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WHY PSD2 HERALDS THE AGE OF THE INVISIBLE ADMIN

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PSD2

By Adam Prince, Vice President Product Management, Sage

 

A seismic and positive change is coming for the financial and accounting industries with the introduction of the European Union’s (EU’s) Payment Services Directive 2 (PSD2) regulation. The future of banking and payments is digital, and this regulation marks a shift towards creating a more secure and streamlined digital space for customers to make transactions. At its core, PSD2 heralds two major benefits; firstly, it will push innovation for today’s digital consumers, and secondly, it will give them more control over their data.

The benefits for banks are obvious: higher-quality banking data, faster responses to customer feedback, higher levels of security and reduced fraud. The picture is similarly positive for their customers: increased privacy rights and greater competition among financial-services providers leading to reduced costs and more flexible ways to bank and make payments.

PSD2 will help bring financial regulations up to date for a world that has gone fully digital. The many benefits of digital technology are long overdue in the finance and payments industry—and, indeed, we’ve already seen the rise of highly effective tools such as online banking and in-app management. PSD2 goes deeper, though—changing the fundamental culture that governs interactions between banks and their users. PSD2 is meant to make finances work for business, rather than the other way around. With that in mind, how will the regulation change working practices—and what do small and medium-sized enterprises (SMEs) need to do to ensure they reap the benefits?

 

How can PSD2 help SMEs?

Under the new rules, systems will be developed that will help SMEs to get a much clearer view of where their money is moving to. Cash flow is widely regarded as the biggest cause of insolvency among SMEs in the United Kingdom—the Federation of Small Businesses (FSB) recently noted that “80-90 percent of failures in the sector are due to poor cash flow”. As a result, it’s essential that they can track where their money is going and ensure that outstanding invoices are followed up. At present, tracking payment and banking details is a hefty administrative task, which means that it either drains valuable resources out of the business or, worse, ends up being left undone.

To address that issue, PSD2 mandates banks to provide APIs (application programming interfaces—essentially sets of interfaces that make it easier for one system to interact with another) to make deeper, automated integration possible. When SMEs’ information-technology (IT) systems can track payments on their own, providing reports on demand to keep their finance teams informed, staff can get on with pushing the business forward rather than chasing payments.

The UK’s Open Banking framework, which runs in parallel to the PSD2 regulation, also mandates that the nine largest banks must provide a single standard of APIs, so that if a company can interface with one institution, it can interface with them all.

SWIFT (Society for Worldwide Interbank Financial Telecommunication), the global banking-standards body, also announced in September 2019 its intention to mandate that all banks implement common standards under ISO 20022. This unified approach will reduce the number of technical and economic barriers stopping businesses from operating in the ways that work best for them—whether they want to work with a challenger or a retail bank.

 

Security is a priority.

This API-driven approach to banking will make life much easier for businesses, but it does come with its risks. Financial-data sharing must be done securely, or it could cost companies a lot more than admin time. To ensure the required level of security, PSD2 includes a set of Secure Customer Authentication (SCA) rules to guarantee that users can be authenticated and that APIs can be accessed securely via common standards. Essentially, this means that SMEs will need to use two-factor authentication to access their data.

The UK’s Financial Conduct Authority (FCA) has announced an 18-month migration period or “soft landing” for this part of the regulation to ensure banks and payment-services providers have the time they need to comply. So long as there’s a clear plan in place to achieve compliance, no fines will be levied if the APIs and SCA rules are not yet in place.

Interestingly, that need for security in digital banking across the globe can be seen in the differences between the ways in which the EU and Australia have approached their regulations. PSD2 is based on the premise that payments must be regulated to provide APIs—in other words, that banks need more supervision to ensure quality service. By contrast, Australian regulators are working on the premise that financial data is personal data, and customers should be able to access it free of charge—so banks must provide open APIs to make that access possible.

Both approaches end up at the same point from different ends of the scale. In both cases, the customer is at the heart of the regulatory change. As a result, SMEs stand to benefit hugely from increased control over their data and more connected, flexible services—but they must have the right tools in place to access those services.

