Artificial intelligence has already made a significant, positive impact on the financial services ecosystem and we can only expect this trend to accelerate in years to come. AI has the potential to radically transform businesses but only if they deploy it with appropriate diligence and care. A 2020 report by EY and Invesco anticipates that AI will expand the workforce in fintech by 19% by 2030 as the industry stands to be one of the largest to benefit from the efficiency gains and innovation the technology can bring through operational optimisation, reduction of human biases and minimisation of errors in anomalous data. Alex Housley, CEO and founder of Seldon, further analyses the recent changes in the role of AI and the impact it is set to have on the finance sector in years to come.
According to a report by Bloomberg, listings for AI-based jobs within the financial sector increased by approximately 60% from 2018 to 2019. This demand for workers with AI expertise is not only seen within the financial industry but across a variety of other professional sectors, such as e-commerce, digital marketing and social media. The jobs market has had little time to respond, resulting in a shortage in access to talent. A study by SnapLogic found that whilst 93% of UK and US organisations are fully invested in the use of AI as a priority in their business, many lack access to the right technology, data, and most importantly, talent to carry these goals out. This ‘skills shortage’ is a major obstacle to the adoption of AI in business, with 51% of those surveyed acknowledging that they don’t have enough individuals trained in-house to make their strategies a reality. Machine learning can offer benefits in many forms and different businesses have varying needs. There is no ‘one size fits all approach’ when adopting and deploying AI, which can make it a costly process for many organisations not equipped with the right tools.
Fortunately, there is ample opportunity to enhance the responsibilities of numerous roles within their organisation or let employees get on with more strategic work. SEB, a large Swedish bank, uses a virtual assistant called Aida which is able to handle natural-language conversations and so can answer a trove of customer FAQs. This means customer service professionals have been redeployed to focus on complex requests and their more meaningful responsibilities. Even employees currently working within the industry are looking to broaden their skills to become more versatile across new technology-driven roles. In particular, financial services companies are looking to upskill their data scientists and analysts. They have the base skill set required and can do tremendously well with the right engineering support. Deploying artificial intelligence within a business’s infrastructure means it can take care of mindless, repetitive tasks and free up employees to focus on other, more rewarding parts of the business, maximising automation and cutting costs.
There is no ‘one size fits all approach’ when adopting and deploying AI, which can make it a costly process for many organisations not equipped with the right tools.
One of the biggest use cases of artificial intelligence within financial services is fraud protection. With the rise of online banking and the exponential growth of digital payments, banks have to monitor huge swathes of transactions for fraudulent behaviour. This huge influx of data points poses major issues for the human brain but actually maximises the effectiveness of ML systems. We’ve seen significant growth in the use of deep learning, with most major retail banks now relying on machine learning tools to recognise and flag suspicious activity. To keep up with the pace of criminals and comply with stricter regulations, service providers have to look beyond traditional methods and implement hybrid strategies built around holistic understandings of behavioural and anomalous data.
Indeed, research by AI Opportunity Landscape found that approximately 26% of funding raised for AI startups within the financial services industry were for fraud or cybersecurity applications, dwarfing other use cases. This number is expected to rise as fraud detection and mitigation continues to be one the highest priorities for customer-facing organisations as consumers increasingly hand over their data in exchange for services.
Financial services companies are increasingly leveraging artificial intelligence to deliver tailored services and products for their client base. For those banks mining data effectively, AI provides the ability to serve customer needs across multiple channels, and in some cases to grow operations at an unprecedented scale. Tools such as chatbots, voice automation and facial recognition are just a few of the ways banks are using AI to streamline and personalise the user journey for their customers. Importantly, consumers are increasingly literate in automated services and their expectations are constantly rising as the technology improves, meaning organisations must constantly adapt or risk being left behind.
[ymal]
Chatbots and voice agents are also able to detect and predict changes in consumer behaviour, giving feedback on each interaction with a customer. All the results from customer touch-points are shared across the organisation, ensuring decisions and recommendations involving a human or machine are more intelligent and precise. Over time, these analytics mean businesses can make real-time decisions with their customers in mind, boosting engagement and personalisation.
In order to detect customer data from online purchases, web browsing and in-store interactions, banks must have AI in place to collect the data and automate decision-making. By adapting these technologies banks can connect their data, amplifying their offering effectively across all channels.
Artificial intelligence and machine learning have already enhanced numerous capabilities for the financial sector, improving recommendations, customer experience, and efficiencies via automation. AI will continue to dominate different parts of the financial sector, and the acquisition of machine learning and data science talent will become the norm. A recent survey from the World Economic Forum attests to this, with nearly two-thirds of financial services leaders expecting to be mass adopters of AI in two years compared to just 16% today.
Acquiring the right talent to drive machine learning and AI in organisations will remain a challenge as innovation is focused in different areas and new technologies are being implemented. In lockstep with this will be the constantly evolving regulatory landscape surrounding adoption of AI in financial services as each side races to match and often contain the other. However, the multiple benefits that come from implementing AI and machine learning are clear, and it will be a key area of focus and growth for businesses within financial services over the next decade.
