As we enter a new era in payments ‘check-out-less’ experiences are quickly becoming the norm. Do you remember the last time you actually paid for a Uber? Probably not. You will have just tapped for payment. No keying in card details. No password. No ‘pay now’ button. That’s the definition of a truly frictionless payment. These ‘check-out-less’ experiences should be front of mind for software providers as they look to deliver invisible and frictionless transactions that keep customers spending.
Stephen Ferry, Managing Director at Pay360 by Capita
Where once we needed our card and CVV number to buy anything online, payments are quickly becoming integrated within the software that sellers and services use, making transactions almost invisible. And there’s good reason to. With 40% of UK consumers in the tech savvy, digital-native Gen Z demographic, and more people than ever choosing to use mobile and contactless payments, preferences are quickly shifting towards hassle-free purchasing.
We’re quickly moving from a ‘cardholder present’ world to one where invisible payments like impulse spending at Amazon are the norm. Customers can purchase pizza from the sofa with a voice command and buy groceries using their fingerprint or a scan of their face without ever having to reach for their wallet. Central to the popularity of frictionless and invisible payments is the customer’s experience. Nobody approaches a transaction thinking about the payment. They want an outcome. 87% of them will abandon an online shopping cart if the checkout process is too difficult. The less customers think about making a payment, the more they are likely to spend.
As cash usage continues to diminish, mobile payments have continued to grow, standing currently at 21% of all transactions. It used to be commonplace to browse on mobile and buy on a laptop or desktop machine but, in an era where Android has replaced Windows as the world’s most popular operating system, the mobile experience is now a priority. As Apple Pay, Google Pay and others see astronomic growth, enabling customers to pay using their preferred method and on their preferred platform is essential.
Software providers should take notice of these trends. Their software holds the key to enabling the type of transactions that consumers demand and merchants are desperate to deliver. However, rather than simply adding payment functionality to their software, it must be integrated to become a core part of the service their clients deliver. It needs to remove the friction from the payment process to provide the best possible experience for customers, enabling them to pay with ease, how and where they want. And this isn’t a futureproofing measure. These changes are happening today. To remain competitive, you must take steps to provide frictionless, invisible payments within your software, which means embedding a payments workflow or integrating one with your offering.
With payments, security and authentication baked into your software, you can take steps to enable the frictionless payments that your clients and their customers crave. By improving the way payments are handled, you’ll not only differentiate your software and increase the growth potential of your business but help your clients to do the same by retaining existing customers and attracting new ones. It will enable them to offer these much sought after invisible and frictionless payments and even adopt a SaaS model to encourage consistent spending over longer periods rather than one off payments.
How do financial institutions stay competitive in the COVID-impacted marketplace? In today’s climate, financial institutions must switch to digital or risk becoming obsolete. As a result of the pandemic, recent research revealed that consumers use of mobile and online banking has dramatically increased with 30 per cent more people using their mobile apps and 35 per cent using online banking. It’s imperative during these trying times that financial institutions digitise in order to accommodate the needs of the marketplace, otherwise they risk losing customers – or worse, going out of business.
Before COVID-19, many financial institutions were putting aside digital transformation projects for a variety of reasons. For example, financial services have been slow to adopt cloud technology owing to a perceived lack of data security and control. Historically, building and maintaining in-house systems was considered the safest way of protecting business-critical sensitive data and applications. However, many of the key concerns associated with cloud adoption such as security and privacy have been addressed, and banks are now beginning to enjoy the advantages of cloud-based services. In the regulatory space, more and more banks are now forced to rapidly embrace the deployment of their regulatory applications on the cloud – in order to drive scalability, lower capital costs, ease of operations and resilience. It’s all about driving efficiencies by adopting technologies, to help give financial institutions a competitive advantage.
In order to be able to better serve their clients in the current climate, financial firms need to improve efficiency, drive better digital client experiences and focus on better value-added tasks by embracing innovative and highly automated technologies that can help ensure the optimal client experiences. In our connected age, clients expect and demand a faster, more efficient account opening process that lets them re-use the information they’ve already submitted and avoid repeated requests to the customer. Often, poor data management is where financial institutions become stuck. The inability to automate the consumption of customer information really hampers financial institutions’ abilities to expedite compliance and onboarding. Financial institutions of any size, and within any sector, need to recognise that introducing technology-enabled client onboarding solutions will give them the best possible chance of meeting the continuing regulatory challenges head-on.
