2023

Technology that integrates a business’s accounting data directly into lending propositions – a practice that we term open accounting – can help mitigate risks for lenders while the demands and stress on borrowers are reduced.

by Kevin Day, CEO, HPD Lendscape

In respect to secured lending, where the lending is based on the accounts receivables of a borrower, open accounting provides accurate and up to date information regarding the collateral that effectively underpins the financing facility. It can help lower costs, reduce the friction in the process and enable more optimised funding, benefitting both parties in the process.

What is open accounting?

Open accounting is the process by which the financial records of a business are purposefully shared with a third party or lender via their accounting software, in order to speed up the lending process by finding all the reliable and up-to-date information transparently and in one place.

It offers an answer to several issues in SME lending. By granting permission to banks and FinTech lenders to the information contained in their accounting platforms, SMEs can receive more optimised lending propositions. Open accounting offers the promise of smoother access to working capital for SMEs and also allows lenders to create better, more flexible products and services.

Fighting fraud and smoothing out the lending process

A crucial issue lenders will face in a period of increased demand for financing is the rising risk of fraud. Indeed, each instance of receivables or supply chain finance fraud contributes to the vast $5 trillion lost to corporate fraud each year – a sum equivalent to the GDPs of Italy and the UK combined! Compounding this issue is the fact that lenders must often make do with out-of-date and incomplete client data that can slow down the process for borrowers and lenders alike.

It is here that open accounting can provide the answer.

Transparency and granularity of operation data available to the lender enables better risk management. For example, a business that traditionally operates during Monday-to-Friday business hours suddenly has invoices issued over a weekend. This circumstance may be due to legitimate reasons, but by being alerted to the fact, the lender can bring more scrutiny to bear should this be an indication of potentially fraudulent activity.

Helping to increase access for SMEs and agile businesses

Traditionally, SMEs might have avoided approaching banks for financing due to the difficulties they faced when dealing with large financial institutions and their often-cumbersome lending processes. It is not uncommon for smaller businesses owners and directors to be required to provide personal guarantees to secure lending. For example, using collateral like their own home is often a deterrent to borrowing due to the personal risks involved.

However, there has been a step-change in the way businesses and institutions embrace digitalisation that has the potential to change the dynamics at play. There is an increasing opportunity for trust and transparency between lenders and borrowers that open accounting can answer. Offering transparency into the day-to-day operations of a business removes the opaqueness that might otherwise exist. Can enhanced data quality provide sufficient security to the lender to enable it to waive protective covenants and securities it may otherwise wish to invoke?

Open accounting could help create a renewed attractive market for lenders to fund businesses that have lower boundaries to borrowing. In addition, this will help encourage better and fairer equity exchanges between borrowers and lenders while streamlining the customer journey by removing cumbersome processes for time-constrained businesses.

Overall, the Covid-19 pandemic has driven more demand for financing among businesses as they look to inject fresh liquidity and stave off the financial cliff edge many are facing now that government lending schemes are drawing to a close. With this change, more companies and financial institutions will look towards digital solutions that incorporate an open accounting approach to inform their lending. Greater visibility of a business’s data helps mitigate fraud risks and enhances lending propositions for those companies that may have been less likely to borrow before the pandemic. With businesses in more need of financing and liquidity than ever before, this can only be a good thing.

Irrespective of where they are in the world FinTech companies are vulnerable to cyberattacks and deploying the kind of encryption and security technology that major banks use is costly and requires technical expertise.

by Eyal Worthalter, Vice President – Global Solution Sales, MYHSM by Utimaco

FinTechs are not just getting more customers and larger investments, but we are seeing new FinTechs founded in sub-Saharan Africa and cities like Tel Aviv, Stockholm and Hangzhou beginning to compete with traditional cities such as New York, London and San Francisco as major hubs of innovation.

Cybercrime is a global problem

Cybercrime cost the world $1 trillion dollars in 2020, more than the combined cost of all natural disasters and the costs of adapting to climate change, and this number is only going to rise. Data breaches can cost companies as much as $3.86 million and take as long as 207 days to discover. Some companies have been the victims of particularly damaging, headline-grabbing hacks: after 147 million people’s personal information was exposed in the Equifax hack the company spent $1.4 billion on security upgrades.

