Global Banking & Finance Review Issue 25 - Business & Finance Magazine

Issue 25

Holger Schaefer

Head of Region Euler Hermes Asia Pacific

25 9

772396

717008

www.globalbankingandfinance.com

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I am pleased to present Issue 25 of Global B anking & Finance Review.

For those of you that are reading us for the f irst time, welcome.

Featured on the front cover is Holger Schaefer, Head of Region at Euler Hermes Asia Pacific. Holger spoke at length with Wanda Rich, Editor of Global Banking & Finance Review, on a range of subjects including challenges and opportunities brought by the COVID-19 pandemic, Euler Hermes' future focuses as well as the organisation's continuing dedication on customer service. Read the full interview on page 24.

April was stress awareness month, turn to page 44 to read about the impact of Covid-19 stress levels and what businesses can do help staff navigate through this time. Read what our industry experts are saying about the future of banking, the impact on digital transformation in the finance industry and the latest investment trends.

We strive to capture the breaking news about the world's economy, financial events, and banking game changers from prominent leaders in the industry and public viewpoints with an intention to serve a holistic outlook. We have gone that extra mile to ensure we give you the best from the world of finance.

Send me your thoughts on how I can continue to improve and what you’d like to see in the future.

Enjoy!

The information contained in this publication has been obtained from sources the publishers believe to be correct.

The publisher wishes to stress that the information contained herein may be subject to varying international, federal, state and/or local laws or regulations.

The purchaser or reader of this publication assumes all responsibility for the use of these materials and information. However, the publisher assumes no responsibility for errors, omissions, or contrary interpretations of the subject matter contained herein no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the publisher

Wanda Rich Editor

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Issue 25 | 03

CONTENTS

BANKING

6

The Bank of 2030: a revolution for customers

INVESTING

10

Living in a tri-directional world: How European asset managers can benefit from outsourced trading

Venkatesh Varadarajan, Partner in Financial Services, Infosys Consulting

22

Restore the Bank Manager View with a Personalized Customer Experience

Mike Ferguson, Redpoint Global Vice President Services, EMEA

26

Why the future of banking is for teenagers

Massimo Labella, European Head of Outsourced Trading, Cowen

14

Are the traditional investment portfolio allocations still relevant?

Rupert Thompson, Chief Investment Officer, at Kingswood

38

Articulating the disruptive investment gap

By Eddie Behringer, CEO, of Copper Bank

36

Shammah Banerjee, Editor, at Nimbus Ninety

What is Digital First in Banking? Are Banks ready to make the transition?

Sudeepto Mukherjee, Senior Vice President, Financial Services, Publicis Sapient

BUSINESS

32

2021: The year of simplified and cost effective contactless payments

Jumaane Hutchinson, Head of Products,, at Judopay

44

Monitoring staff at work and at home

Why Financial Services firms should invest in chatbots now to boost productivity Sophie Packer, Digital Marketing & Innovation Co-ordinator, ThinkEngine

28

Cognitive Fingerprinting: The Evolution of Fraud Prevention Max Wolke, Fraugster, Head of Strategy.

40

Future of artificial intelligence in banking is already here

John Harding, Regional Director, UK & Ireland, NVIDIA

Richard Woodman, Royds Withy King

FINANCE

12

18

Stress Awareness Month

Nick Gold, MD, of Speakers Corner

46

TECHNOLOGY

48

No matter who the custodian is, identity remains king in an online world Hal Lonas, Chief Technology Officer, Trulioo

How a greater focus on operational resilience could have reduced the number of outages across financial services in 2020 Guy Warren, CEO, ITRS Group

20

Finance, frictionless trade and the Brexit paperwork boom

Scott Wilson, Director of Customer Experience, eFax

42

IR35: The impact on digital transformation in the finance sector Phil White, Managing Director, at Leeds

28 04 | Issue 25

CONTENTS

24 Cover Story 130 YEARS AND COUNTING –

EULER HERMES CONTINUES TO LEAD BY EXAMPLE Holger Schaefer, Head of Region, Euler Hermes Asia Pacific

Issue 25 | 05

BANKING

06 | Issue 25

BANKING

The Bank of 2030: a revolution for customers

We are witnessing an evolution. Banking is changing in so many ways – the move away from cash, and even cards, the urgent uptake of online banking, and a growing interest in personal investing.

The slow and steady pace of the industry has been accelerated more in the last year than in the entire decade prior.

The results of this transition are already becoming visible: the Treasury has raised the maximum contactless spend, hundreds of bank branches from the likes of HSBC and M&S Bank continue to close, and record numbers of people are opening investment accounts, with Hargreaves Lansdown reporting a 40% jump in late 2020, bringing down its average age of investor by 7 years. Similarly, competing platform AJ Bell also saw its customer base grow by 30% last year, to almost 300,000. More than half of its new users are under the age of 40.

All of this will shake-up the statusquo, putting customers at the centre of the banking sector once again. It’s becoming increasingly apparent that over the next decade, banking will be put back into the people’s hands – so by 2030, what will our banks look like?

Power to the people The digitalisation of the banking sector has also been its democratisation.

The fairly recent introduction of userfriendly, mobile-based banking apps has shortened the distance between customers and their money. This is an indicator of a larger financial trend: most people now want to be actively involved in their finances. Customers want a bank that they feel is ‘theirs’, hence the success of challenger banks like Monzo and Starling, where personalisation and ownership is integrated into every interaction.

Issue 25 | 07

BANKING

But this goes far beyond mobile banking apps and annual spending roundups.

Banks have an opportunity to capitalise on this desire for more involved banking, creating new products and services that support their customers 24/7. Whether this shift takes shape through shares and trading platforms, broader mortgages, loans and credit card offerings, loyalty and voucher schemes, or even Buy Now, Pay Later (BNPL) services, one thing is for sure: by 2030, banks will certainly be a bigger part of our daily lives, offering products and services that converge to enhance our entire lifestyles, not just our finances.

Of course, to make this diversification a reality, the technical foundations need to be laid soon. For challengers like Monzo and Klarna, whose stacks incorporate the latest technologies and digital estates, they may be able to move faster. But legacy banks have a unique opportunity too, to make the most of their huge cash reserves and loyal customer base.

Best of both worlds Firstly, banks don’t need to upend their entire tech stack to offer more services to customers. While there will always be a natural competition among oldtimers and challengers, the banks of 2030 will exist – and work together – much more harmoniously.

Many customers will likely already recognise the benefits of both kinds of bank – large High Street banks are reliable and have better lending power, whilst younger upstarts, with more mature digital platforms, will be using AI to approve loans quickly and humanoid bots to provide efficient customer support. In a decade, however, this will

08 | Issue 25

no longer be a choice that customers have to make. Instead, these benefits will be consolidated through open banking. Banks will be actively pulling in data from customers’ other bank accounts and profiles, collaborating on products and services, and working in tandem to give consumers the full visibility they demand. This will allow them to slice and dice the benefits of each bank as they please, in line with their individual lifestyles.

Innovating from the outside in That said, as competition between new and old continues to grow fiercer, the big banks will have no choice but to continue to innovate. In the past, when banks innovate, they do so from the inside out. This has often created a disconnect between product, process and platform; ultimately diluting the impact of the changes they make.

who sit across the whole business, feeding into product, IT, transformation, and CX programmes. Putting customers first will rely on finding the right people to make that happen, who will build innovation into every decision.

The first steps of change are often the hardest, and we’ve seen legacy, High Street banks suffer because of this. But the future of banking looks promising for the most important party – the customer. The democratisation of banking, whether that be through greater control and visibility of finances, or the technologies that will enable a 360-degree helping hand with our daily lives, will be a key marker of progress. By 2030, banking should be for everyone. It’s on banks both big and small to make this a reality.

For the innovation team in the bank of 2030, this approach will be reversed.

New products and services will be led by the customer, not the other way around. First up, the mining and analysis of customer data will be key for this. From social media, spending history and a growing number of other data sources, mapping of customer behaviour will become increasingly accessible to innovation teams.

Ensuring these insights are put to good use will be the differentiator between those who sink and those who swim.

To enable this outwards-in approach, there needs to be a shift from the siloed development teams that exist currently, to an over-arching, business-wide innovation hub. This could mean a Chief Innovation Officer – a role most banks don’t have in their boardroom – or a team of creative, innovative thinkers

Venkatesh Varadarajan Partner in Financial Services Infosys Consulting

More than...

40 Years serving Egyptian Economy 231 Branches in all Egyptian governorates 6700 Banking professionals at your service 611 ATMs

INVESTING

Living in a tri-directional world: How European asset managers can benefit from outsourced trading

Europe plays a special role in global markets, not only as a major developed marketplace in its own right but also as the linchpin between Asia and the Americas.

Take London. As the world’s premier international trading centre, the dealers staffing London’s trading desks are up and running well before Asia starts to wind down. These same traders also have several hours of overlap with New York and Chicago as those centres digest the day’s economic data and breaking news.

Meanwhile, as Europe’s funds have grown in leaps and bounds over the years, their exposure to Asia has continued to increase. They have always had heavy exposure to American markets due to the pre-eminence of U.S. markets and the dollar’s role as the world’s reserve currency. But as assets under management have grown, that exposure too has increased.

Latest data from the European Fund and Asset Manager Association showed assets under management more than doubled in Europe (up 113%) in the decade to end-2018, to reach 10.8 trillion euros. Some 45% of that was discretionary.

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One way that institutional investors are addressing their growing trading needs is by adopting outsourced trading solutions, either as an add-on to current trading capabilities or as a complete outsourced desk. Such an idea would have been unimaginable not so long ago. But the latest study

by Greenwich Associates showed that one-third of the institutions they surveyed saw outsourcing as a good solution to manage flow and achieve best execution.

For hedge funds, the needs may be even greater. Smaller funds such as those managing a few hundred million dollars in assets are not in a position to have someone staying up all night monitoring multiple markets 24 hours a day. Even firms that have 24/6 coverage may need back-up.

But it’s not just about coverage and the worry about not being able to respond properly to developments in the middle of the night.

Interconnectivity and intelligence There are two other factors small to mid-size funds need to consider. The first is market interconnectivity and the second is market intelligence.