Firms must prepare for the future and consider what the next 6-12 months will look like. They must contemplate how to best respond when relationship managers can’t physically reach out to potential customers. When face-to-face meetings are no longer possible, a digital-first strategy and the ability for clients to provide documents remotely via online portals is crucial. With increased automation, the middle and back-office no longer need to deal with repetitive, manual processes such as scanning documentation. Advanced technologies and capabilities such as natural language processing (NLP), machine learning (ML) and optical character recognition (OCR) allow firms to extract the required information and text from scanned documents which can then be cross-referenced against other data sources internally and externally.
The pandemic has accelerated consumers’ move toward online financial services. Today, customers are looking for remote services including online banking and mobile apps, however, it’s just a matter of time before the demand for more advanced services becomes the standard. For this reason, banks need to fast-track their digital transformation or risk being outpaced by digital-first competitors.
Mark Bolton, Head of Sales, International at Gresham Technologies
Automation was once embraced wholeheartedly by reconciliation departments as companies leapt at the opportunity to integrate the latest efficiency driving technology to bring about change and improvement. However, in more recent times this has been replaced by a mood of complacency and stagnation, characterised by a preference to stick to what’s known. To get out of this rut we need to get out of our comfort zones and embrace change – because even during times of uncertainty, a better understanding of your data will always enable a better understanding of your business.
When high-value, high-volume reconciliation processes were first automated it was an exciting and brave new world. Manual tasks that previously required dozens of people were replaced with a new solution that could get through thousands of transactions in a fraction of the time taken for an army of clerks to tick back the same trades.
However, over the years, a culture of resistance to this change has taken hold in many recs departments and the appetite to ‘do more with less’ is diminished by a fear of disrupting day-to-day operations and breaking old systems that work for now. At the same time, the C-Suite has sometimes overlooked the vital role of reconciliations in keeping the firm running smoothly, only mandating change when poor performance or high costs are simply too big to ignore.
Where did it all go wrong?
Skipping forward to today, many organisations have addressed the shortcomings of their incumbent solutions with bespoke in-house procedures, or worse, manual processes, as their incumbent solutions lack the flexibility to cope with either the volume or complexity – or both – of current demands. Business as usual undoubtedly looks very different.
Whilst those within the industry are resistant to change, this does not mean that the industry stays still. Over time, complexity has increased, with transaction volumes skyrocketing, causing new technology to be introduced in response to these developments. This meant that systems had to be updated to keep up with the rapid changes in market conditions. However, this wasn’t as easy as the original ‘big bang’ approach taken to create automated processes, where everything was built from the ground up. Changes to a production environment often didn’t happen, as the time and cost of performing these updates was often prohibitive and heavily reliant on solution providers. Over time, the quality of results started to deteriorate.
Challenging complacency to adapt to the new normal
For many, an argument against change is that the labour-intensive implementation of their legacy solution took many months (or years) to get close to their expected results, and the appetite to repeat such a painful exercise is lacking.
Also, it’s comfortable to keep what you know, right? Wrong! Nothing is more uncomfortable than when your patchwork of fixes unravels, forcing errors to become more commonplace. Unless you can be absolutely data confident across the whole enterprise, then this is the reality you face.
We now have a sector that is rapidly changing, but there’s a lack of willingness to embrace this change. The consequence is piecemeal measures being put in place, rather than taking a leap and fully embracing new technology and the benefits it can bring. For example, we know of multiple companies whose foundations are built upon legacy systems, which they must rely on to process millions of transactions. Many within these companies made requests for systems to be updated but changes were never made, whether due to concerns over cost or the complexity of changes required.
It is in the interest of both the C-Level and practitioners to challenge this risk-averse attitude and fix this situation. Regulations such as MiFID, Basel III and CAT have already placed a huge burden on these old, creaking solutions, and as regulatory oversight continues to increase, so will complex reconciliation volumes. This means wasting time and money by using valuable resources to work through issues that could be handled efficiently by technology.
