Future of Digital Banking in US 2023

Future of Digital Banking in US 2023

The FUTURE SERIES

These macrotrends are a catalyst for digital transformation within the financial
services industry as banks attempt to grapple with new payments trends, the
evolution of digital identity and innovative uses of data to enhance customer
experience across retail, wholesale and commercial relationships. In 2022, digital
banking for the consumer is far more advanced than the products and services that
are available for merchants or large corporations. In 2023, open banking must be
utilised to remedy this issue.
For the retail customer, although digital methods of managing money are now part
and parcel of day-to-day life, the pandemic encouraged, or in some cases, forced
people who may have been uncomfortable with using technology to bank on their
mobile phones or desktop computers. This unfamiliarity with technology has led to
consumers being in environments in which they are vulnerable and at increased risk
of fraud and other types of financial crime.
In 2023, banks will need to ascertain what they need to adapt and strengthen in
fraud prevention while also managing new regulatory and compliance requirements.
Further, the areas of onboarding that need to be automated must also be considered
as part of a holistic digital strategy, striking the balance between innovation and
digital noise. For instance, Web3, the metaverse, digital assets and tokenisation are
no longer the monopoly of global tech giants, but are increasingly being shaped by
financial players who are having their relevance threatened.
This report, featuring expert views from ebankIT, EPAM Systems Inc, Infosys
Finacle and Trustly, will explore topics that impact the digital banking sector and
those that will be covered at Money20/20 USA 2022 in Las Vegas. In addition to
this, key insights from Wells Fargo, Plaid, Green Dot, Silicon Valley Bank, FXC
Intelligence, Synapse, Navy Federal Credit Union, Branch, Citi, and the New York
State Department of Financial Services will cover how organisations across North
America are preparing for imminent change across the digital banking landscape.

4

2022 in North America saw a continuation of economic recovery from the Covid-19
pandemic, fuelled by the rapid rollout of vaccinations particularly across the US and
Canada. Although the US was the fastest of the G7 economies to recover from the
crisis, an enduring impact of the Russia-Ukraine conflict resulted in high inflation
and the subsequent cost-of-living crisis is set to continue into 2023.

02
OPEN BANKING: THE NEXT
FRONTIER FOR ENHANCING
FINANCIAL EXPERIENCES
An expert view from Trustly
Nate Marquiss

We are in an era of great economic, environmental,
and political change, and the immediate effects on
the global market are increasingly noticeable.
The pressures that transpire from these changes have
domino effects on how digital and financial services
are used in our daily lives. In a remote-first world,
the lines between physical and digital experiences are
blurring – and it’s becoming hard to separate the two.

Consumers also realise their data is virtually everywhere. From the
food they eat to the places they shop, it’s nearly impossible to participate
in society without sharing bits and pieces of personal data. On the flip
side, this phenomenon could be considered an opportunity for banks
and fintechs to leverage this collected data for both their own and their
consumer’s benefit.
Accessing financial data through open banking creates space for
relevant and personalised innovation in ways that could enhance various
experiences – i.e., payments, underwriting, KYC, account creation, etc.
– while keeping consumers’ data secure. By opening up access to digital
banking beyond its foundational infrastructure, companies are beginning
to bridge the gap between consumers and merchants – creating a new
frontier in the open banking revolution.
In the wake of said change, here are some key things to consider:

5

Head, Financial Services and Fintech, Trustly

Optimise digital experiences with Gen Z in mind
The preferences of younger generations today are often short-lived and
constantly evolving. A big majority of Gen Z and Millennials – who are
digital natives by default – are active consumers in today’s global market.
This means banks and fintechs are left at the mercy of keeping up with their
evolving wants and needs.

Simply put, young consumers want ease of use coupled with enhanced,
personalised experiences. They have a natural affinity for speed and things that
happen on-the-spot in real time. In turn, they want to change the way they pay
for goods and services. The result? Today’s consumers are still fond of traditional
card-based methods but they’re also seeking out better, more forward-thinking
alternative payment methods. Because so much of their time is spent online, this
desire has become an integral part of their daily interactions.
This influence from young digital natives has helped push open banking
payments to the forefront of the digital revolution. These solutions create
fresh, new options for younger consumers who actively seek out more
streamlined, seamless ways to handle their money.
To further optimise payment experiences, banks and fintechs will need
to keep a close eye on what their young consumers want and leverage this
information to offer products and services that appeal to them. One method
which creates space for actualising these desires is open banking. In fact,
Worldpay’s 2022 report projects open banking will reach 8% of the US
volume for all ecommerce activity. Ultimately, these efforts could strengthen
merchant-to-consumer relationships, build loyalty and trust, and encourage
repeat business.

6

Just a decade ago, the majority of consumer transactions were done in-store.
Now, virtually three-quarters of the world’s consumption is done online. In
the past, the primary focus was on creating satisfactory in-store experiences
that people would appreciate, further driving repeat purchase behaviour.
Today, those same ‘in-store’ priorities have evolved into building similar
atmospheres that exceed consumer expectations solely in a digital world.

Modernising ACH

ACH is also the precursor that helped fuel modern-day open banking payments
whose innovative technology eliminates the middleman (i.e. networks, issuers,
acquirers, gateways, etc.) and places the power back in the consumer’s hands,
creating more room for instant, seamless payments. Open banking platforms
have made verifying account details easier while speeding up the ACH payment
process, further eliminating risk on both sides of the transaction.
Today, most fintechs offer open banking solutions that use API technology
to communicate with banks to verify personal information instantly and
securely. These new developments prove how the rudimentary functions of
ACH can function with a modern-day spin on their practicalities.
Real-time payments are another form of modern-day ACH that continue to
develop and grow in popularity. The Federal Reserve recently introduced its
new real-time payment programme, FedNow, set to launch in 2023. FedNow
is a new payment network that is derived directly from The Clearing House.
Pilot programmes with select organisations have already been launched for
the service, which will operate purely through domestic capabilities.
To keep up with new innovations, banks and fintechs should be onboard with
safely sharing data between parties to achieve optimum speed and efficiency.
There’s also a growing opportunity to learn from traditional credit and debit
cards on driving consumer adoption of open banking via incentives and
rewards. If users feel they are appreciated for trying out new technologies or
adopting new payment experiences, they could be more likely to jump onboard for the long-run.

7

ACH continues to reign as the fundamental building block of electronic
money movement. In today’s financial climate, the basic functions of ACH
are what they have always been, but new rules and changes over the years
have helped to modernise its capabilities. For example, in 2020 the ACH
implemented a new rule that increased the Same Day ACH dollar limit to
$100K per payment. Following the change, NACHA reported the overall
amount of Same Day ACH dollar volume increased by 86% in the same
year. As of March of 2022, this same limit has been raised to $1 million per
payment. This significant jump ultimately improves same-day use cases
by eliminating unnecessary friction and speeding up transactions, further
driving up consumer adoption of Same Day ACH.

Simplify onboarding with open banking data
As financial data is being passed and shared so frequently, it’s wise for
fintechs to prioritise improving their user onboarding processes. Are they
designed with the user’s experience in mind? Are they making lives easier, or
do they exist as another hurdle in the life of the payment process?
Recent statistics reveal that 63% of consumers consider a company’s
onboarding programme as part of the buying process. The best onboarding
processes do a good job of getting into the mind of the user to anticipate what
they need to get onboard quickly and safely. The simpler the better.

The best onboarding methods lead with the user in mind, meeting them
where they already are. A few simple onboarding methods that banks and
fintechs could implement are:
• Creating quick and easy sign-up processes;
• Pulling information directly from consumers’ bank accounts to reduce friction;
• A laser focus on safety and security (i.e. using encrypted data or not
storing login credentials).
If companies can break through the barriers that stand in the way of building
successful relationships with consumers ahead of time, it saves considerable
hassle and prevents companies from having to restore connections later on
down the line.

Implementing a seamless UX
It’s important to note that, after onboarding, the integrated user experiences
that emerge once a consumer connects all of their data could also eliminate
a lot of unnecessary friction. For example, a consumer could open up a new
personal finance management or investing account and then also use the
same open banking data to sign up for a separate insurance offer – all within
the same app. The central idea of seamless flows and ease of use around
onboarding should naturally carry over into how users interact within the
payment platforms.

For example, personal finance and wealth management apps are tools that
are becoming smarter and providing more value to consumers. These are
places where it’s important for onboarding methods to really shine. For most
consumers, financial management is not something that is inherently fun.
Plus, there is a natural hesitancy around turning over personal and financial
information. Designing processes that adhere to these concerns is one way for
banks or fintechs to gain trust and loyalty early on.

8

What’s next?
Open banking currently lacks regulation in the United States and is strictly
market-led. However, the CFPB’s Dodd Frank 1033 new rulemaking will
eventually change that. Multiple industry associations such as FDATA, ETA,
and FDX are collaborating to push open banking forward in the US. This rule
is expected to be finalised in 2023.

