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Why Open Banking is Delivering a New Era of eCommerce Merchant and Bank Collaboration



by Ron de Bos, Dir. of Product Management, Payments, Digital River


A bank’s biggest fear? Not another Black Monday on the stock market or runaway inflation. No, in reality, quite possibly the worst thing imaginable would be for their merchant customers to start asking themselves, “Do we even need our bank anymore?”

That scenario is not as outlandish as it sounds. Digital has swept away entire industries and doomed plenty of massive multinationals too slow to understand how the world has changed.

While there’s no shortage of fintechs waiting in the wings, ecommerce providers and online merchants shouldn’t ditch their banks just yet. The Open Banking revolution promises to bring about an era of renewed relevance for banks founded on deeper, more valuable relationships with their ecommerce customers.


Unknown Potential

It may be stretching things to say that banking faces an existential crisis. Even so, no one can deny that the migration of retail from the high street to online has brought a swathe of challenges that the traditional banking industry has been slow to address, partly due to their legacy systems / infrastructure.

The rise of online shopping has driven a surge in card-not-present (CNP) fraud, which Juniper Research estimates will cost the retail industry $78 billion a year by 2023. Chargebacks have also risen alarmingly, especially during the pandemic, which drove more shoppers to buy online, with one study pointing to a 60% rise in fraud rates.

Little wonder that relationships between ecommerce providers and their banks have become increasingly strained. What’s most frustrating about the current situation is that Open Banking could put us on the cusp of a banking revolution that will transform businesses’ relationships with their banks, creating a raft of new, highly-relevant digital services, improving compliance – and making massive improvements to issues such as fraud, chargebacks, and conversions.

Currently, however, Open Banking appears more discussed than understood. According to one survey, an astonishing 98% of financial services organisations aren’t fully prepared for new open banking regulations. Yet the benefits are tantalisingly within reach for banks that have the gumption to grab them.


A banking revolution?

Every new technology service is heralded as a “revolution”, but open banking deserves the title. That’s because it requires a radical rethinking about the very nature of banking, one that’s been ingrained for five centuries or more.

Since the beginning, banking has always been about keeping people out. In earlier eras, high street banks were the most solid and imposing structure in any town: they radiated sturdiness and security. When financial services moved online, banks were at pains to extend this aura to the digital world.

Open banking is revolutionary because it turns this paradigm on its head. It is, effectively, about breaking down the barriers between banks and the rest of the world. Instead of guarding data, it involves sharing it with a range of third parties. But what does this mean in practice? And how do ecommerce providers stand to benefit?

One of the most far-reaching consequences of open banking will be the move from using payment cards for online purchasing in favour of direct, secure connections between merchants and the customer’s bank account. Using open APIs, the seller can make a request for payment directly to the bank, which is not only cheaper than using a payment card, but also more secure and less open to fraud. That’s great for the merchant, but it’s not where the benefits end. Just as importantly, it enables ecommerce providers to give their customers more choice and greater agency over their own online security.

Think of it this way: you’re at the online checkout, and you are presented with two choices for payment; either you can use your connected banking app – secured by two-factor security such as biometrics or tokens – or you can key in your (insecure, easily stolen) card number and CVC. Open banking not only is more secure than payment cards, it feels more secure, too. Providing this option gives customers something far more valuable than any purchase: they get the sense that the merchant cares about their security.

Important as they are, security is only one side of the coin. Other benefits to merchants include improved levels of authorisations (say goodbye to expired credit card worries!), lower fees by cutting out the payment card middlemen, and deeper loyalty through a range of enhanced services (such as faster refunds).

Clearly, this needs to be done carefully. Open banking depends on cultivating trusted relationships based on strict regulations and highly secure data-sharing technologies. One result will be that banks find themselves with untraditional partners, ranging from retailers to other financial services providers (including the flourishing fintech industry).

But once they have established trusted connections with these partners, banks will open a new era of opportunity, creating fresh revenue streams, and forging deeper, more valuable relationships with their customers.


Everything to gain

How will open banking change the industry? There’s no easy answer. This first wave of open banking services is only a taste of what’s to come. We do know when banks partner with third parties, they can create a new range of services ranging from microloans to app-based investing, from e-wallets and payment gateways to household budgeting and savings services.

Every new service and capability offered to customers is predicated on their consent. Because every person owns their own data, it’s up to every party in the financial ecosystem, including and especially merchants, to convince them to share and unlock the value within that data. If merchants can offer real benefits in return – say, enhanced loyalty programmes, tailored bargains or other valued-added services – they will develop deeper, more lucrative and longer-lasting relations than they’d ever dared dream.

But what of the business itself? Customers are central to merchants’ success, sure, but they need banks for more than just processing payments: ideally, they should be partners in the businesses’ growth and success. Or even just their survival.

