IBSi Blogs

The ever-changing expectations and demands of customers emanate from the experiences they are accustomed to in daily life. From having a paperless customer experience at an Apple Store to using Alexa to order household items are now common and have set experience benchmarks for banks and lenders.

By Ajay Vij, Head – UK, SVP – Industry Head, Financial Services, Infosys

The financial services industry is challenged by the expansion of disruptors inside and outside of the industry. Firms such as digital mortgage brokers, price comparison sites, and credit bureaus will combine to enable one-click product research, threatening to relegate banks to back-end product providers. Price comparison sites and personal finance management (PFM) apps will merge, combining a proven business model around product comparison with deep financial insight.

The financial services enterprises that are driving accelerated growth and success today are the ones who are finding fast lanes through technology, data, and processes to leverage and expand their ecosystems, and to sense, predict and respond to customer experience opportunities.

Customer experience makes or breaks organisations and plays a huge role in the success of their products and services.  Since eliminating friction from user interaction is a huge priority in an experience economy, businesses need to focus on organising their products, systems, and technology infrastructure around that goal. The best experiences in the market are built on a modern technology foundation that leverages Artificial Intelligence, Machine Learning, Big Data Analytics, etc., to create personalised products and contextual engagements so that the right proposition is made to the right customer at the right time. With products becoming commoditised, customer experience has emerged as the biggest source of competitive advantage.

Therefore, it is no surprise that experience transformation is a major goal in any digital transformation effort. In fact, for 87% of the respondents in the latest EFMA Infosys Finacle Innovation in Retail Banking survey, customer engagement is at the core of their transformation plans. But experience transformation is not merely the digitisation of manual processes; it is a design-led approach that puts the human user—customer, business partner, and employee—at the centre.  This can be done through bringing several elements together, from employee and customer experience to data intelligence and advanced analytics. And it’s not just the ‘glass’ or user interface that’s delivering the experience, but a living, breathing ecosystem of partners offering best-of-breed products, services and interactions to fulfil ever-increasing expectations.

Incumbents versus challengers

In a survey of millennials conducted a few years ago, 70% of the respondents said they would rather bank with Google than a traditional institution. Having earned the appreciation of customers for best fulfilling their expectations, digital players, such as big tech, FinTech, challenger banks, and neo banks, are now enjoying their trust as well—and attracting these notoriously fickle consumers in droves.

In response, traditional banks need to consider both the customer experience and customer journey, and the role technology will play in accelerating innovation of intuitive tools for customers. Equally important is accelerating the delivery of employee-facing digital tools and experiences. This will create a new digital agenda focused on transforming user experiences, so they become human-centric and deliver greater customer value and enable employees with new tools and capabilities.

Another thing to consider is the investment in resources. Even large financial services organisations don’t have full-fledged experience design departments. Most outline a broad vision of experience and leave the details to others, typically their outsourcing partners. Ideally, they should integrate experience into the core of their business as a part of day-to-day operations.

Next steps

Looking ahead, financial services companies have their task cut out in 2021. In 2020, the pandemic forced almost every organisation into digital overdrive; this year, they must build on that effort by accelerating experience transformation. That means digitising end-to-end journeys, processes, product offerings and interventions.

As FinTechs and other new entities come under increasing regulation, they are gaining the confidence of all customers. Incumbent firms must set out to reclaim the trust, and the customers, they have ceded to their rivals. But these changes to customer experience can only be carried out if there is a supportive environment—in other words, a culture of innovation, quick decision making, the right talent and a ‘digital first’ mindset.

Here, the support of a trusted technology partner can be crucial for driving change throughout the organisation. When identifying a partner, companies must look for expertise in designing human-centric customer journeys and experiences besides technology credentials in areas such as data intelligence, platforms, process optimisation, security and compliance. Together, the organisation and the right partner will be able to foster the right environment and resources to provide a winning customer experience.

Across Europe, consumers have largely turned cashless during the pandemic, with contactless and online payments increasing exponentially. But with the high streets across Europe slowly entering into the new normal, will consumers demand a return to cash payments?

