By Rob Haslingden, Head of Product Marketing & Propositions, Experian UK&I
Open Banking will transform how customers and banks interact with each other. It’s an exciting time that promises to shake up the way the industry operates for the ultimate good of all parties – if everyone can make a success of the changes ahead.
Indeed, the introduction of the Current Account Switching Service (CASS) in 2013 has already made the process of switching accounts much easier for customers, but one in four still aren’t aware of this service, so work still has to be done to convince customers of the merits of switching provider where they could receive better service.
The Competition and Market Authority (CMA) wants everyone to be aware of the opportunity to switch – and the ease of doing so. Open Banking will allow price comparison sites to compare the benefits of different current accounts for customers so they can make more informed choices as to who they should bank with.
Under the Payments Service Directive (PSD2), organisations who make payments will be seeking permission from the customer to access their banking details to process a payment on their behalf. PSD2 allows for the creation of Account Information Service Providers (AISP).
Organisations that issue payments can – with the consent of a customer – access all of their accounts across multiple banks to provide a consolidated view of their income and expenditure. PSD2 will accelerate the pace of change and increase competition by allowing more organisations to provide services such as payment initiation that previously had been limited to a few.
The UK is seen as one of the world’s leading Fintech centres and this has already made an impact on the provision of financial services by capitalising on the customer’s desire for simple, personal, digitally-driven services. New technology is seen as a catalyst for change in Open Banking because of its ability to bring new and innovative products to market quickly and cost effectively.
Open Banking and the provision of transactional data is seen as an enabler for these services predicated on the analysis of transactional data to offer of real-time, personalised services to customers.
Whilst the real impact of Open Banking is still to be seen, McKinsey estimates that between 10 to 40% of banking revenues (depending on the business) could be at risk from Fintech by 2025. Data sharing will fuel this risk.
So for those organisations still looking to make sense of the new environment, here are six opportunities to improve the business and make Open Banking opportunities work for them.
Acquire new customers
Many organisations are seeing Open Banking as an opportunity to acquire customers. The acquisition strategy is being managed through the use of new digital based services that are efficient, simple and intuitive. This, accompanied by access to more detailed information on a customer’s financial circumstances, can be used to drive acquisition programmes.
Better insights based on more detailed behavioural data enables providers to segment and prioritise customers based on their risk, lifetime value or growth potential. Providers need to think about how they can engage with customers that match their risk profile to intelligently acquire using this improved insight.
Become more relevant
Many financial services barely differentiate themselves in the eyes of the customer. Failure to differentiate of course reduces the relevance of these services to customers. Product features and pricing are frequently viewed as complex and confusing, and any advice given as biased.
Many banks have relied on quite limited data such as demographics and product preferences in order to tailor their services to individuals. Access to transactional data provides an opportunity to take a fresh look at customer behaviour in order to deepen the understanding of an individual’s financial status and tailor services to create a greater level of personalisation. Linking transactional data with information from other data partners, or using transactional analysis to provide offers and discounts to customers based on their purchasing habits, offers the opportunity to add value and improve the relevance to an individual’s everyday life.
The days of banking being dominated by personal interactions are diminishing. Customers visited a branch 427m times in 2015, compared to 895m logins via a mobile banking app. Face-to-face contact is forecasted to drop to 268m by 2020, while mobile usage is on track to double to 2.3bn. However, it is also worth remembering that more than 20 million customers don’t bank online at all.
Whilst digital is on the rise and will dominate financial services, some customers still want face-to-face contact, particularly when seeking advice. Digital channels and face-to-face contact need to complement each other. Service providers need to use the insight derived from Open Banking to provide a consistent service that allows customers to transfer the data regardless of channel. That’s without the pain of re-identifying and jumping through transfers to new teams that mark the experience of many customers moving from team to team when contacting their banking provider.
The provision of credit has to-date been based on historical data provided by customers or sourced from third parties such as Credit Reference Agencies. Open Banking provides the opportunity to access more detailed information – with the customers consent – on current, as well as historical income and expenditure. This can be combined with credit information to provide a more complete picture of a customer’s financial status. Data can be provided in real-time so that lenders can make accurate decisions on the eligibility of the customer immediately and qualify their suitability for a product.
Lenders can limit their exposure and manage their risk profile whilst improving the speed of their decision making and quality of the customer experience. The outcome is that people will get access to credit based on a better understanding of their ability to repay the loan. Ultimately, this is better for all parties.
The average total debt per household, including mortgages, at the end of October 2016 was £55,855. Outstanding credit lending was £190.13 billion and 264 people a day are currently declared insolvent or bankrupt. This is equivalent to one person every 5 minutes and 28 seconds.
Open Banking provides an opportunity to address some of the challenges associated with debt by giving lenders access to data that provides a better understanding of an individual’s financial status, throughout the life of their loan. Lenders can demonstrate their commitment to behave responsibly and work collaboratively with individuals to manage their finances, and therefore avoid the risk of them falling into arrears. In so doing the burden of customer debt can be reduced, massively supporting customers’ financial health, and avoiding the risks of non-repayment to the organisation.
Deliver better customer experiences
The ready adoption of new and more convenient technology has accelerated the speed of a banking transformation that many customers now perceive as the benchmark for a great customer experience – even if it isn’t. The revolution in the adoption of smart technology and mobile banking has become an integral part of people’s everyday lives.
Open Banking will change the way organisations and customers engage with each other. Customers are expecting outstanding service quality, easy to use products, 24/7 availability, transparent pricing and personalisation – all giving a consistent experience. Most importantly of all, customers want organisations to help them extract value from their data and improve their lives. Simply put, organisations that can deliver an exceptional customer experience are those that are most likely to benefit from Open Banking.
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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