The future of banking in the EU: Four trends

The EU has seen banking technology evolve so rapidly that customers are not always able to keep up. I will be sharing my insights on some of the most remarkable innovations and future developments in banking.

Security and environmental factors

It is clear that 2020 was the year of the breakthrough. COVID-19 took the world by surprise, and forced the bank to accelerate its transformation. This resulted in banking entering the digital age much more actively than ever before.

Customers and financial service providers have both come to rely on digital services. Many customers were reluctant to use digital services for security reasons and fear of cyberattacks. But they are now open to the possibility. It was easy to see the amount of security work that has been done and the importance of investing in anti-money laundering.

It is AML and cybersecurity that have made a significant impact on banking over the past few years. If one takes a look at the statistics – regular surveys show that financial institutions tend to allocate at least 10% of their IT investments to cybersecurity each year, and overall, the value of the cybersecurity market in Europe could reach $55 billion by 2026. AML professionals are being given more attention. Allied Market Research estimates that the global AML market was worth $879 million in 2017, and could reach $2 billion by 2025.

Artificial intelligence is rapidly developing

Artificial Intelligence is another fundamental, and possibly even the most important thing that has changed the banking industry. AI is an integral part our everyday lives. It is also used in many other fields. Well, the impact of AI in banking itself should be divided into two parts – the extent to which it has changed and will change everyday life for customers and the extent to which it has influenced, and will continue to influence the financial institutions themselves.

AI and its algorithms excel at analysing data and generating relevant insights. This greatly speeds up the process of assessing credit risks and credit issuance. This saves both time and benefits the customer and financial institution. The customer is able to receive service anytime of the day, and the employee is not required to deal repeatedly with the same situations. This is only a small part of the many benefits that AI can bring to our lives.

AI banking will play an important role in the future. Surveys show that AI has many more benefits than anticipated. Statista, an online research platform, conducted a survey among financial services companies in 2021. It found that more than half (60%) had said that AI had helped them in ways they hadn’t expected.

Open Banking

2018 was an important year for banking reform and the evolution of its characteristics. At the beginning of 2018, the EU’s second Payment Services Directive (PSD2) came into force and opened up access to payment service users’ data to financial service providers and third parties.

In short, so-called open banking has emerged, where the directive requires a bank to provide another service provider (third party) with information about the customer’s account, as well as access to it to initiate a payment service, with the customer’s consent. Again, this is a step that has made everyday life much easier, for example, by making it much easier for consumers to pay for goods and services in a variety of places: access to account and payment services is now not only available in the bank’s own environment, such as online banking or a mobile app, but also through a variety of other electronic solutions.

The EU is a leader in open banking, and it is well ahead of other countries. In the future, open banking is expected grow in popularity. Statista reports that 12 million people in the EU used open banking in 2020. In 2024, more than 63 millions are expected to use it. Comparatively, open banking was used by just 7.7 million Far East consumers in 2020. 28 million are expected to use it by 2024.

Banking as a service

Banking as a Service is another important development that has impacted banking. This has increased the possibilities for banks and made it easier to do business. This means that non-banking corporate product can offer digital banking services for their customers even if the license is not required. This is possible when licensed financial service providers combine their digital banking services.

BaaS will no doubt continue to bring about positive changes and provide benefits for the future. According to Verified Market Research, BaaS’s global market value in 2020 was $356.26 billion. It could double to six times by 2028. It is important to note that around one third of the BaaS market was located in Europe, according to the research.

BaaS creates a win-win scenario for customers, financial services providers, and other non-banking organizations. Customers receive simple solutions at minimal time and costs. Non-banking businesses can also offer financial services through licensed financial service providers. Additionally, licensed service providers can access additional markets and have more opportunities.

Many changes have occurred in the banking sector over the past few years. The EU has introduced some of the biggest. The European Union was once dominated primarily by large, conservative banks. But, the banks that are fast and innovative have now taken over. They simplify banking for small- and medium-sized enterprises and are innovating the financial sector.

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