The future of banking is here: cognitive banking
Since the 2008 financial crisis, the sector has looked to repair reputational damage, lock down compliance in the system and rapidly innovate to serve a new generation.
During this period of change, banks must redefine the value they want to provide for their customers. For example, do they want to finance the future dreams a millennial may have or be their social media finance service provider, which may lead to a rethink of the banking services they deliver.
While they’re trying to figure that out, fintech start-ups are attracting customers with the likes of digital wallets, social media payment apps and social investment opportunities.
Some banks are trying to keep up with these innovations by purchasing fintech technologies, creating a separate entity, and then putting it back in the main business again. However this is a clunky approach and the roll out of these new digital services has been slow.
One way the banks can truly advance their offering is with the adoption of cognitive technologies.
As one of the most data intensive industries, the financial services industry has the greatest opportunity to benefit from cognitive to improve their operations and services, from customer support to investment advisory. Most importantly, use the digital clues the customers leave behind to truly understand what customers desire from their banking services.
The latest advances in cognitive computing combined with new data sources, all readily available through cloud computing, creates new innovation opportunities.
Heavily debated in the board rooms of major banks are a few specific areas of transformation in banking, and the changes that are required.
- Redefining payments. This means taking an in-depth look at the link between customer, merchant and bank. Quite often there will now be another player in the mix like Apple pay, which creates a challenge for banks as they still carry the cost of the transaction. However the opportunity here to gather great insights from the customer data which can turn into new services.
- Blockchain. Any interaction that expands multi-boundaries are inefficient once you get blockchain and open ledger it can flow freely across the whole value chain which gives you a cost optimiser.
- Customer data. Each organisation has massive amounts of data, and although banks would be able to use it, customers may question the way they approach it. Companies like Google and Amazon are great at doing this in an effective way without the financial link. Can banks be a disruptor and expose the data, with client approval?
So what is cognitive banking?
We know that machine learning and cognitive technologies will disrupt the industry but no one has explained what that looks like in reality.
In essence, new patterns are identified from the vast range of data sources to find new insights for the bank.
For example, IBM’s personality insights services analyses 3,500 words to identify an individual’s values and needs. This kind of insight would only be possible through many hours of interactions with a personal advisor and unlikely to uncover the spectrum that the algorithm can.
What can it be used for and who’s doing it?
- Evidence based decisions – rather that intuition led – Citibank and its Digital Money Index.
- Create customer trust through transparency and overcome ethical barriers.
- Creative ways of acquiring new data – ASB Bank and its “Like Loan” campaign.
- Inspire innovation through ecosystems – e.g. “hackathons” and venture funding.
- Create a cognitive platform.
How do I run it?
Adopting cloud as a platform allows you to do digital transformation. With cloud as the foundation for these digital transformations, companies can prepare for the future.
Every company has unique needs, and modern businesses require an innovative infrastructure that lets them build their cloud their way.
Given the pace of digital transformation, adaptability is a critical component of any cloud strategy, and an infrastructure that is made for today and for tomorrow is key. Infrastructure needs to be “future made.”
Secondly, security and privacy must be at the heart of the platform. Even among high-maturity companies, data governance issues continue to elicit fear.
As we move into the new era of cloud, security concerns remain critical factors to success, and IT departments will need to patiently lead their organisations through the security challenges.
But also don’t forget to…
As with all new technologies, banks must not forget to look after its people. Specifically how management structure will change, insight from the market place, and ensure cultural changes will be implemented.
Like any change programme, this creates tension that can only be overcome through effective leadership. Ensure exemplars are created that inspire the future leaders to adopt this approach and drive the transformation to a cognitive bank.
By Rashik Parmar, IBM