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CAN SELF-SERVICE BANKING SAVE THE BANKING INDUSTRY?

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Mark Aldred, Banking Specialist at Auriga

 

2021 should be about making the lives of customers easier by tailoring the customer journey and targeting the imminent issue of access to cash. Taking into consideration the effects of COVID-19, the government and communities will be working harder than ever to fix cross-industrial problems to offer customer solutions. Recently, news about staff redundancies and towns affected by bank closures have infiltrated the news agenda, however HSBC’s recent announcement on its latest UK branch strategy has added a drop of hope into the banking industry.

Legacy banks have experienced a mass reduction in the number of customers using traditional banking channels, and there has also been an influx of new entrants consuming the majority market share with digital only solutions. Surprisingly, despite the acceleration of bank branches shutting down, the closure rate has still not reached its peak, as a prediction of 40,000 more banks are expected to close within the next three years in Europe, hence the issue around access to cash is to worsen. Fortunately, different measures have been taken within the industry to counteract these growing issues, as forward-thinking banks have adopted alternative models.

An active approach to help solve this problem has been the destruction of ATMs, however this is being done at the expense of communities that are most heavily dependent on them. Even though there is promise that this will decrease extra costs and increase efficiencies, there still remains a possibility of losing customer loyalty and withstanding reputational damage. Self-service can be a viable solution to this conflict, which is why HSBC’s innovative strategy that goes beyond branch restructuring has garnered attention.

 

A more efficient banking service

Mark Aldred

HSBC plans to introduce both digital services and pop-up branches. Although a step forward, it may have missed the mark on how self-service banking can be complemented with assisted and remote service and then remodeled into a lean branch format. This is an opportunity that grants communities a bank branch in a box and an alternative to losing access to bank branches as a focal point for financial services. An example of this is how modern ATMs can offer additional services such as paying bills or even doing live video calls with a banking specialist. This way, access to cash can be subsidised by creating alternative revenue streams. This trend is also becoming increasingly common in other countries like Italy.

 

The future of banking

Incorporating a banking service that operates 24/7 would drastically change the economics of a physical branch. The next generation of bank branches must also be cheaper, smaller, smarter, full-service and automated. An example of how this can benefit a business, could be seen in Millennium BCP’s strategy in Portugal. Around three to four years ago, the private commercial bank found difficulty in reputation management and the cost of infrastructure. In retaliation, the MTM branch model was born, along with a new style of the 24/7 branch, which was accompanied by overnight remote banking.

The results proved that this approach was profitable, as banks increased in greater proactivity, received double the amount of deposits in comparison to legacy banks and required less costs. As personnel managed the transactions during the day, and remote tellers at night, this also contributed to how they managed to save money operating the bank. Moreover, this also improved customer loyalty and the retention score.

 

High street bank closures

There are subgroups that have become accustomed to using bank branches as a channel of financial services. This may be because it is deemed as more dependable and provides added comfort and security to the customer. Therefore, as there will be less high street banks available, an alternative way of ensuring customers are not missing out on accessing banking services is by considering the option of sharing facilities to maintain local financial service hubs. Shared facilities is not a foreign concept in Europe, by doing so it is possible to save on costs, generate revenue, and strengthen the relationship between the business and the community.

In many European countries such as the Netherlands, Sweden, Finland and Belgium, ATM infrastructure sharing is already an active trend in the markets. For example in Belgium, an initiative referred to as Batopin, means that a network of bank-neutral ATMs, previously managed by its four biggest banks will form a single software platform in 2021. Bank-neutral ATM estates is another way banks can guarantee customers continuous access to cash without burning through costs.

Overall, HSBC’s new strategy of providing digital service as well as pop-up branches is a good idea, although self-service banking can be extended to incorporate assisted and remote services into a leaner branch format. This way, customers will not have to lose direct access to bank branches, and customer loyalty can still remain intact.

 

Banking

Bringing Automation to Banking

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Ron Benegbi, Founder & CEO, Uplinq Financial Technologies

 

Automation is everywhere you look these days; from supermarkets to warehouses to automobiles. This prominent trend shows no sign of abating anytime soon. However, some sectors remain behind others when it comes to adopting automated technologies. Banking is one such segment, but there’s now evidence to suggest that this could be about to change.

 

What do we mean by automation?

There are a lot of ways to define automation, but broadly the term applies to any technological application where human input is minimized through design. Over the years, automation has evolved from a basic level, which took simple tasks and automated them, all the way to advanced automation powered by Artificial Intelligence (AI). In general, automated solutions work to increase productivity and efficiency within businesses and often result in a reduction in costs associated with human capital.

 

Ron Benegbi

Why has the banking sector been slow to adopt automation?

The banking sector has been built on a number of long-standing, tried and tested processes and protocols, which have been continually fortified and refined over time. This is one explanation as to why the sector has been so slow in adopting new, automated methods within its operations. Additionally, many major financial institutions have spent decades building their own internal legacy computer systems, which are often incompatible with modern automated solutions.

When combined, these two issues have caused a significant lag in the banking sector with regards to the adoption of automated technologies. This lag has created a market opportunity that a number of fintech providers have been able to exploit in recent years. Offering a more responsive and tech-first user experience, many fintech providers are leveraging the power of automation to better meet the banking needs of their customers. However, there is still time for the banking sector to start bridging this gap.

