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Lost in Translation: Why Banks Must Learn the Language of their Customers

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Back in 2017, the future of the fintech sector and its potential felt truly limitless. Bold claims were bandied about including the theory that the movement would soon supersede the traditional banking sector in terms of popularity. Nowadays, things don’t look as cut and dry. Personally, I’m still a supporter of the fintech sector and feel that there is still vast potential for it to create real change for businesses and consumers, but I’ll also admit that a lot of those early proclamations have now been shown to be quite wide of the mark.

Ultimately, the staying power of the banks was much greater than many people expected. Despite the devastation of the financial crash and more recently with the Covid-19 pandemic, the broader banking sector remains strong and where people still feel most comfortable and trusting when it comes to depositing, sending, and saving money. This argument extends to SME customers, who still largely want to use traditional banking portals to conduct business.

 

ARE BANKS STILL THE BEST FOR BUSINESSES?

The recent failure of the UK’s Incentivized Switching Scheme perhaps best highlights the idea that business customers still prefer traditional banking institutions. Some years on from its launch, it’s now safe to say the scheme has significantly failed to reach its initial targets, despite spending close to £220m in sweeteners that looked to encourage SMEs to transfer business accounts over from traditional, legacy banking companies and into the hands of new and emerging challenger banks [1].

Similarly, despite receiving significant capital under the Banking Competition Remedies fund, challenger banks have been unable to capture any significant market share within the world of SME customers. In fact, between 2018 and 2020, the number of people using a ‘Big Four’ current account only decreased from 94% to 90% [2]. Still, over this period overall adoption rates of challenger bank and fintech solutions has risen, however, these services have often been used to supplement services already offered by larger companies.

 

STRIKING THE RIGHT BALANCE

The numbers are quite damning, but it’s too easy to write the fintech movement off as totally underwhelming. Undoubtedly, the sector has helped to expose several big issues within banking, which can’t be ignored for much longer. Most notably, the banking industry continues to lag behind in its marketing efforts. The fintech sector doesn’t struggle with this. In fact, while I wouldn’t go as far as to call the sector ‘style over substance’ it certainly has marketed the absolute most out of the limited value it can really offer.

So, we’re left with one industry, which customers clearly trust, and who are able to deliver genuine value-added services, and another, which customers are still unsure about, yet it   manages to market its services in ways that people find intriguing. Ultimately, it’s all a bit of a mess, and often distracts from some of the more pressing questions surrounding the broader financial market. Chief among them is the question of whether either sector is currently doing enough to help those using its services on a daily basis.

 

DON’T FIX WHAT’S NOT BROKEN

I won’t name names, but we’ve seen this phenomenon across banking players. Whether it’s abstract TV adverts that don’t relay actual customer benefits, or the industry’s long running resistance to fully embracing the digital sphere. Similarly, the fintech sector has similar issues, seemingly becoming obsessed with a new trend every year, whether that’s Buy Now, Pay Later or crypto. While these trends may look good on paper, they seldom serve to help solve the real economic issues of the day, namely cost of living increases, and rising interest rates.

The good news is that the respective strengths and weaknesses of the two industries complement each other quite well. If banks can learn to speak to customers in the ways that fintech companies do, then they will undoubtedly see renewed interest in their products and can deliver real value. Likewise, if fintech businesses can learn from the banks and begin to deliver services, which truly help customers in their daily lives, then they may soon start to see the robust product adoption rates first envisioned in 2017.

 

COLLABORATION IS KEY

I’m going to make a prediction that we currently stand at the precipice of a huge correction across both sectors. In my opinion, this culture shift will take funding capital away from projects peddling speculative, high-risk solutions, and instead move it towards more grounded and warranted financial services. As such, increased collaboration between fintech businesses and the traditional banking sector would now be beneficial for both parties, but most importantly, would invariably benefit customers and SME owners.

In this endeavor, there’s absolutely no doubt that brand is important. At BankiFi, we recently conducted internal research on the subject. The findings indicate that users place far more trust in third party apps, which are more closely aligned to a banks’ brand, or look like they were an extension of the bank rather than something separate. However, to make good on this demand, the banking sector must get infinitely better at marketing itself to customers, which is where the fintech industry can really help.

 

BUILDING A BETTER WORLD FOR SME CUSTOMERS

With the right approach, fintechs and banks can align their respective strong points to deliver services to customers that truly add value. In short, the time is now for both sectors to stop looking at each other as rivals, and instead begin to assess the significant synergies that can be manifested from a closer working relationship. Of course, it’s a change that’s going to take work and patience, but the goal is highly achievable and will benefit all involved parties, including personal and business banking customers.

