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BANKS OF THE FUTURE WILL BE ASSEMBLED, NOT BUILT: HOW BANKS CAN EXPAND AND INNOVATE BY RETHINKING THEIR PARTNERSHIPS

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Author: Kelly Switt, Senior Director, Financial Services Strategy, Ecosystem and Strategic Partnerships, Red Hat

 

The financial services business ecosystem has been radically reshaped in recent years and is arguably more dynamic and ripe for innovation than it has ever been. Banks that take bolder steps to build strategic partnerships have the potential to dramatically transform themselves and the industry. While open banking reforms have encouraged organizations to open up their architectures to each other, there is much potential still to be unlocked: beyond the minimum of meeting regulations by the deadline and exposing the APIs required for aggregation services, there is a vast untapped opportunity for creativity in joint business models. The kind of opportunity that has long since been grasped by web-scale companies and fintech startups.

 

Deutsche Bank, BBVA, and neobank bunq are examples of banks that have understood the value of creating open finance communities. However, the majority of financial organisations are yet to embrace deeper collaborations that truly take advantage of external parties’ ready-built solutions, which would save time and resources and enable inhouse teams to focus on differentiating their business where it really counts. So how can an organisation break free of legacy structures and attitudes to better integrate and engage with partners?

 

Step 1: Adopting a growth mindset

Establishing deeper strategic relationships with partners requires a mindset shift for much of the industry. Traditionally, banks have tended to see third parties as vendors, treating the relationship as a transactional exchange, in the context of legal agreements that set forth the provisions and conditions of the services to be provided. Instead, banks need to adopt a growth mindset that encourages organisations to look beyond their own four walls, and embraces participation in a wider community. By engaging with an ecosystem of partners and treating them as a valuable additional set of experts, banks can accelerate problem-solving and reach their business goals faster.

 

Step 2: Aligning internally as an organisation

Before bringing in a partner to tackle a business problem, an organisation needs to conduct an internal assessment. It’s important for all departments within an organisation (IT, sales, marketing, etc.) to contribute their perspective on unpacking why a problem exists across the organisation: what are compliance and risk issues? What are the technical challenges? In what ways is the business impacted? Once everyone is grounded on why the problem needs fixing, it is a much clearer path to identify both the business and technology capabilities needed to solve the problem – i.e. the tools as well as the people skills. If different departments aren’t set up to engage with each other, it’s time to dismantle barriers and build bridges to ensure everyone is included in this discovery phase.

 

Step 3: Be open with partners

When the business has galvanised around its key objectives and the capabilities it needs to move forward, the organisation can look at engaging partners that have experience and expertise in the right areas. The more information that is shared with a partner about the company’s challenges, opportunities and goals, the more empowered and committed the partner will be to help meet the desired outcomes. Armed with insights, partners can help connect the dots and invite further parties to a project, leading to a network effect that benefits both the organisation and the wider ecosystem. To ensure that everyone continues moving in the same direction every step of the way, it is crucial to have transparent discussions in which ideas can be exchanged freely, and to make decisions in an open and collaborative way. Disagreement and constructive feedback must be encouraged – partners should be empowered to speak up with concerns – as this is an important part of mitigating risk.

 

Step 4: Humanise business relationships

Business relationships are personal relationships. The most successful ones are built on mutual understanding of what makes each other tick, what motivates someone to behave the way they do and what drives their performance. Getting to know people on a more personal level can create deep-seated relationships where everyone feels fully invested in driving the project forward. The banking sector may not be known for encouraging vulnerability, but revealing a bit more of the human in us is a key ingredient for building trusted relationships. The pandemic has added urgency to the need for greater empathy to lead people through difficulties, and has shown how people can come together through shared emotional experiences to better manage adversity.

 

Step 5: Build on a consistent technology platform

The technical foundation for engaging in any new partnership is a strong integration strategy. An organization may need to rethink its system architectures and shift towards open platform models. In the case of using containers to take advantage of cloud scale, establishing a common platform at the base of the technology stack that runs consistently across an organisation can provide more control, security and stability. A common application management layer that is agnostic to the underlying technology and based on open APIs gives internal teams together with partners greater freedom to collaborate, accelerating innovation. It helps avert the risk of ending up with many custom integrations, which can lead to cost overruns, outages or services-related issues for customers.

 

Unleashing future possibilities

Progress is able to happen much faster when people and teams work together. As more and more businesses in banking and adjacent industries wake up to the opportunities inherent in a move towards greater openness, we will start to see unprecedented innovation in financial services, and myriad other areas of our lives, creating better and more inclusive customer experiences for societies globally. Banks of the future will be assembled, not built.

