One of the key challenges that banks face today is how to keep pace with the rapidly evolving technology landscape. Along with driving growth, banks also must focus on onboarding new customers, enhancing the experience of existing customers, and finding drivers for operational optimization.
For any digital transformation to succeed for a bank, integration aspects hold the utmost importance. Integrating new technologies with existing systems is crucial and should be considered before finalizing any solution.
This blog delves into the various technology trends that banking institutions need to adapt to and the advantages associated with them.
The key technology trends that banks need to embrace are:
Cloud-Native Banking for the Future
Digital Banking has made mobile banking apps and web portals a norm. This has also led to the enablement of self-service options like self-onboarding via a web portal or a mobile banking app, allowing a customer to fully onboard into the digital ecosystem of the bank. Various options like applying for a loan, requesting an account statement, stopping cheques, and transferring funds along with a host of other transactions and services are available as part of digital banking 24×7.
While many banks provide the digital banking experience, what is missing for many is cloud-native capabilities. These include the high availability of systems, the ability to scale hardware based on the load, cloud computing options for faster transaction processing, and quicker response times for customers. Being cloud-native also allows banks to optimize their operational costs, and offer enhanced data security capabilities, and faster deployments. It also enables banks to roll out features to specific groups of customers through various deployment options possible in a cloud-native system.
Cloud-native digital banking solutions also support the integration of advanced analytics and real-time data processing, providing banks with valuable insights into customer behavior and preferences. This allows for more personalized services and targeted marketing strategies, further enhancing customer experience. Moreover, cloud-native systems can leverage machine learning and AI to predict customer needs and offer proactive solutions, such as personalized financial advice or timely fraud alerts.
Adopting a cloud-native approach also supports disaster recovery and business continuity planning. By leveraging the cloud, banks can ensure data redundancy and backup across multiple geographic locations, thereby minimizing downtime and data loss in case of any disruptions. Furthermore, the flexibility of cloud-native systems allows for seamless upgrades and maintenance, ensuring that banks can continuously innovate without impacting the customer experience.
Example
Goldman Sachs has transformed its internal operations by adopting a private cloud infrastructure, significantly reducing operational risks and increasing efficiency. The uniform architecture has enabled them to shift computing resources dynamically across geographies, enhancing their global operational agility.
Agile Systems with Microservices
Most legacy banking systems were built as monoliths, leading to operational challenges such as slower deployments, higher maintenance costs, and slow addition of new functionalities. Microservices architecture helps solve these problems. In this architecture, various banking functionalities are broken down logically as loosely coupled services. These services can be independently deployed and managed. These microservices are also termed Packaged Business Capabilities (PBCs), providing a complete business capability.
The microservices architecture promotes agility and flexibility in banking operations. By breaking down functionalities into smaller, independent services, banks can deploy updates and new features more rapidly, responding swiftly to market demands and regulatory changes. This modular approach also facilitates continuous integration and continuous delivery (CI/CD), enabling banks to innovate at a faster pace.
Another significant advantage of microservices is improved fault isolation. In a monolithic system, a failure in one part of the application can bring down the entire system. However, with microservices, failures are contained within individual services, reducing the risk of system-wide outages. This enhances the overall reliability and availability of banking services.
Microservices also support better scalability. Each service can be scaled independently based on demand, ensuring optimal use of resources. For instance, during peak transaction times, critical services like payment processing can be scaled up without affecting other services. This granular control over resources leads to more efficient operations and cost savings.
API First Methodology:
The microservices approach also leads to API first methodology. This mandates the creation of Application Programming Interfaces (APIs) as the building blocks for microservices. These APIs allow easy integration with the system. For example, an Account Creation API allows the creation of an account in the system and can be called by systems integrating with the microservices. This also allows Headless (without UI components) integration with the system.
Composable Systems:
Having microservices also enables composability, i.e., allowing applications to be composed using pre-built components. Composability promotes faster time-to-market of various banking products, enabling banks to respond quickly to ever-changing business needs.
