Archive for December, 2016

The Future of UX in Banking

December 29, 2016

Virtual reality, voice recognition, artificial intelligence, augmented reality: these are the technologies that are set to change the way we interact with each other and in business. They are the way of the future, a future not that far away.  They will have a huge impact and are already making their mark.

 

This is especially true in financial services where they promise to make the user experience richer, more efficient, more effective and more convenient. Barclays recently introduced voice recognition software for phone customers, cutting out the need for multiple security questions and passwords. Meanwhile, Santander has an app that allows customers to voice questions about their transaction history rather than have to search manually for the data. The result is speedy access that can’t be matched in branch.

Finding the right use for the technology is all it takes. You probably aren’t going to want to be told your account balance in front of your children or parents, for example. But voice control is ideal when banking blends into the background of everyday life – buying lunch, booking theatre, train or bus tickets, or paying bills.

Not sure if it’s your mother’s birthday next week? Ask your phone to check your diary, get the date, find a local florist, choose some flowers, look up her address, check your balance to see if you can afford them, pay for them, get a receipt, know they’ve been sent, get your new balance. All by talking to your phone.

There are already hundreds of thousands of developers working to plug in new voice driven services to make our lives easier, and many will have a financial or banking element. Banks are also on the case. At least 10 around the world have launched chatbot services in the past three months alone as adoption moves from the early to the fast follower stage. Mass market will depend on how quickly the analytics mature to make the interactions truly smart.

The successful ones will be those that add value to the users – the customers, us. This means banks need to make sure they are looking beyond banking. It’s about the role they will play in the background. Successful banks will enhance their services and role by pushing analytics further and become data generators rather than data capturers, and from this they will provide value-added services.

When banks collect and analyse data they can do so much more. Combined with artificial intelligence, and augmented and virtually reality, banks will be able to help customers manage their money so much better.

I love the idea of a VR meeting where a customer’s total assets and commitments can be clearly set out. Advisers can come in to offer suggestions about making the income and assets sweat, according to the customer’s risk appetite. Does it make sense to release some equity in a house to invest in a higher yielding product? Would buying a cheaper insurance policy with a higher excess rate make more sense as the customer’s claims are historically low? Not only would the bank be offering advice, the connections and inter-relationships between it and third parties mean it would be able to affect any changes. The more data across the population a bank has, the smarter the system can be, the better the advice it will be able to give.

Perhaps the most exciting prospect in all this is augmented reality. Shopping, you pick up an item and the screen you’re wearing gives you availability, reviews, the best deal, and compares alternatives. You can access finance, order, and pay. It’s not just going to be glasses that can do this; Google Lens is already patent-applied; VR systems will get there; car windscreens; school whiteboards. This is going to be really powerful from a user perspective.

Together these technological advances have all been termed the Fourth Industrial Revolution. It has arrived and its impact is being felt. The banking sector might think it has a choice. It really doesn’t. Their customers have seen the future and are demanding it today.

Solving The Legacy System Problem For Big Banks – Is There A Solution?

December 15, 2016

Despite the considerable risk involved in removing legacy systems, not all big banks are hesitant to attempt to combat the problem, including NAB. Yet NAB’s implementation of a new core banking platform has been accused as the reason for the multiple online and mobile systems failures the bank has encountered this month. Though NAB are actively attempting to rid their system of the cumbersome legacy issues, the process of the change has presented new difficulties that are likely to affect the trust customers have in the bank, and their quality of service. Similar incidents seem likely to increase for banks with large systems requiring a complex overhaul, due to the size, scope and timescale of this change. The reputational damage system failure can incur works in the favourite of smaller fintechs and incumbent banks, who are unlikely to suffer such outages due to operating on far more reliable architecture. With the risk of upgrading been proven by such incidents, the notoriously cautious established big banks may become even less likely to consider addressing their core system issues, limiting the extent to which they can take advantage of digital products and transaction increases.

Yet system failures are far from exclusive to banks attempting to combat the issue, with big banks RBS and HSBC facing similar technical difficulties this year due to the weakness and strain on their legacy systems. Both types of system failures, whether from upgrading or refusal to upgrade, are likely to impact customer loyalty, particularly that of Millennials who are content to change their bank more frequently than older generations. Paired with the increasing competition in the market from digital banks free from the limitations of legacy systems and able to innovate in-line with the changing customer demands, the immense difficulty faced by banks “too big to scale” could lead to a declining customer base and inability to offer competitive products.

