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BANKING DIGITAL TRANSFORMATION: HOW FAR AHEAD ARE YOU LOOKING?

BANKING DIGITAL TRANSFORMATION: HOW FAR AHEAD ARE YOU LOOKING?

Vanessa Bailey, Business Consultant – Banking, Experian

Digital transformation is an on-going, active programme for most large banks. It costs money, takes time and uses resource. All told, it could take years to implement. Yet customers expect fast, efficient services every day. If they find it difficult to access products and services they will seek alternative methods elsewhere, increasing churn.

Consider time, money, resources and the customer – but for how far ahead?

You could look to update your current legacy systems, which may solve these challenges in the short term. The bigger question is ‘how much further ahead have you looked?’ It’s important the business understands if this will be a short-term fix that may leave it with an even bigger challenge in a few years…

Some organisations have taken the next step and looked at modernising their software to be digitally equipped, through re-platforming. It is not an easy task, but spending the time to fully understand the business needs and capabilities to support the transformation will set the business up to meet the expected demands of the future.

During this process, you need to look ahead, understand what is on the horizon and attempt to plan for this in your architecture. However, the temptation to future-proof every eventuality when migrating to a new decision making platform can often lead to the requirements becoming too detailed and complex. It’s easily possible to lose sight of what is needed today. It’s important to strike a balance.

Why not repurpose what’s under the hood?

Traditional legacy systems are a staple part of the banking infrastructure, and have become immensely complex as they have been modified over time.

When you lift the bonnet, it may be hard to find exactly what you’re looking for. Legacy systems may look a little clunky, but you can still learn from what’s already there. Given businesses will have spent years developing workflows and decision strategies, there may be a lot of the base design that can be re-used if they still serve a good purpose now, and for the projected tasks ahead.

Digital transformation is the opportunity to refine the decision-making strategies that you want today. You therefore need to ask yourself ‘what are we trying to achieve at this point?’

The economy, regulation, people, and unpredictable life events all influence change.

When looking at digital transformation, it’s useful to ensure the system is flexible enough to adapt to future changes (known and unknown), but you also need a system that’s fit for purpose now. The business needs to make decisions based on the current climate, but also able to modify decision strategies as needed. By creating an agile build, it sets a foundation to build on again and again.

As laborious and resource intensive as it may be perceived, it’s setting a foundation that accommodates growing and changing business. Then the future becomes simply updating and adapting, not completely transforming.

Make informed decisions using customers’ current circumstances

New data-sets are becoming available that were not in existence a few years ago – alternative loans, rental data, MCDS (Mandatory Commercial Data Sharing), and many more are now much more accessible.

With this availability comes the risk of using old, or older data, and old scoring policies in credit risk decisions. It’s brought through not being able to accurately assess a credit application that uses the most recent available insights. This could mean that lending decisions aren’t reflective of the customers’ situation – and therefore they may not get the most suitable products or terms. It also poses additional unnecessary conduct risks that could be simply rectified.

New platforms and decision software can help address these issues more quickly than re-engineering old ones. Teamed with accurate credit scoring and the use of up-to-date data, a new platform can help the business make substantially better decisions.

Legacy systems tend to be less flexible and cost more to keep live over the long term. So when the tipping point comes, a migration is something to seriously consider. The costs of doing so must be balanced against potential brand reputation, data security concerns, and compliance. As well as the future savings a new platform can bring to your business, such as cheaper to enhance, easy integrations such as API’s, enabling growth.

Whilst customer expectations are high at the digital level, offline experiences need to be considered too. Customers simply want to receive a good service that is best suited to their needs, across any channel. This means that accurate credit and fraud assessments should be based on how much the customer can afford, and identity should be verified based on the information being presented or asked for at the time. This may be done digitally, but, it also needs to be managed using data that is available through traditional channels – such as the phone or in the branch.

The platform needs to be flexible – designed to handle all scenarios, utilising a consistent policy that’s easy to update no matter the touchpoint. The business want to be confident that whether the customer calls, applies online via smartphone, or walks into a branch, they will be assessed consistently and fairly. And that you are confident you have the most up-to-date information on that individual’s circumstances that has informed the decision.