 

Banking without the cloud is no longer an option.

If businesses are to get the most out of the new PSD2 regime, there is a clear need for cloud-based software to ensure that they can access all of the integrations available. If they don’t have the ability to import financial data, they’ll completely miss the benefits. The alternative is to carry on doing everything manually—spending lots of time completing reconciliation by hand, always working on cash-flow data that is out of date, missing customers who fail to pay and making avoidable manual errors.

Businesses that work with an experienced financial software provider also stand to benefit from assistance as the industry goes through the final rollout of PSD2. Most large banks have been ready for API integration and secure customer authentication from the September launch date, but some banks are a bit behind the curve, which may cause some businesses functional problems in the short term. It’s essential to work with a partner that can continue to make access to essential financial data available despite these growing pains.

PSD2 was developed for the benefit of businesses and individuals across Europe. We live in an era of unprecedented information exchange, and regulations such as PSD2 point the way to a more connected, user-friendly, flexible and intelligent way of working. Compliance with PSD2 will ultimately bring a host of benefits so long as the correct security measures are put in place—far from a burden, this is the start of a brave new world.

 

The future of finance

Such sweeping change always has its teething problems, and as a result, there are some practical issues that need to be addressed to ensure smooth running during the first months after the PSD2 deadline. For UK businesses that are working out how the changes will impact their processes, it’s essential to work with the right partners to ensure data transfer continues to happen as smoothly as possible.

It’s important that businesses don’t have to take on the full administrative workload of changing the way their systems work and comply with PSD2. By working with an experienced technology partner, companies can get full access to their usual functionality during the change and keep up to date with any further changes—without having to get into the nitty-gritty of APIs and authentication measures.

That partnership is something we take very seriously. At Sage, we have been working to ensure our customers are compliant with this regulation for a long time. Our priority is to help them navigate the changes, understand the impact on their businesses and guarantee that they can thrive as a result.

Although businesses are often reluctant to enact change, PSD2 will ultimately prove itself to be a positive piece of legislation. This change needs to happen given the prevalence of digital services in payments and banking, as well as the increasing demand from consumers for more bespoke and comprehensive services. If banks are quick to put plans in place, then the payoff will quickly be realised in terms of money saved and improved customer service.

 

Technology

How Digital Adoption Platforms can enhance digital transformation and customer experience in the insurance industry

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By Vara Kumar, CPTO & Co-founder, Whatfix

 

Like many industries, the insurance sector was prematurely hastened towards digitalisation due to the Covid-19 pandemic. Now, digital adoption continues to be a key focus of many organisations to strengthen their fully or partially remote workforce with nearly 50% of IT spend being put behind the growth of core applications and infrastructure, and an additional 25% being invested into digital solutions.

But with millions of claims processed every year, needing to provide superior customer service to drive retention, complex procedures and processes to navigate and both internal rules and external regulations to follow, digital transformation plans for insurance organisations are filled with challenges.

Increasingly digitalised workforce

With the pandemic came an overhaul of how we work. Remote and hybrid working is now the norm, and across most industries, there’s been a huge expansion in both the number and type of digital applications used to communicate, collaborate and enhance productivity across an organisation.

For the insurance industry, this has meant that every employee, from underwriters to customer service agents, has had to adapt to handling their steps of the process, from setting up coverage to filing a claim, remotely, and across multiple platforms and tools.

The challenge is ensuring this more digitalised workforce fully understands how to successfully navigate each application effectively and efficiently to ensure they can deliver on their services and customer experience (CX). But putting together a skilled, high-performing IT team can be difficult – according to an enterprise study, 54% of organisations said they’re not able to accomplish their digital transformation goals because of a lack of technically-skilled employees. This is further complicated by the fact that, in an age of labour shortages, the sector is forced to get creative and find ways of managing the workload and navigating new technologies with a smaller workforce.

Changing customer expectations

On top of the challenges that the increasingly digitalised workforce is experiencing, the tech-savvy customer of today also expects more from their insurers. Indeed, the pandemic forced customers as well as organisations to become more IT-literate, and in the customer service space in particular, customer expectations are high.

