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INTELLIGENT AUTOMATION HELPS BANKS DELIVER THE CUSTOMER EXPERIENCE OF TOMORROW – TODAY

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By Dermot McCauley, Vice President, Solutions Product Marketing, Kofax

The next generation of banking customers is here, and they want all digital banking, be it on their mobile, desktop, tablet or voice-enabled device. Customers want simple, convenient and secure interactions with their financial institutions. And if they don’t get it, they’ll jump ship to a competitor.

The question is, can the industry meet these new expectations? And what needs to happen to capture and keep customers in a highly competitive marketplace, with FinTechs nipping at the heels of established players?

The state of digital banking today

Just a few years ago, “omni-channel” was the buzzword. Companies recognised that they needed to reach customers on multiple platforms – digital, social media, in-person, on the phone – and provide consistent branding and service levels. But PwC’s 2017 study of banking consumers discovered that these omni-channel customers are being replaced by the “omni-digital” customer. Their research found that almost half (46 percent) of consumers now use only digital channels, a 19 percent increase from 2013.

The problem, notes the Digital Banking Report, is that “most institutions – and the industry as a whole – haven’t kept pace with consumer expectations around digital capabilities or digital engagement at the initiation of the customer relationship. The majority of institutions can’t open an account entirely online or on a mobile device.” In fact, half of the top 20 banks in Forbes Top 100 Best Banks in America don’t even offer an option to open an account online, several don’t provide a mobile-friendly site either.

Another growing trend is the increasing preference for mobile, over browser or tablet, as the home venue for all banking activity. In PwC’s 2018 Digital Banking Consumer Survey, mobile dominant customers grew from 10 percent to 15 percent of customers in just one year. “To a growing number of consumers, banking just is a mobile activity,” they observe. And, yes, a significant number of these consumers are in the 18- to 24-year old age group, but consumers’ needs also vary by income bracket, type of transaction, and geographic location.

What’s at stake

The bottom line is that if banks don’t up their game and make onboarding and other processes easy, they risk losing significant market share. A difficult onboarding process can result in consumers opting out before completing the new account application. At some banks, that abandonment rate can be as high as 90 percent. Millennials, in particular, have higher digital expectations and banks risk losing them at higher rates, which is especially dangerous because they’re maturing financially, having the need for more – and more sophisticated – financial products as they age. Today’s consumer is much more likely to switch banks when the new account origination process has too many speed bumps. According to recent research, 43 percent of consumers said a poor account opening experience would result in them “definitely or probably” switching banks.

Moving ahead into the all-digital banking world

The biggest speed bumps in the onboarding process often result from legacy banking systems that still require some manual work and paper-based interactions. For example, maybe the consumer begins the process on their smartphone, but they’ve got to come into the branch to complete the process. Millennials want one-click transactions, secure and easy. They have become accustomed to initiating actions with a swipe of the finger and have come of age in a time of knowledge-based authentication, face recognition, and biometric signatures. Paper? That’s so 20th century. Why not, say Millennials, allow me to snap a picture of the needed documentation?

Financial institutions can’t afford to be reactive. In this competitive marketplace, banks need intelligent automation to stay one step ahead of the customer. Here are some actions to guide you in building the onboard experience of tomorrow, today.

Make the initial information-intensive interactions digital and easy. Digitise processes that used to require paper-based documentation so that the customer doesn’t have to mail, fax or deliver paper to the branch, especially when it involves opening a new account. Automate identity checks while ensuring compliance and security.

Provide seamless, any-channel access with no speed bumps. Today’s customers want to start the process in one channel, perhaps their smartphone, then exit and continue the application via other channels if necessary. They have come to expect transparency in all their digital consumer experiences and want it from their bank as well.

Know your target customer(s) and what they value most. Which channels do your customers use most often? Mobile, browser, in-person at the branch, or a combination? Which transactions do they want to complete online vs. in-person? Use intelligent analytics to observe customers’ behaviour and preferences. Look to cut costs in areas of least importance to your customers while delivering better experiences where customers want them.

Replace legacy platforms with technology that streamlines business processes. Stop pouring money into old systems. Recent research found that up to 90 percent of financial institutions’ technology budgets are being used to support aging systems. Streamlining and digitising your processes with intelligent automation preserves the best of your historical IT investment while allowing you to deliver the better experience that captures and keeps more customers.

