure and stay profitable at the same time. 

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About the Author

Madhur leads the Solution Consulting team at SunTec, which addresses clients' business challenges through aspects of solutioning, product mapping, and business process definitions for Tier 1 Banks across the globe. With over 25  years of experience in pre-sales, solution architecting, and client engagement, Madhur brings strategic thinking and global vision into his role. Before joining SunTec, he worked at Oracle Financial Services. Madhur holds an MBA from the Indian Institute of Management, Bangalore, with a specialisation in finance and international business. He also holds a bachelor's degree in Computer Science.