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WHAT BANKS CAN DO TO GET THE MOST OUT OF THEIR ATMS

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Mark Aldred, Banking Specialist at Auriga

 

Banks continue to face strict competiton from both traditional and new entrant banks. In addition to this, Covid-19 has caused a change in consumer bahaviour that has accelerated digital transformation based on the customers’ apparent appetite for smart and digital-first services. A recent survey by Mastercard unsurprisingly found that 22% of respondents have stopped using cash entirely, with cash usage receding amid the pandemic.

Although consumers are becoming more and more familiar with digital payments, the desire for cash has not diminished significantly. After an initial decrease of cash usage in the pandemic, we see worldwide that the trend is reversing and that the amount of cash being circulated through the ATM is now going up in aggregate. Additionally, research from RBR’s Global ATM Market and Forecasts research revealed that the compound aunnual growth rate (CAGR) of worldwide cash withdrawals will increase by 2.1% between 2019 – 2025.

Despite this, banks continue to close down ATMs. While ATMs are facing increased regulatory and operation costs, as well as increased risks from fraud and cyberattacks, this simplistic approach should be called into question, as this may involve leaving some people and communities behind. In the UK, Community Access to Cash pilot schemes have been developed in order to provide cash to underbanked communities, boost local economies, and put payment choice back into local hands.

As a result, financial organisations in the next few years must action policies that enhance ATM security, reduce the total cost of ownership, and improve, modernise, and personalise the customer experience.

FIs must ensure their operating strategies prioritize efficient, nimble, highly scalable and continuously available service channels, both physical and digital. Where this is not the case, it will leave consumers feeling excluded from banking services, which will ultimately reduce the quality of service customers receive.

 

Mark Aldred

What ATMs can do for banking customers

Contrary to popular belief, ATMs are so much more than just cash-and-dash machines. As long as consumers need cash, however, ATMs remain the most convenient tool for them to access it and for FIs to make it available. Therefore, self-service will continue to play a major role in the customer journey and a fundamental part in consumers’ brand perception.

With the correct technology, self service devices can offer basic banking and community services, such as managing your account, bill payments and loan applications. However, in order to make this a reality for communities, the right software and infrastructure is needed, especially since the customers’ needs and demands already exist.

In the context of branch transformation, multifunctional ATMs are already seen as part of many branch transformation initiatives and can also be an excellent complement or alternative to face-to-face interactions in a branch, as they can offer an extensive number of features and capabilities, 24 hours per day. We predict that they are sure to gain ground in a post-pandemic, interaction-averse landscape.

In addition to this, assisted self-service terminals (ASSTs) have also proven a sound  investment in a number of markets. According to a study from RBR, 340,000 assisted self-service terminals have been deployed worldwide. They allow customers to perform an even wider range of transactions with the assistance of bank employees. The reduced workload on branch staff will allow them to focus on other advisory duties. Because ASSTs encourage greater use of self-service terminals, many banks see them as the ideal bridge between physical and digital channels. They also preserve the human element in banking, which continues to be valued for certain transactions.

It is vital to enable access to cash for all communities, from inner cities, to the most rural areas. Not only do communities need access to cash, but they also need access to an array of banking services that support their local economies. There has been a demand from some areas of the financial industry to implement advances in self-service banking technology in all communities. This can include giving a community a bank branch or reforming a bank branch in a community so that it serves as a focal point for financial and other services. In addition to this, by customising modern ATMs so that they can provide additional services, it can allow cash access to be subsidised through generating extra revenues. These additional services can range from paying a bill, to doing a live call with a financial product specialist.

The pandemic has accelerated digital transformation plans for organisations across all industries, and has led to increased interest in cardless cash withdrawals. A report from RBR found that the number of ATMs offering this solution is increasing as deployers from different markets continue to utilise contactless technologies and implement new alternatives.

 

How banks can better manage their ATMs

Banks are constantly searching to review the way they are managing their ATMs, from decreasing the ATM management cost, to the costs of cash handling. These efforts are all aimed at reducing the total cost of ownership for ATMs. Banks are now considering pooling and collaborating with each other in order to further reduce the cost of ownership. The benefits of this can include an increased network and more opportunities to commercialise the offering with the increased services provided through ATMs.

Some banks are launching joint ATMs, whereby they share their ATMs with other banks. For example, the Geldmaat initiative is a cooperation between three major banks in the Netherlands. This initiative guarantees the availability and accessibility of cash for the banking customers of all three banks. Some banks are also externalising the complete management of their ATM channel, with BPCE in France serving as an example. Even after the current pandemic, we should expect to see the financial services industry continue to innovate in this area and develop new forms of ATM architecture. And if this is possible, why shouldn’t the concept be extended to branches. In this and other respects it’s only the beginning.

