Which tech has the greatest potential to transform banking?

In the long shad­ow of the 2007-08 glob­al finan­cial cri­sis, con­cur­rent advances in three tech­nolo­gies – smart­phones, 4G cel­lu­lar net­works and cloud com­put­ing – sparked an explo­sion of inno­va­tion in finan­cial ser­vices. Their con­ver­gence enabled mobile bank­ing: the sector’s most sig­nif­i­cant devel­op­ment in gen­er­a­tions.

Just over a decade lat­er, the indus­try is again “on the cusp of anoth­er inflex­ion point”. That’s the belief of Prakash Pat­tni, MD of dig­i­tal trans­for­ma­tion at IBM Cloud for Finan­cial Ser­vices. He pre­dicts that progress in tech includ­ing 5G, blockchain, arti­fi­cial intel­li­gence and quan­tum com­put­ing will trig­ger “anoth­er spurt” of inno­va­tion. 

“Peo­ple talk about data being the new oil,” Pat­tni says. “Well, blockchain is the new oil rig, and AI is the new refin­ery. The com­ing togeth­er of these things makes it an excit­ing time to be part of the indus­try.” 

Giv­en that R&D is noto­ri­ous­ly cost­ly and suc­cess is nev­er guar­an­teed, how do banks approach exper­i­ment­ing with tech that might just as eas­i­ly fall by the way­side as rev­o­lu­tionise their indus­try? 

As head of inno­va­tion, glob­al func­tions, at HSBC, Steve Suarez is par­tic­u­lar­ly well qual­i­fied to answer this. He believes that the secret to suc­cess­ful inno­va­tion is to stay focused on “how to make things cheap­er, faster and fric­tion­less for peo­ple”. The bank is “con­stant­ly scan­ning the hori­zon to see how we can apply new tech­nolo­gies. We want to gath­er data that enables us to per­son­alise bank­ing and give our cus­tomers what they need, quick­ly but also secure­ly.”

The Lon­don-based Amer­i­can applies what he calls a “three hori­zon” approach to inno­va­tion. Hori­zon one con­cerns “the stuff that we already know well and will incre­men­tal­ly improve things in the short term. Hori­zon two, which is about two or three years from now, con­cerns tech­nolo­gies that are fair­ly new to the indus­try – blockchain, for instance. We look at how we can pro­vide use cas­es with these to make the bank bet­ter.” 

He con­tin­ues: “And then there is hori­zon three, which is about the long shots. Right now, they include the meta­verse and quan­tum com­put­ing, which could turn out to be a game-chang­er for finan­cial ser­vices.” 

The pos­si­bil­i­ty that a hori­zon-three punt might come off is clear­ly excit­ing to Suarez, but he’s care­ful not to get too pre­oc­cu­pied with the poten­tial ben­e­fits of such tech. 

“We’re all bet­ting on these tech­nolo­gies to achieve an advan­tage. There are huge oppor­tu­ni­ties, but we also need to look at the risks from a secu­ri­ty per­spec­tive and work out how we might need to struc­ture our­selves,” he says. “As we process 1.5 tril­lion trans­ac­tions a day, we under­stand our great respon­si­bil­i­ty to pro­tect all cus­tomers.”

HSBC’s recent hori­zon-three R&D activ­i­ties have includ­ed hir­ing experts in quan­tum com­put­ing and announc­ing a three-year col­lab­o­ra­tion with IBM to explore appli­ca­tions for this nascent tech and so ensure its “organ­i­sa­tion­al readi­ness” to take full advan­tage of it. 

The bank has also bought a plot of vir­tu­al real estate in an online gam­ing space called The Sand­box, mark­ing its first sig­nif­i­cant for­ay into the meta­verse. 

The term ‘meta­verse’ was coined by sci-fi writer Neal Stephen­son in his 1992 nov­el Snow Crash. He was refer­ring to a dig­i­tal realm in which humans, avatars and soft­ware pro­grams could inter­act and where prop­er­ty could be pur­chased. Suarez indi­cates that HSBC intends to stay loy­al to Stephenson’s orig­i­nal mean­ing. 

“We will be build­ing on our plot, putting in vir­tu­al sta­di­ums and work­ing out how to bet­ter serve our cus­tomers,” he says, hint­ing that the bank might seek to engage with sports and e‑sports fans in the meta­verse.

Jehangir Byra­mji is senior inno­va­tion man­ag­er and fin­tech lead at Lloyds Bank­ing Group. He also rev­els in explor­ing poten­tial­ly trans­for­ma­tive emerg­ing tech and “analysing weak sig­nals from oth­er mar­kets and regions that the bank can use in the future”. 

Byramji’s approach is slight­ly dif­fer­ent from that of Suarez, though. He organ­is­es the bank’s IT inno­va­tion work into three broad cat­e­gories: data; AI (par­tic­u­lar­ly machine learn­ing); and Web3 (tech based on decen­tralised sys­tems such as blockchains) and the meta­verse. 

“On the data pil­lar, there’s this whole idea of ‘hard’ and ‘soft’ iden­ti­ties. Younger peo­ple are more wor­ried about los­ing their social media pro­file than their pass­port,” he says. “They are more like­ly to embrace machine-to-machine pay­ments. As a bank, you there­fore need to think about non-tra­di­tion­al ways of pro­cess­ing their data.” 

In this cat­e­go­ry he also places dig­i­tal twins – vir­tu­al rep­re­sen­ta­tions of real enti­ties “to help you under­stand both your own organ­i­sa­tion and its cus­tomers and clients”.

But Byra­mji is most enthused by the lat­est devel­op­ments in machine learn­ing. “You’re going to see more intel­li­gent agents, just as much in the phys­i­cal world as in the data realm,” he says, adding that the inter­net of things will play a key role in this field. “Some of our clients have con­nect­ed fac­to­ries or farms – the lat­est com­bine har­vesters are cov­ered in sen­sors, for instance – so we’re ask­ing how we can use the data these smart machines gath­er in an intel­li­gent way and work with clients to bet­ter serve them.”

Giv­en the sheer range of pos­si­bil­i­ties, banks must remain focused on use cas­es that are most like­ly to ben­e­fit the cus­tomer, Byra­mji stress­es. Oth­er­wise, it’s a waste of time, mon­ey and effort. 

“We’re start­ing to see quite gim­micky AI, with deep-fake videos and things like that,” he says. “While they are inter­est­ing devel­op­ments, we have to remem­ber our first prin­ci­ple: bet­ter serve our cus­tomers.”

That said, Byra­mji can’t help but be fas­ci­nat­ed by the longer-term poten­tial offered by Web3. 

“Banks are unpick­ing blockchain tech­nolo­gies more effec­tive­ly than they did a few years ago. We are start­ing to under­stand smart con­tracts and oth­er capa­bil­i­ties that min­imise risk and build trust,” he reports. “With these relat­ed tech­nolo­gies, I think we can form rela­tion­ships with fin­tech firms, build ecosys­tems, devel­op new mar­kets and unlock some excit­ing oppor­tu­ni­ties.”