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Our thinking
This section is packed full of our latest opinions, insights and news.
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This section is packed full of our latest opinions, insights and news.
We would love you to join the conversation.
By Pavel
With the week of Black Friday reaching its pinnacle and the festive season right around the corner, merchants are preparing for fraudster attacks on their systems. Leading service providers expect the trend for fraud attacks during the busy season to increase between 14% to 20% based on past years data [1].
As a result, fraudsters are responsible for payments fraud valued at $1.8 billion[2]. Another important target for fraudsters is obtaining customer data. Recently, attacks are utilising different method to achieve those targets.
With more and more businesses moving into the digital space, iBe TSE noted that fraudsters are quickly adapting to new technologies. Skimming devices have been a traditional method used over the last few years for acquiring credit card details from ATMs. With the progress of technology, fraudsters managed to digitalise and inject their skimmers into the merchants' websites. However, fraudsters are not the only threat merchants are facing. Chargebacks, friendly fraud and loyalty fraud are all examples gaining momentum resulting in both reputational and financial damages for merchants.
Several large online retailers and service providers are reporting different types of attacks.
As examples we can review the following:
Uber's experience with friendly fraud - Uber introduced a promo code that gave new users their first ride for free. As Uber is covering the cost for the ride and paying it to the drivers an opportunity for system abuse emerged. Many drivers created bogus profiles and cashed in "first ride for free" without completing an actual trip.
Food delivery companies are experiencing an increase in fraudulent chargebacks. Currently, customers place a food order and upon receiving it contact their bank to initiate a chargeback on the order. Despite being aware of the situation merchants are avoiding investigation to avoid damaging their relationship with customers. This results in a refund of the transaction. The customer is receiving both order and the funds while the merchant is left with a loss.
Loyalty fraud outbreak - OTAs and travel companies are a preferred target for cyber criminals when it comes to loyalty fraud. Attacks can be broken down into three different categories listed below.
The most recent edition of the "Fraud Attack Index" by Forter showed an increase in loyalty fraud by 89% year-on-year[3].
Macy's announced a data breach in October leading to personal and payment client details being leaked. This was the first data breach reported by leading retailer since the Adidas scandal.
Merchants are also experiencing vigorous malware attacks with Magecart. This type of JavaScript attacked the shopping carts and extracted payment information. Some of the most recent victims of this malware are: British Airways (2018), Ticketmaster UK (2018), NewEgg (2019) and Forbes magazine subscribers (2019).
Visa reported that their eCommerce Threat Disruption (eTD) programme detected a unique variance of a JavaScript skimmer named "Pipka". In comparison with Magecart where the script is injected into the HTML code and remains there after it obtains all the data till manually removed, "Pipka" can avoid detection. The level of coding is allowing the code to remove itself from the HTML code once it collects the data. This is coming to show that the fraudsters are continuously evolving and adopting new techniques.
To conclude, merchants need to consider the following:
To find out more, contact a member of our Payments team
By George
When it comes to financial services, consumers have expressed a clear desire for banking to become a seamless background process – albeit an integral and necessary one that shouldn't get in the way of the purchasing journey. We have seen first-hand in payments, the want to remove all friction points involved with buying a good or service. Contactless payments mean we can pay for those coffees quickly and get back to catching up with our friends, digital wallets have allowed us to leave our bulky wallets at home, and we autofill our credit card details on our web browsers because it's mundane to fill these in each and every time. Similarly, there's no reason as to why this frictionless journey shouldn't extend to how we do banking and open banking is just the first step in the right direction.
While PSD2 has struck right at the heart of bank legacy business models and urged them to innovate, financial services disruptors have embraced an API-led banking ecosystem to better unify the banking experience with customer lifestyles. Consumers that are well versed in buying goods through marketplaces like Amazon are starting to feel the same gratification extend to their financial needs - like Starling Bank's API-led marketplace where customers can now access pensions, insurance and mortgage brokers all via the convenience of their smartphone. Now that the banking industry is steadily aligning itself closer to customer needs and experiences, these initiatives are definitely a step forward. There is, however, much more than can be done.
So far, digital banking marketplaces have aided in removing the stigma and the chore associated with financial products, but players are yet to grasp the root of the trend. Consider this: what if a marketplace could offer you bespoke propositions based around your unique lifestyle? Take for example the mammoth task for millions of students in preparing for the new academic year at university. What is generally a myriad of purchases across countless websites could be consolidated through a combined offering including campus accommodation options, textbook sales based on course reading lists, and tickets for student union events all within one customisable purchase journey. Customer Lifestyle Marketplaces (CLMs) such as these can be the gateway to the heart of a population that leads hectic and busy lifestyles and demands immediate gratification, convenience and ease of use.
For business, CLMs can bring a whole host of benefits. By accompanying customers throughout their purchase journeys, lifestyle platforms can learn from customer purchase sequences and collect metadata on customer individuality. Just like recommending songs based on Spotify listening history, CLMs can open new channels that consumers may not have otherwise bothered with. Also, engaging with customers throughout their various life events is a sure-fire way of promoting brand loyalty. Customers will appreciate interaction beyond the close of sale and will realise added value beyond the purchase of isolated products and services.
The key, moving forward, is for incumbent financial services providers to establish and promote a business strategy aligned fully with customer lifestyle demands. With PSD2 chiselling away at the natural protectionist barriers enjoyed by banks for decades, relevance requires players to be agile and recognise the monetisation opportunities associated with the democratisation of data in the market.
Find out more about this topic in our whitepaper: Beyond Open Banking - the Open Data Platform Revolution
By Masha
Our Q4 2019 research has found that online marketplaces could be worth as much as $7 trillion in sales by 2024 should organisations capitalise on the full potential of the marketplace trend. Currently, marketplaces contribute $1.7 trillion to the economy each year and in retail ecommerce accounts for as much as half (50%) of sales annually. However, we predict that sales driven from marketplaces are likely to exceed $7 trillion in the next five years, hailing a new era in ecommerce.
This rise is driven by more and more companies embracing marketplaces as the best platform to facilitate online sales, expedite cross border expansion, increase product range and improve logistics, costs and operations. This, complemented by an estimated annual growth of 8% in global online sales, will fuel the uptake of the marketplace model by a broad range of businesses.
Generally, marketplaces fall into three broad categories: business to business (B2B), business to consumer (B2C) and peer to peer (P2P). Currently, over half (56%) of European marketplaces are global companies like eBay, Amazon and Alibaba, but there is also significant local marketplace choice in Europe, and the local platforms' market share is continuing to grow as they get established and build loyal following amongst domestic and international consumers.
Business to business (B2B) marketplaces, like Alibaba in China or Conrad in Germany, present the biggest growth opportunity. Currently, only $600 billion, a mere 7.5% of the annual $7.9 trillion worth of online B2B sales, are made via marketplaces. However, as businesses begin to realise the benefits of trading with partners via marketplace platforms and as more companies trade online, B2B sales will continue to grow. In fact, iBe expects this to reach $12 trillion by 2024, with B2B marketplaces' share of online sales growing significantly to 30%. As a result, B2B marketplace sales can grow to $3.6 trillion by 2024.
Similarly, we forecast that business to consumer (B2C) marketplaces, which form the most developed sector led by Amazon, Rakuten, Deliveroo and many others and is currently responsible for $1.1 trillion of marketplace sales, could be worth an estimated $3.5 trillion by 2024, accounting for over 70% of all online B2C sales.
Peer to peer (P2P) marketplaces such as eBay or Airbnb are the best known to consumers but are significantly lower in sales volumes than the other two categories, due to the nature of their business. Current P2P marketplace sales represent 60% of that category's overall online sales and are presently at $30 billion. In our estimation these types of marketplaces are expected to generate over $240 billion by 2024, accounting for 90% of overall online P2P sales.
Marketplace potential
Note: All figures are in USD
Current online sales 2018
Current sales via marketplaces 2018
Predicted sales via marketplaces 2024
From the B2B sector, presently, SME businesses are exploiting B2B marketplaces most actively, whilst the large businesses are, not surprisingly, utilising these marketplace platforms least. Furthermore, all these verticals can grow exponentially by 2024.
As a part of the most developed B2C sector, the retail vertical is the clear leader of the marketplace evolution whilst manufacturers selling directly to consumers have the largest opportunity to grow. Other strong potential for growth can be found in digital, travel and subscription services in the business to consumer marketplace industry.
Marketplaces represent a staggering opportunity for businesses across a variety of sectors. For example, retailers can build global sales via an existing marketplace platform and they can broaden their range of products very quickly by allowing third parties to sell via their website, rather than scaling up in-house. On the other hand, manufacturers can cut out 'middlemen' by selling directly to consumers and thus drastically increasing their revenue. As for businesses selling to businesses, they can improve their operations by replacing legacy paper reconciliation processes with state of the art marketplace platforms, consequently increasing liquidity, improving speed to market and saving costs. It will also help businesses to find the best suppliers and buyers.
But before companies can fully embrace the marketplace evolution, there are still challenges that need to be overcome. Regulation and payment processing, for example, can often be the biggest barriers to entry. More needs to be done by the financial service players to ensure that businesses better appreciate the myriad of benefits and understand the specific restrictions and can find the most fitting technological solution. However, those financial institutions who understand the marketplace potential sooner will be those who will realise most of its potential.
iBe analysis methodology
In order to calculate the marketplace market, iBe took ecommerce sales numbers for key sections of the ecommerce market (B2B, B2C and P2P), it then segmented these by vertical (retail, travel, services and digital) and calculated the marketplace proportion by applying its sector expertise, client feedback and external research findings. As a result, a percentage of the sales were allocated for current marketplace numbers, then the potential of marketplaces numbers, based on transaction volumes for 2018. Expected growth of both ecommerce and marketplaces were then applied to illustrate the potential of marketplaces sales for a five-year timeframe.
By Sonali
For those of you still catching up, Facebook published a whitepaper Tuesday morning announcing the launch of its much-anticipated cryptocurrency, Libra. We managed to get a quick download in between media interviews from our Payments and Marketplace expert Masha Cilliers:
Why is Facebook doing this?
Facebook has access to a massive community. It has a very strong position with consumers, with over 2.5 billion users on its network. On top of that, it also owns other community channels such as Instagram, Whatsapp and Messenger. These channels create great advertising and marketing revenues, but trends change! In our opinion, by facilitating payments and end to end purchasing experience, Facebook will have a stronger position in the overall online commerce ecosystem and this builds long term revenues.
Payments are at the heart of all types of commerce. Just look at marketplaces and platforms such as Uber, Booking.com and Amazon. Their entire offering depends on frictionless payments. The presumption is that if you can help consumers not only initiate, but complete their purchases on one platform (and help merchants and SMEs to sell through this single platform) you'll quickly become an intrinsic part of ecommerce. Facebook already effectively supplies targeted marketing to retailers so facilitating payment for their goods and services is the natural next step. We also know from other social networks like WeChat that instant payments on social channels are very popular and convenient to consumers.
What's in it for merchants and consumers?
Payments are a pain, especially for small merchants and cross border payments are even harder to successfully manage. There are high costs and many intermediaries involved. Also, critically marketplaces now represent over 50% of all global e-commerce due to the ease of selling which they offer retailers and other businesses. iBe TSE estimations show that the future B2C online marketplace turnover can grow to over 3.5 trillion dollars by 2024! Creating a new digital currency will make Facebook's marketplace proposition very attractive to merchants and the added security of cryptocurrency can help fight online fraud.
How is the new digital currency set up?
There are three key parts to the project:
Who owns Libra?
Facebook does not solely own Libra coin. Libra is a separate entity and Facebook will be an equal member just as other companies involved e.g. MasterCard, PayPal. Libra is open source which also allows developers to provide feedback.
Who else is involved?
There are no banks involved in the project (not yet anyway). Instead, Facebook has involved some of the biggest global marketplaces and payment companies in the world such as the likes of Uber, PayPal, Spotify, Farfetch, Stripe, Spotify, MasterCard and Visa. Facebook has collaborated with potential partners and competitors. It has brought in external investment and has also ensured the regulators are on board (especially as compliance has been a key challenge for other cryptocurrencies).
Why are MasterCard and Visa on board, aren't they competitors?
Through developing Libra coin and its own digital currency, Facebook is ensuring less dependency on other more traditional systems such as MasterCard and Visa. However, presumably as part of the wider ecosystem MasterCard and Visa will be able to support the development of this new technology.
Why has Libra been set up as an Association?
Interestingly, MasterCard and Visa used to be Associations before they became private companies. This set up should help Libra project enable better stability of systems, controls and security. It also helps to address some of the ethics and data management concerns users have had in the past with Facebook.
How is this different to other payment mechanisms such as Apply Pay?
By creating a new digital currency, Libra will not have to rely on existing payment rails such as schemes or banks, at the same time offering consumers frictionless checkout. Reportedly, Facebook is in discussion with companies such as Western Union to enable unbanked consumers to put cash into their wallets and convert it to Libra. In terms of target audience, the Libra mission statement and whitepaper also put an emphasis on targeting the unbanked community and developing nations where people do not have access to a bank account but do have a mobile phone. Libra aims to help everyone transact.
Will Libra make cryptocurrency mainstream?
Customer adoption for new payments is always tough. However, having a large existing customer base helps. The challenge for Libra will be trying to convince consumers to adopt this new behaviour and ensuring their favourite merchants are on board. Building consumer trust in the system can also be a challenge but having some well known brands as part of the Libra Association will go some way to address that. And, of course, addressing the identity management is key to ensuring that the system is secure.
What to know more?
Speak to a member of our Payments Practice, headed up by our resident marketplace expert Masha Cilliers.
By Kamran
One of the trending topics lately is PSD2 and the fear it is going to squash the little guys! The EU wants PSD2 to create a level playing field of Open Digital Banking in Europe but the risk is that of stifling the competition and innovation that they hoped would flourish. We decided to have a closer look at this and consider what fintechs are most likely going to be facing.
Fintechs have become increasingly successful because of their ability to adapt new technology quickly, providing a better customer experience than traditional banks. When PSD2 was announced with the requirement that banks would be forced to allow customer accounts to be accessed by third-party payment providers (XS2A), some speculated that this would pave the way for smaller fintechs to truly challenge the banks' superiority. However, when the Regulatory Trade Standards (RTS) will come into effect (likely April 2019) they will also bring in requirements that will serve to make it even harder for smaller players to compete with the banking establishment.
A key area where smaller digital fintechs are currently able to outcompete the major players is in user experience. And this is where the RTS will hit them the hardest. The requirement for Secure Customer Authentication (SCA) is most certainly going to lead to more friction during transactions and subsequently to more frustrated customers who will make fewer payments. Modern consumers have in fact come to expect a frictionless experience and any provider forced to make customers jump through additional hoops to checkout is going to suffer. PayPal found that an additional 40% of transactions were abandoned once an additional security check was added. More burdens on payment providers leave less room for creativity and innovation and ultimately lead to a worse customer experience. Therefore, despite being free to choose from more payment providers, customers may prefer to stick with their established providers simply because they can offer them the most hassle-free customer experience.
What does this tell us? The one size fits all approach of the RTS will make it harder for smaller players to adjust and invest to meet the requirements and smooth customer SCA inconveniences while the established big banks will be favoured largely due to their existing relationships with customers.
Bean is an example of a fintech start-up taking advantage of using XS2A to provide consumers with an aggregation service. The app can connect to multiple bank accounts linked to an individual, and is able to collect and aggregate financial information in one place. This allows Bean to analyse banking transactions across an individual's accounts held with different banks and send instant notifications regarding changes to any recurring bills or subscriptions, along with recommending switches to better contracts. However, despite not even being able to make any changes to customer accounts, they will still be impacted by incoming RTS requirements as the RTS will place a ban on screen scraping. This will prevent a computer program to copy data from a website, which can often be the quickest and most effective way to create an interface to a bank's legacy system. Therefore, Bean will now have to request more log in details and information directly to the customer, taking away some of the 'hassle-free' value which had made the service desirable in the first place. However the European Banking Authority (EBA) argues that the screen scraping ban will improve customer security, but on the other hand fintech companies have claimed it is already a secure process and that banning it will force them to rely on bank-led access to client data under APIs thus keeping the control of data with the banks seemingly at odds with the principles of open banking.
Whilst some proclaimed PSD2 as a blow for the establishment, it is a major opportunity for the big banks to cement their leading positions. Those who get an innovative user experience right early on could end up with a big first mover advantage. The least cumbersome and most user-friendly payment services could see big gains in popularity whilst others might take longer to get it right and lose frustrated customers. Banks are positioned well as they are authorised to make certain low risk payments for existing customers exempt from SCA, if they employ real-time fraud management and have monitored fraud rates below the European Banking Associations' threshold amount. Those who strategically use customer data analytics and fraud prevention will be in the best position, as they will be exempt from SCA in more transactions leading to a more frictionless experience for customers with less steps for a payment. On the other side, new entrants will not have this advantage, as they will need to authenticate new customers with the RTS restrictions being argued to be too narrow, forcing them to use SCA when their current methods are more than adequate for fraud prevention.
In this scenario, one strategy that is likely to become increasingly common is strategic partnerships between fintechs and banks. Mutually beneficial partnerships will be formed where small TPPs with innovative technology combine with the more traditional banks to get access to their large pre-existing customer base. Recent examples include Payconiq, an all-in-one app enabling users to make direct payments online, in-store and peer-to-peer, that has being adopted by six major banks in the Netherlands (ABN AMRO, ASN Bank, ING, Rabobank, Regiobank and SNS).
Given that the idea was to create a level playing field, is this really the change that was anticipated with PSD2? Can this really be seen as realised if the only way for a fintech to actually reach customers is to partner with a major bank?
It is clear to me that PSD2 may well open up banking to competition… although if it puts into place standards that are restrictive on innovation and customer experience, it is simply removing one obstacle and replacing it with another. If the only organisations that can offer SCA-free customer experiences are the established banks, consumers may choose to stay with the hassle-free option that they know instead of exploring new options in the market. There are of course some technology giants with the customer base, infrastructure, and capital to make huge waves in the payments industry post PSD2. Just to mention some, Facebook, Apple, Amazon, and Google have all developed their own mobile payment solutions and are in strong positions to challenge the established banks; but, in short, the same cannot be said of the little guys.
By Betul
One of the key markers for anyone striving to unlock growth opportunities, is looking at where smart money is investing. With every sector being disrupted by new technologies and digital offerings, we decided to consider recent European deals within the cards and payments industry.
For starters, spending on deals has surged over the past five years, with 2017 being a particularly busy year. Over the summer you may recall that payments giant Worldpay was acquired by Vantiv. Another big deal was the purchase of Bambora by Ingenico and Digital River Payments acquisition by Worldline. These acquisitions clearly indicate that financial services providers are heavily interested in acquiring payment processing companies. They are not only looking for expansion opportunities within their own sector, but also recognise a need to have a better focus on improving customer offerings and ROIC (return on invested capital). This will allow these companies to expand their own acquiring capabilities and build on existing partnerships to create a full-service offer.
Digging deeper, I noticed that payment-processing companies have also received a flurry of investment from those outside the sector, namely from private equity firms. Recent examples include Palamon and Corsair Partners' takeover of Currencies Direct, the purchase of Concardis by Advent and Bain Private Equities and Paysafe's offer from Blackstone and CVC Group. This suggests that acquiring payment companies are tempting private equities to invest. With investment firm strategies typically focussing on portfolios that accelerate growth and growing synergies with market and customer behaviours, smart money is clearly on to something!
Looking into the deals, my team and I also identified nine common investment strategies. These range from acquisitions aiming to accelerate market access to those looking to acquire cheaper skills and technology access. The most popular strategies, however, seem to be bolt-on expansion (adding to already acquired current portfolio of firms in the same industry when buyer is not in the same industry) and roll-up expansion (same as bolt-on expansion but when buyer is in the same industry) as per the examples above.
What does this tell us? The market is being disrupted and is volatile, providing a valuable opportunity for smart investors to shape the future landscape. Smart money is investing in the payments industry, reacting to the popularity in e-commerce, instant payments, use of mobile, lack of legacy issues and the overall change in consumer behaviour. Payment processing companies are lucrative in the market right now and there is investment interest across the board - whether it's from financial services providers or private equity firms. Whilst it remains to be seen which investment strategy will build the "Amazon" of the payments sector – i.e. easy, customer centric, multi-channel methods of payments, these acquisitions surely indicate a new future for the payments landscape.
By Francesco
I remember the first time I used a fingerprint scanner on a laptop I'd been given for work and it wasn't exactly the most satisfying experience. It was a 'slot style' fingerprint reader (it may have been this model) and even after 'enrolling' my index finger five times, the little window just to the right of the touchpad was absolutely infuriating.
Fast forward ten years and my iPhone's fingerprint scanner works like a dream. In fact, today, I've had the pleasure of trying FaceID on an iPhone X where I don't even have to touch a button to unlock my phone and use my online banking service. We really are living in the future!
Except that we're not; at least, not consistently. There are a host of authentication methods available, as well as a number of things operating in the background that make the process easier – dare I say 'frictionless' – for all of us. Now, there are many organisations that are leading the charge and others that barely provide a welcome or onboarding process.
We recently reviewed around fifty of a broad range of these identity services providers, their products, operating models and market position. The theory was that by examining the most disruptive companies, we would be able to paint a picture of what is already available as far as identity management is concerned and who provides what type of services.
There were some unexpected findings when we looked at these companies, as well examples of some really great innovation. Almost 20% of these organisations didn't provide any kind of onboarding or introduction to the technology or company itself. Unless you're Apple and have incredibly intuitive technology, this is risky. If people misunderstand your tools, miss a feature or it isn't user-friendly, they might not use online services correctly.
Not surprisingly, everyone we reviewed provided some kind of mobile or online access. This was a big relief; we're in the 21st Century and our financial technology should reflect this! Just over half (55%) provide some kind of geolocation or IP address tracking technology, to make sure that users in the UK aren't logging in from Bogota, for example – or if they are, it's because they're on holiday.
We looked at the more 'back end' technologies in some detail as well. 78% of organisations have comprehensive KYC (Know Your Customer) measures in place to verify that customers really were who they said they were – a must-have for basic fraud prevention. Some were using savvy methods – for example, databases to help prevent money laundering, fraud blacklists or even publically available lists like electoral rolls. Using this background information is very smart, because doesn't slow processes down a great deal. Similarly, this information can be cross-checked with location data in real time to provide an additional assurance that fraud is not happening during individual purchases, for example.
Now for the fun stuff; 44% made use of fingerprint technology, 30% were compatible with face recognition technology, and one even looked at 'behavioural' patterns like keyboard and mouse usage. That's some sophisticated tech!
We have heard rumours about companies putting research and development budgets into either DNA or blood tests to check identity, but none of the companies we looked at were using this kind of technology ... yet. Of course, one of the issues is that whilst fingerprint scanners and facial recognition algorithms are relatively easy to create, DNA tests are still relatively expensive, difficult to procure and do slow processes down.
Overall, identity and authentication remain a constant challenge for all of us in the industry; methods that are incredibly secure are often relatively cumbersome – for example, using card readers to authenticate individual e-commerce transactions would be exceedingly secure, but would also stop many consumers shopping online. It's an incredible challenge to find the balance between preventing fraud, keeping consumers secure and making their lives easier – but that's why this industry is so interesting!
By Francesco
I often laugh when I hear my colleague Masha Cilliers using the new buzzword RegTech. To many, RegTech can be an odd choice of phrase – after all, technology and regulation are all too often at loggerheads. For example, we've all seen the regulatory landscape unfold exceptionally rapidly with the approaching dawn of driverless cars.
