What Will Banks Look Like in 2030? How New Technologies Will Transform the Future of Finance

Financial Services Industry (FSI) businesses will be completely reinvented by evolving tech such as AI and shared ledgers.

By Libby Plummer, Technology Writer

Digital disruption is completely re-writing the business rulebook and those that don’t stay ahead will struggle to catch up with more agile rivals. New technologies are transforming companies across all industries from healthcare and entertainment to transportation and manufacturing – Intel refers to this extreme state of business disruption as the Vortex of Change. 

Jim Henrys, Director of Business Solutions at Intel, explains why evolving technologies have disrupted the monopoly of large multinationals: "The democratisation of technology is the key driver of disruption. Cloud and mobile technologies have already turned business models upside down and given start-ups the power to disrupt entire industries, regardless of their size, but further unprecedented technological change is just around the corner – so this really is still early days”.

Organisations working on legacy infrastructure will struggle to innovate and also waste unnecessary budget on keeping ageing hardware running. "In a world where everything is changing and connecting, the biggest mistake to make today is to think you'll be on top indefinitely and stand still,” warns Henrys. Not only must businesses update their IT infrastructure, they must also develop completely new business models and Triple Bottom Line (TBL) strategies that will enable them to flourish in the digital landscape.

The Triple Bottom Line is a strategic framework that breaks down the measure of business success into three elements: economic, environmental, and social performance. While money is inevitably the driving factor, being social and environmentally responsible is essential to the bottom line of any business in the digital era. What’s more, businesses must also transform the workplace to create the right working culture and nurture talent by providing employees with the smartest ways of working.

“Many organisations fool themselves into thinking they foster creativity and innovation across their workforce,” says Andrew Moore, GM of the Digital Transformation Office at Intel. “In reality, employees are often hesitant to come forward with ideas at most of the largest corporations in the world. Usually, it’s because they know senior leaders won’t take on board concepts unless they’re backed up with a fully polished presentation and a detailed ROI calculation. This leads to companies being overtaken by agile competitors who aren’t afraid of taking risks and trying radical things.”

To stay ahead, businesses must ensure they’re the disruptor and not the disrupted. While innovative technologies have already radically transformed a number of sectors, the Financial Services Industry (FSI) has been notoriously slow to adapt. Partially hindered by antiquated infrastructure and also subject to more stringent regulations than most other sectors, the financial world has some catching up to do as the pace of innovation continues to accelerate.

To ensure the successful digital transformation of the finance sector, there are four key topics that FSI businesses need to address, according to Gerald Grattoni, Head of EMEA Financial Services Industry Solutions at Intel Corporation:

1. Cyber security

The issue of cyber security is “a given” for any business in the digital era, across all industries. It’s essential for banks to maintain a high level of consumer trust, by assuring them that personal and financial data is safe. New systems such as multifactor authentication will play a large role in ensuring the security of customer data.

2. Compliance regulation

“For the last ten years, this has been top of mind for the industry as regulations have become increasingly stringent,” says Grattoni. “Businesses are challenged with turning the significant operational costs involved into a model that can drive new value and business”. Compliance will continue to evolve as emerging technologies such as artificial intelligence enable banks to make more effective use of big data.

3. Evolution of customer engagement

“Customers are now a lot more tech-savvy and have different expectations on how they experience their financial services, putting pressure on banks to adapt,” says Grattoni. Along with the expectation for consistent experiences across devices, there is also a demand for real-time digital payments, both of which require the underlying technology to be updated. In particular, younger generations expect the same convenience that they get from other non-finance platforms such as Netflix*, Spotify* and Facebook*. As such, customer empathy is absolutely vital.

4. New entrants to the market

“Regulators have opened up the market, driving a lot more competition, and new entrants are taking market share from the large banks,” says Grattoni. An increasing number of start-up firms are using smart technology to introduce new offerings such as online remittance services and robot advisors, making traditional banks increasingly nervous over customer loyalty. However, it’s not all about competition. Forming new collaborations with fintech start-ups will be an important part of the digital transformation of the FSI.

In order to transform, businesses need to have a firm plan in place, staring with an IT strategy. However, while in the past it may have been the norm to plan just three years ahead, using this approach now would leave a huge blind spot. Grattoni outlines three key time horizons that all businesses should consider when developing their long-term strategy — 2018, 2022 and 2030. 

2018: What happens next year?

For 2018, Intel is applying the six pillars of the Vortex of Change in order to help organisations deliver transformative business outcomes, across social, mobile, analytics and the cloud, using strategy workshops. Intel has already partnered with a number of financial organisations to help reshape their business for the digital era, including Spanish global bank BBVA*. “The new capabilities of the Intel® Xeon® Scalable processors will allow us to improve agility, scalability, and performance and security of the platform,” says Jose María Ruesta, Global Head of Infrastructure, Service & Open Systems at BBVA. “This allows for the deployment of new solutions with optimal performance, for example, based on cognitive technologies, or artificial intelligence”.

