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Why banks are right now at that ‘Change or Die’ crossroads

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Adela Wiener, CEO at Aurachain

 

Change is often difficult, time-consuming and expensive. But ignore it at your peril. For years, business change of course has centred around digital transformation, what else? Here, the banking sector is not the first thing that springs to mind, nor is it the definition of cutting edge. The truth is that banks have reached a crossroads and need to seriously adapt their businesses now or, over the next few years, some brands may disappear altogether. As the old cliche says: change or die.

 

It’s time for action

A report from The Financial Times Focus (FT Focus) illustrates the urgency for banks to modernise their offering. Not only do two in three banks expect to lose market share unless they embrace digitisation, but 58% of respondents predict they will cease to exist completely in the next five to ten years, if they fail to change their business models. Wow, that’s a frightening prediction and one that I don’t believe exists in any other sector, making it the ultimate driver for change.

The report goes on to say that with 74% of respondents predicting that technology giants such as Amazon and Google will hold the largest market share of the banking industry within just five years, now is the time for action. I do wonder which brands will fail to achieve enough change and be lost to history.

 

Making change actually stick

One major obstacle as banks transform digitally is the fact that they cannot let go of their outdated legacy systems. They look even further behind when you consider the likes of Apple, Airbnb, Amazon, Google, Netflix and Uber and how they are actually transforming modern life for all of us. And that customer viewpoint is an important consideration for banks as they have many neo-banks and fintech apps snapping at their heels ready to hoover up their customers if they are perceived to have made the slightest slip.

What is still holding banks back? With constantly shifting goalposts due to changing markets and expectations, reaching that ‘digitally transformed state’ is in reality unachievable. Rather, it becomes a process of continuous evolution as new systems/projects are introduced over the short, medium and long term.

Some banks are grabbing the headlines, for example JP Morgan Chase is moving as much as 50% of its applications and data to the cloud in 2022. Given increasing customer demands and market pressures, as well as the need to respond to world events, it makes sense that banks need to start thinking like technology companies, that’s why the same bank invests $12 billion per year on technology.

Covid sped up the digital transformation process in banking ‘a great deal’ (60% according to Statista) but it is still lagging way behind other sectors with Technology (78%), perhaps predictably topping the list, but also Healthcare (74%), Retail & Ecommerce (70%), and Manufacturing (65%).

Not only do banks appear slow to react to such a crisis, but they are still just dipping their toes in the digital water, with only 27% launching a digital transformation strategy last year.

Furthermore, according to Cornerstone Advisors, seven in 10 banks don’t plan to replace their core systems as part of their digital transformation. In addition, few have deployed—or plan to deploy—core integration/middleware platforms or payment hubs. Without these platforms and without replacing the legacy systems, the promise of real digital transformation will be difficult to attain.

It paints an even bleaker picture when we consider that 70% of transformation projects within financial institutions fail altogether and deliver no meaningful return on investment. Clearly it’s time for them to up their game and use the technology shifts in the market to their advantage.

 

What does Digital Transformation mean for banks?

When done right, the billions being invested in digital initiatives makes good business sense and delivers a win-win for both customers and banks. Customers enjoy better experiences and the convenience of accessing services across multiple devices; while banks see improved process efficiency through automation.

With customers able to do more online safely and securely, trust in the brand grows, and they can enjoy a more personalised offering with better customer engagement.

Banks benefit in a number of ways too. Not least, increased revenue and client satisfaction due to 24/7 always-on services. Acquisition of new customers becomes cheaper and easier. Better customer engagement stems from leveraging client data. Account management and support become easier via digitised paperwork. Digital transformation enables organisations to build an environment of ongoing innovation and adaptability vital for future growth.

Ultimately, what this means operationally is a huge number of efficiencies, not least: elimination of paperwork; less time spent servicing clients; increased productivity; organisational transparency; effective teamwork; lower operational costs; and risk reduction in core activities.

 

The challenges facing banks

Bank CIOs and Digital Transformation Leaders clearly do not have an easy job. But with massive budgets on the table surely they can buy their way out of this?