But the more I thought about it – admittedly whilst browsing the latest PetTech gadgets for Pablito – I realised that one area where this conflict is very clearly embodied is payments processing. In the past, payments processing was sold as a manually intensive service focusing on clear customer support. Innovation in this area generally focuses on compliance, efficiency and adding automation to relieve the labour-intensive nature of the task, rather than new products or creative elements.
Now, a philosophy of efficiency is all very well – until it can be completely automated. Processors provide an effective link between merchants and acquirers, and in many cases, this can be made frictionless with great code. It is certainly worrying a lot of people that processing is near the head of the queue for total automation.
But wait, you may be saying, isn't there something else doing this already?
Yes, you're right. PSD2 pre-empts the need to automate this. Among other changes, PSD2 means that merchants can act as their own payments processors without needing to use a service like Visa or Paypal.
This isn't a technological change. It's regulation preceding technological change. Even prior to the regulation coming into force, Facebook had been rumoured to be looking into the possibilities. It registered for a money transfer license in 2014 and very recently launched Facebook Payments, which allows consumers to send money over its messenger service.
Despite this, we have seen relatively new players emerge and navigate the regulatory hurdles of payments processing. I recently spent a very pleasant and interesting few hours with the head of innovative payments processor, Stripe. Their philosophy is extremely customer oriented – they know what the customer wants, and offer a simple, frictionless service for other financial bodies to plug into.
Now I know Stripe has been around since 2011, but to me it represents a company that really gets what next-generation service is all about. It's about ease of interconnection, ease of use, clarity of mission – and above all, transparency. It's focused on making life simpler, more elegant and focuses on the technology and the problem, not the industry – perhaps this is why it succeeds!
When you look into it, the intersection of regulation and technology is a two-way street, a dance between highly skilled, highly trained professionals, organisations and governments.
And when I think about it more broadly, isn't all tech RegTech? All technology and conduct on technological platforms is governed by some form of regulation, making it one of the broadest, most interesting spheres of professional life.
Those RegTech specialists certainly have their work cut out for them!
By Francesco
One of the pleasures of working in the technology sector over a number of years is watching innovation cycles play out. Back in 2007, for example, Microsoft had just released Windows Vista, instantly putting it on shaky ground – especially when you consider that iPhone had just come out. At the same time, the team was consolidating its hold on the gaming market with the Xbox 360, before launching the world-renowned Surface range of laptops a few years later. And while Apple may still be enjoying meteoric success, it also saw its first glimpse of failure with the iWatch.
I see exactly the same thing happening in the banking arena; many banks that I once referred to as 'challengers' are now quite established and don't see themselves as challengers at all! Similarly, many of the established, customer-rich incumbents have risen to the occasion and have been providing very innovative, agile services worthy of a challenger.
One of my favourite banks which defies definition in this way is BBVA. Now technically, BBVA's 'parts' have been around since 1857, but post-merger, the team began a serious push to evolve around a decade ago. Since then, BBVA has kept a laser-focus on elements including customer service, new business models and hiring and training a workforce which is second-to-none – and with developments such as iris recognition and a speedy cloud infrastructure, the team is clearly not afraid to try new things! The results? Well, last time I checked, profits had risen 18% which is 1% higher than rival behemoth Santander.
And these old definitions are doubly unclear, because there have been many cases where incumbents have launched their own challenger offerings, such as Axa and Soon, for example. Similarly, you can't underestimate the value of the trust and brand recognition that incumbents 'own', when many newer challengers are seen as 'just an app' – giving incumbents an instant boost when bringing new products to market. Incumbents also have experience in handling change, because they've been doing it for years – whereas it can be tough for newer challengers without the right backing and advice when things move on; the pace of change can be intimidating!
Now the rule of thumb is still accurate that the bigger the bank, the greater the need for attention to detail. Bigger organisations have a greater 'magnetism' to regulators, largely because they have a greater duty of care to look after more customers. But it can also be extremely tough for the once-agile challengers to keep innovating at the same pace. For example, Clearbank made a splash by being the first new UK clearing bank in over a hundred years, but it will be a tough journey to keep standing out from the crowd after the initial 'big bang'.
That's why, in my mind, I called time on these terms a while ago. Banking innovation is a continuum, not a binary distinction. And as we shuck off the simple divisions, where does that leave us? Well, we're finally starting to see something that I've been excited about – perversely, almost since the dawn of Windows Vista. Collaboration 3.0, where organisations and individuals work together as if they're sat next to each other.
For example, SharePoint has always promised collaboration 3.0, but today Microsoft has finally developed a usable UI with robust collaboration and security process. Slack's integrations and plugins are finally reaching maturity – but it's not just about the tools available. Collaborating executives are also realising that they need to ensure the culture and vision of their companies are similar – or that there are at least commonalities and benefits for both.
We've seen great examples of this in the past – incumbent Barclays saw huge success with collaboration in developing payments service Pingit, because all parties were working together towards a clearly defined and mutually beneficial goal. Other projects have not gone as smoothly!
It's not surprising that we see this conflict and collaboration hitting peaks and troughs; challengers understand the customer and new platforms – and receive investment relatively easily – but they don't always understand the regulation and it can take time to build up customer numbers. 'Established' banks have both of these in spades, and have been through both rough and smooth periods, so they're used to change.
Now, we'll never have completely seamless integration between partners – we're only human, after all – but if we can crawl out of our silos, see the bigger picture and understand what we can gain from each other, then a whole world of possibility opens up.
It is clear to me that we are at the end of the comfortable binary period where we can speak glibly about challengers and incumbents. In fact, we're at the start of a far more exciting time where organisations work together far more efficiently than has previously been possible, at both a technological and human level.
But alongside this excitement sits a very real challenge – whilst the once-aggressive challengers may run the risk of pushing the boundaries too hard, or not enough, incumbents also face a grave threat. In short – failing to collaborate with other players may slow innovation and result in not serving the customer correctly. The rules have changed, and customers are far less patient and loyal than they used to be.
In short, any company not keeping the customer's interests at heart should listen out for a ticking clock.
By Masha
Earlier this month I was at RegTech Rising, conducting a session with Andrew McClelland on how companies can comply with the upcoming General Data Protection Regulation (GDPR), which makes landfall on the 25th May 2018.
There has been a lot of fear, uncertainty and doubt about the regulation, but is GDPR really bad news? One of the things we talked about during the session is the danger of looking at GDPR as another hurdle. In my mind, it's a chance for everyone to stop and look at how customer data is collected and processed. After all, data is quickly reaching parity with people as a company's most important asset, so GDPR gives us a chance to re-evaluate questions like 'what data do we hold?', 'what do we use it for?' and even, 'do we need it?' GDPR is a very sound call to action for everyone to put a value on data and discuss it with the wider business.
And with the countdown clock ticking very loudly, here are my four key takeaways from the session.
1. Legal debate
There are as many opinions on GDPR as there are lawyers – different opinions mean different interpretations. Despite this, there are two things that all brands must remember and stick to. Ensure you don't mix contractual and service messages with sales and marketing messages – these must be separate. You can communicate with a customer in terms of forming a contract as part of a sale, but these can't contain marketing messages. A consumer may have given you a postal address to send a product to, or a mobile number to get delivery updates, but under GDPR you can't market to them using this information. You need to put in place a separate mechanism to get an opt-in to marketing.
You must also ensure you are recording opt-in consent. The challenge for many companies is historic data and how/if opt-in data was collected. Draw a line today and look at how consent is gained. If it's an opt-in action and always has been, you're fine. If you've been vague with wording and tick boxes and opt-out, then you have some concerns you need to address by requesting additional consent.
2. Anonymised data
One of the bigger questions with GDPR is the impact it will have on anonymised data. In the past, personal data was a narrow definition and included data that was personal to you, like a name. GDPR means that digital identifiers are now included in this definition.
This can make life very difficult for marketers – after all, if you don't not know someone's name, email address or phone number, your instinctive reaction might be that it's not personal data. However, based on geo-location data you could say that someone on this street is likely to be this person that bought this product. Staff must be very careful about relying on aggregated data because they could create a pot of accidental personal data that they don't have consent for.
3. Data portability
GDPR gives consumers the right to ask businesses what data they hold about them. Do you know where all this data is kept in the organisation? Data portability is just as important as data transparency. A recent example of the wealth of data companies hold was a report in the Guardian about someone that had requested what data Tinder held on them. The result? 800 pages of their deepest, darkest secrets. GDPR forces organisations to ask themselves 'could we produce something like this, easily?'
After all, once you get a request you have one month to reply, so don't make your life difficult by having all your data in different places throughout the business.
4. Compliance means a change in culture
GDPR compliance needs to be driven by a change of culture and behaviour to raise awareness. It involves looking at how you conduct business and not just your IT security and data retention policies. Data policies should be as well-known as where your nearest fire exits are, especially during induction. This ensures that the intern or a new joiner isn't copying a database onto an unsecured USB stick, for example or the HR team timely deleting CVs and other applicant information.
If you are a public authority, or an organisation carrying out large scale systematic monitoring of individuals (for example, online behaviour tracking) or large-scale data processing, GDPR regulations state that you must appoint a DPO if you don't already have one. The data protection officer must be someone that will stand up to the board and guide the business down the straight and narrow path of GDPR compliance.
Stop, look and pivot
Whilst many view GDPR as a threat, the reality is that this is an opportunity for cultural change and really looking at your business. This isn't another hurdle – this is a chance to stop and look at how you collect and process customer data. And without adding to the fear, uncertainty and doubt, organisations can finally put a value on not getting their houses in order when it comes to data: fines of €10m and upwards could be paid for non-compliance.
By Marcus
Choosing a first job can be a daunting experience for graduates. With little to no experience it can be hard to know exactly what you want to do or what type of company would suit you best, and many can feel under pressure to take a job once an offer has been made. Often in interview processes, the only people graduates get a chance to have an extended conversation with are the interviewers which can make it hard to get a feel for the company and what the working culture will be like. iBe TSE therefore decided to try something a bit different, and run a two week cards and payments academy with the goal of giving candidates a chance to get a genuine feel not just for the company, but also for the type of work that iBe TSE does. At the end of the course the candidates made a much more informed decision about whether consulting at a firm specialising in payments would be a good fit for them, making it very much a two way interview process.
As a relatively recent joiner to iBe TSE myself, I took the opportunity to attend the inaugural academy along with seven recent graduates looking to get their first exposure to the world of consulting. We were a diverse group with nationalities including Nigerian, Italian, and Tunisian, as well as backgrounds ranging from chemical engineering to an ex-athlete. After an introduction from the CEO and an ice breaker session building marshmallow towers, we dived into a crash course of all things payments related with experts in cards, marketing and loyalty and digital innovation flown in from iBe TSE's parent company in Italy. Having worked in a different area of consulting prior to joining iBe TSE, I was treading new ground along with the graduates and was impressed with the wealth of knowledge shared by our Italian colleagues over the first few days of the academy.
From the end of the first week iBe TSE team members ranging from consultant to partner level shared their knowledge and experience on a variety of topics. Sessions included big data & analytics, digital marketing, fraud and much more, showcasing first-hand the type of work we do with a wide range of real world case studies. In addition to our internal speakers, a very insightful question and answer session was arranged with Giorgio Manoni, Head of Europe for Mastercard Advisors. On top of the theory, the payments academy included breakout 'Apprentice style' challenges giving everyone the chance to get out of the office and put new skills into practice. We also worked in pairs to tackle a 'project challenge' which involved researching a pressing issue facing the payments industry, culminating in presentations being delivered on the final day to a panel.
There was depth as well as breadth in the academy, and we had the chance to explore each topic in detail and discuss our ideas as a group. A good example was the fraud management session with iBe TSE Partner Masha Cilliers, who has over 20 years' experience in the payments industry. We learnt how fraud is the biggest challenge to the ever growing ecommerce industry, and how individuals, devices, and data can all be the target of fraudsters. Customers are increasingly using convenient new payment methods with two out of three merchants now either using mobile payments or planning to, however very few have a fraud strategy related to mobile devices. We also discussed how the Internet of Things could open up new opportunities for fraud, as once the 'weakest link' in a network is breached, it could leave other devices vulnerable too. It was not all bad news though, as we looked into innovative technologies such as blockchain, biometrics, and machine learning that could all be powerful tools in the prevention and management of fraud.
Along with the industry insight gained, a valuable aspect of the academy was the candidates being able to spend two weeks around the office meeting people working at all levels within iBe TSE, joining in with after work drinks and pizza lunches on Fridays. They were integrated into the team for the duration of the academy and were able to ask questions about the company, payments, and consulting in general. Feedback received was overwhelmingly positive, with all candidates expressing that they gained valuable insight into the payments industry and a feel for what life is like at a growing consultancy. Personally I found the course to be very enjoyable, and I learned a lot about a new area as well as meeting some interesting people. I would highly recommend next year's academy to any graduates who are looking to test themselves while learning something new, and get a feel for what is like to work in a specialist consultancy for the financial services industry.
If the Cards and Payments Academy is of interest to you, we are now accepting applications for our July 2018 intake.
Please send your CV and Cover letter to: email@example.com to apply for our 2018 Cards and Payments Academy.
By Elaine
Digital is disrupting all industries. Whether in a small way like automating a process, through to huge changes such as Uber and Apple Pay, everything is being touched and changed by the use of new technology. As people start pulling apart the recent snap election, and how the Conservatives went from winning in Copeland in February to losing their majority in June, one of the interesting new elements of the campaign is how digital is now starting to disrupt politics. And it's not just about memes on Facebook.
How campaign teams work together
Traditional campaigns used to be dependent on the people working on them being physically close to each other or at least having a physical base. Running a campaign often meant long nights locked in an office, and volunteering meant you had to turn up to an office before you could do anything. Whilst American campaigns had already embraced technology to move away from this way of working, this was the first campaign where that really started to change here in the UK. In my campaign team we used Slack to organise the core campaign team. For a team that had to get set up fast; needed to make quick decisions and was mostly staffed by people juggling around their day jobs, Slack and platforms like it are brilliant tools.
Mobilising people to get involved has also become much easier. You no longer have to go to a specific place in order to sign up and get involved. Tools such as virtual phone banks can be accessed remotely so the barriers to taking part are much lower.
Raising money
Campaigns aren't cheap. In the UK there is indirect state support in the form of TV air time through party political broadcasts, but no direct state funding. Parties and candidates are therefore dependent on raising money through donations to get anything off the ground.
Digital tools (many borrowed from the US) are now helping campaigns here raise more money than ever before. My team have gone from raising less than £4,000 a year to over £20,000 already in 2017. Using the Nationbuilder platform, we've been able to build engaging fundraising campaigns (#BeersAgainstBrexit a particular favourite) and made it as easy as possible for people to donate online.
A broader feature of this year's election was More United, the pro-Europe; cross-party group put together by Lord Paddy Ashdown after the EU referendum result. They backed 49 candidates from 5 parties in June, and 34 of them got elected. Through only small, online donations raised were distributed across the 49 campaigns. It's a small step, but this could be the beginning of breaking the hold of the unions; large business interests and wealthy individuals on election fundraising. A model like this on a smaller scale, for example for next year's local elections, could be incredibly effective.
Reaching voters
If you had picked up a traditional newspaper during the campaign, you'd have thought that the Conservatives were going to ride home with a huge majority. Many people talk about social media being an "echo chamber", where people seek out like-minded people. This fails to acknowledge the influence people have on each other, especially within friendship groups. A favourite technique in political campaigns is to say "So many people are now switching to X party/candidate in your area". Now we can see how many people in our social circles and local area, thanks to the sharing of memes and stories on platforms such as Facebook. Traditional campaigns would take a long time and a lot of money to appear to be building momentum. Hours and hours are spent trying to get the best sights for posters; delivering as many leaflets as possible and trying to get attention from the traditional media. Running an engaging social media campaign in the way the Labour party did, can help build the perception that your campaign is going places, which is often then a self-fulfilling prophecy.
The missing piece of the puzzle
As many people in industries embracing digital know, one of the keys to unlocking its potential is data. It's clear from this election that still none of the major political parties have cracked this. The Tories massively over-estimated how many seats they'd win, whilst Labour massively under-estimated. The only people who came close to getting it right was YouGov, with a poll that was dismissed as an outlier. Why did YouGov get it right? They have a huge number of data points, and because they poll on issues other than politics outside of election time, they have a very rich picture of demographics which allows them to predict behaviour.
Political parties have access to MOSAIC – the same data modelling used by retail industries to target messages and identify likely customers. Things may change even more significantly if they manage to leverage it as much as the major retailers have.
This election held many surprises, and the implications will be felt for a long time to come. Digital is starting to have a significant impact on how politics is done in the UK, and in more ways than just advertising on social media. In the background, the barriers to setting up a campaign have gotten much lower, and groups like More United have great potential to begin having an even more significant impact on results as their model breaks traditional fundraising methods.
Like in many other industries that have been disrupted by digital, the party that properly embraces the new way of doing things will likely gain the most in future.
Elaine Bagshaw ran for Parliament in Poplar & Limehouse for the Liberal Democrats in this year's snap general election. She's been a supporter of the party for over 12 years and ran the youth and student wing from 2008 to 2010. She's currently a member of the party's Federal Board, which sets the strategy and oversees the party's activity. Elaine is a full-time Senior Consultant for iBe TSE alongside volunteering for the party.
By Francesco
Thanks for joining us – either on the evening or in this whistle-stop tour of the topics we covered. I'd like to thank all of our speakers, as well as our own events team and the team at the Tanner Warehouse – see you for the next one!
By Natalia
This month's 50th celebration of the first ATM highlights an incredible milestone and crucial turning point for the financial sector. But more than anything, it is a reason to reflect on the tremendous overturn it means in terms of payment. With an accelerating transition from cash to card and an increase in high-tech devices, could this transition potentially erase the need for ATMs once and for all? Or will innovation be key. Just imagine being able to make your ASOS returns at an ATM and getting the refund as cash back instantly?
The ATM is seen as a distinct key component of banking, one that rarely changes and operates independent of online and mobile banking. For many consumers, the typical cash dispenser has become a daily element of their routine or environment. In reality, the ATM is at the heart of wider financial industry innovation, influencing changes in technology in the banking sector for the past 50 years. ATMs are showing increasing signs that their functionality is not limited to issuing cash. ATMs have even been seen to issue tickets,stamps and provide the option to pay in cheques. By opening the first ATM, the UK played a crucial role in opening the doors to technological advancement in banking.
The concept of an ATM is efficient and simple. Integration of additional functions and superior security measures could increase adaptability and strengthen authentication processes. In Japan finger vein scanners have been built in ATMs allowing a more secure transaction. Meanwhile, ApplePay's secure biometric authentication process and built in iPhone features such as "Find my iPhone" gave way for increased protection from fraud. PIN pads and bank notes are being seen as less secure when compared to new payment innovations. Smarter technology and biometric security could eliminate need for PIN pads and instead introduce more secure and versatile cash withdrawals.
Unlike the UK, other countries are also fueling continuous uninterrupted cash flow via ATMs. By allowing customers to deposit cash into the machines, ATMs have to rely less on consistent upholding of cash supply and thus avoid the tedious process of having to queue in the bank to deposit £200 for those new shoes you (definitely) cannot afford. Reinventing ATMs means going beyond simply issuing cash. After seeing $300 wifi-enabled juicers on the market, why is it that juicers have seen more developments than ATMs have?
After closure of many UK branches, reluctance to reform ATM machines can potentially create a bigger void between banks and customers. Service providers are able to take advantage of this, Amazon being a prime example ( get it?) with it's Prime Reload Program offering 2% cashback to users when they load money on to their Amazon balance. Service providers are now gaining more and more consumer engagement, allowing them to gather data on spending habits and secure consumer trust. With a decrease in popularity in cash and ATM machines, banks could end up more and more out of sync of customer needs and wishes.
Cash is still staying strong despite a wave of new payment methods. Cash withdrawals amounted to an average of £192bn each year over the last 10 years according to Payments UK and are not expected to diminish anytime soon. This itself acknowledges the strong presence ATMs have and continue to have in the future. With a large and highly used ATM network across most countries and in face of big banks scaling down the number of branches, the ATM secures itself as a key touchpoint between the customer and the bank
ATMs will continue to secure their position as a crucial and vital part of banking services if banks maintain a focus on customer experience, innovation and usability. With an existing strong infrastructure and high usability, ATMs have secured themselves as one of the strongest innovations yet. This is due to one reason most of all: the ATM addressed, recognized and acted on customer needs. By prioritizing the customer, one of the greatest innovations in the banking sector was born. The lasting success of the ATM is still celebrated as we pass its 50th anniversary.
By Francesco
During one of our recent breakfast briefings, we discussed the potential for chatbots and artificial intelligence in areas such as insurance and trading. It's a complex and fascinating area and I've spent a lot of time talking to our head of Big Data, David Burke, about it.
One of the biggest challenges we've discussed is that machines are good with rules. This is perhaps best illustrated by Google's AI victory against the reigning 'Go' champion, Lee Sedol. However, applying this to real life - let alone the financial sector - is somewhat harder.
After all, the inherent contradiction in financial markets is that they both do and don't follow rules. Machines are generally able to spot trends and spread risk, selecting stable indices for investment and giving a reasonably solid performance. They can understand extremely large volumes of data and help to analyse it, showing useful patterns of risk and reward.
However, a large part of investing in particular is understanding and bringing together wider market conditions, knowledge and intuition. To some extent, the financial performance of companies depends on understanding rational and irrational human behaviour, because these companies are made up of people. Of course, as I said, this behaviour is only part of the puzzle, so I do see robots and AI having a significant role in both retail banking and capital markets – and it's a complementary role.
After all, we've all seen the high-profile stories of traders who trusted their intuition and lost millions. And of course, AI can be wrong as well, of course. A badly written programme is often extremely dangerous - the Huffington Post reminded me of a case where stock markets crashed and then recovered in a mere 36 minutes because of software trading glitches.
Similarly, companies may spend a long time creating complex algorithms only to find that humans do it better. A paper by Stian Mikelsen (NB. Links to pdf) on exactly this topic concluded that "No trading system was able to outperform the benchmark when using transaction costs". For the complex systems of trading, I still see a very strong role for humans, but it's one where human intuition and experience is supported and supplemented by machine intelligence.
However, for retail banking, I see a much more straightforward future. Consumers do tend to be creatures of habit, making spending analysis and prediction far easier to map than the ups and downs of the stock market. One of the main uses we foresee for machine intelligence in retail banking is predicting the impact of purchases or changed habits on spending goals – for example, the impact of an extra Nando's meal each week on your holiday plans or savings for a deposit on a house.
Of course, it's not quite this simple, but the relatively straightforward parameters of managing consumer spending do lend themselves better to machine learning than the complexities of the stock market – but I would be happy to be proved wrong!
By Francesco
We've all been there, right? Regretting a beer-induced purchase after a night out, whether it's a round of shots for your friends, vintage Star Wars toys, 30 pairs of flip-flops, a caravan or perhaps a live chicken.
You may think that sounds ridiculous, but data from iBe TSE found that half of UK drinkers aged 18-34 have made a purchased when drunk, and regretted it the next day. Those items listed above are genuine purchases made by respondents. I too have been the victim of a drunken purchase. Being a lifelong AS Roma fan, I was influenced by my Juventus supporting friends into buying a jersey, much to my disgust the next day when I opened the package.
