IDC sees use of behavioural analytics among 10 finance predictions
The use of behavioural analytics is among 10 finance predictions made by IDC Financial Insights for the next one to three years. IDC predicted that analytics in compliance, fraud and cyber prevention and detection will be used by 15% of banks next year in a bid to avoid regulator fines. Other predictions include distributed-ledger technology, or blockchain, being adopted by 20% of global trade finance by 2020, and cloud technology cutting 25% of infrastructure spending by top-tier banks within the next three years.

By Marc DeCastro, Research Director, IDC Financial Insights

Despite the significant changes already witnessed in the financial services industry over the past 10 years, the changes from 2017 to 2020 will be unprecedented. The impact of a scaled-up digital transformation (DX) economy on our industry will see more enhanced customer experiences, a proliferation of next-generation security solutions, the expansion of cognitive and artificial intelligence (AI) technologies, and robotic and automated solutions aimed to improve efficiency and overall profitability. As part of this digital economy, new rules for competitive success will be built, there will be new roles for IT leaders, and fintech vendors will be presented with new requirements and challenges to the status quo.

At IDC Financial Insights, we recently published our IDC FutureScape, which is a planning tool for technology leaders and their line-of-business (LOB) counterparts to use in their IT strategic planning efforts. Developing a business strategy that takes into consideration the needs of IT initiatives as well as line of business is a delicate task. The predictions in this article can be used to help determine where best to invest based on the overall market and industry trends.

The challenges of the industry today continue to be shaped by trying to match fintech innovations while resources are scarce and regulatory burdens persist. In addition, the changing needs and expectations of both customers as well as employees creates an environment where banks must continue to innovate or they will find themselves in a situation where they need to rapidly invest to simply catch up with the competition. Here are the 10 predictions for the next one to three years.

Prediction 1: Behavioral Analytics Across Compliance, Fraud, and Cyber Detection/Prevention Will Be in Place in 15% of Banks in 2017 to Help Avoid Regulatory Fines and Sanctions

Prediction 2: By 2020, Blockchain/Distributed Ledger Technology Will Be Adopted by 20% of Trade Finance Globally

Prediction 3: By 2019, Cloud Adoption Will Reduce Infrastructure Spend by 25% Among Top-Tier Banks

Prediction 4: By 2018, There Will Be a 15% Increase in Worldwide Mobile Payments Using NFC, Reflecting Continued Uncertainty in Who Will “Own” the Device

Prediction 5: Disruptive Technologies Including Cognitive, Robotic Process Automation, and Blockchain Will Be in Use at 50% of Banks Worldwide by 2020, Accelerating Digital Transformation by 30%

Prediction 6: Investment in 3rd Platform and Innovation Accelerators Will Grow at Twice the Rate of Overall FSI IT Spend Through 2020 as Global IT Spending Surpasses Half a Trillion U.S. Dollars

Prediction 7: In an Effort to Boost Live Chat Customer Interactions, 20% of Banks Will Begin Proof-of-Concept Projects to Integrate Conversational Interfaces in Their Omni-Channel Strategy in 2017

Prediction 8: By 2018, Virtually Every Wealth Management and Capital Market Firm Will Have Built or Licensed a Robo-Advisor Platform or Leveraged Artificial Intelligence to Manage Funds

Prediction 9: By 2019, Usage-Based Insurance Enabled by Internet of Things Will Account for at Least 15% of the Global Vehicle Insurance Market and 10% of the Global Home Insurance Market

Prediction 10: While Widespread Adoption Will Be Slow, in 2017, Cognitive Technologies Will Be Deployed in 15% of Banks, Providing Consumers with “Voice Banking” on Numerous Devices

Our research has also developed seven drivers that both CIOs and their business partners should consider over the next 36 months as they are planning short term and longer term objectives. The list is not meant to be exhaustive nor is it meant to be final. IDC Financial Insights publishes a new list of drivers annually, and many are evolutionary. Last year’s drivers were instrumental in developing this list, just as this year’s drivers will be critical to the formulation of next year’s drivers.

Of the seven drivers, it became clear that some drivers had further reach within financial services than others. These drivers are more far reaching and thus are likely to have the most complexity and cost in implementation. A summary of key drivers below are in order from the number of times they were cited by the global analyst team as impacting the prediction.

Driver 1: Staying Relevant: New entrants and products are disrupting the financial industry.

Driver 2: Digital Transformation: Technology-centric transformation is altering business and society.

Driver 3: Everything, Everywhere: The rise of cognitive and computer-based intelligence.

Driver 4: Enterprise Architecture:Integrating innovation into the bank’s existing infrastructure.

Driver 5: Global Volatility: Competition, power, and risk play big roles.

Driver 6: New Nature of Risk:Innovating to defend against bad actors and comply with increasing regulatory compliance.

Driver 7: Platform Economy:The ecosystem battle for scale.

Some specific essential guidance includes:

When it comes to behavioral analytics, particularly as it relates to cyber detection and fraud prevention, find solutions that can reduce the number of false positives while aggregating across multiple data sources. To help with the ROI, reuse the data for cross sell and up sell opportunities.

Cloud adoption works best after you have developed methods that can measure the true business value. Over time, cloud adoption will continue to spur innovation and will become a key platform for delivery of IT services.

Developing solutions that focus on disruptive technologies – including cognitive, robotic process automation, and blockchain – will be key on differentiation amongst banks. However, the skill sets required for these disruptors is neither inexpensive or readily available, therefore leverage third party expertise in these areas.

Voice banking as a channel will be slow to catch on, however there are aspects within voice that can be used to create an improved user experience, particularly as it relates to improved security and authentication. The strategy for voice banking needs to begin early, while regulatory guidance will likely be ramped up in the coming months as there are still numerous questions around who owns the experience for natural voice banking solutions.

The predictions in our study are a culmination of the tenants of our research over the past few years. Innovation has reached the point of disruption for financial service firms of all sizes and geographic locations. To be successful, one must continue to search for the value associated with offering new services for their customers, transform the enterprise with innovative solutions, deploy the right mix of tools to minimize risk while meeting regulatory requirements, and protect the brand from internal and external threats.

About Marc DeCastro : An industry veteran, Marc provides extensive information technology expertise to assist IT managers with all facets of web-based technologies for online strategies within financial institutions, including home based banking, bill payment, check imaging, cash management services for corporate and legacy system data transformation.

Mr. DeCastro regularly contributes to the FinTech blogs in the IDC Financial Insights Community (http://idc-insights-community.com/financial). His Twitter handle is mdecastro.