But it is the speed at which the technological advancements have reached that has forced traditionally slow-moving financial institutions to heavily invest to remain relevant to their consumers and remain competitive in the marketplace.
Personal
Banking is one of the oldest businesses in the world, going back centuries ago, in fact, the oldest bank in operation today is the Monte dei Paschi di Siena, founded in 1472. The first instance of a non-cash transaction came in the 20th century, when charga-plates were first invented. Considered a predecessor to the credit card, department stores brought these out to select customers and each time a purchase was made, the plates would be pressed and inked onto a sales slip.
At the end of the sales cycle, customers were expected to pay what they were owed to the store, however due to their singular location use, it made them rather limiting, thus paving way for the credit card, where customers that had access to one could apply the same transactional process to multiple stores and stations, all in one place.
Contactless
The way in which we conduct our leisurely expenditure has changed that much that we can now pay for services on our watches, but it wasn’t always this easy. Just over a few decades ago, individuals were expected to physically travel to their nearest bank to pay their bills, and had no choice but to carry around loose change and cash on their person, a practice that is a dying art in today’s society, kept afloat by the reducing population born before technology.
Although the first instances of contactless cards came about in the mid-90’s, the very first contactless cards associated with banking were first brought into circulation by Barclaycard in 2008, with now more than £40 million being issued, despite there being an initial skepticism towards the unfamiliar use of this type of payment method.
Business
Due to the changes in the financial industry leaning heavily towards a more virtual experience, traditional brick and mortar banks where the older generation still go to, to sort out their finances. Banks are closing at a rate of 60 per month nationwide, with some villages, such as Llandysul closing all four of its banks along with a post office leaving it a ghost town.
The elderly residents of the small town were then forced into a 30-mile round trip in order to access her nearest banking services. With technology not for everyone, those that weren’t taught technology at a younger age or at all are feeling the effects most, almost feeling shut out, despite many banks offering day-to-day banking services through more than 11,000 post office branches, offering yet a lifeline for those struggling with the new business model of financial firms.
Future innovations
As the bracket of people who have grown up around technology widens, the demand for a contemporary banking service continues to encourage the banking industries to stay on their toes as far as the newest innovations go.
Pierre Vannineuse, CEO and Founder of Alternative Investment firm Alpha Blue Ocean, gives his comments about the future of banking services, saying: “Artificial intelligence is continuing to brew in the background and will no doubt feature prominently in the years to come. With many automated chatbots and virtual assistants already taking most of the customer service roles, we are bound to see a more prominent role of AI in how transactions are processed from all levels.”
Technology may have taken its time to get to where it is now, but the way in which it adapts and updates in the modern era has allowed it to quicken its own pace so that new processes spring up thick and fast. Technology has given us a sense of instant gratification, either in business or in leisure, we want things done now not in day or a week down the line.
Sources: https://www.sysco-software.com/7-emerging-trends-that-are-changing-finance-1-evolving-cfo-role/ https://www.vox.com/ad/16554798/banking-technology-credit-debit-cards https://transferwise.com/gb/blog/5-ways-technology-has-changed-banking https://www.forbes.com/sites/forbesfinancecouncil/2016/08/30/five-major-changes-that-will-impact-the-finance-industry-in-the-next-two-years/#61cbe952ae3e
Digital banks raised over $1.1bn in fresh funding throughout 2018 in Britain, a figure that is set to be dwarfed if the current pace of growth continues to demand the attention of investors. Claudio Alvarez, Partner at GP Bullhound, explains for Finance Monthly.
Europe is truly leading the fintech charge, accounting for roughly a third of global fundraising deals in 2019, up from only 15% in the fourth quarter of 2018 according to our data. These are digital firms raising globally significant levels of capital. Adyen, the Dutch payment system, is now one of the frontrunners to become Europe’s first titan, valued at over $50bn. Europe has become a breeding ground for businesses that can go on to challenge US tech dominance, and it is fintech where we will find most success. Europe’s unique capacity for incubating disruptors is a phenomenal trend to have emerged over the past few years.
It’s true, European culture has always been more open to contactless and cashless, in contrast the US, where legislation and the existing banking infrastructure make adopting new technologies in banking slower and more convoluted. Europe has been able to take an early lead, while the US remains fixed on dollar bills.
As the ecosystem evolves, borders will become less relevant and markets more integrated, allowing the big players based in Europe to expand into further geographies with greater ease. European success garners the growth, momentum and trust needed to brave new regions and cultures. Monzo won’t be alone in the US for long.
As the ecosystem evolves, borders will become less relevant and markets more integrated, allowing the big players based in Europe to expand into further geographies with greater ease.
Whilst the Americans’ slow start has allowed European start-ups to become global players, it’s also true that the regulatory environment has distracted the European big banks and opened up the space for innovative and disruptive newcomers. While PSD2 has eaten up the resources of the incumbents, the likes of Monzo and Revolut have focused on consumer experience, product development and fundraising. The result? Newcomers are able to solve problems that older institutions simply don’t have the capacity to address.
