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In 2020 Traditional Banks Will Reclaim The Upper Hand

In 2020 Traditional Banks Will Reclaim The Upper Hand

By Steve Morgan, Industry Lead for Financial Services EMEA, Pegasystems 

This year, we’ve seen pressures mounting on the traditional banks: challengers have continued to creep in on their territory and the last effects of PPI and changing regulation has been an ongoing headache. On the other hand,the benefits of the latest AI technologies have been felt in myriad ways, and Open Banking has created a variety of new partnerships, to the benefit of both banks and consumers. We’ve come a long way over the last 12 months, so what can we expect to see in the sector as we head into 2020?

Bank branches get immersive

The growth of mobile banking is undeniable. A knock-on impact is the evolution of bank branches into education and financial advisory hubs. Yet, with limited staff, how will banks be able to guarantee that the required expertise to deliver these more complicated services will be available for the customer at their request? Consumers are used to banking on their schedule, so they won’t stand in line and wait anymore. As a result, financial institutions will seek to invest in technology that can facilitate this service offering virtually. For example, customers will be able to seamlessly book appointments online or have conversations via video conferencing facilities with the most appropriate member on staff, at a time convenient for them. Those banks that can do this well, should use this to their competitive advantage.

Micro advisory-focused branches become the norm

Which? recently reported that around a third of the UK’s bank branches have shut within the past five years alone, and the rate at which they are closing will not slow down. The banks that remain will start to concentrate on offering services that necessitate a face-to-face advisory service, mainly those associated with investment and lending advice. Consequently, throughout our cities we are likely to see a proliferation of specialised micro-branches. Included within these branches will be areas where customers can be educated on the latest offers and how best to use online banking tools etc. In addition, there will be private zones for advisory services and less frequently stations where declining volumes of basic transactions can be carried out.

Challengers find it hard to maintain market share

Simplicity is often cited as a USP for new challenger banks. But the unfortunate side effect is that their spread of financial products is somewhat restricted. While many have been able to build up their customer base using clever marketing campaigns, cool apps and excellent customer service, when it comes to retaining them, how can they keep these customers engaged while simultaneously maintaining their pipeline of new customers? In order to maintain their disruption, they will concentrate on refining customer experience and defining their USPs of the future, at the same time as broadening their assortment of products to drive growth of revenues.A significant barrier will be their limited balance sheet. Before they can offer shiny new products, they will need to build up their capital in order to have the ability to sell investment and lending services.

Restructure to thrive

To continue on their digital transformation journeys, banks are moving more of their infrastructure to the cloud and undertaking re-platforming projects. Furthermore, high customer expectations and burgeoning regulatory requirements are forcing them to consider in more detail their strategy for the best way to operate in the world of Open Banking. Over the next twelve months, banks will focus on being fully set up for three key technology areas: product, pricing and data. The effect of this will not be technological alone but will also inspire the restructuring of the business, as banks attempt to minimise organisational silos and establish how technology can be applied to facilitate new business opportunities as well as industry pressures.

So long to overseas operating centres

In the last 15 to 20 years, outsourcing has been viewed as a key lever to reduce your cost base. This was traditionally achieved by a combination of off or near shore cost savings and improved management and technology application. However, AI and machine learning have since arrived on the scene and banks are realising the power that these technologies bring. Often outsourcing would come first and the process and tech automation second. This should now flip for most banks. The result should be fewer customer operations staff and the ability to keep them closer to the customer. Some have already done this and even bringing operations back near or onshore. The benefits are multi-faceted: the elimination of friction effort and cost produced by management/colleague distance and time zone differences being a primary one. In 2020, enhanced AI, automation and next best actions will result in the further consolidation of customer operation centres worldwide.

Retail and commercial banks are grabbing the technology bull by the horns and making the most of the benefits that technologies such as AI have to offer. But we are only at the tip of the iceberg in terms of its true capabilities. At the same time, banks are heading into another difficult year, and part of their success will hinge on how investment in technology is made.As consumers and companies continue to move the vast majority of their banking activity online, it will be interesting to see which financial institutions can keep up with these preferences, and if challengers will continue to make an even bigger dent in the customer base of the traditional banks. If traditional players can get their restructuring right and improve their customer experience, then they shouldn’t have to worry about the competition snapping at their heels.

Banking

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card

What does the future hold for accessing earnings? Introducing the world’s first Earnings on Demand payment and debit card 1

By James Herbert, CEO & founder, Hastee

Let’s begin by looking at how our brains are wired. Think about the hunter-gatherer mindset: when we expend effort, we expect an immediate reward.

It’s therefore no surprise that over time, different areas in society have adapted to our nature as humans. Almost everything we want, we can get on-demand. Whether it’s instantly streaming movies on Netflix, online shopping from Amazon, or fast-food delivery from the likes of Just Eat. And, because of such technological innovations our expectations have accelerated when it comes to the pace of delivery. This isn’t individual to us as consumers in our day-to-day lives, it’s also reflected in the workplace. We ultimately want work to work for us.

Part of this of course comes down to accessing wages. Workers should be able to access a portion of their earned wages whenever they need it, in advance of the monthly pay cycle – whether to help during challenging times or in day-to-day life. We solved this solutionBut, to take this up a level, ready for the future, we introduced the world’s first Earnings on Demand contactless debit card, powered by Visa – giving users access to their accrued earnings in real-time, with the card’s balance dynamically increasing every day they work.

So what is the card, and how will it change how we access earnings in the future?