Lately, there is a push toward implementing open banking APIs in place
of outdated routines (i.e. unethical screen scraping) with the intention of
providing stable connections that merchants can rely on. This new way of
obtaining consumer information requires contractual agreements between
fintechs and banks in order to leverage data to provide new functionality and
experiences for consumers. Once regulation is finalised, it’s expected that
more banks will provide open banking APIs.
For the past decade, Europe is one market who has been using the abovementioned open banking technologies, and they do have regulations in place.
They are currently ahead of the curve and continue to develop the blueprint
on what it means to operate in the open banking environment safely and
effectively. Though they lead as a good example, the US is not far behind.
Overall, open banking APIs and a new regulatory framework will benefit
consumers by democratising access to financial tools that were previously
unreachable. Similar to Europe, a new wave of fintechs focused on building better
experiences will likely flourish in the US as a result of these developments.
It will be a very exciting evolution to witness in the coming years.

9

Right now, the US lags behind Europe in terms of establishing a regulatory
framework that governs the way banks and fintechs collect consumer data.
Dodd Frank’s new rules will establish a construct meant to bolster innovation,
openness, and competition whilst protecting consumer data.

03
HOW VULNERABILITY
WILL LEAD TO BETTER
PROTECTION

An increased number of people were encouraged to open digital bank accounts, when
they would have otherwise stuck to banking at their local bank branch. We can see
this partially in the number of branches which are closing, S&P Global found that
in 2021 there was an increase of 38% in bank closures across the US. A spokesperson
for Wells Fargo noted that: “Most [customers] no longer visit a branch in-person to
accomplish simple self-service tasks like depositing a check, opening an account,
or moving money.” While this is difficult to measure across the entirety of North
America, which includes countries such as Honduras, El Salvador, or Haiti, it can be
said that this trend has become increasingly apparent in the US.
Moreover, this has exposed consumers to technology they may not have been
overly familiar with at a time of global tension. In this environment, there has
been an increase in fraud scams such as authorised push payment (APP) and
romance scams, for which the US Federal Trade Commission (FTC) reports
that a total of $547 million was lost.
The US market share of fraud detection and prevention and is projected to reach $190
billion by 2030. This can be seen as a response to the increased fears around fraud.
On this point, Wells Fargo commented: “As the pandemic has proven, we have reached
the tipping point for the way customers want to manage their money, with digital
adoption growing at an unprecedented rate. From mainstream consumers to large
commercial clients and everyone in between, our customers live on their mobile devices,
accomplishing every task and planning their next important life moment all via digital.”
John Pitts, head of policy at Plaid, noted how “fraud mitigation needs to be at
the centre of innovation into digital finance, because trust and confidence are
central to consumers’ expectations of their financial service provider. This is an
area where consumers would benefit from some regulatory evolution.”

10

Digital banking is now very much in the mainstream, with the World Bank
reporting that two-thirds of adults globally make or receive digital payments.
However, with the successful rise of digital banking in North America, vulnerability
has become a common feeling. Furthermore, the Covid-19 pandemic proved to be a
catalyst for the rise of digital banking, but while this has proved beneficial for its aims,
it is not without its downsides.

Beyond uncertainty leading to increased use of new technology and subsequent
valid paranoia around fraud, it is evident that consumers can be at risk as a
result of a variety of forms and payment methods.
While notable, but not inherently bad, the increased use of financial tools such
as Buy Now Pay Later (BNPL) may lead to risky behaviours, yet the area where
there is the most risk is in cryptocurrencies.The FTC reported that since the
start of 2021, 46,000 people in the US have reported losing over $1 billion in
cryptocurrency scams, with a median loss of $2,600.

Other North American countries are also facing the reality of recession. Mexico
had its growth forecast downgraded by the Bank of America to 0% from 1%, and
Moody’s has predicted the country cannot avoid recession next year. Many island
nations in North America were greatly impacted by Covid-19, but have seen growth
in their economies since. For example, the Inter-American Development bank finds
in their 2022 Latin America and Caribbean Macroeconomic Report that
while 2020 was the worst single-year recession suffered by the Caribbean, these
countries experienced a bounce back in 2021. However, although the Caribbean
experienced 2.4% growth in early 2022, the Ukraine war has impacted
commodity prices which could lead to a return to recession for the region.
“Consumers’ financial stability is being tested now more than ever,
with a recession looming on the heels of the panic and uncertainty
created by the pandemic.”
Amit Parikh,
EVP of Banking Platform Services, Green Dot

Deloitte reported that 46% of CFOs expect the North American economy to be in
recession by 2023, and a further 39% believed it would be in stagflation by next year.
In Amit Parikh, EVP of banking platform services at Green Dot’s view: “Consumers’
financial stability is being tested now more than ever, with a recession looming on
the heels of the panic and uncertainty created by the pandemic.”

11

Even outside of cases of fraud, cryptocurrency can leave some feeling more
financially vulnerable. The Pew Research Center found that of the 16% of US
adults who have invested in, traded, or used cryptocurrencies, 46% reported
the investments had done worse than expected. Education around managing
money is more important than ever today, particularly due to the impending
recession expected to hit the US.

Innovation
Positions of vulnerability can be the birthplace of innovation, providing a
creative environment to make positive change.
On their approach to innovation, a spokesperson from Wells Fargo mentioned
that they “keep a close eye on the marketplace, pivot quickly, and understand
that failure, paired with learnings, is critical to the innovative mindset.”

Pitts commented, “in open finance consumers rely on multiple banks and
apps to manage their financial lives, and fraud can best be addressed by
updating regulations to reflect this new networked reality.”
Here Pitts touches on one of the major areas of innovation and seemly
hope for a better financial system in North America which our respondents
discussed, that of open banking and its next step —open finance.
The US has taken more of an industry-led approach to open banking, unlike that
of the UK and Europe which took a regulatory approach. There has been some
guidance from US regulators, such as president Joe Biden’s executive order in
2020 which aimed at allowing consumers to change banks more easily.

“CFPB will be looking to harness technology in ways that give
American families the power to more easily fire poor-performing
banks. We can only accrue the benefits of competition if customers
can vote with their feet. Unfortunately, switching bank accounts
isn’t easy. ”
Rohit Chopra,
Director, Consumer Financial Protection Bureau (CFPB)

In Canada, a roadmap has been laid out for open banking to become
operational by January 2023.
In 2020 the Banco de Mexico published their rules for open banking as part
of an update to their 2018 ‘Fintech law’. Additionally, Mexican fintech Finerio
Connect has this year collaborated with Ozone API and Visa to help support
financial institutions in the Caribbean navigate open banking.

12

They added: “The investments we are making build on the digital foundation
for the company and reduce risk, while also creating digital-first experiences
and embracing technology to evolve ahead of customer expectations…we
believe new digital experiences will ultimately improve customer satisfaction,
and allow our bankers to focus on more complex needs for customers.”

Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB)
previously commented, “CFPB will be looking to harness technology in ways
that give American families the power to more easily fire poor-performing
banks. We can only accrue the benefits of competition if customers can vote
with their feet. Unfortunately, switching bank accounts isn’t easy. It involves
new account numbers, new debit cards, updating direct deposit, updating
auto-debits, and much more. If America can shift to an open banking
infrastructure, it will be harder for banks to trap customers into an account
for the purpose of fee harvesting.”

Pitts shared this perspective on a changing digital atmosphere: “Plaid helped
found the Open Finance Data Security Standard (OFDSS) because financial
services industry is undergoing a broad digital transformation, representing
a significant change in how financial services are delivered, and the profile
of companies that provide them. Existing data security standards were not
designed specifically for modern, cloud-native delivery models or the resource
constraints of early stage companies. OFDSS was created to help raise the bar
for data security across the digital finance ecosystem while also continuing to
foster innovation.”
Connected this is another key area of innovation, that of embedded finance.
Open banking allows the distribution of data to be much easier, and open
finance takes this a step further providing more open data. Embedded
finance allows for non-financial actors to use this data to provide financial
offerings. Bain & Company and Bain Capital forecast that embedded finance
transaction value will double in the US to $7 trillion by 2026.
Parikh explained Green Dot’s role: “Embedded finance and banking-as-aservice (BaaS) are putting the power in the hands of the end user and forcing
both financial and non-financial companies to innovate quickly to provide
customers the best experience possible. Consumers are demanding seamless
access to their money and convenient experiences where banking and payments
are embedded into the flow of their daily lives. They might now have a dozen
apps or platforms for managing their money and have the power to switch at
any moment should they not get the convenience they are expecting.”

13

Wells Fargo argued that the “growth of open banking has been driven by
increased consumer demand, particularly from Gen Z consumers who
are the more invested in digital solutions than any past generation. This
is reshaping how digital solutions are built – with a focus on speed and
flexibility without sacrificing security. The future of financial services
includes distribution and getting products to customers in experiences that
are most relevant to them…the goal is to use APIs to bring the bank to our
customers in experiences most meaningful and relevant while providing
greater access, transparency, and control.”

