By Jonathan Jensen, Director of Identity Verification at GBG
Having to comply with regulation can be frustrating for fintechs who want to ‘move fast and break things’, especially when it comes to creating great customer experiences. However, UX and compliance don’t have to be at odds.
Keeping customers and regulators satisfied is challenging, and both are crucial to fintechs’ success and sustainability, but compliance doesn’t feel very disruptive.
What’s more, incumbents are starting to adapt. Traditional financial services (FS) firms are already comfortable with regulation, and now they’re starting to innovate to maintain their dominance. If fintechs can’t balance great UX with regulation, they could lose their edge.
The challenge for fintechs is to find affordable solutions to regulatory challenges that don’t get in the way of great, FS-beating UX. But when budgets are limited, the challenge seems even greater
The good news is that compliance and UX are both in the best interests of users, so there’s plenty of room for the both of them – especially when you have the right tools.
Salesforce research found 76% of consumers will take their business elsewhere if your customer experience doesn’t meet their expectations. This won’t come as a surprise to fintechs, since the sector is uniquely focussed on CX.
Fintechs will also be acutely aware that they need to take care not to scare customers away with their attempts to meet regulatory requirements, starting at onboarding.
And there are big gains to be had for fintechs that get it right.
Research by McKinsey found that every one-point increase in onboarding satisfaction (on the ten-point Net Promoter Score scale) creates a 3% uplift in customer revenue.
For a business onboarding £100 million worth of new customers, this small increase in customer satisfaction could be worth £3 million – and a poor experience could have the opposite effect.
Financial rewards aside, the risk of abandonment is reason enough to want to get it right.
Javelin Strategy & Research found 38% of millennials have abandoned mobile banking because of long or badly designed processes. Meanwhile, Sale Cycle reported 76% of all online registrations are abandoned.
There’s a reputational cost to getting it wrong, which is especially important to fledgling startups looking to make a name for themselves.
The customer experience challenge is obvious, but the regulatory challenge is harder to get to grips with – at least without the right tools and support.
Clear today, wrong tomorrow
Today’s great UX can be tomorrow’s regulatory breach – it’s the nature of the regulatory landscape.
Fintechs need to keep up to date with the latest changes in regulation if they want to keep delivering the best customer experiences, and there are three big regulatory changes that fintechs need to be aware of right now.
The fifth iteration of the Anti-Money Laundering Directive (5AMLD) takes effect from January 2020. It builds on 4AMLD to go further in tackling the financing of terrorism and make financial transactions more transparent.
5AMLD will hit fintechs in three main ways: stricter Customer Due Diligence (CDD) checks, beneficial ownership registers and new rules around Politically Exposed Persons (PEPs).
It’ll mean sectors that never used to be affected by AMLD now will be.
Prepaid cards, mobile wallets, payment service providers with customers who make remote payments over €50, states outside the EU, firms handling cryptocurrencies, estate agents, free ports and art dealers will all will face new or stricter CDD checks.
Also, companies will have to perform frequent, strict CDD and Know Your Customer (KYC) checks on beneficial owners of corporate and other legal entities.
Finally, EU member states will have to compile lists of PEPs. The lists won’t name individuals, but enhanced CDD checks will be triggered when there’s a match against a job function in the registers.
Our Head of fintech, Darnell Walker, said: “AML regulations can introduce friction, but high quality data and agile analytics are key to balancing customer experience with AML obligations”.
The Revised Payment Services Directive (PSD2) will change financial services in September by facilitating Open Banking, which is a huge opportunity for fintechs.
Permitting third parties to make peer-to-peer transactions using open APIs introduces new regulatory requirements in the form of Strong Customer Authentication (SCA).
This has the potential to add friction to finechs’ UX, which means they should think carefully about what they implement SCA and how.
GDPR, which fintechs will be more than familiar with already, means firms need to get consent for the data they collect and how they use it. Everyone’s been forced to consider how best to comply in a way that doesn’t interfere with customer experience.
Five ways fintechs can balance UX with compliance
These five key principles will help you create great, compliant user experiences:
- Look out for new technologies that’ll help you meet your regulatory requirements. Remember to think about your customer’s attitude to new technology to minimise abandonment – for instance, would your customers be comfortable with you using GPS to capture their address?
- Be sure to account for international variations if you operate across borders. Consider differences in documents from country to country and the differing regulatory requirements in each territory.
- Use technology to keep your UI as simple as possible. Users won’t tolerate spending ages verifying their identity just to use your service.
- Motivate customers with visual and contextual feedback to guide them through the onboarding process. Use progress bars, validate their responses and help them to complete the checks as much as you can.
- Test your products to make sure they’re as easy and enjoyable to use as you’ve designed them to be. Do as much usability testing as you can to prove your UX works.
Iron Mountain 2021 Outlook
By Stuart Bernard, VP of Digital Solutions at Iron Mountain
The Covid-19 pandemic is continuing to rewrite the rules governing how we live and work; no crystal ball is needed to identify that general trend. However, what is perhaps less clear is how this reshaping of our traditional work/life patterns will play out in physical, day-to-day terms during 2021.
