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REDUCING FRICTION ONLINE HAS BECOME BUSINESS CRITICAL

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Andrew Shikiar, Executive Director at the FIDO Alliance

 

The global pandemic has pushed the importance of remote access and authentication right up the agenda for many businesses. All those occasions where people would normally show up in person to open a bank account or pick-up some high street essentials were simply not possible for large parts of the year. Even as restrictions have eased across the country, these kinds of face-to-face transactions remain an unappealing prospect or a last-resort to many.

Not surprisingly, this has led to unprecedented demand for online and remote services. This brings with it a host of challenges and opportunities, and we have seen many examples of companies brilliantly adapting and reacting to this new way of life. But one issue that businesses and individuals have been grappling with for years – that of frictionless transactions and authentication – has now been put under a brighter spotlight as it is increasingly critical to get right.

 

Friction impacts the bottom line

The core challenge facing businesses is how to strike the right balance between giving customers the best possible experience of online service, and the necessary regulatory and security implications that directly affect – and often contradict – that ideal user experience.

We’ve all likely experienced the very real kinds of friction I’m talking about – it’s the account you gave up on registering for, or the purchase you abandoned because the process was just too frustrating.

Friction like this has direct bottom line impacts through the loss of sales and/or disaffected customers –  and it is substantially more pronounced in the current climate. People have less money to spend, they are spending a greater proportion of this reduced pot online, and businesses are competing for their livelihoods to claim their share. Providing a frictionless experience can be the difference between success and failure.

 

Banking and retail lose out

Nowhere is this problem more keenly felt than in the retail and banking industries. Countless transactions simply don’t happen each year due to issues with passwords or mobile One Time Passwords (OTPs) at the point of signing-up or checking-out.

Data from Statista shows that 69.57% of digital shopping carts and baskets are abandoned and the purchase not completed. And Mastercard’s analysis estimates that up to 20% of mobile e-commerce transactions are abandoned or otherwise fail (e.g., from undelivered SMS OTPs) mid-way.

In addition, independent web usability research institute Baynard found that one out of five consumers abandoned their online shopping carts citing the checkout process as “too long and complicated”. That means 20% of customers taking their custom elsewhere, likely to a competitor, because the process presented too much friction.

 

Passwords are a major part of the problem

Organisations have struggled to strike that balance between frictionless yet secure online log-ins in large part because of historical dependence on passwords – which simply aren’t fit for purpose in today’s online economy. Passwords were designed to be simple but, as we can all likely attest, they have become incredibly cumbersome and difficult to manage.

The demands placed on consumers to remember and keep track of the array of different passwords they need, and the different requirements of password complexity which varies from provider to provider, is proving to be untenable.

Not only are passwords a major cause of consumers giving up on purchases or preventing them from signing up for new services, but they also fail in delivering on their primary objective: to protect accounts and sensitive data. All too often the password has proven to be a single point of failure, and one that is all too easy for hackers and fraudsters to get hold of – a trend accelerated by the coronavirus pandemic.

 

Reducing friction

There has been a move toward developing and adopting open standards that enable any online service provider to authenticate users in a way that is both highly secure and almost completely frictionless – with all major platform and cloud service providers coalescing around a common approach.

It’s clear from the way consumers have embraced using their fingerprints and FaceID to unlock their devices that simple, natural gestures work – and that they are often preferred over using a password. By adopting the latest authentication standards, organisations can enable their customers to use these same easy gestures on their every-day devices to prove their identity and approve even the most sensitive of transactions.

The standards also improve security by moving away from the traditional model where your password or similar piece of ‘secret’ information is stored on a server, to one where credentials are stored on an individual’s device. This means they cannot be phished or divulged through other means of social engineering, while also inherently stopping the large-scale breaches that impact millions or billions of users in one go.

Due to these developments, the kind of poor user experience that leads to abandoned shopping carts and lost customers during the sign-up process is completely avoidable. There is now nothing stopping banks, retailers, and a range of other businesses from offering a superior, and low-friction user experience while also maintaining the safety and integrity of the networked economy.