“Embedded finance and banking-as-a-service (BaaS) are putting the
power in the hands of the end user and forcing both financial and
non-financial companies to innovate quickly to provide customers
the best experience possible.”
Amit Parikh,
EVP of Banking Platform Services, Green Dot

Outlook

With these innovations under their belt, the current rocky conditions may not
be as bad as they initially seem. These could simultaneously provide greater
protection for customers, and a roadmap to better digital banking. Customers
may struggle with continued vulnerability, but there is the opportunity for
controls to be in place.
Parikh offered some advice on the role of fintechs in this continued innovation:
“Fintechs can and must rise to the occasion – as we have with accessible
digital banking, contactless payments, and more tools aimed at serving the
underbanked – to accelerate the rate at which we bring innovative products to
market to help support and empower consumers facing continued challenging
circumstances. Products like earned wage access, overdraft protection (when
designed and offered properly), and credit tools can serve as a lifeline providing
the cushion and flexibility customers need, while also helping them build
smarter money habits for the long-term.”
Parikh continued to say: “We see vulnerability as a strength and an asset.
The more ‘human’ you can be – among your colleagues and on behalf of your
customers – the more connected and inspired your environment and ultimately
your outputs. When it comes to product design – particularly for low- to
moderate-income consumers, gig workers, and small business owners: people
with real challenges and tremendous potential – having a deep understanding
of the end user’s feelings throughout the customer journey is the key to success.
Of course, this may be uncomfortable at times, but bringing vulnerability to the
table is critical if you want to inspire, innovate, and deliver for your customers.”
Despite this positive outlook, it should be noted that there are still outliers
in the areas of vulnerability, particularly for the position of digital assets.
Cryptocurrencies remains a concern without much of a plan for its future
control and protection of customers. The US government is moving towards
protecting people from the potential pitfalls of cryptocurrencies, but these
themselves could be so stringent that they are a block to innovation.

14

In many ways Covid-19 had made quick learning for a lot of companies. The
pandemic may have equipped them with the lessons of the benefits of digital
banking for how to cope with the current circumstances of recession and inflation.

04
CONSUMER TRENDS
CHANGING BANKING
An expert view from EPAM Systems, Inc.

Alex Jimenez

Lauren was five months pregnant. For the past few months, she
and her husband had been making plans to welcome their new
child. As she drove her trusty 2016 Toyota Yaris to run errands,
she began thinking about getting around with her child. She
looked in the rear-view mirror at the back seat when she
suddenly realised how cramped it would be with a car seat.
 hen she arrived at the store, Lauren texted her husband, Mark,
W
I think we need to look into getting an SUV. Within seconds
she received a response from Mark, I’m on it. Lauren smiled
knowing that Mark loved to research big purchases like a car.
Mark googled “Best performing inexpensive SUVs 2022.” Under the sponsored results
was a link for the 2022 Toyota RAV4. Mark clicked on the link. The doorbell rang. It was
an Amazon order. As he walked back to his desk, he thought to himself, Why can’t buying
a car be as easy as getting an Amazon order? Shortly after he sat back down, his phone
pinged. Lauren sent a text that said, That was quick. You know I love my Toyota. Mark
was confused. He was about to respond when he saw an email to him and Lauren with
the subject “In the market for a 2022 Toyota RAV4?” from their local Toyota dealer.
The email talked about all the features of the RAV4. In addition, Toyota offered a
pre-approved loan specific to him and Lauren at rates below market. A couple of days
later, their new RAV4 was delivered to their home, having done all the ‘paperwork’ on
their mobile phones directly with Toyota. Mark’s wish of getting a car as easy as ordering
something from Amazon became a reality.
“Particularly in the last two years, client engagements for all types of
services are seeing greater use of digital channels across all
demographic segments. Interactions are becoming bite-sized,
instantaneous and ‘train-of-thought’ driven.”
Panos Archondakis,
Vice President of Account Management, EPAM

15

Managing Principal, Financial Services Consulting, EPAM Systems, Inc.

This story exemplifies three big consumer trends impacting financial services
firms. The first one is personalisation, providing the right offer to the right
customer at the right time. It’s as if Lauren and Mark’s text conversation also
included Toyota. The second trend is embedded finance. Whatever triggered
the personalisation was further enabled by Toyota’s capability to pre-approve
and offer a loan, cutting out banks or credit unions before they even knew
Mark and Lauren might be in the market for a loan provider. Finally, digital
ubiquity facilitated the whole chain of events.
As noted by EPAM’s vice president of account management Panos
Archondakis in a recent article:

Let’s look at these trends more in depth.

Personalisation
Generally, there have been significant improvements in targeted marketing
evolving from ‘batch and blast’ or ‘spray and pray’ to more tailored
messaging and defined segments, but the promise of delivering one-to-one
highly contextual and relevant messaging has eluded most marketers. Yet,
as an industry, the hype curve continues as personalisation is reframed
to “personalisation at scale” or “hyper personalisation” with a promise of
increased revenue.
The hype curve may be discouraging many marketers at smaller financial
institutions (FIs) as it seems unattainable. The journey from one-to-many to
one-to-one seems daunting with the constraints that many marketers face.
Marketers are facing pressure on all fronts – the need to justify media spend,
increased privacy concerns, expanded customer control of their information,
a crowded, confusing, and rapidly changing AdTech and MarTech landscape,
and shifts in customer behaviour from in-person interactions to digital, to
name a few.
Those challenges are real but create an opportunity to double down on
personalisation with a focus on existing customers. The need to engage
customers with relevant messaging (product offers, service offers, content,
next best action) is more important now than ever before. The shift to digital
limits the ability for FIs to engage the customer and drive awareness of
additional products and services. FIs need to go beyond transactional to
deepen the customer relationship. Smart personalisation can be the answer.

“Particularly in the last two years, client engagements for all types of services are
seeing greater use of digital channels across all demographic segments. Interactions
are becoming bite-sized, instantaneous and ‘train-of-thought’ driven.”

16

In our example, Toyota was able to use data gathered from their public
website, the existing relationship with the customer and third-party data to
not only send an immediate, automated offer, but one that was personalised
for the consumer. This is the power of smart personalisation.

Embedded finance

We further warned, “while embedded finance revolutionises the way we buy
goods and services, it could also reset how we bank — and even redefine what
we think of as a bank.”
Examples of existing embedded finance continue to grow throughout the
industry, from the no click payments on the Uber app to the point-of-sale
loans from buy-now-pay-later (BNPL) providers, like Affirm, built into mobile
shopping apps.
Embedded finance reduces barriers to complete an experience with consumer
brands, enhancing customer experience and encouraging loyalty. According
to a recent article by Insider Intelligence, embedded finance is predicted to
become a $7.2 trillion opportunity by 2030.
Embedded finance is enabled by partner financial service companies, including
both legacy banks and insurers, as well as fintech firms. As in the example
of Lauren and Mark, a simpler and more convenient process is resulting in
financial services companies being cut out of the process. FIs should look at this
growing trend and define how they want to adjust their strategy.

A new era of financial technology known as embedded finance is emerging,
driven by regulatory mandates, advances in technology, and consumer
appetite for innovative and seamless digital experiences.

17

In a recent report from EPAM and Mambu, we wrote:
“A new era of financial technology known as embedded finance is emerging,
driven by regulatory mandates, advances in technology, and consumer
appetite for innovative and seamless digital experiences.”

Digital ubiquity
With the debut of the iPhone on January 9, 2007, financial service companies
began to talk about alternative delivery channels, which encompass what
we call ‘digital’ today. A few years later, it was online and mobile channels,
followed by a series of pseudo words like omni-channel, opti-channel or the
phygital channel. The reality is that we are living in the age of digital ubiquity,
where digital is the main way consumers interact with all brands, including
financial services.

Ultimately, digital ubiquity results in a unique buyer journey for each
customer. Contextual personalisation allows a brand to be there – if and when
a consumer has a need.
In the example of Laura and Mike, Toyota might have been aware that Laura
had an older car and her history showed that she was a new car buyer. Toyota
might have offered them a deal for a 2022 Prius or Corolla. However, they
learned that they were looking at SUVs, which prompted an offer for a RAV4
instead. Toyota picked up on that contextual hint.

Conclusion
American banks continue to face a myriad of challenges. The trends that
we note, personalisation, embedded finance, and digital ubiquity, require a
reimagining of the standard banking business models. More importantly,
these new models must be centred around current expectations as it concerns
the customer experience.

18

Digital ubiquity has put consumers in the driver’s seat. Consumers carry
out market research while eating lunch, check out product reviews in digital
forums, compare prices on their devices while at a store, and share shopping
experiences on social media. Easily accessible knowledge allows consumers to
choose whatever channel is most convenient at the time, but always informed
by their digital device.

05
OFFENCE AND DEFENCE:
FRAUD VS. REGULATION

“Some financial institutions might feel like they are more on the
defence because of a regulatory enforcement action that they are
still recovering from, while others might seem more on the offence
because of a concerted effort to take hold of an opportunity.”
Kathleen Pierce-Gilmore,
Head of Payments, Silicon Valley Bank

To confront these waves of change, banks need to determine what is valuable
to preserve, and what must be adapted to keep up with new developments in
the financial industry. At the forefront of this change is the need to strengthen
fraud mitigation strategies, manage new regulatory requirements, create
products with improved user experience, and cater to the needs of small
businesses and the creator economy.
Banks are currently moving on either offensive or defensive lines when it
comes to regulation and compliance. Contextualising the situation, Kathleen
Pierce-Gilmore, head of payments at Silicon Valley Bank, explained: “Some
financial institutions might feel like they are more on the defence because of a
regulatory enforcement action that they are still recovering from, while others
might seem more on the offence because of a concerted effort to take hold of
an opportunity. Some might even be playing both defence and offence, where
different parts of the organisation are looking at the same change from two
different viewpoints. An example of this would be embedded payments; the
product and innovation teams at financial institutions are looking to serve
this space may be taking the offence position while the compliance and risk
management teams may look to play more of a defence role.”

