By Doug Gross, Chief Executive Officer, NGDATA
What can banks learn from the world of fast-moving consumer goods like razors or make-up? On the face of it, not much. But dig a little deeper and you soon realize that the financial services industry has a lot to learn from the way that FMCG brands are empowering their customers with new ways to order and choose their products.
The way we consume has changed beyond recognition in the last two decades. It’s not only that our supermarket shelves are groaning with foods from around the world, or that we can order any conceivable item online – we now have the benefit of subscription services that put the consumer even more powerfully in control. These services provide an important lesson for banks seeking to protect and grow their customer base.
Lessons for the banking industry
Subscription services enable customers to select a range of items from a retailer that are perfectly tailored to their needs or tastes. It’s the same principle that has long been common in B2B technology through the ‘as-a-service’ model, and in banking the notion of paying a monthly or annual fee for services is nothing new. But with the digital age, subscriptions have reached new heights of customer experiences (and expectations). Within the consumer sphere, businesses like Dollar Shave Club post monthly packages to subscribers with a selection of their preferred products.
More than a quarter of UK consumers are currently signed up to a subscription box service, according to research by Royal Mail. In fact, the market is due to be worth £1 billion in the UK by 2022 because they appeal to a monumental shift in consumer demand for autonomy, flexibility and convenience.
But if subscription services can shift shaving accessories and cosmetics, can it ever be applicable to the world of banking? The industry has experienced a seismic shift in recent years, with a slew of challenger banks entering the market and offering far more choice, improved money management features and tailored financial products to their customers on their favourite platforms.
We believe that it’s time for the industry to harness their data and technology and adopt the same personalised, ‘as-a-service’ approach that has helped to transform so many other businesses and sectors. Here’s how they can do it.
Increased convenience: Be Timely
Meeting customers on their own terms is paramount to engaging with digital-first shoppers. We no longer want a salesman on our doorstep, but relevant, consistent and timely content at our fingertips to help us create a compelling, customer-first experience.
The idea of paying a monthly fee for your bank account is nothing new. But the features and level of convenience customers are demanding is constantly increasing. From app-only banks such as Monzo and Revolut using push notifications, to the increasing use of audio phrases as passwords from the established banks, banking needs to happen on the channels that customers prefer. Harnessing new opportunities such as these enables banks to remove the friction of the banking process and make their customers feel valued by proactively providing services some customers may not yet know they need or qualify for, such as loans, insurance, or even opportunities to play the stock market through a smartphone app.
We can find a great example of this by looking across the Atlantic, where Bank of America recently launched a newAI-powered chatbot called Erica. This tool acts as a powerful personal financial assistant, helping customers to manage their money and get advice on different financial products. What’s more, Erica provides access to BoA’s enormous library of financial resources, helping users to improve their financial literacy. As you’d expect from a modern app, Erica can understand voice or text commands, providing an intuitive (and friendly) experience that makes a real difference to the way that customers engage with the bank.
More personalization: Be Relevant
Years ago, we had an individual relationship with our bank manager, who knew provided relatively impartial advice and knew us by name. Those days might be long gone, but technology now affords banks the opportunity to rekindle this intimate connection with each customer. Mobile apps can deliver a truly personalised experience, but this is something conventional banks struggle to achieve. By clever use of data gathering and allowing customers to lead the process, banks can create truly unique and personalised communications each time.
For example, London-based banking giant HSBC has been using artificial intelligence (AI) to give US credit card customers a personalised shopping experience. They’re in the process of creating a rewards program that processes customer data to predict how clients may redeem their credit card points, so they can market offerings, including travel, merchandise, gift cards and cash more actively. The technology recommends a redemption category to promote to each credit card holder. HSBC sent out emails based on these recommendations earlier this year and also emailed a random category to a control group. About 70 per cent chose rewards in the AI-recommended category while the number of opened emails rose by 40 per cent.
Better experience: Be a Frictionless Adviser
In today’s age of customer empowerment, every business needs to be a customer-first company to compete, and banking is no exception. One of the best ways to improve customer experience (CX) is to give customers sight of products and services that they don’t know exist, making them aware of a huge range of choice – including bespoke offerings.
To do this, banks need to see beyond typical marketing segments and understand the connections between similar customers and predict what they might like – subject, of course, to local laws and regulations. Having true customer DNA / customer 360 gets you past the trial phase and becoming a trusted adviser on products. Banks are already trusted data custodians since they must adhere to a range of stringent regulations governing information security. This makes them uniquely positioned to begin extracting more value and deeper, more trusted customer relationships from the data they hold.
If banks can get a handle on their data, generate real-time and customer-centric recommendations, they will find that an almost limitless choice of new ways to engage with customers with more relevant products, services and communications. Done intelligently, such services will place banks at the “razor’s edge” of their industry.
RISK VS REWARD: IS AI TAKING OVER?
Xavier Fernandes, Analytics Director at Metapraxis
A study by Oxford University academics into “The Future of Employment” in 2013 prompted apocalyptic headlines which stated that in the future 40% of jobs will be automated thanks to advancing technology.
The researchers subsequently claimed that the truth was in fact a little more prosaic; rather than facing complete automation, the research found that 40% of jobs faced some aspect of automation in their activity. So with new ‘AI processes a likely reality for almost half us, what does that mean for our current roles and should we be worried?
The fourth revolution?
The first industrial revolution saw machines replacing muscle, both human and animal. The second and third saw electrical power, mass production and computerisation revolutionise the job market. Now, with daily headlines of AI as an employment superpower, there is some concern that AI is bringing a fourth revolution, and with it, unknown circumstances.
