Perhaps the new normal is that nothing will ever be normal again. The traditional retail shopping, medical, and manufacturing models have all been redesigned. And industries have struggled to get back to pre-covid production due to a shortage in supplies. From semi-conductors to lumber, every industry has been affected as a by-product of the past two years. While sectors such as manufacturing were in recovery seven months after the start of the pandemic, banking remained 19%
below pre-pandemic performance due to economic recovery ambiguities. And now, with the rapid pace of inflation, the Federal Reserve is likely to raise rates several times this year, increasing regulatory pressures and foreign tension. 2022 will be anything but normal.
While much uncertainty remains around the areas mentioned above, the consumer demand for technological innovation has been a consistent trend. The past two years have exponentially increased the speed of innovation and consumer demand for new products and services to manage their finances. There has been a shift from “seeking information" to “receiving meaningful insights.” Consumers no longer want to pull information. They want insights and solutions pushed to them. In the digital channel, convenience and speed of delivery are now synonymous.
Amidst all this digital development, security remains a non-negotiable item. Products and services need to be fast, convenient, and secure. With the above as a backdrop, let's look at the top 2022 financial services technology trends that excite us.
Trend: Embedded Banking
Embedded banking refers to integrating traditional banking services such as debit cards and checking accounts into non-banking applications for other industries, such as retail and transportation. Perhaps one of the earliest examples of embedded finance is Apple Pay. By storing payment cards in the Apple Pay wallet, users can make in-store and online contactless payments. The payment sources are embedded into the wallet to create a seamless payment experience. Companies like Uber and Starbucks have taken this model and used the embedded payments process within their mobile app ecosystem for a seamless payment experience. The result is a faster and more convenient way to pay.
Another early entrant into the embedded banking experience is the direct sharing of banking account data among multiple institutions, otherwise known as Account Aggregation. In the non-embedded model, a consumer logs into their digital banking app, identifies additional institutions where they have accounts, and imports the data from those accounts into the digital banking app to gain a complete financial picture of their account relationships. With aggregation systems like this, the digital banking application acquires account data from those other accounts logging into those accounts based on login credentials provided by the account owner (bypassing a critical security component) and then copying (scraping) data from those other financial institutions’ digital banking applications. This method is cumbersome, has inherent friction in the experience, and often breaks, leaving the consumer frustrated with their financial institution and without the requested data.
Beyond the account aggregation model discussed above, there have been significant improvements to embedded banking, namely, the process to exchange information. A seamless, more secure financial exchange experience can now be created by replacing the screen scraping methodology with direct connectivity between financial institutions using APIs.
Embedded banking is about creating a multi-function seamless front-end experience by embedding products/processes that enable the user to complete activities within one app -- instead of a bifurcated and laborious experience using multiple apps. As the industry moves forward with embedded banking, the race will be to offer access to as many products/services as possible within one digital experience, which some have coined a “super-app."
When you think about it, embedded banking is not a competitive threat - it is a competitor threat. By enabling banking services to be embedded into non-traditional financial institution apps, businesses and brands can integrate financial services at low price points. While traditional financial institutions have spent years digitizing their existing platforms, embedded banking enables digital-savvy companies to offer banking services in months, not years. And embedded banking provides the ability to perform traditional financial tasks within digital platforms that consumers (especially those generations moving into their lending years) have already embraced.
Many fintechs have sprung up due to user friction experiences. Just consider the rise of P2P companies in the past ten years. Before P2P products, traditional person-to-person payments were cumbersome, so many traditional banking account holders embraced the P2P application. Now consider the fact that PayPal, one of the first P2P companies, offers savings, debit cards, rewards, and lines of credit, just to mention a few of their products. Can you think of a traditional banking app today without P2P? P2P fintech providers started by solving a financial transaction pain point and then expanded their application to include traditional banking services and products.
Embedded banking enables ANY digital player to quickly and seamlessly integrate financial-related products/services into their application. This vastly expands the list of competitive differentiators and threats. The strategic power of this technology is why it made the top of our list.
Trend: Improved Personal Insights
We know personalization works. Look no further than your Amazon start page (or Alexa voice assistant) to see/hear this in action. Personalization works most effectively when it provides beneficial information and is perceived as a pseudo advocate. In a retail environment, this equates to price reduction notifications or re-order reminders, so you don’t run out of something important (toilet paper comes to mind).
