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Banking

HOW BANKS CAN GRAB HOLD OF THE DIGITAL ONBOARDING OPPORTUNITY

By Conor Hickey, Solution Engineer Manager, North EMEA OneSpan

 

Digital banking has soared in popularity over the last few years, and it is showing no signs of slowing down. A report looking at the UK finance landscape in 2020 found that only 7.7% of UK banking customers prefer in-branch visits, with the vast majority preferring to use online or mobile channels.

Given this, it’s no surprise that digitisation programmes have been a top priority for financial services organizations for a long time. However, the global Coronavirus pandemic has accelerated this transition, particularly when it comes to digital account opening, which has become a fairly urgent requirement, and a key competitive differentiator at the very least.

As banks look to digitise the account opening process, they have to overcome friction points with identity verification, and ensure that they mitigate security threats, meet compliance requirements and enhance the user experience.

 

Conor Hickey

The acceleration of contactless banking

Face to face banking has already been on the decline in the UK, indicated by the decline in physical and bank branches: more than 3,500 branches have closed since January 2015, at a rate of 55 each month. Furthermore, the rise in digital only challenger banks, such as Monzo and Revolut, alongside increased familiarity with mobile and web channels, means digital banking has become a natural preferred choice for many customers.

However, with much of the world experiencing different degrees of social distancing measures, the Coronavirus pandemic has changed the way we interact with businesses, and being able to access banking services without stepping into branch has become a key expectation for many. Crucially, these services aren’t limited to paying a bill or making a transfer, but now extend to more complex interactions, such as opening a new bank account, or taking out other financial products.

Adding to the challenge, is that it’s no longer enough for banks to be able to offer digital services, they also need to make sure they aren’t compromising customer experience, security or compliance in the process.

 

Digital account opening

The good news, is that the majority of financial institutions are well on their way to digitizing the account opening process, with 85% of financial institutions providing some form of digital account opening. We also know that prior to the current pandemic, budgets assigned to digital account opening programs has almost doubled in size. So the desire to digitize already existed, along with the financial backing.

However, prior to the pandemic, many of these processes were only partially digital. For example, a customer might start a loan application online, and then finalise the application with an in-person branch visit to present their ID documents. Today, financial institutions that want to win new customers must figure out how to fully onboard a customer in a physically distanced way. For many, this means adopting digital identity verification methods.

 

Combatting security threats

While digital onboarding is essential for banks looking to remain competitive and offer an enhanced customer experience, it can also pose security risks if the right measures aren’t in place. One of the key threats is identity fraud, as banks face challenges in verifying identities securely, without being able to rely on face to face interactions.

Identity fraud has become easier to perpetrate than ever. Various factors, such as the shift to online banking, social media profiles laden with personal information, and regular data breaches, mean that personal data is strewn all over the internet. As a result, criminals have easy access to information required to hack accounts or make fraudulent applications, making identity theft easier to perpetrate.

So, any adoption of digital identity verification needs to include a careful consideration of all security, anti-fraud, data privacy and compliance requirements, with the safety of the customers’ data and account of paramount concern.

The best approach is one that combines traditional identity verification methods with advanced analytics, to achieve context-aware identity verification. This will allow banks and financial institutions to make security decisions based on real-time customer information. This technique leverages a variety of checks, including real-time data-points, ID document capture, and biometric verification, including the ability to verify a remote identity using a selfie and liveness detection technology. These digital identity verification methods will ensure banks and FIs can protect customers, without compromising customer experience or compliance.

 

Opening the door to new opportunities

While there are security risks associated with digital banking, there’s a huge opportunity for the banks who get it right. Banks and financial institutions who already had mature digital onboarding services before the coronavirus pandemic were able to continue offering high quality, secure experiences, without any disruption to customers. Others have faced more urgency in removing manual steps or physical touch-points in the onboarding process.

Finally, not only will they be able to onboard customers digitally without compromising security or the user experience, but they will also be in a position to add additional digital services for customers, such as mortgages or loans.

