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The Future of Money: 5 Steps To Keep Your Bank Up-to-Date


Valery Tikhonovich

Deputy CEO

To keep pace with technological trends, banks should have an open mind regarding digital innovations.

The banking industry has always tended to be conservative. Banks are usually very careful with any kinds of experimentations.  At the same time, they can’t ignore them completely.

We have chosen five steps that banks will have to take in order to stay competitive on the market.

Information and data management

The financial industry is currently facing significant challenges related to information collection.  In fact, the majority of banks and financial corporations have multiple business lines, and each of them contents a different kind of data (incl. customer data). Thereby, one of the key problems is to consolidate the data, to analyze it and to create new products based on them.

Traditional methods of data gathering and storage often represent a cumbersome process for banks.

As an example, Goldman Sachs has about 75,000 various databases. Theoretically, banks should be able to extract information from databases and classify it for further analysis. However, it is often impossible as the information is stored in unstructured form. Nevertheless, the data may be a valuable asset.

Analyzing data on customers’ payments and their behavioral patterns allows identifying new target groups and creating personalized products and services.

It is time for banks, that haven’t paid enough attention to the quality of data collection yet, to consider it and determine priority data types enabling easy classification and analysis in the future.

 Blockchain and Open Data

A lot has been said about Blockchain. Mainly it relates to the openness of the technology and crypto-currencies based on it. But not everyone knows that Blockchain can be also used for classic banking. For example, it can be implemented to create a transparent system for payments tracking.

As soon as a customer is identified, it is possible to view the history of payments in real-time and, thus, judge the credibility when, let’s say, making decisions about loans.  Thus the opportunity can be also very useful for investment banks. The application area of Blockchain in the financial industry is enormous.

By the way, major western banks (including investment banks) have already realized the benefits of working with open data. Several international IT projects have been already launched with the main goal to learn analyzing large data volume.

This relates to such projects as Eclipse Foundation and recently introduced Symphony. The founders of Symphony were Wells Fargo, Goldman Sachs, Morgan Stanley, JP Morgan, Citi. The participants include Dow Jones, Tradeweb, S&P Global. The initiative is open to everyone willing to participate.

Share Tools

To constantly expand the audience of loyal customers, banks have to simplify their life creating better conditions and tools for receiving the required services, as an example, by giving an access to some internal tools. The clients of Goldman Sachs have an option to use the internal tools of the bank for data analysis and classification. For this purpose, a special web-platform Marquee was created.

It should further be noted, that security plays the major role. Data safety shouldn’t be forgotten, so the data access policy should be determined in advance before giving an access to IT systems to external players.

Open API

The banking industry should use the features of API more actively, for example, by opening the IT systems of the bank in such way that the external developers could create their products for working with the internal banking processes.

According to the researchers of Axway, ‘Banking APIs: State of the Market’, banks have been using API more frequently. However, they started to do it later than other industries.

Why do banks need API? It allows becoming more flexible, giving an access to new tools to the customers, reducing costs for launching new products on the market and competing with fintech-companies.

In fact, banks do not rush into a stand-alone development of modern mobile products (apps, services, additional services) for mass-market because of the lacking expertise in this area. The market and clients always need user-friendly tools. Banks shouldn’t ignore their needs. According to forecasts, in the coming years, up to 60 percent of banking APIs will be very likely open. The best banking solutions will be developed by external developers.

Currently, banks’ technological immaturity, the lack of documented global standards as well as security concerns form an obstacle for expansion of open API in the banking industry.

Nevertheless, the situation is changing. As an example, UK’s Open Banking Working Group (OBWG) published a guide on how open banking data should be created, shared and used by its owners and those who access it.

Open access enables banks to give an opportunity to the third parties to work with non-banking tools creating and selling customized products.

It is possible to develop own software and connect with the Fidor Bank system. The bank plans to create a separate API for every single operation: lending, opening accounts, payments, etc.

For example, Saxo Bank gives an access to its’ trading platform via API. The bank is sure that clients will not only use it but also make it to a part of their business to undertake internal tasks.

Migration to public clouds

Major US and European banks (BBVA, Goldman Sachs, Capital One and others) have already started with migration process of their IT infrastructure elements to the clouds.

Moreover, it comes more frequently to public clouds. These trends also reached Russia. In fact, Tinkoff Bank has already announced the migration of several services to the cloud. In a few years, they plan to become a full-fledged cloud-enabled bank. Sberbank became actively interested in this subject. The bank implemented a pilot project in cooperation with The Federal Tax Service on transmission of cash vouchers to tax service.

According to the research of SAP and National Agency for Financial Studies, Russian banks use clouds for various types of operations, incl. retail banking, marketing (communications), corporate banking, risk and compliance management, procurement management.

Migration of the processes to the clouds is a possibility to save on development and maintenance of the own IT infrastructure: equipment, licenses, service, etc. Public clouds help to increase the effect of saving, so big vendors (e.g., Amazon) are able to offer lower prices due to their scale.

At the same time, personal customer data can be locally stored, without fearing for their security.

By the way, according to the research, in 2016 the banks’ expenses on cloud-based technologies increased from 5 to 10% of the IT budgets, it means from 50 to 100 million U.S. dollars.

What about security?

There are no signs for a mass implementation of cloud-based technologies into banking industry because of the banks’ concerns about customers’ personal data safety, bank secrecy, and further confidential information.

These fears are often not based on a real threat, but on a wish to play it safe.

Meanwhile, major providers of cloud-based services are ready to provide the security level that often surpasses the local safety circuitry of the banks. In fact, providers usually employ special departments. Experts working in them are specialized on data safety. Of course, the data safety level of providers is higher.

It is important for banks to remember, that the main security hole is a human factor, but not the IT infrastructure: offended or fired employees, defects in security policy, etc. For that reason, it is highly important to pay a special attention to the aspect.

As we can see, the main IT trends in banking sector refer to the fact that banks are expected to become more technology-friendy (API, BlockChain), and can be easily integrated with other market players (developers, providers of IT services). Finally, in the coming years, the banking we currently know will be very likely transformed to something completely new.