Banking

BANKING INDUSTRY MUST THINK ‘OUT OF THE BOX’ TO SOLVE THE DATA SCIENCE SKILLS GAP

Published

4 years ago

December 23, 2019

admin

By Doug Gross, CEO at NGDATA

Arthur C. Clarke, writer of the famous science fiction epic 2001: Space Odyssey, famously remarked that any sufficiently advanced technology is indistinguishable from magic. The problem with magical things, however, is that we often ascribe them miraculous powers that are beyond their actual capabilities while ignoring the fact that far greater powers reside in a much humbler vessel – the human cranium.

Data analytics provides a great example of this disconnect. Every organisation knows that it needs to unleash the power of the information that it holds, while simultaneously being painfully aware that there is currently a worldwide shortage of data scientists. (A LinkedIn Workforce Report for the US earlier this year identified 151,000 data scientist jobs going unfilled in that region alone.) Instead of incurring the expense of hiring and retaining these experts, it may seem sensible to ask if there is some magical technological substitute – a ‘data scientist in a box’.

But can large, complex organisations like banks really swerve the dearth of data science skills and unlock the insight they need, all from a magical technological box somewhere in the cloud?

Asking the right questions

In truth, there’s no such thing as a data scientist in a box; nor do should there ever be. Machines can replace us in many spheres of activity but, as anyone who remembers HAL from 2001: A Space Odyssey knows all too well, we should never expect them to take total control of our most important missions without human supervision.

Marketing provides a great example of machines’ limitations. Communicating with consumers and, indeed, designing new products and services for them, requires a comprehensive understanding of customers themselves. A bank can’t load all its data into a box and hope that it spits out the ‘right’ answer to such complex questions such as how to attract new customers or improve the banking experience. Some common sense is required, and no matter the speed at which technology can take over the heavy lifting, it is still the case that rubbish in means rubbish out when it comes to data-based insight.

Instead, marketers in the banking industry must understand their audience and their needs intimately; they must be able to segment them into groups or personas while, of course, mapping these to the bank’s strategic aims – all before they even begin to get to grips with the data. A technological “no code” solution can bring enormous benefits to this process of design, testing and iteration, enabling non-specialists to turn masses of data into useable insight. But it can never replace data scientists, who bring their own invaluable, indispensable magic to the process, ensuring that data is applied to problems correctly.

What do data scientists actually do?

There’s still a degree of misunderstanding of data scientists’ role in an organisation. They are not data-evangelists-in-residence, nor are they there to add their own unique insight to existing projects. Data scientists will, in all likelihood, know little or nothing about the actual business in which they’re engaged. They wouldn’t be able to tell you about merits or demerits of a new mortgage or credit card; nor will they understand the banks’ marketing objectives.

Their job is to make sure the data is delivered in a way that it can be applied (and trusted) by non-specialists in marketing or other areas of the business engaged in the process of evolving new initiatives.

Marketers, for example, use intelligent engagement platforms to understand their audiences and to test new campaigns among carefully defined groups. This is a great example of the democratisation of data that’s been enabled by a new generation of powerful tools that enable anyone to become a “citizen developer” without a degree in computer science. Yet if these tools are being fed with erroneous metrics, then the results will obviously be inaccurate – perhaps catastrophically so.

Perhaps a better way of thinking of data scientists is as “data stewards” who are responsible for collating data from numerous silos, checking and deduplicating, defining models and metrics, and ensuring they iron out the tiny errors that can add up to an unbalanced sample. Data scientists also make a direct impact on the big picture, improving business outcomes through implementing data-driven techniques, such as predictive and prescriptive analytics, throughout the organisation. Being able to link the IT and human worlds, data scientists are vital to driving forward the digitally enabled business.

For example, a bank might need to identify a group of people who do not have an active financial product such as car insurance. Without a data steward, the data from which the non-specialist is working might include someone whose insurance was cancelled after one too many crashes. Technically, this person doesn’t hold a financial product – but that doesn’t mean that they’re the right person to target with marketing about renewing their insurance.

Driving relevant interactions

It’s only once this important work has been completed that non-specialists can get on with the task in hand. And for this, they will need a ‘box of magic’, in the form of an intelligent engagement platform that can stitch together accurate data from multiple sources to gain a true picture of customers and drive relevant interactions with them.

The dashboards, analytics and self-service capabilities that make it easy for a non-specialist to design and test campaigns from pre-built use cases are all built on a solid foundation of accurate data. In this sense, the data scientist operates at the very beginning of the chain that, ultimately, leads to improved offerings, more personalised communications and an enhanced customer experience.

