The Current Account Switch Service (CASS) was introduced in 2013, to make the process of switching accounts between banks easier for customers. But despite a nine-digit joint investment by government and industry, and a sustained high-profile publicity campaign, the scheme has failed to significantly change consumer attitudes to banking, with the average marriage today still lasting a couple of years fewer than the knot we tie with our banks. As of January last year, only 7.5 per cent of the 70 million current accounts in the UK changed hands between retail banks, even though the process is guaranteed to be sorted out in seven days without any involvement required from the customer.
When it became obvious that removing paperwork and frustration from the switching process wasn’t enough to galvanise the banking sector, a momentum started gathering pace in Europe to enable the regulated disruption of the market, which led to the implementation of PSD2 (the second Payment Services Directive) and open banking, its version in the UK, in January 2018.
According to figures published on 20 January this year, customer use of open banking in the UK has surpassed the one million customer mark for the first time. There is some disagreement in the sector regarding how much should be read into this figure – whether signing up for an open banking service already qualifies you as a customer, or simply using the service does, and whether it should be clients’ calls to execute a service or, rather, successfully executed requests that should provide the basis for such statistics. Or, indeed, if customer numbers of any kind are the right measure of success at all.
In 2018 it was yet to be seen how disruption of the banking sector was going to play out: whether incumbent banks would be ravaged by fintech or take arms against their disruptors, or how novo-banks would be able to find ways of expanding their limited clientele. But 2019 showed that both legacy and new banks can become truly agile and innovative on a level playing field. The direction of travel is not only incumbents opening up, albeit slightly unwillingly, to their new rivals through APIs, but rather both parties building new, complementary strengths in the open banking space using their natural advantage as a springboard.
We have seen incumbents employing fintech consultants to develop banking apps to take on their fintech rivals, or scooping up fintechs or teams of developers from failed fintech start-ups. We’ve also seen the CMA9 banks – the nine taking part in open banking – developing financial blockchain applications, or major global banks inviting tech giants to overhaul their outdated infrastructure. Meanwhile, novobanks have been busy building their own APIs so they can offer a full range of banking services to clients who flock to them, thanks to the flexibility and ease of use of their current account services.
Judging by a 2019 Which? Survey, that found three-quarters of people were still oblivious to open banking, the scheme is still falling woefully short of its original objective to provide customers with a wider variety of financial products. But if you consider the formidable achievements of API specialists who provide the infrastructure required for open banking, or the highly advanced offerings of third-party providers following in the footsteps of PayPal, open banking’s first two years have been a huge success. The seven-day deadline that was offered by CASS sounds like an eternity compared to the mere minutes it takes to open an account with an online bank.
Do we need more promotional videos to alert customers to new ways of banking? Or should banks, old and new, just wait until word-of-mouth runs its course? Affordability checks already available via open banking save those applying for a loan or a mortgage reams of paperwork and hours chasing up the right documents. For those individuals and businesses that have been through the process in pre-open-banking days, this may sound like a compelling use case. And there seems to be no shortage of further bugbears that the new banking regime could rid us of.
Source: Zita Goldman, Business Reporter
What’s been going on in the global workplace
Revolut, teaming up with financial API specialist TrueLayer, rolled out its open banking feature last month, giving UK customers the ability to see their bank accounts from other providers from within the challenger’s app.
Retail customers can also set budgeting controls for their Revolut and external accounts, giving them greater control over their financial lives. Revolut can provide this as an authorised account information service provider (AISP) by the FCA, which allows it to access official UK open banking APIs for information purposes on behalf of customers. Payments and transfers via third-party accounts are currently out of Revolut’s remit, however, as they would require an additional licence.
NatWest’s new digital banking solution Bó has been criticised for the striking resemblance it bears to a similar product from novo-bank Monzo. NatWest received an influx of talent after fintech start-up Loot (which NatWest’s parent company RBS had investment in) went bust, which allowed RBS to swoop in and hire around a dozen staff members from the company, including former CEO Ollie Purdue. For more on the genesis of RBS’s business digital platform Mettle, and the difficulties of incumbent-fintech cooperation click here.
RBS, meanwhile, is to take its own subsidiary’s name to rebrand as NatWest, in a bid to sweep away the legacy of its association with the financial crises, following which it was bailed out by the UK government, in a move announced by the group’s new chief executive Alison Rose.
Mastercard has won approval from the People’s Bank of China (PBOC) to set up a bank card clearing institution in the country, where the sector is dominated by large domestic players. Last year Mastercard set up a joint venture with Chinese NetsUnion Clearing Corp, a clearing house for online payments whose stakeholders include the PBOC, refiling its application for a bank card clearing licence, which it had previously been declined several times.
Mastercard’s CEO Ajay Banga, who turned the business from a $26.5billion card business into a $301bn behemoth in less than a decade, will resign from his role at the end of this year to become executive chairman. He will be replaced as CEO by former CPO Michael Miebach.
Deutsche Bank is inviting bids from tech giants Amazon, Google and Microsoft to fix its outmoded technology estate. The three US tech groups set up shop on site at Deutsche Bank’s Frankfurt HQ at the beginning of February to come up with proposals, kicking off a three-month pitch and bidding process.
In addition to streamlining and updating the bank’s technology, one idea under consideration is to set up a corporate credit marketplace that Deutsche and the technology company would own, which would be open to companies and other banks as a brokerage for loans.
Global provider of financial markets data Refinitiv has announced the launch of the Future of Sustainable Data Alliance, in conjunction with the World Economic Forum, the United Nations and others, with a view to driving the acceleration of sustainable finance through data.
“Fundamental ESG data access and additional alternative data sets are seen as key drivers to help investors make sustainable investment decisions and positively contribute to the UN Sustainable Development Goals,” said a joint statement from the group. Companies require disclosure standards on tracking, managing and reporting SDG-related information to their stakeholders, and the alliance is expected to grow over the coming months to include different stakeholder groups with deep expertise in areas covered by the UN SDGs.
Customer use of open banking in the UK has surpassed one million mark for the first time. The number of customers already connecting their bank accounts with trusted third parties has grown strongly, doubling in six months.
These figures, however, only show the uptake by CMA9, the nine largest banks in the UK. For the wider picture you can listen to fintech consultancy 11:FS’s podcast here, or read analyst Sarah Kocianski’s blog.
Peer-to-Peer (P2P) platforms will need to carry out an appropriateness assessment that considers a client’s knowledge and experience of the P2P investment before the platform can accept a subsequent instruction to invest. Included in the new regulations is the need for lending platforms to be transparent, such as by sharing important information with investors and enforcing stricter governance of risk management.
The EU is to stop funding oil, gas and coal projects at the end of 2021, cutting €2bn (£1.7bn) of yearly investments. The European Investment Bank (EIB), the EU’s financing department, will bar funding for most fossil fuel projects, although gas projects will be still fundable provided they are based on what the bank calls “new technologies” such as carbon capture and storage, combining heat and power generation, or mixing renewable gases with fossil-derived gas.
Visa, Mastercard, eBay, Stripe, and Mercado Pago have withdrawn from the Libra Association, the Geneva-based not-for-profit membership organisation behind Facebook’s permissioned blockchain digital currency.
The move follow’s that of PayPal a week earlier, and the withdrawals leave Libra with no major US payment processor. A number of news sources point out that, prior to the secession from the Libra Association, senators Brian Schatz and Sherrod Brown sent out a letter to the CEOs of Visa, Mastercard, and Stripe, warning them of enormous risks inherent in the Libra project and suggesting that the companies would face increased oversight from financial regulators in their conventional, non-blockchain businesses if they continued with the association.
The annual results of British Patient Capital (BPC), the venture capital arm of state-owned British Business Bank, focusing on growth businesses, have been published. Figures show that BPC targeted primarily fintech and sciences as key investments as mature sectors in its first year, with the future of finance making up 13 per cent of investment across BPC’s portfolio of underlying companies.
by Zita Goldman, Business Reporter
In high-stakes decision-making environments, humans need help. In healthcare, doctors leverage data-processing technology to supercharge the diagnostic process. In sport, coaches aided by algorithms tailor training to each athlete’s unique capacities.