However, a word of warning: traditional bricks and mortar banks aren’t dead yet. For one, digital banks will still need to justify the enormous valuations they’ve secured recently, and will have only proved their worth if, in 3 to 5 years’ time, they have managed to persuade consumers to transfer their primary accounts to them, which would allow digital banks to effectively execute on their financial marketplace strategies
Meanwhile, traditional banking institutions have a plethora of options to fend off the fintech threat and most are developing apps and systems that mimic those created by the digital counterparts. Innovation isn’t going to come from internal teams – it needs to be a priority for the old players and they need to invest in third party solutions to excel as truly functional digital platforms in a timely manner. In the first instance, the traditional banks will need to solve the issues that pushed consumers towards the fintechs and secondly, work on attracting consumers to stay by offering, and bettering, the services that make fintech’s most attractive.
Competition breeds innovation. For the fintech ecosystem as a whole, this new need for advancement is only good news – a rising tide lifts all ships. As traditional banks try to innovate and keep pace, we’ll see them investing in other verticals in the fintech market. Banks’ global total IT spend is forecast to reach $297bn by 2021, with cloud-based core banking platforms taking centre stage. Digital banking may have been the first firing pistol, but the knock-on effect of the fintech revolution is being felt across the board.
The fintech boom shows no sign of bust, market confidence is riding high and will continue supporting rapid growth. The aggressive advance of digital banks has opened doors for a whole host of fintech innovation - from cloud-based banking platforms to innovation in the payments sector. The number of verticals that sit within financial services creates a plethora of opportunity for ambitious and bullish fintechs to seize the day.
The quality and efficiency of financial management services have improved by leaps and bounds after the industry finally decided to embrace the Internet of Things. But as impressive as the changes are, there’s still a lot more to do to meet the expectations of a more demanding client-base. Thus, it doesn’t take much to figure out that future innovations need to focus on more inclusive and interactive models that make the most of available technology.
It’s too early to tell what the future holds for the industry. However, these trends give us a glimpse of how wealth management could look like in the years to come.
A More Digital Industry
Looking back at how “traditional” things used to be for the wealth management industry merely a decade ago, the rapid and strategic digitalization of most firms and companies is nothing short of amazing.
As big and small companies alike prepare for an influx of younger and hipper clients, automation and digital integration become even more essential aspects of their marketing efforts. In fact, industry leaders are already carrying out groundbreaking centralized digital marketing strategies that are pushing the rest to follow their lead.
To thrive, organizations have to rethink and reshape their approaches and decipher how they can use technology to their advantage.
Robo Advisors at Your Service
Witnessing how successful chatbots are at offering 24/7 customer support for many companies around the globe, the financial services industry strives to do the same – if not better – with robo-advisors.
While this can be a huge hit-or-miss situation, it’s a risk worth taking for many asset management firms. Aside from software-based solutions being more cost-effective than traditional investment management, this development has the potential to catch the fancy of millennials who are almost always fascinated with what technology can do.
You can’t deny that digital assistants enhance and empower customer experience. Be that as it may, it's too soon to tell for sure if robo-advisors will ever become competent replacements for human advisors, especially in offering customized and long term investments proposals.
Sustainable Investing Becomes an Even Bigger Hit
The growing interest in sustainable investing is expected to swell in the coming years as more people are encouraged to take socially and environmentally-conscious investments.
Millennials have been leading the awareness campaign towards sustainable investing and its principles; and the overall response has been positive, to say the least.
At the rate things are going, wealth managers will have to pay more attention to impact investments and find a way to incorporate the ESG philosophy into their management approaches, should they wish to attract the millennial market.
The Age of Better-informed Investors
There was very little interest in wealth management pursuits in the past few decades because the majority of the population basically had no idea what it’s all about. Thankfully, things have changed, and they continue to change for the better.
As information and resources on asset management and financial services become easier to access, people from all walks of life are opening up to the concept of investing and becoming more conscious of the state of their financial health.
The future shines bright for the wealth management industry.
“Banks have responded to this new paradigm, digitising their processes by leveraging and making decisions based on data and analytics, and shifting their focus on consumer experiences that go beyond mobile and online”, says Rosanna Woods, UK Managing Director at Drooms. “They have realised that to remain competitive and maintain market share they need to be more strategic and technologically adept, recognising the need to invest in automation, core modernisation and digitisation.” Below, Rosanna tells us why a collaborative approach is the way forward.
The changing landscape of investment banking
2019 is proving to be a momentous year for the global investment banking industry as it returns to normalcy in terms of profitability and capital adequacy. Global M&A activities, mainly by large US banks, are creating opportunities to expand overseas and acquire FinTech startups.
Today, most investment banks are enthusiastic about digital transformation initiatives to reduce costs and improve customer experience. Although investments banks adhere to their conservative business model, digitisation has shifted power to investors, who favour partnering with banks that are digitally more advanced.
Opportunities amid regulatory challenges
In Europe, the introduction of wide-ranging regulations has also impacted the working environment for banks. For example, the Second Payment Services Directive (PSD2) has encouraged innovation and competition between incumbents and FinTechs, while implementation of the revised General Data Protection Regulation (GDPR) framework has given EU citizens comprehensive data protection, forcing banks to ensure the privacy of customers’ data.
While addressing the myriad requirements of these new and contradicting regulations makes data management more daunting for banks, the major challenge for most of them is that data is being managed in siloed and disparate systems, making it all the more difficult to understand clients’ needs and demands.
Today, most investment banks are enthusiastic about digital transformation initiatives to reduce costs and improve customer experience.
However, the good news is that more banks are recognising the capabilities of cognitive technologies in gathering intelligent insights on customers, compliance and operations making collaboration with FinTechs more attractive. Also, robotic process automation (RPA) is rapidly gaining popularity as it brings productivity benefits to the table.
