January

By Daumantas Barauskas, COO at Genome

Some things change the world so rapidly and drastically, that no amount of statistical data and research can predict it. The COVID-19 pandemic proved to be one of such things. Due to it, the global economy may shrink by 5,2%, as shown in The World Bank’s recent report, meaning it would be the biggest global recession since World War II. The forecast is based on the assumption that the countries would lift domestic mitigation measures by the mid-2020, and global spillover effects would be mostly dealt with in the second half of 2020. And in a worst-case scenario, the global economy is to reduce up to 8%.

Now, when we have a global picture, let’s turn to the banking sector. In 2018, global payments revenues reached $1,9 trillion and were expected to hit $2.7 trillion by 2023 with continuous growth. Needless to say, the pandemic had a devastating impact on the revenue, as the industry can lose from $165 billion to $210 billion, even though before the pandemic it was forecasted to gain $2.1 trillion this year.

In the middle of March, the average global bank stock prices underperformance grew to a rate of the industries that are most vulnerable to the lockdown. If we use our baseline of 100% for bank stock prices on 19 February, then by the third week of March the prices dropped to 60%. At the end of April, the situation has improved a bit, as the index passed the 70% mark.

European banks might suffer one of the worst impacts of the pandemic, as the Eurozone economy is forecasted to decrease by 9,1%. The muted-recovery scenario, which will result in GDP shrinking by 11% across the Eurozone, is what every third executive believes will happen. The scenario may result in the banking sector revenue drops as severe as 40%, prompted firstly by increased margins and government stimulus packages, and ultimately by the rise in risk costs. Thus, the negative effects could be more damaging than during the 2008 financial crisis, and the European banking industry will need four years to recover.

Right now, some of the countries are reducing the lockdown regulations with businesses and shops opening and employees returning to their offices. However, it doesn’t mean that the world is ready to return to its previous state, as most of the companies need to adapt to a new reality, and financial institutions are no exception.

First of all, businesses need to be ready for another possible wave of the coronavirus outbreak. For instance, doctor Anthony Fauci, director of the American National Institute of Allergy and Infectious Diseases thinks that the COVID-19 will not be eradicated due to its widespread. Meanwhile, the director of the Centers for Disease Control and Prevention Robert Redfield voiced the concern that the second wave, which is expected to hit this fall or winter, will be even more dangerous, as it might coincide with the start of flu season.

Secondly, a lot of people have changed their day-to-day habits to protect themselves and their families: they use e-commerce services to buy products, minimize cash payments, and want their banks to provide online services. A survey conducted in April showed that more than half of customers prefer digital channels for banking with 52% and 54% using mobile and online banking during the pandemic accordingly. The attendance of bank branches, which wasn’t even high pre-pandemic, dropped from 22% to 15% during the lockdown.

Now, when we have covered the bleak economic forecasts for financial institutions, as well as the new preferences of banks’ clients, we can point out the main changes that banks and PSP are expected and required to make and strategies they should implement in the second half of 2020 and beyond that.

The need for digitalization is as strong as ever. Without a doubt, banks should bring at least some of their services online, as the demand for internet and mobile banking grows. Otherwise, traditional banks will face the sad reality of their clients switching to digital FinTech services. According to the Capgemini Consumer Behavior Survey, around 30% of customers are going to start using FinTech companies instead of banks after the pandemic, if the latter won’t be able to deliver proper customer experience.

Redeployment of employees and branches. The obliged relocation of staff due to the lockdown proved that bank employees can successfully work from home. And right now, not all banks are ready to allow their staff members back to offices. And considering the possible second pandemic wave, this return may be short-lived. Thus, the financial institutions better to use this situation to their advantage – some of their employees might start working from home permanently, but will need to be provided with technical and security means to do so. This, in turn, will allow to redeploy the remaining staff among the branches and, potentially, close some of the branches to cut rent and maintenance costs.

Customers’ convenience and safety are the top priorities. The lockdown led to the overwhelming number of customers using support chats, phones, and emails to communicate with their banks. The situation shows the demand for diverse usage of banks’ digital channels to always keep in touch with clients. Social media, push-notification, emails, apps, online chats, and call centers – all is fair game to keep the people informed. But to keep up with all these channels, financial institutions should make sure the support team (which can also work from home) has enough employees for the challenge.