Although the global pandemic helped FinTech companies by showing many people that they could easily administer their financial lives from their phone and pay for goods and services without cash, it also drastically increased the amount and sophistication of cybercrime. At any time when there is a global financial downturn more people will turn to crime of any kind to make ends meet.

FinTech companies may seem like low-hanging fruit to criminals when compared to banks. Both keep and process customer payment data, but banks have extensive security operations – one survey shows that banks spent on average 10.9% of their IT budget on cybersecurity, and this is growing every year. FinTech companies will have the same challenges but significantly lower budgets, which leads to a situation in which criminals perceive them as weak and are more likely to target them, increasing their need for cybersecurity when they are least able to satisfy that need.

This is a particular problem for companies based outside of the traditional tech hubs, and even more so for startups in the developing world. There is already a skills shortage in the cybersecurity industry, and the limited number of experienced professionals know that they are more likely to get high-paying jobs in the world’s major tech hubs than those cities that are still developing their FinTech industries. This leaves the younger companies who need the most support without the critical skills that they need.

Cloud-based encryption can bridge the gap

Encrypting cardholder sensitive data such as PINs during online transactions is hugely important to minimise any fraudulent activity. The use of a Payment HSMs in the financial services industry is mandated by PCI Security Requirements and are a fundamental requirement to become PCI PIN compliant. However, Payment HSMs require significant investment and specialist knowledge to operate and manage. For these reasons, they may be out of reach for small start-ups and companies in the developing world.

Cloud technology has clear advantages for FinTechs and the recent pandemic has accelerated the use of cloud-based systems in the financial world and increased the use of cloud systems by FinTechs, 55% of which say they use multiple clouds. Cloud technology may be deployed quickly without the need for new hardware, it scales to meet surges in demand, backs up all of a company’s data and can often be paid for monthly rather than as a single expensive purchase.

Furthermore, cloud-based services allow smaller companies to deploy the same level of security and compliance that is used by much larger companies at a fraction of the price. This means that startups can focus on their core business knowing that security and compliance is taken care of, which in today’s cybersecurity climate will be a major relief for the company.

When a human being or even an animal faces risk, there can be one of two reactions – fight or flight. Risk is inarguably ubiquitous and something that most of us deal with on a daily basis. However, rather than fight or flight, sometimes the best way to deal with risk is to buy protection. And, this is where the insurance industry plays an integral role.

By Vijay Kasturi, Head of Sales & Business Development – Western Europe at Profinch Solutions 

The insurance industry enables you to protect the downside of unforeseen events and mitigate the impact of risk events. Traders and mariners have been buying insurance for the last 500 years. Inevitably, the insurance industry has significantly evolved over this vast period of time and shape shifted in response to the changing environment. Today, the industry is in the midst of another important transition precipitated by technology and in response to changing consumer needs. It has finally started its delayed, but firm, march towards digitization. While digitization is being embraced across the value chain, its importance in claims management needs to be highlighted.

The digital claims value proposition

For an insurance company, the moment of truth comes at the time of claims processing. An efficient and timely settlement of claims can lead to a positive experience for the customer and help the insurer engender trust. Digitisation can help enable this in several ways. However, in the digital age, a truly robust claims value proposition needs to go beyond the traditional after-the-event claims management exercise. It needs to be holistic and foster an end-to-end partnership with the customer. This means digitizing the entire claims journey starting from digital claims prevention and digital first notification of loss (FNOL) to digital loss assessment and automated settlement, especially for clear and simple cases.

What does digitizing the claims process mean for insurers?

Automated and intelligent interactions can facilitate the faster settlement of claims.  Insurers can leverage Artificial Intelligence (AI) to create chatbots that can act as the first call of support for customers. These chatbots can address basic settlement queries and even commence the claims settlement process. For example, chatbots can easily avoid the need to check the policy number for identification by simply verifying it with the policy documents, photographs, and other documents submitted by the policyholder. Further, they can interact with the customer, assess the requirement, and then suggest the best course of action. A process that would normally take a number of days can be done in just a few minutes with the assistance of chatbots. The best part is that since chatbots are available round the clock, customers can interact with them and have their queries addressed almost as soon as the need arises. This can be invaluable to a customer who is looking to make a claim.