 

Banking

How banks can increase customer acquisition and user engagement with sustainability

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By Karolina Szweda, Head of Growth Marketing at Connect Earth

Young people are demanding more innovation from traditional financial institutions, and are primarily in favour of lower costs and more flexible digital customer experience promised by challenger banks and other FinTech providers. The future of banking is digital, and traditional financial institutions are well aware that they need to embrace innovation to remain competitive in the digitalised market.

In order to win over the younger generations, especially Millennials and Gen Z, banks need to invest in their digital transformation and deliver more customer-centric solutions. One of the affordable low-hanging fruits is sustainability.

As the public’s attention to the climate crisis grows, consumers and businesses are increasingly interested in reducing their negative impact on the planet. BCG reports that as much as 73% of consumers are altering spending habits because of climate change, and, according to PwC, 88% of consumers want brands to help them live more sustainably. As far as businesses are concerned, they are increasingly aware of the mandatory disclosure regulations set to take effect within the next years in major economies, and the need for carbon emissions reporting.

The problem is that the vast majority of consumers and businesses do not have access to actionable data on their carbon emissions. We believe that this is where banks can step in.

Increasing customer acquisition and retention

According to Deloitte, 71% of customers are more likely to choose a bank with a positive environmental impact. In addition, Global Risk Regulator reports that 93% of people expect sustainable financial services to become the norm, and according to Tink, 62% of consumers want their bank to show them an overview of their carbon footprint.

Banks are in a unique position to respond to this increasing demand by embedding climate data in their financial services offerings, which can help attract new customers and improve brand loyalty on a large scale.

With a carbon tracking API solution integrated into a digital banking app, financial institutions can be a catalyst for change and enable their customers to understand how they can reduce their emissions. By providing carbon emissions data for each financial transaction, banks can support and encourage their retail banking clients, corporate clients and/or retail investors to act more sustainably, while also increasing customer acquisition and digital engagement.

Most importantly, banks can also measure how their customers’ spending behaviours are changing as a result of being exposed to climate-related information, which they can use to segment and understand their customers better.

Increasing digital engagement

According to EY, 61% of consumers want to access more information that can help them make better sustainable choices. Banks are in a position to empower customers to do exactly that, whilst increasing user engagement with their digital banking apps.

Educating consumers on how to make more sustainable choices can be achieved through gamification, personalised recommendations and rewards to encourage behavioural change. The analysis of spending data along with tailored educational content can enable consumers to analyse, learn and improve their consumption habits and empower them to act on this knowledge.

Before accessing their carbon emissions insights, users can enter their custom information about their lifestyle habits, such as diet (meat-based vs. plant-based), daily means of transportation (car vs. bus) and more. Machine learning models improve as users input data over time, making carbon emissions estimates more granular. The model is trained to support thousands of different user types based on their profile and enables the bank to customise the experience and gamify the emissions reduction process for users.

How banks’ customers can benefit from accessing carbon emissions data

As far as climate action is concerned, having a real-life overview of one’s carbon footprint can be a true game changer for millions of consumers worldwide. Access to carbon data increases climate change awareness and empowers people to make a real difference.

Earlier this year, our team at Connect Earth confirmed the partnership with KBC Bank in Bulgaria to help them drive customer engagement and provide their retail banking clients with climate insights into their spending. We aimed to bolster KBC Bank’s corporate sustainability strategy, whilst meeting increasing demand from climate-conscious clients.

The financial sector has historically lacked the infrastructure to support sustainable finance in a tangible way. We are happy to report that the green transition has begun.

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Banking

The new blueprint for Open Finance? – A look inside the new Saudi Open Banking Framework

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Chris Michael, Co-Founder & CEO, Ozone API

 

It has been a genuine privilege for all of us at Ozone API to work with the Saudi Central Bank (SAMA) to lead the development of its open banking standard over the last few months. We are also providing the enabling technology behind SAMA’s Open Banking Lab – the model bank and conformance suite – as well as working with a number of banks in the Kingdom of Saudi Arabia to help them deliver their own open banking solutions.

This is much more than a compliance exercise. We are right at the forefront of helping banks in the Kingdom to unlock new business models and deliver innovative financial services. But much of this is only possible because of the ambitious approach taken by SAMA.

