5 game-changing innovations that will re-boot banking

Apps. Bots. Blockchain. AI, The Cloud... The financial services industry has committed itself to digital innovation over the last 10 years. 

Banking might seem like a traditional industry, but it has always innovated. Today, technological innovation is re-defining how banks operate and the services they offer to customers. In fact, it’s even re-framing what a bank is. Let’s dive into five of the biggest trends we can look forward to.
 

#1. Digital innovation starts a new age of self-service

Today’s consumers expect autonomy and seamless access to services, delivered with simplicity and speed. The banking industry has risen to meet these demands, beginning with ATMs and evolving into mobile apps and chatbots. Over the past decade, mobile banking apps have become the dominant way customers interact with their banks. According to a 2023 survey by Cornerstone Advisors, 88% of U.S. adults use mobile banking apps regularly, compared to just 62% in 2018. Globally, more than 2.5 billion people now rely on digital wallets.
Modern apps go beyond basic account management. 

Features include:

• Financial Planning Tools: Apps categorize expenses and provide budgeting advice, integrating data from multiple financial institutions.
• Card Control Features: Misplaced your card? Users can lock, unlock, or replace their cards with a few taps.
• Automated Saving: Tools enable users to "round up" purchases and invest spare change into diversified portfolios or cryptocurrencies.

The next step in this evolution is the rise of Super Apps, consolidating multiple financial services into a single platform. Customers value simplicity and prefer one app to handle all their banking needs. Super Apps deliver personalized, seamless experiences, allowing banks to cross-sell products, foster loyalty, and open new revenue streams.
 

#2. Banking as a service…can any company be a bank?

In 2021, Warren Buffett’s Berkshire Hathaway invested $500 million into Brazil's Nubank, one of the world’s largest challenger banks. Nubank and similar digital-first banks have rethought the conventional user experience, replacing branch networks with apps. They use algorithms to provide rich data about spending habits and send notifications whenever payments are made.

The underlying structure of banking is changing. In many regions, regulators have requested banks open access to accounts via APIs, enabling new models like Banking as a Service. Banking as a Service allows companies to offer accounts, debit cards, loans, and payment services without needing their own banking license. They use APIs and webhooks to connect to licensed providers. For example, the UK neobank Starling offers a 'white label banking' service for fintechs to provide banking capabilities.

#3. AI and Machine Learning: Adding $1 Trillion in Value

AI continues to redefine efficiency in banking, contributing $1.2 trillion annually, according to McKinsey. Key advancements include:

• Fraud Detection: AI systems analyze millions of transactions in real-time. JPMorgan’s AI tools have halved fraud losses, while HSBC’s AML systems now process 7 million transactions annually to identify criminal networks.
• Personalized Services: Tools like ChatGPT-based virtual advisors provide tailored financial advice 24/7.
• Operational Automation: JPMorgan’s COIN platform reduced credit agreement reviews from 360,000 hours to seconds.

#4. Green Banking: Aligning Finance with Sustainability

Green banking reflects a shift toward sustainable technologies and practices. According to the American Green Bank Consortium, green banks drove $1.69 billion in clean energy and efficiency investments in 2020. Banks are reevaluating products to enhance sustainability, such as reducing single-use plastics. Thales has introduced solutions like the Gemalto Recycled PVC Card, which reduces first-use PVC by 85%.

Recycling initiatives include a 2019 collaboration by Thales to create bank cards made with 70% reclaimed ocean plastics. Plastic-free alternatives, like the Gemalto Bio-Sourced Card made from biodegradable corn-based PLA, are also emerging. Regulations like the EU’s Sustainable Finance Disclosure Regulation and the SEC’s updated guidelines push banks to align portfolios with sustainable practices. This goes beyond avoiding harmful investments; it sets new ethical standards. Expect growth in green bonds, renewable energy projects, and sustainable investment funds.

#5. Blockchain: the next big revolution in digital banking?

In a sense, it’s possible to see most banking services as the process of moving assets from one account to another. Some specialists say blockchain offers a much better way of managing these transfers than the current system. Blockchains are distributed ledgers, so they are not owned by a single entity. They cannot be manipulated and are accessible to all. Proponents say this makes transactions cheaper and faster. And since asset provenance and credit history are recorded as immutable components, transactions become less risky. 

One area where the blockchain is making impact earliest is cross border payments. According to Ripple the current method of international payments, SWIFT, relies on ‘disco-era technology’, which debuted in 1973.  Ripple thinks its crypto-based alternative solves the 'problem' of international payments. So, what is the problem? Well, even in an era of near-instant domestic payments, a cross-border transfer can take up to 10 days and cost up to 10 percent of the value of the payment.  The reason for this is 'correspondent banking' in which banks hold accounts in overseas banks. They debit or credit these accounts when payments are made. Not all banks do correspondent banking, so they have to use partners. The complexity is compounded by the variety of bank processes, local rules and the fact that most processing is done manually. Blockchain-based systems replace this with transfers using cryptocurrency. A bank converts money into crypto and sends it to the target country, which converts it into local currency and makes the payment. Instantaneously. 

Now, the central banks of many nations are looking carefully at the potential of blockchain. And some very well-established corporates are now harnessing blockchain too. They include giants like Visa's B2B Connect network, JPMorgan Chase's Liink and IBM Blockchain World Wire. By 2024, a significant number of countries, including the EU and China, have piloted or implemented blockchain-based CBDCs to modernize monetary systems.