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THE EVOLVING ROLE OF ARTIFICIAL INTELLIGENCE AND DATA ANALYTICS IN THE BANKING INDUSTRY

Rupa Ramamurthy, Executive Vice President of Banking Operations at Teleperformance India, discusses how embracing data and analytics has become a business priority for the banking industry.

Over the past few years, the financial services industry has made huge strides in adopting new technologies, like artificial intelligence (AI) and data analytics, into its workflow. In fact, the IHS Markit’s ‘Artificial Intelligence in Banking’ report estimates the global AI market will reach $300 billion by 2030[1]. This wide adoption of AI-driven automated solutions has been largely driven by the link between the strategic adoption of such solutions in the banking sector and the results – strategic cost-savings, enhanced operational efficiency, and higher engagement rates with customers and prospects.

Leveraging AI for the Front-Office

Industries across the board are undergoing an AI-enabled digital transformation, to provide a more seamless customer experience, fit for the new generation of hyper-connected consumers. A shift in customer behaviour has redirected interest towards challenger companies, rendering legacy organisations less relevant in today’s radically different, post-pandemic landscape. This is particularly true in the case of financial services, where consumers have come to rely upon banks that allow smooth authentication, provide swift and easy transactions with 24/7 access to their funds, and drive personalised services. Banking is ahead of other industries, in respect of the deployment of AI to lift and automate the customer experience model, with one in five UK consumers now using challenger banks[2].

Certain customer-facing applications of AI are on a staggering growth curve across banking operations, accelerated by the need for instant, online responses. For example, chatbots – being used to support front office operatives and instantly manage and respond to inbound customer queries – are now set to account for 85 per cent of all customer service interactions for financial institutions by 2021[3]. Assisted intelligence solutions, such as click-to-chat technologies, make it possible for banks to streamline the end-to-end customer journey, in a more cost-effective and consistent manner than is possible by a customer service agent.

By implementing analytical technologies, financial institutions can gain a deeper understanding of customer needs to devise customised interactions and offers. As data sources mount, banks can continuously improve resolution times without the need for staff intervention, and achieve 30 per cent higher sales conversion rates as a result[4].

 

Reduction in costs
In the back-office, AI-powered tools are being used to complement the work of human agents by completing the tasks typically prone to human error – thereby minimising operating costs. In fact, it is expected that by 2023, $447 billion will be saved in costs, through the increased adoption of AI by financial institutions.

The automation of processes such as mortgage applications, account openings, and remittances services has become commonplace, as banks seek to drive down costs and increase productivity by limiting customer agent mistakes. Even in 2020, human error remains one of the leading causes of data breaches for financial institutions. As AI is adept at handling unstructured data, error rates can be significantly reduced, as well as the significant cost of resolving them.

 

Fraud Detection
The banking industry is extremely vulnerable to threats posed by fraudsters. Therefore, fraud detection and mitigation have become a top priority for all financial institutions. AI now plays a leading role in decreasing rates of false positives, by reducing the number of missed alerts signalled by transaction monitoring systems – preventing fraudulent attempts and reducing payments fraud.

Through machine learning, AI is able to interpret trend based-insights, making it possible to determine whether a transaction is fraudulent or not – in fact 63 per cent of financial institutions say AI is capable of preventing fraud before it happens[5]. Automated programmes are capable of carrying out security checks accurately, helping to keep customers’ accounts and the financial ecosystem safe. As digital identities become increasingly important, the role of banks is expanding to help customers safely verify their identities with Multi-Factor Authentication (MFA).

 

Using Data for Good
Whilst personalised user experiences can make the customer feel their providers understand their needs, financial organisations should use data insights to make responsible recommendations. By tracking customer’s spending and purchase history, AI can help customers make more informed and appropriate decisions, and to not encourage people to take on debts they cannot repay.


Post-Pandemic Banking

The post-pandemic marketplace will continue to see AI flourish as a business differentiator. As a multi-faceted technology, AI has transformed traditional banking models and given way to a new breed of challenger banks, setting new standards for customer experience. Financial organisations are leaning on the technology to strengthen their algorithms, defend against fraud, and premeditate and address customer needs – with the ultimate business objective to cement their reputation as a reliable and resilient partner.

[1] https://news.ihsmarkit.com/prviewer/release_only/slug/technology-global-business-value-artificial-intelligence-banking-reach-300-billion-203
[2] https://www.fintechmagazine.com/fintech/why-one-five-uk-consumers-are-now-using-challenger-banks
[3] https://www.inc.com/rebecca-hinds/by-2020-youre-more-likely-to-have-a-conversation-with-this-than-with-your-spouse.html
[4] https://www.gartner.com/en/newsroom/press-releases/2018-02-19-gartner-says-25-percent-of-customer-service-operations-will-use-virtual-customer-assistants-by-2020
[5] https://www.cybersecurityintelligence.com/blog/artificial-and-augmented-intelligence-is-re-making-banking-4728.html

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Banking

WHY AGILE, SCALABLE DATA MANAGEMENT IS KEY TO DIGITAL BANKING

By Jason Hand, Global Account Executive – Enterprise Sales, Commvault

 

Back at the start of 2019, before we’d ever heard of COVID-19 (hard to imagine these days, I know), mobile banking was predicted to overtake high street branch visits within two years. But the restrictions placed on daily life to get to grips with the pandemic proved to be a catalyst in speeding up adoption.