Helpful technology
The advent of Artificial Intelligence (AI) has been particularly helpful for banks in processes including client servicing, trading, post-trade operations such as reconciliations, transactions reporting, tax operations and enterprise risk management.
While much of the media attention towards AI has focused on its potential capacity to replace humans, at present it is seeing much more practical use in terms of complementing human intelligence. ‘Augmented’ intelligence involves machines assisting humans in their decision-making processes.
A sub-field of AI – Natural Language Processing (NLP) is a good example of augmented intelligence in practice. NLP systems are designed to read and interpret human languages. A key application of this in relation to banking is the analysis of substantial amounts of ‘unstructured data’, which is data that as yet cannot be ‘read’ by machines, such as PDF files, images and audio materials.
Banking is a data-intensive sector and many key tasks demand correct interpretation of partly structured data. Therefore, NLP has the potential to make processes much more efficient with less effort required from humans. As such, FinTechs have been quick to apply this technology because of its value in improving customer interactions, making collaboration with them attractive for most banks.
The advent of Artificial Intelligence (AI) has been particularly helpful for banks in processes including client servicing, trading, post-trade operations such as reconciliations, transactions reporting, tax operations and enterprise risk management.
Role in M&A
Technologies such as virtual data rooms (VDRs) come into their own for banks when used in M&A deals, helping to address many of the challenges such pursuits face even at the best of times. There are several key causes of failure, including politics around the deal, culture clashes among the personnel involved and, in particular, parties being unprepared for the due diligence phase. In this latter regard, M&A deals rarely fail because of a lack of knowledge. Rather, it is about how that knowledge is handled. Over half of deals fail because those parties involved are reluctant to confront issues head-on.
Buyers often proceed with deals despite the challenges because they feel obligated by the amounts of time and money involved. They should, however, be prepared to cut their losses if the risks outweigh the benefits. For example, allocating inadequate resources during the review stage cost Bank of America $50 billion in legal fees post its acquisition of Countrywide Financial in 2008, let alone the reputational damage it suffered for inheriting the past mistakes of the mortgage lender.
A VDR enhances the M&A process by increasing the power to collect, process and distribute information to the right parties with much greater security and accuracy. It digitises relevant documents, automates tasks and streamlines workflows.
Authorised users, including those inside a company and their external stakeholders, are connected digitally and in a secure environment with real-time access to all relevant documentation, depending on users’ individual permission levels.
A VDR enhances the M&A process by increasing the power to collect, process and distribute information to the right parties with much greater security and accuracy. It digitises relevant documents, automates tasks and streamlines workflows.
Creating a database in which documents can be updated consistently gives asset owners full control and the ability to react to the latest market conditions, bringing assets to market quickly when the conditions are right, sometimes at short notice.
One of the strengths of the Drooms NXG VDR is its Findings Manager function. This improves the vendor due diligence both prior and during the sales process. It allows for the automatic pre-selection of documents and helps in the assessment of potential risks and opportunities within a transaction. This yields greater control, instils confidence in potential buyers and cuts disruption to existing business.
Blockchain first
Macro forces such as blockchain are also slowly revolutionising many areas of banking. For example, blockchain made it possible to automate approvals of contracts as well as protect the transfer of confidential data from hackers and fraudster whenever transactions are made. In 2018, Drooms became the first provider to move its VDR offering into the blockchain age, using this modern technology to enhance the security of transaction data archives. Up to that point, all data had been stored on physical data carriers following completion of a transaction. But now it can be stored on Drooms’ own servers with blockchain protection. As a result, the secured data cannot be lost, is non-manipulable and is accessible to all parties involved in a transaction at any time.
A new threat
As more financial institutions start to adopt technologies created by FinTechs, a likely threat is emerging. Tech giants such as the likes of Amazon, Alibaba, Apple and Google are attracting customers in the payments domain by offering alternative ways of managing finances. In the US, Amazon is already offering its customers the option to turn spare change into gift cards, and parents can also give children their allowances via a reloadable debit card for example. In India, customers pay delivery fees through a Cashload feature and store excess cash from previous purchases in their account, as well as deposit money for future orders.
With platform companies’ potential to exploit customer data and come up with innovative solutions to address customer pain points, there is a lingering risk of disintermediation for banks. Customers who feel that tech companies alone meet their banking needs may decide to switch to non-banking channels. And there is also the possibility that tech giants may provide banking services in the future, making services provided by banks non-exclusive. Although big techs pre-dominantly target the origination and payments domain of banking, a stronger foothold by platform companies could threaten the survival of many banks in the industry.
Towards modernisation
The various areas of the banking industry will undoubtedly continue to evolve at varying speeds. And as time progresses more banks will likely partner with innovative FinTechs to remain competitive and market relevant. Potential for creative and ground-breaking collaborations and advanced modernisation will also likely increase.
That said, as technology transforms the future of banking, so ought banks’ mindset towards cognitive technologies and collaboration with FinTechs. After all, technology is not a panacea and it is accompanied by many challenges as well as opportunities.
Financial technology is rapidly progressing, so fast that people are forgetting the world economic crisis that happened 10 years ago. With the evolution of financial technology, new services and better options are being created for consumers all over the world. Digital technology has created a much better user experience for users all over the world, and sky’s the limit indeed. This is what you can expect from financial technology five years from now.