On the interconnectivity front, the global nature of modern markets means that a firm needs to be operating on a 24-hour clock regardless of its geographical focus. For instance, most assets around the globe have some exposure to events in the United States. A European asset manager knows their portfolio is exposed to potential volatility well after European markets have closed.

The same is true for asset managers in other centres.

An outsourced trading provider is able to take a tri-directional view of the world – whether the flows are U.S.Europe, Asia-Europe, U.S.-Asia – and it can pass a client’s book from region to region.

What’s more, the way that asset managers in one region are monitoring and reacting to events in another has changed radically.

Whereas 20 years ago it may have been satisfactory for an asset manager to keep an eye on the Nikkei 225, now they will be focused on what the CSI 300 in Shanghai is doing, or Hong Kong or Taiwan. An outsourcing trading provider with traders stationed around the world is in a position to keep clients up-todate on a minute-by-minute basis.

INVESTING

Massimo Labella European Head of Outsourced Trading Cowen

That leads to the second factor: market intelligence.

Any buy-side firm of any size or variety will tell you that there is no substitute for having eyes and ears where they are needed. Local intelligence comes in multiple forms, including the contacts that someone has as well as the institutional memory from having spent a decade or two in a given location.

The rising importance of China in global markets illustrates this perfectly. A European asset manager can hardly expect its traders to have a feel for how China’s moves matter – or will matter – to markets in Singapore, Bangkok, Kuala Lumpur or Jakarta. But traders operating in Asia are living and breathing this reality every day.

Local intelligence shows up in other ways too. As the composition of equity indexes changes over time, particularly with tech companies increasingly dominating certain indices, traders in one centre or another develop a feel for their markets and can factor that in.

A multiple on a given share may make little sense to someone based 5,000 miles away. But it may be perfectly logical to experienced eyes.

Boots on the ground At Cowen, we’ve noticed that our clients increasingly are not focused on one region but on all three.

A TMT manager may zero in on the U.S. and Asia, with some attention reserved for Europe. A healthcare manager previously may have been looking mostly at the U.S. and Europe but now needs to think about China because there is so much biopharma activity there.

Traders are functioning in markets around the globe, but the cost to establish a local presence and local expertise is prohibitive for all but the largest of institutions. They need boots on the ground. That’s exactly what an outsourced trading desk provider can give them.

Issue 25 | 11

FINANCE

How a greater focus on operational resilience could have reduced the number of outages across financial services in 2020 Throughout 2020, outage numbers increased dramatically across the financial services sector, affecting retail banking, trading platforms, exchanges and more, impacting even organisations as institutionalised and established as the Federal Reserve.

But how can financial services firms avoid such failures? Guy Warren, CEO at ITRS Group explores the importance of operational resilience in preventing future outages, and how complete system oversight is not just a nice-tohave, but a non-negotiable requirement for firms who wish to stay in the game in the post-pandemic landscape.

In recent years, operational resilience – that is, the ability of a firm to absorb and adapt to market volume spikes, failures, incidents or degraded performance – has been climbing the list of priorities for CIOs of financial institutions and regulators alike. And as the COVID-19 pandemic took global hold and undermined the stability of countries and sectors around the world, the urgency of this process was, unsurprisingly, further amplified.

But despite significant strides being made amongst corporations in the race to operational resilience, the market volatility that has defined the past year has shone a light on just how far firms still have to go to become truly operationally resilient.

12 | Issue 25

Outage acceleration Throughout 2020, firms across the financial services sector suffered from outages. Nobody was immune, with exchanges, asset managers, retail trading platforms, among others all having been impacted. Most recently, however, was the outage that raised arguably the most questions and concerns on Wall Street and, indeed, across the globe: the US Federal Reserve (Fed) outage.

In February 2021, for four hours, the Federal Reserve systems that execute millions of transactions a day, encompassing everything from payroll to tax refunds to interbank transfers, were disrupted by what appeared to be some sort of internal glitch. Given that this outage came in the wake of two significant disruptions to the Fed’s payment services in 2019, the failure raised significant questions about the operational resilience of the infrastructure upon which all of the U.S. relies to process payments.

When it comes to the root cause of the problem, the Fed has remained tight lipped. But given the scale of the outage – it affected both the automated clearinghouse system, FedACH, and the Fedwire Funds interbank transfer service – we can

assume that this wasn’t simply a failure within an isolated system, but, rather, was an issue with a core part of the Fed’s IT infrastructure.

Getting it right However, in order to understand how the Fed could have avoided this failure – and, importantly, how it can avoid future similar failures – we don’t need to know exactly what went wrong. Central to any strategy that aims to minimises outages must be comprehensive IT monitoring. By affording internal oversight into their entire IT estate, IT monitoring allowing firms to quickly identify and resolve potential issues before they cause outages.

But as companies further enhance their digital services, their estates grow even more complex. As most monitoring tools and solutions are typically tailored to certain systems or processes, this means that companies will require an increasing number of these tools. A possible consequence of this is firms not having a total overview of their entire system. Rather, they have just visibility on the individual parts, but no single pane of glass across the whole estate; applications, infrastructure and data. This means that if a problem occurs in one system, they will be unable to track its effect across their entire estate.

FINANCE

A simple solution: complete system oversight The solution to this is surprisingly simple: a single monitoring tool that compiles all of the different tools into a unified view. If a problem then occurs, the IT manager can identify the source, the underlying cause and the affected areas, allowing for a solution to be identified faster and more accurately.

In addition to complete system oversight, capacity planning must also be a priority for CIOs. Many of the outages that have occurred over the last 12 months have resulted from companies offering new digital services, while not knowing how much traffic they can handle in a certain timeframe. Capacity planning at a basic level allows firms to identify what a system can handle. At a more advanced level, it can identify specific pinch points, as well as model future scenarios, giving CIOs crucial insight into how their system handles them.

Guy Warren CEO ITRS Group

Firms are no longer able to simply apologise for an outage and move on. Not only are regulators cracking down, but customers are more willing than ever to switch. The current landscape is pivotal, and firms must get ahead of the curve now, or risk falling behind permanently.

Issue 25 | 13

INVESTING

14 | Issue 25

INVESTING

Are the traditional investment portfolio allocations still relevant?

There has been much debate around whether there is still a place for traditional portfolios made up of 60% equities and 40% bonds. We believe that asset allocators have already in recent years moved considerably away from the traditional 60/40 portfolio and this trend looks set to continue.

If so, far from government bond yields falling in a risk-off move, government bond yields would be rising. In essence, government bonds would no longer be negatively correlated with equities but positively correlated, thus removing most of the protection benefits of holding government bonds.

Bonds

Yields on government bonds are zero or negative in real terms almost everywhere.

So, they no longer provide the protection against inflation they did before. And if inflation does pick up significantly, real yields could turn more negative with governments/central banks both keen to limit any rise in yields. This is more of a problem for fixed income heavy lower risk portfolios as the larger equity weightings in higher risk portfolios should provide protection against inflation at least while it remains below 3% or so.

There is no doubt that bonds no longer provide the protection they used to. Bond yields are so low even after recent rises that their scope to decline in a risk-off move (particularly outside the US) and provide protection is much more limited than in the past. This is most true for government bonds. However, corporate bond spreads are also close to all-time lows, so they are vulnerable to significant spread widening in a risk-off move even though they are now effectively underwritten by central banks.

A major new risk-off move is now looking as likely, if not more likely, to come from worries of overheating, a marked rise in inflation and Fed tightening rather than too little growth or deflationary fears as has been the norm over the last decade.

With yields so low and the duration of bonds correspondingly longer as a result, bond returns are considerably more volatile with swings in their prices swamping the underlying yield. As someone wittily put it “bonds now offer return-free risk rather than risk-free return”.

Issue 25 | 15

INVESTING

Rising inflation expectations Rising inflation expectations are one of the key factors affecting the traditional 60 to 40 asset allocation. Within the bond allocation, they warrant a larger proportion in inflation-linked at the expense of conventional bonds. However, particularly in the UK, for structural reasons relating to pension fund demand, index linked bonds are very expensive with a significant negative real yield of -2.5%. Inflationlinked bonds are also long duration and exposed to any rise in real yields. Therefore, increased inflation risk should only partially be accommodated by a higher allocation to inflation linked bonds with additional inflation protection being also required from other sources.

The ideal investment allocation to bonds will continue to depend very much on what the risk profile/time horizon of the portfolio is. The outlook for inflation is also crucial in determining the optimal allocation going forward. This should be rather clearer in a few years’ time when it should be much more apparent whether we have moved into a new inflationary era or are back to the disinflation of the last decade. What is clear however is that the ideal bond allocation for any portfolio is significantly lower than in the past. That said, while bonds generally are looking expensive and

Rupert Thompson Chief Investment Officer Kingswood

16 | Issue 25

unattractive for all the reasons above, there are still pockets of relative value in areas such as emerging market bonds. These have a role to play due to their different risk/return characteristics to developed market bonds and emerging market equities.

Other alternatives Replacements for bonds will continue to be centred on areas such as alternatives particularly those which purport to have low correlation to equities and bonds – dynamic macro-driven alternatives funds being a prime example. ‘Real’ assets such as gold, infrastructure and property provide some protection against inflation and, in the case of gold, also some protection against big risk-off moves.

Crypto currencies fall into the ‘real’ asset camp and in the future a small allocation might be merited as a bond replacement. However, the violent swings currently being seen in crypto currencies, which are still in their infancy, mean for the moment they clearly do not fulfil the key role of bonds which is to reduce portfolio risk. Instead, an allocation could only increase the risk and consequently we do not believe they currently have any role in mainstream portfolios.

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ADVISORY AND SOLUTIONS

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TECHNOLOGY

Why Financial Services firms should invest in chatbots now to boost productivity Firms in the financial sector that pursue innovative technologies are inevitably going to have a greater focus on their core business activities.

The automation benefits associated with conversational tech can lead to a future-ready business model that will make day-to-day operations work with greater efficiency.

Increasingly, a greater number of Financial Services firms are acknowledging the benefits of conversational software (like chatbots) and how these solutions can help all aspects of the business, not just one department. Integration is becoming a top priority, with its ability to be adaptable, streamline business processes and increase productivity (quickly!). Let’s not forget the obvious benefit, cost-saving! Does this make innovation one of the most important aspects of business growth?

