By Giuliano Altamura, Business Unit Manager Financial Services, Fincons Group
Pivotal role of digital integration hubs in transforming the banking sector
Today’s banking customers have radically changed the way they interact with service and good providers across sectors; they have come to expect a much more tailored and interactive customer experience that however is not always standard in every sector. Reports show that around 60% of banking customers use digital channels and that 80% of all customer touchpoints are digital, yet the financial services sector as a whole has been struggling to keep up with the pace set by digital-native industries like e-commerce.
While banks could once expect most activity, from querying balance to making transfers and payments, to take place at the branch or over telephone banking, nowadays bank customers expect to be able to access and query information over a growing range of touchpoints: Instant Messaging (IM), apps, the telephone, the web, emails, text messages and so on. They also expect customer experience across these channels to be consistently fast, interactive and organic, and, at the end, nice.
More touchpoints also mean more data to process, both in terms of query volumes and incoming data. The frequency with which consumers interrogate systems from apps, online portals, telephone banking or other channels is higher than ever before with older customers also becoming confident that digital transactions, bank transfers and payments are safe as well as cheaper or indeed free of charge.
These demands require new modern front-end systems that are attractive, engaging and fast but that also critically provide independence for legacy systems that remain in control of data and business operations. Pressure on line-of-business IT, and in particular on legacy back-end systems that are often business-critical, should not increase as these new front ends are developed or they risk underperforming on their core operations. In addition to this, front end systems need to be available 24/7, while legacy technology requires machine time for core activities and cannot risk losing capacity.
But the banking sector is not just facing the need to modernise its customer experience, it is also facing the significant competition of challenger and neo-banks as well as the mandatory need to comply with new regulation, specifically the Payment Services Directive 2 (PSD2) and Open Banking standards. PSD2, or ‘The Revised Payments Directive’ was designed to increase competition in the EU electronic payments market, provide consumers with more choice, and define rules and regulations for payment services that improve security and efficiency. The Directive also serves as a move towards Open Banking and obliges banks to share some of their customer data with other players. Fears are that this will lead to unpredictable peak request periods on banks’ legacy systems causing unnecessary delays and lack of efficiency, a view confirmed by a recent Polish survey where 91% of banks reported they felt the need to standardise APIs in connection with PSD2.
Making some customer data accessible to third parties should provide a clearer and more comprehensive view of customer spending habits but will also make protecting customer data much more difficult. Use of AI may come to the rescue on this front by helping to identify suspicious and unusual transactions or authentication patterns in real-time and flagging them up for prevention of fraud and money laundering.
In addition to these market pressures the banking sector needs to grapple with introducing blockchain, distributed ledger technology, Big Data, IoT, Cloud computing, AI, Biometric technology and Augmented/Virtual reality into its systems. Integrating all these new technologies is going to exacerbate the pressure on systems caused by data volume.
To lighten the burden on legacy systems and improve access to data and analytics Application Programming Interfaces (APIs) and microservices architecture are being developed. This should enable banks to leverage new technologies and additional external and internal data without overhauling their back-end systems entirely. All these solutions, however, typically interface directly with back-end legacy systems where business critical information is stored. Not only is it important that historical data remains securely fenced off from any risk arising from providing third party access, but financial services businesses also need to protect their line-of-business systems from unpredictable peaks in data access queries that could be caused by third party or partner activity, for example.
So how can banks protect their back-end legacy systems while also leveraging powerful API integration? A new, more efficient architecture centred around Digital Integration Hubs is rapidly standing out as a solution. In this new design, APIs read data extracted from a ‘data lake’ which is continually updated in near-real time by the legacy systems with an optimally flexible and efficient ingestion procedure, rather than by calling data up from legacy systems directly. The opportunity to feed in data from trusted third parties (TTPs), the IoT or Big Data therefore remains unfettered.
Digital Integration Hubs differ from Data Management Platforms because the latter were based on a batch approach to gather data from legacy systems. Typically, data in the Data Warehouse (DWH) was usually updated on a daily rather than in real-time basis requiring hundreds of extraction and ETL procedures to pull out legacy data and feed the data warehouse. As a result, traditional DWHs are useful for Analytics & Reporting but are inadequate for customer-facing Front Ends.
