There is set to be a lot to examine when looking at open banking trends in 2019. More partnerships are set to be formed in attempts to deliver the perfect customer experience. Briony Richter talks to the boldest minds in banking to see how the sector will evolve
Matt Phillips, Vice-President – Banking Sales for UK&I, Diebold-Nixdorf
The financial services industry has continued to experience a state of disruption, and consumer demand for convenient and easily accessible services has shown no sign of slowing as the boundaries between industries continues to blur. It no longer matters which industry you are in, all services are compared to perceived leaders of frictionless journeys delivered by the likes of Amazon and Uber.
Encouraged by digital banking, PSD2 and Open Banking, there have been significant steps forward this year, building the foundation for the ongoing evolution of the customer journey. Whether it is accessing all your accounts in one place or using a banking app to help manage your daily life – for example, blocking a card for a limited period to manage spending – the shift in services to deliver a more customer-centric approach is clearly evident in the industry.
However, the full effect of these changes is yet to be realised as consumer adoption for PSD2 varies and the full integration of new offerings from financial institutions into their overall strategies is not quite complete. Transformation of services should be all-encompassing to remove friction from the customer journey – enabling seamless interactions that integrate into our everyday lives. Starting with pockets of innovation is a step in the right direction, but a truly integrated and agile approach is the only way to remain relevant and competitive long in the term.
Fintechs and digital-only banks can be a good source of inspiration as the industry embraces a more mobile approach to the future. If they have not already, traditional providers should look to new challenger banks that were born online for inspiration when it comes to their digital offerings. Combining the learnings from more flexible start-up organisations with the knowledge, experience, and crucially the huge amounts of customer data, of an established high street brand can be a true recipe for success.
The race is on to boost loyalty and NPS scores
Adopting a collaborative mind-set that maintains a constant curiosity for what is next will also be a key ingredient for success in 2019. Gone are the days when financial service providers could move at their own pace, with the race to maintain customer loyalty and positive net promoter scores now truly on. To do this, new approaches and new technologies must be embraced. For example, a key change that we can anticipate in the financial services industry over the coming 12 months is the further integration of AI, which is increasingly being woven into the fabric of our modern lives.
The depth of personalisation that AI provides is already forcing providers to reconsider how they operate. A consistent and personalised experience across all channels is a necessity, and can be achieved through AI to better understand banking preferences and habits – informing conversations and customer offerings based on specific wants and needs. If providers properly implement this, and avoid it becoming a gimmick, consumers can look forward to a connected experience and tailored banking journeys based on preference history. Banks have years of customer data at their fingertips; now it just needs to be leveraged in the right way and across multiple channels to provide the next level of customer experience that consumers not only expect, but fully demand.
Hans Tesselaar, Executive Director, BIAN
At the start of 2018, lots of noise was made around the possible use cases of APIs in retail banks, ignited in the UK by the government-backed Open Banking initiative.
Fast-forward to today, and APIs have become a well-known phenomenon, as the traditional financial services industry grows more aware of how they can allow for the modernisation of the legacy banking processes that have been preventing innovation, in a more effective way. With the rise of HSBC’s Connected application, the industry and nation has now had a taste of what is possible when APIs are implemented in the traditional banking space.
The next phase of API development will focus on micro-services – API-first banking capabilities that run independently from core banking systems. Micro-services will set banks up to facilitate a ‘pick-and-mix’ approach to their offerings, allowing them to be more aligned to their customer base. In time, such a model could renew the core banking system and change the banking IT function forever.
Szymon Wałach, head – Retail Customer Division, PKO Bank Polski
2018 has been another year of rapid growth in cashless transactions in Poland; however, the speed of growth rose even more. All POS terminals in Poland are contactless already: a programme set up by a coalition of Polish banks to grow the acceptance network was launched with a goal to double the number of points of sale accepting cards and mobile payments in three years.
BLIK takes off
BLIK, a local mobile payment system, doubled the transaction count in digital commerce based on the popularity of one-time passwords almost catching up with cards in internet payments. At the same time, Apple Pay and Garmin Pay launched – and with Google Pay already present on the market, all this is shifting consumer behavior to mobile payments, both in digital and physical stores. Mobile banking application is the centre of the banking experience for consumers, and has already become the most important communication channel. It will become the most important sales channel very soon.
