Technologies such as artificial intelligence, blockchain and APIs continue to dominate the forecasts of the leading experts in the fintech sector. However, there are some new caveats for 2018, due to regulatory pressure. As the digitization of financial services gathers force, BBVA stands among the banks that have invested most in their digital transformation.
January is the month when analysts, news media and experts in the world of fintech speculate about the trends that will have the greatest impact in the next 12 months. A series of technology trends have occupied the headlines for years. Artificial intelligence, open banking and blockchain are three that are back again this year, but with a more practical focus. The message is clear: there’s been sufficient time for testing; now it´s time to implement real solutions.
The open banking challenge
Jim Marous, analyst, author of the Digital Banking Report and co-editor of The Financial Brand, shared his summary of the Forrester report in an article in early January entitled Predictions 2018: Financial Companies Get Serious About Digital Transformation. The article features 16 predictions, along with recommendations for the fintech sector for the new year.
The digitalization of financial services – which banks cannot afford to ignore – continues uninterrupted, as does the long overdue update of the banking industry’ s back office. “Leading financial services groups such as BBVA, Intesa Sanpaolo, and Lloyds Banking Group are already spending hundreds of millions on digital business transformation,” the report says. Forrester also encourages banks to open up to the world of the fintech companies, in order to offer new services and reach new customer segments.
Forrester also warned about the new regulatory context in 2018. It predicts that “few organizations will embrace open banking.” Although in Europe PSD2 has accelerated this transformation, and other regions have followed suit, Forrester says most banks still don't have a clear idea of how to proceed in the face of this new reality. Instead of budgeting these changes as a ‘cost’, Forrester recommends taking advantage of APIs as an opportunity to redefine the business model—a strategy that BBVA has adopted in launching its API_Market.
Join forces to be more competitive
Understanding the tug of war with regulators will just be the first step of this new year. According to Forrester, financial and non-financial entities will be able to create ecosystems to improve the customer experience, and position themselves to compete with the big tech companies like Amazon, Google, Alibaba and Facebook. These changes will also open the door to new alliances in financial services and other areas.
In fact, Forrester considers 2018 to be the year in which the alliances between banks and fintech companies will no longer be limited to small startups, as companies like Facebook, Amazon and Alibaba enter the playing field.
The issue of what role the big tech companies will play in the new open banking context was also present in the predictions of other specialized media. Let’s Talk Payments has marked 2018 as a decisive year for determining whether consumers trust these companies or if they prefer traditional banking. “The jury is still out,” the website says.
David Birch, journalist for Wired magazine, has a clearer idea. In his article, Forget banks, in 2018 you'll pay through Amazon and Facebook , he predicts that this year’s regulatory changes will tip the scale in favor of the tech companies. According to Birch, “To stay in the loop, retail banks may choose a strategic option built around identity, trust and reputation.”
Digital expectations increase
Regardless of who takes the biggest piece of the pie, what is clear to the experts is that users are not going to be content with just anything. “Consumers and prospects don’t care about a bank’s clogged-up digital backlog or an insurer’s problems with its legacy systems,” says Forrester. The consultancy warned that in 2018, “Stop-gap solutions will no longer suffice.” The solution will change to making significant investments in infrastructure, in order get untangled from the legacy of a pre-digital culture.
Marous summarizes the situation as follows, “In the end, it’s about value creation for the consumer, who will reward the organizations that make their daily life easier.” The analyst also published on his website a compilation of the 10 strategic priorities for retail banking this year, in which the number one priority is “removing friction from the customer journey,” followed by expanding the use of data and advanced analytics, and improving the multi-channel experience.
Chris Skinner, presenter and author of two successful books about the digital revolution in the banking industry, also approaches some of these aspects in his predictions for 2018. Specifically, he emphasizes the industry's need to “rationalize and clean up” organizations’ data structures, which are often fragmented, as an essential step to taking advantage of the potential of AI.
Regarding this technology, the author also says that 2018 will be the year in which the banking industry finally starts to implement it on a mass and generalized scale, especially in the fields of risk management and compliance. “When most banks have one in three members of their staff checking compliance, it makes absolute sense to replace them with learning software,” he writes.
Blockchain gets serious, and its challenges follow suit
Another of the technological environments that should bear real fruit after years of expectation will be blockchain. Skinner predicts a more generalized use in 2018, once the institutions start to “go live with real-world applications.” Alicia Pertusa, Transformation Manager of BBVA Investment Banking, agrees with this logic. She thinks that 2018 will be the inflection point for moving past the pilot projects and concept tests. Specifically, Pertusa highlights the initiatives of three entities—ASX (Australia Stock Exchange), We.trade and Calypso Technologies—which will enter into the phases of production and marketing DLT-based projects in 2018.
An article in Forbes magazine analyzing the impact of political, economic and technological events in 2017 within the landscape of the fintech sector evaluated the immediate future of blockchain in similar terms: “2018 will welcome a range of regulatory requirements and financial institutions are launching new blockchain-based products in order to simplify compliance, and this is where the Ethereum blockchain is becoming increasingly popular.”
However, alongside the euphoria surrounding the uses of blockchain, there is also a place for skepticism. Mike Orcutt, editor of MIT Technology Review, summarized the questions faced by DLT technologies that must be overcome in order for the big revolution that experts expect in 2018 to occur. “In 2017 we were told that blockchain technology and cryptocurrencies were going to save the world, disrupting just about anything with a digital fingerprint. But we saw very few tangible examples that justified the hype,” writes Orcutt. According to the specialized journalist, we’ll continue to hear many voices that want to join the technology movement, but the difference is that in 2018, “the challenge will consist of creating real products and services.”
What predictions weren’t fulfilled?
Adjusting is for the wise. Business Insider Intelligence is one of the media outlets that this year has decided to revisit its own predictions from last year, in order to figure out where it went right, where it went wrong, and where it was somewhere in between.
BI Intelligence predicted last year that in 2017, there would be a proliferation of neo-banks in the US. However, although the fintech industry is growing, according to the consultant, “There is an obvious scarcity of exclusively online banking startups.”
Another of the erroneous prognoses was that in 2017, there would be a move from the “ideation” of applying blockchain technology to the financial sector to “cases of tangible use.” However, the predicted “avalanche” of products has not materialized. “Although we've started to see live testing and the adoption of DLT-based infrastructures, the extended use of these technologies in financial services has still yet to materialize,” BI Intelligence admitted.