Firms must act now. With the right partner and attitude, firms will not only be able to develop the right solution for themselves now but one which will provide a robust long-term framework that is flexible and adaptable enough to react to whatever the market has in store.
Mark Bolton Head of Sales, International Gresham Technologies
By Eli Rosner, Chief Product and Technology Officer, Finastra
Changes in regulation, customer expectations and technology have set many banks on a journey of digital transformation. As traditional structures and processes are dismantled and rebuilt across the whole banking sector, it has become increasingly clear that data, along with its safe harbour, exchangeability, timeliness, and accuracy will be key to the future shape of financial institutions.
For this reason, data is often described as the new oil – such is the power of data to enable personalisation, platform models and collaboration in the brave new world of banking. Some financial institutions have already embraced these, realising that collaboration and platform models can ease access to innovation and open a path to working more closely with FinTechs, ultimately to better serve customers.
However, unlike oil, data is not a finite commodity but continues to proliferate. It also inhabits the traditional, product-focused silos built over decades by banks within legacy technology systems.
So, what have the experiences of banks been so far with open banking? What are the lessons that can be learned from them, and how should institutions prepare for a future in which their position as trusted data custodians could be hugely different from the role that they play today? We set out to gather insights from the industry and our partners, to see what they think.
Eli Rosner, Chief Product and Technology Officer, Finastra
Cultural barriers and the not-invented-here syndrome
The first lesson learned is that legacy systems and thinking can create barriers, both because data needs to be exchanged between open networks and closed banking systems and because institutions have leaned towards caution and protectiveness in the past. This has sometimes had an impact on banks’ ability to attract the skills they need to transform their operations.
Ferenc Böle is Head of IT Project Management and the Transformation Directorate at OTP Bank, a Hungarian bank operating across 12 countries. OTP Bank has invested heavily in digitisation and innovation over the past three years but has had to work through some challenges along the way.
“People are living their lives online and we had to change significantly,” says Böle. “At first we found that connecting to our systems created technical bottlenecks. We also had concerns about which data could be used by us, or shared with which partners, and that constrained some activities.
“However, we found that asking permission to use client data and providing superior services in return for that permission removed the barrier. We are now finding that as long as the banking services work, people aren’t too interested in how it operates – just as they expect a light to come on without knowing how the electricity is generated.”
Banks too are embracing the concept of collaborating with FinTechs instead of seeing them as the competition. Joel Winteregg, co-Founder of Swiss FinTech NetGuardians, says: “The not-invented-here syndrome was definitely in place when we started out: no-one wanted to talk to us and it was difficult for large banks to work alongside a fast-moving start-up. There’s been a big change in the past couple of years, enabled by platforms and driven by regulation like PSD2.”
The commoditisation of banks’ traditional products and services is a further driver for change, simply because it has lowered the barriers to market entry for so many new players.
Juan Jiménez Zaballos, Head of Financial Industry Transformation, Santander Digital Platforms, comments: “Banks have been obsessed by products, but there has recently been a flight to vanilla that makes it difficult for banks to differentiate themselves from competitors: a loan is a loan wherever you get it from. Creating relevant and personalised services and experiences is vital, but the only way to respond is with the intelligent use of data.”
Think like a customer
The key to progress in open banking is to think back from the customer’s point of view and requirements, then fill in the gaps with systems and processes via open APIs within a strict governance and security framework using an open platform. Insights into data, both historical and real-time, will create opportunities to build personalised services and new revenue streams.
Eyal Sivan, Head of Open Banking at Axway, also known as Mr. Open Banking, says it is no secret that the big challenge with all of this is that banks have so much data to work through. “Banks have years of historical data about all of their customers. The race is on to get their arms around that data, use tools that deliver insights and think about how it can be shared.”
Collaboration will also bring change in the corporate banking sector, says Paul Le, Chapter Lead Trade, Data & Platforms, ING. “Physical documents in Trade are commonly used and in one single transaction 80% of information is duplicated,” he says. “What we really need is one digital version of the truth that everyone can use. Collaboration is needed to achieve this.”
