Connect with us

Banking

COLLABORATION, AGILITY AND OPENNESS: HOW BANKS CAN SEED THE GROUND FOR TRANSFORMATIVE FINANCIAL SERVICES

FINANCIAL SERVICES

Sarah Maber, Managing Consultant at World Wide Technology (WWT).

The introduction of Open Banking and the Payment Services Directive 2 (PSD2) disrupted the financial services space, unlocking the potential for a wave of innovation, by opening up swathes of anonymised customer data to third parties. Banks now have the opportunity to collaborate in the creation of truly ground-breaking services. But they’re failing to seize it.

 

Learning from fintech

Open Banking and PSD2 could put banks at the forefront of a revolution in consumer financial services. New capabilities enabled by the legislation are already giving people control of their finances in ways previously impossible. Consider the ability to view the status of multiple financial services in one place, or to make quick and easy payments direct from your bank. Customer experiences such as these, and the further innovations that Open Banking enable, can support banks in expanding their customer bases, especially among the lucrative 24-35 demographic who are currently being courted so successfully by the fintechs.

This understanding that the “mobile generation” expect convenience, speed and transparency in digital financial services has seen mobile banking start-up Revolut acquire eight million customers to date. Indeed, to capitalise further, it has recently created an offering for children aged between 7 and 17, which provides the functionality of a bank account (a current account, a Visa card and transaction push notifications), but is delivered under the watchful eye of a parent or guardian, who can set up a regular allowance.

But while Open Banking and PSD2 offer the chance for banks to collaborate with these exciting fintech players, and bring their expertise and agility into organisations, they are mostly failing to take it. One reason is that banks differ so markedly from fintechs. They typically move more slowly and have such different cultures that competitive tensions are inevitable.

 

Building blocks for big tech

Technology giants such as Apple, Google, Alibaba and Facebook have also entered this sector through the launch of financial products such as Facebook’s Libra and Apple’s Card. These companies are innovating through an aggregator model, leveraging the capabilities of fintechs and banks to build new financial products and services.

In a rare sign of things to come, HSBC recently partnered with Chinese logistics firm Cainiao to offer rapid trade finance loans to online merchants through Alibaba’s Tmall platform[1]. HSBC uses third-party data on customer background, real-time inventory and operational status provided by Cainiao to approve the loans. This innovative partnership enables HSBC to get a greater share of its product into the market much more rapidly using an existing technology platform.

What is often misunderstood by the banks is that technology players don’t want to become banking operations. They prefer to offer the consumer-facing services for which they are so well known. Unfortunately, the majority of banks are unlikely to see the situation as HSBC does, viewing the moves of technology players as land grabs. This means many opportunities to expand their offerings through collaboration are being missed.

 

Thinking different

If they are to seize the opportunity presented by Open Banking and PSD2, banks need to change how they think and act. They need to shift mindset to realise that they are no longer perceived as the innovators of the financial services market, as consumers can gain access to the services they need from a far greater ecosystem of businesses. If banks want to prosper in this new reality, they must be more open, agile, flexible and collaborative.

One essential step to opening up collaboration is for banks to provide more APIs – and crucially, more useful ones. These are the tools upon which third parties can build the next generation of financial application and services, using the financial institution’s service backend and transactional capability as a foundation.

Consider SMEs, whose owners want automatic and simple integration between their software and their financial accounts. Banks have the opportunity to support that link between business accounting software and financial accounts by introducing the right API. The benefit to banks of developing an interface of this sort is that it’ll increase the probability that SMEs continue to bank with them.

The example above illustrates how APIs enable collaboration but can also foster much greater service innovation. Rather than seeing APIs as a tick-box exercise to satisfy the financial regulator, banks need to think of them as their opportunity to drive the collaboration and innovation necessary to retain and expand their customer bases.

 

Embracing agility

The financial products that will emerge from partnerships between banks, fintechs and the tech giants represent a lucrative opportunity for all stakeholders. To create them, each will need to be tolerant of different ways of working and open to new business models. Banks, in particular, must learn to embrace agility and collaborative thinking.

