OBSERVATIONS FROM THE FINTECH SNARK TANK
For readers unfamiliar with the Fintech Snark Tank, this annual list subscribes to the Deep Throat approach to ranking banking technologies.
I wish that was a porn reference, but it’s not. In the movie All The President\’s Men, Woodward and Bernstein meet their informant—whom they refer to as Deep Throat—in a parking garage who tells them: \Follow the money.\
The truly “hot” technologies in banking are the ones that financial institutions invest in—not necessarily the ones the pundits talk about.
At the end of the past seven years, Cornerstone Advisors has surveyed financial institutions to find out where their technology dollars will go in the coming year. The What’s Going On in Banking 2022 study reveals some shifts in technology focus for the coming year.
The Hottest Technologies in Banking
The top five list for 2020 and 2021 reflected minor changes in priorities in each of those years as the same technologies were included in the list for both years, but in slightly different order.
For 2022, however, three new technologies crack the list: chatbots, machine learning, and digital loan origination systems.
Digital Account Opening: Get it Done Already!
It’s 2022—what’s taking the industry so long to implement digital account opening? This should have been done years ago. It’s not rocket science. According to Alex Johnson, Director of Fintech Research at Cornerstone Advisors and author of the Fintech Takes newsletter:
“Financial institutions ascribe too much importance to digital account opening; as if offering a great digital account opening experience will somehow magically drive customer acquisition. That’s nonsense. Putting a new coat of paint on your storefront every year won’t make sales go up if customers don’t like the product you’re selling.”
Chatbots: Every Bank Needs A Few of Them
Looking ahead to 2022, one in four financial institutions plans on investing in or deploying a chatbot. To date, just 18% of banks and credit unions have made investments in chatbots.
It’s taken awhile, but the industry is coming around to the realization that chatbots—or more broadly speaking, conversational AI—have become a competitive necessity. Three requirements are driving the need for chatbots:
- Process quality. Abandonment rates for digital product applications in banking are horrendously high. Even more troublesome: just a minority of institutions follow up with would-be applicants within a business day. That’s unacceptable. Banks need to make chatbots components of critical business processes (like account opening)—not just generic sales and service tools.
- Data. Attempts to codify and store “data” collected through human interactions—and even from clickstream data—is incomplete, generally inaccessible to other applications that could benefit from the data, and hard to analyze. Data gleaned from chatbot interactions can overcome these shortcomings. Banks need to make chatbots part of their data management strategies—not just their sales and service strategies.
- Personalization. Too many banks think of personalization in terms of personalized messages. Smart banks understand that good personalization requires personalized conversations. They still wrestle, however, with getting the data to deliver good personalization, and creating opportunities to have personalized conversations.
Machine Learning Gains Traction (Finally!)
We’ve been hearing about how artificial intelligence—machine learning, in particular—will transform the banking industry. Few mid-size financial institutions—just 12% of banks and credit unions—have deployed these technologies so far.
Things are changing, however. One in four banks and credit unions expect to invest in machine learning tools and technologies in 2022. Two use cases are driving this surge:
- Credit modeling. A 2020 study from Cornerstone Advisors found that 20% of financial institutions with more than $1 billion in assets planned to make significant investments—or enter into strategic partnerships—for new credit modeling and advanced decisioning tools.
- Fraud and risk management. The percentage of bank and credit union executives citing fraud, risk, and cybersecurity concerns in Cornerstone’s 2022 study skyrocketed from the previous year. Many are looking to machine learning tools and technologies to help them manage these concerns.
What’s been holding banks back? As McKinsey explains:
“Machine-learning models amplify some elements of model risk. Although many banks have validation frameworks and practices in place to assess and mitigate the risks associated with traditional models, these are often insufficient to deal with the risks associated with machine-learning models.”
Tools and apps from companies like Zest.ai and ComplyAdvantage are helping banks overcome these challenges, helping to push machine learning into the top 5 technologies for 2022.
P2P Payments: Riding the Faster Payments Wave
Although just 15% of financial institutions have deployed real-tine payments, 28% expect to launch them in 2022, with another 26% launching in 2023. P2P payments are the top use case cited for financial institutions’ faster payments programs.
One potential accelerant of banks’ P2P payments transformation is the launch of CHUCK™, an open network for instant payments from the Alloy Labs Alliance, a consortium of banks. The network will enable consumers to:
“Send money from their banking app (desktop or mobile), and let recipients choose where they want the money to go, including some of the popular payment networks. Financial institutions now have a choice when it comes to providing instant payment capabilities and don’t have to settle for an expensive, restrictive, and closed network.”
The new network—to be integrated into community banks’ mobile banking apps—will alleviate the need for consumers to move money between apps or log in to their bank account to check their balance just to transfer funds from another application.
Digital Loan Origination: Better Late Than Never
Back in May 2018, Daryl Jones, Senior Director at Cornerstone Advisors wrote:
“Digital lending is the future, and the ability to effectively capture and engage borrowers throughout the lending process is critical. But, the momentum of banks and credit unions to move to these platforms is not as strong as many believe it is.”
With deposit levels soaring, however, the industry’s focus has turned once again to lending, and digital loan origination systems finally crack the top 5 list—good news for tech firms like Numerated, Blend, and Boss Insights.