Example
Monzo Bank adopted a microservices architecture using Cassandra as a core database and Kubernetes for orchestration. This shift allowed Monzo to manage over 2500 microservices and handle hundreds of daily deployments, improving the scalability and reliability of their services.
AI-Powered Automation for Banking Excellence
Automation is suitable for functionalities like Customer Onboarding and Loan Origination. AI capabilities automate complex business processes, allowing banks to fully automate repetitive manual tasks like customer-specific data entry, reading customer documents, and populating system data based on that. Automation of these repetitive processes reduces human errors and improves operational efficiency. It also frees up staff to perform other high-value activities, leading to better utilization of bank staff.
AI-driven automation extends beyond customer onboarding and loan origination. Banks can leverage AI to enhance fraud detection, risk management, and customer service. AI algorithms can analyze vast amounts of transaction data in real time to detect suspicious activities, preventing fraud before it occurs. In risk management, AI models can predict potential credit risks by analyzing customer data and market trends, enabling banks to make more informed lending decisions.
AI can also revolutionize customer service through the use of chatbots and virtual assistants. These AI-driven tools can handle a wide range of customer queries, providing instant responses and reducing the workload on human agents. Advanced natural language processing (NLP) capabilities enable these assistants to understand and respond to complex customer inquiries, offering a seamless and personalized customer experience.
Furthermore, AI can be used for personalized financial planning. By analyzing customers’ financial behavior and goals, AI-powered systems can provide tailored advice and recommendations, helping customers make better financial decisions. This not only enhances customer satisfaction but also builds long-term customer loyalty.
Example
HSBC uses AI and machine learning to automate its loan origination process, reducing the processing time significantly and improving accuracy. The system reviews applications, verifies documents, and assesses risk levels, making the entire process more efficient and less prone to errors.
Strengthening Security and Fraud Prevention with Technology
Cyber Security is essential for banks to focus on due to the steady increase in cyber security incidents, which have financial implications and damage the bank’s reputation. Banks need to invest in advanced cybersecurity technologies that allow data encryption, stringent checks for authentication and authorization, data integrity, etc. These measures protect customer data and various financial transactions in the system. Fraud prevention is another critical area. There are many fraud detection integrations available that safeguard customer and bank interests.
Advanced cybersecurity measures include multi-factor authentication (MFA) and biometric verification, which add extra layers of security to protect sensitive customer information. Implementing MFA requires users to provide multiple forms of identification before accessing their accounts, making it significantly harder for unauthorized individuals to gain access. Biometric verification, such as fingerprint or facial recognition, provides a highly secure and convenient method for user authentication.
In addition to these measures, banks can employ encryption techniques like end-to-end encryption (E2EE) to protect data transmitted between the bank and its customers. E2EE ensures that only the intended recipient can decrypt and access the information, preventing interception by malicious actors. Regular security audits and vulnerability assessments are also crucial to identify and address potential security gaps.
Fraud prevention systems are becoming increasingly sophisticated with the integration of AI and machine learning. These systems can analyze patterns in transaction data to identify anomalies that may indicate fraudulent activity. By continuously learning from new data, these AI models can adapt to evolving fraud tactics, providing proactive and real-time fraud detection.
Example
JPMorgan Chase employs advanced cybersecurity measures, including AI-driven fraud detection systems that monitor transactions in real time to identify and prevent fraudulent activities. Their system uses machine learning algorithms to detect unusual patterns and flag potential fraud, thereby protecting customer assets and the bank’s integrity.
While technology keeps evolving and new threat actors keep emerging, it is important that banks conduct thorough technological assessments to identify various improvements needed in the system. These assessments enable banks to create a technology roadmap that assists in the implementation of digital transformation nimbly.
Ready to accelerate your digital transformation journey?
Discover how i-exceed can help your bank stay ahead with cutting-edge technology solutions. Reach out to us at marketing@i-exceed.com to explore how we can tailor a solution to fit your needs and drive success.