Big banks’ architecture is already struggling under the pressure of changing banking habits, and the growing preference for digital options renders change imperative. Yet the risk involved for banks of such scale is of considerable consequence, but waiting too long to upgrade will only aggravate the problem. Big Banks appear to be facing a Catch-22 – upgrade as soon as they can in order to remain competitive and encounter issues like that of NAB, or allow caution to win out and not attempt to rectify their scaling issue until it becomes impossible to ignore, by which point they may have fallen too far behind competitors for upgrading to be of use. For either option, both face the threat of not having enough time to overhaul their system to compete with new digital banks, falling too far behind to catch up.

Clearly, scalability has far reaching consequences and is crucial to a bank’s continued success in an increasingly digital world, where technology is advancing faster than ever before. The multitude of possibilities new innovation brings create new problems for large banks; where size was once an advantage it is now an obstacle. Being “too big to scale” is as great a threat to a bank’s survival as new competitors saturate the market, and the inability to scale could severely alter the banking landscape.

Will Industry Progress and Innovation Be The Downfall Of Big Banks?

December 8, 2016

While changes in payments trends from consumers are placing increasing strain upon large, traditional bank systems, they aren’t the only force altering transaction and data volumes. The European PSD2 regulation requires banks to adhere to standardised changes intended to improve the industry, bringing significant, unavoidable adjustments to an industry infamous for being stationary and resistant to change. The PSD2’s focus on the role of AISP’s and PISP’s will drive both interaction and transaction as well as competition, and the direct connection between banks and retailers through use of APIs will lead to innovation and new opportunities. Banks are beginning to realise the use of APIs affords a chance to create a larger ecosystem of value for their customers, with some venturing to offer innovative third party apps through their own marketplace. This concept is already underway in BBVA’s API market, and is likely to become a popular means of adding value for customers, as well as boosting transactions and interactions. The implementations of PSD2 requirements provides banks with an excellent opportunity to innovate and differentiate themselves from competitors; a particularly vital opportunity for bigger banks threatened by digital competitors offering speed and ease-of-access they cannot match. When also considering the influx of new banks entering the market, with 30 new banking licences in process, leveraging the opportunities the PSD2 offers could be essential to survival, but there are concerns surrounding big banks’ ability to do so. Large, rigid legacy systems may hinder traditional banks from taking advantage of these opportunities, while digital and smaller scale banks with more flexible systems facing less risk have the infrastructure to cope with these changes, able to leverage them to offer a superior service.

Banking differentiation is not solely limited to opportunities created outside the bank, but is also stemming from within the bank through increasing service functionality, with offerings in personal finance management. Offering tools to help customers remain mindful of their budgets and goals boosts bank transactions as the bank becomes a more valuable source of knowledge for the customer. Similarly, Neo Banks are going one step further with offerings including expense tracking and invoice issuing, also adding to volume of interactions. While Neo Banks are unlikely to find this boost in interactions problematic, operating on newer, simpler systems designed for a digital future, traditional big banks are of such a scale that further strain on cumbersome, siloed infrastructure could prevent them from offering products to compete with smaller competitors, thus giving innovative newcomers an advantage.

Evidently, the ever-increasing volume of transactions, the growing preference for digital channels, the changes brought about by PSD2 and the infinite possibilities of IoT will all place considerable strain on the architecture of big banks, relying on systems implemented decades earlier and unable to keep up with the pace of changing customer needs. Many banks considered to be “too big” continue to operate on aging legacy systems, plagued with data silo issues and pulling time and resources away from investment in new technology able to operate in this new digital landscape. Despite awareness that these systems are hindering banks’ potential and growth, with 86% of banks citing legacy technology data silos as their biggest internal challenge[1], the risk, time and scope of implementing a new core system for such large banks is a serious concern. However, the ease with which influential technology companies such as Google are able to scale due to their single data view origins, growing from 10,000 search queries per day in its infancy to the colossal 3.5 billion per day it handles today[2], is reflected in the ability of digital fintechs banks to expand with minimal issues, due to being data-focused and unaffected by the limitations of siloed systems. As a result, the ongoing struggle encountered by traditional banks to make use of their data and effectively manage the growing scale of data and transactions, is an unavoidable problem in a market gaining a steady influx of younger, more agile competitors, firmly focused on the changing direction of banking needs and processes. Banks that are “too big to scale” will inevitably lose out to fintechs and incumbent competitors able to offer a service more aligned with the requirements of today’s, and tomorrow’s, customer.

