The synergy created by the banking industry’s collaboration with advanced technology is revolutionizing the delivery of financial services to customers. Yet, despite significant advancements during the last decade, challenges related to digital transformation persist. Although there is evidence of progress related to privacy and data concerns, integrating financial services with modern technology platforms continues to produce technical, regulatory, competitive, and operational difficulties that will require appropriate monitoring and oversight to keep customers safe and satisfied with their financial institutions.
Melding the old with the new
A significant obstacle in melding banking and technology stems from two distinct worlds colliding. Banking has been traditionally slow, while technology is fast-paced. This incongruity makes it difficult to balance the necessary scrutiny and regulations of banking with the revolutionary, breakneck speed and impact of artificial intelligence (AI) and machine learning (ML). To integrate these two sectors, it’s essential for banks to ensure regulatory compliance and deliver frictionless customer journeys simultaneously. It’s a tall order—mitigating risks with cybersecurity in banks alongside the disruption, experimentation, and innovation of the fintech world.
Traditional banks often rely on legacy systems that impede rapid innovation. According to a May 2024 PYMNTS report, 75 percent of banks struggle with implementing new digital solutions because of their legacy infrastructure, and 59 percent of bankers saw their legacy systems as a significant business challenge, describing them as a “spaghetti” of interconnected but antiquated technologies. These systems are typically monolithic, making integration with modern technologies complex and challenging, and upgrading these systems without disrupting day-to-day operations is a major hurdle.
Nonetheless, with the right systems, banks can improve their own and their customers’ return on investment (ROI) by participating in open banking. Data-sharing advancements are a boon, since banks share relevant data and information with other financial institutions, allowing them to offer a wider range of services and provide more streamlined options (e.g., loan applications). Earlier this year, JP Morgan Chase did just that, using advanced AI systems to automate key aspects of the loan process approval, thereby reducing wait times and operational costs because of human oversight and intervention and raising customer satisfaction scores.
Customer expectations are booming due to the emerging fintech space in the banking industry. Customers don’t always want to visit a physical bank. They want frictionless digital experiences on both online webpages and mobile apps, to talk to an agent, to receive personalized offers, and to ensure ongoing interconnectivity in all their transactions.
Addressing the obstacles
The more “open” the banking, the greater the need for regulations and compliance, since breaches and hacks remain ongoing threats.In January, First Bank reported that in 2025, cybercriminals will use more sophisticated methods, including advanced persistent threats (APTs), which involve highly targeted and prolonged cyberattacks to steal sensitive data or disrupt operations.
Customers entrust their identity, information, and finances to their banks, and if someone misuses or steals that information, the implications can be disastrous. Having robust cybersecurity mechanisms in place is vital for banks to earn the trust of their customers. That’s why it’s crucial for banks to remain on top of their game in managing ever more sophisticated cyberattacks. That means ensuring they have the right technology for perimeter defenses and overall distributed trust models.
It’s imperative for banks not to underestimate the intelligence of cyberattackers when protecting customers’ data. Sophisticated hackers will always exploit loopholes. As such, it’s critical for banks to quickly identify breaches and recover and mitigate their impacts with safeguards. It’s a delicate balance between building desirable products and capabilities for customers while simultaneously considering the risks. A breach can cause banks to lose customers’ trust and reputation.
One solution is to include safety, trust, and risk reduction in banks’ planning, such as implementing the Know Your Customer (KYC) process, a regulation that establishes customers’ identities, mitigating the risk of potential financial crimes. Another regulatory requirement is the Office of Foreign Assets Control (OFAC) rules, which require institutions to avoid foreign transactions that could violate U.S. laws. Additional guardrails include the Payment Card Industry Data Security Standard (PCI DSS), which protects customer data.
During a service disruption due a cybersecurity attack, it is important for banks to keep functioning. They cannot afford for customers to be unable to make payments, withdraw funds, or undertake transfers. It’s vital for banks to embrace the technologies that allow them to thrive and offer their customers the seamless transactions they seek. It’s also essential to navigate the current talent and skill gap related to these new technologies, including upskilling and cross-skilling current employees and hiring new talent.
The need for digital transformation
Embracing emerging technologies helps advance predictive banking, fraud detection, and prevention. AI is already advancing the much-needed personalization that customers desire with the already-established AI-driven chatbots and virtual assistants.
In the document-heavy banking industry, moving legacy infrastructure to the cloud strengthens efficiency and resiliency, including reducing physical infrastructure by paying only for what’s used, relying on the cloud provider’s built-in compliance tools, and being able to quickly deploy apps and create updates as new features become available. It can also assist banks with intelligent document processing, building automated systems, and enabling real-time payment processing. Unfortunately, cloud computing is not without issues. In a May 2024 interview with Britain’s Financial Times, Simon Crocker, senior director of systems engineering for Western Europe, Palo Alto Networks, noted, “Vulnerabilities in cloud platforms, misconfigurations, or security weaknesses in the underlying infrastructure can expose banks to significant security risks.” He suggested these concerns can potentially be mitigated by using encrypted communication methods, such as virtual private networks (VPNs), dedicated private connections, and web proxy servers.
When used correctly with the proper guardrails in place, these new technologies are key to helping multiple fintech companies and banks collaborate to create shared services, embrace open banking using application programming interface (API) ecosystems, and build scalable products. These collaborations have already seen success in the creation of Zelle, for example. Zelle made it possible to transfer funds quickly but could only do so in partnership with banks. Similarly, budgeting apps such as Mint allow for bringing customers’ financial accounts together, reading and digesting customer data, including how they save and spend, and then compiling budgeting, expense, and summary reports. They, too, required collaboration between multiple fintech companies and banks.
AI is already transforming the future of the nexus of banking and technology, creating personalized customer experiences with fraud detection, predictive analysis of customer behavior, and understanding customers’ needs and wants. Blockchain technology will also play a significant role in this integration, improving transparency in payment processing and cross-border payments and enabling faster and cheaper payment processing. Ultimately, this will let banks provide intelligent real-time experiences for their customers while remaining competitive in an increasingly digital world.
- About Leena Kallakuri
- About Capital One
Leena Kallakuri is a vice president of software engineering. During her 19-year career, she has led enterprise-scale quality transformations while launching several mission-critical platforms that demanded rapid development and exceptional reliability. Kallakuri leads software engineering organizations that use application programming interfaces (APIs), microservices, and cloud technologies to build next-generation banking solutions aligned with digital and mobile-first growth strategies. Connect with Leena on LinkedIn.
At Capital One, we’re making things better for our customers and associates through innovation and collaboration. We were founded on the belief that everyone deserves financial freedom—and are dedicated to a world where all have equal opportunity to prosper. Banking is in our DNA, but we are so much more than a bank. We always think about what’s next—and how we can bring our customers the tools needed to improve their financial lives. Your ideas, experiences and skills will help make banking better. You’ll be part of a supportive culture while earning amazing benefits. That’s life at Capital One. Capital One is an equal opportunity employer (EOE, including disability/vet) committed to non-discrimination in compliance with applicable federal, state, and local laws.
Techedge AI is a niche publication dedicated to keeping its audience at the forefront of the rapidly evolving AI technology landscape. With a sharp focus on emerging trends, groundbreaking innovations, and expert insights, we cover everything from C-suite interviews and industry news to in-depth articles, podcasts, press releases, and guest posts. Join us as we explore the AI technologies shaping tomorrow’s world.