Arguably banks are simply playing catch-up, making investments and changes that should have been made five (or more) years ago.

Not helping the matter is the significant developer skills shortage, which makes it difficult for firms to hire the right technical resources to support projects, and the fact that some projects can take up to 18 months to complete with a traditional development approach.

Furthermore, by the time one area has been tackled, the market has often moved on once again, and the ‘new’ solution is no longer quite as new.

 

How low-code can help

Business Process Automation is of course vital for banks to achieve any sort of digital transformation. One solution that will help banks meet current, and future, challenges is using low-code in their automation. In fact, Gartner analyst Milind Govekar predicts that 70% of new applications will be developed using low-code or no-code techniques by 2025.

A low-code platform enables organisations to achieve a rapid rate of change with minimal effort, coupled with fast delivery. This is because low-code enables the building and updating of process applications with reduced coding. The traditional hand-coding approach is replaced with an intuitive visual development style. Here, drag and drop user interfaces are used to add different types of elements, such as connection to databases, other software applications or logic elements, and even blockchain implementations.

This reduction in code requirements drastically accelerates development timelines, both for new application builds and change requirements to existing processes. The organisation becomes more agile as a result, and is able to achieve significant gains in operational efficiency without any breaks in governance. In other words, low-code makes complex automation easy and accessible, in a highly streamlined and comprehensive workflow.

CEC Bank, one of the largest financial institutions in Romania, used the Aurachain low-code platform to accelerate digital transformation in three critical areas: an integrated system for monitoring and maintenance of the bank’s ATM and POS fleet, a fully digital onboarding process for new SME customers, and the digitalization of online trade finance solutions for SMEs. Key benefits include an automated platform that achieves high reliability, availability and maintainability of key business services for ATM/POS. In addition, the new onboarding process automates complex workflows, incorporating business rules and actions; implements a single user interface across systems and processes; can be quickly tailored to incorporate internal or regulatory governance processes.

 

Customer-First Priority Areas

How should banks focus their considerable budgets now to ensure digital transformation success?

The first step is vital to get right: the strategy must focus first and foremost on the customer. Here, automating processes to create a seamless CX plays a major role. In addition, customer data must be used to create more personalised services and products.

Delivering an omnichannel offering is not only important, but expected by customers. Significant technology investments are required to compete with new fintech companies, online banks and challenger banks – as well as meet ever-climbing customer expectations. Not surprisingly, finding specialised business transformation talent to develop such solutions is critical.

 

The Future

Within financial institutions that think they’re three-quarters of the way through their digital transformation strategy (or more), just 39% implement Robotic Process Automation; and way less are using chatbots or machine learning (according to Cornerstone Advisors). Given the fact that low code is so critical to intelligent business automation, how can they seriously be moving towards a digital future without using these technologies? There seem to be some major discrepancies, implying institutions are in fact further away from their goals than they believe.

One thing is clear. With the alternative being possible death, banks need to change now.
Those that step up and put the tech and cultural foundations in place today, including using low-code to achieve process automation, will find themselves well-positioned in the future.

As opportunities arise with more emerging technologies, these organizations will be ready to forge ahead while many others will be falling further behind in the catch-up game.

Banking

Resilient technology is the most important factor for successful online banking services

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By James McCarthy, Director of Solutions Engineering, NS1

 

More than 90 percent of people in the UK use online banking, according to Statista and of these, over a quarter have opened an account with a digital-only bank. It makes sense. Digital services, along with security, are critical features that consumers now expect from their banks as a way to support their busy on-the-go lifestyles.

The frequency of cash transactions is dropping as contactless and card payments rise and the key to this is convenience. It is faster and easier for customers to use digitally-enabled services than traditional over-the-counter facilities, cheques, and cash. The Covid pandemic, which encouraged people to abandon cash, only accelerated a trend that was already picking up speed in the UK.

But as bank branches close—4865 by April of 2022 and a further 226 scheduled to close by the end of the year, Which research found—banks are under pressure to ensure their online and mobile services are always available. Not only does this keep customers satisfied and loyal, but it is also vital for compliance and regulatory purposes.

