By Carmine Rimi, AI Product Manager at Canonical
Modern banking is evolving. Increasing consumer demands for better technology, combined with the rise of open banking and digital-native challengers such as Monzo and Starling, mean that traditional members of financial services industry must develop new, innovative approaches to remain competitive.
AI (Artificial Intelligence) will undoubtedly have a significant role to play in this. AI and ML (Machine Learning) will enable Financial Service companies to intelligently process large-scale data to make better customer decisions, identify fraud and automate certain customer service elements through technologies such as chatbots. Many of the large banks are already doing this. However, legacy IT systems and latent security concerns means many are also stuck in the concept stage. For large organisations, becoming more agile and adaptable can be a challenge. However, as new functions and use cases for AI come to light, it’s imperative that the financial sector is able to lay strong foundations for AI which allow it to keep up with the pace of innovation.
Creating the AI Building Blocks
The first step is ensuring that the right technology is in place to enable the use of AI. Many banks are already undertaking digital transformation initiatives and have embraced the cloud for managing the large amounts of data they handle. Yet they are still not set up to optimise their use of AI. Cloud is by far the most effective method of implementing AI due to the sheer scale of the workloads that are being handled, combined with the fluctuating demand for running algorithms. However, the compute power required for AI will not always be constant. Spikes in data inflow or changing demand for AI initiatives from across the business means that the scalability of public cloud is often more appropriate for running AI efficiently, as opposed to using static on-premise solutions. Despite this, regulatory concerns have held back many banks from making more use of public cloud.
In this environment, multi cloud use is becoming ever more prevalent. Banks and other financial institutions can operate across both public and private cloud environments to ensure security and regulatory compliance, while also using public cloud to benefit from its advanced AI capabilities and workload management.
The humans role in AI
Alongside the hype that surrounds AI, there have also been lingering concerns regarding the impact AI might have on jobs. Ex-Barclays CEO Antony Jenkins recently predicted that AI could lead to 50% of jobs in banking being replaced. While it’s true that certain roles in bank branches and customer service could be at risk due to AI’s automation capabilities, AI also opens up a host of new roles within the industry.
AI inherently still requires human input to be effective. Naturally engineers and developers are needed to create and apply AI algorithms, as well as to manage the supporting technology stacks which enable its use.
There will also be an increase in critical strategic roles dedicated to interpreting data produced by AI in the banking industry and turning it into actionable insight. Business logic is still driven by human thought and motivations which AI can’t account for, and people need to be trained to step into this gap to ensure that we as an industry can make the best of AI.
AI can be used to bring together unstructured data on customers to create profiles which inform what sort of products or communications are best for each, but without teams trained in how to understand and apply an algorithm’s output, businesses won’t be able to extract the true value of the tools.
This opportunity to nurture new, technology-based roles is one the industry must embrace with both hands moving forwards by looking at how to reskill workers to specialise in AI.
The future of AI in banking is looking bright
Many financial institutions are currently engaged in the process of making cultural shifts to prepare for adopting AI on a broader scale through retraining staff and changing management structures for AI use. These organisations will also need to monitor for the potential uses of AI in the future to ensure the foundations they lay now will be scalable for future uses, such as applying automation and insight capabilities to new areas.
Looking ahead, we also expect to see the AI-enhanced cyber-security sector growing. This is one that will prove to be of particular importance for banks. AI has been used for fraud detection by banks for a while, but with banks also having to deal with malicious hacks at an increasing rate, using AI to improve and automate security will require AI-ready infrastructure.
Blockchain has also generated considerable hype within the industry over the past year, although questions remain over how effective it can currently be. Implementing a culture change now that allows for improved AI use will however mean that banks are prepared to capitalise on blockchain as the technology matures, blending the technologies together.
Banking on an AI future
AI is already playing an important role for banks. However, to avoid challenges from more nimble, cloud native companies, it will be critical to take stock of the current infrastructure and have a clear picture of how to create a foundation that will allow for the use of future AI technologies. With this strategy in place, the financial services sector stands to reap real benefits from an AI future.
WHY THE TIME IS NOW TO BANK BEYOND BORDERS
by Lili Metodieva, MD of Monneo
As our world becomes more interconnected, so too does the need for banking systems to follow suit. In the past, businesses and individuals were often restricted to banking in a single country, but the rise of borderless banking is enabling both to benefit from greater financial freedoms. In this article, we will examine why this trend is so important and explain how Fintech companies are helping to make it possible.
What is borderless banking?
Simply put, borderless banking refers to any bank account, which allows users to spend, send and receive money across different countries and currencies, without incurring heavy fees. The concept has become increasingly popular in recent years, with more people now working in cross-border job roles and with many businesses requiring capital in a different currency than that of their country of origin.
For customers, borderless banking is making cross-border financial transactions more efficient and cost-effective. Through its rise, businesses and individuals can gain easier access to international streams of capital, which is crucial in this current moment of economic uncertainty. In fact, 74% of companies say cross-border payments have helped their business to survive .
Where do IBANs come in?
International Banking Account Numbers (IBAN) play a crucial role in facilitating borderless banking. The globally recognised system enables cross-border transactions to happen safely, by providing each international bank account with its own unique 36-digit alphanumerical code. On account of this code, financial institutions can quickly identify where funds are coming from, as well as where they’re going to.
More recently, providers such as us have been able to deliver Virtual IBANs (vIBAN). Working alongside a network of well-established European and International banks, we’re able to offer businesses a single platform interface that consolidates the management of all IBAN accounts. In turn, our multi-currency service makes conducting global financial transactions incredibly straightforward.
How has Brexit affected borderless banking?
