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INCREMENTALLY BETTER: HOW AGILE CAN HELP YOU DIGITALLY TRANSFORM WITHOUT BREAKING THE BANK

By Stephen Magennis, MD for Quality Business at Expleo

 

It isn’t the big that beat the small, but the fast that beat the slow.

Change, and the pace of it makes business and life itself, exciting. Digital change, we’re promised, will reduce cost, boost margin, and deliver a competitive advantage – or at the very least ensure you keep pace with your customers, for whom change is as fast as a 5G network.

However, badly managed digital upgrades can be synonymous with overrun deadlines, requests for additional resource, hefty equipment and installation costs and slow training processes.

No surprise then that for many CFOs, digital transformation sounds like an expensive and incredibly painful buzzword.

But it doesn’t have to be that way.

In a world where more than half the global population accesses the internet on a mobile device[1], embracing digital (and whatever that means for your organisation) makes sense. But huge, heavy implementations and seismic top-down changes, don’t – so the way it is implemented and embraced has to change.

Retail is one area that has been digitally transformed beyond recognition in recent years. Think about the last few things you bought and the huge differences from buying them five, ten, or fifteen years ago, if indeed those products even existed that far in the past.

The change has been seismic: you probably placed the order with no more than five clicks or swipes. You may even have paid for it with facial recognition on your phone while you were connected to an underground Wi-Fi network and listening to streamed music via Bluetooth earphones. This wasn’t a change that happened in one go.

Every step of that process has been digitised, improved and evolved to deliver a major shift. This shift happened because lots of small changes were made to thousands of different things, each intended to make a better user experience, and together resulted in a colossal evolution.

In short, that is what an agile approach to digital transformation looks like and it nearly always starts with the customer, or end-user experience.

Now, the opportunity, in the case of retailers comes from the fact that, according to Adobe, only a minority of companies actually say that user experience is their primary point of differentiation.[2] And we certainly know, from our own purchase behaviours both on and offline, that the more seamless the experience, the more likely we are to make a repeat purchase.

The agile, digital-first approach isn’t just good for customers, as retailers have embraced the same evolutionary ways of thinking when it comes to improving their own processes. For example, chat bots reduce customer service costs and algorithms help customers discover products quicker, whilst data gathered provides once unimaginable levels of insight that can all be used to boost sales and revenues. The result, from all those small changes, is improved audience segmentation, reduced costs and a healthier bottom line.

 

So how can these lessons be adapted to service-based industries?

Regardless of size, or industry, the key is culture. It starts with fast-thinking people who are empowered to have, suggest and make ideas happen, and to encourage this way of thinking from the bottom to the top of the organisation. With enough thought-leaders setting the right examples, others will follow in their path and the number of small suggestions and ideas will multiply.

However, when it comes to managing these ideas, there are several well-established methodologies and, as much as their names may just sound like jargon, such as Agile, Scrum and Kanban they are all based on sound, proven theory and none of them involve being mauled by a six foot rugby player.

An Agile Strategy is beneficial as it encourages fast, small, iterative changes by focussing on achieving incremental goals and milestones, reducing the overall time to implement a change or develop a service. It allows the flexibility to change path or modify a plan without drastically increasing budgets.

Any business looking to undergo a digital transformation can, therefore, undoubtedly benefit from agile teams, a working environment which fosters change, and streamlined processes.

However, whilst this can all appear daunting and theoretical, there are organisations out there who can help you identify the most suitable team structures, ways of working and culture shifts in order to achieve sustainable ROI from your project.

Bringing the right expertise on board to manage digital transformation is essential. While many consultants offer general knowledge in change management and restructuring, choosing expertise in digital transformation will ensure long term success.

Working with the right digital partner will guarantee that the benefits are not limited to the initial project costs. The right digital partner will deliver the cultural shift to support the long-term flexibility of thought necessary to administer ongoing agility and efficiency.

Through this new way of thinking, organisations become subscribed to an agile approach which leads to more efficient internal processes and a streamlined customer experience. In turn, sales rise, costs fall and margins increase.

For example, we were recently asked to help a global insurance organisation transform its IT delivery. Using an Agile approach, over two years we have helped them adopt a number of change-management processes and behaviours, which have enabled the organisation, in the words of the CIO, “to surpass our initial expectations as Agile has now permeated all facets of their business.”

Simply put, businesses should not be afraid of digital transformation. Correctly executed, it can only deliver positive change.

 

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BRAVE NEW WORLD: A FUTURISTIC VISION OF PAYMENTS

PAYMENTS

James Booth, VP, Head of Partnerships in EMEA for PPRO

 

Over the last ten years, the retail e-commerce ecosystem has undergone a wide-ranging transformation. As recently as 2010, the e-commerce and payments value chain were relatively straightforward: Any eCommerce merchant could integrate a payment processor’s front-end HPP into their checkout or perform a deeper API integration for a customised checkout experience. The customer then enters their card details or other bank details, which were passed on to payment platforms and schemes for processing.

