By Venky Srinivasan, Group Vice President APJ & MEA Sales, Oracle Financial Services | 7 January 2022
Trends and Predictions for 2022
Article by Oracle Financial Services
With the pandemic accelerating everything digital, banks will need to continue to invest in the latest capabilities and technologies to counter challenges from non-traditional players and to ensure they deliver enhanced levels of service and value to their customers.
And with Forrester report predicting growth in technology spending by banks will reach double digits by 2022, and large-scale changes in both corporate and retail banking, as well as in regulations and payments, just what do we envisage for the year ahead?
Retail banking is witnessing an unprecedented digital shift. Customers expect innovative and ubiquitous financial services. Competition is intense from peers to challenger banks, fintechs, and technology giants. Agility and speed are critical to tapping new opportunities and staying ahead in the constantly evolving environment.
- Platform Play: Customers seek financial services at their point and time of need. A strong digital ecosystem of banks, fintechs, and other firms has evolved to embed financial services directly into different value chains and customer journeys. Successful banks will not just participate in these ecosystems but drive them, and banks that can become platform providers are best positioned to do so. Digital-ready systems with high agility, interoperability, and scalability will be critical to their success.
- Point-of-Purchase (POP) Finance: As economies bounce back and consumption recovers, finance at the POP is another hot space. Customers expect timely and seamless finance options. Retail and e-commerce firms should look to embed easy and no-frills Buy Now, Pay Later (BNPL) short-term purchasing options. With access to customers’ financial data, banks can play a pivotal role in driving effective credit assessments and offering customised and attractively priced BNPL/embedded finance functionality into digital purchase journeys. Innovative credit assessment and pricing models coupled with capabilities that facilitate rapid integration with partners will be critical.
- Financial Wellness: There is a renewed interest in reassessing financial wellness, security, and stability to ensure that customers are inherently better prepared to handle future crises. Tools and insights that help customers easily understand their financial health will become increasingly more important. Next-generation financial planning services that help automate payments while sweeping excess funds into goal-based investment or savings avenues will help drive financial wellness. Efficiently scaling innovative financial wellness products and services across the customer base is now essential.
Corporates are constantly evolving to stay relevant to their customers. With the recent upheavals in business, corporates are now extremely careful in managing their financial health and business relationships. There has also been a drastic change in the corporate customers’ expectations. While the traditional need of maintaining an excellent relationship remains, other requirements have become critical to servicing corporate customers. Success factors that have become intrinsic to how corporates and banks collaborate effectively include:
- Efficiency: This age-old measurement remains. However, the contributing variables keep changing as the banks and corporates constantly try to beat their competitors. Artificial intelligence (AI), machine learning (ML), and Natural Language Processing (NLP) are major game changers. Activity can start from something as basic as KYC automation, which 41% of banks are currently investing in, to more complex technologies such as chatbots and predictive analytics leveraging the benefits of AI and NLP. These will enable corporates to drive up their efficiency either by reducing the time to market and total cost of ownership (TCO) or by increasing precision.
- Connectivity: Connectivity and the speed of response have become competitive differentiators for banks. Today’s requirement is a well-structured digital backend with a robust set of APIs built on top of it. All business-as-usual activities will happen through APIs without any intervention.
- Transparency: Transparency between banks and corporates has been one of the major benefits of the current digital revolution. With a real-time view of all operations and products using customised dashboards, every customer has access to mission-critical data points and records. This is going to evolve further, enabling faster, automated decision-making based not only on rules but also through AI.
- Trade ecosystems: With corporates and banks quickly recovering from the impact of the pandemic, trade ecosystems are beginning to re-stabilise, thus opening new avenues for international trade and supply-chain finance. Digital engagement with their own and the corporates’ ecosystems allows banks to offer an improved experience in their trade and supply-chain finance processes.
Globally, the payments business is undergoing significant transformations due in part to emerging technologies and evolving regulations.
The rapid globalisation of businesses further complicates payments processing. The transition towards real-time payments and processing is not just limited to retail and small and medium enterprise payments, but also corporate payments.
A large portion of global high-value payments are expected to migrate to ISO 20022 by 2023 as the transition is mandated by major payment schemes and networks, such as SWIFT, Fedwire, and TARGET2, to name a few.
- Real-time payments and request-to-pay: Today, more than 50 countries offer real-time payments processing and settlement, a significant increase from just a handful of countries in 2019. Countries like India and China, including Hong Kong, have developed networks that account for a lion’s share of the total global real-time payments volume. The emergence of request-to-pay (RTP) also has the potential to accelerate the adoption of real-time payments. RTP allows payees to confirm payment details, value, and mode of payment to the payer, and enable them to accept or reject such payments. This provides the payers better control and visibility of participant information, thereby minimising risks of fraud.
ISO 20022 adoption: The emergence of ISO 20022-based payment networks is expected to drive the adoption of standardised payments messages. This can enable improved analytics and the availability of data for businesses to make decisions while enhancing payment transaction throughput times and harmonisation across clearing systems. ISO 20022 is the next generation standard that looks at ‘electronic data interchange between financial institutions’. By providing an agreed global methodology and data dictionary for payments data, ISO 20022 significantly improves the quality of data across the payments ecosystem. Richer and better use of data will open up many new opportunities, including in the area of compliance. Banks need to be cognizant of the demands this transition places on their existing back-end applications and processes, such as risk management and KYC, customer onboarding, payments message transformation, and conversion.
- Corporate payments and the impact on the CFO: The finance departments of all corporates will see a dramatic shift in countries where instant and ISO payment schemes come into play, demanding more responsive cash and liquidity. This will also lead to management offerings from banks and dramatic improvements in the quality of insights.
The year 2022 has the potential to be an important milestone for the banking industry. Investing in the right capabilities and technologies to leverage effectively this shift to digital will separate the leaders from the rest of the pack, and set up a strong base for success in the coming years.