While #banks focus on competing against each other with similar offerings, are they in danger of being overwhelmed by tech giants with superior analytics and familiar, easily understood interfaces?
Financial Technology
Legendary magician Harry Houdini used to perform spectacular escapes #from handcuffs, straitjackets, ropes and chains, and often combinations of them. One of his most famous and difficult escapes was the 1904 London Daily Mirror Handcuff Challenge, where Houdini managed to escape from a pair of handcuffs that had taken a Birmingham blacksmith five years to perfect.
Many bankers see the traditional application service provider (ASP) #model for managing their #core systems—renting the use of core #banking software centrally hosted and managed by a single vendor—as a set of handcuffs they cannot pick. The ASP model proved useful in the early 2000s in helping #banks lower costs. Yet over the years, the constant adding on of various components (think digital user interfaces or new payment types) atop 30-year-old #technology has created an increasingly complex maze of systems that is now hard to maintain, difficult to integrate, designed for “vanilla” service, slow to change and costly to service. Add to that the frustration of vendor-controlled product releases that can take the #future of banks’ IT innovation out of a CIO’s hands.
If banks are to have a chance of competing for customers’ attention and business against the likes of Amazon, Google, Alibaba, fintechs and others, they must devise a clever escape from the constraints of the ASP model. Digital rivals are built bottom up on IT systems that are open, scalable and flexible, enabling innovative services, high-speed responses and efficient operations. Banks need the same traits to be future #ready—to connect with broader digital ecosystems and deliver hyper-relevant services (financial and non-financial, human- and automation-supported) through multiple and rich channels in real time. Those banks unable to rise to the occasion risk becoming digitally irrelevant and targets for acquisition.
Luckily, the typical ASP model is not escape-proof. While Houdini was an illusionist who used tricks to perform his death-defying feats, banks can take a few well-staged steps to truly #free their core banking systems and become future ready.
It begins with designing the bank’s future-state IT architecture. For the future-ready bank, we envision the ASP model evolving to serve as the engine for Systems of Record, Messaging and Services activity. It will be open, modern, secure and agile enough to allow for seamless integration of applications, API management, Cloud hosting, and plug-and-play of best-of-breed technology. Rather than having the lion’s share of its IT served by a single ASP provider, the bank provider pool becomes more diverse, fluid and adaptable. Then, banks will need to rewire their IT delivery organisation to adopt a multi-speed approach, operating and simultaneously supporting multiple business objectives. They will also need to “hollow out the core” and diversify the providers of IT technology for greater flexibility and innovation. Houdini used keys and cutlery; banks can use processes and technology to free themselves from the handcuffs of the ASP model.
Read our recent report, Breaking Free of the ASP Model, for a closer look at how banks can break free of their ASP model—and how a few banks are already doing it.
The post Free core banking from the ASP model to be future ready appeared first on Accenture Banking Blog.
EXCLUSIVE—#Card company #Dynamics Inc. revealed its #Wallet Card, described by the company as the “world’s #first” #connected payment card, at the CES conference currently taking place in Las Vegas, the company announced today. The card, which was developed in tandem with global #banks and payment providers such as Visa and Mastercard, relies on Internet of […]
Bank Innovation
EXCLUSIVE – In 2017, the U.S. payments landscape underwent significant change. One of the most important ingredients for this change was the arrival of #banks-backed P2P app #Zelle. The app, created as collective effort by seven major U.S. banks to provide users an alternative to payment apps like PayPal and Venmo, has so far gathered […]
Bank Innovation
Major changes are underway in Europe’s payments landscape. In the UK, the Competition & Markets Authority (CMA) has triggered a fundamental reshaping of the UK’s digital financial #industry ecosystem through the #Open #Banking regulation. And in the EU, the #PSD2 (Revised Payment Services Directive) regulations—coming into force on 13 January 2018—require #banks to open their systems to third parties, and provide interfaces for them to initiate payments and retrieve account information.
However, PSD2 leaves open the details of the application programming interfaces (#APIs) that third parties will use to connect with banks. While the CMA has required British banks to set up an independent implementation entity called Open Banking Limited, the European Banking Authority’s (EBA’s) draft Regulatory Technical #Standards (RTS) for PSD2 specifies only technical framework conditions and no interface standard.
As a result, cross-bank or pan-European API standards have yet to be clarified. Creating these standards is #vital: PSD2 aims to develop a unified, innovative, pan-European digital ecosystem for financial products—and uniform interfaces and processes are essential for achieving this goal. So the lack of an implementation entity for the EU is a significant gap.
