The banking and financial services industry has changed dramatically over the years. About half a century ago, consumers regularly walked into a bank branch to withdraw or transfer funds, seek information on financial products, or get their issues resolved. The evolution of ATM brought about the first transformation in the banking industry, making 24-hr financial transactions possible. The arrival of the internet led to further developments in the industry, opening up multiple channels of engagement between consumers and their banks. At the same time, the physical aspect of banking started losing ground, with banks such Santander slashing their branch network by almost a fifth!
According to data, customers are less likely to set foot in a branch, preferring to use their smartphone or computer instead. Santander reported a 23% decrease in branch transactions and a 99% increase in digital transactions over three years before deciding to cut down on physical branches and putting more focus on digital.
The Age of the ‘Amazon’
Big players like Amazon have made instant gratification the norm for customers, who expect the same level of service from all their service providers. Therefore, to remain competitive, the banking industry must rapidly embrace the latest technologies to create a frictionless, omnichannel experience for their customers. We are already experiencing one of the most useful customer communication tool, Chatbot.
Consider payments, one of the most basic applications of digital technology in the financial industry.
The transformation in this field was spearheaded by the evolution of physical instruments like credit cards and debit cards. However, physical cards are gradually losing favor, as most people have now moved on to mobile wallets and contactless payment options.
The ‘Data’ Game
According to the PwC Global FinTech Survey 2017, the financial industry is heavily investing in data analytics to meet the evolving needs of its customers. The Worldwide Semiannual Big Data and Analytics Spending Guide from International Data Corporation (IDC) indicates a CAGR of 13.2% in big data analytics revenue between 2018-2022. By 2022, IDC expects the worldwide BDA revenue to be $274.3 billion. According to the report, the banking industry is one of the largest investors in big data and analytics solutions.
It’s clear that the banking industry has recognized the importance of the customer data stored on its servers. And, it is willing to invest in technology to exploit this data for personalized marketing and strengthening the security of their systems.
Know Your Customers Better
The financial industry sits on a treasure trove of data collected across various touchpoints, both physical and digital, over the years. And, just like various other industries, banks can use this data to know their customers better.
Take the example of American Express; with a “database of over 100 million credit cards globally, that account for over $1 trillion in charge volume every year.” The banking giant decided to make use of this data and created a sophisticated predictive model to prevent customer churn. By analyzing historical transactions and 115 other variables to forecast potential churn, Amex can identify accounts that are most likely to close within the next few months and take preventive action to keep these customers from leaving.
Big Data is also useful for personalized marketing or targeting customers based on their buying habits. Here, banking and other financial firms can collect data from the social media profiles of their customers and use sentiment analysis to understand their financial capacity and requirements before marketing suitable products to them.
Big Data and Automation
According to McKinsey, up to one-third of all the work in banks can be automated through technology, leading to reduced costs and elimination of human error to a large extent. JP Morgan Chase & Co. have built a data-based automation platform, also known as COIN. Employing a powerful machine learning algorithm, powered by a private cloud network, JP Morgan is using this platform to review complicated documents. Reportedly, the platform only takes a few seconds to complete regular tasks that previously required about 360,000 hours of work, without any errors.
Various banks rely on big data and AI to identify fraud and prevent any potential scams. For example, banks can process large amounts of data to identify behavior patterns to reveal any potential risks among their own employees. They can also use data analytics to pinpoint fraudulent behavior and reduce the financial risks associated with digital transactions.
Immersive Technologies in Banking
Nowadays, customers no longer visit banks. They prefer to conduct most financial transactions from the comfort of their homes. However, certain situations demand expert help, or the customers may find it too tedious to fill out lengthy forms, such as claim forms, on their own. In such cases, advanced technologies such as co-browsing and screen sharing can help by enabling real-time connections.
Customers and agents can connect online through secure co-browsing sessions, where the agents can view the current resources of the customers while the customers can hide their confidential data like credit card details and other stuff.
