The ultra-low interest rate environment and fee compression in areas like payments continue. Competition from challengers and fintechs is intensifying. Customer digital adoption has grown, and the bar of expectation continues to rise.
The impediments to change that traditional banks face are not going away - high cost-bases, inflexible and complex legacy technology estates, and operating models that lack customer-focus and agility.
Banks face the imperatives of increasing and diversifying revenues, optimising costs and increasing business agility. In this article, Simon Hull, Head of Financial Services at BJSS, looks at the revenue challenge and why smart use of digital technology is the key to success.
Banks are looking to win new customers, retain and maximise business from existing customers and diversify the traditional deposit and lending business with fee-based products and services. Some of the key elements banks are focusing on in this respect are customer experience, customer intelligence, and product and service range.
Customer experience is a battleground and competition is intense. Last year's Ipsos Mori poll has Monzo and Starling coming out ahead on many customer service metrics. Digital channels are becoming primary. Customers are attracted to slick and intuitive digital experiences and expect increasingly personalised service as banks learn more about them.
However, the empathetic human touch is still essential, as is the consistency of service across in-person, phone and digital channels. Customers want the choice of channels to use for different tasks, and preferences differ across demographics. The brand experience is just as significant, with social and environmental responsibility top of the list. The combination of service and brand will drive loyalty and recommendations.
Customers want the choice of channels to use for different tasks, and preferences differ across demographics.
Customer intelligence is about gaining a deep, holistic and continuous understanding of the customer - their needs, behaviours, preferences and influences. With this, a truly customer-centric operating model can be created - one where product and service development, marketing, distribution, and customer service are aligned and evolve alongside the customer. This enables a broadening of the relationship to maximise customer wallet share by tailoring to their needs to build multi-product relationships.
Banks need to assess their current product and service range, consider discontinuing low volume or low profitability products, and ensure the rest are available on their digital channels. In parallel, banks must move to an agile product and service development model to enable rapid innovation based on customer intelligence. This will help sustain and protect revenues as needs change and diversify into fee-based products, as many major banks are doing in areas such as financial advice, wealth management, insurance, point-of-sale financing and subscription models.
Digital technologies, used in the right way, hold the key to delivering these three revenue drivers.
Investing in user-centric design is critical for banks to understand customer needs, jobs to be done and interaction preferences. Web and mobile digital technologies power responsive and real-time banking apps, compelling user journeys and more frequent interactions and alerts. They are also a critical source of customer data which can be used to refine interactions and develop new products and services iteratively. Banks should move their full product and service range onto their digital channels, and also focus on customer education and self-service. The same technology can be used to digitally enable branch and call-centre staff, creating more informed and rich customer interactions.
Data and AI is really the heart of digital customer-facing banking. Capturing and combining datasets involves both making the vast troves of data stuck in siloed legacy systems available, capturing real-time customer data from digital platforms and also bringing in additional third-party sources. AI can be used to join the dots and identify patterns to better understand and predict needs, which can drive timely interactions and personalised products and services. It also enables a better understanding of personal situation and risk, prerequisites for new services such as wealth management and insurance. Broadening the model of the customer extends the opportunity to establish multi-product relationships. This generates more interactions and data, so a cycle of continual analysis and innovation is formed.
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AI capabilities can also be combined with RPA to enable Intelligent Automation of many customer service tasks such as standard enquiries that can be handled by conversational AI. Highly responsive, accurate and information-rich conversational interfaces improve the customer experience. This in turn, enables staff to provide a better customer service by focussing on personal service and higher value or more complex needs.
Cloud is a crucial enabler of much of the above in several ways. The inherent agility of cloud-based services enables rapid innovation and the delivery of new services and features through microservices. Elastic scalability enables the platform to adapt to usage expansion and maintain responsiveness under high load. Native out-of-the-box data and analytics capabilities will accelerate the AI journey. The fast provisioning of new environments supports an agile product development methodology.
For traditional banks, legacy modernisation must feature in the digital change programme. Legacy systems can negatively impact the speed and cost of change. Modernisation must be prioritised, and iterative strategies applied such as facading systems behind APIs, breaking out elements of monoliths as standalone reusable services and cloud migration. Legacy systems contain critical data that is needed to build a holistic customer view. Modernisation of the change function to a customer-centric agile model is a broad enabler for all revenue-generating activity.
The industry is at an inflection point, and banks face a considerable challenge to drive revenue opportunities. The key to success is precision of focus on business goals and aligning the right digital technology combinations to deliver on the customer experience, customer intelligence and rapid product and service innovation goals. Banks are at different stages on this journey, and of course, revenue must also come with profitability. Hence, costs are another challenge that must be faced in a similar way.
Ammar Akhtar, co-founder and CEO at Yobota, explores the steps necessary to the creation of successful fintech.
The first national lockdown in March highlighted the importance of the quality and functionality of digital banking solutions. Indeed, most of us quickly became accustomed to conducting our financial affairs entirely online.
Financial services providers have needed to adapt to this shift, if they were not already prepared, and consumers will continue to demand more. For instance, Yobota recently surveyed over 2,000 UK adults to explore how satisfied customers are with their recent banking experiences. The majority (58%) of banking customers said they want more power to renegotiate or change their accounts or products, with a third (33%) expressing frustrations at having to choose from generic, off-the-shelf financial products.