New doesn’t always mean better
By its nature rapid innovation has led to many new ventures that tackle the inefficiencies of individual traditional processes. This dislocated approach does not always necessarily take into account the overall service that needs to be offered to clients, so we are now at the stage where banks can step into to unify best-of-breed services on a single platform, collaborating with competitors rather than trying to ‘own’ the whole process.
An example is the open, collaborative clearing platform that Kynec is developing: “In the old days clients would trade, clear and settle through one bank,” explains Robert McWilliam, CEO & Founder at Kynec. “Disruption driven by regulation broke down the trade lifecycle and customers were tempted by lower prices for different parts of the process.
“However, while new entrants offer cheaper alternatives, the disadvantage is that customers need to deal with lots of providers, not just one. That’s why we are building a platform connecting banks and funds that want to clear with multiple Clearing Houses and companies that provide clearing related services. A single connection to our platform will give fast and efficient access to the entire clearing marketplace.”
Looking forward to a new era
Eyal Sivan adds that a further impact of open banking, together with data protection regulation, is that customers regain ownership of their data. The role of banks is likely to shift as a result, from protectors of physical currencies to trusted data brokers and custodians.
“There will be a rediscovery of banks as we realise that the business they are actually in is trust,” he says. “When we are all sharing our data across the internet, we need organisations that can protect personal information on our behalf. Perhaps banks could provide a trusted facility that we can go into and adjust who sees what information.”
However the landscape changes in future, it is clear that we are moving towards a world in which banks will need to become confident in selling products and services that they haven’t manufactured themselves. This will mean having the platform that attracts the right developers and provides an ecosystem that creates the groundwork for entirely different business propositions.
And as Ferenc Böle concludes, many banks are still at the beginning of this road to transformation. “We have to be aware that there will be obstacles, and that there may be conflicts with existing projects that need to continue. Despite all of that we need to invest in technology today that will allow us to harvest benefits in the future.”
Now more than ever, digital transformation and the ability to respond rapidly – in what is a very fluid situation – are critical.
By David Murphy, Financial Services Lead, EMEA & APAC Publicis Sapient
David Murphy, Financial Services Lead, EMEA & APAC Publicis Sapient
Unlike the last major financial crisis, which played out over the course of months and years, the current economic upheaval has impacted markets, businesses and livelihoods at lightning speed. Similarly, in contrast to the events of 10 years ago, banks find themselves on the front-line of the recovery, charged with helping to address the acute financial needs of their customers. The ultimate test is whether they can do so effectively and at speed.
Customers at the centre of the response
If there’s one thing we can be certain of with Covid-19, it’s that life isn’t returning to normal any time soon. On the other side of the curve, when the economy shows signs of an upward trajectory, the recovery is likely to be protracted and arduous.
While banks need to confront and mitigate risks – spanning income, operations, capital and reputation – all solutions must start with the customer. And in line with the expected slow pace of recovery, they’ll have to move from shorter-term metrics driving customer decision-making to a far longer-term focus on lifetime value.
Customers will be looking to banks to cut them some slack. Following standard rules and policies won’t work for a population that remembers very clearly the bail-outs of 2008. Since then, banks have focused on improving customer leadership, revenue growth, operational efficiency and automation, but with the emergence of this new crisis, they will need to revisit their communications, policies, business rules and operational processes to ensure they are fit for a very different economic, sociological and reputational era.
Digital transformation’s time has arrived
The availability of new digital capabilities means that banks can fundamentally change their response from previous crises. Organisation-wide digital transformation is the catalyst that enables them to act and implement changes faster than ever before; specifically addressing three key pillars:
Prioritising customer help:Access to significant levels of data means that banks can identify strategies and comms appropriate to different segments, repurpose existing products and generally enable a broader set of personal and business customers to address and take control of their finances. Empowering these customers to digitally serve themselves through the crisis can provide both stability and longer-term growth.
Optimising decision-making:Decision-making and approaches to many of the income, capital and reputational risks, can be optimised through the implementation of technical solutions, such as machine learning and AI. Triaging, adjusting and deploying new models for a more relevant and impactful response will not only increase effectiveness but generate new organisational capabilities.
