10 ways technology will change banking in 2019

ByPenny Crosman, Will Hernandez, Suleman Din

January 6, 2019 10:00 PM

To stay competitive, banks are investing millions of dollars into technology to digitize nearly every aspect of their businesses. But can they keep up with constant change coming from all directions?

Customer demand for more high-tech services, and for connectivity between popular financial management apps and their primary bank accounts, may finally force banks to set aside their security and competitive fears and strike data-sharing deals with fintechs in 2019.

Meanwhile, artificial intelligence and automation's impacts will continue to be felt at many companies, though regulators will have a say in the pace of adoption.

Fintechs, which have been encouraged by regulators as a means of spurring innovation, may have to brace for a consumer-protection backlash in response to mistakes they have made.

The customer profile is changing, too. There are some painful lessons ahead, for sure, in how the youngest customers — Generation Z — differ even from the still sometimes perplexing millennials.

Here's a summary of those and other banking technology trends to watch in 2019.

The Shadow Dexterous robotic hand, manufactured by The Shadow Robot Company, touches the keyboard of an Apple Inc. MacBook Pro computer during a demonstration of its agility in an arranged photograph in London, U.K., on Wednesday, Feb. 14, 2018. The hand with ultra-sensitive touch sensors on the fingertips, including the thumb and even the flex of the palm for the little finger, provides unique capabilities for problems that require the closest approximation of the human hand currently possible. Photographer: Luke MacGregor/Bloomberg

Luke MacGregor/Bloomberg

The nature of work, and the 'workers,' will change

U.S. Bank, Wells Fargo, BBVA Compass and Banco Popular are among the banks that have centers of excellence deploying robotics and artificial intelligence to streamline work processes and establish more uniform procedures.

The largest banks are automating work anywhere they can, especially routine work like cutting and pasting data from one app to another. Use of AI and robotics will only grow provided banking regulators become more open-minded about them.

This will dramatically change banking jobs and the skills required to do them. People will be needed to design and train bots and AI engines, to test and oversee them, and to manage the employees who do those jobs. There are 960 listings on efinancialcareers.com for jobs involving artificial intelligence and 105 for jobs that require robotics expertise. These numbers will multiply next year.

Customers will take more control of their data

A lot of data sharing today happens without consumers’ knowledge, but expectations are that practice will start to disappear next year.

One estimate is that by next fall, two-thirds of all consumer banking accounts will come with controls that let consumers choose which third parties can access their data and how. This is because the large banks are all implementing application programming interfaces with such controls built in.

Smaller banks will also find ways to give consumers a say over the sharing of their banking data with third parties, though this will take time because it will require the cooperation of their core banking vendors.

And the European Union's General Data Protection Regulation will force companies inside and outside finance to get better at asking consumers for explicit consent before using their data or sharing it with others.

Consensus on open banking will begin to emerge

Expect banks and fintechs they trust to reach wider arrangements that give banks more confidence in the security surrounding data sharing and third-party innovation.

The Financial Data Exchange, made up of big banks like JPMorgan Chase and Wells Fargo as well as data aggregators and fintechs, was established in 2018 to create a standard to safely share information and address risks tied to open banking.

The group — along with the “Secure Open Data Access” framework formed earlier this year with support from Envestnet’s Yodlee, Quovo and Morningstar's ByAllAccounts — could put banks more at ease with open banking.

Meanwhile, banks such as BBVA Compass, Capital One, Citibank and Silicon Valley Bank continue to move forward with open-banking initiatives.

Expect a showdown over faster payments standards

Banks anticipate new and improved consumer products as a result of faster payments. Businesses expect to be paid faster as round-the-clock settlement would occur under such a system.

In 2019, it will become clearer which faster payments system will prevail in the United States.

The Clearing House, the payments company co-owned by some of the country’s largest banks, is already operating a systems commonly known as Real-Time Payments, or RTP. Some of the larger banks currently use the system, but in a limited capacity. Smaller banks have yet to adopt the network.

In the meantime, the Federal Reserve is under pressure to create its own faster payments system. That’s the path some of the largest tech firms prefer, as the likes of Amazon, Apple and Google publicly support the Fed’s involvement.

Bankers will wait for more clarity but have already warned there could be delays in payments settlement if RTP and the Fed’s proposed system aren’t interoperable.

Banks will get better (and faster) at online lending

Competition from fintechs is forcing banks to make quicker decisions on loan applications from small-business and retail customers. To that end, banks are either improving their own loan origination systems through upgrades from core service providers or partnering with fintechs to address those shortcomings.

Industry observers expect banks to establish more partnerships with fintechs in the coming year to give their customers the best possible digital lending experience.

Banks, online lenders and fintechs also will have to develop secure platforms that protect sensitive customer data. Observers expect blockchain, multifactor authentication and behavioral biometrics to play a role in security.