In this article, we outline some of these key considerations of chatbot solutions and how they can be most powerful when they are considered as productivity tools.

Major cost savings There is no denying that chatbot solutions lead to significant cost savings, by automating tasks your workforce have more time to concentrate on their day-to-

18 | Issue 25

day activities. This laser focus will significantly increase productivity in other areas of your firm too. The reciprocal benefits can be vast, in some instances it can be a cultural game-changer.

By introducing conversational marketing tools into your company, you can eliminate time-consuming tasks that an employee may spend hours on, everyday. The simplicity and ease of automation removes the need for human intervention, making processes considerably quicker, and potentially, in time, saving the cost of headcount. A win-win.

Another key benefit is that conversational platforms use no/low code builders - you can now build a whole workflow without a single line of code! As such, there is no need for the high-cost costs associated with developers, nor the need for high levels of training. Consequently, this has a positive productivity knock-on effect.

Such situations means that workflow or chatbot amendments can be completed by employees easily (often with little or no training) due to software being that simple and intuitive.

Would you like some spare cash flow to reinvest in your Financial Services firm? I don’t know a single one of our clients that would say no to that!

So, how do chatbots really save you time?

Recent studies have found that 60% of work time is used for non-work related tasks, such as meetings, gathering information, delegating and messaging (Draper, 2019).

Wouldn’t it be great if some of these tasks could be automated?

By using conversational marketing platforms this is possible. Automated technology can facilitate these tasks that humans either could not process, or would take a longer period of time to accomplish. Technologies like AI drive create positive change and fasttrack our ability to complete more tasks in less time.

An additional area that could save you time by using conversational tools is within the sales funnel. If you have a chatbot on your website, it’s more likely that your leads will flow down your sales funnel quicker. With 57% of chatbot users saying they have greater visibility into customer needs expectations and behaviours (Landbot, 2019) by using a conversational tool. This means all that time you’ve spent in the past collating data on your ideal customer and sales leads can be actioned via a chatbot making good use of your data and time.

Using learnings from data will drastically impact your ability to tailor workflows and customers journeys more frequently,

TECHNOLOGY

this approach leads to a greater understanding of how your visitors interact with your business online.

Global organisations are already releasing the significant benefits associated with chat assistants in particular, with 57% stating they have had more than a 20% reduction in customer churn (Landbot, 2019). You could argue that this would mean that you’d be handed back 20% of the time in your day, at the expense of a few clicks.

Chatbot integrations for a smooth and seamless approach Conversational marketing software integrates with a wide number of platforms that can be used in all departments of the business. This ‘blank canvas’ technology and approach means that it can be used for almost anything which has a process flow, and with the 3rd-party tools, everything can be streamline even further. As I mentioned earlier, non-work-related activities take up a large portion of the workday - tapping into time cutting technology is your gateway for an easier job, and for leaders, it means they have a more productive team.

dairy themselves, cutting out the middle-man (no wasted time on back and forward emails to arrange times and days!). You can also integrate payment processes into your chatbots, making client payments smooth and seamless. Solutions like this mean that clients get a choice and being able to have alternative solutions is great for business continuity planning, no one wants a single point of failure! The list is endless… give of take, if you name it, a chatbot can probably do it!

So, if that’s not enough evidence to demonstrate time saving, cost-cutting and productivity-boosting for your business, then I really don’t know what is! Conversational technologies can automate your business growth and provide more flexibility for staff members to work on other corebusiness tasks, which consequently will make a greater impact on business revenue.

Is your financial services firm ready to pick up the pace and invest in a chatbot solution?

Sophie Packer Digital Marketing & Innovation Co-ordinator ThinkEngine

Integrations with solutions like calendar platforms mean that clients can directly book meetings into your

Issue 25 | 19

FINANCE

Finance, frictionless trade and the Brexit paperwork boom When we hear problems about getting goods from A to B, our thoughts usually turn to the manufacturers and retailers that base their business models on being able to get those products into the hands of customers. It is however, equally concerning to the financial services institutions that back those companies. These financial sector leaders might be providing overdraft and credit facilities to retailers or they invested in manufacturers to allow them to make more goods faster, or perhaps they may have facilitated the financing of supply chain inventory.

Whatever their relationship, the frictionless flow of cargo from one country to another is just as much a concern for the institutions that make up financial sector, as well as the industries they serve.

That’s why the current problems surrounding the UK’s transition out of the European Union will be so concerning to many finance sector leaders. Exports of goods to the bloc have tumbled, falling by 40% in January 2021, with imports dropping 29%. The issues could be curtailing businesses’ ambitions: the Federation of Small Businesses reported that 23% of small businesses had temporarily halted

20 | Issue 25

sales to EU customers, while a further four per cent had decided to stop selling to the bloc permanently.

What’s causing this? Data from the Chartered Institute of Purchasing & Supply, (CIPS) highlighted how delays at the UK/EU border, increased as new customs paperwork continued to cause problems. According to CIPs, supply chain managers in the UK said the main reason for border delays is that it is taking longer for customs to work through new paperwork.

In fact, the increase in administration is such that a majority of financial services IT decision-makers (72%) surveyed by eFax believed that extra levels of paperwork required to do business across EU borders creates an additional security risk.

Unsurprisingly, the same study found that 68% are accelerating the speed of digital transformation of paper-based processes as a direct result of the disruption caused by Brexit.

What’s more, 76% of respondents would have accelerated digital transformation sooner if they had been aware of how much the extra paperwork would slow down cross border trade and transport.

It is going to take some months for the systems and processes surrounding the passage of goods between the UK and EU to be solved and refined to satisfaction, a situation which is likely to have several more twists and turns as various extensions expire for different sectors and commodities.

However, financial services providers do have opportunities to streamline their own operations to do all they can to ensure frictionless cross-border travel and trade. For instance, they should look at how they store and share documentation with employees, suppliers, customers, and partners.

Despite the hype around digital transformation, there are many areas of life where physical documentation remains the norm. Logistics is one of those. Bills of lading, the piece of paper that proves cargo ownership, are often couriered from one party to another. New digital versions, based on emerging technologies such as blockchain, are being piloted, but overall, many businesses are forced to overcome significant challenges to get paperwork into the right hands at the right time.

FINANCE

However, there is appetite for change. The eFax study found that 88% of FS IT decision-makers believe workers travelling across borders would benefit from the ability to send, receive, and securely sign extra layers of paperwork on-the-move.

A few years ago, this wouldn’t have been possible – neither the IT infrastructure nor the devices were available, at scale, for entire workforces to be equipped with the right tools to digitally share documentation appropriately. Now, as FS companies accelerate their digital transformation, they increasingly have the capabilities to facilitate such a transfer. When added to the wider availability of high-quality coverage, cloud computing, smartphones, and tablets, it means that every part of the supply chain, from financier to truck driver and stock picker, can access paperwork, sign for it, and share it securely, all from the palm of their hand.

The desire and the means are there – what key players in supply chains need to do now is ensure that their digital transformation, already being accelerated, covers all aspects of their operations. In doing so, they can ensure that they are well placed to optimise the transit of their cargo across borders.

There are always going to be disruptive external factors. No one wants to see backlogs of trucks snaking out of ports, food rotting in warehouses or customers left disappointed by deliveries unable to get over the border, least of all the financial institutions that provided funding upfront. With more paperwork than ever before, making sure it is in the right hands, at the right time, is critical to a more frictionless flow of cargo.

Scott Wilson Director of Customer Experience, eFax

Issue 25 | 21

BANKING

Restore the Bank Manager View with a Personalized Customer Experience As a boy, in the 1970s, my father took me to the local bank to open my first savings account. Dad said it was important that the bank manager could see that I was sensible with my money so that when it came time to ask for a mortgage loan, the bank manager would know me as a good customer and grant me a great mortgage deal.

their balance through a mobile app, picks finance products on a website. The availability of bank customer service staff has been drastically reduced to channel customers to these new interfaces.

Nearly 50 years on, I’ve had a few mortgage deals and have never once actually met the bank manager.

However, the idea of a benevolent individual there to help me with my finances taunts me in moments of frustration when I’m trying to work out which of a range of complex financial products are the best value for me as an individual. I get even more frustrated when my loyalty to a brand means that I can’t access introductory deals targeted at acquiring new customers from other brands.

In this self-service world, the concept of the customer is reduced to a set of financial products and banks become even more product focused.

A recent survey that Redpoint Global conducted with Dynata Research drives the point home, revealing a major disconnect between the level of personalized service that customers expect and the service that banks provide. Of the 1,000 customers surveyed, 82% said they expect their bank to personally understand them, while just 38% said their bank meets that expectation.

Why is there a customer experience gap in banking?

The transition to digital banking has been accompanied by a move to a self-service strategy – the customer pays in cheques via an ATM, checks

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The Open Banking initiative was created in part to help customers get a holistic view by linking accounts and viewing everything on a single portal. In the Open Banking 2020 annual report, the Nesta Challenge survey revealed that 38% of consumers that adopted Open Banking attributed the switch to a desire for personalised support. But this does not address the core issue for banks – that the banks themselves are not satisfying expectations for personalized banking.

What would it take to close the customer experience gap?

What would we expect our 1970’s bank manager to know about their customers? Income, outgoings, credit risk, loans, savings, investments as standard, but also what’s going on in that customer’s life: Is the customer recently married? Is the customer/ household soon-to-be empty-nesters, or maybe saving for university? With the full picture, our ideal bank manager instinctively understands the customer lifetime value and sees the customer as a whole person.

In an industry where banks compete to get customers to switch providers, and the customer benefits of brand loyalty have been minimised, we see that the uptake of switch offers is limited and customer satisfaction declines. Can banks switch their approach and differentiate by rewarding long-term business relationships by providing a great customer experience?

So today, is it possible for a financial institution to know each customer as an individual, understand their life stage and lifetime value and use these insights to be relevant within the context of the customer journey? Surely this adds value to the customer and the bank independent of the product portfolio or total assets. By restoring the traditional bank manager view with a deep, personal understanding, a financial institution is rewarded with more satisfied – and loyal – customers.

In a digital world, how do we restore the ‘bank manager’ view of the customer?

