Rahul Singh, President of Financial Services, HCL Technologies
In 1994 Bill Gates famously said, “Banking is necessary. Banks are not.” Perhaps he was clairvoyant. But it is more likely that he had the opportunity to take a harder look at what banks do for customers – and what they ought to do – than most of us. While banks thought they were great at securing our money and investing it safely, in truth, we also sought getting purchase recommendations based on our income; or travel advice along with that short term loan for a relaxing summer holiday; or a better way of viewing our household debt. In today’s difficult times where plunging incomes are often the norm, household debt serves as a good example for what banks could do on the back of digital to provide more relevant services—services that would also win the confidence of their customers.
Leading by example
Take Norway’s Sbanken, now the largest independent online bank in the Nordics. Recently, the Financial Supervisory Authority of Norway noted theworryingly high debt in the country and the impact of rising interest rates. Sbanken understood the anxiety this would cause for its customers and created a new service that they could use to view their total debt. All loans, mortgages, credit card dues, etc. can now be viewed in one place – a service created using Sbanken’s API platform to pull in the data.
Sbanken has made considerable progress with automation and mobile services. The bank’s annual report for 2017 speaks for itself:
“Automatically approved consumer loans and short-term credit products are immediately made available in the customer’s account…In 2017, approximately 90 percent of approved mortgages and approximately 85 percent of approved car loans were automatically approved. Around 65 percent of mortgages were completely paperless, with customers using digital signature based on their BankID.”
Through these simple initiatives, Sbanken has demonstrated an astute modern banking strategy: build unique value propositions and relationships with the customer at every ‘point of trust’. By doing so, banks can offer services that go well beyond traditional banking. The results? Customers will pay for them, new revenue streams will open and loyalty will improve.
A quick look at some of the top innovations in banking amplifies the trend of building `trust before transactions’. DenizBank in Turkeyrecently set a good example for this; 10 percent of GDP comes from agriculture in Turkey, making the farming community banks’ prime target group. Deniz Bank serves them by issuing cards that don’t charge interest on purchases between the planting and the harvesting season, since these are the most difficult months for farmers from a cash flow perspective.
The customer-centric innovations don’t stop there. Last year, Deniz Bank went above and beyond the role of a traditional bank and launched a mobile app that allows farmers to send pictures and videos of their crops to agricultural experts and ask questions. The app also delivers information on pricing, markets and weather, and acts as a platform where farm equipment can be rented out (and acquired on rent) – something of an Uber for the agriculture industry. The app had 100,000 users in its first year, which is ample evidence that staying relevant pays dividends.
If they what to continue providing their customers with out-of-the-ordinary features, banks need to understand that their lives and needs are changing rapidly. In short, the offerings need to be bigger and better. Transferring money faster and cheaper, allowing simpler P2P payments, enabling tax management, being available via a social media platform or a chat application whenever they’re needed – these are all starting measures banks can take to ensure they stay relevant to their customers’ changing needs.
Digital means democracy
Going forward, the ambition of banking leaders should be to offer Banking-as-a-Service (BaaS) to partners like Google, Facebook, Apple, Amazon and WhatsApp. BaaS may become inevitable as large technology companies, and even smaller convenience stores and family-owned businesses, get to know their customers better than banks do. Many of these businesses hold powerful data about their customers which can be leveraged to deliver personalised and meaningful banking services. The thing to remember is that these businesses don’t have the required banking expertise to understand financial markets, regulatory environments and the models that dictate profitability in financial instruments. By 2034, technology simplification will ensure that BaaS reaches a tipping point. Fintechs like Solaris Bank and Fidor have already brought core banking platforms to the market, proving that anyone can plug in and bring a new bank to life within weeks – even without any previous banking expertise.
Evidently, the world has changed. To continue to succeed, banks must combine their traditional knowledge and networks with those of fintech partners and build technology platforms that democratise banking. In a digital world, the only way banks can beat the competition is by opening their systems to partners, allowing them to offer new financial services to their customers. If they don’t, someone else will.
Mastercard Delivers Greater Transparency in Digital Banking Applications
- Mastercard collaborates with merchants and financial institutions to include logos in digital banking applications
- Research shows that ~25% of disputes could be prevented with more details
As more businesses turn to digital payments, and the number of connected devices grows, one thing is becoming increasingly clear: consumers are demanding more clarity around what they bought and who they bought it from.
Most everyone has experienced the frustration of trying to decipher confusing and brief purchase descriptions when reviewing online statements. This confusion forces cardholders to contact their banks unnecessarily to dispute unrecognized transactions, adding extra steps for consumers and generating an array of costs for merchants and banks.
A new initiative from Mastercard and managed by Ethoca, the company’s collaborative fraud and dispute resolution technology, aims to eliminate this confusion and improve the customer experience. All merchants are encouraged to visit www.logo.ethoca.com and upload their logos for inclusion in online banking and payment apps. The merchant logos will be linked to corresponding transactions, adding clear visual cues to help cardholders quickly identify legitimate purchases. Participating merchants are provided an opportunity to simultaneously extend their brand presence as well as eliminate expensive and time-consuming chargebacks. This program is also available to all financial institutions.