By Koen Vanpraet, Group CEO, PXP Financial

The COVID-19 Effect on European E-Commerce and Retail from PXP Financial surveyed consumers in six European countries, finding widely varying appetites towards a cashless society. For example, Poland is the most enthusiastic to ditch cash, while The Netherlands the least – and the UK is smack in the middle with its views on the matter.

In the research, 41% of consumers across the six countries – UK, Spain, Germany, The Netherlands, Poland and Italy – indicated that they would feel positive about a cashless society, while 31% would feel negative. Poland topped the tables of going cashless with 54% of respondents indicating positivity towards dropping cash. Italy followed on 49%, Spain next with 42% followed by the UK at 40%. The two least positive countries were Germany on 33% and the Netherlands on 31%.

A culture of cash

Despite the varying attitudes towards a cashless society, consumers across most of the countries showed enthusiastic uptake of cashless payments – contactless payments, e-wallets, mobile payments, and wearables among them. The notable exception was Germany. For most Germans, using cash isn’t just a personal preference; it’s a cultural value that they’ve grown up with and one tied closely to a national value with centuries-old roots.

But even here as the pandemic has pushed what would have been previously low-value cash transactions onto other payment types, a whopping 73% of German consumers said they had to change their favoured payment method – cash – during the pandemic. When asked what payment methods they tried as a result of the pandemic, Germans overwhelmingly favoured PayPal as their preferred non-cash payment form at 58%, followed by contactless at 48% and online banking at nearly 43%.

Looking at combined answers from all respondents, when asked what payment methods they had tried because of the pandemic, 48% of people have tried contactless. The highest uptake was in Poland at 70%, with Spain ranking the lowest at 27%. Respondents are now also more likely to spend money at retailers that offered contactless/contact-free payment options than before Covid-19, with 65% of all respondents saying yes. Again, Polish shoppers (80%) are more predisposed to contactless, given that it was one of the first countries in Europe to trial the technology.

Re-evaluating the value of cash

Other country-specific highlights in the report show some surprising trends. Italy is one of the most cash-heavy societies in Europe, but the arrival of Covid-19 has led to a rapid re-evaluation by consumers of their payment habits. In the PXP Financial survey, Italian respondents are mostly favourable about the prospect of a cashless society, with nearly 50% seeing it as positive, compared to 21% who viewed it negatively.

The irony of heavy cash usage in Italy is that it gave rise to the introduction of prepaid and contactless payment. Italy is one of the most advanced contactless countries in the world. These figures were reflected in the survey, with nearly 44% stating that they had tried contactless because of the pandemic. Over 63% said they had tried PayPal, while 38% had opted for online banking. Those who tried mobile payments for the first time amounted to just over 14%.

Meanwhile in Spain, although Spaniards are traditionally avid cash users, there are positive signs that things are changing in favour of non-cash methods. Compared to their European counterparts, it appears that Spanish shoppers wouldn’t be sad to see the end of cash. Around 42% believe a cashless society is a good thing, whereas 34% view it as a negative. This is evidenced by the fact that the popularity of payment cards in Spain (particularly credit cards) has surged in recent years, and in mid-2020, for the first time, card usage overtook cash.

At the dawn of a contactless society

Even before the pandemic, there were some European countries who were already deep into the development of a contactless society, with the UK already being entrenched in contactless payments.  But that doesn’t mean everyone was and around 52% of respondents said that they had been influenced to try out contactless payments as a result of the pandemic.

Usage of online banking and PayPal was neck and neck at roughly 38% each. Meanwhile, mobile payments had caught the attention of 22% of UK consumers surveyed, while a further 6% said that they had tried wearable payment forms like watches and wristbands during the pandemic.

Poland is a technologically advanced market, with more dynamic payment method usage than in neighbouring Germany. Poland was one of the first European countries to pioneer contactless payments, evidenced by an overwhelming 80% of Polish respondents said they would now be more likely to spend money at a retailer that offered contactless payment options than before Covid.

Polish consumers overall have a positive view on having a cashless society, with 54% seeing it as a welcome prospect. On the other hand, 19% viewed the end of cash as a negative.