Consumers are increasingly demanding more responsive and personalised banking services, with the research highlighting that people are increasingly unlikely to tolerate being locked into unsuitable financial products. This is true across all sectors of the financial services landscape; from payment technologies (where cashless options have become a necessity as opposed to a trendy luxury) to insurance, the shift to “quality digital” poses challenges throughout the industry.
Providers and technology vendors must therefore respond accordingly and develop solutions that can meet such demands. Many financial institutions will be enlisting the help of a fintech partner that can help them build and deploy new technologies. Others may try to recruit the talent required to do so in-house.
The question, then, is this: how is financial technology actually created, and how complicated is the task of building a solution that is fit for purpose in today’s market?
The finance sector is heavily regulated. As such, compliance and regulatory demands pose a central challenge to fintech development in any region. It is at the heart of winning public trust and the confidence of clients and partners.
Controls required to demonstrate compliance can amount to a significant volume of work, not just because the rules can change (even temporarily, as we have seen in some cases this year), but because often there is room for interpretation in principle-based regulatory approaches. It is therefore important for fintech creators to have compliance experts that can handle the regulatory demands. This is especially important as the business (or fintech product) scales, crosses borders, and onboards more users.
The finance sector is heavily regulated. As such, compliance and regulatory demands pose a central challenge to fintech development in any region.
Businesses must also be forthcoming and transparent about their approach towards protecting the customer, and by extension the reputation of their business partner. Europe’s fintech industry cannot afford another Wirecard scandal.
Compliance features do not have to impede innovation, though. Indeed, they may actually foster it. To ensure fintech businesses have the right processes in place to comply with legislation, there is huge scope to create and extend partnerships with the likes of cybersecurity experts and eCommerce businesses.
The size and growth of the regulation technology (regtech) sector is evidence of the opportunities for innovations that are actually born out of this challenge. The global regtech market is expected to grow from $6.3 billion in 2020 to $16.0 billion by 2025. Another great example would be the more supportive stance regulators have taken to cloud infrastructure, which has opened up a range of new options across the sector.
It is the technical aspect of developing fintech products where most attention will be focused, however. There are a number of considerations businesses ought to keep in mind as they seek to utilise technology in the most effective way possible.
The fintech sector is incredibly broad. Payment infrastructure, insurance, and investment management are among the many categories of financial services that fall under the umbrella.
A fintech company must be able to differentiate its product or services in order to create a valuable and defensible competitive advantage. So, businesses must pinpoint exactly which challenges they are going to solve first. Do they need to improve or replace something that already exists? Or do they want to bring something entirely new to the market?
The end product must solve a very specific problem; and do it well. A sharp assessment of the target market also includes considering the functionality that the technology must have; the level of customisation that will be required from a branding and business perspective; and what the acceptable price bracket is for the end product.
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In the same vein, as a vendor it is important to be specific and strategic when it comes to pursuing the right clients. A fintech might consider itself to be well-positioned to cater to a vast selection of different businesses; however, it’s important to have a very clear target client in mind. This will ensure product and engineering teams have a clear focus for any end goal.
The value of a good cultural fit should also not be underestimated. The business-to-business relationship between a fintech and its client (a bank, for example), particularly at senior levels, is just as important as finding the right niche. There must be a mutual understanding of what the overall vision is and how it will be achieved, including the practical implementation, timeline and costs.
Leveraging the newest technology is not always the best approach to developing a future-proof proposition. This has been learned the hard way by many businesses keen to jump on the latest trends.
Shiny new technology like particular architectures or programming languages can have an obvious appeal to businesses looking to create the “next big thing”. But in reality, the element of risk involved in jumping on relatively nascent innovations could set back progress significantly.
The best technology systems are those that have been created with longevity in mind, and which can grow sustainably to adapt to new circumstances. These systems need to run for many years to come, and eventually without their original engineers to support them, so they need to be created in modern ways, but using proven foundational principles that can stand the test of time.
To revert back to my original point, fintech businesses cannot forget about the needs of the end customer. There is no better proof point for a product than a happy user base, and ultimately the “voice of the customer” should drive development roadmaps.
The best technology systems are those that have been created with longevity in mind, and which can grow sustainably to adapt to new circumstances.
Customer experience is one of the most important success factors to any technology business. Fintechs must consider how they can deftly leverage new and advancing technology to make the customer experience even better, while also improving their underlying product, which users may not necessarily see, but will almost certainly feel.
Another important consideration is ease of integration with other providers. For example, identity verification, alternative credit scoring, AI assisted chatbots and recommendation algorithms, next generation core banking, transaction classification, and simplification of mortgage chains – these are all services which could be brought together in some product to improve the experience of buying a mortgage, or moving home.
Progressive fintech promotes partnerships and interoperability to reduce the roadblocks that customers encounter.
Powerful digital solutions cannot be created without the right people in place. There is fierce competition for talent in the fintech space, especially in key European centres like London and Berlin. Those who can build and nurture the right team will be in a strong position to solve today’s biggest challenges.
In all of these considerations, patience is key. It takes time to identify new growth opportunities; to build the right team that can see the vision through; and to adapt to the ever-changing financial landscape. Creating fintech is not easy, but it is certainly rewarding to see the immense progress being made and the inefficiencies that are being tackled.
Paul Naha-Biswas, founder and CEO of Sixley, shares some of the outcomes of the 2008 recession and how a similar economic downturn could lead to greater innovation and success in UK businesses.
On 12 August, the worst-kept secret in the country came out, and the UK entered a recession for the first time in eleven years.
