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COMMUNICATING CHANGE: A COST, OR AN OPPORTUNITY?

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Andrew Stevens, Banking Expert at Quadient

 

It is predicted that the Bank of England will raise interest rates several times over the next couple of years. As any lender or homeowner knows, this means significant changes both for mortgage holders and providers, and increased costs for both. These costs don’t just come from rate changes themselves; to communicate these changes to their customers would cost a mortgage provider, on average, 40p each time to send a letter to every single customer. This kind of mass communication can rack up a significant bill when multiplied by the number of customers the typical mortgage provider has. More daunting is that industry conditions can change at any time – meaning more communications, and more frustration for customers. So how can financial institutions turn this kind of costly situation into an opportunity to thrive?

 

Keeping customers happy

Added cost from rising interest rates, or any other source, is bound to sour any relationship the customer had with its mortgage provider, no matter how happy they were previously. As a result, it is increasingly important that the bank does all it can to keep its customers happy. Research from Quadient found that more than three quarters (76 percent) of European consumers said they would be likely to switch from a business that doesn’t meet their expectations on communication.

 

This means consistently communicating to the customer with the right message, at the right time, and in the right way. Failing to do this – for instance, by only letting Tom from Bicester know about the changes to interest rates by post when he only ever checks email, and after the increased rates have taken effect – is taking the wrong steps to ensuring a fruitful relationship with the customer. It can also introduce unnecessary costs, such as spending money on posting letters to customers who only use email. Putting the customer first and ensuring communication is consistent will go a long way in getting past any obstacles.

 

Value added services

A time-honoured way of reducing the impact of bad news is to accompany it with good news. Banks can do this by offering customers services that will give them added value. This means in addition to sharing news of interest rate rises, also sharing more positive messages – such as suggesting alternative products the customer may want to consider, or ways to help save money elsewhere.

 

For example, the bank could suggest swapping current accounts to give customers cashback on mortgage repayments. By opening up the customer conversation, banks will increase their chances of upselling and cross-selling products, while also giving the customer something they will benefit from in turn. This approach to looking after the customer will reduce the risk of customer churn, as well as positioning the organisation as a trusted advisor. A bank that misses these opportunities could seriously damage its relationship with a customer if it fails to communicate how they could save money, or worse, only gives the best offers to its new customers – setting the stage for resentment from existing customers and from these new customers in a few years’ time.

 

Understanding the customer

Knowing customers well enough to know exactly what value-added services to offer them, and when, can seem an overwhelming task. But if a bank has a clear view of a customer’s journey with them and maps what steps the customer has taken at every point of contact – from when a bill was sent to a complaint on social media – it will make the task far easier. By utilising a customer journey mapping tool, banks can gain a better understanding of the customer and know exactly what value-added services would benefit them the most. For example, if Tanya has notified the bank that she has moved to the US for six months, she will not be interested in hearing about the new savings account that offers better rates for only those living permanently in the UK. But she will be interested to hear about the reduced card fees for customers travelling abroad.

 

Taking the initiative

With this setup in place, financial institutions can be on the front foot, ensuring any duty-bound communications will represent opportunities rather than irritating costs, benefitting both the customer and the company.

 

At a time when nothing is certain but the importance of the consumer to a bank, everything must be done to prioritise the customer experience. If banks can take the time to understand who the customer is and what they value the most, they can open up the conversation to ensure they are able to give the customer what they’re looking for. By looking at the customer journey and understanding what works for them, banks will be able to ride the waves of uncertainty, while keeping the customer happy.

 

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Banking

Digital Acceleration – the next buzzword in banking tech? Or a new era for the industry?

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Ove Kreison, CTO at Tuum

McKinsey’s latest report on banking found that traditional banks are spending a whopping 85% of their tech budgets on maintaining legacy solutions, with just 15% going towards building anything new for customers.

Digital transformation’ has been the buzzword in banking technology for years, but the figures suggest there’s still a lot of ‘transforming’ left to be desired. Now we’re beginning to see the term ‘digital acceleration’ come to the fore, what does that mean for the state of banking technology? What is the difference between acceleration and transformation, and what should banks and other financial services players do to remain competitive?