 

Banking

BUILDING BETTER BUSINESS PLANNING THROUGH OPEN BANKING

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By

Richard McCall, CEO, Armalytix

 

Despite the end to Covid-19 restrictions in England on 19th July, Britain’s small businesses face an uncertain future.  Many have taken advantage of the various Government schemes available to help business through the pandemic, but as the reopening begins businesses will need to make crucial decisions on repayment of loans and recruitment of new people.  CEO of Armalytix, Richard McCall, believes access to timely financial information, made easier by Open Banking, helps these businesses make the right decisions for the future.

 

A recent report by the House of Commons library shows Britain is a nation of small businesses; less than 100,000 businesses in the country have more than 250 employees with a staggering 5.7 million employing less than 10.

For smaller businesses, the challenges of getting business done can get in the way of planning. 65% of SMEs do not have a business plan or financial forecast in place, according to the Corporate Finance Network (CFN) and Association of Chartered Certified Accountants (ACCA) UK’s joint SME Recovery Tracker.

As these businesses enter the post-Covid recovery phase, many will be facing multiple challenges.   The UK Treasury offered a comprehensive response to the COVID-19 pandemic, including VAT deferrals, bounce back loans and the furlough scheme. However, as these business support packages come to an end, a unique set of challenges emerge for small businesses. Directors will need to make decisions about bringing back employees at the same time as loan repayments begin. Others will need to consider how to repay tax deferrals despite an uncertain business landscape. Accurate business planning has never been more important.

 

Richard McCall

Up-to-date financial information

Most smaller businesses are susceptible to peaks and troughs in trading and are used to a “feast and famine” existence.  But the circumstances of the second half of 2021 will be unfamiliar for every business. Smaller businesses will need to rely more than ever on the support of external consultants – such as accountants or financial advisors – to help better understand the financial environment their business is facing.

Getting access to accurate and up-to-date financial information is critical to making informed decisions, but many advisors struggle to get this information from the small businesses they support. Even businesses that do regular monthly or quarterly management accounts find the process of sharing banking information complex.  For example, accountants often receive either a jumble of photocopied bank statements, which need to be digitised manually, or csv files of banking information, which can be easily manipulated or corrupted.

 

Open Banking for business

The Open Banking standards were launched in the UK during 2018.  Open Banking connects banks, third-parties and technical providers – providing them with a simple and secure way to exchange data for customers’ benefit. It provides a trusted and reliable framework for the sharing of financial information.  Open Banking enables businesses to quickly and simply authorise apps to access and share specific and relevant financial information in a safe and secure way.

 

Simplicity and security for small businesses

With Open Banking, accountants and small businesses can streamline how they share financial information.  Rather than sending a request to share financial information directly to a business owner, Open Banking allows advisors to do so within a secure platform (typically a third-party app that directly requests access to specific financial information).  This can be requested by date or bank account.  For the business owner, it is simply a matter of authorising the accountant’s request to extract the relevant information from a banking app and sharing it securely with the advisor.  There is no waiting or hassle – the secure sharing of the right information can happen in seconds.

The process saves time and effort – in many cases days’ worth of chasing and longer still in either manually retyping the information or importing it into an accounting platform.  By reducing the manual input required it is also possible to eliminate human error.

 

Better information is better insight

While this process makes life more straight forward for advisors it is also in the interests of small business owners.  Half of UK businesses are not registered for VAT, which means they are only required to file a statement of accounts annually.  This is far from ideal for business owner that need to keep a close eye on business performance: by the time an advisor sees that a business is struggling, it could be too late to intervene.

Faster access to accurate information acts as an early warning system for professional advisors to highlight any concerns to business owners.  This is an important role at any time, but in the current uncertain environment access to timely information is more important than ever. In the complex post-Covid environment, businesses will need to navigate bringing staff off furlough at the same time as repaying bounce back loans and tax deferrals.  With uncertainty around future lockdowns or the speed at which the economy will return to normal, business owners need accurate financial information to make the right business decisions.  By offering their clients financial information sharing via Open Banking, advisors can make life easier for themselves and help small businesses more effectively navigate an uncertain future.

 

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Banking

NEXT GENERATION BANKING: MAXIMISING REVENUE AND ADDING VALUE THROUGH FINANCIAL SOLUTIONS AS-A-SERVICE

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By

Michael Mansard, Principal Director – Subscription Strategy at Zuora

 

The UK’s financial services (FS) sector has reached a tipping point. Lower interest rates, tighter regulations and higher fines have piled on the pressure for both legacy banks and fintech startups. With the economy entering recession in the wake of the pandemic, market caps are plummeting, and many have raised concerns on what the industry might look like moving forward.

