Twelve hundred banking professionals gathered from around the world to network and discuss the challenges and benefits of digital transformation at the Temenos Community Forum. The venue was the National Convention Centre in Dublin. The theme- Digital to the Core.
Fundamental overhaul is required - David Arnott, Temenos CEO opened proceedings, pointing to the main themes of platformification and shared infrastructure- outlining new business models based on open APIs. Customer demands, new entrants and regulation are driving the industry towards this new paradigm in which banks must compete and decide which model they will appropriate. The GAFAs are setting the benchmark in terms of frictionless customer service and onboarding.
“Gone are the days when you can take two months to hardcode a new release into your system. Scale is everything, and the ability to provide a plug and play is crucial. Business schools used to teach that scale was prohibitive to growth- not anymore,” said Arnott.
Ireland- strong fintech hub set to grow further
To set the scene, none other than Ireland PM Leo Varadkar illustrated the Irish government’s support of the Irish banking sector, fintech players and the position Ireland holds to support any fallout from Brexit. Ireland has become a leading global technology hub and has a specialist focus on AI, robotics and cloud solutions. The key to this success, Varadkar said, is a commitment to quality of education. In supporting an open and collaborative approach, the government has outlined six principles:
- Prudent budget balance; reducing national debt
- Raise living standards which includes sustainable pay rises and modest income tax changes
- Achieve full employment (“with good jobs”)
- Invest in infrastructure- (after a ten-year plan Ireland will be one of the highest investors in infrastructure in Europe)
- Modernising and improving public services- in particular health
- Ireland’s role internationally- committed to EU, multilateralism and free trade
Varadkar outlined how Ireland offers the certainty businesses crave, as well as being English-speaking and “tax efficient”. Further to this the central bank is launching an innovation hub this year to foster the ever-more vibrant start-up community.
SMEs- ripe for service transformation in new API milieu
SMEs were called out by both Openbank’s Exequiel Szafir and Temenos’ Jenny Alexandrou and Kanika Hope as being massively underserved and well worth a focused investment in. This segment is ripe for the delivery of new services.
During Close Brothers’ presentation stream, the SME segment was called out again. The organisation conducted a thorough customer research programme in the treasury division over 18 weeks. It came to light that a key pain point for SMEs was how long it takes to make a decision on the maturity of their fixed term deposits from senior management- up to ten days.
Cloud-based propositions and front-to-back integration
- Enterprise Origination System – open APIs in marketplace tool
- Front Office Suite
- Enhanced Data Analytics
- Instant Payments
- FCM - Suspicious Activity, SaaS
- Robo –advisor
A nifty roleplay presentation showcasing these new propositions in a scenario was shown- the key message being the FI can choose whichsoever way the FI chooses. Cue ‘Bank of Cork’, who chose a build and migrate approach, and taking only six months to launch a digital proposition, being able to migrate customers from legacy to digital easily, putting out a bundled mortgage product in a matter of days, from conception to market, using the visibility granted by analytics to predict profitability.
Origination in minutes was further highlighted later in the day in a breakout session delivered by Temenos’ Adrian Hadley. Key to this is information pertaining to the request in question being available on all channels- mobile, internet banking portal or front end in the branch.
“Origination can be static and siloed, impersonal and inefficient; it should be personalised, dynamic, holistic and faster.”
Santander’s Openbank- “Ditch the hierarchy”
A case study for cultural transformation driving digital change, delegates were excited to hear from Ezequiel Szafir, CEO, Openbank. One of the first fully-fledged digital banks in the world, running in the cloud and offering its range of banking and investment products through its digital platform. Szafir likened the technological change taking place in the industry currently as a tsunami, in that it will be upon everybody before they know it, driving home one of the overarching themes of the event- fundamental change is at play. As he put it, “we are our own challenger”, owned by an incumbent, with 1.1 million retail customers.
“Every single decision is based on machine learning algorithms,” he declared, as proudly as anyone would, were they in his shoes. He went on to explain how the front-end is kept in-house “in order to focus on owning the customer relationship and value proposition”.
An external core running on the cloud is key for Santander, so as to be agile. “On-premise cores are becoming too problematic. And crucially, a key driver is to outsource the workload related to regulation.. being able to grow the business in different directions, ie serving SMEs, and scale easily.”