Few were surprised by the news. In the months preceding the announcement, the economy went through a period of unprecedented disruption due to the COVID-19 pandemic and the subsequent lockdown, culminating in GDP plummeting by 20.4% within the first three months of the year.
But, while the ‘R’ word might send a shiver down the spine of most businesses, it may surprise you to learn that many of the household brands we use today were formed in the last global financial crisis (GFC). Uber and Airbnb were just two businesses founded during the 2008 crash and used the recession as an opportunity to innovate within their sector.
So, with this in mind, what lessons can businesses learn from the last financial crash and where are the opportunities for innovation this time around?
In the last recession, the consumer businesses that did well were those that offered services or goods at a far lower cost than pre-GFC.
As budgets tightened, people were increasingly prepared to change their consumer behaviour and explore new digital-first businesses to save money. As a result, we saw a significant rise in casual dining and low-cost retail – such as Boohoo – and also a spike in digital businesses, such as Airbnb and Uber that, through their use of lateral business models, brought quality services to people at a much lower price than competitors. Who could have imagined before 2008 that you could book a whole apartment for less than a hotel room or get driven around town for half the cost of a black cab?
In the last recession, the consumer businesses that did well were those that offered services or goods at a far lower cost than pre-GFC.
A similar trend is emerging during the COVID-19 recession, with Britons cutting back hard on their spending – both out of worry and due to a lack of spending opportunities.
Consumer spending fell by 36.5% in April compared with the same month last year, which followed a 6% drop in March. During the same period, spending on travel nearly halved, and outlay on pubs, clubs, and bars dropped by 97%.
However, the unique circumstances of COVID-19 have created a new trend in consumer behaviour that wasn’t apparent in the GFC. The Government lockdowns actioned around the world has shown businesses how much of our economy can shift online. And the longer restrictions go on for, the less likely it is that businesses will return completely to their post-COVID-19 setup.
With more people staying at home, there will be increased demand for digital, online services and more opportunities for businesses to innovate. Take Hopin, a virtual events company, for example, the brand spotted a gap in the market created by everyone staying inside during the pandemic and raised over $170 million from investors and built up a $2 billion+ valuation since lockdown began, despite only being founded in 2019.
Hopin isn’t the only business success story from COVID-19 and with the pandemic likely to bring about permanent changes in consumer behaviour, there are plenty of opportunities for entrepreneurs to establish businesses that will disrupt their sector in a similar way to how Uber and Airbnb did in 2008.
However, increased consumer demand for digital services, isn’t the only reason why now is an opportune moment for innovation.
In the GFC, labour turnover fell significantly – from 18% of the workforce in 2006 to a low of 10% in 2013 – as workers looked to hold onto secure jobs and employers put a pause on recruitment.
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Once again, a similar trend is emerging, with employment opportunities falling by 62% across the UK in the three months to June compared to the same quarter last year.
While this isn’t the ideal situation for jobseekers, businesses now have a huge and diverse talent pool to choose from. For example, start-up founders can bring in highly experienced, motivated employees without having to poach or hire on full-time contracts, something that many start-ups may otherwise struggle to afford.
And there’s promising signs that current prospects for jobseekers will change soon. Following news that two potentially effective vaccines will be rolled out in the new year, shares in businesses skyrocketed on newfound optimism suggesting they will bounce back. Similarly, in the aftermath of the GFC, spend on recruitment agencies bottomed out at 75% of pre-2008 levels before eventually exceeding pre-recession levels by 2013/14.
The great American writer Mark Twain once said that history doesn’t repeat itself, but it often rhymes, and, in this instance, the saying rings true. Although the circumstances may be different, the COVID-19 recession, like the GFC, has opened new markets that businesses, if they are fast enough, can take advantage of. With a swell of excellent, experienced candidates available and changing consumer behaviour, the environment is perfect for new start-ups to emerge and become this decade’s Airbnb and Uber.
Nigel Frith, vice president of financial services at AskTraders, discusses how challenger banks have revolutionised the banking industry and the opportunities more traditional banks can explore as they aim to extend their digital offerings.
As the high street has evolved in order to meet the changing needs of consumers, retailers have been left with no option other than to reinvent themselves. The banking industry certainly hasn’t been immune to these shifting trends either and as a result, over the last few years traditional banks have been forced to adapt and change the way they operate. While their face-to-face services still remain a crucial string to their bow, banks have had to invest heavily in their digital offerings in order to compete with increasingly popular digital-first providers. So, why are these challenger banks such as Monzo and Starling so attractive to customers and how have the big players in the industry risen to this digital challenge?
With their chic apps and personalised offerings, new banks can’t be found on the high street but are instead on your mobile phone. Their customer-centric approach has simplified banking by providing users with features which make daily tasks that little bit easier. From being able to split the cost of meals with friends to keeping track of monthly outgoings, these app-based services have really hit the spot in the eyes of many.
With more than four million customers, Monzo is perhaps the most well-known challenger bank. It started out in 2015 as a prepaid card that could be topped up via its app before transforming into a sole banking brand in 2017. It offers all of the usual current account services regular banks provide but also enables customers to manage their money in an effective and efficient manner. The ease at which you can navigate through the app is certainly a big draw for digital-savvy youngsters who are able to quickly transfer money to their friends and set monthly budgets.
In recent years it has continued to broaden its services such as by adopting a ‘get paid early’ feature which allows users to be paid their salary or student loan a day early. By embracing a channel-based communication model, Monzo has also been able to respond to incidents such as outages in a typically effective fashion. Customers can report any issues using a chat service on the app and they have the ability to freeze a card from their phone should they lose it.
