Peter Fawcett, Head of Retail and Commercial Banking, Tata Consultancy Services, discusses how effective use of data and analytics, is crucial to helping retail financial organisations stay competitive in a challenging landscape.
These are tough times for retail financial organizations. Public trust remains low following a raft of high profile crises, and banks are burdened with increasingly complex compliance regulations. Alongside these challenges, technology and digital adoption continues to develop at a rapid pace, driven by consumer demands for more innovative and user friendly digital solutions.
These changing consumer expectations have fundamentally changed the landscape, with only those producing the latest and most digitally advanced products managing to retain and attract customers. To add to this, it is not just other banking institutions that are a threat. There is also a growing expectation that new players – companies from outside the world of finance but with a wealth of digital expertise –can make a sizable impact on the market. Recent Europe-wide researchiby Tata Consultancy Services found that 71% of banks believe they will lose customers to retail, mobile or telecoms companies in the next five years. Also, with the introduction of improved account switching, digitally savvy consumers will be able to select, unbundle and change banking services very quickly.
In this technologically advanced era, the reality is that young, digitally native companies with the skills and capabilities more akin to Amazon and Google are well placed to fundamentally change the dynamics of the retail banking market. Those companies, that were born online or who acquired digital skills in parallel industries such as retail or telecoms, know first-hand how to use and manipulate the vast amounts of customer data that is generated through online interaction. This data-driven approach can provide valuable customer insights which can then be used to inform and create better digital services. For new world retailers and hi-tech firms like Amazon and Apple, data analytics is second nature, and they can easily leverage their knowledge of the customer to give a unique user experience. Indeed, the ability to provide new and exciting user interfaces, based on knowledge of customer need, is something banks often struggle with today. The threat is that new entrant companies can cherry pick attractive services such as payments or peer to peer lending, potentially leaving the incumbent bank with only unbundled and less profitable services.
The power of data
However, it isn’t all bad news. The fact is that financial companies have a potentially crucial advantage over new entrants to the market: they already have vast amounts of highly relevant data available to them, built over years of customer engagement. In many cases, this data lies untapped but, if used effectively, it could give banks a much needed competitive advantage.
The data that banks already have will be both structured data (statistics and numerical data) and unstructured data (phone call recordings, texts and social media posts). By fusing together this data, banks can build up a more complete picture of customer engagement, and can then build up predictive insights towards customer delight, satisfaction and needs.
Further, what many banks do not realise is that their customers have a powerful voice and viewpoint on their organisation, which they are already expressing online, to a range of different audiences, and on a range of different sites and channels – not just their own. This online voice is not only useful for building up a picture of customer behaviour; it can also be used to create compelling content for digital and social channels.
However, implementing sophisticated data initiatives can be costly and other factors – such as an increasingly complex regulatory system – can limit the funds available for these projects. The financial crisis has exacerbated the regulatory challenge with the number of mandatory regulations increasing and becoming more restrictive. This can put a strain on resources and increasing regulatory complexity is fast becoming one of the greatest pressures on financial services organizations.
Indeed, these cost constraints can mean that in some cases, banks cannot afford to invest in sophisticated new data systems, and antiquated legacy systems can often hold banks back from competing with newer, more nimble entrants, who have adopted the latest systems since inception. Accentuating this is a cultural fear of upheaval, which causes banks to focus more on short term performance measures, as opposed to investing in long term solutions such as the re-engineering of core systems. There is also a fear of putting existing systems at risk during the changeover process. All of this leads to legacy systems which are only replaced gradually over a period of many years.
However, there are simple approaches banks can take to overcome these challenges. Firstly, banks can actually turn these periods of change to their advantage and use them to drive efficiencies. Often, complying with new regulations will result in some sort of upheaval or re-organization of operational infrastructure. By coordinating these compulsory periods of change with the implementation of new customer technologies, banks can actually make better use of compliance budgets and make them stretch much further.
Another strategy which can help work around budget restrictions is to start by effecting smaller and more manageable quick wins. This will allow banks to begin to make bold changes, without compromising the functionality of existing systems. Indeed, this streamlining of operational infrastructure should free up some capital which can be re-invested into better customer and data analytics.
However, the process does not end there. Once banks have gained a stranglehold on data analysis and are using this insight to develop new and engaging products, there are a few measures they must take to ensure their continual success.
Firstly, integration is everything. Financial services organisations need to take a holistic approach with new and existing digital and social services and put in place the technologies and structures that will integrate them seamlessly with existing channels. Failure to properly integrate will make the business seem fragmented and confused to customers.
Secondly, effective measurement is vital for further innovation. By tracking social and digital strategies and rigorously benchmarking their success, organisations can continue to improve and develop upon services to ensure a satisfactory ROI.
Finally, a change in mind-set is critical. Banks need to stop thinking of digital enhancement as an ‘add on’. Rather, fully integrated digital solutions and faultless customer service platforms need to become minimum requirements, rather than luxuries. The ‘Clicks and Bricks’ approach of simply supplementing physical outlets with half-hearted digital solutions will no longer be adequate as we move into the next and more accelerated phase of digital consumer adoption. A ‘Laps and Apps’ approach of leading with application and mobile device platforms should be the new way to develop digital strategies. However, it is essential these are integrated seamlessly into all customer facing channels.
Many financial institutions across the world are aware that unless they continue to innovate and produce useful and exciting digital products for their customers, they could be left behind by new industry entrants in as little as five years. However, there are many approaches which will ensure survival and success in this increasingly challenging market. By learning from other digitally savvy industries, and making use of the data and information already at their disposal, banks can continue to retain and grow customers in this increasingly competitive digital era.
Peter Fawcett is head of retail and commercial banking for Tata Consultancy Services.
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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