Commonwealth Bank of Australia* (CBA*) has also made use of Intel® technology along with open source software to introduce a transformative hybrid cloud strategy along with software-defined infrastructure, allowing the firm to more effectively manage and grow its analytics workloads while also reducing costs. “Software-defined infrastructure allows you to take the cycle time of ordering infrastructure from months down to minutes,” explains Quentin Anderson, Head of Engineering, Analytics and Information at CBA.

Meanwhile, CaixaBank*, a leading Spanish financial group in retail banking and insurance, is using big data analysis to improve its service. Using an interconnected platform from Oracle*, and Intel Xeon-powered hardware, CaixaBank* uses client data to create new models that identify customer needs and provide more personalised products. “The millennials, the segment that’s increasing, soon they’ll only use digital devices, so we have to find new models that are relevant to these type of clients,” explains Chief Data Officer Luis Esteban Grifoll.

2022: What to expect in five years

Looking a little further ahead, it’s important to consider how a variety of disruptive technologies – including AI, distributed computing, and IoT – will influence the landscape and spark new business models. “You can see early deployments of some of these technologies already but we’re looking at them becoming more mainstream in the next few years,” says Grattoni. While relatively ‘new’ sectors, such as online retail and social media are well versed in making use of the customer data they collect, the banking sector has been slow to capitalise on the valuable data it holds to boost its operations.

AI and machine learning should be a core part of any forward-thinking digital business strategy. Not only can they be used to remove inefficiencies from the payment process and streamline operations, but they can also vastly improve customer interfaces and personalisation. “Three things have come together – the emergence of big data, the evolution of drastically improved hardware and smarter algorithms. When you plug these three together, it’s a dream recipe for the acceleration of AI,” says Grattoni.

Intel has already made a number of developments in this area including the AI-focused Intel® Movidius™ Myriad™ X vision processing unit (VPU), Intel® RealSense™ technology which integrates ‘human-like senses’ into devices and the self-learning neuromorphic chip – codenamed Loihi – that mimics how the brain functions.

2030: What will the future look like?

Looking more than a decade ahead, the FSI will be completely transformed as emerging technologies develop further. AI and machine learning will become integral to FSI businesses, and trust will reach a tipping point as machines take on an increasing amount of decision-making responsibility. Advances in AI and robotics could also provide a far more natural interaction with technology for customers. The finance sector of the future will also benefit from IoT integration and shared ledgers like Blockchain, which forms the backbone for cryptocurrency Bitcoin.

A shared ledger is a database that keeps track of ownership, providing a permanent record of transactions that can’t be tampered with. As the ledger is validated by the network itself, it needs no centralised body to oversee it. The undisputed audit trail that shared ledgers provide will revolutionise a number of areas within FSI including fraud detection and tax collection.

What’s more, banks will become almost unrecognisable in future. “A bank looks like a bank. It looks safe, fortified, and it’s pretty dull inside and there’s not much activity,” says Grattoni. At least that was his perception until he stumbled upon an unusual bank branch in Boston, which was buzzing with customers sat at tables with laptops, a barista serving coffee and a big screen playing sports channels. “They’d turned round the concept of a dying branch altogether,” he explains. “Customer experience is key and there are ways to evolve what is being done”.

There are two possible directions for banks from 2030 onwards, says Grattoni, who believes that they could either become core transaction platforms or fully-featured lifestyle companies. “In the first example, banks lose their customer-facing infrastructure, including branches, websites, apps and sales staff, to become infrastructure providers, concentrating on transactional services, capital financing and loans, and handling all aspects of regulation and compliance,” explains Grattoni. “They will then let other consumer-focussed companies connect to this service to provide a user-focussed front end”. Organisations can provide finance products as part of their regular business models, or even offer them to employees as benefits. However, this model will require open source, modular technology with open standards to be successful.

“The alternative route is the complete opposite. It sees banks embracing the data they do have to gain better insight into their customer than even the most data-savvy web company can,” says Grattoni. “Arguably, the transactional data that banks hold gives more of an insight into a customer’s habits than their online activity.”

Another possibility that could happen as part of either of these two scenarios is the bank as a central data custodian. As know-your-customer (KYC) initiatives evolve to become almost 100% accurate, banks could potentially become responsible for a person’s core data profile, which is then shared with government and other organisations. For this to become a reality, data security needs to be top priority.

The levelling of capital markets is another potential scenario for the future of finance. With connected devices and readily available market data set to level out the asymmetric playing field of financial information, investment banks may no longer be at such an advantage. What’s more, AI will lower the risk, and therefore the return, on investments by making decisions based on predictive analytics.

In conclusion, the financial sector has been slow to adapt to the digital landscape, but is set to undergo unprecedented change in the coming years – and FSI businesses must be ready. Organisations will need to update legacy infrastructure and move towards multi-cloud technology that allows agile, forward-thinking business models. Companies must look ahead to 2030 today and consider the 8 questions that all businesses need to answer for a successful digital transformation. “The reality is that people are struggling to address decisions that were taken 30 years ago. In your 2030 strategies, the decisions you make now are absolutely vital,” warns Grattoni.

*Other names and brands may be claimed as the property of others

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