Thankfully, I'm not alone. 34% of Londoners – of all ages – admit that they have drunk-bought items. In fact, 43% of the population in East Anglia admitted that they have bought whilst drunk, and this region sees the lowest incidence of drunk purchasing, so wherever you are, it's not only possible but statistically likely that someone near you has drunk-bought at some stage.
These incidents got us all thinking at iBe TSE about ways in which we can use payment, wearables and mobile technology to help solve this problem.
A couple of weeks ago we launched DrnkPay, an app which connects your credit and debit cards with a breathalyser or biosensor wearable to curb inebriated spending. Each payment you make is authenticated to ensure users are under their self-imposed limit when making a purchase. When you've had too much, the app will limit certain purchases.
DrnkPay is just one way that we can use technology to influence our spending habits. Our lifestyles are changing and technology is adapting to make things more convenient and easier to manage. The future for payments will be driven by consumer lifestyles, which is something we've been dwelling on for some time at iBe.
We've seen a lot of this in the past. For example, a new iOS and Android app we're developing uses AR to engage consumers through discovering 'waypoints' at nearby participating shops. The idea is that you generate points that you can then convert into money off vouchers with retailers. This gives a new spin on gamification and is a fun way to engage customers and get them to walk into your shop and spend money, using tried and tested principles deployed by Pokémon Go.
But it's not just retail and shopping that we revolutionise, it's also the world of hospitality.
Technology payments app PynGo makes paying for things in restaurants easier. It allows you to pay whenever you want, check your bill in real time, split the bill with friends and store and manage transactions. PynGo also doubles as a tool to help find and rate restaurants and receive personalised offers.
PynGo improves your dining experience by getting rid of the faff. There's no more waiting for the bill then waiting for the card machine from the member of staff serving you, who always seems to disappear just when you need them most. And imagine a meal out with friends and family that doesn't descend into a polite argument about who pays for what on the bill. It also becomes a valuable tool for restaurants where they can create loyalty through the app with personalised offers and help to handle more covers (as they say in the trade) than they could in the past.
So, whilst we may come to regret our purchases (I now use the Juventus shirt to wash my car) we can at least marvel at how a lifestyle-led revolution in payments is helping to change the way we behave in a positive way, without causing us an inconvenience.
If you're interested in learning more about how our lifestyles are driving a revolution in payments, iBe TSE is hosting an event during London Tech Week that explores what is possible when our smart devices are paired with payment systems. Join us on Thursday 15th June at 6pm for an AI brewed beer (really) – registration is open now.
By Francesco
In Star Trek IV: The Voyage Home, the crew of the Enterprise travel back in time to the present day. Confronted by a computer, the engineer Scotty talks to it and expects it to respond. When it doesn't, he picks up the mouse, imagining it to be a microphone – but there's no response.
Of course, we're nearing the time when we'll be able to laugh along with this, talking to our computers freely rather than clicking mice or tapping smartphone screens.
And with the recent news that Amazon sold 9m Echo units last year, the speech recognition revolution is well and truly upon us. I don't believe that it's just a fad; to me, the hesitation feels like the same phenomenon we experienced around contactless; a lack of trust and experience. It's not been helped by the mainstream media highlighting privacy concerns with Alexa, as well as the inevitable mess-up of people ordering a truckload of toilet roll instead of a pack. Now whilst my new puppy Pablito would love to play with this much toilet roll, it's really no different to 'accidentally' ordering shopping online whilst drunk – you can't blame the tech (although did I mention that we have an app for that?).
It's not just our favourite online bookstore which is in this space: Google also launched its rival, Google Home in April 2017 – and even Apple's Siri and Microsoft's Cortana could be considered rivals. All of these systems use smart speech recognition to help people in their daily lives – and I've even seen articles suggesting that these technologies are bringing talking back! I for one am glad of this – sometimes I have found myself sending a Slack message to someone across the room, when I could have just spoken to them in person.
Perhaps more importantly, what does this mean for payments? Well, it's destroying another barrier to entry and again I'd compare this to the contactless revolution. Contactless meant that could just drop into a shop and spend £4.50 without having any coins in your wallet or purse. Voice commands make it easy to say 'Alexa, I had too much beer last night, order me a big greasy pizza right now' rather than having to find your phone underneath the duvet, log onto JustEat or HungryHouse and then struggle to order a pizza, having forgotten the CVC code on your debit card.
Amazon is a company that understands this principle well; Amazon Prime's next-day delivery is another mechanic which removes the barrier to online shopping. If you're going to get your order tomorrow, then why step outside when you can have what you want within 24 hours and probably for a lower price? I know that Amazon's profits have been slim, but it's a company which really understands lowering barriers to buying. Come to think of it, even Kindle fits into this bracket!
I'm sure that people will continue to find handy applications for this technology: I recently read a story about a journalist carrying out home improvements and asking Alexa about DIY techniques on the fly, which is incredibly useful when you don't have any free hands! This development also has the potential to improve the intelligence held by retailers – if consumers are asking about DIY projects, a savvy retailer working with Amazon or Google could offer a discount on home improvement goods. This was a point raised by our own Piergiorgio Petrolo during our annual Digital Loyalty Day, where issuers, processors and marketing teams all came together to discuss a number of industry challenges. Piergiorio raised the great point that building an intelligent, analytics-based approach will be far more likely to build a valuable relationship with consumers.
This combination of technologies paints a very rosy picture of the future; retailers who have actionable intelligence at their fingertips, providing a personalised service to consumers, who can in turn simply speak to get something done. It's very close to being the pinnacle of easy-to-use technology - until we can order pizza with our thoughts alone, this is truly the final frontier.
By Francesco
Start with the customer and work backwards. It's an approach famously championed by Steve Jobs and Jeff Bezos. But when it comes to innovation, it's the only approach that works. Anything less than 100% customer focus would just be a technology showcase which nobody asked for, wants or needs.
Take the proliferation of Internet of Things (IoT) devices with questionable usefulness. Do we really need a $400 wifi-enabled juicer? Especially when you can squeeze the juice packs by hand? And was the market crying out for a smart wine bottle where consumers have to constantly charge their beverage dispensers? I think not.
So rather than a technology-first approach to IoT (where you can proudly say: "We Put A Chip In It"), we're now seeing a welcome return to empathic design. This user-centered approach means we start by finding solutions to real problems that real customers have on a regular basis.
A good example of IoT that solves a genuine problem is 3Rings. It's a smart plug which is installed in aging loved ones' homes. The plug, which is connected to the internet, knows that your elderly loved one always puts her kettle on between 9:30 and 10:30 in the morning. If she fails to do so one day, it sends the family members an SMS so they can check she's okay.
This niche example shows what's possible if you think of about the customer and work backwards. That's exactly what we need in payments: a shift change where we look at customer pain points, rather than look at what tech we can roll out.
We decided to identify our own specific consumer pain point, then looked at how our experience in payments could help. The problem we came across was something many of us have experienced: controlling spending on a night out.
Strangely, it's a problem that's been created by payments being too good. Think about it, the proliferation of contactless payments via our cards and mobiles (e.g. Apple Pay) means it's never been easier to pay for items. This can sometimes lead to overspending, especially when you've had too much to drink... And after talking to customers, we realised overspending when drunk was a real issue. In fact, further research revealed half of UK drinking age millennials have spent money while under the influence and regretted it. That's why we decided to do something about it.
Introducing DrnkPay, the world's first mobile payments system which stops people overspending when they're drunk.
Launched today, it's an app that connects the user's credit and debit cards to an internet connected breathalyser or biosensor wearable so it knows how much they've drunk and limits certain purchases, if they've had too much. Once you've hit your self-imposed limit, the app will lock your card and prevent you making further payments. It's up to you whether to block all payments, or just certain 'weak points', such as takeaways, clubs, or that flight that seems like such a great idea at 4am.
Most people laugh when we tell them about DrnkPay for the first time. However, it quickly dawns on them that this is an innovation which could come in pretty handy. If not for them, people they know who are partial to a few G&Ts.
Seeing people's faces when they understand the power technology has in solving real pain points is magical. It's something that's only possible by starting with the customer and working back towards the technology.
It's time to forge a new era of banking and payments, forget the tech and focus on the customer.
If you're interested in finding out more, come and join us for a drink at London Tech Week on Thursday 15 June. You can register for the free event here
By Francesco
As we approach the summer, we've been casting our minds back to a weighty matter which took up a lot of our time last year.
I'm not talking about the new financial year or the changing regulatory environment.
I'm talking about Pokemon Go and augmented reality. Twelve months ago, you could hardly walk down a London street without bumping into someone flicking their smartphone screen in an effort to catch Pikachu or Bulbasaur.
Now Pokemon Go's time may be over, but the future of Augmented Reality is still looking bright. Of course, it wasn't always this rosy; Google Glass was a flash in the pan that quickly evaporated under a sea of bad publicity.
Thankfully, today, one year on from Pokemon Go, with the allure of Snapchat Spectacles, AR is seeing a tentative resurgence. I'm keenly aware that Snapchat Specs have only one function – recording short snaps to share on the social platform, but the internet has been rife with rumours about the AR integration into the iPhone 8, something we're very much looking forward to.
After all, many retailers have seen great success with interactivity in-store, and AR can only improve this. Burberry's flagship store on Regent St features full-length screens which can show new and related products – and also double as mirrors at a pinch! Not only does this wow consumers and increase footfall instore, but significantly increases upsell and cross-sell opportunities for brands.
So what does all this mean for payments?
In short, I believe that we may still see a heads-up display for spending. Imagine being able to simply look at an item in-store, connecting to similar stores through your smartphone and seeing competitive prices in real-time, along with location, stock or ordering information. As a consumer, you'd instantly be able to compare nearby stores, save money – or save yourself a walk!
Similarly, being able to order an item from a rival store online – or order a garment in a size which is unavailable in-store – simply by looking at it, has great potential for AR and smart headsets.
Finally, this kind of heads-up display may also help consumers manage their spending better. By connecting to bank accounts and spending management apps, AR apps can display what impact purchases may have on your savings plan. Imagine holding up a new suit and having your AR interface look for alternative sizes and prices…, but then being informed of the impact that this purchase will have on your holiday savings.
Now, I'm sure most of us wouldn't welcome being told instead of a long break on Lake Como, we'd have to spend the summer in Bognor, but if it helps people to manage their spending better, then maybe we'd all be better off.
And with AR apps and smart glasses coming down in price every day – many VR headsets are now at the sub-£30 point – then the future is definitely bright for AR and payments.
By Masha
Thank you to those who joined the panel discussion on payment security and fraud at Payments International in London last week. It was a very lively discussion which touched upon several important topics, hence I thought it best to note these down and to distribute as a takeaway.
The main challenges that were discussed:
· Fraud is an everyday occurrence now and no longer an exception or remote possibility
· There are a growing number of security breaches which affect the bottom line
· Such breaches impact the reputation of financial institutions and can cause irreparable damage
· How do you plan for security in a rapidly growing company, how do you make it scalable and dynamic?
· Banks need to skill up and learn from the private sector. What's the best foot forward?
· What about the valuable B2B sector which is strongly heading into ecommerce?
· And finally, the usual question around build/buy/partner for security features
It was proposed that consumers generally have universal needs that centre on spend, convenience and commercial benefit. Three new areas of technology that can address these needs:
1. Artificial Intelligence, also comprising behavioural analysis and deep learning
2. Biometrics, not just limited to fingerprint, but face biometrics and so on
3. Blockchain infrastructure as well as a more futuristic quantum encryption
Authentication was sighted as a growing trend, fuelled by new regulation and supported by biometrics and a broad host of providers and innovators in that sector. Better engagement with customers via specific and appropriate rules should become easier with increased availability and use of AI and with corporate and banking sectors adopting the private sector innovation and technologies. There was some debate around the usability of Blockchain infrastructure for securing financial transactions and we had a few varying and opposing opinions! Lively debate indeed.
When it came to looking at banks and what they are doing around authentication, there was a discussion around the need for contextual authentication, so that we avoid the current scenario whereby consumers are asked for the same level of authentication whether it's for a £20 transaction or £20,000 transaction. Many banks at the table talked about their approach and some interesting examples were shared: such as putting in rules and limits, building a dynamic customer profile and basing authentication on the profile validity e.g. if a new pc is used ask for an additional authentication, if transaction is different from past history check more factors including a call to the customer and so on. We also debated whether authentication could and should be escalated depending on the type of transaction e.g. lower for payment and higher for wire transfer or even setting a range of new parameters.
The panel agreed that there seems to be a trade-off between customer experience and security and whilst frictionless transactions may be suitable for some situations (small value consumer payments) they are not fit for others (corporate wire transfers or private banking investments). In fact, in some cases, governance and controls need to be exercised to limit fraud and abuse as well as to give customers increased sense of security.
Mobile commerce was identified as having high fraud potential but banks at the table held that they see more fraud in the online environment. It was granted that due to the scale of mobile still being significantly lower than online, it is likely that this trend may yet change.
In summary, the panellists and audience agreed that there is no one size fits all perfect solution yet, and companies need to take a balanced approach which considers the specific needs of the organisation and its clients. What is right for a retail bank may not be right for private banking and what is right for the private sector may not suit all corporate customers. However, there are technologies and best practices that indeed can and must be shared within the sectors and cross sector. Ultimately, cyber security and fraud management should be addressed across all systems and processes rather than just specific areas as fraudsters themselves tend to take a very broad view not limiting the attacks just to one area but exploiting all possible weaknesses. It is also important to keep in mind the dynamic aspect of fraud and ensure that whichever systems you start using can easily adapt to suit new trends.
By Francesco
If queuing ever becomes an Olympic sport, there's little doubt that we'd take gold, but a new technology is threatening this as 'legal shoplifting' comes into fashion.
I see raised eyebrows…let me explain!
The 'holy grail' of customer experiences for many retailers is a queue-free experience that minimises the annoyance and frustration of having to wait to pay for your goods.
The shopping experience without queues is something that Amazon is seeking to do with its 'Amazon Go' concept, which has the potential to completely rewrite the world of payments and shopping experience with an entirely location-based payments system.
The concept of Amazon Go is a simple one. You walk into a store, grab what you need and then simply walk out – legal shoplifting if you will. This grab-and-go idea has been the dream for the retailer for a while and has always been 'a few years away', but has never quite come to fruition.
However, Amazon has made grab-and-go possible using a combination of technologies, including apps and location-based tracking. It's still in the early stages - Amazon seems to be struggling with tracking more than 20 people in its store, at which point the technology seems to just give up. The technology is also struggling to identify when shoppers do that annoying thing of grabbing a pack of pasta from the shelf then putting it back in the frozen aisle, or dumping them in a pile at the till. Whilst problematic, Amazon is clearly making huge strides in tracking more than one person in store, showing the potential is there, but it does need to scale up.
Of course, consumers won't just want to go to an Amazon Go store. They might have other grocery or fashion stores close to them that they prefer, or are loyal to. So it's entirely possible that Amazon has a plan to sell licenses for Go's location-based payments concept once it's proven to work, providing retailers with a next-generation technology to improve the customer experience and reduce theft. As an added incentive, Amazon could offer discounts to merchants that sign up to the Amazon Pay payments system, allowing shoppers to simply use their Amazon account to pay for the items they buy, with Amazon acting as the payment processor and generating more revenue.
The potential of this technology is huge. Imagine a world without queues and without the stress of the shopping. Your trip to Oxford Street suddenly becomes that much more palatable. No longer will you be waiting 15 minutes to pay for your clothes in Selfridges, instead you simply leave. Sirens won't sound and you won't be chased down the street by a security guard.
By Mo
Digital technologies are shaping the way we work, shop, travel, socialise and even manage our finances. It therefore only follows that the ways we pay for products and services are also changing. We have multiple digital payment platforms at our fingertips as an alternative to traditional cash and cheque payments – Apple pay, contactless and Paypal to mention a popular few.
Paypal's annual payment volumes almost doubled from $185B to $354B from the years 2013 – 20162. The total value of transactions made using contactless cards in the UK in May 2014 was valued at £126.7 million – a 189% increase since May 2013. Comparing this to May 2015 (£515.9 million) and 2016 (£1.874 billion) we can see a year on year increase of more than 250%.1,3 The payment industry – including retail and corporate banking - is under constant pressure to respond to changing consumer demands and digital lifestyle preferences.
In the UK, the government is supporting several initiatives to help the digital consumer handle finances securely and conveniently. One regulation which is helping to drive innovation across the board is PSD2. The European payments regulation was announced in January 2016. This announcement followed the review of the original Payment Services Directive (PSD), setting numerous new legal requirements for banks and payment service providers (PSPs) to be implemented by January 2018. The aim is to enhance security and customer experience while increasing the competition in the industry and introduce new innovative payment services, technologies and platforms. PSD2 along with Application Programming Interface (API) standards and the Interchange Fee Regulation (IFR) are some of the regulatory banking changes affecting both retail and investment banking while contributing to boosting innovation in the sector.
There are two core requirements of PSD2; one is for banks to grant third-party providers access to a customer's online account and payment services. This rule sets a standard for banks or other account-holding payment service providers (PSPs) to facilitate secure access via application programming interfaces (APIs). The other is that all institutions must strengthen authentication and security on digital platforms, that is, when customers are accessing their accounts online, paying for products and services online or other payment related activities carried out via remote channels that could be flagged as fraud.
The regulation allows financial institutions and payment service providers to seize opportunities for customer ownership and create alternative revenue streams through product innovation and third party co-operation. Digital only banks such as Atom have created their offering with the regulation in mind. We are also seeing a rise in market places for financial services products and disintermediated banking models which incorporate plug and play fintech partners to allow new technologies to be integrated into existing infrastructure. It's clear that only banks and payment institutions that have a clear digital strategy and roadmap will succeed in developing relationships and keeping customers on their own banking platforms!
By Francesco
For just over ten years, HSBC ran adverts with the strapline 'The World's Local Bank' – and despite retracting the slogan around 2011, it has continued to put itself forward as a globally-fluent banking organisation in media. I rather liked the advert a few years ago showing the girl selling lemonade in multiple currencies, speaking different languages, because it expresses a very common problem in a very simple fashion.
For example, a few years ago, I came across a large IT company which had its research and development office in Japan and its sales operations near San Francisco. In terms of skills and knowledge, this made complete sense. In terms of communication and the running of the business, it was a complete disaster! Of course, eventually both parts of the business ran cultural awareness training sessions, and after a few months, things ran smoothly again.
I've also come across this at a very personal level. As a self-confessed emphatic, gesticulatory Italian, I am keenly aware that this can be a mismatch for some more, shall we say, reserved financial services professionals.
This localisation problem is exactly what merchants face when they start to expand. Many grow, and see expansion to new countries or vertical markets as the logical next step – but it can be tough. After all, regulations around things like gambling, gaming and pharmaceuticals is one thing, but local customs and views can also have a significant impact.
It's not just small, expanding merchants who have problems with this; in 2013, Tesco pulled out of the US market, after significantly under-estimating the competition from brands like Walmart. Marks and Spencer, and Sainsbury's have had similar experiences, so there's a very real problem here. Many merchants may think to themselves 'if Tesco can't get it right, what chance do I have?'
This is where large acquirers can help. Organisations like HSBC may shy away from labelling themselves as a truly 'global' brand, but to some extent, it doesn't matter. As long as the team has experience in the right market, it doesn't matter if an acquirer has truly global coverage. And obviously, as an acquiring bank, more money flowing in from the merchant helps you!
Now, I've shied away from saying the 'B-word' until now, but I really don't see Brexit as a barrier to this process. It'll make expansion and European trade tougher, but international trade isn't just going to shut up shop overnight. In fact, given the ambiguity around working with Europe, many merchants may simply shrug and look further afield to the 'relative' simplicity of selling to non-European countries until the problems settle down.
So please consider this to be my clarion call for the payments ecosystem to come together and be supportive. Together we can conquer difficult markets, whatever the conditions – and when our ecosystem is so closely tied together, everyone benefits from more trade.
I think I'll start my campaign with a nice cold lemonade. Paid for with bitcoin, of course.
By Francesco
It's not an uncommon complaint. Many retailers have reams of loyalty data, only for the analytics to tell them that their average customer spends £52.68 and has a 15% chance of being called Dave.
It wasn't always like this. Once upon a time, loyalty was big business for retailers. Tesco's Clubcard tore up the rulebook on what you did and didn't know about your customers. It's been vastly over-quoted, but I always remember when the chairman of Tesco at the time said "What scares me about this is that you know more about my customers after three months than I know after 30 years."
But fast-forward to today and loyalty has fallen out of favour. In fact, big data, fast data – whatever kind of label you want to put on analytics – has become a bit unfashionable.
In many ways, I understand. I don't want big data. I don't want fast data. I want knowledge. I want competitor insight. I want something which will give me the edge and make my business successful.
And when – as a retailer – you have to combine in-store loyalty data with data from online purchasing, customer service data, complaints data, marketing data and data from your app, it's easy to get bogged down in integrations and lose sight of the ultimate goal.
The problem is that retailers can only analyse their own customer silos. Payment processors are far better positioned to build platforms and crunch data at scale, becoming the new analytics agony aunt to solve customer knowledge woes.
Processors have mountains of data at hand which is usually unused by retailers, and can give so much more insight than a typical loyalty scheme can. Processors have access to information about shoppers who don't hold Clubcards, for example, because they can see all purchasing data that flows through the store.
Payment processors can also help retailers plan their next store, and compare retail outlet performance to the competition, providing insight on SKUs which are underperforming, as well as demographic and geographic data – all of which is vital in helping retailers to tailor how they sell, and to whom.
This could give retailers the elusive single view of the store and customers that many crave.
With that single view of the store, retailers could also drill down into peaks and drops in performance, compared to competitors in a local area. So, a Pret outlet could look at the local Eat outlet and see how they're performing against each other every day, week, month and year. Who are their customers and where are they coming from? Are they experiencing boosts in performance and if so, why is that? Do they have a promotion running or is it something else?
It also opens the door to do more targeted offers for all customers at specific locations to boost footfall, instead of just loyalty members. Processors can help to identify pockets of money that competitors are feeding from, as well as identify areas that are untapped areas for outlets.
In my mind, that's how payment processors can truly stand out in the coming years. If just one processor can bring the puzzle together and help retailers to gain useful, insightful knowledge, then not only can they drive retailer profits, but they'll also help themselves in the process.
And that'll mean no more embarrassing letters to the problem pages.
By Sonali
This is how our iBe Disruptors breakfast at the Royal Exchange in London started this morning, looking at how machine learning is affecting a diverse range of industries, from brewing to financial services. Hew Leith from 10x, on behalf of IntelligentX, kicked us off by showing us how machine learning can improve beer creation.
The process does need some human intervention; consumers drink the beer then give feedback on taste and other characteristics such as fizziness. This aggregate feedback is processed by a variety of algorithms and moderated by a human supervisor to make the final recipe. The system does add a final touch, using 'wild cards' to prevent creating a middle of the road beer which satisfies everyone and delights no-one. The robots recently added grapefruit to one of the brews, for example.
Something else that I found fascinating during the session was the concept of data-efficient learning, which one of our fintech partners, Alessandro Vitale of Conversate talked about. A lot of the attention on machine learning has been on deep learning, parsing thousands and thousands of scenarios and gradually fine-tuning behaviour. However, when you have limited data you have to take another approach – IntelligentX, for example, simply can't produce millions of bottles of beer in the world to find the perfect combination, so the robots have to learn efficiently. Similarly, Conversate banking chatbots have to learn quickly from short, sharp interactions with consumers looking for very specific information, such as their bank balance.
