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THE IMPORTANCE AND GROWTH OF BANKING ECOSYSTEMS TO CREATE SUPERIOR CUSTOMER EXPERIENCES AND VALUE

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Written by Seshika Fernando, VP & GM BFSI Practice, WSO2         

 

Today consumers expect great digital experiences.  Financial institutions looking to meet these expectations are under more pressure than ever to innovate — while delivering seamless, frictionless, and secure services. As banking has moved from the physical to the digital – accelerated by COVID-19 – so too has the trend towards building ecosystems.  In this world, banks must interact with not only their own digital financial services ecosystem but also a network of ecosystems from across economic sectors like healthcare, transportation, and telecommunications. In fact, McKinsey predicts that this integrated network economy will be worth $60 trillion by 2025.  This is because successful ecosystem participants have been able to draw insights and bundle together value across these sectors—leveraging data and services from customers, technology vendors, and digital service providers—to build more complete, timely, and personalised customer experiences.

FinTech firms, big tech companies, and forward-thinking banks that are participating in this environment are freeing consumers from isolated transactions and hooking them with highly personalised experiences delivered at the time of need.

 

Delivering new services through collaboration

This has created a fiercely competitive financial services market demanding continuous adaptation with dynamic, advanced systems that deliver new features and rich real-time data insights.

FinTech firms and neobanks have altered the technology landscape because they are built from the ground up in the digital era with cloud, AI/ML, and connected, interoperable systems. Most traditional banks are tied to expensive, difficult-to-replace legacy systems and are not as agile. However, with competition from FinTechs, BigTech, neobanks, and progressive banks, incumbents yet to look seriously at these technologies can’t afford to stand still.

FinTech firms and progressive banks are driving these new services while many traditional banks have been slow to transform. According to a study from Cornerstone Advisors, only about a quarter of banks surveyed had embarked on a digital transformation strategy prior to 2019, and 45% hadn’t launched a strategy prior to this year. With barriers to entry particularly harsh in a highly regulated space, banks haven’t previously needed to deliver exceptional experiences to capture or retain customers; there has been relatively little innovation in banking over the past 40 years when compared with most other industries.

What traditional banks have in their favour is their banking license. When FinTech firms or BigTech (e.g., Google with Google Pay) want to move into the banking space, they often choose to tie up with banks or get their own banking license to avoid having to worry about compliance themselves. Even Google, when launching Plex banking accounts on Google Pay, took the approach of partnering with several banks from Credit Unions to Citibank instead of getting a banking license, because it wanted to focus on its core competency.

An important takeaway here is that while technology firms find formulas for high growth through customer-centricity, highly adaptable technology, and new business models, they often find it difficult to scale the breadth of services they can offer without help from banks.  Similarly, while they have the technical capacity to derive better insights into customer behaviour than traditional banks, they don’t have access to the customer’s financial information held by incumbent banks.

The introduction of the Open Banking Directive in 2018 has lowered the barriers to entry and made customer-centricity a core strategic capability that even incumbents now need to build. On the face of it, Open Banking might not sound like much of a change, but it is increasingly transforming the way we use and consume data and services. It has enabled customers to not only see but also control their own data, and transformed the way banks interact with third parties.  Open Banking is far more extensive than just payments; it has fostered deeper relationships between banks and third parties using APIs as the gateway between these disparate applications.

 

Building more personalised value for customers

Banks that start to leverage external third-party data will be able to offer a more enriched, frictionless marketplace using white-label partnerships to complement their own services and augment what they do.       This will reduce the high cost of development, deployment, and maintenance as they move away from focusing solely on custom in-house development to becoming more agile nimble players bundling new service offerings from an ecosystem of providers.

But for less progressive banks, these ecosystems require a deep cultural shift from closely guarded systems and processes to open collaborative value generation. This industry has traditionally had control over the whole end-to-end supply chain, and now finds that it must open its infrastructure and data to partners. Understandably, larger banks are nervous about third parties having access to data as this could potentially weaken their relationship with customers.

Banks that respond to this evolution will continue to play a central role in the future of financial services based on the deep foundation of trust built with consumers over decades or centuries, and for the reasons set out earlier. But to compete, they will need agility, speed, and the ability to collaborate securely. Fundamental capabilities for this will include APIs to integrate both internally and externally, a product platform to rapidly explore and scale new opportunities for partners and consumers, and the ability to use data better.

 

Digitisation requires a culture transformation

As banks digitise, new business models and a cultural shift will be required to become a partner-focused collaborative company.  However, the larger the bank, the harder it will be to make that change – not just from a technology and legacy infrastructure perspective, but with tens of thousands of employees around the world, the culture change will also be challenging. This requires strong leadership and a C-suite that understands technology.  There are exemplary larger banks embracing this new model, such as JP Morgan Chase, HSBC and BBV A.  JP Morgan Chase started its digital transformation journey more than five years ago, approaching it not from a cost-cutting or efficiency focus but from a customer perspective with the customer journey and experience central to their transformation.

