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Innovating in the Open Banking Future

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Innovating in the Open Banking Future

By David Murphy, Senior Vice President and EMEA and APAC Banking & Insurance Lead, Publicis.Sapient

The arrival of open banking will lead to the creation of entirely new services and major enhancements to existing services.

The question for banks is whether and how they will play a significant part in a future driven by open data. It represents a challenge for banks, which do not have a strong track record of using data to generate innovative customer propositions, as opposed to improving internal processes such as fraud detection and credit risk management.

It is in that iterative stage of banking that we find ourselves today. For banks, combining data through APIs will allow them to improve customer experience for processes such as account opening, AML checks and product application processes, where personal information can be pre-populated and information verified from official sources.

Where open banking starts to get interesting is looking beyond ‘banking’ to where non-banks begins to play. Once payments services providers have access to transaction data, they will be able to anticipate when customers are likely to need a short-term line of credit and offer their service as an alternative.

As a consumer, I can agree to share my personal or business current account transactions, and for that there may be a limited value exchange. If I share that data I might get, for example, a limited personal finance aggregation service. In time, I might share the mortgage data, or my savings data, or my loans data, which will be opened up for sharing under PSD2 next year.

In Australia, they have chosen to go further and add telco and energy data as well. In the future, I might be able and willing to plug in my insurance data, my health and pensions data, my retail transactional data and more.

The more I choose to share, the more I’m enabling highly personalised services. Moreover, if I choose to share a wide range of personal data, the more predictive and pre-emptive these services can become, and the greater the potential for me to make smarter decisions – or to have these smarter decisions suggested to me, without me having to work them out.

It starts, and ends, with data

When data is the basis for every new service, banks now find themselves in competition with a slew of new providers. The GAFA (Google, Apple, Facebook, and Amazon) have an advantage, as they assemble and analyse data, at scale, as a matter of course. With data at their heart, they are getting ever smarter by building ever-deeper layers of data, allowing them to make behavioural inferences to build more predictive, pre-emptive and personalised services.

For example, you can already use Amazon Balance, a facility the user can top up on and offline; AmazonPay to pay for services; and, if you’re a Prime customer, for every purchase via the facility you get 2% cashback. With Amazon Pay Places, customers can pay for in-store and order-ahead shopping experiences using their Amazon app rather than with a card, cash (even cheques).Amazon also has the scale to disrupt, with more than 100 million paying subscribers to Amazon Prime – or roughly 2.5 times the customer base of HSBC.

Banks hold plenty of data but, over time,its quality is eroding.Check your own bank statement. If it shows entry after entry forApplePay, Samsung Pay, PayPal transactions or consists of some direct debits and a monthly payment to Amex, Visa or MasterCard, your bank should be worried. It is losing visibility of what its customers are doing. Once someone else has created a layer of service that sits on top of the banking utility and doesn’t feed valuable customer data back into the bank, the bank’s own data becomes generic and its value starts to degrade.

How can it then create value from that data? Who owns the truly valuable data and therefore has the right to monetise it? How can the bank feed its fraud detection and credit algorithms properly without detailed, high-quality information?

Creating partnerships of mutual advantage

In an open-data market that banking is becoming, the ability to form the most effective partnerships is a vital skill and a new source of competitive advantage. It will require banks to augment their data sources, expand their analytics capabilities and listen to what the data is telling them.

Banks that choose to engage fully in the new market based on open data will need to focus on the element of their environment that they can control: which organisations they choose to collaborate with to create new services based on pooled data. These will be partnerships of mutual advantage, with the potential to create new sources of profit for both parties that will be shared between them. Banks cannot expect to generate all the business ideas themselves that combining data sources will make possible. Success will come from the ability to collaborate most effectively and be open to ideas from outside.

There is a huge opportunity for incumbent banks to look for ways to use the data they hold to bring benefits to their customers. Assembling richer pools of data from multiple sources will give banks more angles from which to view their customers and more ways to understand them than they could gain from purely transactional information. They could profile and segment their customers more precisely and look for behavioural patterns to refine predictive models. The insights they gain will power new services and improve existing ones within their own defined and managed ecosystem.

As we move away from the mass-market product-push towards services and experiences embedded in our everyday lives, open data has the potential to disrupt financial services.It is a future where individual consumers sit at the centre of their personal worlds and access the services that fit best into their lives thanks to the data about themselves that they choose to share with the brands that they trust.

Conclusion

Banks attempting to alter their approach will find that the challenge cuts right across their business: from how their brand resonates, to how they talk and listen to customers and collaborators; to how they design and deliver services; to how the source, store and analyse data.

Those that succeed will do so by innovating around the data, and associated technologies, as the foundation to build new, hyper-personalised services.They will need to become proactive data seekers that form high-value partnerships with outside organisations, whether it is telcos, energy providers, airlines, retailers or any number of others.

In the open data era that is beginning, banks will gain competitive advantage by collaborating more effectively with other organisations – large and small – to understand and release the value of the informationthey hold on their customers. That requires a different mentality: one that sees open data not just as a regulatory obligation, but also as an opportunity to learn and create new sources of value.

Banking

Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild

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Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild 1
  • 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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Banking

Do we really need banks? Yes, but digital transformation industry-wide is vital

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Do we really need banks? Yes, but digital transformation industry-wide is vital 2

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.

Changing mindset

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.

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Banking

How open banking can drive innovation and growth in a post-COVID world

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How open banking can drive innovation and growth in a post-COVID world 3

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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