A good example of what could be achieved is UK-based Metro Bank’s recently forged partnership with Lending-as-a-Service (LaaS) provider ezbob. Ezbob applies AI to Metro Bank’s data to provide fast and secure access to finance, enabling Metro to deliver a seamless, web-based lending process to its business customers. Applications take minutes, and funds can be made available the same day.

As collaboration increases, it is very likely the culture of banks will move towards that of fintechs. Banks can never be start-ups, but they can be fleeter of foot and to embrace innovation more deeply, which, in turn, will seed the ground for a stronger ecosystem.

 

An exciting future

Open Banking and PSD2 will deliver services that consumers may not realise they want but will soon find they cannot bear to be without. The driving force behind Open Banking is the fact that customers are willing to hand over their data if they get tangible benefits in return. What has worked so well for the likes of Facebook and Google is also the case for financial services – and beyond Open Banking, this truth is underpinning a longer-term journey towards Open Finance.

Open Finance enables organisations beyond banks to provide the same level of access to data that PSD2 has provided for Open Banking. By facilitating easier switching between financial products and financial transfers, it could for example see the development of services that promote consumers’ financial health, automatically optimising the products they use to match their financial standing.

A new Open Finance regulation – the Pan European Pension Product – will also provide interesting opportunities. Its aim is to eliminate the barriers to customers moving their pension between European providers, finally elevating a very traditional service into the modern world.

Just as is the case with Open Banking, ambitious partnerships will need to be formed between relevant stakeholders to make services like these a reality. Ultimately, whatever is done must serve the needs of the customer. The organisations that evolve fastest to deliver the most painless and seamless ways to meet those needs will see the greatest success in future.

[1] https://www.finextra.com/newsarticle/35491/hsbc-to-use-third-party-data-to-approve-rapid-loans-for-alibaba-merchants

 

Banking

NO SAFE HARBOUR FOR DIGITAL BANKING

by Konstantin Bodragin, Business Analyst and Digital Marketing Officer at Bruc Bond

 

At the beginning of 2020, the future of digital banking was pretty clear. Between Open Banking initiatives, regulatory frameworks like the PSD2, and growing customer demand for more advanced digital services, bank-watchers the world over felt confident in their predictions. The course was set for full digitisation, likely brought about by victorious challenger banks replacing stuffy and lumbering traditional banks. Then the winds changed and ongoing disasters shook the world’s seemingly endless confidence in fintech and the bright future it promised to the core.

COVID-19 dropped on us like a sudden thunderstorm on a birthday party. Sure, experts, analysts, prognosticators (and perhaps even meteorologists) all warned of an inevitable pandemic event. But the rest of us, including most leaders and financial giants, were taken almost entirely by surprise. A majority of us managed to get drenched, even though the forecast predicted stormy weathers. Now, leaders and investors are scrambling to reach high ground and keep whatever they can from being swept away in the torrential floods.

Konstantin Bodragin

In practice this means redirecting funds from aspirational projects towards more immediate goals, and shedding as much unnecessary weight as possible, in case the water rises higher. In the year of COVID, who gets what is not so much a question of wants, but of pure necessity. Unless you’re a government with bottomless pockets, superb credit rating, and a deep desire to stave off a Great Depression-style downturn by means of public works, chances are you too are cutting costs. Big Business is doing the same. Autonomous car projects will be put on hold (if they haven’t been frozen yet), status symbol product launches will be postponed until customers feel confident to spend their extra cash again, and ambitious digitisation projects will be slowed unless their worth can be demonstrated even for the current times.

As they say, when it rains it pours, and this year is particularly wet for fintech. Even if Hurricane Covid hadn’t battered the shores of the global economy quite to so hard, the void left by the sinking of the titanic WireCard would suck much of the industry down beneath the water with it. Just last month, WireCard served as the main provider of banking infrastructure for much of Europe’s Non-Bank Financial Institution industry. NBFIs, tautologically, are not banks. As a rule, until they grow large enough to acquire a bank or banking licence of their own, NBFIs rely on financial and banking facilities provided by another. This is by design, with frameworks like PSD2 regulating access and relationships between various institutions.

