How to balance trust and technology in banking

Why successful banks must strike the balance between tech innovation and risk mitigation to thrive in a rapidly evolving market

|Jun 5|magazine9 min read

Banks face a pivotal moment in their evolution.

The last decade saw the digitisation of financial services forever change the way in which people manage their finances and interact with their service providers.

New technologies, such as AI and machine learning, voice recognition, mobile banking and the smart use of data will define how financial services are offered, and an evolving regulatory landscape and the hyper-personalisation of banking will set new standards for business models and customer expectation.

Balancing these challenges will be crucial to success.

Technology as a driver

Technology continues to drive global change. In banking, it has the potential to offer unprecedented speed, new levels of convenience and give tailored and personalised services and advice.

Mobile banking, for example, has given consumers the freedom to manage their finances when and how they like, wherever they like. 

The implementation of AI and machine learning to analyse and use data has helped financial services companies both internally – the ability to monitor account activity, complete multiple tasks at greater speed, and more effectively, combat fraudulent activities, and so on – and externally; and data is proving to be the framework for the provision of greater user experience and the managing of trust and relationships.

A common perspective in this forward-looking narrative is that banks – incumbents or ‘traditional’ in particular – face a significant challenge when it comes to developing and implementing such technologies compared to those more innovative fintech market entrants or the tech giants.

However, in a report published last year exploring what the next decade holds for incumbents in the age of digital banking, HSBC suggested that this is a “common myth”, highlighting the growing landscape for collaboration between banks and fintechs and suggesting that “we are already in an era of innovative cross business collaboration which many would have not imagined a few years ago”.

The paper, Banking of the Future, Finance in the Digital Age, also stated that while technology and data advances are transforming the industry, future success in banking will rely on achieving the right balance between innovation, risk management and consumers’ behaviour and expectations.

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A hyper-personalised future

The report, which was written by financial technology expert Professor Markos Zachariadis, said that the hyper-personalisation of banking, which will be enabled by technologies such as AI and augmented reality as well as advanced data analysis, and through which customers will take greater control of their own personalised data through ‘digital ID profiles’, will replace traditional product sales and service models.

This will create an environment in which banks will become ‘trust brokers’ in the management, development and safeguarding of these IDs, unlock new revenue streams and access third-party services outside of traditional financial services.

It also stated that, at its heart, banking is about trust.

To this end, balancing risk mitigation and technology will be crucial for banks to succeed.

Robust ethical frameworks will be essential, for example, as will controls for protecting customers in order to maintain trust levels and the integrity of the wider financial services market.

To achieve this, HSBC proposed financial services regulators, governments, banks and other industry bodies work closely in order to evolve from national regulatory practices to a singular global regulation that considers how to best adopt and work with new technologies available.

In particular, said the report, “developments in areas like big data, cloud and AI will need more and more international cooperation” with banks ensuring that they are ‘global’ in their outlook to facilitate this.

Read the full report by HSBC here.

For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.

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