By Walter Akolo and Shubham Garg
iCheckGateway.com
The banking industry is radically transforming. The sector experienced strong revenue growth once the effects of the pandemic reduced; however, the growth margins are now shrinking. Additionally, a looming uncertainty festers due to global geopolitical and economic issues.
According to data by McKinsey & Co., banks reached a 14-year high profitability in 2022, and the revenue grew by $345 billion. This happened due to rising interest rates and net margins in the sector. As we look into the future, the banking industry has to restructure to accommodate the new trends and challenges.
With the shift toward digital technologies, especially in payment processing, banks must realign their processes around customer needs. This could be a huge opportunity to earn new revenue streams and higher margins. This article takes a look at how changing consumer preferences and technological advancements drive new banking and payment processing trends.
The banking sector increasingly shifts towards digital banking. Payment ecosystems changed since the beginning of the pandemic in 2020 as more customers moved their preferences to digital and contactless payment models. Because of this, online banking platforms and mobile banking apps became more prominent.
Statistics show that the number of active online banking users rose by more than 2 billion in 2022. This number will continue to grow with the introduction of digital-only banks, also known as neobanks. These new banks don't have physical branches; therefore, they have more streamlined operations to attract younger customers.
A 2021 BIS survey showed that about 60 percent of banks were considering adopting central bank digital currencies (CBDCs). Digital currencies have become more prevalent in most countries as more governments and financial institutions explore the potential of cryptocurrencies and blockchain technology. For instance, Jamaica, the Bahamas and Nigeria have launched CBDCs.
Thanks to this, the decentralized finance (DeFi) market size has also grown as more consumers turn to this technology, since it involves secure digital wallets that can transfer money in minutes without intermediaries. Therefore, banks must adopt payment technologies to compete with this emerging technology.
As digitization progresses, the risk of identity fraud increases. Banks now use biometrics such as fingerprints, heart rate sensors, and voice and facial recognition to authenticate customers. To improve security, banks must partner with payment processors that offer these technologies. This will reduce the scope of PCI data, network and device security standards; minimize identity fraud; and identify suspicious transactions.
Fraudsters are becoming more daring by targeting bank systems through hacks. Modern banks rely on artificial intelligence and machine learning for risk assessment, fraud detection and boosting customer service.
For instance, machine learning identifies customer patterns, performs authentication tests and builds a suspicious activity monitoring system. Therefore, if a bank needs to process checks via the ACH network, it can use machine learning and AI to verify the checks.
The open banking model allows banks to share financial and consumer transactional data with third-party institutions using application programming interfaces (APIs). Therefore, banks can share account information, age, location, credit score, transaction information and income—with consent from the customer.
There's potential for innovation and increased competition in the sector So, bank managers must adopt these models to partner with companies offering advanced payment processing solutions like email invoicing.
Thanks to the rapid evolution of the Internet of Things (IoT), customers can now open bank accounts digitally within a few minutes without visiting a physical branch. In addition, banks will possess the ability to collect information and design products according to the target customer needs.
Customization creates stickiness because it not only enhances the ability of commercial clients to process payments, but it also allows changes to be made quickly, strengthening banking relationships in the fight against attrition. Financial institutions want to keep incoming deposits and loan servicing opportunities available to serve their clients.
With solid customer support in place and third-party processors assisting with strong technology resources, banks will develop 24/7 customer support, taking advantage of the IoT. This technology offers chatbots and virtual assistants to address customer queries. Considering this, financial institutions will process payments much faster and meet their clients' needs.
Facilitated by near field communication (NFC) technology, contactless payments— employed, for example, by wearable technology and mobile wallets—quickly elevated the frictionless payments experience for consumers and business merchants. Peer-to-peer payment models, like Venmo and Zelle, also increased as consumers shifted to digital payments.NFC use is expanding to help with payments in more areas. Banks are adopting their own contactless technologies, such as IVR payments, allowing customers to make transactions over the phone.
Financial institutions invest heavily in technology that can encrypt sensitive customer and merchant data. This is done to enhance data privacy and security in an effort to prevent identity theft and fraud within their systems. The value of partnering with payment processors with highly secure, hosted payment portals that are compliant with PCI data, device and network security standards and Nacha regulations cannot be overstated.
In addition, the banking, payments and fintech sectors continually enhance protocols, upgrading to conform with new regulations and standards to protect customer data and improve the customer experience.
For instance, The Clearing House's real-time payment network and the soon to launch FedNow real-time payments service offer more than speed. They offer safe payments and can be used to reduce operational risk and help detect fraud. (For more information about real-time payments, see "Insider's report on payments: 2023 will be a big year for instant payments by Patti Murphy, The Green Sheet, Jan. 9, 2023, issue 23:01:01.
In 2023 and beyond, banks will pay more attention to customer experiences. They will accomplish this by increasing personalized services to meet client needs. Additionally, they will capitalize on the added value that comes from adopting technologies like chatbots and voice assistants to increase the response time. Thus, merchants and consumers will be able to obtain useful information much faster than previously.
Green technologies remain an important element in every sector. In the banking sector, institutions are increasingly looking to invest in green financing and renewable energy, diverting their funds to green industries.
As progress is made, banks will partner with more eco-friendly businesses for payment processing. Through this, they open the potential to not only encourage sustainability but also increase their margins. For some banks, like Climate First Bank, fostering sustainability through eco-friendly products, services and partnerships is integral to their operations.
Banks and the payment processors and fintechs working with them need to embrace the latest trends to enhance customer relationships and grow their revenue. With the evolving digital economy, these institutions need to provide technologies that meet their customers' needs. It behooves us all to dig deeper to evaluate the nine trends discussed in this article in 2023 and beyond.
As members in the payments industry serving businesses—from SMBs to corporate and enterprise-level entities—we must band together to educate and support them as the digital economy develops to help them accept payments simply, securely and reliably. 
Shubham Garg is a skilled marketing professional who has significantly contributed to the success of iCG. Since joining the iCheckGateway.com team in January 2022, his role has evolved from a digital content creator to a full-fledged marketer and sales support professional. Today, managing a team of writers, Shubham collaborates with colleagues across the globe in addition to hosting webinars and overseeing data mining operations. Walter Akolo is a certified copywriter, blogger, social media influencer and internet marketer. He's been helping businesses increase their reach and conversions since 2011. As part of the marketing team, Akolo helps devise and implement useful digital marketing strategies. To reach them, please contact Nikki Estes, iCG's senior vice president marketing at nikki@icheckgateway.com.
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
Prev Next