With their chic apps and personalised offerings, new banks can’t be found on the high street but are instead on your mobile phone.
Another major benefit of banking with Monzo and many of its other app-based competitors is that it doesn’t have any foreign transaction fees for spending. It has therefore become a highly attractive option with regular travellers and holidaymakers alike.
Although recent analysis of bank branch data has revealed that (if the current rate of closures was to be maintained) there would be no high street banks left by April 2032, there is clearly still a demand for in-person banking. Many people still feel more comfortable going into a bank to pay-in cheques while others are reliant on the financial advice they can access in-store. Clearly there remains a need for traditional banks, such as the big four in the UK - Barclays, Lloyds Banking Group, HSBC and RBS - to evolve their offerings.
In recent years, therefore, these banks have invested heavily in their online and mobile banking services in a bid to compete with digital-first providers like Monzo. This has included providing customers with perks such as being able to pay for purchases using virtual cards on their apps and providing them with the ability to cash-in cheques from the comfort of their own homes.
Leading the way has been Barclays who in 2017 invested £4,148 million into their digital platforms. Now, more than 90% of Barclays’ transactions take place over mobile devices, emphasising the effective nature of their transition to a more digitally-focused way of operating. In December 2018, Barclays also designed a feature which allowed customers to turn off payments towards certain websites should they feel they are unable to curb their spending. More recently, it has taken things a step further by enabling users to view the accounts they hold with rival banks on their platforms - an option which would have been unthinkable a decade ago.
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Key to ensuring customers have felt comfortable transitioning to these digital services has been the commitment banks have shown towards tackling cyber crime. This has seen the banking industry team up with the government, police and other regulators in recent years. Initiatives have been set up to not only raise awareness of the threat scammers pose but to also reassure customers of the stringent measures banks have in place to protect their personal data. Last year, UK banking security systems prevented fraud on an estimated £1.4 billion scale, demonstrating the importance of their investment into tackling cyber crime.
With banks now constantly innovating in a bid to steal a march on their competitors, it is likely we’ll continue to see big changes taking place within the industry over the coming years. One thing that is clear though is that there will be a continued drive by providers to further improve and simplify the customer experience. Although further high street branch closures are inevitable, banks are working hard to maintain their in-person services for those who prefer to operate in this capacity also. While digital banking isn’t for everyone, the ease and efficiency at which millions of people can now complete financial tasks has left a lasting impression on many.
Kris Sharma, Finance Sector Lead at Canonical, explores the value of open source technologies in steering financial services through times of disruption.
In a post-Brexit world, the industry is facing regulatory uncertainty at a whole different scale, with banking executives having to understand the implications of different scenarios, including no-deal. To reduce the risk of significant disruption, financial services firms require the right technology infrastructure to be agile and responsive to potential changes.
Historically, banks have been hesitant to adopt open source software. But over the course of the last few years, that thinking has begun to change. Organisations like the Open Bank Project and Fintech Open Source Foundation (FINOS) have come about with the aim of pioneering open source adoption by highlighting the benefits of collaboration within the sector. Recent acquisitions of open source companies by large and established corporate technology vendors signal that the technology is maturing into mainstream enterprise play. Banking leaders are adopting open innovation strategies to lower costs and reduce time-to-market for products and services.
Banks must prepare to rapidly implement changes to IT systems in order to comply with new regulations, which may be a costly task if firms are solely relying on traditional commercial applications. Changes to proprietary software and application platforms at short notice often have hidden costs for existing contractual arrangements due to complex licensing. Open source technology and platforms could play a crucial role in helping financial institutions manage the consequences of Brexit and the COVID-19 crisis for their IT and digital functions.
Open source software gives customers the ability to spin up instances far more quickly and respond to rapidly changing scenarios effectively. Container technology has brought about a step-change in virtualisation technology, providing almost equivalent levels of resource isolation as a traditional hypervisor. This in turn offers considerable opportunities to improve agility, efficiency, speed, and manageability within IT environments. In a survey conducted by 451 Research, almost a third of financial services firms see containers and container management as a priority they plan to begin using within the next year.
Open source software gives customers the ability to spin up instances far more quickly and respond to rapidly changing scenarios effectively.
Containerisation also enables rapid deployment and updating of applications. Kubernetes, or K8s for short, is an open-source container-orchestration system for deploying, monitoring and managing apps and services across clouds. It was originally designed by Google and is now maintained by the Cloud Native Computing Foundation (CNCF). Kubernetes is a shining example of open source, developed by a major tech company, but now maintained by the community for all, including financial institutions, to adopt.
The use cases for data and analytics in financial services are endless and offer tangible solutions to the consequences of uncertainty. Massive data assets mean that financial institutions can more accurately gauge the risk of offering a loan to a customer. Banks are already using data analytics to improve efficiency and increase productivity, and going forward, will be able to use their data to train machine learning algorithms that can automate many of their processes.
For data analytics initiatives, banks now have the option of leveraging the best of open source technologies. Databases today can deliver insights and handle any new sources of data. With models flexible enough for rich modern data, a distributed architecture built for cloud scale, and a robust ecosystem of tools, open source platforms can help banks break free from data silos and enable them to scale their innovation.
Open source databases can be deployed and integrated in the environment of choice, whether public or private cloud, on-premise or containers, based on business requirements. These database platforms can be cost-effective; projects can begin as prototypes and develop quickly into production deployments. As a result of political uncertainty, financial firms will need to be much more agile. And with no vendor lock-in, they will be able to choose the provider that is best for them at any point in time, enabling this agility while avoiding expensive licensing.
