Technology
Low-code no-code (LCNC) platforms are gaining momentum for software development in the financial services industry. These platforms provide a visual approach to app development, allowing non-technical staff to contribute to software projects thereby reducing the time and resources required to deploy new solutions. LCNC-based platforms can help banks drive innovation, enabling the rapid development and deployment of digital applications in areas such as online and mobile banking, customer service, process automation, and regulatory compliance. For successful implementation, banks should assess their existing IT infrastructure, identify potential use cases, evaluate LCNC platforms, invest in staff training, and create a clear plan for integration and ongoing maintenance.
Customer Engagement
A 2023 mobile customer engagement study by Alchemer shows that banking apps demonstrate higher retention rates and customer sentiment compared to other financial sectors. Banking apps had a 30-day retention rate of 85%, a 90-day retention of 78%, and annual retention rates of 60%. Positive customer sentiment for banking was also high at 79%. The report highlights the importance of proactively engaging customers, seeking feedback, and demonstrating that customer opinions are heard and acted upon.
Regulation
A blog post from Rohit Chopra, Director of The Consumer Financial Protection Bureau (CFPB), noted that the agency is developing new rules to stimulate open banking. The intent is to improve market competition, and financial privacy, and facilitate consumer control over personal financial data. The rules are expected to be finalized in 2024. The CFPB maintains that it will not micromanage open banking, but rather look to the market to develop fair standards to shape an open banking system. However, the agency warns against standards being skewed towards dominant market players and intends to guard against attempts to restrict consumers’ data rights. The CFPB invites those seeking to develop open banking standards in the US to discuss their plans with the bureau to ensure consumer data rights are appropriately supported.
Digital Services
Fintech company Plaid has been expanding its identity verification capabilities since its purchase last year of Cognito, a provider of identity verification and KYC/AML solutions. The company recently launched a new identity verification system that models the one-click checkout process. The system prompts customers to save their ‘verified identity’ during the initial sign-up, enabling it to be reused across various apps and reducing friction in the onboarding process. Plaid does conduct risk checks each time to ensure the user’s security, however. The company also highlighted the use of behavioral analytics to prevent fraud.
AI/Machine Learning
Generative AI is gaining consumer trust in areas like investment and shopping, with 53% of customers trusting AI tools for help with financial planning. The widespread adoption of Generative AI in financial services will likely be slow due to the industry’s inherent conservatism. Early applications of the technology will probably be in the back-office operations of financial institutions, such as the use of AI tools by Goldman Sachs to automatically generate and test code, or Morgan Stanley using the technology to aid financial advisors. Despite these advances, there are still concerns about the lack of regulation and the technology’s potential to “hallucinate” data or produce plausible but factually incorrect responses.
Customer Experience
Businesses can revolutionize customer experiences by combining augmented reality (AR), artificial intelligence (AI), and social media, resulting in personalized and engaging interactions. Key strategies include utilizing AR for remote support, where customer service agents provide real-time guidance through video chat applications. Businesses can harness conversation metadata and combine it with customer profile data to personalize interactions and predict needs. Generative AI software such as ChatGPT can automate manual tasks, deliver automated customer support, and offer real-time feedback to agents, enabling more efficient and satisfactory service. Social media offers opportunities for interactive content, influencer collaborations, real-time customer support, and user-generated content to engage audiences and foster a sense of community. Enhancing post-purchase support through proactive communication, feedback collection, implementing improvements based on feedback, and maintaining ongoing engagement can lead to long-term customer loyalty. By integrating AR, AI, and social media, businesses can significantly enhance customer experience.
Digital Currencies
The prevalence of digital payments is prompting central banks worldwide to develop their own central bank digital currencies (CBDCs). Currently, 114 countries accounting for over 95% of global GDP are creating CBDCs. According to the Atlantic Council, 11 countries have launched digital currencies, while 18 others have initiated pilot programs. The Asia-Pacific region, led by China, India, and Thailand, is pioneering CBDC development. China has even begun integrating its digital yuan, e-CNY, into its total currency circulation calculations. Meanwhile, the US lags behind in this race, although projects are underway in the San Francisco and New York Federal Reserve Banks. CBDCs could offer benefits such as increasing financial accessibility, facilitating cross-border payments, and reducing payment costs. Despite differing progress levels worldwide, the widespread emergence of CBDCs is considered to be inevitable.
Business Strategy
Banks seeking growth through strategic acquisitions could learn much by studying the history of Customers Bank and BankMobile, which it spun off in 2021 to create the independent, publicly traded company BM Technologies. Throughout its history, Customers Bank has shown a commitment to innovation and financial inclusivity. Most recently, Customers Bank purchased a specialized loan portfolio from the failed Signature Bank and recruited 30 members from the team that originally created the loans. This move is part of the bank’s larger expansion strategy into profitable business lines that generate low-cost deposits. The purchased portfolio includes tech and life sciences sector loans and “capital call loans” to venture capital firms. Analysts estimate that the newly hired team could bring in more than $1 billion in new deposits.
Payments
Early Warning Systems is set to launch the digital wallet Paze this fall. The wallet is unique as it is focused on e-commerce rather than physical point-of-sale, and will be incorporated into the seven founding banks’ offerings from day one. Paze’s functionality differs from its competitors as it requires no app download, usernames, or passwords. For security, Paze tokenizes payment information to prevent personal data from residing in merchant systems. The success of Paze hinges on gaining merchant acceptance and convincing consumers to opt for Paze as their default payment method during online checkouts. It will face stiff competition from established digital wallets like PayPal and Apple Pay.