Machine Learning (ML), a subset of AI, can further augment the value being generated by automating a significant part of the claims process. Imagine this scenario – an individual interacts with a chatbot to initiate the claims process. At the back end, ML tools have already converted all the files and information into digital assets and made all the information available to the chatbot via cloud. The chatbot can now point the customer in the right direction. Next, data analytics and drone technology can be leveraged to assess or verify the damage for which the claim is being made. For example, the claimant can take a picture of the damage and share it with the insurer. Digital tools can then be applied to scan the picture, compare it to a repository, and verify the actual damage. Or, unmanned drones can be deployed in case of large-scale damage where individually assessing the damage might not be possible. With assessment done, settlement of small value claims can be automated while large value claims can be referred for further evaluation. With the entire process automated, it becomes more efficient and seamless.

It is important to recognize that automated risk assessment is actually the first step in improving the claims management process. AI can enable insurance companies to improve the risk assessment and underwriting cycle. Insurance companies can leverage AI and predictive analytics to access data related to the risk metrics of individuals rather than groups of people and assess it more efficiently, thereby improving the risk assessment and the claims cycle. According to a report by PWC, the initial impact of AI will primarily relate to improving efficiencies and automating existing customer-facing underwriting and claims processes.

Clearly, digitization of the claims process can be highly value accretive for the insurer as it leads to faster settlement of claims, improves the customer’s claim journey by making it more seamless and efficient, and helps in achieving cost efficiencies.

Today, the average insurance customer is already accustomed to digital interactions and is, in fact, demanding digital journeys in most spheres of their lives. For insurance companies, it has now become essential to holistically embrace digital solutions in order to meet the customer’s needs and thrive in the new normal.

Digital banking has reached such levels of disruption that the disrupted are unaware of disruptors racing ahead.

By Indranil Basu Roy, Chief Business Officer, Modefin

Next to the “new normal,” the most overused term could be digital banking. What’s the tipping point of technology or service delivery that makes a bank truly digital? Net banking? Yes and No, as its entry dates to an earlier era. App-based access? You must be joking. Cashless payments… now we are talking.

Let’s take one step back to understand digital banking. Over time, as fintech progressed from state-of-the-art, to cutting edge, to leading edge, services offered by banks migrated from conventional delivery channels to online.

Banks, in their eagerness to keep pace, ensured they incorporated every facet of digital banking in their ecosystem. Somewhere down the line, the music stopped. After all, customers were not complaining – no branch visits, no staying on hold in the helpline, no relationship manager to deal with – banking was no longer a chore but a breeze.

Not just retail or personal banking, the transformation had encompassed corporate banking as well, and had eased the procedures in document-oriented products such as Trade Finance.

Should we conclude that all is well, and congratulate the fraternity? Can we compliment the far-thinking CTOs and CMDs on their vision for digitization? Can we name the top 10 digital-driven banks and announce such other lists that make the jury glow and winners feel good?

If we do, we are falling into the trap that others have already got into. Let’s get this straight, digital banking has reached such levels of disruption that the disrupted are unaware of disruptors racing ahead.

As a banking institution, how do you gauge or ensure you are not left behind? Here are three test questions (don’t look for synergy, this is a random round):

• How equipped are you to compete with a wholly-digital bank that does not have a single brick and mortar branch?
• To enhance your digital capability, has your bank partnered with, or invested into non-financial players, such as a fintech enterprise, data analytics firm, mortgage-software start up or any other disruptor?
• Here are five terminologies that are the latest in fintech applications: If you have to look up any, you are labeled “behind,” if you have implemented one or more you are “ahead.”

Here we go: Social Banking, Digital Queue, Conversational Banking, Peer to Peer Payment Systems, Facial Recognition Banking.

Assuming that banks cannot endlessly invest in technology (tech is not their domain) the answer is cross-industry collaboration with fintech players who focus on agile solutions. If the engagement process gets further delayed, the next wave will be fintechs playing the role of banks in certain product areas (we already have several online lending platforms which are not backed by a bank). Look closely, lending platforms of today are replicating services that banks pioneered five years ago by offering instant loans based on a review of credit history.

Looking back, IBM, the one-time mainframe behemoth, proved elephants can dance by making a dramatic turnaround in the mid-1990s. Now is the turn of mammoth banks to appreciate that digital transformation calls for more than online banking. If not, they may as well recall the story of a humble ant that troubled the mighty elephant by entering its trunk (can’t think of a better disruptor-disrupted metaphor).