Maintaining operational resilience: Changing traditional ways of working to enable the successful deployment of technology will be required to secure and maintain operational resilience. This can include assessing and adjusting governance structures, streamlining highly complex and manual processes to reduce the operational burden and retraining staff for remote proficiency.
Clients taking action
We’re already seeing banks take positive steps to leverage existing digital transformation capabilities or accelerate programmes. They’re emphasising strategic thinking and operational efficiency and framing responses around customers. From fast tracking solutions for health workers and vulnerable customers to leveraging cloud-based technology to bridge financing gaps for small businesses, this bold approach is precisely what’s required.
But in the early days of this crisis, there’s a lot more work to be done and many more institutions need to lift their game. Not just to provide the help that many customers so desperately need but to manage the considerable organisational impact and successfully navigate the uncertain digital transformation journey ahead.
The past three months have set in motion changes that will not be stopped nor reversed as social distancing measures are gradually relaxed. This is certainly true in the financial services sector, where the lockdown has brought about a watershed moment in the proliferation of FinTech.
In the aftermath of the coronavirus pandemic we – consumers, businesses and governments alike – will be living in the “new normal”. We have purportedly witnessed ‘a FinTech revolution’ over the past decade; however, such claims have suddenly been brought into sharp perspective. Only now is the much-lauded transition from a physical world to a digital one going to take shape.
Ammar Akhtar, CEO, Yobota
Gathering momentum in the aftermath of the 2008 global financial crisis, the so-called FinTech revolution promised open access to data, hassle-free banking experiences and fairer deals for customers. Yet only relatively small steps have been taken towards this vision.
Until now we have witnessed a cautious adoption of technology in the finance sector as consumers, regulators and established banks familiarise themselves with what it can enable – and this has still come at considerable investment.
Covid-19 has changed this.
Today, people must be able to access advice, take out new products and manage their finances digitally. Financial service providers, meanwhile, must ensure business continuity and a painless customer experience at a time when their teams are unable to work from the office or bank branch.
The pressure is on
At present, many finance companies remain completely reliant on legacy technologies and on-premises servers – they cannot access data or execute processes remotely. Simply put, these firms are under threat of being left behind as society prepares for the new normal.
The pressure is on, with technology no longer just a form of competitive advantage for financial services firms; it is essential to their very existence. And for those now grappling with how to deploy FinTech successfully, two things are key: interoperability and cloud computing.
Over the past decade firms have too often taken a piecemeal approach to adopting FinTech; they have used specific technologies to solve isolated problems. That is because FinTech startups are typically created with that very focused mindset.
Finance firms, particularly those providing banking services, should have a much broader perspective when developing or adopting technology. They must focus on the interoperability of best-in-class technologies – put another way, they must make progressive choices to use technologies that fit together to form entire systems that work together seamlessly.
Take the example of someone applying for a credit card; something that is increasingly common as a result of the economic hardship brought about by Covid-19. There are various different stages that an applicant will need to pass through – identity verification; credit scoring; advice or product recommendation; application and assessment; and, if successful, creating the account.
There are FinTech solutions that can automate each of those processes. Yet the companies best equipped to deliver exceptional services in the post-pandemic landscape will be those that have interoperable cloud-native technologies on a platform that can take the user from the start of the credit card application process to the end as quickly and easily as possible.
Embracing FinTech
FinTech should not be confused with someone checking their account or transferring someone money. These isolated actions are not a true reflection of FinTech’s revolutionary potential, which is quickly becoming apparent.
In the primarily digital environment we are now living in, financial services firms that cannot deliver an exceptional level of service to customers – be it individual or business – risk losing them to those who can. Now is the time for the sector to embrace FinTech to its fullest and build systems that are not just adapted to the new normal, but actually help to shape it.
As the initial market panic that followed Coronavirus around the world begins to clear, investors are starting to look forward to the challenges that lie ahead. It’s clear, that once the immediate medical crisis subsides, we will be facing an economic situation almost without precedent. The GDPs of every major economy will crater in the current quarter. Although many are hopeful that the recovery will come in the next quarter, there is potential for long-term recession.