He stressed the importance of the equal working relationship between partner, vendor and incumbent. Indeed, “Ditch the hierarchy,” he advised.
“An integrated distribution model according to a real time omnichannel approach remains key,” said KBC’s Willem Hueting, senior general manager, international markets. The bank has recently shed its spaghetti legacy and undertaken a group-wide digital transformation across multiple countries, and KBC Ireland- a digitally-led bank with over 250K customers, is a so-called front-runner for digital for the group. KBC Ireland’s Aidan Power said it was no coincidence that the front-runner for digital is based in Ireland, “given its digi-savvy and mobile-centric population”.
The digital bank has three key goals around which its business model is based: Instant (vis-à-vis account opening, decisions, and end-to-end digital documentation), Accessibility (Always on, mobile first, 24/7 contact centre, web and video chat), and Proactive (knowing the right time, the right data and the right products). The digital strategy stretches to a digital debit card being delivered to the retail customer’s phone on account opening.
INNOVATION JAM
Two aspects of working with fintechs in the MarketPlace were highlighted in a Temenos partners survey last year- that of procurement and selection. It takes too long to figure out how fintechs can add value and too long to onboard them.
There were two winners- a judge’s vote and an audience vote. Belleron won the judge’s vote for its real-time fraud detection solution using machine learning to analyse interactions between transactions, variables and trends. The system enables banks to ascertain an attack’s characteristics and shut down specific channels swiftly so as to remain operational throughout.
Sonect won the audience vote for its virtual ATM solution delivered via an app enabling customers to withdraw cash free of charge from a retailer’s till by having their barcode scanned. Running on blockchain technology, the solution benefits retailers by being able to offer an added convenient service to draw in the punters and for banks, it can reduce costly ATM networks.
Security, speed and AI align to serve and protect the customer- Expert panel calls out key takeaways from the 5th Annual Economist Intelligence Unit Global Retail Banking Report
- The biggest trend as seen by the retail banking industry is changing customer behaviour and 58% respondents cited this as number one.
- For the first time, respondents cited a bigger focus on tech than regulation, along with a new top strategic priority being improving product agility.
- At the same time, panellists expressed surprise that cash was stated as very much not dead.
- Culture is coming to the fore as needing a harsh examination- of the concerns related to open banking, the biggest was a lack of c-suite understanding around opportunities and risk. Equal priority needs to be placed on educating the customer on cyber risk and security also.
- The shortcomings of IT infrastructure in supporting APIs is also a key concern.
- An impressive 71% of digital investment is on cybersecurity.
Commerce Bank’s CIO David Roller said that lack of core transformations in the US will be the limiting factor and speed is of the essence- speed to market, speed of decision-making, real-time and speed of insight.
AI solutions, in the short term will be focused on risk, security and fraud prevention . Roller continued, “It’s a game-changer, but people are the bottleneck.” A board can become very reluctant when news breaks of one unfortunate incident such as the self-driving car accident. People need to understand whatAI can do and how to use it, it was discussed.
Accenture’s Alan McIntyre said KYD will be a new addition to banking compliance terminology- Know Your Data, given the perimeters of liability and the expansion of data-driven organisations. “And this could be a question that blockchain answers,” he added.
Renee Friedman, from the Economist Intelligence Unit, said security will become a three-factor process in line with increased awareness and incidences of cyber-attacks, adding that GDPR will likely be reflected in US regulation.
Refuting the GAFA threat, McIntyre said the biggest threat was likely white-labelling collaborations along the lines of the recent JP Morgan Chase and Amazon news.
Kanika Hope, Strategic Business Development Director at Temenos, said to compete at regional level, it will be all about the lifestyle add-ons banks can create for their customers, and in particular for SMEs.
As Paul Roehrig , chief strategy officer, Cognizant, said, “AI is transforming everything. Eight out of ten hedge funds are now quant-based/AI-based. By 2025 the ‘second (digital) economy’ will be as large as the 1995 physical economy. Twelve per cent of jobs will be replaced, 75% will be enhanced and 13% will be new.”
Front-to-back digital transformation is the ultimate interpretation of the Temenos Digital to the Core message, which encompasses frictionless customer service, frequent regulatory update compliance, open API and platform-based models. And it requires a cultural shift as much as a technical one.