As Financial Services Splinters, Banks and Fintech Require Standards More Than Ever

 

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The splintering of financial services is no longer something that might happen or will happen – this has happened, and seems to be fairly well accepted.  “There’s an app for that” can be said for almost every major (profitable) sliver of the financial services portfolio of business.

I won’t inundate you with examples, but I do love a good infographic and here are a few that illustrate this reality:

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The unbundling of the bank

A periodic table of Fintech

My point is that a) this is happening in a big way and b) both banks and financial service providers are coexisting and will need to coexist for the time being and into the foreseeable future.

There has always been a need for standards in financial services – banks spend significant funds on integration.  One of the motives behind the BIAN (Banking Industry Architecture Network) {Full disclosure, I am a member and supporter of the BIAN} has been to create open standards that banks and software vendors can align to.  This goal if achieved would help to create increased interoperability between banking software and between banks.

Since this group began the challenge has only increased and now there are more players and the line between what is software and what is banking is blurring.  We now see challenges between Fintech providers – or between major tech players and fintech.

Yes developing standards sounds very boring – but I’m sure there is a non-boring way to define the fabric that will allow for innovation rather than repetition.  How many times will we need to invent the payment header?  Let’s agree on the fundamentals and invent the interesting stuff.

The direction of financial services for both traditional banks and fintech players seems to be heading into the direction of API led integration, but we are going to have (even more of) a real mess on our hands in a few years if the payload and semantic layer is not defined and agreed to.

What’s Next in Digital Finance?

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We’ve been doing digital banking for a while now, right?  For over twenty years online banking has existed as a service, so what’s the big deal and why is this now “a thing”?  Well recent years have seen an explosion of new offerings and angles such that the term digital banking is no longer suitable – digital finance or financial services technology are now more appropriate.

What’s Changed?

Online banking began as a side show.  This was a novelty that a small fraction of the customer base used a fraction of the time.  It really wasn’t that relevant to the overall customer experience. Online banking remained an adjunct to branch banking through the late 90’s and into the 00’s.  At some point in the last seven years or so things changed:

 

  • Online volumes and customer penetration increased dramatically
  • Mobile happened
  • Somehow (seemingly overnight) digital became the primary channel
  • Digital became a key part of customer experience

 

Current State

Digitization has been on every bank’s priority list for the last few years.  Both active and reactive responses have brought about new innovations such as mobile deposits, mobile wallets, and even branch-less banks.  Customers expect these innovations and if their bank isn’t keeping pace, there seems to be little hesitation to switch to a bank that is. Banker’s hours are a thing of the past, with banks offering multiple channels so that customers can do their banking 24/7 and from anywhere that they please.

 

Today, customers complete majority of their transactions online and often through a mobile or tablet device. Customers become more tech savvy and more demanding with every innovation that arises. In today’s fast-paced landscape, it doesn’t take long for today’s innovation to seem like yesterday’s old news – as a device-dependent society, we experience these new technologies, adapt to them, and then expect them from everyone.

 

What’s Next

The digital revolution has not really made it into the mid-sized business and corporate banking space.  Most banks have a more antiquated platform for their (often highest value) corporate banking customers.  The big evolution in this space has been that businesses no longer need to go to the bank; bankers are now coming to them.  While I think there are many categories of things that are next in digital finance, one lagging area which will likely move next is the evolution of digital business banking.

 

Of course, the digital business banking landscape comes with more hurdles to cross than retail banking. In retail banking, individual customers are mainly accessing their accounts to process transactions, check balances, and other tasks associated with day-to-day banking.  In business banking, there is a greater need for security and more complexity around the types of services needed by each different type of business.  For example, a sandwich shop with five locations may need some cash sweeping and pooling services – the same services that larger corporates use to manage their complex network of subsidiaries.

 

Organizations need functionality from their accounts to do more than just process transactions.  Most retail mobile apps are well ahead of their corporate and business banking counterparts – this will change in the near future as competition ramps up and awareness and expectations change.