The first step to a customer-centric approach is to break down data, processes and business siloes that are indicative of a product-focused approach. By combining all customer data sources into a single customer

BANKING

Mike Ferguson Redpoint Global Vice President Services, EMEA

discounts, etc.) By placing the machine learning in-line with the data flows the models will not go stale and do not have to rely on error-prone human judgment for audience segmentation. Rather, embedded machine learning enables hundreds or thousands of models to run simultaneously, always testing and optimizing the next-best action or offer for each customer segment.

view, a financial institution forms a strong data foundation that is the core of creating personalized omnichannel experiences.

The curation of a complete customer data set then drives two further challenges, how to create insight and understanding from that data (the bank manager view) and how to provide suggestions and decisions to customers at the speed of a webpage click or a chatbot?

Creating insight from data at scale and at speed requires automated machine learning (AML).

Machine learning models embedded in a digital customer experience platform can be set up to identify the patterns and clusters of customer behaviour and to make decisions to optimize any metric (customer lifetime value, product

A real-time capability for both data gathering and response through the bank’s digital channels is essential for providing the best customer experience.

Real-time empowers the financial institution to deliver a next-best action or offer to a customer on any channel that is in sync with the customer’s interests and needs at the moment of interaction.

In a recent Digital Banking Report that asked global financial institutions about their top strategic priorities through 2021, digital banking transformation (75%) and improving customer experience (51%) polled as the top two areas of focus. An improved customer experience was defined as an institution knowing its customers, their behaviours and needs, and providing contextual guidance and recommendations based on real-time needs and opportunities.

This combination of the single customer view, AML and real-time decisions are all needed to create that elusive bank manager quality customer experience.

Issue 25 | 23

COVER STORY

130 Years and Counting – Euler Hermes Continues to Lead By Example

Holger Schaefer, Head of Region at Euler Hermes Asia Pacific, the global leader in trade credit insurance, spoke at length with Wanda Rich, Editor of Global Banking & Finance Review, on a range of subjects including challenges and opportunities brought by the COVID-19 pandemic, Euler Hermes’ future focuses as well as the organisation’s continuing dedication on customer service.

With a global market share of approximately 35%, Euler Hermes has been leading the trade credit insurance market for decades, in which time a wealth of data and information have been collected with new challenges constantly being brought to light. “2020 was obviously a challenging year and we have seen massive disruptions in global supply chains. Based on a survey we conducted late last year, 94% of companies revealed that COVID-19 has disrupted their supply chains with one in five considered the disruption severe. The importance of trade credit insurance and products are once again in the limelight,” Holger said.

Overall, he sees the trade credit insurance industry prospering strongly, especially with the world’s economic center of gravity is gradually shifting towards Asia Pacific. “As the pandemic unfolds, it has become more important in emerging markets to support businesses. Right now in particular, it is important to help businesses to regain the confidence to trade again. Not only

did China’s early recovery from Q2 2020 has provided momentum for regional trade, the Regional Comprehensive Economic Partnership (RCEP) signing late last year was also very good news for multilateralism and sent a signal of confidence to businesses across Asia Pacific. Our economic research estimated that RCEP can boost regional trade by USD90 billion per annum.

We are working very closely with our customers in helping them to take full advantage of the economic upswing from 2021 and beyond.”

“Trade credit insurance is about protection and paying a claim, of course, but even more valuable is the advice that we provide, based on the data that we possess,” he explained.

“We can see clearly how a sector or a particular buyer of one of our policyholders is developing from a financial point of view, because we have the ability to get information that sometimes our customers cannot. In the unfortunate event of non-payment, we provide collection services on behalf of our policyholders too which is very effective and helpful in preserving their relationships with buyers.”

Looking ahead, Holger’s predictions for the upcoming years go beyond just managing the existing COVID-19 crisis. “There are new challenges on the horizon: digitalisation, for example.

Trade nowadays is being managed in a very different way so the trade credit insurance industry will have to keep up

and adapt. Environmental, social and governance (ESG) issues is another focus of ours. Euler Hermes was the first credit insurer to have incorporated ESG factors into risks assessment methodology. But where do we go from there? We will be addressing our vision in ESG as we progress forward.”

Finally, we moved on to discuss the 130-year-old credit insurer’s upcoming digital transformation initiatives and its emphasis on customer service.

“We are looking at new ways of digital distribution, more automation, and using artificial intelligence and big data to improve the way we underwrite, to improve the way we pay claims,” Holger said. “Customer service is at the heart of what we do. We are in the process of launching our new online portal, MyEH, where customers can use a state-of-the-art, industry-leading platform to handle their policies on a daily basis. They will also have access to a lot of business critical information and economic data which will allow them to make better decisions in the future than they were able to in the past. The whole element of service delivered through digital solutions is our key focus. I truly believe this will continue to build on our competitive edge and to keep Euler Hermes in the lead in the global trade credit insurance market.”

Holger Schaefer Head of Region Euler Hermes Asia Pacific

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COVER STORY

Issue 25 | 25

BANKING

Why the future of banking is for teenagers How Generation Z is leading the future of banking and showing that financial literacy is the first step towards a life of financial well-being According to estimates released by the Adobe Digital Economy Index report, eCommerce sales are expected to reach $1 trillion in 2021. As we all wade through the challenges of the pandemic and adapt to the exponential adoption of digital tools to help thwart these obstacles, digital payments and, more specifically, digital banking has been thrust to the forefront. Generation Z (Gen Z) is central to this conversation as they are the largest and most influential group of consumers that are beginning to contribute to this new economy and, showing their predecessors, financial technology and the economic ecosystem as a whole brands the desire and need for financial; education.

There are several important characteristics that sets Gen Zapart from previous banking consumers: they are brand aficionados, highly digitalsavvy, and expressly desire financial education as part of their banking services. Born between 1997 and 2015, what matters most to them is what will need to matter most to the banks who want to stay relevant and connected to the world’s future consumers.

I have spent countless hours connecting with this generation through interviews, social media, focus groups, casual conversations, reports and any channel I can have access to in order to learn about their wants, needs, behaviors and, most importantly, their relationship with money. Additionally, we do not discount the familial relationship when it comes to finance so we have also had the pleasure of getting to know their parents. As I look back on my childhood it is reassuring

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that teens still look to their parents as mentors and guides as they make sense of this new financial world. In addition to the importance of parents/mentors in the child's financial journey, we have learned a few things.

First, this generation looks at brands very differently. Branding is about more than marketing to Gen Z. Long gone are the days of messaging a few primary value propositions and some product shots. They look holistically and, in a greater sense, want to feel as though they have a relationship with the companies they actively use. This is why we have seen an explosion of the influencers successfully promoting products. They are connected and crave that connection every single day in an authentic way. Before committing to a product, Gen Zers examine the brand’s mission and service first, as well as product quality. They will pay attention to what others say about your brand, as well as the ethos and mission behind it. They require that a brand speak to them in an authentic way and that it provides value external of their actual product or service.

Secondly, they are digital natives who have almost always known the world as it existed with smartphones.

This means that they want a banking solution that is digital-first. They don't want digital as an add-on to their banking experience - they want it as a core feature. When we talk about 'digital' with Generation Z, this inherently implies mobile-first.

Lastly, they openly state that they want to learn about money through their banking services. This could be because financial education is sorely lacking in schools:

a recent survey of 15-year-olds in the United States discovered that 18 percent had never learned fundamental financial skills necessary for day-today situations.

While schools give teenagers mandatory classes on core education curriculum, what falls through the cracks are some of the necessary survival skills for life: how to spend, how to save, and how to spot the difference between good and bad credit.

Teenagers want to learn how to stay out of debt, afford the things they want, and ultimately set themselves up for long term financial success.

Yet financial education is not happening at home either:while 34 percent of parents expected that their children would learn financial education through a job.

Generation Z spends a lot of their time hanging out online - and this is where they want their financial education to take place as well, through a learnthrough-doing approach. Yet the thing that has stopped them from engaging in financial worlds in the past is a predatory banking system where their lack of literacy makes them vulnerable.

A new crop of digital banks are trying to change this for good - by creating a space where a teenager's first banking relationship is a positive one. This is where teenagers can get smarter about money, and learn from Financial Literacy experts in a way that is engaging and memorable because it is real.

BANKING

These are not theoretical concepts being outlined at a whiteboard or to an imaginary person. This is their real money, being spent in a real way, with the same financial instruments that they see their parents using. After all, while we know that parents want their teenagers to establish financial independence, we also know that this has to happen in a safe environment where there is both access and guidance.

Historically, we've seen that when you separate the two - and give education without access, or access without education - it hasn't worked.

It has a knock-on effect as the entire banking system then sets up to profit from a lack of financial literacy in the customer, and therefore have no incentive to prioritise better early financial outcomes.

The encouraging thing here is that teenagers and Generation Z are hyper-aware of finances and want to be participants in the market. But having access without education does not equal financial literacy. Learning plus access, from the very first time a teenager opens a bank account,

makes a lifelong impact. From a young age, there is an understanding of how money works, how it flows, and what money means.

We also don't have to wait until a teenager is 17 or 18 years old, and about to head off to college, to give them access to financial tools. The basics of financial education can happen much earlier. Piggy banks made sense when people relied primarily on cash. But as the world gets more and more digital, today's teenagers are showing us what financial fluidity and a truly userdriven banking interface can look like.

Eddie Behringer CEO Copper Bank

Teenagers are a particularly important demographic because they are on their way to adulthood without being quite there yet. They are malleable, and open to learning. They are keen to establish their own identity and independence, and teaching them financial skills is just as - if not more - important as teaching them all the other habits that will set them up for life beyond the nest.

Issue 25 | 27

TECHNOLOGY

Cognitive Fingerprinting: The Evolution of Fraud Prevention

In the 2002 film Minority Report, Tom Cruise’s character John Anderton works for the Washington Police Department in a division called Precrime. Basically, the story revolves around the idea of using precognition to prevent crimes before they happen. While the film itself is a work of science-fiction, over the past couple of decades, the real world has come closer to resembling this reality. Particularly, when it comes to risk management and fraud prevention. And just like in the film, there are certain moral questions that are raised about the ethics behind these real-life developments.