To fully understand the impact of the virus on employment practices requires an investigation of two evolving challenges: how and where we work. These interlinked issues are already having a profound influence on a wide range of business processes and they are continuing to fundamentally and irrevocably altering the world of employment for people around the world.
Cost reduction will top business priorities
For most businesses, the need to preserve cash will be a major concern over the coming 12 months. Uncertain trading conditions customarily tighten purse strings so we can expect some near-term cost reduction measure. An agile, flexible approach to office space offers an immediate monetary benefit, which in combination with a widespread acceptance of remote working, provides ample opportunities for downsizing real estate holdings. This will enable businesses to divert cash to crucial customer-facing operations, helping protect bottom line performance.
Flexible working will enable greater workforce diversity
However, there is an enduring need for companies to provide offices for their employees, if only to support face-to-face collaborations and ensure that there’s an opportunity for direct learning and training to support career development. For many people, a single place of employment will no longer be the norm – a flexible mix of home, remote and office-based work will be the new reality. However, knitting dispersed employees together into an integrated unit is problematic. Meeting the needs of a hybrid workforce will require the implementation of seamless digital workflows that are responsive and robust enough to ensure that staff can be productive and connected no matter their location.
An unintended benefit of operating a hybrid workforce is the increased level of flexibility it provides when recruiting staff. This has the potential to open up the talent pool beyond conventional geographic areas, boosting access to skills and experience from a wider area. Once again, in order to maximise the opportunities this provides, it will be necessary to assemble a robust digital network in order to bridge physical distances as well as potential cultural ones, depending on how widespread a workforce becomes.
Automated workflows will become critical
For 2021 it’s not just where businesses operate that’s going to change; the requirements of customers are likely to transform, too. This will be especially apparent when it comes to signing contracts and delivering services. Lockdowns and Covid-19 related restrictions on traditional in-person meetings are going to herald the demise of conventionally signed documents in many instances; they are also likely to change how records are shared and stored. An increasing reliance on digital workflows will require the parallel adoption of secure digital storage and handling. Specifically, Iron Mountain’s research reveals that IT support (49%), customer relationship management (36%) and overseeing team resourcing (34%) are the top three processes digitised in response to lockdown.
Nevertheless, efficiently storing existing physical documents or ensuring their safe destruction remain important functions that businesses should not neglect, even if they’re moving to predominantly digital workflows.
Importantly, digitising processes offers a range of benefits that will outlast the current global pandemic. According to our research sample there are four key benefits, which all deliver long-term value: increased productivity (the most popular response at 27%), time savings (20%), enhanced data quality (13%) and cost reductions (12%). Irrespective of trading conditions, there are all important developments that any forward-looking business will want to gain.
Protecting bottom line performance
How does all this work in practice? Well, a fully-searchable on-line repository will enable a company to quickly and cost-effectively access and archive documents, thanks to an array of enhanced search functions. During a period of intensified competition and pressure on bottom line performance this level of functionality delivers real-time benefits that not only meets the needs of a transforming business, it also adds value and consistency to customer services. Similarly, once in place, a properly designed digital workflow system will also be able to automate processes, allowing valuable time and budget to be preserved. What at first might look like a costly investment can quickly turn into a business driver by creating a unified and responsive platform for document and contract management with anytime, anywhere access.
Despite the changing employment patterns, 2021 will show that the physical office space will not cease to exist. Having said that, the way we remember it might change as hybrid working becomes more common place. The coming year will also reinforce the importance of enterprises being flexible and agile – those that cling onto outmoded ways of operating will lose their competitive advantage during a period of dramatic change. Importantly, in order to maximise their opportunities businesses will need to invest in the best available digital tools; adopting and adapting to a paper-free workflow aren’t optional: the next 12 months are going to transform how we create, transfer, share, store and action documents thanks to an increasing use of automated workflows.
Jack Henry shares six areas of focus for financial institutions in 2021
Reflecting back on 2020, the community banking and credit union industries should be proud of how this unprecedented pandemic and resulting economic crisis was managed. It was a truly remarkable time in which organizations worked together to take care of their employees, serve and support our communities, and operate their businesses efficiently despite significant challenges.
Now in 2021, the financial services industry is focused on moving forward – and is well positioned to do so. The technology demands faced over the last year were tremendous, but they were not a surprise. Jack Henry has been steadily working toward building digital, user centric, and open technologies that allow community banks and credit unions to meet customer and member needs personally and at their time and location of choice. The company is constantly evaluating industry trends and developing the technology necessary to prepare financial institutions for continued success. Below are a few areas of focus in 2021:
- The Paycheck Protection Program (PPP) continues. An additional $284 billion has been approved for PPP lending, including new loan eligibility and the option for qualifying businesses to receive a second loan. Preparing for the dissemination of these funds, all while managing the forgiveness process, is top of mind for many bankers. Community banks and credit unions can continue to benefit from participating in this program by gaining and strengthening small business customers as well as playing a significant role in extending loans to minority- and female-owned businesses. In fact, in addition to facilitating the majority of the small business PPP loans in 2020, community banks originated 72.6% of PPP loans made to non-white small business owners and 71.5% of PPP loans made to female small business owners.