There are no dull moments in the digital finance space these days.  Retail consumer banking has changed radically in the last few years and now we can expect to see a focus on the specific needs of corporate and business customers.

Why You Need To “Blow Up” Your Legacy BI Platform and How to Start Again With a Sustainable Layered Approach

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Data is important and the key to deriving information which can drive meaningful decisions.  Yet most organizations have a data stack that is sprawling, brittle, unwieldy, and when it comes to driving information for key decisions often not useful.

Organizations that are dealing with such legacy systems might know what data they have and they are using it to some extent, but by and large, the information that they have is siloed across systems and not being utilized to its full potential – claims management solutions were built in isolation of client information systems; commercial loans and personal loans were two very different areas; deposit systems and wealth management platforms were often completely separate conversations; the data models were designed in different eras and with different intentions.

Pulling all of this data together is challenging, expensive and time consuming. However, not pulling it together is just as costly as organizations risk missing out on opportunities to build on existing relationships and offer more services to their clients. This is an area where new entrants are leveraging their newer technologies and using analytics to predict what services their clients may need next and offering solutions to their clients at just the right time.

So what can institutions do that are struggling to keep up?

Big Data is important, but not an answer in itself – certainly one layer in the solution. Big Data is of particular importance to financial service institutions that are dealing with outdated, complex systems, and vast amounts of historical and real-time data, while at the same time, trying to keep pace with the new velocity of change required in the industry.

What does Big Data mean for the financial services industry and why is it relevant? Well, for starters: financial service institutions have colossal amounts of data but this data is scattered in legacy systems and generally not interpretable.  In many of the core banking transformation projects that I’ve been involved in one of the most challenging aspects of the program is the archaeology on the data and finding the interpreters for the different fields – this is the landscape from which organizations are trying to derive meaningful insights!

A bespoke approach has been taken to address different areas of banking over the years.  A BI platform here, a data mart there, a product for this, and framework for that.  The systems complexity has grown exponentially with each additional actor. Most organizations are creaking under the strain of keeping all of these systems alive, let alone current and nimble. The cracks are starting to show, and this is a very serious threat when you consider that new entrants don’t have this legacy albatross and can take more of a holistic approach to data, store it all in one area and then pull out what is needed, when it is needed.

 

The solution is to completely re-think data strategies and remove the silos; instead build horizontal layers that hold all data and handle a category of needs. One approach is to stream event-based activities by using an event-based hub for all of the activities that react to events, also known as complex event processing (CEP).

Consider the following event:

A large value transaction arrives at a bank and is placed into a big data layer at which point the event-based hub triggers a notification to all interested parties that have indicated interest in this event:

  • Fraud – receives the notification because they want to know where the funds are coming from and what parties are involved – have they validated that know your customer (KYC) requirements have been checked? Are they on black or grey lists? Is there a case that needs to be started for further investigation?
  • Risk – receives the notification as they are keen to look at the interest rate and currency exposure and the potential next steps for these funds. Are these funds held in a currency where we have some risk? What is the interest rate on this deposit and how does it relate to the rest of our portfolio?
  • Sales and marketing for wealth and retail – receives the notification as they want to ensure that this is the ideal location for these funds, and if not, suggest a more suitable product. They also want to know who the receiving party is and if a relationship management approach is in place for them. If not, this is the perfect opportunity to reach out to the client.

At the base of this event is the same data: customer, counterparty, amount, source, currency, destination, etc. – but for most organizations, these simple data elements get pumped all through the building and down into a BI platform before they are reassembled and cascaded into reports for each of the stakeholders mentioned above.  A simple publish-and-subscribe eventing bus would greatly simplify the process.

Data has become an essential asset in the digital age (not just in banking) and the quest for data has spun up an entire industry that feeds on information while banks have more than enough data sources they struggle to create coherent and efficient information from this. By adopting a data strategy similar to the one described above, financial institutions can make better use of their data, speed up the process of getting the right data to the right people, and stay relevant in today’s changing banking landscape.