The New World of Criminal Detection and Fraud Prevention Wherever someone is doing business, there will be someone trying to take advantage of them. This existed long before we went online, and it has only accelerated since then. And no matter what we do or what tools we create, we will never be able to stop someone from attempting to commit a crime.

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But just because we cannot prevent the intent, it doesn’t mean that we cannot detect the attempt before it is successful. And one of the most innovative ways of protecting customers and businesses is through a new concept that uses behavioral analytics as a method of detection: Cognitive Fingerprinting.

Cognitive fingerprinting is about identifying specific behaviors and actions that signal intent and seeks to analyze these to determine risk. Just like when a person touches a surface with their finger, they leave a unique print behind that can be analyzed and recorded, Cognitive fingerprinting proposes that when a person interacts online, they leave behind a specific, identifiable pattern of how their mind processes the information.

How Cognitive Fingerprinting Works In the past few years, there have been different approaches to online detection and authentication.

TECHNOLOGY

Firstly, online users were asked to provide a password that the real account holder would theoretically know. However, over time, criminals and fraudsters have found ways to easily manipulate these barriers.

This led to more of a biometric approach to authorization: using unalterable human characteristics, such as fingerprints, eye and voice recognition, as biological measurements for identification.

With cognitive fingerprinting, there are some concerns surrounding online surveillance. Particularly if using behavioral identifiers encroaches on an individual’s right to privacy. Here are a few behavioral measurements that can now be potentially tracked and recorded: • • •

Typing patterns The speed of typing The impact on the keys

Cognitive fingerprinting as a concept goes even further, exploring how people behave, more so than who they are.

The idea is that if we could theoretically track and record how a person acts online, then we could potentially isolate their specific patterns of behavior in order to identify them in a digital space. This has led to some exciting advancements in behavioral identifiers.

• • •

Navigation patterns Finger movements on a touchscreen Mouse speed and movement

• • •

Engagement patterns How we hold a phone - The tilt or angle How a person opens and closes apps

But with these new developments also comes the question of ethics. Like many breakthroughs in technology, it is important to be fully aware of the effect these advancements will have on individuals and society. Or to paraphrase a character from a different Spielberg film: it’s important to not get carried away with whether or not we could, but rather stop and think if we should.

How far should we go to protect ourselves online? And where is the line that shouldn’t be crossed? These are some of the questions that have given rise against big tech over the past few years and imposed greater scrutiny on surveillance capitalism.

But how does cognitive fingerprinting work in the e-commerce arena? And is there a way to prevent fraud ethically?

Issue 25 | 29

TECHNOLOGY

Cognitive Fingerprinting in Fraud Prevention and Detection Let’s take a practical look at behavioral analytics and cognitive fingerprinting and how they can be used positively in the world of online fraud prevention and management - How they can protect merchants and users while remaining unobtrusive and compliant with the privacy rights of customers.

While fraud detection may indeed be a social science, it is important that fraud prevention companies don’t extend their reach too much when it comes to cybersecurity. That is why it is best practice to use these new powerful tools in the study of the transactional event itself, rather than tracking the individual attempting the purchase.

Instead of recording subconscious biometrical and behavioral traits like how fast a person types on a keyboard or the way in which their finger glides across a trackpad, AI-powered fraud prevention can succeed by analyzing the basic information provided at the point of checkout. And it is through a process known as data enrichment, that artificial intelligence can play a key role in the ethical detection and management of risk.

Data Enrichment in Fraud Prevention When an online purchase is attempted, basic transactional data is passed from the buyer to the merchant (or, rather to the risk management solution that the merchant works with). These 15-20 pieces of data can be as simple as an email address, credit card details, and IP address. What an AI can do is actually enrich this standard information with thousands of additional datapoints to get a better understanding of the validity of the purchase.

From the basic data provided by the customer, the AI will instantly look for any behavioral identifiers, connected to the transaction, that could be indicative of fraud: • • • •

How many times has this credit card been used?

What was the length of time between purchases?

Have multiple email addresses used the same card?

Has the IP address been flagged as suspicious in the past?

Thousands of these datapoints and connections will be analyzed and compared with historical patterns of fraud. The transaction can then be segmented into clusters relating to its risk profile. And, like a jigsaw puzzle coming together, piece-by-piece, a Risk Score is created, presenting a precise, probabilistic determination as to whether the transaction is good, or bad.

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TECHNOLOGY

This Risk Score is the ultimate predictive assessment for a given transaction, created through evaluating the cognitive fingerprint that was formed from the act of data enrichment. A score based on the behavior and actions around the transaction, rather than on the person behind it.

While identifying a person by how they move a mouse could be powerful tools in the fight against fraud, we can never forget the techno-ethical obligations that come with this newfound level of surveillance. And we must always strive to strike a balance between innovation and intrusion.

Issue 25 | 31

BUSINESS

2021:

The year of simplified and cost effective contactless payments

Over the last 12 months, the pandemic has had an immeasurable impact on both lives and businesses. And, whilst the nationwide vaccine rollout provides hope for a brighter future, we must prepare for the long-lasting ripple effects that are to come.

“Pre-pandemic” behaviours are something of the past, as shoppers are now used to contactless payments because they are more efficient, provide ease, and allow safety and security when simply tapping their card to purchase.

have been working to create products or features that tackle the challenges faced by businesses. One key solution is to offer quick response (QR) code payments, enabling merchants to solve consumer concerns and create quick and contactless transactions with ease.

As society has become so accustomed to social distancing, it now seems bizarre and uncomfortable when we see TV shows that feature packed out streets or pubs. Similarly, people have become more acclimatised to contactless payments – so much so that in 2020, nine-in-ten of all UK instore card payments were made with contactless devices.

How has the pandemic affected businesses?

This solution gives merchants the ability to accept touch-free payments, minus the cost of new hardware. In particular, it supports SMEs that are keen to offer innovative solutions and a great customer experience to promote repeat sales, at a time when many may not have the additional resources to launch a new app or invest in new hardware.

The contactless spending limit, which was raised from £30 to £45 in April 2020, has undoubtedly contributed to the speed at which the number of contactless payments rose in 2020, and now that it has just been announced that this will be raised to £100 this will make even more transactions eligible for contactless payments.

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Although many businesses have benefited from the rise of contactless payments, it is apparent that many small to medium businesses (SMEs) in particular have struggled to survive during the pandemic. It has never been so important to focus on driving sales and increasing footfall in helping businesses keep their doors open.

Businesses have had to both adapt to the pandemic and the closure of stores due to lockdowns, as well as prepare for the recession that has hit as a consequence of COVID-19.

However, these threats and barriers have created a surge in innovation across the payments sector. Providers

How does it work?

We know that changing payments systems is time consuming, expensive and resource-draining, as well as having to learn how to work new devices. Which is why it is important that such solutions require zero integration work.

BUSINESS

Jumaane Hutchinson Head of Products at Judopay

This ensures SMEs have a quick and easy set up meaning that they can simply log in to their account via a web browser on their phone or tablet and start accepting payments. It enables them to start growing sales straight away, which is vital if they’ve had their doors closed for months on end.

This is why QR code payment solutions can provide a beneficial option for small businesses. They can easily use their existing devices (with an internet connection) to operate. With no fees on hardware, maintenance or rent it saves SMEs from a large investment, when cash flow is so uncertain.

Because we know the likes of Apple Pay, Google Pay, Klarna, Pay by Bank app and PayPal have taken the world by storm, businesses can easily enable these payment methods as well. This means customers can now benefit from Klarna-style payment methods in-store as well as online.

Supporting businesses through the new normal

Helping SMEs to lower their costs

As the pandemic has accelerated many digital consumer trends it’s not always as easy for SMEs to keep up. However, by looking into other payment options on the market, merchants can adapt quickly, offer a touch-free payment solution and launch multiple payment methods in-store as a means of driving more sales and fuelling prosperity.

Whilst of course easing the payments process, it is also important to help merchants lower their overall costs to help their economic recovery.

Launching or growing a sales channel is a daunting task in normal circumstances, but particularly when revenue is low. But for many businesses they have to look at launching additional channel/s in order to survive.

Keeping customers safe in-store, offering the right payment methods and driving footfall is essential for many businesses in order for them to survive.

About Jumaane Hutchinson Jumaane is Head of Products at Judopay, the leading enabler of mobile web and app commerce helping companies across multiple sectors grow their business through digital payments.

Jumaane has previously been a Technical Business Analyst for Sky where he was instrumental in the rebuild of the NOW TV mobile application, successfully launching in Ireland, Germany, UK and Italy.

About Judopay Judopay is the leading mobile payments platform. Born out of the frustration with friction-filled checkouts we built a flexible solution designed to drive sales and improve the customer experience.

Working closely with partners such as Mastercard, Discover, Visa, Apple Pay and Google Pay, Judopay is continually building ways to enhance the overall payment experience for both the merchant and their customers. Available across multiple sectors, our solution is used by KFC, Connect Cashless Parking, Revolutions Bars, Chip, The Pharmacy Centre and Brakspear and many more.

For more information please visit: judopay.com or find us on Twitter: @Judopay

Issue 25 | 33

HEADER

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00 | Issue 25

HEADER

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2021 Issue 25 | 00

BANKING

What is Digital First in Banking?

Are Banks ready to make the transition?

The 21st century will be remembered as the age when digital technology transformed our society in arguably the same way as the industrial revolution and electricity defined progress in previous centuries. The advent of smart phones, cheap cloud computing and advances in telecommunications to name a few have revolutionised how organisations operate and deliver services to consumers. The likes of Amazon, Netflix, Uber and Airbnb have demonstrated how a digital first model can transform traditional industries like retail, media, mobility, hospitality and create commercial success by leveraging technology to create superior customer value.

So, what does a digital first future look like for banks? Are banks ready to make the transition or will the leader emerge from new Fintechs?

Based on responses from over 1000 banking executives globally, a recent study provides some useful insight into how the industry assesses its digital transformation journey. It uses a simple measure to define digital maturity – the ability of banks to create better customer experiences and higher operational efficiencies using technology.

However, to visualise what a digital future might look like, let’s define the different levels of maturity that banks need to achieve to be leaders in this digital centric world.

