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WHY FINTECHS HOLD AN INNOVATION ADVANTAGE OVER INCUMBENTS

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Stephen Bailey, CTO, Transact Payments

 

In the last ten years, the banking industry has undergone a vast technological transformation. Yet, incumbent banks are in a uniquely challenging position given the weighty burden of their legacy technological infrastructure. These organisations face an extremely complicated, expensive and time-draining process to update such technology, greatly hampering their ability to innovate products and services to tech-savvy customers. A decade ago, incumbents were not at risk of losing their customers to new fintech challengers, meaning they had no real impetus to innovate. Such organisations continued to use existing legacy systems that centred on “old” models, with the added constraint of extensive distribution networks.

However, within this period of time, fintechs have been able to make the most of their freedom and agility to build their technology from scratch. This has enabled them to react continuously (and quickly) to provide the very latest banking services, underpinned by innovative features that customers both need and have come to expect. With fintechs thriving, the position of incumbents has been disrupted and they must now break away from tradition to stay competitive in an ever-evolving market.

Despite such significant disruption to the banking sector, fintechs still encounter hurdles to overcome. For example, some of the most successful challenger banks, like Monzo and Starling Bank, are still impeded by having to rely on the infrastructure and regulatory frameworks of the bricks and mortar banks, such as the simple need to have access to the Single Euro Payments Area (SEPA) network. Unfortunately, until the entire industry becomes better-aligned technologically, fintechs will find themselves in partnerships that bring limitations.

With this in mind, especially at a time of such fast-moving innovation, what are the key considerations for challengers regarding partnerships and technology decisions?

 

From concrete to the cloud – the need to break cost barriers

It may seem a quaint idea now, but before the adoption of cloud technology, financial organisations had two approaches: either build a data centre or use a hosted solution. Data centres offer on-premise data storage in a physical location yet, are extremely costly. Meanwhile, while less of an initial financial outlay, hosted solutions have the pitfall of locking companies into long-term contracts that can smother the level of innovation at an organisation.

As the rapid pace of cloud adoption highlights, this solution offers a more effective, flexible and affordable approach. The cloud is a bundle of services in practice, encompassing storage, computing, networking, data analytics, AI, and machine learning. With such a range of services, the flexibility comes in the ability to pay-as-you-go depending on the needs of your financial organisation, which in turn, inherently lowers risk as adaptions can be made in a lightning-quick fashion.

Alignment with the cloud enables the development of agile systems that rapidly innovate and scale. Sadly incumbents can’t realise the cloud’s benefits as their ability to utilise it is restricted due to entrenched legacy models. By contrast, fintechs aren’t tethered to such legacy issues, meaning the cloud breaks down cost barriers to markets that otherwise likely would have been unattainable. Importantly, the cloud also offers ongoing agility to respond to both today’s and tomorrow’s business needs and technological developments. This is clearly a distinct advantage for fintechs.

 

Regulators try to catch up

Much like technology has disrupted the banking market, significant change is also on the horizon from a regulatory perspective. Regulators are trying to get to grips with the complexity of the cloud. Transitioning from the old legacy model has presented new challenges – without simple answers. For example, distributed networks can cause issues including the jurisdiction of where the data is held, where it is used, where services transact, as well as the difficulties of being GDPR compliant, which regulators themselves do not yet know how to regulate.

In this environment, the opportunities provided by the cloud are many (and attractive); however, the overarching context of a shifting regulatory landscape must be given due consideration. This is why care needs to be put into thoughtfully selecting a network of partners to ensure changes stemming from regulations can be planned effectively, without derailing innovation.

 

The perfect starting point for innovation

The best banking platform considers how symbiotic business strategy and technological infrastructure are – simply put, without such a combination, you cannot innovate in today’s competitive market.

Therefore, a bank identification number (BIN) sponsor’s technology and business teams need to be intertwined to ensure that technology can pivot swiftly to address the needs of the business and give technical solutions that fit ever-changing business ideas. Another factor is ensuring adequate in-house talent is in place, especially in a sector where such expertise is increasingly difficult to find. This fluid way of working with a potential partner is essential to attain fast-paced, bespoke solutions – which banks are simply not capable of delivering.

As technological transformation continues at a breakneck speed, the benefits of a cloud-based platform have really come to the fore. Yet for fintechs, the real recipe for success is combining this technology with an experienced BIN sponsor. Such a sponsor unlocks added value thanks to a strategic vision, built on a deep level of expertise, meaning fintechs can do what they are best at – being innovative.

