For those unfamiliar with Bitcoin, here’s a brief primer. Created in 2009 by an unidentified software developer and inventor who goes by the pseudonym of Satoshi Nakamoto, Bitcoin is a form of digital currency that’s created and held electronically. Bitcoins aren’t printed like traditional currency; instead, they’re produced by a network of ‘miners’ who create Bitcoins using a complex algorithm. The network of miners and machines (servers) operate independently of any central authority, government, or middle man. The miners receive Bitcoins as a reward for creating them. As they’re created and purchased, the coins are stored in a digital wallet and can be used for transactions, which are then tracked through Distributed Ledger Technology, also known as the Blockchain.

Why all the hype?

The Future of Digital Currency: The Implication for Investment Banks

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Financial services will become more reliant on customer experience

With the rise of open banking in 2018, there will be an even greater emphasis on Financial Services (FS) organisations to use customer experience as a means of differentiation in an increasingly level playing field. The end consumer will gain even greater control and access to their own data, and third party tools will start to break down the siloes between different banking groups. If Financial Services organisations want customers to continue to consolidate services within their one group, they will have to do more to win their loyalty through outstanding customer experience

Finding the right balance

We should expect them to continue to find the right balance between security, simplicity, convenience and innovation. Many of the above aspects are in direct competition with each other – for example, the quicker and more frictionless (i.e. the more convenient) you make a payment system, the more susceptible it is perceived to be open to fraud and security concerns. As consumers of other products outside the FS world continue to benefit from greater innovation and in a lot of cases simplicity, FS organisations need to follow suit and keep up, while at the same time allaying security fears that inherently come with the industry.

FS organisations will stretch the limits of CX

In my opinion, further blending a personalised experience with an increasingly tech and mobile heavy experience will become crucial for FS organisations. If these companies can find the right balance between the convenience of technology, with the personalisation of the human touch – especially needed on low frequency, high-value purchases –  this is where they will excel.

 From Ross Durston, MD Financial Services, Maru/edr:

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Banks need to overcome the ‘digital’ obstacle:

Thanks to the rise of digital channels, online accounts and investments in banking apps, banks have already successfully transferred many customers online, which has helped to bring an element of personalisation to the banking experience. But in their move to digital, banks face a key obstacle in that they don’t get to see or interact with their customer very often now that the majority of banking is done remotely and online. Their challenge is to map key customer journeys through their business to identify real moments – or “hotspots” – where they cannot fail. Doing this will also help banks to better understand where they have an opportunity to differentiate themselves.

Steve Brockway, Chief Research Officer, Maru/edr:

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Security by design

Google’s discovery of a flaw in the architecture of Intel and other chipmakers’ products highlights the urgent need for security vigilance when designing technology. Time and time again, we see how failure to design in security from the beginning, whether into software, hardware, or firmware, puts our data, our health and our privacy at risk.

“GDPR-like ‘security by design’ has not been the default position to date and we must take steps to make it so. It is therefore imperative that organisations make targeted investments in people, process and technology, to ensure we truly are secure.

“Google is an excellent example of this, undertaking independent research is to find flaws in technology whether hardware or software.  In parallel, Sonatype has continuously invested in research to discover vulnerabilities in millions of open source software components, which comprise 80-90% of a modern enterprise application. These investments make it possible to quickly disseminate actionable information to help control and remediate these issues while keeping innovation moving at DevOps-native speed.

Derek Weeks, vice president and DevOps Advocate at Sonatype

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They say imitation is the sincerest form of flattery. Challenger banks are doing what their name suggests, and research indicates they are gaining ground. For established lenders, replicating the characteristics of their smaller, more agile competitors, will help them defend their position. Outsourcing is the key, argues Sarah Jackson, Director, Equiniti Credit Services.

