IT and banking. Considering the latest trends

Apr 12, 2016

Posted in: Banking software

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In the last two or three years, there has been a considerable change in the world of financial services caused by the rapid development of mobile technologies and “smartphonization”. Nowadays, a lot of fintech startups are ready to compete with traditional banking methods. According to McKinsey, there are more than 2000 fintech startups in the world today, in comparison with about 800 startups of 2015. Obviously, they’ve become a force that banks cannot ignore anymore.

Here’s a list of the latest IT trends exploited by fintech startups.

Smartphonization. The expansion of smartphones and the rise in mobile financial services have made it unnecessary for a bank to have a traditional office. These days you can get all the services you need through an app of the intelligent mobile device in your pocket.

Personal financial services. People have become more open to new forms of interaction with banks and other financial institutions and expect an individual approach from them. This is confirmed by the rapid growth in the popularity of such projects as Airbnb and Uber. Customers don’t need full-service packages (such as air tickets, a hotel reservation, and a rental car) anymore. They want to get the service they need at this or that particular moment.

The absence of traditional offices. A lot of western fintech startups engaged in lending outperform traditional banks just because they don’t have real offices. This decreases the rent and personnel expenses substantially and allows for lower interest rates. Any regular bank has to introduce remote banking services to be competitive in the future.

Generation change. The new generation likes mobile technologies and gladly consumes its services. In the USA alone there are about 85 million of Millennials who cannot imagine their lives without smartphones. They are there to replace the Generation X, who are rather conservative in terms of financial services and prefer the more tried and trusted ways of getting them. In the nearest future, banks will have to face the millennial behavior pattern more often and, thus, adapt accordingly.

Millenials want to get access to services as they need them and in terms of this, a service may be separated from a product. This is exactly where fintech companies step in. According to the annual McKinsey’s 2015 Global Banking Annual Review, banks got the average of 22% ROE from providing commissioned services in 2015. Compare it to the 6% ROE received from providing traditional banking services.

Social networks and big data analysis. The availability of information about users in social networks and other services with a social component already allows for using these data to develop a portrait of the future borrower. Some banks analyze these data before granting a loan and some western market players are already experimenting with adding social networks data to the scoring analysis model. It is interesting, that every factor is taken into account, down to your college attendance. Similar projects can be found in Russia as well.

The same data can be used for individual products development. Big data and advanced analytics allow banks to anticipate consumer demand and create client-oriented offers and products based on their habits and behavior.

The speed and quality of service. Banks must understand that customers expect the same speed of service as that of the rival fintech companies. Customers don’t understand why it takes a week to consider their mortgage applications. Or why it takes another week to get issued a credit card. They find it hard to get why, for example, they can’t split the bill at a restaurant and each pay their share from a smartphone when Uber is already providing this functionality.

Banks should be aware of the needs of their customers and adjust to them.

Full automation. After the latest dot-com boom a lot of banks “electronified” their main working processes, yet did not make them truly digital. This is a very different thing. Nowadays employees do not send over paper documents but use their PDF copies and email instead. However, this can still be considered hand labor.

Therefore, banks will have to automate these processes, even more, introducing cloud storage services, in order to improve their own efficiency and the speed of customer service. Simplification, electronification and cloud computing – this is the future of all banking operations.

The sum-total of IT trends

Modern reality imposes more strict and complex obligations on banks. “Mobile first” is not just a trendy slogan anymore, but the gravely important demand of the present day.

It’s impressive, how little time it takes to introduce innovations nowadays. One has to use such methods as Agile and continuous delivery so as not to fall behind in terms of software development.

Moreover, data processing and storage services have become very affordable and common. Banks should take advantage of them to improve the overall speed and quality of customer service.

by Alexander Arabey
Head of business development