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Banking

BIG BANKS FOLLOWING FINTECH STARTUP TRENDS

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BIG BANKS FOLLOWING FINTECH STARTUP TRENDS

Commoditization of Banking is occurring. For decades, bank rhetoric has been dominated by “automatic teller machines”, “downsizing”, “reducing personnel and transaction costs” or “shutting down local branches”. To keep up with tech-savvy consumers, banks are now innovating by focusing on multichannel experiences, mobile technologies and social media interactions. Dropping the monolithic app that fitted everyone generally but no one in particular is a megatrend that banks are following in 2016.

Commoditization of Banking

A year ago, PwC Strategy&’s global team of practical strategists were predicting for 2015 the acceleration of the commoditization/differentiation trend of retail banking products, which would force banks to focus more on convenience, simplicity and innovation if they want to keep up with the highly competitive, low-growth, low-margin market. “In 2015, we foresee the acceleration of a trend that’s been under way since the end of the financial crisis: the increased commoditization of retail banking products.” (source: 2015 Retail Banking Trends )

They were correct in their prediction as we’ve witnessed a great shift of the major financial brands that have been unbundling their apps for specific targeting of customer segments.

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American Express, for instance, has now several apps, each covering specific segments of their clients’ needs:

  • ReceiptMatch automatically matches the digital photo of a client’s receipt to the transaction on the American Express online statement.
  • American Express UNSTAGED gives music lovers new ways of staying up-to-date on what their favorite artists are doing, upcoming events and even feeds fans cool info about the band during live sets.
  • Bluebird®, a collaboration between American Express and Walmart, allows direct deposits, tax refunds, bill payments, locating nearby ATMs and offers discounts for dining or shopping.

Chase demonstrates another recent example of unbundling a mobile banking portfolio which includes the Chase Freedom® Mobile app in an attempt to enable customers to redeem Cash Back rewards straight from their smartphones and pay at their favorite restaurants, stores or movie theaters. To compete with Apple Pay and Google Pay, they recently launched Chase Pay.

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Photo source: novobrief.com

Single Purpose Apps Declining

Digital banking is one of the few remaining sectors that have not unbundled their apps. They still use website architecture that attempts to keep the user in one extensive site/place. Top mobile apps on the other hand provide an immediate one-touch solution to a problem. The top banks have their own engineering departments and have started the unbundling trend, acknowledging the loss of profits to single purpose Fintech apps. Another 10,000 financial institutions purchase their digital banking software from third party vendors. The top ten of these vendors control 81% of that market. By controlling the market and forcing two to five year contracts with their customers, they have a negative incentive to unbundle their apps.

Recent research reveals that 67 percent of American and Canadian millennials are open to using non-financial services brands. The arrival of new Fintech players who offer single purpose apps has forced banks to reconsider their monolithic approach.

Third-Parties Lead

Fintech startups are already taking over entire business segments and profit areas from banks. Venmo is a free digital wallet that lets you make and share payments with friends, while Robinhood offers a zero-fee stock trading service. Further disruptions happened for credit card companies, when startups like Braintree and Square provided low-cost transactions via credit cards, bank transfers or even bitcoin. Fintech newcomers like Simple and Moven want to eliminate banks altogether with their fee-free banking.

Fintech firms have generated this disruption in banking. Customers no longer look to banks to provide top-to-bottom financial services (from payments to loans to savings solutions) within a single app anymore. The evolution is still accelerating. Global venture capital investment in financial technology startups tripled in 2014 and is on path to double again in 2015.

fintech

Graph source: Cbinsights:The Future of FinTech and Banking: Global Fin Tech Investment Triples In 2014

Tackling Competitive Pressure

According to Banking 2016: Next-Generation Banking, a new report released by Accenture, banks can counter this competitive pressure by adopting three business models:

  • The “Financial/Non-Financial Digital Ecosystem” model, where banks use mobile technology to become the main provider of financial and non-financial services
  • The “Intelligent Multichannel” model which helps banks engage clients through extended multichannel experiences
  • The “Socially Engaging” model, where the relationship between banks and their customers is powered through social media interactions

These 3 models don’t exclude each other. Accenture indicates that by simultaneously developing all three, banks could double their annual revenue growth rate up to 8 percent, while reducing operating costs by 20 percent. 

Unbundling Apps – Opportunity for Banking Software

So far, new Fintech companies have been targeting consumers directly. “Disintermediation is a serious threat in financial services, with best-in-class start-ups and giant technology companies looking to siphon off profits from traditional banking services. Goldman Sachs sees $11B at risk of leaving the traditional banking sector in the immediate future.”  (source: Trending Credit Unions)

Banks and credit unions control $15 Trillion in assets. 45% of that wealth is controlled by the top five banks, which are reacting to market trends and unbundling their digital banking software. The other 55% will be slow to follow as they are tied to long-term contracts with vendors who have no financial incentive to unbundle their software and become a target of individual apps in the Fintech space.

