There has been widespread publicity and debate over recent years in the national press about the closing of large swathes of the retail banking branch network in the UK. Yet, there remains thousands of high street branches- albeit their role has certainly evolved. Whatever the debate about the demise (or not) of bank branches, one thing is certain: the bots are coming.
Obviously the word “bots” is short for robots, but of course we are not talking about some sort of dystopian future where we walk into our bank branch to be greeted by Daleks and a team of C3P0s!
During my recent trip to #RBI2018EU, Europe's Premier Digital Banking Conference, I learnt a number of amazing things going on in UK banking, and why bots are indeed at the heart of it all. Here are a few of my insights and observations:
IT'S NOT JUST ABOUT ‘DIGITAL’
My going to #RBI2018EU was a last minute thing, as my colleague who was due to attend with our Group CEO, Greg Ellison, had to drop out. So, yours truly was thrown into the fray! My mission was to “come and learn more about digital banking so we can transform the Treasury & Payment solutions we deliver to our international CSP, HNW, Trustee and eGaming clients.”
Unlike most conferences I attend, I arrived in London with few preconceptions as to what to expect. My involvement in the world of banking is only 18 months old- following our strategic decision at Capital International Group in early 2017 to explore the Isle of Man’s ‘Alternative Banking Regime’ and the opportunities it might offer us.
There were certainly many technology and software companies in attendance, but it was only in the first panel discussion that I started to get a sense of what the key conference themes were to be. The discussion focused on distribution strategies and it was no real surprise to discover how digital was on the lips of every panel member.
What was much more interesting was that it was not simply about offering clients alternative access mechanisms into their bank, but also that ‘digital’ was shaping proposition development, strengthening customer understanding, and ensuring delivery of optimal customer outcomes. Someone who made a key impression was panel member Anne Boden, CEO of Starling Bank. Starling Bank is one of a number of "neobanking" start-ups in the UK that are aiming to build an app-only bank. Others include Monzo, Revolut, and Tandem.
‘PSD2’ AND ‘OPEN BANKING’?
Sessions quickly moved to focus on ‘PSD2’ and ‘Open Banking’. There was a huge amount of jargon and an abundance of TLAs (Three Letter Acronyms) so Google on my iPad was on fire as I struggled to keep up! A hugely simplified explanation of some of the key technical jargon:
PSD2 (Payment Service Directive 2)
This EU legislation aims to force digital innovation onto payments made throughout Europe. In short, PSD2 enables bank customers to use third-party providers to manage their finances. In the near future, clients may be using Facebook or Google to pay bills, while still having money safely placed in their bank account. Banks, however, are obligated to provide other banks and these third-party providers access to their customer accounts through open APIs (application program interfaces).
Open Banking is a term that has come out of the UK. It builds on PSD2 and takes banking innovation even further. Essentially, UK-regulated banks will have to let clients share their financial data such as their spending habits, regular payments and companies that clients use (basically their bank, credit card or savings statements) with authorised providers, or other banks – as long as clients give their permission. This will increase innovation and improve services to clients. It is already in place and happening, as in September 2016, the Open Banking Implementation Entity (the ‘OBIE’) was set up by the Competition & Markets Authority (CMA), and the nine largest UK banks were mandated to take part in the initiative and deliver a common protocol by 13 January 2018.
While I was playing catch up with the terminology, I did recognise the opportunity for not just start-up Fintech companies but also for retailers, Telco’s, utilities and others who might want to get into customer’s finances. And of course the banks themselves are not going to simply sit back and watch others enter their space! But, who will own the customer?
As further sessions focused on the inter-connectivity of much larger numbers of participants within the banking system, this clearly pointed to the likely establishment of platforms and marketplaces. This resonated particularly with Greg and I, because the Capital International Group already operates an investment platform, which connects a world of investment options to clients, advisers and wealth managers. Could the same work in this space?
Here, I describe two real-life examples of how platforms are being developed from ‘Open Banking’:
- Starling Bank
The Starling Marketplace is designed to put a client’s bank account at the centre of a wider financial ecosystem. It works by integrating a range of products and services in the Starling app. So in the future, clients may be able to move money with one swipe- from their bank account into an investment platform. Or, clients may be able to view different mortgage options from Fintech companies, other banks, and so on, all from within the single Starling app. Starling’s first marketplace proposition is called ‘Flux’, which allows clients to see detailed receipts for selected merchants in the transaction feed.
- First Direct
First direct is working with Fintech start-up ‘Bud’ on a pilot project called ‘artha’. The artha app allows users to bring accounts from the UK’s largest banks together in one place and categorise their spending data. Then, based on the categorised data the app can analyse people’s needs to help them to find relevant financial products. For example, if the app saw that someone was paying a disproportionate amount for electricity, it could introduce them to utility switching services. The marketplace will contain products and services from providers in areas such as investing and credit cards.
Having got excited about the potential for our platform, we could not avoid the sessions on data. I am sure that readers of our blog are becoming slightly sick of data protection, GDPR and, for my South African readers, POPI. How on Earth do these strict regulations sit alongside ‘Open Banking’ where data appears to be shared all over the place?
Actually, the two go hand in hand, with consent and transparency in the watchwords.
The real questions are: how do we make sense of the colossal amounts of data that already are being gathered by banks and large institutions following the meteoric rise of the internet and digital services? How do we cope when ‘Open Banking’ allows that data to be shared across companies?
The simple answer is that we, as humans, cannot. The only way to make efficient use of this data is to harness the power of Artificial Intelligence, Machine Learning, Robotics and Deep Learning. To be honest, these were the sessions at the conference that, quite simply, blew my mind!
I will not profess to understand the detail of these leading-edge developments. In short, it is a field of computer science that gives computer systems the ability to ‘learn’ (i.e., progressively improve) with data, without being explicitly programmed. This is the world of complex models and detailed algorithms.
The applications of this technology are clear. One leading bank outlined how they have harnessed this area of science to create much quicker and more effective ways to maintain automated surveillance across their entire network, with the ‘bad’ guys being quickly spotted and rooted out from the genuine clients, to help prevent fraud and other financial crime.
For the front office, algorithms that learn about customer behaviour and trends will help providers deliver timely and innovative solutions to clients that genuinely add value.
Just imagine a world where the machines analysing data recognise how a client likes to holiday to the sun one winter but then ski at another location the following one! The subsequent year the client’s app suggests the ideal holiday package, but in a way that saves the client substantial money compared to the usual way they book the holiday? This is a win for the client, the bank, and the product provider!
YOU’RE GETTING A ROBOT!
As the conference came to an end, I came to a few conclusions:
- Digital technology is revolutionising the way we bank but perhaps not in the way we expected.
- Those who win at data will win in the marketplace.
- Robots will not replace the need for a human emotional touch point, but they will improve, assist and augment client experience, product propositions and the way our banks interact with us.
So, whilst you might yearn for a car like Kitt in Knight Rider, unfortunately that’s not the kind of robot you’ll come across anytime soon! However, you almost certainly be impacted by bots at your bank in the not too distant future!
Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.