It may seem like the modern world is run on magic, but anyone who has worked with a modern intelligent engagement platform will realise that the combination of smart people and easy to use technology is the most powerful one. Both the data scientist who sets up the system and defines predictive models and the marketer who orchestrates the delivery of relevant customer interactions in real time are both essential to the process of driving business value.

Banking

Are SaaS platforms challenging banks for a piece of the payments pie?

Published

2 days ago

September 26, 2023

admin

4 common myths about the role of open source in financial services

Attributed to: Ralph Dangelmaier, Global CEO of BlueSnap

The finance industry is at a tipping point with software firms on the brink of becoming banks. This may seem like a farfetched idea, but now that software platforms come equipped with payment capabilities, their SME customers may want to receive more financial products from these platforms.

This is part of the wider trend of ‘embedded finance’ – when companies which aren’t banks incorporate financial services such as lending, insurance, and payments into their product.

Software firms are particularly leveraging ‘embedded payments’ – where the ability to accept and process payments comes with the software itself. Think of a school consolidating all the payments a parent would make for their children – tuition, books, extracurricular activities – in one software platform. This trend has exploded in popularity because there’s a desire among companies, and their customers, for everything from products to payments to happen under one roof.

With the market value of embedded payments expected to reach £2.08 trillion by 2026 and customers becoming increasingly married to their software, let’s look at how we ended up at this turning point in payments.

How chasing convenience puts money in platforms’ hands

Ralph Dangelmaier

The growth of embedded payments is propelled by the need for ease, trust, and convenience. As platforms are selling payments hand-in-hand with their software, customers don’t need to integrate with additional service providers just to accept payments. And they’re already bought into using the platform for its other functions.

Not only is this kind of back-end reconciliation easy and convenient but it helps software platforms generate revenue too. That’s because software companies that embed payments become Payment Facilitators (a.k.a PayFacs) – allowing them to monetize transactions that happen within their platform.

By selling payments, software firms can see up to a fivefold increase in value per client. Rather than depending on software subscriptions alone, these platforms now receive a cut of every transaction that’s facilitated using their software too. This provides them and the businesses they serve with a mutual incentive – shared profits.

Software platforms are passionate about helping their customers create the most easy-to-use experience to drive a higher volume of transactions. Of course, there are many ways to launch new revenue streams, but why leave money sitting on the table when all you have to do is become convenience-obsessed?

Why finance teams want software and payments in one

As a payment expert who’s worked in a bank’s back office, I know how important a financial software stack can be. In its highest form, it can steer a business’ entire financial strategy.

Often these stacks are well curated, but the biggest drawback is the manual collection of data across platforms. Trying to build a financial picture of a business using your ERP, CRM, human resource and billing system can involve hours of laborious data entry.

For everyday finance teams, this isn’t an efficient use of time. They need to be able to pull data swiftly to advise their executives on financial strategies. CFOs are also under pressure to choose the right software stack to streamline processes and ensure payments ROI.

That’s why payment technology that removes the manual work for finance teams – to get from A to B more quickly – is growing in popularity.

Software firms using embedded payments are saving them hassle and time. Not only that, it helps the key financial decision makers of SMEs stay in a constant state of financial planning, where they can change their strategy whatever the market conditions may be.

The end of traditional banking for SMEs?

Increasingly, SMEs are struggling to get the payments support they need from traditional banks. The ‘higher risk, lower return’ view of the small business market among banks leaves software platforms in a ripe position for a takeover.

There are over 90,000 software companies in the UK alone. With nearly half of software platforms (48%) turning to embedded payments to gain a source of competitive advantage, this figure could represent a threat to corporate banking as we know it.

SMEs don’t have the deep pockets that multinational businesses have. The Amazons and BMWs of the world have long reaped the benefits of a corporate account with a large bank – and the round the clock support this offers.

But SMEs face high conversion fees and often receive minimal support chasing late payments, leaving them between a rock and a hard place. If these businesses can save money by moving from banks to software platforms, then banks are at risk of losing their position over the middle market.

Looming regulation

Until now banks have been able to defend their position because safety and security is key. Once platforms become regulated, then what? It won’t be long before regulators eye up the software industry as their next big focus.

But regulatory bodies like the FCA, PRA and more favour ‘controlled innovation’, so this will take time.

Currently, to process transactions in Europe, businesses must go down the lengthy and costly process of becoming Payment Service Providers (PSPs). That’s why many software platforms are choosing to partner with a licensed payment provider which sells the payment package to them, instead.