This market anomaly creates an interesting opportunity for one of the existing digital banking software providers (like Malauzai, MX or Backbase) looking to acquire market share. The first to offer their software as a service with individual features unbundled into separate apps will be able to establish a significant market advantage with banks and credit unions looking to follow consumer trends.

Community Banks and Credit Unions Can Now Lead

An interesting change in the digital banking paradigm results from this new trend. Community banks and credit unions can respond more quickly to market demands than larger banks that are subject to legacy platforms and are involved in the time and expense of their own R&D. Once they start the unbundling process, thousands of new Fintech solutions are already waiting for them to use. They only need to brand and integrate those solutions with their own infrastructure. In 1990, the top five banks controlled 9.7% of the wealth. Partly due to their ability to create their own digital banking software, the first-to-market competitive advantage over other financial institutions enabled the top five to now control 45% of total assets. A reversal of this trend will begin in 2016 as this new capacity to move quickly in the market will bring Fintech companies and smaller financial institutions into an alliance that will ultimately reverse the trend of the largest banks controlling the market.

Author’s Bio:

Bill Sarris

Bill Sarris

Bill Sarris, CEO and Co-Founder of Linqto, Inc.

Bill is a recognized expert in the field of streaming and collaborative technology and the inventor of Linqto’s platform. He has delivered major enterprise software applications for Microsoft, Intuit, Digital Insight, NCR, Stanford and other clients. For Intuit, he developed applications for QuickBooks, Mint and the recent upgrade to QuickBooks Online. For Digital Insight, Bill managed Linqto’s engagement for their new Promotion Suite and Business Banking systems.  With over a decade of experience in financial services applications, digital and mobile banking, his work has received the Forrester Groundswell Award and The Monarch Innovation Award for Banking.

Banking

Bank fraud prevention in a post-COVID-19 world

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Bank fraud prevention in a post-COVID-19 world 1

By Pierre-Antoine Dusoulier, Founder and CEO, iBanFirst

Fraud on the rise

According to recent research from a leading UK retail bank, there was a 66 per cent increase in reported scams in the first six months of 2020 compared with the last six months of 2019 – due to the COVID-19 pandemic.

Across the summer months, Action Fraud UK reported a total financial loss of £11,316,266 by 2,866 victims of coronavirus-related scams.

The rise in fraud rates is a warning that banks, building societies and other financial providers need to be as alert as ever in identifying fraud.

So, what do banks need to do to ensure their customers are protected from fraud in a post-COVID-19 world?

Educate your customers to safeguard against fraud

On the customer level, banks need to be informing their customers on the types of common fraud to ensure that they are protected for all eventualities.

Authorised push payment scams are one of the fastest growing types of fraud. According to the FT, £354 million pounds was stolen this way last year. It is where a company or individual is tricked into paying money into a criminal’s account. Emails come from a genuine email address but are then intercepted by a criminal, so it’s imperative that businesses have end-to-end email encryption, and the customer double-checks the account details with the supplier on the phone prior to making a payment.

At the same time, scammers can also exploit the company’s invoicing process, where criminals create a bogus invoice for a small amount and send it to a company’s accounting department. If the finance team does not identify this as fraudulent, it can result in the business losing a considerable amount of revenue over a long period of time.

Supplier fraud is also a widespread scam. This involves the fraudster taking on the appearance of a supplier that has changed their bank details. The fraudster will have collected information on the suppliers of the targeted company, in order to pose as an official supplier. This can be prevented by ensuring that the supplier is contacted to confirm the legitimacy of the communication. It’s important not to call or email the supplier using the details provided on the suspected fraudulent correspondence. Instead they must check the original details of the supplier and speak to them on their official telephone number or email on file.

Banking malware is the least commonly cited type of fraud but has a greater financial risk attached to it. Malware is sent by email redirecting the recipients of the message to a fake banking interface, as a way of transferring funds to offshore accounts.

Remodel processes post-COVID-19 to keep customer data safe

To fight cyber fraud and scams, banks must also play their part. In a world where entire workforces are working from home banks must remain vigilant with customer data. COVID-19 has created a change in working habits and banks need to carry out the right level of training for its employees to protect customer data. Virtual team meetings and remote data sharing poses a threat to exposing sensitive information to malicious actors, and banks need to put the necessary safeguards in place.

All virtual meetings should use the banks’ private company network, and file sharing should be carried out through secure, encrypted company drives. Meanwhile, banks need to provision for all employees to receive regular software updates that will keep customer data safe, and ensure that they are aligned with new and existing data processing regulations.

Monitoring suspicious payments

A vital element to fraud detection is through monitoring customer transactions in real time, and harnessing emerging technologies such as artificial intelligence and machine learning to spot the signs of a scam or fraud before it is too late.

