Source: The Financial Brand
2019 will not be a continuation of the past with banking technology. But which technology trends will matter most in the months and years ahead? Big data and AI? The cloud? Digital-only banks? The answer is critical because ignoring these trends now will make it more difficult than ever for complacent banks and credit unions to catch up.
Never before has the importance of technology been greater in financial services. Competition from fintech firms and big tech giants, increased expectations from the consumer, and new innovations connecting data to digital delivery are requiring banks and credit unions to embrace new technologies in order to build winning strategies.
Here are some of the most important technologies banks must focus on this year and in the foreseeable future. These are in no particular order, since each organization will be different as to the prioritization and investment allocation. Suffice it to say, however, than none should be ignored.
1. Using Data and AI for Personalization at Scale
When it comes to personalization, consumers are pretty clear what they want. They want recommendations that they wouldn’t have thought of themselves, and a clear direction about what they should buy when they are shopping for a product or service. In other words, financial institutions should show consumers that they have been listening and learning from their activities.
People also want their banking providers to know them, look out for them, and reward them no matter what channel they use or what time of the day or night it is. This includes letting them know their overall financial status — on demand. Finally, banks and credit unions must continuously show the value they provide for the insight consumers let them collect.
With artificial intelligence (AI), there is the potential to transform customer experiences and establish entirely new business models in banking. To achieve the highest level of results, there needs to be a collaboration between humans and machines that will provide a humanized experience that is different for each customer.
2. Voice-First Banking
A major part of the voice-first paradigm is a modern “intelligent agent” (also known as “intelligent assistant”). Over time, all of us will have many, perhaps dozens, of these agents interacting with each other and acting on our behalf. These agents will be the “ghost in the machine” in voice-first devices. They will be dispatched independently of the fundamental software and form a secondary layer that can fluidly connect between a spectrum of services and systems.
Most financial organizations will move from basic dialogue and account inquiries to doing transactions using voice commands. This can include being able to execute payments using voice commands, as well as doing account transfers and establishing account alerts using voice commands. Many believe that in the next five years, 50% of all banking interactions will be via voice-first devices.
With the vast majority of consumers having banking relationships spanning a decade or longer, the integration of voice, long-term transactional analysis, geolocation, and current contextual learnings combined with preferences and behaviors outside of banking over time, is where the power of AI and voice commerce becomes really exciting.
3. Open Banking
While the largest tech firms — Google, Apple, Facebook, Amazon (GAFA) — are leading the charge towards implementing open API platforms, the model they use may not be the one most banking organizations should follow. Not only do most financial institutions lack the technical expertise or the financial wherewithal to implement these models and support a vast developer community, the ability to acquire new customers to replicate their success is unlikely.
That said, an open banking platform future is within sight for financial organizations of all sizes. For instance, account aggregation is becoming much more commonplace, with firms like Citibank developing completely new digital-only products with this capability. Similarly, traditional banking functions like taking deposits or making payments could become integrated within non-traditional organizations (Starbucks, Amazon, etc.). In the end, key managers in virtually all financial organizations should already be meeting to determine what their organization may look like in the future and how services will be created, marketed and distributed.
4. Digital-Only Banks
Creating a digital-only banking proposition involves aligning new technologies and solutions with the legacy bank’s existing design, brand value and business model. There must be the involvement of leaders who are tech-savvy, building technology with customer-centric approach. Financial institutions can also leverage the technical capabilities of fintech startups to assist in the development of digital-only banks.
Having a digital-only proposition may become increasingly important as more non-traditional banking choices are available to consumers today, enticing them to switch banks for better customized services and value propositions. According to an Accenture report, “banking consumers in North America want it all — deals and discounts, convenience, relevance and banking customer experiences that combine the latest in digital banking with human interaction. Consumers will share personal data to get what they want and switch banks if they do not.”
There is no doubt that the increased use of technology and digital channels have made the banking industry more susceptible to cyber-attacks and have forced banks and credit unions to be in the unenviable position of playing ‘catch up’. New open banking regulations that require banks to share customer information with third-party providers makes the industry even more vulnerable.
Now more than ever, banks must become proactive in their handling of data protection and managing cybersecurity risks. Unfortunately, consumers want the best of both worlds — ease of use and increased protection of data and identity. This will require the banking industry to implement multi-factor authentication, secure applications, digital signatures, and other forms of security such as biometrics.
6. Threat of Big Tech
Almost six in ten consumers who are looking to move to a new primary financial institution (or would consider doing so) are open to Big-Tech firms such as Google, Amazon, Facebook or Apple, according to a report from Novantas. This represents a 14-point increase over the 2017 survey, illustrating the potential impact of a major banking product introduction by any of the major tech companies.
One of the primary benefits traditional banks and credit unions had over their competition in the past was trust. Nobody wants to put their life savings at risk or to partner with an organization that wouldn’t protect their identity and privacy. According to recent surveys, however, it does not appear as though trust is a big problem for firms like Amazon. In fact, many consumers trust Amazon more than their current primary bank.