19

Post Covid-19, North America has seen significant market growth in
e-commerce and digital payment systems. Financial institutions are
determining how to move forward where non-traditional payment systems
are being introduced.

Cybersecurity and regulation in the US
In the first half of 2022, US crypto policy has primarily focused on
establishing regulatory guidelines around digital assets and stablecoins.
Under the Biden Administration, it appears that progress is being made
towards establishing an governmental department on digital assets.
“Whether it is for our core treasury management solutions or for our
embedded payments clients, fraud is at the centre of the discussion.”
Kathleen Pierce-Gilmore,

The Biden Administration made an Executive Order on Ensuring Responsible
Development of Digital Assets in March to protect customers and maintain
financial stability. Financial watchdogs such as the Federal Reserve and the
Securities and Exchange Commission (SEC) have been actively enforcing
these policies.
With an increasing reliance on digital platforms, the threat of cybercrime has
also become more concerning. Cybersecurity governance and management
testing are in progress for firms in the US in order to bring banks’ technological
methodologies up to speed when it comes to cybercrime. Ransomware and cyber
defences are increasingly important to US authorities due to geopolitical tensions
currently at play after the Russian invasion of Ukraine.
Commenting on fraud mitigation and complying with regulation, Pierce-Gilmore
commented: “Fraud mitigation is top of mind and, in fact, the key point of much
of the innovation we are seeing and exploring. Whether it is for our core treasury
management solutions or for our embedded payments clients, fraud is at the
centre of the discussion. While understanding and managing the regulatory
expectations by which we operate and ensuring adherence to the various policies
that govern us is complex and resource intensive, I would not call it a hindrance.
It is how we ensure a safe and sound system and is a key part of the role we play
for our clients. They are counting on us to ensure they can operate, so I see doing
it well as part of our value proposition.”
Cybersecurity infrastructure such as the State and Local Government
Cybersecurity Act and the Federal Rotational Cyber Workforce Program Act
has been integrated across sectors in the US, identified by the Department of
Homeland Security, and Canada’s Department of Public Safety has similarly
employed cyber policy by implementing their National Cybersecurity Action Plan.

20

Head of Payments, Silicon Valley Bank

“Trust and confidence are central to consumers’ expectations of their
financial service provider.”
John Pitts,
Head of Policy, Plaid

Due to the shifting nature of the financial landscape, risk assessments being
carried out by watchdogs are adapting to leverage modern technologies such
as AI, data analytics, and cloud computing, according to the Federal Reserve.
The way banks assess risk and protect customers’ needs to be amended to the
current technological developments in order to stay ahead of cybercriminals
and online scammers.
John Pitts, head of policy at Plaid, noted that fraud prevention was at the
centre of innovation in the digital finance sector: “Trust and confidence are
central to consumers’ expectations of their financial service provider. This
is an area where consumers would benefit from some regulatory evolution.
In the closed finance world, regulation treated fraud as a one-to-one issue
between a consumer and their bank; but in open finance, consumers rely on
multiple banks and apps to manage their financial lives, and fraud can best be
addressed by updating regulations to reflect this new networked reality.”
US Congress has laid out regulation on compliance and anti-money
laundering perimeters, adding new digital services under consumer
protection and Bank Secrecy Acts. Further action has been taken to
strengthen data infrastructure, cyber resilience, and third-party risk
management among financial service providers. Financial regulation on
divisive topics such as DeFi and stablecoin is expected to be determined by
the results of the upcoming US midterm elections. Additionally, it is
expected that US financial regulators will continue to emphasise and
prioritise their climate response.

21

Canadian banking authorities are currently working on modernising payments
by adapting to non-traditional payment systems. The Bank of Canada
and OSFI are prioritising sustainability and climate change projects to
transition the financial system to a low-carbon economy. These developments
indicate the Canadian financial industry is adapting to the trends and new
technologies emerging in the financial sector internationally.

Digital assets in Central America
Central America has seen an emergence of digital wallets, crypto usage,
and QR-based transactions. Mexico specifically is a large market for growth
for neobanks, with large European players such as Revolut expanding to the
nation. Mexico has also announced its intention to develop a central bank
digital currency (CBDC) prior to 2024.

Due to sanctions placed on Central American countries’ economic activity,
digital assets are popular in Cuba and Nicaragua, with over 100,000 of Cuba’s
11 million citizens having a stake in some form of cryptocurrency. Cuba’s
central bank approved licensing in April for virtual assets providers after
allowing cryptocurrencies for personal usage in 2021.

The state of many central bank currencies in Central America are tied to
the US dollar, which limits the financial and economic powers of national
governments. Through digital assets, Central American currencies can
circumvent their reliance on the US economy and foreign remittances.
As these developments indicate, a cashless society is coming into fruition
in Central American countries, and digital banks and fintechs are targeting
the unbanked and underbanked populations. Central American nations
are leveraging digital assets to their advantage through the development of
financially inclusive services which appeal to the underbanked.
However, with the advent of new banking technologies comes the possibility
of new opportunities for fraud. According to F5 Networks, Latin America
has been highly susceptible to cybercrime and scamming schemes. Panama
nation recently regulating eight major cryptocurrencies for private business
and civil usage, and consequently Panamanian lawmakers are taking action
to prevent fraudulent crypto activity and money laundering, with Congress
decisively placing financial transparency and protective regulation in place for
watchdogs to enforce.

22

In 2021, El Salvador became first country in the world to adopt Bitcoin as
legal tender, since the move however, the country has suffered around $40
billion in losses due to lack of technical availability among businesses and the
general population. President Nayib Bukele is currently working to stabilise
the Bitcoin price.

Improving customer experience in payments
As fintechs and banks increasingly find new ways to collaborate in order to
provide more effective services to customers, financial institutions in the US
are taking steps to assess how fintechs are transforming the financial industry
and fundamentally changing the way people bank.
Authentication processes, embedded banking services, and credit assessment
technologies are among a few of the new developments fintechs can offer the industry,
and as a result, banks need to adopt offensive strategies to remain competitive.

A spokesperson from Wells Fargo added that the bank ensures user
experience by carefully leveraging scale and deep customer insights. “We
have a strong opportunity to synthesise a customer’s multiple relationships
with financial institutions and provide one cohesive experience. Our goal is
to further establish trust and deepen our customer relationships by solving
complex pain points and creating quicker ways to conduct business.”

Looking forward
Financial institutions in North America are embracing robust legislation and
regulatory guidelines to enforce healthy competition, financial stability, and
limit cybercrime across digital assets. The current focus in Central America
is the development of secure and manageable cryptocurrency usage, whilst
Canadian and American financial watchdogs are tightening the reins on
the financial industry to enforce incoming policies. Looking ahead, North
America is prioritising crypto policies, advanced cybersecurity technologies,
and enhanced user experience for consumers to support digital banking
innovation in the future.

23

Pierce-Gilmore stated: “While we are always trying to make our actual user
experience better, we always start with a deep understanding of the founding
team, the business idea, the business model, the company’s key constituents
(including the investors), the requirements for success and what we can do to
support the client from the very beginning through their lifecycle.”

06
DIGITAL BANKING TRENDS
BANKS CANNOT AFFORD
TO IGNORE
An expert view from ebankIT
Renato Oliveira
Customers are demanding new digital banking
experiences. The coming years will be a golden age
for innovators, who will be able to create new
revenue streams, introduce bold propositions and
drive the industry forward. Conversely, institutions
that are unable – or unwilling – to adapt to the pace
of change will find themselves left behind as their
agile competitors speed ahead.

Two years ago, the pandemic upended banking and forced older generations
to make the leap into digital, meaning banks had to transform at
unprecedented speed. Yet the changes it caused were inevitable. Millennials
and Generation Z are digital natives and grew up with smartphones, meaning
that demand for digital services was always going to grow to suit the needs of
these new generations. If banks had already made the leap into digital before
the pandemic hit, they were at a clear advantage.
The size of the digital banking market surged to more than $8 trillion in 2020
and will grow by 5% from 2021 to 2027, according to Global Market Insight.
Incumbents will face rising competition in this growing market from fintechs
and other new entrants. Big tech has already entered the arena and will play
an increasingly larger role in the future. Apple, Amazon, and Facebook are
all now offering credit products and are busily creating an alternative lending
market that is estimated to be worth $1 trillion by 2023.
The market is changing quickly, and new competitors are waiting in the
wings. Which means the time to prepare is now. Here are three trends banks
cannot afford to ignore if they want to win, serve and retain digital customers:

24

CEO, ebankIT

Next-generation digital onboarding
We know that onboarding customers can be expensive and difficult.
Onboarding commercial banking clients is even more tricky. Today,
onboarding processes must be automated, or customers will not get the
instant journey they require.

