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Build new bridges to the customer
Mobility has challenged traditional banks to adapt their legacy systems to a variety of screen sizes and input methods. Banks can use cloud APIs to outfit old applications with new UIs connected by middleware. That gives users a modern, responsive design even though the back end may be connected over a 50-year-old 3270 terminal protocol.
APIs can connect to all sorts of things. For example, banks can integrate fully with e-commerce sites, so the customers make payments directly from their deposit accounts as well as deposit money from their sales on Etsy or StubHub. Some banks are even hosting e-commerce front ends to sell goods from partners or to support rewards programs for VIP customers.
Any external service that is available via an API is a candidate to become part of a banking ecosystem.
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Add a personal touch
Cloud technologies enable personalization at scale, by combining data gathered on the spot with historical trend lines. That enables a bank to figure out, for example, that a customer who just spent a lot of money at an art gallery is probably interested in expanded property insurance.
Technologies such as voice recognition and chatbots can interact directly with customers. One European bank used NLP to enhance its online banking platform with a chatbot that answers common customer questions instantly and deftly hands off queries to a person when necessary.
Real-time analytics also enables banks to customize offers to the individual at the point of interaction, such as extending a loan offer during an ATM withdrawal. It’s no surprise that offers that are tailored to the customer’s unique needs evoke a stronger and more positive response.
Kyndryl’s Damiani has seen this in action at one bank that fine-tunes digital interactions to the individual-customer level. “Ninety percent of the process is fully digital, but the human interaction is at just the right point,” he says. “They even give customers a choice about how digital they want the process to be.”
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Enter new markets
Cloud services can help banks quickly enter new markets to take advantage of emerging opportunities. Take the global microlending market, which is expected to reach $344 billion in 2027, according to Allied Market Research. Microlending is done mostly in emerging markets, which lack access to most banks. The cost of processing transactions can also make small loans unattractive to offer. Mobile platforms are key to success in this market, since borrowers are less likely to have access to computers.
Using APIs, banks can partner with specialized fintechs to integrate microloan services into their portfolios and integrate with partners’ mobile apps. In exchange for providing loan capital, they can bring new customers into the fold and grow them over time.
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Mobile payments
Smartphone payments have been slow to take off, but no one expects that trend to continue. Grand View Research figures the global market will grow more than 31% annually through 2029. The big driver: People are tired of carrying around multiple credit cards in their wallets, which can easily be lost or stolen.
A smartphone can consolidate payment options in a single place through the likes of Google Pay or Apple Pay — both of which are seamlessly integrated with the consumer’s financial institutions. “I think it’s only a matter of time before plastic credit cards are completely eliminated globally,” says Kyndryl’s Rishi.
Most banks now offer mobile banking services, and APIs enable them to easily add features from themselves and third parties. They can take advantage of enhanced mobile security features such as biometric authentication to reduce fraud and serve as a convenient payment gateway for their customers.
Mobile phones also offer the opportunity for geographic expansion, Damiani says. “They give you coverage where the internet isn’t,” he says. “They can enhance legacy technology to allow communication by text, for example.” This is especially beneficial in developing nations where internet service providers (ISPs) struggle to bring coverage to remote areas.
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Investment services
Banks have long offered college savings and retirement plans. Now many large institutions, including Bank of America, J.P. Morgan Chase, and Ally, are expanding into online brokerage services.
But banks don’t have to be giant to play in that field. Cloud services enable banks to tie into existing brokerages and/or offer easy transfers to and from investment accounts. They can then integrate data from multiple internal and external accounts to offer value-added services such as budget management and retirement planning.
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Back-office efficiency
This is the low-hanging fruit of cloud adoption. Cloud services enable organizations to move from slow and error-prone paper-intensive processes to digital workflows that operate in parallel, use high levels of automation, and limit redundant steps. For example, chatbots enable employees to take care of ordering equipment, software, and technical support without having to call IT. Robotic process automation (RPA) can reduce manual data entry and free employees up for more challenging work.