Such relationships, under the watchful eyes of local and international regulators, are meant to best serve the interests of customers and consumers. And for the most part they do. Failing or unscrupulous institutions get sidestepped and the system heals around them. Unless, of course, the problem actor is too large. WireCard is one such giant dud, and the sinking of this fintech suppliers will have repercussions that will be hard to mitigate.

WireCard served so many financial institutions that many millions of customers have been affected. Many of these institutions will not be able to survive, and one can only hope that end consumers will be protected from the fallout. On the business end, such hopes for salvation could be too optimistic. Many companies don’t have the resources to withstand several weeks or months of inactivity while they work to replace their financial infrastructure, especially not with extremely depleted budgets due to the ravages of COVID-19.

Those institutions that do survive will face a new reality of confused and likely higher costs, which will almost necessarily have to be passed on to consumers. The more savvy of WireCard’s survivors will try to shore up their defences against the recurrence of such a disaster by spreading the risk and their activity between several providers. This will hopefully lead to a normalisation of costs and a reduction in fees, but by then consumers could once again be too wary to take the risk with digital services whose fees could seemingly spike at any moment.

Loss of confidence won’t be limited to the consumer side, either. Regulators, wary of being made the fool again, are likely to treat fintech and the NBFI sector with much harsher gloves than it did so far. Increased scrutiny, stricter regulatory requirements, and a general lack of cooperation from regulators could sink any hopes of quick recovery for the battered industry. Not to mention the increased costs from such requirements, that are, again, liable to be passed down to the consumers.

Regulators and authorities are not the only power brokers digital banking suppliers will have to contend with. Partners in the banking industry were already eyeing fintechs with suspicion, not least thanks to the egregious claims of the latter to replace the former. Little wonder then, now that the seemingly unbeatable leviathan of WireCard has sunk to the bottom of the deep, that banks will loath to lend a helping hand to NBFIs struggling to find replacement providers.

So what will happen? In this climate, with demands for justice at their peak, some funds will surely be diverted from risky digitisation projects to PR-friendly investment in diversity. Behind the scenes, certain players will carry on their digitisation projects, but their approach is bound to change. The three Ss – slow, steady, stable – are likely to reign supreme, at least until Hurricane Covid passes, and the economic seas are calm once again.

 

Continue Reading

Banking

WHY OPEN BANKING SHOULD BE EVERY MARKETER’S BEST FRIEND

By Kathryn Wright, CSO, Upside

 

To date, Open Banking has been mainly utilised to help consumers with account switching and account aggregation. Being able to have a birds-eye-view of our spending always helps us realise how much money might be slowly ‘leaking out’ of our pockets. As useful as some of the applications have been so far, they are somewhat passive in nature and there is a bigger opportunity at play with Open Banking.

Personalisation has been the holy grail in sales and marketing for some time now, often twinned with omni-channel propositions. According to a study by Gartner in 2018, the brands who personalised discounts and calls-to-action outperform their competitors in revenue by at least 20%. The demand for a completely personalised customer experience has seen many SaaS offerings come to market, promising a complete understanding of your customer.

Many of these technologies are riddled with challenges though, such as customers flitting between devices, moving from mobile to tablet to laptop, and all at different IP locations – which is where omni-channel solutions are needed, but only work reliably when a customer is ‘logged in’. Cookie tracking, or the lack of it, also impacts what is shown to a customer. There’s nothing worse for a customer than clicking through an email and landing on a website just to see a large pop-over asking them to sign up to emails and offers. That’s clear evidence and an example of personalisation not working!

Another bad example in basic segmentation is generalisation. Businesses often take a few pieces of demographic data and then make wildly inaccurate assumptions about the customer. No retailer or marketer needs more data. They need actionable data with insights which can drive action and engagement.

And this is when Open Banking comes into play. By pairing past spending data through Open Banking, marketing teams can better understand their customer base, and brands can personalise which products and offers are shown and when. The end-result is an all-round better experience for the customer, which in turn means an increase in their brand loyalty.

