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Banking

TRANSFORMING BANKING: WHY COVID-19 IS UNFREEZING CONSUMER HABITS

COVID-19

Raj Chakraborty, Senior Managing Director, Publicis Sapient

 

There is much debate about the impact of COVID-19 on the economy. A lot of it is estimation and conjecture based on imperfect data. The discussion is dominated by whether we will have a U-shaped recovery, or if it will look more like an L over the next few years – and what policy decisions will drive the outcomes.

However, regardless of policy or recovery timeline, it is clear that consumer and small business behaviours will change dramatically during and after this crisis. Without an alternative, consumers get on with their lives, bank in the way they always have and business continues to get done, however given a compelling reason, in this case physical restriction to “normal” ways of doing things, people will begin to unfreeze old habits and move to digital channels and remote ways of engaging.

In response, banks have to act now – before new customer habits refreeze in a way that is detrimental to their business. They must:

  • help customers by supporting them when, where and how they need, enabling personalized experiences and offering advice that they can access digitally
  • provide employees the tools and resources required to successfully serve customers remotely, and with flexible schedules that can meet demand

 

A significant moment – unfreezing of habits

This is a significant moment for banks. In a time where consumer and business habits have suddenly unfrozen, banks have the opportunity to step up and become more engaged with their customers, guiding them through these uncertain times. The critical elements in these interactions will be personalized experiences – enabled by digital and data, with a helpful person exactly when needed. Those that act and adapt in real time will be rewarded with greater loyalty, new customers, and better performance when behaviours refreeze in a new mold.

Along with opportunity, the unfreezing of habits also presents a tremendous threat. Consumers and small businesses will question the value that a bank brings to them. More than half of consumers already say that they would be willing to bank with non-traditional players like Google or Amazon if they provided the service. And over 60 percent of the emerging affluent say they would consider switching their primary bank. Those that don’t engage with their customers in an effective, personalized way now will be forced to play catch-up later, hoping they’re not too late.

 

Help customers by supporting them how they need, enabling personalized experiences and advice that they can access digitally

The COVID-19 crisis has pushed us to an extreme end of the spectrum in understanding what consumers and businesses are willing (and have capability) to do remotely. Prior to this, many financial institutions would have said that people doing 30-50 percent of their transactions using digital was very good. In the past month, that view has changed dramatically as customers are doing more transactions using digital. Today, this behaviour is driven by the fact that they can’t go to a branch, and contact centers are currently overwhelmed with long wait times. Tomorrow, it will be driven by a more personalized journey – before, during, and after the transaction – that gives consumers more confidence in the engagement and makes it more convenient. Think back to something as simple as depositing a cheque at an ATM. In the early days, printing an image of the cheque on an ATM deposit receipt dramatically increased adoption of ATMs over tellers for cheque deposits; it gave people confidence that the cheque had actually gone through.

The modern version of this is a bit more sophisticated. Banks must build an understanding of the customer, ethically weaving together internal and external data with a layer of Artificial Intelligence that can help detect patterns of what individuals actually want. They must engage those individuals using the right messaging and channels – and then deliver a seamless and lightweight experience for the transaction that puts the customer at the center. When needed, a remote advisor should also be available – someone who has the context of the customer’s experience thus far and can assist going forward.

We’re seeing leading banks rolling out pilots of these concepts right now.

 

Provide employees the ability to serve customers while they work remotely, and with flexible schedules that can meet the demand

The crisis has also shown us how unprepared the financial services industry is to work remotely. On the retail banking side, many firms have had to cut call center staffing dramatically due to the close proximity of the representatives’ desks. This, coupled with the tremendous increase in call volumes, has resulted in long wait times and poor service interactions. However, many leaders in the space have, quite literally, been able to flip a switch and bring up significant work-at-home service teams and managed to keep up with demand. They have matched their capacity more closely to the demand and are getting real kudos from customers.

In wealth management, some firms have literally had movers come box up equipment and phones from the office and deliver them to advisors’ homes because of regulatory and compliance requirements on the equipment and infrastructure. Others however, had the cloud-based technology infrastructure already in place so advisors could conduct fully-compliant video conferences and phone calls, securely access customer accounts and conduct transactions, and serve clients in this greatest time of need without putting themselves in harm’s way.

Ironically, the new cloud-based and flexible infrastructure that enables the new ways of working are actually easier to manage, maintain, and scale up in times of need.

 

Conclusion

Whilst it’s true that old habits die hard, the unprecedented events of the past few months have forced consumers and small businesses to ‘unfreeze’ their traditional habits. Depending on how it’s addressed, banks have a tremendous opportunity or significant threat on their doorstep. Customer habits will be in flux for a short period as they understand and work through what’s available, and then those habits will ultimately, freeze again.

During this period, banks must move quickly to become valuable to their customers through personalized experiences that are digitally-driven, but enabled through actual people when needed. They must also build supporting capabilities and cloud-based infrastructure for their people so they can work remotely and in flexible hours to meet customer demand. These technologies are all available and we are putting them to use today – all indications are that this crisis and the opportunity and threats it presents has the potential to transform our industry.

 

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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