Banking

HOW CAN CLOUD-BASED ANALYTICS HELP BANKS DRIVE DIGITAL TRANSFORMATION?

By Paul Jones, Head of Technology, SAS UK & Ireland

Fintechs are turning up the heat in retail and corporate banking. As smaller, more agile providers have entered the banking market, customers are getting used to a higher level of service – a personalised, digital experience that guides them to make quicker, smarter decisions about their finances. For traditional banks to compete, they need to transform the way they operate. On the retail banking side, that means digitising customer-facing services. No queuing in branches, no paperwork. And when customers apply for a credit card or loan, they get a decision in seconds.

Meanwhile, on the corporate side, the aim of transformation is often to enable an everything as a service (XaaS) strategy, building smart packaged offerings such as treasury as a service or risk management as a service, which the bank can both consume in-house and provide to enterprise clients.

Data-driven digital transformation

To foster this type of digital business transformation, banks need to redesign both internal and customer-facing processes to embed data-driven decision making. By integrating intelligent automation and decisioning capabilities into their operations, banks can eliminate paperwork and manual processing. This will greatly improve service levels to customers while keeping the cost-to-serve to a minimum.

The creation of these data-driven services depends on the ability to design, build, test and deploy processes that embed predictive models using both well-established statistical methods and new artificial intelligence and machine learning (AI/ML) techniques. The development life cycle for these models is inherently experimental. It’s vital to try different approaches, test the results, and iterate on the candidates that offer the greatest potential. To remain relevant in the digital age, organisations must deliver such experiments with agility and speed.

The obstacle of legacy infrastructure

The problem is that banks’ traditional IT architectures – built around legacy on-premises systems – are a uniquely bad environment for developing these models. Due to the experimental nature of the models, it’s very difficult to forecast what type of infrastructure banks will need for upcoming projects. For example, different machine learning algorithms run best on hardware that has been optimised for that category of model building. If you invest in a cluster of servers with a particular configuration of memory and processors, it may only be suitable for a small subset of the work you actually need to do. And every time you need to change your approach, you’ll face high fixed costs and a long lead time to get the right infrastructure in place.

Instead, you need an IT architecture that allows you to set up experiments quickly and manage them flexibly. When an idea doesn’t work out, you should have the ability to fail fast and cut your losses. And when an idea succeeds, you need to get it into production rapidly and roll it out for enterprise-scale deployment.

The promise of cloud-based analytics

The cloud is the perfect environment for these exploratory projects. It gives you the freedom to spin up almost any type of infrastructure within minutes, and either scale it or shut it down instantly depending on the results.

Cloud environments also free you from dependencies on departmental silos and the quirks of your internal network. They give you a green-field site where cross-functional teams can collaborate freely, enabling you to build models that combine domain knowledge from different areas of the bank and create opportunities for XaaS offerings that would never have been possible in the past.

Regulatory hurdles

While most of the major public cloud providers now offer a range of analytics-specific infrastructure services, they come at a price. Once your data and models live in a particular proprietary cloud repository, they can be difficult to get out again. You’re locked into their infrastructure for the foreseeable future.

Besides the commercial implications, this lock-in poses a major regulatory problem for banks. According to the latest consultation paper on outsourcing and third-party risk management from the Prudential Regulatory Authority (PRA), regulators expect banks to be able to port any outsourced services over to another provider or bring them back in house without any risk to business continuity.

The right tool for the job

I’ve had conversations about moving to the cloud with CIOs at banks of various sizes, and this issue of portability has been a recurring theme. They are looking for analytics solutions that work with any vendor and run on any cloud platform – or move between platforms – without significant disruption. In fact, since many banking use cases involve analysing data that is too sensitive to store outside the internal network, one of the most-requested offerings is a hybrid cloud/on-premises solution. Banks could then perform experimental projects with anonymised data in the cloud and then bring the successful models back into their own data centre for deployment in production.

Finally, while there’s a lot of buzz around AI/ML techniques, it’s important to recognise that they are not always the best option. Traditional statistical methods can be equally powerful, cost less to maintain, and can be easier to explain and audit – an increasingly important capability, as a recent legal case in the Netherlands demonstrates. My advice is always that banks should look for a single platform that gives equal support to both statistical and AI/ML modelling techniques and provides easy-to-use visualisations that make models easier to interpret. This allows your data scientists to pick the best tool for the job. And makes it easier for you to ensure the safe and responsible use of your data.

We’re working with a number of leading banks to power their digital transformation initiatives and build towards the XaaS future in the cloud. Find out more about what’s possible with cloud computing.

Banking

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.

Banking

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.

Consumer concerns

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.