Digital transformation – the second machine age which has taken an age!

The idea of ‘digital transformation’ didn’t come out of the blue. Banking – like most other industries post-WW2 – has been experiencing the ‘second machine age’ for decades, exploring how technology can digitize processes and services to make cost, operational and organisational efficiencies. All the while, this process has also made it far easier for companies to be more competitive with new digital products that are slicker, quicker and more user-friendly.

Banks have benefited from wherever they have had digital transformation to date – but it is the digital transformation of core technology stacks that is having the most impact and making banks realise operational efficiencies while making them nimbler to adapt to changing customer needs and remain relevant and competitive in a highly disrupted market.  Digital transformation to the core gives banks the ability to launch new offerings to market quicker, renovate and modernize business models, leverage and analyse data from multiple systems taking innovation of the more exciting front-end and customer centric offerings to the next level.  Faster speed to market,  highly personalised offerings, more agile, more scalable.

Success and progress to date, however, has been slow. Traditional banks especially are lumbered with highly complex and costly core technology stacks. Digital transformation and upgrading these core stacks still remains a priority, but the next wave of digital acceleration is now an urgent priority on the c-suite agenda to ensure banks compete and survive in a rapidly evolving industry.

Digital Acceleration vs Digital Transformation

Digital transformation at its core takes the existing ways companies have run their business and applies new technologies to digitize them – for example, taking a paper-based application process and making it online.

Digital acceleration is different. Here, digital becomes the very core of the business model, creating further new digital processes. It gives the power to not just make existing processes digital but to reimagine how those processes impact and improve the business. Some of the most forward-thinking banks are already doing this. BBVA, the second biggest bank in Spain, is actively and openly seeking to become a software company in the future and has digital at the heart of its offering. It embraced open innovation and new technologies to better serve its customers – for example, it launched an app-based money transfer offering, Tuyyo, in 2017. It’s also exploring how technologies like blockchain can be used to transform fundamental banking services such as loan origination, with the aim of improving the way it runs its businesses.

Co-Value Creation – Going it Alone isn’t an Option

A core facet of digital acceleration – especially in a highly mature and saturated market like banking – will be how banks, fintechs, enterprises and others collaborate to mobilise these more diverse capabilities and expertise, bringing mutual benefits to all parties.

The pace of technological change is so hypercompetitive to the point now where organisations cannot always sustain their competitive advantage or ‘do it all’. Constantly updating your offering to maintain market share and react to new demands has become a necessity for banks, but it is exhausting. More and more banks and FS providers are realising that the strategic resources and capabilities needed to deliver these innovative services lie outside of their business, and given the fast pace of change, developing everything in-house is unrealistic given the skills gap, time and cost constraints. Moreover, tech advances around integration and APIs mean collaborating with third-party experts has never been easier or more effective to bring capabilities that, combined with their own core offerings and customer data, provide an important competitive advantage and valuable proposition for customers.

One brilliant example of this is ING. Recognising the struggles associated with traditionally manual and paper-intensive trade finance processes, it launched a blockchain-based commodities financing platfrom Komgo in 2018 with a consortium of other banks and corporates like Société Général, Citi, and Mercuria. In an age of hypercompetition – mutually beneficial collaboration is the answer.

Transform, accelerate, create

Ultimately, banks can continue to digitally transform while also looking to digitally accelerate. In fact, the two go hand in hand; in order to reap the benefits and be able to consider platform co-creation and digital acceleration, banks need to transform their tech stacks from the core to have the capability and agility to think beyond the realms of their own core business and their own technology. Those that get it right by driving innovation from the core, are reimagining their business models for the digital age, tapping into new revenue streams and becoming more customer-centric are not only more relevant now but future proofed for digital acceleration of the future.

