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OPEN FINANCE: MEETING THE DEMAND FOR INNOVATION IN THE FINANCE INDUSTRY

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Anthony Badger, FS&I API Lead at Axway

 

The global finance industry is increasingly influenced by growing demands for innovative digital services from a diverse customer base that is more prepared than ever to shop around. In 2020 alone, for example, over 700,000 people in the UK switched their current account and banks are actively marketing their products with this growing trend in mind.

 

In a wider sense, the importance of customer experience has reshaped the way services across the economy are offered, with consumers using the likes of Amazon and Netflix as a benchmark for other digital brands. Take banks, for example, with ‘challengers’ such as Monzo, Starling and Revolut, among others attracting millions of customers with effective app-based experiences.

 

According to research by analyst firm Beauhurst, at the end of 2020 there were over 40 active challenger banks in the UK. These brands arrived without the reputational baggage of many of their incumbent rivals and unburdened by legacy technology infrastructure, they have been able to quickly innovate and bring new ideas to market geared towards offering a rewarding experience to the customer.

 

Anthony Badger

For many people, this message is compelling. Technology not only enables banks to have deeper and richer relationships with consumers and create a more attractive, customer- centric service, but with these startups now also entering the mortgage, insurance, foreign exchange and even cryptocurrency markets, traditional finance businesses are increasingly looking to reshape their relationship with technology, and in doing so, reconnect with customers.

 

This is a critical consideration because customer churn has become very expensive, when a better alternative is to provide a superior experience that keeps people loyal over the long term. The problem is that it’s very hard for big banks to introduce new innovative financial products quickly, with many not planning to change their backend systems of record.

 

Key to ongoing innovation, however, is the wider adoption of open finance – an approach which uses and shares customer data across multiple finance sectors in a holistic way to deliver a better, more integrated set of services. Open finance is a vision for a much bigger ecosystem that includes more information about the financial status of an individual, but also connects with other platforms and companies to offer those individuals a more integrated means to manage their finances and consume financial services.

 

With the open banking regulatory groundwork already laid, it’s time for banks and financial organisations to open more of their Application Programming Interfaces (APIs) to give third parties access to the financial information needed to create new apps, invent innovative new experiences, and create a financial ecosystem that accelerates and sustains digital transformation.

 

For example, the open finance model enables someone with a smartwatch to understand and manage both their health and spending status from the same device, whilst returning loyalty rewards to the user in exchange for the use of data from the watch via a series of 3rd party providers. Powered by open finance APIs, a health app could also offer its users improved terms for their health or life insurance by retrieving lifestyle-based products based on their health statistics.

 

The digital transformation required to deliver these changes relies on the integration of all the legacy and modern technology applications in banks, while API management allows banks to build marketplaces and ecosystems that help them to meet customer needs. Key to the approach is removing complexity for both internal and external developers of banking applications by automating their processes so they can concentrate on transformational frontend tasks rather than legacy integration at the backend.

 

The changing financial ecosystem means that for some customers the financial process doesn’t even begin by interacting directly with a financial services organisation. One leading automotive manufacturer, for example, has integrated car purchasing with insurance so when buying a vehicle, customers can also buy cover at the push of a button without having to provide any additional information. Down the road, these drivers will also be able to subscribe to services where their car can find, reserve, and pay for their parking space, or order and pay on their behalf when going to drive-throughs, all based on preferences the user has previously registered.

 

Looking further ahead, a wide variety of companies will implement different APIs in the open finance era, with banks inviting other businesses to be part of their ecosystem. And in turn, the banks themselves will also be part of other ecosystems, resulting in more integrations between organisations and more offers available to consumers.

 

Banks and finance businesses the world over are acting on the need to bring new ideas to market. As the challenger brands compete for market share and the traditional players adapt to changing customer expectations, they are setting the tone for wider, tech-led innovation across the finance sector as a whole. In doing so, customers will not only benefit from greater competition and choice, but from a more integrated set of services that meet the needs of a digital-first generation.

