Hani Hagras, Chief Science Officer, Temenos
COVID-19 has accelerated trends across the spectrum and nowhere has this been more evident than in banking. The shift towards digital banking, which was already in motion, has proven to be unstoppable with its capabilities being stretched to cater to increased and changing customer demands.
While much attention has focused on exciting developments in digital services for consumers, its businesses, particularly small businesses, where there is perhaps a greater opportunity for banks to shine.
It is often said that small businesses are the lifeblood of our economies and communities. At the start of 2020 there were 5.94 million small businesses in the UK alone, that’s 99.3% of the total business. Combined they account for 99.9% of the business population (6.0 million businesses), three fifths of the employment and around half of turnover in the UK private sector.
But these small business have been hit hard by the pandemic with many facing financial hardship and reliant on banks and relief programs to provide urgent support. We’ve seen many great examples of where banks have stepped up through distribution of emergency loans, loan repayment holidays and fee free lending. But there is more that needs to be done.
Small businesses require financial products and services that are tailored to their individual needs. This fact is reinforced by the recent formation of the Banking Competition Remedies Ltd, which will administer access to £775mn of funding for those that can demonstrate they will address their needs.
Properly servicing this market segment is mutually beneficial to banks too. Banking revenue from the SME sector is set to grow over c.7% p.a. the next seven years making the small business sector one of the largest, lowest-risk profit pools in the entire industry.
Banks have typically serviced the SME market with a blend of retail and corporate solutions, but it is widely recognised that this no longer fits the evolving needs of SMEs. Instead, there is a need for SME banking services to move “beyond banking” to address the front-of-mind needs of SME owners. As a result, holistic solutions involving collaborations with other, digital service providers can work together to address these challenges.
At Temenos, we see this moment as a rare opportunity to fundamentally reimagine how banks serve the SME sector. By leveraging the technology that is now available, banks can implement innovative design centric and data driven products, and services that can transform the customer experience of SMEs in areas such as on-boarding, lending, cash flow management and trade finance. It is the digital experience and utilisation of data that will be at the heart of the next wave of SME banking services.
This is where Artificial Intelligence comes to the fore. It allows banks to leverage data from multiple sources to make faster, and more accurate decisions and provide individualised, frictionless customer experiences.
Explainable AI or “XAI” takes this one step further, by addressing one of the key issues for banks using AI applications; which is that they typically operate as ‘opaque boxes’ offering little if any discernible insight into how they reach their decisions. At Temenos we are the first to bring transparency and explainability of AI automated decision making to the banking industry.
Take lending as an example. By looking at a small business holistically across a lot of attributes, not just a credit score, banks can make better, more nuanced and fully explainable decisions that lead to 20% more positive credit decisions and fewer false positives. All this can be done in real-time using APIs to connect to third party data sources.
If a loan is refused, the bank will be able to use XAI to explain why the decision was made and offer alternative products or suggest ways to improve their chances of getting a loan approved in the future.
With the current increase in small business loans, including those underwritten by government to support small businesses, right now, the need to digitise and make smarter decisions to alleviate underwriting pressure and drive efficiency has never been more important.
Banks can also carve out new revenue streams through XAI. Customers who may have had a service negated can instead be rerouted towards others that are more suitable for them, or for which they would qualify.
We’re only just scratching the surface of what XAI can do, but as banks look at how they can leverage its capabilities it will become integral of product development. The transformative abilities of XAI could truly revolutionise banking for the SME sector.
WHAT BANKS NEED TO KNOW ABOUT OBSERVABILITY
By Abdi Essa, Regional Vice President, UK&I, Dynatrace
More aspects of our everyday lives are taking place online – from how we work, to how we socialise and, crucially, how we bank. To keep pace, financial organisations have stepped up their digital transformation efforts, supported by a shift to dynamic multicloud environments and cloud-native architectures. However, traditional monitoring solutions and manual approaches cannot keep up with these vast, highly complex environments. As a result, many banks are turning to new, observability-based approaches to understand what is happening in their digital ecosystems. These approaches, however, bring new challenges to overcome.
Here are six things banks need to know about observability to ensure they can gain true value, combat the complexities of their modern multicloud environments, and drive digital success in 2021 and beyond.
- Most banks have very limited observability
The scale, complexity, and constant change that characterises hybrid, multicloud environments presents a real challenge to banks’ IT teams. Our research found that, on average, banking digital teams have full observability into just 11 percent of their application and infrastructure environments – not nearly enough to understand what is happening, and why, across the digital ecosystem. Additionally, 87 percent said there are barriers preventing them from monitoring a greater proportion of their applications – including limited time and resources. Without improving observability across the entire cloud environment – by drawing in metrics, logs, and traces from every application – banks’ IT teams are limited in the success they can have driving initiatives to deliver the new banking products and quality user experience customers want.