Although banks haven’t had to close during the UK lockdowns, they discouraged unnecessary visits — and many people new to online banking discovered that it could provide a quick and easy (and COVID-safe) way to manage their finances. No surprise then, that as summer came to an end, over three-quarters of the UK population were using some form of online banking and one in ten people had switched to a digital-only bank.

When it’s implemented well, online, digital and app-based banking is as easy as shopping with Amazon, booking a cab on Uber or grabbing a takeaway via Deliveroo. With so much potential to create a similar customer experience — and so much to lose if they fail — banks are under pressure to deliver on digital services. But their success (or otherwise) will depend on how well they manage their digital data and, in particular, how willing they are to adopt more agile, scalable, cloud-based solutions to underpin their new services.

 

Adopting New Technology in a Risk-Averse Sector

The UK’s financial services sector is undoubtedly slow when it comes to adopting new technology. Indeed, many UK banks continue to rely on mainframes. This cautiousness stems from the continued rise in cybercrime and the fear of non-compliance with FCA and data protection regulations.

Banks have to tread a thin line. They do want to embrace technology that will help them scale and support customer demand for digital services. But they can only do so with an IT infrastructure that keeps out cybercriminals, hackers and anyone else without explicit authorisation to view the data. So, if their legacy IT systems are secure and protect customer data from cybercriminals, banks do not want to risk implementing new solutions that could leave them exposed — even if those old systems make them less nimble and less responsive to changing customer demands.

 

Open Banking and Shared Financial Data

The increased digitalisation across the sector leaves banks facing a second security and data management challenge. Once, they only had to worry about managing their data and keeping it safe within their closed IT environments. Now Open Banking — a UK government-backed programme — encourages banks to securely share their data with trusted third-party financial services providers via an API (Application Programming Interface).

Typically, these third-party providers offer apps to assist with utility bill management, accounting and auditing, and savings (usually rounding up apps). Once a user grants authorisation, the app directly interfaces with that user’s current account. Customers — whether individuals or SMBs — love them, but for banks, they’ve meant a reassessment of security and data management strategies.

 

What Constitutes Good Data Management?

To begin with, it could mean switching to a single data management solution. Banks historically have deployed several different products to manage their data. Multiple applications add complexity and  need more people to oversee them operationally. This approach will add cost, risk, and ultimately will not align to their digital transformation agendas.

Running multiple data management solutions makes it harder to get a holistic view, understand customer behaviour and predict future trends. It also creates unnecessary security risks. Consolidating data management platforms reduces these risks and costs. At the same time, fewer inter-app data transfer points decrease the number of potential weak-link entry points for hackers and cybercriminals. From a practical point of view, using a single data management solution also enables all relevant data points in a hybrid world to be viewed on a single pane of glass — making it much easier to digest, interpret and deliver data management as a service back to their internal clients.

Automating data management components can improve security and cut costs by reducing human contact. In addition, it enables faster and more accurate data management that can accelerate cloud adoption where data management is key to success.

It’s worth saying at this point that banks have been slow on the uptake of both public and private cloud technology, and are clearly still concerned about security and privacy threats. This is despite the fact that cloud computing — particularly with a zero-trust approach to security — has become a lot safer and carries far less risk.

In the middle of 2019, the Bank of England published a report that estimated the world’s largest global banks conducted just a quarter of their activities in the public cloud or software hosted in the cloud. But change is happening, albeit slowly. Larger banks have started to recognise that cloud computing holds the key to running an agile business  — allowing them to scale their online services and safely store, process and mine vast amounts of digital customer data.

The maturation of the hybrid cloud market may have played a role in increased adoption and allayed many of the sector’s previous doubts. A hybrid cloud infrastructure combines public cloud, private cloud and on-premises architecture, giving users the flexibility to keep some applications and systems (those with particularly sensitive information, for example) within their own four walls while still being able to migrate other systems. It’s an elegant and cost-efficient way to balance security, scalability and compliance.

 

Demand for the Future

With so much change taking place across the UK banking sector, data management has never been more critical. Open Banking, consumer demand for digital banking, and app-based banks like Starling and Monzo are all shaking up the market. But the threats from cybercriminals and the risk of falling foul of FCA regulations are still very much present. And, while navigating all these challenges, banks still face pressure from shareholders and investors to make a profit, retain customers and grow the business.

For these reasons, data management strategy — and linked to that, the pace and effectiveness of cloud computing adoption — are now two of the most significant determining factors in how banks cope today, and how effectively they will operate in the future. As such, 2021 should be the year that most banks and financial organisations embrace and invest in new technology when it comes to data management.

 

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Banking

SEIZING THE OPEN BANKING OPPORTUNITY

Nick Maynard is a Lead Analyst at Juniper Research

 

Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:

  • Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
  • Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.

 

Nick Maynard

The Disruption Factor

Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.

  • AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
  • PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.

 

PSD2 Changes

Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.

As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.

Open Banking Opportunities & Challenges to Consider

Source: Juniper Research

Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.

 

The Forecast for Open Banking

The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.

 

Open Banking – Delivering Opportunities and Threats

It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.

Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.

Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million

Source: Juniper Research

 

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