While there is a fair amount of buzz about which fintech innovations are here to stay and which are likely to fade away as we draw the curtains on 2017, here is a peep into the year to come and what it may have in store for bank CIOs

In the not-so-distant past, the discussions of a typical IT steering committee would constitute topics of core banking or back office systems, middleware deployments, disaster recovery and business continuity planning, and possibly driving the ATM and Kiosk channels. There is a huge shift from traditional systems into digital banking platforms, API enablement, cyber security and cognitive analytics and robotic automation. As we move further into 2018, there are quite a few areas that banks around the globe are looking to drive with fintech collaboration. Here are the top seven fintech areas of innovations that we, at Cedar-IBS, believe are of immediate relevance that CIO’s should keep an eye on, and trends to watch for in 2018.

1. Productivity enhancement: Robotic Process Automation

The most sought-after innovation area, and also the one that is likely to make the maximum impact in the banking industry in 2018, is RPA. What can simply be defined as a ‘mimic’ of human actions, set by user defined rules enabling faster transaction times, much higher volumes and significantly reduced errorrate, RPA offers a huge push to drive productivity across banking operations. Gone are the days of mere offshoring for marginal cost reductions. ‘Digital labour’ is emerging to be the new name of the game, with an estimated 20% reduction in costs as opposed to that of an FTE. Consider this: 200 software robots are reportedly automating business processes across retail banking, agri-business, trade and forex, treasury and human resource management at ICICI Bank in India. As banks look to drive RPA based efficiency, the key success factor is in effectively automating processes, without changing or replacing the existing application infrastructure. ISG’s acquisition of Alsbridge and Pega’s take over of OpenSpan are indicative of consolidation in the supplier segment as well. With increasing pressures of reducing cost, Robotic process automation remains a foremost priority area both in terms of adoption and expected impact.

2. Harnessing data: Cognitive Analytics

$9.7bn was reportedly spent on cognitive and artificial intelligence in the US in 2017 alone. This is not surprising, given that big data is now driving a much deeper volume and broader variety of data elements, and the harnessing of information live is key for providing a differentiated digital banking experience for the customer. Cognitive analytics allows for processing billions of data sources in real-time, detect key patterns and deliver actionable insights. The recent collaboration of BBVA with Fonetic, a voice and text management service provider for proactive monitoring of trading compliance using linguistic analysis is an example of this initiative.

While this is not necessarily an exclusive domain of fintech – an area that has been highly adopted in the retail industry as well – the space of cognitive analytics and its impact would be a must watch for industry observers in 2018.

3. Driving Agility & efficiency: Cloud enabled services

Even while security, data privacy and regulations are yet evolving may inhibit the rapid adoption of cloud-enabled services, the cost efficiencies of the model and the agility benefits of shared resources are fast driving this amongst banks, on a global scale. The current used cases in the space of cloud-based core banking, for example, are primarily across micro-finance and smaller financial institutions with lower transaction volumes. However, a large number of disruptive cloud technology applications are in a development or in a pilot mode. Specifically, non-core technology applications, that are less data intensive, are easier to port onto private clouds, drive easier and rapid adoption. Hybrid clouds with a private-public cloud deployment are also fast evolving, particularly with players who are looking to offer platform as a service’ (PaaS), where customers, fintech players, partners and third parties can get together. When the World Bank itself is reportedly looking to reduce its data centre footprint from five to two, this is indeed an important area to watch for!

4. Risk Mitigation: Cyber Security

One of the biggest downside implications of an increase in digital and mobile banking proliferation is the higher degree of vulnerability of banks to cyber-attacks. The increase in number of touch-points, and broader spectrum of users and the associated financial value only makes this even more tempting for the really culpable. Industry estimates peg the cost of cyber breaches to exceed $2bn in the next 2 years, which makes this space an important and critical area of investment for every bank. The increasing focus of the regulator will only augment the investments made by banks in this space. Innovations in cyber security are but inevitable, to keep ahead of the game. Stay tuned to see more happening here in 2018.

5. Industry collaboration: Blockchain and distributed ledger

The evolution of the distributed ledger as a means for authentication and smart contracting is clearly a new focus area for leading global financial institutions. Platforms enabled by players such as Hyperledger and Ripple are closely monitored for their efficacy, and used-case implementations. While many of the real-use applications of these are yet to emerge, and may take a few years before they fully mature, there is an early bird syndrome that is driving a fair number of banks to look for opportunities in driving distributed ledger technology in selective areas. Examples include SBI’s recent launch of smart contracts, the cross border payments model adopted by Earthport and Ripple, and the Deutsche Borse adoption of collateral management. The key impact drivers here are speed, cost and security. However, the application of this is directly proportionate to the adoption by the banking community, and therefore collaborative efforts with the industry will be key.

6. Driving Inter-operability: Open banking & Application Programming Interface (API) Enablement

Applying assembly line integration and CKD principles to banking technology, the concept of ‘open banking’ allows for banks, vendor community and fintech players being able to design, blend and ‘reassemble’ functionality across technology platforms. Considering most legacy systems yet demand high investments and long replacement cycles, this inter-operability feature helps drive innovation in specific parts of the application architecture framework. This is also important where traditional banks need to metamorphose the threat of fintech firms into a winning opportunity. In essence, it helps move the IT function from being a developer/provider of service to that of an enabler. Regulations such as Payments Service Directive (PSD II) and Open API standards are emerging to be key facilitators for an open API ecosystem. While the elements that matter most here are that of service oriented architecture, componentization and exposure of APIs aligned with Banking Industry Architecture Network (BIAN), the more important aspect here is the ‘openness’ of the platform to drive accessibility to the end consumer.

7. Intelligent Operations: Machine Learning and Artificial Intelligence

Nina, the web assistant of Swedbank, reportedly deals with 30k conversations across 350 different customer questions every month, with a rate of 78% first contact resolution. This is just one example of how artificial intelligence is helping drive automated approach to customer interaction. Customer facing chatbots and cognitive agents at branches and call centres are already common-place across the world including Atombank, Santander and Digibank. Humanoid robots at branches for customer greet and conversations are being introduced by banks such as EmiratesNBD. It would be interesting to watch how AI adoption is will influence the profile of roles and productivity norms, as operations become more ‘íntelligent’ and sophisticated with machine learning.

Even while the above seven areas remain to be the key trends to watch for, there are multiple other important fintech innovations that are gaining prominence – Biometrics, Augmented Reality, Omnichannel offering, digital payments and e-wallets, P2P lending, and the list can be fairly long. While we recognise that some of these are in different stages of maturity and potential impact, the seven that are identified are those that we see significant traction – either due to the immediacy of impact or the magnitude of the benefits expected.

At the end of the day, one thing is for sure – the year ahead has plenty in store: fasten your seatbelt and get ready for the ride!

For a further conversation on this subject of Cedar View or how we may be able to help please email V. Ramkumar, Senior Partner, Cedar at V.Ramkumar@cedar-consulting.com

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