As with any application running at scale, production databases and analytics applications require constant monitoring and maintenance. Engaging enterprise support for open source production databases minimises risk for business and can optimise internal efficiency.
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Additionally, AI solutions have the potential to transform how banks deal with regulatory compliance issues, financial fraud and cybercrime. However, banks need to get better at using customer data for greater personalisation, enabling them to offer products and services tailored to individual consumers in real time. As yet, most financial institutions are unsure whether a post-Brexit world will focus on gaining more overseas or UK-based customers. With a data-driven approach, banks can see where the opportunities lie and how best to harness them. The opportunities are vast and, on the journey to deliver cognitive banking, financial institutions have only just scratched the surface of data analytics. But as the consequences of COVID-19 continue and Brexit uncertainty once again moves up the agenda, moving to data-first will become less of a choice and more of a necessity.
The number of data sets and the diversity of data is increasing across financial services, making data integration tasks ever more complex. The cloud offers a huge opportunity to synchronise the enterprise, breaking down operational and data silos across risk, finance, regulatory, customer support and more. Once massive data sets are combined in one place, the organisation can apply advanced analytics for integrated insights.
Open source technology today is an agile and responsive alternative to traditional technology systems that provides financial institutions with the ability to deal with uncertainty and adapt to a range of potential outcomes.
In these unpredictable times, banking executives need to achieve agility and responsiveness while at the same time ensuring that IT systems are robust, reliable and managed effectively. And with the option to leverage the best of open source technologies, financial institutions can face whatever challenges lie ahead.
Michalis Michael, CEO of DigitalMR, explores these findings and what they mean for the future of banking.
When we are finally on the other side of the coronavirus pandemic, several key sectors will be remembered positively for the way they took charge and handled the crisis, from healthcare to supermarkets and logistics companies.
Banks, on the other hand, are unlikely to fare as well in the eyes of consumers. A social intelligence report compiled by DigitalMR analysed customer sentiment amongst the top 11 global banks during the period of February 2018 to April 2020 and found customer relationships hit an all-time low during the peak of COVID-19.
In today’s digital world, dissatisfied customers can switch provider with the click of a button and, if banks are to emerge stronger, they must take heed of lessons from the lockdown period and prioritise customer experience in a way that they have never done before.
Here are five of the main customer service lessons banks should take from the coronavirus lockdown according to artificial intelligence.
The banks that received the most positive sentiment during lockdown were those that were reactive and quick to adapt their approach in line with what their customers truly needed. Unfortunately, they were in the minority and, despite so much bank advertising claiming to be "by your side" and "in this together", many failed to practice what they preached. In such times of adversity, banks needed to truly demonstrate they were listening to their customers by providing personalisation and products that reflected their needs at specific moments in time. Moving forwards, they must take a more customer-centric approach and provide real solutions in response to new and emerging challenges their customers are facing.
The banks that received the most positive sentiment during lockdown were those that were reactive and quick to adapt their approach in line with what their customers truly needed.
Our world today is undeniably digital, and the pace at which disruptive technologies are arriving is accelerating. Arguably, digitalisation in the banking sector moved at an even rapider pace during lockdown, when even those unfamiliar with online banking were forced to bank from home as banks scaled back physical channels and human-led advisory. Despite this, many banks did seemingly little to speed up and optimise their digital processes to account for a surge in online enquiries and applications for Government support, such as the Coronavirus Business Interruption Scheme [CBIS]. To put themselves in better stead post-coronavirus, banks must become innovative and embrace digitalisation so their responses to emergencies like COVID-19 are quicker and more effective. There is no getting away from the fact that digital transformation is vital if they are to be fit for purpose when it comes to lending in the future.
Our analysis of customer sentiment throughout lockdown shows that lengthy wait times to speak to a customer service adviser was one of the main frustrations, with some customers experiencing waiting times of four hours plus, and banks like Barclays pulling their customer service functions completely.
Crisis-stricken customers need quick support and solutions, and banks must work hard to address efficiency if they are to improve customer experience moving forwards. Much of this will be achieved by enhancing digital self-service for customers and implementing immediate measures to ensure they have the operational capacity to act quickly. COVID-19 has proven that automation and using data to make efficient decisions is essential for handling increased demand for credit and delivering faster decisions.
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Despite the Government saying in March that banks were required to grant temporary reprieves on mortgage repayments to help families struggling financially during the crisis, our research shows that many failed to issue them. Whilst payment breaks are not a long-term solution for those in financial trouble and could raise bank liquidity concerns, customers in distress need to know that they can turn to their bank for extra support. Many consumers will be considering a switch post-lockdown, so it’s critical that banks offer the trust and services that they demand.
Another key concern amongst customers during lockdown was inconsistencies surrounding fraud, with many consumers worried by their bank’s lack of response to fraud calls, and banks such as HSBC reported to have been overzealous with fraud concerns by cancelling cards when not required. According to Proofpoint, a cloud security and compliance specialist, 80% of accredited banks were unable to say they were proactively protecting their customers from fraudulent emails, and 61% have no Domain-based Message Authentication, Reporting and Conformance [DMARC] record whatsoever, putting customers at heightened risk during the pandemic. To regain customer trust, banks will need to enhance their fraud detection activities to mitigate new financial crime typologies, as digital transactions increase and electronic payment growth accelerates.