More digital engagement
It wasn’t too long ago that, for every financial service you needed, a trip to the bank was a given to get that service. With the advent of technology and the age of digitization, those days are no more. You can literally pay every single bill of yours and transfer money to people across the world with a mobile application at your disposal at any time and any place, and the evolution of these services is rapid and continuous. The digitization of financial affairs means a much better user experience, which reflects positively on revenues and sales numbers. People love slacking around and still getting things done, and in the future, there’s no telling how much more comfortable technology will make banking for users.
More services
As more technologies emerge and newer doors open, more services are being created to cater to people’s every financial need using financial technologies. For instance, you can now get an advance on that inheritance of yours that’s been taking ages to get processed in the courts. In this article you can learn about their conditions and how it works if you want to get an advance on your inheritance with minimal effort and quite an easy digitized process. This financial service, and many others, helps plenty of people who might be in a tight spot and in urgent need of cash, but are unable to access any due to the lengthy process.
Newer technologies
The quest to find newer technologies to facilitate and make things better for users is non-stop. For instance, banks now in some countries are operating hybrid clouds and cloud computing to address issues of security, compliance, and data protection. Hybrid clouds also offer reduced costs and a much better operational efficiency, making them truly the future of banking services. You even have artificial intelligence (AI) been implemented in some places, hopefully to an extent that in the future it can help in back office operations, customer service, and much more!
Is it a good thing or a bad thing?
An optimist will find the current advancements being made in financial technology truly remarkable, for they have the potential to create a better and more comfortable user experience for mankind and actually help people in need of such advancements. On the other hand, there are some who might worry about the digitization of something as critical as financial services, and dread the reliance on machines to manage our finances. While both opinions have their pros and cons, one can’t deny the fact that technology is moving at an exceptionally rapid rate, and it’s quite exciting to view what’s next in store.
Here Ramesh Ramani, Cognizant Head of Banking & Financial Services, argues that for banks to remain relevant in a context of regulatory pressure and intense competition, during an era when experience is overtaking trust as a key differentiator, they have three options: become a multiservice provider; go beyond banking to become part of people’s lives; or find a niche segment.
So what are the Steps to unlocking future banking growth?
Today, banks are no longer just competing with each other. The BigTech firms are nipping at their heels, trying to gain market share within the financial services industry. For example, both Google and Facebook have already secured e-money licences. And, according to Crunchbase, there are now over 12,000 fintechs operating globally, with new entrants such as N26, the branchless digital bank offering a paperless sign-up process that can be completed on a smartphone, with identification verified by a video or selfie, which is building a large customer base rapidly. As digital banks such as Monzo report less than one-tenth the cost of servicing a retail account compared to a large traditional bank, these fintechs, built on technology from the outset, are undoubtedly luring away previously loyal customers and revenue through their ability to offer a more digital customer experience.
Trust is no longer the holy grail and experience has taken over
Customer experience has now become the most important differentiator. Where trust was once hailed as the holy grail for banking institutions with customers sticking with their bank for long periods – indeed, sometimes their entire lives – this is no longer the case. Trust and legacy are diminishing over time as younger consumers, brought up in a world surrounded by the BigTechs, increasingly look for speed and convenience. There are, however, notable instances of big-name banks being early adopters, using technology to streamline their operations, improve customer experience and enhance their offering. For example, in Spain, BBVA has developed an app feature called Bconomy, which helps customers set goals, save money and track their progress. The app makes suggestions about how to save money and compares prices on things like utilities and groceries. Idea Bank in Poland makes its products available on the go with branches and co-working spaces on commuter trains. These Idea Bank cars feature desks and conference spaces, plus free office supplies, Wi-Fi and coffee.
It is clear that banks are aware they need to change their strategy to remain relevant. To survive in the evolving banking landscape, banking institutions have three options:
- Become a “multiservice provider” – as profit margins decrease with new entrants coming into the market, banks must consider partnering with the new digital players to ensure they remain an important element of the banking ecosystem. If it is done right, an ecosystem with fintechs need not cause them to lose or dilute their relationships with customers – nor come at the expense of their bottom line. Many fintechs are now offering flexible partnership options that include white-labelling services. And, if done correctly, a partnership with a fintech can bring multiple benefits. For example, ING and Santander have white-labelled Kabbage’s automated SME lending platform and integrated it into their product portfolios.
- Go beyond banking to become part of people’s lives – banks should transform their customer experience, and one way is to make themselves integral to their customer’s lives. For example, besides supplying a mortgage to a family that has just moved into the area, a bank could become their hub for the move, offering them advice on the best schools for their children as well as providing information on local amenities.
- Find a niche segment – banks today are trying to be everything to everyone, which is causing their innovation to stall. Those identifying a market niche will have the best chance of survival in the digital era. We are already seeing examples of household names in the banking world, such as Credit Suisse and Barclays becoming more selective about areas they want to be in to differentiate themselves.
New regulations continue to shake up the landscape
Even as little as three years ago, one could argue that banks still held some form of advantage over new players due to the vast amounts of customer data they held, giving them unrivalled access to consumer spending patterns. However, with new regulations, such as Open Banking, forcing financial institutions to make their data available, this data ceases to give them the competitive advantage it once did.