In addition to speed, lenders will have to give customers multiple ways to contact them should they need assistance during the loan process.

Blockchain's uphill battle has no end in sight

Large institutions such as Bank of America continue to file blockchain-related patents but have yet to publicly test any products. Mastercard filed several blockchain-related patents in 2018 that drew attention, but it lacks any grounded plans to use the technology.

Meantime, blockchain advocates at financial institutions are weary of trying to convince others of the technology's potential. Blockchain proponents admit bank executives and regulators still link the technology to wild swings in cryptocurrency values. Bitcoin has dropped in value by more than $5,500 in the past year.

The institutionalization of crypto assets is something for financial companies to explore in 2019, too. Firms such as Circle Internet Financial and Fidelity Investments are working to make crypto assets into more mainstream investment vehicles. Such companies will need to prove to regulators their products are legitimate after a string of scams in initial coin offerings.

Get ready for more federal probes of fintech

Robinhood Financial’s savings account gaffe in December may invite a wider regulatory effort to stamp out misleading product offerings from fintechs.

Robinhood took criticism after it announced plans for checking and savings account products that were supposed to have the backing of the Securities Investor Protection Corp., not the Federal Deposit Insurance Corp.

But the SIPC said it had never received an application for coverage from Robinhood, and banks complained that the company made SIPC coverage sound just as safe as FDIC coverage, though deposit insurance and SIPC backing are very different things. Robinhood still plans to launch the accounts in early 2019 but said it will market them as cash management offerings, not savings. Some critics are calling for an investigation by the Securities and Exchange Commission.

Regulatory agencies across the board are under more pressure to protect consumers, particularly as massive data breaches continue to plague financial companies and retailers. Such scrutiny is expected to intensify in 2019 as Democrats have vowed to monitor the banking industry closely once their newly elected majority is seated in January.

Challenger banks will raise even more money

It will be up to challenger banks to prove they can attract deposits as well as they have attracted funding. The darlings of private investors raised record-breaking amounts of venture capital in 2018.

In May, Chime raised $70 million in a Series C funding to raise its valuation to roughly $500 million. In January of 2018, Varo Money completed a $45 million funding round.

It’s worth noting, too, that Monzo in the United Kingdom raised $110.6 million in Series E funding.

What is the secret of their fundraising success? Challenger banks address common consumer problems that have largely gone unaddressed by traditional banks, the research firm CB Insights says. It estimated 2018 venture deals would set a record of $32.6 billion, which would be up 82% from 2017. The standing of challenger banks will only improve in coming years as regulators worldwide continue to lower the barrier of entry to the market, the firm says.

Preparations for the rise of Gen Z will accelerate

It’s never too early for consumers to start saving. But banks have to ditch the plastic piggy bank and lollipop approach to attracting young customers.

The battle for millennial customers will expand to Generation Z, an entirely new young customer. Gen Z differs in a number of ways from millennials, particularly in how they consume information. Members of this generation, for instance, are native to instant messaging platforms and are completely comfortable with using them as their primary mode of communication.

Fintechs are leading the way in developing apps and services for the fast emerging Gen Z customer. One interesting characteristic: They want to avoid the mistakes of millennials in amassing debt.

CommonBond’s recent acquisition of NextGenVest, a college loan advice platform, gave it access to 65,000 Gen Z users already on the platform; there are competing platforms in the same space already. Apps for Gen Z consumer debt management, such as Current, are in the market, too.

Some fintechs are developing apps that use games to encourage savings among younger members of Gen Z.

Robo advice will be ubiquitous

Consumers are being inundated with product and service pitches from established financial companies and startups, and choosing the best ones is becoming ever more difficult.

Increasingly, advice is seen as the feature that can set one offering apart from another. However, tailoring every offering on an individual level poses major challenges. As a result, banks and fintechs see a solution in robo advice, which sprouted in wealth management and has since spread to insurance and now banking.

For instance, Bank of America, which rolled out a self-directed investment platform called Merrill Edge Guided Investing a year ago, has added automated research to the software. It has also expanded the network of human financial advisers who support clients of its Merrill Edge program, a mashup of robo-advisory and human help. On the robo side, Stock Story provides data and digests of investment analyst reports to help clients research individual companies.

U.S. Bancorp's investment arm partnered in July with FutureAdvisor, an investment advisory firm owned by BlackRock, to develop a robo advice product called Automated Investor. Citizens Bank, meanwhile, is in an active development relationship with the fintech SigFig to develop new automated advice tools for banks.

Personal finance management apps provide data for consumers to ingest. But successfully adding automated advice capabilities through a combination of AI-powered tools and data analysis, with some human support, too, could offer an edge among rivals. Which customer would turn down a helpful suggestion on how to curb spending or save up for a short-term goal?

Expect to see greater collaboration between banks and firms that provide automated advisory services, and the addition of some level of advice support to nearly every bank offering from savings accounts to lending.