That’s a great idea! Let’s kill it..

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Companies seem to have automatic “immune systems” which are designed to protect the status quo and as a result reject new innovation — especially breakthrough innovation.

Innovation is a tricky area to navigate for most organizations: naysayers abound when it comes to changes, the element of risk makes people shy away from accepting innovative ideas, and in large organizations, the approval process for such changes is slow and full of roadblocks. There tends to be a ‘problems’ mindset rather than a solutions mindset.

I think the word itself, innovation, scares some people away.  Often people confuse innovation for invention and think they need to completely reinvent the wheel to have a successful innovation.  This is not always the case.  Innovation is more about taking something that already exists and improving upon it or doing something in a different way. All financial organizations are doing innovation to some degree — much great work has been done — yet most of it remains in the labs or the petri dish.

True innovation needs to become real and shake up the real world, some of the ways I think you can achieve this include:

  • Focus on fixing a really painful problem – do not start with a solution or product that nobody really wants or needs (remember New Coke?). People like innovation that takes the pain away.
  • Avoid having your innovation team operate in a silo; if you want your organization to accept new ideas, make sure that the team has “real world credibility” within your organization so that they are trusted when they bring strange new things forward
  • Include people who can bring a fresh perspective to the group, while still understanding how the organization and current landscape operates; similarly, discourage those whose default answer to new ideas is only to throw up barriers without potential solutions
  • Make headway early on with an innovation project by shaping the real world implementation into something that the organization is familiar with — give it a familiar structure such as a project, merger, or acquisition. It is easier for people to accept and understand something that they have seen unfold before.
  • Consider all of the ideas and permutations, then deliver them in appropriately sized pieces which will allow for success
  • Appoint stewards from each line of command in the organization to ensure that the project progresses quickly — short-circuit bureaucracy wherever you find it; but with an appropriate view on safety and soundness

So instead of killing that next great innovation by allowing the immune system to reject it, give it a structure and some momentum to allow it to overtake the resistance and succeed.

Navigating the Myriad of Mobile Financial Services

If you are a financial services organization and you build a mobile app then you’re done, right? You can check off the mobile category and get back to the joys of responding to regulatory requirements. But then something changes or- a question is asked about something that might be related -, “What about our internal people, don’t they need an app?” or ”What about security?”

Because of the explosive nature of mobile-related technology and the number of related decisions and topics in the mobile space, it is essential that any large organization have a game plan and view of how they will move forward – and specifically how they will deal with the velocity of change in this space.

This mobile world changes every day and includes many integrated and connected decisions that need to be taken in the optimal sequence and with overall alignment.  One decision that is connected but not foreseen can result in expensive reversals in design, which are especially painful given the seeming simplicity of mobile to the end consumer.  The simplest example occurs first – “how do I get this thing onto the network?” being a question that often comes up.  Using the guest network is an easy answer, and then the next question “how do I get access to my files” becomes more difficult.

The use of internal mobile applications and devices opens up a stream of additional questions around information access and device management.  The deployment of external facing apps opens up discussions around how to remain agile and current in the face of the customer and the velocity of change in the mobile space.

To start these discussions, I think it is helpful to start with an overall picture in mind and map out the topics that are relevant with a level of priority, and as importantly which topics will not be pursued or invested in.  This heat-map is the cornerstone of a pragmatic strategy that can help to anticipate the coming discussions and provide a direction and an agreed upon set of priorities.

A Mobile Map

I drew something up to help get my head around these topics and the layers in this space, and I’ve used this a few times to help organize the conversation around mobile and also to make sure that we are not forgetting something that might be related when looking at making mobile decisions.

Mobile Topics

In this version, I have done a heat-map of the mobile topics that  I see as Basics/High Priority/Future Consideration.  This is to help with crawl/walk/run discussions, as sometimes organizations want to begin with a full on sprint into mobile without considering some of the fundamental capabilities that are essential for sustained success.

Are there any topics that you would add or remove from this?  What would you suggest?