Bank tech trends to watch in 2022

By Miriam Cross, Penny Crosman, David Heun

January 4, 2022 11:42 AM

Bank technology initiatives this year will be driven by the need to make finance ultraconvenient for consumers and businesses.

One manifestation of this is embedded banking, a version of the open banking movement started in Europe, where banks offer their services through all manner of companies that aren’t banks. Another is the effort banks are making at personalization, trying to deliver just-in-time advice to consumers to help them avert financial problems and take advantage of opportunities. And letting customers authorize themselves with a selfie and facial recognition is the ultimate way to provide security for couch potatoes.

Banks and fintechs also will continue to try to become a trusted place for consumers and businesses to go for cryptocurrency services as the popularity of digital assets keeps growing.

Other trends in bank technology, such as the explosion of bank-fintech partnerships, are part of an evolution of financial services brought on by the fintech movement.

Read on to learn about seven technology trends for banks and fintechs in 2022.

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Embedded banking will become more widespread

Embedded banking — in which banking is done somewhere other than a bank branch, website or mobile app — started to gain steam in 2021 and will likely continue to do so in the year ahead.

The buy now/pay later loans offered on shopping websites have been the most visible example of this trend recently, but it goes beyond that.

Shopify’s e-commerce software for merchants, which has payments services baked in, is embedded banking that otherwise might have been merchant-acquiring business for companies like JPMorgan Chase or Bank of America.

Banks and other financial services providers will try to present products to consumers at the point at which they are most useful. This could include offering mortgages as someone is shopping for a new home online and offering personal loans through home contractors, doctors, veterinarians and lawyers. It could be businesses getting banking accounts through their accounting software.

“Do consumers actually want to have to proactively go out to search for financial products or are financial service products themselves tools that are best delivered at the moment of need to solve a problem?” said Phill Rosen, CEO of Even Financial, which provides embedded finance and recently agreed to be sold to the New York challenger bank MoneyLion. “That's the mode change that's happening as a result of embedded finance.”

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Banks will get better at delivering personalized insights

Banks are intensifying efforts to tailor their messaging and sharpen their recommendations to suit individual customers. A study in May from the technology consultancy Capco found that 72% of its 1,008 respondents rated personalization as “highly important” to them.

Ather Williams, head of strategy, digital and innovation at Wells Fargo, predicted that banks will use personal information that customers share, artificial intelligence and machine learning to create hyperpersonalized experiences, such as alerts about potential shortfalls in their accounts based on historical transaction activity.

Wells Fargo is incorporating such features into its consumer products. The Credit Close-up tool, due out in 2022, will offer personalized tips to help customers better understand their credit score and improve it. The bank will also debut a new virtual assistant in its

mobile app

, Fargo, which over time will use artificial intelligence to deliver tailored insights to help customers better manage their finances.

The trend is gathering momentum among banks of all sizes.

People’s United Financial

in Bridgeport, Connecticut, doubled down on its personalization efforts in 2021 with Virtusa, a digital business strategy firm. Virtusa conceptualized and packaged a personalization engine called vEngage using Adobe Experience Manager to handle digital content and the Customer Decision Hub from the software company Pega to predict customer needs. The $63.7 billion-asset People’s launched the tool in March to encourage customers to activate and use People’s digital offerings.

First Foundation, a $7.7 billion-asset institution in Dallas, recently launched an app with the financial data platform MX. FFB Mobile will aggregate all of a user’s accounts across all financial institutions and offer personalized insights, such as predicting overdrafts before they happen.

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More banks will support facial recognition

The continued popularity of selfie photos makes it easy to predict that the selfie concept — or facial recognition — is going to make significant inroads in banking authorization technology in 2022.

Already, 15% to 20% of the 11,000 financial institutions in the U.S. use selfie photo imaging in combination with document verification to authorize use of mobile or online banking or online application processes, the research firm Aite-Novarica Group has reported. The research estimates between 600 to 700 more financial institutions adopted facial recognition technology in the past year.

The banking industry can expect some significant advancement in this field in the coming year as digital ID providers like Jumio, TransUnion, Thales, Socure, Equifax, LexisNexis, Facepoint, iProov and Blockpass turn to some form of facial authentication.

Bank technology vendors providing cloud services are addressing security issues such as "deep fake" fraud attempts. An example of a deep fake would be when a fraudster creates the image of a company exec and fool other workers into providing personal credentials.

The use of facial recognition authorization still faces opposition from consumer protection groups that fear use of digital images allow potential bias to trickle into decisions based on the color of skin or sex of an applicant for loans or new products.

Banks likely won't rush to facial recognition as an authentication process for transferring money or making payments. Rather, they will start with low-risk transactions like balance inquiries and other information requests. Money movement would be a future step as technology improves and users and financial institutions get more comfortable with it.

Virtual branches will combine the best of in-person, digital interactions

Virtual branches — digital platforms that simulate the conversation that occurs in a regular branch and rely on diverse communication tools, including web or mobile chat, video, co-browsing and document sharing — started popping up at U.S. banks over the past two years. As in-person branch visits dwindle and customers rely more heavily on digital, virtual branches could become even more common in 2022.