Whilst our findings related to banking customer sentiment during lockdown are somewhat scathing, banks can still emerge stronger from the crisis if they learn from their shortcomings, implement the necessary immediate measures and take advantage of opportunities. By embracing digitalisation and using artificial intelligence to inform their responses to customer needs, banks can successfully navigate the new normal, support disproportionately affected customers and renew consumer confidence.
Naturally, innovation is a word that can be used overly freely by businesses to signify virtually any kind of thinking that is slightly different from the usual. In this case, however, we are thinking of something that will benefit companies looking to grow. Innovation in the terms we are discussing here refers to the creation of products, services, processes and ideas that can help not only your business to succeed but represent a new type of thinking in your industry.
Having defining this, you could argue that we are ultimately still talking about ideas that will make the business money through sales. But the truth is that many innovations require a great deal of time and financial input - and not all of your innovations, sadly, will be successful. This can discourage companies from pursuing innovation, as despite the potential upside, there can be no guarantee of success.
Thankfully it is well established that innovation is a fantastic thing - not just for businesses themselves but for the industry, the economy, and for society in general. As such, the government has a scheme that it is designed to reward companies for innovating them - reducing their tax bill if they are in profit, or reducing their losses if they are not.
There are two main types of tax relief offered by the government: research and development (R&D) tax credits and Patent Box tax credits. These can be fantastic ways to make the best financial use of your innovations and ensure that your company is rewarded for the work it is doing.
But there is a problem: many organisations are not claiming the kind of R&D tax relief that they could.
There are two main types of tax relief offered by the government: research and development (R&D) tax credits and Patent Box tax credits.
There are actually many reasons that companies might not be claiming what they are owed through R&D tax credits. Firstly, it is a complex procedure to claim back R&D tax and some companies may have attempted it in the past and actually found the whole job too confusing. Even standard accountants struggle when dealing with R&D tax relief and will outsource some of the work to those with more specific expertise.
It’s no surprise then that less experienced businesses are finding it challenging to claim tax relief. But there is another issue too.
“Unfortunately, it is the case that many businesses assume that they can’t possibly be eligible for R&D tax relief," says Simon Bulteel of R&D tax relief specialists Cooden Tax Consulting. “They might assume that R&D purely refers to the field of science – however, this is a misconception. Actually, R&D refers to innovation across a wide variety of sectors”.
Lack of understanding of what R&D tax relief is meant for can play a huge role in the fact that businesses aren’t taking advantage of the tax credits they are owed. Companies across industries as varied as entertainment, marketing, transport, construction and many more apply and get R&D tax relief every year.
Innovation is a vital tool for growth for businesses across many different industries, especially under the present circumstances where making further sales and growing your business through profit may not be feasible. If businesses are missing out on valuable R&D tax credit relief it is because they are not working with specialists who can help them.
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It is advisable for any organisation that carries out any kind of innovation as a part of their business to speak with experienced professionals in R&D tax relief, who will be able to guide and advise them on whether it is possible for them to claim.
Failing to do so is missing out on money and isolating your businesses from a very legitimate form of growth.
Andrew Beatty, Head of Global Next Generation Banking at FIS, shares his thoughts on the inevitable evolution of building societies with Finance Monthly.
Building societies have grown with the communities they service. They have been in an area for decades and sometimes centuries, giving them a strong sense of place and knowledge of the needs of the communities they serve. This has been vital to their durability, and this knowledge is very much still valued by customers.
But it’s not enough in today’s digital world. Consumers demands are increasing. Personal, tailored services, such as what customers receive through Amazon and Netflix, in conjunction with seamless digital experience offering spread across all channels the likes of which we see from Google and Facebook is now expected from banks.
Building societies need to evolve, but they need to do it in the right way. Building societies needn’t rip everything up and start again in the pursuit of reinvention. When e-readers were invented, authors didn’t stop writing; a Nobel prize winner retains that distinction in hardback or Kindle. Instead, building societies need to adjust their businesses to maintain relevance.
While every building society is different, but here are four investments no society can afford to ignore.
Worldpay research shows that 73% of consumer banking interactions are now digital, a figure that has only been rising during lockdown. Providing customers with a frictionless, on-demand experience across multiple channels is imperative. Focus on getting the right mix of personalisation, agility and operational and financial efficiency.
Building societies have grown with the communities they service.
Platforms that are built to leverage artificial intelligence and machine learning give building societies the ability to deliver the kind of personalisation that reinforces their established brand image. Systems that are built to accommodate open application programming interfaces, or APIs, and that use mass enablement for new product features and service rollouts will make adding new innovations later both cost-efficient and operationally feasible.
In banking, trust and security are synonymous, and investing in or partnering with companies that have invested in the cloud is an important strategic decision.
When executed properly, a private cloud infrastructure delivers greater resiliency, enables faster software enhancements and ensures data security. Other benefits include significant decreases in infrastructure issues, improved online response times, enhanced batch processing times and the ability to swiftly respond to disasters and disruptions.
It used to be that only the largest financial institutions could afford good data. But now the ability to access, filter and focus on real-time data is within reach for building societies as well.
In addition to adding even greater personalisation to digital and mobile banking tools, building societies can make further use of data to drive cost efficiencies, growth initiatives and service improvement efforts, as they deliver that differentiated customer experience they were built on. For building societies workers who fear they can’t harness an influx of data: don’t let the flood of information incite “analysis paralysis.” Start with a focus on your key goals. Then, ramp up other functionalities as you gain more confidence and skill. Data is a tool for creating an even better bank.
