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Finance

KNOWLEDGE MANAGEMENT MIGHT BE FINANCIAL SERVICES’ SECRET WEAPON IN 2021

By Stephanie Vaughan, Global Legal Practice Director, iManage RAVN

 

No industry has escaped the impact of the COVID-19 pandemic, but financial services has had a particularly hectic year.

The pandemic threw a wrench into the gears of the global economy, bringing “business as usual” grinding to a halt. Many businesses and individuals found themselves unable to meet their financial commitments, requiring huge government economic interventions to stave off financial collapse and a potential global economic depression.

As we look forward to the coming year, financial services firms of all shapes and sizes will need to access every tool in their toolkit to ensure they safely navigate the months ahead. Knowledge management (KM) might just be the secret weapon they’re looking for to not only survive, but thrive, in this changing world.

 

The two approaches: data analytics versus content production

In recent years, different KM approaches from around the globe have converged.

The US has long incorporated a data-driven approach to KM, focusing on search, structuring data and analytics. In the UK and across other parts of the globe, KM efforts have focused less on data analytics, and more on producing content and knowhow.

For quite some time, these approaches were kept separate – even in organisations that operated internationally. But a cross-pollination has taken place, and US knowledge teams are starting to focus more and more on content curation. At the same time, UK knowledge teams are looking to analytics and data-oriented projects to extract new insights.

As the two approaches merge, KM becomes better suited than ever to deliver value to organisations in new ways. This is for two reasons. First, it enables processes to be defined and helps join the dots between different exercises. Second, it enables knowledge to be delivered to the people who need it in new and better ways.

 

KM helps to define processes

Within most financial services organisations, innovation and KM have been separate functions. Most of the press coverage and hype has been associated with themes such as AI and blockchain. In the meantime, knowledge managers have had their noses to the grindstone getting on with their work, outside the spotlight.

Increasingly, however, firms are realising that that innovation doesn’t happen on its own. Through lack of adoption of technology or lack of tangible change, people are starting to realise that scaling innovation is part of a wider process that requires an in-depth understanding of internal processes. This, together with increasing acknowledgement of the cost to the wider institution of inefficiencies and lack of processes in a highly regulated environment, is where KM steps in. With a focus both on content creation and data analytics, KM can provide the vital role of increasing understanding around key processes. Only once those processes are understood can technology start to enable real and lasting change.

 

Example: LIBOR

The upcoming LIBOR transition provides a helpful example.  Financial institutions have financial products linked to LIBOR valued at more than USD 350 trillion. LIBOR is due to be phased out at the end of 2021. This means that all documentation underpinning these financial products must be amended so that they no longer refer to LIBOR. This is known as the “LIBOR re-papering” exercise.

The first problem financial institutions face is to identify all those products that do, in fact, refer to LIBOR. Because of the scale on which this exercise must be carried out, it is often not cost-effective to employ humans to undertake this exercise. Instead, financial institutions have deployed AI tools to identify documents that contain references to LIBOR, in order that these documents can be subjected to analysis and amended. This isn’t over-hyped AI: this is the identification of a problem that needs a solution powered by AI.

It is also a problem that could have been lessened if there had been effective KM processes in place. Indeed, it is off the back of repeated regulatory changes such as LIBOR that many financial institutions are beginning to realise just how important KM is. KM plays a vital role here to help with  remediation – i.e. cataloguing the processes and best practices that must be applied to this exercise, so that financial products can continue into 2022 and beyond. Additionally, KM also assists by allowing financial institutions to have in-depth knowledge and data insights across their contracts. An effective KM system allows firms to combine content-based and data-centric approaches making solving problems such as LIBOR easier.

 

KM helps to bring discrete processes together

The KM role goes even further, using the LIBOR opportunity to identify other risks during a large-scale contract analysis.

For example, what COVID-19 specific scenarios could these same processes be applied towards? Are there leases in a commercial real estate portfolio that need to be renewed? Are there hidden deadlines contained in contracts that would otherwise be overlooked? LIBOR has presented an opportunity for financial institutions to overhaul their contract management systems. AI plays a role in all of these exercises – but it is KM that it is pulling the strings and spotting the links between what would otherwise be discrete exercises.

 

No office necessary

Even businesses with the most advanced KM functions have traditionally relied on people “popping their head around your door” to have a chat. As workforces get used to remote working, KM has a huge part to play here.

In a distributed work environment, it is harder for employees to rely on know-how being stored in people’s heads and inboxes. Here, KM only grows in importance, delivering existing best practices and curated content to the knowledge workers who need it to carry out their jobs effectively.

AI again works hand-in-hand with KM here, providing new ways to proactively surface important knowledge assets and offer them up to professionals. The partnership between AI and KM will inevitably lead to Netflix-like suggestions: “people accessing this template also viewed this survival guide.” This partnership is nothing without a KM team focusing on the right content and the right data points.

