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HANDLING DIGITAL TRANSFORMATION AMID GLOBAL UNCERTAINTY

Karl Van den Bergh, CMO, Gigamon

 

For most financial services firms, digital transformation (DX) was already a challenging, complex and costly – albeit necessary – journey required to keep up with a rapidly evolving technological landscape. However, these difficulties have been compounded by the current global uncertainty, which has seen the explosion of remote working and distributed infrastructure, as well as rapidly changing IT networks. What’s more, banks and financial services are facing increasing pressure as economic downturn prevails and the threat of the greatest recession in three centuries looms over the UK, with GDP falling by 20% in April.

The pressure the current global situation has placed on IT systems that were never designed for this scenario is intense and, as a result, key digital transformation shifts are taking place. Now, more than half of financial services organisations plan to accelerate the implementation of their next generation of technology strategies, and this is already underway. One third of jobs advertised at UK banks are tech-related – an increase of 46% over the last three years – and the way they recruit is changing. Banks are turning to pros from big-tech companies, proving they acknowledge the need to provide their consumers with seamless tech experiences, similar to those from Apple and Google.

In practice, recent DX shifts have included the rapid scaling of remote access infrastructure, enabling apps to meet heightened demand and adapting to new, expanded security perimeters. IT and security teams have had to adapt rapidly to these new challenges in order to maintain network performance, security and a seamless end-user experience – and they have had to do all of this in a minute time frame with reduced resources.

 

Karl Van den Bergh

Adjusting to the fluid workplace

The most notable shift experienced over the last four months has been towards a remote workforce, as people have been forced to stay home as much as possible. Before this shift occurred, 59% of organisations had more East-West traffic than North-South traffic, which shows the scale of this transition. IT and security teams were able to make the move from LAN to WAN quickly, but often only as a temporary fix. However, now it is looking likely that a fluid workplace will prevail during the return to work phase through to the end of the year and beyond, IT teams must solidify these temporary processes in order to emerge victorious from this economic uncertainty.

The patchwork response many IT teams took in response to the work from home (WFH) shift was magnified within financial services, as big banks typically have a legacy IT problem. In fact, nearly 50% of banks don’t upgrade old IT systems as soon as they should. Repurposing older or existing infrastructure will cause issues such as failures and bottlenecks within the new network architecture. To avoid these detrimental issues that could lead to reduced productivity from employees – which could encourage customers to look elsewhere – financial services firms must ensure they have accurate visibility into the network. Having a clear view of all data in motion will enable IT and network teams to undertake capacity replanning, identify critical traffic and optimise bandwidth usage to ensure the network runs smoothly.

 

Optimising mobile apps

Banking customers increasingly want speed and convenience, and COVID-19 accelerated the shift to online as customers were unable to engage with their banks physically. A recent McKinsey survey found that one in five customers in Britain have tried online banking for the first time during the COVID-19 crisis. New application containers, microservices and virtual machines are being set up to quickly meet this sudden growth in demand. However, this can lead to a mismatch in application capacity and infrastructure capacity, as IT teams may find it hard to keep up with fast-working DevOps and applications teams. In the worst case scenario, as app capacity increases, infrastructure capacity and user experience may lag and bandwidth issues could appear. What’s more, traffic and app usage may not be adequately monitored for security threats, which could be hugely damaging in an industry as critical as financial services.

In order to counter issues that may arise from increased app use, IT teams must ensure they thoroughly monitor and visualise app usage, and take appropriate action in response. Surges in traffic at a particular time of day may cause security tools to become overwhelmed and fail. By visualising where and when these surges occur, IT and security pros can decide whether the traffic needs to be assessed by certain tools, as well as filtering out safe or low-risk traffic to preserve bandwidth for other apps. By optimising apps and security tools in this way, financial services organisations can do more with less and maximise the ROI from their existing investments.

 

Maintaining borderless security

Employees have successfully adjusted to remote working, and many are set to continue this as businesses maintain a fluid workplace going forwards – with the workforce able to work freely between the office and their homes. This means the network has turned literally ‘inside-out’: traffic that was previously inside the firewall is now entering the network from outside. It is no longer enough to rely on a perimeter-based approach to security, as the network is going borderless. With employees now connecting to the corporate network from personal devices and routers, ensuring network security has never been more important as it’s impossible to guarantee these users are following the correct protocol and using patched devices. In fact, 94% of IT pros in the financial services industry say they lack confidence in the ability of employees to safeguard customer data.

The need for unhindered security is driven home within the finance industry due to the sensitivity of the data it holds and the potential damage that could be caused if a malicious actor found their way into the network, especially as attacks exploiting banking trojans rose sharply during May this year. Therefore, the need for a Zero Trust approach is more prevalent than ever. This network architecture sees the behaviour of everything on the network – regardless of whether it’s inside or outside the perimeter – scrutinised, with access granted based on its behaviour rather than any pre-existing credentials.