Beyond folklore and stories of yore, here’s a reality check reflected in a research report on ‘Digital Banking in Asia,’ published by Mckinsey & Company:

“The disruption caused by digitization can create or destroy significant value for banks, depending on their starting positions and how well they respond to shifting consumer behavior and other trends. Experience is showing that 30 to 50 percent of net profit is at risk.”

The findings are disquieting. Rather than assuage your anxiety, I end with a call to action. Start with an audit of your bank’s digital platforms and products, benchmark against the best in the industry, get to know where you feature, and get to work on greater transformation.

If the fraternity fails to keep pace, faster adapters, disruptors and other innovators will get ahead. No marks for guessing who could laugh all the way to the bank.

Increased FX [foreign exchange] volatility and greater complexity in managing cashflow forecasting, is changing the way UK businesses are hedging.

by Richard Eaddy, CEO, Hedgebook

For a start, companies have moved from being hands-off to hands-on in managing their forecasts and FX hedging.  It is seen as a concern across the business, impacting sales, procurement, and the supply chain.  While the C-Suite are aware of the impact, it is often the board that is driving change in wanting to see a far more proactive approach in managing these risks.

The increased volatility in financial markets, is matched by increased uncertainty in business. Once stable supply chains now operate on much shakier terms if they haven’t disappeared altogether.  It means there is no longer certainty around when you will be making a payment or how long you will need to hedge.

Businesses working on low margins can be significantly impacted. A cancelled order or significant swing in foreign exchange that has not been hedged, leaves the business dangerously exposed. All of this has meant UK companies are looking more regularly at their hedging positions and reviewing the risk.

Many businesses are acting responsibly and adding FX Management to their library of risk management policies.  This gives the treasury team some real guidance as to the risk tolerance the business is prepared to work within.  The ability to model FX hedging options against this policy enables faster and better decisions to be made – with minimised risk.

Remote working also removed the expectation of a monthly or quarterly meeting where such matters were generally discussed.  The traditional round-the-table closed door reviews essentially disappeared during lockdown.

Very quickly, companies realised the need to proactively review their FX hedging positions and that players across the company needed to part of that.  Over 80% of surveyed customers using our FX tools now engage with them at least once a month, with 10% checking in on a daily basis.

Working remotely has also seen companies move away from spreadsheets being the default tool for managing FX hedging.  This is largely due to the increased risk around version control and data security when shared across multiple screens and locations.

But it also highlighted the spreadsheet owner as a potential single point of failure in the organisation. In many cases they were the only ones who could successfully run the formulas and manage the complex hedging situations the business was facing.   As a result, companies have proactively started looking for online tools capable of managing this for them.

They want to view data in real time, have secure access to their hedging positions and for everyone involved to be working off a single version of the truth.   Companies now say using online FX hedging reports and modelling saves them half to a full day per month – but the exponential value is in greater accuracy and faster, better decisions.

It is these companies that are driving change.  They expect their banker to be able be onboard with managing foreign exchange hedging online.  They want their broker to see the same information they are and be able to guide them through the options – modelling the different rates and hedging percentages as they go.

Even though cloud technology has driven the access cost right down, online treasury management is new technology for banks to become familiar with. Perennial slow adopters, banks are now realising they need to get onboard fast, or their customers will leave them behind – quite literally.

It really should be a win-win for everyone.  Customers limit their FX risk and banks become even more valuable and responsive to their customers.   It enables much better FX hedging decisions to be made faster and strengthens the banks relationship with its customers.  A definite change for the better.

Increased FX [foreign exchange] volatility and greater complexity in managing cashflow forecasting, is changing the way UK businesses are hedging.

by Richard Eaddy, CEO, Hedgebook

For a start, companies have moved from being hands-off to hands-on in managing their forecasts and FX hedging.  It is seen as a concern across the business, impacting sales, procurement, and the supply chain.  While the C-Suite are aware of the impact, it is often the board that is driving change in wanting to see a far more proactive approach in managing these risks.

The increased volatility in financial markets, is matched by increased uncertainty in business. Once stable supply chains now operate on much shakier terms if they haven’t disappeared altogether.  It means there is no longer certainty around when you will be making a payment or how long you will need to hedge.

Businesses working on low margins can be significantly impacted. A cancelled order or significant swing in foreign exchange that has not been hedged, leaves the business dangerously exposed. All of this has meant UK companies are looking more regularly at their hedging positions and reviewing the risk.