But this is just the tip of the iceberg.
With 5G on its way, immersive technologies are becoming commonplace, and adoption of innovative technologies, such as augmented reality (AR) by the financial sector will lead to quick service and accuracy than ever before.
But the use of AR in banking is not new. Many banks and financial institutions have leveraged the power of augmented reality to curate new banking experiences for their clients.
In 2016, Mastercard partnered with Wearality to create an experience wherein users could buy golf clothes and accessories virtually, without doing anything in the real world!
In Oman, the National Bank of Oman offers an AR-enabled app to help its customers locate their nearest branch or ATM. The app also enables customers to uncover deals and offers as they walk around Oman, and uses their smartphone camera to combine real-life surroundings with an AR projection.
In India, Axis Bank launched the Near Me app, which enables users to search for nearby ATMs, finance-approved properties, and even dining offers in their areas!
But customers still want more.
As we already know, customers are no longer interested in visiting brick and mortar establishments for banking. Yet, branch banking is far from obsolete. According to research, “in areas featuring a branch, asset holdings are 2.5 times higher than unbranched areas.”
Yet, the majority of banks experience 90% of their interactions digitally. A logical step in the right direction could be the use of augmented reality and virtual reality to create virtual and hybrid branches for autonomous at-home banking.
Such technology will also be beneficial in offering high-quality services to clients in remote areas that lack qualified banking professionals.
Artificial Intelligence and Banking
Modern-day customers prefer to interact with their bank online or via mobile. However, most of these conversations are one-way. The customers are provided with a finite set of options that may or may not solve their problem.
So, if a customer wants to do something other than checking their balance or transferring funds or obtaining their transaction history, the chances are that he or she would have to contact the helpdesk for information. However, as contact centers are often overburdened, the customer may have to wait for a resolution. Often, call center agents may also transfer calls to other departments, leading to frustration in customers.
Enter AI, or more specifically, AI-enabled intelligent chatbots that communicate with customers through voice and text-based interfaces, enabling two-way digital communications.
In case you are wondering how an AI-enabled chatbot is different from a regular texting app, the answer lies in NLP that empowers a chatbot to comprehend natural language statements and respond to them intelligently.
Generally, chatbots in the financial sector can answer questions relating to the expenditure of certain items, the location of nearby ATMs or branches, enable instant transfers, suggest well-performing hedge funds, and even match customers with appropriate insurance products like the chatbot introduced by HDFC Life in India.
Take the example of Wells Fargo’s chatbot that uses AI to respond to natural language messages from users on Facebook Messenger. After registration, users can ask the chatbot questions such as how much they spent on food or travel the previous week, their most recent transactions, account balance, etc.
In addition to facilitating instant communication, chatbots save you money by enabling a high degree of automation in the customer services department. According to a study, 29% of customer service positions can be automated through chatbots, leading to $23 billion in savings for US businesses.
Chatbots can also be used to deliver pro-active suggestions to customers based on their transaction history or profile.
AI and Predictive Banking
Did you ever wish you owned a crystal ball that could give you a clear view of your finances?
With predictive banking, your wish may soon be granted.
Predictive banking is one of the most exciting trends in the financial industry. Today, banks finally have access to highly sophisticated technology to make use of the rich data in their coffers and give their customers tailored advice for the future.
With predictive analytics, banks can offer not only customer-specific financial advice but also make accurate customer risk assessments before approving loans and conduct behavior analysis to prevent frauds. Predictive analytics are also employed in the derivatives market to analyze the sentiments of different financial markets to make accurate predictions that help users make informed decisions.
Security Compliance in Digital Banking
Most banks are overhauling their traditional fraud detection systems with AI-based ones, as AI-enabled anomaly detection makes it easier and more cost-effective for banks to detect fraud.
