Talkdesk: The future of banking belongs to tech companies
It’s previously been asked, “If you’re not in the tech business, what business are you in?” This is becoming increasingly true across practically every industry, but finance in particular is at risk of obsolescence by not realising and countering the existential threat that Big Tech poses.
Providing his perspective in an exclusive Q&A with FinTech Magazine (FM) is Cory Haynes (CH), VP of Financial Services and Strategy at . Leading the company’s thought leadership and market solutions for banking, insurance, payments, and wealth management, he is an expert in digital transformation and still holds his FINRA Series 7, 66 licenses.
FM: Banking has already changed so much in the last few years. How do you broadly envision banking in 2030?
CH: Simply stated, I think the way we facilitate payments today will be the ‘real banking’ of 2030. We will keep credits, whether digital or ‘real’ with various non-bank companies to pay bills, make purchases, apply for loans, make investments. These non-banks will be name brands that we all know and trust. We will keep credits/currency on multiple digital accounts.
The need for a physical account in a physical location will be obsolete: digital currencies are up 700% since April 2020, and consumer adoption of digital banking has been up 45% from 2019 according to Deloitte.
Furthermore, the closure of branches has accelerated by 30% (PwC), and the rise of CPGs, fintechs, and Big Tech companies facilitating more payments, insurance, and banking-like services will only continue, such as Walmart’s intention to launch its own bank.
FM: Which do you think will prove to be the most transformative element: technology or socio-economic factors?
CH: The rise of digital currencies, first as a non-correlated asset for diversified portfolios and then a more ubiquitous form of payments, will drastically alter banking and the regulations and security needed to make it equitable, democratised, and trustworthy
According to Pew Research, 73% of millennials are more excited about a financial offering from Google, Amazon, or Apple than from their own bank. They will be willing to leverage these consumer goods and tech companies as their insurer or bank. For example, in 2019, Starbucks had over US$2bn in deposits from their food purchase app, earning over $100m on the interest from those deposits.
FM: What role will data protection play? With things changing so fast, how can banks establish customers' trust?
CH: As banking becomes more digital, data collection and machine-based decision-making will become much easier. Banks and regulators must understand and take action to ensure computer code does not exacerbate severe inequities and wealth gaps based on race, age, postal codes, immigration status, gender, etc.
If left unchecked, data can quickly become a negative force multiplier instead of a positive. Legislation, similar to fiduciary laws, that mandate banks act in the client’s best interest, must be enacted by regulators to ensure banks engender trust and privacy.
FM: What else should we be paying attention to?
CH: McKinsey predicted that by 2025, 30% of all global revenues (approximately $60trn) will be driven by industry ecosystems. Ecosystems not only enhance the customer experience but also increase the bottom line. It’s a model that banks could learn from.
The EU’s PSD2 regulations being discussed at a national level in Canada and the US will empower customers to ‘own’ their data and demand more from banks. In turn, the banks will be forced to respond with more customer-centric offers, services, and partnerships, which means opening the APIs and exploring more complete CX solutions from the contact centre all the way to branded social media properties.
Open Banking and banking-as-a-service can become a real catalyst for banks to radically transform into hyper-customer-centric institutions, realising they revolve around the customer, not the other way around. If banks don’t convert and adopt a customer-centric approach, the CPG and Tech sectors are laying in wait.
AI and the future of global trade
Artificial intelligence (AI) is becoming entrenched in our daily lives, but the technology is still surrounded by misconceptions and skepticism. Ask the public and they may jump to dystopian scenarios where robots have taken over the world.
While this makes for a good sci-fi blockbuster plot, the reality is different and more benign. Those products that Amazon suggested you buy? AI. That TV series you were recommended to watch on Netflix? AI. That self-driving Tesla car you crave to take for a spin? You guessed it: AI.
There is no single industry that is not being re-shaped by technology. Until recently, however, there was one noteworthy exception: global trade. Fortunately, that is slowly changing.
The mechanism that underpins global trade – trade finance – is an industry that remains largely paper-based and reliant on manual processes. This US$18tn a year industry is now being influenced by a new wave of technological innovation, including AI.
Exploring the potential of AI in Trade Finance
AI refers to the use of computer-aided systems to help people make decisions or make decisions for them. It relies on large volumes of data and models to make sense of information and draw intelligence.
In trade finance, AI is helpful in analysing quantitative data, and the repetitive nature of trade finance means that there is a lot of non-traditional data at our disposal.
This means that when trade finance providers need to assess the risks of funding a transaction, AI models can be a very efficient tool for data analysis and reveal intelligence and risks relating to small companies.
AI helps the industry move beyond traditional credit scoring processes, which are often outdated and remain reliant on historical accounting entries – a barrier that prevents small companies from accessing trade finance and has resulted in a $1.5tn global shortfall.
Overcoming the barriers
AI can tackle this shortfall by creating accurate credit scoring models. This can include a company’s payment history, measure the risks of funding a transaction, identify supply chain risks, and benchmark them against their peer group.
Trade finance providers can use this information to communicate effectively with their SME clients, ultimately helping establish better business relationships.
Towards a technological utopia?
The adoption of AI has the potential to do a lot of good in the industry, and the industry is in the early stages of radical transformation.
Advances are driven by fintechs as well as a willingness to change. The industry is working together to create new infrastructure for distributing trade finance assets to other investors in a transparent, standardised format.
The creation of infrastructure is possible due to improvements in technology and integrated across the trade ecosystem in cooperation with banks, insurers, and other industry participants.
It’s collaboration at its best: together, the industry is using technology to re-shape global trade as we know it.