This is surprisingly difficult - consumers tend to ask for something as simple as their bank balance in a large number of ways. However, machines offering financial advice will be something which comes relatively naturally. Our very own Head of Advanced Analytics at iBe TSE, Vittorio Carlei, was our last speaker, and examined how AI – if programmed correctly – can easily assimilate large amounts of information and avoid human bias such as emotional connection with brands or gut feeling, which can be arguably harmful when it comes to making risky investment decisions.
Of course, this is a very specific application: we can easily see this kind of AI making strong portfolio recommendations when it comes to straightforward tracker funds. Once customers set risk boundaries and any ethical considerations, it is straightforward for machine learning to select funds fitting this profile and make recommendations. This has the clear potential to be superior to many of the advisors who are affected by emotion, gut feel and off-days!
However, it does also run the risk of creating the equivalent of the generic beer that the IntelligentX team are so wary of. Tracker funds can be profitable, but also represent little genuine selection skill in terms of wealth management – and perhaps more importantly, relatively smaller gains. There is a cornucopia of completely unquantifiable factors which affect the success or failure of a company, such as culture, leadership, past experience and many, many global macroeconomic factors which also contribute. AI is yet to learn and use these factors.
This thought put my mind at rest to some degree. Like most people, I'm excited and terrified by the prospect of AI in equal measure. But the genuine opportunities in the financial sector, the big wins, will still be found by humans who can somehow quantify the unquantifiable, and perhaps more importantly, programme the AIs in question!
Now if you'll excuse me, I think my robot butler has arrived with a beer.
By Charlie
Fraud is nothing new. Yet the era of digital, where a rapidly growing number of transactions take place online, where payments are completed with only a tap and both personal and corporate information is stored in the cloud, has created new vulnerabilities all accelerating the rise of fraud. As a result, 86% of fraud now takes place online[1], debit cards alone over the last three years have experienced a rise in fraudulent activity of 400%[2] and total costs are soaring past £6000 per second[3]. Combine this with the development in real time payments, where settlements are made almost instantly, means banks have more to handle in a window a fraction of the size.
Existing rule based systems raise transactions for inspection based on a number of pre-determined criteria. The aggregation of these scores combined with the value of the transaction determine the priority.[4] However, the lack of flexibility in the system is unable to compete with agility of fraudsters who are continuously discovering these safeguards and re-routing their activity around them. This means continuous supervision by experts with very backward orientated methods following an audit trail to unravel complex and opportunistic schemes. Furthermore, whilst rules based systems have mixed success in siphoning off the fraudsters, they at the same time create numerous false positives, cases where genuine customers and transactions are mistakenly banned. Consequently this creates three further predicaments: firstly it creates a frustrated customer base who can find themselves cut off from their funds when they need them most, secondly false positives clog up the "investigation bandwidth" increasing the response rate of the bank[5], finally it causes financial cost amounting to the billions that is completely unrelated to the fraud in hand.
Can artificial intelligence (AI) then provide the answer? For many the concept and use of AI still remains a novelty, the frustrations of using Siri or similar are unlikely to have won many of us over. In the banking sphere, whilst the world of virtual branches served by holographic attendants remains in its infancy, machine learning has more practical current uses. Stripped back to its fundamentals machine learning is simply a form of artificial intelligence that enables computers to continuously learn without having to be explicitly programmed.[6] Summed up here it may sound simple but is extremely valuable, providing enhanced analysis and hidden insights without being told where to look. When applied to fraud, machine learning does not face the same rigidities as its predecessor. Instead machine learning looks for abnormalities rather than fraud outright. Conducting itself at both a granular and aggregate it is able to better understand individual transactions in relation to customers' behaviour and purchasing history. With machine learning completing much of the heavy lifting cases are only raised for human input where real value will be added. In addition, because machine learning operates in real time, it is far more capable of reacting to the agility of fraudsters, intercepting fraudulent transactions even when instantaneous settlements are becoming more prevalent and building its knowledge from individual cases before they develop into mass attacks. All of this saves money, time and a frustrated customer base. What's more it actually works, with technology progressive banks such as Monzo seeing fraud rates drop sixteen fold and false positives drop by a third.[7]
By no means does this make fraud a thing of the past however. Machine learning itself still has steps to climb. Vitally, machine learning is only as good as the data it relies on, whilst quality is important it is the volume of data that leads machine learning to thrive.[8] Linking up data sets will become increasingly powerful. Those not considered traditional financial service providers, such as supermarkets, retailers who are broadening their offering in this market may have an edge as they are able to capitalise on their huge datasets on specific consumer's patterns. Nonetheless banks should look to make partnerships, allowing them to link flight data with card country use or IP addresses with mobile location data to authenticate online purchases.
The adoption of machine learning to tackle fraud seems an obvious one however going beyond that to work on creating larger, more valuable, more productive datasets will make the possibilities endless. Today the velocity of commerce when combined with the agility, acceleration and sheer scale of fraud would not only benefit from but demands that banks step up their detection game.
[1] Cifas' 2015 Fraudscape Report
[2] http://www.networkworld.com/article/2991925/security/small-community-banks-using-machine-learning-to-reduce-fraud.html
[3] http://www.experian.co.uk/blogs/latest-thinking/fraud-costs-uk-economy-193-billion-year-equating-6000-lost-per-second-every-day/
[4] https://www.wipro.com/documents/comparative-analysis-of-machine-learning-techniques-for-detecting-insurance-claims-fraud.pdf
[5] http://www.bobsguide.com/guide/news/2015/Oct/14/how-does-machine-learning-improve-fraud-detection-and-prevention/#
[6] http://whatis.techtarget.com/definition/machine-learning
[7] https://monzo.com/blog/2017/02/03/fighting-fraud-with-machine-learning/
[8] Arthur (2016) Machines can learn how to spot fraud quicker than people, Raconteur
By Francisco
A report published this summer by the Competition & Markets Authority (CMA) has the potential of stirring up the banking industry in the UK. With the objective of improving the customers' experience and choice, the competition watchdog is opening the door to a concept that can change the way we bank today: open banking.
Smartphones have already changed banking. Mobile apps now allow customers to manage their finances without stepping into a branch or even logging in to online banking. However, customers still struggle when it comes to switching accounts or simply comparing the different banking products in the market. This means they are missing out on potential savings. For example, currently, around 3% of personal customers switch to a different bank in any year, which means that 97% of the customers could be losing out on an average saving of £92 per year if they had switched providers[1]. Circumstances like this one were targeted by the CMA in its "Making banks work harder for you"[2] report published in August. Open banking is what the regulator views as the solution to this situation.
Application Programming Interfaces (API) are at the core of open banking. APIs are hidden technological drivers behind digital applications most people use such as Facebook, Google Maps and Uber. The aim is for banks to adopt and maintain an open API. This interface will allow authorised intermediaries to access information about bank services, prices, service quality and customer usage. In other words, open banking uses the APIs to share information securely, without the customer having to reveal their password. This is the same technology that lets people sign in to other online accounts using Facebook with a simple click.
This has two main impacts. Firstly, it allows customers to manage accounts held with several providers through a single application. Instead of having to log in to the different mobile apps for the different providers, customers will be able to access their accounts from a single application. Secondly, it provides the customers with relevant information regarding the characteristics, price and quality of banking services in accordance with their own usage patterns. Clearer products without small print and a framework to compare the services of different banks that best tailor to the customer will enhance user experience and help make informed decisions when purchasing banking services.
What does this mean for the banking industry?
The drive behind this initiative by the CMA is the strong position of the large and traditional banks in the market. The lack of information and difficulty in combining services from different providers have resulted in the five largest banks controlling 85% of the market share[3], while hindering the expansion of the challenger banks. The CMA's recommendation is aimed at encouraging competition in the marketplace as it proclaims that the larger banks do not have to work hard enough to retain customers due to the barriers in the marketplace.
For traditional banks, open banking and the introduction of APIs poses a double challenge. On the one hand, they will have to compete hard to gain and retain customers. On the other hand, they will have to face the costs and timelines of developing the APIs with their peers, an additional worry for the banks on top of the current post-Brexit scenario and uncertain economic outlook[4].
For the challenger banks, open banking represents an opportunity although it is difficult to quantify it at this stage. After the CMA's report was published, institutions such as Tesco Bank, Tandem and Fidor Bank welcomed the report and the fact that it will help customers make informed decisions given being able to access pricing information. However, a large number of challenger banks, including TSB, Metro Bank and Atom, said more could be done to encourage a fairer competition between the traditional banks and their newer counterparts. The fact that the CMA did not delve into the topic of capital requirements was seen as a failure[5]. Nevertheless, even if the report was slammed for "tinkering around the edges" of reform it aspires for open banking to become a reality in a few years. This fact alone will benefit the customers and present the challenger banks with opportunities to grow their market share.
What's next?
The cards are on the table. The CMA announced in its report that banks will be required to implement open banking by 2018. The competition watchdog is now seeking feedback on the measures listed in the report. The 17 measures are up for consultation, with responses welcomed until the 23rd December[6].
As anything related to regulation, it is difficult to assess what will happen in the future. Will the CMA pursue its plan to have open banking up and running by 2018? Will the banks pushback and delay the date? Whatever the outcome, we can safely say that the concept of opening bank is here to stay.
[1] https://www.gov.uk/government/news/cma-paves-the-way-for-open-banking-revolution
[2] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/544942/overview-of-the-banking-retail-market.pdf
[3] http://www.bbc.co.uk/news/business-34600941
[4] http://www.cityam.com/247137/banking-bazooka-cma-report-means-fintech
[5] http://www.cityam.com/247132/challenger-bank-tsb-has-accused-uks-competition-watchdog
[6] https://www.finextra.com/newsarticle/29812/uk-consults-on-open-banking-plan
By Elizabeth
Cybercrime is the crime of the century and the financial services sector is its most attractive target. Recent headlines have reflected the demand for cyber security to be taken seriously and for complacent companies to be held liable for their cyber security failures. [1]By 2018, The European Union aims to introduce stricter EU data protection rules and higher financial penalties for companies that fail to have adequate prevention strategies in place. The move towards harsher punishments aims to ensure that cyber security is on every businesses agenda by making cybersecurity a companywide responsibility. In lieu of this, statistics released by VISA stated that Britons are now more likely to trust their bank than the government with their biometric data, raising the question: should banks be doing more to keep our personal data secure. The financial services are still underestimating the scale and impact of cyber-attacks. The criminals are evolving, and banks should be following suit.
Heists involving a bank robber physically entering a bank and stealing money are now a rarity, due to the evolution of security practices such as CCTV, response alarms, security guards etc. These measures all aim to prevent an attempted robbery yet, banks are not responding with the same level of security for their online networks, which often only detect an attack when a robbery has already taken place. Criminals have advanced in technical sophistication, now targeting financial services companies via the internet, therefore online security needs to be met with the same degree of urgency. It is estimated that Britons are targeted for a cyber-attack every 15 seconds[2] and banks are 300% more likely than any other industry to encounter a security incident[3]. Despite these statistics being worryingly high, cyber heists are still in their infancy, and cyber criminals continue to evolve and manipulate technology for financial gain. Unlike traditional attacks, cyber-attacks are not about direct access to money. Cybercriminals work on a wider scale by exploiting the interconnectedness of large institutions and targeting identity and financial data[4]. Due to financial services being largely reliant on network technology, all this information is available to hackers in one place. Therefore, they need to respond to this growing threat not only to protect their assets and client data, but also to maintain their integrity.
Introducing Blockchain, the currency underpinning digital currencies such as Bitcoin. By speeding up financial transactions, cutting costs and improving regulation, it is set to revolutionise the financial services in more ways than one. A Blockchain is a digital ledger that allows parties to record transactions, and the date they happened, in a format that cannot be deleted or corrupted. In terms of cybersecurity, this creates a transparent system that makes it easier to spot any potential errors or patterns, that could lead to a cyber breach. A Blockchain system works by using heavy encryption to securely track and protect data, and removes the trust from a centralised authority. This lack of powerful intermediaries creates a system where trust is established and integrity is paramount. By storing data on numerous computers and servers around the world, Blockchain aims to make it harder for cybercriminals to carry out a successful heist by increasing their workload and lowering their potential gain.
As with any new technology, the jury is out as to whether Blockchain will in fact revolutionise the financial services, and even more so, as to whether it will help combat cybercrime. One thing is for certain, cybercrime is evolving, and companies are no longer going to be seen as helpless victims.
[1] http://www.telegraph.co.uk/technology/2016/09/26/punish-companies-for-cyber-security-failures-directors-say/
[2] http://www.cityam.com/249689/fraudsters-hit-brits-financial-scam-every-15-seconds
[3] http://www.bankingtech.com/459542/when-banks-leave-the-front-door-open/
[4] https://www.ft.com/content/d05da464-20d4-11e6-aa98-db1e01fabc0c
By Gianluca
Artificial intelligence (AI) is one of those buzz words that gets thrown around a lot these days. If you are like me, the only actual interaction you would have had with AI at this point would be with something like Apple's Siri. If this is the case then you are aware of the perils of speaking as slow as possible to ask Siri to "Call mum" but after repeating yourself plenty of times you somehow end up with suggestions for coffee shops in your area. Frustration and anger ensue and you are unable to imagine a world where AI would have any significant real world applications, especially in a sector like financial services. Would you trust Siri with your hard earned pounds when she can't even successfully contact your mother? Barclay's head of digital thinks you should trust AI with your money and has recently announced the banks plans to introduce AI technology at its branches. The idea is to introduce a robot at the branch that customers can talk to and the robot will respond and perform all the tasks previously performed by bank tellers. Barclays believes that having this sort of AI system is the way of the future and other banks around the world seem to agree. Royal Bank of Scotland has introduced "LUVO", a customer service assistant that currently interacts with staff but is planned to start dealing with customers in the coming months; Swedbank's "Nina" web assistant has over 35,000 conversations with customers a month and Santander is looking to introduce a voice recognition AI system into their banking app to authenticate transactions. There are several other banks in the USA, China and the rest of the world that are all looking into the benefits of using AI to create a "smarter" banking experience and disrupt customer service norms.
With the rise of FinTech and the mobilisation of services, customers are constantly looking for digital solutions to analogue problems. The idea of being able to deal with a robot that is customisable to your specific needs, is constantly learning and can simplify previously arduous tasks is a millennial's dream. In this dream applying for a mortgage or setting up an investment account is as easy as ordering an Uber. Sitting on the phone for hours waiting to speak to the next available customer service consultant is a distant memory.
The obvious benefit that banks stand to reap from having AI capabilities are the massive cost saving implications. Having self-sufficient robots running bank branches would cut costs dramatically while still maintaining a single point of call for people who still value a high street bank branch and aren't completely sold on fully digital banks. Another benefit is one of operational efficiency – AI is continually learning and adapting and the more the systems are engaged the better they become at dealing with various problems. If these systems are continuously engaged they will eventually become more efficient than a bank teller who needs to take lunch breaks and isn't too keen on working on the weekends. Google's Ray Kurzweil predicts that robots will reach human levels of intelligence by 2029 if innovation in the field continues to grow at its current rate. The future of banking still remains to be seen and with so many disruptive forces like AI, Blockchain and Big Data threatening to uproot the entire sector, it has become increasingly difficult for businesses to identify which new technology to invest in and how.
By Emilia
IT revenues were expected to reach US$197 last year in North America, Europe and Asia – Pacific.
However, 75% of the budget allocated to IT went towards maintenance instead of investing in new technology. It seems that banks spend most of their IT budget on keeping their legacy systems up and running.
Banks need to reconsider the balance to keep up with innovations in the industry. (Financial News) The accelerating rate of technological change, faster than ever before, combined with shifting customer preferences is having a dramatic impact on the structure of financial services. Banks should focus on bringing innovation, in particular around data management, security, and the move to modular IT.
Business applications are moving to the cloud, for example. Looking into the future, cloud computing promises new ways of collaboration. Cloud-based solutions are flexible, cost-effective and provide businesses with the opportunity of focussing on their services, eliminating the need to manage hardware and software. Also, application programming interfaces (APIs) are a set of protocols and tools for software applications.
The API specifies how software components should interact between two or more online connected services, saving time, resources and potentially legal entanglements along the way. To deliver a differentiated experience to customers, most banks will need to make substantial improvements to their IT infrastructure. The movement to real-time payments, for example, was a real challenge for global banking infrastructure. Being also linked to anti-money laundering (AML) and reporting databases. "Banks must have the scale to invest significantly in new technology, yet they must also avoid the too big to fail trap, which would put them at odds with regulators and investors alike," said Federico Ghizzoni, chief executive of UniCredit. (Financial Times) In 2008 Nationwide publically announced that legacy systems were not running in line with their growing path for the future so they had to invest in the infrastructure to create better customer experience: "the new platform will enable us to respond to future changes in the industry, as well as provide faster product development and innovation processes that will translate to increased benefits to our customers." (Nationwide invests in IT change'; Computing; 20th March 2008) Many banks are global and continue to expand across multiple geographical areas, so without an updated IT infrastructure, it can become a real issue to keep up with the pace of innovation.
They might become vulnerable against competition. Technology helps to run a real time processing engine, rather than batch processing, to speed up outcomes for customers. Joined-up customer data creates a common platform of a bank with data of all customers. Implementing changes to systems and infrastructure can be expensive and hard to deliver. Not many banks have chosen to replace their core systems all at once. IT migration plans should closely align with the bank's vision for customer experience and the omnichannel delivery of sales and services. So what's the ? There's no single trick but there a few things companies should consider: IT departments should partner with specialists to assess the software market. It is very important to have the right people manage the risks, understand the dependencies and apply the best solution.
Implementing agile plug and play solutions will help to make incremental, risk free changes. Companies need to clearly define the target IT architecture and make this a business priority. Banks should not treat fintechs as an enemy but as a partner. The advantage of a partnership is not just agility but understanding that customer experience sits at the heart of everything.
By iBedisruptors
Simplicity How many of you fully understand the financial statement issued by your bank every month? Financial institutions have a long lasting crush on acronyms, complicated words and technical jargon, which make most banks user-unfriendly. My tomorrow bank will be simple: simple in procedure, simple to understand, simple to deal with and simple through its user interfaces. Diversification Many banks are closing down their physical branches because they see it as a tangible way to cut costs and increase revenues and because customers are increasingly preferring on-line services. I cannot disagree with them, but, still, I would actually prefer a bank that offers both these services – just in case. Often, when we have a complicated or stressful problem, we rather have a face to face conversation. Transparency My tomorrow bank will be transparent in the way it charges me as well as the way in which it operates. From fees when shopping abroad to over draft, my bank will alert me to any charges in advance and recommend services right for me. Security Security is not a nice to have but a must have for my tomorrow bank. Cyber security is becoming more of an issue as hackers are becoming more and more successful at hacking everything from bank details to personal information. Innovation My tomorrow bank should be able to be ahead of times and offer, together with the more traditional services, new generation ones. I want my bank to be a hub like a smartphone – helping me to live well and accomplish my life goals. I expect a hyper tailored service. What do you want from your tomorrow bank? By Carlotta Bernardi, Consultant, iBe
By Ellen
Earlier this month, the Committee on Payments and Market Infrastructures (CPMI) joined forces with the World Bank Group and published a report outlining the role payment systems play in achieving financial inclusion. Their research demonstrated, inter alia, how the use of mobile networks as transaction accounts was a pivotal first step towards providing the world's remaining unbanked adult population, circa 2 billion people, with basic financial services.[1].
How did Kenya come to pioneer mobile banking around a decade ago and how did MPesa set the scene for addressing Financial Inclusion in the developing world? From 1971 onwards, the organisation Opportunity International (OI) poured its time and money into finding finance solutions via Microfinance Institutions (MFIs)[2]. Today, they reckon that they have changed the lives of around 39 million individuals since they launched, through handing out over $9 billion dollars' worth of loans. However, a couple of years ago, renowned philanthropists Bill and Melinda Gates realised through in-depth research that the most effective way of reaching an under-banked audience was to shift away from dispensing microcredit and instead look to developing smart payment systems[3]. Of course, the reason for this is that mobile phone usage has quite simply sky-rocketed over the past decade thanks to its ubiquity and affordability. By leveraging the existing infrastructure behind mobiles and mobile networks, cell-phone providers in emerging markets have been able to offer their customers more than just a communications device. Indeed, they have been able to disrupt the market by proposing a mobile wallet where value can be stored and safe-guarded[4].
Kenya's socio-economic and political circumstances in 2007 lent itself to favour such a system. The demand for "secure cash transactions" during a time of great instability and one mobile network operator's clear dominance in the market share paved the way for a game-changing branchless banking solution. It was in this light that Vodafone teamed up with the Kenya's Safaricom, to revolutionise the way locals went about settling bills, receiving payments and taking out loans: M-Pesa. The innovative mobile banking solution was born of the necessity to find an alternative for a country where the majority of inhabitants lacked the access to a bank account for their most basic transactions[5].
Launching M-Pesa finally made large-scale financing and micro financing available to the economically active but until then underserved and unbanked[6]. M-Pesa's fast managed to establish itself as a trusted brand whose message strongly resounded with the average Kenyan adult.[7]
And precisely how did it work? Say you wanted to buy produce at a marketplace: you would choose the "Pay" function on M-Pesa, then enter the number of the fishmonger, the amount of money owed, your 4-digit pin code and then confirm. The transaction and confirmation details would then show up on both the phone of the payer and the payee. To put it simply, you would be using whatever phone balance available to you to pay for things.
It is estimated that in present-day Kenya, 80% of mobile phone owners use their devices in this way, resulting in annual P2Pl transfers of approximately $10 billion[8]. M-Pesa's success has since spurred other budding payment service providers (PSPs) in the African continent to try their luck. Nomanini has become popular for utility bill settlements, 22Seven allows users to keep track of their personal finances and RocMyPeer is a peer-to-peer lending platform. And we can add to the list Snapscan, Cellulant, Paga, and Zoona to name just a few![9] All these applications have steered away from pure microfinance to instead resolve how digital mobile transactions can ensure low fees[10].
"Africa is leading bank/telco convergence [11] but the trend has inspired over 271 mobile money services, almost entirely in the global South, to act as fund transfer facilitators.[12] Among the Fintech players that industry experts Altéir named as ones to watch was a French-born application developed specifically for African migrants to remit funds. Having noticed that in 2012, $60 billion was sent back to the African continent in this way, Afrimarket set to work building an app where dedicated funds could be collected at specific Points of Sale selling, food and medication or where you could pay for tuition fees. Cutting out the middleman lowered transactions fees and maximised the amount of money reaching the intended recipient.[13] Digital progress within finance is pivotal to ensuring the developing world lifts itself out of poverty by allowing money to circulate freely within the domestic economy.
For some nations such as the Philippines, the emphasis is on cross-border transactions: Filipino remittances constitute 10% of their GDP[14]. From a socio-cultural perspective, mobile payment systems are proving to be a promising mechanism in helping break down gender inequality in traditionally conservative countries. OI has stated that women account for 95% of their client base as in certain emerging economies they have been held back due to cultural and legal gender restrictions[15].
GSMA set in motion their Connected Women Commitment Initiative in February of this year, to empower women in such situations. "The social norms around how women and men make financial decisions in a household, the 'appropriateness' of men and women interacting with sales agents of the opposite sex, and community perceptions of male and female roles, all influence mobile phone ownership and usage."[16] According to their study, mobile payment services serve a huge purpose in transcending gender barriers.
