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Embracing Digital Disruption

Shifting from competitor to collaboration through technology convergence

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  • Written by  Guillaume Kendall, Director, DLT and Fintech at SoftServe
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  • Comments:   DISQUS_COMMENTS
Embracing Digital Disruption

Digital disruption in financial services is forcing established players to satisfy the demands of increasingly connected customers with growing expectations. Banks and other financial services providers are eager to jump on the digital bandwagon, rushing to keep up with consumer demand.

According to a 2018 executive survey carried out by BCG, 86% of corporate banking executives agree that digitization will significantly change the economics of corporate banking business models. It’s one of the key reasons why we are seeing banks starting to replicate the fast pace and agility of FinTech startups to utilize the full potential of data and analytics. Banks and other traditional financial institutions are learning from entrepreneurs whose innovations (such as AI, blockchain, and ML), help them make banking better, inexpensive, and faster.

This pace of change is often affected when a technological innovation gathers critical mass in terms of distribution base, acceptances, and capability.

We take a look at how the financial services industry is currently performing and an outlook of the topics and themes that will drive the agenda for 2019.

Customer Centricity Embraces Design Thinking

Consumers are increasingly expectant that their experience with a financial services provider becomes fully emerged into their digital lifestyle. More customer interactions are moving out of the branch and onto multiple interactive interfaces. Recent examples include chatbots being introduced by Citi Bank in Singapore, and the Bank of America, whose artificial-intelligence-based virtual assistant, Erica, attracted over a million users in three months of being rolled out. 

survey carried out by Oracle in 2018, shows the era of traditional banking is coming to an end—consumers want their everyday banking to be done instantly using engaging technology. We believe that successful implementations of digital banking enable complete self-service. Customers want to be empowered to make smart decisions themselves and that means putting the customer journey at the center of your planning.

The Oracle research found that out of the 5,200 customers from 13 different countries they surveyed, 67% have already made the switch to accessing their bank accounts through digital, while 69% of respondents want their entire financial life cycle on digital channels.

Technology is becoming more sophisticated and pervasive throughout financial services. But every technology was born to answer a need, and with every need is a human—2019 will be the year of the human in digital banking. This means that financial services providers will need to implement design thinking around the whole customer journeywhen they create a new app or awebsite.

Failing to put customers at the center of every experience will yield disappointing results. Financial services providers cannot evolve if they don’t understand how humans interact with technology—it is essential the gap between the technology and human be bridged during the design thinking phase. Whether investment banking, retail banking, or FinTech, the value of the customer experience and understanding the relationship dynamics are key differentiators.

Those who innovate with a customer-centric approach will succeed in bringing down the cost of transformation and realizing greater adoption and loyalty. IBM’s Design Thinking practice is a prime example of this, enabling businesses to significantly reduce the time and cost to complete the design, development, and testing processes.

This reduced time-to-market leads to an increased present value of expected profits – businesses are producing faster, better end products using design thinking and rapid prototyping. If they know what the end experience looks like, there is less chance of rework or solution failure.

For a financial services provider, a well-designed UX/UI, advanced algorithms, and social connectivity can provide for a revolutionary, customer-centric experience.

Data Becomes Foundation of Everything

With the growth of digital, over 2.5 quintillion bytes of data are created each day, and  by 2020, it’s estimated that 1.7MB of data will be created every second per person. With this explosion of data availability, many financial services providers are harnessing the enormous potential of data to understand their customers better so they can provide more targeted and accurate financial solutions; however, effectively using data is not easy.

According to research published in July 2018 by Research and Markets, big data investments in the financial services industry accounted for nearly $9 billion in 2018 alone.

Data science drives better informed, more relevant decision making—if your data scientists are able to communicate effectively with the rest of the bank. For some of our clients, it’s ensuring that management understands the importance of listening to and acting upon insights provided by their data scientists and analysts.