In anomaly detection, the machine learning model is trained to sense the contents of banking transactions for standard patterns derived from historical data. Any deviations from this baseline behavior are notified to a human monitor who may accept or reject the alert. The behavior of the monitor further trains the model to understand whether the deviation was a fraud or an acceptable deviation.
Anomaly detection can also be used to analyze spending behavior, which allows the model to recognize any fraudulent shopping details. For example, a sizeable online transaction from a customer’s account that has a history of small purchases can be instantly recognized.
Banks may also employ predictive behavior analysis to identify potential threats amongst their own employees to prevent any scams or frauds.
In addition to payment frauds, banks are also privy to sensitive customer information or PII and must ensure data safety at any cost. Consequently, it is vital to employ secure e-forms for collecting user data that encode PII so that no other party can see the banking details. Developers can use differential privacy, which is “a mathematical approach that means AI models trained on user data can’t encode personally identifiable information.”
In the present times, every financial institution around the world is leveraging modern technologies such as cloud computing, data analytics, AI, machine learning, etc. to deliver customer-centric solutions. However, rapidly emerging technologies and evolving customer expectations mean that businesses in the banking and financial industry must continue innovating at break-neck speeds, lest they become obsolete.
In short, following trends is no longer going to work for financial institutions who wish to dominate the market. To truly capture the hearts and minds of their customers and secure their business, banks must tap into immersive technologies to create highly personalized customer experiences. They also need to make banking more convenient and intuitive by introducing two-way digital conversations and taking their services to customers’ homes through virtual and hybrid branches via augmented reality apps.
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- Financial performance impacted by the pandemic
- Expected credit loss (ECL) charges of £45.8 million recognised on loans and advances to customers
- Profit before tax (PBT) was impacted by the adverse effects of COVID-19 and the subsequent provisions set aside, reducing by 89% to £5.9 million
- Customer deposits rose by 25% to £7.6 billion while capital remained strong with a CET1 ratio of 12.3%
- A total of 15.9k payment holidays granted across the Group
- The specialist bank continued to operate effectively through COVID-19
- 98% of employees moved to remote working within days and no staff furloughed
- Successfully achieved accreditation under UK Government’s CBILS
- Continued investment in technology to digitalise the business
- Shawbrook “cautiously optimistic” as momentum begins to return to certain specialist sectors
Shawbrook Bank has today (Monday 10 August 2020) published its half year financial results for the period ending 30 June 2020.
The specialist bank confirmed it had set aside £45.8 million of provisions to provide for potential future loan impairments caused by COVID-19. The bank reported it had also granted a total of 15.9k payment holidays to support its customers through the pandemic, of which 10.8k remained in force at 30 July 2020.
As a result of such provisions, the bank’s profitability was impacted with a reduction in PBT by 89% to £5.9 million.
Despite the challenging market conditions, the bank retained its active position in the UK savings market, increasing its retail savings deposit base by 25% to £7.6 billion. During the period, Shawbrook also successfully completed a £75 million Tier 2 re-financing to further optimise its capital structure.
Ian Cowie, Shawbrook Bank’s Chief Executive Officer, said that COVID-19 has had a clear impact on the bank’s financial performance, but Shawbrook remained in a position of strength.
He commented: “Prior to COVID-19, the Group had continued to make good financial progress, starting 2020 with a strong balance sheet and prudently positioned capital and liquidity base.
“To further optimise the Group’s capital structure, during H1 2020 we initiated a Tier 2 refinancing and, despite the challenging market conditions, successfully completed the £75 million issuance in July.
“We have also maintained our active position in the UK savings market. However, the longer-term economic impacts of the pandemic remain hard to predict and as a result we have recognised expected credit loss charges in the period on loans and advances to customers of £45.8 million and on loan commitments of £1.5 million.
“While this has clearly had an impact on profitability, our capital strength positions us well to support our customers and grow our business in line with appetite as we enter the second half of the year.”