More traditional FS organisations have evolved to manage risk to the millimetre, but today’s environment is making it increasingly hard to do so. What’s more, this stoic approach to risk aversion comes at the cost of agility, with many businesses still operating on business models that haven’t changed for decades. In the UK market, for example, the concept of “free banking” has become ingrained, with FS organisations believing that customers simply won’t be willing to pay for their services.

However, there is research to prove that consumers are willing to pay for a service, provided there is clear value attached to it. This opens up an opportunity for a new business model, one that will enable FS organisations to improve and expand their offering, maximising profit while delivering genuine value to their customers. To compete with newer, more agile digital players, it’s clear that changes need to be made, and that more traditional firms need to consider building out a new digital offering, as opposed to simply expanding their existing services.

 

Next generation banking

The COVID-19 pandemic has accelerated an existing global trend in consumer buying behaviours. Individuals are increasingly moving away from buying “things” in favour of spending their income on experiences. This shift towards “the end of ownership” has, in turn, spurred a surge in subscription services.

Subscription models charge customers a recurring fee at regular intervals, whether that’s weekly, monthly, annually or on a pay-as-you-go basis, to access a product or a service. The key differentiator between paying for a subscription service in installments and the recurring fees or premiums available through most FS organisations is the focus on customer-centricity, whether that’s through pricing, delivering continuous value or giving subscribers power over their own customer journey. Zuora’s recent  End of Ownership Report found that subscription models are proving popular for this reason, with 77% of UK adults currently signed up to subscription services.

For the financial services industry, subscription models could open up more opportunities to upsell and cross sell different services, helping to maintain existing customers, reduce churn and unlock new streams of revenue. One FS organisation leading the way in this area is Singapore-based DBS bank. DBS’s Video Teller machines are the first of their kind in Singapore, enabling customers to interact with agents through virtual conferencing. The bank’s SingPass face verification technology also enables faster sign ups, helping to cement its position as a leading player when it comes to the digitisation of processes and services.

One of DBS’s projects, an initiative titled Start Digital, has been launched in partnership with the Singapore government. Designed to accelerate the digitisation of Small and Medium-sized Business (SMBs), the subscription programme offers DBS customers a number of digital solutions to help them grow their business. Digital transformation is at the top of the agenda for every business, and this subscription service has enabled DBS to deliver true value to its customers, strengthening existing relationships whilst opening up new, improved revenue streams. DBS is, essentially, utilising subscription services to become a next-generation bank, transforming itself into a key partner in its customers’ futures.

 

Increasing value

The key to making subscription models a success is working out precisely what your customers want. For example, recent research found that over half (52%) of UK consumers would be enticed to switch to another bank if their subscription included an entertainment bundle. This was closely followed by smart phone insurance (33%) and utility services (31%). Offering these additional services may sway consumers to sign up, but for FS  businesses looking to emulate the success of DBS, the real challenge is pivoting from subscriber acquisition to subscriber retention and achieving that elusive “partner” status.

Subscription models collate a substantial amount of usage data, offering the businesses that are using them the opportunity to engage with their customer base and adjust their services to match demand. This data can help businesses to curate competitive pricing structures and develop their strategies to entice and retain customers with tailored offerings. Personalisation is one of the primary success factors for subscription sellers; tailoring a product or service to suit a customer’s individual needs is a great way to win loyalty and build stronger, long-term relationships.

Subscriptions offer FS organisations the opportunity to expand their addressable market. Banks can make their product and services more affordable, for example, not necessarily by reducing the overall cost of the product or service, but by offering customers the option to spread their payments over a longer period of time. By expanding their addressable market and therefore growing their user base, subscriptions can help organisations to boost their revenue over the long term.

In today’s ever changing landscape, building stronger relationships with customers has never been more important. Implementing the right customer experience initiatives at the right time could be the difference between an FS business remaining profitable, or going under. Subscription services, and the unique insights that they can provide, have been proven to drive growth across a vast range of industries, as highlighted in Zuora’s latest Subscription Economy Index which discovered that subscription usage has grown by more than 435% over the last 9 years. This growth isn’t set to slow down any time soon, with reports predicting that the Subscription Economy will expand into a $1.5 trillion market by 2025. It’s time for FS organisations to deliver true value to their customers and adopt subscription services as the next generation of banking.

 

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