The term ‘smart’ is increasingly being used in various contexts, such as smart cities and smart homes, to signify the use of technology for intelligent advancements. In the banking industry, there has been a surge in the adoption of innovations, particularly with the emergence of financial technology (fintech). But what exactly makes these technologies smart in the banking sector?
There are various explanations for the characteristics of a technologically advanced object that make it “smart,” including the ability to gather data, connect with other devices, and increase efficiency. With the assistance of technology, the banking industry is evolving to become smarter by improving operations and enhancing the customer experience.
Traditional banks in the Philippines have embraced digital transformation by enhancing their mobile apps. However, they have yet to fully utilize the advanced capabilities of digital finance.
According to management consulting firm McKinsey & Company, established banks have primarily concentrated on developing mobile applications for current customers and modernizing outdated procedures. However, the traditional banking industry is experiencing increased competition from fintech companies, leading to an increase in innovation.
Using cloud technology and utilizing new advancements like AI and blockchain were believed to have great potential in revolutionizing the banking industry.
According to Accenture Managing Directors Nicole Lanza and Keri Smith, “intelligent banks” are predicted to transfer their main systems to the cloud in order to keep up with the emergence of new competitors who are utilizing cloud technology for financial services.
Storing and accessing data through the Internet is made possible by the cloud. However, banks may face challenges in transitioning core processes, such as account transactions, to the cloud.
According to Ms. Lanza’s article on Accenture’s website, banks may experience apprehension when it comes to making major modifications to their core systems, as these systems serve as the driving force and essential component of a bank.
“Financial institutions make decisions based on potential risks, and wise ones will also take into account the potential risks of transitioning to cloud technology at a slow pace,” she added.
By utilizing the cloud for core processes, it is expected that banks, including their staff, will have the ability to focus on generating more innovative ideas.
In addition to utilizing the cloud, incorporating AI into banking can also increase its efficiency.
Artificial intelligence is believed to cause significant changes in multiple industries, particularly in the banking sector. According to McKinsey, the implementation of AI technologies has the potential to generate an additional value of approximately $1 trillion per year for the global banking industry.
AI could be utilized by banks to improve the satisfaction of their individual customers through customization. For example, McKinsey predicted that AI could revolutionize the banking industry by analyzing customers’ past actions and using this information to provide tailored offers and solutions for managing money.
The company recognized the potential of AI to enhance the banking experience for business clients. This includes creating personalized lending options, aiding in inventory and receivables management, and utilizing an AI-powered virtual advisor.
McKinsey believes that, in addition to improving customer experience, AI has the potential to assist banks with their office operations. This could involve utilizing facial scanning or biometric authentication for transactions, as well as using machine learning to identify fraudulent patterns or potential cyber attacks to enhance cybersecurity.
Another emerging technology especially seen to revolutionize financial services is blockchain. While it is usually associated with cryptocurrency, blockchain technology is also touted for its potential to provide several benefits for banks such as improving transaction and security.
By automating processes, blockchain can improve efficiency for banks and ensure secure transaction data through the use of cryptography.
Furthermore, as a linked series of blocks, blockchain technology offers significant benefits in terms of improving traceability and combatting fraud. Additionally, the complexity of the technology makes it nearly impossible for data to be tampered with or deleted, thereby promoting transparency.
By utilizing blockchain, banks can improve their security measures and ensure accountability in their processes, ultimately increasing their transparency and traceability.
“With the increasing digitalization in the financial sector, security concerns are a top risk for financial institutions. Therefore, implementing innovative solutions that improve both efficiency and security could be a strategic decision for banks.” Chelsey Keith P. Ignacio