James McCarthy

Unfortunately, their ability to keep services online is often compromised. In June and July of this year alone, major banks including Barclays, Halifax, Lloyds, TSB, Nationwide, Santander, Nationwide, and Monzo, at various times, locked customers out of their accounts due to outages, leaving them unable to access their mobile banking apps, transfer funds, or view their balances. According to The Mirror, Downdetector,  a website which tracks outages, showed over 1500 service failures were reported in one day as a result of problems at NatWest.

These incidents do not go unnoticed. Customers are quick to amplify their criticism on social media, drawing negative attention for the bank involved, and eroding not just consumer trust, but the trust of other stakeholders in the business. Trading banks leave themselves open to significant losses in transactions if their systems go down due to an outage, even for a few seconds.

There are a multitude of reasons for banking services to fail. The majority of internet-based banking outages occur because the bank’s own internal systems fail. This can be as a result of transferring customer data from legacy platforms which might involve switching off parts of the network. It can also be because they rely on cloud providers to deliver their services and the provider experiences an outage. The Bank of England has said that a quarter of major banks and a third of payment activity is hosted on the public cloud.

There are, however, steps that banks and other financial institutions can take to prevent outages and ensure as close to 100% uptime as possible for banking services.

Building resiliency strategies

If we assume that outages are inevitable, which all banks should, the best solution to managing risk is to embrace infrastructure resiliency strategies. One method is to adopt a multi-cloud and multi-CDN (content delivery platform) approach, which means utilising services from a variety of providers. This will ensure that if one fails, another one can be deployed, eliminating the single point-of-failure that renders systems and services out of action. If the financial institution uses a secondary provider—such as when international banking services are being provided across multiple locations—the agreement must include an assurance that the bank’s applications will operate if the primary provider goes down.

This process of building resiliency in layers, is further strengthened if banks have observability of application delivery performance, and it is beneficial for them to invest in tools that allow them to quickly transfer from one cloud service provider or CDN if it fails to perform against expectations.

Automating against human error

Banks that are further down the digital transformation route should consider the impact of human error on outage incidents and opt for network automation. This will enable systems to communicate seamlessly, giving banks operational agility and stability across the entire IT environment. They can start with a single network source of truth, which allows automation tools to gather all the data they need to optimise resource usage and puts banks in full control of their networks. In addition it will signal to regulators that the bank is taking its provisioning of infrastructure very seriously.

Dynamic steering 

Despite evidence to the contrary, downtime in banking should never be acceptable, and IT teams can make use of specialist tools that allow them to dynamically steer their online traffic more easily. It is not unusual for a DNS failure (domain name system) to be the root cause of an outage, given its importance in the tech stack, so putting in place a secondary DNS network, or multiple DNS systems with separate infrastructures will allow for rerouting of traffic. Teams will then have the power to establish steering policies and change capacity thresholds, so that an influx of activity, or a resource failure, will not affect the smooth-running of their online services. If they utilise monitoring and observability features, they will have the data they need to make decisions based on the real time experiences of end users and identify repeated issues that can be rectified.

Banks are some way into their transformation journeys, and building reputations based on the digital services that they offer. It is essential that they deploy resilient technology that allows them to scale and deliver, regardless of whether the cloud providers they use experience outages, or an internal human error is made, or the online demands of customers suddenly and simultaneously peak. Modern technology will not only speed up the services they provide, but it will also arm them with the resilience they need to compare favourably in the competition stakes.

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Banking

Digital Banking – a hedge against uncertainty?

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Ankit Shah, Head of Digital Banking, Apex Group

 

The story of the 2020’s thus far is one of crisis. First the world was plunged into a global pandemic which saw the locking down of people and economies across the world. Now we deal with the inevitable economic consequences as currencies devalue and inflation bites. This has been compounded by Russia’s invasion of Ukraine and subsequent energy politics.

And the outlook remains uncertain. Tensions continue to build between China and Taiwan and inflationary conditions are forecast to continue well into 2023. This uncertainty is impacting everyone, and every sector. And finance is no exception with effects being felt everywhere from commodity and FX markets to global supply chains.