Two new themes that started making traction in 2018 were blockchain and PSD2. Blockchain technology has already delivered its first real implementations bringing substantial monetary value to PKO Bank Polski: half of mandatory legal communication to customers was delivered using blockchain as a secure and unalterable method, bringing a big cost saving. PSD2 seemed to be just thread for banks and was seen as a high risk of revenue loss. However, incumbent-though-innovative banks decided to heavily invest in solutions to bring new value to consumers, taking advantage of opportunities given by PSD2 and Open Banking philosophy to not only defend their positions but grow market shares.
As far as implementation and delivery are concerned, banks stopped developing everything themselves. Many launched their fintech acceleration programs, and some – including PKO – decided to found corporate investment funds just for fintechs.
It is inevitable that banks will work with more agile partners that are bringing best-in-class user experience solutions to enrich banking products and services if banks still want to be the winning proposition for consumers. 2019 is the year when the race on PSD2 grounds starts. We see leading Polish banks investing in biometric and digital KYC processes as part of their transition into a fully digital state, as well as an opportunity to provide authentication services for other partners.
Jerry Norton, Head – Strategy, UK financial services, CGI
2018 saw PSD 2 and the UK Open Banking directives and programmes come into force. 2019, should, in theory, see the end of the beginning of that process and herald the start of the real impact and all its consequences – more third parties, large B2C corporates, more banks taking advantage in one way or the other, and maybe even a fintech or two entering the market?
Meanwhile the Australians will have gone from zero to something in this period, and there are rumblings in other key geographies, including Canada.
Open Banking is, of course, a key enabler in the journey to digital. Unlike 2018, 2019 will see more existing players respond to the threat posed by neo and challenger banks. Adjacent banks and banks within banks will proliferate. The elephant in the room – the digital drag of the core-banking legacy – will begin to be addressed directly too, but do not assume it is the traditional core-banking vendors that will be the beneficiaries.
As technology removes barriers in distribution, scale, automation and data analysis, banks – especially larger ones – need to find new differentiators, new competitive spaces in which to do business, and new places to protect their franchise. Parochially, regulation can help with the latter. Who wants to be a bank, really?
A once-in-a-lifetime change
Payments infrastructure too is in the throes of a once-in-a-lifetime change. The UK, Northern Europe and Canada will all be in payments infrastructure implementation in 2019, following a year of specification and procurement in 2018; it is a long journey, though, and production operation is even further away. For other countries and regions, including Australia and the eurozone, it will be about growing volume, exploiting the investments with new services, and improving reach following 2018 go-lives.
Next year should see the further maturing of new technologies, particularly DLT. Native cloud – applications repurposed for the cloud rather than shifted to it – will reach the geometric expansion point. ‘No one got sacked for buying cloud’ will be the mantra.
Open-source and agile methodologies are at a similar point. We have however seen peak offshoring in its classic model; DLT will continue to confuse matters. 2018 dubbed previously as ‘the year of production’, did not quite materialise. However, there was a rise in serious initiatives and the technology has bedded down, so expect steady progress rather than a rapid expansion throughout 2019.
The battle over data will escalate. Who owns it, who keeps it and who manages to keep secure will be the issues. More data breaches – unfortunately – and GDPR fines will occur in 2019, but also European-style privacy will reach the shores of the US, Canada and Australia. Data is a political issue now.
Finally, banks will have to invest more time and money in protection from external and internal threats, scanning for money laundering and preventing fraud. Real-time payments exacerbate the risks, which regulators regard as systemically critical; for banks it is about reputation and ensuring that trust, a core attribute in the digital world, is maintained at all costs. Lose that and one loses the bank.
Andrew Beatty, Head – GFS Banking Strategy, FIS
In the UK, the introduction of Open Banking to the market has introduced a new level of interconnectivity between brands and platforms, and created opportunities for a new, more holistic approach to banking.
So far, we have seen some tactical examples of this, but there has not been the huge rush to market that we were expecting. We are likely to see things ramp up in 2019, with more emphasis on a strategic approach along the lines of direct banks such as Starling.
