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As 2016 came to a close, many smart (and brave) people got out their crystal balls to make predictions about top trends in banking for the upcoming 12 months. One of the best summaries came from Synechron’s David Horton, who made a good case for the following five as sources of disruption within the industry:

1. Proliferation of chatbots
2. Broad use of AI & machine learning
3. Changes to industry and organizational structure
4. Open API banking
5. Blockchain

Horton’s trends line up well with those identified by other analysts, and also align closely to the type of work my team at Microsoft has been doing with our customers around the world. As part of the Microsoft Services organization, the Financial Services Industry Architecture team seeks to partner deeply with our customers in banking, capital markets, and insurance to make the dream of Digital Transformation a reality. For me, this is the best job in the world, allowing me to go deep on both technology as well as (in my opinion) the world’s most interesting industry while engaging customers to deliver transformative business results.

The five banking industry trends cited above each stand to gain from the investments Microsoft has made in empowering Digital Transformation across our product line. Our Digital Transformation vision rests upon 4 pillars: Engage Your Customers, Empower Your Employees, Optimize Your Operations, and Transform Your Products. I’d like to briefly explore how these pillars apply to the top trends banks will face in 2017.

As Horton points out, chatbots hold enormous potential for providing customers new ways of communicating with their financial institutions. Likewise, chatbots could allow banks to scale 1-to-1 customer service in real-time, through channels such as SMS and Facebook which many customers prefer to branch and call center for routine transactions and inquiries. Within Microsoft, bots are a key component of a larger vision we call “Conversations as a Platform,” which includes the Bot Framework, connectors for services such as SMS, Facebook, Skype, and others, as well as a directory that makes bots discoverable via Cortana, Bing, and other Microsoft services. Combined with the Azure Bot Service, which provides scale-out serverless infrastructure for running bots, the Bot Framework brings the vision of 1-to-1 service for an infinite number of customers one step closer to reality for banks and financial institutions. Bots will become an increasingly important way for banks to engage customers as part of a multi-channel customer experience.

Beneath the covers, artificial intelligence and machine learning will provide the cognitive computing muscle to power bots and a wide range of other transformational applications within banks. Just as bots promise to provide a more efficient mechanism for handling routine customer interactions, an emerging new class of AI-powered tools in the category of “Robotic Process Automation” (RPA) holds the potential to optimize middle and back-office operations. RPA builds on top of advances in areas such as optical character recognition (OCR) and natural language processing (NLP). Through Cognitive Services, Microsoft provides scaleable web-based APIs that speed the development of RPA-style applications by offering ready-made solutions for computer science problems such as text, image, and speech recognition, allowing our customers to focus on tying these services together to streamline business processes, even those involving handwritten fields on a paper application.

Of the five items on Horton’s list, changes to the industry itself present the greatest challenge for technology to address directly, but even here there are opportunities to help financial institutions navigate a changing political and macroeconomic environment by improving banker productivity and collaboration. Tools such as Yammer and Skype for Business can allow banks to begin breaking down internal silos in order to compete against nimbler challenger banks as well as fintechs. Likewise, partnering with fintechs has become increasingly important for large banks looking to quickly realize the benefits of Digital Transformation. Standard Bank provides a great example of a financial institution that was able to take greater advantage of collective wisdom across the bank to respond to changing market conditions quickly.

Regulation continues to be a source of change to which banks must respond, including regulations such as Payment Services Directive 2 (PSD2) within the Eurozone. PSD2 represents a categorically different type of regulation than banks have seen in the past, such as requirements around capital reserves or lending practices. Over the course of 2017-2018, PSD2 will require traditional banks to allow third-party access to account information as well as payment functionality via published APIs. The net result of unbundling a previously monolithic set of banking services and allowing consumer choice in areas such as personal financial management (PFM) and payments will be nothing short of a transformation in the definition of a “financial product” itself. From a technical perspective, Microsoft offers a number of tools including Azure API Management, Azure App Service, and advanced analytics via Azure HDInsight that can help traditional banks as well as new types of service providers to take advantage of open API banking.

Finally, in the area of blockchain Microsoft has invested in the creation of a platform we call Blockchain as a Service, which aims (among other things) to make it easy for financial services firms and others to create private or consortium blockchains on the Azure cloud. In addition, Microsoft has contributed a new piece of IP called Cryplets to the blockchain ecosystem. Cryplets provide a mechanism for securely calling off-blockchain functions and using the result as input into additional Smart Contract processing (an improvement to the current practice of consulting an “oracle” off chain). As Horton points out in his post, “many financial institutions don’t know where or how to start” when it comes to blockchain. The combination of Azure’s infrastructure, a robust set of blockchain partner solutions, and Microsoft’s first-party contributions to the ecosystem via Project Bletchley promise to provide banks that have “blockchain FOMO” (fear of missing out) with a way of quickly running proofs-of-concept without investing in computing infrastructure.

In summary, the four pillars of Microsoft’s Digital Transformation vision provide a solid base of support for banks looking to take advantage of key industry trends in 2017. As a Digital Architect working at the intersection of banking and technology with customers around the world, I’m incredibly excited about what 2017 has in store for the industry! If your bank is interested in learning more about how Microsoft can help you along your Digital Transformation journey, please feel free to reach out to me, jabrian@microsoft.com.

Read more on the Microsoft Banking & Capital Markets and Insurance blogs.