Tech Banking Industry Trends that Will Remain Relevant in 2021

Banks of the future will be revolutionary thanks to technological advancement. But not all banks will live long enough to witness the upcoming boom. Only those few adopting the emerging technology trends will be agile and innovative enough to brace the tides of time. In this article, you will learn some of the key banking trends that your company should pursue in 2021 and beyond.
9 min read
22/01/21
By Brad Stanton
Managing Director / VP of Sales of the TOLA region
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Tech Banking Industry Trends that Will Remain Relevant in 2021

Several trends in 2020 will continue into 2021, according to a DataArt analysis. We have compiled a list of directions that you, as a banker, should understand in order to stay ahead of the curve. Stay apprised of these trends and learn how to outperform your competitors this year.

Banking Trends: Transforming Legacy Systems / Platform Modernization

Banks are increasingly uprooting their legacy systems because those systems cannot address their current needs.

For banks, modernization involves moving away from centralized mainframes to cloud-based solutions. This allows for the inclusion of service-oriented platforms that offer real-time processing. Companies moving to the cloud through APIs can seamlessly connect between internal and external services. This, too, allows for real-time processing that can speed up your company’s operations.

Another disadvantage of legacy systems is that they are closed, which makes data management difficult. Often, these systems are unable to handle APIs and cannot be integrated with other internal solutions. When a company chooses to modernize its legacy systems, the business (and its different departments) gains access to advanced data management and analytical tools.

Addressing the challenges of legacy systems isn’t as difficult as it seems. Your company can opt for a hybrid integration model, which links the existing system to third-party programs and internal applications through connectivity layers like iPaas (integration platform as a service) and ESB (enterprise service buses). This allows your platform to support omnichannel integration and easy adoption of regulatory changes without the investment needed to fully update your system. Some of the first financial companies that made the jump away from their legacy systems include Capital One, Zions Bancorporation, BBVA, Deutsche Bank, and Goldman Sachs.

Benefits for the Bank

Connectivity is by far the biggest benefit a bank can receive from modernizing its platform. When banks upgrade from their rigid legacy systems and accommodate Service Oriented Architecture and hybrid integration, they can affordably implement regulatory changes, minimize service interruption, scale effortlessly, while identifying new profit channels.

Additionally, legacy systems can be resource and time-intensive to maintain, especially during upgrades and maintenance periods. It's difficult to find engineers who can manage these legacy systems and that those that still do are very expensive.

Next Steps

Banks looking to modernize their systems can choose to either rip out the entire system or open it up through the use of APIs (application programming interface). If your company chooses the latter, it may be more difficult to fully modernize in the future because you have linked those legacy systems to additional operations.

Online Banking Trends: The Explosion of Open Banking and APIs

Starting in 2016, regulators in the U.S. began requiring banks and other financial entities to release customer data to certified third-party agencies. While this move allows startups to grow easily, customers also benefit from the freedom to do what they want with their money.

In open banking, banks offer their customers’ data to certified third-party agencies. This allows them to build new products and services that further improve customers’ experience.

Open banking is made possible through the use of APIs, systems connectors that allow processes, departments, branches, and other industries to connect with each other. Third-party apps can help improve loan applications, card payments and balance inquiries. Today, most of the top 50 companies have an API infrastructure. For smaller players that want to stay ahead of the curve, APIs are a necessity.

Benefits for the Bank

By integrating APIs, your company’s customers will be able to enjoy additional services offered by third parties. Up and coming banks with few affiliations can use APIs to connect with trusted agencies that operate in a market segment that they wish to enter. Since this new provider is already trusted, newer will, by extension, receive the same treatment and win over a new customer base. Those with good financial standing can introduce their own fintech solutions that make them even more valuable to customers.

Next Steps

Open banking relies on the use of APIs. To use these interfaces, you must have a modern technology stack. If your bank still runs on legacy technology, you must first modernize it so it can smoothly integrate with these APIs.

Since open banking requires that your bank gives access to your customers’ data, this can also lead to new cybersecurity threats. Therefore, your company should also need implement effective authentication protocols, clear collaboration policies, and processes for reporting possible fraud or cyber attacks.

Retail Banking Trends: Hyper-Personalized Services

Personalized services are one of the main services offered by fintech companies — and is one of the reasons that those companies pose a threat to banks.

Through the use of data and AI tools, fintech solutions are able to have a 360-degree view of their customers and curate offers that are tailored to their needs. In 2019, a report by HSBC examining trends in the banking industry noted that hyper-personalization was a growing approach. Given that 87% of bank transactions already occur digitally, this trend is not surprising.