But having digital communication channels open is not enough – banks and PSPs need to reach out to clients themselves, inform them about each new update or service, show the support to pandemic-vulnerable customers and warn people about potential COVID-19 risks.

If banks are deploying new online and mobile services, they’d better have detailed tutorials on how to use these, so that the clients will go through the process easily. And also, the online channels are great for quick surveys, with feedback allowing banks to improve the services if required.

The mutual support of businesses. Banks and companies need each other’s help to overcome the effects of the pandemic. To do this, financial institutions should analyze their clientage to determine, which groups of people or businesses require the support the most. Taking this into account, banks can make personalized offers to these groups to help in dealing with severe economic losses. In return, banks and FinTechs will get loyal clients, that are more likely to thrive again, when the pandemic is over.

For instance, Genome introduced the COVID-19 initiative in the middle of April to help all our current and potential low-risk clients. We have canceled all monthly account fees for three months, and believe that this offer will be especially beneficial for food and entertainment services, electronic and home appliance goods, toys, educational platforms. To find out more about this initiative and other services visit Genome’s website.

By Daumantas Barauskas
COO at Genome

by George Brostoff, CEO & Co-Founder, SensibleVision

The launch of the Samsung S20 phone (and the release of the new Apple phone that’s expected to come out in the fall) have once again brought facial recognition back into the public eye.

It’s one of those technologies that we all just take for granted, but how does it actually work not only for phones but for devices such as door locks, security cameras, or even automobiles? And are the common perceptions of facial recognition even accurate? Let’s look at some of the myths and facts:

Myth #1: Facial recognition is racially biased.

Fact: There has been a lot of news coverage about how facial-recognition systems only work for people with lighter skin, and some have concluded the technology is racially biased. This is has been partially fostered by what turned out to be a controversial art project collaboration between a Microsoft researcher and an American artist.

Perceived issues with racial profiling and AI are often the result of the lack of diversity in the database that occurs when developers prioritize creating a large database over a more varied one. Lighting can also play a part, as evidenced by research of Joy Buolamani. The MIT Media Lab researcher found that some cameras had difficulty interpreting the composition of facial features on individuals with darker skin tones, leading to inconsistent results. However, there are currently facial recognition solutions available that provide consistent results, regardless of the subject’s complexion, as developers learn how to work with a variety of faces and lighting conditions.

Myth #2: Facial recognition can be easily hacked.

Fact: While many implementations have proven to be insecure and can easily be hacked by photos, masks, or videos, this is not inherent to face recognition as a concept, but to the vendor’s technology and approach. Simply put, bad technology doesn’t work very well, but good systems do.

Facial recognition technology is rapidly improving to the point that many systems can detect minor changes in appearance, such as glasses, facial hair, makeup, and even partial obstructions. Advances such as “active liveness detection,” where a user executes an action such as squinting, blinking, or making a face, can render it far more difficult for hackers to spoof a facial recognition system; combined with “passive liveness detection,” which employs internal algorithms to detect imposters, it’s no easy feat for hackers to successfully bypass facial recognition systems.

In some instances, storing biometric information, such as face templates, locally and subsequently sharing that information only with authorized devices, may be more secure and less susceptible to hackers (albeit potentially less convenient) than storing that info centrally on the cloud. If vendors are cognizant of potential issues and implement preventative security measures accordingly, facial recognition technology is no easier to hack than other, comparable systems.

Myth #3: Facial recognition will always be a fringe technology because people are worried about their privacy.

Fact: While face recognition privacy is a hot topic in the news, hundreds of millions of people use it daily to access their phones and interact with other devices. Where transparency, speed and high security is desired, almost nothing can provide the same level of convenience and accuracy.

Facial recognition tech is already far more ubiquitous than one might think. While some jurisdictions, such as the city of San Francisco, have placed a ban on agencies such as law enforcement and transport authorities from employing facial recognition tech, it’s exploding in industries and fields as diverse as retail, road safety, home security, and even agriculture, where farmers are using it to identify and track animals, help mitigate the spread of herd-killing diseases unintentionally transmitted by workers, and measure an animal’s vital health information.

While the general public is often wary of the implementation of facial recognition tech by sectors such as law enforcement and the military, its unmatched expedience, precision, and practicality mean that people are increasingly open to incorporating such technology into their daily lives.