At the most basic level, banks need to provide access to their services via mobile/web efficiently. In retail banking, this would imply that not only basic services like checking balances and making payments but also more complex transactions like mortgages and lending should be available through digital channels without manual intervention. The next level of maturity would be the ability to innovate on products and services using digital. The most obvious example would be to leverage in-house and 3rd party data with consent to personalise products

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BANKING

and services like proactively taking action to help a customer in financial distress or offering a bespoke loan/ mortgage offer during the purchasing journey. Other levels of innovation could be offering more attractive services in partnership with others like we have seen the likes of Klarna, PayPal and Laybuy do successfully in the Buy Now, Pay Later model. For firms to achieve digital leadership, they also need to create the ability to continuously drive such innovations at speed to meet the evolving nature of the consumer and competitive landscape. That’s why agility is such a fundamental requirement for digital leadership.

So, how are banks faring in their quest to achieve this high level of maturity?

The survey found that only 40% say that they have made significant progress in meeting their Digital Transformation goals. This is in stark contrast to startups like Monzo, Starling and Revolut who have demonstrated their ability to achieve a high level of Digital maturity by creating digital only propositions at speed and innovate on the product cycle in their area of specialisation.

Arguably these fintechs have much smaller product portfolios/customer segments as well as no legacy that makes a digital led model easy. But the large customer/geo footprints and diverse product portfolios are also advantages that incumbent banks can use to reclaim a leadership position with their customers. In some areas we have seen great progress. Most banks have now invested in a robust mobile platform to access basic banking services. We’ve also seen innovative

products like HSBC’s global money account and Citibank’s global wallet that take advantage of their global liquidity positions to offer a competitive multi-current account to their expat and more global customers – directly competing with the various Fintechs in this very lucrative market. However, it is also evident that more needs to be done to achieve this digital first model across the entirety of their business. Complex transactions like getting a mortgage or taking out a secured loan are still not digital enabled and the degree of automation for back-end processes is still high as evidenced by the high-cost income ratios of most incumbent banks especially in Europe. So, what’s holding these larger incumbents back?

Here, the study lists lack of investment in skills/technology, the pandemic and the change in culture as some barriers to progress. However, in order to overcome these barriers, banks need to look at the underlying issues creating this organisational inertia against change.

The strengths of incumbents around the size of their customer base and the strength their capital position can also create additional complexity and regulatory scrutiny that slows progress.

Conflicting priorities like how to modernise while balancing the need to maintain existing legacy; how to enforce a strict controls regime while continuing to increase agility or, how to strike the right balance between investing in human capital versus automation using technology can create competing priorities that make transitioning to a digital future more difficult.

The good news is that this inertia can be overcome. The pandemic has shown that with a strong imperative, incumbent banks can move incredibly fast as most did to support customers with no access to branches. Companies like Goldman Sachs have demonstrated the opportunities to create new areas of growth in areas like retail and transaction banking using a digital first model while still maintaining their traditional trading revenue.

There is a huge opportunity for banks to leverage the full power of technology to create unmatched customer value and win the race against FinTechs.

By defining a clear strategy and a will to overcome this organisation inertia via the right incentives and operating model changes, banks can create a digital first future that will benefit both customers and shareholders.

Sudeepto Mukherjee Senior Vice President, Financial Services, Publicis Sapient

Issue 25 | 37

INVESTING

Articulating the disruptive investment gap On a bleary January morning, my phone pinged with urgency. It was telling me that an army of amateur investors, captained by subreddit r/WallStreetBets, had collectively spiked the stock price of GameStop against the predictions of downturn from Wall Street hedge fund managers. The battle that ensued gripped the global imagination with somewhat of an underdog story, but what underpins this narrative is the power of perception to rapidly transform the value of something.

GameStop is not a disruptor - quite the opposite - but perceptions around it sparked change quickly. When it comes to disruptors (whether that be individuals, organisations or technologies), perception has a huge impact on how that disruptor/disruption plays out. The essence of disruption is the perceived potential of change but uncertainty as to how it will happen.

As tech commentator Benedict Evans asked in 2018, “we hear that Tesla is ‘the new iPhone’ - what would that mean?... How do we think about whether something is disruptive? If it is, who exactly gets disrupted? And does that disruption mean that one company wins in the new world? Which one?”

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It is very hard to judge how a disruption will pan out until perceptions of it become clear and its adoption becomes mainstream. Everett Rogers articulated in his diffusion of innovations theory that the adoption of new technologies is always staggered. Driven first by innovators and early adopters, by the time it hits the majority and laggards, the market share of the new innovation has already hit 50%.

Indeed, there is no mistaking the certain, glamorous mystery that surrounds new disruptions in those early stages - whether they be technologies or organisations. The expectation surrounding technologies such as artificial intelligence can often be traced by the media buzz around them. As Elon Musk tweeted early last year, “using AI to solve self-driving isn’t just icing on the cake, it is the cake.”

The Anatomy of Disruptive Technologies For Alphabet and Google’s former executive chairman Eric Schmidt, picking out the disruptive technologies is about understanding impact: “It’s not just about the technologies that are interesting, because there are so many that are interesting. You want to look at

which ones have a chance of having a volume impact on many, many people, or large segments of the society.”

Every year, Nimbus Ninety asks over 300 business leaders which technologies have the most potential to change their industry. This year, the list was topped by machine learning, digital ecosystems and automation. Cloud also jumped substantially in its disruptive ratings this year in comparison to last year, as organisations realise the digital capability and resilience that cloud unlocks, driven in no small part by remote working. What we are witnessing with the cloud could be described as an “evolutionary innovation”.

In contrast, when the same group was asked about where their digital and technology investment is going, the answers did not align with the technologies that are perceived to be most disruptive. The biggest winners for digital investment this year were cloud, platform technologies and automation. Here, we see a substantial gap between those technologies that are perceived as “disruptive” (i.e. having the potential to transform an industry) and those technologies that actually receive investment.

INVESTING

Shammah Banerjee Editor at Nimbus Ninety

Instead, we see organisations invest in the building block technologies like infrastructure and cloud - the technologies that are fundamental to supporting the business processes. These technologies are less about transforming how we do things and more about doing things better, faster, more efficiently, more accurately.

As we see consistently in innovation theories and in how market competition pans out, the winnings for companies that leverage disruptive technologies early are huge. Yet, organisations consistently struggle to invest in those areas. As technological progression accelerates, business leaders could be capping their organisation’s potential by not leading on the adoption of new technologies. But what is holding them back?

Understanding the Gap Like with anything, there is an adoption curve there are the visionaries who lead the way, and then the majority and the laggards who follow.

Adopting new technologies requires vision, the right skills and complete buy-in across the organisation - and in many scenarios, these aspects are very much intertwined.

In 2014, a research team from the universities of Yale, Columbia and Lahore ran an experiment with football producers in Pakistan to investigate technology adoption across organisations. The team invented a new technology that would reduce the waste of

the raw material and allocated the technology to a random subset of producers. But after 15 months, take-up remained low due to lack of incentive for key workers to reduce waste, especially when the technology required to do so initially slowed down production rather than speeding it up. The culture point is significant here: if incentives from the top of the organisation are misaligned with those in the lower echelons, adoption throughout the organisation will never succeed.

However, many organisations fail before they can even get to driving adoption and buy-in across the organisation. Change management is required to drive successful implementation of disruptive technologies. Recent research shows that, despite artificial intelligence and machine learning topping the disruptive rankings year after year, over half (51%) of business leaders in the UK do not have an AI strategy in place. Similarly, according to Nimbus Ninety’s Digital Trends Report 2021, 25% of business leaders are either still developing a digital strategy or do not have one in place at all.

The challenge for business leaders today is to consolidate their digital strategies, and align them with business goals. When it comes to disruptive technologies, a bedrock of solid digital strategy is vital to weave disruptive technologies into the organisation and start seeing returns. It comes back to the old adage: disrupt, or be disrupted.

Issue 25 | 39

TECHNOLOGY

Future of artificial intelligence in banking is already here While stories about the seismic shift toward digital banking in the post-COVID era abound, another technology revolution is taking place in leading banks and fintechs: the era of AI-powered banking. Banks have realized the competitive advantage AI brings to financial services and are poised to capitalize on it as they integrate it into an enterprise-wide strategy. According to NVIDIA’s recently released “AI in Financial Services” survey report, 83% of global financial services professionals agreed with the statement that “AI is important to my company’s future success.”

Furthermore, the impact of AI on financial services firms across sectors from retail banking to fintech is real and measurable. Survey respondents identified four key areas where AI is impacting their company today: yielding more accurate models, creating a competitive advantage, developing new products and improving operational efficiencies.

Banks can measure these impacts, build business cases around them, and utilize those insights to secure increased investment - whether it’s human or technology capital - to drive further benefits from AI.

Driving cost savings through AI Financial institutions can reap the benefits of cost savings from AI. Asset managers, banks, and insurers are able to create efficiencies in daily operations using technologies such as conversational AI, robotic process automation, optical character recognition, and other machine learning and deep learning applications.

These AI services save time and reduce expenditures by automating insurance claims processing, augmenting call center agents via automated speech recognition for call transcription, and carrying out other manually intensive services. And those mean benefits for customers as well.

Customers have come to expect a great quality service experience that’s both fast and personalized. Infrastructure investments and optimizations are key here to anticipate growing demand.

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Roadblocks to Achieving AI Goals While the benefits of leveraging AI in financial services are unmistakable, the journey from research to enterprise-scale production for AI models within banks, insurers and asset managers is marked with potential pitfalls and challenges. According to the survey, over one-third of respondents (34%) say that AI will increase their company's revenue by 20 percent or more. So, what is holding banks and other financial institutions back from achieving their AI objectives? The biggest challenges to achieving AI goals are too few data scientists (38 percent), insufficient technology infrastructure (35 percent) and a lack of data (35 percent).

Finding and retaining top talent is a challenge for any part of an organization and that’s certainly the case in AI. However, the C-suite can overcome these by infusing AI expertise across the organization. 60 percent of C-level executives responded that their largest focus moving forward is identifying additional AI use cases. One in two respondents from the C-suite noted that their company also plans to hire more AI experts — addressing the gap of too few data scientists.

