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The future of fintech and finance in the metaverse 

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Berivan Demir, Product and Banking Relationship Director of Clear Junction

 

It will be hard for people to shake their original perception of the metaverse. Introduced late last year by already unpopular figure Mark Zuckerberg, the renaming of Facebook to Meta seemed like a desperate attempt to shrug off the negative connotations associated with the brand.

While decentralised technologies are still met with scepticism and cynicism by the general public, their potential applications throughout business and finance are being explored as serious investment opportunities by both established institutions and disruptive start-ups looking to make their mark. The early adopters of any innovative technologies are the largest benefactors of their success, and with the meteoric rise of decentralised technologies like cryptocurrency and NFTs in the past decade, the race to carve out a niche in the metaverse is firmly on.

 

Metanomic regulations 

As technology progresses and VR headsets become more readily available, the metaverse has the potential to completely change the way that the general public digitally operates. Some tier 1 banks have been acquiring land in the metaverse and forming relationships with businesses that are metaverse-friendly in preparation for the market’s expected growth. Forecasts even suggest the market could reach a value of $1.5 trillion by 2029. From a bank’s perspective, new, decentralised technologies have always been viewed as risky due to the regulatory hurdles within the finance sector, but this is one of the primary areas where fintech can help banks quickly acclimatise to this new channel.

Regulation often fails to keep up with technological advancements by several years, at which point it will be too late for banks to become early adopters in this space. For those looking to maximise the metaverse’s opportunities, fintechs are unconstrained by the many regulatory requirements that typically restrict banks and other financial institutions, making them the perfect partners for these established institutions to navigate the new market with speed. The pandemic has changed the perception of decentralised technologies, and many conventional players are now trying to play catch up.

 

Entering Phase 2 of Open Banking. 

It has been four years since open banking was introduced to fintech, and we are now at the tipping point where open banking is starting to see implementation. Fintech is at the forefront of this next implementation phase by providing open banking players with the infrastructure to operate. There is considerable untapped potential and now is the time for fintech to capitalise on it.

One of the problems that open banking providers face is that if they only have a technical open banking license, they cannot collect or hold client funds. More importantly, they cannot pay out refunds to the consumer. What they can do, however, is authorise a transaction from consumer A to a merchant – but they cannot see or touch the money. Fintech can help set open banking providers up with a sterling or euro account to collect money on behalf of the merchants.

They can now see the funds coming in and alert the merchant that they have arrived. Fintech can also make pay-outs and enable refunds if necessary. Giving these extra features to open banking institutions is what fintech can provide while they transition from the introduction phase and into the implementation phase.

 

Finding the balance between agility and compliance 

Financial institutions are caught between the need to stay agile to keep up with innovative competitors and the need to keep up with a steep learning curve that impedes experimentation with modern technologies. Compliance plays an essential role here. If you are a financial services business and want to work yourself into a new space, you first need to change and adapt your compliance approach and risk appetite.

Compliance should always come first, then the technology. As a business, you need to consider how you bring it up to speed and how you enable those features. You must also decide whether to build connections and the infrastructure in-house. Or are you going to find someone who is an expert in this?

Being agile is especially important for a business sector that experiences constant innovation like fintech, especially regarding environmental or industry changes. Paradoxically, organisations must ensure that they are not overcomplicating things with lots of processes and procedures. Finding the balance between risk and compliance will likely be what separates the fast-growing financial services businesses from those that never really take off.

 

So, does the metaverse have the potential to become a primary channel in fintech?  

The metaverse as it currently stands is still in its nascent stages of development and, like any foundational technology, its potential still remains unknown. The success of the initial endeavours in this channel will hinge on an organisation’s ability to manage its risk to compliance balance. In a sector exploding in both investment and opportunities, estimated risks must be taken quickly to reap the potential benefits. Fintech offers a unique partnership opportunity to larger, more established financial institutions to provide a more nuanced exploration of emerging channels. Fintechs can also be an invaluable partner to open banking players as they facilitate the transition from the introduction to the implementation phase.

 

Banking

The importance of Customer Experience (CX) for retail banks today

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By James Isaacs, President, Cyara

 

Today’s retail banks face considerable challenges. Open banking initiatives –  that make it easier for customers to switch accounts – and increased competition from emerging fintech brands, are making it harder for them to attract and retain customers. This challenge is particularly acute for traditional banks which are seeking to attract younger people, who are drawn to the range of innovative services offered by digital-first emerging ‘neo’-banks.

