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TRENDS IN FINTECH IN 2022: FROM ARTIFICIAL INTELLIGENCE TO FINANCIAL WELLNESS

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By Jayne Zhang, Lead Digital Transformation and Commercialisation consultant, FPT Software

 

The financial services industry has been pivoting towards digital transformation for the last decade or so.  The onset of COVID-19 pandemic has only heightened the importance of this transformation as the demand for digital solutions has rapidly grown.  The rise of fintechs and brands has also fostered the maturing digital landscape and changed customer expectations.

As competition increases, it’s no longer enough to only offer financial products through digital channels. Surveys show that the main drivers for customer attrition are poor banking apps and a lack of digital services, so the financial services industry needs to embrace new strategies and technologies with a renewed focus on the customer context (experience and engagement) and provide enhanced digital experiences to retain and acquire new customers.  Here are seven trend predictions for 2022 and beyond:

Increased investments in digital platforms, composable banking options and innovation

According to Forrester Research, in 2022, it’s predicted that a quarter of banks will increase their tech spending by 10% or more. Banks must invest in and build an infrastructure that facilitates their digital transformation and helps them provide an exceptional customer experience with digital intelligence and automated decisioning. This includes increased investment into the adoption of the micro-service and API layers that allow for seamless integration into digital platforms and ecosystems.

Creating a unified customer experience and journey

The digital experience is now the primary driver of customer attrition and it’s a major factor for consumers when it comes to choosing a bank. To stay competitive, banks need to deliver an attractive and comprehensive digital experience that works in parallel with their physical branch and call centre services. Business must look at the entire customer journey from end to end – from fast and seamless onboarding to real-time notifications with personal and relevant messaging, offering products relevant to the customer life cycle, well integrated self-service tools, enhanced security and fraud protection, and also offer insights for customers.

Increased focus on creating an AI structure which enables contextual and connected decision making

In order to leverage the digital decision platforms and logic that helps with decision making, there must be an increased focus on data-driven decision intelligence technologies, such as machine learning and AI. Many institutions are moving to a hybrid human and AI decision-making model to compose a full view of the customer, which enables customer life cycle management with intelligent, relevant and timely decisions. According to the International Data Corporation, global spending on AI systems is forecast to jump from $85.3 billion in 2021 to more than $204 billion in 2025. The compound annual growth rate (CAGR) for the 2021-2025 period will be 24.5%.

The power of data

To leverage the vast amount of data available, companies must be able to define, map, analyse, and use this data to create customised digital experiences with personal and relevant messaging and offers that customers want. Data responsibility will become increasingly important with the rise of data aggregation.  Banks must balance the power of data with responsible AI, keeping in mind the importance of ethics, transparency, and security. Consumers are also more data aware with a maturing understanding of how their data could be exposed and used.  This causes them to be more risk averse when it comes to giving out their data without a clear return.  Banks will need to provide data value such as data insights for enhanced risk assessment or fraud protection, to empower customers with their own data, which in turn could give them better engagement and personalisation.

Financial wellness and education – humanising the digital experience and rethinking what it means to be customer-centric

A bank’s bottom line relies on the financial wellness of its customers, thus a focus on the financial health of customer should be a primary strategic goal. Having access to financial services does not necessarily mean they’re financially healthy. The younger generations may be more digitally savvy, but they aren’t financially savvy. What this means for banks is that there’s a renewed need to understand their customers’ life cycles, and their journey, be able to empathise with them, anticipate their needs, and deliver products/services to help them improve their financial wellbeing at the point of need – allowing their customers to feel financially secure. Studies show that putting their customers’ financial wellness at the centre will help banks grow profitable portfolios and increase long-term shareholder value.

Expand their line-up of sustainable finance products

Environmental, social and governance (ESG) considerations are gaining importance. Some regulators are proposing that climate reporting by banks be made mandatory. The ESG transition will need banks to balance business while embracing and implementing ESG-related policies and standards. Financial services firms will be keen to accelerate their speed to market for ESG products and services, such as green loans and mortgages, and checking accounts with sustainability and carbon-tracking features.