Not only are manual tasks inefficient but the skills shortage only adds to the urgency to get rid of paper. IDC’s “Hybrid Work and Financial Services in 2022” study found that attracting and retaining employees are two of the top three drivers for work redesign initiatives at banks.
The same tool sets can also improve the customer experience. Banks can streamline customer-facing services and reduce paper handling and mailing costs through digital delivery of statements and transaction records. Tellers and phone consultants can make on-the-spot recommendations such as offering special rates on home equity loans or a low-interest credit card based on the customer’s payment history.
There’s also an enormous opportunity in automating the arduous amount of paperwork that’s involved in closing a loan. Much of this can be handled by digital workflows with prefilled forms and one-click signatures and approvals. Mobile back-office services give loan officers in the field all the information and forms they need in order to complete transactions during customer meetings rather than forcing them to schedule follow-ups.
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Open banking
The 2008–2009 financial crisis gave birth to open banking in Europe and a similar initiative in the U.S. called the Federal Data Exchange. The trend is driven by consortia that want to level the playing field and free banks to take advantage of new business opportunities through cloud services such as API integration.
Customers want more choices of banks and the services they use within individual banks. With open banking, they can permit selective access to their financial data in exchange for receiving value-added services. Banks can use this data to generate new revenue sources, reduce operational expenses, reduce fraud, and minimize customer friction.
“An Open API ecosystem lets you create contracts with potential allies to leverage your services and bring new and traditional products to communities that couldn’t receive them before,” Kyndryl’s Damiani says.
Organizations can use open banking to quickly add services such as in-app payments, investment portfolio management, insurance, microloan services, simplified interbank transfers, digital payments, and access to accounts from multiple institutions in a single place. They can also combine customer data with data from third-party services to get a more holistic view of the preferences and behaviors of customer segments and use those insights to innovate.
“The banks with capabilities to aggregate and extract insights at speed, from both internal and third-party data, and offer contextual customer experiences will thrive in the competitive open banking environment,” says Ganesh Vasudevan, research director for IDC Financial Insights.
Although some banking executives see open banking as a threat, many believe it’s an opportunity to grow by tapping into services that enrich their own.
- Compliance and security
Compliance is a growing burden for banks — and it’s only growing bigger. In the U.S., for example, banks must comply with at least 10 major regulations at the federal level alone, according to Global Legal Insights. There are also rules in most states.
If a bank does business in multiple states or countries, the combined local, state, and country-specific controls can number in the hundreds. And rules are constantly changing. Some institutions must complete thousands of compliance-related reports annually, each requiring manual oversight and extensive documentation.
Cloud platforms enable banks to unify compliance and security practices at the policy level for simpler reporting. Organizations can tap into specialized compliance engines that stay up to date on regulations and changes while integrating with accounting systems. Cloud services can also look for potential disclosures of personally identifiable information and automatically delete records after their mandatory retention period ends. And their auditing engines are a big help when regulators come calling.
Public cloud security has long been a major concern for banks — with good reason. Financial services organizations are 300 times as likely to experience an attack or a breach as businesses in other industries. “Megabreaches” involving the theft of more than 50 million records averaged $401 million each last year. That doesn’t include all the collateral impacts such as higher customer turnover, reputational damage, and years of litigation.
Cloud platform providers have invested billions of dollars in security, and customer concerns have eased considerably as a result. The big risk now is people; the top security threats in the cloud are misconfiguration, lack of visibility, and permission errors in identity and access management, according to Check Point Software Technologies.
The key to operating securely in the cloud is to understand that security is a shared responsibility. Cloud platform providers take care of locking down infrastructure, but banks must protect customer data on-premises, in transit, and in the cloud. Still, that’s no different from the responsibilities they assume in their data centers. Also, the major cloud infrastructure providers now all offer banking-specific platforms that have specialized controls and protections tuned to the needs of the industry.