Myth #4: Facial recognition doesn’t work well in low-light situations.

Fact: Ironically, Some facial recognition technologies actually work better with less light! This may sound counterintuitive, but with the right technologies the darkest night or even the brightest sunlight need not reduce the accuracy or performance.

Low light conditions shouldn’t be a barrier to the functionality of 3D imaging. Problems with elements such as accuracy and depth manifest when infrared oversaturation occurs – such as when users whip out phones or other devices in full sun or near highly reflective surfaces. These options tend to test well in the lab, but not so well on the beach or next to plate glass windows. Fortunately, many developers have taken note of this and managed to work around the problem to ensure that the technology functions in a range of settings and locations – be they a cave at midnight or a desert at high noon.

Myth #5: Facial recognition is only for high-end devices.

Fact: Cameras are being included in most everyday devices. And the computing power to accurately process those images is already present.

This means facial recognition technology is only likely to increase in popularity – and decrease in cost. You’ll find it embedded not just in law enforcement security tech but in products as common as door locks and restaurant payment systems, as well as in health care screening devices and programs and in retail stores. You may be surprised to learn that your phone, laptop, or tablet already feature facial recognition software, or the capacity to incorporate it. Essentially, if a device has a camera, it’s probably capable of employing some kind of facial recognition technology – if it doesn’t already.

By Amir Sarhangi, VP Product at Ripple

The global pandemic is having an unprecedented impact across industries around the world. Remote working, in particular, has rapidly become the ‘new normal’ for workforces globally, enabling many employees to carry out their daily roles — albeit from their own homes.

As companies transition to remote working environments and increase their reliance on digital services and modern technology, FinTech simply can’t remain in stasis. To date, a large part of the industry’s lockdown-induced holding pattern stems from its reliance on outdated technology that can’t keep up with customers’ fast-evolving needs brought about by the pandemic’s impact.

On top of that, The World Bank has now classified remittances as an essential service — signalling the need for faster adoption of digital financial services, which can make remittances cheaper and more convenient during these uncertain times.

Keeping services modern and accessible
It’s with this in mind the financial services industry should continue driving innovation to improve the cross-border transactions that are so key to keeping the wheels of the global economy turning. Notorious for being late to the game, FinTech and banks need to recognize the importance – and urgency – of modernizing their offerings or risk falling behind at a time when their customers are relying on them most.

Fortunately, cloud-based solutions can help payments technology keep in-step with the remote workforce. For example, cloud removes the pain for financial institutions having to procure and maintain their own hardware, install and operate the software, and employ a dedicated team for 24/7 monitoring — an important factor in these socially distant times. On top of that, cloud technology enables the ability for these firms to update their systems remotely and regularly, removing the physical hurdles companies now face with on-prem management and ensuring faster upgrades to new features. Additional benefits include businesses’ cost savings on on-premise hardware and staffing costs to maintain those systems, as well as reduced cost of doing business by removing the need to maintain its own hardware and planning investment for scaling.

RippleNet Cloud is one such solution that has been particularly beneficial in helping businesses navigate the ‘new normal’ of working from home. RippleNet Cloud is delivered to customers as a service, allowing customers to connect to more than 300 financial institutions in Ripple’s global blockchain payments network without the need to install on-premises software or onerous internal processes to procure new hardware and databases. It is also upgraded every three months, so updates and new features can be delivered quickly and reliably.

Maintaining a competitive advantage
Yet despite the obvious benefits of the cloud, many of the top global banks continue to fall behind in its adoption — missing out on its advantages to their business and the economy. Some of their reticence comes from the concern about moving customer-sensitive data to the cloud, but well-managed cloud infrastructure is equally as secure as on-premises. In fact, cloud-native software vendors subject themselves to regular external audits and have deep security expertise on their staff.

The need to modernize with solutions like cloud will supercharge the competitive advantage of innovative banks over their slower-moving rivals — now more than ever. The more agile and innovative players that are already using banking-as-a-service tech platforms to revolutionise their cost-to-serve and cost-to-change are ideally placed to easily and cheaply plug into emerging blockchain networks, AI engines and other generation-defining FinTech capabilities. Incumbent and legacy banks who are still relying on ‘museum’ banking technology will be delayed in effectively tapping into this valuable innovation. What is more, the longer that big banks dally with implementing cloud processes, the more out of step they are with today’s customer expectations.

