By Brian Smith, Senior Director of Product and Innovation at DST Systems now part SS&C Technologies
Improving compliance, efficiency and customer satisfaction with a single solution
The UK is one of the world’s dominant financial services markets, and much of the sector’s strength comes from broad consumer participation. According to the Financial Conduct Authority’s 2018 Sector View, UK retail banks hold some 73 million personal accounts. Wealth managers and brokers oversee around £824 billion (US$1 trillion) in client assets under management, and consumers have invested £548 billion (US$706 billion) via investment platforms. Holdings in workplace and personal pension plans combined total £570 billion (US$734 billion).[i]
Yet in many respects, the financial sector is surprisingly inefficient and customer-unfriendly. One glaring example of the barriers to doing business with financial providers is the lack of a simple, universal identification system. In the US, the Social Security Administration functions as a de facto national identity registry, issuing individual ID numbers that enable authorized entities to obtain financial background information on customers. Other European countries have successfully implemented single sign-on solutions such as Norway’s BankID, which provides 3.9 million customers with access to every Norwegian bank, certain public agencies and a growing number of commercial enterprises.
The UK has no such system. Financial institutions rely on a cumbersome process of documenting applicants’ payment and credit histories and account relationships. This makes it difficult to perform required anti-money laundering (AML) and know-your-customer (KYC) due diligence, as well as to onboard new customers efficiently and deliver targeted services. From the customer’s perspective, it adds a layer of friction in trying to access banking and investment services, making it difficult to open accounts or transfer funds among institutions. While most consumers are managing their financial affairs online, they have to maintain multiple logins and passwords across numerous digital services, which is not only inefficient but also poses security risks. When consumers use the same credentials across several accounts, one breach can give data thieves access to all their business.
Building Digital Trust
The FCA is keen on consumer protection, fairness, disclosure and transparency, and advocates access to financial services with the fewest possible impediments. It is up to the industry, however, to take the lead in improving the customer experience and driving greater satisfaction. Above all, for a universal identity system to be successful, the industry needs to build digital trust – a major challenge with a populace that is famously skeptical of institutional intentions and hesitant to surrender personal data. Consumers will need to be convinced that the industry has their best interests at heart, and that a universal ID system, independent of government control, would be a step toward financial empowerment. To accomplish all that while simultaneously improving operational efficiency and reducing servicing costs would be a win-win for the industry and its customers alike.
Taking the Lead
Having built and managed customer experiences for UK asset managers over the last 15 years, our team has gained deep insight into the online interactions between consumers and their financial services providers.Accordingly, we have joined the Tax Incentivised Savings Association (TISA) and leading UK financial institutions to advance an initiative to develop a strong, trusted digital identity capability for the commercial sector. With a leadership role on TISA’s Digital Innovation Policy Council, we are helping to shape the trust framework and technology solution that will make this vision a reality.
Initially for use among banks and asset managers, the envisioned digital ID would enable consumers to access a variety of services easily and securely across multiple institutions and government agencies.It would also enable financial services providers to help customers more efficiently and proactively, delivering relevant information and suitable products. The long-term vision is a universal ID system with full interoperability for all UK financial services.
Importantly, this is an industry initiative and not the result of regulatory pressure. Financial services providers and their technology partners have recognized the need to reduce inefficiencies and make it easier for consumers to do business with the financial sector. It is simply, on many levels, the right thing to do.
Advantages of a Digital ID
Financial institutions and their customers stand to benefit from a digital ID system in several ways. “Customers expect seamless, omni-channel service delivery and will migrate to services that offer the best customer experience,” notes Harry Weber-Brown, Digital Innovation Director at TISA. “A federated digital identity allows customers to access a broad range of services with a single sign-on and enables them to control the release of their personal data.” Among the benefits he cites:
Improved customer relations: A digital ID will enable organizations to strengthen customer relationships by delivering a range of interconnected online services that help consumers to better manage their financial lives. The financial sector will be positioned to become the trusted identity provider, offering a single ID that can eventually be used across borders and a range of sectors, including public agencies, education, health care and travel.
Potential for new products and revenues: The system will create opportunities for institutions to broaden their services and generate new revenue streams through the development of products specifically to leverage digital ID.
Increased operational efficiency: Institutions stand to reap substantial efficiency gains. “A digital ID system is an opportunity to streamline current processes and increase automation, while reducing account opening abandonment, human error and human intervention,” Mr. Weber-Brown points out. It will “streamline and improve onboarding and compliance processes through access to a reliable and consolidated digital view of the user’s identity and attributes.”
Cost savings:The digital ID will reduce customer onboarding costs and new business processing costs related to AML-KYC reviews and the processing of account transfers. It can also lower institutions’ IT costs through industry-wide standards for customer ID systems.
Improved security and reduced risks: The current paper-based information collection process is extremely vulnerable to exploitation by malicious actors. The envisioned system has the potential to reduce risk of fraud and identity theft, along with the resulting liabilities for financial institutions. It will improve the industry’s risk assessment capabilities by creating more holistic and accurate customer risk profiles to enable more effective monitoring for suspicious transactions and to inform credit‐ and risk‐based product decisions.
Regulatory compliance: The digital ID system will meet consumer protection and due diligence provisions of multiple regulatory regimes governing UK financial services, including GDPR, Open Banking, PSD2 and AML4. The digital Identity capability will be designed for compliance with relevant control and governance regulations that may arise in the future.
