How Will 5G Shake Up Banking And FinTech?

How Will 5G Shake up Banking and FinTech?

Financial institutions are in the midst of becoming more mobile, with many of those legacy operations opting to work more closely with FinTech providers to upgrade services, retain customers and acquire new ones. The debut of 5G promises to add another tool that can aid such efforts. As that mobile technology gets closer to mainstream introduction, the potential 5G ecosystem for FinTech and mobile banking is gaining clarity.

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    Banks and credit unions are still wrestling with the best ways to deploy mobile technology, and to do so in ways that balance security, safe authentication and consumer convenience. Machine learning and artificial intelligence are among the emerging technologies capable of boosting banking operations, including customer service and preventing fraud, as recent PYMNTS research has demonstrated.

    5G offers the possibility of new technology that can help FinTech and financial institutions — technology that can be thrown into the existing mix to fuel ongoing digital efforts. “For mobile banking to become ubiquitous, the development of 5G technology is paramount,” reads one recent analysis of the biggest FinTech and banking trends for 2019. “5G tech reduces latency and transaction times, which is key to ensuring the network can handle the amount of transactions at scale.

    Digital Demand

    Few financial institutions now use true artificial intelligence — fresh PYMNTS data puts the percentage in the U.S. at 5.5 percent, with progress hampered in part by costs, misunderstanding what makes true AI different from machine learning and other factors. When it comes to 5G, however, financial institutions and FinTech providers might find their hands forced in a way that’s more forceful than decisions about whether and how to deploy AI systems, according to observers.

    Arguing that banks, in general, have been “sluggish” in meeting the digital demands of consumers, Baskaran Subramaniam, global client partner of financial services at HCL Technologies, recently wrote that “this cannot continue for long.” He added that “as customer demographics change, there will be an increasing pressure on banks to deliver superior customer services through the channels their users prefer. The dawn of 5G will further force banks to undertake massive reforms in the way they use technology, for internal operations and customer engagements alike.”

    What does that mean, then?

    “Many familiar banking operations, such as payment services, will attain new forms extending to newer channels, including 5G smartphones, wearables, IoT devices and virtual reality,” Subramaniam wrote. “The increased security and speed made possible by 5G will also revolutionize the capital markets, shortening settlement cycles considerably and removing latencies with real-time mobile trading capabilities.”

    Latency Advantages

    When it comes to FinTech specifically, instead of banks and credit unions, in fact, perhaps the main appeal of 5G at this point is not speed, but  “ultra-low latency,” argued another recent analysis. “Defined as the time it takes for a device to send a command to a remote server and get a reply, latency looks set to reduce from 50 milliseconds on a 4G phone to under one millisecond in the 5G era. So at the very least, 5G will bring a lightning-fast, real-time user experience to mobile devices, so much so that consumers will experience banking and payment transactions instantly on their devices. 5G will mean zero waiting time.”

    That essentially zero waiting time will also bring other benefits to the world of FinTech, according to the analysis. Low latency “will become more important in the short term as the use of third-party application programming interfaces (API) within banking grows, with third-party apps gaining access to banks’ databases to make transactions.”

    That said, it seems unlikely at this point that blockchain and cryptocurrency will experience significant benefits from the low latency promised by 5G mobile network technology, according to experts and reports. But latency and other features of 5G do seem set to promote further use in payments, digital banking and financial services via smartphones and other connected devices, including wearables. In 2019, an estimated 225 million wearable – and web-connected – devices will ship globally, according to a new report from Gartner, up 26 percent from 2018. (That means, of course, that 5G will fuel the growth of the Internet of Things.)

    The looming deployments of 5G come as financial institutions are focusing more on the (relatively inexpensive) cloud computing, which also increases what banks and credit unions — and FinTech, either on their own or in partnerships — can do with digital technology and product offerings. “Still, we can’t assume that everyone has access to high-speed internet to take advantage of cloud computing,” reads a new report on that topic. “For many businesses and customers, 5G is the missing link.”

    5G Deployments

    So where is all this 5G?

    As PYMNTS reported earlier in December, Verizon and Samsung plan to launch U.S. 5G phones in the first half of 2019. The move would essentially beat Apple to the market with smartphones featuring 5G technology, because reports say that Apple is going to wait until 2020 to release the first iPhones featuring the tech. But even though Verizon is leading the charge for the new technology, which will greatly increase speeds on mobile networks – up to 50 or 100 times faster than the currently available 4G – some industry watchers say the new tech won’t be widely available until about 2025 or so.

    Actual 5G deployments may still be in doubt — and the effort will vary — but it is all but certain that the mobile network technology will offer new ways for financial institutions and FinTech to win more customers and market share.


    Visa and ICBA Payments to Facilitate Real-Time Money Movement for Community Banks

    Visa and ICBA Payments, a subsidiary of the Independent Community Bankers of America (ICBA), have renewed their 40-year partnership and plan to expand it by providing community banks with streamlined access to the Visa Direct real-time money movement platform.

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      Streamlined access to Visa Direct will enable community banks to provide faster and more flexible payments experiences to their customers and clients, the companies said in a Wednesday (July 16) press release.

      The companies have partnered since the founding of ICBA Payments in 1985, according to the release. Together, they work to equip community banks with modern payment tools and support to compete in the marketplace.

      In the renewed partnership, ICBA Payments, which is a principal member for both credit and debit card programs, will continue its sponsored card programs with Visa that include contactless-enabled cards, tokenization for digital wallets, access to Visa’s global network, and program support like cardholder communications and marketing services, the release said.

      ICBA is the 10th largest debit card issuer and 29th largest credit card issuer in the U.S., per the release.

      “This renewed collaboration reflects our shared commitment to enhancing the delivery of leading-edge payment products and services that align with the mission and model of community banking,” ICBA Payments CEO Jacob Eisen said in the release.

      Bill Dobbins, senior vice president and head of U.S. enablement at Visa, said in the release: “Together, we’re helping community banks deliver modern, secure financial experiences that drive economic opportunity and strengthen the neighborhoods they serve.”

      Visa reported in April that Visa Direct transactions rose 28% to reach 3 billion transactions in the second quarter.

      The PYMNTS Intelligence and NCR Voyix collaboration “Local Roots: How Community FIs Can Win the Digital-First Generation” found that young consumers are gravitating toward smaller financial institutions as they seek personalized service.

      The report found that 52% of Gen Z and millennial consumers were contemplating a switch to community banks, and 47% were eyeing credit unions as viable alternatives.

      In another recently announced partnership, ICBA Payments said in March that it teamed up with Mastercard to help community banks modernize their card programs and offer enhanced payment services.