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FROM DIGITAL LAGGARD TO LEADER – WHY AI CAN MODERNISE THE INSURANCE INDUSTRY

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By Assaf Tayar, Managing Director at BCG Platinion

 

The insurance sector includes many mundane and manual tasks. Yet the reality is that these tasks can – and should – be sophistically automated with Artificial Intelligence (AI), bringing a new lease of life to traditional insurers; famously known for being ‘digitally behind.’

AI comes with a wealth of benefits, like freeing up employees’ time and ensuring customer satisfaction. By leveraging the large variety of AI solutions, from chatbots to document processing or advanced analytics to fraud detection, insurers are able to improve and speed up many processes such as claims and appeals processing, while offering granular pricing, greater risk management and tailored products.

That said, AI solutions mustn’t be applied as a plaster or easy fix for the short-term. Instead, it must be incorporated within an organisation’s open architecture. Only then can insurers be prepared for the long-term explosion of technology, ensuring they can support the ever-growing rapid AI and data use cases in an iterative way while developing a “company-wide” data layer.

 

Assaf Tayar

The modular approach

Nearly three-quarters (73%) of UK consumers feel that the customer experience for insurance products has stood still for the last five years, according to research by global technology provider FintechOS. However, AI certainly provides a viable option to plug the consumer expectations gap.

Further to FintechOS’ findings, additional research from Xerox states that 40% of financial services and insurance leaders are planning to implement intelligence and advanced analytics services, including AI by February 2022.

But if insurers don’t approach AI by relying on open architecture, then they will not reap the benefits of AI at scale. What that ultimately means is not deploying an architecture that creates soiled depth as it gets more complex. The focus instead is on continuous development using a modular, platform-based approach.

With an open architecture approach, essentially organisations are able to add and remove components in order to meet the demands of new technologies. And if they don’t – the IT infrastructure will eventually need to be ripped out and replaced entirely.

 

Becoming data-centric

Central to reimagining IT architecture and its impact on the wider business is data and insurers’ approach to it.

Insurers have years of historical data at their disposal to define actuarial models and risk profiles for their prospects and clients. Insurers need to be tapping into these data sharing opportunities from ecosystems spanning across multiple industries and shared infrastructure to ensure that artificial intelligence is of optimal use for both business and customers.

Simplistically put, it’s about ensuring data is independent and hosted in the cloud, rather than within underlying siloed CRM systems.

Then, looking further ahead, the concepts of data mesh and distributed data space should facilitate aggregation of more data from the same source across time and space. And this is what will deliver data-driven value at scale, generating insights into trends that feed into AI systems.

Such reliance on data from across the businesses is what will help insurers to offer much efficient services continuously – even when trends and markets change. So from a customer satisfaction point of view, the answer is clear; a strong use of data feeds into AI, helping the technology to make much more informed and accurate decisions to benefit consumers.

 

A bionic business

It might feel impossible to design and implement new technology, but an open architecture changes this. Such approach means that businesses can be bionic – whereby insurers can combine the best of human expertise, data and technology, such as artificial intelligence.

Intertwining technologies such as AI with human capabilities allows insurers to power growth, innovation, efficiency, resilience, and competitive advantage.

For instance with fraud, artificial intelligence can flag up suspicious activity, and in turn, call upon advanced algorithmics to assess whether a claim is fraudulent or can be compensated. A time saving method, given that only the most doubtful or dubious cases would then need to be flagged for human evaluation.

And that is a true bionic example – where the strengths of a human and AI can work together in harmony, benefiting one another.

 

The human touch

Yet above all else, an open architecture approach must be combined with a contentious, empathetic attitude. The voices of IT architects – who provide guidance and expertise – should be listened to widely across the business, This can’t be a one-way relationship, because in order for data-focused architecture to succeed, its architects must be in constant dialogue with the business as a whole.

IT architects need to be responsible for understanding the business, and business leaders can only create a strategy if they understand the technology on a fundamental level, with the guidance from architects.

This way, insurers can build a bridge between the strategy and the activation. Combining an understanding of how best to leverage the available data, with the human touch to make deployment a success and guide the business strategy.

The most valuable asset for any business today is an architect and leaders or partners that can combine strategic business knowledge with a mastery of the architecture that underpins it. When these people come together, using data and putting the voices of people first, AI will be a transformative, revolutionary tool taking insurers from digital laggards to digital leaders.