To stay competitive, traditional banks must improve the customer experience  they offer account holders. They also must look for more efficient ways of working, so they can service all customers in a consistent way, regardless of which banking channel they use – whether it’s banking online, at a physical bank branch, through a contact centre, using a mobile app, or (most often) using a combination of all these channels.

The challenge of consistency

The argument for an omnichannel strategy is compelling. Fuelled by the pandemic, demand for digital banking services has grown. McKinsey suggests that 71% of European banking clients prefer multi-channel interactions, whilst 25% express a desire for a fully digitally-enabled private banking journey with remote human assistance when needed.

The delivery of such systems, however, is not without its challenges. Embracing omnichannel often means transitioning to a cloud-based infrastructure – away from the legacy on-premise systems prevalent in banks. Even when this hurdle is overcome, delivering banking services through multiple channels requires a significant investment of time and resources. Due to these common barriers, many banking CX projects fail to get off the ground.

James Isaacs

At the other end of the scale, there are the banks who have sought to implement numerous channels to cater for every possible customer demand, with varying degrees of success. The key to the delivery of a stellar CX is consistency – ensuring that every stride a customer takes in their journey is seamless, irrespective of the path or the channel they choose to take. The chance of ensuring a consistent service across all these channels is negatively impacted if organisations attempt to simultaneously deploy services to mobiles, website, in-person channels, messenger, chatbots, contact centres, alongside the adoption of newer open banking services.

Selectiveness is key

Organisations looking to optimise CX through the adoption of an omnichannel strategy are therefore advised to be more selective in their approach – adopting one or two new channels or approaches before expanding their omnichannel offering further.

An ideal starting point for retail banks is to look at automation within the customer journey. When applied correctly, automation can be used to help improve customer service in a way that also delivers efficiency gains.

The power of automation

Automation can have a significant impact on the CX delivered within retail banking, which saves valuable time for the customer and enhances the customer journey. Most customers getting in touch with their banks have fairly routine queries, such as a change of address, so the need to speak to an advisor is often unnecessary.

Automated customer-facing support solutions, such as chatbots, offer a faster way for customers to self-serve and secure the answers that they need to certain problems without having to phone an agent. Chatbots are programmed through a knowledge bank that can easily be updated with new information, enabling customers to source the information they need quickly and easily. Chatbots can also be used to direct customers to an agent if they are unable to resolve the issue.

For those customers who do still need to speak to an agent, there are Interactive Voice Response (IVR) systems, which capture information from a customer when they call into the contact centre. IVRs help customers complete simple tasks themselves and route them automatically to the right department. This directly reduces average call handling time (AHT) for agents and the length of time that a customer is on the phone.

The importance of automated CX testing

Yet, offering omnichannel and automated journeys is not enough to satisfy customers. These journeys must be flawless if they are to deliver a seamless customer experience. Forward-thinking organisations understand that the only way to assure perfect execution is through adopting automated testing that places a spotlight on the omnichannel customer journey from the customer’s perspective.

Automated testing can be enabled by leveraging an intuitive testing solution that develops test cases based on existing customer journeys. Retail banks can use automated testing to track various paths through IVRs, chatbots and then base test scripts on those journeys to ensure their flow or functionality is as it should be. Using this strategy, financial organisations can create thousands of automated test cases that cover the full swathe of customer journeys, shortening testing operations to a fraction of the time of equivalent manual tests.

While automated testing provides easily measurable benefits, certain alerts flagged by automated testing are more critical than others. Distinguishing a true failure that requires immediate action as opposed to failures that can be addressed in time is essential to achieving the true return on investment (ROI) of test automation. In doing so, banks can ensure that the customer journey remains smooth, and the CX delivered remains outstanding.

The path to good CX is paved with automated testing

Delivering omnichannel services for banking is key to satisfying customer demand. However, whether it is the delivery of a chatbot, IVR or an open banking model, retail banks are well advised to stagger the roll-out to ensure the delivery of a consistent service to customers. Automation plays a critical role here – both in the delivery of omnichannel services to customers, but also ensuring its ongoing success through rigorous, frequent and automated testing.

Financial organisations that want to remain frontrunners in the market will stand out against the competition by delivering stellar digital and in-person experiences for customers. To assure high-quality CX, walk in the shoes of your customers, testing their customer journey in each and every scenario to confirm there are no cracks in the road. Of course, there may be bumps along the way, but when those are addressed in a timely manner, retail banks will continue to attract and retain customers for the long haul.

