According to the latest Gartner Hype Cycle for Digital Banking Transformation, banking-as-a-Service (BaaS) will hit mainstream adoption within two years. Gartner predicts that 30% of banks with greater than $1 billion in assets will launch BaaS for new revenue by the end of 2024, but half will not meet targeted revenue expectations.
BaaS is one of four technologies Gartner says has a high level of transformational potential in the banking sector and is likely to mature in the coming years. Other technologies include chatbots, a public cloud for banking, and social messaging payment apps. His CIO at the bank should consider how key innovations are shaping the industry and prioritize technology investment strategies accordingly.
BaaS sits at the peak of the Hype Cycle (see Figure 1). The technology is gaining traction from both banks and nonbanks aspiring to establish or enhance direct and intermediated revenue streams.
“Technology innovations like these are driving bank and nonbank competitor activity, influencing customer demand for products and services, and shaping regulators’ actions globally,” Casey said.
BaaS is an individual bank offered by franchise banks or regulated entities to power new business models adopted by other banking market participants (fintechs, neobanks, traditional banks, and other third parties). Or it could be a broader financial services function. Market participants are increasingly attracted to collaboration models that nable improved customer experiences such as: B.Richer features, broader product offerings, and innovative customer experiences. Rather than pursuing their own charter, non-bank participants benefit from a faster entry into the banking market by utilizing a regulated entity license.
Chatbots represent one of the major use cases for artificial intelligence (AI) in banking, impacting all areas of machine-human communication. Chatbots are mostly used in customer service, IT service management, or human resources, but their uses are very diverse. The shift from “user learning her UI” to “chatbot learning what the user wants” will impact onboarding, training, productivity, and workplace efficiency. The maturation of the enterprise conversational AI platform market has improved tools for banks to build and maintain chatbots using non-IT resources. Production of chatbots becomes a more productive activity due to operationalization in non-IT lines of business.
Public cloud adoption is becoming highly transformational to the banking industry since banks can achieve a greater level of efficiency and agility by moving workloads to the cloud. Public cloud for banking delivers banking-specific software within a public cloud ecosystem, by integrating those applications with different degrees, from cloud-based to fully native. Banks achieve agility by rapidly scaling up and down to support changes in demand and meet regulatory compliance by delivering on temporary demands. Resources are freed up for the development of digital assets by centralizing and optimizing them; fixed costs are reduced by avoiding oversized infrastructures, and cost structures are optimized. Banks are also able to centralize applications and platforms that ease development and testing, avoiding overlapping or duplications.
Social messaging payment apps rely on instant messaging platforms to initiate payment transactions. The messaging app interface is used to register payment accounts and initiate and monitor related trading activity. Modernization of payment infrastructure and the ability to leverage open banking and payment APIs has provided new access for social messaging apps to offer payment services. The advent of social messaging apps has changed both shopping and payment behavior, especially in Asia. Kakao Pay, LINE Pay, WeChat Pay, and WhatsApp Pay demonstrate how social messaging apps provide contextual data and an interface for customer interaction.
The biggest benefit of real-time payment adoption is increased control over money flow. As real-time payments continue to grow more popular, consumers can have greater access to funds, less economic anxiety, and faster payroll to avoid economic uncertainties. Individuals can have more power and control over their financial lives and peace of mind when it comes to monetary matters. Greater real-time payment integration could be a game-changer for everyday consumers.Mr. Chandresh
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