Below Gemma Platt, Managing Executive for Vigilant Software, discusses with Finance Monthly how we can restore consumer trust in the age of disruptive banking using better compliance measures.
Atom Bank launched publicly in April 2016 and secured total funding of more than £200 million by the following year, specialising in savings accounts and mortgages. In April 2017, online bank Monzo had its UK banking licence restriction lifted, allowing it to offer current accounts for the first time. Tandem, Starling Bank, Loot and Revolut are more digitally led financial services brands that didn’t exist a handful of years ago.
Changing consumer behaviour
Meanwhile, research by Accenture has shown that customers’ physical interactions with traditional banks are decreasing; from 2015 to 2018, the number of consumers who visit branches at least once a month dropped from 52% to 32%. Over the same period, the number of consumers who use ATMs at least once a month dropped from 82% to 62% – a decline of nearly a quarter.
In many ways, these shifts are unsurprising. We live in an increasingly connected world. As mobile devices become more powerful, and the networks connecting them faster, banks can offer better functionality to customers anytime, anywhere. If the goal is to put customers first, to tailor services to suit them and to work with their daily patterns, digital technology is a great enabler.
However, just as the digital era is disrupting the ways in which consumers engage with their banks, it is also disrupting the trust those consumers have in their banks.
Wavering trust levels
Trust, as all financial organisations know, is the foundation of their relationship with customers. When trust fails, so do banks.
According to Accenture, consumer trust in banks has been rising steadily, and is now at its highest point since 2012. It seems likely that, following the 2008 global financial crisis and subsequent recession, consumer relationships with their banks have stabilised.
However, at the same time, consumer concerns about cyber security and online fraud are on the increase. PwC research in 2017 suggested that a massive 85% of consumers would not do business with a company if they had concerns about its security practices, and 71% said that they found companies’ privacy rules difficult to understand. This was before the introduction of the GDPR (General Data Protection Regulation), which has shifted the issue of personal data protection into mainstream consciousness.
Similarly, the Ping Identity 2018 Consumer Survey: Attitudes and Behaviour in a Post-Breach Era, which surveyed more than 3,000 consumers in the UK, US, France and Germany, found that one in five of them had fallen victim to a corporate data breach, and just over a third of those had suffered financial loss as a result. Unsurprisingly, the survey also found that 49% of consumers would not engage a service or application that had suffered a recent breach.
Where banks are digitally led, two areas of trust collide. Customers might have more faith that their banks are reliable, well run and unlikely to collapse, but are simultaneously more fearful of the wealth of risks and threats in the online world, from the theft of their personal data to viruses and malware that can attack their personal devices.
Where banks are digitally led, two areas of trust collide. Customers might have more faith that their banks are reliable, well run and unlikely to collapse, but are simultaneously more fearful of the wealth of risks and threats in the online world, from the theft of their personal data to viruses and malware that can attack their personal devices.
Furthermore, research into the security posture of banks and other financial services organisations suggests that consumers may be right. When the Economist Intelligence Unit surveyed more than 400 C-suite executives at major banks around the world last year, it found that just under half of respondents believed that a cyberattack would cause “at least one systemic bank failure in the next two years as the digital transformation of the banking industry continues to automate the sector”.
In other words, as banks rely on digital technology more and more, whether to offer customer-friendly mobile apps; to automate manual processes to streamline management and reduce costs; or to take advantage of new innovations such as AI, Cloud computing and the Internet of Things, they expose themselves to ever greater levels of cyber risk.
‘Always on’ compliance
Digital banks – whether challenger brands that have entirely bypassed physical premises, or traditional institutions that have branched out into highly functional apps and websites – are ‘always on’. And this is precisely how they need to see their approach to cyber security and compliance.
Traditional approaches to regulatory compliance – whether with frameworks for best practice such as ISO 27001 or legal requirements such as the GDPR – tend to involve organisations undergoing a single period of reviewing, updating their tools and processes accordingly, and creating a record for audit purposes. This is repeated perhaps once a year to demonstrate that compliance is being maintained.
However, in a dynamic, digitally driven world, compliance needs to be dynamic and digitally driven too. This means undertaking compliance checks more frequently and maintaining online dashboards that offer a real-time snapshot of the current compliance posture and are automatically updated when elements of the organisation’s digital infrastructure are changed. Banks have embraced digital technology to offer their customers something new; the next step is to use digital portals, dashboards and compliance management tools to ensure a next-generation approach to building trust.
Even though those at the top stand to reap untold rewards with the right products, the 2008 financial crash has seen big businesses and regulators avoid the light-touch approach to innovation. Today, with 39 fintech firms valued at a combined $147 billion/£115 billion, safety and financial security are paramount. Indeed, with such much on the line, companies are now taking every precaution possible before launching a new product.
Fintech Creating a Safe Place to Play
With that in mind, the sandbox strategy has become a standard across the industry. A term taken from computer security, sandboxes provide a partition between a live network and a test net. By using a sandbox, developers can test new commands and isolate faults without compromising an existing system. Using this dynamic, fintech companies are now using sandboxes to ensure financial products are not only secure but performing in the way they’re intended.
Expanding on the use of partitions within fintech, consumers are being offered an ever-increasing number of sandbox options. From financial simulators to demo games, individuals can explore potential investments without putting their money on the line.
Turning Serious Investments into a Game
This idea of turning simulations into games is one that’s also been adopted by the gaming industry. With online casino gaming now worth in excess of $45 billion/£35 billion, more novices are now eager to explore the financial potential of the industry. However, with real money on the line, playing slots and the like is always a risk. Therefore, to mitigate any financial burden, free demo slots have become popular, as you can see here. Providing full functionality without the cost, these free-play games provide that same safe environment as virtual trading platforms.