Fintech is one of the most recognisable terms in the financial services industry but sits aside its lesser-known compatriots, RegTech and InsurTech. Put simply, these terms represent the evolution and revolution of financial services globally, and the UK has firmly embraced the use of such advances. Evolution relates to the giants of the UK financial services industry who have been around for over a hundred years and revolution reflects the large number of start-ups who have not had to adapt old systems to new ideas but have had a clean sheet from which to design a process and solution using the latest technology. Simon Bonney, Partner at Quantuma and member of IR Global, explains to Finance Monthly how fintech has transformed the industry.
The UK fintech industry is worth around £7 billion and employs over 60,0000 people. It now has banks that only communicate with their customers through an online platform and have no physical branches.
The UK thrives as a leading global fintech hub for a number of reasons. As a world leader in the financial services industry, there is an imperative to ensure that we invest in, and utilise, the latest technology to facilitate our competitiveness. As well as a deep homegrown pool, the UK attracts a wealth of entrepreneurial and tech talent because of its status (42% of workers in UK fintech were from overseas in 2018), and also its investment. Investors put more money into UK fintech than any other European country in 2018 ($3.3 billion). In addition, the UK recognises the importance of striking a balance between the promotion of entrepreneurialism and the regulation of new ideas to provide confidence to businesses and consumers the world over through the Financial Conduct Authority (FCA). The FCA’s regulatory sandbox, the framework to allow live testing of new innovations, has become a blueprint for fostering innovation around the world.
The UK Government has recognised that fintech engenders a significant opportunity to create jobs and economic growth and also facilitate the birth of new start-ups in other industries which are able to utilise new technology to make their costs quicker and cheaper. In 2019, 79% of UK adults owned a smartphone and on average they spent over two hours a day on their phones. Access to financial services by smartphones, coupled with a loss of confidence in the traditional financial services industry following the Global Economic Crisis in 2008, has meant that consumers embrace the relative ease and convenience of fintech.
Technology generally has changed the way that consumers expect to engage with financial services and the UK financial services industry has recognised that it cannot operate the same way it did 10 years ago if it hopes to keep pace with the demands of customers. Fintech has changed and will continue to influence the experience and speed of transactions. It has had a significant impact on the cost of operations. For those businesses with legacy systems, there is a huge challenge in ensuring that fintech is embraced and implemented. In order to cope with this challenge, it is likely that banks will seek to further outsource their operations and hand over management of their legacy systems so they can focus on serving customers and finding new routes to market.
Growing opportunities do not come without hurdles. The sheer speed of change in fintech means that regulation is generally trying to catch up, and in a number of instances, such as cryptocurrency, regulators are required to learn about the technology and the way it encourages people to behave before being able to effectively regulate it. However, that regulation will have an impact on development, as the costs of ensuring that new products are compliant will provide a barrier to entry. In addition, fintech is inextricably linked with data and the use and regulation of data will continue to feature in the spotlight.
It is hoped that through the use of fintech bridges, the UK’s best and brightest fintech ideas and businesses will be able to thrive internationally, with automatic recognition by the regulators in those partnering countries. Collaboration has been a feature of the success of fintech, with open source solutions being made available to enable the improvement of all aspects of the industry for the greater good with blockchain being a prominent example. Collaboration on an international level should only provide a more stable platform for that innovation. However, Brexit has raised questions regarding the future of the UK as a behemoth of the financial services industry, and the nature and mobility of fintech and the use of fintech bridges means that competition has been increased across the world.
The UK has been able to remain at the forefront of fintech due to its history in financial services and its depth of talent and investment. Importantly it recognises the importance of remaining at the forefront and will strive to ensure that innovation and regulation continue to go hand in hand.
As the Coronavirus (COVID-19) pandemic continues to spread there has been a worrying rise in harassment, bullying, and discrimination in the workplace. Initially, this was seen to be race-related - targeting people of Asian origin - but has since spread to include people who expressed symptoms of the virus. Now as large swathes of the global workforce move to a working from home model, employers are faced with a new challenge - that the vector for workplace discrimination will shift in parallel with the main mode of communication. Neta Meidav, co-founder & CEO of Vault Platform, explores this phenomenon below.
Tasked not only with rapidly implementing a company-wide working from home strategy to keep businesses that are still operational up and running, many HR functions are also operationally responsible for mass layoffs all while building a crisis information and communication plan out. Bluntly, HR teams are maxed out and will struggle to field a rising number of queries about the new workplace etiquette.
Law firm Lewis Silkin LLP estimates that around 59% of large multinational enterprises have already put into place a plan to respond to pandemic diseases such as Coronavirus. Typical measures include social distancing and remote working arrangements. The majority (88%) of are managing self-isolation by asking employees to work from home.
It’s difficult to actually get a handle on the number of people whose jobs allow them to work fully remotely, especially with such an unprecedented situation. But cloud security services firm Netskope, which routes corporate traffic for hundreds of thousands of office workers said it estimates that the number of American knowledge workers (white collar desk workers) logging in from home hit a high of 58% on March 19. This is up from an average of 27% over the last six months.