Digital Integration Hubs are designed to help reduce complexity of the API service layers and to decouple them from system of record data and line-of-business environments. They thus enable the consolidation of historical as well as new and real-time data into a single repository with 24/7 availability of near real-time data that APIs interact with instead of the back-end. In case of peaks in inquiries, load is thus managed by the data hub with no impact on back end operations.
The ideal solution should help realise all the above benefits and not just a portion. It should be speed and data agnostic as well as cloud-ready if not based and provide intuitive ‘Google-like’ search functions. Flexible end-to-end solutions are ideal to help insurers fall into step with the digitalisation of consumer and intermediary expectations without putting their systems at risk. Although slower off the mark than other more digital sectors like retail or travel, the banking sector is ready to embrace the benefits of customer experience improvement, compliance and operational efficiency. To do this, the sector need to ensure that its historical systems are protected both from cyber criminals as well as inefficiency. Data integration hubs stand out as the solution designed to provide a reliable connection between back-end system integration and new technologies that does not put systems at risk.
To find out more, please download the latest whitepaper from Fincons Group here: https://bit.ly/38iJx10
 Mckinsey & Company, The balancing act: Omnichannel excellence in retail banking, January 2019, https://www.mckinsey.com/industries/financial-services/our-insights/the-balancing-act-omnichannel-excellence-in-retail-banking#
 KPMG, PSD2 and Open Banking, March 2019
HOW IDENTITY IS SECURELY UNLOCKING THE SME BANKING MARKET
By Mike Kiser, senior identity strategist at SailPoint
Have an identification card in your wallet? With a selfie and a few short minutes, you could have access to a business bank account.
Small and medium enterprises (SMEs) have long been the fuel that drives the global economy, representing around 90% of businesses and more than 50% of employment worldwide. Over the last few years, a range of financial services and platforms have arisen over the last few years to support the banking needs of these organisations. They are often digital natives and are innovating to meet the needs of their clientele.
This innovation provides great ease-of-use and rapid access to credit but also demands a careful consideration of their assumed security approach. The aforementioned scanning of an identity and a quick photo to establish a bank account demonstrates the rising importance of identity in both the consumer and enterprise arenas.
The blurring of the lines between personal and corporate identities (in this case, an individual acting on behalf of a small business) is still in its infancy. Combined with the ubiquity of mobile devices, individuals will tire of maintaining different accounts, different personas, different lives for each activity. Usability will demand that identity be reusable, portable, and secure.
This has massive implications for enterprises and the financial institutions that serve them if they seek to prevent cyber-attacks; thankfully, the same element that presents the security challenge also offers the solution: identity.
A New Vantagepoint
Just as individuals desire a single identity to unify their interaction with disparate parts of the world, organisations can use identity to grant them a single, holistic view of an individual (attributes, access, and behaviour) rather than seeing only a fragment at a time. This is particularly important for these new financial institutions—much of their technology stack is cloud-based, which often leads to splintered security approaches. An identity-based approach must be cloud-aware, and able to distil these complex environments into simple and easily governed infrastructure.
This collectivisation also allows security to use identities in the aggregate: to see what groups of similar individuals exist, what access these groups have, and what their usage of this access typically is. All of this contributes to the establishment of what normal is, whether it’s attributes, access, or behaviour. Once the “normal” is established, then the outliers—the potential threats—may be quickly triaged.
Adaptability: The New Imperative
The recent wave of change has demonstrated that financial institutions and organisations must be ready to adapt quickly to shifts in the environment. Portions of IT staff and services have been furloughed, and adjustments to new realities are essential. An identity approach that learns from the evolution of changes in the previously established areas of normality can grant enterprises the ability to see what is coming next and invest appropriately. Much like a view from an elevated position grants the ability to see beyond the normal horizon, basing a security strategy on identity makes it inherently adaptable.
Identity: Innovation and Security Intertwined
Identity, then, is a foundational consideration for financial institutions seeking to provide services for the perennially important small and medium enterprise sector. By eradicating barriers to entry that have historically kept financial organisations and enterprises apart, it is driving rapid adoption and a growing market for innovative banking. At the same time, it shows the path forward to securing those new services in a pre-emptive, adaptable way.
Now if you’ll pardon me, I must go open a bank account for my next start-up—from my mobile.
