Evolving consumer demands, increasing competition, technology advancements and changing regulation are driving transformative changes in the banking sector, forcing incumbent banks and financial institutions to embrace cloud computing and artificial intelligence (AI) to remain relevant, a new paper by Mambu and Google Cloud says.

The paper, titled The Bank of the Future: How AI Will Power Ubiquitous Services and Personalised Customer Experiences, explores the key drivers fueling change in the banking space and delves into how financial institutions can leverage AI and cloud computing to address the evolving landscape.

Bank of the future

The Bank of the Future: How AI Will Power Ubiquitous Services and Personalised Customer Experiences

New regulations including the introduction of open banking and PSD2 in the European Union (EU) are cutting out middlemen and facilitating the entry of new players. At the same time, bigtechs with advanced tech capabilities and deep pockets are increasingly making their presence felt in the financial sector, further increasing competition. Simultaneously, customer preferences are shifting towards integrated, real-time and personalized mobile-first experiences.

These factors are pushing traditional banks to rethink their business and embrace cutting-edge technologies, including composable technology, AI and analytics, the report says. These technologies allow them to tap into diverse customer and transactional data sets for greater personalization, value creation, automation and efficiency.

McKinsey estimates that each year, AI technologies could potentially deliver up to US$1 trillion of additional value for the global banking sector.

Total-potential-annual-value-billion-Source-The-executives-AI-playbook-McKinsey.com_

Total potential annual value, $ billion, Source: The executive’s AI playbook, McKinsey.com

By 2025, Accenture projects that 7-10% of tasks in financial services could be automated, while 43-48% could be augmented with technology. The resulting cost savings and productivity gains could deliver between US$87 billion and US$140 billion of cumulative value for North America’s financial services industry alone between 2018 and 2025.

AI-powered banking

Experts and industry observers have expressed their views on what the bank of the future might look like with many putting a spotlight on AI and data.

McKinsey’s May 2021 report on the so-called “AI bank” stresses that it is now imperative for incumbents to become “AI first” and make AI central to their core strategy and operations.

Several trends are driving the banking sector towards AI, McKinsey says, including rising customer expectations as adoption of digital banking continues to increase, the rise of digital ecosystems and the subsequent disintermediation of traditional financial services, the entry of bigtechs into finance, as well as the booming use of advanced AI technologies among the world’s leading financial institutions.

The firm warns that winners will be those that offer propositions and experiences that are intelligent, personalized and truly omnichannel, and that blend banking capabilities with relevant products and services beyond banking. This means that AI, data science, but also cloud computing and APIs, will no longer be luxuries but necessities.

For cloud-based banking platform provider Mambu, the bank of the future will embrace a customer-centric strategy and design services from the ground up around users’ needs. It will deploy value-based AI use cases for core bank functions to ensure superior customer journeys, and will rely on a flexible, composable technology architecture that allows for fast and easy integration of different components to address changing customer needs, market dynamics or technology trends.

Adoption of AI accelerates

The adoption of AI has risen sharply over the past couple of years, but COVID-19 further accelerated that trend.

Results from a 2021 PwC survey show that 52% of companies ramped up their AI adoption plans because of the pandemic. A large majority of respondents (86%) said that AI became a “mainstream technology” at their company this year.

Most executives anticipate that AI will make business processes more efficient (74%), help create new business models (55%) and enable the creation of new products and services (54%), a survey by the AI Journal found.

In the finance sector, more than half of financial institutions polled by SAS deployed AI in their anti-money laundering (AML) compliance processes or plan to imminently in response to COVID-19 and the resulting surge in scams, fraud and cybercrime.

The International Data Corporation (IDC) estimates that worldwide revenues for the AI market, including software, hardware and services, will grow about 15% this year to reach US$341.8 billion. The market is forecast to accelerate further in 2022 with 18.8% growth and remain on track to break the US$500 billion mark by 2024.

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