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CAPITALISING ON DIGITAL TRANSFORMATION – CLIENT DATA THE KEY TO OFFERING A NEW BREED OF CONTEXTUAL BANKING SERVICES

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CAPITALISING ON DIGITAL TRANSFORMATION – CLIENT DATA THE KEY TO OFFERING A NEW BREED OF CONTEXTUAL BANKING SERVICES 1

In the age of digitalisation, Herber de Ruijter, Head of Digital for Transaction Banking at iGTB, argues that banks can stay ahead of the curve–using client transaction data to bring about new, automated, “contextual” services.With a focus on client convenience, these could enrich client relationships, open new revenue streams,and future proof bank business models

Herber de Ruijter, Head of Digital for Transaction Banking at iGTB

Herber de Ruijter, Head of Digital for Transaction Banking at iGTB

With tech-savvy clients, ever-increasing regulatory pressures and innovative market entrants – it isn’t news that digital transformation is an imperative for transaction banks.Yet, despite the need for action, fixed mindsets and tight budgets mean that many banks are adopting defensive stances, wary of taking undue risks. By doing so they could be missing out on a huge opportunity, and may even get left behind as a new era of banking dawns.

To take full advantage and maintain – or increase – market share, banks must leverage client data to adopt truly client-centric business models, develop “contextual” products and services that understand the full business situation behind transactions, and deliver convenient, intuitive user experiences.

Open banking on the horizon

With regulations such as PSD2 in Europerequiring banks to offer third-party providers access to their clients’ account information and payment services through APIs by early 2018, the banking landscape is set for a seismic shift. For banks, determining how they will retain and grow market share in the new API economy is paramount.

Aside from compliance, there is a huge opportunityfor banks to embrace the possibilities of open banking and pursue strategies aimed at carving out a leading role in the future.APIs can provide banks with enriched client data on know your customer information,payment profiles, transaction history, and so on – all of which can be used toenhance product offerings, improve efficiency and develop new services.

A proactive approach to open API business models can enable banks to move beyond being “white-label” service providers, and evolve into trusted advisors to clients, within new client-centric banking models.

The shift to realtime

There are further opportunities at hand, particularly as the move to real-time, “instant” banking matures in tandem with the growth of APIs.For example, open APIs transmitting real-time data among financial institutions could enable corporate banks to connect trade finance, cash management and supplier acquisition with a much wider range of services from partners such as e-invoicing companies, inspection companies and tax authorities, in a far more integrated and seamless way than is currently possible.

Transaction banks also have an opportunity to leverage innovative payment solutions to drive value for their corporate customers. With liquidity events happening in real-time, rather than on a daily basis, corporates will need to react immediately to intra-day developments, and this is an area where banks can offer new tools. In-the-moment invoice factoring, instant overdrafts, automatic FX hedging, and dynamic account limits are just some possibilities.Ultimately, real time will change banks’ relationship with their corporate clients, potentially placing them at the heart of their clients’ supply chains.

Design the best products, with the best client experience

Newproducts and services, however,must strive to keep the end user in mind – ensuring simplicity and intuitive design wherever possible. Self-service products are currently a leading use case, but unwieldy interfaces have often limited adoption andimposed costs on banks. Banks who will succeed in this space will base their strategies around customer value, and their tactics around customer adoption.Optimisations in the “last mile” between corporates and banks, ensuring straight-through processing and enhancing user experience, areall leading to higher adoption of digital channels for self-service and lowering the costs of servicing clients.These factors will surely play a similar role in driving adoption across the range of API-enabled services.

A number of leading banks have already picked up on this design trend.In July last year, France’s second largest bank, Groupe BPCE, acquired the innovative German fintech, Fidor, which provides a unique online user experience. Spanish bank BBVA has also made a string of acquisitions in recent years,including online user-experience start-up Simple, Finnish online-only SME bank Holvi, and Mexican B2B payments platform Openpay, in a move to position themselves as leaders in digital, customer-centric banking. Indeed,Shamir Karkal, CFO and co-founder of Simple, is now leading BBVA’s open API platform – another indicator of how banks are beginning to embrace new technologies.

As digitalisation becomes the norm, banks must also ensure that their clients aren’t alienated from the relationship-based aspect of banking, and maintain a regular, constructive dialogue with clients. New, API-enabled, real-time services must incorporate clients’ operating models, business contexts and priorities to ensure that recommendations, advisory services and cross-selling opportunities are relevant and in line with wider corporate objectives. Harnessing enriched client data, using this to offer clients new and improved products and services in line with their needs, and ensuring seamless user experiences will place banks in the driving seat as the digitalisation of corporate banking continues.