OPEN BANKING: ARE CONSUMERS KEEPING AN OPEN MIND?
Last September, the European Union’s regulatory requirement for banks to open up their payment accounts via application programming interfaces (APIs) came into effect. Since then, open banking has taken centre stage within European retail banking and payments. In this blog, Elina Mattila, Executive Director at Mobey Forum, shares insight into how emerging consumer attitudes may impact open banking services in the coming months.
It has been over six months since the revised Payment Services Directive (PSD2) came into full effect and with it, required banks to allow third party providers to access payment initiation and account information. While the regulation was designed to facilitate open banking, the market demand was uncertain. Would we, as consumers, choose to embrace the new services enabled by open banking? And if so, under which conditions?
To understand consumer attitudes, Mobey Forum and Aite Group partnered on a pan-European study to determine the appetite for open banking services amongst 1000 consumers in Finland, France, Germany, Spain, and the United Kingdom. The study, launched in November 2019, revealed many important consumer trends and attitudes, including key priorities and potential barriers for adoption.
Consumer appetite for change
The consumer benefits of open banking are largely perceived to be compelling, yet this counts for little if the providers of those services are not deemed trustworthy. This is an observation reflected in the study, which highlighted consumer confidence in service providers as critical to open banking adoption. People want clear visibility of who is managing their finances, and the overwhelming majority (88%) would prefer their primary source of open banking services to be their main bank, as opposed to other banks or third-party providers (TPPs).
Consumers also indicated high levels of trust in their current bank of choice, reflected by 77% preferring to use a financial product comparison service offered by their main bank. By enabling customers to compare the pricing and conditions of a range of financial products on the market, they feel more comfortable that banks have their best interests at heart. This is a welcome trend, and one which should be celebrated in the aftermath of the 2008 financial crisis. For the banking industry to have rebuilt trust levels in this way bodes well for consumer adoption of future innovations.
With a trusted provider, one third of consumers were then either ‘very interested’ or ‘extremely interested’ in integrating open banking services into their financial routine. This applied to specific use cases: account information services (32%), pay by bank (33%), purchase financing (25%), product comparison (35%) and identity check services (35%). Unsurprisingly, consumer willingness to adopt these services relies heavily on providers continuing to prove that they can be trustworthy stewards of personal data.
For those unwilling to adopt open banking, concerns largely focused on reservations around security and privacy. As open banking becomes more sophisticated, it will be interesting to analyse the nuances around how consumers engage with third parties. Established brands are perhaps more likely to be trusted by consumers than lesser-known online retailers. For this reason, consumers may hesitate to engage newer companies than brands they are already familiar with. In an industry as varied as finance, this creates additional intrigue in the ongoing battle for market share between the newer ‘challenger’ banks and the older, more established European banks.
Consumers might, however, be willing to deprioritise trust and, instead, favour convenience and usability. When questioned over their willingness to adopt a new payment method, for example, 91% of respondents indicated that they could be tempted to switch either by financial incentives or the promise of greater convenience.
The path forward
While open banking is still in the relatively early stages of development, it has made significant progress in a very short period of time. Not only is it allowing consumers to share financial data with authorised providers as they wish, but it is set to spark more competition and innovation within the market.
From a business perspective, open banking is expected to create lucrative new revenue streams, particularly for companies which are able to innovate quickly and react to consumer demand. It is prompting consumers to reconsider how they manage their finances and – most excitingly – it’s not even close to reaching its full potential. It should bring a whole new era of service partnerships between banks and TPPs, which will enable a new generation of innovative financial services.
For the industry to truly fulfil its potential, it is vital that stakeholders are able to explore new business models, innovations and changing customer expectations for open banking in a commercially neutral environment. Mobey Forum’s open banking expert group provides exactly this, and we look forward to supporting our members as they shape the future of digital financial services.
Where to find out more
The opportunity for open banking is explored in more detail in a report by Mobey Forum and Aite Group, entitled Open Banking: Open Minds? Consumer Appetites for New Banking Services. It provides banks and other financial services stakeholders with a market view on consumer appetites toward new open banking services and explores the possible roadblocks to consumer adoption. It is also discussed in a podcast featuring key representatives from Interac, Erste Group Bank and Strands Finance.
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