 

Finance

Why financial services is stepping into a new era

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by James Mingard, Head of Retail & Finance at Maintel

 

When comparing industries, financial services has arguably fallen behind when it comes to digital transformation. The sector has found it especially challenging to move from more traditional, legacy ways of working. But, with challenger banks and changing customer expectations, the tables have turned. According to a  recent research report from Maintel, in partnership with RingCentral, the financial services sector is leading the way when it comes to implementing digitalisation plans. In fact, 35% of those surveyed within the sector claim to have fully implemented their digitisation plans, compared to just 26% in other industries.

 

Evolving Technology

As such, banking technology is innovating at a significant rate, with everything from start-ups offering online-only credit cards to TSB opening a 100-seat tech centre in Scotland. There is little doubt that the sector understands the need to be digital-first, but there is room for improvement. Over half of respondents said they have seen an increased demand for digital communication from customers because of the pandemic, but the channels on offer fall behind other industries.

Over half (55%) of other industries communicate with customers through Twitter, compared to just 30% in the financial services sector. We might not want to discuss our mortgage over Instagram or to tweet about how much money is in an ISA. However, there is a real opportunity for the financial sector to add to its offering and grow its digital communication channels. By giving customers more options, it will help improve customer experience and let the end-user reap the benefits of digital transformation strategies. Balancing the expectation for digital-first interactions while ensuring a high-quality customer experience is central to creating an efficient, yet personal service.

 

Collaboration is the future

The contact centre of the future should represent an integrated approach to unified communications. It should bring business experts and agents together, across every channel to deliver real-time customer experiences in a cloud-based, collaborative engagement model. For financial services, this once seemed a pipe dream but advancements in digital transformation mean that the sector can in fact set the standard for other industries.

From a productivity point of view, team collaboration can also be enhanced using innovative communication technology. This helps to improve an employee’s workplace experience by providing instant access to essential information and allows them to work effectively from any location. Flexibility has not always been associated with the financial sector, but by giving employees better technology and more autonomy, naturally, this has a knock-on impact on the experience that customers receive and helps to foster long term loyalty.

 

Customer comes first

Banks used to be built on life-long custom. Many people would be with the same bank from their first current account through to the day they passed away but the volume of competition, variety of offers and new customer deals mean that today’s consumers are fickler than ever.  To really stand out, financial services providers need to make sure that everything from communication strategies through to software has the customer at its heart. And technology is key.

Indeed, customer experience, customer  and technology insights were the top three benefits of digitisation within the sector, according to Maintel and RingCentral’s 2021 report, It’s therefore clear that a customer and user experienced focused approach is key to success in the financial sector.

 

Click here to read the research report in full – How to translate unified communications and digitalisation into better customer experience.  For further information find out more :- https://www.maintel.co.uk/industries/financial-services/driving-financial-services-digital-transformation/

 

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FINANCIAL MARKETS IN 2022: INFLATION, ENERGY PRICES, AND THE CONTRASTING PERFORMANCE OF STOCKS

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Bob Jenkins, Head of Research, Refinitiv Lipper

 

Anyone hoping for a reprieve from the chaos and uncertainty of the last couple of years is likely to be disappointed. The pandemic will continue to have an impact on global economies, both directly (such as ongoing lockdowns and restrictions to combat the disease) and the exhaust effects we’ve seen in areas such as the production of goods, supply chain challenges, labour shortages and rising energy prices.

At the same time, the digital disruption of the financial world continues apace, with assets once overhyped becoming increasingly mainstream.

To make specific predictions in such an environment might seem like a fool’s errand, yet it is possible to discern some themes that will shape the course of financial markets in the coming year.

 