Rules, behaviors, and actions that consumers will tolerate have changed dramatically. Contactless has now become the new and safest norm, and banks need to ensure their offerings are in line with these changes. Banks and financial institutions that can fully digitse their account opening, loan application and financial product sign-up processes solutions quickly will be most likely to succeed in this time of crisis and beyond.

Banking

SEIZING THE OPEN BANKING OPPORTUNITY

Nick Maynard is a Lead Analyst at Juniper Research

 

Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:

  • Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
  • Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.

 

Nick Maynard

The Disruption Factor

Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.

  • AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
  • PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.

 

PSD2 Changes

Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.

As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.

Open Banking Opportunities & Challenges to Consider

Source: Juniper Research

Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.

 

The Forecast for Open Banking

The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.

 

Open Banking – Delivering Opportunities and Threats

It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.

Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.

Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million

Source: Juniper Research

 

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Banking

2021: THE NEW-NORMAL LIFECYCLE FOR BANKING

Laura Crozier, Global Director of Industry Solutions, Financial Services at Software AG

 

It would be impossible to talk about predictions for the banking industry in 2021 without mentioning the cataclysmic impact that 2020 and the pandemic has had on people, businesses and countries.

Unlike with the global financial crisis, banks have been able to step up as “good guys” this time around, rebuilding their reputations as well as accelerating digital transformation. One of the main outcomes is increasingly smart, efficient online payments.

In 2020, the banking industry innovated like never before. This is the new normal. Overall, customers and society will be the beneficiaries from the changing industry. Here are my predictions:

 

Reputations are reborn

Banks across the globe pulled out the stops to integrate and adapt systems and processes to help customers during the pandemic. They offered accommodations in loans, assisted governments with the distribution of financial relief, and supported consumers by upping contactless spending limits and virtual deposits.

In 2021, banks will risk losing that rosy glow as economic circumstances drive them to deal with non-performing loans, mortgage foreclosures, layoffs etc. But, beyond their role in society as providers of capital and liquidity, banks will invest to sustain their reputations as trusted and good corporate citizens and use their power to persuade their customers and providers to adopt higher environmental and ethical standards. This will be in the areas of bank carbon-neutrality, sustainable financing, serving the unbanked, diversity and gender equality (as the number of women running a major global bank will double from one (Jane Fraser at Citi) to two). It’s a start.

 

Coming of age in the way of working

Back in Q1, when bank employees cranked up their laptops on their dining room tables, banks that were strategically undertaking business transformation accelerated their efforts. Those that were tactical, or on the fence, now understand with painful clarity that this work must be undertaken strategically.

Cracks in process and the way of working and their resulting risks can be crippling. Especially from a back-office perspective, it is not enough to rely on “organisational memory” and collegial proximity for work to get done right. Advanced banks pushed the boundaries of remote work, and the proof of concept was successful. So, they’re doubling down on developing digital twins and moving to the cloud. They’re adopting the hybrid office/WFH approach to reduce health risks and reduce cost permanently. The watercooler will never be the same.

 

The death of cash

Ok, maybe the rumours of the death of cash are a bit exaggerated since there will always be the need for cash (and, to some extent checks; the USA, for example, cannot seem to live without them). But the pandemic has permanently changed the way that consumers and small businesses bank, and the demotion of cash has been accelerated by a decade by the pandemic. For example, the Norwegian central bank said that cash payments in that country have plummeted to just 4% of transactions since March.

Implications? It will be critical to continue evolving payments to be smart, safe and flexible to compete in new world, in both retail and commercial banking. Also, the permanent change in the mix of channels will see banks’ face-to-face engagement with customers fade. Branches aren’t going to go away entirely, but they will be reserved for high value activities – by appointment only. To compensate, the personal touch has to be delivered digitally and intelligently.

The role of the bank as a “financial wellness partner” is being born. Banks will use customers’ data, not just to personalise and differentiate banking experiences, but to make recommendations for products and services beyond traditional banking from across their ecosystem to serve their customers well. Just as customers own their cash (physical or digital), in the future they will demand that they own their data (and can share it with whom they choose). Then retail and commercial clients will share their data in return for value.

 

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