As the world emerges from the medical crisis, industries that have been shut down will be left surveying widespread damage, some of it permanent. Consumers will be split between the fortunate ones that have been able to work and others whose incomes have suffered badly during the shutdown. Meanwhile, central banks are printing trillions in the new currency as they desperately roll out programs to jumpstart the economy and prop up ailing industries. This unprecedented increase in the balance sheets of central banks will have major repercussions for the world economy in general and for asset prices in particular.
Accordingly, investors are looking to assets that can provide a hedge against rising prices and the destructive impact of inflation. That much is clear from the price of gold, up over 11% year-to-date at the time of writing, while the S&P 500 is nursing a loss of over 12% even after the recent Fed inspired rally. We can expect that gold will continue to prove a popular option to protect against inflation.
But this time gold will not be the only save haven from the storm. In the inflationary period to come, we can expect Bitcoin to truly earn its moniker as ‘digital gold’, a store of value while cash is eroded and more bond yields turn negative. Bitcoin offers an inflation hedge for one obvious reason: unlike fiat currencies, the supply is limited. Only 21 million Bitcoins can be mined in total. There is no digital central bank that can debase the value by flooding the market. The decentralized nature means that the decisions of a few power-brokers cannot fundamentally alter the value of people’s holdings.
The idea of cryptocurrency as a store of value may seem counterintuitive when it remains a volatile asset class. But compare that to a commodity such as oil, whose price has been sent crashing by vanishing demand and a resulting supply glut, to the point where storage is beginning to run out – and many short-dated contracts have entered negative territory.
Volatility and risk, often conflated, are not the same thing. Despite the often choppy price movements, digital assets have more than held their own against the market during the ongoing economic storm as the variable supply-side and political interference are two problems that cryptocurrencies do not have to deal with, making them a potentially less vulnerable investment in times of turmoil.
Bitcoin is down a mere 4% year-to-date (and up 22% from a year ago), and Ethereum is up by a third. The early signs are that investors are turning to cryptocurrencies both as a key tool of diversification and a hedge against uncertainties to come. That is reinforced by data from the crypto asset manager Grayscale: in Q1 it saw inflows north of $500 million, more than doubling its previous best quarter. Almost a third of that capital came from new investors, most of the institutions. There is every indication that inflationary fears will add to the tailwinds that were already powering new investment in cryptocurrency, among them institutional involvement and improving regulation.
No asset class will ever be fully trusted until it can demonstrate its performance and sustainability during a crisis. For digital assets, which emerged out of the embers of the last financial crisis, the storm that is now engulfing global markets is set to mark a coming-of-age.
(Disclaimer: The views expressed here are those of the author’s and Bittrex and do not necessarily represent or reflect the views of IBS Intelligence)
The global pandemic is having an unprecedented impact across industries around the world. Remote working, in particular, has rapidly become the ‘new normal’ for workforces globally, enabling many employees to carry out their daily roles — albeit from their own homes.
Amir Sarhangi, VP Product at Ripple
As companies transition to remote working environments and increase their reliance on digital services and modern technology, FinTech simply can’t remain in stasis. To date, a large part of the industry’s lockdown-induced holding pattern stems from its reliance on outdated technology that can’t keep up with customers’ fast-evolving needs brought about by the pandemic’s impact.
On top of that, The World Bank has now classified remittances as an essential service — signalling the need for faster adoption of digital financial services, which can make remittances cheaper and more convenient during these uncertain times.
Keeping services modern and accessible
It’s with this in mind the financial services industry should continue driving innovation to improve the cross-border transactions that are so key to keeping the wheels of the global economy turning. Notorious for being late to the game, FinTech and banks need to recognize the importance – and urgency – of modernizing their offerings or risk falling behind at a time when their customers are relying on them most.
Fortunately, cloud-based solutions can help payments technology keep in-step with the remote workforce. For example, cloud removes the pain for financial institutions having to procure and maintain their own hardware, install and operate the software, and employ a dedicated team for 24/7 monitoring — an important factor in these socially distant times. On top of that, cloud technology enables the ability for these firms to update their systems remotely and regularly, removing the physical hurdles companies now face with on-prem management and ensuring faster upgrades to new features. Additional benefits include businesses’ cost savings on on-premise hardware and staffing costs to maintain those systems, as well as reduced cost of doing business by removing the need to maintain its own hardware and planning investment for scaling.