Just think about the advocacy personalization can offer to financial services. The system can offer real-time actionable insights by monitoring an account owner’s transactional behavior. For example, the insight technology could recommend to an account holder when to purchase a home based on the purchase price, mortgage rates, and the accumulation of sufficient savings to meet the down payment requirement.
Today's insights technology capabilities are based on answering the consumer question of “what should I do" instead of “what have I done." Personal insight technology will increase the convenience, efficiency, and accuracy of the account management process. Consider a scenario where monitoring deposit, withdrawal, and payment behavior can lead to offering insights to increase the balance in an account to avoid an NSF fee or prevent a missed loan payment. Advocacy will always be a competitive differentiator.
Security of account information has been and will continue to be a significant consumer concern. Daily, consumers are bombarded with stories about security-related issues, from data breaches to identity theft. Consumers, therefore, are looking for security methodologies that will strengthen the protection of their account information. Current security technologies include fingerprint biometric authentication, multifactor challenge codes, traditional passwords, out-of-wallet questions, and third-party account authenticator applications such as the Microsoft and Google Authenticator apps. But there is a relatively new entrant in the security space, ID verification.
ID verification technology is being used in the new account opening process, requiring a consumer to upload the front/back images of an ID and then take a quick selfie of themself. The ID verification technology verifies the picture on the ID, that the format of the ID (including holographic watermarks) matches the ID’s specifications from the issuing entity, and that the information on the ID (name and address) matches the information included in the ID's magnetic (MAG) strip.
The selfie part of the process uses live detection technology to ensure that the person pictured on the ID is the same person presenting the ID for verification. The two ID verification processes work in tandem to ensure the information on the ID and the person submitting the ID are legitimate. And this is all done in a matter of seconds.
The ID information can then be stored and used as step-up authentication for future authentication events, such as unlocking access for an end-user who has failed to use the correct username/password combination, or processing large transactions within the digital app. As the financial fraud methodologies increase in sophistication, the security applications must be innovated to thwart them. We expect advancements in security to be included in the technology trends lists every year.
Trend: In-Person Digital Interactions
Rounding out the list for our technology trends discussion is the need for in-person digital interactions. While consumers are happy to receive information and recommendations via technology, the desire to “talk with somebody" continues to be an essential component of their satisfaction with a provider. Even before the pandemic, companies started using various digital communication technologies such as chatbots and chat. Those digital communication methods are acceptable for basic questions, but what happens when the conversation is complex?
When consumers want to make a large purchase, have difficulty filling out an application/using a service, or believe there is fraud on their account, real-time textual communication will not do. And while some consumers are comfortable speaking to an agent over the phone, many get frustrated with cumbersome phone menus and not being able to see the person they are talking with. That is why the use of video in digital continues to be on the consumer wish list.
Consumer emotions can rarely be sensed in a non-visual environment, whether they are irritated and need to be put at ease, or whether they are engaged and showing intent to buy. A consumer who is frustrated by miscommunication in non-visual channels or navigating complicated phone menus will definitely not respond well to upsell offers. A consumer who is worried about fraud on their account is likely anxious, and the inability to see the person they are talking with can further exacerbate the situation. Think about how digital video assistance, then, can be a competitive differentiator while improving satisfaction scores.
One of the primary complaints about branch closures is the inability to “see" someone. For those financial institutions that have not started a digital service strategy, video service should be a significant consideration. Video offers the ability to meet “in-person" in the most-used consumer channel post COVID.
The Big Picture
As you can see, the future of banking in 2022 is very much digital. This should come as no surprise considering the past two years. The pace of technological innovation and consumer demand for technological products is faster than ever. Consumers are balancing complicated lives between family, work, and finances. They contend with changing work conditions, childcare considerations, and general malaise from managing all these processes.
As we have mentioned in previous blogs, consumers are looking for ways to make their financial lives more efficient, convenient, and secure. The technologies we discussed above meet those criteria. Financial services provide critical tools for consumers to manage their daily lives. Embedded banking offers the ability for the consumer to do more in one place, saving them time. Personalization makes sure that consumers are presented with recommendations to make informed decisions. Finally, security is a non-negotiable item for any digital activity.
In this blog we have only discussed a handful of the 2022 financial services technology trends. One final point: As we move forward, the technology that gets adopted will not be based on the cool factor but on the ability to help a consumer achieve more.