Key trends in retail banking
The proliferation of digital technologies and new players continues to reshape the retail banking sector. A surge of key trends are sending shockwaves across the industry and if banks want to survive they must be willing to collaborate, innovate and embrace digital solutions. Briony Richter reports
Open Banking, opens doors
Open Banking went live in January 2018 enabling the creation of new types of interactive smart banking services and strategic partnerships. However, progress among incumbent banks has been slow, with many not making the regulatory deadline.
With incumbents struggling to get the right procedures in place for PSD2, it is clear that banks still have a long way to go as they prepare for the challenges and opportunities that Open Banking offers.
Digital-only banks on the other hand have been embracing the new regulation since the beginning. In the UK, Starling Bank made its entrance into Open Banking with the creation of an API-enabled marketplace of third-party services. So far, this platform includes two loyalty schemes, travel insurance, and a pensions aggregator. In Europe, N26 has also based its proposition around third-party add-ons.
However, HSBC is the exception among incumbent banks. The bank had prepared for Open Banking and sees it as an opportunity to find the right partners – and they found the right partner in Bud, a technology platform that links together various financial services.
Bud successfully developed and launched a platform for banks to build products on that harness other organisations services. Within the app, customers can search for different services and products that fit their financial needs. HSBC is using Bud to create an app for its digital bank, First Direct. The app will search through databases to find the best broadband and energy deals, tailored specifically to an individual customer’s needs.
More recently, in May 2018, HSBC launched its Connected Money account aggregation app in the UK, which can link to accounts from 21 banks, study spending behaviour, and calculate available balances after regular bills have been paid.
Open banking paves the way for a more open and transparent ecosystem. It allows banks and fintechs to partner or develop separately, personalised solutions that will support their customers in finding the best deals, managing money and budgeting efficiently. As Open Banking is still in its early stages, it will be a key trend to keep an eye on in 2018.
Artificial Intelligence (AI) is certainly one of the most exciting trends to keep an eye on for 2018. The technology has the potential to completely reshape the banking industry with the focus of reimagining the consumer journey.
There will be more use of AI through conversational banking to provide tailored recommendations for customers. This will improve the digital interaction between financial institutions and customers, enabling them to communicate better across more digital channels. One of the developments to look out for will be the rise in chatbots being installed within bank’s platforms.
For example, Bank of America’s Erica. The chatbot was first announced in Autumn 2016. Since then Erica has undergone several stages of testing and commenced a phased rollout in March 2018.
In payments, AI has the ability to quickly and efficiently detect fraudulent activity by alerting the system to unusual transactions. This is what HSBC’s employed Ayasdi, an AI specialist for. Ayasdi will automate parts of HSBC’s anti-money laundering investigations.
Analysis for PwC found that 90–95% of alerts generated by traditional rules-based AML programmes are false positives, resulting in significant scope for efficiency gains.
Banks have been increasing their use of AI in recent years. The technology has a wealth of opportunities to grab hold of which will benefit both banks and customers.
In an increasingly digital world, financial institutions need to rethink their business models to accommodate a new set of consumer needs.
Banks, businesses and consumers are rapidly adopting digital methods to pay and conduct other banking needs.
According to a report by CACI, mobile banking is set to rise significantly by 2019. The data analyst predicts that 35 million people (72% of the adult population in the UK) will conduct their banking tasks through a mobile phone app by 2023. CACI has predicted that by 2023, the average person will only visit a branch twice a year.
However, even in a digital ecosystem, bank branches still play a necessary role in building trust and relationship. With first class digital solutions, providing financial advice, delivering products and services will become a much more seamless process for banks.
In the UK, more consumers are opening bank accounts online, no longer needing to head into the branch for advice. However, the same can’t be said for the US. According GlobalData’s 2018 Retail Banking Insight Survey US, more than twice as many new bank accounts were opened in-branch than online during 2015–18.
The survey revealed that 88% of US consumers opened a bank account via branch in 2008 or earlier. In the same period 6% of US consumers opened an account online and only 1% opened a bank account on their mobile devices.
Of course, digitally onboarding customers requires ID security checks to ensure the correct person is opening the account. This can become a cumbersome process so a number of specialist suppliers are now catering to this need with products that allow consumers to instantly verify their identities and pass KYC checks via their PCs or online devices.
SOME OF THE SUPPLIERS INCLUDE:
- ID Now: ID Now’s Video-Ident is used by several German banks. Participants initiate a video chat with an advisor and hold their national ID card to their webcam. The system then verifies its holographic pattern.
- iProov: ID-Matcher from iProov reads the personal data held on passports via a smartphone’s NFC facility. The user’s live facial image is compared against their passport photo to complete verification. In April 2018 iProov was awarded a contract from the US Department of Homeland Security to tighten the security of cross-border passenger travel utilising its facial biometric technology.
- Electronic IDentification: VideoID from Electronic IDentification scans the front and back of a photo ID document (such as a driving license) and compares this to the user’s face. It checks 10 separate attributes to verify authenticity.
Even though there are channel differences between the US and the UK, it’s clear that online and mobile devices are being used significantly more to conduct banking tasks.