As a result of the pandemic, Polish consumers were more willing to try new payment methods compared to the other countries in the survey. Over 70% stated that they had tried contactless, while a significant 81% said they had opted for online banking. PayPal scored highly in Poland too, with 92% of respondents trying it for the first time during the pandemic.

The Netherlands already has one of the highest rates of non-cash payment method usage in Europe but is characterised by a few anomalies compared to other European markets.

Although non-cash payments are extremely popular, online banking and credit transfers, rather than debit cards, are favoured by Dutch consumers. Cards account for a lower proportion of retail sales compared to other European countries. Credit card usage in particular ranks much lower in the Netherlands when compared to the UK, for example.

But when it comes to getting rid of cash altogether, Dutch respondents are reluctant to wave goodbye to bank notes and coins. 38% of those surveyed view a cashless society negatively, compared to 31% who think going completely cashless is a positive thing.

Preparing for the ‘new normal’

The PXP Financial research shows how important having the widest possible choice of payment methods is for retailers.

Retailers and payment organisations need to work together to understand what their customers need in the new normal as the high streets across Europe open up once again. Together, retailers and payment organisations can develop solutions to ensure continued customer loyalty even as the face of retail changes in line with the widening array of payment methods. Added-value services like loyalty schemes, promotions, in-store rewards through QR codes are all valuable tools that retailers can use to offer their customers convenience, speedy footfall and payment security.

The research underscores the need for retailers to understand the direction of consumers’ attitudes towards where they shop, how they pay for the goods they are buying and what they require from retailers going forward. Covid’s new normal has accelerated the speed of direction and retailers must catch up with their customers.

The global pandemic has forced many customers to use digital touchpoints and services for the first time. However, a wide gap separates billions of consumers from the solutions stack that digital banking provides.

By Sathish Muthukrishnan, Chief Information, Data & Digital Officer, Ally Financial

Persuading consumers to make the leap takes patience and a personalised approach, but above all, it requires education. Here are three common myths about digital banking – debunked:

Myth #1: There is a lack of customer care in digital banking

Many people perceive in-person communication as the epitome of customer service. In numerous industries, it continues to serve both as a symbol of customer commitment and as a measuring stick by which consumers gauge an organisation’s authenticity and accountability. In banking, however, technology creates more of a bridge than it does a divide. Digital banks often provide 24-hour support and offer their customers a variety of communication channels – including mobile, computer, phone, and chat.

Receiving great customer service from an online-only institution may seem counterintuitive, but in its best form, digital banking can be anticipatory, seamless, and frictionless. The focus on technology that underpins digital banks means the customer experience is more consistent, efficient, and personalised than face-to-face service offers. In an era where bank customers are more transient than ever, the high retention rates of digital banks speak for themselves.

Myth #2: Digital banking creates a language barrier

Consumers who do not consider themselves digitally ‘fluent’ may assume that creating and maintaining an online account for digital banking services is too difficult. However, the fact that digital banks acquire most of their customers via an online-only journey means they are forced to create simple, easily understood processes.

Opening an account with a good digital bank generally takes no more than five minutes and, based on the information provided, customers may receive additional recommendations for personalised services, tools, and investments. Many customers are surprised to learn digital banking also operates on very little ‘fine print’ material – some use none – which provides a stark contrast to the pages full of legal disclaimers most traditional banks require customers to sign.

While digital banking may appear as a series of opaque obstacles, especially for digital non-natives, its functions and services are designed for maximum accessibility – no matter the customer’s background or technological adeptness.

Myth #3: Digital banking is less secure

Digital banks operate under the same regulations as traditional physical banks. Good digital banks also incorporate security into the design of all their operations and processes and continually build on security features to protect customers’ deposits, transactions, and personal data.

At a minimum, digital banking provides the same level of monitoring and safeguarding as traditional banks. But many of them leverage technology to add even more layers of protection to customer data. Executives are aware that trust is a major factor in converting consumers to digital banks and go the extra mile to ensure their organizations offer market-leading security.