The COVID-19 pandemic has accelerated the growth of borderless banking and services related to it, but other developments, such as Brexit are beginning to stand in its way. Most notably, the drawn-out withdrawal process has seeded a growing reluctance amongst risk averse, larger organisations to settle transactions using UK bank accounts or IBANs, due to unfounded concerns around regulatory complexity.
Despite leaving the EU, the UK remains a member of the Single Euro Payments Area (SEPA), so it’s unclear why these concerns around British IBAN accounts exist. Regardless, this unfortunate development must be addressed quickly as it has the potential to adversely affect the livelihood of businesses and individuals at a time of critical need.
What does the future hold for borderless banking?
There’s clear demand for borderless banking and borderless payments, but the discrimination of certain IBAN accounts represents a major obstacle, which could stand in the way of their widescale adoption. Moving forward, there needs to be a push towards borderless IBANs, which will make international financial transactions more reliable. At the end of the day, this is what IBANs were originally created for, so it’s important the current problems are rectified quickly.
To ensure this can happen, the industry needs protection and clarity from regulators. Likewise, it’s now time for membership organisations to stand up on behalf of the sector and lobby for the financial inclusion of businesses.
If the confusion regarding UK IBAN accounts can be sorted in a timely manner, businesses across the nation, as well as those further afield can look forward to a future of more streamlined and effective financial services. With this support, the diverse sector can deliver further access to innovative financial services and products, which improve outcomes for businesses and consumers alike.
As a sector, Fintech has the potential to provide vital assistance to the wider economy, particularly in an era of increased cross-border business. At Monneo, we’re committed to being part of that change and as a part of organisations like ‘Accept my IBAN’, are working towards reporting and ending IBAN discrimination.
IT’S TIME FOR BANKS TO SIT THEIR CUSTOMERS DOWN AND TALK OPEN BANKING
Eugene Danilkis, CEO at Mambu
We are living in an experience economy, and banking is no different. Customers need innovative payment and finance management solutions. New entrants are edging into the landscape and challenging existing players. This should mean users have a better view of their finances and the tools they need to manage their money – but banks are failing to deliver.
Personal finances are a complex beast, emotional pulls are strong, and the worry of financial security is always on the mind. It’s the job of banks to be the shoulders customers can lean on and trust.
Open banking was supposed to take this to the next level, enabling banks to deliver personalised products and services based on improved data sharing and customer insights. But three years on, adoption remains sluggish. So, why is open banking failing to live up to its promise?
A missed opportunity
Open banking was introduced to the UK in 2018, but consumers are still mired in confusion as to what it means and how it helps them. According to Mambu’s global open banking survey, 61% of consumers say they’ve never used open banking, despite more than 8 in 10 using one or more mobile banking apps.
This is a problem for banks and consumers alike. Lack of understanding around the technology is hindering its adoption, despite this being in the best interests of both. By enabling the secure sharing of financial information, open banking creates an improved customer experience. Not only does this minimise friction and make online payments faster and easier, but allows for personalised services and greater automation, enabling customers to take advantage of tools like budgeting apps.
For banks, open banking is an opportunity to build innovative new products that will improve the customer journey, helping them retain accounts and acquire new ones. By collaborating with third parties, banks can hyper-target customers and build services that address specific user needs, increasing customer satisfaction and in turn brand loyalty.
It’s true there’s been a recent spike in open banking users. According to Juniper Research global, open banking users rose from 18 million in 2018 to 40 million in 2021. But this can be traced to the necessities of a pandemic rather than any sudden clarity in communications.
Putting customers at the heart of communication
Mambu’s research shows more than half of consumers (52%) have never heard of open banking. COVID-19 may have increased the uptake of the technology, but it hasn’t increased understanding among users.
So, what can banks do to encourage consumers to embrace open banking? Fundamentally, they must better educate their customers in terms they understand. This means talking to them like human beings, using clear and transparent language to simply explain the personal benefits open banking brings and why it’s really just smart banking.
The understanding gap between technology and terminology shows that consumer demand is there, but better communication is needed. Making sure consumers truly understand the tools they’re using, the control they now have over their finances and how open banking improves the customer experience is vital to dispersing the current fog of confusion. It’s the benefits of this technology that banks need to hone in on: customers ultimately care about what open banking can do for them and how it’s going to make their lives easier.
Centering the customer and their needs in this way will allow banks to fully realise open banking’s potential. The technology has already given them the opportunity to develop valuable services for customers that help build brand loyalty. But the industry has failed to put the customer at the heart of their communications and processes, and show them how much better banking can be.
Key to reversing this trend is addressing consumer concerns around data privacy and financial safety. Yes, banks need to prioritise simplicity and clarity in messaging, but this isn’t an excuse to shy away from important conversations. Just because there’s an understanding gap around open banking doesn’t mean consumers aren’t switched on about tech and financial issues.
Mambu’s survey found nearly three in five customers have concerns about privacy and security in relation to open banking. So, it’s vital that banks provide reassurance and relevant information about data sharing from the outset if they’re to assuage these fears.
The industry can also encourage greater adoption by developing and improving open banking interfaces. Banks are the gatekeepers to how easily end-users can authorise certain actions, manage third-party access and navigate different open banking functions. If the interface is user-friendly, customers will have a better experience of the technology and be more likely to use and recommend these services.
Time to get talking
Customer communication is holding the industry back.. The ability of open banking to transform financial services is a concept that industry players are well-versed in. But the feeling isn’t mutual for customers.
Banks are failing to capitalise on the open banking opportunity by engaging with new and existing customers about what the technology can do for them. Debunking common myths can open the door to increased growth and trust for banks, as they seek to open up new revenue streams post pandemic..
Make no mistake, open banking isn’t going away. But customers will if banks don’t get talking.
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