[1] http://www.mobilepaymentstoday.com/news/study-global-digital-payment-transactions-set-to-reach-10-growth-for-first-time/

[2] http://thefinanser.com/2016/10/internet-giants-competition-banks-ready-compete.html/

Are Banks too big to scale? Who’s to blame?

December 1, 2016

The ever-increasing size of traditional, long-standing banks has been a fascinating point of discussion for many years now, with the possible problems arising from banks being “too big” having far reaching consequences. The financial crisis heightened the pressure for regulators to be more stringent on capital adequacy, but high profile government bail outs prompted many to question whether “too big to fail” banks should remain so large and influential. While the financial crisis is no longer at the forefront of our minds, the global digital revolution is seemingly impacting every aspect of banking, with no signs of slowing down. While digital banks and fintechs are well equipped to face the challenges the impact of digital preferences and advances will have on the industry, larger traditional banks seem to face a multitude of struggles. With the unprecedented growth of digital interactions and transactions, this blog series looks at whether the new and emerging demands on banks’ legacy systems will mean they are too big to scale?

Transaction growth in the last year alone has been monumental, seeing a 10% rise in 2015[1]. Payments methods are becoming overwhelmingly mobile as the use of cash is dropping, with the volume of mobile payments via a smartphone, tablet or wearable growing by 300% a year[2]. 34% more customers have made use of mobile payments in the last year[3], showing a clear shift to digital and the self-service options it provides. Transaction growth is also being heavily impacted by the popularity of pay-as-you-go subscription services such as Netflix and Spotify, instead of occasional, individual purchases of media. The rise in digital services, able to reduce their business costs, such as Uber not owning any vehicles themselves, creates opportunity to offer a cheaper service, encouraging repeat transactions and resulting in a greater volume of payments and rides. Both the change in channels and vast transaction volume puts pressure on large, aging bank systems, while smaller, younger, digital banks with more flexible systems are not impeded as heavily.

The changing payments habits of consumers will be further altered with the ease of access automated Internet of Things (IoT) technology will create. As far back as 2008, there were more objects connected to the internet than people[4], and a not-so-distant future where devices including refrigerators and washing machines be connected to the internet is fast approaching. Already, washing machines can hold enough washing powder for multiple washes and are able to detect when quantities are running low, but it won’t be long before they’ll be able to automatically re-order the powder themselves. The potential in payments services using this technology is limitless, as every bank customer could have dozens of devices linked to their bank account, with frequent automated transactions able to occur. The use of IoT will also generate huge volumes of data, stored by banks and able to offer insights into customer intentions. Smaller and digital-oriented banks should be well-equipped to offer IoT services and benefit from the data it will collate, but the scale, cost and maintenance of IoT banking processes raises questions over whether big banks will be able to make the best use of it. Many may not have the architecture to facilitate this communication of devices, as their limiting data silo issues prevent communication of current data. Though some banks are considering the application of IoT to banking, such as U.S Bank’s Innovation Lab project involving cars able to order items to repair themselves, this is not common practice for traditional banks, and it’s likely those that aren’t able to make use of IoT opportunities will become obsolete.

[1] ttp://www.mobilepaymentstoday.com/news/study-global-digital-payment-transactions-set-to-reach-10-growth-for-first-time/

[2] https://www.finextra.com/pressarticle/66547/mobile-payments-soar-as-europeans-embrace-new-ways-to-pay—visa

[3] https://www.finextra.com/pressarticle/66547/mobile-payments-soar-as-europeans-embrace-new-ways-to-pay—visa

[4] http://www.forbes.com/sites/bernardmarr/2015/10/27/17-mind-blowing-internet-of-things-facts-everyone-should-read/#54a379191a7a