The Bottom Line

Digital banks are typically more sustainable and less fragile than traditional banks. The people-first mindset that the best in digital banking embody is exactly why they are so convenient, easy to use, hyper-secure, and available around the clock. The value retained by eliminating physical infrastructure is passed on to customers – and increasingly, those consumers are taking note.

In most ways, digital banking represents smarter business – maximum value is delivered to customers at lower operating costs.

As technology evolves and FinTech takes a grip on the financial services industry, today’s banks have a distinct opportunity to engage consumers through financial innovation that not only better supports savings, purchases and investments, but does so with positive sustainability credentials and a reduced environmental impact.

By Dan Harden, Director of Business Transformation, Paragon Customer Communications

Even over a decade since the severe financial crisis of 2007-08, the activities of banks and other financial services providers remain under a great level of scrutiny. And none more so than when it comes to their environmental impact and green credentials.

Just last year, the Banking on Climate Change 2020 report revealed that 35 of the world’s leading banks have provided $2.7 trillion to fossil fuel companies in the four years since the adoption of the Paris Agreement (2016-2019). This is equivalent to more than $1.5 billion for every day since the end of 2015, with no downward trend and no assessment of the carbon impact of that finance.

The formation of The Partnership for Carbon Accounting Financials (PCAF) – a global partnership of financial institutions committed to facilitating transparency and accountability of the financial industry to the Paris Agreement – and the launch of the first global standard to measure and report financed greenhouse gas (GHG) emissions associated with their loans and investments, was a signal of intent for the industry.

The spotlight on institutions, however, is no longer solely being pointed by local and international regulators, but also by a wider public including clients, employees and investors concerned about sustainability.

Deloitte’s Better Banking Survey recently revealed more than 60 per cent of some 1,250 British adults would leave their bank if they found out it was linked to environmental or social harm, even if it had the best financial offer available. Further, seven out of 10 people said they would be more likely to choose a bank that had a positive social and environmental impact.

All this combined means sustainability, responsibility, and the disclosure and reporting on carbon emissions are now very much a critical competitive advantage within the financial services sector.

Meeting the global standard for Green Finance

As banks seek to quell public and regulatory pressures, and improve their environmental credentials, technology has become a fundamental tool for delivering sustainable business operations. FinTech is already an innately sustainable alternative to the traditional banking, allowing consumers to manage their finances using digital technology, removing the reliance on paper-based transactions and even the need to travel.

Banks, for instance, are enhancing their low-carbon offering and reducing climate risk through intuitive technologies such as chatbots and virtual assistants, artificial intelligence and machine learning powered robo-advisors, as well as increasingly intuitive banking apps. Digital integration is being executed to bring together the platforms used for transactions, data management and customer interactions for a seamless and sustainable omnichannel delivery model.

Such platforms are not only allowing financial institutions to take the necessary technological steps towards sustainability, but also delivering better service for consumers and CX. Secure and almost always at hand, they make the process of carrying out financial transactions, accessing products, getting advice and financial updates far simpler, reducing the need to visit branches, or make calls.

Centralised Customer Communications Management (CCM)

Of course, before widespread technological change is adopted, banks must ensure they have the most effective and efficient CCM solutions in place.

Organisations are increasingly seeing the benefits of adopting a single, centralised, customer communications management deliver model – a “one platform” approach that underpins communications across all channels and technologies. By doing so, banks can ensure they have the delivery infrastructure to support a truly frictionless CX across a multitude of traditional and digital channels, while at the same time facilitating transformation at pace.

A consolidated perspective of communications can facilitate the analysis of lifecycle sustainability impacts, allowing financial organisations to choose supply chain partners that are committed to the same values including negative emissions, zero waste to landfill and creating an environmentally resilient future.

In a bid to deliver a roadmap to Net Positive Communications, banks are working with knowledgeable partners to help them implement the tools and technologies that will make net-zero emissions technologies deployable at significant scale, in turn, delivering on their long-term sustainability goals and aspirations.

In this article, Rajashekara V. Maiya, Vice President and Head, Business Consulting Group, Infosys Finacle, speaks about four key trends in the era of digital transformation that are changing the nature of loans, borrowers and lenders.