The market for lenders is buoyant. Consumer borrowing leapt by 10.3% in the 12 months to May 2017, according to The Bank of England^[1]. There is a tussle going on between established and alternative lenders as both vie to grow their market share. Established lenders are built on decades of customer loyalty and trust. But resting on their laurels is dangerous. Alternative lenders are lean and agile, and produce disruptive offerings that turn heads. For the borrower price is the deciding factor, evidenced in many ways, by the prolific use of comparison sites. This is creating a level playing field and there is all to play for.

The tide is turning

Alternative lenders currently own around a quarter of the borrowing market according to research from ‘Great Expectations: The Demanding Market for Credit’, a report examining consumer credit attitudes published last month by Equiniti Credit Services^[2]. The winds of change, however, are blowing. 47% of the study’s respondents indicated that they would borrow from an unfamiliar lender in future.

Across the board, brand loyalty has given way to price. Customers are now divided into two camps – those who will only borrow from an established lender but are price-conscious and those who shop on price alone, irrespective of the provider.

Low rates rule the roost

Research indicates low interest rates are fundamental in borrower’s loan selection criteria followed by low repayments. This is no surprise, with interest rate rises announced recently, consumers are searching for new ways to make their money work harder.

With price the deciding factor, the use of comparison sites is making it easier than ever for savvy customers to shop around. Research reported that 86% of respondents would use a price comparison site to compare loan rates, with 78% believing that they would get a cheaper loan from online lenders. The established lenders have an opportunity here, and investment in technology will be key to maintaining market share.

The same study indicated that transparency and clarity in a product’s terms and conditions are just as important. Here, the ability to demonstrate responsible lending practices and conduct appropriate affordability checks will strengthen consumer confidence and satisfy the Financial Conduct Authority, at the same time.

What can established lenders do to defend their market position?

The age of uncontested brand loyalty is over. Price should be considered as equally important as service for lenders looking to create differentiation in their offering. For many, agile technology can drive down the cost of operations, enabling them to protect their margins and pass the saving on to the customer through lower-rate products. Outsourcing facilitates this by reducing time-to-revenue for new loan products allowing lenders to refocus internal resources on innovation, product development and market differentiation. Established lenders can replicate the agility of alternative lenders by outsourcing their loan management portfolio, allowing them to compete head on and maintain market share.

The outsourcing market is evolving to meet the needs of established lenders. A new breed of specialist organisations is offering tailored solutions that combine their own proprietary loan management technology, with expert customer service staff and auditable, best-in-class processes. With this model, established lenders can mount their own challenge and take on the new competitors at their own game.

By Sarah Jackson, Director, Equiniti Credit Services

When adopting new payment methodologies, banks must strike a challenging balance between ease of use and access and the need to put in place stringent levels of security.  With technology evolving at ever-increasing rates, it’s increasingly difficult to keep on top of that challenge.

Banks first need to put in place an expert team with the time, resource and capability to stay ahead of the technological curve. This includes reviewing, and, where relevant, leveraging the security used on other systems and devices that support access into banking systems.  Such a team will, for example, need to look at the latest apps and smartphone devices, where fingerprint authentication is now the norm and rapidly giving way to the latest facial recognition functionality.

Indeed, it is likely that future authentication techniques used on state-of-the-art mobile devices will drive ease-of-use further, again without compromising security, while individual apps are increasingly able to make seamless use of that main device functionality.

This opens up great potential for banks to start working closely with software companies to develop their own capabilities that leverage these types of security checks.  If they focus on a partnership-driven approach, banks will be better able to make active use of biometric and multifactor authentication controls, effectively provided by the leading consumer technology companies that are investing billions in latest, greatest smartphones.

Opportunities for Corporate Cards

This struggle to find a balance between security and convenience is, however, not just about how the banks interact directly with their retail customers. We are witnessing it increasingly impacting the wider banking ecosystem, including across the commercial banking sector. The ability for business users to strike a better balance between convenience and security in the way they use bank-provided corporate cards is a case in point.

We have already seen that consumer payment methods using biometric authentication are becoming increasingly mainstream – and that provides an opportunity for banks.  Extending this functionality into the corporate card arena has the potential to make the commercial payments process more seamless and secure. Mobile wallets, sometimes known as e-wallets, that defer to the individual’s personal attributes to make secure payments on these cards, whether authenticated by phone or by selfie, offer one route forward. There are still challenges ahead before the above becomes a commercial reality though.

