Elliot Howard of financial IT leader Sopra Banking Softwaredescribes the threats and opportunities that will shape the future of UK financial services
Digital technologies are already revolutionising how we bank, with online and mobile becoming the norm for checking balances and making payments. But not many are paying enough attention to the deeper trend – that such new channels are also starting to impact more complex banking services, notably loan applications.
Even more complex loans such as mortgages can also be perfectly practically (and safely) initiated and completed in time spans of under an hour. What makes this a really attractive option is that such a process can be stopped and re-started and complemented with web chat, telephone or videoconferencing. Indeed, the latter is rapidly becoming highly attractive for customers whose branches don’t have mortgage advisers, with video-link facilities enabling a conversation with a specialist in another location.
Underpinning this whole move to quick, flexible, digital retail banking is an ability to deliver the right content to each digital interface, content that is both device- and context-specific. This has to be subtle, responsive; it means recognising that applicant intentions while interacting via a mobile device on a fast-moving train during rush hour are different to those when using a lap-top at home in the evening.
At the same time, those customers want a fully ‘joined-up’ view of their affairs from wherever location or context they are dealing with you –with on-line interactions recorded in call centre systems so staff can see them if the need for a conversation arises, and so on.
Data = the route to omni-channel
Many trends like this underline the need for data to beshared across all channels, digital and non-digital, a phenomenon called ‘omni-channel.’ And right at the centre of the omni-channel move has to be the realisation that digital channels will continue to evolve. Exactly what these new channels will bein five years time is open to debate: smart televisions or games consoles could come to dominate home-based digital interactions, increasing the resolution available to user experience designers, wearable technology such as Google glass or Apple (smart) Watches could replace the mobile of today as the primary device for out-and-about digital activity.
Of course, services already exist on today’s smartphones for customers to check balances and make payments using speech (voice commands). Mobile technology that is always-on, geo-spatially aware and constantly listening is already in widespread use. And the emergence of wearable technology will only expand this trend further and allow for even richer interactions. On the horizon, perhaps, with the advancement in processing power and bandwidth for mobile or wearable technology, augmented reality interactions are no longer restricted to the laband may start to play a part in how banks interact with customers; we may even be looking at haptic, or ‘feelable,’ tech before too long.
It truly looks like the picture of advertising we saw in 2002’s science fiction blockbuster Minority Report is on its way. So picture a customer walking down the High Street who stops and looks in the window of a tech-friendly shop of the near future. Their ‘eyewear’ interacts with the banking application on their mobile to lock on to any offers that are available through the brand’s loyalty programmes, programmes that could easily include virtually enhancing the poster with personalised discounted prices.
If the customer then walks in to the store, that smart banking application of tomorrow calculates a budget in real-time based on their spending habits, savings, known out-goings and in-comings, and presents it to the customer so that it is routed to both mobile screen and eyewear. The system can then suggest alternative savings accounts which will give better rates and monthly amounts to enable them to save enough to pay for their new tempting, big-ticket purchase – and as they sit down and start booking the holiday, say,the technology recognises that the sales representative is talking about holiday insurance. The banking code immediatelynotifies the customer of the bank’s preferential loyal customer insurance rates as an alternative to those provided via the hypermarket to enable comparison. And once the customer has booked their holiday or bought their new motorbike, they can then choose to action any of the recommendations from the banking app. This may be taking out the bank’s holiday insurance, opening new savings options and setting up the proposed monthly transfers.
There’s a sexy future for the branch, too – if you want one
There are many ways of imagining the power and range of a data-driven, smart banking of 2020 and beyond. However, what thismeans today is that you need to begin to optimise the experience for each channel and on all devices –embracing both what is technically possible and the context in which the device is likely to be used.
Secondly, there is a need to ensure that there is a consistently relevant experience across channels. Doing that entails integrating data into single customer views, capturing and consolidating the digital interaction data trail across channels (and, given its scale, also managing archiving and deletion) as well asintegrating that with off-line interaction and transaction data.