With the right data, the right design and the right digital support, decisions can be made both more efficiently and more effectively. Doctors still call the shots and manage their patients, but diagnostic decision-support tools help focus their aim and fine-tune their relationship with the patient.
Making better personal financial decisions is no different.
Personal finance is behavioural finance, and behaviours are complex. Helping investors find the right destination, the best path to get there, and managing their behaviour along the way, is hard. There are many moving parts. And while it may be clear that the message received by a client is not always the same as the one sent, the case-by-case consequences of this are not. One client’s medicine is another’s poison; what may dampen one client’s anxiety may ignite another’s.
Oxford Risk’s decision-support software moves behavioural finance from the fringe to the core of decision-making systems. It goes beyond nudging and one-size-fits-all answers to using decision prosthetics – tools that guide humans towards engaged choice and personalised prescriptions, that more consistently make both advisers and clients the best versions of themselves. Our diagnostic tools are designed to be integral to the investment process: built-in rather than bolted on.
Blending behavioural psychology with quantitative-finance theory employs the best of both human and algorithmic worlds. Humans concentrate on what they’re best at – empathy, values, conversation, navigating ambiguity, creating an environment for making comfortable and confident choices – while machines take on information-filtering, monitoring, and data-processing. Machines don’t make the decisions, they just make the decisions better. Gut instincts need to be both trusted and verified.
The rational path is to provide an accurate scientific diagnosis of the best strategy each investor can stomach, and then offer an appropriate prescription, be it changes to the portfolio, to its presentation, or to the decision-making process and interactions that define the adviser-client relationship.
Good investing outcomes are not achieved by merely “optimising” risk-adjusted returns. People invest in narratives, not numbers. Instead, advisers need to diagnose each investor’s recipe for emotional comfort, and proactively secure it ahead of the journey in a planned, personalised, precise and low-cost way. This maximises the real-life returns that investors actually care about: the anxiety-adjusted returns that account for the emotional costs of ownership.
There is nothing rational about offering a theoretically perfect solution in the knowledge that, as an imperfect human, the investor will fail to last the distance. The rational path is to provide an accurate scientific diagnosis of the best strategy each investor can stomach, and then offer an appropriate prescription, be it changes to the portfolio, to its presentation, or to the decision-making process and interactions that define the adviser-client relationship.
By using Oxford Risk’s behavioural profiling to establish each investor’s financial personality on up to 15 stable dimensions, embedded in our algorithmically-assisted diagnostic process and decision tools, we can determine likely causes of emotional discomfort, pinpoint preventative measures, and then deliberately aim to deliver them in a cost-effective way. Addressing investors’ emotional needs ensures better outcomes, more consistent advice, and happier clients.
Visit oxfordrisk.com to improve the financial decisions of your clients.
For the last 10 years we have been trying to crack the code of what changes need to be made to serve and market to the Millennial generation. Millennial women in particular are a financial juggernaut, responsible for $170 billion in spending every year.
However, they entered the job market saddled with debt and have irreparable scars from the financial crisis. They’ve been left feeling vulnerable and desperate for control. There’s a reason the industry should be paying attention, and the biggest reason is the unprecedented generational wealth transfer that will make millennial women the industry’s most lucrative customers. In a recent Money20/20 podcast, The MoneyPot, we brewed some hot tea served up by millennial female influencers who had bold views about how the industry should speak to this demographic and what they actually want from financial services. Get your mugs ready!
Millennial women share to empower each other
It may be counterintuitive, but starting in the workforce with a lot of debt and in uneasy financial times has made women between 25-40 more open to sharing their personal financial worries and biggest fears. They all spend a lot of time on social media, and in order to make finance less scary they share details about their own situations and reach out to others in similar circumstances. Social media influencers such as @MrsDowJones, aka Haley Sacks, use memes to explain financial concepts! Sacks creatively encourages budgeting, and is successfully fostering a community of women who want more control over their finances. Similarly, on Instagram there are groups of “debt warriors” who share how much debt they started with and how much they have paid off. This openness and transparency is a key component to serving this demographic.
Millennial women are still treated like girls when it comes to money
As shocking as this may sound in 2020, the fact is that a lot of talk around money is gendered. Young men are more likely to be fostered in ideas around investing and the markets. By contrast, most young women are told they should save money by getting deals, with less talk of formal financial services. Consequently, millennials are still used to traditional gender roles around money in the home. Financial institutions that help educate and empower young women through straight talk – and who speak their language – will gain their loyalty.
Speak their language and play in their lane
That means making sure your meme and social game is on point. For example, millennial women use memes to communicate everything, from their mood to good news to making plans for a night out. They seek out the opinion of friends when making major decisions. Over 70 per cent consult friends and family when choosing brands and products.
The other thing they seek is the “Instagramable experience”, so “phygital” spaces that are comfortable and Instagram-friendly are high on their lists. One example of this in financial services are Capital One Cafés, which double as bank branches. These spaces offer a comfortable, more familiar, less stuffy atmosphere that lends to sharing the experience on Instagram. To be on their radar, create both physical and digital spaces that are less intimidating and highly sharable.
40 per cent of millennial women have a “side hustle”
Because they entered a volatile job market, millennial women started out making less than many of their predecessors and have turned to freelance work to earn extra money and gain financial independence. This is also how they express their entrepreneurial spirit, and the extra money often finances their desire for experiences and travel, but only after the basics are paid off. Finserv that focuses on helping guide these side hustles – and facilitates turning them into full-fledged independent businesses – would be a huge draw.
In the end, perhaps it’s not so shocking to discover that financial services that empower women, encourage them to invest and help them pursue their entrepreneurial goals, will win their loyalty. They may even become a brand that they share with their friends!
This special episode of The MoneyPot was hosted by Monique Ruff Bell, Money20/20, Event Director, USA and Cassandra Napoli, Associate Editor, WGSN And the guests were Sonali Divilek, Marcus, COO of Digital Storefront, Goldman Sachs, Lauren Simmons, motivational speaker and personal finance expert and Mrs. Dow Jones, aka Haley Sacks, head of the Mrs. Dow Jones Financial Media Company.
Listen to the latest episode of The MoneyPot here.
Anders la Cour, co-founder and CEO of Banking Circle, explains why the lack of access to instant payments is holding businesses back in today’s fast-paced market, and how financial services providers can build solutions to better serve their clients.
SMEs and start-ups have been around since the first entrepreneur set up shop (or possibly farm). In contrast, instant payments are only just becoming a reality for businesses. But if companies have succeeded before instant payments, why are they such a hot topic and an apparent necessity today?
Some still believe instant payments are a luxury that businesses simply do not need. After all, payments have always taken days or weeks in the past. But if we look back over the past 15 years or so, we can see significant change in the market yet comparatively little change in the payment processes and timescales involved. If we look ahead 15 years, expecting the rate of change to continue or even accelerate, it is impossible to reconcile the opinion that current mainstream payment options will remain fit for purpose.
Everything is faster now. Society is more connected. Digitisation allows consumers to purchase goods from sellers anywhere in the world, without a second thought for details such as foreign currency exchange rates. While this is great for international trade, boosting the global economy and helping to break down borders, it requires a lot from the underlying provider, and eventually the SME seller takes the hit – in transfer fees or slow settlement cycles stalling cashflow.
If an SME wants to keep up with the rest of the market it needs the ability to restock rapidly, to expand to new markets and territories. That requires working capital, which in turn requires faster payment processing. To deliver that, financial services providers need to start working together more closely. We must collaborate to deliver solutions which help rather than hinder SME growth. Real-time or instant payments are essential to allow SMEs to keep up the pace.
The topic of financial exclusion is usually associated with the underbanked or unbanked consumer population, often focusing on those living in the developing world. However, it also affects small businesses around the world. And don’t just think third world – it’s a first-world problem too. Many smaller companies are unable to access financial services at a reasonable cost in way that supports business success and growth.
