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How can banks and fintechs remain competitive and engage with modern customers?

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By Quentin Ellis, Managing Director of leading digital consultancy ConsultMyApp

 

The importance of trust has always been paramount in payments, and the rapid digitisation of the industry has put an even greater emphasis on this in recent years. Fintech is one the UK’s fastest growing sectors, with the global fintech market forecasted to reach a value of £380 billion by 2030. Moreover, during the pandemic, digital banking saw significant uptake, with 73% of British consumers embracing e-banking offerings.

Today, Revolut has more than 14 million users in the UK, and is worth more than long-standing high street brand, NatWest – so, why is this? How can banks and up-and-coming fintechs remain competitive against the likes of Revolut or Tide, and engage with modern customers?

In short, it all comes down to trust.

Under 30-year-olds want to interact with their bank in a different way, as they become more accustomed to convenient ways to manage every part of their lifestyles digitally – whether that’s food delivery, health, fitness or booking a holiday – and the same should go for finances. The reality is, while banks are trusted with standard banking when it comes to mortgages and car payments, modern customers trust more in fintechs and their favourite brands, such as Nike, Apple and Patagonia than many of today’s high street banks. If banks and other fintechs alike are going to stay relevant in an ultra-saturated digital banking space, they need to drastically improve their engagement with customers to enhance the trust that is currently left wanting in the sector.

 

With greater security, comes greater trust

One of the ways that fintechs are helping to increase trust is by utilising the full arsenal of security measures they have to hand, including virtual credit cards.

Instantly generated cards, codes and details that can be disposed of just as easily as they are made is one way to help protect customer’s details, reduce risk of credit card and identity theft. They also protect data privacy and security, without compromising convenience and ease of use. However, as it stands, it is an underappreciated and undervalued attribute that most fintechs offer.

Putting more emphasis on the security measures available will only garner more customer’s trust going forward. We’re seeing customer awareness and interest in virtual cards increase, and of particular importance to Gen Z. Shouting about this offering will be key, demonstrating the priority on customer security and building that much wanted trust with a modern audience.

Still, there is such a thing as too much security, to the point where it impacts user experience. With fintechs like Starling, moving accounts is a breeze. After signing up, you can be up and running immediately. Whereas, Barclays has historically, been a little more complicated. In my personal experience, First Direct are a nightmare to deal with – despite several calls to customer service teams, I was unable to get into the app and needed 5 different passwords, memorable words, and pins to gain access. It’s so secure to the point where it is useless! Getting the balance right is important, or users will become frustrated by a poor experience.

 

Customer acquisition, keep it simple

Rather than purely focusing on marketing campaigns that drive digital downloads, hopeful fintechs and traditional banks must find ways to set themselves apart and build trust with consumers by being more strategic, centering their acquisition strategies around simple onboarding processes.

The most successful fintechs and banks, ensure a simple and customer-centric onboarding process – crucially, ensuring they only ask for the most essential and most relevant information. Consumers are becoming more and more aware of the data that they are handing over to brands, and do not necessarily want to commit to providing more than basic pieces of information at the onboarding stage. Simply put, trust is earned through the customer experience and ease of use is one of these measures.  The new fintech was able to start with the customer experience they wanted to create, and then chose the tech stack that would enable this. High street banks started with their existing tech stack and tried to wrestle a good customer experience on top of it, which often goes compromised.

Leaders in the sector have acknowledged that a more streamlined sign-up process that requires only the most important data, builds trust and is far more appealing to modern users. Onboarding does not mean overloading, and simplicity is key for new market players looking to rise to the top and achieve high levels of uptake. The likes of Revolut and Monzo demonstrate just how simple the sign-up process is – within hours you can have a virtual card, which you can use within hours, rather than waiting for physical card.

 

Communication, higher retention

The way consumers communicate with brands has changed massively. Consumers are now looking for more efficient and more personalised experiences, and the brightest fintechs and banks have enabled this. Still, fintech companies are leaps and bounds ahead of established banking institutions when it comes to producing personalised content. They have acknowledged that building trust comes from valuable communication strategies.

Apps that prioritise a personalised user experience, with well thought out communication, are more likely to improve their engagement with users, build relationships and boost their retention rates. From the very first moment an individual logs into an app the experience must be slick and convenient – and this includes communication pathways.

To appeal to modern consumers, fintechs and banks must revaluate communication strategies, be extremely self-aware when it comes to knowing how much communication is too much and identify how they can be more effective with their interactions. Findings suggest that push notifications can in fact double the 30, 60 and 90-day retention of customers, but they should be handled with caution. If executed poorly, push notifications can become intrusive and negatively impact consumer trust. Getting the balance right is vital – you must target the right people at the right time with information that serves them.

Push notifications which provide important and relevant information to serve customers are imperative in building trust and loyalty. For instance, messages that notify users of purchases and activity on their accounts e.g. “you’ve spent £2.99 in Starbucks, is this you?”, give value back rather than harassing them with messaging that pushes marketing products. It’s all about moments-based customer experiences, and this where CMA will be pushing forward. Through the use of mobile, real time actionable data and the marketing savvy, there is tangible value for customers.

It’s safe to say there’s a substantial consumer appetite for innovative, digital financial services that offer an alternative to the banking status quo. Fintechs are able to identify and solve specific pain-points much faster than their peers, but offering a transparent and robust customer service that fosters trust and loyalty will be key to remaining competitive and engaging with the modern day consumer, who is simply spoilt for choice.

