In the rapidly evolving financial services landscape, it has become imperative for banks to leverage AI and digital innovation at scale to remain competitive. With the power of AI and machine learning, financial institutions can leverage predictive analytics, anomaly detection, and shared learning models to improve system stability, detect fraud, and create better customer-centric experiences. With the start of 2023, the focus has shifted to digital financial services, embracing embedded finance, generative AI and the migration of super apps from China to a global phenomenon. And all while considering the adoption of a hybrid multicloud strategy. For banks to remain relevant and competitive in this new world, it is imperative that they adapt to new trends, understand the importance of open finance and transform their core systems. Ultimately, banks need to start modernizing their core business through technologies like hybrid multicloud and AI.
Generative AI: unleashing new possibilities
Generative AI, as exemplified by the explosion of advanced, large-scale language model solutions on the market and most recently by the launch of IBM watsonx, offers exciting opportunities in financial consulting and data analytics. While the unexplored future of generative AI offers opportunities in deterministic financial environments, properly configuring these models can simplify complex financial concepts and allow customers easier understanding. Financial institutions must use generative AI carefully to find the right balance between innovation and ethical use. That’s why IBM subjects all of its AI technologies to rigorous processes and protocols to provide trusted solutions.
In an industry as highly regulated as banking, it is all the more important for clients to have access to the toolset, technology, infrastructure and consulting expertise to build their own AI models – or to refine and adapt available AI models and deploy them at scale in a more trusted and open environment to drive business success. Competitive differentiation and unique business value are increasingly derived from how adaptable an AI model can be to an organization’s unique data and domain knowledge.
Embedded finance: redefining customer experiences
Embedded finance has become a rapidly growing trend, revolutionizing the way customers interact with financial products and services. Banks now have the ability to seamlessly integrate financial functions into different contexts such as online trading or car buying and new digital ecosystems without disrupting customer workflows. By integrating financial services into everyday activities, banks can deliver hyper-personalized and convenient experiences, increasing customer satisfaction and loyalty.
The Rise of Super Apps: Transforming Digital Ecosystems
Super apps popular in China have the potential to reshape the financial services landscape globally. By consolidating multiple applications and services under a single entity, Super Apps offer customers a comprehensive ecosystem that seamlessly integrates digital identity, instant payment, and data-driven capabilities. With the spread of embedded finance and the spread of open banking APIs, the vision of super apps is becoming a reality. Financial institutions need to adapt to this emerging trend and actively participate in the evolving digital ecosystems to provide value and meet evolving customer expectations.
Open Finance: accelerating the API-driven economy
Open banking has been a topic of discussion for several years, with PSD2 regulations driving initial advances. Now Open Finance, an extension of PSD2, aims to open up even more services and foster an API-driven economy. With open finance, banks are forced to open additional APIs beyond payment accounts, allowing for more innovation and competition in the financial sector. This shift towards data-driven economies puts embedded finance at the heart of financial services. In addition to meeting regulatory requirements, forward-thinking banks are proactively using open finance to efficiently distribute their services and reach customers wherever they are.
The urgent need to modernize core systems and the role of hybrid cloud
In this new paradigm of AI-powered digital finance, modernizing core systems becomes imperative for banks to provide seamless experiences, embrace new technologies, and remain competitive. Traditional legacy systems often lack the flexibility, scalability, and agility needed to support embedded finance, generative AI, and open finance integration. By transforming core systems, banks can create a solid foundation that enables seamless integration of new technologies, enables efficient API-driven ecosystems, and improves the overall customer experience.
Hybrid multicloud plays a critical role in facilitating change. It enables banks to leverage the scalability and flexibility of public cloud services while maintaining control over sensitive data through private cloud and on-premises infrastructure. By adopting a hybrid multicloud approach, banks can transform their core systems, leverage AI and machine learning capabilities, ensure data security and compliance, and seamlessly integrate with third-party services and APIs. The hybrid cloud provides the agility and scalability needed to support the rapid delivery of new digital services, while providing the control and customization required by financial institutions.
Modernization starts at the core
However, transforming core systems and moving to a hybrid cloud infrastructure is not a one-size-fits-all solution. Every bank has unique requirements, existing technology landscapes and strategic goals. It is crucial to align the technology roadmap of fintech solutions with the bank’s overall strategy, including digital strategy. This alignment ensures competitive advantage, sustainability and seamless convergence between the two roadmaps. Collaboration between banks, fintech providers and IBM can facilitate this alignment and help banks navigate the complexities of digital transformation.
The financial services industry is undergoing a profound transformation driven by AI, digital innovation and the shift to digital financial services. Embedded finance, generative AI, the rise of super apps and open finance are transforming the customer experience and creating new opportunities for financial institutions. To take full advantage of these transformative trends, banks must transform their core systems and adopt a hybrid, multi-cloud infrastructure. This transformation not only enables the seamless integration of new technologies, but also improves operational efficiency, agility and data security. As banks embark on this journey, strategic alignment between the technology roadmap and the bank’s overall strategy is of paramount importance.
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