 

Does automation have a place in the banking sector?

The opportunity for automation to play a role within banking can be transformational.

To achieve this, it’s important that legacy organizations begin to learn from their more tech-savvy, smaller counterparts. If used effectively, automated financial solutions can greatly improve the experience of banking customers, both on a personal and business level. So, what exactly does this change look like, and how far away are we from seeing it become a reality?

A good place to start is the small business credit lending process, where not much has changed since the 1980’s. Over that period, the world has greatly transformed, but the methods used to assess credit worthiness have remained somewhat static. For the most part, banks assess data related to businesses’ accounting and banking records and from credit scores. For many businesses, especially the newer and less established ones, this antiquated approach is having a detrimental effect. In fact, it’s often cited as a contributor to the huge funding gap between SMBs and their larger counterparts.

 

How can automation benefit the banking sector?

By adopting more automated technologies, lenders in the banking sector can begin to assess more comprehensive information when making credit decisions. Notably, new methods exist, which enable additional data sets to be evaluated, in order to build a more accurate financial depiction of a business’ overall position. This data can come from sources like external market attributes, economic indicators, demographic data and exogenous shocks.

By leveraging additional data sets through new methods of financial automation, banks are now in a position to respond more effectively to small businesses, including those in emerging and evolving markets where there is a lack of conventional sources of information.

With more ways to access funding, facilitated by alternative data and automated processes, small business owners can improve their operational efficiencies and accelerate their growth efforts. In doing so, legacy oriented financial institutions can now better equip themselves in protecting against new, nimbler tech-based disruptors.

 

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Banking

MYTH BUSTING THE ROLE OF OPEN SOURCE IN FINANCIAL SERVICES

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Nigel Abbott, Regional Director North EMEA, GitHub

 

There is no denying the financial services (FS) industry is under pressure to innovate. Not only have customer and consumer expectations for digital experiences surged in recent years, but the emergence of nimble and ambitious fintechs have disrupted the market. Yet, despite striving for innovation being table stakes across the industry, FS organisations inevitably face familiar hurdles that slow their progress, including concerns surrounding security, compliance, and the ability to act fast.

Open source is increasingly seen as a route to drive innovation and create new value. The FS sector’s utilisation of open source and the transformative role it can play is accelerating – on paper, at least. According to the recent Fintech Open Source Foundation’s (FINOS) 2021 State of Open Source in Financial Services survey, as many as 80 percent of FS leaders said that innovation, reduced time-to-market and total cost of ownership are factors for FS businesses to consume open source.

Nigel Abbott, Regional Director North EMEA -GitHub

But the reality is these positive adoption figures don’t tell the whole story. The survey also revealed that 75 percent of FS technology leaders said their businesses are either not “open source first”, or that they did not know if they were. Tellingly, less than one in ten (eight per cent) said that their business has put in place policies to encourage open source contribution.

The statistics point towards disparity between uptake of open source and the ability to use it to its full potential. But why?

For me, it comes down to some common myths about the role of open source that need demystifying:

 

Myth #1: There are limits to the innovation that open source can deliver

This could not be further from the truth. All enterprises, including FS companies, rely on open source software to build the best software for their customers, improve infrastructure, and unlock the potential of their engineering teams. Nationwide, for example, has completely redesigned its DevOps processes to respond faster to market changes and keep pace with customer expectations to remain relevant. The impact is transformative when they actively embrace it and participate fully in the open source community, creating a win-win situation for end-users. 

 

Myth #2: Data can be shared without consent 

Quite the opposite. Open source does not require FS businesses to share all their secrets and give away their competitive advantage. Instead, taking an “innersource” approach allows financial institutions to take the skills of developers who are accustomed to using open source tools and brings these inside the company firewall, providing a secure internal platform for working collaboratively on projects.

 

Myth #3: Open source is not secure

The most common misconception is that higher security risks are associated with code being openly available to anyone who uses it. But the open concept is, in fact, one of the biggest security strengths of open source. This is because of the collaborative nature of how code is built. The open source community has a shared responsibility for developing and maintaining secure code, and there is a vast global pool of developers identifying and fixing security issues. Supported by the right tools and processes, open source makes it easier for developers to code securely throughout the entire software development lifecycle, reducing the amount of time and financial investment in delivering secure products. Research from Red Hat found that security is regarded as a top benefit for enterprises using open source.

 

Myth #4: The open source community lacks finance sector contributors

This is untrue. Financial enterprises of all shapes and sizes are prominent participants in the open-source community and lead by example, sharing meaningful code contributions. Challenger banks and institutions such as Goldman Sachs contribute to open source initiatives via FINOS. By opening their code and ideas, FS companies can share lessons and support the whole community – helping them deliver better services and more value to their customers. And crucially, they are advancing a community that they can systematically tap into and benefit from.

Open source is already delivering innovation in the FS sector. But the bottom line is that there is so much extra value it can bring. Unlocking the full potential of open source to effect change does not just require buying DevOps tools. Open source requires organisation-wide understanding and support, a culture of collaboration and a progressive DevOps and governance process to thrive. Only then can it deliver its true value and accelerate innovation.

 

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