While there may be some anecdotal evidence that the untested shift to an emergency working form model is in fact working, it is early days and there is plenty of research that points to warnings we should all be heeding.
Bluntly, HR teams are maxed out and will struggle to field a rising number of queries about the new workplace etiquette.
A 2017 study by David Maxfield and Joseph Grenny for leadership training consultancy VitalSmarts found that just over half of people who work mostly remotely feel they don’t get treated equally by their colleagues. Now the obvious retort is that ‘we’re all remote workers now,’ so the playing field is levelled. But research suggests the problem is more with the medium than whether workers fall into the ‘in office’ or ‘WFH’ camps.
Some 30% of UK respondents to a survey by Totaljobs in 2018 said they had been victims of workplace discrimination on official corporate messaging platforms, such as Slack, Microsoft Teams, or Google Chat. In the US, a 2019 survey by Monster.com revealed that 39% of respondents had received aggressive messages from colleagues on similar tools.
Cyber-bullying has been well documented for some time and remains as persistent in the corporate workplace as it does in schools and colleges. A recent high-profile case focuses on the departure of the CEO of leading consumer brand Away after an exposé of bullying culture over Slack.
The revelations of Away are an anomaly - most incidents go unreported. The same studies show that 30% of workers in the UK (according to Totaljobs) and 34% in the US (according to Monster.com) who do experience cyberbullying suffer in silence because they are not confident they will be supported by their employer. Lloyds of London was exposed in December last year after their complaint hotlines were proved to be inoperative for 16 months due to unpaid phone bills, and in 2018 the Financial Conduct Authority put senior managers on notice that their futures in the City were at risk if they did not take diversity seriously, while companies faced fines after a 220% increase in interpersonal whistleblowing complaints over the previous 12 months. According to Totaljobs, around 8% find it easier to leave their jobs than to complain and request an investigation into the situation.
[ymal]
Digital workers are disincentivised from reporting workplace misconduct in the same way as employees that spend all their time in the physical presence of their colleagues. Firstly, the available channels for reporting misconduct are intimidating; and secondly, they don’t feel confident their employer will act on the report.
But the fact remains that employers are legally obliged to protect their workers and that responsibility doesn’t change because they are now out of sight. While ethically, employers should take more care during these uncertain times.
The figure is the average of 10 FinTech leaders' individual predictions, who speculated what might be in store for the coin in 2020 in a new report from financial comparison website Finder.com. With Bitcoin’s recent price decline, nearly everyone on the panel (90%) agreed Bitcoin has not been immune to corona-triggered asset sell-offs.
Technologist and Futurist at Thomson Reuters, Joseph Racynski, noted that in the current climate institutional investors were quick to dump Bitcoin.
“The reason for the drop in BTC price is a direct result of institutions unloading the coin in a rush to cash as soon as the virus impact was identified. It happened across all assets, but what it proved was that institutions actually did invest over the last few years in crypto”, he said.
However, just half the panel (50%) say the decline is a result of Bitcoin's failure to hold its price as traditional markets drop, suggesting Bitcoin might not be simply mirroring the equities market.
Either way, recent price movements have impacted Bitcoin’s viability as a safe haven asset, according to a panel majority (60%). Managing Director at Rogue International, Desmond Marshall, said techies and coin buyers wishfully hope bitcoin could become a safe haven asset like gold.
Recent price movements have impacted Bitcoin’s viability as a safe haven asset.
Meanwhile, Co-founder of Finder, Fred Schebesta, said that a short term correlation with traditional assets does not diminish Bitcoin’s status as a safe-haven asset.
“Aside from Gold, the list of alternative assets to consider as a hedge against uncertainty in the global markets are far and few between. To me, Bitcoin remains one of the most attractive assets to help diversify a portfolio looking to hedge risk in the coming years”, he said.
Managing Director at Digital Capital Management, Ben Ritchie, conceded that Bitcoin is currently seen as a high-risk asset but argued it could be a safe haven down the track.
“Bitcoin is being positioned as a future safe haven but currently is considered as a high-risk asset", he said.
“The recent short-term liquidity impact contributed to its correlation to equity markets and does not impact its future viability to become a safe haven. It continues to trade more in line with risk assets than safe havens, which is consistent with its performance to-date in periods of extreme market volatility… It is interesting to note that even gold has suffered from violent price fluctuations recently dropping approx 12% before bouncing off its 50-week moving average.”
While the panel was divided on the future of Bitcoin, they largely agreed that market conditions will eclipse any hype as a result of the halving.
COO & Co-founder at MarketOrders, Julia Sukhi, was just one of two (20%) panellists to say recession fears won’t nullify hype around the halving.
“As markets become weaker and chaotic, there will be certainty in the BTC markets in terms of the halving so more attention will be attracted to this event”, she predicted.
Dermot O’Kelly, Senior Vice President, Europe at Finastra
Think your organization hasn’t embraced AI? Think again. The reality is that there are hundreds of applications of artificial intelligence embedded in everyday organizational life. From pay-per-click ads to social listening, chatbots to lead scoring, biometric security to network attack detection. As Europe at Finastra's Senior Vice President Dermot O'Kelley outlines below, the chances are that your organization is already relying heavily on AI for a range of functions.