The good news is that the banking industry has a track record of surviving disruption, which suggests it will rise to the challenge.  Underpinning all these trends will be the demand for connections between ecosystem players: banks, FinTech firms, and other third parties. One way this will be achieved is by building good interfaces and APIs. However, these APIs must work well, otherwise ecosystems will not consume these consistently enough to deliver business results for the banks.  The challenge is creating the right APIs and then ensuring they are reliable, discoverable, usable, high-performing, and flexible to offer long term value to both API partners and their end-consumers.

 

To make this transition successfully, banks should consider:

  • How fit is the bank for the next decade, does it have the right culture to embrace an ecosystem approach?
  • Does it have the right technology? For example, does it have APIs that integrate both internally and externally, and a product platform to rapidly explore and scale new opportunities?
  • Is the executive leadership invested in building this ecosystem capability? How skilled and knowledgeable is the C-Suite?
  • Is the bank thinking about more than just compliance, like PSD2 and other regulations, and focused on disrupting not only its own business model but driving an ecosystem that delivers new services that broaden the value chain it is currently serving?
  • Banks of all sizes must fundamentally rethink their distribution model, with big branch networks consuming up to 50% of operating costs. What is the new role of a branch and how does it complement and serve the customer to deliver an experience-led approach?
  • What consumer problems is the bank looking to solve and how can it scale new services and propositions?

What precise form banking will take in the future, and which business models will suit which banks, is not immediately clear. What is clear is that with experience-focused consumers and the rapidly evolving nature of their needs, banks operating within the emerging vast network of ecosystems will need to build the fundamental capability of rapid adaptability. In summary, banks need a combination of the right technology, the right partners, and the right kind of leadership commitment to implement a robust digital strategy to build strong adoption that delivers superior benefits across their ecosystems.

 

Banking

WHY THE TIME IS NOW TO BANK BEYOND BORDERS

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by Lili Metodieva, MD of Monneo

 

As our world becomes more interconnected, so too does the need for banking systems to follow suit. In the past, businesses and individuals were often restricted to banking in a single country, but the rise of borderless banking is enabling both to benefit from greater financial freedoms. In this article, we will examine why this trend is so important and explain how Fintech companies are helping to make it possible.

 

What is borderless banking?

Simply put, borderless banking refers to any bank account, which allows users to spend, send and receive money across different countries and currencies, without incurring heavy fees. The concept has become increasingly popular in recent years, with more people now working in cross-border job roles and with many businesses requiring capital in a different currency than that of their country of origin.

For customers, borderless banking is making cross-border financial transactions more efficient and cost-effective. Through its rise, businesses and individuals can gain easier access to international streams of capital, which is crucial in this current moment of economic uncertainty. In fact, 74% of companies say cross-border payments have helped their business to survive [1].

 

Where do IBANs come in?

International Banking Account Numbers (IBAN) play a crucial role in facilitating borderless banking. The globally recognised system enables cross-border transactions to happen safely, by providing each international bank account with its own unique 36-digit alphanumerical code. On account of this code, financial institutions can quickly identify where funds are coming from, as well as where they’re going to.

More recently, providers such as us have been able to deliver Virtual IBANs (vIBAN). Working alongside a network of well-established European and International banks, we’re able to offer businesses a single platform interface that consolidates the management of all IBAN accounts. In turn, our multi-currency service makes conducting global financial transactions incredibly straightforward.

 

How has Brexit affected borderless banking?

The COVID-19 pandemic has accelerated the growth of borderless banking and services related to it, but other developments, such as Brexit are beginning to stand in its way. Most notably, the drawn-out withdrawal process has seeded a growing reluctance amongst risk averse, larger organisations to settle transactions using UK bank accounts or IBANs, due to unfounded concerns around regulatory complexity.

Despite leaving the EU, the UK remains a member of the Single Euro Payments Area (SEPA), so it’s unclear why these concerns around British IBAN accounts exist. Regardless, this unfortunate development must be addressed quickly as it has the potential to adversely affect the livelihood of businesses and individuals at a time of critical need.

 

What does the future hold for borderless banking?

There’s clear demand for borderless banking and borderless payments, but the discrimination of certain IBAN accounts represents a major obstacle, which could stand in the way of their widescale adoption. Moving forward, there needs to be a push towards borderless IBANs, which will make international financial transactions more reliable. At the end of the day, this is what IBANs were originally created for, so it’s important the current problems are rectified quickly.

To ensure this can happen, the industry needs protection and clarity from regulators. Likewise, it’s now time for membership organisations to stand up on behalf of the sector and lobby for the financial inclusion of businesses.