 

Next-Gen ATM Acquiring

In IT terms, banks should look to adopt a channel integration model that allows both the connection and the isolation of the external channel independent entities (e.g. Transactional Switch, Core Banking, and Services), to make them completely independent and seamlessly usable across all channels. The benefits from this model include a much simpler, cost effective, standardised and generally accepted interface (usually based on ISO-8583, ISO-20022 or Web Services) that focuses on the business services, forgetting all the complexity linked to ATM management, and more broadly to the self-service branch automation.

Further operational advantages include a modular approach and accelerated time to market by having a single point of control of the branch automation channel without the need to define, agree, coordinate, and implement across different products.

This capability finally allows users to extend automation to cover all the functionalities currently managed within the branch. This allows banks to deploy new lean branch concepts that automate the transactional banking services, with 24/7 availability, leveraging video banking technology, and focusing branch personnel on consulting and sales activities.

Customers still require access to cash and will need (and are entitled to) convenient access to the money they hold in their accounts. Having ATM software that enables seamless alignment with current and future needs is going to be key for the future. Customers demand consistency between mobile and physical channels – ATMs that meet those needs will lead to greater usage and could even reduce the cost per transaction of maintaining an self service channel.

 

Banking

TO ENABLE BETTER LENDING FOR PEOPLE AND BUSINESSES, WE HAVE TO LOOK TO OPEN BANKING

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By Iain McDougall, CCO of Yapily

 

A recent FCA study found over 14 million people were grappling with financial issues at the end of 2020, representing more than a quarter of the UK adult population. The picture is similarly tough for SMEs, too, which have been impacted hugely by lockdowns, loss of earnings and more; it’s estimated the pandemic will cost SMEs an extra £173,000 in debt per year.

This is resulting in a lack of lending options for both consumers and businesses, as well as expensive or high interest loans, or worse, rejection from lenders all together. This in turn is driving unaffordable lending, and penning consumers and businesses in an ongoing and irresolvable debt cycle – at a time when they need the most support.

One of the biggest causes of this lies in lenders relying on credit scores and credit bureau data to inform their decisions, which simply aren’t accurate enough to truly get the full picture of a borrower’s financial situation.

The case for using Open Banking data in lending decisions has never been stronger.

Data accessed through Open Banking permits lenders to retrieve accurate information about the borrower’s financial history. This can provide more accurate assessments, and therefore enable fairer lending decisions.

 

Credit scores aren’t helping consumers

Take NHS workers as an example. Despite working tirelessly throughout the pandemic, NHS workers make up a sizable portion of the UK adult population currently struggling with debt.

Iain McDougall

An independent report from the University of Edinburgh Business School, in partnership with Salad Projects, found NHS workers are heavily reliant on long-term overdrafts and high-cost credit, where APR is as high as 1,333%. Almost all (93%) respondents said they use one or more types of credit or loan, compared with 75% in the wider UK population (according to the Financial Lives Survey). More than half (58%) use up to three loan providers and 68% use up to four loan providers.

This situation is the result of relying solely on credit scores. While these are the near-universally accepted method of determining credit terms, each credit reference agency has a different method for calculating a credit score. They rely solely on financial history, whether they’ve previously defaulted, or failed to get credit, and not a consumer’s actual financial position, whether they’ve recently got a pay rise or new income, to see how likely it is they will pay back any money borrowed. This can mean, no matter if a consumer’s financial position has changed, they can’t get a better loan because of a previous discrepancy.

 

The challenges facing SMEs

These issues are not just limited to consumers. SMEs, particularly those in the hardest hit industries like hospitality and travel, have struggled to access credit throughout the pandemic.

While many may have been thriving pre-pandemic, their lack of ability to turn a profit during lockdowns, meant they needed extra support. In an effort to keep these industries alive, we saw numerous government backed loan schemes launched, such as the Bounce Back Loan Scheme, to help struggling businesses survive. In total, these schemes have provided almost £180 billion worth of lending to date, supporting over a quarter of businesses in the UK.

However, the soaring demand from businesses in need of these vital funds meant lenders were unable to keep up and many businesses did not receive support quickly enough. What’s more, providers may register these types of loans with credit reference agencies, which means companies that previously had strong credit ratings may see their credit scores negatively affected by any delayed or missed repayments.

This is why it’s vital for lenders to get lending limits right the first time round, so SMEs can avoid potentially adding to their already growing list of debt and thrive in a post-pandemic world.