In addition, financial service organisations need to be able to deliver easy-to-use, engaging, fully device-optimised interfaces that are integrated to ensure that customer interactions are managed as a whole. It really has to mean an end to the silo. For ever.
But how do we deliver a consistent omni-channel experience? Under the customer-facing layer is a rich data eco-system that creates and delivers personalised products and services, delivered via preferred channels. A standardised core product with variation allowed in presentational elements –as per Barclays, which enables customers to design their own cards with a photograph of their choice –and interfaces is likely to become the norm.
Underpinning this customisation will bea mechanism for capturing internal and external data trails to inform the offerings engine and the customer interface layer in turn.
Don’t let legacy cripple your flexibility
All the above will be a challenge for most Tier One banks, though, given theirnow-notorious reliance on legacy technology in their core infrastructure, which restricts flexibility, constrains innovation and increases costs.
Yet given the pressures on bank profitability, these legacy systems just will be phased out, albeit incrementally.
The good news is that the increasing maturity of the IT supply chain and availability of cloud-delivered core banking services mean institutions can pick and choose rather than build – then augment these externally provided capabilities with internal ones.
That’s an approach that can deliver the benefit of lower cost and quicker time to market with greater effectiveness in the form of differentiated offerings and products with scope for personalisation.
It’s also the one that will give you the possibility to grasp the digital future we’ve talked about here – and not get left behind.
The author is Executive Vice President and UK Managing Directorat Sopra Banking Software (http://www.soprabanking.com/), a leading provider of specialist solutions for the European financial services sector
Find out more on the new digital age of retail banking by downloading a special Sopra whitepaper ‘Transforming Business Performance with POST-Digital Capabilities’ here
Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild
- 23% of UK’s top performing businesses have been supported by local enterprise partnerships and growth hubs
- Similarly, 30% of Britain’s strongest businesses have obtained external finance in the last 3 years
- New findings come as part of an independent, holistic study into small business success, commissioned by Allica Bank to support British businesses
A new study, commissioned by business bank, Allica Bank, shows that a high level of engagement and interaction with external institutions and resources, is central to SMEs’ prospects of success.
The study analysed data from over 1,000 companies and ranked their success on a scale that evaluated factors including productivity, growth, consistency and outlook. To measure SMEs’ external engagement, survey respondents were asked whether or not they had engaged with local enterprise partnerships, growth hubs, or external financial advisers, as well as whether they had obtained credit or sought re-financing advice, in the last three years.
The benefit to small businesses in making the most of external resources are clear to see, with a quarter (23%) of the UK’s top performing SMEs – those in the top tenth percentile – actively engaging their local enterprise partnership or growth hub in the last three years. This compares to just 16% of all other small businesses. With such a clear benefit to businesses, these external networks must not only be protected but prioritised by any Government plans to rebuild the economy post-COVID.
Similarly, of the top performing SMEs in the country, 30% have obtained external credit in the past three years, compared to less than a quarter (24%) of all other businesses. This figure drops even further for the weakest performing businesses – those in the ninetieth percentile – where just 12% of businesses have obtained external financial support in recent years.
Chris Weller, Chief Commercial Officer, Allica Bank, said:
“At Allica Bank we understand that no two businesses are the same. We also know that no-one knows a business as well as its owners and managers. But they can’t be expected to be experts on everything.
“In the UK there is a wealth of external advice and support for small businesses and we urge each and every business out there to tap in to the external resources around them. Third-parties, such as business clubs, chambers of commerce, local enterprise partnerships and trade bodies, can be invaluable sources of advice and further resources. And although they have excelled in their given field, business owners may still lack knowledge in many other areas of running and growing a business. Therefore, engaging with third parties can give business owners the kinds of insight – and fresh perspectives – they need to succeed.
“As the economy and the country comes to terms with the impact of the COVID-19 pandemic, it is important these vital SME resources are protected and given the funding they need to continue providing invaluable insight and support to small businesses up and down the country.”
Allica Bank’s SME Guide to Success identified six ‘rules to success’ that were more likely to be displayed by top-performing SMEs compared to their counterparts. The full report contains a wealth of additional data and insight into each of these topics.
