Altus insight: financial institutions must stay abreast of digital transformation
Digital transformation has led to some businesses seeing technology as “the big bad wolf”. Sarah Bateman, consultant of Altus, warns that businesses must accept the rise of tech in order to succeed.
Who are the wolves?
Tech companies like Google, Amazon, Facebook, Apple, AliBaba and WeChat as well as the telecom giants - AT&T, Vodafone and BT. To these organisations, technology is not a commodity; it’s at the heart of what they do. They are the corporate equivalent of digital natives.
Financial Services organisations, on the other hand, have historically been sluggish adopters of technology rather than innovators. But suddenly their customers (including financial advisers) expect them to have a significant presence on-line and for the whole experience to be primarily digital. Who are these digital experiences measured against? The wolves.
What happens when the wolves shine a spotlight on an industry?
For companies such as Google, the currency for developing, revolutionising and ultimately conquering a market is not simply monetary but also “interest” and “challenge”. Does the area pose an interesting enough challenge for us to understand, disrupt and master? If the answer is “yes”, be very afraid.
As the FS industry travels along its digital journey it draws attention to itself. With payments we have already seen that low hanging fruit can be harvested with relative ease. Banks are ripping out ATMs. People love gadgets, but more importantly, convenience. Many of us can’t be bothered to use a card in our pocket when the solution is at our fingertips, our phone. What do we use? “Apple Pay”, “Google Pay”, “WeChat”. Do consumers care who provides the underlying service? Not really.
And there is the rub, the actual "financial" work is relegated to the back-office, the glory (brand identification, loyalty), power and influence belongs to the wolves.
So the wolves have enjoyed success with payments, but what’s next?
In 2020, Facebook plans to introduce its GlobalCoin cryptocurrency, enabling 2.4 billion monthly users to make payments or transfer money without needing a bank account. No surprise, as the head of Whatsapp is the former PayPal president. What about Aggregators? Savings? Loans? Investments? Insurance? It’s just data after all…
Customer information is key to financial services. Anti-money laundering and consumer protection mean financial transactions cannot be anonymous or made without informed consent. GDPR has given people the confidence that their data is "safe", feasibly making them less guarded about what they share. This results in a perfect storm, an environment where people are seemingly sharing data and an industry that relies on it. Those who possess the data, possess the power.
The wolves have the customers (and their data), the distribution network, capability and infrastructure. With PSD2 it will be easier for them to enter the FS solution market; they just need to create an ecosystem of partners and share the spoils.
So what do the wolves know about us?
They don’t just know where, when and who we call, they implicitly understand our strengths and weaknesses, knowing when we use a big font (vision problem?), and where we like to go for lunch. This takes “Know Your Customer” to another level. In an environment where our choices are constantly recorded, from book preferences to how we manage our money every month, the nuances that can be extrapolated are limitless.
What about vulnerability or attitude to risk? Using a growing body of data collected over several years and life events, the wolves will be able to track user behaviour to accurately predict a person's nature. Compared to current question and answer approaches which reflect a person's state of mind at a specific moment in time, there is simply no competition!
Are financial services organisations ready to accept a Red-Riding Hood Granny role? Tucked away under the covers, reading ledgers and counting money? Excelling at the back-office may be a role FS organisations are comfortable with, but the brand loyalty will be associated with the wolves and they will not hesitate to switch suppliers. Granny is in serious danger of being eaten!
Zafin: Banking is now in the era of the tech ecosystem
The development of tech ecosystems is placing the future of post-COVID banking in jeopardy. At a time when Big Tech can replicate the functions of traditional financial institutions, what can banks do to retain a grip on the market?
John Smith, EVP Ecosystem at Zafin, has a few ideas. A SaaS cloud-native product and pricing platform for financial institutions, Zafin is preparing the next generation of banks to cope with this precise challenge.
Smith is responsible for the strategic and tactical management of the company’s ecosystem, including the creation of new business models to support growth and differentiation. We asked him four questions:
Q. Have the events of the pandemic caused an irreversible shift in the digitalisation of banks? If so, is COVID the sole cause or are there other factors?
It’s a great question and one that I am asked a lot. Without a doubt, the COVID-19 pandemic has driven a significant shift in the acceleration of digital. In fact, I’ve seen some estimates show there to have been as much as four to six years of digital adoption growth since the initial lockdown started.
While the pandemic may be the primary reason for this growth, two other drivers include fintech disruption and the high costs of operating a traditional retail bank. Both of these factors have caught the attention of banking executives as they set their minds on accelerating digital transformation with a focus on high return, low risk.
Q. Some commentators believe banks must learn from Big Tech in order to survive. Do you agree? Please expand.
I agree completely; we’re living in the era of the ‘ecosystem’. All the seismic shifts we’re seeing in technology, be it aggregation, embedded finance, DeFi or hyper-personalisation are all enabled by the foundation of an ecosystem.
When financial institutions work with a strategic partner like Zafin, which has made the strategic investments in a best-in-class ecosystem, they’re able to capitalise on opportunities more quickly and safely, and will be better positioned for growth now and at the other side of the pandemic.
Q. What are currently the obstacles to adopting Open Banking? Is it more likely to 'take off' in some regions rather than others?
I would argue that Open Banking has been in the US for some time and will only continue to grow there. By definition, Open Banking is about the secure sharing of financial information that customers are aware of and have authorised. Under that definition, we’re seeing aspects of this well underway even though its full potential remains to be seen.
Third-Party Providers are a natural outcome of Open Banking, whereby they can create propositions beyond what a bank normally does to enable banking functions such as payments, borrowing, saving and so on. Once again, some of these are already present through industry-led initiatives, whereas regions such as the EU have taken the pathway of regulation such as PSD2.
The industry-led initiatives we’ve seen in the US have also had the added advantage of guard-rails that regulatory bodies like FFIEC and CFPB provide. There are also other technology-led initiatives such as API definitions that are set out through the FS-ISAC.
I would argue the future of Open Banking in North America will be through the natural evolution of the guidelines and API definitions that have been published, as well as the natural progression of industry initiatives.
Q. Are there any other bank tech trends you'd like to discuss?
Coreless banking. Zafin has been pioneering some of the work around externalising functions out of the legacy core to drive a more ‘fintech nimble’ bank, while not having to deliver a ‘heart and lungs’ core bank replacement.
Real life examples of this include moving some of the core functions of a banking system, such as product and pricing to a platform like Zafin. Origination, onboarding, KYC, risk, and compliance are all other examples of externalising banking functions for added agility.