In 2018 our Performance Against Customer Expectations report, we found that digital-first direct banks outperformed the world’s top 50 banks on nearly all customer service metrics, including privacy, security, problem solving and real-time payments.
We are already seeing the evolution of platform banking, as challenger banks and incumbents partner to develop new AI-enabled tools and services, for which customers are often willing to pay a premium; for example Amazon Echo and Google Home skills that allow customers to ‘talk’ to their banks through apps.
For 2019, it is more important than ever that banks are ready to embrace and support Open Banking, and to ensure that they are regulatory compliant.
On top of this is the threat of cybercrime and the need for consent management. Businesses need to take extra time and extra precautions to ensure security, and select the right partners to protect their customers and business.
Mitesh Soni, Senior Director – Innovation and Fintech, Finastra
As 2018 draws to a close, collaboration and co-creation have become part and parcel of the financial industry. We will see more of that next year, but what else can we look forward to in 2019?
1: Open Banking, APIs and marketplaces
The PSD2 European directive comes into force in September 2019. Expect a new wave of experiences for customers who allow data to be shared with trusted third parties. Imagine rethinking a taxi journey. Forget about paying with a credit card – Uber, or similar, will be able to initiate payments on the customer’s behalf, providing they have consent.
And, by the way, during the journey they might also make recommendations for you based on insights from your customer data. As competition rises, growing numbers of platforms, marketplaces, microservices and APIs will build greater connectivity across the financial ecosystem to enable experiences like this, with data used in more creative ways to reshape customer journeys.
2: Two-speed innovation with cloud and digital core
Cloud technologies provide impressive benefits of cost, scale and speed. More and more banks will accelerate their cloud offerings to capitalize on faster time to market and shorter delivery cycles. Both established players and new challengers will accelerate adoption.
Established banks will improve automation in their core infrastructures using RPA while inventing new customer journeys directly in the cloud, with a two-speed innovation approach. New digital challenger banks, meanwhile, can become operational within months, capturing market share quickly – all enabled through cloud. Most cloud providers will offer a full suite of devOps, appOpps and AI services integrated into their capabilities as a service.
3: The rise of AI and the intelligent bank
AI is already everywhere, and this will continue. As banks improve core digital capabilities, the future rests with understanding the customer better and personalising products and services more precisely to match lifestyle patterns. If Bank 1.0 was the physical branch, Bank 2.0 is the mobile-first, omnichannel digital bank, and Bank 3.0 will be the AI-first intelligent bank.
Decisions will be driven by smart AI in the bank, front to back, across all channels. Banks that drive intelligent insights will dominate as the race to customer-centricity continues. Expect more chatbots, recommendation engines and predictive services and, with Open Banking, even more such services being supplied by non-traditional firms.
4: 5G and IoT
We are fast converging to a connected future where the consumer can access high-speed 5G networks. These networks will drive the adoption of IoT, which together will create compelling new user experiences seamlessly and intelligently. Think about automated payments at the pump, payments through Alexa, facial detection in branches to improve customer record retrieval. New innovations are already in labs waiting for the launch of 5G, and this is predicted to hit towards the end of 2019, so watch for some early trials.
Wearables and location-sensitive trackers are poised to become the future of retail banking. Bluetooth beacons can interact with your smartwatch or other wearables to create frictionless experiences. Mobile payments have well and truly become a hygiene factor and consumers will be looking for added-value experiences.
Nick White, vice-president – product and marketing, EMEA, Fiserv
Open Banking has been seen by many as the start of an ongoing revolution, and one we expect to drive substantial change in 2019.
Firstly, we expect a new environment of collaboration. Historically, fintechs and banks have worked in competition, but that will change as initiatives driving an enhanced user experience and those enabling significant new innovation are delivered by those working in true collaboration.
The rise of fintechs has also opened up a requirement for even more customer-centricity. In 2019, open APIs will facilitate trusted third parties to integrate banking into consumers’ everyday lives beyond typical bank channels.
Contextual banking will become a watchword for those devoted to integration at every logical touchpoint. In a similar vein, as voice interfaces become increasingly popular in everyday use, this will also occur in banking, whether through service-based chatbots or virtual assistants powered by AI. In both cases, we can expect to see a significant uptake in this type of technology, being driven by consumer expectations for speed, ease and convenience.
