How is emerging technology transforming the banking sector?

Banking has changed significantly over the last decade, and our expectations of what a bank is, and where we should find it, are drastically different. It is undeniable that technology has been the driving force behind this change. With that in mind, we asked four top industry leaders to give us their views on the technology having the biggest impact on banking.

Hybrid cloud

By Prakash Pattni, MD Financial Services Digital Transformation at IBM

The fintech industry has experienced rapid global expansion as banks seek to modernize amid laws and regulations. As we look ahead to 2023, many banks will partner with agile fintechs and turn to the cloud to develop new products and services to keep pace with today’s digitally savvy customers.

In order to release the full potential of these collaborations, there will be challenges to overcome. For established banks, it will be essential that fintech partners do not introduce systemic risk to their supply chains – especially as regulatory oversight grows. To help you navigate the changing landscape, adopting a hybrid cloud approach, including the use of industry-specific clouds with built-in security and compliance controls, can support the secure modernization the banking industry desires. In the coming year, fintech should work with established technology providers to explore the use of industry cloud platforms that help remove barriers within partnerships that limit agile innovation.

One area of ​​growing interest for financial regulators is ESG reporting. Next year, I see fintech incorporating ESG reporting into their business models to help bank customers evaluate and reduce their environmental impact. A hybrid cloud architecture has an important role to play in enabling companies to leverage other functions, such as software powered by AI, to draw on multiple data sources and provide real-time tracking for things like energy use and carbon emissions.

Composite banking

By Prema Varadhan, Chief Product and Technology Officer at Temenos

To survive and thrive, banks need a platform for agility, scale and innovation. So what kind of platform should banks use? The answer is composable – cloud-based, driven by data, but in a way that is explainable and extensible.

The bank’s new business models are about spinning up new products and bringing them to market quickly. Composability, where services are broken down into specific capacities, makes this possible. It maximizes freedom, speed and flexibility while connecting to an ecosystem of third-party offerings that further increase choice and drive innovation.

Banks should look to some of the most successful B2B technology companies to understand the value of composability. These companies have taken a function and created an entire suite of software capabilities, accessible through a single platform – think Salesforce for CRM or ServiceNow for workflow management.

When a business is connected to these platforms, they have everything they need, whether they choose to activate all the modules at once or gradually over time. And all without the burden of integrating, updating, localizing and innovating, which falls to the platform provider.

For large banks, the introduction of composable banking services is likely to be incremental. They cannot simply give up their existing technology, but must gradually renovate to reduce their old investments. Challenger banks, fintechs and non-banks will want to scale quickly and adopt specific features that are pre-composed for specific use cases such as SME lending or digital mortgages.

AI, data and privacy

By Adam Lieberman, head of AI and machine learning at Finastra

From the use of chatbots to ML-powered risk and decision models, the banking industry continues to evolve at an exponential rate. As financial institutions grow their business and adopt new technology, their data stores grow at the same rate. But with big data comes big responsibility, and financial data, which often consists of sensitive and personally identifiable information, falls under the strictest governance. This dampens the spirit of innovation as banks need to collaborate and share data with each other to solve the world’s toughest financial problems such as AML or fairness in credit decisions.

Thanks to evolving technology in private AI, banks now have a suite of privacy-enhancing tools (PETs) to collaborate at scale and solve these pressing financial problems together, without requiring physical dataset sharing, data movement or manual partner agreements. PETs allow them to answer questions and develop models collaboratively with data they cannot see in a completely decentralized way for completely remote data science and analytics. This allows banks to own their own data, which never leaves their servers, and allows external modelers and software engineers to work with data privately and build models and apps without needing physical access to datasets. Private AI and the suite of PETs are driving the future of collaboration and innovation in financial services, giving data its cloak of invisibility.

Coreless architecture

By Abhishek BhattacharyaThe group’s vice president at Publicis Sapient

Modern, cloud-based core banking systems (CBS) facilitate a transition towards coreless architectures, which in turn will drive innovation and transform the customer experience in the banking world.

In Publici’s 2022 Sapient Global Banking Benchmark Study, which surveyed 1,000 senior banking executives, the top priority for achieving operational transformation (cited by 37%) was moving to a modern, cloud-based CBS. Among managers of the largest institutions (with assets of more than USD 1tn), 48% of respondents made this their number one goal.

Modern, cloud-based CBS systems are widely regarded as the way forward, with many banks prioritizing the transition to a coreless architecture as their top goal for 2023. This is because the old system of banks running legacy CBSs has run its course. These systems are difficult to change, and it is extremely difficult to build new capabilities or innovate on these systems. Bank architectures are undergoing a profound transformation leading to a completely different, “minimalist” approach to CBS.

But what is coreless architecture? In short, in a “coreless” architecture, the key functions such as accounts, transactions and product definitions sit in the “core”, but everything else sits outside it, connecting to the core via APIs. This bears virtually no resemblance to older systems, which ran a vast array of arguably unwieldy functions.