In 2020, we are now well into the era of open banking, and things look very different. The volume of payments has exploded. By 2018, global digital payments were worth US$3,417.39 billion, and are expected to increase to US$7,640 billion by 2024. Using integrated real-time payments systems — which incorporate everything from authentication through settlement to confirmation — consumers send and spend money in the blink of an eye. And the speed and volume of transactions are made possible by the increased use of technology and artificial intelligence to do everything from risk assessment to anti-fraud measures.

But this very visible — and much written about — transformation is not the only way in which the payments and e-commerce landscape has been changing beyond recognition. Because while e-commerce over the last ten years has gone increasingly global, the way people pay online is more than ever local. In some markets, low rates of financial inclusion make cash-voucher schemes the best option. In others, bank-transfer apps are the most popular.

Our research has shown that between 2017 and 2019, the number of UK online transactions paid for using a bank transfer increased by 36%. Driving the use of bank transfer payment methods by UK consumers to now account for  8% of all British online transactions, with cards and e-wallets, including PayPal, leading the race. In fact, card payments account for 56% of transactions, followed by e-wallets (25%), bank transfers (8% ) and lastly cash (7%).

Some markets prefer e-wallets or primarily use locally issued credit cards. In the Nordics, deferred payment methods are becoming the norm. And in countries such as Germany, most online shoppers prefer via direct debit.

The result is a global online and digital payments market that is now incredibly diverse. And even more complicated. Even markets right next door to each other may have very different payment preferences. In Latvia, for instance, 49% of online transactions are paid for using a credit card [2]. In neighbouring Lithuania, it’s just 24%.

Globally, by 2021, only 15% of all transactions will be paid for using the brands of credit cards familiar to most Western merchants. That number is only set to decrease. Today, local payment methods account for 77% of e-commerce spend; by 2024, it is forecast that this share will increase to 82%. There are an estimated 450+ significant local payment methods worldwide, so considering the UK mostly rely on PayPal and card payments, there is a big world of alternative payment methods the British public are yet to realise. To truly go global, merchants don’t just need break down language barriers, but also payment barriers.

Already, Klarna, one of Europe’s most popular bank-transfer and pay later app, processes €53.4 billion in online payments every year. Merchants operating in or entering Europe which doesn’t support Klarna are effectively saying that they’re not interested in any part of that €53.4 billion. And this situation is not unique; it applies to markets throughout the world.

 

Local payment methods, as they drive financial inclusion, will only proliferate.

When we look forward to the state of e-commerce in 2030, a personalised shopping experience is not a nice-to-have. It is an absolute requirement. Consumer preferences must be noted; if they aren’t, retailers will miss out on sales. Almost half (47%) of UK consumers will end a transaction if their preferred payment method is not available, according to PPRO research, so customising payment options for cross-border shoppers is vital. This is highly important to attract international customer bases beyond a retailer’s local remit. It’s no longer adequate to offer customers one single way of paying – in-store or online. Payments aren’t a one size fits all approach.

The best brands do this already. Those who don’t will struggle to make it to 2030.

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ENTERPRISE BLOCKCHAIN: DRAGGING INSURANCE OUT OF THE DARK AGES

INSURANCE

Ryan Rugg, Global Head of The Industry Business Unit at R3

 

The history of insurance traces back to the development of modern business and insuring against its risks; property, cargo, medical and death. Insurance helps mitigate losses, wary of the financial losses a capsized ship could cause, forward-thinking vessel owners established communal funds that could pay for damages to any individual’s ship within the group. While this basic concept holds strong to this day, insurance is now a multi-trillion dollar industry that impacts almost every other sector of business, from healthcare to capital markets and aviation.

Despite the insurance industry’s image of being a conservative sector, insurers have been consistently innovative in the property and perils they protect against, but the supporting technologies and infrastructure have remained antiquated and unfit for purpose. Operational inefficiency is the single biggest threat facing the insurance industry today, and insurers are now taking steps to tackle this challenge head-on with purpose-built enterprise blockchain technology.

 

INSURANCE

Ryan Rugg

Inefficiency and fragmentation

Blockchain provides a solution to drive efficiency and security that would allow private data to be shared in a secure manner. Many policies are still sold over the phone rather than online, and the policies themselves are then processed on paper contracts, introducing huge potential for manual errors in claims and payments. This anachronistic infrastructure is even more surprising when you consider the complexity of the insurance ecosystem and the amount of parties involved in a transaction, including consumers, brokers, insurers, reinsurers and more.