Customers today want and expect to be able to make maturity or house insurance claims in an efficient and straightforward manner, across multiple platforms, from phone to email to social media, preferably in a matter of minutes.

McKinsey observes that improving the value chain from the customer’s point of view is an important step within digital-ecosystem efforts, and HubSpot found that 90% of consumers expect an immediate response to a customer support issue, with 60% defining ‘immediate’ as under ten minutes. Even pre-pandemic 44% of customers were comfortable utilising chatbots for insurance claims, and 43% were comfortable using them when buying insurance policies.

Undergoing a digital transformation on the customer side is crucial then, as insurance providers that can meet these changing customer expectations are more likely to attract and retain customer loyalty now and in the future. However, just 30% of insurers believe that they have the capabilities to fully digitalise their customer experience.

So, what can insurers do to meet the technological demands of a digitalised workforce and a multi-channel CX for tech-savvy customers?

Using DAPs to boost digital transformations and CX

In a rapidly changing market, Digital Adoption Platforms (DAPs) can be a huge advantage to insurers looking to manage the challenges of today and come out on top. A piece of instructional no-code software that sits as an additional layer on top of other software applications, such as Claims Management or Policy Administration Systems, to help train and guide users on how to best use the software, DAPs can massively improve the agility and effectiveness of business processes across an organisation.

On the employee side, for example, DAPs can help insurers to manage challenges of a frequently changing workforce by making it easier for employees to get to grips with new digital applications. With the likes of  guided walk-throughs and task lists, which help employees through each step they need to know and just-in-time nudges to reduce policy administration, claim, or underwriting processing times, employees are more efficient and technology adoption is streamlined and accelerated. Easy to integrate into existing systems, DAPs can be used to not only train and onboard new employees but also upskill veteran workers, training the workforce as a whole on the latest technologies being used across the industry. As a result, everyone from underwriters, claims, and service representatives will better understand insurance tools that will enable them to be more productive and better deliver customer experiences leading to better business outcomes. Indeed, from the customer perspective, DAPs can enable companies in the insurance industry to keep CX positive and smooth. Firstly, by training on near real-life scenarios and secondly, by being able to more easily navigate applications, processes and systems internally, customer service representatives will be able to spend more time and focus on the customer and on resolving their queries, without being hindered by technological hurdles. For example, errors made in policy or claims processing can be reduced if employees can use self-help elements of DAPs to mitigate issues and solve queries themselves, in real-time. As a result, customers will be happier with their service, and more likely to stay loyal to that brand.

Customer-facing platforms can also be improved using DAPs. Typically, legacy apps whether on our phones or online, can make it difficult for users to complete their tasks, leaving them frustrated. With DAP user-specific content and just-in-time support, such as pop-ups, automated walk-throughs and user guides for every part of the user journey, customers can experience a smoother journey and have their queries and issues resolved more efficiently..

Drive efficiency and customer satisfaction

DAPs are already growing in popularity, with Gartner predicting that by 2025, “70% of organizations will use digital adoption solutions across the entire technology stack to overcome still insufficient application user experiences.”

So, now is the time for insurance providers to leverage this technology to facilitate their digital transformation plans. By ensuring their increasingly dispersed and digitalised workforce can use the latest applications to their full potential, and that their customer journey is as efficient and easy-to-use across the multiple channels customers expect, insurers will see huge benefits, from increased efficiencies to improved customer satisfaction.

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Are cyber insurance and incident response budgets the same thing?

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Dominic Trott, head of strategy – UK, Orange Cyberdefense

 

Cyberattacks on businesses increased by 13% in 2021 compared to the previous year. Yet while it’s not necessarily the case that the number of bad actors is increasing, it is the scale on which they’re operating that has broadened exponentially.

In addition, the manner in which cyberattacks are being carried out has also evolved. While some cybercriminals hack for fun, the vast majority of malicious activity is, unsurprisingly, conducted for financial gain and targets organisations on the basis of two simple principles: first, where there is the most value to be targeted; and second, where the attacks are most likely to be successful.