Banking

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

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By

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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Banking

Banking on legacy – The risks posed by ‘stone age’ banking infrastructure

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By Andreas Wuchner, Angel Investor of Venari Security

 

Introduction

If you consider the most significant motivating factors behind cyber-attacks – the promise of large financial reward and the opportunity to cause maximum business and social disruption – it’s little wonder that banks and financial institutions are amongst the most inviting targets for would-be cyber criminals. In fact, according to IBM’s recent report, ‘banking and finance’ was the most attacked industry for the five years between 2015 and 2020 – surpassed only by threats to critical infrastructure in recent years. Successful attacks can provide aggressors with a mass of sensitive personal and financial information, and even access to people’s money itself. Furthermore, a suspension of withdrawals and deposits can cause huge social disruption and reputational damage. 

As banks have reacted to years of new regulation and emerging technologies, they often operate with a hugely complicated and disparate technology estates. This provides malicious actors with a wealth of potential attack vectors. A small breach from anywhere in this network can have enormous consequences, and lead to entire systems being overrun. As such, it’s crucial that security teams operate with the highest-grade security possible, including ensuring the strongest level of encryption standards. Banks need to look beyond regulatory tick-box commitments and ensure they are taking proactive and preventative steps to monitor and combat malicious attacks across their entire network.

Andreas Wuchner

However, the ability to react to cyber-threats across a vast estate requires speed and flexibility to quickly react and update security protocols. The sheer volume of legacy infrastructure slows this process down considerably leaving many security teams in a vicious cycle. 

 

The threat of legacy infrastructure

A sizeable proportion of the banking industry still maintains a reliance on systems first developed more than 40 years ago. In fact, many ‘core banking’ systems, like payments, loans, mortgages and the associated technologies, are still coded using COBOL (Common Business-Orientated Language), an otherwise defunct programming language that is older than the internet itself. In the UK and Europe, COBOL remains the ‘backbone of banking services,’ while in the USA, as much as 43% of banking systems are built on COBOL, meaning it underpins much of our financial system.

This presents a huge security risk. While code has been regularly updated over the years, these systems were built when security threats were far less sophisticated, less well-financed and the burden of data was far less pronounced. For several years, governments have pointed towards legacy systems, built using COBOL, as a major cybersecurity threat, incompatible with modern security best practices and solutions, including multi-factor authentication. For example, data from Kaspersky found that businesses with outdated technology are much more likely to have suffered a data breach (65%) than those who keep their technology updated (29%).

A further security consideration is the diminishing number of people who are trained in maintaining COBOL systems. Every year, experienced professionals exit the industry, making it increasingly difficult to service legacy technologies and creating significant delays in patching threats once they’re identified. This lack of supply of sufficiently trained experts, and the demand they face, makes any updates extremely expensive and time consuming.

Furthermore, legacy infrastructure is preventing the secure application of encryption, posing its own distinct cybersecurity and regulatory risks. Encryption is often heralded as a silver bullet solution for data privacy and has been a continuing area of focus for regulatory bodies in recent years. However, banks remain guilty of poor deployment, maintenance and management of encryption – using outdated protocols and inefficient methods of analysing and understanding network traffic. This, coupled with legacy ‘core banking’ systems that are incompatible with modern encryption techniques, equates to a regulatory and security headache for security teams.

 

Adopting a new mindset  

The risks posed by legacy systems and the volume of cybersecurity threats facing banks, mean a concentrated re-think of overall cybersecurity strategy is needed to prevent breaches and ensure data is protected long-term. Traditionally, banks have taken an ‘outside-in’ view – dedicating capacity, finances and knowledge to dealing with threats that are existing, known and well publicised. However, to aid long-term security, this should be superseded by an ‘inside-out’ proactive approach, whereby security teams are cognisant of their own internal systems and where the key vulnerabilities are found. Once banks have a detailed view of the security risks posed by their legacy systems, and specifically what data is threatened, they can address flaws, update these systems and build a stronger overall security posture.

 

The secure path ahead

Many of our successful high-street banks today have centuries of experience in dealing with social, economic and regulatory upheaval. However, the rapid development and deployment of technology continues to present a unique challenge. Many ‘traditional’ banks have built a complex technology infrastructure through decades of adjustment to new legislation and emerging technologies. While serviceable in the past, fintech start-ups are pushing the long-term viability of these systems to the limit.

Challenger banks have the luxury of being built from the ground-up, prioritising convenient digital services and features, and modern security processes. As the user base of these banks increase, customers are increasingly expecting these features and security from their existing banks, meaning even more complexity added to legacy infrastructures. As outlined by Deloitte, existing firms simply aren’t positioned to support the rising expectation of the market, exposing banks to additional risk and liability.

What’s more, it’s estimated that banks spend as much as 80% of their yearly IT budgets on the maintenance of legacy systems. While an immediate switch away from these systems is unrealistic, there is an opportunity to reduce wasted spend and divert spend towards modernisation efforts. However, while traditional banks may want to adapt quicker to technological advancements, they need to do so while continuing to minimise cyber risk and without jeopardising the security of their data or systems. This means placing cybersecurity at the heart of any modernisation efforts and maintaining a steady rate of change. As more of the technology estate begins to be modernised, the potential risks of regulatory non-compliance will also reduce.

 

Legacy systems need a considered update

Banking systems have heavily relied on legacy infrastructure for too long now, bringing difficulties in maintaining the highest-grade cybersecurity and in facilitating innovation. The risks presented by novel cybersecurity attack vectors and competition from new and emerging digital services offered by challenger banks are exacerbating these issues. As such, legacy systems need a managed modernisation in the long-term, facilitated in part by a managed redistribution of existing IT spend. However, to ensure long-term security overall, cybersecurity needs to be central to be at the very heart of modernisation efforts.

 

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