The post-pandemic world will not be without its challenges, but financial services firms can take comfort in the fact that they have KM as a secret weapon at their disposal, and KM can rightfully and deservedly bask in some of its newfound glamour.

 

About the author

Stephanie Vaughan is Global Legal Practice Director at iManage RAVN. She leads the team at iManage that engages with law firms, corporates, and professional services firms to help them understand and adopt artificial intelligence technology in a practical manner – while fostering a culture of innovation in their organisations. A lawyer by training, prior to iManage RAVN, she was at international law firm, Allen & Overy, where she worked in the Market Innovations Group and the Derivatives and Structured Finance Group, delivering global technology focused projects to clients. For these projects, she was involved in everything from design to delivery and ongoing running of the programs.

Finance

WHAT’S NEXT? PAYMENT TRENDS IN 2021

Philip McHugh, CEO at Paysafe

 

Undoubtedly COVID-19 is going to continue having an impact on us all at least for the next few months and maybe all of this year, but there are still reasons to be optimistic. The industry continues to evolve quickly, and that in mind, here’s five of our predictions to watch out for in payments in 2021:

 

1. New consumers to online change the digital payments landscape

As more consumers headed online during the first wave of COVID-19, businesses noticed that their customers were also paying differently. Three quarters (76%) of the businesses we recently asked for our Lost in Transaction research report series said that consumers were using different payment methods during the pandemic, with the increased use of digital wallets being the most common. Having more customers that were new to eCommerce, and customers now shopping regularly with businesses that they were not comfortable sharing their financial details with, were key reasons for this.

Consumers confirmed this was true. When we asked in April, 18% of consumers told us they shopped online for the first time during the pandemic. With 38% of consumers telling us they are planning to shop online more even when COVID-19 is no longer a factor in their lives, we should see this shift to alternative payments continue.

 

2. SCA will drive mass adoption of biometric authentication 

Perhaps the first factor to shake up the payments industry in 2021 is going to have the greatest impact of any trend we will see in the coming year. That is because, after a series of extensions, the deadline for PSD2 Strong Customer Authentication is fast approaching. From December 31 2020 any transaction that isn’t verified by multi-factor authentication will be automatically declined.

One of the inevitable consequences of this is going to be a huge increase in the use of biometrics to verify payments. With the growth of mCommerce that we have seen before and during COVID-19, it seems very likely this will accelerate beyond predictions made at the initial SCA deadline in 2019. Juniper Research has already predicted that biometrics will be used for more than 18 billion transactions in 2021, with a value exceeding $210 billion in 2021.

 

3. A renewed focus on 5G

The importance of 5G and the growth of the IOT was another prediction we made for 2020. But while the impact of the pandemic has been to accelerate many of the trends we expected to see, perhaps one area where the pandemic has actually slowed adoption is the growth of 5G. With consumers spending so much time at home, appetite for personal 5G-enabled devices has been limited.

But at the same time, the need for the in-store shopping experience to be as frictionless as possible is now more important than ever. Almost half (46%) of businesses told us that they had lost sales in 2020 because their checkout times were too slow. So the use of 5G technology to overhaul the checkout will be back at the top of retailers’ agendas.

Almost half (47%) of stores told us that 5G will mean the end of the traditional checkout, and more than half (53%) believe that Amazon-Go style frictionless checkouts are the future of retail. Omnichannel experiences where consumers shop in a store and then pay via a digital checkout on a smartphone app are also on businesses’ radars.

 

4. A surge in subscription models

Almost one fifth (18%) of stores told us that they had launched a subscription services during the pandemic, and this is not only a result of business need but also customer demand. Overall, 27% of consumers told us that they were already planning to increase the number of subscriptions they had in the future, and this rose to 37% for consumers aged 18-34.

The growth will not be limited to digital either. Pret A Manger recently launched the first in-store coffee subscription service in the UK, and we expect to see similar models populating malls and independent stores soon.

Also, only the initial purchase of a subscription is subject to PSD2 multi-factor authentication. So for some businesses, launching a subscription service may be a way to reduce friction in the online checkout.

 

5. AI and machine learning as the cornerstone of fraud prevention

We’ve known about the importance of artificial intelligence (AI) and machine learning to financial services for years, but in many cases the industry has been slow to implement the technology. With the sophistication of financial crime increasing, and the growing concerns of consumers of being a victim of fraud, it is no surprise that adoption is now accelerating rapidly.

Banks have currently spent as much as $217bn on AI applications already, and in 2021 AI and machine learning based systems will be the standard in fraud prevention.

