By David Ritter, Financial Services Strategist at CI&T

As investment booms, unemployment falls, and Europe’s economy soars, financial institutions are set to enjoy a strong year in 2022. But with consumer behaviour changing post-pandemic, banks will need to adopt new online strategies and escalate their digital transformations to stay competitive in the new digital-first world. To help your organisation prepare for essential innovation, here are my top predictions for the financial services industry in 2022.

The ongoing rise of open finance

The move to digital banking throughout COVID-19 lockdowns will accelerate open finance during 2022 – with customers now much more willing to share their data with third-party apps, online trading platforms, and other non-traditional services.

These new consumer attitudes will continue to fuel the growth of digital challengers and provoke a response from legacy institutions. Many Tier 1 banks will upgrade their in-house data systems and infrastructures, and begin to launch Banking-as-a-Service offerings to tap into new markets and recover lost revenue. They’ll also begin to sell the benefits of data-sharing to more hesitant customers, explaining how resultant new services can help them to better manage their finances while demonstrating efforts towards safeguarding consumer information.

As open banking standards such as PSD2 develop and strengthen, the uptake of banking services for the unbanked and underbanked will grow, too. Fintechs have shown that it’s feasible to offer basic banking services to people with little or poor credit history. Traditional banks will begin to introduce similar services in an attempt to grow the market and win back their lost share.

Open-data ecosystems will continue to evolve – albeit slowly

As digital banking and open finance flourish, businesses will capture huge amounts of data that potentially contains crucial customer insights. To store, sort, and analyse the value of this information requires access to an open-data ecosystem – but such ecosystems won’t be transforming the financial industry just yet.

Unlike other software industries using open-data ecosystems, financial services companies are highly regulated, and the data being stored is particularly sensitive and personal. First, banks and the broader data-sharing ecosystem will need to develop protocols that protect data security and privacy before they focus on customer analysis. Consumers trust banks with their financial data to a much greater extent than other big technology platforms, but that goodwill could easily be squandered without proper care.

In the meantime, open-data ecosystems will continue to improve to the point when, for financial institutions, the wait will be worthwhile. New tools will emerge to help engineers manage and extract value from the data faster than ever. And businesses will be able to adopt open-source data formats, enabling their data to be compatible across programming languages and future analytical tools, removing the need for expensive data transformations.

Hyper-personalisation will become an imperative

With more and more fintech businesses emerging throughout 2022, existing banks will find ways to differentiate themselves from the competition – and take advantage of new advances in personalisation.

Customers are used to enjoying products and features tailored to their tastes, from Netflix’s suggested TV shows to Amazon’s bespoke discounts. Now, they expect the same from their financial services. For banks, this could mean sending customers relevant offers from partnered retailers, offering AI-powered budgeting advice if a user overspends, or even creating loan agreements instantly tailored to meet a consumer’s needs.

To achieve hyper-personalisation, banks will upgrade their data foundations and architecture, and graduate to predictive/prescriptive analytics that enable their services to be customised in a way that resonates with customers.

Digital upstarts will boost customer experience and industry collaboration

Digital challenger banks have revolutionised the customer experience in recent years, with slick interfaces, fast sign-ups, and new services like commission-free trading of securities drawing masses of consumers away from Tier 1s. In 2022, incumbents will begin to push back, improving the customer experience for both basic banking and complex transactions like mortgages by offering speedy self-service tools as standard practice. In turn, digitising and automating these processes will reduce the manual workloads on back-office staff, freeing up resources to further maximise profit potential.

Large financial institutions will also recruit chief technology and chief information officers from tech providers and outside industries to unlock fresh perspectives on how to compete with challengers. These new leaders will be more open than traditional bank chiefs to collaboration with outsiders, including rivals, and will push to integrate third-party services into the bank’s suite of offerings to boost innovation and consumer attraction.

Financial institutions will then transition from building and managing databases – which is very capital-intensive – to agile, cloud-based data architectures and applications. Legacy infrastructure and the inability to bridge data systems have long stifled innovation and the customer experience. However, with the influence of tech-centric CTOs and CIOs, financial services companies will modernise their outdated IT models by embracing cloud migration. As a result, I expect innovation by incumbent financial institutions to surge throughout 2022 and beyond.