It’s true that many of these services may be provided by third parties connecting directly to systems via open APIs. The organization therefore doesn’t need to become the expert. In fact, there is a proliferation of external experts as AI becomes ever more accessible. In less than two years, training time for machine vision algorithms dropped by over 99%. It went from three hours to just 88 seconds – whilst computational costs dropped from ‘thousands of dollars to double-digit figures’.
It therefore comes as no surprise that organizations are looking at how they can benefit from the AI revolution, to help boost areas such as operational efficiency, security, predictive capabilities, product development or customer satisfaction.
In less than two years, training time for machine vision algorithms dropped by over 99%.
Leading the way is the financial services sector, not least because of the vast amounts of data held by legacy organizations, but also in response to the changing expectation of consumers. Tech giants created new models of engagement, platforms that consolidated services and captured data to further fuel predictive capabilities, and this expectation of convenience is now shifting to financial services, where consumers are now more than comfortable with concepts like robo-advisory. Institutions, regardless of whether they’re providing retail services, lending, trade finance, wealth or any other line of business, are racing to adopt similar models without relinquishing customer data.
As data proprietors, the world of opportunity that AI affords any organization is immense. Data is the new currency as we enter the fourth industrial revolution, and all AI applications rely on huge amounts of data to function well. So, why aren’t all organizations rushing to embrace AI?
[ymal]
The intelligence race continues unabated, with escalating VC investment in AI and new, exciting applications that are having tangible success. Still not sure what Artificial Intelligence can do? Very soon it will be easier to recall the few things the technology can’t do.
Here Gareth Jones, Chief Information Officer at Fraedom, explains how banks can move to the cloud in stages, picking the most pressing workloads and moving them to the cloud incrementally, and adopt a hybrid technology infrastructure, touching on the inherent benefits therein.
Banks have traditionally been reliant on legacy systems, however, now almost half (46%) of bankers see these legacy systems as the biggest barriers to the growth of commercial banks. Technology is becoming an integral part of the banking industry and the pressure is on for these institutions to innovate and adopt the latest capabilities. Therefore, banks must overcome the reluctance to make changes to their IT infrastructure.
As new challenger banks increasingly launch directly to the cloud and consumers demand the latest technologies, it’s time for traditional banks to consider migrating to the cloud. Here’s how they can do this and the potential benefits they can expect to experience:
Fortunately, banks needn’t see the adoption of the cloud as an all or nothing venture. Instead, it is possible to migrate in stages. Vitally, banks must acknowledge that doing a ‘lift and shift’ will offer limited benefit to their organisation or their customers as their workloads won’t be cloud-ready or scalable. Banks should see the move to the cloud as a gradual transition and start by migrating the most pressing workloads and services to the cloud in a controlled manner. This will ensure workloads are moved across securely, nothing is lost in the process and that customers aren’t impacted by significant periods of downtime. This will result in the adoption of hybrid technology infrastructure, at least in the short-term, which research by IBM found that 87% of outperforming banks are using to reduce operational costs. This approach is favoured by more than two-thirds of global banking executives surveyed by Accenture who intend to operate in a “bimodal” way — maintaining key legacy systems and those not easily replicated on cloud platforms, while transferring other systems and adding new applications in the cloud.
Fortunately, banks needn’t see the adoption of the cloud as an all or nothing venture. Instead, it is possible to migrate in stages.
As many banks are reliant on legacy systems, moving to the cloud, even as part of a gradual transition, can seem daunting. Therefore, seeking assistance from third-party fintechs that are much more accustomed to the technology and have the experience of carrying out many cloud migrations, can help to ensure that the process is smooth and secure.
One of the most significant benefits of the cloud is its potential to help banks reduce core costs, particularly those associated with delivering new solutions, as well as overall operating costs. This is due in part to the fact it removes the cost of the upgrade cycle that comes with physical infrastructure. It also means banks no longer need on-site infrastructure management, allowing banks to focus resources on value added functions more closely aligned with their core business objectives. In the long-term, cloud adoption can help banks enhance customer satisfaction and bring products to market faster, therefore allowing them to maximise return on investment.
A further benefit of cloud adoption is increased scalability. Currently, organisations not utilising cloud services must invest in additional hardware in order to scale. This incurs a greater impact in time and money. Adopting cloud allows banks to scale on-demand, with cloud services able to expand and contract as needed almost immediately. This provides a far better capability to manage costs in line with user and business demands.
[ymal]
Legacy systems are still largely important to many banks’ daily operations, but moving to more agile systems is essential to growth and innovation. Therefore, migrating to the cloud helps banks overcome this issue, whilst also offering additional cost-savings.
With so many benefits, traditional banks can’t afford to ignore cloud technology any longer. While legacy systems may have once played an integral role in their business, these systems now widely act as inhibitors. A gradual transition to the cloud will enable increased operational efficiencies, while also providing the infrastructure through which they can begin to foster the same level of innovation as their cloud-native competitors. This will allow traditional banks to not only keep up with the changing technological landscape, but the ability to develop more innovative products and services faster will also help them to answer customer demands and compete with challenger banks.
