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Banking

ARE CHALLENGER BANKS REALLY UP TO THE CHALLENGE?

CHALLENGER BANKS

Neil Murphy, Global VP, ABBYY

 

We know that traditional banks are behind the times when it comes to customer experience – that’s news to no one. Customers are flocking to digital-first challenger banks, and bricks and mortar banks are scrambling to play catch up. But with Accenture finding that customer sign-ups to digital banks fell slightly in the second half of 2019, all is not won for the challengers yet. They need to keep customer experience at their core.

That said, six million new customers globally in the second half of 2019 is no mean feat. Engaging and onboarding all these new customers is a challenge in itself but doing this while keeping existing customers happy could cause a huge headache. No matter how hi-tech the front end is, if they haven’t got the back-end processes in order, neo-banks could crumble under the pressure.

Identifying bottlenecks, finding insights from customer data, ensuring customer service agents follow set processes, preventing inefficiencies from impacting customer experience… the pressure is on. Without AI and intelligent automation tools to help banks get hold of their processes, customers could be left in queues, struggle to get new cards or new account details, or be unable to onboard at all. All the reasons they came to a challenger in the first place could be left in the dust. So how can technology ensure this doesn’t happen?

 

The balancing act

Today’s consumers live fast-paced lives and the services they use reflect this. They want technology that provides them with a digital experience that makes their lives easier – helping to make decisions faster and achieve more from the day.

CHALLENGER BANKS

Neil Murphy

Challenger banks are in a great position to deliver on this. Through disruptive tech-savvy solutions, challenger banks have been able to capture the opportunity to deliver value-adding financial services and onboard new consumers. It is important banks take customer onboarding seriously. This is the first chance for them to establish a good relationship with customers. Moreover, onboarding is not just an opportunity for challenger banks to showcase themselves as the alternative option or to deliver good customer experience – but also to gain insights for future opportunities and services.

To win new customers and keep existing ones, banks need to focus on innovation. Whether it is account opening, loan applications, payment processing, or any of the thousands of other possible processes, technology is the missing link for the banks falling behind.

 

Delivering data-driven insights

We know that customers want the fastest, easiest and most convenient option when it comes to banking. The trend has shifted from online banking to using mobile apps to split bills with their friends, paying for online goods through a touch of their finger, and even asking voice assistants to check how much they spent at the weekend. A key component to a bank’s success in the digital economy is therefore the data they accumulate about customers, and finding intelligent ways of processing it.

Challenger banks have the distinct advantage of being agile and customer-centric, but legacy banks potentially have the upper hand here – due to the sheer volume of data they hold, and their history of being a trusted brand.

By capturing meaningful insights, neo-banks can create audience segmentation and deliver innovative, customised products in a way that appeals to customers. Process analytics can help to deliver insights from data that already exists within a financial organisation. With process intelligence technology, leaders can see a complete view of their operation and easily discover their bottlenecks. These insights from the back-end processes can then be fed to the front-end, and thus to customers.

But this isn’t a one-time deal. Banks need to be on their game and constantly learn about changing consumer needs and behaviours. A clear understanding of their internal processes is critical to identify inefficiencies that may be impacting the customer experience. In this, neobanks are working hard to stay ahead of the game.

 

Putting the right infrastructure in place

It’s not just about making use of the data you have to drive the customer experience. The customer journey itself is even more important. The financial industry is extremely process-driven, but due to the volume and complexity of many of these processes, banks often struggle with properly tracking and subsequently optimising them.

To better serve their customers, banks need to be able to identify the bottlenecks and blind spots in every engagement with customers. Process intelligence can do this, giving banks the tools to analyse less structured processes, identify opportunities for improvement, and increase both the speed and accuracy of executing said processes.

For example, a customer who loses their card shouldn’t have to go through a gruelling battle of wills, keying in numbers, and being put on hold just to have their account frozen. They should be able to do this digitally, and in a matter of minutes. This would massively alleviate customer anxiety. What’s more, it shouldn’t take days for the account to be up and running again. Customers are used to painstaking delays and layers of process with their banks – but it shouldn’t be this way.

Banks that are slow to adapt and embark on implementing these changes will simply not survive. In a climate where businesses are working hard to ensure customer experiences remain a priority, banks need to liken themselves to digitally native organisations. This means adopting new technology innovations and strategies in order to support their customer’s needs and reduce the risk of falling behind. The difference between maintaining existing infrastructures and embracing digital transformation has never been more stark – especially in customers’ eyes.

 

Rising up to the challenge

The rapid growth of neo-banks shows they have great consumer appeal, forcing their competitors to adapt and innovate, which can only be good for customers. Developments in data analytics means the best banks now have an all-around view on customers, to help them rise to the challenge. But they aren’t rising far enough without the technologies that will overhaul their processes from the ground up.

Offering traditional financial services is no longer an option. Banks need to remember that they no longer have a loyal customer base. One long phone call or letter to an old address, or a series of issues navigating an app or online banking portal might be all it takes for customers to switch. And with legacy banks starting to wake up to the world of innovation, this might not always be the challenger from now on.

 

Banking

WHY AGILE, SCALABLE DATA MANAGEMENT IS KEY TO DIGITAL BANKING

By Jason Hand, Global Account Executive – Enterprise Sales, Commvault

 

Back at the start of 2019, before we’d ever heard of COVID-19 (hard to imagine these days, I know), mobile banking was predicted to overtake high street branch visits within two years. But the restrictions placed on daily life to get to grips with the pandemic proved to be a catalyst in speeding up adoption.

