OBSERVATIONS FROM THE FINTECH SNARK TANK
In the movie All The President’s Men, Woodward and Bernstein meet their informant in a parking garage and are told: “Follow the money.”
If you want to know which technologies are hot in banking, you should do the same. The truly “hot” technologies in banking are the ones that financial institutions invest in—which are not always the ones the pundits talk about.
What’s Hot For 2020?
At the end of the past six years, Cornerstone Advisors has surveyed financial institutions to find out where their technology dollars will go in the coming year.
In the new What’s Going On in Banking 2020 study, the top five technologies for 2020 are: 1) Digital account opening; 2) P2P payments; 3) Video collaboration/ marketing; 4) Cloud computing; and 5) Application programming interfaces (APIs).Today In: Money
1) Digital Account Opening
Digital accounting opening (DAO) is the most popular technology for the third year in a row, with a third of banks and credit unions expecting to add new or replacement systems in 2020. An additional 46% plan to modify or enhance their existing DAO systems, up from the 39% who said they would do so in 2019.
The continued focus on digital account opening begs the question: Why can’t banks get digital account opening right?
There are a number of reasons but the primary cause is ineffective process design.
Many banks approach the account opening process from a regulatory compliance perspective. It actually takes very little information to get an account open. Banks should redesign the process to allow for the simplest account opening and funding possible—and then work on reducing risk and meeting regulations.
2) Person-to-Person (P2P) Payments
Roughly three in 10 institutions plan to select a new or replacement P2P payment tool in 2020. That percentage is down from the 35% who planned to do so in 2019. But the number of banks and credit unions looking to enhance or modify their P2P payment capabilities rises from 25% in 2019 to 40% in 2020.
This is good news for Zelle.
According to a study from S&P Global, Zelle is now the P2P payment provider in 21 of the 25 largest US banks—with two more planning to launch Zelle. In the next 45 largest banks, 21 are Zelle banks, with two more coming on shortly.
If more banks and credit unions adopt Zelle—and then follow PNC’s lead and shut out Venmo by locking out Plaid—consumers will increasingly find Zelle to be the most convenient P2P payment option to use, causing some switching behavior.
Consumers may not be thrilled about it—but it’s hard to imagine that they’ll switch banks as a result of it.
3) Video Collaboration/Marketing
This technology is new to Cornerstone’s study and enters the charts with a little more than a quarter of survey respondents indicating that they plan to add video collaboration/marketing tools in 2020.
This would more than double the number of institutions deploying this technology, as just one in five institutions say they’ve already implemented video collaboration/ marketing platforms to date.
The rise of video collaboration/marketing into the top 5 was a long time coming.
Vendors—and some analysts for that matter—have been hyping video for a while now. One study found that more than three-quarters of bank execs surveyed said that video technology: 1) accelerated decision making; 2) improved productivity; 3) boosted product innovation; and 4) improved the customer experience.
If that were true, why has it taken so long for banks to make investments in video?
Because: 1) Nearly every technology promises the benefits listed above, and 2) It’s taken this long for banks to get serious about branch transformation, which is driving this uptick in video investment.
4) Cloud Computing
A quarter of financial institutions plan to invest in or implement cloud computing technologies in 2020. Forty percent say they’ve already done so, and half of them will enhance or modify what they’ve got.
Despite these numbers, many C-level execs still oppose cloud computing. Cloud proponents fail to sway the holdouts because their arguments run counter to the holdouts’ experiences—and you can’t fight experience-based perceptions with theory.
The banking industry is on a inevitable journey to the cloud, however. Three trends are driving this:
- AI adoption. Without a sufficient quantity and quality of data, AI tools are hampered. Banks will need to turn to—and rely on—data sources from third parties, partners, and vendors to feed their AI appetites. Bringing all that data in-house won’t be feasible and, in many cases, won’t be an option at all. Cloud apps and tools will become requirements.
- The platformification of analytics. Over the next five to 10 years, data and analytics services will be provided “as-a-service” by open platforms that aggregate analytics tools, data sources and data management services. This will force even more institutions to move to cloud computing in order to enhance their analytics capabilities.
- Financial health as the basis of competition. Competing on who can best manage and improve consumers’ financial health and performance is becoming more prevalent. This will require more integration of both data and services between players in the banking ecosystem—again forcing more FIs to the cloud.
One in four community-based financial institutions plan to invest in or deploy APIs in 2020, on top of the 35% that have already done so.
What are they hoping to accomplish? Back in 2015, I wrote the following:
“APIs will become central to the competitive dynamics of the industry. Banks must rapidly assess fintechs’ offerings, integrate them, and deploy them to their customer base.”
APIs are about speed, agility, and personalization. You’e dead in the water if: 1) It takes nine to 12 months to integrate partners’ products and/or data, or 2) The partnership process requires significant time and resources to negotiate legal matters, revenue sharing, pricing, etc.
And for all the talk about personalization in banking, nothing that exists today comes close to what’s possible in an environment with a robust set of partial-stack fintech providers and smart full-stack banks integrated through APIs.
What About Chatbots and Machine Learning?
For all the hype surrounding chatbots and machine learning (ML), few community-based financial institutions have deployed these technologies.
Going into 2020, just 4% of the institutions surveyed by Cornerstone have already deployed chatbots—twice as many as had deployed them going into 2019. But going into 2019, 13% of the survey respondents said they would be making investments in chatbots—and most ended up not investing.
There was a big jump in the percentage of institutions who have deployed machine learning from 2% in 2019 to 8% in 2020. And for 2020, another 17% expect to deploy ML tools. If history is any guide, however, fewer will actually invest.
The Bank/Credit Union Gap
Click here to download a free copy of Cornerstone’s What’s Going On in Banking 2020 report. Check out the differences between banks and credit unions—there are some interesting distinctions regarding their technology investment plans. Follow me on Twitter or LinkedIn. Check out my website.
Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors. Author of the book Smarter Bank and the Fintech Snark Tank on Forbes, Ron is ranked among the top fintech influencers globally, and is a frequent keynote speaker at banking and fintech industry events.