When designing new systems don’t be tempted to put everything in at the beginning

When looking to repurpose and update older systems it’s easy to fall into the trap of looking at what you have, not at what you haven’t. Time is critical and it’s tempting to proceed with yet another enhancement to your current system – redeveloping and enhancing a specific area – such as scorecards, without considering what else could influence necessary change in the longer term. Consider the issue like jenga… If you keep adding to it, it will stand up – but only to a point.

How much bigger would the problem be if it fell down and needed redesigning? How much more investment would you need? Balancing the need to deliver a fit-for-purpose decision strategy, knowing what to add now and later, is a considerable challenge.

It’s important to consider the business’ needs in comparison to the customer’s. It’s also important to lead any change or transformation project with the customer at the forefront… Like regulators have.

A full redesign

When designing new processes and systems there is a clear temptation to make them so big that it allows for ‘any eventuality’.

Yet if they become too big they run the risk of not being functional at all. You do need to look at the future, but you also need to act now. Approach the challenge with these filters:

  1. Try to factor all elements into a wish list and filter out what can be done now or at a later stage
  2. Don’t let the list get too big that it stops forward progress
  3. Relate everything back to the customer and regulatory responsibilities. Consider their needs and wants – and how to meet them
  4. Decide which one to do first and which offers the best, cost effective opportunity to contribute towards the future of the business
  5. Changes in regulation can happen quickly. Consider if you have the functionality to adapt to change, or if you need to start again

I’ve recently worked with a large bank to help them review some of their on-boarding journeys in digital and traditional channels. Re-platforming was the best option for them. By understanding the strategic objectives, we overcame the challenge of balancing what they need now versus what they think they’ll need in the future.

They redesigned their new practical, functional decisioning systems to deliver just what they need for the present, but with the ability to grow, optimise and change quickly, later. What they now have is the ability to extend, to add further building blocks and integrate other concepts and changes at a later stage.

That’s the choice to consider. Stay as you are? Develop and respond to today’s trends? Or redesign, setting up a foundation for the future.

Banking

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card 1

By James Herbert, CEO & founder, Hastee

Let’s begin by looking at how our brains are wired. Think about the hunter-gatherer mindset: when we expend effort, we expect an immediate reward.

It’s therefore no surprise that over time, different areas in society have adapted to our nature as humans. Almost everything we want, we can get on-demand. Whether it’s instantly streaming movies on Netflix, online shopping from Amazon, or fast-food delivery from the likes of Just Eat. And, because of such technological innovations our expectations have accelerated when it comes to the pace of delivery. This isn’t individual to us as consumers in our day-to-day lives, it’s also reflected in the workplace. We ultimately want work to work for us.

Part of this of course comes down to accessing wages. Workers should be able to access a portion of their earned wages whenever they need it, in advance of the monthly pay cycle – whether to help during challenging times or in day-to-day life. We solved this solutionBut, to take this up a level, ready for the future, we introduced the world’s first Earnings on Demand contactless debit card, powered by Visa – giving users access to their accrued earnings in real-time, with the card’s balance dynamically increasing every day they work.

So what is the card, and how will it change how we access earnings in the future?

The basis is very much the concept of Earnings on Demand. At university I set up a company called Brightsparks to connect students with work opportunities so they could earn money. Yet I noticed a common trend. With students often having to wait for the monthly pay cycle to get their earnings, many were having to turn down work simply because they couldn’t afford the travel day-by-day. It became very apparent that not having £20 today could stop them earning £200 tomorrow.

It struck me that payday itself doesn’t have to be a rigid construct that people have to wait for. But this isn’t specific to students. Liquidity is a widespread issue faced by people in all industries and of all ages, and according to our most recent Workplace Wellbeing Study, 82 per cent of people turn to high-cost methods of financing to tide them over when needed.

The Hastee Card effectively makes wages directly accessible: it simply lets people spend a portion of  what they’ve already earned.

Some people might wonder why they’d want to step away from the standard monthly pay cycle. But consider this: the monthly payroll (via a cheque) only came about in the 1960s as an Act of Parliament. Before this, most people were paid weekly in cash. The first major firm that shifted to monthly payments did it for cost-cutting. It worked for the employer more than the employee. In fact, that firm’s employees had rejected their employer’s change of payment type when it was first trialled a decade before (look up ‘Pye Radio’). So the way that workers and organisations interact around pay is not set in stone – it changes as technology and society shifts.

