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Banking

WHY IT’S TIME FOR BANKS TO BECOME REAL-TIME READY

Lu Zurawski, Consumer Payments Lead EMEA at ACI Worldwide

 

The corporate world, including banks, really is the last bastion of the analogue age. Everything is built around batch processing, (large amounts of data processed on a scheduled basis). There are windows for nightly updates and resource planning systems that don’t require 24/7/365 attention. To update this batch technology, organisations will have to develop their business processes accordingly and the mentality that created them. This all forms part of the ongoing digital transformation of the industry.

 

Many of a bank’s corporate customers are also in the midst of this transformation. They understand that knowledge is power, and they want that information to be transparent and available in real-time. Empowering these customers with the real-time processes they demand, and in many respects have come to expect, now sits at the core of the digital transformation mission. For banks, the ripple effect of real-time goes all the way to frontline sales, and it’s the information generated from real-time payments that allows banks to upsell high-value services.

 

Lu Zurawski

Public sector and the power of real-time

The world is currently misinterpreting and massively underestimating the positive effect of real-time. The biggest indicator comes from a traditionally staid source; the public sector. Many central infrastructures and government departments at the heart of modern digital experiences are unfortunately still running on batch-based systems, having to use clunky workarounds to deliver anything like the real-time experience they should be providing on the front end.

 

However, we are seeing some progress, and with the migration of public services to real-time visibility comes a new truly-connected digital ecosystem. Irrevocable real-time payments and non-financial real-time messages such as balance enquiries will become the baseline standard for interactions with the government. No longer will applications disappear into a black hole of bureaucracy. Current processes are at least batch-based, if not entirely paper-based, meaning that even if a visa or license application is made in a digital environment sheathed in a real-time façade, the fact is once the information is submitted it falls off the real-time rails.

 

The beneficiaries

Frustrations exist within the corporate space too, but the unacceptable experience tends to be at the small business end of the spectrum. Treasury or cash management has always been ‘fast-in, slow-out’, but this disbursement has been at the expense of the smallest player in the chain. The negative effect of opaque payments and inaccessible information has been disproportionately slanted towards SMEs. But those whose cashflow – and ultimately their business – is most crushed in the current model stand to gain the most in the era of real-time.

 

Working capital management goes into hyperdrive with real-time information flows, and transparency of information in real-time for both the ‘little guys’ and their banks opens up access to release funding and offer liquidity services that maximize profitability whilst keeping the lights on. Most small businesses go bust because of cash flow issues caused by their biggest customers, not because their business model is flawed.

 

High-end corporate customers stand to gain too. They might not suffer the same cashflow issues thanks to their huge in-house ‘banks’, but these massive treasury and finance departments are still hugely paper-based. The efficiencies gained with data-rich messages will drive value to the bottom line, and real-time transparent information will drive improved business decision-making.

 

Governments in part may be driving towards real-time because they see the impact that the big guys have on the productivity and profitability of their nations. The largest players can slow the flow of business to a trickle. The UK government is in the midst of addressing the issue with proposed laws to make it easier for SMEs to access invoice finance. The government has estimated that at any one time approximately £1 billion is owed to small businesses. Invoice finance allows a business to raise funds by assigning the right to be paid to a finance provider, typically for 80% of the value of the invoices.

 

In a real-time and open payments and information ecosystem, the quicker you adopt the mentality and technology the more you will see value realisation. Even a large bank can grow its treasure by creating certainty in the actual total value of that pile, and therefore investing it wisely.

 

Technological enablement

In technological terms, a middleware layer is required to stack the building blocks of real-time. Implementing an intelligent middleware layer built specifically for payments and mission-critical systems enables the orchestration, translation and transformation of payment messages to onboard or offboard data within a message flow without impacting existing processes and payment flows within the bank.

Banks need to be able to accept messages in any format and translate them to meet their internal needs while returning messages back to the external ecosystem in the modern global standards. With a two-sided canonical model, banks can accept a data-rich message, extract and convert the salient information for their various internal systems, orchestrate those new simple messages out to internal systems, accept the return messages and convert them back to a data-rich format, or translate them into another simple message for another internal system.

Without the magic of the middleware banks are still stuck in monolithic applications. But with an intelligent layer to enable new use cases banks can develop them one-by-one, rather than trying to reach a critical mass of use cases to push an initiative forward.

 

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Banking

HOW IDENTITY IS SECURELY UNLOCKING THE SME BANKING MARKET

By Mike Kiser, senior identity strategist at SailPoint

 

Have an identification card in your wallet? With a selfie and a few short minutes, you could have access to a business bank account.

Small and medium enterprises (SMEs) have long been the fuel that drives the global economy, representing around 90% of businesses and more than 50% of employment worldwide. Over the last few years, a range of financial services and platforms have arisen over the last few years to support the banking needs of these organisations. They are often digital natives and are innovating to meet the needs of their clientele.

This innovation provides great ease-of-use and rapid access to credit but also demands a careful consideration of their assumed security approach. The aforementioned scanning of an identity and a quick photo to establish a bank account demonstrates the rising importance of identity in both the consumer and enterprise arenas.

The blurring of the lines between personal and corporate identities (in this case, an individual acting on behalf of a small business) is still in its infancy. Combined with the ubiquity of mobile devices, individuals will tire of maintaining different accounts, different personas, different lives for each activity. Usability will demand that identity be reusable, portable, and secure.

This has massive implications for enterprises and the financial institutions that serve them if they seek to prevent cyber-attacks; thankfully, the same element that presents the security challenge also offers the solution: identity.