Banking Circle research found that only one in five SMEs haven’t experienced problems borrowing from a bank to support their business. This highlights an imbalance in the support available to SMEs. Demonstrating the potential impact of financial exclusion, nearly a quarter of respondents to our survey said that struggling to access additional funds would lead to having to let employees go. More than one in 10 felt the business could ultimately fail as a result.
Key aspects for increasing financial inclusion
Today’s global economy means that whether the business is a Fortune 500 company or an SME, it must act as a global player. Lack of access to the necessary financial tools creates serious challenges in growing the business. For SMEs and start-ups to be in the best position to compete and prosper they need full and fair access to global scale financial services.
This starts with access to bank accounts – offering the ability to transact in the business’s local currency as well as the currencies of the countries in which they wish to trade. The ability to transfer funds into these other regions is essential – as is the availability of working capital to support growth.
Slow settlement cycles – especially through online marketplaces – can have a devastating impact on a business’s working capital, reducing its ability to restock rapidly, increase headcount, upgrade equipment or move to larger premises. Unable to advance and grow the business through these channels, SMEs stall, and many ultimately fail.
How slow is ‘slow’?
Different payment methods have different settlement cycles. The speed with which a payment reaches the seller also depends on the recipient and the countries involved in the payment.
Marketplaces are an example of very long settlement cycles. With so many buyers and sellers involved, marketplaces pass on payments in regular settlement cycles, often up to 90 days long. This means an SME which sells stock to a buyer through an online marketplace may not receive the funds due until three months after they have dispatched the goods, potentially leaving them unable to restock, slowing cashflow and growth potential.
The settlement cycle is not determined by technology alone. There can be an intermediary somewhere in the value chain who is managing their counterpart exposure by holding back funds. So, if a third-party can step in and take on that counterpart exposure, the speed of settlement increases significantly, increasing the growth of SMEs and the wider economy.
How does Banking Circle bring a solution?
Working with a third-party financial infrastructure such as Banking Circle, banks and other financial institutions can increase financial inclusion by providing their customers with faster, cheaper banking solutions – including multiple currency banking accounts, local clearing, cross-border payments and flexible business lending – without the need to build their own infrastructure and correspondent banking partner network.
We enable financial services businesses to do what they’re really good at – serving the end-client successfully and efficiently. Through Banking Circle, the financial services provider can offer their clients access to working capital and bank accounts on a global scale, as fast as possible and at low cost.
The rising super-correspondent banking network, led by Banking Circle, brings huge benefits to banks and payments businesses without the usual significant investment required to build and deploy these tech-based solutions in-house. This provision is reducing the cost of banking and transfers, improving cash-flow, enabling SMEs to grow and levelling the field to allow fair competition between SMEs and larger players.
The value of SMEs in the global economy must not be underestimated, and we believe it is vital that financial services providers work together to build and deliver the services SMEs require, at a cost they can afford and in a manner that fits their unique business. In turn, this will help the SME reach its potential and benefit the wider economy – including the financial services providers themselves.
by Anders la Cour, CEO, Banking Circle
Everyone’s interested in fintech these days. Whether it’s investors, people in business, or consumers themselves, technological innovation in the finance sector has finally dragged payments into the 21st century.
Indeed, the adoption of fintech services has rocketed over the last few years, from 16 per cent in 2015 to 64 per cent in 2019, and 96 per cent of consumers are aware of at least one fintech service that will help them transfer money or make payments.
At the end of Q2 2018, there were a total of 440 million contactless payment users worldwide, while experts forecast 760 million users by the end of 2020, according to Statista.
Many applications and fintech solutions are developed with the aim of winning customers over with their trendy, polished interfaces. But payments aren’t a fashion craze, and the most crucial part of any fintech solution will always be security and compliance.
Know your customer, or KYC – a mandatory process that makes companies AML compliant and protects from fraudsters – has three general components: identity verification, due diligence, and ongoing monitoring. These are usually all overseen manually by compliance officers, a time-consuming and expensive process that can end up being a sore point for both businesses and customers.
According to research conducted by Mitek and Consult Hyperion, KYC compliance costs banks €50 million a year. The potential cost of losing just a small percentage of potential new customers to complex manual KYC processes is now as much as €10 million a year. After five years, the cumulative lost opportunity could cost banks in excess of €150 million.
KYC takes too long and causes problems. But there is a better way. We can fix it – better still, we can automate it. Here is a case study of how digital financial services provider Genome obtained an automated its KYC procedure while keeping fraud prevention in one place.
Envisioned by its founders as a “product that will elevate financial routine for individuals and businesses,” Genome is an online finance ecosystem that helps users and merchants registered within the EU with everything related to financial services. Services range from IBAN and merchant account opening to SEPA transfers, currency exchange and online acquiring, and cross-border transfers in multiple currencies. Since Genome is a licensed Electronic Money Institution, it also serves e-commerce, SaaS, software companies, and any businesses working with online payments.
The core features of Genome are available for users and businesses after they pass the KYC procedure. It’s an essential part of the due diligence procedure that safeguards against the company engaging in money laundering and customer risks. For this reason, the Genome team needed a solution that could provide a seamless KYC procedure, allowing them focus on other core processes of their business.
Genome is an innovative product in terms of features and customer approach, and its attitude when it came to selecting a third-party service provider that would help ensure payment security was also innovative.
The aim was to automate and make coherent the traditional manual banking processes applied to users and businesses. Covery, a one-stop platform that automates KYC processes, had the answers to all of Genome’s requirements. It enabled Genome to automate its KYC procedures, enabling its users and companies to open personal and business accounts, IBANs, merchant accounts, make SEPA transfers, and SWIFT transfers easily and conveniently.
Covery’s full automatisation of the KYC procedure removed any tedious manual requirements from the KYC equation, leading to lower user acquisition costs. It also meant that users didn’t have to be involved in complex checks with third-party watchlist providers to conduct PEPs checks – procedures that are typically difficult, expensive and time-consuming. Integration with a global leader in data intelligence for anti-money laundering enabled Covery to provide Genome with PEPs and sanctions lists checks without any additional integrations.
Considering the constant changes in global watchlists, Covery checks Genome users automatically on every executed user-step in under 300 milliseconds.
The ongoing monitoring is also combined with Genome user check through the global reputation data network Trustchain. Trustchain contains more than 300 million device reputation records gathered with device fingerprinting technology. “Data fetched during Covery’s KYC procedure helps Genome to analyse user actions deeper, and to create an overall evaluation of users through the whole customer journey,” said says Daumantas Barauskas, COO of Genome. “We use it for more precise fraud prevention and revenue increase.”
Using Covery gave Genome total flexibility in terms of limits. With the rule-based approach, risk analysts set up more than 150 static and dynamic rules to evaluate user activity in different cases using the flexible reaction system on Genome’s side.
Users can see actual accounts and transfer limits, which makes the system transparent and understandable. Moreover, Genome is secured by more than 400 rules preventing fraud. The set-up of a new rule takes between five and 10 minutes.
The full setup took less than two days. As a result, automated KYC and AML removed the risks of human error for Genome, ensuring high data accuracy. In terms of customisation, Genome also now benefits from more than 15 automated business flows and fully customisable risk management, led by rule-based and machine-learning engines.
Genome’s implementation of the Covery platform has since resulted in a 90 per cent efficiency in KYC procedure automation, 98 per cent efficiency in the automation of transfers, higher customer retention, and increased conversion rates.
For more information, click here.
Your guide to the latest research and whitepapers
In a bid to woo their retail and large enterprise customers, traditional banks often seem to fall short of meeting the needs of small and medium-sized companies, leaving their most essential financial needs unmet.
While, until recently, the top priority of policymakers and financial institutions was to provide SMEs with flexible funding opportunities, experts and SMEs themselves increasingly argue that the focus on access to funding should shift to the availability of a broader range of financial services. A Banking Circle white paper emphasises that, although digital technologies are key to financial inclusion for SMEs, they can’t override the fundamental rules of profitability.
