Smart Banking: Staying ahead of the curve

Without a singular source of origin, the term ‘smart banking’ isn’t so easily defined. Broadly used to signal the implementation of technological processes in modern banking practices, both at the front and back end of operations, smart banking is inherently dependent on innovation to keep it a generation ahead of established systems. Indeed, Giovanni Caselli’s pantelegraph – introduced to French banks in 1865 – would have been considered smart in the 19th century, bringing about the authentication of signatures for cashing cheques. In this sense, then, it could be argued that smart banking has been ever-present since Barcelona’s Taula de la Ciutat, the first recorded banking establishment, opened in 1401. The first bank was an innovation, or ‘smart’, in and of itself.

Fast-forward to the 2020s, and what defines smart banking is intrinsically linked to the digital footprint of new-wave financial institutions, and how they integrate technologies to shift banking from an in-person to an online experience. A surge in fintechs has supported smart banks and challenged legacy institutions, offering a more streamlined user experience and packaged financial services. So, in 2023, we ask what makes banking smart today, what must legacy banks do to keep up, and what does smart banking’s future look like? 

Putting the ‘smart’ in smart banking

For Monstarlab’s Engagement Director of Banking, Insurance and Financial Services, David Titterton, while there are “too many individual processes” to truly pinpoint a definition of intelligent banking today, “smart banks do share a set of similar characteristics”. 

“These could broadly be described as high levels of automation, personalisation, and product and service useability,” he continues.

And, in what Titterton calls “truly smart banks”, sophisticated characteristics are “as evident in the back office as they are in the front office”. 

“For example, it’s not just a customer trying to take out a loan via their mobile app, it is also a product manager trying to make and execute product pricing decisions, or a compliance lead analysing complaint data. The smart processes that drive these characteristics are very well-designed, well-built and predominantly data-driven.”

So, what are the characteristics shared by smart banks? Natasa Kyprianidou, Senior Director of Financial Services at Publicis Sapient, offers several services and technological innovations that differentiate smart banks from the rest. This includes mobile banking, digital onboarding processes and mobile super wallets, where customers can originate loans while managing payments and virtual cards in one connected ecosystem. But for Kyprianidou, true smart banking goes further than this, creating hyper-personalised interactions using data and analytics to offer bespoke financial products and services tailored to the customer’s needs and preferences.

This is in addition to faster loan and funds decisions, “smart journeys that deliver world-class digital originations and provide an automated fulfilment by leveraging intelligent underwriting and AI/ML for eligible customers to expedite loan approvals”. AI is, in itself, another defining element, particularly conversational AI, which Kyprianidou says “renders banking services to users through natural conversations across any channel by leveraging apps such as WhatsApp and Facebook Messenger”. 

Real-time transaction processing and biometric authentication are but two more features that make up a smart banking offering according to Kyprianidou. At the same time, the implementation of blockchain technology can “improve security and reduce fraud by creating a transparent ledger of transactions, as well as streamline cross-border payments”. What’s more, an embedded financial ecosystem allows smart banks to “rethink the value chain as a modular capability stack, [where] within this stack, a bank can take on various roles of ownership to determine a new business model”.

In essence, smart banks stitch these multitudinous characteristics into the fabric of their offering, creating a positive digital experience for customers and a streamlined back office. But, where does this leave legacy banking institutions, which Kyprianidou says “face a significant challenge in keeping up with the rapid pace of fintech and smart bank innovation”. 

What must they do to stay relevant amid the rise of challenger banks?

Keeping your legacy alive

As far as Pegasystems’ Global Banking Industry Market Lead, Steve Morgan, is concerned, the one thing “traditional banks cannot afford to do is wait” before implementing smarter banking practices. “A ‘smart banking’ approach to retail banking is incredibly necessary in the face of stiff competition from challenger banks continuously raising the bar.”

He notes that “while core systems of record remain difficult to replace and can be viewed as a limiter” for legacy banks, they can also close the gap with challenger banks “by placing smart processes and intelligent automation at the centre of a business architecture to progressively hollow out” old systems.

“This can remove the constraints of logic being built into the back end, making it easier to change and adapt processes as well as more easily access data when needed. The use of low-code tools can empower business domain owners in areas like customer service or product sales to spin up their own apps to streamline or speed up processes and deliver better outcomes. And it is possible to do this in a way that is well-governed and controlled.”

Furthermore, Morgan feels that, should legacy institutions adopt generative AI tools, this would “accelerate” a smart evolution, “providing an outline of business processes or data structures at speed” while giving retail banks a “design head start”.

He adds: “There’s never been a more important time to ensure the right interaction is happening at the right time, and getting the mix right of what should be automated compared to where in-person help is needed. To truly deliver on the promise of smart banking, getting this balance right is key.”

Gamification: making ‘smart’ banking smarter

While retail banks play catch up to smart banks, it inevitably falls on the shoulders of challenger institutions to stay one step ahead. Given the abundance of technological capabilities used at smart banks, the conundrum is working out the next phase of innovation using existing technologies.

The Vice President of Delivery and Head of Financial Services & Insurance at Intellias, Pavlo Khropatyy, feels the gamification of smart financial services will become a “powerful mechanism to propel smart banking services and drive customer engagement”.

He says: “By using gamification in banking apps, a bank can target customers according to their specific needs. Games appeal to people’s desire for fun, entertainment, simplicity, social interactions, rewards and competition. It’s an especially good option

considering the proliferation of smart devices, the mass popularity of gaming, and the hobbies of tech-savvy millennials and Gen Zs. The millennial generation is highly-motivated in getting rewards for purchases, and engaging with brands using immersive and interactive technology.”

There are examples of gamification already entering the smart banking market, too, with Spanish smart bank BBVA launching a web app where customers earn points by completing tasks. These points can be redeemed to download music, stream films or participate in giveaways and sweepstakes. While other future innovations are sure to take banking further – such as banking in the metaverse – for now, Khropatyy feels gamification is a tool smart banking can tap into en masse.

So, just as legacy banks strive to keep up with the innovations of smart institutions, so too must smart banks remain as such. Smart banking is only ‘smart’ so long as it sits at the apex of technological innovation in the industry. As smart banking technologies are onboarded at legacy institutions, smart banks and fintechs must ensure their innovations stay one step ahead of what is contemporarily considered established banking practices.