Open banking and embedded finance

With regulators in the EU and UK proposing measures to extend data sharing principles across financial and nonfinancial products, 2022 will see a growing number of banks experimenting and pivoting their business models toward a more open, collaborative platform approach. Leveraging this open-banking connectivity and focusing their efforts on delivering select capabilities as a service, powering the growth of embedded finance. This all goes back to the focus on the customer, and being able to provide financial products, features, services and education at the point of the customer need, and not through a separate journey.

 

Business

The Evolution and Challenges of Crypto Regulation

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CRACKING THE CRYPTO CODE

Cryptocurrency regulations are evolving quickly around the globe with authorities responding to developing risks professed by criminals exploiting the latest payment methods to mask and launder the profits from their crimes.

According to William Je Founder & CEO, Hamilton Investment Management Ltd, this has warranted the introduction of a more stringent level of due diligence by additional bodies to introduce preventative measures.

William Je Founder & CEO, Hamilton Investment Management Ltd explains: “The past ten years has seen several structural changes in Know Your Customer (KYC) and anti-money laundering (AML) regulations in both Europe and across the world. High-profile money laundering cases and the penetration of illegal monies into global markets have caught the attention of regulators.

“As regulators improve their understanding of these criminal practices, AML requirements have also been improved. However, these improvements have been a reactive process.”

To address the challenges of the blockchain ecosystem, the European Union has started to introduce financial regulations that further bolster the regulatory system in order to improve licensing models. Many member states are regulating crypto assets individually, and Germany is leading the way in being the first to regulate.

Je continues: “These national driven regulations clearly point to a future pathway for crypto companies, outlining the requirements for obtaining and maintaining a financial license from the regulator.

“Compliance, however, is to my mind essential as it not only boosts investor confidence but adds a necessary layer of protection to investors.”

As crypto evolves, so have regulatory bodies’ efforts to monitor, address and enforce restrictions. The most prominent is the Financial Action Task Force (FATF), which details guidance and determines best practices in anti-money-laundering practices and combating the financing of terrorism.

FATF Recommendations number 16, better known as the ‘travel rule’, which requires businesses to collect and store the personal data of the originators and the beneficiaries in blockchain transactions, is the most notable.

Je concludes: “What does this mean? In theory, access to this data will enable authorities to have better oversight and enforcement of crypto market regulations. In other words, they’ll know exactly who is doing exactly what.

As we have always argued – transparency is key. We need to regulate crypto as an asset class with efficacy, which necessitates legislation that is applicable specifically to digital assets and does not hinder the market.

The criminal financial trade which arguably encompasses money laundering, illegal weapons sales, human trafficking, is also international. Thus, cracking down on it is, out of necessity, an international effort.

The decentralised nature of blockchain, which runs contrary to the central-server standard we know and use nearly everywhere, presents a formidable challenge here. Rules and regulations for traditional financial institutions are being implemented wholescale into the crypto sector. We believe that this is arguably wrong footed as it ignores the innovation and uniqueness this asset class and its underlying technology entails.

Traditional forms of regulation from the fiat world do not reciprocally apply to every aspect of crypto nor to the fundamental nature of blockchain technology. However well-intentioned they may be, because these imposed regulations are built on an old system, they must be adapted and modified.”

 

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Business

How bug bounty programs can help financial institutions be more secure

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Rodolphe Harand, Managing Director at YesWeHack

 

Financial services have been one of the most heavily targeted industries by cybercriminals for several years. One alarming stat from the Boston Consulting Group found these firms to be 300x as likely as other companies to be targeted by cyberattacks.

Furthermore, the pandemic has led to a significant increase in the number of cyberattacks targeting financial institutions (FIs), with around 74% experiencing a spike in threats linked to COVID-19.

With FIs holding some of the largest collections of sensitive and private data, it’s clear they will remain an attractive target for malicious actors, especially as any data stolen can be used for fraudulent activities. This leads to the reputational damage of the financial entity that was compromised and has a knock-on effect in terms of monetary and reputational damage to affected customers.

