By Mike Riley, Senior Director UK and Northern Europe, New Relic
With mobile banking, you can look after your financial affairs exactly when and where it suits you. Yet, the convenience of online services over traditional banking has been undermined by several system outages that lasted anything from a few hours to many days. And, the banks affected have not been small financial institutions but major banking brands like NatWest, Banco Sabadell’s UK arm TSB, Bank of America, and National Australia Bank.
The impact of these outages stems from how many more customers are choosing mobile and online banking over traditional ways of accessing their accounts. For example, the UK is well on course for mobile banking to eclipse branch banking with 71 percent of customers using mobile banking apps by 2024, while branch visits fall by 55 percent over the same period (Source: CACI 2019).
As mobile and online banking becomes the primary channel for personal money management, the burden is on banks to ensure their services are reliable and deliver a superior digital experience at all times with no interruptions.
When those systems do fail and lock out customers from their accounts the damage can be considerable. For example, the meltdown of the new IT systems at TSB cost the bank £330 million to fix (Source: TSB). There are also additional effects on a bank’s trustworthiness and brand reputation.
Political pressure for banks to do more to ensure these services remain online is growing in many countries. In October 2019, the hugely influential Parliamentary Committee of UK MPs, the House of Commons Treasury Select Committee, published a damning report on the failure of financial services firms to get to grips with the problem. The committee’s chair was especially cutting in his remarks saying: “The number of IT failures that have occurred in the financial services sector, including TSB, Visa and Barclays, and the harm caused to consumers is unacceptable … For too long, financial institutions issue hollow words after their systems have failed, which is of no help to customers left cashless and cut-off.” Similarly, Australia’s central bank has threatened to intervene if banks and payments providers don’t get on top of any glitches that plague their services.
Banks know they must improve their processes, but the reality is that these outages seem to spring up with little warning and can be difficult to rectify, making the challenges involved considerable.
Research, which we recently published, provided some insight into what is happening. Our global survey on how digital transformation has progressed across all industries also looked at the financial services sector. Of the hundred-plus IT professionals who said they work in financial services internationally, close to half (47 percent) said they agreed that their end users or customers tell them about a problem with their firm’s digital apps before the IT team knows about it. Almost the same number (46 percent) agree customers and end users tell them about a problem before the IT team knows how to fix it. And, of course, some customers will feel they should share their bad experiences on social media channels.
What is striking is that this is not happening because the teams aren’t putting in the effort to check how their banking systems are performing for customers. Indeed, more than half of respondents said they had to work longer hours to observe and manage software performance correctly.
Financial services firms must deliver the best possible digital experiences to win and retain customers especially when some of those bigger names who have had problems with their online banking are competing against digital app only challenger banks. So, it is unsurprising that four out of five banking IT professionals say the rest of their business has higher expectations in how digital systems perform.
So, what’s the solution?
When running any digital service, application for mobile banking or any other service, it is critical that there is a real-time visibility of what the customer is experiencing and full detection of any possible system vulnerabilities. There are some key strategies that banks need to have in place to prevent and minimise the effects of service outages or other performance problems, for example:
- Analyse mobile and online banking in real-time: Bankers must have real-time analytics dashboards fully set-up and tested. These should be able to measure user satisfaction and key metrics so that teams have full visibility into the user experience as it happens. Real-time dashboards should track and alert teams to changes in customer experience across all channels, including mobile, tablet, web, in-branch and on ATMs. This means that should there arise an issue with any part of the process, it can be dealt with straight away to avoid more serious knock-on effects.
- Monitor transactions from start to finish: Transactions can be subject to several errors threatening their completion. It is vital that banks consider synthetic monitoring that simulates the customer journey can also help IT teams understand the reasons for any faults ahead of the busy period, for example spikes in spending around Christmas.
- Continually test your mobile banking: Bankers can’t assume everything will keep working indefinitely, they must test, test and test again to make sure everything is working as it should. There are several testing options. Load testing can be used to simulate expected traffic volumes during peak periods to understand how systems will perform under pressure. Chaos engineering is another possibility – it’s a more advanced but increasingly popular test, which can improve complex technology architecture resilience. Don’t forget how the root causes of the TSB outage that affected 1.9 million people and lasted a month were how crucial testing wasn’t done.
Financial services firms are learning the lessons of these outages and making major strides to observe and understand digital customer experience more effectively. This is vital as these services increasingly rely on new technologies and practices like cloud, micro-services, containers, serverless, DevOps, site reliability engineering (SRE), and more. While modern software is designed to increase velocity and reduce the friction of getting software from code to production, they also introduce greater complexity that can make it hard to see what’s happening to the end user of the service.
For banking IT teams, true observability is critical because of how it pulls in actionable data from the entire technology stack, providing not only the when and where of an issue, but—more importantly—the why. The latter is a critical element that teams need if they are to respond quickly and resolve emergencies in modern software like those banking service outages that have shaken the industry so seriously in recent years.
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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