Sibos 2024: Why the future of finance is atomised, embedded, and real time

Written by Dave Wallace
23rd October 2024

The financial services landscape is transforming, driven by technological advancements, changing consumer expectations, and innovative business models.

The convergence of atomisation, embedded finance, and real-time capabilities is creating a new paradigm in financial services

As we look towards the future, three key trends are emerging that will shape the industry: atomisation, embedded finance, and real-time capabilities.

These trends redefine how financial services are delivered, consumed, and experienced.

Atomisation, the process of breaking down traditional financial services into smaller, more specialised components, is a trend that is revolutionising the creation, distribution, and consumption of financial products. This trend offers a promising future, allowing for greater flexibility and customisation in financial services.

Atomisation enables consumers to pick and choose specific services that best meet their needs rather than being locked into a one-size-fits-all offering.

Mobile wallets are increasingly driving this trend. Apple and Google Pay can be loaded with cards for propositions that perform specific functions, such as budgeting, day-to-day spending, FX, and investments, with consumers comfortable with a more comprehensive range of services instead of trusting in one or two providers for everything.

Increasingly, financial providers are reducing costs and improving efficiency by focusing on smaller, targeted solutions.

This trend has led to the rise of niche providers offering specialised solutions, such as micro-investing platforms and AI-powered budgeting tools.

Embedded finance is rapidly becoming a cornerstone of the financial services industry. It involves integrating financial services directly into non-financial platforms and applications, creating a seamless user experience where financial transactions become part of everyday activities.

This trend streamlines payment processes and integrates lending and insurance services at the point of need, enhancing user engagement and satisfaction. The embedded finance market is projected to reach $7 trillion by 2030 (according to Bain & Company), underscoring its growing significance.

In today’s fast-paced digital world, real-time financial services are becoming essential. Consumers and businesses expect instant transactions, immediate access to financial data, and up-to-the-minute insights.

Real-time capabilities enable instant payments and fund transfers, real-time risk assessment and fraud detection, and dynamic pricing based on current data. This shift is driving innovation in technologies like blockchain and artificial intelligence (AI), enabling faster and more secure financial transactions.

As the financial landscape evolves, incumbent banks face significant challenges. One of the main issues is underperformance. Many banks struggle to achieve the returns on equity (RoE) necessary for long-term viability, and this pressure is forcing them to find ways to enhance profitability and justify their valuations.

Legacy systems are another critical challenge. Outdated technology infrastructures hinder banks’ ability to innovate and respond quickly to market demands. This reliance on inflexible IT systems makes it difficult for traditional banks to compete with agile fintech firms and digital-first challengers.

Rising customer expectations further add pressure. Today’s customers demand higher deposit rates, personalised services, and seamless digital experiences. Many banks need help to meet these expectations due to outdated tech and limited digital capabilities, risking the loss of market share to newer entrants.

Competition is intensifying from fintech firms and digital banks. These competitors leverage advanced technologies and customer-centric approaches that are challenging for traditional banks to replicate quickly.

Meanwhile, regulatory pressures continue to mount, with new regulations imposing higher capital and liquidity requirements. Complying with these regulations requires significant resources, further straining banks already operating with thin margins.

Economic uncertainty adds another layer of complexity. Geopolitical tensions, fluctuating interest rates, and unpredictable economic conditions make it difficult for banks to plan for the future and manage risks effectively. This instability impacts profitability and complicates strategic decision-making.

Finally, the competition for specialised tech talent is fierce. As banks attempt to build more innovative and digitally capable teams, they face stiff competition from tech companies and start-ups. Attracting and retaining top talent is crucial for banks looking to modernise their operations and stay competitive.

To overcome these challenges and thrive in the evolving financial landscape, incumbent banks must transform their operations and strategies.

Accelerating digital transformation is a critical step. Banks must adopt flexible and adaptable digital technologies to improve operational efficiencies and meet evolving customer demands. This includes upgrading outdated systems and embracing a digital-first mindset throughout the organisation. The reality for them is that new technology enables a more nuanced approach through phased modernisation. They can update their core systems through a series of projects rather than replacing what they have wholesale. This has enormous benefits from a cost and organisational perspective but also de-risks the process, removing entrenched legacy as an excuse for not transforming.

Building strategic ecosystems is another critical approach. Banks can enhance their service offerings and customer experiences by partnering with fintech and tech companies. These collaborations allow banks to leverage their partners’ strengths, such as specialised technology and innovative business models.

Innovation should be at the forefront of every bank’s strategy. This means launching new business models that leverage flexible, easy-to-deploy solutions and cloud technologies. By embracing these technologies, banks can reduce costs and accelerate time-to-market for new products and services.

Personalisation is also crucial in the future of banking. Banks should utilise advanced data analytics and AI to deliver real-time, tailored financial advice and services. By understanding customers’ preferences and behaviours, banks can provide more relevant and engaging experiences that build loyalty and drive growth.

Exploring new growth areas is essential for banks looking to expand their market presence and diversify their revenue streams. This includes tapping into embedded finance and open banking opportunities, which allow banks to integrate their services into non-financial platforms and provide more seamless customer experiences.

Leveraging incumbent strengths is equally essential. While adopting new technologies and business models, banks should not lose sight of their established strengths, such as brand reputation, customer trust, and extensive regulatory experience. Balancing these strengths with the agility and innovation of a start-up can help banks foster a culture of continuous improvement while maintaining their core functions.

Investment in AI and data analytics is another strategic priority. These technologies can enhance risk assessments, improve customer service, and drive operational efficiencies. By harnessing the power of AI and data, banks can make more informed decisions, automate routine processes, and deliver more personalised services.

Finally, banks need to cultivate agility within their organisations. Developing a culture that empowers executives and employees to make bold, decisive moves is essential. This requires fostering a mindset that values flexibility, experimentation, and a willingness to take calculated risks.

The convergence of trends

The convergence of atomisation, embedded finance, and real-time capabilities is creating a new paradigm in financial services. This convergence is leading to hyper-personalised financial products, increased financial inclusion, more efficient capital allocation, and enhanced customer experiences. These trends make interactions more engaging and responsive, building loyalty and trust.

Looking ahead, the financial services industry will continue to evolve, becoming more integrated into our daily lives, more responsive to individual needs, and more efficient in delivering value. The future of finance is indeed atomised, embedded, and real time – and incumbent banks that act swiftly and decisively, embracing these changes, will be best positioned to thrive in this new landscape.

About the author

Dave Wallace is a user experience and marketing professional who has spent the last 30 years helping financial services companies design, launch and evolve digital customer experiences.