However, these regulations are certainly improving the landscape. For consumers, it means they can more easily pick and choose banks for different purposes by managing all accounts and payments in one centralised place. For example, taking advantage of the UK's new Open Banking environment, ING Bank has developed Yolt, a free mobile app which allows users to centralise their finances and manage their money with different banks for different financial services in one place. And, in theory, this improved access to payment information and spending data will lead to better banking products that offer more efficient service to consumers.
As the use and implementation of technology continues to change the banking landscape, we can expect a dramatic change in the sector within the next five years. A decade ago, many investment banking leaders thought it was ridiculous to suggest that software would run and complete their research analysis whilst today, many are almost entirely reliant on automation and AI to provide thorough and fast analysis. The question is, which banks will recognise and take advantage of the market changes ahead? Only time will tell.
OneSpan (NASDAQ: OSPN), recently released The Future of Adaptive Authentication in the Financial Industry, a report prepared by the Information Security Media Group. Based on a broad survey of US financial institutions, the report reveals the sector’s challenges in authentication practices and strategies, and highlights the growing tension between improving security, reducing fraud and enhancing the digital customer experience.
The survey results reveal the biggest challenges stopping banks and financial institutions from being able to confidently authenticate customers and step up security include:
- 96% of organisations still rely on legacy processes tied to username and passwords for authentication;
- 44% have too many disparate tools, which are challenging to coordinate effectively;
- 44% are challenged by the use of legitimate credentials exposed in data breaches and social engineering schemes in account takeover attempts.
As a result of these challenges, more than 60% of respondents plan to invest in new multifactor authentication technologies in 2019, including those that rely on biometrics and AI/machine learning.
“The report’s findings echo what we are seeing with our customers,” said OneSpan CEO, Scott Clements. “Financial institutions are under pressure to improve their defenses against continuing and evolving threat vectors. Many are now choosing innovative technologies that dynamically respond to attacks as part of a layered security approach that stops fraud while improving the customer experience.”
The report features Aite Group’s Retail Banking and Payments Research Director, Julie Conroy, on the need for financial institutions to improve authentication methods using the latest authentication methods and technologies, including artificial intelligence, machine learning and behavioral biometrics. These emerging technologies, paired with digital identity technologies, provide a better customer experience and help financial institutions remain competitive.
Many thought it was too good to be true, but was it? Below Karen Wheeler, Vice President and Country Manager UK at Affinion, gives Finance Monthly the rundown.
YouGov research highlights that 72% of UK adults haven’t heard of Open Banking and according to PwC, only 18% of consumers are currently aware of what it means for them. However, that doesn’t mean the changes aren’t filtering through.
The story so far
The Open Banking Implementation Entity (OBIE) reports there are now 100 regulated providers, of which 17 Third Party Providers (TPPs) are now using Open Banking in the UK. Open Banking technology was used 17.5 million times in November 2018, up from 13.9 million in October and 6.5million in September, with Application Programming Interface (API) calls now having a success rate of 97.7%.
One of the earliest examples was Yolt, by ING Bank. It showcases a customer’s accounts in one place so they can see their spending clearly and budget more effectively. Similarly, Chip aims to help people save more intentionally. Customers give read-only access to their current account and then sophisticated algorithms calculate how much a customer can afford to save, and puts it away automatically into an account with Barclays every few days.
High Street banks have certainly taken inspiration from fintechs. For example, HSBC released an app last year enabling customers to see their current account as well as online savings, mortgages, loans and cards held with any other bank. The app also groups customers’ total spending across 30 categories including grocery shopping and utilities, making it a really helpful budgeting tool.
Perhaps, most advanced of all, Starling Bank allows customers access to its “Marketplace” where they can choose from a range of products and services that can be integrated with their account. The offering currently includes digital mortgage broker Habito, digital pension provider PensionBee, travel insurer Kasko, as well as external integrations such as Moneybox, Yoyo Wallet, Yolt, EMMA and MoneyHub.
Open Banking and GDPR
One key question is whether Open Banking puts the needs of financial services companies over those of the consumer. There is a general cynicism regarding the real reasons for encouraging Open Banking and this is exacerbated when most customers aren’t seeing the benefits.
Also, there is confusion caused by the apparent conflict of interest between Open Banking and GDPR.
In this day and age, do consumers really want more organisations to have access to their data? Can they trust the banks? According to PwC, 48% of retail banking customers cite security as their biggest concern with Open Banking and this is a significant barrier to overcome.
The way forward
It’s hard to overcome cynicism and doubt. Perhaps, once customers begin to enjoy the positives, they will be less sceptical about Open Banking, leading to more opportunities to build longer term customer engagement. For example, if products help them avoid going into debt or nudge them when new mortgage rates are on offer, they will see that banks are using the technology to support wise financial management rather than just serve their own marketing purposes.
It’s also hard to change entrenched consumer habits. To encourage consumers to get in the habit of comparing and switching, financial organisations must create truly compelling propositions. They need to focus on delivering intuitive, useful digital products which make a real difference to customers’ daily lives.
They also need to demonstrate how seriously they take their role in the fight against cybercrime while educating the consumer about how Open Banking works and how to protect their data. For example, many may not realise that one of the key tenets of Open Banking is security. Open Banking uses rigorously tested software and security systems and is stringently regulated by the FCA.
Placing the customer at the centre of their finances and giving them complete control directly increases competition and brings a myriad of everyday benefits to the customer. There is huge opportunity for traditional banks, fintechs and disruptors to use Open Banking to pioneer new products that build longer term customer engagement. However, the current priority is communicating the huge advantages and opportunities that Open Banking brings while reiterating that their data will remain secure.