The finance industry is set to face a challenging year as the full impact of the COVID-19 crisis becomes apparent, but this doesn’t negate the need for DX. In fact, accelerating digital initiatives has never been more important as financial services firms simply can’t afford to suffer network downtime or security incidents during this challenging time. Optimising existing investments and ensuring IT teams have complete visibility into the network, can help financial services organisations accelerate their digital journey and enable them to emerge victorious from this economic downturn.

 

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Banking

BANKING’S SECOND WAVE OF TRANSFORMATION: INTEGRATING THE CLOUD-ENABLED FUTURE BANK

Keith Pearson, Head of Financial Services EMEA, ServiceNow

 

The last six months have seen significant changes to the financial services landscape, with operational resilience, economic recovery, cost reduction and an acceleration of digital transformation key themes emerging from the industry.

At the start of this crisis, much of the banking industry was in a different position to many businesses. The 2008 recession spurred a need for improvements and combined with the emergence of tech-savvy fintechs, the industry has seen a major shift as customer expectations have adapted. The pandemic has forced organisations to accelerate innovation already part-underway in the banking industry.

As banking experienced its first wave of transformation, institutions focussed on customer engagement, uniting physical and digital channels for an improved customer experience. Banks invested heavily in front office digital technology, creating visually appealing mobile apps, engaging online banking experiences and technologies for bankers to personalise customer engagement.

However, this digital engagement layer is not enough. Regulations like PSD2 reinforce the necessity to remain compliant, adding additional pressure to the digital transformation process which in turn has been accelerated by COVID-19. Banking is therefore in the midst of its second wave of transformation, where financial institutions are creating and seeking out critical infrastructure to better connect underlying middle and back office operations with the front office, and ultimately, with customers.

 

Keith Pearson

A disconnected operation

Many financial organisations are still struggling because they have yet to streamline, automate and connect the underlying processes that are enabling customer experiences. Which poses the question: why is connecting operations so difficult?

In most cases, multiple systems are still glued together by email and spreadsheets to track end-to-end status. Around 80% of a middle office employee’s time is spent gathering data from systems to make a decision, with only 20% spent actually analysing and making the decision.

The disconnect negatively impacts customers. For many, experiences like opening a bank account or getting a mortgage involve clunky, manual processes riddled with paperwork and delays. When front and back office employees lack the ability to seamlessly work together, customers can be asked for the same data multiple times, elevating frustration.

Customers have little patience and can be inclined to publicly broadcast problems when left unresolved. In a world of social media and online reviews, this could be detrimental to a company’s reputation.

With digitally native, non-traditional financial services players gaining market traction by offering a seamless customer experience, maintaining satisfaction is crucial for traditional banks to ensure that customers don’t switch. Banks must focus on making it easy for customers to do business with them by offering faster cycle times with more streamlined operations.

 

The fintech effect

Fintechs and challenger banks like Starling have shown what connected operations can do, having been built with digitised processes from day one. Modern consumers expect round-the-clock service from their bank. As financial institutions look to the future, developing a model of operational resilience that is capable of withstanding unforeseen issues, like power outages or cyberattacks, is critical to minimising service disruption. Having connected internal communications between front and back office staff means customers can be notified about any problems, how they can be fixed and when they might be resolved, as well as receiving continuous progress updates instantaneously.

Automation can go a step beyond this. Today, customers expect companies to not only do more and do it faster but to prevent problems arising in the first place. With connected operations and Customer Service Management (CSM), banks can proactively fix things before they happen and resolve issues fast, enabling frictionless customer service and replicating the ‘fintech effect’.

 

What about compliance?

In the European Union and the UK, PSD2 and the Open Banking initiative are giving more control to the customer over personal account data. Digital banks such as Fidor and lenders like Klarna are seeking to reinvent banking by offering customer-centric services. But the process of streamlining underlying operations is not simply about providing customers with the fintech-esque experience. More than 50% of a financial institution’s business processes are also impacted by regulation.

Financial services leaders are focussing on streamlining and taking cost out of business operations while also placing importance on resilience. Regulators are pushing banks to have a firmwide view of the risk to delivering their critical business services.

Banks must invest in digitising processes to intuitively embed risk and compliance policies, which are generally managed separately and often manually from the business process, leading to excessive compliance costs and risk of non-compliance. With the right workflow tools for monitoring and business continuity management, banks can minimise disruption by gaining access to real-time, actionable information about non-compliance and high risk areas, encompassing cybersecurity, data privacy and audit management.

Increasing openness of financial institutions to regtech solutions, or managing regulatory processes in the industry through technology, will prove key during this second wave of transformation. Banks will increasingly move away from people and spreadsheets and toward regulatory solutions that provide a real-time view of compliance and provide an end-to-end audit trail for Heads of Compliance, Chief Risk Officers and regulators.

With a unified data environment aided by technology, financial institutions can drive a culture of risk management and compliance to improve business decisions.