In Kenya, the need for MPesa was paramount to encouraging women to purchase mobile phones, in parallel also according them new levels of independence with many interviewees stating that they top-up and transfer money on their own.[17]
At the Geek Girl Meetup UK on Financial Inclusion held on the May 20th, I was able to speak to World Remit's Head of Product, Alice Newton, and asked her whether she thought that mobile payments services were successful in reaching a female audience . She commented that she reckoned this was the case and also pointed out that in certain instances, women were thus encouraged be more involved with money management. From her most recent travels to the Philippines, a trend manifested itself whereby although men were chiefly responsible for earning the household's money, women were often given free reigns on how to budget and allocate it as they saw fit.
To briefly summarise the above, mobile payment providers such as MPesa have drastically changed the way low and middle-income markets manage their money. Whereas microfinance was long thought to be the most viable solution to eradicating financial exclusion, free riding off of existing mobile phone technology and infrastructure has allowed a far wider market penetration and much faster uptake of new banking methods. Most exciting in my eyes is that the mobile banking trend is resulting in social advancement for women who a few years ago might have had very little to no financial autonomy. Seamless, safe transactions through universally accepted payment systems are enabling the very same women to push past the prevailing gender stereotypes and roles assigned to them.
[1] Worldbank [2] Reuteurs [3] Livemint [4]Nordicom
[5] Afikainsider [6] Nexchange [7] The Guardian
[8] Tech Repblic [9] Afikainsider [10] Techrepublic [11] south africa[12] Alice Knewton, GGM Conference [13] Altéir consulting, Paris Fintech Forum Jan 2016, Laurent Nizri & team compiled [14] Philstar [15] Reuters[16] GSMA[17] GSMA p.13
By Tomaso & Elena
Imagine… used to sing John Lennon. Imagination and necessity have made the impossible, possible. Alexander Graham Bell and Antonio Meucci invented a new channel for communication. Their concept of the telephone continues to evolve. As a generation, we have moved from large devices to mobile phones used to simply make calls and send text messages, to a mobile computer that enables us to manage every aspect of our lives. All hail the smartphone – video calling, photo sharing, apps, music, shopping and emails are now the norm. How did we get here? We can pay using our mobile phone. This evolution is remarkable, especially if you consider that not so long ago the preferred methods of payments were cash and cheque, as people were skeptical about how secure cards were. By the end of the 1990s, the convenience of this innovation prompted more than 50% of the UK population to own either a credit card or a debit card. One issue alternative payment methods and innovations have faced is security. This explains why although there were a large numbers of car holders, conversion rates into transactions were still low. However, ever since chip & pin was introduced as compulsory for card payments in the UK in 2006, card fraud dropped significantly (by 28% in 2009) and card payments gained substantial ground as people realised their benefits. By the end of the 2000s, card issuers launched contactless payments and, in 2014 alone, the number of contactless transactions grew six times more compared to the previous six years combined. Statistics point out how contactless cards in the UK are growing constantly day by day. By November 2015 already 79 million contactless cards had been issued just in that year, a 40% increase from the previous year, accounting for an unbelievable total spending of £6.5 billion corresponding to a 238% increase from the previous year. Where are we now? The fast pace at which digital innovation has been moving has provoked the birth of a number of groundbreaking payment methods in the last two years, with invisible payments and e-wallets as leading examples. Mobile payments and online payments continue to dominate. Who hasn't used Uber? In addition to disrupting the tech and taxi world, Uber created a new lifestyle and payments platform. It made the checkout experience invisible and the payment process frictionless. Invisible payments allow the customer to make use of a service without making a direct payment. The focus is on the service. Customers simply request the service and receive a confirmation notification stating the amount that has been withdrawn from their account once the journey has been completed. E-wallets and most recently m-wallets have become popular since PayPal introduced the concept in the late 2000's. Apple elevated this further through the introduction of Apple Pay in 2015. By storing various customer's personal and payment details in their mobile device, the m-wallet provides the customer with an easier (as it reduces the number of cards the customer has to carry around), safer (as it encrypts and safely stores all the details) and faster (as it uses contactless NFC transactions) payment method. What's next? Millennials and digital natives are driving the need for efficient and seamless payment methods. Imagine being able to pay through voice recognition, using a drone or a selfie. Past trends have taught us that there will always be space for new entrants in this industry, especially at a time where curiosity and interest towards the unknown are at their very highest. The new consumer is interested in speed, convenience, security and simplicity. This necessity will drive further change in the industry. Perhaps John Lennon was right… imagination is at the root of all innovation.
The UK Card Association (2011) A Decade of Cards. 2000 – 2010… and beyond, [ONLINE] Available at: http://www.theukcardsassociation.org.uk/wm_documents/decade_of_cards_final.pdf
The UK Card Association (2015) Contactless Statistics, [ONLINE] Available at: http://www.theukcardsassociation.org.uk/contactless_contactless_statistics/
By Paschalis
According to a report by Reuters this morning, SWIFT, the global financial network that banks use to transfer billions of dollars every day, warned its customers yesterday that it was aware of "a number of recent cyber incidents" where attackers had sent fraudulent messages over its system.[1] Cybercrime attacks in financial services firms have rapidly increased in the last few years, which has made cybercrime the new bank threat for 2016. In 2014, there were 5.1m incidents with online fraud and 2.5m other cybercrimes in the UK. Additionally, statistics from a pilot study show that 2.1m victims experienced fraud with a loss of deposits and 1.8m victims experienced a fraud without a loss of deposits.[2] On top of that, Bank of England states that nearly half of major financial firms are concerned about the number of growing cyber-attacks.[3] So what is the greatest challenge banks face when it comes to cybercrime? Simply put, traditional banks are stuck with outdated systems and legacy infrastructure which can't always tackle the digital attacks. What about online challenger banks though? Are the number of cyberattacks at the same level? Definitely not! Fintechs that support these banks provide them with up–to date and brand new software. The new technology, the efficiencies and the disruptive solutions Fintechs offer, allow the new online banks to have better security for their sensitive online information. In fact, I would go as far as to say that with all the disruption in the market, the only firms that will survive the digital revolution are those that have the right security protocols in place. This is not a nice to have. This is essential if you want to play in the market. Traditional banks should take advantage of Fintechs partnerships and work with them to plug in risk and security solutions. For example, a way that online banking can become safer is by having Fintechs to send a SMS verification number to the user on the spot when something changes in their account; something that some banks are already doing. The same thing should happen when someone uses e-payments with a smartphone. Additionally, BehavioSec authenticates how users interact with their mobile phones and is able to recognise if they are the owners or not. Another interesting solution is provided by Ravelin, which scrutinises customers' data in real time, such as credit scores, and lets banks know which payments should go through or not, preventing fraud. Hence, banks can on one hand make sure that bank accounts are not hacked and on the other hand reduce not only the time of processing payments, but also the number of fraud payments, since they will know on the spot, if they should approve them. Cybercrime is definitely one of the biggest issues of the year if not the decade. However, the silver lining is that there is an opportunity for FinTechs to work with larger corporates and banks to find a solution.
http://uk.reuters.com/article/uk-cyber-banking-swift-idUKKCN0XM2D9 [2] http://www.independent.co.uk/news/uk/crime/millions-of-cyber-crimes-recorded-last-year-as-banks-secrecy-hampers-police-efforts-a6696076.html [3] http://www.thisismoney.co.uk/money/saving/article-3340843/Nearly-half-major-financial-firms-concerned-growing-cyber-attack-threat-Bank-England-report-shows.html
By Andy
Until recently, I was utterly ignorant to the rise of one of the most disruptive forces in ecommerce payment technology.
Based in Sweden and founded in 2005, Klarna was created with one objective: simplify buying. It now handles well over $10 billion worth of sales per year, facilitates 40% of Sweden's online payments and has 45m users worldwide. For those, like me, who might have missed the rise of this innovative enterprise over the last decade, here's a brief overview of how it works…
Klarna is banking on the belief that consumers don't trust online or mobile payment systems and, in line with more traditional purchasing behaviour, would prefer not to pay for something until they have received it.
With Klarna Invoice, consumers shop using 'top-of-mind information' only, this includes name, address and date-of-birth. Once keyed in the Klarna checkout, clever algorithms perform an instant credit check using a number of variables (address, size of purchase, device used, time of day etc.). If approved, the ecommerce store can then ship the goods directly, safe in the knowledge that Klarna bears the transactional risk and will pay for them no matter what:
On the other side of the transactional fence, customers only have to pay the Klarna Invoice after the goods have been received and checked. Customers are covered by Klarna's buyer protection programme, meaning they will get their money back if an order is not delivered or the item is not as per the description.
What are the benefits?
Klarna's main claim, aside from enabling risk free ecommerce transactions for both parties, is a substantial improvement in conversion rates for online stores. 'By offering all popular payment methods, merchants get a single, integrated solution producing a seamless buying flow.' Klarna separates buying from paying and allows consumers to pay at their convenience in the 'least number of clicks possible.'
In Practice
The question is, do these claims translate in reality? A vast number of Klarna's 65,000 merchants, including Wish.com (North America and Europe's leading mobile commerce platform) think so. This glowing reference from one of Wish's co-founders, Danny Zhang, sums up the benefits derived from adopting Klarna's platform:
"Using Klarna is a no-brainer. Consumers loved the solution right away and showed it by shopping more. Taking the increased conversion and higher order value into consideration, Klarna's checkout increased our sales by 40%."
These results are by no means isolated, Adlibris (a northern European book giant) and fitness guru have seen post adoption mobile conversion rates increase by 80% and 40% respectively. The list of client successes (backed up by data and first-hand c-suite testimonies) is long and rapidly growing.
What next for Klarna?
Aside from entering the North American market, Klarna plans to turn its attention to the world of retail banking – a far cry from the mobile payments industry. This could prove to be savvy move, as the Economist points out: 'Klarna's 45m users provide it with a big and growing pool of potential banking customers who already have an inkling of the sort of service it can provide.'
Whether this innovative tech unicorn can successfully make the transition into the heavily regulated and 'sterile' world of retail banking remains to be seen.
Sebastian Siemiatkowski, Klarna's founder and boss, certainly thinks so. In a recent interview he alluded to the firm's future ambitions saying: "In the longer term we need to reimagine what banks really are…"
Watch this space.
By Sonali
This morning we hosted an iBe Disruptors breakfast on "Harnessing the Power of Mobile". To ensure you don't miss out on what was discussed, we've pulled together a takeaway covering off all the key points from today's session. You can also follow the discussion using the hashtag #ibedisruptors on Twitter via @ibe_tse
Digital is about being smart
There was a wide ranging discussion around what being digital actually meant. Both telecommunications firms and financial services face key challenges as their traditional business model is eroded by disruptive technologies. The key point raised was that banks need to think carefully about what being a bank actually means and how they utilise data to connect with customers in contextual, intelligent and relevant ways. The conclusion was that good digital strategies are smart because they make consumers lives easier. Smart digital services are simpler, faster, better and with have demonstrable value for the consumer.
Who owns data?
The delivery of smart digital services pivot on the ability to utilise data. We live in an 'opt-out' world, but the world will have to become 'opt-in' and this is where the value exchange becomes important. As rules change at a European level there was much debate around who owns data and the need for a more open model. Fitbit was cited as an excellent example of a company that provides people with their data first and foremost and then drives relevancy back to the consumer using that data as its baseline. Data models and the ability to apply them to traditional markets are igniting innovation, but the value exchange for consumers must be clear – otherwise they will opt-out.
How big and small can work together
There is much discussion around how start-ups and large enterprises can work well together – one does not have to beat the other. We are now seeing many a hybrid models emerge. In looking to work with smaller companies, bigger ones need to engage them in such a way that unlocks the value and potential of that small company. For example, smaller companies are built for speed, bigger ones are not. Harnessing that capability is key, but often lost through the culture. This necessitates two key elements. Both parties need to trust the other, and larger companies need to realise that to move beyond a theoretic understanding of how they can work with the start-up community their business processes need to change. After all, an idea is meaningless until it is executed.
5G – mobile network horizons
It was generally agreed that in migrating between 3G – 4G, not all that much changed. But 5G is exponentially different. It will be able to support over one trillion devices connected to the Internet of Things (IoT), with one fifth of the latency of 4G it will fuel car-to-car communication as we hurtle towards the driverless age and provide location accuracy to the nearest metre. By far it is the most exciting thing to happen at an infrastructure level in years and will be the catalyst for many of today's embryonic trends and the foundation for taking artificial intelligence, virtual reality and augmented reality to the next level.To that end the University of Surrey has set up a 5G innovation lab – a playground for the possibilities of tomorrow. It is the largest centre of its kind in Europe and if you'd like to take a look and 'have a play' please let us know and we can arrange this for you.
Thank you to everyone who attended and our key note speaker, Ben Snowman, Head of Strategy Digital UK O2
By Alessandra
It's official. Blockchain has passed the "nerdy" digital native phase and has broken into the mainstream. This new kind of attention is extremely important as it allows us to start thinking about this technology as a standalone piece, and not necessarily something just linked to the popular Bitcoin. Indeed, while blockchain was developed to create and maintain Bitcoin, its potential goes far beyond the cryptocurrency space. Blockchain is an enabling tool, which stores and shares information in a secure and fast way. The potential for different industries and markets is extraordinary.
What is blockchain? A blockchain, or distributed ledger, can be defined as: "A digital platform that records and tracks transactions in a secure and quick way through a persistent and reliable continuous check in an environment available to all"
Its main characteristics:
– Digital: everything happens online, using shared computing power and thus not relying on a single structure with the undeniable benefit of increasing the security and stability of the network by making it virtually immune to cyber attacks as if one node is attacked, it is isolated and information is retrieved from other nodes (see next point)
– Record & Track: each block allowed in the chain contains all the relevant transaction information up to that point. Each node of the network, in addition, has access to all the blocks and their information so if any of the block gets corrupted the network and all the transactions are still available in anyone of the other nodes;
– Security: each transaction is verified using a cryptographic algorithm to ensure incorruptibility. In addition, once one block is added in the chain, it cannot be modified by a single part. Thus, the new piece becomes immutable (unless >51% of the network agrees on the change and a new sub-chain starts);
– Speed: currently miners in the Bitcoin world are rewarded for solving the blockchain cryptographic riddle adding new blocks with 25 bitcoins. This simple but effective reward system ensure that the network works as fast as possible to add new blocks minimising dead timing among transactions;
– Persistent and Reliable: once a new block is added, the solution must be approved by the majority of the nodes ensuring in this way the correctness of the characteristics of the transactions (ownership, past information, structure);
– Public: finally, all information contained in a single block and thus in the whole chain are constantly accessible to everyone for verification, such as who wrote what, when and who instructed a certain request.
What are the risks involved?
However, as with many new technologies, there are certain risk factors to be considered. First of all, there still isn't any general and agreed regulation on the use of blockchain and its standard. If this gap is not filled as soon as possible, the risk is that different countries/entities will define incompatible standards. This will jeopardise producing a secure network effect. Linked to this effect, we must also consider that there is not yet enough evidence on how the technology works with larger volumes. That is, it is necessary to ensure that the performances in terms of speed, security and cost are not impacted with different scale.
Another point, probably specific to the payments/financial services industry, is the so called "latency issue". Today, we have the perception that everyday payments happen immediately while the real settlement happens up to days later. Using blockchain technology, the settlement can actually happen in minutes but it is necessary to guarantee that the customer perception is not compromised. Finally, ledgers are by definition public but their users are anonymous. Clearly if this technology is applied at a large scale and within industries that deal with price-sensitive data, it is important to introduce tracking solutions to guarantee additional security and control.
Why is the financial services industry interested?
For banks, the interesting aspect of blockchain technology is not the decentralisation of collecting and storing the information – that may create a more distant connection with their data. Rather, banks are interested in finding a more efficient and secure way to gather data, basically by cutting the intermediate actors involved in every transaction and dramatically reducing the reconciliation processes needed when using decentralised or private databases. To give an example, using blockchains could allow banks to immediately check and verify if the information/asset/ownership declared by the counterpart is real and verified simply by checking the relative block in the chain. In banking transactions it could mean making the clearing house and most of their processes redundant, quite a big cost saving.
Anyway, having analysed the main characteristics of the technology, it is self explanatory that some changes should be done to the original democratic structure to ensure a fit in the real financial world. First of all, miners' anonymity is unsustainable. The financial authorities and participating actors must have some degree of certainty about who's confirming a given transaction. A possible solution for this could be to adopt permissioned ledgers where the number of participants are limited and the integrity of each new block is checked by a limited trusted committee. To ensure in any case that the security of the 51% rule is guaranteed, solutions such as forced rotation mining arrangements could be put in place.
Creating a regulated standard
Regulation and standardisation are likely to be two additional aspects changing in the blockchain ecosystem. Currently, the use of blockchain has been highly unregulated (despite the vigilant eye of the regulators, such as the Bank of England) but it is evident that if financial entities start using this technology, precise and strict rules must be defied to guarantee the correctness and reliability of all the processes involved. In this regard it is interesting to notice how in the US there are rumours about an issuance of blockchain licensing.
Also, a high degree of standardisation is desperately needed to ensure that all blockchains are compatible and can share information in a frictionless way without impacting their inner structures. Most of the blockchain start-ups are already offering compatible products so it is likely that a common standard will soon emerge in the market. Again, the institution of the Digital Ledger Group between the most important global banks and R3, a blockchain start-up, clearly shows how the market is looking to build consistent standards and protocols. Plus, in a world submerged by data and information, distributed ledgers could be a solution for storing customer relevant information in a more efficient and economical way. For example, banks could avoid duplicating customer information but rather collect it together in the same chain, obviously guaranteeing different reading and writing privileges. The use of blockchain could also help in anti-money laundering efforts, by making it easier to track entire passages and ownership changes for each given good or asset.
Blockchain and the Back Office
Finally, the use of blockchain can be made even more efficient using smart contracts (actual contracts written in computer language rather than legal one) that can reduce the checking process. Savings could be obtained in particular for repetitive and similar actions such as payment settling, enrolment and information storage. Blockchain can really help reshape the back office of financial companies and one of the areas to benefit is the clearing process, which currently involves a number of actors that can be reduced, if not eliminated, if all parties agree on using a shared distributed ledger platform.
Only the beginning
It's likely that the industry will adopt a wait-and-see approach made possible by investing in blockchain start-ups and postponing the actual adoption until clear standards are identified and risks are mitigated if not eliminated. We are yet to see the full potential of this disruptive technology – after all it started as a democratic/end-user technology and we are already shifting it into a back office/corporate world. Willingness to embrace disruptive new technologies is a clear sign of its commitment to innovation.
References: Goldman Sachs Research Blockchain debate eclipses Basel III at Davos, Izabella Kaminska and Gillian Tett – Financial Times (January 2016) Distributed Ledger Technology: beyond block chain, UK Government Chief Scientific Adviser (January 2016) The great chain of being sure about things, The Economist (October 2015) Bitcoin 2.0: What do banks want from blockchains? Ian Allison – International Business Times (August 2015) TechUK workshops, Blockchain101 & Blockchain and Security Settlement (January 2016)
By iBedisruptors
iBe's CEO Francesco Scarnera speaks to TechCity News on Zac Goldsmith's announcement of a chief data officer to lead a US-style office of data analytics for London. Full article copied below. The mayoral race for London is approaching a critical junction, and all candidates are beginning to outline their vision of how they are going to take London forward and benefit those within it. At the back end of January, Zac Goldsmith announced his plans for a Digital London – a city of interconnected data, analysed by a chief data officer (CDO) through an office of data analytics. A scheme that has been previously seen in New York, Goldsmith outlined a utopian plan wherein London would consistently improve through the analysis of all of its collected data. From crime to transportation, the CDO and their team would look to eradicate bottlenecks and target hotspots by a careful interpretation that an increasingly-online city can give. Goldsmith has yet to fully expand on these plans but his initial outline promised to use Transport For London's 560km network of railway routes, tunnels and bridges to rapidly deliver superfast broadband. Rapid progress Focusing on the infrastructure gives a concrete starting point for the idea to take shape, but shouldn't set the precedent for what will be prioritised as London continues to become fully digitised. It is worth remembering that London is fast becoming technologically-enabled. From contactless payments to underground WiFi and the slow eradication of paper tickets, progress is being made rapidly compared to other European cities. Businesses and services in London are driving this tech adoption themselves, with a huge advancement in the level and coverage of technological services through both the public and private sectors. Looking simply at public-access WiFi, this was seen originally in offices, then into cafes, shops and extending to the network of London underground stations. So if Goldsmith and his proposal needs to step back from the self-generating infrastructure of London, what is it that he should focus on? Instead, if it comes to pass, the chief data officer needs to take a different approach by focusing on the real and tangible benefits to businesses and people in the capital as opposed to just the nuts and bolts of enabling technology. A digital city Digital should be driving interconnectivity between businesses, the public, tourists and the Government in order to truly transform how London, and its citizens, operate at a fundamental level. For example, imagine if spread across London, parking spaces could be reserved by app and GPS. This is an inventive way to ensure that cars are kept secure and that time is saved as people know exactly where they are heading. But the real value is uncovered when people are placed at the centre of the conversation. Traffic is reduced, allowing vehicles to move with more ease around London. Parking companies can empower their staff to focus on improving their service and not on the constant monitoring of car parks. Most excitingly for many Londoners, this would mean that less traffic wardens would need to be deployed to patrol, and hotspots would be easily identified. Using the parking example, it's clear that if the cameras and app technologies are placed front and centre then only a moderate level of success will be achieved – in this case quicker parking and CCTV coverage. However, if an approach focused on people is employed and applied to the analysis of data, then a greater amount of benefits can be seen from exactly the same implementation. By adopting behavioural analysis hotspots for extra parking, crime reduction measures, city planning, congestion and parking metre fees can all be effectively governed. Fundamentally, the use of digital technology has the ability to have far more influence for businesses, inhabitants and tourists than simply 'useful tools', saving time and money. But for this level of success to be achieved, Goldsmith must ensure that whoever he appoints as CDO has the ability to step back when looking at the data and take into consideration the broader picture. 'A self-perpetuating tech hub' London as a city is a self-perpetuating technology hub, and it's going to advance with or without the use of mayoral schemes and budgeting. The technology isn't the issue, it's how to apply this in order to benefit those that live, work and run businesses within London. Working with London's buoyant startup scene, especially in FinTech, Goldsmith needs to think about each of London's audiences, what they do, what they need and where the gaps are. This is vital to incentivising and prioritising innovation. Goldsmith needs to think bigger if his 'big idea' is to reach its full potential.
