By Vince Graziani, CEO, IDEX Biometrics ASA
Challenger banks have shaken up the payment ecosystem in the last decade. These forward-thinking offerings have attracted millions of users, thanks to better customer experiences and financial services more attuned to modern life. Combine this with a growing trend for smartphone banking the change has led to these branchless, mobile-only banking service providers snapping at the heels of their more established rivals.
The term challenger bank is used to describe any banking service provider looking to take on and win customers from the big, corporate, or traditional banks. And now we’re beyond their early start-up days of 2015, these brands present a growing market opportunity, putting established banks under increased pressure as they battle for the next generation of customers.
US-based start-up Chime is now valued at $14.5 billion and is IPO-ready. In the UK, Revolut— which has more than 14 million customers—is worth more than long-standing high street bank NatWest. Meanwhile Papara, a Turkish banking challenger has grown to eight million users, and is gearing up for European expansion in 2021, with Germany as its first growth market. Also in Europe, Swedish financial service challenger Rocker has received €48 million in equity funding only 18 months after it launched. This presents some serious competition to traditional banks around the world.
Our payment habits are changing
Meanwhile, the pandemic has impacted the world’s financial habits. Today consumers are using less cash, more contactless payments and want to keep a closer eye on spending patterns. As more people move their lives online, digital challengers have been well placed to take advantage of this trend.
According to Ipsos Mori’s personal banking report, challenger banks are cementing their position ahead of some of the biggest financial brands in customer service, showing that innovation and modern ideas are revolutionising the market.
For a new generation of tech-savvy customers, challenger banks also offer something a little more fashionable, with strong branding and messaging, meeting banking needs with a customer-friendly service that fits around them, not the other way round.
Big banks need to play catch up
Big banks have been playing catch up over the past few years. They were late to the game and have retroactively started backfilling their account offerings with spending trackers and spending notifications. But chasing the features of more agile, mobile-focused competitors isn’t enough to help them thrive in a changing banking world.
In particular, as these challengers also gain competitive advantage by creating new payment options that reflect both customer demand and a need for additional security and convenience of a changing world. As studies show that payment cards will dominate the banking scene for at least the next decade, bank players need to revolutionise their own payment card offerings to respond to consumer demands.
A new approach to payment options
With consumers concerned about security, convenience, and speedy payment options in an increasingly cashless world, big banks must embrace new biometric technology.
A smart fingerprint authentication payment card already far exceeds the security of PIN authentication. This new generation of on-card fingerprint recognition technology has shown to be more than twice as secure as traditional card payment transactions requiring a four-digit PIN.
Fingerprint data is also held securely on the card, not in a shared database, meaning personal biometric data never leaves the card and cannot be hacked, recreated, or breached. By linking the user to their card via the unique properties of their fingerprint, banks and retailers can create a payment process that is safe, speedy and highly secure –while making it clear that banks are looking to the future and a financial world that is more inclusive.
Fingerprint authentication also removes barriers for those with literacy challenges or memory difficulties because biometric payment cards simply rely on who they are – allowing consumers to be their own authentication. Biometric cards can also be used to provide direct and unequivocal identification to help the financially excluded open bank accounts and improve their credit scores and they can be used in any corner of the world, even in the most remote locations with limited cloud connection.
Embrace new biometric innovation to gain top-of-wallet status
As our economy looks to bounce back from the last two years, fingerprint biometric payment cards offer a safe, secure, hygienic payment authentication, providing an additional layer of security and trust in a cashless world. Banks must embrace new biometric technology to provide their customers with an enhanced customer experience that goes beyond copying app features and delivers essential security to their payments.
These smart payment cards support a secure and straightforward approach to payments while also making it clear that the banks are looking to the future. This opens up for challengers as well as incumbents to compete for and gain top-of-wallet status. With technology evolving at lightning speed, now is the time for the banking sector to embrace innovation and win the fintech play. The challenger banks may be more agile in making fast moves, while the traditional banks often have the reach and power to scale fast.
Cloud technology in banking: Why adoption is on the rise
Alpesh Tailor, Executive Director at digital transformation specialist GFT
The banking sector has never shied away from innovation, whether it is new products to improve customer savings habits or new ways of interacting with people and business, but embracing new technologies such as cloud has, until recently, been relatively slow. However, leading global financial institutions such as Goldman Sachs and Deutsche Bank have accelerated their adoption of cloud, which can provide insights for efficient technology transformation across the sector.
We conducted research to measure 21 medium-size and large banks’ sentiment and operations regarding cloud technology. Examining the relationship between cloud technology and banking professionals, our research provides an insight into the overall finance sector’s perception of cloud technology and how its application can improve banking procedures and efficiency.
A significant trend showed that the way people use their finances and banking systems has changed, particularly when it comes to payments and transfers. Our research revealed that 86% of bankers have adopted cloud services to harness its virtually unlimited scalability, citing a definitive change in transaction behaviour as the main reason for moving to the cloud.
In the world of retail banking, buy-now-pay-later, open banking, and contactless payment systems have revolutionised the way people use their bank, making financial management easier and more efficient. However, despite these evolutions, high street banks are playing catch-up to the challenger banks who possess fewer legacy processes and, therefore, an easier migration to new technologies, such as the full utilisation of cloud and artificial intelligence.
The cloud provides a dependable, scalable, and flexible data system that allows traditional banks to modernise quickly and stay abreast of the innovations that ‘born-in-the-cloud’ challenger banks are bringing to the market. An increasingly popular way of doing this is by adopting a hybrid and multicloud approach.