The way we perceive and use money keeps evolving. Apple Pay, Monzo, and PayPal have completely changed the way payments can happen, yet payroll still remains largely unchanged. It’s only a matter of time before disruption becomes more widespread.

Looking at it from the employer side, it has its benefits too. Before the climate changed, businesses were accommodating enhanced workplace benefits such as no-desk policies, flexible or remote working. In all cases by businesses offering more, they tend to see a more engaged, happier and less financially stressed workforce – leading to increased productivity.

Earnings on Demand is ultimately a perk that presents an ethical alternative to high-cost credit options such as payday loans, credit cards and overdrafts. And existing solutions offer zero impact on payroll processes, zero impact on the cashflow of the business and are designed for quick, simple integration.

The Hastee Card is an evolution of this all – preparing for the future. It builds upon and enhances the user experience by reducing friction and offering immediate spending power as well as a path to greater benefits such as cashback and rewards in the not-to-distant future.

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Banking

Going branchless: How banks can keep customers coming through the virtual doors 

Going branchless: How banks can keep customers coming through the virtual doors  2

By Richard Kelsey, Head of Software Sales at Backbase

Though you might be familiar with the popular seaside town of Newquay, you may not be familiar with its historic financial district aptly named, Bank Street. Dozens of banks and building societies have dominated this area since the late 1800s. However, the street hit the headlines recently as, 120 years after the first bank opened its doors, the last bank closed them.

This is not new. Bank closures have been part of the news agenda for years, and now, COVID-19 has further accelerated the physical turning into the digital. Across the globe, banks have had to close or limit the operating hours of their in-person locations, forcing banks to digitise at speed. Keeping the pipeline of digital sales flowing for new clients, increasing digital product origination and facilitating those cross-sell journeys to customers is key to survival.

Digital take up

Delivering seamless digital customer journeys was already a fast-growing priority for banking and wealth management organizations pre-pandemic. Research shows that 38% of customers stated UX as the most important factor when choosing a digital bank. In response, banks have been investing in digital technology and collaborating with third-party providers as they strive to offer a superior customer experience and stay competitive. But the global lockdowns – which have restricted people to banking digitally – have turbocharged these trends. Growing demand for digital onboarding, and digitized services to support the ongoing customer journey, must be matched by effective capabilities though.

Plugging the leaks

Conversion leakage is a particular problem during the digital client acquisition process. With branches shuttered during the coronavirus lockdowns, and subsequent openings and customer footfall likely to be severely limited for the foreseeable future, this leakage presents a major, and costly, challenge as institutions seek to convert digital sales and boost their return on investment.

The key is understanding why leakage happens in the first place and time and time again, there are three main trends that cause the most problems:

  1. Switching from a customer’s current provider is too difficult (for example, in transferring bill payments and direct debits).
  2. The digital process is too cumbersome (particularly where existing offline processes are simply put online).
  3. Customers lack human touchpoints and advice when they need it (especially for more complex products).

Combating these levels of leakage requires firms to take an outside-in approach, to see the process from the customer’s perspective. From this viewpoint, they can design a more customer-friendly experience that streamlines the job at hand.

One way to simplify the acquisition journey is to incorporate human/AI advisor interventions at points of friction, where customers may become stuck. Another is to adopt retargeting strategies that address customers who abandon the application process partway – for example, by storing their details in a CRM system and sending them notifications to complete the application, or referring them to an outbound call centre employee who can pick up the process by phone. Such approaches can boost completion rates by 40%, delivering substantial benefits to the bank.

Stronger digital growth

Banks’ return on tangible equity has plateaued globally at approximately 10.5% over the past decade, and the lower-for-longer interest rate environment will add to the pressure. Addressing cost-income ratios has become a matter of urgency.

Firms now face a strategic inflection point. Continuing with old business-as-usual practices will leave institutions struggling to attract new (especially younger) clients, while grappling with an exodus of existing customers and an overburdened cost base. But by digitising processes to enhance the client experience, banks and other financial institutions can increase their revenues and reduce costs, and have a loyal customer base who don’t feel the impact of the branchless bank.