RippleNet Cloud is one such solution that has been particularly beneficial in helping businesses navigate the ‘new normal’ of working from home. RippleNet Cloud is delivered to customers as a service, allowing customers to connect to more than 300 financial institutions in Ripple’s global blockchain payments network without the need to install on-premises software or onerous internal processes to procure new hardware and databases. It is also upgraded every three months, so updates and new features can be delivered quickly and reliably.
Maintaining a competitive advantage Yet despite the obvious benefits of the cloud, many of the top global banks continue to fall behind in its adoption — missing out on its advantages to their business and the economy. Some of their reticence comes from the concern about moving customer-sensitive data to the cloud, but well-managed cloud infrastructure is equally as secure as on-premises. In fact, cloud-native software vendors subject themselves to regular external audits and have deep security expertise on their staff.
The need to modernize with solutions like cloud will supercharge the competitive advantage of innovative banks over their slower-moving rivals — now more than ever. The more agile and innovative players that are already using banking-as-a-service tech platforms to revolutionise their cost-to-serve and cost-to-change are ideally placed to easily and cheaply plug into emerging blockchain networks, AI engines and other generation-defining FinTech capabilities. Incumbent and legacy banks who are still relying on ‘museum’ banking technology will be delayed in effectively tapping into this valuable innovation. What is more, the longer that big banks dally with implementing cloud processes, the more out of step they are with today’s customer expectations.
The COVID-19 pandemic has underlined an already compelling use case for the cloud in our industry — and it will provide a lifeline for helping businesses and economies thrive and remain competitive in this new and challenging world of work. It’s important that key players across the FinTech sector use this moment to bring their own services up to scratch to ensure they aren’t left behind.
The world of international remittances is now worth $550 billion to low- and middle-income countries, and the World Bank only expects this growth to continue.
by Daumantas Dvilinskas, CEO and co-founder of TransferGo
As physical borders look to once again be drawn firmly in the sand, virtual borders – such as those in financial services – are expanding and becoming ever more inclusive. This trend is reflective of the role of FinTech in navigating geo-political tensions to provide a service that connects us all, no matter which physical borders separate us.
Daumantas Dvilinskas, CEO and co-founder of TransferGo
Democratising financial access
For too long, financial services has not worked for hard-working migrants. They have been victimised by an outdated system that benefits local communities as opposed to those who maintain a need for global connections. Traditionally, migrant communities have been stung by predatory fees, inefficient processes and unfair foreign exchange margins when making international money transfers. Remittances are a vehicle for international development, effectively lifting people out of poverty by funding education, healthcare, housing and business investments. They empower families to explore new opportunities abroad, learn new skills and seek out better career prospects.
Yet, the existing model can penalise this movement of workers by charging unfair fees. The World Bank estimates the global average cost of sending $200 at around 7% – or $14. However, traditional incumbents have been charging anywhere between 11-29% of the transfer value, and few can settle those transfers in anywhere near what consumers should accept.
Thankfully, this system of remittances no longer needs abiding by. It’s a model that is synonymous with the same attitudes as creating physical borders and preventing free movement. Instead, FinTechs have created an alternative; borderless financial services that create access for migrants the world over.
Leading by example
Across Europe, there are start-up hubs that are leading the charge in breaking down the obstacles in remittances, and creating virtual, permeable borders. One FinTech strain that is pioneering change is digital money transfer services. These facilitate the flow of money across borders without unfair fees and hidden exchange rate mark-ups, empowering migrant communities by giving them total control over the movement of their money.
As well as empowering consumers, a separate cohort of FinTechs that specialise in payments are creating open, financial borders for businesses of all sizes. Companies are unlocking the global opportunity for online businesses, allowing them to accept payments in foreign currencies, scale into new markets, and tap the growing global e-commerce market. Similarly, point of sale (POS) merchant platforms are enabling businesses to accept online, mobile and POS payments and access a global customer base.
Therefore, while geo-political trends [and the pandemic] may be leading to the affirmation of physical borders and a move away from globalisation, FinTech is playing an evergreen role in connecting international communities regardless. The incumbent money transfer system is outdated and detrimental to migrants, but innovative start-ups across Europe are helping to provide borderless remittances and offer an inclusive alternative.