The Consumer Experience
For consumers, the process of obtaining a universal digital ID will be similar to signing up for a social platform or setting up online access with a single institution. They will have the option to register through an institution with whom they have an existing account relationship and established online credentials, in which case their data is transferred directly to their new digital ID. Conversely, they can register directly with the ID service by creating a user name and password, building a profile, verifying their identity with a current account, and answering a few questions about their financial history.
Once the digital credentials and customer profile are established, the information can be re-used any time the customer wishes to open a new account, transfer funds or access financial services.
One of the big challenges in implementing such a system is creating awareness, winning consumer trust and driving adoption, which is a key focus of the initiative. TISA has strong ties with the FCA, government agencies and UK banks, and is actively working with them to accelerate industry buy-in and consumer education.
The rollout is taking place two phases. For Phase 1our team in the UK built a prototype user experience for the digital ID sign-up and sign-in processes. Pilot testing with consumers is already underway. Based on learnings from the testing, Phase 2, the full, general-availability rollout, is planned for 2019.
Better for All
The concept of a single digital ID promises economic benefits for the financial sector while serving the social good by enabling easier access to financial services and broader participation in the financial system. We are fully committed to advancing this type of innovation, which helps our clients improve their processes, increase efficiencies and reduce operating costs. It will take a coordinated effort between the industry and the regulators, but consumer acceptance will be the critical factor in the initiative’s ultimate success. The key will be delivering a trusted and genuinely seamless solution, backed by wide industry support and consumer communication, to make this vision a reality.
Bank of England’s Haldane says inflation “tiger” is prowling
By Andy Bruce and David Milliken
LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, potentially requiring the BoE to take action.
In a clear break from other members of the Monetary Policy Committee (MPC) who are more relaxed about the outlook for consumer prices, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.
“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online. “But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”
Haldane’s comments prompted British government bond prices to fall to their lowest level in almost a year and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation or BoE rates.
“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.
He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures.
Haldane also cited a glut of savings built by businesses and households during the pandemic that could be unleashed in the form of higher spending, as well as the government’s extensive fiscal response to the pandemic and other factors.
Disinflationary forces could return if risks from COVID-19 or other sources proved more persistent than expected, he said.
But in Haldane’s judgement, inflation risked overshooting the BoE’s 2% target for a sustained period – in contrast to its official forecasts published early this month that showed only a very small overshoot in 2022 and early 2023.
Haldane’s comments put him at the most hawkish end among the nine members of the MPC.
Deputy Governor Dave Ramsden on Friday said risks to UK inflation were broadly balanced.
“I see inflation expectations – whatever measure you look at – well anchored,” Ramsden said following a speech given online, echoing comments from fellow deputy governor Ben Broadbent on Wednesday.
(Editing by Larry King and John Stonestreet)
Bitcoin slumps 6%, heads for worst week since March
By Ritvik Carvalho
LONDON (Reuters) – Bitcoin fell over 6% on Friday to its lowest in two weeks as a rout in global bond markets sent yields flying and sparked a sell-off in riskier assets.
The world’s biggest cryptocurrency slumped as low as $44,451 before recovering most of its losses. It was last trading down 1.2% at $46,525, on course for a drop of almost 20% this week, which would be its heaviest weekly loss since March last year.
The sell-off echoed that in equity markets, where European stocks tumbled as much as 1.5%, with concerns over lofty valuations also hammering demand. Asian stocks fell by the most in nine months.
“When flight to safety mode is on, it is the riskier investments that get pulled first,” Denis Vinokourov of London-based cryptocurrency exchange BeQuant wrote in a note.
Bitcoin has risen about 60% from the start of the year, hitting an all-time high of $58,354 this month as mainstream companies such as Tesla Inc and Mastercard Inc embraced cryptocurrencies.
Its stunning gains in recent months have led to concerns from investment banks over sky-high valuations and calls from governments and financial regulators for tighter regulation.
(Reporting by Ritvik Carvalho; additional reporting by Tom Wilson; editing by Dhara Ranasinghe, Karin Strohecker, William Maclean)
Britain sets out blueprint to keep fintech ‘crown’ after Brexit
By Huw Jones
LONDON (Reuters) – Brexit, COVID-19 and overseas competition are challenging fintech’s future, and Britain should act to stay competitive for the sector, a government-backed review said on Friday.
Britain’s departure from the European Union has cut the sector’s access to the world’s biggest single market, making the UK less attractive for fintechs wanting to expand cross-border.
The review headed by Ron Kalifa, former CEO of payments fintech Worldpay, sets out a “strategy and delivery model” that includes a new billion pound start-up fund and fast-tracking work visas for hiring the best talent globally.
“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.
Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.
“This review will make an important contribution to our plan to retain the UK’s fintech crown,” finance minister Rishi Sunak said, adding the government will respond in due course.
The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance all mean the sector’s future in Britain is not assured.
Britain increasingly needs to represent itself as a strong fintech scale-up destination as well as one for start-ups, it added.
The review recommends more flexible listing rules for fintechs to catch up with New York.
“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.
The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).
“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.
Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.
“It’s a question of knowing who to call when there’s a problem,” Swinburne said.
($1 = 0.7064 pounds)
(Reporting by Huw Jones; editing by Hugh Lawson and Jason Neely)
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