Alex Park, director of digital Metro bank, is also convinced that technology is not a silver bullet, maintaining that businesses that best understand the problems SMEs face, not those with the best technology, will eventually succeed. In a sector as diverse and disparate as SMEs, painting both sole traders and companies with 250 employees with the same brush will not always make the problems obvious. Banking Circle’s white paper also includes an action plan on how banks can better serve the needs of SMEs, as well as short videos with insights from the sector’s thought leaders.
Although the European Banking Authority (EBA) has set December 2020 as the migration deadline for SCA, or Secure Customer Authentication, the FCA has agreed to delay enforcement until 14 March 2021 in the UK.
However, businesses that take even just a small amount of European payments need to prepare for the December deadline. Issuers are expected to move towards the SCA rules, including active authentication, from the second half of 2020, to give customers and merchants the chance to get used to the new way of shopping, while merchants are urged to accelerate towards technical and operational readiness within the first half to avoid the risk of declines.
For the most recent updates from UK Finance, a trade association for the UK banking and financial services sector, on the preparations partners are recommended to take at regular milestones prior to implementation, click here. For an in-depth report on PSD2 and SCA, including a glossary, click here.
An in-depth report on financial inclusion from think-tank Policy Exchange, Fintech for All, explores the root cause of financial exclusion by traditional banks, and how fintech, with its pioneering business model and technology-enabled efficiencies, can reach out to customers who either don’t have a banking account (currently 1.2 million people in the UK) or are underserved (between 7-9 million).
Unlike banks on the continent, which tend to adopt a subscription model, UK banks typically don’t charge for bank accounts, but rather follow a cross-selling strategy which will generate revenues considerably higher than subscription fees – on average, customers of major banks have two products with that bank.
Low-income clients, however, are hard to upsell to, and the lack of overdraft facilities and cross-sold services mean they generate no revenue to cover the cost of administering the accounts. Although incumbent banks are not keen on onboarding low-income clients for the reasons mentioned above, under the 2015 Payment Accounts Regulation the nine largest personal current account providers must provide basic bank accounts (BBAs), which entitles the holder to ATM cash withdrawals, but not to overdraft facilities.
Fintech firms, however, find low-income customers more desirable, as they are ready to pass their cost savings on to customers in the form of lower prices. Being digital banks, they can also offer more in terms of customisation for these clients – for example, by preventing customers with gambling addictions spending money through gambling sites, or providing cashback from shops more likely to be used by low income customers, as the report suggests. But even without going the extra mile, fintechs can surely save the unbanked the so-called “poverty premium” – the £485 each year they are estimated to lose by not having an account.
The results of an independent survey on business banking service quality, carried out through 2019 by consumer insight consultancy BVA BDRC, have been published. SMEs with business accounts participating in the survey were asked how likely they would be to recommend their provider, their provider’s online and mobile banking services, services in branches and business centres, SME overdraft and loan services and relationship/account management services to other SMEs.
Source: Zita Goldman, Business Reporter
In this fast-changing retail age, experience now ranks higher than product or price. Research shows that over half of customers won’t return to a store after just one unresolved negative experience. So understanding customers and what they think and feel has never been more important.
Yet it’s becoming increasingly difficult to gather customer feedback, and to tap into its true business value. Today’s customers are overrun with surveys, emails and special offers tempting them to share their views. Low engagement and dropout rates are a growing challenge. There is also a huge risk that the data customers share across the many channels now available to them gets stuck in disparate silos and spreadsheets, where it delivers zero benefit to the business.
So how can companies successfully get the insight they need and use it to drive their business forward? It all comes down to learning how to listen to customers – and how to effectively take action as a result.
Securing the voice of the customer and deploying the resulting insights can have a transformative effect on performance, profit and customer experience. But only if it’s collected and used in the right way.
For Critizr, that means a whole company approach. We view customer feedback as a driving force at every business level – from HQ to shop floor, not just in the marketing department. Our approach hands the keys to customer-centricity to front-line teams, making them more agile and effective. This local empowerment is the core factor in the success of our platform
. So, while Critizr generates feedback and insight for senior management to plan for the long term, staff in the field can quickly and efficiently take action at local level – doing what it takes to solve problems, win back dissatisfied shoppers and drive loyalty and revenue.
The money story behind local empowerment is compelling. A recent study conducted by Critizr in conjunction with the CX Institute assessed the value of improving customer experience. Our study showed that 53 per cent of customers who’ve had a bad experience can be turned into promoters if their issue is addressed within 48 hours. Promoters spend more, are more loyal and will actively advocate on a brand’s behalf.
Critizr’s experience with leading brands across Europe proves the positive results of transforming all employees into powerful customer champions in their own outlet. On average our clients see a 10-point increase in NPS (the Net Promoter Score, one of the most effective customer satisfaction metrics for modern businesses) in their first year of working with Critizr.
The future of retail relies on businesses and brands using customer experience and feedback to differentiate themselves, drive value from their retained customers and ultimately increasing the bottom line. What better approach could there be than to empower the entire organisation to truly understand what customers want – and then to take action to provide it.
By Douglas Mancini, VP Sales EMEA, Critizr
To understand how to empower your whole organisation using customer feedback with Critizr click here.
Today more than ever before, businesses need to look for new places to unlock additional revenues and margins. This search isn’t new and finding that competitive edge gets harder every day. And the more efficient the business is, the more it has to search for small, incremental improvements to processes, people and systems.
The modern CEO is challenging every small aspect of their business, opening their business models to customers and developers, really listening to their feedback and adopting these changes with a view of “try, and if you fail, fail quickly, get up and try again”. Every part of the business is up for grabs, breaking tradition, inventing new models and partnerships, squeezing out every last drop of opportunity – these are the changes needed to remain ahead of the competition today.
Despite so much energy being spent on finding new ways to extract value, there are still unchartered waters: payments. Today’s CEOs still see payments as a necessary evil, an annoying cost of doing business. And yet every CFO worth their salt will tell you that payments (and the underlying transactions) are the single source of truth in doing business. Lost in layers of old legacy technology is a treasure trove of transactional data that unlocks value for any organisation.
The payments industry itself is being disrupted, as regulation and near-constant technology disruption exerts pressure to evolve. Regulations such as PSD2, GDPR and open banking, coupled with advancing technology such as AI and robotic advice, are driving traditional players towards “marketplace” banking, or banking-as-a-service (BaaS).
This is pushing payments providers to make a choice between being a value-added service provider to customers, or simply the connection point between customers and third-party providers, modern-day explorers smashing down the traditional banking status quo with bold, new customer-led products. The success of current banks and payment providers will depend largely on how quickly they adjust to these conditions and their ability to innovate in response.
The secret will be a sincere interest in third parties and taking a fresh look, not only at their marketing models but, more importantly, their operating models and leadership. Traditional incumbents caught up in legacy technology and bureaucracy, after all, are not as agile as challenger banks and fintechs. In 1999 the top brands were Coca-Cola, Microsoft and IBM, followed closely by Nokia, Marlboro, McDonalds and Mercedes. Things look very different today, and the days are numbered for those not developing every day and modernising at scale. It will not come as a surprise that today’s incumbents may not be tomorrow’s leaders.
This is especially true given that players such as Google, IBM, Apple, Samsung, Facebook and Microsoft are exploring the introduction of their own payment platforms, establishing trust by using their mega brands and their deep understanding of ecosystems, user needs and subscription revenue models. In this new world, you are the product, a valuable dataset of opportunity.
So, what does this all mean? With the boardroom conversation shifting to find better ways of understanding customers and challenging current operating models, payments provide an opportunity to grow your bottom line. Payments remain the lifeblood of any business, and the good news is that there is a journey of discovery throughout the ecosystem of transactional data that is lined with gold nuggets. You just need to know where to look and have the right team to help you unlock it.
by Vaughan Owen, Chief Marketing Officer, Acquired.com
Does your current payment provider help you do better business? Do they understand your unique needs? And are they simply taking margin, or helping to unlock real value?
Using deeper data understanding, partnerships and award-winning technology, Acquired.com is disrupting the payments status quo, delivering exponential hidden margin through better payment strategies.