For CISOs at FIs, the conundrum faced is how do you protect intellectual and customer data, and ensure accountability and transparency for clients and stakeholders, at a time when the pandemic has created budget constraints. Research from BAE Systems found that last year alone, IT security, cybercrime as well as fraud and risk departments had their budgets cut by a third.

Below we look at how bug bounty programs can help to address these pressing issues.

 

Protecting valuable data

Protecting customer and intellectual data has always been a top priority for FIs. However, as opportunistic cybercriminals have a lot to gain by stealing this valuable data, there is a constant evolution of threats, which means FIs must stay on their toes. By deploying a bug bounty program, FIs can work with ethical hackers that have a wealth of experience and unique skills when it comes to identifying security weaknesses within a FI’s defence, thus helping to implement effective security measures to help prevent data breaches.

Building trust among various stakeholders such as customers, suppliers and investors is critical for achieving business goals. By deploying a bug bounty program, FIs send out a message that they care about protecting the security of the data of those they work with – which in turn can have a cascading effect resulting in better business performance.

 

Improving accountability  

For FIs to win customers and keep them happy, amidst the growing threat of neo banks and customer-centric fintech organisations, speed of innovation is crucial. As such, many FIs have adopted an agile approach to build, test, and release software faster to bring online and mobile banking solutions to market quicker. However, this can create frictions between development and security teams. Security mandates are deemed to be unnecessarily intrusive and a cause of delayed application development and deployment.

Yet, with DevOps teams needing to build and deploy applications faster than ever before, an epidemic of insecure applications has emerged. According to Osterman Research, 81% of developers admit to knowingly releasing vulnerable applications, while research from WhiteSource found 73% of developers are forced to cut corners and sacrifice security over speed.

With developers often not having the time, tools, skills, or motivation to write impeccably secure code, there is an evident need to provide developers with more support when it comes to building applications securely Fortunately, bug bounty programs can provide a “fact-based” financial implication of inherent security flaws within the process. This makes it possible to hold development teams and service providers accountable for creating or delivering insecure products, thus addressing inherent security gaps within the business units and helping to drive continuous improvement.

Moreover, security awareness and education of developments teams can be improved significantly for those developers that are directly involved with the management of vulnerability reports for their bug bounty programs. This is because, the mere fact of exchanging information with ethical hackers, or assimilating the thinking of a potential hacker and having proof of concepts of vulnerability exploitation on their application components, naturally accelerates consideration of security early in the development stage and provides ongoing learning.

 

Get more return on your investment

According to Gartner, 30% of CISOs effectiveness will be directly measured on their ability to create value for the business. When security budgets are challenged, CISOs need to demonstrate business value through initiatives designed to enhance efficiency whilst stretching the dollar.

This is where bug bounties can help tremendously. Compared to conventional penetration testing, bug bounty offers a fast, complete, and measurable return on your security investment, with businesses only paying out for successful discovery of vulnerabilities. Equally, businesses get access to hundreds of ethical hackers that can test their programs, each with their own unique skillsets as opposed to only one skilled researcher testing the network. This results-driven model ensures you pay for the vulnerabilities that pose a threat to your organisation and not for the time or effort it took to find them.

Bug bounty programs also deliver rapid vulnerability discovery across multiple attack surfaces. With this approach, organisations receive prioritised vulnerabilities and real-time remediation advice throughout the process to accelerate the discovery of, and solution to vulnerabilities.

Another appeal of bug bounties is that due to the continuous nature of testing, more vulnerabilities are found over time as opposed to pen-testing. This is key to financial institutions that require agility to keep up with the continuous roll-out and updates of applications.

 

The cornerstone to a successful security programme

The risk posed to financial institutions by cyber threats will only continue, as evidenced by the number of data breaches seen in recent times. The COVID-19 pandemic has only exacerbated these risks, especially with almost all FIs having needed to shift to a remote working environment – which has only widened the attack landscape.

For FIs, a bug bounty program should be considered a fundamental cornerstone of any security strategy, with it being a modern-day cybersecurity solution that is well-equipped to tackle the immediate security challenges they face. In doing so, FIs will not only prove to customers and stakeholders their commitment to data protection and security but this will also be help them to avoid the monetary damages that could be imposed by regulators if a breach was to take place.

 

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