Below Russell Bennett, Chief Technology Officer at Fraedom, discusses the future prospects for AI in the banking sector, and what 2019 may hold.
AI is incredibly complex and doesn’t represent a single technology. Rather, it’s a multidimensional field encompassing a range of different technologies and methods, each supporting and supported by the others[1]. The technology’s pace of evolution has grown exponentially in recent years and if AI’s benefits and limitations are understood, it’s believed this technology will have a tremendous impact on the banking industry in 2019.
With so much potential ready to be unleashed, where exactly will we see AI’s influence in the banking sector in 2019?
Chatbots and Virtual Assistants
While chatbots have been used by financial institutions for several years, thanks to advances in AI their capabilities have continued to grow. Whereas they were once only used to answer generic FAQs, for example, most chatbots are now capable of initiating and performing tasks on their own. Thanks to these developments, Juniper estimates that the introduction of chatbots and virtual assistants will save companies $8 billion per year by 2022[2]. This is set to be only one of the benefits to banks with Gartner suggesting that by 2020 consumers will manage 85% of their total business interactions with banks through fintech chatbots[3].
Juniper estimates that the introduction of chatbots and virtual assistants will save companies $8 billion per year by 2022
While this could be a source of worry for the banking workforce, in reality, there should be little concern. Rather than acting as a replacement for employees, banks instead seem to be looking at AI as a tool to help release pressure points and empower the workforce with Accenture even predicting that banks that deploy AI wisely will see a 14% increase in jobs[4].
In 2016, Santander became the first UK bank to launch voice banking technology[5]. Of course, since then a large variety of global banks have adopted this technology in one way or another, suggesting that banks are looking at utilising AI beyond chatbots. In fact, with Mariano Belinsky, managing partner of Santander InnoVenture, discussing natural language processing[6], it seems to only be a matter of time before virtual assistants come into use.
Driving Customer Insights
Last year, we saw a clear disconnect between banks and their smaller customers. In these situations, intelligent automation could well be the answer to support businesses and provide a better service as well as working seamlessly with third parties and fintechs, rather than against them.
In our recent study of SMEs in the UK and US, we found that less than 20% of SME owners thought that banks they had dealt with over the past year fully understood their needs as a business, demonstrating a clear lack of engagement. In 2019, using automated data collection on an ongoing basis, behind the scenes, can ultimately ensure bank relationship managers are better equipped with in-depth knowledge about their customers; hence best positioned to support their business and provide a better service.
Less than 20% of SME owners thought that banks they had dealt with over the past year fully understood their needs as a business.
Security and Compliance
One of the key differences between AI applications and other, more traditional technological solutions, lies in AI’s ability to continuously learn from the data it is supplied with, hence refining its decision-making processes over time.
Cybersecurity is a current hot topic for the financial services sector and regulatory compliance is another. AI can add real value in both of these areas. Machine Learning platforms can be coded to identify user patterns and detect anomalous network behaviour, something that’s increasingly essential as cyber-attacks are often disguised with inconspicuous data or code.
In recent years, technology has been a disruptor and an innovator. Technology is increasingly helping shape customers’ wants, needs and expectations. With a raft of new regulation encouraging the use of technology in banking, there’s nowhere left for anyone to hide. The technology revolution is in full swing and for banks, it’s very much adapt or die.
In the very near future, it is likely that AI will completely
revolutionise banking. It will redefine how banks operate, what innovative
products and services they create and how they evolve the customer
relationship. Banks must, therefore, embrace this new technology or risk of
falling behind in an extremely competitive environment.
[1] https://www.accenture.com/t00010101T000000Z__w__/gb-en/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Local/en-gb/PDF_3/Accenture-Redefining-Capital-Markets-with-Artificial-Intelligence-UKI.pdf
[2] https://www.juniperresearch.com/press/press-releases/chatbots-a-game-changer-for-banking-healthcare
[3] https://www.gartner.com/imagesrv/summits/docs/na/customer-360/C360_2011_brochure_FINAL.pdf
[4] https://www.accenture.com/gb-en/insights/banking/future-workforce-banking-survey
[5] https://www.santander.co.uk/uk/infodetail?p_p_id=W000_hidden_WAR_W000_hiddenportlet&p_p_lifecycle=1&p_p_state=normal&p_p_mode=view&p_p_col_id=column-2&p_p_col_pos=1&p_p_col_count=3&_W000_hidden_WAR_W000_hiddenportlet_javax.portlet.action=hiddenAction&_W000_hidden_WAR_W000_hiddenportlet_base.portlet.view=ILBDInitialView&_W000_hidden_WAR_W000_hiddenportlet_cid=1324582275873&_W000_hidden_WAR_W000_hiddenportlet_tipo=SANContent
[6] https://www.americanbanker.com/news/what-santanders-latest-bets-say-about-the-future-of-fintech
Blockchain has been synonymous with crypto currencies for some time but its range of applications and roles in the wider digital transformation are now much more fully understood. This is certainly true of the financial industry, which is gradually shaking off its legacy systems and incorporating this revolutionary technology into an ever-growing number of uses.
Blockchain is correctly described as the technology behind crypto currencies, recording transactions made between parties. But its key and unique feature is its capacity to provide an undisputed audit trail. It establishes an incorruptible digital ledger of transactions that can be programmed to record every data item of value.