By iBedisruptors
After experiencing a steep increase in customers using their contactless cards to pay at the till, UK supermarket chain the Co-op has predicted that contactless transactions on mobile phones will overtake the use of cash within the next ten years (Finextra, April 2016). They predict that by 2025, 65% of all transactions are predicted to be by mobile phone, as it becomes the preferred payment method, "with bank cards and cash becoming a thing of the past like cheque books" (Finextra, April 2016). There is no doubt that over the past decade we have seen a tremendous global increase in alternative payment methods over the traditional cash payment. I personally do not remember the last time I paid for anything with cash. On my way to work, I use my contactless card as my oyster card, paying for my tube into and back home from work. I then grab a coffee and later my lunch, paying for both with my contactless card or Apple Pay on my phone – and I am not alone. Contactless payments have trebled in a year as more bankcards with the technology come into use and following the launch of mobile payments such as Apple Pay (Finextra, April 2016). We are now hearing daily of more innovative ways to make payments, ranging from multiple mobile payment options such as Apple Pay to biometric payments such as fingerprints and even taking 'selfies' as a method of payment using facial recognition. Just earlier this year we heard that MasterCard was preparing to bring facial recognition payment services to the UK, US and Canada, following research released in The Netherlands showing that the Dutch preferred selfies to passwords for online shopping authentication (Finextra, February 2016). Just a few days ago it was revealed that visitors to Japan will soon be able to pay for purchases in the country with just their fingerprints with the launch of a new system enabling fingerprints to be used as currency (The Telegraph, April 2016). The system, which will launch later this year, will involve foreign visitors first registering their details, including fingerprints and credit card information, in airports or other convenient public locations. Registered tourists will then be able to buy products, with taxes automatically deducted, from select stores by placing two fingers on a small fingerprint-reading device (The Telegraph, 2016). This will completely alleviate the need for visitors to change money before their trip and carry cash with them. However, despite the increasing amount of payment options worldwide, and the recent predictions by the Co-op chain, the forecast has been disputed by some. Royal Mint issued a statement in defense of the use of notes and coins. "The demise of cash has been predicted for a long time but it remains the currency option the general public turns to for confidence, convenience and security. Cash is still the most prominent payment method for UK Consumers and global demand for coins is as strong as ever" (Finextra, April 2016). However, we cannot ignore the changes in payment methods that we are seeing due to our own behavioural changes. New payment methods are more than just another way of paying for goods. Smart companies are using it to enhance buyer interaction with their products. The digital revolution demands that the customer be put at the heart of every journey. New global payments innovation is improving customer experience by increasing convenience, speed, transparency and security. (Raconteur, April 2016) By Lana Stevanovic, Consultant, iBe
By Pascal
According to a report by Reuters this morning, SWIFT, the global financial network that banks use to transfer billions of dollars every day, warned its customers yesterday that it was aware of "a number of recent cyber incidents" where attackers had sent fraudulent messages over its system.[1] Cybercrime attacks in financial services firms have rapidly increased in the last few years, which has made cybercrime the new bank threat for 2016. In 2014, there were 5.1m incidents with online fraud and 2.5m other cybercrimes in the UK. Additionally, statistics from a pilot study show that 2.1m victims experienced fraud with a loss of deposits and 1.8m victims experienced a fraud without a loss of deposits.[2] On top of that, Bank of England states that nearly half of major financial firms are concerned about the number of growing cyber-attacks.[3] So what is the greatest challenge banks face when it comes to cybercrime? Simply put, traditional banks are stuck with outdated systems and legacy infrastructure which can't always tackle the digital attacks. What about online challenger banks though? Are the number of cyberattacks at the same level? Definitely not! Fintechs that support these banks provide them with up–to date and brand new software. The new technology, the efficiencies and the disruptive solutions Fintechs offer, allow the new online banks to have better security for their sensitive online information. In fact, I would go as far as to say that with all the disruption in the market, the only firms that will survive the digital revolution are those that have the right security protocols in place. This is not a nice to have. This is essential if you want to play in the market. Traditional banks should take advantage of Fintechs partnerships and work with them to plug in risk and security solutions. For example, a way that online banking can become safer is by having Fintechs to send a SMS verification number to the user on the spot when something changes in their account; something that some banks are already doing. The same thing should happen when someone uses e-payments with a smartphone. Additionally, BehavioSec authenticates how users interact with their mobile phones and is able to recognise if they are the owners or not. Another interesting solution is provided by Ravelin, which scrutinises customers' data in real time, such as credit scores, and lets banks know which payments should go through or not, preventing fraud. Hence, banks can on one hand make sure that bank accounts are not hacked and on the other hand reduce not only the time of processing payments, but also the number of fraud payments, since they will know on the spot, if they should approve them. Cybercrime is definitely one of the biggest issues of the year if not the decade. However, the silver lining is that there is an opportunity for FinTechs to work with larger corporates and banks to find a solution.
By Patrycja
Just over a week has passed since the global elites assembled in the Davos alpine resort in Switzerland to discuss the world's economic situation. The intelligence of the Fourth Industrial Revolution that they shared has been travelling the globe since. Is it going to bring about the change envisaged by the world's economic leaders, or has the essence been dishevelled? Below is an overview of priorities per region.
The First Industrial Revolution recast production with the introduction of the steam engine; another spike came with the large-scale use of steel; the Third Industrial Revolution instituted renewable energy and new communication technologies. What we are living now is "convergence of the digital, physical and biological spheres" (1 – Fulvia Montresor, WEF, Director, Head of Technology Pioneers), which blurs the boundaries we are used to.
The world leaders in business, government and economy are preparing themselves for this global transformation. All the regions of the world have different focuses in respect to the Fourth Industrial Revolution: they vary from changing the corporate mind-set, through minimising the wealth gap, to enabling a sustainable and egalitarian development. These have been discussed during this year's World Economic Forum meeting, and the message is carried on by global dignitaries.
The EU aspires to spearhead this global economic transformation, spreading European values and economic strategy beyond its borders, revamping local governments, enabling societies, changing the way they use newest technologies and energy, saving planet's resources and allowing for an inclusive economic advance (2).
The World Bank adopted a similar position, but insists on minimising the wealth gap calling for more open data to help monitor the world's progress in an era of great technological enhancement. This will empower the most underprivileged regions of the world and help move people out of extreme poverty (3). In the United States, the focus is on working and middle classes. Vice President Joe Biden urges American corporations to change their mind-set and re-centre their approach on workers, facilitating affordable education and job training, and moving away from short-termism (4).
Asia's massive population must also embrace the new technological revolution and all that comes with it. Given the scale of Asian economies, the shift will be more drastic there than elsewhere, but, at the same time, it will set them up at the vanguard of this pivotal change (5). In Africa, productivity is on a pedestal – output must reflect and subsume available technologies. It is the only way for that continent to not be left out of the global economic transformation (6). Latin America focuses on sustainable and egalitarian development, one that will accommodate the region's social and political situation, and link it to the more advanced economies in Europe and North America (7).
The spotlight is on different issues in different parts of the world, but they share the same goal: using available technological tools and know-how to improve the economic situation we are in. The message they carry from Davos may not be identical, but the world's chiming is concordant and well-pitched. Artificial Intelligence, robots, 3D printers, blockchain, digital health and internet of things – these are not mere gadgets and gimmicks – they will change the way we interact, work and live.
And these changes should and will come sooner than we think (1). Embracing the Fourth Industrial Revolution will help bring about the shifts that the world economy urgently needs, so brace yourselves and don't withstand this inevitable force.
iBe Sources:
http://www.weforum.org/agenda/2016/01/a-brief-guide-to-the-technologies-changing-world http://www.usatoday.com/story/news/2016/01/20/biden-wef-middle-class/79069008/
By Natalia
Technology has been the driver of change in recent years. New arrivals in the tech landscape including mobile payments and business diversifications like M&S or Tesco cards have made innovation critical for differentiation. At the moment, Apple and Samsung payments coexist with cards, but the future may be different. The smartphone has already become the central hub for how we manage our lives. With fast changing trends and the increase of ferocious competition within cards, loyalty and engagement programmes have become a norm to compete for market share and build brand advocacy. Credit and debit cards companies, issuers, banks and even networks have their own loyalty schemes, offering points that can be redeemed for rewards. This is typically extended to hotel chains, airlines and football clubs. It started as a successful way of differentiation, but are these programmes really doing a good job of engaging customers with the brand and transforming clients into advocates? Furthermore, even if the overall membership numbers of loyalty schemes increase, it does not mean that the numbers of loyal customers are increasing. After all, taking out a membership does not mean you actively use it. So how do you build affinity? Customers want to have a full range of products and loyalty schemes to choose from. Taking it one step further, they want to be able to choose which brands to get loyalty points from and how to redeem them. Cardholders have become rewards bargain hunters, addicted to earning more and more points (especially when it comes to collecting air miles). Companies, on the other hand, are trying to increase profitability. Card schemes are already losing revenue due to interchange fee regulations. We are therefore seeing an uptake in companies offering redemption offers such as allowing customers to pay with existing points, converting points to cashback etc. This is not only convenient for customers, but also helps companies reduce the value of points, resulting in savings. Relying on loyalty points to drive engagement is a big risk; however, whenever companies reduce the value of points, disappointed clients can often move to cards with a better loyalty scheme value. Companies need to do more to stand out and create real "fans" of a product. Creating cobranded products, thinking beyond usual rewards offerings and considering how customer pools can be shared between brands will help companies secure a larger share of the pie. Big companies are already clawing back from points, relying on other projects and programmes to drive additional engagement. American Express, for example, has created Amex Offers and Amex Invites as additional benefits, maybe preparing the path to move away from pure rewards schemes. The MasterCard Priceless Cities programme offers issuers and MasterCard cardholders a huge range of offers and experiences within retail, fashion, art, cinema, music or sports. On top of the common rewards, customers can access raffles to win exclusive experiences that are impossible to buy. For me, the future of loyalty and engagement will come through experiential and emotional marketing and making customers feel involved, relevant and excited. There is a lot to be learnt from lifestyle brands and banks, payment and card schemes will benefit from putting the customer at the heart of the journey.
By Susie
There is a current buzz in the financial industry on the topic of how far disruption will go in the large incumbents and challenger banks. However, this discussion has tended to focus on the new technologies/functionalities of each bank rather than looking in a more holistic way at methodologies and culture. Whilst technology is obviously important, it is also crucial to look at the culture of each bank to understand their future. Here, lessons can be taken from the consultancy industry where these small challenger consultancies have been around for many years and the difference in culture is clear. Below, I've noted the five biggest differences that I have seen: Flexibility Management consulting as a job generally requires flexibility e.g. changing project and location with little notice. However, at larger firms there are still rigid processes in place to provide structure to daily working life. This structure tends to be a one-size-fits-all policy which is a necessity of large-scale processing. At a small consultancy, the internal processes are either more loosely defined, flexible or not defined at all, and it is up to you to create them yourself. This can be both exciting and frustrating! It provides the opportunity for you to make your own stamp there but can also mean that a lot of extra work is required to complete simple tasks. Competition At large consultancies there is a push towards a competitive attitude, driven through ranking systems and annual assessments. Learning this style of working can be useful both internally and on projects in certain scenarios. At smaller consultancies, there are simply far fewer people to be competitive against and, since there is such close collaboration with senior management, there is little need to compete with your colleagues at work. This leads to a more collaborative working style but there is also a danger that a lack of competition can encourage people to not work to the best of their ability. Personal development At a smaller consultancy, there is far less discussion of career development in terms of moving up the internal ladder. Within large consultancies, internal training and career progression play a large role and career discussions are centred on moving up the internal ladder. There are often compulsory training courses that consultants need to complete before they need to progress and the company will invest in a lot in training for consultants. At smaller consultancies, there is much more flexibility around career progression and there is much less of a process around being promoted. You can select the training that you go on but the courses are mostly delivered externally rather than formally internally. Therefore, training does not have the collaborative social aspect that it does at larger firms. Networking is outward rather than inward Within a large consultancy, your most important network is located within your office. Until you reach senior management levels, there is little expectation on you to generate new work or to develop client relations with an aim to discover new opportunities for work. At boutique digital consultancies, because there are not many people to network with internally, everyone needs to create professional networks outside the company! Project stance and methodology – solution ready Whilst this point is changing at larger consultancies, boutique consultancies still tend to use 3rd parties to create solutions rather than in-house. Large consultancies have a large pool of resources to create in-house solutions and tend to focus on customised projects that can take several months/years. Smaller consultancies do not have this capacity and therefore have to work with product partners and be 'solution ready'. They also have the advantage of being able to offer clients a wide range of plug and play solutions. As you can see from above, the cultures between both large and small are distinct but changing. As small consultancies get larger they take on attributes from the more established firms and there is also a pull the other way to cut red-tape and become more agile. Using this model to comment on the financial industry, this will be the topic of my next blog.
By Paschalis
Our society is becoming cashless; we can make digital payments, have contactless debit and credit cards and open bank accounts online. What about ATMs though? Are they adapting to the changing environment?
ATMs will be affected; hopefully for the good. The first ATM was installed in London in 1967[i]; however, ATM services haven't been enhanced and they are still offering basic functions.
Will they exist in a few years? ATMs will move forward over the next few years, because banks are trying to reduce operational costs and customers are changing their habits. By adapting to customer needs such as ease of access, convenience and seamless experiences will help banks to reduce costs and drive investments. ATMs can innovate by incorporating biometric solutions. Several companies have applied biometrics to their products and services in order to help customers skip passwords or make the purchasing process quicker, since a fingerprint or voice recognition are unique characteristics of every person.
Banks can learn from the above and increase the security level of ATMs, while offering quicker and safer results to customers. Can a cardless ATM exist? The ideal status would be to have ATMs that don't need cards to use their services. ATMs will recognise when a customer stands in front of it and will connect with the bank's application to provide a unique token number that customers can use only once and instantly. Smartphones will exchange information with ATMs through applications and they will be able to make suggestions on how much money customers should withdraw or will need in their near future depending on the plans scheduled in their smartphone calendars. Queries will be answered from frequently asked questions;
if the system is not able to respond, a bank assistant will be able to answer the question, without disturbing the customer's journey. Additionally, customers will be able to contact tellers through video conferencing in order to sort out in-depth demands. All the above will enhance the customer journey by concentrating several services into one product. Additionally, a feature that will have a significant improvement to the customer journey is the 24 – 7 enhanced ATMs.
Today, we have ATMs within bank branches, which offer more services than the ones outside of banks, such as depositing cash, applying to open an account or even count loose coins, and ATMs that stand outside of banks, which have basic services, such as withdrawing money, checking balances and topping up mobile phones. In the future, more ATMs will offer in-house ATM services and by being able to serve customers 24 – 7, they will offer them a seamless journey. Definitely some will argue that the above ideas have flaws; however, we should consider that the financial services offering is changing with the help of technology and mistakes will happen, but we have the opportunity to work on them, turn them to opportunities and deliver a future that will save us time from ordinary tasks and help us gain more personal time.
[i] TIME.com, (2015). Top 10 Things You Didn't Know About Money – TIME. [online]
Available at: Time.com
By Nick
I recently overheard a conversation between a young child and their parent about wanting to open up a bank account because of an advert they saw on TV. This sparked a conversation in the office about how banks are differentiating themselves from their competitors and appealing to all ages – which quickly turned into a discussion around gamification. Gamification, simply put, is an online marketing technique that encourages greater interaction with a service or product. What I am interested in is how banks are using gamification to develop their brand and, most importantly, sell products. There is a school of thought that believes that the best way to get your brand known is to let everyone "sample" it for free as nobody is going to say "no" to a freebie. However, consumer behaviour is changing. Humans are more emotional than they are rational and with the rise of social media "checking in" to the trendiest places and having exclusive access is becoming more fashionable; social status and standing is increasingly important to consumers. Therefore rather than giving away freebies companies should focus on perks that drive sales, even if it comes with a fee. How does this work for banks? Banks around the world are focussing on perks: in South Africa, interaction with a bank's social media page gives account holders the chance to watch the national rugby team play a match. A similar concept exists in the UK where being an account holder with certain banks gives customers the opportunity to win Premier League tickets etc. Although this appears to be a give-away, the winners are chosen from a pool of existing customers that display their entry on social media, this promotion in turn drives traffic for the bank. Banks are targeting potential customers of all ages and with varied interests. The advert that the young child was talking that about I mentioned earlier involved a moonwalking dinosaur. By prompting the child to visit the bank's website they sampled simple coding and had the opportunity to develop these skills further in a session run by one of the bank's high street branches. We are seeing a growing number of high street banks running similar courses aimed at helping older clients with the internet and social tools like Skype to increase foot fall and interaction. We have certainly moved on from the days of a free piggy bank. Games and online tools are making inroads to learning and to the management of finances. They are encouraging behaviours for sound financial planning whilst pandering to people's desire to be entertained. Do you have a view on this? Is it right to make everything into a competition or to force people to laboriously collect points for every human move?
By Emilia
Have you ever thought about how big the hygiene industry is? There are over a dozen types of toothbrushes, toothpastes and mouth washes available that all promise one thing – to keep our breath smelling minty fresh. In fact, I recently learnt that the mint flavour was introduced just to give us the illusion of freshness and boost consumer confidence. A very clever marketing ploy which plays on the insecurity of the consumer. It exploits a feeling that customers were not even aware they had until the products were promoted. The business strategy was to come up with a solution for a problem that didn't even exist. Customer experience is crucial for successful product launches. To drive customer loyalty you need to understand how your product is going to influence your customer's feelings. Companies that have learned this lesson well are now looking to discover more about their clients in order to come up with tailored products based on their preferences (and habits). According to IDC the big data market is expected to grow from $3.2b in 2010 to $16.9b in 2015. From music to shopping, data is utilised to find insights regarding customer preferences and developing the product to meet client expectation. Even banks are developing tailored products for clients. Familiar with the concept of future branches? Cosy and personalised spaces where we will no longer have to wait in line to speak to a cashier because the adviser will already know what products we are interested in, what we need and what suits us best. Even currency can be personalised depending on preferences. We have already seen Bitcoin take off. It is expected that the number of active Bitcoin users worldwide will reach 4.7 million by the end of 2019. Another new craze is about (a Scrypt based P2P digital currency). This personalised experience allows consumers to dictate how and when they transact. There is going to be an information boom. Right now 2.7 Zetabytes (that's 27 with 21 0s after it) of data exists in the digital universe . Did you know that 90% of it was created in the last two years? Every two days we create as much information as we did from the beginning of time up to 2003. (A day in big data) Companies have to change their management style to be prepared for the new customer. They have to have a fast patch approach to management. The lifecycle of a product is not going to be too long, clients will ask for more, they are going to be hungry for something new. As Hannah Arendt points out there is "a distinguishing line between truth and meaning, between knowing and thinking". It's about how you understand data and use it. Companies are analysing the behaviours and preferences of clients but the smart way of doing things is to understand the consumer to guess their needs before they do – proactivity is innovation. Know your audience to succeed and don't forget to leave your mark!
By Bianca
Workers are now more empowered than ever to use technology. Just check your Instagram and Twitter accounts. It's becoming popular to work independently on short-term projects from exotic locations, while on the beach or in the evening by the pool. Through the power of social media and clever technology platforms, workers are able to collaborate with their peers effectively and meet deadlines while working remotely. Entrepreneurs and employers alike are recognising the positive impact of flexibility. Employers are beginning to increase trust in their employees and in return are enhancing employee engagement. It's all about creating a world where workers feel empowered to be part of something bigger than themselves and I think this is what smart working is all about. We are moving away from a sense of 'presenteeism' to an environment where the focus is on achieving goals and working smart(er). Socially connected businesses have really embraced this. They operate through sharing knowledge and collaborating as a team. Internet connectivity has become easier too, which makes access to information and collaboration very swift. My mobile device makes the information I need accessible and available at my fingertips at all times. With reports that approximately 75 per cent of the world's population owns a mobile device it's only natural that this is going to massively impact behaviour and drive smart(er) working. The growing connection between human insight and technology has given rise to the HR analytics trend. Despite the challenge of too much data being made available and not enough analytic capabilities, companies are slowly employing the right experts to extract and interpret data. In turn, these insights into behavioural trends help to drive business outcomes and strengthen the workforce. As with HR, the challenge remains proving to the business its real value. In this case the way forward is to use analytics in a way that helps HR make better decisions not just around HR practices but also around key business initiatives. By 2025 two-thirds of the workforce will consist of millennials. This community is already driving transformation and encouraging a new mindset shift. They are encouraging greater agility, digitally literate skills and a focus on social technologies to connect in innovative ways. The way people think and work is changing. The traditional workplace as we all know it will no longer exist. But what does this mean? Businesses and employees are finding it easier to network with each other and connect across multiple channels and locations. Employees or contractors can take ownership of when, where and how long they will work for and what they want to pursue. But where do all these changes lead? The rise of independent style remote working is promoting a more flexible labour market. It is encouraging a new breed of specialists and entrepreneurs. With anyone being able to work from anywhere at any time, economic growth will be bolstered as more money is invested back into the community. There are so many companies that are working in smart ways, from Google, tech startups, creative agencies through to more traditional retail banks. Does our future look promising? Very much so. I believe millennials are a community of trendsetters who have the ability to revolutionise the world. They focus on making work meaningful and are committed to transforming their dreams into an outstanding reality.
By Patrycja
In the beginning of the digital revolution of financial services, cards replaced notes and coins. Now we can pay with our phones. Are virtual currency schemes our future? Bitcoin became the officially approved payment method in Germany. MintChip is the initiative of the Canadian Government. Euros can be exchanged to LiteCoin through Kraken Exchange. Bitcoin Exchange recently opened in Iran. The list goes on. Virtual currencies present extraordinary opportunities for truly borderless transactions, allowing independence, speed of transfer to anybody, anywhere, and at no transactional cost. Provided you have a computer. And internet access. Virtual currency schemes (VCS) do however carry important risks that need to be taken into consideration, and that regulators and financial authorities must examine very closely. Lack of transparency, stability and absence of a centralised issuer, as well as a heightened risk of money laundering, is to mention but a few. These concerns cause havoc in the regulatory framework: the integrity of the international financial system is at risk, the future of monetary policy is unknown, and financial stability is challenged. Regulators must promote the smooth operation of payment systems under prudential supervision, incorporating cryptocurrencies. Otherwise they will go out the window, and the system will govern itself. The European Central Bank (ECB) defines virtual currency as a digital representation of value that "in some circumstances can be used as an alternative to money". This interpretation seems to overlook the growing popularity of virtual currencies worldwide. The ECB is also extremely apprehensive about the price volatility of cryptocurrencies: in April 2013 you could buy Bitcoin for €914, a year later for barely €245. More expensive again in June 2014 (€490), and below €200 in February this year. Virtual currencies are inherently instable, the Bank claims in its report. For us, at the moment they are a gamble. But is it really in their nature or do they simply need an effective legal foundation in order to stabilise? For the time being, financial authorities warn against virtual currencies and its risks. The European Banking Authority warned consumers in 2013, and the governments and European institutions a year later in an opinion piece. Individuals and businesses do not however seem to be put off VCSs – on the contrary, cryptocurrencies are gaining ground. World Bank's slightly more open approach mirrors that trend, and sets out to educate the authorities and the public about virtual currencies through a series of conferences and forums dedicated to them. The Financial Action Task Force goes a step further and suggests how the risks can be alleviated and challenges associated with VCSs responded to. Unfortunately, some national authorities are very conservative in their idea of financial systems. France, the Netherlands, Belgium, India and Singapore issue warnings against virtual currencies, associating them with money laundering, and fiercely advise using traditional payment methods. On the other hand, Sweden, Germany, Denmark and Hong Kong, as well as the State of New York propose ways to embrace virtual currencies: allowing VCSs to register or extending its financial directives to cover the new currencies, which the businesses welcome enthusiastically. The speed of development of cryptocurrencies suggests that we will soon be witnesses to an evolution of virtual regulatory framework. Or will the traditionalists win this debate? Whatever the future holds for virtual currencies, they will most likely change the way we think about money and what it represents. Perhaps in a few centuries, coins, paper money and bank cards will be seen by future generations as antediluvian relics, collected and analysed by history geeks. Sources European Central Bank (February 2015) Virtual Currency Schemes – a further analysis [Online] Eurosystem.
