The future of banking in 2019 can be narrowed down to a few themes, but customer experience is key. This does not mean pushing innovation or making omnichannel a priority, it means everything surrounding customer experience is key. Douglas Blakey talks to experts in the sector on this.
Angelo D’Alessandro, founder, buddybank
2018 has been a rollercoaster ride for buddybank, the brand-new conversational bank exclusively designed for iPhone with a 24/7 messaging concierge.
And we have exciting plans for 2019. We will roll out a trading platform and investments and personal loan products next year. buddybank will offer a full banking suite, but what is different about it is the 24/7 concierge service.
Our customers are loving the fact that we are a conversational bank and they can message us 24 hours a day, 365 days a year and speak to a real human being, not a bot. Contacting buddybank is like being a client of a five-star hotel: we will try to help with any lifestyle questions or problems clients might have.
Customers can ask anything they want such as advice about restaurants or help if someone has lost their passport. And buddybank premium customers, paying only €9.90 ($11) per month, have access to 850 airport lounges around the world. The premium service also features a MasterCard world elite credit card.
One unusual feature is that we remain only on the Apple platform: it is not available to Android users. It is a little different, and might seem a crazy strategy, but we are only targeting 25% of the Italian market. It is a small segment, but it means we can focus all our energy on a niche market.
Nine months after launch, I can say that the learning curve is amazing. iPhone users have their own community: they love the device and will pay $1,400 for a new handset even if Samsung or another manufacturer brings out a great device.
The future of banking in 2019: a tough mission
Our mission – and it is a tough one – is to design the perfect banking experience, and we are doing that together with Apple. The first results are amazing, with 85% of buddybank customers joining the new brand, new customers to the UniCredit group.
Our customers are acting as fantastic ambassadors. They love chatting with us in the same way that they chat with their friends. On our Instagram account you will see customers wearing buddybank hoodies, T-shirts and sweatshirts. This is not common in banking, but what is happening with buddybank is crazy.
The new breed of customers does tend to be spoiled – many think they can have everything in real time and for free. We are trying to make a modest amount of money without promising people that everything can be free.
Alex Weber, Head – International Markets, N26
In 2019, more and more apps will start to blur the borders between banking and lifestyle.
As financial services providers work hard to make finance easier and more enjoyable to engage with, it is a natural extension of this to try and capture the consumer’s broader attention with relevant lifestyle offerings. Europe and the US have not yet seen this offering come through, though we are seeing signs of this trend in Asia – for example, WeChat’s built-in taxi app functionality. Before we reach this point, however, there will be a more immediate move towards customers wanting to view their ‘financial world’ in one place.
This will be powered by Open Banking data, with services that make it as easy for users to think about, engage with and take control of their finances as it is to ping a message to a friend or check in on social media.
Bianca Zwart, spokesperson, Bunq
At bunq, it is our mission to free our users from borders and barriers in traditional banking. In 2018 we have done just that.
We successfully expanded to three new European countries: the people of Spain, Italy and France can now enjoy the advantages of bunq as well, as we met these countries’ growing demand for a bank that does things differently.
There are many other barriers in traditional banking we have freed our users from this year. We introduced Freedom of Choice, a world first: the freedom to choose what happens with your money, where your deposits are held and how they are used. No other bank in the world lets you choose what happens with your money.
We also introduced freedom in the form of transparency in an industry where hidden fees are commonplace. Joining forces with TransferWise has been a valuable addition to solidify our mission.
Another pillar this year has been the introduction of bunq ZeroFX. Where other financial institutions charge foreign exchange fees on purchases outside the eurozone, bunq only charges the final exchange rate to its users. Traditional banks charge you extra when using your card for other currencies. We do not. This way our users save up to 3%!
We are very excited for 2019. We will continue to remove borders and barriers in the traditional banking sector and expand Bank of The Free throughout Europe.
Phil Rolfe, Head – Financial Services, P2 Consulting
2018 has been a big year for banks. On the regulatory front, we have seen an increasing number of fines, for everything from violating anti-money laundering legislation and breaches in cybersecurity, to errant employees and insider dealing. And the regulatory environment is set to get even tougher in 2019.