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To quote Spider-Man, “with great power comes great responsibility”. This rings as true as ever for building societies who, with increasingly stringent regulatory compliance burdens on their plates, need to make sure all the benefits incurred with increased data are analysed and harvested both legally and ethically.
It also demands that building societies put in safeguards as part of their fiduciary duty. Do your due diligence and make sure whatever method you choose, be that technological or hiring additional staff members, accounts for the ever-shifting regulatory environment and can ensure adaptability.
Building societies need not despair at their technological deficiencies. After all, it’s far easier for a building society to catch up on five years of technical innovation than it is for a neobank to catch up on fifty years of hard-earned customer loyalty. Get in the driver’s seat, set the GPS for transformation, and start your digital journey.
With the entire industry currently under pressure due to uncertainty, data must lie at the core of every decision any business makes if it wants to succeed. In fact, research from McKinsey tells us organisations that leverage customer behavioural data and insights outperform peers by 85% in sales growth and more than 25% in gross margin. Jil Maassen, lead strategy consultant at Optimizely, offers Finance Monhly her thoughts on how data experimentation can be used to drive financial services forward.
One of the best examples of risk and reward, based on data science, comes from the world of baseball. Back in 2002, Billy Beane, general manager of the unfancied Oakland Athletics baseball team, spawned an analytical arms race among US sports teams. Working under a limited budget, Beane used obscure stats to identify undervalued players — eventually building a team that routinely beat rivals who had outspent them many times over.
Data analytics turned the game on its head by proving that data is an essential ingredient for making consistently positive decisions. The success of the bestselling book and subsequent Oscar-winning film, Moneyball, based on Beane’s story, took data analytics mainstream. Today, financial services companies are applying a “Moneyball” approach to many different aspects of their business, especially in the field of experimentation.
Data analytics turned the game on its head by proving that data is an essential ingredient for making consistently positive decisions.
Experimentation departments for the purposes of testing, also known as Innovation Labs, have been growing at a prolific rate in recent years, with financial services seeing the highest rate of growth according to a survey by Capgemini. By the end of 2018, Singapore alone had 28 financial service-related Innovation Labs. Alongside this, research from Optimizely reports that 62% of financial services companies plan to invest in both better technology and skilled workers for data analytics and experimentation.
Areas such as fund management are no strangers to data analytics. But since the fintech disruptors arrived on the financial services scene, legacy banks are now using data in combination with experimentation to evolve other elements of their business and remain competitive. Many have found that this is helping them to address common concerns, including how to improve customer experience and successfully launch products to market. So much so, that our research found that 92% of financial services organisations view experimentation as critical to transforming the digital customer experience. In addition, 90% also consider experimentation key to keeping their business competitive in the future.
However, experimentation takes patience. As Billy Beane said when his strategies didn’t deliver right out of the gate: “It's day one of the first week. You can't judge just yet.” He was ultimately vindicated. Like any new initiative, experiments can fail because of cultural “organ rejection.” They require taking short-term risks that don’t always work, all in service of long-term learning. It’s the job of Innovation Labs to take these risks, and often, one for the team, by being prepared to fail.
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The point is, when you're transforming something and making massive change, not everyone is going to understand right away. The best way to convince people that your theory is correct is to show them — not tell them — you're right. Experimentation initiatives in business, and especially in financial services where risks and rewards have high impact and return, allow new ideas to be proven right before they play out in front of a paying public.
Founded in facts and stats, experimentation promotes an ethos that is key in adopting new technologies and utilising data analytics to build roadmaps for the future. As the amount of data companies have access to increases, the ethos of experimentation will only become more important for predicting and changing the future for the better.
Experimentation is about measuring and learning and repeating that process until optimum results are achieved. The final word in this regard should perhaps go to Beane himself; “Hard work may not always result in success. But it will never result in regret.” His story is something that all financial services organisations can learn from.
The global COVID-19 crisis has triggered the most disruptive period to British society in peacetime history. The impact on the public and our healthcare system has been devastating, and our economy is facing the prospect of a recession much deeper and more painful than the economic crash of 2008.
However, this must be seen differently to 2008; a time where a culture of risk-taking by banks and from within the financial services industry left consumers and businesses reeling as credit lines were pulled. Back then the ‘casino culture’, which was so widespread in the city, was seen as the root cause of the crash, triggering substantial unemployment and misery for millions.
Now, we are all in it together, with the coronavirus hitting start-ups, small traders, shopkeepers and global businesses without discrimination. Companies are already collapsing into administration, with millions of workers furloughed on 80% salaries, and having to be supported by government finance and emergency loans. Wayne Johnson, CEO of Encompass Corporation explains to Finance Monthly why now is the time for banks to prove themselves.
Let us be quite clear - businesses and the general public need banks more than ever in this challenging time. It is certainly true that many of the major providers have already stepped up and emergency banking proposals have already been enacted to help businesses and individuals in these trying times. The Bank of England, for example, has already cut interest rates on their loans to 0.1%, and are working with HM Treasury to support large businesses by offering cash for their corporate debt. Elsewhere, many major consumer banks are offering mortgage, credit card and overdraft payment holidays for up to three months.
However, there is still a gulf of trust between businesses and banks, with many organisations still feeling that financial services firms do not always have their best interests at heart.
Today, the banks are in a much better position, with deeper capital buffers and better regulation. Thus, major financial service providers are in a unique position whereby they can potentially regain the trust of the British public with a strong stance, deep pockets, and generous investment in struggling businesses.