It’s also likely that the full extent of the cybercrime landscape is hidden. Accurate data on the impact of cyberattacks is often hard to come by because, in many cases, the breached organisations are unaware of the full extent of the attack – or even that one took place. They might genuinely not know this information if they don’t have accurate oversight of their digital estate, or keep quiet for fear of incurring legal liabilities or causing reputational damage.

The current security landscape has created the perfect storm for cybercriminals, as cyber insurers and Computer Security Incident Response Teams (CSIRT) often end up fighting over the same budget. Traditionally, it has been relatively easy for firms to obtain cyber insurance coverage at low premiums. However, the heightened cyber risks and exponential growth of ransomware attacks in recent years has led to premiums rising.

The question that businesses often ask, therefore, is ‘why do I need an incident response retainer when I already have cyber insurance? Surely, it’s a waste of money? If the worst does happen, the insurance company will pick up the bill for any damage done after the event’. I would argue that is a short sighted and potentially dangerous approach. Let’s look at the different roles of incident response and cyber insurance.

  1. Cyber Insurance: like other types of insurance, this aims to give businesses a way to ensure that if the worst happens, they can recover some of the costs. Cyber Insurance will likely cover you for some of the tangible costs associated with a breach, but it probably won’t cover all of them. By acting quickly and limiting the scale of the breach, you may be able to reduce the full impact. In addition, some insurance companies will expect you to have demonstrated a level of preparedness before accepting your claim – a bit like having a burglar alarm or dead-bolt locks on your house before a house insurance claim is accepted.
  2. Incident Response Retainer: aims to provide rapid, on-demand expertise in an emergency if the customer calls them immediately after an incident. The key to mitigating the impact of any cybersecurity incident is the reaction time between detection and response. Many companies lack the infrastructure needed to react in a quick and secure manner. Having an incident response team available 24/7 to identify, contain and eradicate threats and to get businesses back up and running as soon as possible may be crucial to their ability to continue successfully trading.

 

Cyber resilience

But isn’t incident response included in the insurance policy? In many cases, it will be. And perhaps this is where the confusion comes. Cyber insurers will often pay out, but only as long as the incident is covered by an incident response retainer. Their objective is of course to help cover the financial losses that result from cyber events and incidents and in numerous policies, the presence of a retainer agreement with an external incident response provider can help prevent severe losses. This will often bring down the premium of the insurance policy. Having a retainer also means you get to choose the CSIRT team that you are going to be working with in advance. You can assess their credentials, their experience, talk to their other customers – all before an incident occurs.

The key thing here is building cyber resilience. Of course, there is no such thing as complete security. For starters, incident response alone is insufficient to deliver cyber resilience from either a technical or procedural perspective. Good practice advocates that solutions should be in place across the full threat lifecycle. For example, the NIST framework recommends that organisations identify their threats and vulnerabilities; protect against them with security tools and operations; detect threats as they address the enterprise; respond to contain and remediate an incident as it occurs; and recover to take lessons learned from incidents and improve ‘business as usual’ appropriately.

But, leaving an end-to-end approach to threat lifecycle management to one side, having both cyber insurance and an incident response retainer working seamlessly together will at least provide organisations with a fighting chance of continuing their core business functions if and when disaster strikes.

 

Making cybersecurity a joint enterprise

There are worrying trends emerging in the cybersecurity market. While attacks are becoming more sophisticated and ransoms are rising, there are concerns that there might not be enough money in the still-emerging sector to cover everyone’s needs. So, what can companies do? They should still invest in insurance coverage, but they also need to look for other ways to cover their potential exposure, including CSIRT rapid response teams.

It cannot remain a budgetary decision for a CTO and a CFO to fight over whether to firefight OR recoup what has been lost in cyber-attacks. Both are important. An incident response team is the first port-of-call to help respond to any cyber accident or incident. Then and only then – once the breaches have been made safe – should you call in the moneymen.

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