7 Key Financial Services Tech Trends to follow in 2022

The need for business agility and increased computing power in financial services is driving more and more institutions towards the cloud.

Although there are strict requirements governing the contents of the cloud (mainly due to privacy concerns), there has been growing adoption in financial services to successfully deploy power-intensive applications that use Big Data and AI.

Financial institutions use APIs both to expose data and to consume data. However, it is unfeasible to handle large amounts of data with today’s legacy infrastructure. For this reason, FIs are considering not only moving more business-critical functions to the cloud, but transforming their systems into cloud-native environments.

For example, JPMorgan Chase recently announced that they would be moving their retail banking operations to a new cloud-native platform, essentially replacing the legacy core banking system with more modern cloud technologies.

The Cloud brings a number of benefits to the financial services industry, enabling banks to scale cost-effectively and deliver superior digital services to their customers.

This may be a more familiar trend – maybe too familiar – but it continues to live on in 2022.

One obvious issue in open banking that has yet to be resolved is the annoying trade-off between user experience and security. For example, customers don’t love re-authenticating every 90 days. Similarly, it’s not fun to bounce from window to window on a phone, or to exit the application to read the 2FA code.

There are already ways to reduce the friction caused by 2FA. For example, a phone can automatically detect the passcode in the text message and autofill the request.

As far as the 90-day rule is concerned, regulators are already looking into ways to improve the user experience. In particular, the FCA in the UK proposed to replace the requirement for users to reauthenticate with the requirement for users to directly reconfirm their consent with the Fintech company.

Moving deeper into the startup world, into the unknown, we find some shrewd solutions to this pesky problem. For example, TypingDNA is a 2FA solution that uses keystroke authentication to allow users to verify their identity just by typing. This results in quicker authentication and a genuinely fresh experience.

Until now we’ve been talking about authenticating users who want to log in or make a payment; users who already exist in the system. But what about new clients who want to open bank accounts? Here, we dive into the topic of digital identities.

While the world shouts loudly about Web 3.0, a quieter conversation is happening about digital identity 3.0.

The first evolution of Digital Identities came when passing from a centralised, password-based identity that would only work with one company, to a decentralised way of verifying identities, allowing users to sign up using existing social accounts such as Google or Facebook.

Now we’re in the heat of the third revolution. Digital identity 3.0 makes use of biometric data to verify user’s identities and is mostly consumer-centric.

As many in the Open Banking space know, the first layer of the India Stack is an excellent example of an avant-garde digital identity program. The India Stack consists of three layers: Identity verification, Interoperable Payments and Consent-based data sharing.

The first layer is based on Aadhaar, an identification system launched in 2010 by the Unique Identification Authority of India (UIDAI), which acts as custodian for all the information collected. Citizens can apply for an identification number that’s based on their biometric information such as fingerprints, iris scans, and other data. This has since then extended to the banking sector to facilitate authentication.

The European Union also announced that they would be moving towards digital identities, using a digital identity wallet to verify users online and offline. This would hopefully result in a unified digital identity that can be used across various disconnected services without the need for a central repository.

In addition, with blockchain comes a certain degree of anonymity, and thus a need for more sophisticated identity verification methods.  To address this, OBP and our partner API3 have already developed dAuth, a decentralised authentication mechanism that successfully pins an on-chain actor to an off-chain legal entity (or a representative of that entity).

The gap between digital and physical identities is growing ever narrower.

In 2022, we’ll see different evolutions of auth and digital identities come into being and consolidate to find their place in the financial services industry. While banks in some countries may be either limited or enabled by regulation, it makes sense to get ahead of the curve and start thinking about how identity verification will be changing in the next few years.

The metaverse is a digital realm in which users live, work, play, and create with their friends and colleagues as they would in real life. Decentralised metaverses operate on blockchain technology and usually have their own native coin or token. What’s more, they empower users to actually own their digital assets.

Non-fungible tokens (NFTs) are relatively new data units that enable proof of ownership in the metaverse. These tokens can represent anything from digital land, art, clothes and more, and they prove that the holder is the owner of the specific digital asset.

Metaverses such as Decentraland and The Sandbox have been gaining popularity among investors, who are willing to spend thousands of dollars to buy plots of digital land or avatars. The reason why this trend is so important in finance is that it is finance. Metaverses are creating their own economies with their own legal digital currencies. They are worlds in which people will buy, sell, and trade in an ear-splitting cacophony of transactions.

Fintech will be as indispensable in the metaverse as it is in the physical world. Fintech companies will be able to offer new and immersive experiences to help customers better manage their money, whether crypto or fiat.

But the metaverse is not just for Fintechs and Blockchain companies.

In South Korea, banks have already started making a move. For example, KB Bank – one of the largest financial institutions in South Korea – has started testing its KB Metaverse VR Branch. The bank aims to allow customers to interact with their finances in the metaverse. From checking their financial information to designing investment portfolios – KB Bank customers will be able to do it all by wearing a VR headset.

That’s just one use case being explored. There’s more than one way to get into the metaverse, with most still to be discovered. As with other innovations, it will be a case of understanding where your customers need you most and learning how to correctly position your organisation in the metaverse.

The aim isn’t to replicate physical banking and insert it into the virtual world, but to use the metaverse’s immersive potential to find new ways to experience finance.

It would be repetitive to simply summarise what is said above, so I’m going to leave one last observation, which you already know is true:

2022 is the year to carefully choose your partners for the years to come. It is the right time to lay a strong foundation and plan your next move. We’ve all felt the change in the wind, and the time is ripe to plot your course.