Automation is the first step toward building next-generation onboarding.
Humanising is next. As well as automation, banks should ensure that new
clients going through digital onboarding are able to contact a human at any
stage of the process.

Rise of the chatbots
Chatbots are AI-powered pieces of software that simulate human conversation,
enabling banks to serve customer queries quickly around the clock. Without
chatbots, customer experience would be slowed down significantly.
There are many roles chatbots can play in digital banking beyond dealing
with routine work. They can enable onboarding and the opening of new
accounts, for instance. Chatbots relieve the call centre or branch channels and
can also be used to upsell, drive engagement and gather customers’ data.
According to Juniper Research, consumers will spend $142 billion via
chatbots by 2024. In 2019, they spent just $2.8 billion. A separate survey
found that 40% of internet users actually prefer interacting with chatbots
more than customer service agents. It is easy to imagine this percentage
growing in the future as chatbots become more efficient and intelligent
enough to deal with even advanced banking functions. They are well-suited
to our mobile age, in which customers expect to be able to speak with banks
from anywhere and at any time via their smartphones.
Data and AI will be the differentiator for chatbots. Banks should ensure their
chatbots are capable of recognising and adapting to the past behaviour of
their customers in order to offer an experience that is fast, personalised, and

25

As competition increases in the coming years, institutions that get
onboarding wrong will lose customers to agile neobanks or other competitors.
Both consumers and the employees of commercial clients are now used to
experiences offered by Amazon, Netflix, or Spotify, which are personalised
and frictionless. They are coming to expect the process of opening an account
to be as easy as setting up a social media profile. This expectation will grow in
the future.

humanised. Artificial intelligence and machine learning can also deploy this
information to predict future behaviour. Training chatbots with large data sets
gathered from all customers will unlock more powerful predictive capabilities
so that banks are prepared for peaks in demand or other future events.

The metaverse

This emerging reality will create new opportunities for banks, which are
already positioning themselves to take advantage of a market that has the
potential to grow exponentially. The 2022 Accenture Technology Vision survey
found that 67% of global banking executives think the metaverse will have
a positive impact on their organisations, with a further 38% describing it
as “transformational.”
Major banks and financial institutions are now moving into the metaverse.
HSBC has bought virtual real estate in The Sandbox metaverse, which it
will use to ‘engage and connect’ with sports, esports, and gaming enthusiasts.
J.P. Morgan has also opened an Onyx lounge in Decentraland, a 3D
metaverse platform. Onyx is the “world’s first bank-led blockchain platform
for the exchange of value, information, and digital assets”. Visitors to its
digital Onyx lounge can carry out cross-border payments or trade virtual
assets from inside virtual reality.
The metaverse gives banks the opportunity to perform many of the tasks they
already carry out – but in a new context. Payments, savings, loans, and other
financial services will all be required in a world in which people buy virtual
assets and digital real estate. It will also offer new abilities to interact with
customers, removing the need for staff to be based at physical branches in
order to meet clients face-to-face.
The metaverse can replace the human touch which has been lost in some
digital banking experiences. Accenture has described digital banking as
being “functionally correct but emotionally devoid” and warned that “the
empathetic and meaningful conversations we had in the past have been
lost, along with much of the customer’s trust in banks.” The metaverse is a
chance to create those meaningful, humanised experiences – regardless of a
customer’s location.

26

Soon, digital banking customers will live and work in a new reality: the metaverse.
Banks and financial institutions are taking this virtual world very seriously
because of the potential value it offers them. Goldman Sachs and Morgan Stanley
have estimated that the metaverse economy could be worth up to $8 trillion.

Becoming a future-centric digital bank
During the past five years, the pandemic and technological disruption have
turned digital banking on its head. The pace of change is not about to slow
down, which means that everyone working in the sector must keep up or be
left behind.
To understand more about the future of digital banking, be sure to check out
ebankIT’s full report on the trends shaping the sector.
27

07
CHAIN REACTIONS:
CRYPTOCURRENCY
VS. REMITTANCES

According to Kaitlin Asrow, executive deputy superintendent, research and
innovation, New York State Department of Financial Services, there is room
for both cryptocurrency and remittances. “Innovation in one area, such as
virtual currency, should not preclude other innovations. I believe we can
work towards improving traditional payment systems, while virtual currency
continues to evolve. It is exciting to be working on multiple innovative paths.”
There has been a massive shift toward digital platforms across all industries
as a result of the Covid-19 pandemic and political leaders around the world
have taken steps to move their economies in the same direction. El Salvador
made headlines for becoming the first country to adopt Bitcoin as legal tender
despite citizen protest.
When announced, the country’s president Nayib Bukele stated that
cryptocurrency was a direct competitor for remittances, adding that lowincome families in El Salvador would receive from the “equivalent of billions
of dollars every year.” Remittance, defined as people sending money to
support their families and communities back home make up a significant
component of GDP for many countries.
Further to this, Synapse CEO and co-founder, Sankaet Pathak reiterated that
“sparked by the COVID-19 pandemic, location no longer matters for workers
in the digital goods economy. Freelancers, gamers, and content creators of all
kinds now fuel an interconnected, global workforce. Additionally, cross-border
families, travelers and residents in countries experiencing high inflation or
negative interest rates require access to more stable stores of value.”

28

The payments landscape is currently undergoing intense digital-led
transformation, but is there a place for both remittances and crypto? Across
the spectrum of cryptocurrency and money transfers, how are digital
currencies are finding a space in the industry, where cryptocurrency’s benefits
are considered and the debate of whether it could ever replace conventional
money transfers continues. Cryptocurrency is making waves in remittances,
but where is the genuine impact and what is just digital noise?

“Crypto is not in a position to replace conventional remittances –
and it won’t be for the foreseeable future. Claims about it being
faster and cheaper are often overstated. Our own data tracking
crypto cross-border shows it is often about the same speed on many
corridors due to the time it takes to on and off-ramp and is not
always cheaper either.”
Daniel Webber,
Founder and CEO, FXC Intelligence

Daniel Webber, founder and CEO of FXC Intelligence, highlighted that the industry is
not ready for an either-or situation when it comes to cryptocurrency and remittances.
“Crypto is not in a position to replace conventional remittances – and it won’t be for the
foreseeable future. Claims about it being faster and cheaper are often overstated. Our
own data tracking crypto cross-border shows it is often about the same speed on many
corridors due to the time it takes to on and off-ramp and is not always cheaper either.”
Webber elucidated this point further and stated that the benefits of cryptocurrency
are still of value. “That’s not to say there is no benefit to crypto for the end user
for money transfers – they are well suited to applications where users want to
keep their money in digital currency or in some circumstances where part of the
currency pair is particularly volatile or has restrictions.
“However, crypto’s benefits for money transfer customers are specific to niche use
cases – for many it offers no notable edge over the wide range of solutions in the
conventional market. Where there do seem to be opportunities is for improving
the treasury management – a liquidity needed by money transfer providers.” Amid
innovation and nuanced waves of technology trends, the financial services industry
and fintech sector alike must not forget that conventional, or traditional methods of
money movement still work.
Legacy global rails and payment networks are also changing and being
modernised to suit the future of digital banking. Since its emergence, blockchain
has shown potential for financial inclusion and the formalisation of remittances.
In the background, regulators have been studying the capabilities of blockchain to
streamline and replace the infrastructure underpinning cross-border payments
and remittances – correspondent banking. Also referred to as Nostro-Vostro
accounts, these bilateral arrangements that allow banks to provide services in
countries where they do not directly operate are in dire need of innovation.

29

According to the World Bank, global remittances totalled roughly $700 billion in
2020, $540 billion of which is noted to have been sent to low- and middle-income
countries. TechCrunch reported that El Salvador received nearly $6 billion of that.
Cryptocurrencies, however, are estimated to make up less than 1% of the volume of
global cross-border remittances.

As a result, there is a growing interest in a link between remittances,
blockchain and correspondent banking, particularly by organisations such as
Ripple. As written by Durham University’s Ludovico Rella in the paper
‘Blockchain Technologies and Remittances: From Financial Inclusion
to Correspondent Banking’, blockchain has been proven to foster
the formalisation of remittances and can be incorporated into existing
infrastructures, business models, and regulatory structures.

“This paper argues that the application of DLTs within existing correspondent
banking arrangements aims to reduce costs and fees, and to mobilise the idle
liquidity ‘locked up’ in Nostro and Vostro accounts. This is achieved through
interoperability, understood as the visibility and synchronisation of payment
systems to and with each other. Interoperability, in turn, enables real-time
clearing and settlement of transactions. Ripple is almost the only case where
blockchain, correspondent banking, and remittances overlap.”
Core banking systems have been modernised to meet constantly shifting
customer demands, while also reducing cost and risk. By automating
processes and streamlining application delivery, resilience, efficiency, and
time to market has improved. Partnerships across the financial services
ecosystem can resolve technology challenges from a business-led and a
technology-led perspective. However, industry sentiment continues to
question whether banks are truly able to innovate independently, or whether
financial institutions can partner efficiently.