As we celebrate the last decade of fintech, one thing that has stood out is the impact digital lending has had on consumer lending habits - and their options. With more financing options available than ever before, the market is fraught with lending options to suit each need, credit score and repayment condition. Online instalment loans have exploded onto the scene, giving credit card usage a run for its money, while peer to peer lending platforms are now the norm.
In the industry, experts are already looking ahead to 2020 and beyond, predicting the prioritisation of financial health and the vertical integration of fintech across other key industries such as healthcare.
Here are some of the decisions consumers need to keep in mind when considering the multiple fintech credit options available today.
By the end of the first quarter in 2019, 19.3 million Americans had at least one personal unsecured loan outstanding, mainly thanks to the rise of fintech. Wider access to finance options has meant that more of them are turning to personal loans as they continue to live paycheck to paycheck. However, as with most personal unsecured loans, they come with a higher price tag. For unsecured personal loans, the interest rates can range from 5 percent to as high as 36 percent, much higher than the average 19 percent credit card interest rate charged for new credit card accounts. This makes it even more important that consumers do their due diligence when searching for the best loans online.
In 2019, Bankrate put the average interest rate for personal loans at 11 %, and with the influx of online instalment loan lenders, there are even more options with lower rate options. For years, consumers looking for additional finance have thought that high-interest credit cards were their only choice. Now, with the aid of online comparison platforms, consumers can easily find an interest rate they are comfortable with, and more importantly, there is more transparency when it comes to the cost of choosing that particular route.
In 2019, Bankrate put the average interest rate for personal loans at 11 %, and with the influx of online instalment loan lenders, there are even more options with lower rate options.
Yet, this does not mean that borrowers are any more knowledgeable when it comes to the terms and conditions of the loans they are borrowing. In fact, in the United Kingdom, 60 percent of them do not know the rate of their loans, according to research from Mintel, while in the United States of America, Americans are similarly ill-informed. The same can be said for their financial health. In 2019, 43 percent of them didn’t know their FICO scores, a key determinant of their creditworthiness for a personal loan.
However, checking credit scores is now simpler than ever, thanks to credit bureaus and lenders like American Express offering online or mobile login and checking features. Most major credit card issuers offer a view at consumer credit scores from at least one of the three main credit bureaus. Similarly, checking the fine print of personal loans such as passed on charges or early settlement charges that may drive up the total cost of the loan are important. For example, three out of four student loan borrowers (including private loans) do not know what effect their death would have on their loans.
[ymal]
Fintech lending options are not only lowering the costs of borrowing, but they are also minimising the reliance on credit scoring as a main determinant of loans. This means borrowers with no past credit scores or a low score can easily get a personal loan, whether it is backed by traditional lenders like the bank or more modern peer to peer lending platforms. This does not necessarily signify that the standards of credit scores have completely been erased. Today’s fintech borrower has a FICO score of 650, compared to the 649 FICO held by traditional bank borrowers. However, a lender with a good credit score may also want to consider the additional credit options open to them, such as approval for credit card offers with 0 percent purchases and balance transfers, lowering the overall cost of borrowing.
Finally, it is interesting to note that the age market that currently holds the largest share of the fintech personal loan market is Gen X (ages 38-52) and Gen Y (ages 24-37). This captures the most tech-savvy and outspoken demographics of the market, matching up perfectly against the transparency and personalisation that fintech loans now offer.
However, even with these added benefits of fintech borrowing, there still remains a basic question that consumers must answer before they enter the world of borrowing: what is the best personal loan option for me?
The rallying call from Nigel Green, founder and chief executive of deVere Group, comes as world leaders, CEOs, academics, influencers and celebrities head to the Swiss mountain resort of Davos for the 50th annual World Economic Forum (WEF), starting Tuesday.
Mr Green comments: “As it celebrates its landmark 50th year, the World Economic Forum 2020 has the opportunity to champion and enhance the transformation of business, which has been dubbed the ‘Fourth Industrial Revolution.’
“We’re living through a pivotal moment in history in which increased and advancing technology is monumentally and profoundly changing the way we live, do business, and interact with one another.”
He continues: “We can clearly see seismic shifts happening in the financial services industry – a sector trade and commerce is deeply reliant upon.
“The vast majority of this change is being driven by financial technology, or 'fintech.' Mobile banking and investment apps, peer-to-peer lending, cryptocurrencies like Bitcoin, robo-advisers, and crowdfunding are all part of this fundamental shake-up of the space.”
Mr Green goes on to add: “The momentum and energy of this evolution now needs to be harnessed by delegates in Davos.
“They need to commit to fintech by using their time, energy and resources for its research and development for three principal, positive reasons.
“First, it benefits society. Fintech can speed up the pace of global financial inclusion. It can provide access to financial services for millions of people who live in remote areas and/or who might normally not be able to use financial services because of historical biases of traditional financial companies. Helping individuals, firms and organizations successfully manage, save and invest can only result in better, stronger and more stable communities for us all.