So much is riding on the initial onboarding process that it’s essential to make it easy and hassle-free. It’s an opportunity to show today’s tech-savvy customers that your institution understands their needs and can deliver the customer experience of tomorrow, today. It’s an opportunity to build a solid relationship that will reap benefits beyond a simple checking account.

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Banking

TO ENABLE BETTER LENDING FOR PEOPLE AND BUSINESSES, WE HAVE TO LOOK TO OPEN BANKING

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By Iain McDougall, CCO of Yapily

 

A recent FCA study found over 14 million people were grappling with financial issues at the end of 2020, representing more than a quarter of the UK adult population. The picture is similarly tough for SMEs, too, which have been impacted hugely by lockdowns, loss of earnings and more; it’s estimated the pandemic will cost SMEs an extra £173,000 in debt per year.

This is resulting in a lack of lending options for both consumers and businesses, as well as expensive or high interest loans, or worse, rejection from lenders all together. This in turn is driving unaffordable lending, and penning consumers and businesses in an ongoing and irresolvable debt cycle – at a time when they need the most support.

One of the biggest causes of this lies in lenders relying on credit scores and credit bureau data to inform their decisions, which simply aren’t accurate enough to truly get the full picture of a borrower’s financial situation.

The case for using Open Banking data in lending decisions has never been stronger.

Data accessed through Open Banking permits lenders to retrieve accurate information about the borrower’s financial history. This can provide more accurate assessments, and therefore enable fairer lending decisions.

 

Credit scores aren’t helping consumers

Take NHS workers as an example. Despite working tirelessly throughout the pandemic, NHS workers make up a sizable portion of the UK adult population currently struggling with debt.

Iain McDougall

An independent report from the University of Edinburgh Business School, in partnership with Salad Projects, found NHS workers are heavily reliant on long-term overdrafts and high-cost credit, where APR is as high as 1,333%. Almost all (93%) respondents said they use one or more types of credit or loan, compared with 75% in the wider UK population (according to the Financial Lives Survey). More than half (58%) use up to three loan providers and 68% use up to four loan providers.

This situation is the result of relying solely on credit scores. While these are the near-universally accepted method of determining credit terms, each credit reference agency has a different method for calculating a credit score. They rely solely on financial history, whether they’ve previously defaulted, or failed to get credit, and not a consumer’s actual financial position, whether they’ve recently got a pay rise or new income, to see how likely it is they will pay back any money borrowed. This can mean, no matter if a consumer’s financial position has changed, they can’t get a better loan because of a previous discrepancy.

 

The challenges facing SMEs

These issues are not just limited to consumers. SMEs, particularly those in the hardest hit industries like hospitality and travel, have struggled to access credit throughout the pandemic.

While many may have been thriving pre-pandemic, their lack of ability to turn a profit during lockdowns, meant they needed extra support. In an effort to keep these industries alive, we saw numerous government backed loan schemes launched, such as the Bounce Back Loan Scheme, to help struggling businesses survive. In total, these schemes have provided almost £180 billion worth of lending to date, supporting over a quarter of businesses in the UK.

However, the soaring demand from businesses in need of these vital funds meant lenders were unable to keep up and many businesses did not receive support quickly enough. What’s more, providers may register these types of loans with credit reference agencies, which means companies that previously had strong credit ratings may see their credit scores negatively affected by any delayed or missed repayments.

This is why it’s vital for lenders to get lending limits right the first time round, so SMEs can avoid potentially adding to their already growing list of debt and thrive in a post-pandemic world.

 

Enhancing lending with Open Banking 

Using Open Banking can add a much-needed layer of trust and loan personalisation for businesses and individuals. By basing credit decisioning on real-time financial data, lenders will be able to create a more accurate picture of their financial situation; and so make fairer credit offers.

Through adopting Open Banking principles, lenders will be able to onboard new customers and grant loans more efficiently, providing businesses with the cashflow required to maintain their workforce and support the economy.

With the borrowers’ consent, it will also give lenders oversight into how the economy is recovering, and enable them to monitor the rate at which the individual or business can expect the loan to be repaid. Meaning they can step in and provide extra support if and when required.