“Virtual currency, like other markets, is an opportunity for investment
and job creation, if the innovation occurs in a responsible manner.
Blockchain technology itself also has exciting potential applications
within financial services and beyond. As this space continues to grow,
it is essential that there is efficient and rigorous regulation. NYDFS
implemented the first tailored regulatory framework for virtual
currency in 2015 and under Superintendent Harris’ leadership, DFS is
committed to using its suite of regulatory tools to keep New York at
the centre of technological innovation.”
Kaitlin Asrow,
Executive Deputy Superintendent, Research and Innovation, New York State Department of Financial Services

30

The paper introduction reads: “Concerns about risks and efficiencies presently
animating correspondent banking arrangements—rather than financial
inclusion agendas per se—are driving the application of blockchain and DLTs
in remittances. Previous critical social scientific research argues that digital
technologies for financial inclusion are actually motivated by the monetisation
of users’ data.

A spokesperson from Wells Fargo explored this point: “Client centric design
and innovation must include thinking beyond our walls. The future of
banking will rely on investing in critical partnerships to create value for our
customers across a variety of ecosystems. It isn’t about fintech vs. banking
but leveraging the data and scale of Wells Fargo with the nimbleness and
precision of fintechs and technology firms, to create a result that is better than
the sum of its parts. We leverage these partnerships to create experiences that
fully encompass a customer’s financial journey.”

Emerging technologies such as distributed ledger technology and blockchain
technologies have been treated in this manner by traditional financial
institutions. Wells Fargo continued: “Wells Fargo is committed to exploring
emergent technologies and innovative concepts that will benefit our
customers. Currently, we are evaluating Digital Ledger Technology (DLT)
for potential transactional, transparency, and settlement innovations it may
hold. For example, potential benefits include: easy access to data, end-toend transparency, increased settlement speed, and improved auditability. In
addition, Wells Fargo is collaborating with financial institutions and exploring
distributed ledger initiatives that will complement our core business. As with
all emergent technologies, understanding the regulatory environment and
ensuring customer security are foundational elements of any exploration.
“While we do not accept crypto assets — in deposit, custodial, or other
accounts — we are actively conducting research and development in the
digital currency space to evaluate the underlying technology for potential
transactional, transparency, and settlement innovations it may hold.”
In exploration of how innovation is currently operating, Asrow added that:
“Virtual currency, like other markets, is an opportunity for investment and
job creation, if the innovation occurs in a responsible manner. Blockchain
technology itself also has exciting potential applications within financial
services and beyond. As this space continues to grow, it is essential that there
is efficient and rigorous regulation. NYDFS implemented the first tailored
regulatory framework for virtual currency in 2015 and under Superintendent
Harris’ leadership, DFS is committed to using its suite of regulatory tools to
keep New York at the centre of technological innovation.”

31

Looking to the future, it is evident that while traditional models of innovation
are predominantly linear, featuring limited feedback loops. A cycle of
feedback that combines views around technical innovation and social change
will lead to success across the entire value chain. Technological innovation
brings about new products, but also new ways of using products and services,
spurring still more technological innovation.

In a concluding comment, Webber stated that: “We are still early on crypto
and its use cases in payments for end users. When it comes to improving the
efficiency of banks and payment companies, there are situations where it can
offer specific benefits, particularly when using stablecoins such as USDC and
helping to reduce the need to pre-fund currencies around the world.

32

“As adoption of crypto grows at the checkout, that will cause the growth to
fundamentally change the payments side of the business. If consumers or
businesses want to spend their crypto, then fintechs and banks will develop
the solutions necessary. We are also seeing a set of crypto companies
embracing regulation and looking to gain the same level of trust that
traditional financial service companies have. In this respect, more and better
regulation can only help the sector become more mainstream.”

08
CBDC: POWERING THE
FUTURE OF MONEY IN
THE DIGITAL ERA
An expert view from Infosys Finacle
Rajashekara V. Maiya

The last couple of years have witnessed a revolution
in digital currencies globally. Rapid advancements
in technology and decline in cash transactions,
particularly through the pandemic, have further
fuelled their rise. A report by UNCTAD in 2021
indicated significant growth in the usage of digital
currencies across several countries. 12.7% of the
population in Ukraine owned digital currencies,
11.3% in the Russian Federation, 10.3% in Venezuela,
9.4% in Singapore, 7.3% in India, and many more.

Digital currency comes in various forms – virtual currencies (currency
alternatives), cryptocurrencies, stablecoins, and central bank issued digital
currencies (CBDCs). Non-fungible tokens (NFTs) and credit cards are also
considered stores of value in digital form.

CBDCs and their potential benefits
The CBDC is a digital form of a country’s fiat currency; a form of currency
that is not backed by a physical commodity such as gold or silver, but by the
government that issued it. It is considered to be legal tender, and offers an
equivalent claim as the physical currency on the country’s central bank.
Countries worldwide are increasingly moving towards alternatives to physical
currency. Many are in the process of implementing or initiating pilot projects
to issue their own CBDCs. The objective is to issue electronic money, backed
by the full faith and credit of the government, equivalent to the country’s fiat
currency, thus enabling faster transactions.

33

Vice President and Head, Business Consulting Group, Infosys Finacle

A 2021 survey by the Bank of International Settlements (BIS) revealed that
86% of central banks globally were actively researching the potential for
CBDCs, while 60% were experimenting with the technology and 14% were
deploying pilot projects.
Essentially, a CBDC would encompass most of the use cases serviced today by
physical currency, including person-to-person transfers, person-to-merchant
and merchant-to-person payments, merchant-to-merchant transactions,
government-to-person transfers and government-to-government transactions.

As the liability of CBDCs lies with the central bank, payments made can
be settled immediately. This renders CBDCs an ideal payment mechanism
for smart contracts. Foreign exchange contracts using smart contracts can
reduce settlement costs and also cross-currency settlement risks. A joint
research report by Oliver Wyman and J.P. Morgan indicates that a full-scale
multi-central bank digital currency (mCBDC) network that facilitates roundthe-clock, cross-border payments in real time can potentially save global
corporates up to $100 billion in transaction costs annually.

Seven potential design constructs to deploy for CBDC
1. Centralised ledger vs. Distributed ledger
The centralised approach is used for settlement of physical currencies and is
the easiest one to build a CBDC ecosystem on. Centralised ledgers can lead
to bottlenecks and are vulnerable to cyber-attacks. The distributed ledger
is much less vulnerable to unauthorised or malicious tampering. With this
approach, the nature of the financial industry encourages consideration of
permissioned ledgers, passing on some amount of control to the regulator
while still offering its advantages.
2. Account-based vs. Token-based
In account-based CBDC, ownership is linked to an identity such as an
account, and transactions are authorised based on identification. This
approach is simple and easy to implement on a mass scale.
With token-based CBDC, transaction authorisation happens solely on the

34

Moreover, CBDCs also present greater opportunities not adequately addressed
by physical currencies. This extends to:
• Minimising the cost of currency
• Substantially reducing cash-based counterfeit currencies
• Decreasing the effect of a shadow economy
• Ensuring financial inclusion
• Making cross-border transactions faster and efficient

basis of a digital signature, which may provide advanced security.
Another approach is a combination where ownership of the CBDC can be
token-based and consumers can be account-based.

4. Direct vs. Indirect vs. Hybrid
In the direct CBDC construct, the central bank maintains a ledger of all
transactions and carries out retail transactions, given that CBDC is a direct
claim on the central bank.
The indirect or synthetic CBDC approach entails a payment system operated
by intermediaries that mirror narrow payment banks. Consumers have claims
on these intermediaries who operate retail payments. They need to completely
honour all liabilities to retail clients with claims on the central bank.
In a hybrid CBDC approach, intermediaries maintain the accounts and utilise
money deposited for various purposes, while the CBDC remains a direct claim
on the central bank. The central bank also maintains a central ledger of all
transactions and operates a backup technical infrastructure allowing it to
restart the payment system if intermediaries fail. With this approach, central
banks can disseminate CBDC to commercial banks like they do with cash
presently, while commercial banks would distribute these to individuals and
businesses by setting up and managing digital wallets.
Another advantage of this model is that it minimises disruption to the prevalent
banking system since it can leverage existing processes such as customer
onboarding, identity checking and AML monitoring by commercial banks.

5. Privacy and transparency
Currently, for transactions involving commercial bank accounts, details of
the customer’s identity and transactions are visible to the account-holding
institution and participants involved. For cash currency-based transactions,
details of currency movements are not visible to either the central bank or the
intermediary financial institutions involved.

35

3. Interest-bearing vs. Non-interest-bearing
As in the case of physical currency, interest disbursal by the bank for holding
digital currency may be similar but with additional considerations. With
an account-based approach, depositing digital currency with a holding
institution (such as a commercial bank) may entail an interest pay-out. With
a purely token-based approach, the currency cannot be made interest-bearing
since it resides in the consumer’s wallet. With a combined approach, CBDC
deposited in an account with an intermediary bank may earn interest, while
CBDC residing as tokens in the consumer’s wallet will not earn interest.