Most organisations are considering diversifying their cloud technology, with 76% of bankers now agreeing with the importance of implementing multicloud systems in order to benefit from resilience and security improvements made by the main cloud providers. These cloud ‘hyperscalers’ also provide regular updates and continue to release exclusive new services and platforms as they continue to innovate.
Our research indicates that cost optimisation is a primary reason that banks are looking toward the cloud for their future storage needs, with 81% of bankers confirming they have adopted cloud technology to save costs.
Installing and maintaining on-premise IT systems is lengthy and costly for financial institutions. When using the cloud, however, purchasing and installing hardware is no longer required as the cloud service provider hosts all the required infrastructure. The management of the hardware is included within this, reducing the overall cost of IT support further.
Technological innovations are usually heralded for their ability to streamline operations, making them quicker and more secure. Our research illustrates that 62% of bankers believe organisational culture and inertia to be a key challenge within the sector. Besides being flexible for scalability and cost, adopting cloud technology can bolster organisational efficiency, since banks can spend fewer resources managing the relationship between trading volumes and payment infrastructure. Bankers acknowledge this opportunity, with 95% of organisations understanding that cloud technology can reduce time-to-market.
Overcoming misconceptions with cloud technology
Misconceptions usually exist around any emerging technology and our research found that this theme continues with cloud technology.
43% of the bankers we spoke to admitted that security concerns have impeded full cloud migration – a concern that has frequently been confirmed when speaking to financial services institutions. However, cloud providers invest heavily in the security of their cloud infrastructure which, as a result, makes it almost always safer than its on-premise, client-owned counterpart.
One aspect of adopting the cloud that continues to cause concern, is that which is commonly termed the ‘digital skills gap’. More than half of banks claim a lack of cloud-savvy employees internally has slowed down adoption. At GFT, we understand that this is a major issue for the adoption of cloud technology in all sectors, including banking, and have committed to training and encouraging young people to learn the required skills and enter the sector. We recently launched our Manchester Innovation Hub – a dedicated location to support the upskilling and growth of tech roles in the north.
Going forwards, cloud technology is the primary option for banks seeking to evolve and scale their business, whilst minimising risk, time and cost. Bankers recognise these benefits and the overall findings of our research suggest they will continue to grow their investment in cloud technology. Whilst evolving traditional legacy systems is very challenging, cloud technology continues to advance and we believe that over time it will become a powerful mainstay within the financial services industry.
Bringing Automation to Banking
Ron Benegbi, Founder & CEO, Uplinq Financial Technologies
Automation is everywhere you look these days; from supermarkets to warehouses to automobiles. This prominent trend shows no sign of abating anytime soon. However, some sectors remain behind others when it comes to adopting automated technologies. Banking is one such segment, but there’s now evidence to suggest that this could be about to change.
What do we mean by automation?
There are a lot of ways to define automation, but broadly the term applies to any technological application where human input is minimized through design. Over the years, automation has evolved from a basic level, which took simple tasks and automated them, all the way to advanced automation powered by Artificial Intelligence (AI). In general, automated solutions work to increase productivity and efficiency within businesses and often result in a reduction in costs associated with human capital.
Why has the banking sector been slow to adopt automation?
The banking sector has been built on a number of long-standing, tried and tested processes and protocols, which have been continually fortified and refined over time. This is one explanation as to why the sector has been so slow in adopting new, automated methods within its operations. Additionally, many major financial institutions have spent decades building their own internal legacy computer systems, which are often incompatible with modern automated solutions.
When combined, these two issues have caused a significant lag in the banking sector with regards to the adoption of automated technologies. This lag has created a market opportunity that a number of fintech providers have been able to exploit in recent years. Offering a more responsive and tech-first user experience, many fintech providers are leveraging the power of automation to better meet the banking needs of their customers. However, there is still time for the banking sector to start bridging this gap.
Does automation have a place in the banking sector?
The opportunity for automation to play a role within banking can be transformational.
To achieve this, it’s important that legacy organizations begin to learn from their more tech-savvy, smaller counterparts. If used effectively, automated financial solutions can greatly improve the experience of banking customers, both on a personal and business level. So, what exactly does this change look like, and how far away are we from seeing it become a reality?
A good place to start is the small business credit lending process, where not much has changed since the 1980’s. Over that period, the world has greatly transformed, but the methods used to assess credit worthiness have remained somewhat static. For the most part, banks assess data related to businesses’ accounting and banking records and from credit scores. For many businesses, especially the newer and less established ones, this antiquated approach is having a detrimental effect. In fact, it’s often cited as a contributor to the huge funding gap between SMBs and their larger counterparts.
How can automation benefit the banking sector?
By adopting more automated technologies, lenders in the banking sector can begin to assess more comprehensive information when making credit decisions. Notably, new methods exist, which enable additional data sets to be evaluated, in order to build a more accurate financial depiction of a business’ overall position. This data can come from sources like external market attributes, economic indicators, demographic data and exogenous shocks.
By leveraging additional data sets through new methods of financial automation, banks are now in a position to respond more effectively to small businesses, including those in emerging and evolving markets where there is a lack of conventional sources of information.
With more ways to access funding, facilitated by alternative data and automated processes, small business owners can improve their operational efficiencies and accelerate their growth efforts. In doing so, legacy oriented financial institutions can now better equip themselves in protecting against new, nimbler tech-based disruptors.
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