One way that banks protect businesses from fraud is through keeping a log and examining regular transactional history. Any transactions which appear suspicious based on location, amount, the beneficiary, and the method will be alerted to the business customer, to mitigate the immediate and future financial risk to the business.

Know your transaction

To understand financial flows better, every bank has a Know Your Customer (KYC) engine. This is a payment infrastructure that supports onboarding processes and risk-based transaction monitoring. This system is already well known and we don’t need to elaborate on this further, as it is the fundamental building block to ensure the highest level of traceability across all transactions – including remittances and receipts of funds and foreign exchange transactions internationally.

However, KYC is limited and doesn’t include real-time analysis. What can be overlooked is a KYT engine – Know your Transaction. The aim of KYT (Know Your Transactions) is to identify potentially risky transactions and their underlying unusual behaviour for detecting money laundering, fraud or corruption. An automated concentration of transactions with accurate and relevant information directly from the original data sources is essential.

Finally, banks and payment companies need to implement anti-fraud modules to defend against cyberattacks, based on the latest algorithms capable of analysing transactions issued in real time and detecting anomalies or suspicious behaviour upstream, strengthening the security and transparency of payments and building a network of trust between issuers and recipients of payments.

In a post-COVID-19 world it’s clear that scams will become more common place. Within this environment there is a shared responsibility when mitigating the risk of financial fraud. The bank must educate and inform customers to enable them to protect themselves, while ensuring a robust technological infrastructure and ways of working are in place that protects customer data; their finances, and fundamentally their business and livelihood.

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Banking

How One Bank Successfully Responds to Sophisticated Threat Actors

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How One Bank Successfully Responds to Sophisticated Threat Actors 2

By Robert Golladay, Strategic Accounts Director, Illusive Networks

Cybercriminals and hacktivists have a special fondness for financial institutions. Continuous business innovation, complex ecosystems, merger and acquisition activity, fintech, cloud adoption and a growing consumer-driven attack surface multiply the problem for financial organizations. Despite the vast resources financial institutions devote to cybersecurity, one challenge has been especially difficult to solve – that of detecting and stopping APTs before real damage is done.

Securing cloud-based banking

An active lender in the UK sought a new way to protect its customers and the valuable assets it holds. The bank needed to:

  • Defend customer and employee information from compromise
  • Detect and thwart sophisticated attacks
  • Effectively defend cloud-based operations across accounts and instances

As a cloud-first company, the bank’s preference is to always invest in next-generation technology for operations and security infrastructure. In May 2016, with the help of Amazon Web Services (AWS), it became the first bank in the UK to be fully cloud hosted. The bank also uses AWS to deliver a financial technology service that helps lenders make informed decisions through data and automation.

Security is always a priority, which is one of the reasons the company chose AWS, conducts regular penetration testing, and performs advanced attack simulations. To maximize effectiveness of its layered security infrastructure, the company continually trains its employees and reinforces data security best practices.

In particular, the bank sought additional safeguards from sophisticated threats that evade other security measures, such as advanced persistent threats, as well as gain insight into attacker tactics and techniques. The new layer needed to be cloud-based for high scalability and flexibility, and it had to defend the company without time-wasting false positive alerts. The security team looked at deception technology and chose a solution that allowed them to gain real-time verification of anomalies and lateral movement in the network.

Choosing deception

The deception solution enabled the bank to focus on attackers’ behaviour and perspective. The solution’s expertise in attacker methodology augmented the bank’s internal capability to detect novel attacks, while enabling rapid and adaptable coverage in its cloud-based environment.

The bank’s deception solution uses agentless, intelligence-driven technology that creates a dense web of deceptions and effortlessly scales across the infrastructure. Featherweight deceptions on every endpoint look exactly like the bank’s real data, access credentials and connections. When an attacker is confronted with deceptions, this deceptive view of reality makes it impossible to choose a real path forward. One wrong step triggers an alert to the bank’s security team.

The bank’s CISO found it invaluable to be able to deploy a solution that creates doubt and confusion in an intruder’s mind. When attackers can’t distinguish between real and deceptive assets, the security team can collect information and apply intelligence to patterns that it has observed during that time period of activity. The solution simultaneously sharpens the bank’s investigative process and constrain the attacker.

The lender easily deployed deception technology across its complex environment, scaling it across AWS instances and accounts. The IT security team now has continuous visibility and confidence that these defences enable them to thwart sophisticated threat actors.

Deceptively secure

The bank gained proactive threat response and the assurance that an alert represents a real issue. These alerts are only triggered when an attacker engages with a deceptive asset. At that point, the deception technology immediately begins capturing forensic data from the system where the attacker is operating, presenting real-time forensics and a quantifiable measure of potential business risk. It uncovered, for example, malicious processes trying to operate on an endpoint.

