By now the banking industry has grown intimately familiar with the prospect of disruption. A new wave of technological advancements is ready to upheave the industry again in 2015, bringing both opportunities and challenges for banks.
The bond marketplace is ripe for an upset. In contrast to equities and other products in the capital markets, most bonds continue to be traded over the phone. Dealers take calls from buyers and sellers and match them with one another. But dealers and their telephones can only keep track of so many client preferences and inventories.
This may be the year that the bond markets embrace increasingly functional and robust electronic marketplaces. New technologies use consumer preference and data analytics to ensure that buyer preferences get matched with the appropriate bond issuers. The shift to electronic technology may be propelled by growing dissatisfaction among players who argue that an outdated dependence on the telephone is limiting liquidity in the bond markets.
Risk management is also primed for an overhaul this year with anti-fraud technologies that pull information from Facebook, LinkedIn and Twitter. By analyzing customers' social media accounts, banks can be in a better position to identify fraud.
Banks' loan application processes could be transformed if they use big data and analytics to identify accounts that raise questions about the legitimacy of customer identities. Anti-fraud technology can root out Facebook accounts with no friends, LinkedIn profiles that lack information and Twitter accounts that do not tweet. The customer on-boarding team could then use this information to make further inquiries. The ability to harness and analyze this kind of unstructured data will present major opportunities to both vendors and banks in 2015.
Technology is also set to offer new opportunities to developing economies. The past decade has already given rise to the wind-up radio, desalination technologies and micro finance. Now mobile payments are giving people in countries like Kenya access to financial services that they had long lacked. Lending clubs based on peer-to-peer platforms, which have gained significant traction in the past year, are another innovation that can offer opportunities in less developed economies.
Some changes pose more of a threat to the banking industry. Brick-and-mortar retailers like Wal-Mart have already moved into banking. Now Chinese e-commerce giant Alibaba has started a banking operation. Fast-improving technologies such as mobile payments, big data and cloud-based services play a major part in the upside potential that new players see in the financial services marketplace. Incumbent banks will need to respond to the challenge.
In addition to these specific threats and opportunities, banks will grow increasingly aware this year that they are dealing with a new kind of customer. Today's young, tech-savvy customers are used to getting quick access to services through mobile apps and are easily bored by old, overly bureaucratic forms and procedures.
What should banks do about the opportunities and challenges presented by new competitors, customers and technologies? The answer is simple: embrace them.
Banks need to make investing in a portfolio or applying for hurricane insurance as simple as buying a raincoat online. And they need to make identifying fraudulent customers just as easy as not identifying them. By harnessing the advanced technology that is powering their competitors, banks will have a better chance of staying relevant.
Andrew Waxman writes on risk and compliance issues in capital markets. He is a consultant in IBM's Global Business Services' financial markets risk and compliance practice and can be reached at email@example.com or on Twitter @abwaxman. The views expressed here are his own.