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.
ENTERPRISE BLOCKCHAIN: DRAGGING INSURANCE OUT OF THE DARK AGES
Ryan Rugg, Global Head of The Industry Business Unit at R3
The history of insurance traces back to the development of modern business and insuring against its risks; property, cargo, medical and death. Insurance helps mitigate losses, wary of the financial losses a capsized ship could cause, forward-thinking vessel owners established communal funds that could pay for damages to any individual’s ship within the group. While this basic concept holds strong to this day, insurance is now a multi-trillion dollar industry that impacts almost every other sector of business, from healthcare to capital markets and aviation.
Despite the insurance industry’s image of being a conservative sector, insurers have been consistently innovative in the property and perils they protect against, but the supporting technologies and infrastructure have remained antiquated and unfit for purpose. Operational inefficiency is the single biggest threat facing the insurance industry today, and insurers are now taking steps to tackle this challenge head-on with purpose-built enterprise blockchain technology.
Inefficiency and fragmentation
Blockchain provides a solution to drive efficiency and security that would allow private data to be shared in a secure manner. Many policies are still sold over the phone rather than online, and the policies themselves are then processed on paper contracts, introducing huge potential for manual errors in claims and payments. This anachronistic infrastructure is even more surprising when you consider the complexity of the insurance ecosystem and the amount of parties involved in a transaction, including consumers, brokers, insurers, reinsurers and more.
The costs of this inefficiency and fragmentation are well documented. Inaccurate, disparate sources of data acquisition lead to long underwriting cycles and inaccurate risk profiling. Extensive manual intervention is required across the insurance value chain, ranging from contract placement to claims settlement. Archaic billing systems and complex billing processes lead to high reconciliation costs. Ambiguity in loss conditions, assessment procedures and claim settlement delays leads to increased litigation risk. It has been estimated that as much as 60% of customer premiums is consumed by these inefficiencies.
In addition, increasingly stringent and dynamic regulatory requirements continue to impact areas such as renewals and claims assessment. Insurers often have a complete lack of visibility of their liabilities and obligations, and a lack of transparency across the entire business. In today’s regulatory climate, it is unsurprising that authorities are beginning to demand more from insurers.
Blockchain technology is not a panacea for all of these problems, but with the right architecture a platform can address and reduce inefficiencies. There are also new revenue and growth opportunities in cutting-edge sectors such as cyber insurance that blockchain technology can help enable.
Tackling the blockchain privacy challenge
Blockchain offers insurance firms a new way to coordinate information between each other, by using a pre-agreed technology solution instead of relying on a third party’s bookkeeping. The technology enables disparate parties to connect via a shared platform environment. While this premise may appear simple at first glance, the insurance industry has specific requirements in relation to privacy and security that only certain blockchain platforms can fulfil.
For example, if a blockchain has the appropriate data privacy architecture in place, each insurance firm can maintain the same amount of control over their data as today, but with more flexibility. Unlike the traditional permission-less blockchain platforms – in which all data is shared with all parties – Corda shares information with those who have a “need to know,” ensuring the confidentiality of trades and agreements while also capturing the benefits of a shared distributed ledger infrastructure.
Blockchain platforms such as R3’s Corda have been purpose built for enterprise usage in industries such as insurance and tackle issues such as data privacy, scalability and security head-on. Following a period of experimentation with multiple consortia and technologies, insurers are now consolidating their blockchain efforts around Corda.
Testament to this is the recent decision of the industry-leading B3i consortium to port from IBM’s Fabric to Corda or RiskBlock decision to port from Ethereum. All the major insurance groups and ecosystems are coalescing on Corda in order to effect change and form standards. As Metcalfe’s Law states, the value of a network is proportional to the number of connections in the network squared – the more insurers that build upon on a common platform, the more valuable the platform becomes to all participants due to the interoperability of applications. The consolidation around Corda creates network effects industry-wide.
Contract placement: leveraging the network effect
To more tangibly examine the benefits of these network effects, we can look at a specific insurance use case that involves a network of many different entities and counterparties – contract placement.
Contract placement is the process of negotiating a potential insurance contract between a broker and an insurer in order to issue the contract to provide coverage for an end customer. For most commercial and specialty insurance scenarios, except for small commercial and some mid-market products, this is an arduous, complex process involving several entities – a broker, one or more insurers, and potentially a reinsurer and reinsurance broker. Furthermore, outsized risks generally mean that multiple insurers come together to insure the risk at the requested limit price, resulting in additional complexity for the broker in managing the placement process.
Contract placement, with the extensive negotiation cycle between a broker and insurers, as well as between an insurer and reinsurers – with or without a reinsurance broker thrown in – has several inefficiencies related to inter-firm coordination. Extensive manual intervention and reconciliation is required for brokers, insurers and reinsurers to keep track of requests and responses; high IT spend is required for all participating parties to maintain an audit trail of the negotiation history between different entities; and each firm must make heavy investments in document storage systems to maintain separate contracts over the policy lifecycle.