Starting with a BIG vision

Open banking and open finance are now happening all around the world. Implementation looks a bit different in each market, but where it’s being driven by central banks and regulators, it is usually with a defined outcome in mind. This can be to create more competition or to drive consumer data rights. But increasingly, it is being seen as a foundation to drive economic transformation.

There aren’t many (possibly any) countries with a more ambitious vision for transformation than the Kingdom of Saudi Arabia. The Saudi 2030 vision is huge, from transforming society to the creation of uber-modern megacities. A big part of this vision is the creation of world-leading industry sectors, with financial services being a key focus. And at the heart of that agenda, you’ve guessed it: open finance, starting with open banking.

Chris Michael

The Saudi ambition is growth, fuelled by a thriving financial services sector. With this in mind, SAMA’s whole approach has been designed to drive adoption and usage by ensuring there are clear incentives for all participants: end users, third parties building on top of open finance access and the banks and financial institutions themselves.

In other markets, we’ve seen initiatives done to the banks, not with the banks or even for the banks. This may sound nuanced, but it is huge and important.

BIG Ambitions demand different approaches

With a big vision defined, SAMA’s approach to delivering its Open Banking Framework had to be different from other initiatives around the world.

The founding team at Ozone API were privileged to have led the development of the UK open banking standard during their time at OBIE. So being chosen to lead the development of the open banking standard in the Kingdom was a huge honour and a great opportunity to continue the journey and create a new blueprint.

With a big vision, SAMA has taken a very progressive approach, building on learnings from other markets and going way beyond.

The starting point was to define key use cases that would drive the greatest demand and drive value for the different participants. That’s the end users, the third parties and, yep, the often overlooked banks.

Use cases are the right starting point, since this creates clear consensus, allowing everyone to understand what they’re building and why. The intention is not to limit the implementation to a few use cases, but to enable these key use cases so that the foundations are there for many more which can be enabled now or added in future phases.

Then, and only then, did work start on defining the standard, the business rules to enable these use cases.

Whilst it sounds simple, elsewhere we’ve seen regulations, rules and standards defined ahead of such user-centric thinking, creating artificial and unnecessary limitations to the detriment of uptake and usage. And often the incentives across the ecosystem have been an afterthought, significantly impacting the motivations of banks to see it as anything more than a compliance project.

The Standard itself, what’s different?

On November 2nd 2022, SAMA published the first release of its Open Banking Framework to industry participants. This first phase includes business rules and the technical standard needed to meet a number of defined account information use cases, with future phases coming next year to include payments. But already, there are some significant improvements versus other standards.

Whilst there are many detailed enhancements and improvements, the game-changing differences can be summarised as follows:

The standard has been designed to be more efficient for banks and third parties to interpret and implement, ultimately creating a more effective ecosystem. Key to this is the inclusion of “event streaming” or webhooks. Historically, open banking APIs have been designed to replicate the behaviours seen with screen scraping, i.e. the third party goes and ‘pulls’ data from the bank at regular intervals to see what has changed. In the new KSA standard, event streaming informs third parties when things change in real time.

The standard has also been hugely simplified to ensure clear separation between business rules (i.e. detailed regulations) and the technical specifications themselves. This has led to a dramatic simplification of the documentation with a much clearer articulation of detailed implementation requirements.

Arguably the most exciting change is the creation of a new (to open banking) concept called “service requests”. This will be truly game-changing for banks and financial institutions.

The concept is simple: expose an API that allows almost any service to be initiated. In this first phase, we have enabled the creation of ‘letters of guarantee’, allowing banks to embed the setup of such products in a third party experience. This enables banks to ensure their products are in front of customers at the right time, in the right place and in the right context. Crucially, it provides the tools to have a direct impact on the metrics that matter, such as the number of customers, number of products sold, revenue per customer and so on.

What happens next?

Now that the framework and standard for phase 1 have been published, the market moves to focus on implementation.

Then, next year, Phase 2 will see the inclusion of payment initiation.

The implications of our work go much further than the Kingdom. We’ve seen a new blueprint emerge and other markets should take note and build on this approach.

We’re also excited to be working with banks around the world to help them unlock true value from open APIs, bringing a full suite of information, payment and service request capabilities to reinvent the role that open APIs will play in the new open banking business model. This means APIs that deliver real revenues, new customers and increasing product holding per customer – more to come in a future blog.

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