First, these wallets currently relate largely to in-person, point of sale payments. For larger, corporate card use cases such as settling invoices in the thousands, the most common medium remains online or over the phone.

Second, there are issues around tethering the card both to the employee’s phone and the employee. The 2016 Gartner Personal Technologies Study, which polled 9,592 respondents in the U.S., the U.K. and Australia revealed that most smartphones used in the workplace were personally owned devices.  Only 23 percent of employees surveyed were given corporate-issued smartphones.

Building bridges

Yet the benefits of e-wallet-based cards in terms of convenience and speed and ease of use, and the potential that they give the businesses offering them to establish competitive edge are such that they have great future potential.

One approach is to build a bridge to the fully e-wallet based card:  a hybrid solution that serves to meet a current market need and effectively paves the way for these kinds of cards to become ubiquitous.  There are grounds for optimism here with innovations continuing to emerge bringing us closer to the elusive convenience/security balance. MasterCard has been trialling a convenient yet secure alternative to the biometric phone option. From 2018, it expects to be able to issue standard-sized credit cards with the thumbprint scanner embedded in the card itself. The card, being thus separated from the user’s personal equipment, can remain in the business domain. There is also the opportunity to scan several fingerprints to the same card so businesses don’t need to issue multiple cards.

Of course, part of value of bringing cards into the wallet environment is ultimately the ability to replace plastic with virtual cards.  The e-wallet is both a natural step away from physical plastic and another example of the delicate balancing act between consumerisation of technology and security impacting banking and the commercial payments sector today. There are clearly challenges ahead both for banks and their commercial customers in striking the right balance but with technology continuing to advance, e-wallets being a case in point, and the financial sector showing a growing focus on these areas, we are getting ever closer to equilibrium.

by Russell Bennett, chief technology officer, Fraedom

The past five years has seen an incredible rise in awareness around bribery and corruption in both the public and private sectors. While bribery and corruption detection has typically been the purview of whistle-blowers in the finance and audit areas of organisations – the era of whistle-blowers as the only ones exposing these issues is ending. Advanced analytics and other technology processes are lending support to the complicated challenge of following payments and other indicators of corruption.

Since the passage of the UKBA and other updated legislation in nearly 60-plus countries, the world has seen FIFA, Petrobras, Samsung, Shell, Rolls Royce, Unaoil, Embraer, Pfizer, and other organizations exposed for “back room” and other deals to secure multi-million and even billion dollar contracts. In 2017 alone, two companies, Odebrecht and JBS SA have both been fined over $3B a piece for bribes. What does this history of corporate malfeasance mean for the audit function at an organization?

The Audit function, both internal and external, has often been the unsung hero in the identification, investigation and subsequent alerting for many anti-bribery and corruption cases. The primary challenge that audit faces is the complex task of finding these schemes manually. This is where analytics and specialised technology can help significantly.

So how can analytics help the auditor work faster and more accurately? There are three main areas that provide benefits to the audit process:

• Integrating Automation: Auditors primarily rely on their experiences to identify potential ABC issues. With the use of analytics, an organization can depend on sophisticated algorithms to detect potential problem areas by continually looking for schemes within a company’s books.
• Staying Up-to-date: Criminals are always looking for new ways to push their money through the system. Analytics can learn to look for shifting patterns of unusual behaviour by a company’s vendors, customers and even employees and raise an alert to auditors before a problem may have even started.
• Gathering Evidence: Auditors spend significant amounts of time gathering evidence to support a case.  Analytics can significantly reduce this effort by providing continuous monitoring of transactions and quickly bringing back linked transactions related to the case.

Analytics is now viewed as a complimentary tool to an auditor’s function by reducing the time spent identifying problems, and by providing better quality alerts and cases back.

