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For banks to succeed on their digitalisation journey, they must be steered by proper insight into what lies ahead. Sanat Rao, CEO of Infosys Finacle, outlines five of the most prominent banking trends. 


Sanat Rao, CEO, Infosys Finacle

In recent years, European banks have been instrumental in maintaining lending channels to resuscitate economic activity. While they have been resilient and stable amid geopolitical uncertainty and macroeconomic shocks, banks must remain watchful of macroeconomic and financial situations to prepare for potential threats looming ahead.

The negative impact of these events has shone a light on the shortcomings of the banking industry’s approach to climate-related and environmental (C&E) risks as well as digitalisation. These now top the agenda for banks in the region.

The benefits of digitalisation for banks are well-established – operational efficiencies, new growth avenues, and competitiveness against fintechs and new-age players. However, for banks to truly succeed on this journey, they must be steered by proper insights into what lies ahead.

Here, we discuss the five most prominent banking trends.

Recomposing business models for value creation

Banks stuck with legacy business models and technology systems have the opportunity to step up their value propositions and offer features such as digital-first, marketplace banking, embedded finance, and banking-as-a-service (BaaS). While banks get to grow business affordably, they can enable frictionless contextual banking for customers and new business opportunities for brands.

In Europe, demand for embedded finance among consumers, stemming from the popularity of the buy now, pay later model, is driving BaaS uptake. To improve margins and cost-effectiveness, the industry must also embrace new-age utilities, enabled by APIs, event-driven architecture, blockchain and cloud.

Recomposing money

Banking transactions of the future will be driven by embedded finance, decentralised finance (DeFi), and central bank digital currencies (CDBC) issued by the central banks of countries. CDBCs promise improved financial inclusion, transaction time and costs and economic growth. Unsurprisingly, the digital euro is gaining attention with a focus on addressing security and privacy concerns.

A composable cloud strategy

Banks are focusing on digital acceleration having realised the urgency of becoming scalable, agile, and innovative with cloud adoption.

A cloud-neutral hybrid approach can support superior availability and resilience in system architecture while coping with different geography-based, data residency requirements. A poly-cloud model will help optimise services from multiple cloud providers with a fit-for-purpose mix. Another trend is the increasing number of purpose-built CPUs being designed for the cloud and helping extract higher throughput at lower costs.

Composing immersive experiences

With increased commoditisation, banks must differentiate their business offerings through customer experience. By unifying the physical and virtual realms, immersive technologies (AR/VR/MR/XR) can transform customer journeys in banking through immersive online transactions, financial training and literacy contextual to customers.

The metaverse as a unified, virtual community for interactions, transactions, and socialising offers banks significant scope to position themselves as providers of new-age lending models and custodians of digital assets. At the same time, banks must address inherent privacy and security concerns raised by regulators with appropriate mitigation strategies.

Sustainability in banking

Sustainability is a primary consideration today for corporations and governments alike. The EU is paving the path for sustainability regulations, and banks forthcoming with sustainable practices and policies will benefit. With stricter regulations expected in future, those who proactively build an ESG-conscious loan book can earn the early-mover advantage.

Banks are being closely scrutinised by various stakeholders and are under pressure to show reporting and compliance. They need to drive sustainability consciousness internally and redefine lending policies to promote sustainable ways of doing business in the wider economy.

ESG-led transformations are expected to take the lion’s share of business investments, and banks positioned to fund them will gain the strategic edge. Countries like Germany are backing major industrial transformation with €200bn earmarked to promote climate protection, hydrogen technology, electric vehicle charging, etc. With a strong ESG-centric lending policy in place, banks can step up to fund ESG transformations for legacy industries.

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