In 2018 over 40% of mobile phone users in the USA made at least one transfer via mobile applications. It is expected that by 2021 the volume of such transfers will exceed $300 billion – in the United States alone. In 2017, PayPal reported that mobile transactions through the app amounted to $155 billion worldwide. Fun fact: by 2020, the volume of mobile payments and transfers in China alone will reach 6.3 trillion dollars.
Money transfer apps vs. banks
The idea that innovative fintech will make the traditional banking sector obsolete is tempting enough. But I don’t think it will happen any time soon. Sure, applications will take a significant share of the service from the banks, but what does it mean for banks in the long term? Only one thing: banks will have to adapt their modus operandi.
All the conditions are already there. Users are looking for alternative ways to solve problems, and banks are quite “slow” to adopt innovations. In this regard, startups seem to implement innovations with a higher pace. In addition, remittance applications meet the needs of those who do not have access to banking services. Finally, mobile phones are an integral part of human existence today. Therefore, money transfers apps represent a logical step towards a totally mobile lifestyle.
Do you remember Apple’s recent announcement about issuing its own credit card in partnership with Goldman Sachs? The card will have no number, no CVV code, no expiration date, no signature. Apple promises to solve problems with transparency to ensure its ease of use. Seems like a mobile phone may become a kind of card issue center, solving many problems with security.
Again, we do not talk about revolution. It’s more about evolution. For instance, Amazon and e-commerce haven’t (still) become a substitute for retailers, and Uber and car sharing providers haven’t eliminated public transport yet. But they have changed the methods of making purchases and trips, which means they have transformed the rules of the game for large companies. So what do banks need to do in order not to lose their share in the market of remittances, the volume of which, by the way, is nearly $1 trillion?
Application of AI and machine learning
The increase in the number of connected devices and data processing tools leads to the creation of personalized insurance products based on a specific person’s data sets. The introduction of AI technologies in the field of customer identification and in systems for combating money laundering is also becoming popular. These solutions, along with decisions that relate to the application of AI for compliance procedures, risk management, transaction monitoring and regulatory reporting, will continue to evolve and will facilitate the return of investment in FinTech.
The other side of using machine learning is to observe the actions of clients with their consent in order to identify the various behavioral traps that people fall into. This will allow them to make financial decisions more rationally: from planning and executing the family budget, ending with actions in trading stocks or operations with other financial instruments.
Checklist for banks
- First, it’s about customer service and its enhancement through the development of machine learning and artificial intelligence technologies. Perhaps, now it is more convenient for many banks to hire an entire staff to form a call center and support online chats, but the future belongs to smart chatbots that will learn in the process of communication with customers.
- Reduce the fees for cross-border transfers and the level of complexity of the client identification procedure. Otherwise, it will make a lot more people looking in the direction of mobile applications for transfers.
- Despite the fact that some giants of the banking sector may not realize that the Age of Offline has passed, it makes perfect sense to develop mobile banking. So instead of investing in the opening of new branches, it is better to invest in mobile development.
- Enter the blockchain. Sure enough, due to ICOs hype with its stream of fraudulent projects, opinions on the technology have changed. However, do not underestimate its ability to improve banking services. Blockchain has a huge potential for banking, where technology can be used to increase the security of financial transactions, decentralize services and increase the speed of market launch of new products. A blockchain can be used to securely store customer identities or process international payments. Analysts predict that 77% of FinTech companies will adopt the blockchain by 2020. Besides, according to a new study by the World Economic Forum (WEF), about 40 central banks around the world are considering the possibility of issuing their own digital currencies (CBDC). Some banks are already testing this opportunity. Among the most interesting prospects of CBDC is the deprivation of commercial banks of a monopoly on deposits and the transfer of alternatives to private payment solutions.