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THE END OF THE WORLD AS WE KNOW IT: BANKING’S NEW REALITY

Simon Wilson, Director, Payment Solutions, Icon Solutions

 

There are decades where it feels like nothing happens, and there are weeks where decades seem to happen. In just over 100 days, COVID-19 has swept around the planet, more than half the world’s population has been forced into lockdown, far too many lives have been lost and entire industries have shutdown. A crippling global recession seems inevitable and a clear exit strategy, for now, remains elusive.

Make no mistake, this truly is the end of the world as we know it. As we gradually emerge from this unprecedented crisis, societies and economies will have been irreversibly transformed at a pace and scale that would have been unimaginable only months ago.

For the payments industry, transaction volumes have collapsed as entire sectors have shut down and buying has ground to a halt. The impact is felt not only at the point-of-sale, but across supply chains and corporate, FX and trade finance transactions. In contrast, massive stimulus, relief and requisition packages have led to a huge increase in government payments directly to corporates and consumers.

Simon Wilson

Banks and financial institutions have critical, positive, immediate roles to play in supporting consumers and business, while facilitating the repurposing of entire economies and welfare systems. Longer-term, banks will need to address a range of challenges as they adapt to the new normal. One thing’s for sure, efficiency across every area of their business will be central to doing the best for customers and shareholders, and minds need to be on accelerating digital transformation.

 

Becoming the good guys

The reputation of the banking industry has never fully recovered from the 2008 financial crash. Public reaction to banks seen to be abandoning their customers will be severe, immediate and potentially unsalvageable. When push really has come to shove, the human race has prioritised life over money. Banks (and other businesses) that are stepping up now will be rewarded in the long-term.

Viable companies that have fallen on hard times must also be supported. Many industries such as airlines, travel and hospitality will not immediately bounce back, and finding sustainable ways to prop them up is undoubtedly a challenge. Accurate cash management to protect liquidity and reserves, for example, will be key to the survival of many businesses until better times return.

In contrast, other companies have taken off. Medical ventilator manufacturers are rapidly working to scale production, while engineering firms from other sectors are repurposing factories. Remote working means Zoom and Slack have seen share prices skyrocket since the end of January. Supporting and facilitating growth where possible will save lives and assuage ailing economies.

The unique financial circumstances and inclinations of consumers must be considered.  Diligent savers are being forced to raid rainy day funds, take on debt and risk potentially defaulting on mortgage, loan and credit card payments. Spendthrifts are all-dressed-up with nowhere to go and are transformed into frustrated misers. A one-size-fits all approach will not work, and banks must think outside the box to ensure the individual needs of customers are met.

 

Making life easier in hard times

Banks must also consider the behavioural impact across the economy. The way we transact is likely to have changed forever as we get used to new payment methods. With billions of people stuck inside and shops shuttered, online spending has soared. And when shopping in-store, consumers are opting for cashless payment options, especially contactless cards and mobile wallets, to avoid touching cash and POS terminals. For corporates, cheque use (which accounts for 40% of B2B transactions in the U.S.) will decline as banks push real-time alternatives.

Banks also need to prepare for mass channel changes and provide support to aid this transition. Consider the many (mainly elderly) customers who were reliant on branches being forcibly converted to digital banking as a result of lockdown and quarantine measures. My suspicion is that many lockdown closed branches are unlikely to re-open, accelerating an existing trend.

Digital education is particularly crucial given another predictable, and disappointing, trend. We have seen a significant increase in fraud as criminals and chancers prey on uncertainty, confusion and inexperience.

But with banks’ own internal human resources under huge pressure and strain, supporting the transition to digital channels presents challenges. Artificial intelligence (AI) and machine learning (ML) technologies, therefore, have a key role to play in service provision. AI call centres and chat bots are already seeing increased use to help deal with enquiries, while AI-based fraud prevention tools can help protect customers. However, using them in the right way at the right time is a challenge that still needs to be met.

 

Speed and scale matters

Beyond support to individual consumers and companies, huge structural shifts must be addressed. The ability to respond quickly and on a massive scale is the key to protecting lives and livelihoods. Payments are an integral part of this response.

We are therefore seeing unprecedented government intervention. The U.S. is sending $1,200 to every citizen. But welfare systems are simply not designed for this scale, and urgent support is needed to help distribute funds and relief to those who need it.

Real-time payments enable the distribution of urgent funds, such as aid, immediately rather than in a week. Value-added services built on RTP rails, such as Request to Pay, will enable data-driven action and could prove powerful.

Global supply chains have also been decimated. Protectionist instincts alongside practical necessity have taken root as governments come under increasing scrutiny. With ongoing supply constraints due to social distancing the need to source closer to home is likely to drive lower intercontinental trade.

Banks have a crucial role in supporting a rapid shift towards domestic production, whether it be food, medical supplies or PPE. For example, Singapore (which produces only 10% of its food locally) has launched a $30 million fund to incentivise innovation.

 

Payments transformation in a transforming world

It is a brave person that predicts what comes next. But what we do know is that bank profitability, already a significant pain point, will be placed under unprecedented strain from reduced transaction volume, historically low interest rates and increasing default rates.