The basis is very much the concept of Earnings on Demand. At university I set up a company called Brightsparks to connect students with work opportunities so they could earn money. Yet I noticed a common trend. With students often having to wait for the monthly pay cycle to get their earnings, many were having to turn down work simply because they couldn’t afford the travel day-by-day. It became very apparent that not having £20 today could stop them earning £200 tomorrow.

It struck me that payday itself doesn’t have to be a rigid construct that people have to wait for. But this isn’t specific to students. Liquidity is a widespread issue faced by people in all industries and of all ages, and according to our most recent Workplace Wellbeing Study, 82 per cent of people turn to high-cost methods of financing to tide them over when needed.

The Hastee Card effectively makes wages directly accessible: it simply lets people spend a portion of  what they’ve already earned.

Some people might wonder why they’d want to step away from the standard monthly pay cycle. But consider this: the monthly payroll (via a cheque) only came about in the 1960s as an Act of Parliament. Before this, most people were paid weekly in cash. The first major firm that shifted to monthly payments did it for cost-cutting. It worked for the employer more than the employee. In fact, that firm’s employees had rejected their employer’s change of payment type when it was first trialled a decade before (look up ‘Pye Radio’). So the way that workers and organisations interact around pay is not set in stone – it changes as technology and society shifts.

The way we perceive and use money keeps evolving. Apple Pay, Monzo, and PayPal have completely changed the way payments can happen, yet payroll still remains largely unchanged. It’s only a matter of time before disruption becomes more widespread.

Looking at it from the employer side, it has its benefits too. Before the climate changed, businesses were accommodating enhanced workplace benefits such as no-desk policies, flexible or remote working. In all cases by businesses offering more, they tend to see a more engaged, happier and less financially stressed workforce – leading to increased productivity.

Earnings on Demand is ultimately a perk that presents an ethical alternative to high-cost credit options such as payday loans, credit cards and overdrafts. And existing solutions offer zero impact on payroll processes, zero impact on the cashflow of the business and are designed for quick, simple integration.

The Hastee Card is an evolution of this all – preparing for the future. It builds upon and enhances the user experience by reducing friction and offering immediate spending power as well as a path to greater benefits such as cashback and rewards in the not-to-distant future.

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Banking

Going branchless: How banks can keep customers coming through the virtual doors 

Going branchless: How banks can keep customers coming through the virtual doors  2

By Richard Kelsey, Head of Software Sales at Backbase

Though you might be familiar with the popular seaside town of Newquay, you may not be familiar with its historic financial district aptly named, Bank Street. Dozens of banks and building societies have dominated this area since the late 1800s. However, the street hit the headlines recently as, 120 years after the first bank opened its doors, the last bank closed them.

This is not new. Bank closures have been part of the news agenda for years, and now, COVID-19 has further accelerated the physical turning into the digital. Across the globe, banks have had to close or limit the operating hours of their in-person locations, forcing banks to digitise at speed. Keeping the pipeline of digital sales flowing for new clients, increasing digital product origination and facilitating those cross-sell journeys to customers is key to survival.

Digital take up

Delivering seamless digital customer journeys was already a fast-growing priority for banking and wealth management organizations pre-pandemic. Research shows that 38% of customers stated UX as the most important factor when choosing a digital bank. In response, banks have been investing in digital technology and collaborating with third-party providers as they strive to offer a superior customer experience and stay competitive. But the global lockdowns – which have restricted people to banking digitally – have turbocharged these trends. Growing demand for digital onboarding, and digitized services to support the ongoing customer journey, must be matched by effective capabilities though.

Plugging the leaks

Conversion leakage is a particular problem during the digital client acquisition process. With branches shuttered during the coronavirus lockdowns, and subsequent openings and customer footfall likely to be severely limited for the foreseeable future, this leakage presents a major, and costly, challenge as institutions seek to convert digital sales and boost their return on investment.

The key is understanding why leakage happens in the first place and time and time again, there are three main trends that cause the most problems:

  1. Switching from a customer’s current provider is too difficult (for example, in transferring bill payments and direct debits).
  2. The digital process is too cumbersome (particularly where existing offline processes are simply put online).
  3. Customers lack human touchpoints and advice when they need it (especially for more complex products).

Combating these levels of leakage requires firms to take an outside-in approach, to see the process from the customer’s perspective. From this viewpoint, they can design a more customer-friendly experience that streamlines the job at hand.

One way to simplify the acquisition journey is to incorporate human/AI advisor interventions at points of friction, where customers may become stuck. Another is to adopt retargeting strategies that address customers who abandon the application process partway – for example, by storing their details in a CRM system and sending them notifications to complete the application, or referring them to an outbound call centre employee who can pick up the process by phone. Such approaches can boost completion rates by 40%, delivering substantial benefits to the bank.

Stronger digital growth

Banks’ return on tangible equity has plateaued globally at approximately 10.5% over the past decade, and the lower-for-longer interest rate environment will add to the pressure. Addressing cost-income ratios has become a matter of urgency.

Firms now face a strategic inflection point. Continuing with old business-as-usual practices will leave institutions struggling to attract new (especially younger) clients, while grappling with an exodus of existing customers and an overburdened cost base. But by digitising processes to enhance the client experience, banks and other financial institutions can increase their revenues and reduce costs, and have a loyal customer base who don’t feel the impact of the branchless bank.

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Banking

Shawbrook Bank “cautiously optimistic” as it Publishes Half Year Report for 2020

Shawbrook Bank “cautiously optimistic” as it Publishes Half Year Report for 2020 3
  • 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.”

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