Many forward-thinking banks like BMO Bank of Montreal and JP Morgan Chase have already invested in technology to analyze their customers and offer personalized services like digital lending platforms, customized support, and fees.

Some banks combine their offline and online data and use advanced tools to send out personalized emails and offer an omnichannel experience. HSBC uses AI to personalize its credit card reward program for its U.S. members. The bank then monitors when customers redeem the points and what they spend those points on. That data is used to further tailor offers to clients.

While there are many ways to achieve a fully-digital platform, personalization is key. To nail this approach, banks must understand the customer journey, build trust and, of course, outsource the best predictive analytics tools.

Benefits for the Bank

By offering personalized offers and services, banks can avoid obstacles present in the sales funnel, which creates a superb shopping experience. For many companies, this results in a big bottom line.

Personalized offers also help clients get what they want quickly, rather than having to comb through endless product catalogs. This kind of precise recommendation that addresses customers' pain points can help brands attract new clients.

Next Steps

To remain at the top of the hyper-personalization game, companies must look into the latest analytics and personalization tools and services. Advanced AI, machine learning, and predictive analytics help banks offer personalized approaches for their customers.

Consumer Banking Trends: Improving the Customer Experience

Ultimately, everything revolves around the customer. With the growth of customer-centric banking, many banks are working to create systems that cater to their clients’ needs (even those they were previously not aware of).

Let’s focus on the customer experience caught on last year because it involved making simple, cost-effective tweaks (unlike legacy re-platforming or building a blockchain).

If you haven’t already, you should start using big data and advanced predictive analytics. As we mentioned earlier, these tools allow firms to play around with their data to come up with better ways to serve each of their customers in their own unique ways.

Delivering a truly omnichannel experience has also been a key trend for some banks, especially those that rely on revolutionizing their digital services. In an omnichannel environment, a customer applying for a loan or signing up for a service in a branch can continue with the process at home on their smartphones and computers.

Benefits for the Bank

There are two main reasons why banks should improve customer experience. First, it offers a way to cater to customers’ needs. This, in turn, helps the bank create a large base of satisfied customers.

Secondly, improved customer experience translates to satisfied customers who keep coming back. This can lead to a positive impact on the company’s ROI.

Next steps

To remain competitive, your bank must improve customer touchpoints, which includes improving personalization, the omnichannel experience, reducing processing times, improving the offline experience, and investing in digitization. The more innovative your bank is, the better it will be positioned to serve customers.

Banking Trends: Cost Efficiency

Because of the coronavirus, banks started to look for ways to increase revenue without spending too much. Automation is one way to increase efficiency and cut down on labor costs.

While automation tools are expensive to develop, having a blockchain can streamline many bank processes. Some settlements and contracts can be executed instantly and securely. Since blockchain verifies every transaction before recording it, the risk of fraud is greatly reduced.

Robotic process automation (RPA) is another area that can save a company large amounts of money. Although legacy systems have their own strengths when it comes to advanced automation, they just don’t cut it. This means there is a need for manual tasks to be done in order to reconcile data.

When RPA combines AI, ML, and software programs, this technology can send emails, attend to account opening/closing requests, and copy and paste stuff, thus, saving a significant amount of time.

Cloud adoption is also on the rise because it can reduce on-demand server costs. This technology makes software solutions scalable, agile, and resilient.

If your bank’s core systems are up-to-date, cloud technology can take automation to a whole new level, connect business divisions, and break down data silos. This leads to easy, combined decision-making that can put your company at a competitive edge.

Benefits for the Bank

Any bank that invests in blockchain, cloud computing, or automation services will be able to minimize its labor costs. This leads to additional capital being available that can be invested in other projects.

Next Steps

Digital transformation is one of the best ways banks can cut down costs, improve efficiency and profit margins. This approach begins with legacy modernization, then moves to the inclusion of API, cloud computing, and other advanced projects like blockchain and robotics automation.

Bottom Line

Fintech startups are starting to onboard some of the latest banking trends to meet their goals. Advanced banks like Goldman Sachs are leveraging the latest digital technologies to roll out products and services that meet today’s needs.

But you cannot get to the top instantly. You first need a clear road map of what needs to be done and when. Careful planning — which involves key stakeholders and departmental members — can mitigate risk and increase the possibility of success.

For companies running on legacy systems, or that suffer from costly processes, DataArt for help. Our company has handled many similar massive-scale projects before and can be useful from the mapping stage to the actual implementation and testing of new software.

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Download the white paper Glancing Forward into 2021: An Industry by Industry Outlook

Explore digital trends and unanticipated benefits engendered by the pandemic, which are likely to last in 2021.