What is interesting is that things are becoming more and more alike as time goes on. It is clear that while there is agreement on the direction of travel and the opportunities, progress continues to be hindered by the same old challenges in the year 2021, which was predicted to be the year in which the industry fully exploited the full potential of digital banking solutions, data-driven transactions, instant payments, and cryptocurrency.
Because of current infrastructure and technology, banks continue to be hampered, suggesting that the time for waiting has passed. Identifying long-term income prospects and developing the skills necessary to realize them safely and swiftly is now the time to prioritize.
The following seven significant indicators indicate that potential is beginning to be transformed into action as we look forward to 2022 and beyond.
Table of Contents
1. The rise of agency banking and Banking-as-a-Service (BaaS)
Towards the end of 2022, we’ll see the agency banking business catch up with embedded finance and the realization that payment services need a banking license.
Our philosophy at JMR Infotech is that technology isn’t always the best solution to a problem. Tactics without strategy are defeat’s noise before defeat. Hiring a Silicon Valley superstar rarely cures this core reason. With the right technology and in-depth knowledge of the business process, it is possible to successfully transform an organization.
2. Banks are working out the actual cost of transactions
Banks are unaware of the true cost of each payment transaction that they process on their accounts. 2022 is the year when they will find out the truth. That’s because it will be overpriced by at least a factor of two when they do. As a result, the focus will move away from change costs and operating expenses.
Therefore, banks will need to understand their payments estate and develop a goal and transition plan in order to address these unsustainable cost concerns as soon as possible while also delivering more value.
3. The beginning of the end for core banking
Invariably, every bank that has been in operation for ten years or more (i.e., the vast majority) has some type of legacy core banking platform that is no longer suited for its intended purpose. Undoubtedly, making a move to something that is more appropriate for today’s real-time, always-on environment will be a marathon rather than a sprint. Still, banks have been contemplating the start line for many years already.
But now that the starting pistol has been fired, banks are beginning to respond, and it is evident that one size does not fit all. Some banks are developing new global architectures, frequently based on cloud-based BaaS platforms (such as the Oracle digital banking experience), and putting them through their paces in distinct portions of the company to prove their viability. The majority of banks are decomposing their existing core banking estates, breaking the “elephant” into bitesize chunks that can either be re-created in new, domain-focused microservices that are built in-house or used to enable third-party BaaS components to be integrated into a heterogeneous API enabled, plug and play architectural model.
For the majority of banks, these are lengthy, challenging yards of change. However, this might be the year in which core banking as we know it starts to undergo significant transformation, either for the better or for the worst.
4. Impending card-mageddon
One of the most talked-about projects in the payments sector is the Request to Pay program, which has gained rapid traction. According to Icon’s latest study, it is evident that it has the ability to cut costs, give genuine alternatives to conventional payment solutions, and promote visibility and openness in the financial sector. This has the potential to alter the way we pay.
Take, for example, businesses that have been attempting unsuccessfully for years to decrease expenses by circumventing card barriers. As the combination of instant payments rails, open banking APIs, and Request to Pay services converge to drive consumers towards cheaper account-to-account (A2A) based payment options at the point of sale, many in the industry believe that Request to Pay represents an opportunity for merchants to finally reduce their reliance on payment cards.
Could this be a harbinger of the impending card-mageddon that is upon us? For banks, integrating technology with a well-defined strategy will be vital if they are to realize the enormous potential of Request to Pay services.
5. Money launderers actually getting caught
Unfortunately, banks are losing the battle against financial crime, which is uncomfortable. Fraudsters are using more sophisticated strategies, consumer behavior is becoming more complicated and demanding, and regulatory scrutiny is becoming increasingly intense. With the potential of massive penalties and reputational harm looming, banks must work smarter in order to stay on top, much alone go ahead of the competition.
There are technological developments that we anticipate to see make a significant impact in 2022, allowing banks to identify and apprehend more offenders in a shorter amount of time. Example: In both fraud and anti-money laundering (AML), machine learning detection algorithms used in conjunction with rule-based controls have significant potential to reduce noise and permit improved identification of potentially suspicious behavior. Sourcing and data management will continue to be essential areas of effort in order to develop a more integrated approach throughout ‘FRAML.’ Better data management will be enabled by cloud-based deployment architecture and the ability to employ cross-functional data repositories. Improving data quality and currency by transitioning from a periodic batch model to an event-driven approach can aid in the identification of suspicious behavior that is near to real-time in nature.
This will not only help to decrease losses and satisfy compliance requirements, but it will also help to better safeguard end consumers and the general public from the devastating consequences of financial crime.
6. Banks embracing low code approach as the middle ground
More dissatisfied with the inflexibility of change and the restrictions imposed on them by heavy-code platforms, banks have been increasingly upset with their inability to innovate and provide adequate customer service. In addition, the fight for engineering talent has reached a boiling point, which has aggravated the situation.
There is now a viable alternative in the form of a ‘low-code’ approach, in which deployable (such as payment flows, business functions, rules, you name it…!) can be defined and molded using a highly intuitive non-code language, often coupled with dynamic graphical representation, and where the code itself is automatically generated to reduce the reliance on engineer resources. Low-code approaches are becoming increasingly popular. The adoption of domain-specialized languages has acted as a catalyst in this direction (low-code languages that pertain to a specific domain, such as payments).
What does this really imply in the real world? Well, the process of transition has been made easier and faster. Engineering resources are no longer a need for banks. Businesses and IT are becoming more aligned and transparent in what they are building. On the other hand, banks have the necessary resources and time to differentiate their products, like the OBDX.