“Second, fintech offers companies the opportunity to be agile, to diversify, to cut costs, and to meet regulatory requirements all whilst improving the client experience. This will help them thrive in rapidly challenging times of change and disruption.
“And third, the revolution is happening with or without them. As consumers, we increasingly want all our financial services needs to be dealt with online and/or on their mobile devices. We demand personal service and instant access anywhere and at any time. This trend is only set to grow as we all become increasingly dependent on tech.”
The deVere CEO concludes: “Davos 2020 is the ideal forum in which to unite the best political and business leaders to galvanize the positive potential of the fintech revolution.
“With a slowing global economy, it is an opportunity that the world cannot afford to miss.”
As John Murdock, CEO of business intelligence experts Centage, explains below for Finance Monthly, this has begun to shift over the past decade due to technology and automation.
Companies like Botkeeper and MindBridge.ai are fully automating tasks like entry and validation of transactions, line items, compliance and auditing corporate books. Other companies offer platforms that streamline budgeting, surface trends hidden in data, and a wide variety of classic financial team functions.
As these functions move into software, one of two things will happen: accountants will lose their jobs, or automation will prompt them to radically transform the office of finance. Even if CEOs prefer people to AI, they may have trouble finding qualified accountants to staff their financial teams. According to Accounting Today: “Accounting, like many professions, is experiencing a shrinking talent pool as boomers retire and younger generations are opting for other careers.”
This evolution is going to kickstart some serious changes in the industry, which is why the AICPA, through its CPA Evolution project, is working to ensure CPAs continue have the skills needed to support the accounting profession. I see that there are five distinct transformations occurring in the office of finance that are a direct result of financial technology.
Back office automation allows the financial team members to move in a more strategic, front-office role by offering their talents to the managers and department heads who run the day-to-day business. For instance, the financial team of a retailer can help the company optimize revenue per square foot, or understand the profitability of each product in order to tweak the brand’s merchandising strategy.
The financial team of a retailer can help the company optimize revenue per square foot, or understand the profitability of each product in order to tweak the brand’s merchandising strategy.
Personally, I see this as a positive development. I never saw the benefit of sequestering such an important role in the office of finance. The finance team is responsible for ensuring company priorities are funded. How can they do that if they don’t understand how or why those things become priorities to begin with?
The more the financial office moves to the front-office, the more executives will value people who have degrees and backgrounds in business strategy, market differentiation, and competitive positioning. These are the skills that inform strategic decision-making and can help the business chart long-term strategies.
This is a reversal of a trend that began after the 2008 financial crisis and the passage of Sarbanes-Oxley. According to the executive search firm Spencer Stuart, the number of CFOs with CPA certification rose from 29% to 45%. But now that compliance and auditing can be automated, I believe that CPA certification will be less of a priority for management teams.
The accounting industry itself is undergoing a similar shift. Non-accounting college graduates accounted for 31% of new hires across public accounting firms in the US in 2018. The Journal of Accountancy cites the need for tech skills as a primary driver of the shift: “Increased demand for technology skills is shifting the accounting firm hiring model,” Barry Melancon, CPA, CGMA, AICPA President and CEO and the CEO of the Association of International Certified Professional Accountants, said in a news release. “This is leading to more non-accounting graduates being hired, particularly in the audit function.”
The other day I listened to a podcast of the Boston Red Sox, Tim Zue, describing his rise to CFO. He didn’t come from a finance background (he studied mechanical engineering in college). But after working for the Red Sox organization for more than 18 years, he developed a keen understanding of the business, which more than made up for his lack of a finance degree. He knew the right questions to ask in order to make strategic business decisions. As a result, he now believes that the only way to gain such a deep understanding is to get into the front office and work with the people who are running it day-to-day.
The only way to gain such a deep understanding is to get into the front office and work with the people who are running it day-to-day.
I agree wholeheartedly with Zue, not the least because I experienced the same trajectory in my own career. I earned my bachelor's degree in engineering and worked in sales and marketing prior to becoming a chief revenue officer. My experiences as CRO positioned me to become a CEO.
This may seem counterintuitive, but as AI merges with business intelligence to alert the finance teams to trends inside the business as well as trends within their markets, companies will need CFOs who are highly strategic thinkers. After all, if everyone uses the same software to guide decisions, they’ll all make the same decisions. We see this phenomenon in our everyday lives all the time. For instance, Waze does a great job of informing drivers of traffic congestion and suggesting alternative routes. But if enough drivers take that alternate route, it just creates another traffic jam.
To complete the metaphor, successful companies will need CFOs who can see the out-of-box alternative route to long-term sustainability and growth.
[ymal]
Financial degrees are already becoming more data and tech centric. This past October, the Pratt School of Engineering at Duke University announced it will offer a masters degree in financial technology. There is compelling reason why these disciplines are merging: both center around data. Fintech is still in its infancy, and it offers significant opportunities for engineers to build out automation around financial rules. It makes sense for engineering schools like Pratt to train their students in the ins and outs of finance. I can’t emphasize enough how radically the coupling of these disciplines will transform accounting and finance over the next decade.