By Akeem
Google, Amazon, and Apple are great examples of tech companies that have broken into new sectors such as financial services. Whilst ventures such as the likes of Apple Pay have focussed on payment services and wallet solutions, could it be time for banks to take the threat seriously? Can tech firms really rival the traditional bank? The main advantage tech firms hold over banks is the number of customers they have. The Financial Brand reported that Google+ (a social media platform for Google) had more than 300 million active users in October 2013. Apple announced that they had over 800 million iTunes account holders with most having card details stored as of late 2013. Compare this to traditional banks such as Barclays and HSBC who have less than 60 million customer details stored.[1] This poses the question – could tech companies create financial products beyond wallet solutions? Tech firms understand the importance of creating simple and successful user friendly products. This generates true customer value. For example, popular services such as Googlemail and Amazon's digital store have a large customer following. They therefore have a vast amount of data available at their fingertips which they can combine to create useful customer insights. This puts them in a great position to create more personalised products. A challenge banks are currently facing. However, although tech giants store more customer data than banks, it is important to evaluate the quality and security of data they hold. Banks hold a lot of sensitive data. Moreover, with all the regulations and compliance protocols, this information is kept safe. Research by Bizrate[2] Insights found that 72% of a 6000 person study trusted their bank with their card details. However, tech giants were listed much lower down on the survey with Amazon at 45.4%, Apple at 21.4% and Google at 12.9%. This lack of trust is also true for other areas within finance such as asset management, where the CEO of Create Research was quoted in saying: "People will hesitate about giving their money to a technology firm with no asset management DNA". This reaffirms the point that customers really need to trust the companies that keep their money. To sum up, one thing is for sure – tech firms are disrupting the market by redefining and questioning what a bank actually is. Whether they will eventually rival the traditional bank is yet to be seen but I will not be surprised if we see more and more tech companies integrate their products with existing financial institutions.
Sources: [1] Financial Brand [2] Computer Weekly
By Lana
We all know that banks across the globe are investing heavily in developing their digital banking capabilities in order to keep up with the digital banking revolution. I've come across a few interesting innovations already this year that are prime examples of how banks are adapting to changing customer behaviours. But who did you think qualifies as the next Uber of banking? Eastern Europe has been leading the way for banks who are trying to think of new and creative ways of making the customer experience as digital and convenient as possible. In particular, Poland's Idea Bank has taken a novel approach to the mobile banking phenomenon by launching a fleet of automobiles fitted with ATMs that can be summoned by smartphone on demand. Coined the 'Uber of Banking', Idea Bank has released BMW i3 automobiles, fitted with built-in cash depository ATMs, which can be called upon by small businesses using the Idea Bank Money Collection app (Finextra, April 2015). This is particularly useful as research conducted by Idea Bank has shown that one in three business owners use only cash transactions. This is a great idea, if only London black cabs provided such a service! mBank, another Polish bank which was founded in 2000 as a pure-play Internet bank, has grown to become the fourth largest retail bank in Poland. mBank's internet banking service and branches have won awards repeatedly in Poland and worldwide and has placed them among the top digital banks. Unlike other global banks who are stepping away from the traditional bank branch, mBank have committed to investing in a complete reorganisation of their branch delivery network by using the latest digital technology that is aligned with their award-winning online and mobile banking offerings (The Financial Brand, February 2015). They will also be supplementing this new distribution strategy with 60 mKiosks located in shopping centres around the country. Private and corporate customers alike will be able to use these manned kiosks to open an account, get a loan, get a credit or debit card, or open a savings, investment or insurance product, conveniently while out doing their shopping (The Financial Brand, February 2015). On the other side of the globe in Australia, The Commonwealth Bank of Australia is launching an app which will undoubtedly benefit from the publicity and momentum surrounding the forthcoming launch of the Apple Watch. The CommBank app for Android and iOS smart watches will enable users to check their balance on the go, locate the nearest ATM and make an ATM cash withdrawal without a card, using Cardless Cash (Finextra, April 2015). The launch of CommBank's app follows its neighbouring banks' footsteps. Westpac and St George, both also Australian banks, have previously developed apps to work on Sony and Samsung smartwatches respectively. These three examples are just a taste of the digital banking innovation to come this year. In order to keep up with competitors, banks are having to think of the most creative ways of enhancing the customer experience through digital channels.However, it is also important to bear in mind that, especially in the UK, many banks have legacy IT systems and structures that may hold them back from keeping up with the growing number of digital transactions which come through employing digital banking tools. Although they are able to invest in launching these innovative ideas and publicising them, do their systems have the capability to cope with the digital banking revolution or do they need to reimagine and re-invent these and quick?
By Lana
With three-quarters of 16 to 24 year-olds ready to ditch passwords in favour of biometric security measures such as facial or voice recognition, fingerprint and retina scanning (Visa Europe, 2015), it has become evident that many banks and financial institutions are trying to adapt to this growing trend.
Yesterday, Texas-based financial services group, USAA announced plans to offer consumers voice and facial recognition tools to log into their mobile app (Finextra, 2015). Following a successful pilot in a number of US States, USAA is ready for a nationwide rollout. The update to the USAA mobile app will be available for iOS and Android devices. Facial recognition will require users to look at the screen and blink their eyes while the voice recognition will require them to read a short phrase (Finextra, 2015).
However, USAA are not the first and definitely not the last organisation to introduce biometric authentication to replace traditional passwords. Traditional passwords are quickly becoming a thing of the past and it is predicted that more than 770 million biometric authentication applications will be downloaded per annum by 2019(Juniper Research, 2015).
Apple was one of the first to introduce biometric authentication to a mass global audience with the release of the iPhone 5S in 2013. Apple's Touch ID uses fingerprint scanning as a method of authentication and now has a number of uses, such as unlocking iPhones and iPads and authorising purchases in the App Store.
MasterCard also announced in September last year that they launched a pilot beta mobile app, testing out new biometric features (Bank Innovation, 2014). The app was given to MasterCard employees globally and they tested voice and facial biometric features in e-commerce transactions. The pilot processed 14,000 transactions and had a successful verification rate of 98% (Bank Innovation, 2014).
As we enter 2015, it is evident that a growing number of financial institutions are working on keeping up with market leaders by expanding and developing their biometric features. US Bank, Source (a New York City based start-up) and Barclays are just a few other named organisations that are currently doing exactly this (Bank Innovation, 2014).
It is important to understand that with this new method come certain risks attached, such as security features. Some users may be sceptical regarding the safety associated with using these new methods as it is still relatively new and security systems are still in their infancy. It is vital that companies implement the right security measures to ensure minimal risk and give user's peace of mind.
The extinction of the traditional password does not seem too far away in the future. How do you feel about biometric authentication and which method do you feel most comfortable using? I for one am looking forward to not having to remember so many different passwords (not forgetting the numbers and caps lock combinations).
By Emmi
Everyone is talking about financial technology. So let's start with some stats. A report from London and Partners last year stated that the amount of venture capital investment being made into London-based FinTech firms is over US$500 million, triple the amount raised in 2013. This is more than half of all FinTech investment across Europe. According to the Silicon Valley Bank report, Q4 2014 was the busiest time in FinTech history, with 214 deals taking place globally. London is being heralded as best placed to lead on FinTech innovation ahead of other global hubs such as San Francisco, New York and Hong Kong. In fact, Fintech is one of the three sectors that the Confederation of British Industry predicts will be worth a combined £300 billion to the UK economy by 2020. But are British banks taking full advantage? London might be the FinTech capital of the world, but British banks are slow to adapt to emerging technologies – a trend common across Europe. A recent Celent estimation predicted that IT spend by banks in Europe is expected to rise mere 3.7% in 2015, whilst the US equivalent is 4.5%. European banks already offer less mobile banking experiences to customers compared with American and Asian banks and IT staff numbers have also been cut since 2008. Furthermore, of the whole IT budget, approximately 28% is generally allocated to innovation but this is innovation within the organisation – so aimed at finding new ways to reduce costs, rather than creating new revenue streams. Some banks, however, are successful at cutting costs and still making improvements for customers. The Polish mBank invested £12 million pounds, created a concept of light branches equipped with Kinect technology powered touch screens and created benefits for both the bank and its customers. The number of bank accounts opened in these branches has more than doubled, the bank expects savings worth £9 million annually and customers have been receiving a more convenient service, supported by offers from partner companies. Similarly, the Spanish BBVA bank has made huge IT investments lately with an aim to improve its digital properties and serve its customers better. Their plan is to be the first truly digital bank in the whole world. In Q4 2013 they made a loss of £626 million but by Q4 2014 their profit was £508 million. In the UK, RBS is building the whole IT infrastructure for Williams & Glyn from the scratch. Results remain to be seen but this can become one of the interesting challenger banks of the future. We all know that the fall of Lehman Brothers in 2008 functioned as a catalyst prompting the global financial services industry to change. Stringent compliance testing and strict regulatory requirements are among the challenges banks face. But they also need to embrace the digital age and adapt to evolving customer behaviours. By 2018 only 25% of today's branches are said to remain open in the UK and by 2024 this has been reduced to 7%. Banks need to focus on developing their IT landscape to answer to the needs of customers because thefuture experience will be online. This means that FinTech should no longer be treated as a buzz word but a very real part of our everyday lives. Banks need to embrace the impact of FinTech or risk becoming obsolete. Digital disruption is an opportunity. Events such as this week's Finovate Conference, which we sponsor, gave us the opportunity to see upcoming innovations, trends and potential game changers for the financial services industry so that we can better apply these solutions for our clients. Sources: London & Partners FStech Forbes econsultancy
By iBedisruptors
Digital transformation is unstoppable. Digital is persistent, ubiquitous and affects every industry and business. This means that all organisations need to understand the impact digital will have on their products, services, systems, infrastructure and, critically, their business model and organisational structures. Today, despite the level of disruption, digital is only in its early days as mobility, analytics and agility fundamentally change the relationship between companies and their customers. The world of tomorrow is about connections. Individuals will find themselves interacting with hundreds of M2M devices as they go about their daily lives. Everything from security cameras, home appliances, traffic sensors, healthcare devices, navigation systems, ticketing systems, payment systems and even vending machines. Financial services organisations need to consider what a successful company will look like in the future and how digital disruption can be exploited. Major companies mistakenly assume that they are being digitally disruptive when implementing new technology portfolios or using tools such as online platforms, social networking, predictive analytics and cloud. This is not enough. Using new technology does not automatically result in digital exploitation. First, you need to reimagine your business and meet the demands of customers living in a digital world. Then you need to predict behaviours. Digital innovation has given birth to a new customer journey. It is transforming the way people interact, transact, learn and handle their finances. Companies increasingly find themselves in a situation where the customer is in control. So much so, that customers are directing and designing their own customised experiences. The digital customer cares about four things; convenience, simplicity, speed and insight. Customers want 24/7 access to services, response to any queries in real time and meaningful dialogues with the brands they interact with, across multiple channels and interfaces. They demand hyper customisation and are increasingly in control. The Millennial population are a good example of individuals who from a young age have grown up using a smartphone and tablet. What started out a tool to make phone calls when out of the house or office, is now something much more as the millennial population intuitively make all their important decisions online. Mobility infrastructure has expanded and diffused to the point where almost everything is connected to a network. For Millennial customers, bank branches need to offer more than just financial advice for the visit to be worthwhile. Technology is also uncovering new un-banked and under-banked communities. Banks are now finding themselves focusing their efforts on retaining customers and building brand loyalty whilst also competing with traditional institutions, challenger banks and non-traditional players from sectors as diverse as transport (e.g. Uber), retail (e.g. Amazon) and technology (e.g. Apple, Google, Facebook). Financial services companies must respond to customer needs quickly or risk losing to these smarter entrants.
By Rebecca
Insurance evolution. Working in digital, in financial services, one of the first responses I have to any new advances in technology, or digital progression is 'how will this affect a bank?' Increasingly now though, I find myself thinking, what about the insurance industry? 'Black box' insurance. Currently the majority of personal insurance policies are fixed yearly premiums calculated with some basic personal details – such as age, smoker status and weight. The biggest advance in technology, adopted by the insurance company in recent years has been the driving 'black box'. This usually means a lower premium and rewards drivers for good behaviour. What if the use of other technology could give insurance companies a whole host of information? Insurers would be able to vary premiums on a monthly, weekly or even daily basis, based on the policyholder's behaviours and choices- 'a black box' that monitors each individual. 'How very 1984' I hear you cry, outraged at your movements being monitored.'People wouldn't want to be tracked and traced in such a way'. I'm sure that's true……but then again, how's that GPS working on your mobile, that's never more than 3 feet away from you? (StoweBoyd) Implanted microchips. Four years ago now, in the US, the FDA approved implanted computer microchips for humans, that would store an individual's medical record history. Microchip developments could give insurance/assurance an opportunity to read and monitor a range of biometric information, which ultimately can be used to calculate the risk of the person's behaviour and lifestyle. (Inquisitr) Imagine if you tell an insurance company that you aren't a smoker. If you then find yourself puffing away on a cigarette, on a Thursday night, whilst out in the City; the insurance company will be notified via the biometric chip recording an increased level of nicotine in your body. They will then amend your premium accordingly. This is all based on your little white lie about that occasional little white stick. Conversely, an individual with high blood pressure, who makes healthy choices to get this into 'normal' range, could see a decrease in their premiums and see themselves be rewarded for their good behaviour. A drop of blood. Other advances in technology such as the changes to blood testing being developed by companies such as Theranos, could also be incorporated into calculating different forms of insurance premiums. One drop of blood can now be used to test for over 40 different diseases and afflictions. Theranos testing is already available at Walgreens, a large US drug retailer, and results are available within fours hours.Does this mean that insurance companies would offer lower premiums to those who submit to a blood test? (Businesswire) Implanted medical transmitters. Another implanted microchip, developed by a team of EPFL scientists, is a personal blood testing laboratory that sends data through your mobile phone, and can be automatically sent to your doctor and therefore, potentially your insurer. (Phs) 3D printing of organs. If you're happy to share your daily blood results, why not let the insurance company keep your DNA on profile? That way if the something bad should happen, the policy could cover you for new replacement organs, to be printed as and when you require, yes – widespread adoption of 3D printing has an impact on insurance too. This could be something that the insurance company cost into their premiums- the cost of producing a new heart with your own DNA, versus the cost of paying out on critical illness cover or an assurance policy. If you pay for a 3D organ printing service, should your premiums be lower? (CNN) However you look at it, the advances being made in technology, those that give access to more personal biometric data and especially those that potentially alter lifespan, will all affect the insurance industry. The question is how will an industry that is pretty stoic in nature adapt in response to these radical new technologies?
By Richard
Monday morning 5.30am iPhone alarm goes off…snooze…once…twice…ok I better get up my train is leaving in an hour! I'm up, ready and scrambling together some breakfast in the six minutes before my Uber gets here. The phone rings, it's the driver he's outside and I'm out the door. I arrive at the train station and I already know what platform I'm heading to (I've done this journey countless times) but I double check the National Rail app just in case! I reach the platform juggling my backpack, suitcase and coffee (finally collected enough loyalty points to get a free one). I franticly scroll through the Trainline app to get my mobile ticket. Finally, I scan my ticket through the checkpoint and get on board the train. Whilst on board I use my banking app to send some money to a friend to cover last night's dinner. Much quicker than having to find the time to go to the bank! This got me thinking – the annoying chores that once took up so much time are now a simple task that can be done from almost anywhere as long as you're 'connected'. Monday evening 8pm I finally make it home. I've not done too much walking today – I know this because my Fitbit band has been monitoring my activity and gossiping with the app in my phone. I'm alerted and given the guilt trip, so I head to the gym. When I get back from the gym I switch the TV on and like 64% of the UK population I'm 'multi-screening'; watching TV whilst browsing the internet on my computer, tablet or phone (Google Customer Barometer, 2015). The usual Facebook, news, Daily Mail (guilty pleasure), nothing too exciting but the adverts down the side prick my interest and I end up logging into my Amazon account. The home page is full of stuff I didn't know I wanted but they did! The struggles of daily life have shifted. We no longer have to physically go out to do activities and chores such as buy a ticket at a counter, call a cab office, walk to the bank and browse the shops for gift ideas! Alas, the new problems begin. Do I have enough phone battery? Is my WIFI connected? Is there enough signal coverage in that area? Did you know that the average person in the UK has 3.3 internet connected devices (10% increase from 2014), and 85% of us are online at least once a day (Google Customer Barometer, 2015). The level of interactions between internet devices is rapidly growing and is predicted that devices such as wearables will contribute towards an additional 17.6 billion connected devices by 2020(Mobileworld Live, 2014). Have you considered that out of the 'x' digital interactions you make a day you are creating a data footprint which helps companies to better understand your behaviour and consumer habits. This is what the clever companies use to provide hyper customised suggestions such as book recommendations on Amazon. What do your digital interactions and data footprint say about you?
By iBedisruptors
Cards make up the vast majority of payments within the UK, with over £47.8 billion (as of October 2014) spent through debit and credit card transactions. However, technology advances are leading to consumers demanding a more refined user experience and better security features. Does this mean we will see a shift away from cards? Emerging Economies Alternative Payment Methods (transactions without cards or cash known as APMs) outside the UK and US indicate that there may be a possible change. The growing stature of eWallets such as PayPal and Real Time Bank Transfer systems like iDeal in the Netherlands, suggest that there is growing interest among the millennial tech savvy consumer group. The rise of contactless payments in the UK (which saw a 227.1% rise between Oct 2013 – Oct 2014, Cards Association) also indicates that consumers are beginning to move away from cards. Many emerging economies around the world have sought APMs as their leading payment method as it is the best fit for their culture and infrastructure. An example of this would be M-Pesa, a mobile based money transfer system which is popular in Kenya and Tanzania. The service helps businesses control cash flow and allows customers without bank accounts to manage their finances. M-Pesa has been hugely successful as it helps those without access to bank accounts, permanent addresses and adequate transport to their banks make payments. Similarly, Boleto Bancário, a voucher system used in Brazil, has helped people to shop online and pay for their goods via alternative means. Mature Economies Cards remain popular in the UK and mature economies due to easy access to a bank accounts and better organisation to make card payments feasible. However, given the current cultural shift towards a more mobile community and a preference for a seamless customer experience, cards are likely to not see as high growth as previously expected. New entrants in the market will take advantage of the digital economy and provide mobility solutions for their customers. Could mobiles succeed cards in the next few years or will cards still be the most prevalent method of payment within the UK? By Akeem Bundu-Kamara
By iBedisruptors
Digital disruption is putting pressure on existing business models across a vast majority of sectors including banking, according to a recent survey of senior executives by financial services advisory, iBe. With the number of technology start-ups growing and predictions from the Confederation of British Industry estimating that FinTech will be worth a combined £300 billion to the UK economy by 2020,[1] it is no surprise that consumers are expecting more from their financial services providers. Chief information officers (CIOs) are under pressure to provide cutting edge, tailored, customer journeys. In fact, nearly half (47 per cent) of all innovation efforts across a broad range of sectors is focused on enriching the customer experience, highlighting the shift towards a human rather than product centric business model. "Digital innovation is transforming the way people interact, transact, educate themselves and even handle their finances. Businesses find themselves in a situation where the customer is in control. So much so, that customers are directing and designing their own customised experiences. This new wave of behaviour is ushering in the next generation of consumers and companies need to respond quickly or risk losing out to new players" said Phil Falato, head of Digital Transformation at iBe. "The new generation of customers only care about three things; convenience, simplicity and speed. To achieve this businesses need to make sure customers have 24/7 access to services, respond to any queries in real time and interact with their customers to build a meaningful dialogue. Interpreting data cleverly will help companies predict behaviours and ultimately sell more products and services" added Francesco Scarnera, CEO at iBe. Unsurprisingly, mobility and data analytics continue to trend highly, with 71 per cent of respondents citing these as having the most disruptive effect on their business. This was followed by social media (16 per cent) and cloud computing (13 per cent). "Almost 80 per cent of projects in this area are being aimed at enriching the customer experience and improving productivity in the workforce. In a break from the past, only 18 per cent of initiatives are now being focused on the sales force. This is a very stark contrast to the way things used to be 10 to 15 years ago" stated Phil Falato, head of Digital Transformation at iBe. Almost two thirds (65 per cent) of respondents identified lack of funds to invest in resources and cultural resistance to taking risks as the greatest barriers towards effective innovation. Only 21 per cent of respondents cited legacy and governance structures as a barrier to digital transformation. IT structures were created before the birth of the new digital world. Businesses are therefore battling with reconciling the need for real time operability and short term development cycles at the front end with inflexible back office long term development cycles at the back end. Given the number of online and mobile glitches customers have faced from retailers and banks, innovation strategies need to be implemented in the back and front end to create a seamless smart divide. "We have seen the death of the AIDA marketing model and the birth of a new customer journey. A brand is no longer what businesses tell their consumer it is, but what consumers tell each other it is. Yes, you need to prioritise investing in the customer experience at the front end but it's only worth it if you have the agile infrastructure to respond quickly" remarked Phil Falato, head of Digital Transformation at iBe. Whilst 41 per cent of companies encourage a bottom up experimentation approach only 16 per cent still have a formal process in place to drive innovation. Highly effective digital organisations foster a culture of innovation across the business, co-develop and collaborate with customers, achieve rapid and continuous innovation and learn through experimentation. They also recognise that innovation can be learnt from smaller, smarter, disruptive players. Fifty one per cent of CIOs interviewed see their role as a broker sourcing new technologies as opposed to finding a new way of delivering this in-house. "We found that major companies mistakenly assume that they are being digitally disruptive and innovative when implementing new technology portfolios or using tools such as mobile, social networking, predictive analytics and cloud. Using new technology does not automatically result in digital disruption. You need to drive a cultural change and identify the right partners to help you achieve the right solution for consumers living in a digital world" pointed out Roger Camrass, pioneer of today's Internet and Professor at Surrey University. "Innovation is no longer a nice-to-have or a PR-grabbing headline: it is fundamental to the business strategy of every successful industry-leading company. Technology – specifically through mobile and online channels – is empowering a marketplace for smarter consumption of products, giving consumers the balance of power they need and want to make confident purchasing decisions. It's essential that organisations fundamentally appreciate this shift of power and rise to meet their customer needs whether by incubating creative paths internally or identifying partners with the agility to offer solutions quickly and effectively " emphasised Clive Jackson, CEO & Founder, Victor.