Technology transfer will also be key in back-office technologies as AI and machine learning become prevalent in fraud detection. While human intervention will always have a role, more efficient, accurate and actionable insights will be driven by the integration of these technologies in the fight against financial crime.
Finally, we expect the shift towards consumption-based services to be reflected in decisions made by CIOs for IT services. As the need for supply-chain elasticity advances, ‘as a service’ will become the model of choice, and providers will need to follow suit. All in all, we expect 2019 to be the year ‘alternative’ becomes mainstream.
Christer Holloman, CEO and co-founder, Divido
2018 was another significant year for banking and payments. Driven by e-commerce and end-consumer demand for convenient, digital and personalised payment experiences, the ‘second wave’ of fintechs have emerged from the shadows of their predecessors and begun to stamp their authority on the marketplace.
These fintechs, unlike the first wave, are not looking to compete with banks, but instead collaborate and ultimately share success; a example of this can be seen in Tandem Bank’s recent partnership with Stripe. Aided by the Open Banking legislation and the opening of APIs, these partnerships are starting to appear, and this trend is set to continue in a big way as we head into 2019.
In 2019, we will continue to see more fintechs and banks collaborating together to achieve a common goal. Alongside this, we will see younger generations, such as millennials and Gen Z, begin to move away from traditional credit card transactions and, instead, look to alternative payment options such as point-of-purchase finance as they search for cost-effective solutions to better manage their finances.
The rise and rise of the neobanks Additionally, as the banking space becomes more and more competitive, we will also continue to see the rapid rise of digital-only challenger banks such as Monzo as viable alternatives to the traditional banking powerhouses of the world.
Over the past 12 months, Divido has continued to go from strength to strength. The biggest highlight for us as a business was securing official backing from both Mastercard and American Express Ventures in our $15m Series A funding round – this will see us supercharge our international roll-out over the next 12 months. Alongside this, 2018 also saw us announce the appointment of our new chair: Renier Lemmens, former CEO of PayPal EMEA.
As a business, Divido has its sights set on international expansion and growth over the next 12 months. By 2019, Divido will be live in 10-plus countries, including the US, the Nordics region and Australia, among others. Along with this, Divido is on track to process $1bn of point-of-sale credit applications in the next 12 months.
Eugene Danilkis, CEO, Mambu
Forced to evolve, banks have launched their own fintechs or digital banks. The trend we saw over the past 18 months is just getting started. Spinoffs like Goldman Sachs’s Marcus and ABN Amro’s New10 are helping to fight fintech with fintech. They are launching greenfield tech-enabled businesses to tap opportunities and embark on a lower-risk technological evolution. Spinoffs draw on the resources and experience of parent institutions while operating independently, embracing the fintech technology and culture. They deliver big results in a short time, free of the organisational and technological legacy that holds back traditional organisations.
Transition not transformation
Digital spinoffs spurred a rethink of how to solve specific market, technological or regulatory issues. Spinoffs highlight another trend: strategic and surgical transition projects instead of long, expensive and risky enterprise-wide transformations. There is a movement to centralise control of the balance sheet but decentralise deployment of services. Flexibility of technology enables decentralised deployment by individual businesses instead of the whole organisation. With a modular or componentised approach, the business unit has more agility to innovate and deploy myriad services to address specific needs at lower risk and cost.
Collaboration in technology
Potential lies in a combination of technologies as part of a wider value chain. Institutions are beginning to design their operating model and technology for change which involves an API-driven composable architecture. This allows them to adapt quickly and mix the right technologies for the biggest impact.
Acceptance of platformification
Platformification in the form of Open Banking and composable architecture will enable continuous and fast innovation for years. Instead of building in-house and propagating silos, institutions will connect cloud-based services together, accessing more digital channels and services. If managed like a product, core assets can be reused, shared and monetised, extending the reach of services or providing new revenue streams.
Easing of regulation
More regulators are embracing cloud-driven services, noticeably in countries that may not have previously had a public cloud footprint. Following the UK, France, Australia and Germany, regulators in Africa and Southeast Asia will continue to ease public cloud usage. Supported by banks and cloud vendors, more software and services will be cloud-based and cloud-agnostic, which negates the perceived risk of cloud providers