 

Single Source Of Truth

Businesses currently struggle to know who really is a new customer. It’s kind of tricky when all of the largest discounts are designed to get a new customer on board and marketing teams are heavily focused on new customer acquisition and the cost per new customer.

So who is a new customer? Someone with a new email address that you haven’t seen before? But what about a different delivery address or using PayPal one time and then a card the next time. One customer can potentially register as a ‘new customer’ up to around seven times. Additionally, if I leave my broadband provider this year and come back after a year, am I a repeat or new customer? Brian Dunne from Gift Card Consulting, advisor and investor to Upside puts it well: “There is no such thing as new customers, they’ve all seen you at some point. You are just not getting all their spend most of the time.”

False customer categorisation affects all other business metrics. CAC, CLTV, Repeat purchase rate, customer churn – and these are not trivial metrics, these are metrics upon which huge budgets are committed to or culled. The answer to these questions and challenges in customer personalisation lies in Open Banking. The single source of truth where money can only come out once. Of course, there are credit cards and multiple bank accounts, but the idea is for the customer to have all of these linked.

A new world of data analysis opens up when Open Banking is applied. Retailers can see the frequency of spend, location and average order value. Most brands have this information, but only for themselves. Outside of their walled-garden, it’s more of a mystery. Open Banking allows businesses to benchmark all of these metrics against the rest of their industry, showing what percentage of wallet share they have, which is more meaningful as a metric than an incorrect measure of new customer sign-ups.

For Open Banking to fully show its potential, the conversation with customers needs to change. Brands need to reward repeat purchases and loyalty, instead of offering all of the best discounts to ‘new customers’. Leveraging new fintechs and Open Banking, retailers will be able to know for sure who is a new customer, which will allow them to attract new, win back old and delight their most loyal customers more accurately.

 

Open Banking – Fiction or the Future of Retail? 

Pairing machine learning with Open Banking brings personalisation to a whole new level above simple segmentation and improves the customer experience. Machine learning and AI, combined with Open Banking, are ways to create insights from the masses of data that businesses have. As an example, over time, businesses will be able to recognise when a particular customer looks like they are going to lapse into no longer shopping there, or shop less regularly, and suggest to the brand that at this stage, they offer a special cashback rate. Rather than a ‘spray and pray’ attitude to marketing it means brands can give customers what they need at the right time and ensure their communications are relevant.

Does this sound like a dream? It is not – the technology is ready. Open banking and machine learning can change the way marketing and sales work for any industry. Estimates sit around 95% for the prediction of future revenue which will come from as little as 5% of a brand’s existing customer base. A study by the Center for Generational Kinetics reveals 80% of consumers would visit a store they hadn’t visited before if given a direct cashback. Given statistics like these, retention through delighting and rewarding existing customers, as well as new user acquisition, is imperative.

It’s only the mindset which often holds businesses back. Those retailers, businesses and Open Banking providers who grasp this opportunity and move away from the old discounting culture will rise in the post-Covid-19 world.

 

Continue Reading

Magazine

Partner Events

Trending

Banking8 hours ago

NO SAFE HARBOUR FOR DIGITAL BANKING

by Konstantin Bodragin, Business Analyst and Digital Marketing Officer at Bruc Bond   At the beginning of 2020, the future...

Business8 hours ago

CAN TECHNICAL INNOVATION HELP FINANCIAL SERVICES FIGHT BACK AGAINST FINANCIAL CRIME?

By Charlie Roberts, Head of Business Development, UK, Ireland & EU at IDnow   It’s no secret that the financial...

News8 hours ago

ARE MIDDLE EAST ENTERPRISES PREPARED FOR THE FUTURE?

Deloitte releases 2020 tech trends report   Deloitte’s 11th annual report on technology trends captures the intersection of digital technologies, human...

Wealth Management21 hours ago

ONLINE STOCK BROKERS ARE BENEFITING IN 2020

2020 has changed our lives in dramatic ways. Thanks to COVID-19, many of us now work from home. Rather than...

AI AI
Finance3 days ago

COULD COVID-19 BE THE CATALYST FOR DIGITAL TRANSFORMATION IN FINANCE?