For example, a business might find it challenging to convince their regional sales staff that data analysis will help them understand their market better than they know it themselves. The conundrum is not only to have all the tech in place to generate these insights, but also the means of communicating in a way that makes sense for the recipient. A good data strategy will account for communication throughout the organization.

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In order to enrich the customer experience, financial services providers need to make sure their data is centralized and leverage it to achieve accurate insights about their customers.

Blockchain Shaking Things Up

Initially greeted with much caution and uncertainty, blockchain is finally finding its place within our global financial market infrastructures.

In recent years this attitude has shifted and many banks are experimenting or investing in blockchain, with venture-capital funding for blockchain start-ups up to $3.9 billion in Q3 2018, a 280% YoY increase, according to Diar.

2019 will be the year where blockchain is predicted to be implemented across commodities, financing, and post trade processing. VAKT and BBVA are prime examples of companies leading the way in making the most of this disruptive tech. In December 2018, Itaú Unibanco Holding SA and Standard Chartered partnered to develop a blockchain-based platform for small syndicated loans, paving the way for the technology to be a set-standard for years to come.

Meanwhile, Australian Security Exchange (ASX) has also moved towards using blockchain to replace its main clearing and settlement platform. It has been testing technology from digital asset for some time, and plans to go live in mid-2021.

Banking is about data and its management. Blockchain will re-engineer traditional financial institutions. Better accessibility, greater transparency, lower costs, improved security, and quicker transactions are all part of solutions that blockchain technology can provide to businesses in the finance industry.

Collaboration in The New Innovation

Traditional financial service providers will face disintermediation due to the unprecedented growth of non-traditional entering the market. Many banks, such as HSBC and DBS, have set up in-house innovation labs, which act as access paths to working with the large number of new entrants that are digitally disrupting the finance industry.

Open Banking with APIs provides for a more collaborative approach, and Nordea, one of the biggest banks in Europe serving over 10 million customers  is a success story when it comes to Open Banking. Such was the interest that they gained over 300 sign up within three days of opening an Open Banking portal for developers. They continue to access over a 100 FinTech companies a quarter through Proof of Concept(POC).

There is a need to adapt to new processes, and its why large banks are utilizing Open Banking to give external service providers access to their core banking systems. Many banks now have in-house innovative labs and investment labs, thus shifting their working relationship from competition to collaboration.

It may be a good time for traditional financial providers to collaborate with a strategic partner that has the necessary capabilities and experience to successfully execute their API strategy. 

Banking on The Cloud

2018 saw the cloud becoming one of the most widely discussed topics in the finance industry. We believe the cloud will be one of the biggest themes for financial services in 2019, and this will eventually move into the mainstream for retail and corporate banking. Cloud can lead to cost savings, flexibility, and better resource allocation for banks.

According to Ovum's ICT Enterprise Insights 2018-19 report, 64% of the world's banks are either planning or trialing SaaS-based payments or payment hub applications, up from 44% in 2017, and for payment switches, 56% of banks are looking for SaaS offerings in 2019, a 37% increase from 2018.

A recent example is Ernst & Young, who are spending an extra $1 billion on new technology, including shifting platforms to the cloud, while Lloyds Bank plans to deploy a new corefrom cloud banking provider Thought Machine in 2019 to lower risks and increase its innovation potential to improving profitability, uptime, security, and customer satisfaction.

In 2018, our premier partner Google announced construction of a Google Cloud Platform (GCP) region in Zurich  to cater for the large number of businesses in the financial services industry, to build highly available, performant applications. With perfect agility and innovation that comes with cloud, financial services can achieve greater efficiencies and can benefit from on-demand infrastructures that enable customers to gain a ‘start-up mindset’.

Summary

To summarize:

  • Blockchain is transforming everything in the financial services industry from payments transactions to how money is raised in the private market
  • Usage of the cloud will be one of the biggest themes for banking in 2019 as it can lead to cost savings, flexibility, and better resourceallocation
  • 2019 will be the year of having a customer-centric perspective in digitalbanking
  • Open Banking will become more prevalent and provide external service provide access to core banking systems
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