 

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Finance

FIVE TRENDS THAT WILL IMPACT THE FINANCIAL SERVICES INDUSTRY IN 2021

Ian Johnson, Managing Director Europe at Marqeta

 

Coronavirus has shaken things up across all industries, and financial services is no different. This year, we are likely to see a much more risk averse industry, as fintechs and banks alike move into survival mode. Yet, this will also spur innovation. The shift away from cash will give a shot in the arm to digital payments, while lenders in particular will have to get creative to balance their risk against the need to dispense funds.

It’s likely to be an interesting, albeit bumpy, year. Here are five core trends that I see having a major impact in 2021.

 

Lenders will seek improved visibility to combat delinquency

An economic downturn unfortunately means higher delinquency rates for lenders. But businesses – in particular, SMEs – need liquidity to survive, now more than ever. To balance risk with need, more lenders will focus on enabling visibility and control after a loan is dispensed. Instead of issuing funds to a bank account, loans will be dispensed to virtual cards or wallets, allowing lenders to track exactly how and where money is spent. This way, lenders only release funds as they are needed – rather than in one lump sum.

Ian Johnson

They also have the power to approve or reject payments in real-time, based on whether the request is aligned with the terms of the loan agreement. For instance, if a company has secured a loan for IT equipment, but attempts to spend it on office refreshments, the lender can make an instant decision to permit or deny the transaction based on geolocation and other transactional data. So, borrowers should ready themselves to be much more transparent if they want to secure loans in the future.

 

Embedded payments to become more commonplace

Embedded payments has been around a long time – just look at pioneers like Uber, where payments are so integral to the customer experience that it doesn’t even feel like you’re paying anymore. In the next year, we will see this expand, with a wider variety of organisations making payments a core element of their customer experience strategies. This trend will be coupled with a shift towards transparency and privacy, where people willingly exchange their data for an improved, personalised experience.

This is something consumers do readily in many areas of online life already – shopping, social media, and so on. In 2021, we will see more banking and payment services operating off the back of this same exchange. In return for data, customers will be given smoother, more tailored payment experiences.

 

Use of cash to drop below 15%, falling from 23% of all payments in 2019

The UK and Europe’s departure from cash will continue to evolve into next year. Physical cards will begin to give way to a rise in digital payment methods – virtual cards, digital wallets, and the likes of Apple Pay and Google Pay. Banks will need to prepare for this shift; hopefully learning their lesson from the early months of the pandemic, where 88% were overwhelmed by demand for online and mobile banking. This means modernising behind the scenes, using technology to improve and streamline payment processing. Time and money also need to be invested into educating and supporting businesses and individuals that going cashless could leave vulnerable, such as small merchants and elderly people. Until this has been addressed, going cashless risks leaving the most vulnerable in our society behind.

 

Back-end bank modernisation set to continue

Traditional banks recognise that they need to be able to innovate faster, particularly on the front-end, to compete with the new waves of digital banks and fintech entering the market. While we will see continued modernisation on the back-end, as they try to unpick the complex web of legacy systems they sit upon, I would not expect this issue to be fixed in a year. Instead of taking on the risk of full migration, many banks will ‘hollow out’ certain services – leaving core services in place that are too risky to move, whilst shifting newer services onto more modern platforms to avoid coding them into legacy systems.

This will create the building blocks to build a standalone digital bank within a bank, allowing them to modernise the entire stack and then incentivising customers to make the switch. An example of this approach is Goldman Sachs’ digital bank Marcus, which has debuted to strong demand – it’ll be interesting to see if others follow suit.

 

Alternative lenders will open up the market to support post-COVID-19 recovery

The process of securing a loan has always been quite painful – involving lots of self-reporting, paper statements and credit reports. And it could take days to find out if you were successful and then even longer to access the funds. Thankfully, it is looking like those days might be coming to an end with the emergence of a new breed of alternative lender focused on transforming specific niches of lending. Take SME lending, which has traditionally been regarded as high risk/low rewards and neglected by traditional lenders.

New alternative lenders, such as Capital on Tap, are changing the stakes. Using data and modern payment platforms, they are able to make loan decisions in minutes, not months. We are seeing the same in Point of Sale lending with companies like Klarna – now, you can apply for a POS loan and get approved in seconds. These companies will set the standard in terms of expectations around lending, forcing bigger lenders to follow suit and helping to transform the loan experience.

 

Fintechs to continue leading front-end innovation

Fintechs hold the monopoly on defining what ‘good’ looks like in terms of features. From money management tools, to saving incentives, fintechs have the agility to create new, attractive products with a speed and creativity that traditional banks simply cannot match. However, true success stories of fintechs paving the way to long term profitability are rare. Established, traditional banks still hold all the capital and most of the main checking accounts, making it harder for fintechs to really get ahead. This is likely to continue into 2021, but we are seeing signs of convergence, with fintechs acting as the front-end for customers while banks provide capital in the background.

 

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