To help fill it, the Berlin Group—consisting of almost 40 banks, associations and Payment Service Providers (PSPs) from across the EU—has defined a common API standard called “NextGenPSD2” for the use cases specified in PSD2. Initiatives are also being launched in Poland, Slovenia and France. However, given that the standardisation initiatives of the Berlin Group and Open Banking are the most advanced, it makes sense to compare these two frameworks to identify their main differences. Here they are:
USE CASES COVERED: Open Banking supports the use cases &8220;Payment Initiation&8221; (PSD2 article 66) and &8220;Account Information&8221; (PSD2 article 67). The Berlin Group covers all PSD2 use cases by adding &8220;Fund Confirmation&8221; (PSD2 Article 65).
DATA FIELDS: Working with numerous EU banks, the Berlin Group analysed various online banking masks to create a minimum standard set of data fields which all banks must offer via their APIs. In contrast, the Open Banking standard was negotiated only among the CMA9 banks and a UK third-party advisory group, and provides more extensive information, including on balances and available balance types that are particularly relevant to fintechs.
CONSENT MODEL: Open Banking allows the customer to allow specific data clusters for use by third parties – for example, only account balances, deposits or direct debit transactions. This approach is close to the data minimisation requirements in the EU General Data Protection Regulation (GDPR). The Berlin Group provides for consent only for account balances and transaction histories for a certain period.
MESSAGE FORMATS: The Open Banking Standard uses only the JSON (JavaScript Object Notation) format with field names based on ISO 20022, while the Berlin Group offers alternative industry-standard formats. On top of JSON, Berlin Group supports JSON with encapsulated ISO 20022-based pain.00x for payments and camt.05x and MT94x for account information.
AUTHENTICATION: Open Banking supports strong customer authentication (SCA) through the &8220;redirect&8221; approach, while the Berlin Group offers two more approaches: “decoupled” (using a dedicated bank app), and “embedded” (the name of the customer is carried directly through the bank API).
USER EXPERIENCE: In addition to the API specifications, Open Banking standardises the user experience and text modules in the click route, unifying consent issuing, authentication (2FA) and account information/payment authorisation. The Berlin Group allows each bank to devise its own user experience.
TRANSACTION RISK ANALYSIS: The Transaction Risk Analysis defined in the RTS is supplied differently, with Open Banking offering more parameters via the API.
While these are the main differences at this time, the gap may narrow. For example, the Berlin Group is expected to incorporate #fintech requirements in the final version of its proposals, scheduled for publication by the end of 2017. It’s also important to remember that implementing a standard does not automatically make a bank PSD2-compliant, since it still needs to comply with other aspects of the RTS like authentication methods, exemptions from SCA and API testing systems.
The EBA’s RTS is expected to be ratified by the European Parliament at the end of February 2018, after which banks and other PSPs will have 18 months to implement it—including providing APIs. In choosing between the available standards, banks should make their evaluation as early as possible and take strategic and technical aspects into account so they can hit the ground running. Time is short—and having the optimal APIs in place will be critical to success in the PSD2 world.
For additional information, see our report, PSD2: Defining new customer journeys
My thanks to Hakan Eroglu for his research and analysis for this blog.
The post Why PSD2 and Open Banking make it vital to establish industry standards for APIs appeared first on Accenture Banking Blog.
Real-time #payments open up some new business opportunities for #banks and their clients.
Financial Technology
The Faster Payments Task Force received 16 proposals for faster payment solutions using different #technology approaches to increase the speed of payment in the United States. Some of the proposed solutions work similarly to traditional payment systems, while others involve significant changes to the way we think about cash and the roles that #banks play in the payments ecosystem.
Among the less traditional entries were proposals submitted by WingCash and nanoPay, which suggest creating #digital #currencies that would enable consumers to conduct digital transactions without the need for a bank account or payment card. While both involve the introduction of digital currency, one would replace the existing fiat currency for digital payments, while the other would be a digital exchange of value tied to the existing currency.
WingCash proposes creating a digital fiat currency. Under its proposal, the Federal Reserve would own the Faster Payments Network (FPN) and issue Digital Fed Notes, similarly to its issuance of cash notes today. Each Digital Fed Note would be a unique and unchangeable URL with a single monetary value, and it would include the issuer’s URL, the current holder’s URL, a currency code and unique identifier (like a serial number). Payments would be conducted by changing the owner of the URL.
The Faster Payments Network could be used for both in-person payments and remote payments (for example, using “digital cash” to pay for online purchases). The exchange of digital notes would occur without transfer fees, with funds immediately available, similarly to how physical notes are exchanged today.