Throughout COVID-19, Shawbrook maintained full operational functionality, with no staff furloughed and 98% of employees transferred to remote working within days of the UK lockdown being announced.
The bank adopted a series of concession opportunities across its product range to help alleviate the financial impacts of COVID-19 on its customers. During this time, Shawbrook also successfully achieved accreditation to the UK Government’s Coronavirus Business Interruption Loan Scheme (CBILS) to provide further funding support to its SME clients.
Mr Cowie added: “Since the outbreak of COVID-19, our focus has remained on supporting our staff, customers and partners while at the same time safeguarding the long-term sustainability of our business.
“When the UK lockdown was announced in March 2020, we acted with speed and agility, moving to an almost entirely remote operation within days. Led by a stable and experienced management team and with the support of new and existing technology, we have continued to operate effectively throughout this period.”
Throughout the first half of the year, the bank also continued to identify investment opportunities to further digitalise its proposition, with a core focus on its SME offering.
Mr. Cowie added: “Notwithstanding the pandemic, we have continued to invest in our business to help drive our strategic ambition to become the UK’s Specialist SME Lender of Choice. As well as the ongoing deployment of targeted digital solutions across the Property, Consumer lending and Savings businesses, our investment in the development of a new growth platform in our Business Finance franchise will serve to further modernise our offering, delivering an enhanced customer journey as well as significant operational efficiencies.”
Looking to the future he continued: “Although significant uncertainties regarding the broader macroeconomic impact and pace of recovery remain, we are cautiously optimistic in our outlook as we start to see signs of momentum returning to certain of our specialist sectors.
“Our management expertise and prudent approach to credit decisioning, combined with investment in our digital propositions, means we are well positioned to adapt and respond to opportunities as they arise throughout the second half of the year.”
Better banking—everyday in everyway
By Bruno Pešec president at Pesec Global.
Some of the most innovative companies are also great at continuous and incremental improvement. I want to talk about three key points when it comes to succeeding with implementation of continuous improvement.
First is acknowledging that employee empowerment is at the heart of continuous improvement. The second is striving for total involvement by everybody, everywhere, everyday. Final, third point is that improvement is improvement. Cents turn into dollars.
Let’s expand on each.
Employee empowerment is at the heart of continuous improvement
In “Kaizen: The Key To Japan’s Competitive Success” Masaaki Imai divulges following as the core principles of continuous improvement:
- Process orientation. “Before results can be improved, processes must be improved, as opposed to result-orientation where outcomes are all that counts.”
- Improving and maintaining standards. “Lasting improvements can only be achieved if innovations are combined with an ongoing effort to maintain and improve standard performance levels.”
- People orientation. “Improvement is people-oriented and should involve everyone in the organization from top management to workers at the shop floor. Further more, it is based on a belief in people’s inherent desire for quality and worth, and management has to believe that it is going to “pay” in the long run.”
These principles are interlinked and interdependent. Without empowered people there can be no improvement. Micromanaging and overbearing bureaucracy stifle human creativity and desire to do better.
Due to the nature of my work I have residence in two countries, Croatia and Norway. Consequently, I have bank accounts in both as well. On one occasion I was had to make a bank transfer while in Croatia, and went to my local bank office to do so.
To my surprise they requested my debit card. I explained that I’ve forgotten it, but surely that shouldn’t be a problem as I’m here in person, have my national ID as well as passport, and cash required for transfer. The bank teller explained that he can ask branch manager to approve it, but it takes seven days.
Since the manager was right there, I asked why can’t we do it right now, since we are all here. “Sorry, such are the policy and procedures. I know it doesn’t make sense, but we must follow them.”
Banking is a highly regulated industry; fraud detection and anti-money laundering processes must be impeccable; but above is neither.
Everybody, everywhere, everyday
Bottom up is usually brought up when discussing implementations of continuous improvement. While it is true that those closest to work are most suitable to improve it, they often lack decision making power and budget to do so on a scale.