Although banks haven’t had to close during the UK lockdowns, they discouraged unnecessary visits — and many people new to online banking discovered that it could provide a quick and easy (and COVID-safe) way to manage their finances. No surprise then, that as summer came to an end, over three-quarters of the UK population were using some form of online banking and one in ten people had switched to a digital-only bank.

When it’s implemented well, online, digital and app-based banking is as easy as shopping with Amazon, booking a cab on Uber or grabbing a takeaway via Deliveroo. With so much potential to create a similar customer experience — and so much to lose if they fail — banks are under pressure to deliver on digital services. But their success (or otherwise) will depend on how well they manage their digital data and, in particular, how willing they are to adopt more agile, scalable, cloud-based solutions to underpin their new services.

 

Adopting New Technology in a Risk-Averse Sector

The UK’s financial services sector is undoubtedly slow when it comes to adopting new technology. Indeed, many UK banks continue to rely on mainframes. This cautiousness stems from the continued rise in cybercrime and the fear of non-compliance with FCA and data protection regulations.

Banks have to tread a thin line. They do want to embrace technology that will help them scale and support customer demand for digital services. But they can only do so with an IT infrastructure that keeps out cybercriminals, hackers and anyone else without explicit authorisation to view the data. So, if their legacy IT systems are secure and protect customer data from cybercriminals, banks do not want to risk implementing new solutions that could leave them exposed — even if those old systems make them less nimble and less responsive to changing customer demands.

 

Open Banking and Shared Financial Data

The increased digitalisation across the sector leaves banks facing a second security and data management challenge. Once, they only had to worry about managing their data and keeping it safe within their closed IT environments. Now Open Banking — a UK government-backed programme — encourages banks to securely share their data with trusted third-party financial services providers via an API (Application Programming Interface).

Typically, these third-party providers offer apps to assist with utility bill management, accounting and auditing, and savings (usually rounding up apps). Once a user grants authorisation, the app directly interfaces with that user’s current account. Customers — whether individuals or SMBs — love them, but for banks, they’ve meant a reassessment of security and data management strategies.

 

What Constitutes Good Data Management?

To begin with, it could mean switching to a single data management solution. Banks historically have deployed several different products to manage their data. Multiple applications add complexity and  need more people to oversee them operationally. This approach will add cost, risk, and ultimately will not align to their digital transformation agendas.

Running multiple data management solutions makes it harder to get a holistic view, understand customer behaviour and predict future trends. It also creates unnecessary security risks. Consolidating data management platforms reduces these risks and costs. At the same time, fewer inter-app data transfer points decrease the number of potential weak-link entry points for hackers and cybercriminals. From a practical point of view, using a single data management solution also enables all relevant data points in a hybrid world to be viewed on a single pane of glass — making it much easier to digest, interpret and deliver data management as a service back to their internal clients.

Automating data management components can improve security and cut costs by reducing human contact. In addition, it enables faster and more accurate data management that can accelerate cloud adoption where data management is key to success.

It’s worth saying at this point that banks have been slow on the uptake of both public and private cloud technology, and are clearly still concerned about security and privacy threats. This is despite the fact that cloud computing — particularly with a zero-trust approach to security — has become a lot safer and carries far less risk.

In the middle of 2019, the Bank of England published a report that estimated the world’s largest global banks conducted just a quarter of their activities in the public cloud or software hosted in the cloud. But change is happening, albeit slowly. Larger banks have started to recognise that cloud computing holds the key to running an agile business  — allowing them to scale their online services and safely store, process and mine vast amounts of digital customer data.

The maturation of the hybrid cloud market may have played a role in increased adoption and allayed many of the sector’s previous doubts. A hybrid cloud infrastructure combines public cloud, private cloud and on-premises architecture, giving users the flexibility to keep some applications and systems (those with particularly sensitive information, for example) within their own four walls while still being able to migrate other systems. It’s an elegant and cost-efficient way to balance security, scalability and compliance.

 

Demand for the Future

With so much change taking place across the UK banking sector, data management has never been more critical. Open Banking, consumer demand for digital banking, and app-based banks like Starling and Monzo are all shaking up the market. But the threats from cybercriminals and the risk of falling foul of FCA regulations are still very much present. And, while navigating all these challenges, banks still face pressure from shareholders and investors to make a profit, retain customers and grow the business.

For these reasons, data management strategy — and linked to that, the pace and effectiveness of cloud computing adoption — are now two of the most significant determining factors in how banks cope today, and how effectively they will operate in the future. As such, 2021 should be the year that most banks and financial organisations embrace and invest in new technology when it comes to data management.

 

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Banking

SEIZING THE OPEN BANKING OPPORTUNITY

Nick Maynard is a Lead Analyst at Juniper Research

 

Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:

  • Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
  • Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.

 

Nick Maynard

The Disruption Factor

Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.

  • AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
  • PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.

 

PSD2 Changes

Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.

As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.

Open Banking Opportunities & Challenges to Consider

Source: Juniper Research

Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.

 

The Forecast for Open Banking

The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.

 

Open Banking – Delivering Opportunities and Threats

It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.

Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.

Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million

Source: Juniper Research

 

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