Open Banking provides what credit scores alone simply cannot – real-time insight into an individual’s or a businesses financial position right now, not three to six months ago. By leveraging the data that is readily available to them, lenders could achieve far better and more responsible outcomes. This will reduce the risk of loan default – for both businesses and individuals – and lead to more responsible lending decisions that can help people and businesses bounce back after what has been a difficult year.

 

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Banking

BRAND CONFIDENCE: HOW HAS OPEN BANKING EVOLVED AND DO CUSTOMERS TRUST IT?

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By Geoff Boudin, Director at Revive Management

 

The open banking industry is growing by 24% year-on-year, and is expected to be worth more than £31 billion by 2026. The implementation of the 2018 Payment Services Directive known as PSD2, was intended to boost competition in the name of open banking. The directive, which set out to make payments more secure, by requiring banks to share the data of customers who authorise it with third parties. This allows customers to share their financial information with authorised service providers such as budgeting apps and other third-party money management tools. It was initially called for by the Competition and Markets Authority (CMA) to level the financial playing field and empower consumers by giving them more ownership over their financial data.  So, two years on, what impact is open banking having on consumers? Do they trust it? If so, how can brands build on this trust to offer more a more personalised yet non-intrusive experience that delivers the data to further improve their service offering.

 

What difference has open banking made?

Prior to PSD2, which came into force on 13 January 2018, banks had full authority and jurisdiction over their customers’ financial data. The idea of a bank giving up some of that data to a third party for the benefit of their customers was unheard of. This closed ecosystem, however, runs against the drive towards digital openness, connectivity and convenience. Our digital worlds were opening up and data was becoming democratised, and banks were being left behind. Challenger banks such as Monzo and Atom, which embraced innovative new apps and features, had been making headway for years, and there was a sense that third-party customer-focused innovation was rumbling away under the surface. However, that innovation was stifled until PSD2 laid a path for it, requiring banks to open up access to customers’ data at their behest.

It’s thanks to PS2D and open banking that customers are now able to connect their bank account to a third-party app that can help them better manage their money or sign up to a platform that allows them to access all of their accounts and credit facilities in one place. This allows customers to control their finances as never before.

 

Driving innovation

Empowering and improving the customer experience is one great achievement of open banking. Another is the innovation it has prompted across the entire financial sector. Even traditional banks like HSBC prepared for PSD2 by rolling out its own ‘Connected Money’ app, which allowed its customers to view data from all of their bank accounts – as well as mortgages, loans and credit cards – all in one place. This value-add to the customer experience probably wouldn’t have seen the light of day if not for the competition spurred by PSD2 and open banking. Many other banks and financial services providers have followed suit, offering new customer-centric features based around convenience, visibility and control.

Open banking is a huge step forward in the financial world. So why do some still liken it to a sleeping giant? What’s holding it back?

 

Managing trust and data security

More than 2.5 million consumers in the UK are now happy to connect their accounts to trusted third parties in exchange for some value-added benefit. That’s up from 1.5 million in 2020, no doubt driven by the competitive innovation brought about by PS2D. However, open banking adoption across the rest of Europe seems to have been much slower, and even growth here in the UK is beginning to plateau. While some might blame this on Brexit-induced regulatory changes, such as UK firms no longer being able to use the EU’s certification standards to share customer data after June 2021, there is much more at play.

A Europe-wide survey by thinktank ING polled 13 countries – including the UK – and found that only around 30% of consumers were happy for companies to share their data even after they had given consent. What’s more, only 35% of those polled had even heard of open banking capabilities. This points to issues surrounding data security, trust and awareness – all hurdles that can be overcome by banks, financial services providers and fintech innovators.

To make the most of open banking, banks will have to innovate and forge fintech partnerships with companies using their data sets. That will enable them to enhance existing products and leverage new fintech products being created with their data which will, in turn, benefit their customers.

This process of innovation has already largely begun, but if brands are to take full advantage of all that open banking has to offer, they still need to bridge the trust gap with consumers. We see consumer education, especially in the field of security, as having a key role to play in building confidence and consequently optimising uptake of open banking.

 

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