As with cash notes, Digital Fed Notes would not require a bank account or credit card. One of the advantages WingCash highlights in its proposal is that a digital currency solution could increase access to the electronic payments system, opening the door for users who may have been excluded from the traditional banking system. However, potential barriers to implementation include regulatory changes that would allow the Federal Reserve to issue a digital fiat currency.
nanoPay also proposes a digital currency, but the system of value would operate outside of the Federal Reserve. nanoPay proposes a good-funds, collateralized bearer-asset transfer system in which users would exchange fiat currency (collateral) for nanoPay’s MintChip (asset). The fiat currency would be stored in a pooled account, while the equivalent MintChip amount would be stored in a Secured Asset Store (SAS). Transactions completed in the MintChip ecosystem would be a transfer of value between two SASs using Value Transfer Messages.
In the MintChip model, an Asset Manager would protect the pooled funds of fiat currency and invest the funds in instruments where the principle is guaranteed. Depository institutions would act as brokers that pre-purchase MintChip “coins” and use APIs to provide end users access to the MintChip platform. Regulated non-bank providers and larger retailers could also participate as Brokers.
nanoPay’s proposal does not depend on the Federal Reserve’s willingness to create new monetary policy or serve as the originator of digital currency. As a non-fiat currency, however, nanoPay could face challenges of perceived trust and security, particularly regarding the management of the pooled funds that serve as collateral for the digital currency.
As highlighted in the two proposals, digital currency solutions could increase the speed of payments while decreasing payments system costs and expanding financial inclusion. However, WingCash and nanoPay acknowledge that their proposals could pose a threat to traditional payment card revenue streams. Despite these challenges, central banks in other countries like China, Canada and the Netherlands are exploring digital currencies, and the US may follow suit.
Whether replacing fiat currencies, creating a digital exchange tied to existing currency or another idea yet unknown, payments solutions built on the faster, more efficient digital form will transform payments and banking. #Industry players need to prepare for the pending change and their role in it. To discover more about how other digital currency forms will #disrupt the industry, read our report on The (R)evolution of Money.
The post Digital currencies to disrupt the payments industry appeared first on Accenture Banking Blog.
I have recently moved to Dublin for a six-month secondment, and have the pleasure of leading our small but growing Accenture Research team based at The Dock, Accenture’s state-of-the-art R&D hub.
This is an amazing space to work in, where that terrible phrase “the art of the possible” isn’t so cringingly hackneyed, and actually means something. In a room close to where I am sitting writing this, there is a team creating software for a space “cube” that will be launched into orbit to gather data for a project (I could tell you what that involved, but then it would automatically self-destruct etc., etc). In this environment, automation could almost feel old hat.
Not so intelligent automation though. This is definitely in the realm of “anything is possible”. Intelligent automation learns as it works. It isn’t just doing what it is told; it is constantly adapting to new situations. Imagine a #robo-advisor that remembers when a customer started to sound agitated during a call, and adapts the number or style of questions they ask on their next interaction, to try to improve the experience? Hyper-personalisation of services is an expectation by which customers will increasingly rank their banking experience, as they become used to having the choices available to them through Open Banking. And intelligent automation is one of the core tools available in a bank’s armoury to get them to this level of service, without (ahem) breaking the bank.
#Banks are in the perfect position to ride this wave of personalised services—if they can adapt to a platform that funnels a customer towards these slicker services. And thanks to intelligent automation, this need not come at a hyper-cost to the business, with fully automated approvals that adapt to a users’ preferences and usage of third parties. Even the potential for fraud could be reduced as a result of IA learning a customer’s patterns of use and being able to spot anomalies and potentially fraudulent transactions.
Aside #from the pure efficiency benefits available from IA, this #technology could also provide recommendations to customers for products and services available to them based on their current circumstances and financial needs, such as an overdraft facility if they are low on funds. Thanks to IA, the bank knows that based on previous spending patterns, the consumer will likely need £x amount to spend until their next bank credit payment is due.
This intelligent automation of services is heavily reliant on data, the last but by no means least part of the AI trinity: People x #Process x Data. And there are numerous ways in which banks are custodians of vast amounts of customer information, which is ripe for a reinvented approach. And they don’t even need to send a cube out into space to achieve this.
The post Artificial intelligence: Unlocking value from process appeared first on Accenture Banking Blog.
EXCLUSIVE—Should #banks #acquire or #partner with smaller, more agile fintechs? Well, that depends if the end goal of the bank is to further financial #innovation, Derrick Walton, EVP of global financial networks for #Hyperwallet, told Bank Innovation. “There’s a difference in culture, in what the goals tend to be,” Walton said, who is responsible for […]
Bank Innovation
EXCLUSIVE – #Financial #crime detecting platform QuantaVerse has added a new AI-based #service to allow its financial institutions and banking clients better detect fraud and other crimes through audit investigations, as these crimes continue to be a major concern for #banks and non-banks alike. The new CAE (Chief Audit Executive) Checkup service unveiled today uses […]
Bank Innovation
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