Many businesses are acting responsibly and adding FX Management to their library of risk management policies.  This gives the treasury team some real guidance as to the risk tolerance the business is prepared to work within.  The ability to model FX hedging options against this policy enables faster and better decisions to be made – with minimised risk.

Remote working also removed the expectation of a monthly or quarterly meeting where such matters were generally discussed.  The traditional round-the-table closed door reviews essentially disappeared during lockdown.

Very quickly, companies realised the need to proactively review their FX hedging positions and that players across the company needed to part of that.  Over 80% of surveyed customers using our FX tools now engage with them at least once a month, with 10% checking in on a daily basis.

Working remotely has also seen companies move away from spreadsheets being the default tool for managing FX hedging.  This is largely due to the increased risk around version control and data security when shared across multiple screens and locations.

But it also highlighted the spreadsheet owner as a potential single point of failure in the organisation. In many cases they were the only ones who could successfully run the formulas and manage the complex hedging situations the business was facing.   As a result, companies have proactively started looking for online tools capable of managing this for them.

They want to view data in real time, have secure access to their hedging positions and for everyone involved to be working off a single version of the truth.   Companies now say using online FX hedging reports and modelling saves them half to a full day per month – but the exponential value is in greater accuracy and faster, better decisions.

It is these companies that are driving change.  They expect their banker to be able be onboard with managing foreign exchange hedging online.  They want their broker to see the same information they are and be able to guide them through the options – modelling the different rates and hedging percentages as they go.

Even though cloud technology has driven the access cost right down, online treasury management is new technology for banks to become familiar with. Perennial slow adopters, banks are now realising they need to get onboard fast, or their customers will leave them behind – quite literally.

It really should be a win-win for everyone.  Customers limit their FX risk and banks become even more valuable and responsive to their customers.   It enables much better FX hedging decisions to be made faster and strengthens the bank’s relationship with its customers.  A definite change for the better.

Banks and financial institutions have been hesitant to adopt public cloud technology due to a fear of losing control. What are the psychological barriers facing financial services executives and how may they be overcome?

By Neil Vernon, CTO, Gresham Technologies

Accelerated by the global pandemic, the financial services industry is undergoing a period of intense technological transformation. The impact of Covid-19 is putting incumbent banks and financial institutions under cost, profitability, and operational stresses; regulatory requirements are growing in volume and complexity; and legacy systems are increasingly putting businesses at risk of service failure, loss events, and reputational damage.

In this environment, there’s no doubt that the future of financial services is in the cloud.

Its potential to deliver greater agility, cost effectiveness, efficiency, scalability, and speed to market provides new opportunities for growth and innovation. What’s more, a cloud-first approach offers firms the ability to better control their data and remain connected, freeing up highly stretched resources to focus on other business objectives. Migrating to the public cloud can play a critical role in strengthening operational resilience, too. In the face of increasingly high customer standards and, in the UK, new rules from the FCA coming into effect from March 2022, IT and system failures will simply not be tolerated in future.

So why are we still seeing a hesitancy towards cloud adoption among senior financial services executives?

Outsourcing functionality, not control

For the most part, it is the fear of losing control. Regulatory changes are increasing the pressure to meet a greater number of more complex requirements. In line with that, the risk of more severe non-compliance and the consequences that follow are also increasing. Exacerbating this problem is a pandemic-induced move towards working-from-home or hybrid environments, leaving outdated legacy systems unable to cope with the agility this demands.

Ultimately, the data that banks and financial services firms handle is very sensitive, either regarding customers’ financial information or traders’ operations. If compromised, this could present significant financial and reputational risk. Capital One Bank’s 2019 data breach, for example, which affected 106 million people across the U.S. and Canada, resulted in an $80 million fine. And the reputational consequences were tangible: in the days following the breach, Capital One’s stock plummeted from over $100 to $85 – both a consequence and catalyst of the reputational damage that the bank suffered.

All of this means that data control is more important than ever. But the truth is that moving to the cloud does not mean sacrificing control.

It is critical for business leaders to understand that leaving processes on legacy systems increasingly exposes you to loss and failure events, and that outsourcing your data and processes to third-party cloud providers is actually a more secure alternative. It can significantly increase efficiency and reduce costs by simplifying processes, as well as reducing the risk of non-compliance while simultaneously avoiding expensive in-house IT projects, both in terms of time and money.