If an organization wants to improve their standing against the likes of Google, Amazon, Facebook and Apple, it is best to focus on becoming a much better digital organization and making it easier for digital consumers to do business with you. That may require partnering with specialists or solution providers that excel in these transformations, but the investment is important as the gap in performance between the best and the mass is widening every day.
7. Blockchain Tipping Point
More and more financial institutions are using blockchain technology or are in the process of implementing blockchain capabilities given its myriad applications. These tests and roll-outs could push blockchain into mainstream adoption in 2019, especially at larger organizations.
For the most part, the focus of blockchain implementations has been around cost reduction and process simplification. The adoption of blockchain in payments, remittances, provenance, and traceability are where blockchain technology seems to be used the most extensively currently.
According to CBInsights, “For use cases that don’t need a high degree of decentralization — but could benefit from better coordination — blockchain’s cousin, ‘distributed ledger technology (DLT),’ could help organizations establish better governance and standards around data sharing and collaboration.”
8. Cloud-Based Solutions
According to the American Bankers Association, banks are generally receptive to cloud-based core banking, with 29% saying they would consider it, 50% saying they were unsure and 21% saying they would not consider it. Many experts think cloud-based core banking will soon become more mainstream, with many believing that the majority of new core banking projects launched by 2020 will be in the cloud.
Much of the momentum around cloud-based solutions is because any financial institution relying on a legacy infrastructure cannot compete against faster and more innovative digital competitors. Implementing cloud technology automates operations and workflows, resulting in increased efficiency, security and cost savings.
Whether banks go with a public or private cloud, security of data, identities, etc. is essential. And while cloud-based core banking may not be the biggest trend right now, banks and credit unions should consider this one of the most important technology trends in the future.
Article Source – CCN
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has announced its decision to launch a pilot Global Payment Initiative (GPI) service which aims to compete with the growing threat of competing blockchain and fintech solutions provided by institutions like Ripple, JP Morgan and Transferwise.
Still in its initial stages, the ambitious pilot aims to “build the foundation of a new integrated and interactive service that will significantly improve efficiencies in the payments process and which will ultimately be made available to all 10,000 banks across the SWIFT network.”
A recent GPI test, was successfully conducted in October, carrying out instant cross-border payments with banks in China, Singapore, Thailand and Australia. Equipped to enable speedy identification and elimination of errors and omissions in payment data such as missing or incorrect beneficiary information or incomplete regulatory information, SWIFT hopes the GPI payments service will enable speedy and seamless transactions, thereby reducing delays and costs, as well as improving customer experience.
Taking on Blockchain’s Threat
With the move, SWIFT has turned its attention to containing the threat of blockchain-based fintech startups offering the same services at a cheaper price. One such blockchain project is J.P.Morgan’s Interbank Information Network (IIN). Launched in September, it now boasts a membership count of more than 130 banks, including Satander and Societe Generale.
IIN, claims to minimizes friction in the global payments process, enabling payments to reach beneficiaries faster and with fewer steps. With its membership still growing, IIN promises banks the ability to resolve errors and compliance issues speedily by sharing information on a mutual distributed ledger.
SWIFT’s GPI, on the other hand, uses an Application Programming Interface (API) which enables banks to access each other’s data to validate recipient account information before payment is processed, thereby avoiding errors and delays.
An excerpt from the statement released by SWIFT reads:
“Fully integrated with GPI payments, the service will facilitate real time dynamic bank-to-bank interaction using APIs to improve the predictability and efficiency of international payments, and look at using predictive analytics. It will later be complemented with a post-payment investigation and reconciliation service that will allow for fast resolution of the remaining factors, typically arising from compliance or regulatory requirements, which can slow down the payments process.”
The pilot GPI pre-validation service is set to kick off at the beginning of 2019 with 15 selected banks including J.P. Morgan, Barclays, Bank of China and CitiGroup, among others. According to SWIFT, the service is expected to provide total transparency to payment beneficiaries and originators, making the cost, routes and delivery of their funds highly predictable.
Article Source – Forbes Middle East
Challenges in introducing digital wealth management
Digital wealth management (“DWM”) – either in the form of an automated portfolio management platform, commonly referred to as ‘robo-advisory’, or a funds supermarket platform – is familiar to most financial firms in the GCC. The GCC financial sector is aware of the under-served mass affluent segment for wealth management services and the many benefits the introduction of DWM can bring to these customers.
The issue is not a lack of awareness or access to the relevant technology solutions – the challenge is one of economic viability. While the customer benefits of DWM are self-evident, its market launch needs to make economic sense. In this context, there are many factors that make DWM a less than economically viable proposition when looked at from the vantage point of an individual financial sector firm in the GCC.
The biggest hurdle is the fragmentation in the GCC banking sector. For instance, the top 5 banks in the UK hold 87% of the total banking deposits. In comparison, the top 5 banks in the GCC region hold 27% of the region’s banking deposits. The impact is that the total potential revenue pool for DWM services for the mass affluent segment is too small for most banks, let alone relatively smaller insurance and brokerage firms in the GCC region.