This ‘fourth industrial revolution’ is defined by replacing brain power with machines. Our thinking capacity is what inherently sets us apart from other species, so it’s not surprising that any encroachment on it triggers some existential angst.
Evolve to reap the rewards
While many businesses still don’t fully understand the capabilities of AI, those who fear its development are, instead of embracing it, missing all the benefits that it can bring to the workplace. Businesses that utilise AI appropriately are seeing vast improvements across their entire value chain; better customer experience, reduced costs, and more insightful analysis to support management decisions.
AI is particularly useful for supporting tasks with repetitive activity, for example, performing financial checks and assessing large sets of data within financial services firms. AI performs particularly well within this context, spotting outliers before a human expert would notice them, allowing impending problems to be flagged and avoiding costly mistakes.
There is also an increasing focus on maximising customer lifetime value through the use of AI. Being able to predict existing customers’ needs as well as track trends in their financial circumstances is supercharging the old cross-selling approach with testable, predictable outcomes.
With potential benefits like these on offer, management teams of innovative financial services are increasingly relying on AI to help them with some of the heavy-lifting of analysis. Using advanced data capabilities and learned behaviours, AI analyses market trends to provide predictions of future performance. This insight is invaluable and allows management teams to change direction and correct any problems accordingly. This offers a huge advantage over those that have not adopted such tools.
Supporting the workplace
Algorithms and AI are typically ‘smart’ at doing one, tightly-constrained task, but they can be less helpful with many of the activities that humans find straightforward. In most white-collar jobs, automation tends to replace certain tasks in the job, rather than the role in its entirety, as the need for human intelligence is still highly necessary. In particular, we still need human input to first challenge, and then synthesise, this information before taking action. Employees should therefore work with the business to proactively identify what areas of their role could be automated, so that they can focus on the areas that add real value to the business’ commercial goals.
Challenging AI is certainly still important. We know that algorithms can be much better than humans on certain, bounded tasks. However, many algorithms rely on existing data sets to build their understanding. As a result, when a business unit has ‘symptoms’ that fall outside of that body of knowledge, the algorithm may suggest the wrong course of action with costly results.
Indeed, even with plenty of data, algorithms will reflect any biases the data set contains. We’re seeing this with some legal sentencing algorithms where there is evidence that they are treating disadvantaged people more harshly. Getting the answers to why and how far we should trust our algorithms should therefore become an everyday part of any job affected by AI.
Rather than depending entirely on AI for all decisions, workers should be taking all these new, AI-generated insights and using them to complement the human decision-making process. No manager of a complex business ever has enough time to sieve through all the analysis available, but with AI driven algorithms able to flag up any issues and indicate where action needs to be taken, we may find that we have some AI ’colleagues’ who will cover our backs and suggest innovative options. Yes, there will be times when the algorithms get it wrong, but as long as we’re watching out for those, the future is bright.
HOW TECHNOLOGY IS FUTUREPROOFING STOCK MARKET TRADING
Tony Shaw, Executive Director, London Office and Head Sales UK & Ireland at the Swiss Stock Exchange
Markets are shifting, there’s no doubt. Amid all the disruption and volatility from the past year, the Swiss Stock Exchange asked traders about what they expected in 2020 and beyond in our industry survey. The findings point to a rise in digital to help traders content with external forces.
First and foremost, traders are enthusiastic about what digital assets can offer.
Two thirds of traders polled said they’d had a marked rise in interest from their clients for digital assets and crypto-products. Given the interest, traders are increasingly bullish about the potential of these products – so much so that 80% have predicted an increase in overall demand in the long term. Market users believe these assets will help generate cost synergies and streamlining trading and settlement processes by creating efficiencies and ultimately reducing costs.
Our 2019 results reflect what traders have told us when it comes to digital assets and products. Last year, we saw significantly higher trading volumes from products with crypto currencies as underlyings. Overall volumes grew by +8.5% over 2018, but the increase in crypto products alone was +17%, reaching CHF 518.2 million ($534.54 m). There was a year-on-year increase in the number of transactions, as well (+21%): 19,636 trades in total.
The potential digital assets hold is clear – evidenced by the building of the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets.
According to traders, artificial intelligence (AI) is expected to bring further benefits to market operations.
Two thirds of our survey respondents anticipate AI will create more opportunities for the traditional equities business, while a similar number expect it to reduce the cost of trading. Innovation in AI is already – and will continue to be – a key driver in making our industry more effective at withstanding future risks and challenges both within and beyond the market itself.
In Europe, there is growing momentum behind calls for shorter trading hours – this trend was reflected in our survey as well.
Industry groups such as the Investment Association are advocating for stock market trading hours to be cut from 8.5 to 6.5 hours to open the industry to working parents and women who cannot commit to such long workdays. We found traders were largely supportive of this, with many saying that it could even facilitate operational benefits. The roll of AI is clear here in improving efficiency while minimising time wastage: 36% of traders said the introduction of shorter trading hours would prompt greater market liquidity.
Beyond the market itself, geopolitics continue to shape wider market sentiment.
It comes as no surprise that four fifths of traders said their strategies have been – to some extent – influenced by Donald Trump’s tweets. Interestingly, only 39% of those polled viewed Brexit as an influencing factor in trading activity, while three quarters believe the US election will drive trading activity in 2020 and 65% acknowledged trade wars would also have an impact.
More broadly, traders are split on the state of the global economy – 58% are bracing for a global recession while 42% predict stable macro-economic conditions over the next three years. What seems clear is that whatever happens in the wider economy, traders are making headway with new technologies that can improve their strategy, efficiency, and overall market health.
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