In fact, 89% of software platforms choose to work with PSPs rather than become a PayFac themselves. It makes sense when it’s taken more than a year for some platforms to begin processing payments on their own.

Given the sizable financial risk of processing your own payments and the administrative burden this brings, it’s no wonder software firms are looking to fintech for a better way.

After all, it’s not just about processing the payments. A partnership with a payment technology partner comes complete with support in onboarding, underwriting, compliance, risk, payouts and customer support.

In short, software platforms see the benefits of selling payments and are primed to become the next big financial players.

Not only is there revenue for the taking but their customers benefit as well. With software platforms ready to offer SMEs a banking alternative and a superior customer experience, they’re offering a truly win-win solution for all involved. And it’s payment technology partners that can help them make this vision a reality.

Banking

Emerging technology will power long-term sustainability within the UK banking industry

Published

2 days ago

September 26, 2023

admin

By Peter-Jan Van De Venn, VP Global Digital Banking at Hexaware Mobiquity.

Sustainability has been a big focus for the banking industry in recent years, with the issue becoming increasingly important for consumers. It’s no wonder that sustainability has become baked into the purposes of almost every bank, from Natwest to HSBC.

However, the economic uncertainty of the last year has led to many banks putting it on the back burner. Challenging market conditions have forced financial institutions to change their priorities to concentrate on protecting the bottom line. Our research found there’s been a significant drop in the number of UK banks saying that sustainability remains a key business strategy. 12 months ago it was a major priority for 100 per cent of banks, but now that number has shrunk to 60 percent.

Whilst it’s understandable that banks are feeling the pressure at the moment, there’s a risk that they will miss out if they hit the pause button. From cost savings brought by innovative digital products and services, to improved brand reputation and increased profitability, there are a lot of longer-term benefits they could be failing to unlock. So how can they keep moving forward?

Losing momentum

Emerging technology holds the key to their success, with the power to disrupt current behaviours and promote a more sustainable culture. Banks are already aware of this, with 76 percent using digital transformation to drive sustainability, but a lack of leadership has made it difficult to build momentum in the last 12 months. Currently just over half (54 percent) of banks have tasked an executive at board level with overseeing sustainability – way down from 83% just 12 months ago.

This lack of board authority means banks are struggling to engage the entire organisation to move ahead with sustainable initiatives. As a result, almost two-thirds of banks are seeing progress slow, admitting they are not actively taking steps to foster more sustainable behaviours throughout the organisation. Those that have taken their foot off the gas need to find a way to move forward again.

No time for standing still

Banks know that technology can drive sustainable behaviour. For instance, many of them are already encouraging their workforce to work remotely, as a way of reducing travel. This has two benefits – not only does it cut the costs of running physical offices at full capacity, but also reduces the bank’s carbon footprint. There has never been a better time to invest in technology to drive more sustainable behaviours.

New digital products and services can also extend the benefits beyond employees to encompass the wider customer base. A fair number of banks are already investing to make this happen. More than a third (35 percent) of banking organisations are using Machine Learning (ML), Artificial Intelligence (AI), cloud and analytics to make digital services more easily accessible. Investment in these technologies will be critical as the number of physical bank branches continues to decrease, with figures from Which? showing this is taking place at a rate of 54 branch closures each month.

Hitting environmental and social responsibility goals

Emerging technologies can also help banks keep pace with tightening ESG rules and regulations. Banks are faced with demands for increasingly granular reporting and transparency on ESG – demanding a new approach. In line, 41% of them are developing data visualisation tools to improve stakeholder engagement and understanding of ESG risks and opportunities, while 37% are using machine learning and artificial intelligence to identify and track ESG risks and opportunities across a wide range of data sources.

More than one in three are also using the blockchain to improve transparency and traceability in supply chains, and implementing digital tools and platforms to collect, analyse, and report ESG data and metrics in a standardised and consistent manner. All these applications of emerging technology will put banks on track to address global environmental challenges and unlock a greener future.

Long-term sustainability

As the economic pressures hopefully start to subside, increasing numbers of banks will start investigating how they can use emerging technologies to provide engaging experiences and value-added services for customers, to drive greater revenue and efficiencies.

Whilst banks are right to focus on their revenue under difficult trading conditions, it’s important they don’t miss out on the long-term benefits that sustainability can bring. To capitalise on this, banks must keep pushing the boundaries and invest in emerging innovations to drive more sustainable banking behaviours, benefiting the planet and driving great digital experiences for customers.