 

Business

HOW MERCHANTS CAN IMPROVE THE ONLINE PAYMENTS EXPERIENCE

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By Alan Irwin, Senior Director of Product at Global Payments UK

 

The dramatic increase in online shopping over the past 18 months has encouraged many businesses to invest in developing their omnichannel shopping experiences. The reasons vary – some are keen to capitalise on the trend of older shoppers migrating towards ecommerce and some are trying to make up for loss of sales in brick-and-mortar stores during the pandemic. It is also true that many businesses are shifting their models to sell direct to consumers to avoid high marketplace fees and are therefore building their ecommerce channels for the first time.

The checkout experience is arguably the most important and delicate part of the ecommerce transaction, as it can make the difference between a happy customer likely to return, and a shopping cart abandoned out of frustration and confusion. A survey from March 2020 suggested that 88% of online shopping orders were abandoned, i.e. not converted into a purchase. A seamless, customer-centric online payment experience is therefore critically important in ensuring completed transactions. But with so many payment providers available, what should businesses be looking for when trying to keep friction to a minimum?

 

Keep clicks to a minimum

Less touchscreen interaction equals less abandonment. Adapting the payment page to fit any device and supporting popular mobile digital wallets like Google Pay ensures a seamless, stress- and hassle-free checkout experience for the customer and keeps clicks to a minimum. Friction can present itself in the most minor features – for example, when the customer is navigating the payment form, the appropriate keypad should be shown to the customer when required. It’s much easier to enter a card number using the dial pad instead of switching between QWERTY keypad layouts.

Simplifying online forms with autofill and tokenisation also significantly reduces friction at checkout and shortens necessary time taken. Ensuring checkout forms are tagged correctly for “autofill” is a great way to offer customers a single-click to input the payment, shipping, and billing data that they have stored in their browser profile. Similarly offering a guest checkout option will help convert customers who are in a hurry or looking for a one-off purchase. This can also be achieved by offering to store the payment details (called ‘tokenisation’) for express repeat and one-click purchases.

 

Make it easy to understand

A tailored payments approach can increase both domestic and international global sales. By offering a checkout experience in the customer’s language, the option to pay in their currency of choice, and use their preferred method of payment (whether it’s PayPal, Alipay or card), businesses can build loyalty quickly and put customers at ease. It is equally important for merchants to ensure they always display simple direction and information about next steps to instil confidence and prevent customer drop-off. The customer should be informed of what is happening at every stage in the process, for example, whether they will proceed to SCA (Secure Customer Authentication) next or go straight through to completion.

In addition, validating forms in real-time means merchants can highlight potential errors to the customer early on, and payment providers should provide this functionality. This could be an invalid expiry date, an incorrect digit in the card number or incorrect CVV number based on card type. When issues are only flagged at the end of the process, this forces the customer to go back through the steps to figure out the error. Real-time signposting of problems removes this potential friction and reduces the potential for a declined transaction.

 

Ensure seamless security

Merchants should work with a payment partner who offers the right blend of security and compliance management without it coming at a cost to the end-to-end checkout experience for the user. Instilling trust and security in your checkout flow while utilising the right solutions to drive seamless authentication flows will increase customer confidence and help prevent drop-off.

The greatest level of security and control comes from either utilising hosted payment fields that the
merchant can natively integrate into their checkout flow, or a hosted payment page where they can
manage the look and feel. Showcasing your brand on the checkout page with trust signals and logos also adds to building trust with the customer.

Staying ahead of regulations is also important. Secure Customer Authentication (SCA) will soon be mandatory in the UK for all eligible digital transactions, and this doesn’t have to be a friction-full process. Tools like Transaction Risk Analysis (TRA) and Exemption Optimisation Service (EOS) can quickly score transactions and drive exemptions where there is the right blend of transaction risk.

 

The devil is in the details

These three rules for successful ecommerce checkout experiences may seem straightforward, but it is important to apply them at a micro level. It can take only one minor point of friction to cause a customer to abandon their cart, and this will inevitably be replicated across other similar customers. It is critical to identify friction points early on and anticipate customer needs throughout the process. Discussing these points and any opportunities to improve customer checkout experience with your ecommerce team and payment provider is an important first step towards ensuring your entire shopping experience remains competitively seamless and loyalty is won. It may be that your payment provider cannot address them, in which case it could be time to move on in order to stay competitive.

 

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Finance

NAVIGATING FINANCIAL SERVICES IN 2021: LOW-CODE TO THE RESCUE

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Nick Ford, Chief Technology Evangelist, Mendix

 

Financial services are the poster child of great digital transformation: today, Britons can pay from their watches, check their balance directly from their phone at any time and even automate trading. This level of innovation isn’t only about customers: traders are able to operate faster than ever before thanks to better predictive analysis and forecasting tools, and finance teams are able to collaborate from anywhere in the world.