Arvest Bank

in Fayetteville, Arkansas, is one example. Its stand-alone mobile app Arvest Banker Connect was built by the customer engagement company Agent IQ. Customers who download the app can read banker profiles, select one that appeals to them and message back and forth with their chosen banker, who sees a running history of the communications. A future version may incorporate video and co-browsing.

Agent IQ counts Park National Bank in Ohio, Rockland Trust in Massachusetts, Extraco Banks in Temple, Texas, and First National Bank of Omaha among its customers. FNBO’s Twig app is marketed as “the branch that can go with you.”

More banks will offer cryptocurrency services

Investors have taken to cryptocurrencies, and there’s no reason to think they’ll turn back. The global value of cryptocurrencies nearly tripled last year to $2.25 trillion. Most observers expect digital currency prices and market capitalizationsto continue to rise in 2022, albeit at a slower rate.

Banks will move forward into cryptocurrency offerings as they started doing in 2021, especially with partners like NYDIG, Anchorage, Figure and Tassat. They are also likely to proceed with caution — for instance, by having partners handle crypto custody — until policymakers provide specific guidance on what banks are permitted to do.

Several community banks have been working with NYDIG and their core banking software providers

to let customers buy and sell cryptocurrencies through their mobile banking app.

Vast Bank in Tulsa, Oklahoma, was the first community bank to support cryptocurrency purchases. It now supports 12 cryptocurrencies with its Vast Crypto Banking app, using a new core system from SAP and the services of the cryptocurrency exchange Coinbase. After the bank added this capability, its customer base grew fivefold in 80 days, according to Brad Scrivner, the bank's CEO.

“I was expecting a result, but five times is a lot,” Scrivner said at American Banker’s Digital Banking Conference in November. “Most customers want something that they understand and trust. Crypto feels very, very scary, and it doesn't need to be, and building that last mile out and putting the trust of a long-established bank with a reputation … it doesn't surprise me that we’ve had real success.”

Scrivner considers Vast Bank’s current offering a minimum viable product that will continue to get better.

Silvergate Capital in La Jolla, California; Signature Bank in New York; BankProv in Providence, Rhode Island; Customers Bank in West Reading, Pennsylvania; New York Community Bank in Hicksville, New York; and Western Alliance Bank in Phoenix are among the banks that are stepping up their cryptocurrency services for businesses.

Bank-fintech partnerships will multiply thanks to ‘matchmakers’

Matchmakers are emerging in many forms to foster relationships between banks and fintechs. Venture capital funds, core-software providers and other entities are curating fintech partners for banks, especially for smaller ones that find vendor selection to be an arduous process. As these efforts increase, banks may experience a boost in their technological capabilities and fintechs can adopt more banklike services.

A number of

venture capital funds

with financial institutions as limited partners have sprung up in recent years, including three in 2021. The goal is not only to earn a return on investment. Fund managers are also in search of promising technologies for their partners, especially regional and community banks and credit unions that lack the resources to find such products on their own.

“We’re starting to see banks growing faster through fintech partnerships and breaking out into more significant valuations in the public market,” Matt Kelly, director of the

JAM Fintop

bank network, said in an interview in October.

Core providers are giving their financial institution clients a leg up with fintech integration. For example,

Fiserv

announced a head of fintech and started integrating capabilities from fintechs such as FutureFuel.io and NYDIG into its technology stack in 2021. This means it can efficiently distribute these capabilities to its network of thousands of financial institutions and let them go live with these products in a matter of days. FIS launched its Fintech Referral Network several months ago to match fintechs with sponsor banks.

In December, the

Mass Fintech Hub

, an initiative to encourage innovation, retain talent and strengthen fintech-bank partnerships in Massachusetts, announced that in less than six months it had more than doubled its membership. Its bank members include Citizens Financial Group, Eastern Bankshares and Reading Cooperative Bank.

Banks will embrace new hybrid-work technologies

As the omicron variant spreads like wildfire in the U.S., some banks are predicting

permanent changes

to the way they do business.

Suffice it to say that

hybrid work

, where employees must collaborate effectively when some are in the office and others are remote, will be around for a long time.

But while everyone was in the same boat during all-remote work, hybrid models are more complicated. Employees participating in a meeting by videoconference can be at a disadvantage to those attending in person.

Products to facilitate hybrid work abound. In the United States, venture capital investors in 2020 poured nearly $22 billion into tools that help workers collaborate remotely or asynchronously, according to PitchBook. Similar investments totaled $14.2 billion through May 7 of last year, the latest available figure.

Ally Financial in Detroit is one of the banks experimenting with creative workarounds.

When the company was building an office in Charlotte, North Carolina, which it finished in May, it created Zoom Rooms, or conference rooms outfitted with video collaboration and other tools from Zoom. Employees in the rooms sign into a meeting on a touch panel; participants appear on one screen and shared content, such as drawings on Zoom’s whiteboard app, is shown on another screen. Remote meeting participants can see the same displays.

At the same time, Ally is testing a beta feature with Zoom called Smart Gallery, where artificial intelligence will create multiple video feeds of people in one conference room, meaning it can draw focus on individual participants for remote attendees.

Currently, Ally’s offices are open to vaccinated individuals only.