As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.
Do we really need banks? Yes, but digital transformation industry-wide is vital
By Charley Cooper is Managing Director at enterprise blockchain firm, R3
The Coronavirus crisis has taught us that we are capable of going digital quickly when we need to. As the banking sector faces a second wave, the ability for individual firms to grow and succeed will be reliant on better connectivity and efficiency at the industry-level, writes R3’s Charley Cooper.
The sudden and dramatic pace of change has been seen globally over the last six months. Decades of paper-based practices are being updated, digitised and overhauled as the whole word adapts to working online. As of today, countries are accepting “alternative arrangements” for original paper export certificates, New York is allowing notary services by video, and global banks are accepting “original” documents and acceptances by email.
Over the coming months, we will see this digital transformation extend from individual use cases and firm-level deployment to entire industries. And perhaps in no other industry is this more critical than in financial services, where the role of banks continues to be challenged because of the inefficiencies they face as a result of decades of siloed technology deployment.
While unquestionably an improvement over reliance on manual processes, regular “digital transformation” as implemented by a single bank has limited benefits. These typically include greater automation of business processes, acceleration in adoption of electronic channels, elimination of manual processes, standardisation of non-value-adding business practices and a focus on driving up data quality and speed of information flows.
Now consider achieving digital transformation at the level of the entire market, rather than on a bank-by-bank basis. Whilst a digital transformation project for a single bank might automate a business process between a front and back office, a digital industry transformation project might optimise the trading and settlement of the asset between buyer and seller and their custodians too.
Of course, such things have been attempted before. But there have been many failures and the successes are notable by how they have resulted in new dominant centralised providers – for example for market data, messaging or settlement. The advent of blockchain architectures showed us there was a new way to tackle the problem, one that worked with the grain of existing markets.
Done right, the prize is a huge “productivity dividend” as entire markets are unshackled from their analogue histories.
Tackling interbank reconciliation at the industry level
The Italian financial services industry provides a pertinent use case of digital industry transformation. 32 banks in Italy went live in March with one of the first real-world deployments of enterprise blockchain technology in interbank financial markets. 23 more banks went live in May, with further institutions scheduled to go live this autumn. Built by the Italian Banking Association, ABI, the Spunta Banca DLT app on R3’s Corda Enterprise platform tackles the market-wide issue of interbank reconciliation.
The traditional reconciliation process for interbank transactions in Italy—formerly governed by the “spunta” process— is notoriously complex. Resolving mismatches in transactions is a labour-intensive process, hampered by a lack of standardisation, fragmented communication and no “single version of the truth.” The Spunta Banca DLT app automates the reconciliation process and enables banks to pinpoint mismatches in interbank transactions quickly by sharing common data in a secure way.
Connecting such a large and diverse group of banks in a live environment to tackle a shared problem is a major milestone for digital transformation in the Italian banking sector, providing a glimpse into a brighter, more efficient and interconnected future for all financial markets.
The current crisis has accelerated the launch of digital technology for many use cases across a diverse range of sectors, but those that stand the test of time will be developed with an industry-level mindset, not firm-level.
It is now clear that the age of inter-bank optimisation is over – the path forward from this crisis will be paved by software that focuses on adding real value for entire markets, connecting banks to overcome the biggest challenges they share as an industry.
Banks must adapt and start thinking about technology in new and innovative ways if they are to retain their critical role in the global economy.
How open banking can drive innovation and growth in a post-COVID world
By Billel Ridelle, CEO at Sweep
Times are pretty tough for businesses right now. For SMEs in particular, a global financial and health crisis of the sort we’re currently witnessing represents a truly existential risk. Yet there is hope of a brighter future. Digital transformation is already helping organisations in countless sectors, with everything from building supply chain resilience to rolling out potentially life-saving contact-tracing schemes. Yet it’s not just delivering transformative benefits in grand projects like this.
Thanks to open banking rules, a new wave of fintech innovation is sweeping the globe, offering business leaders a new launchpad for success. Even something as simple as corporate expenses can be transformed by the power of open data — to help firms cut costs, reduce fraud risk and become more productive.