TECHNOLOGY

Putting it Together As the competition for customers and their loyalty becomes fiercer, the advantages of AI will become undeniable for banks, insurers, and asset managers. Not only do they see the potential in AI, but they are also willing to invest more to deliver on its promise. That potential is actively being realized by companies who see AI generating competitive advantage, creating new products, adding significant revenues to the top line, and reducing costs to grow the bottom line.

The challenge before C-suite and IT leadership will be unifying and creating enterprise-level AI platforms to scale and deliver productivity and return on investments to support the growing AI professionals across their

companies. As a starting place, financial institutions need to proactively elevate AI as a strategic imperative to the firm that needs to ultimately become a core competency. Rather than relegate AI to the “research lab,” the banks that are creating meaningful impact from AI are developing strategic plans, resourcing the teams appropriately and establishing an AI infrastructure platform upon which the bank can productively scale dozens if not hundreds of AI applications and see a significant return on investment.

The “State of AI in Financial Services” survey consisted of questions covering a range of AI topics, such as deployment models, infrastructure spending, top use cases and biggest challenges. Respondents included C-suite leaders, managers, developers and IT architects from fintechs, investment firms and retail banks.

John Harding Regional Director, UK & Ireland, NVIDIA

Issue 25 | 41

FINANCE

IR35:

The impact on digital transformation in the finance sector Phil White, Managing Director at Leeds and London based software developer Audacia, discusses the impact private sector reforms will have on businesses.

If the role is determined to fall inside IR35, your business is expected to deduct income tax and National Insurance contributions (NIC) from the contractor’s payments.

By the time you read this, private sector IR35 reforms will have come into force, causing the potential for significant risk and disruption for any financial business reliant on IT contractors to accelerate digital transformation initiatives.

Learning from IR35 in the public sector

What is the impact of the change?

From April 6th 2021, every medium or large private sector business is expected to review their use of contractors and how their roles are classified under the IR35 legislation. Essentially, your organisation must decide whether each role falls ‘inside’ or ‘outside’ IR35 – a task that was previously left to the contractor themselves.

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Using ‘personal service companies’ (PSC), businesses have been able to reduce their wage bills - no Class 1 employer contributions was a useful way for an organisation to control their costs.

And it wasn’t just the private sector benefiting from this arrangement.

In 2017, public sector bodies began the process of classifying contractor roles as being inside or outside IR35.

Some jobs were made permanent with staff being taken onto the payroll. Other contractors were forced to join umbrella organisations who assumed responsibility for deducting PAYE and NICs.

The process was long and arduous and the tax loophole was eventually closed - but there were some unintended consequences too. Some 76% of public sector departments lost highly skilled contractors – and 38% could not be replaced. In addition, 24% of projects lost at least half of their contractor workforce as individuals left for the private sector – or even moved abroad.

The public sector experience shows what private companies should expect this April and beyond.

Why has IR35 become such a headache?

IR35 will create problems for any organisation reliant on long-term contractors for headcount.

Obviously, there’s an increase in cost because you need to pay Class 1 NICs. And as contractors find more of their salary disappearing under PAYE, you are likely to face demands for rate/ salary increases to cover the shortfall.

FINANCE

With Harvey Nash reporting 17% of 1,100 IT contractors are raising their rates to over the tax increase, some by 13% 38% to cover the difference – this is a stark rise on the already large invoice.

The reclassification of roles is likely to be highly contentious. Public sector organisations like the NHS faced a lot of time-consuming, costly disputes and push-back from contractors who felt that their roles had been classified incorrectly.

Eager to remain compliant with HMRC regulations, many businesses have taken a hard-line - no contractor policy. All big three banks in the UK – HSBC, Royal Bank of Scotland (RBS) and Lloyds – revealed that they will no longer engage with contractors who work through personal services companies, and instead will employ individuals on a pay-as-you-earn (PAYE) terms or via an umbrella company.

As IR35 changes come into the private sector, it is extremely likely that at least some of your most valued contractors will leave. In fact, 52.5% of contractors plan to leave immediately – and another 4% plan to emigrate. Another 19% plan to stay on short term while they evaluate their options.

CIOs in the finance sector are now faced with a potential resource shortage, as IR35 is leading to contractors leaving, at the same time the UK is ‘heading towards digital skills shortage disaster’. This makes the option of hiring permanent employees to replace contractors a challenging one.

Wh at are fin a n c ia l c o m p a n ies d o ing no w?

A number of CIOs are now seeing the contract renewal phase as an opportunity to revaluate delivery teams.

The impact on digital transformation More and more businesses are continuing to promote and invest in digital-first strategies, especially with recent events making it abundantly clear how dependent we are on digital services for business continuity, enabling businesses to rapidly adapt and respond to customer needs throughout times of change. More than a third of 2021 tech budget increases will be influenced by Covid-19.

As the finance sector typically uses contractors for development work to accelerate digital change, IR35 changes now present a high risk of digital transformation programs stalling, with a potentially devastating effect on projects.

As seen in the public sector, 79% of IT projects were delayed after IR35 came into force due to contractors leaving, putting a quarter of big government IT projects at risk, including the Home Office’s £341m Digital Services and Border Programme, and HMRC’s £220m tax digitisation for business plans.

Audacia works with businesses in a range of sectors to provide digital transformation services, from advisory and strategy development, to providing teams to deliver digital projects. Teams operate as an extension to client businesses, either based onsite, providing the benefits of contractors or internal hires, or offsite, an approach that has only strengthened as businesses continue to work remotely and online collaboration continues to excel.

This reduces the reliance on external contractors and ensures agility and efficiency for businesses; in current periods of continuous change, adaptability has become key to success. Small, agile teams, enabling organisations to rapidly deliver digital projects and focus on continuous improvement and innovation will be essential for finance businesses to respond to employee and customer needs, improve service offerings and scale.

Given the complexity of reclassifying every role, alongside contractors upping sticks, more and more organisations in the financial sector are shifting from the use of traditional contracting methods to using external partners to accelerate digital transformation initiatives.

As opposed to scaling or augmenting internal engineering teams with disparate contractors, technology leaders are considering digital transformation partners to provide flexible teams to meet current needs, with the ability to scale and adapt as priorities change. Enabling their organisation to deliver projects faster, without the need to increase headcount.

This can also provide benefit in mitigating risk and concern around IR35 by engaging with a service delivery company with full time employees under a genuine management structure. Whilst also tapping into a ‘technology hub’, with experienced specialists across different business areas and industries to suit staffing needs and keep pushing technology forwards.

Phil White Managing Director at Leeds

Issue 25 | 43

BUSINESS

Stress Awareness Stress Awareness Month

Impact of Covid-19 on stress levels

As society starts to open up and the vaccine programme continues on at pace, we look forward to brighter times and, with a degree of newfound optimism, a pathway that steers away from the lockdown cycle we have been on over the last year.

From a business perspective, with employees working remotely and the business landscape shifting constantly, the pandemic has challenged traditional leadership traits and pushed companies to re-evaluate how they operate in order to ensure their employees have the best possibility of delivering success and exceeding their potential. A results driven business, such as those within the banking and finance industry, need to be able to demonstrate, both to its employees as well as its clients that results are more than just the numbers on the financial reports. All individuals associated with the business, in whatever capacity, need to feel valued and that these values are aligned with the business.

April brings the change of seasons, longer days and brighter skies but also the chance to reflect and take stock with April being Stress Awareness Month.

Since 1992, this annual event has been driving public awareness towards the causes and cures for stress.

One industry in particular is no stranger to high-stress situations, circumstances and environments and that is the banking and finance industry. Mental health and resilience should be brought to the forefront, not just in April but for the entire year, as those within this sector face long working days, a fast pace, and extreme pressure to hit their performance targets.

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BUSINESS

This has created an opportunity for companies to demonstrate their relationship with their employees. A chance to forge bonds and demonstrate shared values both to the employees but also as a company to the wider community. The impact of the pandemic on individuals is varied and has no set pattern, different people have experienced different situations and reacted in different ways. Individuals are managing their stress levels and striving to maintain a good state of mental health with both differing degrees of success and through the use of methodologies suited to their personalities.

Individualism As such, the nature of this individualism with regards to a shared issued means that business can’t prescribe a ‘best practice’ document or layout the process as they might have traditionally done when dealing with a new situation.

A company needs to provide a platform for open conversation by employees, a culture where it is understood that individual issues are a shared responsibility, and it is in everyone’s interest for a successful resolution to be found for each individual.

The use of an external voice However, this can be overcome through the use of external voice, an external speaker who can bring fresh thought, ideas and perspective both from a position of gravitas through their knowledge and expertise but also independence. The external voice, especially when it is clear they are attending a one-off session to instigate thought and encourage conversation, has no agenda above and beyond the message and content they are trying to deliver. They provide an environment, both during the session and beyond, where their ideas can be utilised as a basis for an open dialogue, where they discuss stress, the impact of the pandemic and trigger signs or potential refinements of working practices are seen as positive discussions for the individuals. The company is one step removed and solely there to support their staff as they navigate through these times which should ensure the business is seen by its employees in a positive frame - supporting them in the best possible way.

The impact of that single session by an external speaker is that it gives the framework for the business to demonstrate an open conversation culture. The restricted time of the session means that the key objective of the speaker is to provoke thought, to challenge, to inspire, they do not have the space or time in one session to resolve as this should be seen as the start of journey for every individual on the session. It creates a shared bond between the individual and the business that stress is not a tightly managed problem which can be resolved, boxed up and put away but something that needs to be managed through open conversation, through the appreciation that each individual needs the support in the best way.

The business can kick start this by laying a platform of external voices providing guidance, framing the nature of stress and opening up the culture of the company. This open dialogue and understanding will be critical to the health of every individual within the business and their impact on the success of the business over time.

The truth is that companies are not equipped to deliver this to their employees without a degree of cynicism and suspicion dragging the process down, especially for those companies that have historically taken pride in their strictly adherence to historical culture and order within their company. An employee will look on a voice from the internal machinations of the company with thoughts around demonstrating vulnerability to the company and possible ulterior agendas from the company perspective.

Nick Gold MD of Speakers Corner

Issue 25 | 45

BUSINESS

Monitoring staff at work and at home Banking and financial services businesses have for many years monitored the work patterns and behaviours their staff. Since the coronavirus pandemic and the subsequent seismic shift in working patterns, we are now seeing an increasing number of employers monitoring their staff in their own homes.