The promise of machine learning brings new opportunities and new questions to many facets of life, from autonomous vehicles to the media and marketing algorithms that present content to us online.
These technologies are now gaining momentum in the financial services sector, most prominently in areas of application that include analysing credit risk and detecting illegal activity such as money laundering and fraud.
At the Institute of International Finance (IIF), we’ve analysed our member financial institutions’ applications of machine learning through a series of surveys. Focused on machine learning applications in credit risk, surveys in March 2018 and August 2019 provide insights into the continuing evolution and progress of techniques such as gradient boosting and random forests.
The latest survey shows a sharp increase in the number of banks running pilot projects with these techniques, up from 20 per cent to 45 per cent. Although there has only been a modest increase in the number of banks using machine learning in production (up from 38 per cent to 42 per cent), the sophistication of these models has increased markedly.
Equally significant is the progress in the breadth of application across customer segments. In 2018, machine learning was primarily used for credit decisioning in retail portfolios, and with some other applications in credit monitoring in the wholesale and large corporate segments. This represented something of a bimodal distribution, where banks had large pools of existing structured data on retail customers, while there are new sources of unstructured data (such as external news services and supply-chain data) available for large corporates, where natural language processing can be applied.
But while there hadn’t previously been activity in the segments in between, 2019 has seen a sharp increase in usage for small and medium-sized enterprises (SME) portfolios, up from 8 per cent to 40 per cent of banks (see Figure 1).
More broadly across all customer segments, credit scoring and decisioning remains the most prominent area of application, but we’ve also seen significant growth in credit monitoring and the early warning signals for deteriorating credits, up from 13 per cent to 57 per cent of respondents, including the 25 per cent of surveyed firms that are using this in production. One notable initiative is at Scotiabank, where machine learning is used to identify credit card customers that may have trouble making their next payment. This is then used as the basis for proactively approaching those customers and offering them alternate arrangements, a move that has reduced arrears by 10 per cent.
The benefits (both expected and realised) of machine learning have been stable across years, including improved model accuracy, overcoming data deficiencies and inconsistencies, and discovery of new risk segments or patterns. However, banks’ perceptions of the key challenges in implementation have evolved considerably, encountering and identifying more challenges as their knowledge and familiarity with the technology has increased.
While data management (specifically bringing data from disparate sources into a single data lake), IT infrastructure and competition for the necessary human talent all remain challenges to completing a successful implementation, there is increased emphasis on supervisors’ understanding and consent to use new processes.
This reflects the fact that while banks have been becoming more mature with the technology, so have regulators, and so the nature of their scrutiny has matured with that. While the added scrutiny may intensify the challenges that banks could face in innovating, the fact that supervisors are increasingly able to ask the right questions is welcome and is beneficial for the future of safe innovation within the broader ecosystem.
Given its power and potential impact, machine learning requires a collaborative effort between the industry and the supervisory community to ensure that it protects customers without stifling its adoption or stalling innovation in the financial sector. Pilot projects that explore and test new innovations warrant encouragement from policymakers and supervisors, and it is heartening that the 2019 survey shows both the dramatic expansion of such pilots, and significant engagement between banks and their supervisors.
For more information please see the IIF Machine learning in Credit Risk 2nd Edition report here.
Toucan founder and CEO Bailey Kursar talks about a new app that’s opening up avenues to help vulnerable people better manage their finances
Today’s fintechs and challenger banks tend to focus on streamlining, improving and jazzing up dusty, long-ignored legacy banking products for more demanding modern audiences. Open banking regulations have since widened the horizon of what’s possible even further. And, with new apps that let savvier Millennial and Gen-Z customers manage their money and transfer cash instantaneously via smartphone, or check multiple accounts from single aggregator apps such as Yolt or Emma, consumer banking seems to have finally dragged itself into the 21st century after decades of not having changed much at all.
But the fintech revolution is also a chance to cater to the parts of society that have never truly been provided for by financial institutions. It’s in this spirit that Toucan, an app that helps vulnerable people who might feel overwhelmed by their finances by updating a trusted friend or relative when they might need a helping hand, was launched. Business Reporter talks to Toucan CEO Bailey Kursar about what inspired her to build the app, which was recently selected as a finalist for the Nesta Open Up 2020 challenge, and how Toucan fits into today’s rapidly evolving fintech landscape.
What were you doing before you decided to launch Toucan?
We’ve been working on it for about a year and a half, properly for about a year – the team came together in March so it’s starting to feel like we’ve around for a while! I’ve worked in the fintech industry for about nine years. I really fell into it, to be honest. For me, financial services exclude a lot of people, but I think that technology and the kind of start-ups I’ve been involved with in the past are really helping the industry change and move forward, and create products and services that work better for more people.
I was working as a consultant doing some really interesting projects but found myself [thinking] there were probably bigger [opportunities] to do good, impact-driven things with the skills and knowledge that I had. So a lot of what 2018 was for me was, what does open banking – this new technology which enables us to do what we do – actually lead to for the millions of people out there who are on low incomes or in vulnerable circumstances?
I was very much on a journey, yeah. I myself had mental health problems so I understand the impact that can have on my and others’ ability to manage their finances. I did a little bit of work with a charity called the Money and Mental Health Policy Institute when I was at Monzo, and after I left Monzo I kept in touch with them and kept reading their reports. So the initial thing that Toucan started as really came out of one of their research reports, which looked into the inadequate servicing of carers, and how carers can effectively help those that need caring for.
I took the idea to a hackathon, which is an event that tech nerds like me go to, and the idea won, and I got the support of Santander bank and a little bit of money and kind of developed it from there. And then Nationwide had a separate programme and money I was able to get hold of towards the end of 2018, and that was what really kicked this off for real. Since then, our number one focus last year was getting the first version of the app out and testing it with some real people who live with mental health problems and their carers. So the original place it came from was very much like I felt a bit stuck doing quite commercial things, and I felt like some of my own personal experiences could have a benefit.
How is Toucan different from other financial management apps such as Yolt or Emma?
Toucan is an app that helps carers manage the money of someone that they’re caring for, or offer support for someone that they’re caring for in terms of money management. So the tool really allows that collaboration and communication between those two people.
It also replaces what is quite a risky way of delegating access to finances for more than six million people in the UK who are affected by dementia, learning difficulties or mental health problems. The most common thing for them is to delegate access to their finances to a carer or someone they trust using their online banking credentials. And that opens them up to financial abuse and fraud, and it breaks the bank’s T&Cs.
What we believe we can do is use open banking to create a much safer tool to help that collaboration take place. But it also helps safeguard the person in the vulnerable circumstances and gives them back their dignity. They might not need to give full access away, they might just want a little bit of help. Toucan is designed for that spectrum of needs, for people who need that support.
How does Toucan actually work?
Right now, the app does something really simple but very effective. It sends alerts based on spending activity or unusual transactions to someone in their personal life that they trust. And so the person – currently the app’s been built with people with ongoing mental health conditions in mind – downloads the app, they connect their bank account to that app, and they can then set up various alerts based on rules that we suggest to them.
They have a lot of flexibility with that. They invite someone else to receive those alerts, who we call a trusted friend, and once that consent has been given, text message alerts will be sent to that other person and the alerts will appear in the app with the ability for the person in vulnerable circumstances to access support if they need it. So right now we’re very much based around how people can get that kind of support through alerts. The next phase [involves] building out an app for the carer or trusted person for them to then be able to access more information, say transaction details or account information.
It sounds like you’re building on simple but effective beginnings to something bigger. Are there any other plans?
If you think about how someone who has an ongoing mental health condition might want just a bit of light-touch support – the current app works really well for that. But on the other end of the spectrum you’ve got people who need a lot of extra support, or need to delegate access entirely. And so on our road map is a range of different tools that might all live in the same app. Ultimately you will then have the ability to share all of the access with a spouse or carer but also do things like set up a separate debit card on the same account so that that person can safely spend a small amount of money on your behalf, that kind of thing.
Would you see yourselves as more of a support network than a fintech company, or a combination of the two?
