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Finance

NETWORK INTELLIGENCE MATTERS FOR FINANCIAL SERVICES

Ian Waters, Director of Solutions Marketing, ThousandEyes

 

Few markets are currently as disrupted as the financial services sector. A 2017 study by PwC reported that “89% of incumbent financial services organizations believed part of their business was at risk to new industry innovators.” It’s in this climate that digital innovation has emerged as a key aspect to future growth strategies.

 

In response to the dynamically changing financial services landscape, institutions within the sector are increasingly embracing the new environment as an opportunity for innovation, restructuring their IT organizations to focus on the digital experience and shaping hiring policies to fill digital skills gaps. In the race to innovate, what will separate the winners from the losers will be the ability to effectively implement digital transformation and deliver exceptional digital experiences as part of a finance ecosystem, while navigating the complex regulatory and security landscape they encounter.

 

However, when analyzing this rapidly changing market, there are a handful of key trends that are shaping the landscape of digital innovation for financial services.

 

 

Ian Waters

The Fintech Revolution

It is estimated that the fintech industry attracted $57.9 billion of annual investment in 2018, but it’s not just the start-up or newly created fintech companies that incumbents need to worry most about. A recent report by Bain & Company of 6,000 US consumers revealed that “among Amazon Prime respondents, 65% would be willing to try a free online bank account offered by Amazon. Even among people who don’t buy through Amazon, 37% would be willing to try.”

 

As digital innovation sweeps across sectors globally financial services are by no means exempt, as millennials and digital natives continue to fuel the fintech revolution.

 

Rising Digital Regulation

Finance has always been a heavily regulated industry, but a new wave of technology-related regulation is redefining the marketplace. Perhaps the most impactful in changing the dynamic between an organization and their customer is Open Banking in the UK, or its European equivalent, the payments services directive (PSD2). Under this legislation, customer account details are now to be made available to authorized third parties via Application Programming Interface (APIs). This regulatory framework heavily favors fintech players and is being adopted in other regions like Canada, Australia and Hong Kong. If Open Banking and PSD2 weren’t enough, 2018 saw the General Data Protection Regulation (GDPR) come into force on May 25th. GDPR has necessitated not only obtaining consent to process and market to customer data, but also maintaining awareness of where that data is stored and routed.

 

Furthermore, financial institutions are increasingly measured and ranked by organizations such as the UK Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA), who publish metrics that enable customers to choose and differentiate between banks based on customer experience tables. Banking regulators are also paying increased attention to outages and downtime, requiring financial institutions to report on outages, even if they’re as short as 5 minutes, and demonstrate an understanding of why and where the outage occurred.

 

Cloud Migration

Cloud adoption has largely shifted from being a debate to being a default delivery mechanism. Although certain finance systems of innovation and differentiation are unlikely to migrate imminently, the cloud is inevitable for financial services like everyone else. IDC predicts that this year 75% of IT spending will have shifted to cloud and related technologies.

 

At the very point at which owning and delivering exceptional digital experiences for customers has never been more important, financial services organizations are giving away much of their control over IT infrastructure. Modern digital experience is now delivered via a complex map of microservices running on multiple clouds, through a myriad networks. Going forward, financial services organizations will own very few of these components, but they still own the experience and their delivery is under scrutiny.

 

Expanded Threats

A strong focus on cyber-security isn’t new. It is a constant consideration for financial services when approaching their IT strategy, as criminals have always targeted financial companies as that’s where the money is. However, as PwC has noted, what’s changed is that “the number and range of vulnerabilities is growing as companies outsource internal processes, shift computing to the cloud, and connect to customers through more channels. While financial firms certainly benefit from digital networking, this also enlarges their ‘attack surface’ exposed to hacking.”

 

In that context it’s hardly surprising the CIOs across all industries continue to invest in cyber-security, last year a Gartner report highlighted that 71% of CIOs have already invested or are in short-term planning on digital security projects, placing it as their number one area for investment.