The costs of this inefficiency and fragmentation are well documented. Inaccurate, disparate sources of data acquisition lead to long underwriting cycles and inaccurate risk profiling. Extensive manual intervention is required across the insurance value chain, ranging from contract placement to claims settlement. Archaic billing systems and complex billing processes lead to high reconciliation costs. Ambiguity in loss conditions, assessment procedures and claim settlement delays leads to increased litigation risk. It has been estimated that as much as 60% of customer premiums is consumed by these inefficiencies.[1]

In addition, increasingly stringent and dynamic regulatory requirements continue to impact areas such as renewals and claims assessment. Insurers often have a complete lack of visibility of their liabilities and obligations, and a lack of transparency across the entire business. In today’s regulatory climate, it is unsurprising that authorities are beginning to demand more from insurers.

Blockchain technology is not a panacea for all of these problems, but with the right architecture a platform can address and reduce inefficiencies.  There are also new revenue and growth opportunities in cutting-edge sectors such as cyber insurance that blockchain technology can help enable.

 

Tackling the blockchain privacy challenge

Blockchain offers insurance firms a new way to coordinate information between each other, by using a pre-agreed technology solution instead of relying on a third party’s bookkeeping. The technology enables disparate parties to connect via a shared platform environment. While this premise may appear simple at first glance, the insurance industry has specific requirements in relation to privacy and security that only certain blockchain platforms can fulfil.

For example, if a blockchain has the appropriate data privacy architecture in place, each insurance firm can maintain the same amount of control over their data as today, but with more flexibility. Unlike the traditional permission-less blockchain platforms – in which all data is shared with all parties – Corda shares information with those who have a “need to know,” ensuring the confidentiality of trades and agreements while also capturing the benefits of a shared distributed ledger infrastructure.

Blockchain platforms such as R3’s Corda have been purpose built for enterprise usage in industries such as insurance and tackle issues such as data privacy, scalability and security head-on. Following a period of experimentation with multiple consortia and technologies, insurers are now consolidating their blockchain efforts around Corda.

Testament to this is the recent decision of the industry-leading B3i consortium to port from IBM’s Fabric to Corda or RiskBlock decision to port from Ethereum.  All the major insurance groups and ecosystems are coalescing on Corda in order to effect change and form standards. As Metcalfe’s Law states, the value of a network is proportional to the number of connections in the network squared – the more insurers that build upon on a common platform, the more valuable the platform becomes to all participants due to the interoperability of applications. The consolidation around Corda creates network effects industry-wide.

 

Contract placement: leveraging the network effect

To more tangibly examine the benefits of these network effects, we can look at a specific insurance use case that involves a network of many different entities and counterparties – contract placement.

Contract placement is the process of negotiating a potential insurance contract between a broker and an insurer in order to issue the contract to provide coverage for an end customer. For most commercial and specialty insurance scenarios, except for small commercial and some mid-market products, this is an arduous, complex process involving several entities – a broker, one or more insurers, and potentially a reinsurer and reinsurance broker. Furthermore, outsized risks generally mean that multiple insurers come together to insure the risk at the requested limit price, resulting in additional complexity for the broker in managing the placement process.

Contract placement, with the extensive negotiation cycle between a broker and insurers, as well as between an insurer and reinsurers – with or without a reinsurance broker thrown in – has several inefficiencies related to inter-firm coordination. Extensive manual intervention and reconciliation is required for brokers, insurers and reinsurers to keep track of requests and responses; high IT spend is required for all participating parties to maintain an audit trail of the negotiation history between different entities; and each firm must make heavy investments in document storage systems to maintain separate contracts over the policy lifecycle.

Leveraging the network effect by connecting brokers, insurers and reinsurers onto the same blockchain platform can deliver numerous benefits. These include:

  • Near-instantaneous communication between participating parties to eliminate delays associated with reconciliation and coordination;
  • Real-time consensus among all parties involved in the contract on coverage, price, terms and conditions;
  • Complete audit trail from all sides of negotiations and data exchanges;
  • Greater regulatory compliance throughout the insurance industry due to instantaneous communication of in-force contracts to the regulator;
  • Eliminating the “double spend” problem of having the customer buy the same policy from different insurers by involving the notary (regulator);
  • Reduced IT spend for individual firms, with eventual decommissioning of legacy document storage systems and reducing spend on document generation systems.

 

A brighter future

Blockchain technology offers great promise across many avenues, not only contract placement. Platforms like Corda can add value to many insurance business segments – commercial and specialty insurance, life insurance, personal lines and health insurance, along with niche areas like marine and trade credit.

The industry’s recent consolidation around Corda reaffirms that data privacy is pivotal for a network of enterprises and that the platform’s peer-to-peer data sharing approach matters for insurance blockchain applications going into production. For a highly regulated industry like insurance, only Corda can ensure that the entire supply chain of brokers, insurers, reinsurers and consumers can interact in a seamless, secure and private manner.

From contract placement to insurance as an industry, we are excited to see the new opportunities and efficiencies that blockchain technology will enable between this wide ecosystem of participants now that the right network – Corda – is in place.

[1] https://marketplace.r3.com/solutions/Blocksure%20OS/448484fb-ad8d-40c1-8a1f-47e76381fb85

 

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