That’s why “everybody, everywhere, everyday” is a better mental model. No one is absolved of improvements. At any given moment there are at least hundred things you can improve right now, right here.
Think deeply about following:
- Everybody in the organisation should be aware and have an understanding of organization’s strategy and objectives. There’s shouldn’t be multiple interpretations, and it should be unambiguous. Without clarity improvement efforts are going to be scattered and without impact.
- No elitism, no absolution. Everybody should be actively committed to daily improvement, regardless of their rank or seniority. Leaders should be especially cognizant of leading by example. After all, how can they demand from others what they themselves are not doing. That’s hypocrisy at its finest.
- To improve is to learn, and to learn is to improve. Unlock even more value from your continuous improvement efforts by capturing the learning and sharing it broadly and deeply within the organisation. Ideas spawn ideas, perpetuating a virtuous cycle. Peer learning is also a powerful intrinsic driver.
Improvement is improvement
Director of one European bank invited me to their customer service centre, and we were to discuss how could they innovate better. After the meeting I asked him to take me on the walk around the office so I can observe the processes. He was more than happy to oblige.
The walls were plastered with wallpapers and dashboard, colourful metrics were displayed one the hanging screens, and there was a special area dedicated to the “Hall of fame.” Much to my delight there was a wall dedicated to the improvement ideas.
It was covered with large sticky notes, each with few sentences about the problem and potential solution. I picked a few at random, and noticed that they have dates written in bottom left corner. All of the dates were months ago.
Perplexed, I asked the nearby call operator to illuminate me. What’s going on? She fired her response like she was just waiting for someone to ask her that question:
“After each call we used to write down some improvement ideas. At the end of the week we collated and submitted them to the improvement department. They were constantly rejecting our proposals for either being too small or not innovative enough. After few weeks we stopped sharing and tried to implement what we can. That resulted in one of us being scolded for taking initiative without approval, so we just stopped altogether.”
Director was blushing, but hasn’t said anything. I thanked the operator for her honesty, and told the director that he should find time to fix this. By ignoring small, incremental improvements, they are effectively atrophying their organisational muscles. And not to mention all the savings that are left behind, lost forever. Cents turn into dollars.
I’ve talked about three key points in regards to the role of employee empowerment in the implementation of continuous improvement, and what you can do to use them well. Let me remind you that if you really want to engage in this, the first thing to do is take any of them and start today.
UBX appoints new Chief Investment Officer
In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate Venture Capital arm of Union Bank of the Philippines (UnionBank) — is announcing the appointment of Matthew Kolling as the company’s Chief Investment Officer (CIO).
As CIO, Kolling will be managing UBX’s Corporate Venture Capital (CVC) fund. He will also play a key role in raising capital for UBX while assisting the company in key corporate transactions, including the structuring of joint ventures and acquisitions.
Prior to his appointment at UBX, Kolling has been Head of Venture Investments at Aboitiz & Company since 2019, wherein he had been working with UBX on investment portfolio decisions. Before that, he held senior positions in Private Equity, Venture Capital, and Investment Banking at firms such as Providence Equity Partners and Morgan Stanley in New York.
Kolling has more than 20 years of experience in managing investments and deals in the Technology and Telecommunications industries and is active in Venture Capital and startup communities in the Philippines and the Southeast Asian region. He currently chairs the Manila Angel Investors Network, among others.
“We at UBX are excited to welcome Matt as our new CIO. We firmly believe that Matt will be instrumental in driving value creation opportunities, both within the CVC fund and our corporate ventures. We look forward to working with him as we fulfill UBX’s vision of a future where banking services are embedded into everyday experiences that matter,” said UBX president and CEO John Januszczak.
Meanwhile, UnionBank president and CEO Edwin Bautista said, “The addition of world-class talents in our pool reinforces our strategy to future-proof the organization and our business as we prepare for many new opportunities that come with the changing times.”
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