- You can’t bank on manual approaches
With many banks beginning to rely on more dynamic, distributed multicloud architectures to deliver new services, IT teams are stretched further than ever. More than a third of financial services organisations say their IT environment changes at least once per second, and 65 percent say it changes every minute or less. This rate of change creates a volume, velocity, and variety of data that has gone beyond banks’ IT teams’ ability to handle with traditional approaches – there’s no time to manually script, configure, and instrument observability and set up monitoring capabilities. The need for automation is therefore critical. By harnessing continuous automation assisted by AI in place of manual processes, teams can drastically improve observability to automatically discover, instrument, and baseline every component in their bank’s cloud ecosystem as it changes, in real-time.
- Cloud native adoption is obfuscating observability
To remain agile and keep up with the rapid pace of digital transformation, banks are increasingly turning to cloud-native architectures. Our research found 81 percent of them are using cloud-native technologies and platforms such as Kubernetes, microservices and containers. However, the complexity of managing these ecosystems has made it even harder for banks’ IT teams to maintain observability across their environments. Nearly three-quarters of banking CIOs say the rise of Kubernetes has resulted in too many moving parts for IT to manage, and that a radically different approach to IT and cloud operations management is needed. Such an approach should be based on a solution that is purpose-built to auto-discover and scale with cloud-native architectures.
- Data silos result in tunnel vision
To boost observability, many banks have simply thrown more tools at the problem. Our research found that most organisations use an average of 11 monitoring solutions across the technology stack. However, more isn’t always better, and multiple sources of monitoring data can result in fragmented insights. This fragmentation makes it harder to understand the full context of the impact that digital service performance has on user experience and unravel the nearly infinite web of interdependencies between banks’ applications, clouds, and infrastructure. Instead, financial organisations should seek a single platform with a unified data model to unlock a single source of truth. This will be integral to ensuring that all digital teams are on the same page, speaking the same language, and collaborating effectively across silos to achieve business goals.
- Observability alone is not enough
Simply having observability doesn’t help banks achieve tangible benefits or reach their business goals. To get true value, the data processed must be actionable in real-time. As such, observability is most effective when paired with AI and automation. This observability enables teams to instantly eliminate false positives, prioritise problems based on the impact it will have on the wider organisation, and understand the root cause of any problems or anomalies so they can resolve them quickly. The alternative is to manually trawl through dashboards and data to find insights, which is incredibly time-consuming and makes it almost impossible to act in real-time. Our research found that 94 percent of CIOs think AI-assistance will be critical to IT’s ability to cope with increasing workloads and deliver maximum value to the organisation. AI is clearly no longer just a ‘nice to have,’ but a business imperative.
- Observability isn’t just for the back end
Far from just having observability of their multicloud environments, banking IT teams also need to be able to see how the code they push into production impacts the end-user experience, and how that in turn affects outcomes for the business. This is a major goal for many CIOs, with 58 percent citing the ability to be more proactive and continuously optimise user experience as a benefit they hoped to achieve from increased use of automation in cloud and IT operations. By harnessing automatic and intelligent observability, banks’ digital teams can unlock code-level insights and precise answers to their questions about user experience and behaviour, so they can continuously optimise their banking services.
Observability is key for modern financial organisations looking to accelerate their digital transformation. By understanding these six key things about observability, IT teams will be better placed to master dynamic, multicloud ecosystems, and drive better digital banking services for the business and its customers.
NEARLY HALF OF BUSINESSES NEED MORE ASSURANCE ON DATA SECURITY TO ADOPT OPEN BANKING
- Financial services businesses in the UK and Netherlands call for better education, training and increased guidance on data security issues to propel adoption
- Study of 800 senior professionals from banks, lenders, personal finance management tools (PFMs) and retailers, in the UK and Netherlands
42% of financial services businesses want better support and guidance on data security in relation to open banking, according to the latest research by open banking provider YTS.
The survey of financial professionals including banks, lenders and retailers, revealed businesses want better education and training, alongside increased guidance, to help reduce fears around the security risks of open banking adoption. Respondents also stated that they wanted this support to come primarily from regulators.
This ranked higher than taking a ‘wait and see’ approach by allowing more time for open banking technology to develop (39%), which has often been cited as a way to assuage data security concerns, but as YTS’ data demonstrates, won’t solve the issues businesses are facing.
Lack of customer and business willingness to accept risks around data security were the second and third most cited factors threatening the progress of widespread open banking adoption, on 27% and 25% respectively. Over a third of respondents (35%) also believe that an ‘unfriendly’ regulatory environment is threatening the progress of widespread open banking adoption.
YTS is calling for the entire open banking and financial services industry to do more to empower businesses to adopt open banking technology, creating a more nurturing environment for the technology to thrive. This can primarily be achieved by introducing better education and accessible, transparent support for businesses looking to adopt the technology. This must be the spearhead of an industry-wide effort to banish myths and create more solid foundations for growth.
Roderick Simons, Chief Technology Officer at Yolt Technology Services comments:
“To fully maximise open banking’s potential, we must all do more to educate businesses and consumers about its security foundation . Open banking means their financial data is more protected than ever, with the individual in charge of whether their data is shared or not and secure APIs preventing risks from unwanted third-party access. We want to work with regulators, financial services institutions, and businesses themselves to lead the way in educating, training, and supporting businesses to overcome misperceptions of open banking. Doing so will unleash the power of open banking and create huge opportunities for both consumers and businesses.