Reducing costs, and quickly, is essential.  With the stakes now higher than ever, we can expect to see a marked acceleration in payments transformation initiatives. Outdated, fragmented and expensive legacy systems are a burden that banks can no longer afford. As McKinsey noted, ‘banks will need to reflect on how to organise themselves for change, possibly by running some of their payments businesses in a completely different way.’

Establishing a clear strategy and target architecture, outsourcing non-strategic elements of the payments value chain and leveraging cloud-based open source technology provide opportunities to reduce costs and increase resiliency, while laying a foundation to adapt to the uncertain times that lie ahead and support consumers and businesses through them.

 

Banking

WIRELESS CONNECTIVITY POWERING BANKS OUT OF THE STORM

FINANCIAL SERVICES

Graham Brooks, Strategic Account Director, Cradlepoint EMEA

 

It’s now clear the pandemic is going to have a long-term effect on the British high street. Back in April high street retailers, shop owners, and bank branch employees were wondering: ‘How many weeks will this last?’ By July, ‘weeks’ were swapped for ‘months’. Now it’s clear that life on the high street will be affected for longer than initially expected. Many brands have already shut numerous stores or are looking at the prospect of administration. Bank branches, too, are experiencing the brute force of the pandemic’s impact.

For a while, temporary measures in response to lockdown restrictions appeared to suffice. Flimsy plastic barriers and paper signs were printed and tacked up on the walls. But with the long-term impact now clear and the prospect of another year of social distancing, bank branches must transition to more permanent solutions. This means less people and more machines – contactless services, new cash deposit systems, and digital signage.

Digitisation is no longer an option for banks to ensure a continuous flow of new customers. It’s an imperative. In this article, we explore how wireless technology is going to help them facilitate that change.

 

Graham Brooks

Relying on connectivity for optimal service

Traditional banks now face their biggest challenge in history: digital-only banking. Over two-thirds of participants in a 2020 study planned to transition to a digital-only bank in the future. It’s therefore vital that traditional banks running physical branches update in-branch customer experience to compete with the new pack on the prairie. Reliability plays a big part. So does trust.

The future of in-branch experience lies in technologies such as IoT, VR/AR, and AI, all of which are highly data-intensive. Reliable connectivity is therefore critical, and banks should be shooting for zero-downtime connectivity, allowing no room for gaps in service.

To do this, banks can deploy Gigabit-class 4G LTE (LTE Advanced) or 5G adapters that bridge to a traditional ethernet connection, providing a wireless option to the wired-line router. Then, in the rare scenario where wireless connectivity is down, at least one of the WAN connections is always guaranteed to be live. The router has the autonomy to determine when failover is necessary.

Better still, the reliability of modern Gigabit 4G LTE and 5G connectivity now means that failover is often unnecessary. A branch can, therefore, run its network independent of a wired-line connection and benefit from the security and agility of a resilient wireless network, while still providing enterprise-grade connectivity.

Branch network reliability, in this way, will support the bank’s reliability as a whole. In turn, this will fuel the higher standards of customer experience needed to compete with more agile digital-only banks.

 

IoT bridging gaps in communication

The first organised response to stop the spread of the virus around the world was social distancing. While transparent screens can be used to block transmission, the overarching effect of these measures has been a loss of communication capabilities. This will affect banks like it has everywhere else, if not more as a space where interaction is so important.

IoT technology will be core to overcoming these barriers. Digital signage, kiosks, and surveillance cameras will all contribute to improved communication and security, and a better customer banking experience. But to enable such extensive use of IoT devices operating on a single network, banks must ensure they can accommodate such high levels of data transfer. Using Gigabit 4G LTE connectivity to extend its services beyond traditional network infrastructure, banks will achieve the required levels of bandwidth.

 

Cloud management simplifying in-branch communications

With high volumes of data being transferred across the network, security and availability should be at the top of the agenda when digitising bank branches. But these are not always easy to implement, especially in an environment with several complex networks of endpoints.

For example, marketing teams need to push personalised content to customers on digital signs and IT teams need to set visitors up on a guest WiFi network. These operations require the guarantee of security and availability, with trust and the customer experience at the core.

Wireless networks excel in this aspect as they can employ the benefits of a cloud-based management system. Cloud-based systems make it easier for bank staff working from home, who can access the same assets and applications from their sofa as they would otherwise have in-branch. The service is the same.

Cloud management systems also provide improved network visibility, giving IT teams endpoint information from across the network as it happens. With security patches being updated on devices simultaneously, leaving reduced time for opportunistic attacks to exploit known vulnerabilities.

Equally, by using a hybrid Gigabit 4G LTE network in tandem with a wired connection, businesses can achieve simplicity from an otherwise complex challenge. The primary wired network can be used to transmit any sensitive information securely, while a separate network using the Gigabit 4G LTE connection runs other in-branch operations.

The branch’s network, in this way, is ‘air-gapped’. The secure data being processed by the operations team runs on an essentially separate network to that of the marketing team’s content. The network will also increase its ability to process more information, with its workload spread out.