Micah Willbrand

Global head of anti-bribery and corruption solutions

Nice Actimize

Time was when the local bank manager was a pillar of the local community, a figure of solemn solidity; trusted by his customers and potentially known to them all by name. Today, the image of the traditional bank manager seems almost as outdated as that of the village blacksmith. We live in an era of virtual shops, virtual friendships – and even virtual banks. What place has the bank manager in the digital age?

Not much, if banks themselves are to be believed. Earlier this year, Avanade released its latest report into digital disruption in the banking sector, which polled senior IT decision makers from across Europe. The poll found that almost three fifths (59%) plan to eliminate human interaction from banking service in the next 10 years.

Doubtless, some customers will see this as a long-overdue development, used as they are to a new generation of banking services delivered entirely online or through apps. Others may welcome the elimination of lengthy queues in the branch, or the lost lunch breaks spent trying to get through to a customer services representative.

Certainly, a host of digital startups and challenger institutions have begun to revolutionise our relationships with financial services providers, showing that day-to-day banking can be conducted quickly and conveniently through a digital interface. Three-quarters of respondents to our research state that their organisation is concerned about the impact that disruptive competition such as fintech start-ups are going to have on the banking sector.

Improving the customer experience with technology

As these ‘disruptors’ become popular, established banks are scrambling to reinvent themselves. Nine in ten of our respondents say they are investigating how they can use technology to improve the customer experience – an area where traditional banks admit they have fallen far behind their digital-first competitors.

As the banks embrace technology and seek to imitate their online-only and app-based rivals, it’s natural that the traditional bank branch – and the staff within – will become a thing of the past, their solid stone facades providing a perfect setting for a new clutch of trendy wine bars. Just over a quarter of senior IT decision makers from Europe say that an increased focus on digital-centric customer relationships will “inevitably” lead to the closure of some or all branches.

Is the decline of the high street bank and its manager something to be lamented? The banks will point to the immense popularity of digital financial services, and point out that eliminating the cost of maintaining a nationwide branch network can be passed on as savings to customers.

Sleepwalking towards disaster

Or is the banking sector sleepwalking towards a future where they risk sacrificing one of the few remaining unique selling points they have over their digital challengers, and merely attempting to copy what other fintech companies are already on their way to perfecting? Is it wise for them to eliminate the human touch entirely from their operations?

There are two compelling reasons why established banks should think carefully about how they can learn from the new wave of digital upstarts. The first relates to their ability to provide the same slick functionality and reliability for their digital services. Traditional retail banks are based on technology stacks that have been augmented and updated over years, yet still contain a vast amount of legacy systems that are completely unsuited to developing, testing and deploying at speed.

Of course, banks are beginning to realise that they need to replace legacy infrastructure and embrace new technologies such as the cloud. But this process will take some considerable time, during which the fintech challengers will forge further ahead with more sophisticated services, stealing, even more, market share along the way.

The second reason is that physical branches and trained, knowledgeable staff represent a unique and valuable asset – one which banks should think very carefully of consigning to the history books. In spite of the popularity of app-based services, there are some transactions that rely on human interaction – one could even say, on human relationships.

But what is the direction of travel?

Complex, high-value or long-term financial products such as loans, mortgages and investments are obvious areas where humans can make a real difference: for example, by recommending different products, discussing risks and rewards, or even just providing a commiserating explanation for why a customer has been turned down for a loan or credit card.

No-one would claim that banks don’t need to invest in new technology so that they can develop new, more relevant services for their customers. Rather, it is the direction of travel that banks need to examine. Will they profit more from slavishly copying the fintech startups or, what seems more likely, will they do better to reinvent the way they communicate with customers while retaining, where possible, the human touch?

The traditional image of the bank manager might be a thing of the past, but could there be a place for a successor – one armed with an iPad with which to talk customers through their financial future? It makes sense – in fact, you can almost certainly bank on it.

By Paul Bowen, Banking Lead, Avanade

The retail banking landscape is becoming increasingly crowded with new offerings from ambitious fintech companies and, increasingly, the Silicon Valley tech giants like Amazon, Facebook and Apple. These players are gaining a growing share of the space between traditional banks and their customers, meaning that banks are now competing with a league of new players.