Accountants and finance teams shouldn’t fear technology. It will certainly change the way they think about their roles, but that’s a positive, not a negative development, especially for ambitious people who are eager to play a more strategic role in their corporations.
For $5.3 billion, Visa has agreed to acquire the Silicon Valley start-up Plaid, a firm that is already backed by huge tech investors such as Mary Meeker and Andreessen Horowitz as well as Goldman Sachs. It was valued in 2018 at $2.65bn and is now already worth twice as much.
For visa, this transactions means a deeper push into the ever-growing fintech sector, particularly after is bought a minority stake in Klarna in 2017.
Plaid is a software provider that enables other fintechs and payments services to access customer bank accounts and details, enabling smoother handling of information for financial planning apps, money transfer apps and so forth.
Al Kelly, chief executive and chairman of Visa, said: “This acquisition is the natural evolution of Visa's 60-year journey from safely and securely connecting buyers and sellers to connecting consumers with digital financial services.”
“The combination of Visa and Plaid will put us at the epicentre of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory,” he continued, according to the FT.
Reporting on the agreed acquisition, Forbes fintech expert Jeff Kauflin believes Visa is strategically acquiring plaid for the sake of its relationships and partners: “Plaid’s 2019 revenue was between $100 and $200 million… Visa would be paying a sky-high price of 35 times sales, one of the highest price-sales multiples in recent history for a private company.
“Visa’s primary reasons for buying Plaid are twofold. First, Plaid works with the vast majority of the largest fintech apps in the US, including Venmo, Square Cash, Chime, Acorns, Robinhood, and Coinbase. With the acquisition, Visa gets access to an important, ballooning base of customers that it can sell additional payment services to. Second, Visa has a global network that’s unparalleled in financial technology, with millions of customers across 200 countries. That will make it much easier for Visa to take Plaid global.”
On the other hand, Stefano Vaccino, founder and CEO of Yapily, believes that this is just the first of many moves by card operators, in anticipation of the changes to the way we pay, powered by Open Banking: "It’s great to see big players positioning themselves in the world of open banking and open finance, this will help to accelerate the sector’s growth even further.
“Card payments are expensive for merchants to process, and with two-factor authentication on its way in the second part of this year, there will be an increased layer of friction. Payments through Open Banking will offer a smoother and more secure way to pay, and will provide an opportunity for merchants to decrease costs and transfer these benefits to consumers.
“This space will be disrupted hugely as the possibilities of open finance are realised, and incumbents must innovate to remain relevant.”
New challenges are being laid down and to remain relevant, businesses are facing tough decisions on how to best align to the current economic climate.
With significant change comes great opportunity. As we step into 2020 and the next decade, Stephen Magennis, MD for UK Quality Business at Expleo, acknowledges that in spite of market challenges, it is an exciting time for businesses who are looking to use technology to drive their future success.
Currency has been used to trade in exchange for goods and services for millennia. Each evolution has been prompted by a shift in convenience. Bartering? Too variable. Bronze replicas? Too cumbersome. Metal coins? Too heavy. Paper? Too bulky.
For a long time, plastic cards seemed to have cracked the problem: easily portable, quick, convenient. Then Apple launched the iPhone in 2007, which represented a seismic cultural shift in how we go about our daily lives.
This one device enables us to stay connected and productive in so many ways, that it was inevitable it would also be the catalyst for another evolution in the story of currency. Contactless payments are designed to be seamless and convenient. One tap, and the shopper is on to their next errand. Simple.
Arguably, of all the technologies which have emerged over the last ten years, contactless payment has claim on being the most impactful on our daily lives.
Arguably, of all the technologies which have emerged over the last ten years, contactless payment has claim on being the most impactful on our daily lives.
Here it is worth thinking of the proverbial swan, calm and collected floating on the lake’s surface, yet paddling away under the water. The technology used to deploy, integrate and support contactless systems is complex. Layers of data and functionality are in play, with security constantly being tested, reviewed and enhanced so users can remain confident that their money is protected.
Across travel, retail, entertainment and beyond, experts are already looking for the next technology evolution in the payment space that will ensure customer experience remains paramount. In the early 2020s, we are likely to see regulation technology move into the spotlight while biometrics become mainstream.
The businesses leading the charge will be those who can ensure systems are fit for purpose, delivering a simple user interface and offering rigorously-tested security.
[ymal]
Managing data in a way that combines and analyses knowledge from across global organisations is still a major challenge. Stricter data integrity and protection laws, heavy fines and lower customer trust won’t make this critical opportunity any easier to grasp.
However, those that can master big data, real-time analytics and enhanced cognitive capabilities will be better equipped to counterstrike the Fintech threat and remain relevant.
Since the 2008 banking crisis, regulators have forced institutions to swell their reserves in case of another crash. With the growing dependency on technology – and the potential threat of disruption from cyber terrorism, outages and data breaches – Financial Institutions (FIs) may soon need to guarantee their operational resilience too. Or they may choose to advertise resilience as a competitive advantage.
AI assistants and humanoid robots are constantly evolving. These technology advancements are key for FIs becoming cognitive – replicating the human ability to learn and respond to the preferences of customers.