Banking

Augmented automated underwriting and the evolution of the life insurance market

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By Alby van Wyk, Chief Commercial Officer at Munich Re Automation Solutions

 

It’s almost inevitable. Spend your working life identifying, analysing, quantifying and ascribing monetary value to risk, and you’re likely to have a fairly strong aversion to it. Or more accurately, an aversion to undertaking new endeavours with inadequately understood consequences. The insurance industry is, on any number of levels, the very definition of risk-averse.

And yet, for all the commentary suggesting otherwise, insurance still has an appetite for innovation. If the insurtech sector is any indication, then an interest in and requirement for new solutions is being recognised and slowly addressed.

Declan O’Neill

It may not employ the language of disruption that runs through the wider fintech market, it may be short a few unicorns and unable to boast some of the record-breaking funding rounds, but a quiet tech evolution has been building in insurance nonetheless. Hence the advent of automated underwriting facilitated by more advanced algorithms and data analysis.

Where insurtech does overlap with its more vocal fintech counterparts is in the greater use of artificial intelligence (AI) and machine learning to solve age-old problems around data analysis and interpretation.

It’s about five years or so since AI first became a topic of conversation in insurance. Since then, despite the intensity of the debate, it has often felt like a reality that is always just over the horizon – a destination that kept moving even as more and more efforts were directed towards it.

But recent research suggests that the journeys made so far have not been in vain. We are at a point where embracement of AI is about to step up a gear. The global value of insurance premiums underwritten by AI have reached an estimated $1.3 billion this year, as stated by Juniper Research; but they are expected to top $20 billion in the next five years. As a destination, it is closer and more attainable than ever before.

However, AI is not an island. Its promise of $2.3 billion in global cost savings to be achieved through greater efficiencies and automation of resource-intensive tasks will not be achieved in isolation.

AI remains part of a more complex ecosystem of data gathering and analysis. It can apply new technologies to get the best out of the already established and still-emerging data sources that feature in underwriting offices around the world. It emphatically does not require these existing investments to be ripped out, replaced or downgraded.

It is more helpful therefore to see AI as the differentiating factor in the latest generation of insurance IT: augmented automated underwriting, or AAU for short.

AAU gives underwriters the ability to spot patterns and connections that are, frankly, either invisible to the human eye or which take normal, human-assisted processes unfeasible amounts of time and resource to identify.

Whereas earlier generations of automation were able to pick up the low-hanging fruit of insurance markets – the individuals whose driving history fit into clearly delineated boxes, for example – AAU can take into account all of the rich complexity of the human experience. It can spot the nuances and individualities that populate the life market, for example, and translate those into accurate policies.

That’s good news for both underwriters and their customers. AAU can significantly reduce the need for separate medicals, repeated questions, lengthy decision-making processes, and drastically increase the speed at which a potential insurer can get a quote and cover – while continually improving the way risk is calculated and managed.

It can make sure the decision-making process remains in the hands of underwriters rather than IT departments, enabling them to set and update the rules and parameters as befits their preferred business model. It consequently makes advanced, complex and precise decision-making available to a broader range of underwriting businesses – which is good for those businesses, good for customers and ultimately good for the entire industry.

AAU – augmented automated underwriting – is an example of the realisation of AI’s promise. As such, it’s set to become one of the key talking points and disruptive technologies of the insurance industry. And this time, AAU is both a journey and destination that all progressive insurance organisations need to be considering for their future operations.

 

 

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Banking

ESG in the finance and banking industry – are you ready?

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By Julian Moffett, CTO BFSI, EDB

 

Environmental, Social and Governance (ESG) has soared towards the top of banking, financial services, and insurance (BFSI) and other boardroom interests. Organisations everywhere know they need to take ESG and greenhouse gas emissions (GHGs) seriously not only because it is the right thing to do for the future of the planet or because it can help attract and retain talent, but also, because failing to do so may pose a risk to the economic value of their businesses and encourage probes by governments, watchdogs and non-execs. However, complying with complex reporting and going the extra mile to actually deliver on the goals of the rules is a challenge in many ways, not the least of which is in achieving the required excellence in data management to underpin strong reporting on ESG.

 

What is ESG? 

Julian Moffett

ESG is an umbrella term that covers a broad gamut of activities. Gartner defines ESG as “…a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts.”

The CFA Institute describes the environmental element as focusing on “the conservation of the natural world” and includes measuring “climate change and carbon emissions,” “air and water pollution” and “biodiversity” among many other measures. Social considers “people and relationships” looking at areas including “customer satisfaction,” and “gender and diversity.” Governance covers “standards for running a company” and analyses factors such as “board composition,” “audit committee structure” and “audit committee structure.”