It’s a good question. I talk about us as a fintech because that’s the world that the team comes from and it’s a world I know well. We are a for-profit business that supports vulnerable customers of banks, so yeah, I suppose we are a fintech. Ultimately, though, in the future we would exist to become something more akin to that support network – you could see how in the future you could involve relevant charities or local authorities in that kind of support structure. But we’re talking much further down the line.
Your website includes advice for the trusted person – is that the beginnings of that process?
Absolutely. I think enabling really good support between those two people is quite hard. I think tech is kind of a two-edged sword. [It gives us] the ability to keep accountability and visibility all in one place so it’s not as open to fraud and abuse. But then you’ve also got how humans interact with each other as a problem. The kinds of people that we talk to when we’re testing our products, they’re in quite difficult circumstances, the carer and the caree, and how they interact with each other and maybe have those difficult conversations. When you go on the website, we’re trying to help those people with those conversations.
Do you think there’s been a shift in attitudes towards banking in the last few years – especially since fintech companies have come onboard – in terms of people from the Millennial generation onwards wanting it to be less impenetrable?
Definitely. I think a lot of them are quite focused on how they as a bank can align with potential users or their users’ values. They see themselves as needing to be doing more for a wider group of people, and [are] partly forced to by new challengers coming in. But also I think the values of this younger generation are much more aligned with [making] consumer choices based on whether the company aligns with those values or not. So it’s something that we’re seeing.
I think the big thing for us as a business is that, thankfully, at least in this country and also in the EU, vulnerable customers are a growing concern of the regulator. The FCA is kind of forcing banks to reconsider how they design products and service these customers. Which for us is really important, to go into banks and say, actually, we can help you do this, and do it really really well, and take that off your plate. But yeah, I have seen, definitely within the industry, change in the last ten years. I think just the existence of these new challenger banks have forced the bigger retail banks to up their game.
It’s interesting that you’re approaching it as a communications tool rather than just making a product. Would you agree peoples’ struggles with personal finance isn’t something that’s been addressed terribly well until now?
I think part of what really pushed me to start this business was that the majority of the online open banking or aggregator apps that you might see are really great products, but they’re mainly built for people who are quite affluent and urban. I think that’s a really valid audience to design for but for me it’s much more interesting to look at audiences who are coming from it completely differently, so you might be living on benefits or have very low income or just be incredibly time poor. I think tech in general could do better in terms of thinking outside the urban, affluent box that we’ve been putting ourselves into.
Are legacy banks failing to provide people with the products they need, or have they started to catch up?
I think legacy banks are doing better. And again, it’s very much because they’re being pushed by industry forces. So you see retail banks now with money being poured into innovation labs or partnerships that they have with fintech companies or big consulting firms, and I think there’s lots of really good things coming out of that. But often it is just about taking what was quite a poor service and making it… adequate! And so I do still think there’s a lot more we can do when we start considering all those business cases that haven’t had a chance. There are over six million carers in the UK, the vast majority of whom are unpaid, doing this on top of their work and in between other things. And they have no financial products built for them, in terms of helping their caring. That’s mind-blowing for me – there are products that help you round up whatever you spend at Tesco, but we’re not thinking about those other really big use cases that really change peoples’ lives.
Are there any other apps you’re a fan of?
I used to be part of a playground called Open Banking For Good, which funded us through Nationwide, and there’s been a couple of apps that help less well served people. There’s one called Tully, which helps people create a debt payment plan. [It] hooks up to your bank account and recognises the debt you want to repay and creates a plan based on what you’re spending.
We also share the office with a company called Trezeo, who help gig economy workers and freelancers smooth out their income and cover themselves insurance-wise for sickness, so they’re doing tech-for-good but in a slightly different way. I think the tech-for-good area is a really interesting one, and I think definitely worth having a think about.
Source: Dan Geary, Business Reporter
2020 is set to be defined by technological innovation, financial wellness and an elevated customer experience, says Oana Ifrim, senior editor at The Paypers.
The banking industry is experiencing a tremendous wave of innovation, with new technologies impacting legacy banking models and consumer expectations, changes in the way financial institutions engage with consumers across their financial lifecycle, and fintechs making banking customer-centric.
So what are some of the most important trends to watch in 2020?
2019 was sure to bring optimism and excitement to bigtechs. It was mostly about laying groundwork and was a year of growth. Apple announced a credit card created in partnership with Goldman Sachs. Facebook announced Facebook Pay, available on Messenger, Instagram, WhatsApp and Facebook itself. Uber announced a new division called Uber Money, which includes a digital wallet and upgraded debit and credit cards.
For 2020, Google plans to offer “smart checking” accounts to US customers in conjunction with Citigroup and the Stanford Federal Credit Union. Facebook, meanwhile, is continuing its plans to introduce its digital currency Libra, which is designed to make global payments cheaper and faster.
2020 brings a new generational priority: Generation Z customers.
Gen-Z customers have a new set of priorities and preferences. Born between 1996 and 2010, the generation expects digital experiences to be cool, awesome, and immersive. They are more interested in digital payments products, especially ones that offer multiple touch points and personalised interfaces.
Finding fresh niches, modernising the processes and exploring new digital avenues for communicating with customers are just some areas where banks can start. A number of fintechs are already rolling out mobile banking, credit apps and financial literacy tools that help Gen-Z to manage money and save for the future.
Customer expectations always include speed, convenience and transparency. Both end-consumers on one side, and banks on the other, are vehicles for innovation when it comes to real-time payments, as consumers demand that the products and services they interact with trigger a near-instantaneous response. A sure trend for this year will be a shift from real-time payments being a new trend, to being an expected element of the status quo.
Moreover, banks have a winning chance at this game only if they create competitive environments for real-time payments to strive in, adhering to such corporate policies and focusing on rejuvenating their systems so that instant payments cease to be primarily the preserve of neobanks and fintechs.
Services such as request to payment (RtP) are aimed at enriching the payments landscape. In the UK, Mastercard will launch its RtP solution, which enables consumers and businesses to receive payment requests and view bills and pay with real-time payments or card.
Moreover, EBA CLEARING has announced the development of pan-European request to payment infrastructure solution. Its delivery is supported and funded by 26 financial institutions from 11 countries, to go live in 2020.
With cyber-threats continuously evolving and becoming progressively more sophisticated, organisations are becoming increasingly aware of the threat of cyber-crimes and the importance of cyber-security.
Making sure the privacy and security of personal data is safeguarded continues to pose several challenges, considering that data breaches are almost daily news. In 2020, data breaches, a shortage in cyber-security talent and changes in data privacy regulations will remain top technology trends in banking.
Customer experience is a competitive driver of growth. Artificial intelligence (AI) can be helpful and deployed to deliver a better and more convenient customer experience, resulting in greater satisfaction and competitive differentiation.
In order to develop a successful customer experience strategy, you need to start by having a clear vision, then understand and relate to your customers. In this context, leveraging AI can help accelerate this in-depth level of comprehension of the market.
For more information, click here.
How can top financial services management embrace diversity and financial technology innovation while facing the potential risk of a global recession triggered by the Coronavirus pandemic?
The financial services sector is evolving rapidly, with a growing number of new entrants in the form of fintech start-ups and tech giants disrupting the status quo. Many fintech companies compete with established financial players, while other business-to-business fintech firms look for collaboration opportunities. Running a successful bank, insurance company or asset manager has never been harder, with so many competing financial and non-financial targets to be met in a highly regulated environment – and many strategic options for strengthening an institution’s competitive position exist.
On top of that decreasing trade flows have already reduced the economic outlook due to the coronavirus pandemic, led to a capital markets crash not seen since the last financial crisis and the risk of a global recession becoming more likely.
At a time of crisis leadership matters. What all financial organisations have in common now is that corporate governance and the role of their boards becomes more important, especially in today’s world, with pressure on profit margins, faster market cycles, constantly changing customer demands and complex and costly compliance and regulatory environments.