The small business community has had a rough ride in recent years, especially during the pandemic. They have seen traditional loans dry up and are urgently seeking new funding streams. We’re already seeing how open banking applications are enabling small businesses to access new lines of credit, for example through invoice financing or the Paycheck Protection Program – a new initiative that connects small businesses with alternative lenders and FinTechs.

The open banking revolution will be so transformative that it’s impossible to predict the full range of new services and capabilities it will confer on customers. These are tumultuous times for almost every industry, but open banking promises to revolutionise the relationship between the traditional financial services industry and their business customers. In doing so, banks will become more relevant to merchants than they’ve ever been before.

What’s especially exciting is that there will be no waiting for the underlying technology to mature: the APIs that enable banks to share data securely with trusted third parties have a long and proven pedigree.

It’s the banks and their ecommerce customers’ role to introduce new services, which will change the way we think about money – and the way we spend it. Banks shouldn’t fear, as they have everything to gain from relationships with merchants if they embrace the future of open banking.



Augmented automated underwriting and the evolution of the life insurance market



By Alby van Wyk, Chief Commercial Officer at Munich Re Automation Solutions


It’s almost inevitable. Spend your working life identifying, analysing, quantifying and ascribing monetary value to risk, and you’re likely to have a fairly strong aversion to it. Or more accurately, an aversion to undertaking new endeavours with inadequately understood consequences. The insurance industry is, on any number of levels, the very definition of risk-averse.

And yet, for all the commentary suggesting otherwise, insurance still has an appetite for innovation. If the insurtech sector is any indication, then an interest in and requirement for new solutions is being recognised and slowly addressed.

Declan O’Neill

It may not employ the language of disruption that runs through the wider fintech market, it may be short a few unicorns and unable to boast some of the record-breaking funding rounds, but a quiet tech evolution has been building in insurance nonetheless. Hence the advent of automated underwriting facilitated by more advanced algorithms and data analysis.

Where insurtech does overlap with its more vocal fintech counterparts is in the greater use of artificial intelligence (AI) and machine learning to solve age-old problems around data analysis and interpretation.

It’s about five years or so since AI first became a topic of conversation in insurance. Since then, despite the intensity of the debate, it has often felt like a reality that is always just over the horizon – a destination that kept moving even as more and more efforts were directed towards it.

But recent research suggests that the journeys made so far have not been in vain. We are at a point where embracement of AI is about to step up a gear. The global value of insurance premiums underwritten by AI have reached an estimated $1.3 billion this year, as stated by Juniper Research; but they are expected to top $20 billion in the next five years. As a destination, it is closer and more attainable than ever before.

However, AI is not an island. Its promise of $2.3 billion in global cost savings to be achieved through greater efficiencies and automation of resource-intensive tasks will not be achieved in isolation.

AI remains part of a more complex ecosystem of data gathering and analysis. It can apply new technologies to get the best out of the already established and still-emerging data sources that feature in underwriting offices around the world. It emphatically does not require these existing investments to be ripped out, replaced or downgraded.

It is more helpful therefore to see AI as the differentiating factor in the latest generation of insurance IT: augmented automated underwriting, or AAU for short.

AAU gives underwriters the ability to spot patterns and connections that are, frankly, either invisible to the human eye or which take normal, human-assisted processes unfeasible amounts of time and resource to identify.

Whereas earlier generations of automation were able to pick up the low-hanging fruit of insurance markets – the individuals whose driving history fit into clearly delineated boxes, for example – AAU can take into account all of the rich complexity of the human experience. It can spot the nuances and individualities that populate the life market, for example, and translate those into accurate policies.

That’s good news for both underwriters and their customers. AAU can significantly reduce the need for separate medicals, repeated questions, lengthy decision-making processes, and drastically increase the speed at which a potential insurer can get a quote and cover – while continually improving the way risk is calculated and managed.

It can make sure the decision-making process remains in the hands of underwriters rather than IT departments, enabling them to set and update the rules and parameters as befits their preferred business model. It consequently makes advanced, complex and precise decision-making available to a broader range of underwriting businesses – which is good for those businesses, good for customers and ultimately good for the entire industry.

AAU – augmented automated underwriting – is an example of the realisation of AI’s promise. As such, it’s set to become one of the key talking points and disruptive technologies of the insurance industry. And this time, AAU is both a journey and destination that all progressive insurance organisations need to be considering for their future operations.



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ESG in the finance and banking industry – are you ready?



By Julian Moffett, CTO BFSI, EDB


Environmental, Social and Governance (ESG) has soared towards the top of banking, financial services, and insurance (BFSI) and other boardroom interests. Organisations everywhere know they need to take ESG and greenhouse gas emissions (GHGs) seriously not only because it is the right thing to do for the future of the planet or because it can help attract and retain talent, but also, because failing to do so may pose a risk to the economic value of their businesses and encourage probes by governments, watchdogs and non-execs. However, complying with complex reporting and going the extra mile to actually deliver on the goals of the rules is a challenge in many ways, not the least of which is in achieving the required excellence in data management to underpin strong reporting on ESG.


What is ESG? 