The British Bankers Association forecasts that by 2020, customers will use their mobile to manage their current account a total of 2.3 billion times a year; more than internet, branch and telephone banking put together.

So, how can retail banks stay competitive? Can they actually learn from the fintech, big tech and social media pioneers that are threatening their central standing as the number one go-to provider of financial services? Could they actually go on to beat them at their own game when it comes to digital customer engagement through banking apps?

The simple answer is, yes. Even despite the fact that competition in the market will intensify once PSD2 comes into force in 2018. The forthcoming regulation will further enable non-banking, data-rich giants like Google and Facebook – as well as innovative fintechs and developers – to lure customers to their own sophisticated and engaging financial management and payment services apps using data from their traditional bank competitors. However, banks still have the competitive edge when it comes to access to customers’ (and financial) data at scale, which they can use to enrich the engagement experience in digital banking.

That said, banks must move swiftly in order to exploit this advantage, while ensuring that they focus on doing so in a sustainable way. To drive long term meaningful engagement with customers, the emphasis must be on using data to enhance user experience. For most banks, this means investing in enriching transaction and financial product data that will enable them to customise their engagement with users. Customers need to feel like their bank understands them and encourages them to form habits that drive real value and impact. They also want to feel that the time they pass on a banking app is time well spent.

In addition to providing a clear and insightful overview of customers personal finances and more advanced features there are many other interesting ways to keep your customers more engaged:

• Proactively feeding insights that inform and educate: this could be in the form of recommending a product or giving financial advice that is relevant to a user.
• The motivation of a card-linked offer – a type of personalised digital coupon via a third party that customers opt in through their bank, which then allows them to earn instant rewards – is an effective way of encouraging users to make small savings on a day-to-day basis.
• Enabling community reinforcement by encouraging users to share progress with peers can also be a helpful way to gamify their saving efforts.

In a post-PSD2 world, banks will no longer be able to rely on the inertia of lifelong customers. 73% of millennials say they are more interested in new financial services offerings from the likes of Amazon and Apple than a traditional bank, so it is essential that banks aim to foster long-term relationships with their customers via their digital platforms. In our lives we have a few critical moments when dealing with money. Our first job, first line of credit, renting and perhaps buying our own place, first child and then maybe investments and considerations for a comfortable retirement. Long-term retention is not just about frequent engagement, but about building up trust and being there for customers with the right advice at the right time in a person’s life, such as:

• Guidance on budgeting during university
• Advice on pensions and savings after securing a first job
• Recommendation or insight that renting can be expensive and perhaps it could make sense to look at buying an apartment in the future

If a bank can show its customers that it knows them well and earn their trust, they’ll be more likely to win customers’ loyalty in the long run.

Personalisation of every customers’ banking experience is tied closely to this idea. Everyone has a different relationship with their finances, yet most banking apps look more or less the same. A bank should provide a digital environment that caters to an individual’s needs and shows them that it understands them. Banking apps should serve different financial behaviours – from those who are more conscientious and “good” with money, to those have lower measures of impulse control and tend to struggle with getting to grips with their finances – and help them develop better financial habits no matter what their personality type.

The countdown to PSD2 is on, and so is the race to meaningfully engage with users between traditional retail banks and their technology rivals. The bank that can offer a data-driven, personalised digital environment that helps people gain the most valuable insight into their current financial situation and motivate them to improve it through a seamless user experience, will be the provider that wins ongoing loyalty from its customers.

The best banking apps should provide a digital environment for continuous dialogue with its customers, that goes beyond the transactional to the emotional. Financially stronger customers will be happier customers, which will, in turn, keep your bank top-of-mind when it comes to other financial services that a customer might need. Get meaningful engagement with customers right, and it might just be the silver bullet for banks when it comes to keeping the big tech challengers at bay.

Bragi Fjalldal,

CMO, VP for Product and Business Development

Meniga