But it’s not all doom and gloom. Rollercoaster markets and an ever-evolving geopolitical situation have made 2022 a tricky year far, but, despite the challenges, digital banking has proven resilient. In fact, the adoption of digital banking services has continued to grow over the last few years, and is predicted to continue.

So, what are the forces driving this resilience?

In an increasingly digital world and economy, digital banking comes with some advantages baked in, which have seen the sector continue to succeed despite the tumult in the wider world. In fact, the crises which have shaped the decade so far may even have been to the advantage of digital banking. Just as during the pandemic, technologies which could facilitate remote working saw a huge uptick in users, so to digital banking is well suited to a world where both people, and institutions demand the convenience that online banking services offer.

And while uptake of digital banking services is widespread amongst retail consumers, a trend likely to continue as digital first generations like Gen Z become an ever-greater proportion of the consumer market, uptake amongst corporate and institutional customers has been slower. This is largely down to a lack of fintech businesses serving the more complex needs of the institutional market, but, in a post-Covid world of hybrid working business, corporate clients are looking for the same ease of use and geographic freedom in their banking that is enjoyed by retail consumers.

This is not just a pipe dream – with the recent roll out of Apex Group’s Digital Banking services, institutions can enjoy the kind of multi-currency, cloud-based banking solutions, with 24/7 account access that many of us take for granted when it comes to our personal banking.

Staying compliant

One significant difference between retail and business accounts however, for banking service providers, is the relative levels of compliance which are needed. While compliance is crucial in the delivery of all financial services, running compliance on multi-million pound transactions between international businesses brings with it a level of complexity that an individual buying goods and services online doesn’t.

For digital banking services providers, this situation is further compounded by guidance earlier this year from HM Treasury – against the backdrop of the Russia-Ukraine conflict- requiring enhanced levels of compliance and due diligence when it comes to doing business with “a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country or with a sanctioned individual.”

So, can digital banks meet these standards while also providing institutions with the kind of easily accessible, mobile service which retail customers enjoy?

The answer is yes and again, once initial hurdles are overcome, digital banking brings with it features which give it the edge over traditional banking services. Paperless processes, for example, mean greater transparency and allow for better and more efficient use of data. This means AI can be employed to search documents, as well as provide verification. It also means compliance processes, often notoriously complicated, become easier to track. Indeed, digitising time intensive manual process means the risk of human error in the compliance process is reduced.

Digital banking can also better integrate transaction monitoring tools, helping businesses identify fraud and irregularity more quickly. This can be hugely important, especially in the times of heightened risk we find ourselves in, where falling foul of a sanctions regime could have significant legal, financial and reputational consequences.

Cross-border business

Our world is increasingly globalised, and so is business. For corporate and institutional banking customers, being able to operate seamlessly across borders is key to the operation of their business.

This brings with it challenges, which are again compounded by difficult geopolitical and economic circumstances. In recent weeks for example, we’ve seen significant flux on FX markets which can have real consequences for businesses or institutional investors who are buying and selling assets in multiple currencies and jurisdictions. The ability to move quickly then, and transact in a currency of choice, is vital. Advanced digital banking platforms can help – offering automated money market fund sweeps in multiple core currencies to help their clients optimise their investment returns and effectively manage liquidity.

Control admin uncertainty

In times of uncertainty, digital banking can provide additional comfort via customisable multi-level payment approvals to enhance control of what is being paid out of business accounts, with custom limits available for different users or members of a team. Transparency and accountability are also essential, with corporate clients requiring fully integrated digital reporting and statements and instant visibility with transaction cost and  balances updated in real-time.

Outlook

For some, the perception remains that digital banking is the upstart industry trying to offer the services that the traditional banking industry has built itself upon. Increasingly however, the reality is that the pressure is on traditional banks to try and stake a claim to some of the territory being taken by digital first financial services.

With a whole range of features built in which make them well suited to business in a digital world, digital banking is on a growth trajectory. Until now, much of the focus has been upon the roll-out of services to retail consumers, but with features such as automated compliance, effortless international transactions and powerful AI coming as standard for many digital banks, the digital offering to the corporate world looks increasingly attractive.

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