30 April 2019
Retail Banking Conference London
Attending retail banking conferences can sometimes feel like a greatest hits tour of your favourite aging rock band. Yes, they may mess around with a few of the arrangements but it is essentially the same stuff we’ve been (enjoying) listening to for years. And there was certainly a familiar tone to Retail Banking Conference’s agenda that included discussion topics such as Open Banking, the role of data, and the threat from non-bank providers.
Of course, Retail Banking is a past master in what it does – 2019’s conference was its 34th consecutive annual event – and as proceedings kicked off, it quickly became apparent that while we continue to discuss many of the same themes, the pace of change is evolving quickly and we need to keep ahead of the developments. In areas such as Open Banking for example, there is a palpable sense that we are going from theory to practice as we move beyond the regulatory planning stage to live commercial services. It is fitting then that the opening talk of the day was entitled: Open Banking is Go.
Below, I’ve put together a few thoughts on some of the broad themes that came out of the day.
I think I’m on relatively safe grounds in agreeing with one of the opening gambits at the conference: “Open Banking is the most important thing to hit our industry in a decade”. As we move past the regulatory compliance aspects, of which 2019 will be a key year in Europe, there is genuine excitement surrounding the prospect of how these new rules can help improve customer experience. According to Joakim Invarson at Tink, Open Banking was never about the regulation, but a rubber stamping of the disruption that fintech has been actively pursuing in recent years using technology to solve customer needs.
One of the great advantages of Open Banking is of course for the first time service providers can get a truly holistic view of a customer’s financial data. Enriching this raw data into insights that are actionable by the customer, such as being able to provide a more accurate credit profile, could revolutionise financial services and beyond. But talk of customer data can be a controversial topic as anyone who has followed the mainstream press coverage of Open Banking in the UK will testify. It was right then, as Joakim and others asserted that Open Banking is in fact a power shift from banks to consumers: we now control our own data so are free to share it with the providers we choose in order to get a better service.
Still there was concern raised that consumers are in the dark about Open Banking. For example, a recent YouGov survey found only 28 percent of consumers were aware of Open Banking. For many of the speakers, this was a bit of red herring. You don’t need to have awareness of the latest banking regulation to take advantage of innovations made possible by Open Banking. This was a point made by Mark Curran of CYBG: “If we sell Open Banking as a thing we will have probably failed. We need to sell the services that it makes possible.” This reminded me of recent research published by Mintel that found consumers who say they are likely to switch in the next year are significantly more likely to find Open Banking features appealing when presented with the option. In fact, 69 percent of likely switchers said that they would like to be able to manage all their financial services products through their current account provider.
According to Jim Wadsworth - who is leading on the development of Mastercard’s Open Banking offering - despite early attempts at account aggregation and payment initiation services in Europe, there are still a number of issues that could get messy if not addressed. Fragmentation of API standards, particularly in Europe, means service providers trying to create a regional solution will have to invest resources to work across these different standards. APIs also evolve over time requiring resources and effort for FIs and third parties to stay current. Then there is what to do when things go wrong. It is unclear how disputes between parties should be resolved.
Mastercard are currently working on a number of solutions to address these problems, including a connectivity proposition to enable third parties to integrate with banks through a single Mastercard API, and a dispute resolution service. From the bank side, Mastercard will also leverage Vocalink’s analytics services to support fraud detection.
AI gaining momentum
If Open Banking was a key theme of the day – underpinning many of the opportunities to take advantage of these new rules was AI. According to Aneet Morar of Lloyds Banking Group, “AI is the marrying of big data with a big brain”. One of the big breakthroughs that AI gives banks is the ability to gain a deep understanding of what their customers are truly telling them – in some cases insights that the customer was not even aware of. This helps banks solve problems and ultimately improve experiences, enabling bank staff to make better informed decisions when advising customers.
During the lunch break I caught up with Nick Maynard at Juniper Research who have recently published a new report on AI. He told me: “AI undoubtedly has high potential for several use cases in the fintech area, but deployment must be tightly focused on realistic end goals to achieve success. AI must be a solution to a problem, not a solution looking for a problem, to avoid disillusionment.”
Nick also highlighted an earlier talk by David Divitt, VP of Financial Crime Products for Vocalink Services, on using AI transaction monitoring to detect money laundering as great example of a use case that “enables FIs to reach a scale of action and breadth of insight that cannot be matched by traditional methods”.
David’s talk noted that today’s cyber criminals are constantly evolving their techniques meaning as we go forward into the new Open Banking epoch, we will need to match the sophistication of our adversaries with our own solutions. The best way to do this is through scale. An important by-product in developing Vocalink’s AML (Anti-Money Laundering) Insights solution is how it has encouraged collaboration among banks. As a result of this, Vocalink has been able to bring together the payments data from multiple banks to form a network level view, overlay it with cutting-edge analytics and algorithms, and in doing so pinpoint individual account involved in illegal activity – helping fight back against criminals.
An illustrative example of how thieves typically launder money provided useful visual cues as to why banks need to collaborate in order to see the whole picture. Known as a Dispersion Tree, once the initial fraud occurs, funds are sent to the bottom account (see pink dot). From there, a series of rapid transactions move money across multiple accounts, at multiple banks. The timings and rhythms – a rate of two or three payments a minute, decreasing in value until funds are exhausted – suggests it is not a person but bots and scripting used to execute attacks.
In establishing these machine learning models, Vocalink can not only help banks investigate fraud, find the dodgy accounts and shut them down, but, through accessing data across multiple FIs, build predictive models for different fraudulent activities so that banks get on top of emerging patterns as they start to grow.
Future of bank branches
No retail banking conference is complete without discussion on the future role of bank branches. Large incumbents, such as RBC Bank, expect the size and role of their branch network to shift over time but still consider it a competitive advantage. For Metro Bank, which is one of the few UK banks expanding its branch network, a retail presence provides a social function. In particular, for less financially literate customers, face to face engagement is vital. Metro aims to provide a welcoming branch environment that encourages new customers to come in from the street. Robert Johnston at NCR also made a good point in that while digital has changed everything it cannot stand alone. Even digital banks require some form of physical support to ensure they meet customer needs, drawing on the example of Starling Bank’s recent deal with the Post Office to enable its customers to deposit cash at the latter’s branches.
Considering the importance for policy makers in protecting access to basic banking services in the UK, especially vulnerable customers that don’t use digital banking channels, it is plausible that the Post Office, who’s banking services are powered by Vocalink technology, could play an increasingly important role in the future of physical banking in the UK. The stats certainly stack up. It has 11,000 branches, more than the combined total of all banks and building societies in the UK, from which 99 percent of bank account holder can deposit, make payments and withdraw cash.
Reflecting on this year’s Retail Banking Conference it was notable that at the heart of all discussions was a focus on improving customer experience. We heard from Starling Bank on the importance for fintech to balance both the “fin” and the “tech” elements to ensure the best possible experiences. We also heard from Lloyds Banking Group on their £3 billion digital transformation, which will impact 50 percent of existing customer journeys.
However, I was particularly taken by comments from Bruce Fullerton of RBC Bank regarding the existential pressures that banks face. Banks have a dilemma of trying to marry a long-term transformation ambition in a market environment that is primarily focused on the next quarterly results. Success for RBC Bank was to reach out to the analyst community and provide a frank and transparent vision of their long-term investment plans to expand outside typical banking, including partnerships with fintech, to bring in more clients to the bank and improve their customer offering. Clearly they are doing something right – as I write these words RBC Bank’s stock price has reached an all-time high.