Let us be quite clear - businesses and the general public need banks more than ever in this challenging time.
Moving forward, banks should continue their dedication towards their customers and British business in general through swift action and financial support that proves ongoing, selfless commitment to the economy and its people.
This concerted effort requires adaptation from the financial services industry. The increased dependency on loans and support will inevitably have an overwhelming impact on the skeleton crew of bankers, who are themselves having to deal with the transition to remote working and unprecedented economic climate brought upon us by COVID-19.
Fortunately, there is an abundance of automation and regulatory technology (RegTech) at the banking sectors’ disposal. Recommendations from the Financial Action Task Force (FATF) and updated legislation from the Fifth Money Laundering Directive (5MLD), for example, has increasingly pushed banks towards using automation in recent years. While it is no secret that client onboarding and background checks are greatly improved with the assistance of the right RegTech, many financial services organisations can be somewhat hesitant when it comes to introducing new technology to their centuries old trade.
This has to change now. Automated customer onboarding is effective, efficient and empowers analysts at a time when human interaction is, in many cases, no longer an option during this unprecedented time.
Furthermore, the efficiency of proven RegTech software can ensure financial institutions are in a position to comfortably manage, and even accelerate, payment processes – a particularly useful function for SMEs, organisations and individuals at a time when they need access to finances and payment processes more than ever.
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Additionally, in today’s landscape, where consumers have come to expect instant services in all sectors of customer experience, automation is all the more crucial. Statistics from recent research that we published found that 38% of UK businesses have deliberately abandoned an application for banking services due to ‘slow due diligence processes’. Furthermore, nearly one third of businesses said they now trust challenger banking brands and fintech providers - known for their slick and fast digital onboarding - more than traditional banks.
COVID-19 has put consumers in an unprecedented position, as thousands are having to lean on traditional banks, modern fintechs and lenders. Thus, it’s a better time than ever to speed up and smooth out processes, if no less for the purpose of providing the best possible services for those who desperately require it.
Finally, there has been an increased trend in opportunistic cyber criminals looking to profit as a result of the current climate and, more specifically, from the influx of remote workers - many of whom have not been trained with even the most basic fraud detection or cyber security measures. Such criminals have been known to exploit the goodwill of remote workers through fake charities and financial fraud schemes, before laundering stolen money through overworked and under resourced financial services.
With the right technology in place, financial institutions can reduce the strain on their employees and resources, and flag criminal or suspicious activity at a rate never before possible. This will help combat the wave of online financial crime facing workers and businesses in lockdown, and ensure that accountants and banking services are not unknowingly contributing to money laundering during the crisis, which is set to afflict the nation for the foreseeable future.
Automation has played a critical role in the advancement of financial technology, with tried and tested processes being replaced with modern, more efficient software. With all this innovation breathing life into businesses of all sizes and industries, the question may be asked about what role an accountant plays in the age of automation. Let’s discuss what the changes are, who they impact, and what an accountant's role looks like in the modern era.
Not surprisingly, technology has had a significant impact on accounting businesses, departments and professionals, many of which implicate an accountants role as we know it. We have seen changes to employee tax and wages occurred globally, allowing employees to report on this data more easily and more frequently, with employees accessing their own earning statements centrally and independently. These changes have led to a need for more sophisticated software, many of which feature other functions that improve efficiencies through automation. Businesses can now comply with new legislation and complete payroll responsibilities without tasking a greater number of employees to that task. Australia has even coined this legislation change ‘single touch payroll software’, capturing the ease of the automation process. Accountants no longer need to conduct manual tasks, with automation offering expense tracking, payroll and invoicing.
Bots are another automation that is rolling out to industries beyond just eCommerce, with bots able to capture and respond to a range of enquiries, allowing accountants to not be hamstrung to administrative requests. This communication method can be built into a business’ website or social media pages, but won’t be relevant for all business sizes. Outsourced accounting and payroll services are another automation that allows businesses to hand their financial responsibilities to a third party, contracting rather than employing professionals.
Accountants no longer need to conduct manual tasks, with automation offering expense tracking, payroll and invoicing.
There is a misconception that enhanced accounting services will nullify the critical element an accountant plays within a business, but this is not the case at all. These automated processes simply make operations more efficient, often adding structure and simpler frameworks where there were none. Automation also assures a certain level of accuracy that can’t always be achieved manually, and this is a significant consideration when it’s concerning payroll and business revenue.
It’s not only accountants that stand to benefit from automation, business owners are also attracted to this option. Accounting automation can reduce or manage a department/business’ headcount, and taking these tasks offsite means that employers don’t need to factor in the physical space nor the employee benefits that come with employing another accountant. Less time in the details means your accountant can be more strategic with their time, which is why outsourced options have been wildly successful.
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Despite the automation that appears to be replacing certain accounting functions, the future is still bright for accounting professionals operating in organisations of all sizes. Automation innovations simply allow existing accountants to fine-tune their practice, implementing and optimising strategies with the mundane tasks taken care of. Whether accountants choose to implement software, outsource to a team or leverage reactive bots, one or all of these automation options can harness a greater output and overall performance of your business.
Automation is not something to be feared, as embracing its benefits can propel your business forward. Take a step back and assess what the growth plans are for your business, and explore what functions can be tightened in your financial sector. If there is an opportunity to enhance productivity and support your growth plans, trial some of these functions that are working effectively for those early adopters.
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.
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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.