A recent Ethoca-commissioned Aite Group study of the US market revealed that 96% of consumers want more details that help them easily recognize purchases, and nearly 25% of all transaction disputes could be avoided by delivering these details – including logos. It’s estimated that global chargeback volume will reach 615 million by 2021, fueled in large part by frustrated consumers turning to the dispute process unintentionally.
“With greater digital dependency, having real-time purchase details is critical for consumers, merchants and card issuers alike,” said Johan Gerber, executive vice president, Cyber and Security Products at Mastercard. “We continue to collaborate with industry partners to bring clarity and simplicity before, during, and after transactions. By enriching transaction details, merchants can alleviate friendly fraud, reduce chargebacks and improve the customer experience.”
This endeavour is part of comprehensive efforts to deliver the most efficient, safe, and simple payment experience from the minute a consumer begins browsing to once they’ve made the purchase. This includes Click to Pay, Mastercard’s one-click checkout experience, to the integration of biometrics to secure both digital and physical transactions, and Ethoca’s full suite of consumer digital experience solutions.
AML and the FINCEN files: Do banks have the tools to do enough?
By Gudmundur Kristjansson, CEO of Lucinity and former compliance technology officer
Says AML systems are outdated and compliance teams need better controls and oversight
The FinCEN files have shown that it’s time for a change in AML. We must take a completely new approach in order to catch up with the speed of innovation in financial crime.
Despite what you’ll read in news headlines, we can’t lay all of the blame for anti-money laundering failures at the doors of the banks. The majority of compliance teams are doing what they can, and what they are being asked to do.
Historically, AML has, in large part been a box-checking exercise. Banks have weaved through mountains of false alerts, investigated cases, sent SARs, and then got on with business as usual. In some jurisdictions, banks can‘t even interfere with customers under investigation, in fear of jeopardizing cases.
But the sentiment towards banks’ responsibility in AML is changing. They are increasingly looking at AML as a corporate social responsibility issue and even a competitive advantage. Banks are looking to protect their brands from the horrors of an AML scandal, and as such are taking a more proactive approach.
They are also throwing a lot of money at the problem. Deutsche Bank claims to have invested close to $1 billion in improved AML procedures and increased its anti-financial crime teams to over 1,500 people. Most big-brand banks have a similar story to tell.
With reputation on the line, better AML controls can become good business.
So where does the problem lie?
From the thousands of SARs discovered in the FinCEN files, lack of customer oversight is evident. Banks need to establish a method of knowing their customers through their actions across the organization and beyond the organizational walls. By doing so, banks can better understand AML and compliance risk, which gives them the necessary tools to bar customers from doing business or limiting their activity.
While banks are striving to better enforce regulations by pouring money and resources into CDD and transaction monitoring, forming this type of intelligent customer overview might be the real solution. Proper Customer Due Diligence and customer risk monitoring can only be achieved by continuously tracking customer behaviour and transactional networks. With the latest developments in Artificial Intelligence – that is now possible.
But, the reality for compliance teams is they are hindered by outdated technology in their risk assessment and transaction monitoring systems and because of this, banks are fighting a steep, uphill battle against serious organised crime.
In 2019, the Bank of England issued a statement that claimed: “existing (money laundering) risks may be amplified if governance controls do not keep pace with current advancements in technological innovation.”
I know from my time working as a senior compliance technology officer that many traditional AML systems are inefficient, slow and labour intensive, and often lead to inaccurate outcomes. In fact, most of the systems pre-date the iPhone, so they are using last-generation technology and techniques to detect criminal activity.
In short, legacy AML systems are not fit-for-purpose. Legacy vendors built them for the box-checking world of the past, and they are focused on one suspicious transaction at a time – rather than looking at ‘bad actors’ in the financial system, and patterns in their behaviour.
As launderers constantly evolve their techniques to circumvent rule-based or simple statistical detection, the AML systems market has not kept up. There is a dire need for innovation.
Unless systems are updated, banks can continue to file suspicious activity reports (SAR), but if bad actors can conduct their business ‘as usual’ and shuffle money around the globe to hide its malicious origin, the effectiveness of a SAR is significantly diminished.
What’s the solution?
I believe we need to rethink our entire approach to AML. We need to empower compliance departments with better controls and oversight, and move away from outdated, traditionally rule-based systems and towards a modern, AI-enabled, behavioural approach.
While the bad guys have learnt how to evade rule-based systems, they find it extremely difficult to get around AI algorithms that search for anomalies in behaviour. The advancement of AI algorithms, especially in the field of deep learning, provide an opportunity for banks to detect more complex and evasive money laundering networks.
So the answer is to establish continuous automated risk monitoring and implement a workflow system that provides money laundering risk scores for customers.
The latest AI software could kickstart a new age of customer AML risk-based overview. Instead of relying on static and self-reported KYC data, AI systems can analyse behaviour over a period of time and compare it with peer-groups and past actions. It provides compliance teams with a continuous risk-rating of their customers, actor insights and summaries to facilitate efficient and thorough investigations, and an organizational-wide overview.
Recent advancements in AI have not only made the above possible, but also practical. Our latest Human AI models contextualize and explain the appropriate data, making it easier for banks to spot sophisticated crime.
By looking at AML not simply as a box-ticking exercise, but as a competitive advantage that can increase customers’ trust in their financial institutions, banks have a lot to gain. Moving towards behaviour-based AML systems is a move towards making money good.
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.
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