In practice, Blockchain acts like a single spreadsheet copied thousands of times across a network of computers. This spreadsheet can be updated on a constant, real-time basis and is shared identically across the network.
Using Blockchain, two strangers can conduct business with no need for a third party, while creating a legally-indisputable record of an agreement. As such, there is no point of weakness at which data can be corrupted or hacked. This issue is of growing importance for those players involved in deals in which adding more contact points increases vulnerability exponentially.
Using Blockchain, two strangers can conduct business with no need for a third party, while creating a legally-indisputable record of an agreement.
Transactions are more efficient and secure
Each year the financial industry conducts trillions of euros-worth of transactions and Blockchain has the potential to revolutionise how these deals are executed.
Blockchain streamlines and speeds up transactions, facilitating fast and secure payments with less cost, potentially anywhere in the world. The security that Blockchain provides is also a key element in that it renders the tactics used by cybercriminals as obsolete.
JP Morgan, HSBC and Bank of America Merrill Lynch are already exploring Blockchain to facilitate international payments and trade-related transactions but Blockchain can also be used in the real estate sector, for example, to conduct transactions, including the transfer of properties and escrowing of funds.
Smart contracts can deliver powerful changes
Blockchain can also be used to apply ‘smart contracts’, which are still at a nascent stage of development, but which have the potential to deliver powerful changes in a wide range of sectors.
Smart contracts have the terms of agreements written into computer code and this enables the automation of certain functions, such as authorised parties conducting transactions according to the terms. A simple illustration of this is a vending machine, which enables a consumer to buy a bar of chocolate at a fixed price without the need for any third party.
Blockchain can also be used to apply ‘smart contracts’, which are still at a nascent stage of development, but which have the potential to deliver powerful changes in a wide range of sectors.
Smart contracts have tremendous potential. They provide security and consistency and help to reduce transaction costs, not least by reducing the need for ‘middlemen’. At present, they are far from flawless and work still needs to be done to address the grey areas that, in practice, often arise in contracts and transactions. There is much room for refinement, but such contracts do already have clear applications. In real estate, for example, smart contracts can keep track of leases and monitor payments. Going forwards, smart contracts can only become much more commonplace in the financial industry.
Incorruptible long-term data storage
The technology by which computers store information has gone through several cycles over the decades. Data carriers have seen evolution from punch-cards and magnetic tape to floppy and zip discs, to the more familiar CDs, DVDs, hard drives and USBs. While the latter formats are still widely used, they are clunky and perishable.
Drooms is the first virtual data room (VDR) provider to recognise Blockchain’s potential in the transaction space and incorporate it into its product offering. By using this technology, information that was previously archived using DVDs, hard drives and USBs can be authenticated at the click of a button.
Such documentation is invaluable in the legal guarantee phase of a transaction. If there is a legal dispute, then there can be no argument as to who accessed which documents and data and when. Parties cannot argue that they were misled with regards to what they were buying.
Drooms is the first virtual data room (VDR) provider to recognise Blockchain’s potential in the transaction space and incorporate it into its product offering.
Drooms is also storing the data on its servers for a fee for the duration of a warranty period. Whereas DVDs might be lost or corrupted over time, for example, this issue does not exist if a data room is available for reactivation whenever required and all data has been verified and archived according to a unique Blockchain record. All parties with a password will be able to access the data at any time and without the need for notaries.
Ahead of the technology curve
Drooms’ current goal in relation to Blockchain is to provide tamper-proof, cutting-edge and long-term data storage and protection with quick, secure and unrestricted access for all parties involved. We currently offer all modern formats of storage, but we have no doubt that Blockchain will eventually supersede these, not least because it will not fundamentally alter the costs of a VDR initially and over the longer run it will only reduce them.
Going forwards, financial professionals need to consider the power of Blockchain to disrupt their businesses and industries and to pinpoint ways in which they can leverage this ground-breaking technology to their advantage.
Further ahead, we see tremendous potential in applying Blockchain to the incorporation of digital signatures and improving contract analysis. Enabling clients to sign documents within a data room, thereby avoiding third-party involvement and the need to print and sign documents before re-uploading them to the system, boosts efficiency without creating inferior versions of contracts.
Thanks to Blockchain, future data rooms could enable users to read and pull up previously unsearchable contracts that have been signed by specific parties, thereby automating traditional contract management.
Going forwards, financial professionals need to consider the power of Blockchain to disrupt their businesses and industries and to pinpoint ways in which they can leverage this ground-breaking technology to their advantage. Our plan is to help our partners by staying ahead of the technology curve, finding new and innovative ways in which to help them using Blockchain.
Website: https://drooms.com
With increasing high-street competition, AI is redefining the banking sector with each and every customer interaction. With banks, like NatWest, deploying AI-based virtual assistants to offer customer-facing communication around the clock, the consumer banking experience is now heavily digitised, with 86% of banks stating they now use AI technologies in some way.
Martin Linstrom, Managing Director for UK and Ireland at IPsoft, looks at the next stage in technological evolution of the banking industry and how artificial intelligence (AI) will redefine banking as we know it.
The banking industry has made huge strides to drive innovation by investing in new technologies over the last few decades. Commercial banks first adopted telephone banking, then came internet banking and now, for most customers, all your financial services needs can be met via an app. Now, as we enter the conversational era enabled by cognitive AI, customer expectations have evolved once again.