As it gradually becomes mainstream, evolutionary AI’s capability to innovatively create complex AI models, and to optimise decisions considering multiple scenarios, is set to reimagine the financial sector. It will enable every player in this field to spot novel strategies that would never have been identified by human data scientists, and, in turn, allow companies to take full advantage of today’s massive data sets.
by Babak Hodjat, VP of Evolutionary AI at Cognizant
AI driven solutions are becoming a competitive differentiator for banks and other financial services — delivering a hyper-personalised customer experience, improving decision-making and boosting operational efficiency. Yet, many financial services institutions (FIs) remain in an experimental phase and will need to accelerate actual AI deployment. Otherwise, they risk being left behind by digitally native players. AI is rapidly transforming every aspect of the financial world. This transformation has accelerated recently, thanks to evolutionary AI – a new breed of technologies that allows AI to automatically design itself with little need for explicit programming by humans
Babak Hodjat, VP of Evolutionary AI, Cognizant
How it all works
Emerging technologies that enable AI algorithms to design themselves are allowing organisations to transcend human limitations. Evolutionary AI operates iteratively. Firstly, it randomly generates a set of potential solutions to form an initial population and assigns a score to each solution based on how well it performs relative to other solutions. In the second round, it retains the solutions that performed best, perhaps only 5% of the total, and recombines their components, sometimes “mutating” them to create a new population. This new population is then tested, and the process begins again. Over multiple generations, the appropriate components of the more successful solutions become increasingly prevalent in the population, and eventually a solution is discovered that yields the best outcomes.
The advantages of evolutionary AI
Compared to human design, evolutionary AI can be deployed far more quickly, avoids biases and preconceptions, and typically performs better. Furthermore, the chosen model will evolve and improve over time, based on new data.
Evolutionary AI can be applied in a wide variety of areas at FIs. Some examples include designing quantitative trading strategies to maximise returns while minimising risk and loan underwriting. Rather than relying on human analysis, evolutionary AI solutions can quickly analyse all the combinations of relevant variables to create models that more accurately assess the risk of default by a potential borrower.
Reaping the benefits
In order to reap the benefits of the technology, FIs should focus on the following:
Create and maintain responsible AI applications – Behave in ways that make customers and employees comfortable, i.e. not making decisions that are unethical or exhibit bias. Companies need to monitor them to ensure they continue to act appropriately, as they learn and evolve.
Craft business-driven AI strategies – AI should be viewed through a business lens, rather than as a technology issue. Having AI projects managed by cross-functional teams with business executives in the lead is a good place to start. Companies also need to look across their organisations to identify opportunities to generate concrete business value from AI — not only in reduced costs but also in boosting revenues by delivering enhanced customer experiences and through improved decision-making.
Enhance data management – AI applications depend on access to timely and accurate data, which is a challenge for many FIs that have fragmented data architectures with multiple legacy systems. Companies need to identify which types of data are required for each AI project and ensure they can be captured in an appropriate format.
Adopt an experimental mindset – AI projects need to be rolled out quickly, while at the same time be rigorously measured, so failures are terminated promptly while successes are moved into production.
As AI applications increasingly design and test themselves, the pace of innovation and the accuracy of predictions will vastly improve. It is inevitable that FIs will soon consider it irresponsible to make important business decisions without first consulting with an AI system. Robots will handle routine tasks while flagging exceptional cases for review and resolution by employees. Employees will spend their time on more complex decisions and sensitive interactions with customers, such as resolving complaints or providing sophisticated financial advice. In short, humans and AI robots will be working side by side, delivering more value in combination than either could on its own.
Software providers should take notice of these trends. Their software holds the key to enabling the type of transactions that consumers demand and merchants are desperate to deliver. However, rather than simply adding payment functionality to their software, it must be integrated to become a core part of the service their clients deliver. It needs to remove the friction from the payment process to provide the best possible experience for customers, enabling them to pay with ease, how and where they want. And this isn’t a futureproofing measure. These changes are happening today. To remain competitive, you must take steps to provide frictionless, invisible payments within your software, which means embedding a payments workflow or integrating one with your offering.