 

So how can financial services keep up in this digital landscape?
One of the chief challenges of digital experience is that so much depends on external factors that are out of the direct control of a financial organization. For example, compliance with maintaining open APIs, tracking which networks customer data is sent across and reporting on root causes of outages is extremely challenging due to the fact that there is such a complex mix of both internal and external networks, infrastructure, software and providers involved in any given digital interaction.

 

Many new cyber-security vulnerabilities stem from the uncontrolled nature of the Internet. Service-impacting issues for financial organizations can occur anywhere within a complex set of connected clouds, networks and services, and be practically impossible to identify and resolve with traditional IT techniques and approaches.

 

This is where network intelligence comes in. By visualizing corporate, cloud provider and third-party networks, including the public Internet, and correlating application delivery to underlying network infrastructure, network intelligence can quickly locate service-impacting issues wherever they occur.

 

In giving financial organizations such unfiltered oversight, not just of their own infrastructure but across third party networks and providers, this, therefore, ensures their customers’ digital experience remains little impacted by issues.

 

In today’s world, this means financial services organizations can not only survive, but also thrive in an ever-changing landscape.

 

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Finance

‘MOVE FAST BUT DON’T BREAK THINGS’ – WHY FINTECHS WILL COME TO LOVE REGULATION

move fast

Alex Johnson, Director of Portfolio Marketing, FICO

 

The guiding ethos of fintech is move fast and break things. It’s the fundamental advantage that disruptors have over the incumbents they’re disrupting — the ability to move quickly and make mistakes, learn from them and deliver innovative services to customers. Generally, this ethos is presented as a virtue. Banking is ‘broken’ so any investments in improving it are both notable and noble – even if there are bumps along the way.

Conversely, anything that stands in the way of this ‘march of progress’ is generally cast as a villain.

The most prominent villain for fintech companies is regulation. From their perspective, it’s a competitive moat, based on rules written for a different century, that protects banks’ ability to make money without needing to innovate and offer more or improved services to their customers.

So, it’s easy to see why a fintech company — believing fully in the virtue of its mission and faced with a litany of illogical and intractable regulations — might just say ‘we’re doing it anyway.’ That’s what Robinhood co-founder Baiju Bhatt reportedly did when his company tried to roll out a checking and savings product that it claimed was insured without confirming that with regulators first.

The problem is that while we may mythologise the ‘move fast and break things’ ethos in the abstract, consumers don’t love it when their stuff breaks in the real world.

And when fintechs and challenger banks aren’t constrained by regulation (as they mostly are in the U.S and Europe) the harm caused by this ‘move fast and break things’ approach can be much more severe than a service outage or a false claim of deposit insurance.

 

Stories from overseas

In China, online P2P lending exploded in popularity, with the number of P2P lenders growing from 50 in 2011 to 3,500 in 2015. Then the whole industry imploded when it was revealed that 40% of P2P lending platforms were Ponzi schemes.

In India, online lending companies raised a record $909 million in venture capital last year (the third-biggest market behind the U.S. and China). And those lenders are now using personal data from borrowers’ mobile phones to make lending decisions – which although illegal, is reportedly ignored by Indian regulators.

In the Philippines (another emerging market where venture capital dollars for online lending are pouring in), the National Privacy Commission is investigating hundreds of complaints from consumers about lending apps leveraging their personal data to shame them into making their payments.

 

A prediction for the decade to come

In the 2020s, I believe fintech companies will come to love – or at least quietly appreciate – regulation for two primary reasons:

 

Brand protection

Fintechs and challenger banks understand that brand recognition and affinity is key to their long-term success. Building their brands will be a challenge. A recent survey of 2,000 Brits found 40% don’t trust challenger banks at all and 67% said they are more likely to do business with banks that have branches on the high street. As Zach Bruhnke, co-founder and CEO of U.S. challenger bank HMBradley recently said, ‘We’re going to have to grow by word-of-mouth and doing the right things for our customers.’