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19 2

Organizations in the Middle East have had to take immediate actions in reaction to the COVID-19 pandemic, such as shifting to remote and virtual work, implementing new ways of working and redirecting the workforce on critical activities. According to Deloitte’s 10th annual 2020 Middle East Human Capital Trends report, “The social enterprise at work: Paradox as a path forward,” organizations now need to think about how to sustain these actions by embedding them into their organizational culture.

“COVID-19 has created a clarifying moment for work and the workforce. Organizations that expand their focus on worker well-being, from programs adjacent to work to designing well-being into the work itself, will help their workers not only feel their best but perform at their best. Doing so will strengthen the tie between well-being and organizational outcomes, drive meaningful work, and foster a greater sense of belonging overall,” said Ghassan Turqieh, Consulting Partner, Human Capital, Deloitte Middle East.

According to the Deloitte report, many organizations in the Middle East made quick arrangements to engage with employees in the wake of the pandemic through frequent communications, multiple webinars where senior leaders addressed employee concerns, virtual employee events, manager check-ins, periodic calls and other targeted interactions with the workforce.

The report also discussed how UAE and KSA governments have reexamined work policies and practices, amended regulations and introduced COVID-19 initiatives to support companies and the workforce in the public and private sectors. Flexible and remote working, team-building and engagement activities, well-ness programs, recognition awards and modern workspaces are among the many things that are now adding to the employee experience.

Key findings from the Deloitte global report include:

  • Only 17% of respondents are making significant investments in reskilling to support their AI strategy with only 12% using AI primarily to replace workers;
  • 27% of respondents have clear policies and practices to manage the ethical challenges resulting from the future of work despite 85% of respondents saying the future of work raises ethical challenges;
  • Three-quarters of leaders are expecting to source new skills and capabilities through reskilling, but only 45% are rewarding workers for the development of new skills; and
  • Only 45% of respondents are prepared or very prepared to take advantage of the alternative workforce to access key capabilities despite gig workers being likely to comprise 43% of the U.S. workforce this year according to the Bureau of Labor Statistics.

“Worker well-being is a top priority today, and similarly to the rest of the world, companies in the Middle East are focusing their efforts to redesign work around well-being by understanding workforce well-being needs,” said Rania Abu Shukur, Director, Human Capital, Consulting, Deloitte Middle East.

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One in five insurance customers saw an improvement in customer service over lockdown, research shows

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One in five insurance customers saw an improvement in customer service over lockdown, research shows 3

SAS research reveals that insurers improved their customer experience during lockdown

One in five insurance customers noted an improvement in their customer experience over lockdown, according to research conducted by SAS, the leader in analytics. This far outweighed the 11% of customers who felt it had deteriorated over the same period.

This is positive news for insurers during such challenging times, with 59% of customers also saying that they would pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.

The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of insurance customers using a digital service or app has grown by 10%. Three-fifths (60%) of new users plan to continue using these digital services moving forward.

However, while the number of digital users grew over lockdown, half of the insurance customer base has not yet chosen to move to digital insurance apps or services.

Paul Ridge, Head of Insurance at SAS UK & Ireland, said:

“It’s impressive that there was a net improvement in customer experience during lockdown, despite the challenges the industry was facing with a transition to remote working and increased claims for things like cancelled holidays. While many were forced to wait on customer help lines for long periods, part of the improvement may be explained by even a small (10%) increase in the number of digital users.

“However, it’s clear that a huge number of customers are still yet to make the move online. It’s vital that insurers provide the most accurate, timely and relevant offerings to customers, and this is best achieved by having additional insight into online customer journeys so they can understand them better. Using analytics and AI, insurers can seize this opportunity to digitalise their customer experience and offer a more personalised approach.”

Meanwhile, for insurers that fail to offer a consistently satisfactory customer experience, the price could be severe. A third (33%) of customers claimed that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service.

For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer? 

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The power of superstar firms amid the pandemic: should regulators intervene?

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The power of superstar firms amid the pandemic: should regulators intervene? 4

By Professor Anton Korinek, Darden School of Business and Research Associate at the Oxford Future of Humanity Institute. Gosia Glinska, associate director of research impact, Batten Institute for Entrepreneurship and Innovation, Darden School of Business

Recent news that Apple hit a market cap of USD2 trillion highlights an extraordinary success story: A once struggling computer-maker on the verge of bankruptcy innovates its way to becoming the most valuable publicly traded company in the United States.

