SAP: Rethinking banking for the digital era
As the battle for supremacy in the sector , partially spurred on by new customer expectations in the post-COVID-19 environment, incumbent banks have learned that passivity can no longer garner success. With challenger banks now posing a serious threat via their mastery of mobile-based technology, a new approach is required.
“Human experience is the new disrupter in the experience economy,” said Falk Rieker, Global Vice President of Banking, SAP SE. “Banks will change to look and operate more like technology companies, providing banking and related non-banking services as they become digital platforms.”
Transforming with technology
When considering which technologies to implement in the new ‘banking 4.0’ paradigm, SAP recommends considering the gains on two aspects of business: productivity and efficiency.
Estimating that 60% of human tasks will be automated by 2025, the company is confident that the optimal customer experience of the future (which is an important focus for 97% of banks) will be delivered by enhanced technological sophistication. Areas worth exploring include:
- Artificial intelligence (AI) and RPA (robotic process automation): Estimated to reduce manual work by up to 360,000 hours, deep learning algorithms can automate complex tasks, streamline workflows and provide continuous customer service.
- Data analytics: Finance is a particularly data-rich sector. Advanced analytics can help unlock the value of enterprise data, anticipate customer behaviour and gain valuable consumer insights. It’s no surprise, then, that 94% of leaders are investing in enhanced capabilities.
- Blockchain: A recent and relatively unexplored technology in finance so far, blockchain’s ability to create trustworthy and immutable records could be revolutionary in the commercial and supply chain sectors.
- Conversational AI: SAP states that the accuracy of audio-visual recognition tech has reached 99% in 2020. Capable of providing customers with a more ‘human’ experience while still enabling the efficiency of a bot, this will also allow employees to refocus their efforts on more value-adding activities instead.
Although adopting new technology is important, SAP emphasises that doing so without a strategy is ill-advised; by differentiating their customer experience from others in the sector, banks can gain a distinct advantage over their competitors.
As such, the white paper outlines four priorities for the future and establishes a ‘2025 vision’ for each:
- Seamless connectivity: In a customer experience-driven banking environment, customers will be able to connect and navigate banking and non-banking services with little difficulty through well-designed products. Active analytics will allow banks to quickly isolate and improve customer pain points
- Data-driven intelligence: Using AI and machine learning algorithms, banks will gain revealing insights into customer desires and shape their services around them. This will not only make the service more engaging but optimise investment and potentially accelerate revenue growth too.
- Operational effectiveness: Driven by the widespread adoption of cloud, banks will no longer rely on siloed collections of information. The open availability of data facilitated by cloud will also enable real-time analytics, effectively supercharging development and allowing for constant improvements.
- Financial insight and risk control: A universally accessible network of journals linked by blockchain will make finance increasingly transparent, more compliant and easier to track instances of fraud.
Fulfilling banking’s potential
For both banks and the customers they serve, the future looks bright. What’s clear from SAP’s white paper is that digital technology has entered a distinctive era: capable of giving innovative organisations a distinct market edge, the difference between those who utilise it and those who don’t will be incontestable.
“Banking provides vital services to society; our impact is poised to grow. But to fulfil this potential, banks need to become intelligent enterprises to respond to increased customer expectations, leverage data, and take a hard look at their own processes. Banking must have the courage to remake itself, or risk being marginalised,” concludes Rieker.
Find out more in SAP's white paper 'The intelligent enterprise for the banking industry'
Basel Committee urges recognition and management of crypto
Experts have welcomed the news that the Basel Committee on Banking Supervision has proposed splitting cryptocurrency assets into two categories and managing them according to their current stability.
The regulatory body has recommended that crypto should be assessed on its operational risks to the bank, its credit, and its market liquidity. Well-established currencies, such as Bitcoin, will be managed in line with a “new conservative prudential treatment” the committee said.
Currently, the leading global standard-setter for the prudential regulation of banks, the Basel Committee on Banking Supervision (BCBS) is based in Switzerland and comprises 45 members from bank supervisors and central banks in 28 jurisdictions.
The recommendations have come as a welcomed move by banking leaders and crypto cynics alike, and experts say the move now needs to be followed by a global policy that makes crypto assets safer for both banks and customers. This is despite the potential pitfalls due to crypto being associated with criminal activities and terrorism.
Cryptocurrency regulations welcomed
Although currently, banks have limited exposure to cryptocurrency, the popularity of Bitcoin, Etherium, and others is increasing rapidly among consumer and business transactions.
Recently, El Salvador became the first country in the world to adopt Bitcoin as legal tender.
According to reports, 62 out of 84 congressional votes saw the move approved following President Nayib Bukele's proposal to embrace the cryptocurrency. This occurred despite concern about the potential impact on El Salvador's programme with the International Monetary Fund.
Fintech giants such as PayPal are also loosening their grip on cryptocurrency. The California-based online payments leader recently announced at the Coindesk Consensus 2021 conference, that it would allow customers to move cryptocurrency holdings off its platform via third-party wallets.
PayPal has also enabled users to buy and sell digital currencies through its platform since October 2020.
In an official statement released by the BCSC, the committee’s members said, “Continued growth and innovation in crypto-assets and related services, coupled with the heightened interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment.”
An opinion report in the Financial Times also backed the move, saying that the popularity of cryptocurrencies shows no signs of slowing down and therefore, its volatility, which puts retailers and lenders at risk, must be made a safer asset.
Data shows that the value of Bitcoin makes up 50% of the cryptocurrency market, which is currently worth an estimated US$2trn. The BCBS announcement also boosted the value of the market because regulation classes cryptocurrency officially as an asset and is a significant recognition of maturation.
However, volatility remains an issue following Bitcoin’s turbulent year, which has seen it rise from $30,00 to more than $60,00 and then back down to $37,000 in under 12 months.
Crypto cynics not happy
But not everyone is pleased about the move. The director of the CPB Netherlands Bureau for Economic Policy Analysis, Pieter Hasekamp, published an article entitled ‘The Netherlands must ban Bitcoin” in response to the news for daily newspaper Het Financieele Dagblad
Hasekamp has predicted that cryptocurrency is a bubble that will ultimately collapse. He also urged the Netherlands government to ban bitcoin and other cryptocurrencies with immediate effect.
He said, “Cryptocurrencies are unsuitable as a unit of account and means of payment outside the criminal circuit; its use as a store of value is based on the hope that cryptocurrencies will one day replace real money. But that’s not going to happen.”
He continued, “Cryptocurrencies are essentially neither money nor a financial product, but an example of what Nobel laureate Robert Shiller calls a contagious narrative: a contagious story in which people believe because other people believe in it. Gresham’s law is replaced by Newton’s law: what goes up, must come down.”
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