Opening up data to innovation
It’s easy to get bogged down in the technical details of open banking, and the slew of new acronyms it has ushered in: Third Party Providers (TPPs), Account Information Service Providers (AISPs), Payment Initiation Service Providers (PISPs), and Application Programming Interfaces (APIs). Yet at the heart of the open banking revolution is a simple concept: the idea that forcing banks to open up their customers’ financial data will create more competition, and fresh opportunities for market entrants to create innovative new services.
This was at the heart of the UK government’s world-leading strategy when it was introduced back in 2016. A revised EU payment services directive (PSD2) gave it legal teeth, mandating that all payment account providers in the region provide third-party access for customers that want it. The push is also about reducing banking fees and enhancing financial inclusion, of course, but it’s in competition and innovation that the benefits really shine for businesses.
Access to real-time financial data via open APIs has already resulted in a range of new services which are helping businesses ride out the current economic storm. Whether it’s capabilities that can help freelancers prove loss of income to receive targeted loans, or services designed to streamline business processes to reduce costs and fraud — examples of innovation are endless.
What’s more, it’s already global. Aside from the PSD2, open banking rules are taking shape in Australia, New Zealand, Japan, Singapore, Hong Kong, Mexico and elsewhere. According to frequently cited Gartner predictions, regulators in around half of the G20 countries will create an open banking API regime over the coming year.
In the UK alone this is set to create a £7.2 billion revenue opportunity by 2022, with 71% of SMBs and 64% of adults expected to adopt it by then, according to PwC.
Making expenses pay
Corporate expenses and travel management might not be an area one immediately associates with high levels of innovation. But here too, open banking is having a profound impact. By combining automation, in-app approvals, integration with corporate policy and secure open banking APIs, companies like Sweep are offering new ways to solve old problems.
Part of the legacy challenge relates to productivity. Managing corporate travel costs and expenses was cited last year as the biggest concern of the UK’s small and mid-sized firms. Separate research claimed that SMBs are estimated to lose over £8.7 billion annually due to the time it takes employees and managers to complete these menial tasks. By automatically integrating real-time corporate bank account information into an easy-to-use app, we can save up to 15 hours a month on data input and travel administration per employee. That’s all time they could be spending on growing the business.
Another key area of concern is fraud. According to some estimates, fraudulent expenses claims could be costing UK firms £1.9 billion each year. In the US, the figure could be approaching $3 billion annually. Whether it’s the result of submitting expense claims for personal purchases, claiming for additional mileage on work trips, or over-claiming for other items, it all adds up. What’s more, fraud tends to spike particularly during times of recession, when normally diligent employees look for ways to supplement their income.
In this use case too, there are benefits to be had from open banking-powered solutions. Traditional manual processes offer too many gaps that can be exploited by fraudsters. Submitting paper receipts to finance departments — which must then input the information into spreadsheets or accounting software — is slow, error-prone and lacks accountability. However, with modern digital systems, transactions are automatically fed through from bank account to expense management platform. Here they are seamlessly checked according to policy and automatically approved, rejected or flagged for further investigation.
The future’s open
Thanks to the power of open banking, innovative fintech use cases like this are transforming operational challenges into opportunities to cut costs and fraud risks, improve employee productivity and become more strategic. With real-time data fed through from corporate bank accounts, finance directors can better understand spending patterns, react with greater agility and gain the insight they need to run their businesses more efficiently.
So what of the future? The good news is that open banking is only just getting started. As more sophisticated machine learning algorithms are developed, it has the potential for even greater disruption by empowering SMEs with predictive analytics and forecasting tools, or more accurate fraud checks, for example. Those in Europe may benefit most as PSD2 allows businesses to use tools that work seamlessly and securely across markets, without requiring any duplication of work.
In fact, open banking is not just good for individual SMEs, it’s important for Europe as a whole if we are ever to nurture successful digital unicorns to compete with those coming out of the US and China.
Open banking been described in the past as a quiet revolution. With the right buy-in from business and the continued innovation of digital platforms, it may soon become a full-throated roar.
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