Leveraging the network effect by connecting brokers, insurers and reinsurers onto the same blockchain platform can deliver numerous benefits. These include:
- Near-instantaneous communication between participating parties to eliminate delays associated with reconciliation and coordination;
- Real-time consensus among all parties involved in the contract on coverage, price, terms and conditions;
- Complete audit trail from all sides of negotiations and data exchanges;
- Greater regulatory compliance throughout the insurance industry due to instantaneous communication of in-force contracts to the regulator;
- Eliminating the “double spend” problem of having the customer buy the same policy from different insurers by involving the notary (regulator);
- Reduced IT spend for individual firms, with eventual decommissioning of legacy document storage systems and reducing spend on document generation systems.
A brighter future
Blockchain technology offers great promise across many avenues, not only contract placement. Platforms like Corda can add value to many insurance business segments – commercial and specialty insurance, life insurance, personal lines and health insurance, along with niche areas like marine and trade credit.
The industry’s recent consolidation around Corda reaffirms that data privacy is pivotal for a network of enterprises and that the platform’s peer-to-peer data sharing approach matters for insurance blockchain applications going into production. For a highly regulated industry like insurance, only Corda can ensure that the entire supply chain of brokers, insurers, reinsurers and consumers can interact in a seamless, secure and private manner.
From contract placement to insurance as an industry, we are excited to see the new opportunities and efficiencies that blockchain technology will enable between this wide ecosystem of participants now that the right network – Corda – is in place.
THE EVOLUTION OF THE TECH CFO
Gavin Fallon,General Manager, UK, Nordics & South Africa Board International
Chief Financial Officers (CFOs) have traditionally been seen as behind the technological curve – the luddite of the boardroom, too attached to their Excel spreadsheets to move with the times. But the role of the CFO is now shifting and becoming more strategically significant to the business, putting them in the ideal situation to make much needed changes in the boardroom.
Despite many business functions being transformed by data, the boardroom remains a place where paper presentations are annotated around the table and, when it comes to finance, the focus is placed on the traditional statutory profit and loss structure. This may remain useful for reviewing historical performance but provides no insight into what may happen in the future. As global events – from political upheaval to health crises – have an impact on organisations, the ability to react in real-time becomes more important than ever. It is here that CFOs have the opportunity to make seismic changes in their business.
CFOs now sit in a unique position
CFOs now sit in a unique position, where the traditional responsibility of keeping an eye on the bottom line is wrapped with analytical and operational knowledge to create a far more strategic role. It is by sitting at this unique crossroads and holding a huge amount of knowledge about every area of the organisation that CFOs have the potential to change many aspects of how the boardroom operates. However, in order to fully realise the potential, CFOs must be empowered to take a digital lead.
A lot of the CFO’s most important work takes place on Excel and Essbase, systems that remain rife with risk. In fact, 56 percent of finance professionals believe the spreadsheets they use in their reporting processes are well-controlled and error free, which may well be why 40 percent also believe their reporting is based on potentially inaccurate information (FSN 2018). Not only prone to human error, spreadsheets are also static and do not allow for real-time forecasting or modelling. While CFOs are well aware of this challenge, the fact they have for too long been tied to legacy systems has led to an unintentional knowledge gap about the technology available to enable them to move away from making decisions based on what happened last year, quarter or week.
Seeing the bigger picture
With a greater understanding of the technology available comes an evolution and expansion of the CFO’s role within a business. It is no longer enough to make decisions based on static reporting, focusing on the traditional statutory profit and loss structure. Instead they need to use the tools available to play a strategic role with a keener eye on the future, seeing the bigger picture, anticipating what is next, and having the correct contingency plans in place to mitigate risk.
Technology can provide CFOs with full visibility of the entire company at a single glance, with data at their fingertips enabling them to take into account everything from KPIs to operations, distilling instant insights. This offers a level of clarify that means the answer to ‘what happened’ is obvious, allowing for more attention to be placed on ‘what will happen?’.
Consider a board meeting that is discussing headcount requirements based on the launch of a new product. Using traditional methods, a business may well make presumptions based on experiences when previous launches took place. But since that time, there is likely to have been a whole host of changes, both within the company itself as well as in the wider market – from market conditions for the product to the salary expectations of potential recruits.
The use of such technology, however, does not solely require the buy-in from the CFO, or even the finance function. To fully realise its potential in fundamentally changing how an organisation operates, the value will need to be seen by the entire board to, in effect, create a digital boardroom. While such technology has an impact on all areas of the business, allowing senior leadership to understand the impact of a factory in the supply chain closing, for example, it is the finance function that is best placed to show the value and drive adoption.
Primed to integrate the business like never before
The CFO is becoming more strategically important, combining analytical, operational and strategic value into a single role. They are primed to integrate the business like never before, acting as the central thread that ties all aspects of decision-making together in a single, unified process. To do so, requires a radical transformation of their role, as the pioneers of new technology. Already a trusted advisor, CFOs can now elevate their role with the ability to effectively forecast and help spearhead the organisational culture change that is required for the shift in mindset that comes with such digital transformation. To maximise the potential of this unique position, the CFO must be equipped with the technology that provides them with the full visibility of the company and clarity in decision-making they require.
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