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Business

Why do Traders Need a Managed Service Partner?

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Jeff Mezger, Vice President of Product Management, Financial Markets, TNS

 

Does your financial institution have the understanding, resources, talent and bandwidth to execute an effective data center strategy in-house? If not, it needs to, as behind every transaction is a labyrinth of algorithms and networking infrastructure technology that converge in one location: the data center.

For most, the answer will be ‘no’. There will not be the resource or skill in-house to keep ahead of the maze of technical and logistical options to execute the fastest and most profitable trades. Trading success requires accessing extremely powerful servers, with the best data lines and connections close to where the trade is physically taking place. Processing close to the source of the input data provides the lowest possible latency between input and response – and speed matters. Milliseconds can mean the loss or gain of millions of dollars.

 

Latency Matters

Low latency is vital for algorithmic trading. Many factors affect latency, especially hardware location and network connections. Trade execution speed is critical in maximizing profit and loss, and a competitive advantage comes from having the best communication links to hardware in the best location.

TNS’ ultra-low latency Layer 1 technology for exchange direct access inside the data center was the first architecture of its kind to be offered and deployed globally and remains the most advanced solution in the market. It eradicates the need for multiple switches by using a simple, single-hop architecture to deliver direct exchange connectivity in as little as 5 to 85 nanoseconds – impressive when you consider that the human eye takes 400 nanoseconds to blink!

So, acknowledging that speed and colocation are vital for executing a trading strategy, what can firms do to underpin trading success? Many will outsource operations to a specialist managed hosting, colocation and connectivity service provider.

 

In-house vs. DIY

A recent independent report Colocation of Financial Markets Trading Infrastructure’, identifies the pros and cons of in-house management (a “DIY” approach) versus a managed service model. The report found that managed service providers offer beneficial value-added services for capital markets clients. Advantages include cost savings, trade efficiency, and simplified access to data and network infrastructure support, enabling trading firms to focus on their core business competencies. Industry analyst firm, Celent, which authored the report, interviewed trading firms and data and trading technology providers and found that the key decision criteria when deciding to engage a managed service provider included:

  • Consultation and expert advice on the ideal configuration of hardware, network connectivity, location, data feeds and network bandwidth.
  • Agility and flexibility to take advantage of ever-changing investment opportunities by rapidly and easily deploying trading strategies in new markets.
  • Access to high-end network services, leveraging high-speed solutions, including ultra-low latency, in-data center Layer 1 connectivity to link to trading venues, new customers and other service providers.
  • Operational efficiency and future proofing, with access to the latest technology, and highly experienced staff in all global jurisdictions who help to navigate cultural, linguistic, and regulatory obstacles.

 

Challenges

Managed Service Providers offering remote data center space and connectivity are on a quest to deliver a uniform global experience to ensure trading in, for example, Singapore or Tokyo is the same as trading in London or New York. They are also constantly investing in technology and new locations. For TNS, this means responding to customer requests to deliver a service in any location, most recently announcing a managed hosting and colocation offering in Madrid.

On rare occasions, perhaps instigated by political or economic events, firms may need to move from their existing data center location, as seen recently when key exchange, Euronext, relocated its primary data center and related colocation services from Basildon in the UK to the Aruba Global data center IT3 in Bergamo Italy. Such a physical move is a big undertaking and firms need differentiated support and solutions to ensure that they can seamlessly move and trade continuously, regardless of their size, requirements and the exchange location.

So far, TNS has moved nearly 20 existing and new customers to Bergamo, providing traders with uninterrupted, seamless trading. Our customers have been able to focus on their core business while we have managed the global supply chain issues to ensure a smooth migration. With suppliers quoting lead times of a year for some equipment, our buying power compared to smaller firms or those attempting to DIY a move, has proved invaluable in ensuring a smooth transition.

 

Future-Proof

Firms need to future-proof their trading infrastructure by working with a provider that has experience in managing access to vast amounts of raw market data, can support multicast requirements and is able to offer scalable solutions to accommodate the demands of ever-expanding bandwidth. As traders diversify their portfolios, their market data needs can place excessive network capacity pressures on their infrastructure, sometimes running into tens of gigabits. Seek a provider that can easily accommodate these requirements and handle data bursts during high activity periods, such as those seen on many recent occasions due to market volatility caused by political and economic events.

 

 

 

 

 

 

 

 

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