Apple’s 13-figure valuation is indicative of a larger trend that is not entirely benign — the rise of a handful of superstar firms that dominate the economy. Over the past three decades, advances in information technology, mainly the Internet, have supercharged the superstar phenomenon, allowing a small number of entrepreneurs and firms to serve a large market and reap outsize rewards. And COVID-19 has greatly accelerated the phenomenon by pushing us all into a more virtual world.

Apple — along with Amazon, Facebook, Google, Microsoft and Netflix — is a case in point. The combined market value of those six companies exceeds USD7 trillion, which accounts for more than a quarter of the entire S&P 500 index. Even amid the pandemic’s economic wreckage, these megacompanies continue to prosper. The combined share price for Apple and its five peers was up more than 43 percent this year, while the rest of the companies in the S&P 500 collectively lost about 4 percent.[1]

Superstar firms can be found in almost every sector of the economy, including tech, management, finance, sports and the music industry. They command increasing market power, which has consequences for technological, social and economic progress. It is, therefore, critical to understand how their advantages arose in the first place.

THE FORCES BEHIND THE SUPERSTAR PHENOMENON

The “economics of superstars” was first studied by the late University of Chicago economist Sherwin Rosen. Forty years ago, Rosen argued that certain new technologies would significantly enhance the productivity of talented workers, enabling superstars in any industry to greatly expand the scope of their market, while reducing market opportunities for everyone else.[2] Digital innovations, including advances in the collection, processing and transmission of information, is what Rosen envisioned would lead to the superstar phenomenon.

Digital technologies are information goods, which are different from the traditional, physical goods in the economy. What it means is that fundamentally different economic considerations apply. Unlike physical goods — a loaf of bread or a car — information goods have two key properties: They are non-rival and excludable. Non-rival means that something can be used without being used up. Excludability means that an owner of digital innovation can prevent others from using it, by protecting it with patents, for example. These two fundamental properties of information goods are what give rise to the superstar phenomenon.

In a working paper I co-authored with Professor Ding Xuan Ng at Johns Hopkins University[3], we described superstars as arising from digital innovations that require upfront fixed costs that allow firms to reduce the marginal costs of serving additional customers.[4] For example, once an online travel agency has programmed its website at a fixed cost, it can easily displace thousands of traditional travel agents without much additional effort, scaling at near-zero cost.

Because a firm can exclude others from using its digital innovation, it automatically gains market power. The innovator then uses that power to charge a mark-up and earn a monopoly rent — basically, a price superstars charge in excess of what it costs them to provide the good — which we call the ‘superstar profit share’.

THE POLICYMAKER’S DILEMMA

In a vibrant free market economy, businesses compete for customers by innovating and improving their offerings while keeping prices low; otherwise, they are displaced by more innovative rivals entering the market. Unfortunately, the increasing monopolization of the economy by technology superstars is weakening the competitive environment around the world.

Monopoly power is the main inefficiency from the emergence of superstar firms, because superstars can exclude others from using the innovation that they have developed.

So, what policy measures can be employed to mitigate the inefficiencies arising from the superstar phenomenon?

We do have antitrust policies designed to promote competition and hence economic efficiency. Authorities could take a drastic measure and break up monopolies. Or they could tax all those excess profits megacompanies make.

Another policy to consider involves giving consumers control rights over their data. Right now, only companies have that data, and they are selling it. If you free it up and don’t allow them to sell it anymore, it reduces their monopoly profits. And if you give consumers more freedom over their data, they could, for example, share it with the latest start-up and create a more competitive landscape.

However, such policy remedies can be a double-edged sword. On the one hand, they reduce monopoly rents. On the other hand, they can also reduce innovation.

Innovation requires investments in R&D, which represent a significant sunk cost that only large firms can afford. Government regulations can easily backfire, discouraging large firms from making long-term R&D investments.

What, then, is the best policy intervention? Professor Ding Xuan Ng and I believe that basic research should be public. Digital innovations should be financed by public investments and should be provided as free public goods to all. This would make the superstar phenomenon disappear, and the effects of digital innovation would simply show up as productivity increases.[5]

We live in a brave new world that is increasingly based on information. Because the information economy is different from the traditional economy, antitrust policy should be revamped to reflect that. Instead of worrying about the economy being eaten up by these gigantic monopolies, policymakers need to focus on the question ‘What specific actions can we pursue to make the economy more competitive and efficient?’

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