The deception solution enables the lender to be much more proactive. It detects and analyses attacks in real time to produce actionable alerts, directing the security team to relevant and valuable conclusions. The technology provides exceptional, innovative coverage for malicious pivoting and lateral movement. It uncovers the in-depth, sophisticated actors who evade other countermeasures and gives security analysts direct visibility into targeted attacks, which they find invaluable.

A laser-focused approach

The financial sector remains a perennial favourite of the cybercriminal crowd. As networks become more complex, their perimeters all but disappear, creating the need for stronger and more comprehensive security than ever previously imagined. Advanced persistent threats are a particular concern, as they are notoriously difficult to detect before significant damage is done. For financial institutions, the reputation damage alone may be insurmountable.

Banks and other financial services organizations pour resources into cybersecurity, but one option that needs further exploration is deception technology. This method of security monitors for lateral movements toward critical assets and thus provides a powerful alternative or enhancement to traditional monitoring approaches. Security teams can see attackers’ proximity to those crown jewels early in the attack cycle, buying time for careful response. As the lender above learned, deception technology cuts through the noise of alerts to deliver the intel financial institutions need to act quickly and safeguard their high-value data.

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Banking

Why banking and finance need to move qualifications online

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Why banking and finance need to move qualifications online 3

By Rory McCorkle, Senior Vice President, PSI Certification and Education Services

The global banking and finance sector often presents a strange contradiction when it comes to technology. On one hand, the sector is leading the way in blockchain technology, big data and Artificial Intelligence. On the other hand, many large financial institutions are falling behind in their digital transformation efforts, with internal processes as well as the moving the customer experience online. Particularly when compared to fintech and new challenger banks.

A report last year by Accenture found that just 12% of large traditional banks surveyed have fully committed to digital transformation and 50% of banks made little progress. The remaining 38% are in the midst of their transformations, but their digital strategies lack coherence.[i]

One area of digital transformation that has been particularly slow is access to qualifications and certifications. Many exams in the banking and finance sector continue to use Paper Based Testing (PBT). However, COVID-19 has accelerated the transition from PBT to Computer Based Testing (CBT), proving irrevocably that change is possible – regardless of the size of your organisation, number of candidates or security requirements.

Stay current

In a heavily regulated environment that is undergoing increased scrutiny, a high level of certification and compliance is a necessity for many working in the industry. And credentials that hold such significance need to be securely and fairly assessed. This is where CBT offers numerous benefits. For organisations there is security, integrity, flexible capacity, increased reach and a streamlined exam administration process. And for candidates, CBT provides flexibility, convenience, accessibility and increased choice.

Despite these benefits, some organisations still have reservations and have been slower to make the move to CBT. In more traditional professions, such as finance, there can be a greater reticence. This is likely to be based on the historic prestige of PBT, as well as a desire to stick to more traditional methods. However, with more learning completed online, and educational resources shifting to digital from primary education to CPD, expectations around assessments are changing.

Up-and-coming candidates in all professions, particularly those who are digital natives, are starting to question outdated methods. Organizations will need to adapt to stay current and relevant with their market. What’s more, technological advances have now combined with the coronavirus pandemic to increase the demand for remote business services. Meaning that a growing number of organisations in the banking and finance sector are moving to CBT.

Increased security

Technology offers burgeoning options to increase test security with CBT. Linear-on-the-fly testing (LOFT) for example allows you to easily change items for each candidate, while maintaining the fairness of the exam – rather than the fixed forms used in PBT.

With LOFT, every candidate is given a unique set of items, making cheating a lot more difficult. And with no need to ship test papers around the country, there’s significantly less risk of physical security breaches with CBT than with PBT.

With the movement away from paper and pencil testing, advances in online proctoring have also dramatically increased the ability to deliver secure online assessments. Using a webcam and microphone, online proctoring provides test security for exams, while offering candidates additional flexibility and convenient scheduling.

Even before COVID-19, online proctoring was becoming far more commonplace. In 2018, there was a 10% increase in organisations using online proctoring with video/sound recording and identity authentication as part of the exam process compared to 2017.[ii] And COVID-19 has reinforced the fact that it is possible to effectively move to CBT side by side with online proctoring – and move quickly.

Future possibilities

Testing has changed a lot during its history but the reasons for adopting CBT have remained the same for decades – fair and reliable testing delivered at scale. Nearly all tests that are completed with a paper and pencil can be adapted for CBT.

For organisations in the banking and finance sector, recent technological advances have provided many more options to reach candidates. At the same time, technology has significantly increased the security for important online assessments that will not only affect a candidate’s future, but might also impact the future and reputation of their profession.

As with any change, the move from PBT to CBT must be managed carefully and communicated clearly. And with best practice in place, it is possible for any organization, regardless of size and number of candidates, to make the move to CBT.

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