 

Riding the wave

The banking industry is still in the midst of its second transformation, and the pandemic hasn’t made it any easier. But riding this wave and successfully digitising processes to connect back and front office employees will present a profound difference to customer service.

The bank of the future will be frictionless, digital, cloud-enabled, and efficient; interwoven into the fabric of people’s lives. It will continue to be compliant and controlled but will deliver those outcomes differently, with risk management digitally embedded within its operations.

Demonstrating the operational resilience of its key services will not only drive customer confidence but will also provide a greater indicator of control to regulators and the market, adjusting overall risk ratings and freeing up capital reserves to drive more revenue and increase profitability.

The institutions that will thrive in this increasingly digital and connected world are the ones that are actively transforming themselves and the way they do business now, by taking learnings from fintechs, following regulations and paving the way in defining the future of financial services.

 

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Technology

MAINTAINING SECURITY: NOT SOMETHING TO LOSE CUSTOMERS OVER

investing

By Philipp Pointner, Chief Product Officer of Jumio

 

They say it takes 60 days to make or break a habit. With the UK having spent over 100 days in lockdown, old habits have changed and new ones have formed. While restrictions are starting to ease, these habits will stay with us, including how we choose to manage our finances. While prior to the pandemic, we may have gone to the bank regularly to deposit a cheque, change our bank account or open a new one, this habit has now been broken, putting the role of the branch in question.

Well before the outbreak of COVID-19, bank branches were closing in large numbers. More than a third of the UK’s bank branches have shut for good in less than five years, while hundreds of those that remain have reduced their business hours.

These macro changes in how we interact with our finances impacts financial institutions, which have had to adapt to allow current and prospective customers to access services remotely with the same level of security. Digitalisation in banking has been happening for years, but the global pandemic has significantly accelerated these efforts. While newer challenger banks have a reputation for faster sign-ups and seamless customer experience, security remains a top concern, particularly when the annual value of online banking fraud losses eclipsed £112 million in 2019.

Fraud detection measures have a reputation for making the customer experience worse. How can we preserve the user experience without compromising online security?

 

Philipp Pointner

The best experience vs. the best security

Top security at the account sign-up stage is essential, yet nearly half (48%) of all fraud value stems from accounts that are less than a day old. Experian’s 2020 Global Identity and Fraud Report found that account opening and account takeover are responsible for higher losses than any other type of fraud. The account onboarding process is one that carries many risks — financial, regulatory, and reputational — when identifying the true identity of a customer, especially when not done in person.

In ensuring fraud detection, measures with incremental friction are often put in place to keep identities secure. However, too much friction can be problematic, with nearly 40% of potential new customers quitting onboarding processes which are too time-consuming and onerous. This level of abandonment represents a significant cost for financial institutions. With friction having such an impact on conversion rates, there are lessons traditional banks can learn from their challenger counterparts when it comes to customer experience.

 

How do we solve this?

For many consumers digital banking is not new, but the global pandemic has forced others to try digital banking for the first time because there are no other options. How many of these consumers will return to a physical branch when lockdowns are lifted?

When onboarding, whether online or in branch, banks perform the same set of steps even though the process differs. While banks are required to perform the necessary due diligence as part of their KYC obligations, many of the onboarding steps required in-branch can be automated, streamlined and simplified to deliver a better customer experience.

Face-based biometrics have the power to help banks strike the right balance between customer experience and security when it comes to digital verification. When a customer goes to set up an account, the bank asks them to take a picture of their government-issued ID (e.g., driver’s license, passport) and a corroborating selfie. This process determines if the ID is authentic and if the person in the selfie matches it.

To make this process even more secure, online solutions are now embedding certified liveness detection in the selfie-taking process to make sure that the customer is not attempting to spoof the system with a deepfake video or a picture of a picture. By leveraging biometrics and AI, an accurate verification decision can be made in a matter of seconds, which dramatically lessens the friction and frustration experienced by most online customers.

 

Going beyond onboarding

With over 60% of financial institutions experiencing an increase in fraud volume over the last few years, and cyber fraud as the primary concern, top-end security needs to go beyond the onboarding stage.

Face-based biometrics can also serve as the answer to ongoing authentication. During the initial identity verification process, better online solutions create a 3D face map, containing over 100 times more liveness data than a 2D photo. When a future authentication is required, for example, when a customer tries to reset their password or initiate a wire transfer, the customer is asked to take a new selfie, during which a new 3D face map is created. This face map is compared to the original and authorises the transaction in seconds with a significantly higher level of identity assurance.

This holistic approach is required now more than ever, with fraudsters taking advantage of the surge to digital.

 

So, what next?

Digitalisation is no longer just an important priority — it must be a primary focus for all regulated financial institutions. When lockdowns were announced all around the world, challenger banks were better prepared to support their customers online, but while they may have had an advantage at the start, it doesn’t need to stay that way. With the extraordinary power of face-based biometrics and AI, financial institutions can level the playing field by delivering an online experience that balances account security and customer usability.

 

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