The top technology trends for banks in 2021

Banks and savings banks will also be “accompanied” by the corona virus in 2021.

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It is very likely that we will see increased consolidation among banks in 2021. This is primarily due to the economic consequences of the Corona crisis. The state is currently keeping many companies artificially alive. This will not go on forever, despite renewed help for corporations like TUI. With a time lag, there will be widespread loan defaults. The result is financial difficulties, which will also place extreme demands on the banks’ risk management. In this way, some institutions are forced into mergers in order to be able to counter the assumed risks with sufficient liquidity.

However, mergers are also likely from a general strategic and economic point of view. Larger international acquisitions are to be expected as the market is simply overbanked and technologies are changing many banking services. In addition, institutes are withdrawing from the area overall. Emergency closings of branches due to Corona become permanent conditions, also because customers have learned that banking works without a physical presence. Prominent examples of the downsizing of branches are currently above all the Deutsche Bank and Commerzbank, but the closings do not stop at the cooperative banks and savings banks either.

If legacy farewell, it will be in 2021

With rising debts and shrinking equity capital, the “competitive edge” is pushing cost efficiency to the fore. Our study also shows this Competitive advantages in the decision-maker check. Almost every third financial service provider says that an efficient cost structure is their competitive advantage. In the coming years, more than 40 percent want to gain a head start in this area and build on existing strengths, according to the survey from the third quarter of this year.

Banks will once again turn every stone in the search for options as to how they can work faster and more profitably. The conversion to IT companies with financial products will therefore accelerate again in 2021. The central lever for more cost efficiency can be found in the “Run the Bank” area. The banks can hardly afford the maintenance and further development of established legacy systems.

The past year should and will act like an additional rocket stage for institutes in order to reduce complexity, interfaces and third-party systems. In December 2021 we will see some banks at a significantly higher level of standardization. In addition, in 2020 institutes experienced almost inevitably that they had to shake off ballast and that cooperation with partners did not just have to mean more complexity. The trust in outsourcing has grown. This will be noticeable in 2021.

Cloudy prospects

Cloud computing is an important piece of the puzzle in the banks’ efficiency and earnings offensives in the coming year. Cloud solutions will gain in importance both when moving your own IT infrastructure and when using software as a service.

By reducing local computing capacities and using resources more efficiently, cloud architectures make a significant contribution to reducing costs. In addition, they enable more flexibility and high scalability – two important factors that banks need for the development of digital and data-driven business models. And: Cloud services make banks more secure. Data security and system reliability increase. For every fourth decision-maker from banks and insurers, data security is now a key advantage of using the cloud, according to the study Cloud in Europe.

In 2020, a basis of trust was established between banks and cloud providers. The requirements of banking supervision are much clearer today. The skepticism of recent years has therefore crumbled significantly. Major banks and IT service providers in the financial sector are now cooperating with major US cloud providers. In 2021, more institutes will look at public and hybrid clouds, and multicloud environments will establish themselves in order to avoid vendor lock-in effects.

Artificial intelligence has to deliver

Cloud computing is also a central component that banks need to use other digital technologies. Because there is a lack of cloud environments, institutes are not exploiting the potential of artificial intelligence, for example. Advances in one technology fertilize advances in the other. However, 2021 will not be a year in which banks invest a lot of budget in trial projects. AI applications must have economic benefits and either generate income or reduce costs.

The greatest benefit that AI currently offers together with Robotic Process Automation (RPA) is the automation and acceleration of processes. There are still too many repetitive processes that make banking operations unnecessarily expensive, because under-challenged people are involved who should and want to advance the bank’s business. This potential for automation exists internally, for example in the IT helpdesk, as well as in the core business, including the comparison of transaction lists in payment transactions.

The expectations that AI and other technologies will improve customer service and that customers will also feel personally supported digitally with the help of machine learning have not yet been fulfilled. A breakthrough in the next year is also not yet to be expected – even if advanced chatbot solutions will be easier to implement through pre-trained language models and standardized connectors to neighboring services. Corona will act as a catalyst in this area too. In 2020, the digitization of customer relationships was driven forward so strongly that many banks will follow up on it. Further rapprochement between financial and IT groups in this area is very likely.

Green banking fuels digitization

Looking ahead, green banking will develop into a new source of income, but potentially also a cost driver. Not only because of the pandemic, but also because of set climate targets and protest movements, there is an increased affinity for sustainability in the population. This also reaches the finances and leads to an increased demand for sustainable investments and ecologically acting institutes. Many customers are also willing to pay more for it.

2021 will therefore be a year in which banks will deal more intensively with this trend. We have already seen board members putting sustainability at the top of their strategic agenda. Large institutions also want to climb the rankings of the best eco-banks. However, it will not be enough to add a few sustainable finance products to your portfolio and advertise them. Green banking will have an impact on the entire banking business – including processes and internal structures. Institutions have to implement EU regulations and develop new risk models that take new standards into account. It is to be expected that banks will increasingly invest in green IT that uses less energy and whose providers have sustainability concepts. The eco-boom will also fuel the technological renovation of the banks.

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