While banks used to be viewed as untouchable, powerful financial institutions, they’re now subject to the same critiques and expectations as all other consumer-facing businesses, such as hotels and restaurants. You may have noticed this through recent changes your bank has made to make your life easier.
The changes you see, like the introduction of customer service bots, are a result of the adoption of advanced technologies, including fintech automation. These advancements have evolved the banking industry by leaps and bounds, driving more banks to adopt automation tools to keep up with fast-paced progress.
With new fintech solutions arising left and right, banks today have cutting-edge resources at their fingertips to roll out new processes and features, making consumer financial activities easier and more integrated into our daily lives than ever. As an angel investor, I know this shift also opens the window of opportunity for tech founders looking to improve these legacy systems and create fresh banking and financial solutions.
Here’s what you can expect from the banks of tomorrow, including the trends of 2021 and what’s to come.
What’s Happened Lately in Banking Automation?
Banking automation is on the rise, and we’ve seen impressive progress since the beginning of the COVID-19 pandemic alone. This sudden push toward contact-free and digital banking encouraged the industry shift toward automation and advanced technologies, giving rise to a few major trends.
Automated Payments and Savings
As consumers have gotten used to digital resources to manage their finances, this expectation will remain even in a post-vaccine world. Automation, especially for saving and paying bills, has played a major role in 2020-2021 banking enhancements. It has encouraged more consumers to stay on top of their finances by eliminating so many of the obstacles, like going into the bank or waiting for loan approval, and making it as easy as setting up automatic withdrawals for savings or bills and forgetting about it.
Customization Through AI
Consumers want to feel special, and customization through AI makes it simple. Deeper personalization fosters more engagement between financial institutions and their customers by adapting to each person’s needs and providing additional tools, resources, or data that are most likely to be of value to them. One example would be offering banking customers special promotions on the retailers and brands they already spend money on, or displaying unique financial insights, like spending averages or savings trends, to foster more educated financial decisions.
Other ways we’re seeing AI break into the banking industry are through chatbots and automated loan approvals, which reduce the need for banking personnel for mundane tasks and frees them up to handle more complex matters.
One market report shows just how much digital-only banks are taking the world by storm. These banks, also known as “neobanks” are projected to transcend traditional banking models because of their expanded ability to meet the evolving demands of digitally native consumers.
Digital banks can cut costs without physical branches and can lean more into their remote-based customer support via digital platforms to better appeal to younger audiences, especially Gen Z, who are now becoming adults and beginning to take their finances more seriously.
The report, The Evolution of the US Neobank Market Report by Business Insider, found that 89% of respondents currently use mobile banking while 70% say mobile banking is their primary method to access accounts. We’ll only see these figures increase in coming years.
The increase in digital services is also due in part to the rise of banking-as-a-service (BaaS). BaaS refers to banks opening up their infrastructure (known as application programming interfaces, or APIs) and consumer data to allow third-party providers to develop new digital services.
While still a very new industry, the UK is already enabling more BaaS through open banking regulations, and we can expect more countries to follow this trend. Today’s most innovative banks have already implemented this technology, and as other players strive to remain competitive, they will, too.
The Market: What’s Doing Well
As a result of increased pressures due to COVID-19 and evolving consumer demands, the banking automation market has grown over the past several years, despite a slight setback in 2020 from the initial onset of the pandemic.
Now, a report on global banking automation and robo advisors from Precision Reports projects the industry will see an even better year in 2021 than it did in 2019, with steady growth through 2027.
What’s more, the robotic process automation (RPA) sector within the banking and financial services industry (BFSI) alone is expected to register a compound annual growth rate (CAGR) of 31.3% from 2019 to 2025. RPA, in particular, is making a splash in both front-end and back-end processes, like accounts payable, credit card processing, mortgage processing, and account opening and closures.
The world is moving faster than ever before, and in order to keep up productivity, banks will need to start implementing RPA and other automation tools into banking operations. This, coupled with the increased prevalence of advanced technologies throughout the BFSI sector, will continue to boost the demand for automation in banking.
Some leading banking conglomerates are already integrating automation to generate value. JP Morgan, the largest bank in the US, for example, utilizes bots to respond to most internal IT tickets, handling the work of 40 full-time employees. More banks will begin to take a cue from these early adopters, developing their own automation tools or using those created by pioneering startups with innovative solutions.
Some of the startups making a difference in banking automation today include:
- Unqork – A cloud computing and enterprise software company offering a no-code development platform as a service, supporting organizations in finance among other industries.
- nCino – A financial technology company streamlining customer and employee interactions through a cloud-based Bank Operating System® that drives enhanced transparency, profitability, efficiency, and compliance.
- MANTL – A banking technology company providing workflow management and automation tools for banks and credit unions.
- Finn.AI – A conversational AI platform for banking that utilizes chatbots to improve the customer experience.
- Prove – Identity verification company leveraging Phone-Centric Identity™ to keep banking transactions and activity secure and help banks mitigate fraud while accelerating revenue.
- UiPath – A global software company for RPA offering an end-to-end platform for automation with a variety of applications, including BFSI.
- WorkFusion – Intelligent Automation vendor combining RPA, AI, and machine learning to create solutions that cut banking operational costs while enhancing customer service.
- Blend A MacDonald Venture investment and cloud-based banking platform simplifying common bank processes like account openings or loan applications.
What We Expect From Banks in the Next Few Years
In the next few years, banks will use automation to cater more to their customers while streamlining several back-office tasks that ultimately improve productivity and decrease overhead costs.
Several themes we can expect to see in BFSI include:
- Higher Operational Efficiencies – Robots will be able to manage high-volume, repetitive, tedious tasks where accuracy and productivity matter most, such as account servicing and lending services.
- Better Customer Experiences – Automation will create better customer experiences by freeing up banking representatives to focus on issues such as conflict resolution, financial guidance, and more.
- Less Revenue Leakage – Banks will find ways to create more revenue with less effort by automating time-consuming steps in financial processes, such as sending notifications, following up with customers, looking up contacts, and preparing documents, etc.
- Accelerated Transformation – When AI starts getting involved with automation, technology can begin to connect with legacy systems that may not have modern interfaces, leading to accelerated digital transformation.
- Amplified Workforces – With more empowered, satisfied workers spending more time on engaging tasks rather than mundane ones, banks will be able to amplify human functions.
As the world continues to evolve and transform every industry, the banking and financial services sector finds itself deep within its first wave of automation. To stay relevant to younger, more tech-savvy consumers, banking institutions are integrating automation in its many forms throughout their basic functions while expanding human worker capabilities.
Firms that understand the value and relevance of automation today are those that will be at the forefront of tomorrow. These leaders may include incumbent companies eager to maintain their place at the top of the banking food chain, but as an angel investor with my finger on the pulse of emerging tech, I believe that many of these leaders will be banking startups infusing automation into the very core of their offerings to the benefit of their workers and customers.
If you’re a founder with a game-changing banking automation idea, the future of banking could very well be up to you. The time to bring your idea to life is now. Reach out to MacDonald Ventures to learn more.