A well-rounded and diverse board offers not only relationships, expertise and credibility but can also fill important knowledge gaps and add strategic insights to complement the executive team with broader customer understanding and financial technology know-how. It’s crucially important today that boards understand the potential applications of fintech innovation and have experience in deploying new business models and agile working practices to transform organisational cultures if required.
The Institute of Directors summarises the goals of boards as follows:
When everything around you changes – as we can see in finance today, and accelerated even further by the spread of Covid-19 – establishing the vision, mission and setting the corporate strategy becomes much harder. This is true for both fintech companies and incumbents but in different ways. While fintech companies often have strong technology understanding thanks to their founders and their executive team, they might need to complement that with more commercial, financial or compliance and regulatory know-how. On the other hand, established financial institutions often want to complement their existing ranks with financial technology expertise, to better understand the strategic options ahead. Both have shifted towards remote working models so that employees don’t have to commute and can self-isolate if required.
In terms of gender diversity among their senior executives and board members both have a lot to improve.
Heidrick & Struggles published a report, Closing the Gaps in Fintech Boards, last year, which analysed fintech companies from early stage start-ups to late stage pre-IPO growth companies. It concluded that among fintechs there is a strong demand, but only limited talent pool, for “operational leaders-turned investors […] The value these individuals bring comes from extensive operating experience – often in CEO, general manager (GM), or chief financial officer (CFO) roles. More recently, many of these individuals become active investors in fintech. This talent pool is relatively new in financial services and fintech.”
The same report explained that 50 per cent of later-stage growth companies have at least one woman on their boards. In other words, 50 per cent have an all-male board. This lack of diversity, not only among the established financial services sector but also in the new fintech sector, is a big concern. According to The Harvard Law School Forum on Corporate Governance’s 2019 report, Views from the Steering Room: A Comparative Perspective on Bank Board Practises, “an appropriate mix of professional backgrounds and profiles enable boards to consider strategic matters from various angles – including the angel of clients; to think out of the box; and to avoid groupthink. In other words, diversity is good – not only gender but also skillset and cultural diversity.”
So how can financial institutions help themselves to become more diverse and more knowledgeable about financial technology and changing market dynamics, in order to be able to respond responsibly and creatively to the coronavirus challenge and develop scenario plans depending on various possible economic outlooks?
The answer to the first question is easy – hire more women and non-white board members to add a diverse skillset to your boards and leadership teams. The 30 Per Cent Club has done a great job in promoting board diversity. Its vision is that “gender balance on boards and in senior management not only encourages better leadership and governance, but diversity further contributes to better all-round board performance, and ultimately increased corporate performance for both companies and their shareholders.”
A diverse board will be better prepared to deal with a global economic slowdown and the resulting uncertain economic future – things we are all currently facing.
In terms of fintech knowledge, the Fintech Circle Institute runs fintech masterclasses for leading financial institutions. The classes look at the market in a holistic way, centred on the idea of the “Fintech Cube”…
When we analyse new fintech companies, we always ask the following three questions to determine the competitive landscape the start-up operates in:
Equally, when developing an innovation strategy for a corporate, it is important to stay client focused – for example, ask yourself where the biggest value opportunities for customers and end-users are, or what the overall value framework is. The client demand normally determines the first. Then, optimum business model and technologies must be designed and selected to provide the best overall solution to create value for the client.
Fintech skills and diversity for finance boards are invaluable both short- and long-term, as the competitive environment for financial institutions changes rapidly, and having the brightest minds at the boardroom table to prepare for a global slowdown or recession becomes more crucial. New skills and strategies can be better implemented by a board that has already put gender, skillset and cultural diversity at the forefront.
by Susanne Chishti, CEO FINTECH Circle & FINTECH Circle Institute
In the last decade, we have started to see examples of machine learning appear throughout public services. The Met Police are using AI in their facial recognition technology. Health Secretary Matt Hancock has advocated for a chatbot service for healthcare triage. Blackpool Council is using artificial intelligence (AI) to detect road damage and deploy repairs.
Such examples represent only the beginning of opportunities presented to the public sector by greater adoption of AI. In two thirds of jobs, it’s estimated that around 30 per cent of tasks could be automated by AI.
Let’s face it, no accountant (or very few at least) goes into the public sector because they just love financial reporting. They certainly don’t do it for the pay. Those who choose a career in public service are largely driven by a different ethos, namely a desire to make a difference. The introduction of automation could mean that many of the tasks that pull finance professionals away from activities specifically dedicated to public service could be removed from their roles. This could provide more time in the day for the more compelling parts of the job that machines cannot replace, including strategic thinking, stakeholder engagement and problem-solving, as opposed to mundane data procurement and organisation tasks.
AI can also help eliminate human error and fraud through effective and consistent pattern recognition in data analysis. The best technology is able to handle very large datasets, making it scalable to a number of different industries and sectors.
This is not to say that AI doesn’t present risks. While it’s unlikely the robots will be taking over anytime soon, it’s important to remember that these technologies are being developed by humans who themselves are capable of error and inherent subconscious bias. A study by the AI Now Institute (New York University) attributed the existence of flawed systems that perpetuate gender and racial biases in part to the fact that the AI field is largely dominated by white men.
Examples cited in the report included image recognition services making offensive classifications of minorities, chatbots adopting hate speech, and Amazon technology failing to recognise users with darker skin colours. As the public sector strives to improve its approach to diversity and inclusion, it’s important for developers and users to be aware of these broader issues when adopting technologies that could be perceived as a means of objective decision making.
CIPFA’s research has shown that one of the main issues affecting public sector workforce retention is a perceived lack of development opportunities.
Risks and benefits aside, compared with the pace of change across the rest of society, adoption of AI in the public sector is relatively slow. There could be a number of reasons for this. Most public services are facing high levels of financial pressure, with resources being prioritised towards statutory duties rather than investment in innovation.
Additionally, with new technology comes the requirement for new skills in public sector workplaces. This skills gap can be a substantial barrier to early adoption, however we can see evidence of public sector organisations recognising the need to address the issue. In 2017, 58 per cent of public sector organisations surveyed by CIPFA felt that tech expertise would be a priority financial skill in ten years.
Bridging this gap will take time and resources, though in itself presents a further potential opportunity. CIPFA’s research has shown that one of the main issues affecting public sector workforce retention is a perceived lack of development opportunities. This need for a shift in skills presents an opportunity to offer what many staff may feel is lacking in their working lives.
AI has moved from the labs into businesses, and into our homes. Many people now have an Amazon Echo in their living rooms, Siri on their iPhones… it’s even possible to purchase a smart toaster that will learn your specific desired level of “done-ness”! Suffice to say, AI has come a long way in a relatively short space of time, and people naturally expect services, both public and private, to keep up with the times.
The adoption of AI represents both risks and opportunities for the public sector, which has historically been a latecomer to technological change. However, as the world and the workplace become steadily more digital, it is vital that the public sector continues to move with, if not ahead of, the tide.
by Rob Whiteman CBE, CEO, CIPFA
For more information, click here.
Lesson 1 ) Data chaos to data exploitation – https://vimeo.com/373472779
Lesson 2) Regulatory compliance – https://vimeo.com/373473972
Lesson 3) Digital disruption and the finance department response – https://vimeo.com/373474348
Lesson 4) Cloud finance – are finance departments embracing the cloud? – https://vimeo.com/371654797
Lesson 5) Efficiency and agility – https://vimeo.com/371654296
In most cases, CFOs have watched as departments around them have taken steps – or leaps – into the digital world. Sales moved quickly to SaaS-based CRM solutions, manufacturing has embraced IOT technology to improve processes and decrease waste, and customer service teams use robotic processing automation (RPA) to more quickly and efficiently respond to enquiries and issues. These moves have certainly brought improvements, but any digital transformation that leaves behind the finance department is incomplete. A finance department is typically hampered by siloed data, legacy systems, manual processes and backwards-looking reporting. This prevents it from leveraging the valuable data the finance function holds and limits its ability to provide the strategic foresight needed to empower and transform the business for success in this digital age.