The COVID-19 pandemic has underlined an already compelling use case for the cloud in our industry — and it will provide a lifeline for helping businesses and economies thrive and remain competitive in this new and challenging world of work. It’s important that key players across the FinTech sector use this moment to bring their own services up to scratch to ensure they aren’t left behind.

By Amir Sarhangi,
VP Product at Ripple

Digital transformation is having an undeniable impact on reshaping the finance sector as a modern industry. Banks are looking to emerging technologies in order to evolve and become more agile, especially in a world of demanding customers, new innovations, such as mobile payments, and increasing regulatory demands. Cloud adoption of RegTech is at the very heart of this digital evolution.

by Matthew Glickman, VP of Customer and Product Strategy at Snowflake Inc. 

While the industry has traditionally been slow to embrace innovation there are signs that even some of the more traditional, high street banks are placing cloud technology at the forefront of their business strategy. Research from the Bank of England revealed the UK’s 30 largest banks have adopted nearly 2,000 cloud-based applications between them.

However, there still remains an air of caution within the finance sector when it comes to moving to the cloud, stemming from concerns over financial regulation. Nearly half of UK firms cite complex regulatory requirements as a key barrier to adopting new technologies, such as the cloud. To maximise the full potential of embracing cloud technology, financial companies must look to the possibilities afforded to them by RegTech.

Streamlining the regulatory process

Whilst cloud computing is modernising the whole financial services sector and paving the way for innovation, its impact on regulatory technology will be particularly striking. The cloud will streamline the way financial regulators currently regulate other companies. Historically, banks have struggled to produce the metrics requested by regulators which has slowed down the regulatory process and even induced hefty fines.

Regulators will now have a unique opportunity, through a cloud-based, secure data exchange, to access a company’s data and run their own reporting. By utilising a cloud data exchange, financial regulators can integrate disparate systems to communicate in real-time. This creates a seamless flow of information by transforming data from multiple systems into the same ‘language’. Using RegTech, rgulators can therefore instantly view and analyse all relevant metrics, such as financial transactions, sales orders and stock levels. It also allows regulators to measure system risk entirely in real time.

Automating financial compliance

The ever-changing landscape of regulatory compliance is also driving financial organisations to utilise cloud-based regulatory technology and leave behind antiquated legacy solutions. New regulations are being consistently introduced and the JWG, a financial think tank, estimates that over 300 million pages of regulatory documents will be published by 2020. In addition, new directives and laws have been introduced, such as GDPR, which are holding companies to account and ensuring they take strict responsibility for their data.

By adopting RegTech solutions, financial companies can monitor the current state of compliance against upcoming regulations, as well as real-time compliance. A cloud-based RegTech solution will enable banks and regulators to build platforms that will make use of artificial intelligence and machine learning. This creates an end-to-end automated solution that provides an automated interpretation of financial compliance. Data can also be routinely monitored allowing companies to rapidly identify risks and potential areas of non-compliance.

The complex and changing landscape of data compliance, coupled with the rapid increase in data volumes, has meant that adopting a cloud-based RegTech solution is simply too hard to overlook. It is therefore no surprise that the RegTech industry has been growing exponentially over the last few years and is due to be worth $12.3 billion by 2023, up from its market value of $4.3 billion in 2019.

Coping in a data-driven era

The modernisation of the RegTech industry, through cloud computing, is characteristic of the whole fintech sector. The scalability that the cloud offers will also enable the industry to keep up with the dramatic rise in data. In a data-driven era, the financial services sector is arguably the most data-intensive sector in the global economy. Financial organisations produce huge amounts of data everyday with each monetary transaction and payment adding to their vast data sets.

A cloud-based data warehouse can be scaled up or down depending on usage. Should a bank need to expand geographically to accommodate a merger or acquisition then scaling up their data storage is seamlessly handled through the cloud. Furthermore, certain cloud solutions decouple storage from compute, so organisations only need to pay for when they are using a service.

Given the tangible benefits of cloud adoption, it is hardly surprising the worldwide public cloud services market is forecast to grow 17% in 2020.The financial industry is finally starting to leave behind its legacy systems and embrace a future of modernisation, made possible through the cloud.

