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Banking

HOW TO DELIVER SEAMLESS BANKING EXPERIENCES AMIDST THE COMPLEXITIES OF CONSTANT INNOVATION

By Michael Allen, VP and EMEA CTO, Dynatrace

Over the past decade, the speed of digital innovation in banking has been supercharged. The financial services industry is now on a constant treadmill of pushing software updates to improve online banking experiences and offer new ways for customers to manage their money. This system of perpetual innovation is a crucial part of a business strategy for maintaining a competitive edge in today’s digital economy, especially considering major e-commerce giants like Amazon have set the bar so high, releasing new software updates every 11 seconds.

While most organisations aren’t innovating on the same scale, recent research from Dynatrace shows the average financial service organisation releases two software updates every working hour. However, 90% of CIOs in these organisations believe they’ll be required to do so even faster in the future. As banks look to innovate at previously unimaginable speeds, it’s getting harder to make sure the software that powers digital banking applications works perfectly, every time. The checks and balances needed to assess the effect software updates have on performance are becoming increasingly difficult due to the complexity of technology stacks. Paradoxically, this can impair the very customer experience the banks are trying to enhance.

Cashing-in on agility to drive change

To support the drive towards greater agility, financial services organisations must first lay solid foundations to support the process of delivering an increased volume of software updates, at a faster pace than ever before. Many have identified cloud as the best way to achieve this and are increasingly migrating their services and infrastructure to hybrid, multi-cloud environments spread across on-premises data centres and third-party services. They are also taking further steps to increase agility by reengineering banking applications into dynamic microservices and containers, to achieve even greater speed and create more flexibility to innovate.

However, whilst an agile infrastructure is undoubtedly crucial to driving faster innovation, it needs to be coupled with an equally agile culture to be truly successful. Employees in all areas of the organisation need to be running at the same speed and working towards the same objectives to ensure digital banking innovation initiatives are successful. This helps prevent project overlap, clashes between processes, and unanticipated problems that create poor user experiences. If everyone has the same clear goals in mind, it makes it much easier to achieve success across the entire business.

Streamlining the culture of banking innovation

The process of driving rapid innovation demands close collaboration between the development and operations teams within the bank’s IT department. One way to achieve this is to implement DevOps, a software engineering culture and practice that aims to unify the software development (Dev) and software operations (Ops) teams. While DevOps adoption helps financial institutions facilitate speedy innovation without putting digital banking experiences at risk, there are steps that need to be taken to feel the full benefits. Firstly, DevOps must be given ample resources to execute to a high standard. Our research showed over three-quarters of CIOs in the banking sector believe DevOps efforts can often be undermined by the absence of shared data and toolsets, making it extremely difficult for IT teams to obtain a single view of ‘the truth’.

To combat this, DevOps teams need constant access to digital experience management insights and real-time AI intelligence that can pinpoint problems in the performance of digital banking services. This information must be democratised and unified so that everyone has a single view of the truth and is speaking the same language, working in tandem to drive the business forward. This approach is central to the true spirit of a DevOps culture, helping to remove inefficiencies in development processes, strengthen the likelihood that updates will be a success, and mitigate the possibility of developers having to go back and rectify errors instead of pushing on with innovation projects.

Putting the customer at the front of the queue

The need for speed is more important than ever for financial services organisations looking to keep up with mounting customer demand for new and improved digital banking experiences. Having processes in place to deal with this is crucial when trying to achieve rapid innovation without compromising the user and customer experience. IT teams must therefore combine the agile infrastructure provided by hybrid, multi-cloud environments, with the collaborative culture championed by DevOps.

This drives innovation in a dynamic environment, both technically and operationally, mitigating any risk that rapid innovation in digital banking can have on the user experience. Ultimately, that provides financial organisations with the confidence to run as quickly as the business and its customers demand, without living in constant fear of any unforeseen consequences.

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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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