Trends shaping the future of banking
The future of banking has come closer, with many of the emerging trends identified in recent years significantly accelerated by the COVID-19 pandemic. In addition, new trends are coming to the fore, says Vaughn Naidoo, chief technology officer at Altron Managed Solutions.
According to Naidoo, while South Africa has moved in tandem with many of the global banking trends, including the emergence of digital-only banking services, and a reduction in the extent of the physical branch network, there is one important difference in South Africa: the latest available research indicates that cash is still king.
“Before the coronavirus pandemic, cash usage was growing in the local economy at a rate of 6%-10% per annum. This might seem to be counterintuitive given the rise of new all-digital banks like TymeBank, which was expected to have onboarded two million customers by mid-2020; Discovery Bank, which is reportedly approaching 500 000 clients; and the recent beta launch of Bank Zero (its official launch has been pushed out to 2021 as a result of the pandemic).
“However, retail companies such as Shoprite and Pick n Pay, which have long offered some basic financial services, allow for cash withdrawals and deposits via their tills. Cashiers are becoming tellers,” he adds.
While it’s likely that cash usage has declined as a result of the pandemic, the true extent of this has not yet been determined.
Nevertheless, it’s clear that COVID-19 has had a massive impact on retail banking in numerous ways, with many technologies that had been evaluated earlier by the ‘early’ majority – usually technology enthusiasts and visionaries who drive innovation and its adoption – now being widely adopted and introduced.
“Most banks have moved up their digital strategies and we’ve seen a host of new innovations coming on-stream,” he says.
These include the introduction of touch-less ATM interactions; contactless card payments; no-touch authentication; QR code payments on pin entry devices/point of sale (PEN/POS) devices; virtual credit cards with random CVV (card verification value) numbers; and acceleration of NFC (near field communication) deployment for greater facilitation of mobile transactions.
All this has further reduced the need for retail branches. The ‘big four’ South African banks had already embarked on a branch reduction exercise in recent years, and while this seems to have been put on hold since lockdown, the trend is unlikely to be reversed.
Apart from being eliminated entirely, branches are being replaced or significantly modified by technology. In the UK, for example, Lloyds Banking Group, which is investing £3 billion in technology and staff to improve its digital services, is shrinking many of its branches into ‘micro” versions staffed by as few as two people. This will result in 6 000 existing positions being cut – but 8 000 new technology-oriented jobs being created.
But it’s China that appears to be leading the digital banking revolution. There, 98% of all mobile payments do not go through traditional banks, and mobile transaction payment traffic via platforms such as WeChat and Alipay has exceeded all card-based transactions globally.
“When there is no card, there’s no need to either sign up at a branch or kiosk, and no traditional POS device or mechanism,” Naidoo explains.
He believes there are several technologies that will have a massive impact and shape the future of banking.
Some, like cloud, are already taking root, with most banks searching for the optimal mix of traditional IT, public and private clouds. Over time, Naidoo expects that growing numbers of banks will move to an enterprise-wide hybrid cloud strategy.
Another which is also making its mark in South Africa is robotic process automation (RPA). This is helping banks accelerate growth by executing pre-programmed rules across a range of structured and unstructured data, giving processes the power to learn from prior decisions and data patterns to make decisions by themselves, thus reducing the cost of administrative and regulatory processes while improving quality and speed.
Then there’s artificial intelligence (AI), which is starting to be felt within back-office operations, including the onboarding of personnel virtually, compliance, customer experience, product delivery, risk management and marketing, among others. “Suddenly, banking organisations can work with large histories of data for every decision made,” Naidoo says.
Waiting in the wings, or just starting to make their presence felt in the banking area, is a host of other technologies, including blockchain, open banking (API) platforms and smart machines such as smart vision systems, virtual customer assistants, virtual personal assistants, smart advisors and other natural language processing technology.
Naidoo believes open banking, a system that allows access and control of consumer banking and financial accounts through third-party applications, has the potential to change the entire banking ecosystem from products and services offered to delivery channels, giving customers more options to interact with their bank.
Finally, Naidoo maintains that blockchain could also have a transformative impact on the banking industry.
“Banks are looking at adopting the technology to improve efficiency, cost-effectiveness and security. Some financial institutions have already started testing its use for inter-bank transfers, payments, fraud reduction, know your customer, and loan processing. However, before blockchain can become a mainstream technology in banking, regulators will probably have to develop clear guidelines for its use,” Naidoo concludes.