In the last eight years the amount of banking regulation has increased exponentially and the cost of compliance has gone up proportionately. The financial landscape with regards to customer needs and technology has also moved on, so what opportunities are waiting over the horizon?

The financial crash seems like a lifetime ago, yet in a few short years it has inspired a complete re-think of risk on the part of financial institutions, and led to new regulations springing up on both sides of the Atlantic (Basle III, MiFiD II, Dodd-Frank) designed to strengthen both the bank’s position and the laws regarding client treatment.

Recent political changes both in the UK and the US, with Brexit and a new president, will doubtless have effects on the regulatory landscape which are not immediately foreseeable, e.g. the possible unwinding of Dodd-Frank, and may require further technological innovation, however, there are other changes and opportunities which we already know will have far reaching implications for financial institutions.

Over the last two years there has been growing interest in Artificial Intelligence (AI) as it increases in sophistication which allows for more widespread adoption. Many newspaper articles are slanted toward the possible negative effects on jobs, but AI also presents huge opportunities to reshape our society and the place of banks within that society.

Banks are looking at using AI to strengthen their compliance and risk systems and put in place the type of checks and balances that will further protect society as a whole from inadvertent mistakes or malicious opportunism. Big Data will also play a significant role in the safeguarding mechanisms where the myriad of legacy systems and incompatible data sources need to be centralised and cleansed to enable automated decision making.

Since the financial crisis of 2008, banks have been recruiting heavily to deal with the new regulations, not just at the level of strategy but more usually to cope with paper-based information and repetitive business processes. To suggest that the advent of AI will have no implications on this recruitment strategy would be naïve, but as the number of people employed by banks to mitigate risk has crept up, in some cases to 10% of their operating costs, the case for the further use of automation is clear. It would also be an advantage for some, as countries move to a higher waged, higher skilled model, with people being retrained from pure mechanical tasks to areas where human oversight and skills are still a requirement.

As well as repetitive tasks and data organisation another area where AI has advantages is for machine learning of trends and patterns; this is particularly useful in the Know Your Customer (KYC) and Anti-money laundering (AML) spaces, where transactions, product usage and changes to normal behaviours can be more effectively identified and tracked.

The further extension of ordering and digitising the mass of data points within a bank enabled by AI is not just preventive, but enabling. Whilst AI can provide a bulwark against the small minority who wish to commit crime it can also be used to create an individualised customer experience for the bank’s clients. Channels of communication between financial service providers and their customers have improved dramatically even compared to five years ago, with a tailored and individual approach that would have been impossible earlier in the century.

Data that has been amassed over the years on customer behaviour and preferences cannot easily be analysed by manual means, but by using technology, including AI and user experience methods, this data can be mined and visualised. This allows for a transformed customer experience, leading to improved retention of higher value customers and the ability to offer the most appropriate products for both retail and corporate clients.

A ‘client centric’ and ‘data centric’ rather than a ‘product centric’ model is essential for both fraud prevention and an enhanced customer experience. Banks need to understand the communication and lifestyle preferences of their customers and provide a transparent experience from the wishes of the customer to the realisation of a satisfactory outcome. As part of this many banks are pushing ahead with initiatives such as contactless cash machines and increasingly using biometrics as part of identification verification, to help simplify the banking experience and increase security.

Sophisticated security systems can be built around biometric recognition, whether vocal, facial or fingerprint, and added layers of information can be used such as measuring background noise or vocal muscles. This security can be transparent to the customer and assist their ease of use by removing the need to remember multiple passwords.

Different demographics demand different interfaces and are looking for different banking experiences; this is especially true for retail banking where younger customers increasingly expect ease of use, instant transactions and a cashless experience. Banks who do not keep up with their customer’s digitalized habits, or who ignore the need to satisfy the customer’s preferences will inevitably get left behind by the new wave of those who recognise the opportunity.

The desire to embrace these technologies is increasingly seeing the closer collaboration with FinTech organisations, in order to accelerate the understanding and adoption of these vital new skills that are necessary to operate effectively in the digital economy.

Established banks can provide long term customer relationships and a deep understanding of banking regulation, whereas FinTechs bring a knowledge of customer facing, cutting edge technology that can transform the customer experience.

GFT works with banks and FinTechs to build out strategies for the future in regulatory adherence, user experience, Big Data and Digitalisation. In the new world characterised by intense regulation, large legacy infrastructure, increasing demand from customers for digital services, and the arrival of ever-more agile FinTech competitors, it is no wonder banks can find it difficult to create a position for future growth and success. With the ever-accelerating pace of change, successful banks in the future will be those that focus on what they do best then collaborate and mutualise for those aspects of the value chain that are a burden to their business.