By Simon Bull, Sales Operations & Business Development Manager at Aqilla   We are all now living in a new...

Banking3 days ago

WHY OPEN BANKING SHOULD BE EVERY MARKETER’S BEST FRIEND

By Kathryn Wright, CSO, Upside   To date, Open Banking has been mainly utilised to help consumers with account switching...

Finance3 days ago

TOP TECHNOLOGY TRENDS FINANCIAL INSTITUTIONS SHOULD INVEST IN TO BRIDGE THE GAP IN REMOTE WORK

Chirag Shah, Senior Vice President, Fintech & Innovation Lead, Publicis Sapient   More than ever before, technology is critical to...

Business4 days ago

TOP 5 LINKEDIN PROFILE OPTIMIZATION HACKS FOR ASPIRING BANKERS

According to Firmex, finance professionals cannot afford to be not on LinkedIn. A significant number of organizations acquire talent in...

Wealth Management4 days ago

TAPPING INTO THE DATA GOLDMINE: THE FUTURE OF DATA-DRIVEN CREDIT MANAGEMENT

Willand Brienen, product owner at Onguard   Data, and the insights it reveals, can offer organisations a vast number of...

Finance4 days ago

ENLISTING TECHNOLOGY TO HELP FIGHT FINANCIAL CRIME

By Rachel Woolley, Director of Financial Crime Fenergo   Million-dollar properties, private jets and parties on luxury yachts with celebrity...

Banking4 days ago

TRANSFORMATION IS NON-NEGOTIABLE FOR BANKS LOOKING TO DELIVER VALUE IN A POST-PANDEMIC WORLD

Andrew Warren, Head of Banking & Financial Services, UK&I, Cognizant   In addition to responding to changing customer expectations, higher...

Business4 days ago

HOW MILLENNIALS CAN GET AHEAD WITH THEIR MONEY

Granville Turner, Director at company formation specialists, Turner Little.    Millennials are often painted as globe-trotting creatures that spend more...

STRUCTURED DATA STRUCTURED DATA
Business4 days ago

STOPPING THE CHARGEBACKLASH

By Gabe McGloin, Head of Intl. Merchant Sales @ Verifi   Brands have been encouraging consumers to move their shopping...

Business4 days ago

CONSUMERS ARE READY FOR BIOMETRIC PAYMENT CARDS

Lina Andolf-Orup, Head of Marketing at Fingerprints   We’ve come a long way in the evolution of digital payments. Magnetic...

Finance5 days ago

WHY IT PAYS TO MAKE CYBER SECURITY PART OF THE M&A DUE DILIGENCE PROCESS

Anurag Kahol, CTO at Bitglass   Mergers and acquisitions (M&As) enable business leaders to adapt fast to new opportunities. Whether...

Interviews5 days ago

GOING FOR INVESTMENT IN CENTRAL EUROPE: START-UP LIFE OUTSIDE A TRADITIONAL TECH HUB

A Q&A with Bence Jendruszak, Co-founder and COO at SEON   At what stage did you realise you were going...

Banking6 days ago

CLOUD ALLOWS BANKS TO BASK IN CHANGE

by: Elliott Limb, Chief Customer Officer at Mambu   As a new era of banking takes off, the cloud is...

Finance7 days ago

COVID-19 WILL DRIVE FINTECH ADOPTION – BUT AT WHAT COST?

By Ian Bradbury, CTO – Financial Services at Fujitsu UK   Even before the impact of Covid-19, the financial services...

Business7 days ago

HOW TECHNOLOGY IS POSITIVELY IMPACTING COMPLIANCE AND HOW IT IS HELPING TO STREAMLINE PROCESSING TIME AND COST FOR FIRMS

By Joe Woodbury, Director – Investment Management Solutions at Lawson Conner (part of IQ-EQ)   Private Equity & Real Estate...

News7 days ago

TECHCOMBANK AND COMPASS PLUS CELEBRATE 15 YEAR MILESTONE IN BANKING PARTNERSHIP

Since issuing the first Visa card 15 years ago using solutions provided by trusted partner Compass Plus, Techcombank, one of...

Trending