With regards to competition, it is a difficult one – should banks fear the challengers, or the tech companies making forays into financial services? Whatever happens, as ever, banks have to be on the front foot. Here are some of the trends we think will be big in 2019:
- Fines for data breaches at UK financial service institutions will continue to rise, as the detection of GDPR breaches proliferates and the Information Commissioner’s Office comes down hard on errors and a lack of investment in cybersecurity;
- Banning orders under the Senior Managers and Compliance Regime will increase again as the FCA seeks to leverage personal accountability in its push for improvements in conduct;
- Challenger banks will seek to either tie up with the big banks and consultancies or will become acquisition targets as the big names seek to leapfrog technology investments and leverage their scale in a bid to maintain their dominance;
- US regulators will continue to target European banks for historic infringements around sanctions compliance – we have recently seen BNP and SocGen hit; others will follow as the net widens, and
- The FAANGS – Facebook, Amazon, Alphabet, Netflix and Google – will start to sink their teeth into banking and financial services, leveraging their customer bases, analytics capabilities and big data to offer competitive products backed by funky tech that bypass the high street banks.
Ross Mason, Founder and Vice-President – Product Strategy, MuleSoft
In many established organisations, legacy systems continue to underpin critical operations but hold the business back from keeping up with new generations of legacy-free competitors. MuleSoft’s Connectivity Benchmark Report 2018 revealed that 42% of organisations cite legacy infrastructure and systems among the top three challenges to digital transformation.
Nowhere is this felt more strongly than in financial services, where 92 of the world’s top 100 banks still rely on the mainframe. Meanwhile, more agile fintech firms continue to emerge, vying for market share.
In 2019, we will see more organisations breathe a new lease of life into their legacy systems to innovate faster. Rather than trying to rip and replace or connect legacy systems to modern services with rigid integrations, we will see businesses plug legacy systems into their overall application network with APIs.
As a result of this, organisations will look to establish integration layers between their legacy systems and new-age applications and devices, which will enable data to securely flow across the business and be reused to speed up development times.
Ralf Gladis, CEO, Computop
In 2018 we have seen innovations – but perhaps not as many as we hoped for. The PSD2 directive kicked off in January, and while Instant Payments were a key part of this, they still had a tough start. Banks introduced Instant Payments only for online banking, but the European retail industry is still waiting on APIs for retail payments and two-factor authentication (2FA).
For the first time in the UK, debit card transactions overtook cash as the most popular form of payment. According to research, when it comes to cashless payments both Canada and Sweden are ahead of the pack, but this change in the UK is a significant indicator of the general trend towards electronic payments and away from cash.
So, it was no surprise that Google took another step at getting involved with the launch of Google Pay – formerly known as Android Pay and Pay with Google – or that Apple Pay announced its release in the largest EU market, Germany. NFC payments rule! Of course, this activity in the mobile payments sphere prompts interest in other areas, and this year we have seen European banks responding with proprietary apps to try and take their piece of NFC action.
However, at Computop, we have not seen many new and relevant payment methods emerging. Instead, our merchants are focusing on implementing the infrastructure that will allow omnichannel payments on an international scale.
A good example of this is international car rental firm Sixt, which now has highly encrypted P2PE terminals in its locations in Europe and the US, and German fashion company s.Oliver, with click-and-collect and ship-from-store solutions and many other advanced services.
In 2019, 2FA will start with PSD2 retail technical standards stepping into power in September. Merchants should start to find ways now to convince customers to put them on the 2FA whitelists in order to avoid repeated authentication every time customers pay for an order.
Avoiding 2FA friction
One solution to avoid 2FA friction is SEPA direct debit in Germany, Austria and Switzerland. Given the friction involved with 2FA, we will see a huge take up of biometrics by consumers, banks and merchants not only for payments but also for all other use cases where biometrics can replace passwords.
The rise of NFC payments with biometric authentication is the beginning of the demise of POS terminals. As the Internet of Things gains momentum, NFC allows ‘things’ to be transactional and run payments. An NFC signal will be good enough to process payments with Google Pay, Apple Pay or other banking apps. POS terminals will no longer be needed; sales for terminals will peak in three years and slowly decline afterwards.
However, payment is a serious subject and consumers do not jump on new trends. Adoption will be slow, so do not expect rapid change, but we will gradually see payments become more invisible. We are entering the world of the ‘silent payment’ and NFC payments.