Perhaps the most interesting sandbox innovation for consumers is the growth of free investment platforms. Running parallel with their real money counterparts, these platforms allow novices to invest in stocks, shares and contracts for difference (CFDs) using a virtual bankroll.
Perhaps the most interesting sandbox innovation for consumers is the growth of free investment platforms. Running parallel with their real money counterparts, these platforms allow novices to invest in stocks, shares and contracts for difference (CFDs) using a virtual bankroll.
In tandem with a virtual bankroll, financial simulators can be used to test the potential profitability of an investment. On a basic level, Monte Carlo simulations can be created inside Microsoft Excel. By entering certain values, the Monte Carlo method assigns probabilities to potential outcomes. Or, as described by Investopedia, Monet Carlo Excel spreadsheets can compute “the probabilities for integrals” and solve “partial differential equations, thereby introducing a statistical approach to risk.”
Similarly, by using products such as Countdown to Retirement, individuals can get an idea of their future financial status without crunching the numbers.
As a consumer, the benefits of these so-called sandbox options are obvious. By giving you ways to explore the financial sector without the cost, companies are not only reducing individual risk but their own risk. What’s more, they’re providing new opportunities for the uninitiated. By removing financial barriers and giving novices a safe way to learn, fintech has become a more responsible industry for all involved.
Paul Vick Architects recently won Finance Monthly’s Game Changers Awards 2018. They are a growing, agile practice based in West London. Their unique blend of skills and experience is backed up with a client-savvy world-view that sets them apart in their profession as does their 100% planning permission record on over 100 projects. The company’s Cambridge educated Director Paul Vick discusses the challenges faced by clients today.
What are the biggest challenges facing development?
Armed only with a commercial need, a strategic target, and an investment appraisal, risk and uncertainty loom large in the average construction client’s mind. Digital connectivity has laid bare how many different stories there are trying to make sense of the chaos of data and disordered world we work in. They have to stare through the fog of unknowns and lean on past performance, current valuations and economic indicators – any crutch, in fact, to mitigate risk. After all, huge sums of money are involved and whether they spend equity or take on debt, it all has critical implications for the wellbeing of their organisation.
And when the only constant is change, designing only for today’s conditions is a sure way to guarantee a sub-optimal solution.
What are the key issues clients face in relation to UK regulations and what are the incentives to encourage foreign participation?
Planning permission is a definition of viability – without it buildings don’t get built, investment is not forthcoming, and you are left with stranded assets. Stories of intransigent planners, vocal neighbours, mykfcexperience survey and delay are commonplace. Sometimes this is a result of an incomplete understanding of the process and the pressures planners face.
Our job at Paul Vick Architects is to confront uncertainty and negotiate remaining unknowns and trends intelligently in relation to the client’s brief. At the same time, we approach value from the start to enhance your business plans. The model we have developed addresses economic, use, identity, community, environmental and cultural values together to give opportunities for multiple users and positive feedback loops for your benefit. There is not much point in receiving planning permission for a care home, student hostel or hotel without enough rooms to make it viable for example.
The UK is known as being a structured and reliable environment to work for long-term interests – essential to successful construction projects.
The traditional distance of the developer to the user has become shorter. The public nature of development means users and neighbours have a louder public voice. They can be your supporters and market, and the developer seen as a catalyst for regeneration. An understanding of user needs is not just important to the planning process specifically, it is also important to the conception pre-planning and the physical detail delivery of it for user satisfaction.
For an office owner-occupier, that might mean design that attracts the best staff, encourages them to stay longer, work more productively and, ultimately, to make a more profitable enterprise. For investor-developers, that might mean private rented housing designed with a marketing cachet for cultural and social opportunities that commands premium rents, long leases and zero voids. For a museum, it might mean spectacular staging in and outside galleries themselves to create a destination powerful enough to attract people away from their screens.
Can you give examples where you have created value enhancement above client expectancies?
Apartments and Penthouses, London, UK. After some study, we agreed in a pre-application with the council that 100% increase in area would be acceptable. Previous consultants had thought only 25% was possible.
New Mini-Department Store, West End, London, UK. Our design increased the visibility of selected brands and improved the management and speed of stock delivery in store to boost client’s customers’ loyalty.
Daylight Studio, London, UK. Our design anticipated the client’s need to adapt over time to new media and alternative revenue streams, leaving them very satisfied.
Regeneration of a historic site with 7,000sqm of offices and retail, 80-bed care home, boutique hotel, low-energy homes, and museum, UK. The key objective is to design a destination to drive footfall, room occupancy, and sustainable client revenue.
Start-Up Hub, Innovation Warehouse, London, UK. Eschewing the trendy playroom motif, our fit-out supports growing, developing and selling ideas, and has nurtured several entrepreneurs who have turned into unicorn businesses.
Glass Bridge and Office Fit-Out for Global Communications Company HQ, London, UK. Our design crystalizes an identity that emphasises connectivity and facilitates idea-sharing.
What is your overall vision?
The magic needed to turn the faceless development appraisal with all its risks and changing parameters into successful ‘output’ value is understanding the various ‘input’ values. The examples above are about how user motivation and inspiration are harnessed - attracting them to come, stay, and return, as well as the word-of-mouth marketing will make the development attractive and relevant for longer. Focusing on the user is essential for any business.
Website: http://paulvick.co.uk/