A finance department that is truly digital has a few identifiable traits. Data is centralised, granular and accessible across the organisation. A trusted data foundation is available for use by cognitive tools such as machine learning and natural language processing. With data now unleashed for use by departments other than finance, its value grows. A fully digitised finance function also has complete control over day-to-day and regulatory operations. It has systems that support a transparent view of data and data lineage and automated, real-time reporting. New business models, mergers or compliance demands can be addressed with agility. Finally, digital finance departments have overcome the inertia and resistance to change that have plagued CFOs when it comes to cloud, and taken a strategic approach to implementing cloud solutions. The benefits of moving to the cloud are widely acknowledged, and cloud-native companies are leading the way in increased revenue, financial performance, improved business agility and enhanced customer experiences.
The promises of the digital age are not coming – they’re already here. CFOs and finance departments need to push their organisations to take advantage of every opportunity to evolve their data, systems, processes and people to support business growth.
For more on how Aptitude Software is creating a world of financial confidence, please click here.
Some say that fear is an acronym for Future Events Appearing Real. And one of the biggest fears of banking executives is that the four large tech titans – Amazon, Apple, Facebook and Google – will move into banking and come after their clients.
That fear appears to be becoming very real. Amazon already offers several different payment and credit products to customers and merchants. Apple has launched a credit card, in addition to the highly successful Apple Pay. Facebook now has Facebook Pay and is making moves to create a new stable crypto currency called Libra. And Google is looking to offer consumers checking accounts through Google Pay.
What we should be most frightened about with the tech titans’ move into banking is that none of them are banks. Instead, they are building out their offerings through partnerships with existing banks such as Citi, Chase and Goldman Sachs. This allows them to largely avoid the regulatory and compliance costs (and headaches) that come with a banking licence. Secondly, the tech titans don’t need to make money on their banking services. ROE in banking isn’t what it used to be, and net interest margins are declining – but the tech titans are making their money elsewhere anyway. For them, it’s all about creating new value by integrating and leveraging banking services into their other products.
Instead of fearing the tech titans, we need to learn from them to prepare for the future. While they are each very different, their commonalities present crucial lessons for business and digital growth that traditional banks should emulate. Specifically, we can learn from the titans as they:
Alyson Clarke is a Principal Analyst for Forrester Research. Learn more about Forrester’s research on the Future of Banking.
Over the past two years, PSD2 and open banking have been rolling out across Europe, bringing with them exciting changes for consumers and businesses alike. The latest developments in PSD2 have opened up even more exciting opportunities with payment initiation services (PIS). These changes in the payments landscape are perhaps most relevant for merchants, who have the potential to benefit greatly where both finance and resource are concerned. But which industries have the most to gain?
To be able to answer that, we need to take a close look at what PIS is. At its core, it’s a bank transfer system, albeit a more secure and more user-friendly one. Once a customer decides to complete a purchase, the merchant’s website or app initiates a payment with PIS and shows the customer the sign-in page for their own bank. Once the customer signs in – without having to share sensitive personal information – he or she can complete the payment. Simple, safe, and lightning-fast.
The reigning king of online payment methods is, of course, the credit card. But offering PIS can be a great cost-saving alternative for many businesses. Let’s take a look at when that would make sense:
What is the balance of payment methods for your customers? And what role could PIS play in your business model? Now that open banking – and its EU equivalent, PSD2 – have come into full force, the opportunities for merchants are only growing.
Are you interested in adding open banking to your services? Yolt Technology Services, the leaders in open banking, would be happy to discuss where to start.
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3-D Secure is a protocol designed to be an additional security layer for online debit and credit card transactions. It brings a new approach to authentication through a wider range of data and the addition of biometric authentication.
An Account Information Service Provider (AISP) can be a bank or a non-bank providing account information services to customers through APIs within the open banking framework. Two years after the launch of open banking, the overwhelming majority of third-party providers have an AISP licence, which is easier to take out and entitles its holder to perform lower-value financial services than the one for payment initiation services (PIS).
An Application Programming Interface (API) is a software intermediary that allows two applications to talk to each other. APIs are also intended to simplify the implementation and maintenance of software. APIs can be open (publicly available) or premium, which financial institutions can charge for.
Acquirers are banks that process credit or debit card payments on behalf of merchants. They acquire transactions on card networks, which connect acquirers with issuers.
A card not present (CNP) transaction is one where the shopper does not physically present a bank or credit card. Examples include online payments, in-app payments and MOTO (mail order/telephone order) transactions.
The Competition and Market Authority (CMA) is a UK competition regulator with the responsibility of increasing business competition and reducing anti-competitive activities such as price fixing.
The CMA9 are the nine largest banks in the UK, as determined by CMA as part of the open banking initiative. The group includes Bank of Ireland (UK), Barclays Bank, HSBC Group, Lloyds Banking Group (including Bank of Scotland and Halifax), Nationwide Building Society, Northern Bank Limited (trading as Danske Bank), RBS and Santander UK.
Account Servicing Payment Services Providers (ASPSPs) are banks and similar institutions authorised by open banking to publish APIs enabling consumers to share their account transaction data with third-party providers such as fintechs.
Environmental, Social and Governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business, by helping to better determine the future financial performance of companies.
Financial inclusion is the opening up of banking and financial products to the less affluent, more remote or more vulnerable parts of society who have previously been underserved or ignored by financial institutions. For a detailed recent analysis, click here.
Fintech refers to the integration of technology into offerings by financial services companies in order to improve their efficiency and delivery to consumers.
A gateway is a software link that provides the interface between merchants and acquirers.
A green bond is a new type of fixed-income instrument which is specifically earmarked to raise money for climate and environmental projects, typically in the energy, transport, waste management, building construction, water and land use sectors. The global figure for progressive green bond and loan issuance was at $202.2bn (£160bn) as of October 2019.
A card issuer is a bank or other financial institution that issues branded payment cards to consumers.
A merchant is a retailer that agrees to accept payment cards to fulfil an order for goods or services.
A novo-bank (or de novo bank) is a newly chartered bank that is not acquired through purchase. Novo-banks have seen a resurgence in recent years following a major downturn in the wake of the 2008 financial crisis. De novo banks have historically had a larger proportion of SMEs in their portfolios than have incumbent banks.
The Open Banking Innovation Entity (OBIE) was set up by the CMA to design and implement open banking in the UK. It had a major role in developing standards and definitions for the APIs, security and other elements of the open banking ecosystem.
Launched in February 2018, open banking is the UK’s version of the EU’s second Payments Services Directive, or PSD2, which was designed to enable the entry of fintechs into the financial sector, as well as to create more transparency, choice and security for customers. The concept for open banking was born in 2015, when the EU and UK decided that there was a need for greater competition in the payments industry.
Peer-to-peer (P2P) lending is the practice of lending money to individuals or businesses through online platforms that match lenders with borrowers. P2P lenders are also called marketplace lenders (MPLs). Peer-to-peer lending cuts out most of the intermediaries and pays higher interest for investors, as well as posing higher risks.
A payment initiation service provider (PISP) is a company providing payment initiation services to customers through APIs within the open banking framework. It’s expected that the full potential and disruptive power of open banking will manifest itself when payment initiation services have scaled up.
Project Innovate is an FCA scheme that aims to tackle regulatory barriers to allow firms to innovate in the interest of consumers.
The regulatory sandbox allows the testing of new financial products, technologies, and business models under a set of rules and regulatory oversight with appropriate safeguards in place.
The UN’s Sustainable Development Goals (SDGs) are a set of 17 targets set by the UN in 2015 to serve as a blueprint for governments and businesses to achieve a prosperous and socially, economically and environmentally sustainable future. The SDGs were adopted by all EU member states and are intended to be achieved by the year 2030.
The Sustainable Digital Finance Alliance (SDFA) was launched by Ant Financial Services (former Alipay), the highest valued fintech company in the world, and the UN Environment Programme (UNEP), to leverage the potential of digital finance and fintech-powered business innovations to better align the global financial system with the needs of sustainable development.
TPPs in open banking are third party providers, who – either as an AISP, a PISP or both – access consumers’ banking information through a bank’s open or premium API.