Against this small revenue pool, any one bank has to be brave to incur the significant costs needed to launch a DWM service for its limited affluent customer base. The costs to cover in order to be viable are first, an upfront capital expenditure to set up the technology infrastructure, second, an even bigger expenditure on customer conversion campaigns over the first 3 – 5 years and, lastly, other fixed and variable costs for obtaining and maintaining regulatory approvals for DWM and provision of these services.
Given the above, it is no surprise that for most GCC banks, insurance and brokerage firms the financial case for launching DWM business does not “stack up” and therefore never happens. In addition, small and medium size GCC banks, insurance and brokerage firms will have difficulties in convincing international asset managers to provide funds and portfolio management services given their preference for dealing with a very limited number of leading financial sector firms in each country.
So, where do we go from here!
While the economic viability of DWM initiative is decidedly shaky when looked at from the vantage point of an individual financial firm, the same is not true when looked at an aggregate GCC financial sector level.
At an aggregate level, the liquid investible assets of the mass affluent segment are projected to reach $1 trillion in the GCC by 2022. If we assume that DWM could potentially get 10% share-of-the-wallet, it could create a new annual fee revenue pool of $1.5 billion for the GCC financial sector.
If addressed at an aggregate level, the capital expenditure on a technology platform and customer conversion campaigns can cost a fraction of what it would cost if each individual bank did it alone. Similarly, there is significant potential to reduce the on-going fixed and variable costs of providing DWM services to clients through economies of scale. At an aggregate GCC financial sector level, the economic viability of the DWM initiative starts to look very attractive.
With such an exciting opportunity, it is quite realistic to think of building an industry-wide, interoperable DWM platform that is available to any GCC bank, insurance or brokerage firm to offer a standardised set of wealth management services to its mass affluent customers. It is not a pipe dream to think that such an interoperable platform access could be made available, ready for DWM service launch for any financial firm without the need for complex and time-consuming integration with that firm’s technology framework.
The GCC banking sector is already using such an interoperable platform for credit cards. The largest as well as the smallest GCC banks are able to offer identical credit card services using Visa and MasterCard interoperable platforms without the need for any complex systems integration projects. The same can be done for DWM through the launch of a pan-industry, regional initiative in the GCC.
With different regulatory requirements in various GCC states and a highly fragmented financial sector requiring a lengthy effort to gain a broad consensus and active participation from banks, insurance and brokerage firms, the goal of setting up a regional interoperable DWM platform is challenging and rewarding at the same time. The rich rewards are evident from multiple perspectives: a new and profitable line-of-business for financial firms; mass affluent customers achieve a levelling of the investment playing field between the rich and not so rich, significantly enhanced buying experience and lower costs; and lastly, it helps in the development of a transparent, modernised wealth management sector, greater involvement of international asset managers and a more sophisticated GCC financial sector – all cherished goals of financial regulators in the region.
It is indeed a $1 trillion opportunity for the GCC financial sector!
Nadeem Mujtaba is the CEO of Gulf Wealth Management Limited (“GWM”). Falcon Capital Group Limited recently announced its decision to take a 20% stake in GWM, a UK-based digital wealth management initiative focused on the GCC region. Nadeem can be contacted at email@example.com.
Article Source – Blockchain Reporter
Digital currency is backed by the UAE central banks and will facilitate easier cross-border payments
It will not replace fiat currency but will be a tool for inter-bank payments
Motivation for the project is the recent developments in the fintech industry
A digital currency for the United Arab Emirates backed by the Saudi Arabia central Bank has entered the design stage. The joint project is being pursued to facilitate easier cross-border payments with several banks.
Middle East to Go Digital
The Saudi Arabia Monetary Authority (SAMA) Head of innovation Mohsen Al Zahrani told the Saudi Press Agency on Tuesday, November 20, 2018, the project is nearing completion and could be ready by the middle of 2019.
Al Zahrani, who was speaking on the sidelines of the Blockchain Future Applications Conference on Tuesday, said SAMA was studying the feasibility of the cryptocurrency being rolled out among all banks.
The announcement by Al Zahrani corroborates a similar one by Mubarak Al-Mansouri, governor of UAE’s Central Bank who confirmed to the local Agraam news outlet on Monday, November 19, 2018, the joint digital currency project had entered design phase. The date of the launch, according to him, will be determined “according to the Saudi part and the current study.” He further said the digital currency would be used in all payments and added:
“The digital currency will not replace a certain bill, but it will be a new payment tool used by banks not individuals.”
The UAE Central Bank undertook a joint project with Saudi Arabia Monetary Authority (SAMA) in December 2018 to use the power of blockchain technology to create a digital currency that would help facilitate cross-border payments between both countries. Commenting about the project on December 13, 2017, during a high-level meeting for the Arab region on Global Banking Standards and regulatory and Supervisory Priorities, UAE’s Central Bank Governor said:
“CBUAE and SAMA intend to execute a joint crypto-currency and Distributed Ledger Proof-of-Concept (PoC). The PoC’s design mainly focuses on the transfer of ownership of a central bank asset (crypto-currency) among participants.”