Banks have long been ahead of the curve in terms of elevating the user experience for their customers and so, it’s perhaps unsurprising that many are already looking to AI-powered digital assistants and are investing in cognitive solutions to upgrade and scale customer-facing financial management processes. Many banks are also looking at how they can provide the same simple, frictionless service to their own employees.
Banks have long been ahead of the curve in terms of elevating the user experience for their customers and so, it’s perhaps unsurprising that many are already looking to AI-powered digital assistants
As AI-powered customer interfaces gain mainstream acceptance, we will once again see a revolution in technological change within the banking industry. So, what functions within banks will cognitive assistants transform?
Building a hybrid workforce
Virtual assistants have a twofold capability which is driving innovation in the banking industry. Firstly, they can be implemented in back office functions such as finance or HR and secondly, they can supplement customer service centres. Creating a hybrid workforce of human employees and AI-powered virtual assistants can help drive enormous cost efficiencies and increase staff productivity. Employees in administrative roles can pass their repetitive tasks over to their digital colleague, freeing up their time to focus on more creative or interesting work that requires soft skills whilst customer service agents can pass standard requests through an AI system leaving them with only the most complex of customer queries to deal with.
Ubiquitous customer services
One of the most attractive things about AI-powered customer services for banks is its ubiquity. With virtual customer service agents available 24/7 and through a variety of channels such as live message, telephone or email, it’s a win-win situation for both bank staff and customers. From a customer’s perspective, simple requests such as password resets or international transactions can be performed in an instant and there’s no need to visit the bank or spend an hour in a telephone queue to speak to a human agent.
One of the most attractive things about AI-powered customer services for banks is its ubiquity.
Banks adopting customer-facing AI solutions are in fact seeing increased customer satisfaction rates despite removing the human-to-human contact element. For example, since implementing IPsoft’s AI solution, Amelia, SEB, a leading Nordic bank has been able to avoid 544 hours of escalations to customer support with an average handle time of six minutes. What’s more, Amelia has reached an 85% accuracy in immediate intent recognition which has meant a faster service delivery to customers and soaring customer satisfaction.
24/7 banking support
Unlike human agents, digital assistants can work around the clock, seven days a week with no breaks and without tiring. For modern consumers, particularly young digital natives who expect to be able to manage their finances at any time of the day, integrating AI into a bank’s customer service centre will soon become the norm. Chatbots are already an industry standard, therefore at the very least, banks that don’t continue scaling this technology throughout their business will find themselves at a severe competitive disadvantage, trailing behind the market by delivering an inferior customer service experience.
Go beyond simple chatbots
Digital assistants with cognitive intelligence capabilities represent the next leap in automation for financial institutions. Digital colleagues like Amelia are now able to perform tasks above and beyond mere transactional ones, digitising more complex financial management processes such as wealth management onboarding and mortgage applications. Unlike simple chatbots, digital colleagues are also able to develop their cognitive abilities through an advanced Natural Language Interface (NLI) which can process customer queries asked in hundreds of different ways, including slang. More importantly for the banking industry, they can handle context switching so that when a customer moves quickly from one request to another, the interface is able to process both requests without starting over.
Many banks have already integrated voice capabilities into their finance management solutions. Customers communicate via text or voice to gain quick answers to banking questions, tailored financial advice and can even carry out transactions all from the same channel. Voice-enabled digital assistants can handle payments and transfers, credit card activation, charge disputes and travel alerts for customers at any time, freeing up customer services teams to focus on more complex customer enquiries and giving customers full control and access to their finances. Conversational AI will become more and more widely accepted as banks start to harness the technology to help drive customer engagement and operational efficiencies.
Sophisticated systems can recognise patterns from the sheer amount of data that they are processing. Thanks to these capabilities, businesses can easily find out the most common types of transactions by customers of a certain demographic and can then retarget this group for specific marketing or sales campaigns, helping to drive revenue.
Delivering better insights and improved security
Unlocking key business insights is another key driver motivating banks to invest in AI. Sophisticated systems can recognise patterns from the sheer amount of data that they are processing. Thanks to these capabilities, businesses can easily find out the most common types of transactions by customers of a certain demographic and can then retarget this group for specific marketing or sales campaigns, helping to drive revenue. These real time insights can help business leaders make better, more strategic decisions that are informed through concrete data.
Real-time data mining can also be applied to improve customer security as many AI tools have built-in privacy and security by design. An AI-powered virtual assistant can pick up on irregular payments immediately, flagging potential “phishers” to a human agent for additional authentication. What’s more, advanced machine learning solutions can improve over time so that banks can continue to scale up their services. Virtual assistants like Amelia can go one step further by ‘learning on the job.’ Essentially, when Amelia does not understand a request or query she can pass it on to a human colleague but remains in the conversation to learn how to resolve the issue next time.
The future of retail banking
The financial services industry has long been at the forefront of technological innovation. Whilst many businesses are still debating whether to invest in AI, major banks are very much leading the way to invest in the technology and are thriving as a result. As virtual assistants become increasingly more intelligent and their cognitive abilities develop, the expectations for banks and the services they offer will be elevated. Banks that rest on their laurels and refuse to acknowledge this risk falling behind permanently, particularly with the slew of challenger fintech companies that are appearing on the market, offering dynamic and tailored financial services at a lower price.