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Banking

Shawbrook Bank “cautiously optimistic” as it Publishes Half Year Report for 2020

Shawbrook Bank “cautiously optimistic” as it Publishes Half Year Report for 2020 3
  • Financial performance impacted by the pandemic
    • Expected credit loss (ECL) charges of £45.8 million recognised on loans and advances to customers
    • Profit before tax (PBT) was impacted by the adverse effects of COVID-19 and the subsequent provisions set aside, reducing by 89% to £5.9 million
    • Customer deposits rose by 25% to £7.6 billion while capital remained strong with a CET1 ratio of 12.3%
    • A total of 15.9k payment holidays granted across the Group
  • The specialist bank continued to operate effectively through COVID-19
    • 98% of employees moved to remote working within days and no staff furloughed
    • Successfully achieved accreditation under UK Government’s CBILS
    • Continued investment in technology to digitalise the business
  • Shawbrook “cautiously optimistic” as momentum begins to return to certain specialist sectors

Shawbrook Bank has today (Monday 10 August 2020) published its half year financial results for the period ending 30 June 2020.

The specialist bank confirmed it had set aside £45.8 million of provisions to provide for potential future loan impairments caused by COVID-19. The bank reported it had also granted a total of 15.9k payment holidays to support its customers through the pandemic, of which 10.8k remained in force at 30 July 2020.

As a result of such provisions, the bank’s profitability was impacted with a reduction in PBT by 89% to £5.9 million.

Despite the challenging market conditions, the bank retained its active position in the UK savings market, increasing its retail savings deposit base by 25% to £7.6 billion. During the period, Shawbrook also successfully completed a £75 million Tier 2 re-financing to further optimise its capital structure.

Ian Cowie, Shawbrook Bank’s Chief Executive Officer, said that COVID-19 has had a clear impact on the bank’s financial performance, but Shawbrook remained in a position of strength.

He commented: “Prior to COVID-19, the Group had continued to make good financial progress, starting 2020 with a strong balance sheet and prudently positioned capital and liquidity base.

“To further optimise the Group’s capital structure, during H1 2020 we initiated a Tier 2 refinancing and, despite the challenging market conditions, successfully completed the £75 million issuance in July.

“We have also maintained our active position in the UK savings market. However, the longer-term economic impacts of the pandemic remain hard to predict and as a result we have recognised expected credit loss charges in the period on loans and advances to customers of £45.8 million and on loan commitments of £1.5 million.

“While this has clearly had an impact on profitability, our capital strength positions us well to support our customers and grow our business in line with appetite as we enter the second half of the year.”

Throughout COVID-19, Shawbrook maintained full operational functionality, with no staff furloughed and 98% of employees transferred to remote working within days of the UK lockdown being announced.

The bank adopted a series of concession opportunities across its product range to help alleviate the financial impacts of COVID-19 on its customers. During this time, Shawbrook also successfully achieved accreditation to the UK Government’s Coronavirus Business Interruption Loan Scheme (CBILS) to provide further funding support to its SME clients.

Mr Cowie added: “Since the outbreak of COVID-19, our focus has remained on supporting our staff, customers and partners while at the same time safeguarding the long-term sustainability of our business.

“When the UK lockdown was announced in March 2020, we acted with speed and agility, moving to an almost entirely remote operation within days. Led by a stable and experienced management team and with the support of new and existing technology, we have continued to operate effectively throughout this period.”

Throughout the first half of the year, the bank also continued to identify investment opportunities to further digitalise its proposition, with a core focus on its SME offering.

Mr. Cowie added: “Notwithstanding the pandemic, we have continued to invest in our business to help drive our strategic ambition to become the UK’s Specialist SME Lender of Choice. As well as the ongoing deployment of targeted digital solutions across the Property, Consumer lending and Savings businesses, our investment in the development of a new growth platform in our Business Finance franchise will serve to further modernise our offering, delivering an enhanced customer journey as well as significant operational efficiencies.”

Looking to the future he continued: “Although significant uncertainties regarding the broader macroeconomic impact and pace of recovery remain, we are cautiously optimistic in our outlook as we start to see signs of momentum returning to certain of our specialist sectors.

“Our management expertise and prudent approach to credit decisioning, combined with investment in our digital propositions, means we are well positioned to adapt and respond to opportunities as they arise throughout the second half of the year.”

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