That said, there is still work to be done in convincing customers that a personalised service from a chat bot who can understand your speech, gestures and even your facial expressions is a good thing.
One of the many benefits of digital transformation is its ability to automate the most routine office tasks. Undoubtedly, this upheaval will cause widescale restructuring in FIs. However, employers will still need people with the soft skills, who can create a human experience for customers and keep the brand relevant to everyday community life.
As technological advances revolutionise FIs, efforts to drive efficiencies, improve processes and overhaul supply chains will become central to delivering best-in-class customer service.
The challenge for FIs, is to assure that whilst these innovations offer significant benefits to businesses and consumers alike, transparency and trust is set to become the ‘crucial’ offering.
As a result, they can provide products and services that are faster, easier, and/or cheaper than that which traditional banks can deliver, but what are the key elements FinTechs should consider in this offering?
Here Scott Woepke, Head of Financial Services Strategy at Acxiom, outlines four pillars of fintech-customer relationships that will help fintech providers grow their market share.
Fintech companies are disrupting the financial services industry because they’re not tied to legacy operations, traditional organisational rules and established structures. They’re thinking differently, experimenting, and exploiting data to develop products and services that are easier to use, convenient, and sometimes cheaper than those of traditional banks.
Like all businesses though, fintech companies must build and nurture relationships with their customers.
Customers don’t like to switch banks – only 3% of personal and 4% of business customers switch to a different provider in any year. They’re often risk averse and it’s difficult to convince them of the benefit. Historically, the common method employed to encourage people to switch banks is to offer a more competitive interest rate. However, for many customers, a competing offer of marginally more money or savings is unlikely to win them over. There is a zone of indifference where small price changes have little impact on perceived value.
So, it’s a tough sell and customers certainly won’t sign up to a new current account or move to an incumbent financial services provider simply because it’s digital. Having a shiny new website or phone app isn’t enough.
It’s important that fintech companies understand the problem they’re helping to solve, and that the solution fits into customers’ daily lives. Fintech products must make it easier for people to manage their finances and people will build relationships with businesses that improve their efficiency. Customers are attracted to fintech companies that help them manage their money better by, for example, helping them understand their income and expenditure or using AI to make real time recommendations. For the fintech-customer relationship to succeed, the usefulness of the product must be compelling.
All things being equal, customers are unlikely to switch to a new provider offering a similar banking experience. A YouGov’s study indicates that one in five (21%) Brits have considered switching current account but ultimately have not gone through with it. This was despite compelling cash incentives and the Competition and Markets Authority (CMA) promoting a seven-day switching service.
So, to encourage customers to leave behind the traditional products and services they’re used to, fintech companies must create alternatives that are easier to use and access. The user experience and customer journey must be better than those provided by traditional financial institutions.
To motivate a switch, fintech companies must deliver a compelling and differentiated value proposition that may provide better pricing, but delivers accessibility, ease-of-use, convenience, and loyalty programs. Some fintech companies have also been successful with customer acquisition by offering new tools that introduce discipline and management of savings that help customers reach their financial goals – like saving for a holiday or to buy a car or home. A well-designed and compelling financial fitness programme will not only attract new customers, but it will help build much deeper relationships.
To motivate a switch, fintech companies must deliver a compelling and differentiated value proposition that may provide better pricing, but delivers accessibility, ease-of-use, convenience, and loyalty programs.
Only 55% of Britons trust banks, and only 36% think they work in their customers’ interest, so brand and reputation play important roles are intangible assets with economic value. A strong brand image will generate trust and establish perceptions of quality, value and satisfaction. Fintech companies must invest in increasing their brand awareness as customers are unlikely to open an account at a bank they’ve never heard of.
From a marketing perspective, it’s important to understand the importance of timing, offers, and channels for communication. In terms of timing, there are windows when customers are more likely to switch, for example, when they’re unhappy with their current provider. Lifestyle changes such as starting a family, moving home or getting divorced can also provide motivation for a change. The offer (or proposition) is very influential in the customer’s decision to switch providers. Finally, the channel of communication is critical and it’s important to remember mobile is the preferred channel for banking and content consumption.
Handling money and customer data are the bread and butter of fintech businesses, so earning customers’ trust is essential. Any perception of risk will negatively affect the adoption of new technology. The importance of trust can vary by product (i.e. borrowing vs. investing) based on customers’ sensitivity about the service.
To build trust, fintech providers must ensure they operate within the laws and regulations of the countries where they are based. New technology is breaking down geographical boundaries, but it’s vital for the fintech-customer relationship that customers understand their legal protections and can trust that their assets are safe.
In the UK, the government has played a role in the definition of the technology and has provided financial backing of the infrastructure, making fintech services more acceptable to potential customers. Since January 2018, PSD2 and Open Banking have forced the UK’s nine biggest banks to release their data in a secure, standardised form, so that it can be shared more easily between authorised organisations online.
While fintech companies represent a threat to the incumbent financial services providers, they still have a lot of work ahead to overcome the customer inertia that exists with their providers. Understanding customer perceptions and needs will be an important factor to success and help develop a long term, sustainable fintech-customer relationship.