Julian Moffett

ESG is an umbrella term that covers a broad gamut of activities. Gartner defines ESG as “…a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts.”

The CFA Institute describes the environmental element as focusing on “the conservation of the natural world” and includes measuring “climate change and carbon emissions,” “air and water pollution” and “biodiversity” among many other measures. Social considers “people and relationships” looking at areas including “customer satisfaction,” and “gender and diversity.” Governance covers “standards for running a company” and analyses factors such as “board composition,” “audit committee structure” and “audit committee structure.”


Status of the current regulatory environment

There are many bodies proposing rules to formalise ESG monitoring and seeking to ensure corporate compliance. Some example groups, frameworks and bodies:

  • The Task Force on Climate-related Financial Disclosures (TCFD)
  • Streamlined Energy and Carbon Reporting (SECR)
  • The International Regulatory Strategy Group (ISRG)
  • The Sustainability Finance Disclosure Regulation (SFDR)
  • The International Sustainability Standards Board (ISSB)
  • The Sustainability Accounting Standards Board (SASB)
  • Sustainable Development Goals (SDGs), the Global Reporting Initiative (GRI) support efforts such as the US SEC’s Climate and ESG Task Force.

Financial services organisations are very aware that the current regulatory landscape is far from mature (and will continue changing) both in terms of alignment between bodies and also with regard to when the new rules will come into effect. At the of time of writing:

  • The requirement for Scope 2 disclosures (see below for description) for the Sustainable Finance Disclosure Regulation (SFDR) will likely come into effect in 2023
  • A proposed Corporate Sustainability Reporting Directive (CSRD) should be agreed by the European Parliament this year for implementation in 2024 to report on performance in 2023.
  • Meanwhile, the SEC has just released its proposed rules for climate-related disclosures, which,if passed in legislation, may come into effect as early as year end 2022.


Reporting Obligations 

Reporting can cover a wide range of areas covering energy consumption, GHG emissions, water consumption and waste management to health and safety, labour rights, diversity and inclusion to ethical conduct, and even areas such as appropriate executive compensation.

While the regulatory reporting obligations are not yet finalised, the expectation is that compliance may prove to be an onerous task. For example, organisations are under pressure to monitor carbon emissions but even so-called Scope 1 emissions (those that come from owned or controlled emissions) can be hard to track. Factor in Scope 2 (indirect emissions such as purchased power) as well as Scope 3 emissions from up and down value chains, and the reporting task at hand is difficult indeed.

To measure, monitor and manage in addition to staying on the right side of rules, organisations need to have excellent data management fundamentals, strong reporting tools and a new class of applications, which also have the agility to adapt to rapidly changing regulatory demands. Data will be used both to support decarbonisation measures but also to identify where there are disclosure gaps. It was telling that when the SEC issued a press release on its Enforcement Task Force, it specifically referred to data:

“The task force will also coordinate the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations.”

Having reliable data comply with emerging rules isn’t the only essential requirement for organisations. Institutions need such data to understand where they are in their journey to sustainability, so that they can set sensible targets and track progress against them. Organisations will have to cover the data trifecta of availability, management and transparency. Many organisations may be stuck in the early stages of managing ESG, overly relying on manual processes, spreadsheets and email. But their target should be to get to real-time data insights that are easily visualised, understood and shared. As a foundation, BFSIs need to capture, manage and securely share data reflecting consumption and safety to emissions, financials and data from surveys measuring results against ESG targets. Data emanating from ERP and other back-office systems, performance data from third-party associates, media and social network coverage, spatial/geolocation systems and beyond should also be factored in.


Actually reducing GHGs

Organisations are using a wide variety of ways to reduce emissions and improve their footprints from using renewable energy sources to making secondary use of energy; for example, in the case of one university, this is done through capturing data centre heat in hydroponics. For IT, making broader use of multitenancy in cloud computing and hosting services is a popular way to reduce emissions. Not only do these large data centres offer an economy of scale, they also tend to be state of the art in their use of renewables and highly efficient hardware and other infrastructure. Gartner, in an article titled The Data Centre Is Almost Dead, says it expects 80 percent of enterprises will close in-house datacenters by 2025. For me, the jury is out on this one but an interesting one to monitor going forward.



We are at the start of a very significant inflection point in regulatory and consumer expectations around ESG. BFSIs should be under no illusion that momentum is building rapidly in terms of having to address strict reporting requirements and implement strategies to reduce GHGs.

However, we also see this as a time of positive change. As the leading provider of Postgres, EDB is excited to help organisations further their ESG goals as the journey unfolds. We are closely monitoring the implications of ESG regulations as they will give rise to a new class of applications and drive adoption of green data centres. We see OSS, including Postgres, as playing a key role in this shift as often the movement to private and public cloud helps accelerate application modernisation and enables displacement of outdated incumbent technology (including database) platforms. As the leading provider of Postgres, EDB is excited to help organisations further their ESG goals as the journey unfolds.


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