The size of a nation’s lending portfolio is closely linked to its economic growth and development. Take South East Asia as an example where the countries that have high GDP growth also have high loan-to-GDP ratios. All these countries have a robust lending market supplying affordable, hassle-free financing to corporate, SME and retail borrowers, creating consumption-driven growth momentum.

But this was not always the case. China in 1975, Thailand in the 1980s and Malaysia in the 1990s were all struggling to grow their GDP. But then they went through a retail boom, when per capita income crossed a threshold US$ 1000 to stoke the aspirations of the people for a better lifestyle, better housing, better transportation etc., which created a demand for retail financing. Today, the world is in a different yet similar situation, with the pandemic denting economic health globally. One way to reclaim growth is to fuel consumption, and one way of fueling consumption is by boosting retail lending.

Currently, there is ample scope to increase the loan-to-GDP ratio in many parts of the world. This is especially the case in developing countries, which need to bring their substantial underbanked population within the ambit of formal banking. However, that would stress the infrastructure of their banking technology landscape beyond tolerable levels. The only solution is to transform the retail lending landscape, across the formal banking industry as well as the informal, unorganized sector. This includes lending processes and banking workflows, as well as the associated technology infrastructure.

The other important thing to consider are the broad trends that are sweeping retail lending across the globe. We can categorize these as changes in the nature of loans, of borrowers, and of lenders.

A loan that is no longer that

The biggest trend here is that the loan has become incidental, almost invisible, in the consumption journey. Customers don’t want loans per se; they are only a means to fulfil a primary expressed need, for a car, for a college education, for a home and so forth. Therefore, banks’ conversations with customers should be about helping them achieve their primary desires rather than pushing a lending product. The product-centric approach to lending is now outdated, and has been replaced by a customer-centric or even customer-specific mindset of helping customers fulfil their unique desires while offering the best financing option in their particular context.

A customer who is demanding but debt-friendly

Today’s retail borrower is very different from the one of even a few years ago. There is no patience for spending hours in a branch gathering information and filling out forms.  As a product of the digital age, this borrower expects financing to be delivered to him or her, on a digital device of choice. A key expectation is that the loan application and onboarding process will be digital. Another is that the terms of lending will be a balance of borrowers’ rights as well as their obligations.

Many trends have gone into shaping this customer. Ample choice is one of them. For instance, a customer buying a car can get an attractive loan from a non-bank financing company or from the financing arm of the automobile manufacturer itself. The customer embarks on a redefined journey where a bank has no role to play. Another influencing factor is demography: more than 70 percent of the global population is below the age of 30 and almost everyone is digitally connected. Far from being debt-averse like generations past, these young customers demand deferred payment options such as credit card payments, monthly installments and the popular “buy now pay later” facility from Amazon.

A lender who has raised the bar

Some years ago, “lender” usually meant a commercial bank. Today, the definition includes a plethora of providers, from Fintech companies to retail businesses to even social networks, offering financing in different forms and flavors. Amazon is a standout example, with a loan portfolio in excess of US$ 10 billion spread across its gigantic merchant base. Amazon’s lending process is not just completely digital, it takes all of 3 clicks to boot! What’s more, the company offers attractive rates, with full transparency and no hidden costs.

Traditional banks are at serious risk of being left out of the new lending paradigm. To stay relevant, they need to reimagine their customer journeys to match the benchmarks being set by the likes of Amazon. At a minimum that would mean designing a lending process that is digital from end-to-end, where origination, eligibility checks, approval and servicing can be completed within a few clicks. Secondly, banks should rely less on agents and brokers to sell their loans, replacing them with a digital alternative, such as a mobile app.

One more trend that is changing the face of banking – and consequently impacting lending – is the platform business model. The platform is front and center in digital loan processing. It is also enabling lenders to participate in the primary journeys of customers by creating online marketplaces for non-banking products and services. DBS Bank, with its highly successful platforms for used cars, travel, real estate and utilities, is a great example. The bank makes no mention of its banking products in these marketplaces; however, once a customer has fulfilled a primary need, for a new utility connection, for example, the platform offers an option to use a DBS Bank account to set up a standing payment instruction.