In the CBDC context, with a distributed ledger, the account and transaction
data, encrypted and digitally signed, may be shared with multiple
intermediaries participating in the financial system. In addition, the
movement of token-based CBDC from one to another customer’s digital wallet
may provide traceability for individual currency tokens.
The issue of privacy has been addressed to some extent with PSD2 and
open banking. GDPR protects the confidentiality of identity and sensitive
information. These two complementary and balanced regulations can also be
extended to address CBDCs.

For transaction authorisations, either hardware-based or software-based
authorisation tokens, certificates or OTPs (one-time passwords) would need to
be implemented for customers to be able to digitally sign transactions.

7. Cloud deployment of the ledger
Across all design constructs for CBDCs, especially with options involving
availability of a centralised full-copy ledger of transactional movements with
the central bank, or with permissioned distributed full-copy ledgers with
multiple intermediary financial institutions, the size of the ledger would grow
at a tremendous pace. Leveraging cloud infrastructure to deploy the account
management and ledger platforms would be a good way to ensure scalability,
high performance, and support possible consensus-mechanism-based
reconciliations.

CBDCs: Preparing for the future of money
If rightly implemented, CBDCs have the potential to become the next strategic
change driving the banking and payments industry globally. Their potential
to enhance economies, reduce transaction time and costs, help drive financial
inclusion and simplify cross-border transactions are leading governments and
central banks worldwide to keenly explore the introduction of CBDCs.

36

6. Digital identity verification & authorisation
Another aspect to consider from a regulatory compliance perspective is digital
verification of the customer’s identity. While verification through various
KYC processes is applicable for CBDC holders too, newer approaches for
creating digital identity authentication are available now. These are based on
a permissioned distributed ledger technology, supported on the blockchain
platform. One example of implementing digital identity verification and
authorisation is the Finacle Blockchain Identity Solution.

09
BUILDING THE
EXPERIENCE OF FINANCE

New technology trends which may at first glance appear utterly distinct or
inapplicable to financial scenarios are quickly finding a foothold within innovation
strategies at large financial institutions. Incumbents, challengers, neobanks, and
fintechs alike are reluctant to ignore tech opportunities which may one day (soon)
comprise a central pillar of the financial ecosystem. Web3, the metaverse, digital
assets, and tokenisation are no longer the monopoly of global tech giants, but
increasingly being shaped by financial players anxious to maintain relevance.

“As we leave the two-dimensional Web2.0 behind us with the
expansion of mobile commerce and social media, we are entering
into a four dimensional Web3 with lifelike virtual and augmented
reality experiences that integrate with existing physical distribution
and logistics”
Naveed Anwar,
Global Head of Digital with Treasury and Trade Solutions, Citi

Naveed Anwar, global head of digital with treasury and trade solutions, Citi,
agreed that the advancement of technology is opening the door to a new form
of internet with new business and social models that blur the lines between
physical and digital experiences. Covid-19 emphasised the acceleration of
digital transformation as companies began experimenting with technologies
including the metaverse and digital assets.
“As we leave the two-dimensional Web2.0 behind us with the expansion of
mobile commerce and social media, we are entering into a four dimensional
Web3 with lifelike virtual and augmented reality experiences that integrate
with existing physical distribution and logistics,” observed Anwar.

37

As we delve deeper into the realm of digitised financial services, it is becoming
clear that the line between physical and digital experiences are becoming
increasingly blurred. This is due in no small part to the experiential applications,
products, and services which consumers are now using not only for social and
leisure, but for their work, wellbeing, and of course, their financial management.

Ahmed Siddiqui, chief payments officer at workforce payments platform Branch and
author of Anatomy of the Swipe agreed, citing the early examples of Uber and AirBnB,
where consumers were taking car trips or staying in someone’s home using an entirely
digital payments experience. “No more fumbling for your wallet to pay—it was all
taken care of digitally through the app. You didn’t have to worry about the awkward
experience of paying with cash or a card once you’re done.”

Ahmed Siddiqui,
Chief Payments Officer, Branch & Author, Anatomy of the Swipe

This blurred experience is now being optimised by companies in the post-Covid world,
in order to make the process as convenient as possible for customers. “We are so used
to shopping and paying for something online ahead of time and picking it up in-person.
You order and pay on the store’s mobile apps, and you make a curbside pickup. The
concept of ‘pay on delivery of goods or services’ is going away because of how convenient
these transactions have become; people are comfortable storing their payments
credentials with the merchants so they can be automatically charged,” notes Siddiqui.
According to Jamison Jaworski, GM, SVP of retail, Green Dot Network, this
continuous blurring of the physical digital worlds is all for the benefit of the consumer.
As consumers want their experience with banking and payments to be frictionless
and fit into the flow of their daily lives, this demand for convenience is driving the
integration of physical experiences with digitally native experiences.
Jaworski cited the example of the evolution of retail during the initial rise of
ecommerce, where the conversation centered around which storefront – either digital
or physical – would make the other obsolete. “Neither did become obsolete, but
because these retailers were forced to innovate, consumers can now interact digitally
with a worker picking out their groceries for delivery, buy products online and pickup
or exchange in store, load cash to their digital bank account at the same store they’re
out buying diapers from, and much more.”
From banking to shopping to hailing a cab, its consumers who have all the
leverage in demanding convenient, frictionless experiences, Jaworski argued.
“The companies that will thrive moving forward will be those that don’t view
physical and digital as competing channels, but rather two elements that can be
blended together to better meet the consumer where they are.”

38

“We are so used to shopping and paying for something online ahead of
time and picking it up in-person. You order and pay on the store’s
mobile apps, and you make a curbside pickup. The concept of ‘pay on
delivery of goods or services’ is going away because of how
convenient these transactions have become; people are comfortable
storing their payments credentials with the merchants so they can be
automatically charged”

Web3 and bringing dark markets into the light: What does Web3 offer?
While certain product market uses have been speculative in nature, increased
variety of applications of Web3 across finance indicates that meaningful
innovation can be built. Before the ongoing market downturns, McKinsey
notes that over $250 billion was actively put to use in smart contracts,
yielding autonomous returns for its depositors.

“Because digital assets are not insured or fully considered in existing
regulations it is of paramount importance for users and crypto
service providers to keep them safe, as there is little to no recourse in
the event digital assets are stolen, lost, or the subject of fraud like
other more traditional assets are.”
Daniel Webber,
Founder and CEO, FXC Intelligence

Additionally, questions around the appropriate and most secure method
of building digital identities in order to leverage the full potential of these
technologies are front of mind. Anwar believes that almost everything we
do online is tied to digital identity. “In fact, digital identities have become so
important that in some cases, prospective users can’t even access services or
perform specific tasks without them.
“Digital identity will continue to hold a pivotal role in bridging the different
ecosystems as we transition from Web2 to Web3. When fully adopted, digital
identity in Web3 will allow users to carry their full selves’ through the
fragmented ecosystems.”

39

Despite this almost furious uptake, as a nascent industry many questions
remain around the best approach for supervision and growth. Governance
is a clear example of a complicated aspect of Web3, as by nature it is meant
to take place within the community rather than behind closed doors. In this
way, revenue can be returned to creators and users along with incentives for
growth. McKinsey continues that this could mark a paradigm shift within
the business model for digital applications by making disintermediation a
core element – intermediaries can be circumvented or avoided altogether.

Tim Day, VP of digital experiences at Navy Federal Credit Union explained
that as more and more data on individuals is available in the digital space,
security and privacy become increasingly important. “Because digital assets
are not insured or fully considered in existing regulations it is of paramount
importance for users and crypto service providers to keep them safe, as there
is little to no recourse in the event digital assets are stolen, lost, or the subject
of fraud like other more traditional assets are.”

Although the financial services industry is still vulnerable to the risks and
complexities these new technologies present, it is leading the way with
adoption. A clear example of this was when the market was seeing daily
volume of DeFi transactions being processed across global exchanges
surpassing $10 billion. While this volume has fluctuated, these figures help to
inform the evolution of Web3 across different industries.
With new developers joining the market, innovation in the space is inevitable.
Being open source by nature means that Web3 creators in the field aren’t
fenced off from programs or restricted to working on pre-approved company
mandates. There is a true open slate when it comes to innovation and testing,
and incumbents are reluctant to miss out.

The metaverse and financial services: Assessing a new world
BCG explains that the metaverse can be understood as the convergence
of several developments which all involve a step change in technological
capability, and with Goldman Sachs predicting that the metaverse could hold
an $8 trillion opportunity on the revenue or monetisation side, it is a concept
that deserves careful attention.

The developments BCG refers to include the mass online gathering of hundreds
of millions of users thanks not only to the wide availability of digital devices,
but the vast improvements in cloud services and connectivity, a growing
market for augmented, virtual, and mixed-reality experiences, and the growing
strength and usage of virtual assets powered by Web3 technology.

40

According to Anwar the digital economy has pushed the internet to its limits.
As a result, to maintain relevance in this economy new security layers must
be built to protect information and establish customer identity. He explains
that blockchain provides these upgrades including built in digital identity
and higher data security to the existing internet technology allowing for
interoperability and scalability.