By Andrew Warren, Head of Banking & Financial Services, UK&I at Cognizant

In addition to responding to changing customer expectations, higher operating costs, new technology, and an evolving regulatory landscape, financial services organisations now also face the uniquely challenging business environment created by COVID-19. The economic consequences that are unfolding rapidly and unpredictably mean that banks must double-down on both their efficiency and customer experience agendas. In light of this, the need to modernise legacy banking platforms will gain sharper focus as banks emerge into the post-COVID-19 landscape, driven by the need to focus on value for customers and agility to change and shift operations quickly.

If banks are to remain strong and stable and make real progress with their efficiency and experience agendas, transformation is non-negotiable – but it can be risky and have high rates of failure. So how can banks pursue their transformation agenda, while addressing the very real risk that modernisation of legacy banking platforms presents?

Focusing on value

Banking transformation may have traditionally been the domain of the IT function, but the impact on current and future value means it should be on the agenda of a much wider set of senior executives. This includes the CIO and COO but should also be as far-reaching as the Chief Risk Officer, Chief Financial Officer, Chief Digital Officer, and Chief Experience Officer.

When we talk about value in the context of transformation it can mean multiple things. In monetary terms, transformation can reduce the total cost of a bank’s IT infrastructure, with legacy equipment 55 per cent more costly than cloud data. More importantly, however, transformation often results in moving from highly manual-orientated processes to more efficient, automated – and therefore accurate – processes. In turn, this can lead to more informed and tailored products and services, internal process efficiencies, enhanced cybersecurity, advanced analytics, and reduced risk, especially around fraud and malicious activity. These all add significant value to customers, as well as operational and regulatory imperatives.

Furthermore, viewing transformation through a value lens should tie it to a range of specific financial and accounting metrics that ultimately measure success. That includes both those that reflect the protection and extension of current value, as well as measuring the extent to which transformation will support the capture of future value. Financial services organisations have a huge opportunity to create greater value for customers from innovation in products and services. Changing market dynamics are creating a basis upon which banks and others in the industry can evolve their offerings and organisations.

In much the same way as we have already seen in retail, for example with Amazon and AliBaba, and media platforms, such as Facebook and Netflix, customers are adjusting to a new way of banking that is changing expectations. To keep up, banks need to increasingly provide easy-to-use digital-first services across their products, as well as introduce new tools to help customers manage their money in the 21st century. And there is no doubt that the fall-out from COVID-19 will likely further drive the degree and extent of digital adoption.

Traditionally, financial institutions take many different approaches to transformation, such as developing sleek new customer experiences to compete, or developing new platforms and partnering with FinTechs. But achieving success for more mature banks is more challenging given the obstacles presented by their legacy platforms. Comprising complex, customised systems, these are expensive to run and very costly to change.

Transformation: not if, but how

To truly transform operations and experience, many banks are now having to face up to the reality that they cannot move forward without banking platform transformation. That means they must – in one way or another – replace their historic systems with more modern, cost-effective, and flexible platforms. That is going to be essential to stand up the capabilities required to enable digital products and deliver the truly revolutionary experiences that customers demand.

Recognising the inevitability of change, many banks are now considering their options. Some have already started down the challenging path and hit bumps in the road. A very small number have successfully executed their ambition to create a platform for the future. All banks contemplating transformation should take lessons from both the successes and the mistakes. These will be critical to inform their plans.

Moving forward

There are a number of essential transformation steps to consider that will help realise value from investment as rapidly as possible, provide an appropriate level of delivery confidence, and manage exposure to the operational risk normally associated with such changes. These include:

1. Business strategy must inform every step of transformation – ensure that the approach to platform transformation is tightly aligned to the wider business strategy.
2. Design a strategy-aligned roadmap for delivery – a transformation roadmap should clearly set out the logical order in which business outcomes will be delivered. Here again, that needs to align with the value that the organisation is seeking to achieve, with incremental progress determined by business priorities. This involves making appropriate use of modern delivery methods, such as agile, and making sure that everything that is done satisfies and is frequently assessed against the relevant value criteria.
3. Assess technology selection against business value – organisations often undertake detailed and exhaustive market, functional and technical assessments when reviewing new products and suppliers. This often means either the technical assessment dominates proceedings and/or new technology platforms are selected without a clear line of sight to the value required. Poor product selection is a risk as a result, as well as a lack of understanding of how products should be deployed to inform the sequence of delivery required by the transformation roadmap.
4. Assess your readiness for change – unsurprisingly, given the sheer scale and velocity of change that business leaders must deal with, resistance to change is often a key reason given for the failure of banking transformation projects. However, it is crucial that the ability of the organisation to deliver and adopt the operational, technical, and cultural changes required to support transformation is comprehensively assessed and done early.