 

Finance

WHY THE NORDICS WILL CONTINUE TO LEAD THE WAY IN DIGITAL PAYMENTS

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By

Kriya Patel, CEO, Transact Payments

 

While the recent introduction of PSD2 — the second iteration of the EU’s Payment Services Directive — has undoubtedly had an effect on the entire continent of Europe, some regions have been in a better place to take advantage of it than others. Largely thanks to a historical willingness to foster and embrace innovation, the Nordic nations were already something of a global leader in the electronic payments space even before PSD2. Now, it looks as if the Nordics is on course to be the first region in the world to fully realise digital transformation in payments.

With a combined population of 21.39 million, the Nordic markets of Sweden, Denmark and Norway have the highest penetration of electronic transactions anywhere in the world. It’s estimated that cash is only used in 3% of transactions in Norway, with this number only slightly higher in Sweden. Given this context, it’s no surprise that there are nearly twice as many payment cards as there are people, at 41.86 million cards. These cards are used for around 7.8 billion transactions annually — worth more than £205 billion — made at just under 600,000 point of sale (POS) locations and online.

You could be forgiven for thinking that given the advanced state of play in the payments market that there would be few opportunities left for incumbents or new entrants to take advantage of. However, for those who are willing to innovate and diversify there could be market share up for grabs. And there are also plenty of things that payments players in other regions can learn from this market. In this article, we will examine what these opportunities and lessons are.

 

Highly developed market

E-commerce accounts for a very large proportion of overall electronic transactions in the Nordics at between 19 and 22%. It’s a segment that is continuing to grow rapidly, even though cards remain the preferred way to pay online and in person.

In fact, cards account for a huge 85% of all in-person transactions in the Nordics, with debit cards used for two-thirds of all purchases in Denmark, for example. In the background, this is enabled by a highly functional consumer-permissioned digital identification system known as BankID that makes Know Your Customer (KYC) compliance for e-commerce much more straightforward for vendors and customers. This scheme, which was first envisioned more than 20 years ago, is one of the key reasons why this region has made such strong advances in digital payments.

Since 2015, all three Nordic markets have embraced digital wallet solutions – Norway’s Vipps, Sweden’s Swish and Denmark’s Bankort. In the case of Denmark, their digital wallet grew from the Bankort debit card solution shared by major Danish banks. Across all three markets, these home-grown wallets have seen strong growth, with Swish reporting the fastest usage growth in the over-45 segment. These domestic wallets are currently looking to grow their functionality, with parking and bill payments being added on top of peer-to-peer (P2P) money transfers and a debit function.

 

Digital wallets to expand functionality

As digital wallets rise and cards continue to be used for a very wide range of purchases, the Nordic markets continue to seek opportunities to reduce cash use for everyday, low-value purchases such as parking and street vendors. This will create room for mPOS (mobile Point Of Sale) and soft POS systems providers, as well multi-function card products. Loyalty is also likely to be another area for growth, with players keen to ensure that they can retain existing customers and attract new ones from their competitors.

One of the most interesting areas in the Nordic region’s payments landscape is how these digital wallet solutions can expand internationally. While digital wallets are growing rapidly in the domestic space, the capacity of these wallets to be used outside the Nordic region is still very limited. Creating international links for Nordic-only solutions will certainly be an area of growth in the coming years, so providers looking to partner with banks or wallet providers should find a receptive audience in these markets.

As with other European markets such as Spain and Germany, we’re also seeing the rise of specialist banks built to meet the needs of smaller companies in the Nordics. Banks such as Norway’s Aprila are expanding rapidly by taking advantage of PSD2’s Open Banking mandate to access SME credit data and deliver innovative payment products and lending solutions. Corporate credit and debit card products will be a major growth area in the near future as SMEs will finally get the attention they deserve.

There’s a great deal that other regions can learn from the Nordics. While the combined population of the three countries adds up to only around one-quarter of Germany, for example, the relatively low population density has proved a fertile ground for digital payments. It will be interesting to see how some of the more innovative services we see in this region can make international links, or how players in other regions try to replicate them.

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Banking

THE GROWTH OF DIGITAL BANKING: WHY COLLABORATING WITH FINTECHS IS CRUCIAL TO ADAPT TO CUSTOMER DEMANDS IN LIGHT OF THE PANDEMIC

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The growing customer demand for a seamless digital banking experience looks set to transform how the entire banking industry operates. Traditional banks have been left playing catch up with the emergence of new fintech players and challenger banks. The demand for slick digitally finance solutions is led by the digital native generations, the millennials and Gen Z. However, the coronavirus pandemic accelerated the uptake of online shopping and remote working for whole swathes of the population. Even the older generations have been left wondering why accessing banking services online remains so cumbersome.

Consumers’ growing desire to access financial services through digital channels has already led to a surge in various new banking technologies which are reconceptualising the banking industry. Consumers have rapidly moved to adopt payment solutions such as those offered by apps like Revolut.