“Once there is widespread adoption and trust in open banking technology, stakeholders across the open banking ecosystem can then turn their attentions to creating an open finance framework that gives consumers the ability to access their entire financial footprint in one place.”
WHAT BANKS NEED TO KNOW ABOUT OBSERVABILITY
By Abdi Essa, Regional Vice President, UK&I, Dynatrace More aspects of our everyday lives are taking place online –...
FINANCIAL SERVICES MUST FIX THEIR MISSED OPPORTUNITY AS CONSUMERS DEMAND MORE ENGAGING DIGITAL EXPERIENCES
Less than one-third (30%) of consumers believe the Financial Services firms they interact with now deliver a better digital experience...
FINANCIAL INCLUSION WITHIN DIGITAL PAYMENTS
NICK FISHER, GENERAL MANAGER, SALES AND MARKETING UK, JCB INTERNATIONAL (EUROPE) LTD. The shift towards an economy that removes...
THE EFFECTS OF JOB HOPPING ON YOUR RETIREMENT OUTCOME
By Neli Mbara, Certified Financial Planner at Alexander Forbes Job hopping – defined as spending less than two years...
VIRGIN MONEY EXPANDS PARTNERSHIP WITH FINTECH LIFE MOMENTS
Virgin Money is expanding its partnership with FinTech data expert company, Life Moments, to focus on the development of the...
THE MAJOR CHANGES SET TO RESHAPE THE WORLDS OF FINANCE AND FINTECH IN 2021
By Michael Magrath, Director of Global Regulations & Standards at OneSpan 2020 was a formative year for the world of...
FORMER HSBC COO JOINS BOARD AT REGTECH DISRUPTER
Andy Maguire takes seat on Napier’s Advisory Board Fast growing RegTech company, Napier, which provides next-generation anti-money laundering (AML)...
DISRUPT TO SURVIVE IN FINANCIAL SERVICES, BUT BEWARE: YOUR TEAM MUST BE IN SHAPE FIRST
Michael Chalmers, MD EMEA at Contino COVID is forcing extraordinary change in the financial services industry. It’s happening fast, already...
NEARLY HALF OF BUSINESSES NEED MORE ASSURANCE ON DATA SECURITY TO ADOPT OPEN BANKING
Financial services businesses in the UK and Netherlands call for better education, training and increased guidance on data security issues...
THE FUTURE OF THE UK’S FINANCE FUNCTION
By Ryan Demaray EMEA MD for SMBs at SAP Concur With businesses feeling the pressure of both the pandemic...
BUDGET 2021: PREDICTIONS
The spring Budget announcement is next week, with the Chancellor Rishi Sunak set to reveal new measures on March 3. After...
CAN SELF-SERVICE BANKING SAVE THE BANKING INDUSTRY?
Mark Aldred, Banking Specialist at Auriga 2021 should be about making the lives of customers easier by tailoring the...
FINANCIAL HEALTH PLATFORM LEVEL SECURES LANDMARK ESG DEAL WITH TRIPLE POINT
First-of-its-kind credit facility will incentivise Level to drive positive financial behavioural change for UK employees Level Financial Technology has...
FORECASTING FINTECH IN 2021
Fady Abdel-Nour, Global Head of Investments and M&A at PayU 2020 will go down in history as a pivotal...
2021 — THE YEAR FINANCIAL SERVICES COMPANIES WILL NEED TO DRASTICALLY RETHINK THE WAY THEY MANAGE DATA
By Douglas Greenwell, Head of Commercial Strategy, Duco There’s no denying that 2020 was a year of historic change...
HOW DO YOU ADAPT YOUR INSURANCE PRICING STRATEGY IN THE FACE OF INCREASED PRICE COMPETITION?
By Ketil Kristensen, Senior Advisor, Insurance, SAS Many countries in Europe have in previous years experienced increased price competition...
THE CHANGING ROLE OF TODAY’S CHIEF FINANCIAL OFFICER
By Laura Wiler, Vice President, Finance and Business Operations at Sage Intacct The CFO role is changing. Today, the...
DATA: THE MUCH-NEEDED PROCUREMENT ADRENALINE SHOT, HELPING BANKS REMAIN COMPETITIVE IN THE RACE FOR INNOVATION
By Toby Munyard, Vice President, Efficio Consulting Like a flip-switch, the pandemic saw many industries pushed over the innovation...
2021 FINANCE SPEND PREDICTIONS
by Andrew Foster, VP Consulting EMEA, AppZen As we enter a new year filled with ongoing change and uncertainty,...
FIVE PITFALLS PROFESSIONAL SERVICES MUST OVERCOME DURING THE PANDEMIC
By Andy Campbell, global solution evangelist at FinancialForce The pandemic’s impact on the global economy has, and is continuing...