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Finance

Regulations, RegTech and CBDCs – Fintech’s Next Chapter 

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Teresa Cameron, Finance Director at Clear Junction 

 

Over the last decade, the UK has embraced the fintech revolution with open arms. The remarkable growth and innovation in recent years has transformed the way financial services are delivered and accessed. In the UK, fintech accounts for around half of venture capital in the UK, and as we race to meet consumer demand, we’re seeing the development of new services flood the market: from digital wallets to AI chatbots, biometrics and touch IDs.

London is recognised globally as a crucial hub for fintech innovation, yet with this great power comes great responsibility. Both the FTX and SVB collapses dented trust in fintech, and this has translated into a dip in venture capital investment in the industry, which declined globally by 30%.

2022 was called fintech’s year of reckoning, but 2023 stands as the year to rebuild and we need to recognise that regulation is not a scary word. Now is our chance to be part of the next evolution in fintech, that will solidify it as an accredited and stable industry. By leading the charge now, we can make sure we have a say on what the future of fintech will look like.

Sustainable practices = sustainable growth

The Financial Conduct Authority (FCA) is set to implement its Consumer Duty in the upcoming months. Whereas before, the FCA has broadly been reactive, this will be the first time that the FCA will be formally setting out regulation and will have a proactively structured programme.

One of the most important aspects is to make sure that financial services put the interests of their customers at the heart of their business operations. This means a higher standard of protection across the industry and providing consumers with transparent information, as well as making sure that staff are trained and held accountable.

This is a huge step to regain trust in the industry right now and help raise the bar in what we can offer consumers. Change begins from the inside and by closely working with regulators and adhering to their guidelines, fintechs in the UK can benefit from the increased trust and confidence in the digital currency ecosystem. This approach not only protects consumers and investors but also means that we can bolster the legitimacy and viability of digital currencies as an alternative to traditional financial systems.

Regtech Revolution

It’s estimated that globally $2trillion is laundered annually, and the threat of financial criminals continues to rise as they become more sophisticated and utilise new technology, either through payments, open banking, or crypto. This, twinned with new global regulations and increasing compliance costs, means the need for innovative solutions in the regtech industry has never been greater.

We’ve seen an explosion in AI and machine learning (ML) tech to help better protect customers, and they have completely transformed the regtech space. These technologies can be used to analyse vast amounts of data and identify patterns that may indicate fraudulent activities. The algorithms can detect anomalies, flag suspicious transactions, and continuously learn from new data to improve fraud detection capabilities over time. That’s not to say that its completely fool proof. Continuous monitoring, regular updates, and staying abreast of emerging fraud trends will also be crucial.

At the same time, as the regulatory landscape becomes more complex and we see new rules develop over time, this tech will help fintechs mitigate risk management practices and maintain compliance in an efficient and cost-effective manner.

CBDCs and decentralized finance 

Central bank digital currencies (CBDC) have been a hot topic of conversation, with pilot initiatives underway globally. Most recently the European Central Bank is currently said to start with proposed legislation in the next several weeks and here in the UK the Bank of England is also blueprinting plans for the ‘Britcoin.’

Digital currency backed by a central bank has been heralded to be a safe and stable means of payment and less volatile than crypto. However, some are concerned over privacy and anonymity surrounding a state-owned currency.

Tom Mutton, who is leading the Britcoin charge, has stated that the BoE never sought to make the digital pound anonymous, and that privacy will be a top priority. Under the Bank’s proposals, consumers would engage with the digital pound through private sector providers. With the increasing integration of digital currencies into mainstream operations, in the UK and abroad, both the government and financial institutions are showing growing interest in making sure there is a stable foundation of regulation as it develops.

Following regulations can pave the way for digital currency companies to tap into traditional banking services, which is crucial for their growth and overall success. Banks tend to be cautious about partnering with digital currency companies due to perceived risks associated with the industry. However, when these companies demonstrate compliance with regulations, it helps alleviate those concerns and makes banks more willing to collaborate.

We are at the beginning of a new age in the fintech space, and it’s an exciting place to be. We, as financial intuitions, have an opportunity to help write the next chapter. It is a long road to map out ahead, but we need to look for sustainable, long-term practices because, ultimately, that equals sustainable long-term growth, and fundamentally means survival for the industry.

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