In the blink of an eye, consumers have evolved from being wary of mobile banking to casually quizzing robots in their home about their spending habits.

Innovation in banking will continue at its rapid pace in 2018 as more of every bank’s budget is earmarked toward technological development, said Mitch Siegel, financial services strategy leader for KPMG.

“As we moved through 2017, we saw a marked pivot from investments in compliance infrastructure to investments aimed at growth, scalability, simplicity and future-looking business models,” he said.

American Banker spoke with several banks, industry analysts and technology companies to learn what technology efforts will take priority in the new year. Here are five areas of focus.

‘A more predictive state’
At the top of many industry minds is the advancement of artificial intelligence.

Machine learning and AI will help banks automate to a greater degree, as well as serve customers better, noted Siegel.

“We see organizations beginning to greatly simplify processes through intelligent automation, which in turn helps to expose enterprise data that has been traditionally trapped in complex core systems,” he said.

“Organizations have traditionally offered products and services to large groups of customers who looked and felt similar, but who actually had quite different characteristics in their buying behaviors, motivators and satisfiers,” Siegel added. “With data, it is becoming increasingly possible to create services and experiences tailored to each individual.”

Areas in technology banks will be investing in 2018

As AI and cognitive technologies mature, Siegel foresees a “more predictive state where banks can begin to move toward the future with voice-enabled banking and wealth services that can help both consumers and commercial organizations make more informed decisions to better enable financial transparency.”

AI is a powerful tool for banks thanks to its ability to harness vast quantities of data to learn more about customer patterns and behaviors, said Steve Ellis, head of the innovation group at Wells Fargo.

“As a society, we’re creating more data than ever — it’s a gold mine, provided we continue to find efficient ways to sift through it,” Ellis added. “We’re already using AI tools such as predictive banking and chatbots to provide basic information and recommendations that can help customers make better ‘in the moment’ decisions. As AI continues to mature, we expect to expand the insightful, personalized experiences and solutions we can offer customers and team members. We believe AI will touch nearly every piece of our business in some way.”

This also includes customer interactions with their bank using voice-enabled devices such as Amazon’s Alexa, said Scott Hess, vice president of user experience, consulting and innovation at Fiserv.

“As consumers become more comfortable with voice-enabled technology, they will begin using it for financial interactions,” he said. “Initially these will be informational activities — such as checking balances and accessing account activity, but as comfort grows we’ll see consumers initiating transactions such as paying bills or transferring funds.”

Chatbots will also grow in sophistication over the coming year and begin fulfilling their true value proposition of providing automated advice in real time, said Paul Schaus, president and CEO of CCG Catalyst Consulting Group.

“Chatbots are just starting to move towards being more prescriptive, allowing them to suggest products or actions to users,” he said.

For example, Schaus noted American Express’ latest version of its chatbot for Facebook Messenger that can help customers choose which card to apply for, and how Bank of America’s Erica chatbot is being trained to provide recommendations to help customers save more or pay down debt.

“Both chatbots are also being trained to conduct transactions — another important step forward for chatbots’ maturity,” he added. “Making chatbots more prescriptive will require training them with more diverse sets of data. Data from transactions that the chatbots themselves conduct will help with that, but in the end it will require the hard work of breaking down data silos and cleaning up customer data sets to reap the full benefits of these intelligent agents.”

‘Entry of new competitors’
Regulatory developments such as the OCC’s fintech charter, along with some fintechs applying for industrial bank charters, will lead to nonbanks competing even more in the banking space, and ultimately more partnerships, some say.

“We anticipate that efforts to change regulation will be largely successful and result in the entry of new competitors, from Amazon to new fintech companies,” said Larry Edgar-Smith, executive vice president, North America, for the Swiss core banking vendor Temenos.

This in turn means “most banks will choose to partner and integrate through APIs to create an ecosystem,” he said, referring to application programming interfaces.

Indeed, many banks are planning to seek out more allies in the fintech space.

“Banking services are continuing to become ubiquitous and embedded as enablers for businesses rather than expenses to be managed,” said Tapodyuti Bose, managing director, global head of channel and enterprise services at Citi Treasury and Trade Solutions.

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“In this environment, the use of APIs will allow banks to offer their services in open and easily integrated ways. Solutions from banks though APIs will reach a critical mass that will drive the creation of new digital products and services, shifting customer experiences yet again.”

This will naturally lead to more partnerships, he added, noting Citi’s participation in blockchain collaboration networks. “This approach of working closely with clients to innovate and co-create with new entrants will become an increasingly common model in 2018,” he said.

Some foresee 2018 as the year of interconnected banking, where banks will collaborate and partner closely with fintechs, enterprises, retail consumers and market systems, noted Chet Kamat, CEO and managing director of Oracle Financial Services.

“These connected ecosystems will enable firms to share data and services and provide unprecedented value to their customers through innovative, personalized and convenient services anywhere, any time,” Kamat said. “[They] will continue to evolve as networks of financial firms as well as broader networks that bridge related value chains and firms across multiple industries.”

Greater scrutiny of security protocols
Guarding against cyberattacks and protecting a bank’s data and systems will remain a high priority. This will include a greater scrutiny of bank vendors’ security protocols, said Rich Baich, chief information security officer for Wells Fargo.

“In 2018, a vendor’s security posture will become fully integrated into companies’ purchasing decisions,” he said. “Companies will work to better integrate their own security operations with their key vendors, ensuring that vendors are held equally accountable for security incidents that occur throughout the life of the relationship. [We] will also see a greater awareness of and concern with so-called fourth-party vendors— the suppliers of your suppliers.”

With the proliferation of banking done on smartphones, also expect to see more focus on biometrics as an authentication method, said Citi’s Bose.

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“The penetration of smart phones with high quality sensors is driving down the traditional use of passwords,” he said. “While banks have introduced some biometrics as part of their multi-factor authentication or for low risk situations, the technology is reaching a maturity that will allow for new uses. With a combination of active biometrics — such as face, voice, fingerprints — and passive biometrics, such as behavioral interaction with the system, there will no longer be a trade-off between security and convenience.”

‘Brain of the bank’
The continuing trend of banks innovating for commercial clients will also continue, some predict.

“The emphasis on digital transformation and customer experience will become a top priority for commercial banks in 2018,” noted Carl Ryden, co-founder and CEO of the pricing management platform provider PrecisionLender.

“We've already seen some of the best commercial banks doing this by evaluating their customer interaction tools to build what we call the ‘brain of the bank,’ which allows the data to flow seamlessly from one end of the bank to the other.

“Commercial banks will also use AI and intelligent virtual assistants to provide actionable insights that drive better conversations, better outcomes, and more opportunities to cross sell and build stronger relationships,” Ryden added.

Cross-border payments
Today, the life cycle of an international payment involves multiple players and handoff points, according to Mike Massaro, CEO of the international payments and receivables processor Flywire. To make these global transactions easier for payers and receivers, banks will have to accelerate their progress and level of innovation in the area of cross-border payments, he added.

“We saw some good signs in late 2017 with a flurry of announcements about cross-border payment initiatives from big names including Citi, First Data, IBM, JPMorgan Chase, Mastercard, PayPal, Royal Bank of Canada, Swift and Visa,” noted Massaro.

“Banks will always play a critical role in the cross-border ecosystem. These recent announcements show more promise, but will they drive real innovation? 2018 will tell us a lot.”