Gaining insight through connectivity

In fact, moving to the cloud can put you in more control by facilitating a holistic view of your relationships as your business grows.

Connecting to an ever-changing array of trading partners, venues, clients, and regulators – and ensuring these connections remain valid – is a dynamic process. What’s more, firms must manage, map, and maintain the widely diverse and constantly changing data formats that flow between these parties.

Navigating this complex data landscape can cost millions every year in internal resources or point solutions that become stale. Moving this process to the cloud can give you the scalability your business needs to grow its network with speed and ease.

Work with the cloud, not against it

Despite a reluctance to overhaul existing processes and the temptation to bend cloud software to fit your own objectives, executives must understand that, in order to harness the power of the cloud, you must work with it – not against it.

A flexible approach, whereby firms understand that successful cloud migration might require some upfront work, is key. Integrating cloud with non-cloud, or different cloud services with each other, is often complex. A rigid attitude will likely result in disappointing results and data migration complexities, costing time and money better spent servicing clients.

Part of this flexibility is understanding best practice around how to use the cloud. The Bank of England (BofE) has warned that additional policy measures may be required to mitigate financial stability risks from the growing concentration of power in the hands of global cloud providers, such as Amazon, Google, and Microsoft. In response, firms should be looking at the ways in which cloud service providers are different and playing to those strengths to diversify their cloud portfolio.

It’s vital that firms have the right partner to help them navigate the application of their cloud technology across the major providers with relative ease, flexibility, and portability. What’s more, in addition to new BofE policy, big providers could be dictating cloud terms and conditions to major financial firms in future. Understanding and reporting on these requirements will cost valuable time, money, and resources that are much better outsourced to cloud-native technology experts.

Ultimately, a fear of losing control shouldn’t act as a barrier for cloud adoption. Once properly understood, the power of the cloud and its potential impact on business performance cannot be overstated, offering unparalleled benefits that, in an era where data control, integrity, and connectivity rule, could make or break financial institutions across the globe.

Never in recent history have we seen the convergence of two super trends on the scale of blockchain and cryptocurrencies, and artificial intelligence (AI). The adoption of cryptocurrencies has exploded.  There are now 70 million cryptocurrency wallets, which starts to approach about 1% of the global population.  The massive influx of new users and new money has led to significant interest and support from major financial investors and institutions alike.

By Janet Adams, Consultant, International Compliance Association

Combine the developments in cryptocurrencies with the increasing use of AI and Robotics Process Automation (RPA) and it creates an interesting dynamic.  Forbes predicted: “2021 is the year when AI will go mainstream,” while a report by McKinsey stated: “Banks need to deploy AI at scale, to remain relevant and to become AI-first institutions.”

The impact of the pandemic

Covid-19 has also played its part. Previously, public perception of AI and RPA in the western world was tinged with a concern for robots stealing people’s jobs.  Now, the general public can increasingly see how technology can help keep people safe.  With Covid-19 the unimaginable happened.  Although it has resulted in catastrophic consequences, such a moment of change has also opened the door to the emergence of new technologies and business models.

Put cryptocurrencies and AI together and, as we head into the next decade, the results could be astonishing.  These seismic shifts are underpinned by enablers including cloud computing, big data, payments innovation, plus increased competition from the likes of Amazon, Apple and Google which are all entering the financial services space.  This environment is set against a backdrop of a shift in customer expectation with millennials, disillusioned with old banking structures and open to embracing new ways of managing finance and payment transactions.

Centralised finance will need to find ways to compete and thrive; for example by collaborating with decentralised finance, and working together to evolve a new world economic structure to provide better products for the societies we serve.  It is now an imperative that banks learn how to deploy AI safely and effectively, with appropriate skills and frameworks in place to maximise AI’s benefits while minimising its risks.

Regulation and ethics

However, regulation needs to keep pace and evolve to meet these changing requirements.  In 2020, I reviewed the guidance from around the world from all government and public bodies.  At the time there were in the region of 22 published speeches on the subject of risk management of AI.

My aim was to identify the requirement for safe and ethical implementation of AI in banking and how it could become compliant and ensure fair outcomes for customers, while serving market integrity.  The model I proposed at the 2020 IEEE International Conference on Fuzzy Systems inextricably links accountability and explainability as the key for successful AI implementation in financial services.  These overarching principles need to be underpinned by the right governance and compliance.