Fintechs and challenger banks focused on the long-term task of building brand affinity and trust will, over the next decade, come to despise bad actors that skirt the rules and dress up get-rich-quick schemes in the same language they use to describe their own firms. Regulations that constrain and/or shut down these bad actors will be increasingly appreciated by legitimate market participants.

 

Disruption-friendly regulations 

In the 2010s, we saw the beginning of a trend that will strengthen in the 2020s — regulations designed to foster competition between incumbents and new market entrants. To date, such regulatory action has run the gamut, from vague (innovation sandboxes and special-use charters) to hyper-specific (U.S. regulators’ cautiously approving the use of alternative data, or the Bank of England considering giving non-banks access to its 500-billion-pound balance sheet). Perhaps, most promising, has been the work done by the Competition and Markets Authority (CMA), which has been proactively driving the adoption of rules and standards around Open Banking for past couple of years. O

ver the next decade, through careful management of public perception and increased investment in lobbying, fintechs and challenger banks will further reshape the regulatory environment from a competitive moat to a more level playing field.

 

Reaching fintech maturity

’As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program’.

This was the statement issued by the chastened co-founders of Robinhood shortly after they backed away from their plan to launch a checking and savings product without government insurance. And here’s the crazy part — that’s exactly what happened! Less than a year later the company announced a new deposit product, this time insured by the Federal Deposit Insurance Corporation (FDIC).

As fintech companies mature in the 2020s and the focus of their strategic objectives shifts from growth to profitability, regulation will play a vital role in transforming the ethos of those companies into something a bit more sustainable. Call it ‘Move fast, but don’t break things’.

 

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Finance

HOW TO MERGE YOUR FINANCES AS A COUPLE?

Finances

By Nelisiwe Ndlovu, Certified Financial Planner at Alexander Forbes

 

There is never a good time to discuss finances with your partner, married or unmarried, and one key issue that needs to be discussed is whether you should merge your finances.

Joining all your money matters can seem overwhelming at first, so you don’t have to combine every bank account and credit card from the get-go.

 

Start by having an honest discussion with regards to your individual money management and financial commitments before deciding to merge or co-manage your household finances while deciding if you want to fully merge all your finances. Detail all individual income, expenses, and all your financial commitments. The best way to achieve this would be to first take your individual budgets and combine them. This will tell you what you can and cannot afford as a couple. If one partner does not usually budget, this is a chance to start doing so as this will ensure that your household finances are under control.

 

Nelisiwe Ndlovu

Before you think about merging your finances, be open and honest about:

  • How much you earn – what is the income that you will bring home? What is the frequency of your income? Are you permanently employed or a contractor?
  • What are your current individual expenses and financial commitments? List your assets and your current debt.
  • Your individual financial goals and money management techniques – don’t worry if you might have not figured this out at the time of merging your finances – the important thing to do is to be open and honest so that you both build a stronger money foundation
  • Disclose your financial obligations, this becomes very tricky if left until too late and may cause unnecessary tension in the relationship
  • What are your goals as a couple – what is the purpose for merging your finances?

Married couples can formally or informally merge their finances as detailed above where household expenses are split between the couple (the split could be 50/50 or any fair split agreed upon by the couple, which could be based percentage-wise depending on one’s income). Some couples tackle finances by adopting the ‘pick a bill’ approach, where one couple pays the water and electricity while the other covers the food.

Being married does not mean necessarily that you need to have one joint account. You may also just want to open one joint account where you each deposit money to pay just your monthly household expenses.

 

The top five things to remember when merging finances as a couple:

 

  • Have the ability to manage your own finances before expecting another person to merge their finances with you.
  • Be mindful of your potential spouse/life partner’s money management behaviour and skills so that there are certain things you can address together before considering merging your finances
  • Always keep an open line of communication – honesty is the best policy
  • Set a money limit which you can each spend without having to consult each other
  • Don’t forget to change your wills and beneficiaries on pension or provident funds as required.

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