41

Citi’s Treasury and Trade Solutions business is building digital asset
capabilities into its core platforms, CitiDirect and CitiConnect. CitiConnect
APIs are supported through an ecosystem that includes strategic partnerships
with various treasury software providers, while banking platform CitiDirect
provides one-click access to global transaction capabilities.
“Whether it is CBDCs or the metaverse,” noted Anwar, “TTS aims to provide
our clients with the capabilities that will allow them to transact across Web3.
We have a long history of innovation in financial services especially in our use
of new technology.”
While certain institutions like Citi are working to build these capabilities into
their offering, Siddiqui observes that buying things in the metaverse is not
particularly easy. In the same way that Coinbase made it easy to buy crypto, a
player needs to make this service simple and seamless within the metaverse.
“The exchange of crypto to native tokens that can be used in various
metaverses is still super confusing. I don’t think anyone has cracked that yet.”

Source: BCG 

NFTs and tokenisation: An application for every industry?
Over $40 billion was spent on non-fungible tokens during 2021, and while
the initial allure for the NFT concept was pegged squarely on the art world,
their utility across financial products has taken centre stage – notably for the
tokenisation of payments.

“Basically, they’re taking a keyed-in card transaction, asking the network to
generate a token for them, that is specific between the user and Netflix, and then
using that to make recurring payments. This is not only highly secure but also
protects the consumer in the event of a breach. Those tokens can be immediately
terminated, and the user will be asked to retokenise for this service.”
Tokenisation of value has tremendous value for financial institutions alike
Citi and their clients as it provides them with programmable assets. The
underlining blockchain technology that powers digital assets also provide an
enhanced internet topology with new capabilities like smart contracts, digital
identity and atomic settlement.

Adopting the philosophical or the practical viewpoint
Given the complexity and far-reaching impact held by the technologies
currently being explored across financial services, it stands to reason that
categorisation may assist in understanding their impact.
It is helpful to look at experiential technology in two groups states Siddiqui;
the technical infrastructure and the end-user experiences. An example of the
former would be the companies building essential financial infrastructure
such as Marqeta, where the raw ISO8583 messages from the card networks
(Visa, Mastercard) are converted and made usable by developers on the
Marqeta platform. The latter, Siddiqui explains, would be companies building
customer facing solutions on top of this financial infrastructure, such as
Branch which builds the financial infrastructure usable for end consumers.
“Rarely do we see fintech companies that are great at both, because they
require very different company DNAs.”

42

Tokenisation and the applications that accompany it are of significant interest
to Siddiqui, who noted that it is rapidly considered to be the more secure
way of moving money. While ApplePay and GooglePay may be a key example
that comes to mind for most people when thinking about tokenised payment,
he observes that major platforms such as Facebook and Netflix are also
tokenising their payments.

Larger financial institutions such as Citi are working on tackling both
viewpoints, as Anwar observes the ultimate product design is when
technology becomes invisible. “Our ultimate value proposition is to become
invisible and seamless, as we integrate our APIs into our clients’ systems
and applications. For this reason, it is important that while we digitise our
business operating model front-to-back we also keep design and invisibility in
the forefront of our digital strategy.”

43

It remains essential to deeply assess the core features of this experiencedriven movement as it evolves from a trend to a pillar of the financial services
landscape. The prospective disruption it holds is far reaching, and financial
institutions which pay close attention to the possible outcomes will be better
placed to capitalise on future opportunities.

10
CONCLUSION

It is also evident that regulators must also be onside to ensure consumers
and businesses alike are kept safe and secure, but also with new technologies
and new methods of payments – such as cryptocurrencies – there is a level of
control and protection available.
Challenges are unavoidable, but the highlighted trends – personalisation,
embedded finance, digital ubiquity, digital onboarding, chatbots and the
metaverse, to name a few – will require a business model shakeup to ensure
they meet the needs of the customer today and in 2023.
Looking to the future, and as mentioned in this report, traditional models
of innovation have historically been linear, featuring limited feedback
loops. Embedding a cycle of feedback that combines views around technical
innovation and social change will lead to success across the entire value chain.

44

What does success look like in the North American digital banking sector?
An industry that leverages the opportunities that open banking presents. An
industry that democratises access to APIs, and one where partnerships with
fintech firms can help traditional banks build better customer experiences.

11
ABOUT FINEXTRA RESEARCH

45

Founded in 1999, Finextra Research covers all aspects of financial technology
innovation and operation involving banks, institutions and vendor
organisations within the wholesale and retail banking, payments and cards
sectors worldwide.
Finextra’s unique global community consists of over 30,000 fintech
professionals working inside banks and financial institutions, specialist
fintech application and service providers, consulting organisations and
mainstream technology providers. The Finextra community actively
participate in posting their opinions and comments on the evolution of
fintech. In addition, they contribute information and data to Finextra surveys
and reports.

For more information:
Visit www.finextra.com,
follow @finextra, email contact@finextra.com or call +44 (0)20 3100 3670

This report is published by Finextra Research. Finextra Research is the
world’s leading specialist financial technology (fintech) news and information
source. Finextra offers over 100,000 fintech news, features and TV content
items to visitors of finextra.com.

12
ABOUT THE PARTNERS

46

ebankIT is a fintech company that enables banks and credit unions to deliver
humanized, personalized, and accessible digital experiences for their customers.
By adopting the ebankIT Omnichannel Digital Banking Platform, financial
institutions are powered to offer an increasingly innovative user experience
to both their customers and internal teams, and across every modern digital
channel, from mobile to web banking, from wearable gadgets to the metaverse
and beyond.
Enhanced with flexible and robust out-of-the-box features, ebankIT
Omnichannel Platform offers a fast and seamless digital banking
transformation for financial institutions of any size and background. With
extensive customization capabilities and a continuous focus on human
interactions, ebankIT future-proves the digital strategy of banks and credit
unions, empowering them with a truly customer-first approach.
Founded in 2014 by an experienced team of fintech experts, ebankIT’s work has
already translated into increased revenues and cost minimization for dozens
of financial institutions worldwide. Today, the ebankIT Omnichannel Digital
Banking Platform is licensed to institutions in 11 countries, serving millions of
customers and members.

ebankIT

EPAM Systems, Inc

Selected by Newsweek as a 2021 Most Loved Workplace, EPAM’s global
multi-disciplinary teams serve customers in more than 50 countries across
six continents. As a recognized leader, EPAM is listed among the top 15
companies in Information Technology Services on the Fortune 1000 and
ranked as the top IT services company on Fortune’s 100 Fastest-Growing
Companies list for the last three consecutive years. EPAM is also listed
among Ad Age’s top 25 World’s Largest Agency Companies for three
consecutive years, and Consulting Magazine named EPAM Continuum a top
20 Fastest-Growing Firm.

47

Since 1993, EPAM Systems, Inc. (NYSE: EPAM) has leveraged its advanced
software engineering heritage to become the foremost global digital
transformation services provider – leading the industry in digital and
physical product development and digital platform engineering services.
Through its innovative strategy; integrated advisory, consulting, and design
capabilities; and unique ‘Engineering DNA,’ EPAM’s globally deployed
hybrid teams help make the future real for clients and communities around
the world by powering better enterprise, education and health platforms
that connect people, optimize experiences, and improve people’s lives. In
2021, EPAM was added to the S&P 500 and included among the list of
Forbes Global 2000 companies.

Infosys Finacle

Finacle solutions address the core banking, lending, digital engagement,
payments, cash management, wealth management, treasury, analytics, AI,
and blockchain requirements of financial institutions globally. Finacle’s
componentized structure allows banks to deploy and upgrade solutions
flexibly as per their business priorities.
Our solutions run in a containerized environment orchestrated by
Kubernetes and can be deployed on a private, public, or hybrid cloud. We are
differentiated by our functionally rich solution suite, composable architecture,
culture and entrepreneurial spirit of a start-up. We are also known for an
impeccable track record of helping financial institutions of all sizes drive
digital transformation at speed and scale.
Today, financial institutions in more than 100 countries rely on Finacle
to help more than a billion people and millions of businesses to save, pay,
borrow, and invest better.
For more information, visit www.finacle.com

48

Finacle is an industry leader in digital banking solutions. We are a unit of
EdgeVerve Systems, a wholly owned product subsidiary of Infosys (NYSE:
INFY), a global technology leader with over USD 16 billion annual revenues.
We partner with emerging and established financial institutions to inspire
better banking. Our cloud-native solution suite and SaaS services help
banks engage, innovate, operate, and transform better to scale digital
transformation with confidence.

Trustly

We are a licensed Payment Institution under the second payment services
directive (PSD2) and operate under the supervision of the Swedish Financial
Supervisory Authority in Europe. In the US, we are state regulated as
required to serve our target markets. Read more at www.trustly.com.

49

Founded in 2008, Trustly is a global leader in Open Banking Payments.
Our digital account-to-account platform redefines the speed, simplicity and
security of payments, linking some of the world’s most prominent merchants
with consumers directly from their online banking accounts. Trustly can
handle the entire payment journey, setting us apart from the competition and
enabling us to offer an attractive alternative to the traditional card networks
at a lower cost. Today we serve 8,100 merchants, connecting them with 525
million consumers and 6,300 banks in over 30 countries; and in 2021 we
processed over $28 billion in transaction volume in our global network.