To establish risk and governance frameworks effectively, for safe and ethical implementation of AI, transparency of algorithms (and how they are used) is also important.  Human autonomy and respect in the way we ensure we are not using AI to nudge people to limit choices and reduce human self-agency is necessary.

Robustness and operational resilience of technology is critical for success, and AI implementations must be accurate and able to supply reliable results.  Fairness, reliability and accessibility is also important to ensure we are inclusive in our implementations.

From an ethical perspective, our AI implementations must benefit society as a whole and be in-line with organisational and personal principles and values to retain the authenticity of our work.

The education is there.  We all need to learn, change, adapt and grow to be part of this new movement.

The International Compliance Association (ICA) is the leading professional body for the global regulatory and financial crime compliance community, and provides support, training and qualifications to compliance professionals. 

In this article, Rajashekara V. Maiya, Vice President and Head, Business Consulting Group, Infosys Finacle, speaks about four key trends in the era of digital transformation that are changing the nature of loans, borrowers and lenders.

The size of a nation’s lending portfolio is closely linked to its economic growth and development. Take South East Asia as an example where the countries that have high GDP growth also have high loan-to-GDP ratios. All these countries have a robust lending market supplying affordable, hassle-free financing to corporate, SME and retail borrowers, creating consumption-driven growth momentum.

But this was not always the case. China in 1975, Thailand in the 1980s and Malaysia in the 1990s were all struggling to grow their GDP. But then they went through a retail boom, when per capita income crossed a threshold US$ 1000 to stoke the aspirations of the people for a better lifestyle, better housing, better transportation etc., which created a demand for retail financing. Today, the world is in a different yet similar situation, with the pandemic denting economic health globally. One way to reclaim growth is to fuel consumption, and one way of fueling consumption is by boosting retail lending.

Currently, there is ample scope to increase the loan-to-GDP ratio in many parts of the world. This is especially the case in developing countries, which need to bring their substantial underbanked population within the ambit of formal banking. However, that would stress the infrastructure of their banking technology landscape beyond tolerable levels. The only solution is to transform the retail lending landscape, across the formal banking industry as well as the informal, unorganized sector. This includes lending processes and banking workflows, as well as the associated technology infrastructure.

The other important thing to consider are the broad trends that are sweeping retail lending across the globe. We can categorize these as changes in the nature of loans, of borrowers, and of lenders.

A loan that is no longer that

The biggest trend here is that the loan has become incidental, almost invisible, in the consumption journey. Customers don’t want loans per se; they are only a means to fulfil a primary expressed need, for a car, for a college education, for a home and so forth. Therefore, banks’ conversations with customers should be about helping them achieve their primary desires rather than pushing a lending product. The product-centric approach to lending is now outdated, and has been replaced by a customer-centric or even customer-specific mindset of helping customers fulfil their unique desires while offering the best financing option in their particular context.

A customer who is demanding but debt-friendly

Today’s retail borrower is very different from the one of even a few years ago. There is no patience for spending hours in a branch gathering information and filling out forms.  As a product of the digital age, this borrower expects financing to be delivered to him or her, on a digital device of choice. A key expectation is that the loan application and onboarding process will be digital. Another is that the terms of lending will be a balance of borrowers’ rights as well as their obligations.

Many trends have gone into shaping this customer. Ample choice is one of them. For instance, a customer buying a car can get an attractive loan from a non-bank financing company or from the financing arm of the automobile manufacturer itself. The customer embarks on a redefined journey where a bank has no role to play. Another influencing factor is demography: more than 70 percent of the global population is below the age of 30 and almost everyone is digitally connected. Far from being debt-averse like generations past, these young customers demand deferred payment options such as credit card payments, monthly installments and the popular “buy now pay later” facility from Amazon.

A lender who has raised the bar

Some years ago, “lender” usually meant a commercial bank. Today, the definition includes a plethora of providers, from Fintech companies to retail businesses to even social networks, offering financing in different forms and flavors. Amazon is a standout example, with a loan portfolio in excess of US$ 10 billion spread across its gigantic merchant base. Amazon’s lending process is not just completely digital, it takes all of 3 clicks to boot! What’s more, the company offers attractive rates, with full transparency and no hidden costs.

