Fintech is booming, and in the banking sector, it disrupts everything to the core, from customer experience to transaction systems. In the offshore banking niche, things are very much similar, with one exception: you're dealing with the more complex offshore structures and strict policies.
How can fintech transform offshore banking services? Here are four tech advances that can drive innovation in the sector:
Fully digital banking
Forget online banking. It'll soon become a thing of the past. Do you realize that today's banking is increasingly digitized?
You're seeing less and less paper currencies and coins, and more and more numbers you see in your account. With just a push of a button, you can move fund from one account to another, all in digitized form.
Branchless banking will become mainstream. You no longer need to go to a local bank branch or an ATM to access banking services. What you need is a delivery channel – e.g. Smartphone – to access the services.
In the offshore world, some of the best banks in offshore jurisdictions offer fully-functional, secure online banking. While this in itself is a convenience, it increasingly lacks of features – a problem that fully digital banking attempts to solve.
Firstly, accessing the service from smartphones is not ideal, as it'll be typically web browser-based. Developing an app for making mobile transaction possible means convenience to clients.
Secondly, while online banking features are helpful, these lack interaction capability with the bank. By going fully digital, offshore banks can improve customer relationship and acquire new clients better – all in all, increasing the banks' competitive advantage.
Whether you like it or not, doing inter-bank transaction internationally means that you're using Swift.
Swift is a standardized system for global financial transaction. Using Swift system, banks can set and receive financial transaction information – all done in a secure, standardized and reliable environment.
Swift powers 11,000 banks worldwide. While it has a very strong reach in the global banking sector, there are some weaknesses, such as expensive fees, long transaction process, dated system and increasingly weaker security.
Swift's old-fashioned system has finally faced a disruptive tech, called blockchain.
In essence, a blockchain is an innovative technology that takes form as a digital ledger. The ledger records every transaction made in cryptocurrencies like Bitcoin. The records – called blocks – are linked and secured using cryptography, which makes the data inside them resistant to any changes, although not immune.
In banking, the blockchain technology is disrupting the status quo of Swift. It enables inter-bank transactions that are said to be more secure and cheaper than Swift's.
While the implementation of blockchain in financial transactions is a difficult process, startups like Circle and Ripple are as disruptive as the blockchain technology; they make blockchain technology implementation in banking much easier.
And the trend shows that banks are slowly but surely adopting the new technology. Ripple, for example, announced that they have secured 10 new bank customers. They're currently serving 75 banks worldwide, including big names like BBVA and Bank of Tokyo-Mitsubishi UFJ. While the figure is still minuscule compared to Swift's 11,000-banks customer base, Ripple shows that more banks are interested in the technology compared to the “old and buggy” Swift tech.
In the offshore banking sector, Ripple can be a real game changer. One of the reasons is transaction costs. Swift can cost your transaction more than $25 per. Blockchain networks can cost you much lower (around $2 to 3 on average) depending on transaction size and time required for the transaction to be completed. Go figure.
Moving funds from a Swift-powered conduit to the sink offshore jurisdictions are just costly, burdening clients. Not only that, transactions' waiting time can be quite long, which makes offshore fund managers' job harder, as they will receive repeat information requests on the whereabouts of their clients' funds.
Ripple, for example, cutting the costs and time of the banking transactions, while ensuring each transaction's security using the nearly unbreakable blockchain technology. With features like multi-sign feature that requires a transaction to be approved by other users, devices or institutions as requested by a user, hacking it is a difficult (and costly) endeavor.
Chatbots and AI
Imagine chatting with a customer service of an offshore bank, without knowing that the conversation is between you, a human being, with a computer program. The text-based conversation is flowing naturally, as if it's with another human being, with real solutions provided to you, as if it's coming from a customer service officer with an excellent know-how?
If you think such thing will only happen in the future, think again. The chatbots are transforming customer interaction in a big way today, in every sector you can think of, particularly in service.
Chatbots can offer offshore banking clients improved customer experience with preset banking solutions, along with suggestions on how to better-secure your assets, invest your funds, etc. Here are some real examples of chatbots used by banks.
AI (Artificial Intelligence) makes chatbots arguably better. AI makes chatbots understand the language and content of the conversation, as well as the intent of clients by using NLP (Natural Langua Processing.)
And the bottom line is, chatbots – either rule-based or AI-powered – make service provision, transaction requests and any other offshore banking activities easier for both clients and banks.
Not necessarily exclusive to fintech, but IoT is disrupting many sectors, including banking.
IoT or Internet of Things is a system that consists of interconnected “things” that can interact with each other. The “things” can be anything from a laptop to washing machine; from a thermostat to a car; from a tumbler to a potted plant; from a dog to a human being (through devices they carry or 'attach' to.) Yes, it's virtually anything you can think of.
So, as you can imagine, you – through your smartphone, for example – can tell your heater to turn on at a specific time. Your food container can tell you whether the food stuff inside has gone bad. Your car can tell you that it is time to renew the vehicle registration documents. The sky's the limit.
Now, in the banking world, IoT can offer clients the ability to open an account, do transactions or any other banking activities – all emphasizing on interactions between clients and, say, tellers using any means made possible through the IoT system.
Maybe you can communicate with your bank's customer service from your display device in the kitchen? Or perhaps you can do voice command to your bank's chatbot to transfer funds from an account to another while you're on the go? Again, the possibilities are limitless.
For an offshore bank, all of the above mean more convenience to clients. More convenience means better banking experience, which will win clients for the bank.
There are of course many other fintech advances that are disrupting – or will disrupt - offshore banking in one way to another. The bottom line is, offshore banks can benefit greatly adopting such technology, especially in term of customer service.
If you are still in doubt whether the fintech advances above can disrupt offshore banking services and everything related to those, think about those this way: The WWW has just existed for 25 years or so. Social media giants like Facebook and Twitter didn't exist 15 years ago. When those were introduced to the public, most were being skeptical. But as we all know it, those change the world.
Blockchain technology, one of the most disruptive fintech advances, came to live in 2008 as a public ledger for bitcoin transactions. It's already past-due that the technology will disrupt the banking sector – including the offshore banking sector – in a big way, “thanks” to the rigid regulations around banking – and a constant crackdown on the offshore banking sector.
Now the big question remains: Will onshore, midshore and offshore banks be responsive enough toward the changes?