A word on the pandemic

By accelerating digitization in every sphere, including lending, the pandemic opened the doors to simpler, transparent, cost-effective loans. In the latest EFMA Infosys Finacle Innovation in Retail Banking Study, financial institutions cited that the highest levels of innovation success were seen in the lending¹. But could it also set off another trend, one where banks participate in improving the health of their customer communities? Just like insurance companies, which tap digital information about customers’ driving habits or lifestyle, to determine premium, could banks link the terms of lending to customers’ vaccination status by accessing their digital records subject to consent? It remains to be seen.

References:

https://www.edgeverve.com/finacle/efma-innovation-in-retail-banking/

The clock is ticking, LIBOR may not quite be on borrowed time, but it is heading towards its sell-by date at the end of this year.

Michael Koegler, Managing Principal and Pieter Van Vredenburch, Principal, Market Alpha Advisors, review what’s at stake.

Unless you have been living under a rock, you are likely aware that IBORs, the benchmark indices underlying $350 trillion in financial instruments globally, are about to be discontinued in every jurisdiction around the world. This isn’t news to anyone in the financial services industry and has been in the works for several years.

Despite the long lead time, many institutions – particularly in the US are not where they should be in their preparations. With the deadline a year away, that real sense of urgency has set in at many institutions. To be fair, firms have been somewhat distracted with the Covid-19 pandemic and have not been able to devote as many resources to this as they would have liked.  Some have been hoping for an extension to the deadline, a legislative solution or another industry initiative to relieve them from the burden of dealing with the problem. This, however, has turned out to be wishful thinking.

The Federal Reserve has been trying to sell firms in the US on the idea of preparing for the transition, but they have not been as aggressive as other regulators around the world (notably the FCA) with their rhetoric and efforts to encourage firms to prepare.

Another factor contributing to the sluggish preparations is the difficulty in adopting the Secured Overnight Financing Rate (SOFR) as a replacement for LIBOR. The Alternative Reference Rates Committee (ARRC) chose to adopt SOFR over other established indices such as the overnight indexed swap  (OIS). SOFR, a secured overnight rate with no inherent term structure, is completely different from LIBOR, an unsecured rate with a well-defined term structure. SOFR is new to the market and has features that do not work well within many sectors of the financial markets.

A certain degree of blame rests with the large money center banks. The ARRC members include 15 of them. They are supposed to be leading the industry by facilitating an orderly transition, but have instead been focused only on getting their own houses in order, working diligently to minimise litigation risks.

Finally, the sheer magnitude of the problem has some firms acting like a deer caught in the headlights. There is so much work to be done and many firms have severely underestimated the scale of the problem. To properly prepare for the transition an organisation needs to establish a proper governance structure and involve all areas of the firm, including the front, middle and back offices. The legal, compliance, market risk, IT and communications departments also need to be involved, and held accountable for hitting milestones. Without a proper governance structure, accountable to senior management, it is virtually impossible to coordinate a successful transition across a large organisation.

At this stage, firms should have educated themselves on the risks associated with the cessation of LIBOR, formulated a proper governance structure and identified affected instruments. The next step is to analyse the LIBOR fallback language embedded within deals, thereby enabling risk managers to categorise, sort and prioritise specific instruments for remediation. This sounds like a simple and straight-forward task, right?

Not by a longshot!

Analysing fallback language is an incredibly complicated process. Traditional data providers can supply you with a plethora of information on floating rate instruments. You can retrieve the issue date, maturity, index, index term, spread, credit rating, lead underwriter, trustee, etc.  However, the one thing that no traditional data provider ever anticipated needing is information on what happens to a deal if LIBOR doesn’t set. The only way to properly analyse this risk is to comb through offering documents, indentures and supplements to determine how a discontinued reference rate affects the instrument.

Extracting the fallback language, categorising it and prioritising the risk will empower an institution to face the demise of LIBOR. Lacking an understanding of this unknown is something that firms should definitely be afraid of.