While we embrace all this innovation, it’s easy to forget that the reality of the sector is incredibly complex. The radical changes induced by COVID-19 have highlighted how challenging maintaining innovation today really is, while putting more pressure on IT teams to accelerate the digital transformation of the sector even further.

On top of this, the sector is one of the most affected by Brexit. Mendix’s Navigating the UK Landscape research found that businesses in the financial services sector have serious concerns about the impact of Brexit on their industry. Many believe that Brexit has damaged the reputation of the UK as a centre of finance (67%) – as well as creating functional challenges for businesses in the country.

Many financial services organisations are turning to technology, and specifically low-code, to deal with these challenges. This piece will look at how firms in the sector can use low-code to navigate the new world.

 

A sea of challenges

Financial services are complex: there are thousands of products to choose from, from savings to investment and mortgages. These services are then managed by lots of different companies, creating an additional level of complexity: banks, fintechs, brokers, wealth management specialists, government bodies… the list goes on. To add yet another layer, there’s a network of regulations, which change over time, forcing IT leaders to constantly keep on top of the latest evolution in the sector. Knowing these is only the first step: every time new laws are implemented, the sector needs to adjust to them, and that can mean anything from revising security protocols to radically changing the way information is processed, transmitted or audited.

This may already look complicated, but the real complexity starts underneath, in the realms of processes that the IT manages to keep the company operating as normal. It would be fair to say that the mission of financial IT leaders is often underrated: they deal with antiquated systems dating back decades, inadequate data management processes and minute security and compliance considerations every day, simply to keep the business afloat. Add to this the need to get all staff to work remotely during the lockdown, and the already time-poor IT leaders are now completely swamped.

Brexit also makes things difficult for financial services organisations. Two thirds anticipate costly and complicated processes for crossborder payments and investments, while 59% believe it will be harder to attract foreign investments. Ultimately, 61% admit they will no longer be able to support some of their customers because of the transition.

 

Tech as a raft

While the sector is mired down with complex processes and inadequate tools, it also needs to deal with a major challenge: fierce competition for tech-savvy customers. Now, all banks, investment firms and wealth management companies are investing in tech to help them cope with new customer demands for easier access to their capital and increased transparency. Two thirds have deployed digital projects to make the business more flexible as a result of Brexit, with data management (62%) and digital processes (62%) particular focal points.

And this is not just about pleasing digitally minded customers: it’s also about improving productivity and operational efficiency, harnessing data, and solving compliance challenges. This balancing act between priorities is gathering pace and spreading across the business: today, IT teams must deliver innovation that’s fast, reliable and secure, and that supports many divisions — all at once. It’s a big challenge, but it’s one that IT leaders are willing to tackle head on: two thirds of IT leaders believe the value of digital transformation initiatives outweighs their inherent risk. Yet, IT leaders know that rushing would be a mistake: although IT teams face high demand for their support, most would not prioritise speed over caution, even if they could innovate faster. This measured pace ensures that financial organisations are delivering the right solutions at the right time, reducing the risk of service disruption and security challenges.

 

Low-code to the rescue

To manage all these priorities, the IT team needs to look beyond its own team to create revenue-generating services that truly answer the clients’ needs – and it needs to empower all developers with the right tools to do so. This improves collaboration between IT and customer-facing staff to design services that suit the needs of the customer base, while reducing the pressure of an already-stretched IT team. Enter low-code: most leaders (58%) say that low-code has enabled the development of new applications to support their companies post-Brexit.

One example of this is a Financial Institution, which perceived its digital user experience lacking and engaged low-code to install a new user experience for its portal, consumer and wholesale digital services. It was able to do this in just eight months, providing numerous benefits to stakeholders.

Low-code software development provides a simple solution to address these constraints and challenges: based on a visual approach for building applications using drag-and-drop components, it enables non-technical staff to participate in creating business applications, even if they have little to no coding experience. Working separately or in close collaboration, professional developers and business-side “citizen developers” can create, iterate, and release applications in a fraction of the time it takes with traditional methods, all under the watchful governance of IT to ensure their applications comply with enterprise standards and architecture.

A low-code approach allows for flexible, iterative app development for many use cases in the financial services sector, including legacy application upgrades to comply with new regulations, apps supporting smart banking or portfolio management, and mortgage application management. With low-code, the financial services industry has the right tools to untangle its complex processes, simplify its evolution and focus on its core mission: keeping the economy thriving.

 

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