 

Status of the current regulatory environment

There are many bodies proposing rules to formalise ESG monitoring and seeking to ensure corporate compliance. Some example groups, frameworks and bodies:

  • The Task Force on Climate-related Financial Disclosures (TCFD)
  • Streamlined Energy and Carbon Reporting (SECR)
  • The International Regulatory Strategy Group (ISRG)
  • The Sustainability Finance Disclosure Regulation (SFDR)
  • The International Sustainability Standards Board (ISSB)
  • The Sustainability Accounting Standards Board (SASB)
  • Sustainable Development Goals (SDGs), the Global Reporting Initiative (GRI) support efforts such as the US SEC’s Climate and ESG Task Force.

Financial services organisations are very aware that the current regulatory landscape is far from mature (and will continue changing) both in terms of alignment between bodies and also with regard to when the new rules will come into effect. At the of time of writing:

  • The requirement for Scope 2 disclosures (see below for description) for the Sustainable Finance Disclosure Regulation (SFDR) will likely come into effect in 2023
  • A proposed Corporate Sustainability Reporting Directive (CSRD) should be agreed by the European Parliament this year for implementation in 2024 to report on performance in 2023.
  • Meanwhile, the SEC has just released its proposed rules for climate-related disclosures, which,if passed in legislation, may come into effect as early as year end 2022.

 

Reporting Obligations 

Reporting can cover a wide range of areas covering energy consumption, GHG emissions, water consumption and waste management to health and safety, labour rights, diversity and inclusion to ethical conduct, and even areas such as appropriate executive compensation.

While the regulatory reporting obligations are not yet finalised, the expectation is that compliance may prove to be an onerous task. For example, organisations are under pressure to monitor carbon emissions but even so-called Scope 1 emissions (those that come from owned or controlled emissions) can be hard to track. Factor in Scope 2 (indirect emissions such as purchased power) as well as Scope 3 emissions from up and down value chains, and the reporting task at hand is difficult indeed.

To measure, monitor and manage in addition to staying on the right side of rules, organisations need to have excellent data management fundamentals, strong reporting tools and a new class of applications, which also have the agility to adapt to rapidly changing regulatory demands. Data will be used both to support decarbonisation measures but also to identify where there are disclosure gaps. It was telling that when the SEC issued a press release on its Enforcement Task Force, it specifically referred to data:

“The task force will also coordinate the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations.”

Having reliable data comply with emerging rules isn’t the only essential requirement for organisations. Institutions need such data to understand where they are in their journey to sustainability, so that they can set sensible targets and track progress against them. Organisations will have to cover the data trifecta of availability, management and transparency. Many organisations may be stuck in the early stages of managing ESG, overly relying on manual processes, spreadsheets and email. But their target should be to get to real-time data insights that are easily visualised, understood and shared. As a foundation, BFSIs need to capture, manage and securely share data reflecting consumption and safety to emissions, financials and data from surveys measuring results against ESG targets. Data emanating from ERP and other back-office systems, performance data from third-party associates, media and social network coverage, spatial/geolocation systems and beyond should also be factored in.

 

Actually reducing GHGs

Organisations are using a wide variety of ways to reduce emissions and improve their footprints from using renewable energy sources to making secondary use of energy; for example, in the case of one university, this is done through capturing data centre heat in hydroponics. For IT, making broader use of multitenancy in cloud computing and hosting services is a popular way to reduce emissions. Not only do these large data centres offer an economy of scale, they also tend to be state of the art in their use of renewables and highly efficient hardware and other infrastructure. Gartner, in an article titled The Data Centre Is Almost Dead, says it expects 80 percent of enterprises will close in-house datacenters by 2025. For me, the jury is out on this one but an interesting one to monitor going forward.

 

Conclusion

We are at the start of a very significant inflection point in regulatory and consumer expectations around ESG. BFSIs should be under no illusion that momentum is building rapidly in terms of having to address strict reporting requirements and implement strategies to reduce GHGs.

However, we also see this as a time of positive change. As the leading provider of Postgres, EDB is excited to help organisations further their ESG goals as the journey unfolds. We are closely monitoring the implications of ESG regulations as they will give rise to a new class of applications and drive adoption of green data centres. We see OSS, including Postgres, as playing a key role in this shift as often the movement to private and public cloud helps accelerate application modernisation and enables displacement of outdated incumbent technology (including database) platforms. As the leading provider of Postgres, EDB is excited to help organisations further their ESG goals as the journey unfolds.

 

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