  1. Global inflation gets stubborn: Inflation is not transitory, and we are seeing a foundation for higher prices being put in place thanks to the supply chain and labour issues previously mentioned. In major developed markets, I think we’ll see stubborn inflation regardless of whether Covid remains a pandemic or begins to enter an endemic phase. The situation is slightly more positive in the US; while inflation will remain at a 3.5-4.5% range, a reduction in supply chain bottlenecks, increasing labour force and improved unemployment rates will serve to reduce the impact of primary inflation forces. We should bear in mind that households are estimated to have around $2 trillion in savings, which will maintain consumption levels and keep up the pressure on labour and supply chains.
  2. Rates will rise: Rates are likely to rise, with discussions in several major economies indicating a tapered end to the period of low rates we’ve seen since the 2008 financial crisis. This will probably be achieved in fits and starts as central banks navigate virus outbreaks and any resulting economic shocks. For instance, both the Fed and the Bank of England have indicated there will be hikes, but it is likely that they will rely on tapering at first to slow stimulus while also trying to navigate sentiment swings and volatility arising from waves of infections and/or new variants.
  3. China to lead economic growth, but not by much: China’s growth is likely to be around the 4-5% mark, with the US just slightly behind at 3.5-4%, off its 6% pace from the first part of 2021. The European Union and United Kingdom will likely trail the US, even if they have been exhibiting similar economic issues, while emerging markets could be hit by a combination of the Fed tightening up and challenges dealing with Omicron and other COVID waves.
  4. Higher energy prices are here to stay: Multiple forces will provide support to higher energy prices: supply chain issues, political posturing, demand for heating/cooling due to climate change, but Covid will occasionally step in to disrupt and counteract these forces. Even carbon neutral efforts could cause overall energy prices to rise in the near term as energy producers shift to renewables, with many of these alternative sources remaining expensive. Oil will stay in the $70-$80 range, with the occasional dip towards $60 as intermittent Covid concerns influence energy consumption in the travel sector.
  5. Underperforming stocks with a positive finish: In general, slower growth and lower rates help Growth and Tech stocks while faster growth and higher rates benefit Value and Cyclicals and I believe the economy will tend to lean towards the latter scenario. That said, growth and value leadership will change hands throughout the course of the year as the economy reacts to Covid waves and switches between lockdown and reopening. I suspect Value and Cyclicals will outperform Growth and Tech at the margin, but the dominate capitalization size of the latter two will pull down overall stock market returns. Of course, as with consumers, there is a lot of money being held back at the moment. Businesses have significant cash reserves and self-directed traders continue to shovel money into markets, which, when combined, can help buoy stocks.
  6. Flattening the bond yield curve: I think we will see some retrenchment as a result of rising rate programs by central banks that will largely result in negative to flat returns across core fixed income. Any selling in longer term bonds in reaction to either economic or central bank activity will be mostly offset by buying due to the global desire for yield, thus keeping a lid on longer term rates. Rising short term rates in this environment will serve to flatten the yield curve. High yield bonds could provide for pockets of opportunity as they are potentially tied to cyclical areas of the economy that could show leadership.
  7. The contrasting futures of ESG and digital assets: In the coming year I think we’ll see digital and tokenized assets become almost as popular as Environmental, Social and Governance (ESG). However, whereas ESG is a permanent shift that will eventually encompass the evaluation of all mutual funds, digital currencies still look a little more niche. We could well see them proliferate over the next few years, potentially even becoming a new quasi-asset class, but they will remain a satellite allocation in risk tolerant portfolio strategies. They are unlikely to achieve the status of being included in mainstream portfolios such as defined contribution retirement plans where assets can flow in large, consistent amounts – unlike ESGs, which could well reach that point in the coming years.
  8. A more defined ESG: It is looking increasingly likely that ESG funds will begin to splinter into more thematic offerings as investors eschew the combined “ESG” mandates in favour of more targeted strategies that enable them to better assess stocks aligned with fund objectives. This will also help avoid those securities jumping on the ESG bandwagon.
  9. The continued rise of the Big Five: Of course, in an era of unpredictability, there are always going to be trends or themes that run counter to accepted wisdom. Despite the aforementioned attempts of central banks to raise rates, the Big Five stocks (Microsoft, Alphabet, Apple, Amazon and Nvidia) will continue to show leaderships. While technically falling into the camp of richly valued Growth, these stocks have begun to also acquire a status as a safe haven, with generally strong earnings demonstrating a consistency and dependability that attracts investors. They also populate immense amounts of passive and retirement plan assets under management, equating to steady flows into them in almost any economic environment.

 

All this plays out against a backdrop of our changing stance on COVID. While there are some commonalities in how different regions tackle the pandemic, the continued uneven nature of our global responses makes it hard to determine what state we will be in this time next year. If most major economies can move to an endemic setting, then we should have the tools in place to make ‘living with Covid’ a reality. However, the continued emergence of other variants will cause volatility, and with it a predictable jostling of market leadership. Perhaps the only predictions anyone can truly make is that life will continue to be unpredictable for some time to come.

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