 

A New Vantagepoint 

Just as individuals desire a single identity to unify their interaction with disparate parts of the world, organisations can use identity to grant them a single, holistic view of an individual (attributes, access, and behaviour) rather than seeing only a fragment at a time. This is particularly important for these new financial institutions—much of their technology stack is cloud-based, which often leads to splintered security approaches. An identity-based approach must be cloud-aware, and able to distil these complex environments into simple and easily governed infrastructure.

This collectivisation also allows security to use identities in the aggregate: to see what groups of similar individuals exist, what access these groups have, and what their usage of this access typically is. All of this contributes to the establishment of what normal is, whether it’s attributes, access, or behaviour. Once the “normal” is established, then the outliers—the potential threats—may be quickly triaged.

 

Adaptability: The New Imperative 

The recent wave of change has demonstrated that financial institutions and organisations must be ready to adapt quickly to shifts in the environment. Portions of IT staff and services have been furloughed, and adjustments to new realities are essential. An identity approach that learns from the evolution of changes in the previously established areas of normality can grant enterprises the ability to see what is coming next and invest appropriately. Much like a view from an elevated position grants the ability to see beyond the normal horizon, basing a security strategy on identity makes it inherently adaptable.

 

Identity: Innovation and Security Intertwined 

Identity, then, is a foundational consideration for financial institutions seeking to provide services for the perennially important small and medium enterprise sector. By eradicating barriers to entry that have historically kept financial organisations and enterprises apart, it is driving rapid adoption and a growing market for innovative banking. At the same time, it shows the path forward to securing those new services in a pre-emptive, adaptable way.

Now if you’ll pardon me, I must go open a bank account for my next start-up—from my mobile.

 

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Banking

OPEN BANKING: ARE CONSUMERS KEEPING AN OPEN MIND?

Last September, the European Union’s regulatory requirement for banks to open up their payment accounts via application programming interfaces (APIs) came into effect. Since then, open banking has taken centre stage within European retail banking and payments. In this blog, Elina Mattila, Executive Director at Mobey Forum, shares insight into how emerging consumer attitudes may impact open banking services in the coming months.

It has been over six months since the revised Payment Services Directive (PSD2) came into full effect and with it, required banks to allow third party providers to access payment initiation and account information. While the regulation was designed to facilitate open banking, the market demand was uncertain. Would we, as consumers, choose to embrace the new services enabled by open banking? And if so, under which conditions?

To understand consumer attitudes, Mobey Forum and Aite Group partnered on a pan-European study to determine the appetite for open banking services amongst 1000 consumers in Finland, France, Germany, Spain, and the United Kingdom. The study, launched in November 2019, revealed many important consumer trends and attitudes, including key priorities and potential barriers for adoption.

 

Consumer appetite for change

The consumer benefits of open banking are largely perceived to be compelling, yet this counts for little if the providers of those services are not deemed trustworthy. This is an observation reflected in the study, which highlighted consumer confidence in service providers as critical to open banking adoption. People want clear visibility of who is managing their finances, and the overwhelming majority (88%) would prefer their primary source of open banking services to be their main bank, as opposed to other banks or third-party providers (TPPs).

Consumers also indicated high levels of trust in their current bank of choice, reflected by 77% preferring to use a financial product comparison service offered by their main bank. By enabling customers to compare the pricing and conditions of a range of financial products on the market, they feel more comfortable that banks have their best interests at heart. This is a welcome trend, and one which should be celebrated in the aftermath of the 2008 financial crisis. For the banking industry to have rebuilt trust levels in this way bodes well for consumer adoption of future innovations.

With a trusted provider, one third of consumers were then either ‘very interested’ or ‘extremely interested’ in integrating open banking services into their financial routine. This applied to specific use cases: account information services (32%), pay by bank (33%), purchase financing (25%), product comparison (35%) and identity check services (35%). Unsurprisingly, consumer willingness to adopt these services relies heavily on providers continuing to prove that they can be trustworthy stewards of personal data.

 

Consumer concerns

For those unwilling to adopt open banking, concerns largely focused on reservations around security and privacy. As open banking becomes more sophisticated, it will be interesting to analyse the nuances around how consumers engage with third parties. Established brands are perhaps more likely to be trusted by consumers than lesser-known online retailers. For this reason, consumers may hesitate to engage newer companies than brands they are already familiar with. In an industry as varied as finance, this creates additional intrigue in the ongoing battle for market share between the newer ‘challenger’ banks and the older, more established European banks.

Consumers might, however, be willing to deprioritise trust and, instead, favour convenience and usability. When questioned over their willingness to adopt a new payment method, for example, 91% of respondents indicated that they could be tempted to switch either by financial incentives or the promise of greater convenience.

 

The path forward

While open banking is still in the relatively early stages of development, it has made significant progress in a very short period of time. Not only is it allowing consumers to share financial data with authorised providers as they wish, but it is set to spark more competition and innovation within the market.

From a business perspective, open banking is expected to create lucrative new revenue streams, particularly for companies which are able to innovate quickly and react to consumer demand. It is prompting consumers to reconsider how they manage their finances and – most excitingly – it’s not even close to reaching its full potential. It should bring a whole new era of service partnerships between banks and TPPs, which will enable a new generation of innovative financial services.

For the industry to truly fulfil its potential, it is vital that stakeholders are able to explore new business models, innovations and changing customer expectations for open banking in a commercially neutral environment. Mobey Forum’s open banking expert group provides exactly this, and we look forward to supporting our members as they shape the future of digital financial services.

 

Where to find out more

The opportunity for open banking is explored in more detail in a report by Mobey Forum and Aite Group, entitled Open Banking: Open Minds? Consumer Appetites for New Banking Services. It provides banks and other financial services stakeholders with a market view on consumer appetites toward new open banking services and explores the possible roadblocks to consumer adoption. It is also discussed in a podcast featuring key representatives from Interac, Erste Group Bank and Strands Finance.

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