Howard Berg, Gemalto
The payment landscape is changing fast. We now live in a world where consumers demand more convenience and a seamless payment experience that is completely non-intrusive to their day-to-day activities and is secure. This is evidenced by the growing adoption of ‘tap and go’ payments which have surpassed chip-and- PIN transactions for the first time in the UK.
The next stage in the evolution of card payments will be biometric cards. The biometric payment card is built around using your fingerprint, rather than your memory, to process and validate transactions. The card has an in-built fingerprint scanner on which consumers simply place their finger in order to pay for goods.
It works exactly the same as existing contactless cards, but since your fingerprint cannot be easily replicated, the card does not require a transaction limit, so consumers will now be able to spend as much as they want. Moreover, these cards are more secure as consumers’ biometric details are stored only on the chip device and cannot be replicated – no more risk of someone stealing your PIN. Next year we are expecting to see the first commercial roll-out of biometric payments in the UK and Europe, followed by the mainstream adoption of these types of payment in developed markets.
The end of the PIN?
In the longer term, biometrics will take over PINs for cards, and will also become commonly used in new areas such as authenticating wearables and other devices.
As digital IDs and biometrics become fully embedded into the consumer-purchasing journey, they will become more of an identification step at the stage of check-in rather than an authentication step at checkout. This means that our digital identity will become our payment token, and will be fully embedded in payment cards.
David Jones, VP – Product Marketing, Nuxeo
Many large financial service institutions have struggled with the task of managing increasing volumes of information plus locating important information that lives in multiple customer systems and transaction repositories, and many will continue to find this challenging in 2019.
But AI-empowered classification of content with a content services platform (CSP) approach – as introduced by Gartner – offers financial services CIOs a promising new way of searching for useful information, allowing banks to at last identify what is useful and get rid of content that is past its sell-by date.
The difference is that old-school enterprise content management systems adopted a fixed set of metatags for each document, and changing these classifications requires a lot of development work, along with mass updates to all content related to that metadata. In a CSP, if you want to add a new metadata field, you can.
Plus, much richer metadata can be stored and used than ever before – think image resolutions, language of a document, geophysical data and more, giving context, intelligence and insight into your information management ecosystem – allowing you to make those disconnected systems truly useful once again.
Russell Robinson, MD – Customer Communications Services, EMEA, FICO
The future of banking in 2019 will be challenging for payments and compliance. With less than 12 months to go until EU banks implement their Strong Customer Authentication (SCA) solutions, project teams are facing tough decisions about the most important aspect of the business – customers making payments. I meet many banks that are in the process of compiling their requirements and vendor selection, and know some of these final designs are either non-compliant or will create an unacceptable customer experience.
Some banks believe they can achieve SCA compliance by relying on one-time passcodes. While this will suit many consumers, based on consumer research across the EU (October 2018), 60% of consumers do not want a one-time passcode by SMS, while 30% of consumers said in a recent survey that they would complain if they are unable to select their preferred channel to enable SCA — e.g., not with an SMS.
The industry is making moves to prepare customers for SCA with requests for current contact details. However we are seeing signs that prescriptive demands to enable future user access are not being well received. That is evident by the John Lewis article in The Guardian and comments from readers. It is well worth reading some of these comments if you are in any way involved with SCA.
My prediction is many banks will implement point solutions to achieve compliance, and the programme managers that executed this will move on. Due to these point solutions not meeting consumer acceptance, lack of up-to-date contact details, meeting regulations and many other issues, there will be a significant number of complaints, unacceptable fraud false-positive rates and consumer payments not completed to a level we have not seen before.
If this happens, the people who inherit the SCA programs of 2019 are going to have their work cut out unpicking this stuff and looking to replace them with a platform approach to SCA. They will need to enable SCA extensibility and rapid integration to new authentication use cases and channels as consumer demands require or novel fraud attacks appear in the new environment.
Many banks understand that phone device profiling and SIM-swap or call-forwarding solutions are essential. However, many are expecting SIM-swap services offered by MNOs to evolve before SCA implementation. I believe this will be true for some MNOs, but suspect alignment will not be in place across all UK MNOs in 2019. Therefore, banks need to plan how they secure the SMS channel, and deal with the higher false-positive ratio, using traditional methods.
David Porter, MD – Strategy, Customer Value Proposition and Distribution, Ten Group
2018 has been a much healthier-looking year for the financial services sector. Interest rates have continued to rise around the globe, helping to drive substantial increases in profitability, and regulatory stability has allowed more resources to be devoted back to product, marketing and sales.