[1] http://news.xinhuanet.com/english/euruope/2014-11/11/c_133782478.htm
By iBedisruptors
Scandals are everywhere (well at least not in Financial Services for the time being) and they can seriously hurt a brands reputation and reduce loyalty. Brand loyalty is a funny old thing – is it just a fabled myth that customers love your company so much and are so devoutly loyal that they would never leave? The recent scandal affecting the holy grail of the automotive industry (Germany) and Volkswagen is a good example. Some might have thought this company was untouchable – they had set the benchmark so high that even shampoo used their work to sell products "Alpecin – German engineering for your hair". However, a recent poll by YouGov BrandIndex has shown the damage to brand perception caused by the scandal for both US and UK markets. In one week the carmakers dropped to the lowest ranked car brand in the UK (out of 34) falling 31 places from 3rd and experienced a 37% decrease in share price to go with it. Public opinion counts for so much now and brand perception (and therefore reputation) can swing at a scary rate with influencers on social media giving their two cents worth! In this digital age trust and loyalty have to be built up over time and are extremely difficult to rebuild if broken. Customers want a frictionless customer experience, delivered to them when they want it, through the right channels, at the right time by their preferred supplier, and without their details being passed to third parties. All for free…is that too much to ask? Well no, because if it is then they will move on to someone else who can. This is something that banks have been taking very seriously. Having taken a slating post the 2008 crisis, banks are trying to turn things around and win back customer trust. However, the difficulty lies with creating loyal customers to a product/service to which there is not much affinity – let's face it banks aren't exactly football clubs (where they can disappoint you week after week and you keep crawling back *bitter football fan alert*) or lifestyle companies! They have to develop loyalty schemes especially as competition in this sector increases with new entrants reinventing the way we bank like Moven Bank which combines a financial service provider with a tech start-up. A good example is NatWest and their 'partnership' with National Rail to offer rail cards when you open a student bank account with them – a simple perk that pays dividends to students that live in their overdrafts. Other examples include retailers such as M&S who have moved into the financial services space and attracted customers by leveraging their retail brand loyalty and offering rewards such as vouchers to spend in store – a win/win for customers! Rewards are becoming increasingly important for businesses who are challenged with new age customers who prioritise convenience, simplicity and value for money over brand loyalty. By Richard Sandrove, Consultant, iBe
By iBedisruptors
Connections are not just "likes" on Facebook. A true connection requires creating a lasting impression and an emotional connection with your customer. It is widely accepted that followers of websites and Facebook pages who like the page or website fail to return to the original site. Consumers are lazy and often look to have content pushed to them. Thus result in website which remains 90% redundant. Developing a personal and emotional connection between your brand and your target customer allows you to transform them from an indifferent individual to a brand ambassador for your business. And thus from a fan to a customer. Fans who are customers are the commodity every CEO dreams of having. Digital innovation is an area of focus across a conglomerate of industries, but more than ever in the world of sport, where fans are a ready-made source of power to tap in to. For clubs and leagues in recent years the obvious answer to the question of how you develop a connection or engagement was to create content fans can access across multiple platforms and devices seamlessly. But it's more complicated than that.Now the emphasis is on exploring what you can do with the content you have and the data of new customers who want to access it. How does it all fit together to create a seamless experience that is going to return huge / significant or ROI value to the club? The answer can be found in investing in sophisticated CRM (customer relationship management) systems, marketing and digital engagement platforms. Michael Leavey, Media, Marketing and CRM director at Arsenal FC puts it simply: "The convergence of data and content is the key thing." Arsenal have a whopping digital target of £50 million in revenue – and amongst the premiership clubs this isn't even out of the ordinary. Arsenal used to charge fans to access the content they had on their website – the Arsenal TV channel. Arsenal is a great example of a club that recognises the value of broadening out their potential fan reach through providing free access to great content. The key is taking the club experience beyond the stadium via digital platforms. Those organisations that can boast they interact with their consumers on a daily basis will be the early adopters will be the real money winners. So what's the current status quo and where are we heading? Clubs are forever thinking of ways to encourage fans to engage more. To get moreinformation on who they are and what they like to do in their spare time, to leverage this data to engage more, and to monetise that connection more. The new kid on the block now is wearable sports technology. The emphasis with these innovations is in fulfilling the customer's desire for first-rate multimedia and enabling an interactive experience. According to recent studies the majority of word of mouth activity is driven by experiential brand experience. If brand experience is inherently social, then high-quality digital apps that fuse compelling videos and unique rewards are exactly what hits the mark. We are already seeing a rise in the acceptance of cashless and wireless stadia, along with an increasing number of sophisticated mobile apps to deliver breaking news and real-time fan experience. (These exist today) Imagine tapping into a stadium turnstile using your electronic season ticket (that doubles as a payment card) with a dedicated mobile app wrapped around it. As you walk to into the stadium, the map on your mobile application helps you locate your seat. During your walk a notification pops up to remind you that if you want to order your usual half-time beer on your phone now, you will get a 25% discount and be able to collect it without having to wait in the usually long queue. These are the types of solutions we are helping our clients to develop. Once the game is over, the club engages with you 365 days a year, profiling your movements and gaining more intelligence in order to improve and personalise your experience in advance of next weekend's match. Plus, the club will offer one-of-a-kind rewards in order to encourage you to use your payment card outside of just the stadium – so it's a win-win situation for club and fan. These are exactly the kind of data monetisation programmes businesses will benefit from. It's a fascinating time for brands if they can harness the power of the consumer and those that can champion this new-found control are the ones that will achieve prominence. The future is exciting and technology breaks boundaries daily the question I would ask is "What do you think the future holds?" By Jordan Rothman, Senior Manager
By iBedisruptors
SCORE BOARD: Sports Industry 1 – Financial Services 0 It's quite well known that sports clubs like the New York Jets and Liverpool FC have fans that are willing to go above and beyond to declare their support and loyalty to their clubs. However, you would struggle to find such an individual with the same amount of enthusiasm and passion for their bank. I recently attended the Leaders "Sport Business Summit" in London to delve deeper into how these institutions have solved this puzzle, while hurdling obstacles like the digital revolution. Sports clubs have been successful in driving customer engagement. How do they do this? They focus on loyalty and rewards. Many sport clubs are experts at getting customers to engage with the club more – whether it's offering chances to see new products first or sneak peak at next season's kit (Amanda Vandervort from Major League Soccer). In the banking industry, the traditional approach has always been tailored around providing great incentives to new customers while sometimes neglecting long term customers. However, rewarding active and engaged users regardless of how they bank, whether that is online, mobile or in branch, would potentially improve the customer experience and elevate customers from frequent customers to brand champions. Gamification, Mobile Reward Points and Exclusive Sponsorship Benefits are successful initiatives that have been implemented by multiple financial institutions such as NatWest and Aviva to enhance loyalty with their brand. The sports industry understands that their fan base is diverse and taking advantage of these differences can help build longer lasting relationships. With improvements in gathering data, sport clubs have quickly adapted to their growing audience and now create content specific to those customers' needs and interests. In every area where fans come in contact with their favourite sporting brand, there lies an opportunity to enhance that knowledge. Football clubs like PSV Eindhoven have started to capitalise on this by increasing data gathering and manipulating it quickly by using real time information about their fans in the stadium to then create personalised marketing material during the intermissions and at the end of the games. Financial institutions are learning such practices with the aid of big data platforms to increase brand loyalty and advocacy. Finally, one of the main topics that was promoted by every speaker at Leaders15 was the constant communication between fans, players and teams. This helped reinforce what made their community unique and build more trust between each stakeholder over a period of time. Andrew Wilson @ Electronic Arts, for example, spoke of the success of connecting players with each other in a network, their experiences and the firm. The current digital landscape has helped them to strengthen all three areas dramatically while financial institutions are still lagging behind in these areas. Truly absorbing the benefits of omni-channel and creating engaging experiences for customers should be a crucial aim for financial institutions. Barclays Code Playground and Digital Eagles are great examples of this – they provide older and younger customers with new skills and build their brand without pushing products. More user engaging schemes like this will be popping up as banks realise the benefits of building closer relationships with customers. Can banks ever realistically achieve customer loyalty in the same way sport clubs can? Probably not. However, through adopting a customer centric approach financial services institutions are heading in the right direction. FULL TIME: Sports Industry 3 – Financial Services 2 By Akeem Bundu-Kamara, Consultant at iBe
By iBedisruptors
Big thank you to Clive Jackson from Victor, "the uber of private jet travel", for joining us as a guest speaker at the launch of the iBe Disruptors series at the Royal Exchange today! Great names in the audience and interesting debate around the state of digital innovation and disruption in major companies today. (photo: Francesco Scarnera – CEO of iBe, Roger Camrass – University of Surrey, Clive Jackson -Victor)
By iBedisruptors
Techcrunch indicates that more than half a billion people access Facebook solely from their mobile today[1]; however, it is expected that only 214 million people will use their mobile for banking in Europe by 2018[2]. Why is the banking sector lagging behind? We know that the banking sector has started innovating in the last few years and large investments are taking place in new internet infrastructure and applications. However, progress is still slow. Banks are beginning to recognise customers' needs and that they want to live in cashless, paperless and faster societies. As a result, all banks, even traditional ones, are trying to reposition themselves within the digital environment, as they see potential returns and growing necessity. However, Facebook has grown massively in less than a decade and during August it saw 1 billion users online in 1 day. This means that 1 to 7 people on Earth used Facebook on 1 day! Unbelievable! Congrats Facebook! Facebook's growth has been built on two fundamental things, our modern lifestyle and a creative culture, which the banking sector should try to incorporate to aid it in the digital revolution! Modern lifestyle: One of Facebook's strengths is that it fits into our modern lifestyle. Users can complete multiple tasks through it without leaving the application. For example, they can read the news, chat with friends through Messenger, make a call on Skype & upload a picture on Instagram. By having this in mind, the future of digital banking belongs to an offer that has many services connected to a platform, which will provide the opportunity for cross selling opportunities and ability to engage more with the digital journey. If banks could offer a platform, in which all their individual applications from different countries could be found, customers would be extremely satisfied, because they would save time and enjoy a better customer experience. Additionally, banks could offer multilingual services, although it is not a top priority for customer engagement. Facebook is offered in a range of languages, making it easier for its users to use it in the language they feel the most comfortable with. Banks could make their online services environment more convenient indirectly by letting their customers use them in the language they prefer as well. Creative culture: Facebook has an open office plan, flat hierarchy and cloud scalable infrastructure. It bases its model solely on what customers like and lets employees' creativity flourish. Unfortunately, one of the reasons that we have not seen much innovation in the digital landscape of banks is due to their internal culture that has not been developed a lot since 2008. Digital innovation for banks, mainstreams or innovative ones, should change. Traditionally, banks have had a strict top-down authority culture, driven by headquarter decisions and process maps that make change a time consuming task. Moreover, banks don't have the same level of digital skills and infrastructure that Facebook has, since Facebook was invented and expanded within the technology revolution. Banks should focus on what Facebook has achieved and encourage out of the box thinking. Additionally, banks need to place customers at their heart of strategies and operating models and let their employees, especially the millennials, become part of the decision making process and recommend potential next steps in the digital environment. The above will help them increase their customer base, reduce costs by restructuring branches thereby increase profitability. So, can banks change as quickly as Facebook? Probably not. Can they learn from Facebook? Definitely. A good start would be the change to adapt to the modern lifestyle culture consumers demand. The rest will follow. By Paschalis Athanasiadis, Consultant, iBe [1] Ha, A. (2015). More Than Half A Billion People Access Facebook Solely From Mobile. [online] TechCrunch. Available at: http://techcrunch.com/2015/01/28/facebook-mobile-only-2/ [Accessed 14 Oct. 2015]. [2] Flinders, K. (2014). Over 200 million Europeans will use mobile devices for banking by 2018. [online] ComputerWeekly. Available at: http://www.computerweekly.com/news/2240235770/214-million-Europeans-will-use-mobile-devices-for-banking-by-2018 [Accessed 14 Oct. 2015].
By Stephanie
In the upcoming years it seems of significant importance to push banks to re-think the heart of their business by focusing on: transaction processing (i.e. payments), deposits and loans. Although, at present, banks are rivalled only peripherally in the area of payments, disruptive change should ultimately have an impact on the other two types of services (although for now, banking regulations do not allow it). A new payment environment The strong growth of smartphones and tablets has created a new payment environment in which non-bank players deal with transactions between buyers and sellers in real time and, above all, without any intervention of the banks. In order to process transactions, some of these new means of payment, such as Apple Pay, have either expanded, changed or partly bypassed traditional banking networks. Despite these transactions, banks lose access to customer information and a significant part of their business. Remuneration of top deposits outside traditional banks A growing number of stores offer a wide range of deposit options to their customers, some of which offer a higher return than guaranteed by traditional banks and have the advantage of convenience in terms of liquidity. At a time where an increasing number of non-bank players are entering the activities of deposits whilst offering attractive alternatives to their customers, banks are facing a growing challenge in what was previously their exclusive prerogative. Banks are being challenged The pre-specified examples show that banks are challenged in their traditional role as intermediate for risk and transaction management. If the new disruptive competitor banks are still considered marginal, the disruption is mainly noticeable in retail banking and in particular payments, the current "stream" could easily soon turn into a real issue. What should banks do? – Banks firstly need to re-evaluate their own contribution to the value chain that is being created and identify where they can provide consumers with added value. For example, leaving the choice of different clients to payment options while providing them with a comprehensive dashboard provides an overview of their personal finances. Banks should then adapt to new trends and engage in new areas of activity, whilst using the brand, trust, technology and the bank's network as strong selling points. Finally, financial institutions should work hand in hand with non-bank players. Thus, three major banking groups of cards, Visa, MasterCard and American Express have adopted Apple Pay. Banks should launch their own peer-to-peer platforms If banks and large financial institutions are increasingly active in the field of loans between individuals by offering loans on credit peer-to-peer platforms, what could be the next step? – The next step could be to acquire or launch their own platforms. Moreover, banks should abandon the strategies that consist of focusing only on the "online" in favour of policies that give priority to mobile. This is toguarantee a well designed and user-friendly experience on mobile applications and to optimise mobile websites. Finally, banks need to strengthen the protection of client data and computer security, in order to reassure clients when doing their banking on the go, in that sensitive personal information is at stake. Driving these changes to the generation of the millennial and banking digital natives will not be an easy task. Mobile banking, which should be available 24h / 24 and remain at all times friendly, must guarantee financial data security at any moment. In order to keep one step ahead, banks should build their new competitors and focus on setting innovative trends based on disrupting, re-imaging and re-inventing the financial landscape.
By Akshay
In the digital world, the advent of social media, mobile including the smartphone takeover means that a population traditionally deemed too young to take financially independent decisions are in fact constantly doing exactly that.Purchasing apps, music, online content, books for kindle, clothes through online shopping, food, and deals on Groupon are just a few examples of the financially independent decisions children are making. In fact, not only are they making these decisions and transactions using their iPads and smartphones, they are also influencing parental spending patterns. This begs the question – how are banks helping to educate the millennial generation? The "unbanked" or "underbanked" are a population of individuals who either do not have access to bank accounts or choose not to use a bank for financial transactions. According to Accent, there are one million unbanked individuals in the UK – which might not seem like many if you consider that half of the world's population are unbanked[1]. What is incredible is that these estimates fail to include young adults (typically between 7 – 17 years) within the unbanked category. This is because they do not earn an income so traditionally would not need a bank account. Banks have traditionally concentrated on approaching adults when they enter university and require a bank account to access their student loan and allowance – knowing that it is unlikely graduates will switch accounts after they leave the education system. Having said that, in the last decade high street banks have introduced accounts and products aimed at children over 11 years. While thesebank accounts for young adults and teens have been operational in the UK for a number of years, the uptake of these accounts is only about 25% of which only about 30% are active[2]. What these numbers don't reveal is how many of those 30% are actually getting a financial education and 'managing' their own accounts or is likely that parents are 'managing finances' for them. Many financial banking products fail to teach financial planning, budgeting and do not teach young people the value of money. Rather, they serve to drive consumerist habits. Young adults are thrown into the world of money without adequate guidance and/or education from schools/parents in their developing years. For many, starting university or getting their first job is the first touch point with a bank. The result – rise in poor borrowing practices, improper financial decision making and a vicious cycle of debt and overdraft. The most shocking statistic of payday loans is that 17% of 18-34 year olds have payday loans[3] as of 2012 with the figure set to rise exponentially. There is a real need to develop products for young adults – not only to help them correctly manage their money but also to educate this population on how to make appropriate financial decisions securely. A few London start-ups have identified this opportunity and have launched products to help young adults manage their finances, a well-known example being Osper. Despite these advances, I believe more is required to really engage young adults on this topic. Financial education classes are not enough, what about using gamification? Young people need to take their financial education seriously and banks need to help them do this. Why do they need to? Because building a credit rating is one of the main ways you can build an identity in the traditional financial system in the UK. In fact, a healthy credit score impacts your loans, mortgages and even business ventures.
Sources: [1] http://mckinseyonsociety.com/half-the-world-is-unbanked/ [2] https://osper.com [3] https://www.r3.org.uk/index.cfm?page=1114&element=18969
By Mike
How did my time at iBe compare with expectation? Truth be told, I was a little anxious about what my two month paid internship would entail, beyond the initial brief of the main project I would be working on. So on my first day I entered the building with a slightly nervous but open mind. One thing made quickly apparent was the warm welcome I would receive and my initial apprehension about my time at iBe faded quickly. As such, when requested to bring an object to the summer offsite that I felt symbolised iBe, I chose to bring a welcome mat, for which I was handsomely rewarded with an Oscar for "best use of prop" in our film making exercise. Or at least a trophy resembling an Oscar. This environment meant that by the end of my internship I really felt like a permanent member of the team and not just a temporary colleague. iBe is a management consultancy helping financial services take advantage of the opportunities presented in the digital world. So where did I fit in? My part to play was to help formalise our contractor resourcing process. In doing so I had to evaluate not only what appeared beneficial to me but also how those in the future would be utilising it. Whilst I had some passing experience of what the project side of consultancy involved, considering step by step processes filled in the gaps and meant I was exposed to a range of aspects of the industry that I was previously unfamiliar with. Something I really enjoyed about being at iBe is that despite being part of Be, the major consultancy listed on the Italian Stock Exchange, it had the vibe of a start-up and a fast paced energy. There was a real sense of "why do we do that, this way?" even if that may have been questioning the way things were always done. As a current student of maths and physics, I really appreciated this critical approach to situations. The genuine social environment has made my time here really pleasant and my farewell lunch at Nando's comes in as a personal highlight. From a work perspective, my time at iBe definitely proved personally valuable and an experience to learn from. Plus, spending lunchtimes on the grass outside St Pauls in the sun wasn't so bad either.
By Bogdan
I am tech savvy. I demand that my purchasing experiences be digital and mobile. I no longer perceive location as a barrier to accessing or sharing information. I am impatient with manual processes. Yes, you guessed it, I am a millennial. I am getting pretty close to the age when I should be thinking about buying my first house. Arguably, the most important investment I will ever make and one I will likely need to take a loan out for. Surely this makes millennials a target audience for banks looking to sell mortgages? One would expect banks to be leading the way in terms of digitising their processes and aligning to the behaviours of consumers when it comes to mortgages. While significant strides have been made recently in this direction, we still have a long way to go to reach a fully digital experience when applying for a mortgage. Let's have a look at the typical application process. The applicant fills out an online form and gets contacted by the bank within 48 hours to schedule an appointment. At telephone call stage the applicant is informed of all the needed documentation (bank statements, ID, proof of address, P60 documents etc.), which should be gathered and sent to the bank prior to the mortgage adviser appointment. Due to tough Mortgage Market Review rules applicants need to be assessed very thoroughly and thus the average duration of a meeting is 2.5 hours, leading to several weeks of waiting time before an appointment takes place[1]. At the appointment, the adviser goes through all the documentation, a detailed (traditional) credit check is carried out and the application is approved or rejected. By the time a first-time buyer receives a formal answer he/she will have already spent 85-100 days in the process, as generally additional information is needed once the appointment takes place[2]. By that point some property owners decide to withdraw their initial offer because they already found another interested party! Some of the problems here: the documentation needed is often unstructured and collecting it is a very time-consuming process; manual processes in combination with physical documentation increase the length of the process, error rates and risk exposure; traditional credit checks are not necessarily accurate and reliable. Now let's give this a digital spin and reimagine the process taking place thus: the applicant goes to the bank's website and by using e-signatures the initial form is automatically filled out and possible times for an appointment instantly show on the screen. After the applicant selects the most appropriate time for an appointment, he/she is prompted to give access to specific documentation which is already stored securely online in order for it to be assessed prior to the mortgage adviser appointment. At the same time, the credit rating of the applicant is evaluated employing tools that also include non-traditional sources such as social media (see kreditech.com) which makes the rating more accurate and reliable. Since everything is now automated, most of the evaluation is already concluded by the time of appointment, reducing both the appointment's duration and the waiting time. Should additional information be needed from the applicant's end, the bank can access this remotely, provided the applicant grants access. Once legal checks are in order the applicant signs the contract remotely using again e-signatures. Throughout the ongoing mortgagee-mortgagor relationship predictive analytics will signal whether there is a risk for the mortgagor to default based on spending behaviour, gamification tools will train the mortgagor to better manage his/her finances and communication will be maintained via omnichannel tools. I'd imagine this to shorten the current process by more than half while at the same time cutting costs significantly. Very futuristic, right? I beg to differ. There are in fact software vendors out there who provide such solutions at this very moment; some of them are Euronovate for e-signatures, yoyoData for secure data sharing and AdviceGames for gamification and predictive analytics. It's just a matter of being proactive and open minded. And then there's the integration with the legacy systems – but you were not expecting this to be that easy, were you? Sources: [1] http://www.theguardian.com/money/2014/apr/25/mortgage-rules-homebuyers-fca-rules [2] http://www.thisismoney.co.uk/money/mortgageshome/article-2604328/Mortgage-applications-small-deposit-takes-100-days.html
By Akshay
According to the Future of Finance report by Goldman Sachs, 33% of millennials do not think they will need a bank in the next five years[1]. In fact, according to the Millennial Disruption Index, 73% of millennials are more excited about new offerings in the financial services space from the likes of Google, Apple and Amazon. Moreover, 71% would rather go to the dentist than listen to what banks have to say[2]. So how do banks convince, engage and make themselves relevant to this unbanked population? And why is it important for them to do so? By 2020, millennials, one of the largest generations in history, will be dominating the workforce, moving into their prime spending years and reshaping consumerism – forcing companies to rethink the way they do business. One problem facing banks is that millennials view brand loyalty differently. This group is concerned with convenience, simplicity and innovation. Also, in recent years, we have seen non-financial institutions such as tech giants and start-ups challenging the status quo and tapping in to this unbanked populatione.g. through Apple Pay, Snapcash etc. Tech companies have benefited from gamifying the product and user experience. After all, gamification has been used by schools and parents alike for centuries as a tool to educate young people. Quizzes, riddles, crosswords and puzzles make learning more interesting. But what is gamification in the digital sense? It requires using game thinking and game mechanics in non-game contexts to engage users in solving problems in order to encourage contribution and participation. Ipads and tablets have given rise to a new type of gamification. For example, E.ON energy have developed a gamification based programme which allows young people aged 5-16 to make virtual decisions throughout the various stages of energy production including about distribution and consumption so that they can see the effects of the decisions they make[3]. Gamification can also work for banking to help them engage and interact with the millennial generation. Applying game mechanics to real life scenarios – allowing virtual decision making in order for participants to see the effects of the decisions on financial wellbeing. Designing simple and easy games tailored for particular age groups to foster an appreciation of the value of money, importance of saving, planning and budgeting. Creating practical financial products that can be used alongside gamification to create real engagement and promote hands-on experience To me, gamification is a new way to entice both interested and non-interested millenials in banking, as it makes financial education fun. Gamification does not rely on internal motivation, but rather on providing instantaneous feedback and incentives, and rewarding tiny steps of progress, which in turn ramps up engagement with users. Financial education no longer needs to be a boring classroom activity, but a virtual reality experience. You can read the first blog in this series by clicking here. [1] http://uk.businessinsider.com/millennials-dont-think-they-will-need-a-bank-2015-3 [2] http://www.millennialdisruptionindex.com/wp-content/uploads/2014/02/MDI_Final.pdf [3] http://www.eonenergy.com/About-eon/EnergyExperience/658