The banking industry is changing. New technology is making it more efficient and profitable, and more and more people are moving their money to online and mobile banking. Here are some of the key trends that will shape the industry in the coming years.
Cybersecurity challenges facing financial institutions
The financial services industry is a prime target for cyber criminals. Cyberattacks against this industry are increasing in sophistication and in number. Typically, these attacks are carried out for illicit financial gain.
These organisations must take a proactive approach to cybersecurity to avoid damage to their reputations and customer relationships. They also need to remain up to date with the latest regulatory requirements. However, these regulations can be complicated and costly to implement.
Investing in a solid software security program is essential. This includes antivirus, firewalls, and other measures. Also, the use of cloud-based applications can greatly improve fraud detection and financial analytics.
As the financial services sector undergoes a digital revolution, it is at risk of becoming vulnerable to more sophisticated and damaging cyberattacks. New technologies such as blockchain and cryptocurrency are used frequently for fraud and are often lacking in security.
Data breaches are a big problem for financial institutions. A typical breach costs over PS4.5 million. In the event that a customer’s account information is compromised, they may be forced to switch banks.
Financial organisations have to maintain a mature cybersecurity program. This means tracking the threat landscape of their key partners and vendors. It also means understanding the latest in cybersecurity technology and adopting new business strategies.
There are many initiatives underway to combat cyber threats in the financial sector. However, these efforts are often siloed. For example, the Australian Prudential Regulation Authority recently launched a series of measures to help financial firms reduce the risk of data breaches.
Some of these initiatives include the use of social media. By tapping into consumer databases, financial firms can improve their understanding of their customers. And they can attract new ones.
However, there are many more challenges facing the financial services industry. For example, the COVID-19 pandemic has increased the demand for online financial services. That has also accelerated the industry’s digital transformation. With the digital attack surface still out of control, it is important to implement new security solutions.
A new type of security measure, known as behavioral analysis, has emerged. It is designed to detect lateral movement. Using this technique, financial organisations can identify weak spots in their networks and implement the appropriate solutions.
Neobanks offer a wide range of financial services. They are a growing phenomenon in China and Latin America. Neobanks aim to provide financial products, services, and solutions to customers with minimal fees. Neobanks provide easy access to banking, as well as innovative digital content and insights. However, Neobanks face a challenge: they lack the financial resources of traditional banks. Therefore, neobanks need to focus on developing profitable revenue streams.
Neobanks offer services to both consumers and small and medium-sized enterprises. Many neobanks offer deals and promotions to attract customers.
Neobanks are designed to work with specific niche markets. For example, a neobank may target young people, gig workers, and financially marginalized individuals. In addition, neobanks are able to provide customized features for a particular group of users. Moreover, neobanks engage their target user based on their interest patterns.
Some neobanks are developing their own mega ecosystems. Starling Bank is an example of this. The bank has a robust product portfolio that includes a variety of lending products. As a result, Starling Bank has grown its business banking segment in recent years.
Neobanks are also reshaping the financial services industry. Neobanks can help boost customer engagement with their digital content and personal financial management. Another important area for neobanks is embedded finance. Embedded finance is the integration of financial services with non-financial products. This allows them to enhance customer experience with features like personal financial management, gamification, and social features.
Neobanks are facing increasing scrutiny from regulators. As a result, some are looking at their compliance systems. Investing in a full-stack platform-based team is critical. These teams include product owners, data scientists, designers, and risk and legal experts.
To succeed in the future, neobanks must build a strong, aspirational culture. They must be agile and break the organizational silos of traditional banks. Neobanks should also promote rapid experimentation and innovation. Developing a strong, aspirational culture will help attract the best talent.
Successful neobanks have a different approach when measuring their performance. Instead of using balance sheet metrics, they use customer-centric metrics to analyze and optimize the overall performance of their business.
Open banking operations
Open Banking operations promise to create an innovative and frictionless financial ecosystem. They offer a range of benefits from enhanced regulatory reporting to a more user-friendly banking experience. While the technology has been around for some time, the concept is still relatively new.
The Financial Data Exchange (FDE) is a nonprofit consortium that brings together more than 200 banks and fintech companies to share data. Besides offering more choices for consumers, it also makes it easier for fintechs to build innovative products.
However, Open Banking is only successful if consumers see value in sharing their data with banks. Fortunately, some countries have already implemented open banking, and others have a ways to go.
In the UK, the Open Banking Implementation Entity (OBIE) notes that nearly three million consumers are using the system. These customers can now easily transfer money from one account to another and view their recurring subscriptions.
There are several advantages to Open Banking, but the most obvious is that it will allow banks to engage with third-party providers in a more seamless and streamlined way. Specifically, banks can now leverage the power of APIs to connect with clients in ways they previously were unable to.
Open Banking can also benefit small businesses. For instance, banks can now combine newly-delivered customer data with machine learning to produce accurate predictions and suggestions for investment plans.
Banks can also benefit from partnering with fintechs to develop more innovative solutions faster. One example is Nordea, which recently partnered with fintech Tink.
As consumers continue to demand greater access to their financial data, banks should be prepared to embrace open banking and create new opportunities for themselves. However, there are many challenges to consider.
One of the largest hurdles is legacy IT systems. The old school models built decades ago are no longer able to deliver the kinds of user experiences that today’s consumers expect.
To overcome these issues, banks must be ready to adopt a collaborative mindset. Banks can partner with FinTechs and other organizations to speed up the development of their APIs.
The best route to take would be to adopt an industry-wide standard. This would ensure a unified approach and keep costs down.
One of the biggest buzzwords in the finance industry in recent years has been embedded finance. It refers to the integration of financial tools into non-financial services, such as e-commerce and ridesharing. This type of financial service is a way to offer customers a simpler way to access financial services. As the market for embedded financing expands, traditional institutions have the opportunity to move up the value chain. But as digital transformation has taken hold, there are still a number of stumbling blocks to achieving success.
Embedded finance is not a silver bullet. The technology needed to bring financial products to consumers requires significant capital investment, which makes this a highly competitive business. Also, a lack of disintermediation can make it harder for companies to penetrate certain industries.
Embedded financial services have the potential to redefine the consumer relationship with financial services, and provide a more personal approach to the customer experience. They can also offer new revenue lines for companies. However, as the embedded finance industry matures, companies must select the right partners to partner with.
Banks are likely to play a key role in the development of embedded finance. But they need to do so by building a new growth engine that complements their traditional products and services. And they can do this by offering more contextual and interoperable financial products. For example, banks can sell their treasury solutions as a bundle with lending products.
E-commerce platforms are a leading consumer of embedded finance. These platforms often generate revenue from debit card transactions. In fact, US consumers spent $1.7 trillion using embedded payments in 2021.
While e-commerce platforms may be an early adopter, other industries will soon be infiltrated by these innovative solutions. Real estate, for example, lags behind due to the type of payment that is required.
Fintechs have the ability to integrate financial products and create custom-made offerings that are tailored to each unique user. These products are usually paperless and automated. Unlike traditional banking, embedded finance offers customers a simplified transaction. More purchases are made, and repeat purchases are increased.