 

Enhancing lending with Open Banking 

Using Open Banking can add a much-needed layer of trust and loan personalisation for businesses and individuals. By basing credit decisioning on real-time financial data, lenders will be able to create a more accurate picture of their financial situation; and so make fairer credit offers.

Through adopting Open Banking principles, lenders will be able to onboard new customers and grant loans more efficiently, providing businesses with the cashflow required to maintain their workforce and support the economy.

With the borrowers’ consent, it will also give lenders oversight into how the economy is recovering, and enable them to monitor the rate at which the individual or business can expect the loan to be repaid. Meaning they can step in and provide extra support if and when required.

Open Banking provides what credit scores alone simply cannot – real-time insight into an individual’s or a businesses financial position right now, not three to six months ago. By leveraging the data that is readily available to them, lenders could achieve far better and more responsible outcomes. This will reduce the risk of loan default – for both businesses and individuals – and lead to more responsible lending decisions that can help people and businesses bounce back after what has been a difficult year.

 

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Banking

BRAND CONFIDENCE: HOW HAS OPEN BANKING EVOLVED AND DO CUSTOMERS TRUST IT?

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By Geoff Boudin, Director at Revive Management

 

The open banking industry is growing by 24% year-on-year, and is expected to be worth more than £31 billion by 2026. The implementation of the 2018 Payment Services Directive known as PSD2, was intended to boost competition in the name of open banking. The directive, which set out to make payments more secure, by requiring banks to share the data of customers who authorise it with third parties. This allows customers to share their financial information with authorised service providers such as budgeting apps and other third-party money management tools. It was initially called for by the Competition and Markets Authority (CMA) to level the financial playing field and empower consumers by giving them more ownership over their financial data.  So, two years on, what impact is open banking having on consumers? Do they trust it? If so, how can brands build on this trust to offer more a more personalised yet non-intrusive experience that delivers the data to further improve their service offering.

 

What difference has open banking made?

Prior to PSD2, which came into force on 13 January 2018, banks had full authority and jurisdiction over their customers’ financial data. The idea of a bank giving up some of that data to a third party for the benefit of their customers was unheard of. This closed ecosystem, however, runs against the drive towards digital openness, connectivity and convenience. Our digital worlds were opening up and data was becoming democratised, and banks were being left behind. Challenger banks such as Monzo and Atom, which embraced innovative new apps and features, had been making headway for years, and there was a sense that third-party customer-focused innovation was rumbling away under the surface. However, that innovation was stifled until PSD2 laid a path for it, requiring banks to open up access to customers’ data at their behest.

It’s thanks to PS2D and open banking that customers are now able to connect their bank account to a third-party app that can help them better manage their money or sign up to a platform that allows them to access all of their accounts and credit facilities in one place. This allows customers to control their finances as never before.

 

Driving innovation

Empowering and improving the customer experience is one great achievement of open banking. Another is the innovation it has prompted across the entire financial sector. Even traditional banks like HSBC prepared for PSD2 by rolling out its own ‘Connected Money’ app, which allowed its customers to view data from all of their bank accounts – as well as mortgages, loans and credit cards – all in one place. This value-add to the customer experience probably wouldn’t have seen the light of day if not for the competition spurred by PSD2 and open banking. Many other banks and financial services providers have followed suit, offering new customer-centric features based around convenience, visibility and control.

Open banking is a huge step forward in the financial world. So why do some still liken it to a sleeping giant? What’s holding it back?

 

Managing trust and data security

More than 2.5 million consumers in the UK are now happy to connect their accounts to trusted third parties in exchange for some value-added benefit. That’s up from 1.5 million in 2020, no doubt driven by the competitive innovation brought about by PS2D. However, open banking adoption across the rest of Europe seems to have been much slower, and even growth here in the UK is beginning to plateau. While some might blame this on Brexit-induced regulatory changes, such as UK firms no longer being able to use the EU’s certification standards to share customer data after June 2021, there is much more at play.

A Europe-wide survey by thinktank ING polled 13 countries – including the UK – and found that only around 30% of consumers were happy for companies to share their data even after they had given consent. What’s more, only 35% of those polled had even heard of open banking capabilities. This points to issues surrounding data security, trust and awareness – all hurdles that can be overcome by banks, financial services providers and fintech innovators.

To make the most of open banking, banks will have to innovate and forge fintech partnerships with companies using their data sets. That will enable them to enhance existing products and leverage new fintech products being created with their data which will, in turn, benefit their customers.

This process of innovation has already largely begun, but if brands are to take full advantage of all that open banking has to offer, they still need to bridge the trust gap with consumers. We see consumer education, especially in the field of security, as having a key role to play in building confidence and consequently optimising uptake of open banking.

 

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