Manoj Mistry

Retail banks continue to launch platforms in the Banking as a Service (BaaS) space, in an effort to remain competitive. An example of this in the UK is how NeoBank (Starling) used to only offer business to consumer (B2C) retail banking services. However, once it launched its BaaS platform, Starling was able to rapidly diversify to include consumer services.

New technologies like blockchain and artificial intelligence (AI) continue to evolve, and look set to have an enormous impact on banking over the next three to five years. The type of cryptocurrencies that we have seen to date look set to be far more tightly regulated, given significant governmental concerns about their potential for misuse in cybercrime and money laundering.

In the blockchain space, the transformative development which will accelerate the rise of digital finance is the advent of central bank-backed digital currencies. The US Treasury has described the creation of a digital dollar as a high priority project. China is already trialling its digital Yuan. Meanwhile, the ECB is actively pursuing its plans to launch a digital Euro. The launch of stable, highly secure digital currencies, underpinned by major central banks, looks set to ensure that digital finance will permeate every area of our lives in the not too distant future.

How we use digital finance is also set to change radically. We are used to seeing new technology emerge from Silicon Valley. However, an analysis by KPMG Australia suggests that a new breed of apps which prefigures the future of digital finance has already emerged in the East. The report notes that “super apps” are “already encroaching on traditional financial services territory”.

Super apps are defined as apps which “essentially serve as a single portal to a wide range of virtual products and services. The most sophisticated apps – like WeChat and Alipay in China – bundle together online messaging (similar to WhatsApp), social media (similar to Facebook), marketplaces (like eBay) and services (like Uber). One app, one sign-in, one user experience – for virtually any product or service a customer may want or need.

“Due in large part to their versatility, super apps have quickly become ingrained into users’ daily lives. It is not unusual for a WeChat user in China to set up a date with a friend via instant messaging, make dinner reservations, book movie tickets, order a taxi and pay for every transaction along the way, all using one single app.”

We are already beginning to see trends in this direction in the Western world, with Facebook launching a marketplace and even a dating service within its social network. Facebook also attempted to launch its own digital currency, Libra, but this move stalled when it ran into significant governmental opposition. However, Facebook hasn’t given up, and it is determinedly pursuing the launch of a revamped stablecoin, Diem, which has been redesigned to address regulatory concerns.

A group of Citi analysts recently wrote an interesting research paper, which predicts that “the story of digital money in the 2020s will be the growth of tokenised money”. Noting that both Big Tech and Central Banks “are building new payment formats and rails,” they say that “while stablecoins such as Diem await regulatory approval, they could benefit from the huge network effects of their Big Tech sponsors. In fact, Diem could be an effective tokenised payment format inside the Facebook universe.” The paper predicts that “Stablecoins, such as Diem, could benefit from the huge network effects of their Big Tech sponsors”. With 3.3 billion monthly users, Facebook certainly has remarkable global reach.

The idea of an integrated tech platform which enables people to interact and purchase goods and services – including financial services – is now being pursued by many major players.

Amazon has long been rumoured to be planning to launch its own bank. Yet, research by CB Insights concludes that, “from payments and lending to insurance and checking accounts, Amazon is attacking financial services from every angle without even applying to be a conventional bank.” This is perhaps not surprising. After all, tech companies rarely replicate existing models. They usually find disruptive new ways to achieve the outcomes that consumers want. Even the messaging service, WhatsApp, has recently moved into financial services with the launch of WhatsApp Pay.

As money becomes digitised and tokenised and ever more areas of our lives move online, the distinction between an online marketplace, a social network and a financial services provider will continue to blur. How traditional financial services companies react to these developments remains to be seen. Some may partner with tech companies in creating new services. For example, Visa and Mastercard were involved with Facebook’s Libra stablecoin project. Visa also responded to the popularity of peer to peer payment services such as Revolut by launching Visa Direct, which enables users to make payments directly to another account in 30 minutes. Most major banks now support Apple Pay, which enables users to authorise payment by scanning their face or thumb.

Banks can also collaborate with tech companies in terms of data sharing, in order to better understand what their customers want. A company like Amazon knows what books people like, what music they listen to and what they purchase. By combining such data with wider financial data, remarkably predictive Big Data models could be created. Some banks might increasingly pursue opportunities to monetise data, while others might make privacy their unique selling point.

The banking sector fundamentally deals with money. Yet, the very nature of money is set to change, as it becomes digitised. Banks are no longer merely competing with each other, but they are both competing and collaborating with tech companies and social networks. Looking ahead, the only certainty we have is that we are in for a period of remarkable change.

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