The existence of legacy technologies is one of the most fundamental difficulties that traditional banks encounter when attempting to restructure their organizations. Banks lose operating efficiency as a result of these changes, which demand large investments and attempts to adapt to new technologies. Despite the fact that banks are aware that legacy technologies are a major impediment to their expansion, change is tough. They are confronted with a number of issues, one of the most pressing of which is a lack of modern technology skills and knowledge.
The fact that legacy systems offer banks with a sense of reliability, familiarity, and security contributes to their aversion to digital transformation. Strategic cooperation is the answer to this problem. A bank’s transition can be accelerated by partnering with fintechs and cloud service providers. Banks must examine their fundamental IT structure, invest in capabilities essential for their new business plan, lose capabilities that they are unable to manage effectively, and partner with other enterprises to cover areas where they are inefficient.
APIs, which are pieces of code that act as a “bridge between two apps,” are essential for connecting with third parties and are at the heart of open banking projects. APIs, on the other hand, aren’t just for using the services of third parties. Banks should treat APIs as a high-profit asset that can be used to drive company innovation and generate new scalable revenue streams.
Aside from strengthening core technologies and developing an API strategy, banks must also integrate digital technologies into their operations, utilizing the full potential of technologies such as Artificial Intelligence (AI) and Virtual Reality (VR/AR). Although the latter’s application may not appear obvious at first, businesses such as Intel, Magic Leap, and Microsoft are making significant progress in the use of mixed reality to augment human skills. Creating various virtual places in which to work and control objects in 3D, or allowing individuals to speak with someone thousands of kilometers distant as if they were in the same room.
Banks can use AI to improve their operational efficiency in three ways:
- The user’s personal AI assistant will communicate with a bank official or directly to their digital banking system at the front desk, on a conversational layer. Banks will also use chatbots and voice assistants to imitate their own real staff, enhancing client connections and giving personalized insights and recommendations.
- To detect and prevent fraud in middle office tasks, as well as to improve anti-money laundering (AML) and know-your-customer (KYC) regulatory checks.
- Back office, underwriting, and the classification and administration of a large number of documents.
Banks, on the other hand, should look far beyond the use of AI for cost-cutting purposes. Enterprise growth, profitability, and sustainability will be driven by workers with better AI capabilities, improved customer interactions, and the development of more intelligent goods.
The winning techniques used by banks undergoing an AI-induced transformation will figure out how to best take advantage of these prospects. These plans include a comprehensive AI strategy that spans all of the bank’s business lines, offers usable data, and establishes collaborations between qualified employees and external partners.
To improve their overall experience and capabilities, firms should focus on facilitating natural interaction between smart devices and people. Banks will also need to work on implementing digital infrastructures like blockchain technologies to digitize identity and reputation, as well as automate all forms of contracts, which will eliminate friction and provide for a long-term competitive advantage.