Traditional banks are at serious risk of being left out of the new lending paradigm. To stay relevant, they need to reimagine their customer journeys to match the benchmarks being set by the likes of Amazon. At a minimum that would mean designing a lending process that is digital from end-to-end, where origination, eligibility checks, approval and servicing can be completed within a few clicks. Secondly, banks should rely less on agents and brokers to sell their loans, replacing them with a digital alternative, such as a mobile app.

One more trend that is changing the face of banking – and consequently impacting lending – is the platform business model. The platform is front and center in digital loan processing. It is also enabling lenders to participate in the primary journeys of customers by creating online marketplaces for non-banking products and services. DBS Bank, with its highly successful platforms for used cars, travel, real estate and utilities, is a great example. The bank makes no mention of its banking products in these marketplaces; however, once a customer has fulfilled a primary need, for a new utility connection, for example, the platform offers an option to use a DBS Bank account to set up a standing payment instruction.

A word on the pandemic

By accelerating digitization in every sphere, including lending, the pandemic opened the doors to simpler, transparent, cost-effective loans. In the latest EFMA Infosys Finacle Innovation in Retail Banking Study, financial institutions cited that the highest levels of innovation success were seen in the lending¹. But could it also set off another trend, one where banks participate in improving the health of their customer communities? Just like insurance companies, which tap digital information about customers’ driving habits or lifestyle, to determine premium, could banks link the terms of lending to customers’ vaccination status by accessing their digital records subject to consent? It remains to be seen.

References:

https://www.edgeverve.com/finacle/efma-innovation-in-retail-banking/

The global pandemic has forced many customers to use digital touchpoints and services for the first time. However, a wide gap separates billions of consumers from the solutions stack that digital banking provides.

By Sathish Muthukrishnan, Chief Information, Data & Digital Officer, Ally Financial

Persuading consumers to make the leap takes patience and a personalised approach, but above all, it requires education. Here are three common myths about digital banking – debunked:

Myth #1: There is a lack of customer care in digital banking

Many people perceive in-person communication as the epitome of customer service. In numerous industries, it continues to serve both as a symbol of customer commitment and as a measuring stick by which consumers gauge an organisation’s authenticity and accountability. In banking, however, technology creates more of a bridge than it does a divide. Digital banks often provide 24-hour support and offer their customers a variety of communication channels – including mobile, computer, phone, and chat.

Receiving great customer service from an online-only institution may seem counterintuitive, but in its best form, digital banking can be anticipatory, seamless, and frictionless. The focus on technology that underpins digital banks means the customer experience is more consistent, efficient, and personalised than face-to-face service offers. In an era where bank customers are more transient than ever, the high retention rates of digital banks speak for themselves.

Myth #2: Digital banking creates a language barrier

Consumers who do not consider themselves digitally ‘fluent’ may assume that creating and maintaining an online account for digital banking services is too difficult. However, the fact that digital banks acquire most of their customers via an online-only journey means they are forced to create simple, easily understood processes.

Opening an account with a good digital bank generally takes no more than five minutes and, based on the information provided, customers may receive additional recommendations for personalised services, tools, and investments. Many customers are surprised to learn digital banking also operates on very little ‘fine print’ material – some use none – which provides a stark contrast to the pages full of legal disclaimers most traditional banks require customers to sign.

While digital banking may appear as a series of opaque obstacles, especially for digital non-natives, its functions and services are designed for maximum accessibility – no matter the customer’s background or technological adeptness.

Myth #3: Digital banking is less secure

Digital banks operate under the same regulations as traditional physical banks. Good digital banks also incorporate security into the design of all their operations and processes and continually build on security features to protect customers’ deposits, transactions, and personal data.

At a minimum, digital banking provides the same level of monitoring and safeguarding as traditional banks. But many of them leverage technology to add even more layers of protection to customer data. Executives are aware that trust is a major factor in converting consumers to digital banks and go the extra mile to ensure their organizations offer market-leading security.

The Bottom Line

Digital banks are typically more sustainable and less fragile than traditional banks. The people-first mindset that the best in digital banking embody is exactly why they are so convenient, easy to use, hyper-secure, and available around the clock. The value retained by eliminating physical infrastructure is passed on to customers – and increasingly, those consumers are taking note.

In most ways, digital banking represents smarter business – maximum value is delivered to customers at lower operating costs.