There will be many valid reasons for businesses to monitor their staff, but is a legal minefield, particularly for global financial institutions operating in countries with very different regulatory and cultural frameworks, says Richard Woodman at Royds Withy King.

In the UK, it is commonplace for banking and financial services firms to monitor staff; be this for regulatory and compliance or productivity reasons.

In a survey of 504 financial services firms in 2018, PwC found that 77% routinely tracked productivity of their staff, and that a quarter of banks, asset managers, and insurers with assets exceeding $5bn even went as far as tracking productivity on an hourly basis.

And monitoring does not extend to just productivity. Recent banking scandals have seen the private messages and social media accounts of employees closely monitored.

In the UK, financial services, alongside legal services, is one of the most highly regulated industry sectors. Its staff are well-used to being closely watched. But can employers replicate the same monitoring measures when staff are in their own homes? When does monitoring leave an employer vulnerable to charges of spying on the private lives of their staff?

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Interestingly, from a legal perspective, there is currently no data privacy law in the UK which specifically governs monitoring employees. However, there is legislation in place which has a significant impact on how this can be done, chiefly the European Convention on Human Rights (ECHR) and the General Data Protection Regulation (GDPR) – both EU regulations which have been incorporated into UK law. The UK also has a statutory regime in place to govern the interception of electronic communications, which is set out in the Investigatory Powers Act 2016.

In terms of what level of employee monitoring is permissible – this is a very complicated question, which will depend on a number of variables. Probably the best starting point for employers is the ICO’s “Employment Practices Code”, which contains guidance and good practice recommendations for any company seeking to monitor their staff.

Generally speaking, the following questions will all feed in to whether or not an employer is in breach of the law in monitoring their staff: •

•

Is the monitoring being undertaken because of a legitimate reason?

Lacking a legitimate reason for implementing particular staff monitoring measures will make it far more likely to fall foul of UK legislation.

What is the extent of the monitoring? Employers should always seek to implement the minimum level of monitoring required to achieve their goals. If a less intrusive method of monitoring employees is readily available, an employer will likely have little justification for implementing anything further.

•

Who has access to the data being collected through monitoring? This should always be restricted to the smallest number possible in order to achieve the legitimate aims of the employer.

•

Has the employer considered the potential consequences for its employees, and have the necessary safeguards been put in place?

•

Are the employees aware of the fact they are being monitored? The ICO guidance recommends that employers set out (amongst other things) the circumstances in which monitoring may take place, the nature of the monitoring, and how any information obtained through monitoring will be used.

•

Is any information collected being processed lawfully, in accordance with GDPR?

Compliance with GDPR is of particular importance for larger companies and financial institutions, who will necessarily process far more data, and therefore require most sophisticated systems in place for safeguarding this adequately.

Failure to do so may put companies in the unenviable position of Barclays, who last year were investigated by the ICO for their use of staff monitoring software. In choosing to enable an additional function to allow monitoring of individual employees rather than anonymous monitoring, Barclays faced significant staff criticism, followed by an ICO investigation, and ultimately the termination of the monitoring programme a month later.

If Barclays are found to have breached UK data protection law, they face a potential fine of up to 4% of annual turnover (over £800 million).

BUSINESS

Balancing employment legalisation, data privacy, and the health and wellbeing of staff is undoubtedly similar to walking the proverbial tightrope. The need to get it right now the working week looks set to permanently include time in both the office and at home is paramount. Get it wrong and the penalties can be stiff.

Based on the ICO guidance, legislation, and also case law, probably the two most important factors for any company implementing monitoring measures for their employees are: proportionality and transparency.

Proportionality, especially in the context of an individual’s expectation of privacy, will play a pivotal role in what is considered “acceptable” monitoring of employees. The courts will always look to balance the expectations of the individual, and the individual’s right to privacy, against the public interest and the protection of others. In this regard, the employer’s reasoning for monitoring its employees is crucial.

Likewise, transparency is a concept that crops up continuously in the field of employee monitoring, in particular in the ICO’s guidance. This is probably best summed up in the ICO’s statement: “If organisations wish to monitor their employees, they should be clear about its purpose and that it brings real benefits. Organisations also need to make employees aware of the nature, extent and reasons for any monitoring.”

A final point to bear in mind is the additional burden of companies with a global reach, who must be aware of the different law governing different jurisdictions. Although much of the UK law stems from EU regulations, providing a helpful measure of consistency across other EU countries on the continent, it must be noted that policies which work in some countries may not be appropriate in others.

Richard Woodman Royds Withy King

Richard Woodman is a partner and head of financial services at law firm Royds Withy King. Visit www. roydswithyking.com.

Issue 25 | 47

TECHNOLOGY

No matter who the custodian is, identity remains king in an online world

If it wasn’t already apparent before COVID, the future of identity is digital. The fact that the pandemic imparted an almost overnight shift to an online-only world has only accelerated this vision. Indeed, consumer technologies like that of an iPhone are already pointing the way ahead.

Soon, we won’t rely on driver’s licences, passports, or ID cards to prove our identities.

We’re already seeing a shift to digital - a case aptly demonstrated within the current dialogue around vaccine passports - where biometric data is becoming more prevalent.

However, one of the reasons this concept is being so widely debated is that there are extremes of preparedness for this type of identity-led initiative across the entire spectrum of society. There are also questions about how personal data of any kind is used and it is once again shining a spotlight on the role of a digital custodian to store identity information and safeguard control.

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A multilayered problem The question of how we effectively and securely identify people online and enable them to perform digital tasks in a safe and secure manner is one of the fundamental issues of our time. The first challenge to overcome is clarity and consistency over what digital identity is and how it is quantified. One way to understand it is to view digital identity as a multilayered problem. At the bottom are the standards that govern system operation and include basic information like name, date of birth and National Insurance or passport details. At the top is service delivery, which must be efficient, effective and seamless to users. In between are authorisation, attribute exchange, authentication and attribute collection. Each of these has its own set of challenges.

TECHNOLOGY

Many efforts today address one layer but not others. For instance, authentication technology solutions tend to rely on attributes that have already been collected. These solutions provide a better experience for users and ensure that the same person is transacting each time, but it doesn’t help identify who that person really is. Other solutions address a particular type of transaction only. They might facilitate the delivery of a government service, for example, and that’s all. This approach also ends up collecting “tombstone” data—things like name and date of birth—rather than data that paints a more nuanced picture of the user.

We are not the answer There are many who believe surrendering this identity right is in and of itself flawed and that we as individuals should be responsible. Ultimate guardianship comes down to trust so the key question is, ‘do we trust ourselves? We’ve all had to click on the ‘reset password’ button many times and no doubt got passwords stored on our phones, in notes and with many replicated PINs and log-ins. This is before you consider multifactor authentication. Hands-up if you have been tied up in a bind when we lock ourselves out of our banking platform to have to reset every stage of authentication again?

With a self-sovereign identity, each user has a private key, designed in such a way that a brute force attack is close to impossible. This is clearly

a good thing, as it prevents others taking over your digital identity. But putting the only possible key to access the digital identity in the hands—and forgetful brains—of the users invites disaster.

There is no back-door. There is nobody to call.

It’s not just forgetfulness we need to worry about, as people have accidents or illnesses which can affect their memory. And when they die, and assets are to be passed on, the private key needed to access your digital identity is lost forever. We need to consider a worst-case scenario, such as someone’s house burning down, traumatising them into losing their memory—and the recovery codes, carefully noted down and put in a sealed envelope, are also gone.

No, individuals are not the answer.

Challenging the status quo Of course, the obvious question here is, who? In many countries, and over centuries Governments have been the “owner” of identity - they issue birth registration documents which mean we exist, and from these documents we can prove eligibility to work, be able to access other services such as welfare, and can gain further proofs of identity such as passports and driving licenses. This is the established status quo but the speed and advancements in technology, combined with challenges around regulation and ownership - regional, local, national or international, mean that governments are an analogue solution for a digital age.

Issue 25 | 49

TECHNOLOGY Another often cited guardian are banks.

Perhaps this is unsurprising given how much personal information our bank already possesses of ours and that they have incredibly rigorous safety measures in place. These institutions also tend to be at the vanguard of emerging technologies.

But in an era of GDPR, and when financial institutions are already a prime target for cyber criminals for the information they hold, would they be open to taking on more responsibility here - particularly as being an identity custodian won't necessarily come with a revenue stream? Indeed, would we want to give up more of ourselves to our bank than we already do?

time. A cultural shift will be paramount, too. At present, some of us are all too willing to give up our data to get access to better offers or cheaper goods and services.

Preventing identity custodian progress One of the critical concerns here is security.

Losing a bank card or passport is irritating but completely manageable simply because it is only one singular piece of data. If we package up our identity in a box, hand it over to a yetto-be-defined custodian and it was hacked, the ramifications for damage are far greater.

It’s another justification for using blockchain technologies. This will create a secure, public and anonymous storage platform for the identity data, and if this is combined with the requirement to use biometric authentication — something that, unlike a password, cannot be lost and is much more difficult to steal — as the means to claim identity, the process is both transparent and secure.

Due in part to the global pandemic, technology has taken a huge leap forward in the last 12-months and this is particularly acute for digital identity. The development of biometricbased, digital and electronic identity and document verification services have been critical in providing a means to effectively identify people online, enabling them to perform digital tasks in a safe and secure manner while operating remotely.

While completely founded, it’s not just security fears that are holding identity custodian progress back. Self-sovereign identities will only become mainstream if governments relinquish their sole responsibility for issuing and storing our identity information. It will also require new technologies, such as blockchain, to gain traction and be trusted, which takes

Whatever the solution is, it must be usable and mainstream technology, backed and trained by humans - this cannot be perceived to be man v machine because it will negate the critical factor of trust for many. Progress will also require the solution to scale massively and cheaply, like DNS with a distributed database that looks to "root authorities" for the authoritative answer.

People matter

Unsurprisingly, we have seen a large increase in the demand for those services with this trend likely to continue in the future. And with it, so too will the need for ownership and source of identity - something everybody has a right to. Because everybody is somebody and if the last 12 months has taught us anything, it is that people matter.

Hal Lonas Chief Technology Officer, Trulioo

50 | Issue 25

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