From AI-driven credit decisions to app-based payments, banks are changing faster than at any time in the last century. It is impossible to fully predict the future – even for banks – but some clear trends can be expected. Advanced technologies, data safety, cybersecurity risk and FinTech industry development may be the key elements shaping the banking industry’s future.
Advanced technologies: AI can lead to profound transformation in the banking sector, and banks are investing heavily in it. AI and other IT specialists are in high demand, and in the future this demand will increase. Banks have begun automating many manual tasks, minimizing human errors, and have implemented AI in processes such as chatbots in customer service, automated risk scoring, and fraud detection. Although some AI applications are not yet highly accurate, strategic deployment of AI is expected to accelerate, optimizing processes and increasing efficiency.
AI will not be the only digital technology that will transform the banking industry. Blockchain, machine learning and Cloud will be used in banks’ processes. In blockchain systems, once a transaction is verified and added to the chain, it can’t be altered or deleted. Blockchain can reduce fraud risks in verification processes as it is impossible to delete or manipulate that data. It enables authenticated documentation and KYC /AML (know your customer/ anti-money laundering) processes, reducing operational risks and enabling real-time verification of financial documents. There are some challenges. For example, when JPMorgan Chase created Kinexys (a private blockchain network for wholesale payments), it was very hard to connect with the pre-existing financial infrastructure and other blockchain networks. Additionally, machine learning is a subset of AI that trains models to learn from data. As banks increasingly rely on data-driven decision-making, operational efficiency, and risk management, they will collect vast amounts of data daily; machine-learning systems can then uncover patterns and interpret that data in real time. What is more, the Cloud (a global network of remote servers) will allow banks to perform real-time calculations, monitor millions of transactions and combine data across various departments, replacing expensive and large data centres. In the future, there may be other revolutionary technologies, but the main thing is to define goals and implement these technologies strategically.
Data security: Businesses in the banking sector have spent record amounts on digital security improvements over the last decade. Financial loss is not the only concern in a data breach – reputation risk is the most severe; therefore, banks must be able to prevent data breach and to ensure privacy. For example, in 2019 more than 885 million financial and personal records of First American Financial Corp. were exposed due to a website design error. This and similar events can seriously damage companies’ reputation. Because banks store large databases, such as customers’ credit history, they should continuously improve their protection of sensitive data.
Cybercrime in finance: Criminals devise increasingly sophisticated schemes and use social engineering to manipulate emotions, causing individuals to disclose credentials or transfer funds. As crimes become more complex – today’s fraud- prevention methods may not work tomorrow; therefore, fraud prevention teams need to adopt the latest technologies – blockchain, machine learning, and Cloud solutions. Payment procedures can become more restricted and limited, transactions – slower, which could reduce customer satisfaction, but safety concerns must be the priority.
FinTech (financial technologies): Fintech can offer faster, cheaper, and more personalised services. There are many concerns that due to rapid FinTech development, traditional banks will not be able to compete and will lose their clients. Although FinTech firms will take some market share, they are unlikely to replace banks entirely; instead, they will cooperate with banks, providing services, for example, mobile digital payments, money transfers, and online lending.
In conclusion, classical banking as it is known today will change significantly as digital transformation accelerates. Data management and security, advanced technologies and fraud prevention can become more relevant in the future in banks. For employees this means both opportunities and threats. There can be talent shortage, especially for IT roles. Banks will demand different skills – more technologies focused – so bank employees should be ready to upskill. Banks that want to remain competitive should create new, data-driven strategies aligned with clear goals.
–Krišjānis Kristaps Kapustāns