If the confusion regarding UK IBAN accounts can be sorted in a timely manner, businesses across the nation, as well as those further afield can look forward to a future of more streamlined and effective financial services. With this support, the diverse sector can deliver further access to innovative financial services and products, which improve outcomes for businesses and consumers alike.

As a sector, Fintech has the potential to provide vital assistance to the wider economy, particularly in an era of increased cross-border business. At Monneo, we’re committed to being part of that change and as a part of organisations like ‘Accept my IBAN’, are working towards reporting and ending IBAN discrimination.

[1] – https://www.mastercard.com/news/research-reports/2021/borderless-payments-report/

 

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Banking

IT’S TIME FOR BANKS TO SIT THEIR CUSTOMERS DOWN AND TALK OPEN BANKING

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Eugene Danilkis, CEO at Mambu

 

We are living in an experience economy, and banking is no different. Customers need innovative payment and finance management solutions. New entrants are edging into the landscape and challenging existing players. This should mean users have a better view of their finances and the tools they need to manage their money – but banks are failing to deliver.

Personal finances are a complex beast, emotional pulls are strong, and the worry of financial security is always on the mind. It’s the job of banks to be the shoulders customers can lean on and trust.

Open banking was supposed to take this to the next level, enabling banks to deliver personalised products and services based on improved data sharing and customer insights. But three years on, adoption remains sluggish. So, why is open banking failing to live up to its promise?

 

A missed opportunity

Open banking was introduced to the UK in 2018, but consumers are still mired in confusion as to what it means and how it helps them. According to Mambu’s global open banking survey, 61% of consumers say they’ve never used open banking, despite more than 8 in 10 using one or more mobile banking apps.

Eugene Danilkis

This is a problem for banks and consumers alike. Lack of understanding around the technology is hindering its adoption, despite this being in the best interests of both. By enabling the secure sharing of financial information, open banking creates an improved customer experience. Not only does this minimise friction and make online payments faster and easier, but allows for personalised services and greater automation, enabling customers to take advantage of tools like budgeting apps.

For banks, open banking is an opportunity to build innovative new products that will improve the customer journey, helping them retain accounts and acquire new ones. By collaborating with third parties, banks can hyper-target customers and build services that address specific user needs, increasing customer satisfaction and in turn brand loyalty.

It’s true there’s been a recent spike in open banking users. According to Juniper Research global, open banking users rose from 18 million in 2018 to 40 million in 2021. But this can be traced to the necessities of a pandemic rather than any sudden clarity in communications.

 

Putting customers at the heart of communication

Mambu’s research shows more than half of consumers (52%) have never heard of open banking. COVID-19 may have increased the uptake of the technology, but it hasn’t increased understanding among users.

So, what can banks do to encourage consumers to embrace open banking? Fundamentally, they must better educate their customers in terms they understand. This means talking to them like human beings, using clear and transparent language to simply explain the personal benefits open banking brings and why it’s really just smart banking.

The understanding gap between technology and terminology shows that consumer demand is there, but better communication is needed. Making sure consumers truly understand the tools they’re using, the control they now have over their finances and how open banking improves the customer experience is vital to dispersing the current fog of confusion. It’s the benefits of this technology that banks need to hone in on: customers ultimately care about what open banking can do for them and how it’s going to make their lives easier.

Centering the customer and their needs in this way will allow banks to fully realise open banking’s potential. The technology has already given them the opportunity to develop valuable services for customers that help build brand loyalty. But the industry has failed to put the customer at the heart of their communications and processes, and show them how much better banking can be.

 

Building trust

Key to reversing this trend is addressing consumer concerns around data privacy and financial safety. Yes, banks need to prioritise simplicity and clarity in messaging, but this isn’t an excuse to shy away from important conversations. Just because there’s an understanding gap around open banking doesn’t mean consumers aren’t switched on about tech and financial issues.

Mambu’s survey found nearly three in five customers have concerns about privacy and security in relation to open banking. So, it’s vital that banks provide reassurance and relevant information about data sharing from the outset if they’re to assuage these fears.

The industry can also encourage greater adoption by developing and improving open banking interfaces. Banks are the gatekeepers to how easily end-users can authorise certain actions, manage third-party access and navigate different open banking functions. If the interface is user-friendly, customers will have a better experience of the technology and be more likely to use and recommend these services.

 

Time to get talking

Customer communication is holding the industry back.. The ability of open banking to transform financial services is a concept that industry players are well-versed in. But the feeling isn’t mutual for customers.

Banks are failing to capitalise on the open banking opportunity by engaging with new and existing customers about what the technology can do for them. Debunking  common myths can open the door to increased growth and trust for banks, as they seek to open up new revenue streams post pandemic..

Make no mistake, open banking isn’t going away. But customers will if banks don’t get talking.

 

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