The impact of COVID-19 paired with and the demands that financial services organisations face from all directions, make change an inevitable necessity for the most. The approach to delivering a successful banking transformation, underpinned by a modernised platform, will vary dramatically from bank to bank. However, above all, businesses need to ensure that value drives every aspect of change explicitly linking transformation strategy and investment with the realisation of value.

Andrew Warren
Head of Banking & Financial Services, UK&I at Cognizant

During his 1962 State of the Union Address, John F. Kennedy declared: “The best time to repair the roof is when the sun is shining”. While the original philosophy behind the sentiment wasn’t intended for organisations, per se, it’s an apt quote when reflecting on FinTech developments in light of Covid-19. We are all aware that the pandemic has shut down our normal way of life.

by Ray Brash, CEO, PPS

Since the dot.com crash of 2001 and the financial crash of 2008, FinTech entrepreneurs have adopted a disruptive mindset in order to make headway, and survive, within financial services, launching innovative offerings such as mobile-only banks, with money management tools and personalised saving solutions. And it is this continued innovative approach that has enabled either FinTechs, or businesses using FinTech solutions and tools, to prevail during Covid-19. It is the companies that already had the agile architecture and payment platforms in place who have been in the best shape to adapt.

The organisations which had “repaired their roof while the sun was shining” – in that their digital operations were continuously innovating, pandemic or not – have been most effective in helping their customers and reacting to the demand. After all, if you have a clear vision of an agile roadmap that is able to constantly evolve, it makes it much easier to adapt, rather than restart.

FinTechs and challenger banks aren’t adapting on their own though. Rather, partnerships have never been more important. In fact, an outcome of Covid-19 is likely to be the continued acceleration of these partnerships that make the impossible, and even the improbable, possible.

UK supermarket chain Sainsbury’s was able to work with PPS’ team of experts to launch its Volunteer Shopper Card just a few days into the lockdown, enabling others to shop on behalf of vulnerable citizens. Sainsbury’s is seeing a whole range of digital vouchers coming into their own in the era of remote food distribution. Another traditional brick and mortar customer of PPS, Tesco, has experienced increased adoption of its Tesco Pay+ payment app which allows for QR code payments and gifting of money to dependants across the country for essential purchases in Tesco stores.

FinTech Tide, has adapted to help its small business customer base. Responding quickly to the UK government’s Bounce Back Loan Scheme and with financial support from PPS, Tide has adapted to become an accredited lender, lending from £2,000 to 25% of an SME’s annual turnover, up to a maximum of £50,000 for up to six years. And Coconut, an accounting and tax tool for self-employed people, launched online tools and carried out successful government lobbying initiatives to help support the small business community.

Digital banking app, Monese, has higher transaction volumes now than ever before, with a large portion of its customer base being key workers – many of whom will likely not have been eligible for a bank account with a traditional bank – but include the ‘heroes’ getting us through the pandemic.

Enhancements such as these highlight how, due to the economic disruption, financial inclusion has been pushed further up the global agenda, showing the importance of serving people who could have been left out of the financial system. And there is a possibility that the lasting legacy of Covid-19 may lead to greater financial inclusion initiatives, with FinTech continuing to play an important role through ongoing strategic partnerships with retailers, governments and financial institutions.

While the digitisation of financial services has been under way for decades, the pandemic has accelerated the timeline exponentially. But it is the companies that have best access to agile and adaptable platforms, through the right partners, that have been able to navigate the ongoing landscape most effectively.

Going forward into the ‘post-Covid’ world, it will be important for FinTech players to maintain their disruptive mindset in order to continue to lead, rather than follow the new normal. We saw this with the likes of Amazon after the ‘dot-com bubble’, and the many storms it has weathered over the years to become the world’s largest retailer. We will see similar performance in FinTech too, while things re-adjust. There will always be some casualties along the way, but ultimately, the FinTech powerhouses that are the most agile, with a ‘roof’ ready for any crisis, will succeed.