- Digital banking continues rapid acceleration. Digital banking adoption has reached record highs, and enhancing digital service is a top priority. The area is constantly evolving in speed, personalization and openness. The key to continued success is to stay focused on the needs of people, identify digital solutions that draw people in, engage them, and focus more on providing human-centered service in moments of need. Platforms should offer open infrastructure that makes it easy for institutions to embed their solutions of choice, preparing them for the future.
- Payments platforms take center stage. It’s critical for financial institutions to broaden their payments options, moving toward an approach that provides end users with robust features combined with an excellent experience. An integrated payments infrastructure that provides frictionless, real-time experiences will be necessary to compete with big banks and fintechs. Financial institutions will partner with vendors that can help to build the right platform for their unique customer and member preferences.
- Digital transformation in mortgage lending. Mortgages rates have dropped to record lows and the Federal Reserve has expressed no plans to change the rate environment until 2022 or beyond. Bankers must drive efficiency to compete. They need automation and seamless workflows that effectively measure credit risk and streamline previously manual processes. This empowers lenders to focus on building relationships and growing portfolios. Borrowers will benefit also from the added speed and connectivity with their lender.
- Changes in the new administration. With the pending changes in Washington, a new administration will most likely swing the pendulum back toward an environment of stricter banking regulation. Economic recovery has also been identified as a top priority by the new administration. Banks and credit unions must have agile technology and processes in place to respond; outsourcing will help many with these adjustments.
Transparency and fairness in lending. Given the social environment in our country today, Jack Henry expects a real focus this year on diversity and inclusion in banking, especially around access to fair credit and lending costs. Many organizations, Jack Henry included, have taken a formal stance in supporting racial justice and equality. Working together to ensure that lending clients are treated equitably.
This year will continue to be about partnerships that are committed to doing the right thing and providing for local communities. Together, fintechs and financial institutions can develop joint strategies and modern technology that drive success, both today and tomorrow.
Seven lessons from 2020
Rebeca Ehrnrooth, Equilibrium Capital and CEMS Alumni Association President
Attending a New Year’s luncheon on 31 December 2019, we played a game that involved predicting the world in 2020. Some of the questions included: would Uber become profitable? Would the three-decade bond rally finally come to an end? Would the US hit a recession?
Unlike any of our predictions based on a traditional approach to business and predicting, we now know that 2020 became the year where business, professional and personal plans were turned upside down, reshaped and put-on hold. The proverbial black swan had arrived.
As revealed in a new CEMS Guide to Leadership in a Post-COVID-19 World, to which I contributed, the COVID-19 pandemic has exposed deficiencies in the 20th Century vision of leadership, giving a rare opportunity to question the status quo.
So, what are the main lessons from 2020?
- Humans are enormously adaptive. This is not an extinction scenario. The world is getting used to dealing with global human disaster which may become a recurring event. Life continues guided by new parameters.
- No sector or country is immune to rapid change. Just as the leveraged finance and equity markets ground to a halt during the Global Financial Crisis, we have seen a disruption in the financial markets (including M&A) in 2020, including a significant redistribution of wealth between sectors; think tech vs airlines and the hospitality industry. When a market is disrupted it has secondary and tertiary effects such as less work for accountants, lawyers, financiers etc.
- Location is not as important anymore. The belief that finance staff need to be based in one of the financial capitals to be effective has been forever altered. Pursuing a career in finance from anywhere is becoming possible. However, it’s likely that over time, financial controls and human interaction will move the work model back towards the traditional office approach, as work is a critical sanctuary for people. While working from home may allow more time for family, chores and sports, it is mainly effective for people who already have their internal and external networks. For junior employees it presents a notable challenge as they may be forced to spend their formative years without a chance to really build their networks.
- Change is likely to be lasting. The opportunity for alternative finance and tech focused providers is enormous and 2020 will accelerate this shift. For example, many retail banks are providing rather poor customer service, blaming the pandemic. Even the most loyal customers will be heading elsewhere. For recent graduates and current students this is a major shift; future winners and key employers may not be names we are used to seeing in the headlines.
- There will be a spotlight on leaders with visionary strategy and understanding of the operations. 2020 showed many politicians and business leaders behaving like they were playing a game of snakes and ladders, rather than executing a thought-out strategy. The next wave of thoughtful leadership is urgently required.
- Collaboration leads to success. The definition of a pandemic is an infectious disease prevalent worldwide. A global problem requires a collaborative solution rather than each country and industry on their own. Quoting Steven Riley, professor of infectious disease dynamics at Imperial College London: “Once you have the knowledge and you share the knowledge, then you are able to take measures to push transmission much lower”. This principle is transferable to management education. In a world more complex than ever, investing in a degree is hard currency. Combined with the full global alumni network, corporate partners and schools, CEMS is capital that doesn’t depreciate.
- Resilience has become a watch word. Saint-Exupéry’s quote resonates with me: “If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” We are in a new paradigm – so prepare for the next change. For COVID-19, while we hope that the vaccine will soon upon us, the broader long-term positive challenge remains.
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