As a result, loyalty programmes have been back on the agenda for many banks. Some have expanded theirs, while others have completely re-engineered their programmes to help them move away from a one-size-fits-all approach towards a personalised one, to demonstrate they understand the uniqueness of each one of their customers and help them make use of benefits that work for them.
According to Mintel’s Credit Cards – US – July 2018 report, almost a third of respondents aged 18-44 would be encouraged to apply for a credit card that offered them rewards outside of airline miles.
Affluent and HNW segments offer huge potential
Technology has played a major role in building loyalty in the sector in 2018. Platforms with integrated product bundles are increasingly commonplace as banks are looking at ways to seamlessly fit their products into the lives of their clients. Banks are also taking a fresh look at their product and service portfolios to meet the ever-changing demands of their affluent and HNW segments in particular, as markets are returning to pre-financial crisis confidence.
In 2019, we expect this trend of personalisation and tech innovation to continue as banks look to set themselves apart from competitors and work on building customer relationships based on trust and emotional connection rather than a race to the bottom with the best interest rates. According to Mintel’s The Role of Trust in Financial Services – October 2018 report, half of respondents believe friendly customer service is important for building trust.
We also expect continued innovation in mobile banking, including integrating payments, banking and wealth, as well as personal financial management apps, native messenger app payments, and biometric security as consumers become more trusting of mobile security. Investments in blockchain and AI also look set to increase as banks want to make the technologies work for them.
All in all, we see financial services providers looking to improve their existing customer relationships through a more personalised approach and an emphasis on attracting younger generations with the help of tech innovation.
Ed Maslaveckas, co-founder, Bud
Research we have conducted has uncovered that many bank customers feel a real sense of anxiety linked to ‘the desire to do more’ versus the realities of their finances. This is propagated by constant peer comparison and assessment: the endless cycle of triumphs and achievements viewed through the unforgiving lens of social media.
Banks can cement their relevance in this context by looking to create new value in transactional data – building new experiences by cleverly linking data from the products and services that make up customers’ financial worlds. We expect this trend to really take off in 2019, as banks take advantage of Open Banking to power products that will help them stand out from the crowd in their customers’ eyes – next year, personal finance will have to get really personal.
Mark Gunning, Global Business Solutions Director, Temenos
The banking industry is undergoing a structural transformation as Open Banking, digitisation and cloud technologies transform the business, presenting both opportunities and challenges. Changing customer behaviours – and demands for new services and capabilities – will remain the primary drivers of banks’ priorities. This global phenomenon applies equally urgently to both emerging and developed technologies.
Competition will continue to intensify, with challenger banks, technology giants and payments players all aiming for the most valuable parts of the chain. For players of all stripes, the imperative will be to differentiate and own the customer experience. Banking service providers that deliver nimble and frictionless digital journeys, such as those of Amazon or Uber, will emerge triumphant.
The ongoing shift to cloud-native software will gain momentum in 2019. Banks of all sizes around the globe – whether challenger/ neo banks or incumbents – are migrating more applications to the cloud and benefiting from significant speed, agility and performance improvements. New banks are launching faster, and incumbents will benefit from lower TCO and the cloud agility. We expect more banks to adopt the software-as-a-service model to free resources tied up in running applications and focus them on core business needs.
Open Banking is becoming mainstream in Europe and Asia-Pacific, and will soon touch other parts of the world. Banks are looking into aggregation business models as well as forging partnerships with technology, financial and non-financial players to offer customers more innovative products and services. Banks hold trusted relationships and should use their core advantages to spin off new business models that successfully compete with the new entrants.
Banks will continue with their AI journey as they strive to create the intelligent, personalised bank of the future. We see two strong use cases where banks will be increasingly using more AI applications: the first is to deliver compelling and individualised customer experiences and engagement on investment advices, spending patterns and automated actions. This holds the promise of both cost savings and new revenue streams for banks.
The second use case is augmenting users’ decisions with data-driven machine intelligence, and maximising straight-through-processing rates for financial transactions at reduced cost with limited or no human intervention. An example would be using AI in handling payment exemptions faster with no human errors. Banks will need to work to overcome challenges around data quality and availability, as well as lack of regulatory framework. This is crucial for the future of banking in 2019.
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