The simplest solutions are often the best. In this case, exploiting a hybrid network can address the complexities of security and availability when employing enterprise-grade connectivity.

 

Good things come to those who prepare

As the pandemic continues, banks will have to be flexible in their approach to branch management. But in the long run, it’s clear that digital investment will be one aspect they cannot neglect. How they approach this challenge is also important. But with an inherent reliability, flexibility and security of enterprise-grade wireless edge solutions, branch services will be on their way to sustainable digital development.

As with most things, good things come to those who prepare, not wait. Those banks that adopt innovative technology early will come out on top.

 

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Banking

WILL COVID-19 ACCELERATE THE TRANSITION TO BANKING ALTERNATIVES

Gael Itier – CEO & Founder at Akt

 

What will the world look like once the pandemic is over? At present, no one can be sure given the rapid pace of change experienced over the past year. However, there are signs to suggest that our social and economic structures are shifting, and what is certain is that the world will undoubtedly appear very differently than it did pre-COVID.

For example – the five-day working week – a staple of modern society – now appears to be under threat due to advancements in workplace technology and an enforced successful period of working from home.

Instances of such change are happening across the entire breadth of society, and the world of financial services hasn’t escaped this. Over the past few years, Europe’s fintech sector has boomed as entrepreneurs have worked to provide an alternative to the traditional banking system. Generally smaller and more agile than the incumbents, fintech companies have been able to create services that mesh better with a hectic modern lifestyle. However, given the changes that are likely to result from COVID-19, will we soon see consumers switch at an even greater rate?

 

The changes brought forth by COVID-19

The financial sector was already undergoing significant change before the pandemic. Regulatory evolution and advancements in technology had already brought forward measures such as open banking, and as previously mentioned, changing customer demand had led to increased competition and a number of new entrants to the marketplace.

Gael Itier

COVID-19 has acted as a catalyst, rapidly intensifying the pace of some of these changes. For example, from the perspective of financial institutions, many found themselves having to promptly shift to a model of working from home after having been previously pessimistic to its benefits. This effected the delivery of both front and back end services, as organisations needed to invest time and resources into adapting to the new normal.

The move toward home-work also changed the outlook of the consumer. Now spending less time in busy town centres, the average consumer will spend more time managing their finances using digital and mobile channels, rather than traditional in person services. Furthermore, with the global employment market on especially unsteady ground, many consumers are looking for flexibility in the services that they use to able to adapt to any unforeseen change.

 

Why the fintech sector has been perfectly placed to take advantage

Whereas traditional banks needed to drastically adapt their ways of work to not being in the office, for many new fintech companies this was already the standard. As such, some customers of traditional banks will have found themselves receiving comparatively worse service than they did pre-pandemic. Many customers will have managed their finances in traditional brick and mortar locations. As such, with consumers having to rapidly shift to using websites, mobile apps, or over the phone – a number of the incumbents may not have had the necessary capacity in these services to deal with the increased demand, and this will have resulted in bottlenecks. Newer fintech’s will often have no physical presence at all, instead having built up their services with digital outlets in mind. As such, they were perfectly placed to adapt to this shift.

A similar pattern will be witnessed should a customer or business try to open a new account or access additional finance. Traditionally, this will require the applicant to produce physical documents to verify their identification, and their credibility as a borrower. With brick and mortar locations either remaining closed or operating at a severely reduced capacity, this inhibits the ability of many traditional banks to process these new applications, again resulting in a backlog. Some fintech’s meanwhile have used technology which allows for this process to be done digitally, utilising automation to ensure that the process is smoother.

Many consumers – having been forced to employ technology to manage their finances – will have also been impressed with the greater convenience, and will seek to switch to using digital forms more permanently. This means that what they look for from their financial service provider may change. For example, this shift will see aspects such as the app user experience, digital account opening, and remote claims become more important in determining what service to use. While the traditional banks can and do provide these services, in many cases they are hindered by having to build on top of legacy software, and a lack of expertise when compared to newer fintech’s, many of whom will have been established with these features in mind. This will mean that they’ll be well placed to take advantage of the newer consumer demands due to the higher quality of their features provided.

 

Making money go further

The average consumer will now be seeking ways to make their money go further. With the global economic outlook looking precarious to say the least, most people will look to sure up their finances. This is as the pandemic has made many people realise that it isn’t viable to live paycheck to paycheck, and has shown the importance of having a financial backup plan and the benefits of having another source of income, such as owning income producing assets. Even though more people are now looking to involve themselves in their finances and investing, the barrier to entry is still very high for those starting out as investors when it comes to accessing and effectively managing investments. As such, a banking platform which allows consumers to manage all their financial assets in a single place, utilising technology such as automation to grow the value of these assets will be very well placed to capture market share.

COVID-19 has already redressed the world in a fashion that was once unthinkable. We’ve seen mass upheaval to the way we live, work and spend our money, and the financial sector has had to scramble to meet expectations as society changes around it. This has led to the growth of a number of new companies who’ve risen to the challenge by offering greater flexibility and a better standard of service to consumers. While for now this appears to be the start of a revolution, only time will tell whether this will continue as we emerge from lockdown.

 

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