Byte-sized banking: Can banks create a true ecosystem with embedded finance?

Byte-sizedbanking: Canbankscreateatrueecosystemwithembeddedfinance? Sponsoredby Aspayments,technologyande-commercedisrupterscutbanksoutoftheequationwithembeddedfinancesolutions,banksmustharnessemergingtechnologiestocreatetheirowndigitalecosystemsandremainatthecentreofthebankinguniverse. •Newtechnologieswillhavethebiggestimpactonbanksinthenextfiveyears—morethanchangingcustomerdemandandevolvingregulation.Generativeartificialintelligence(AI)inparticularisexpected toimpactbanking,accordingto75%ofrespondentstoasurveyconductedbyEconomistImpact.Morethan70%ofsurveyrespondentsseeunlockingvaluefromAIasakeydifferentiatorbetweenwinnersandlosers. •Collaborationwithfintechsorothertechnologyprovidersiskeytoaccessexpertiseinemergingtechnologiesasopen-bankinginitiativesmultiplyacrosstheworld. •Banksseetheirbusinessmodelevolvinginthenext12-24months,offeringbanking-as-a-servicetobrandsandfintechs,andenablingembeddedfinancewithintheirownproductsandservices—79%ofsurveyrespondentsagreethatbankingwillbecome“embedded”inconsumers’livesandbusinesses’valuechains. •Nearlytwo-in-fivebanks(38%)foreseeactingasatruedigitalecosystemofferingown andthird-partybankingandnon-bankingproductsandservices. •Improvingpersonalisedandembeddedcustomerexperiencesremainsatopstrategicpriority.Three-quartersofsurveyrespondentsagreethatbankswillseektodifferentiateoncustomerexperienceratherthanproductsinthenextfiveyears. •Customercentricityisdrivingbankstooffermoreembedded environment,socialandgovernance(ESG)propositionstotheircustomers(73%),aswellasprovidingcapitaltoenvironmentallyfriendlyprojects(74%). •Withthefocusonloweringtheircarbonfootprint,aswellastheincreasinguseof data-intensiveAI,banksareinevitablymovingtothepubliccloud—51%ofrespondentsagreethatbankswillnolongerownanyprivatedatacentresinthenextfiveyearsaftermovingtothepubliccloud. 1 ©EconomistImpact2022 ABOUTTHISRESEARCH EconomistImpactconductedastudy,commissionedbyTemenos,tounderstandemergingtrendsinthebankingindustry.Thisreportpresentsinsightsfromaglobalsurveyof300executivesinretail,commercialandprivatebankingspanningEurope(25%),NorthAmerica(23%),AsiaPacific(18%),MiddleEastandAfrica(17%),andLatinAmerica(17%).Respondentsperformvariousjobfunctions,suchasIT,customerservice,finance,marketingandsales,strategyandbusinessdevelopment, andgeneralmanagement,amongothers.HalfoftherespondentswereC-suiteexecutives.ThisistheseventhyearthatEconomistImpacthasconductedthissurvey.Theresearchalsoincludedinterviewswithindustrypractitionerstogainfurtherinsights. Riseofthemachines InthelastiterationofEconomistImpact’sglobalbankingsurvey,conductedin 2021,bankswerefacingaperfectstormasthepandemicacceleratedconsumeruseofonlinebanking,hasteningtheclosureofbankbranchesandseeminglygivingastrongadvantagetodigital-firstcompetitors.Withfintechstart-ups, paymentplayers,super-appplatformsandtechgiantscontinuingtotakemarketshareastheygainedtheabilitytooffermoretraditionalbankingservices,incumbentbankswerecompelledtoreassess theirprioritiesandbusinessmodels. Itisnosurprise,then,thatnewtechnologiesareexpectedtohavethebiggestimpactonbanksinthenextfiveyears,accordingto63%ofrespondentsinthisyear’ssurvey—afindingthathasbeenconsistentsince2019(seeFigure1).“Whentheyounggenerations,whowerebornwithphonesintheirhands,becomeclients,theywillhavemuchmoreofafocusonthetechnology,”saysSchuylerWeiss,CEOofAlpian,aSwissneobank(thatis,abankthat operatesexclusivelyonline,withoutbricks-and-mortarbranches).“Ifyoudonothavemoderntechnology,theywillnotbankwithyou,itdoesn’tmatterhowlongyou’vebeenaround.” ©EconomistImpact2023 Newtechnologiesareexpectedtohavethebiggestimpactonbanksinthenextfiveyears,accordingto63%ofrespondentsinthisyear’ssurvey. Figure1:Whichtrendsdoyoubelievewillhavethebiggestimpactonbanksinthenextfiveyears? Newtechnologies(e.g.,generativeAI,blockchain,quantumcomputing,cloudcomputing,VR/AR,APIs,IoT,biometricsetc.)Changingcustomerbehaviouranddemandsfornewbankingproductsandservices RegulationondigitalandcloudtechnologyChangingcompetitiveenvironment Changinggeopolitical,macroeconomic,orpublichealthenvironment 66% 65% 63% 42% 42% 38% 34% 28% 29% 26% 27% 24% 19% 20% 25%23% 15% 17% 14% N/A 70 60 50 40 30 20 10 0 2019202020212023 Source:EconomistImpactsurvey. InthespotlightthisyearisgenerativeAI.WhileAIandmachinelearning(ML)havebeeninexistencefordecades,thelaunchofChatGPTlatelastyeardemonstratedthepotentialof AItotransformeverydaytasksandspurredcompaniestofindthebestwaystoleverageit.Indeed,75%ofrespondentstothisyear’ssurveybelievethatthebankingsectorwillbe significantlyimpactedbygenerativeAIand71%agreethatunlockingvaluefromAIwillbethekeydifferentiatorbetweenwinnersandlosers. TheusecasesofAIinbankingareplenty,fromthefront-end,suchasgreatercustomerpersonalisationanddigitalmarketing,totheback-end,suchascustomerfrauddetection, productdevelopmentandregulatorycompliance(seeFigure2).Inresponse,manybigbanks arebeefinguptheirinnovationteamswithAI talent.JPMorganChasealoneadvertised3,651AI-relatedrolesbetweenFebruaryandApril2023,and30%ofjobadsfromEur