Covid-19 has only accelerated the underlying trends transforming financial services

What will be the impact of Covid-19 on workforce in banks (the way they work, branches, etc.)?

Covid-19 escalated a trend that had started a while ago in many industry sectors, internationally. It has now been a few years since flexible working has emerged as a super trend, with over 60% of businesses worldwide offering a flexible working policy. As we reached 2019, the option for flexible working, whether that be flexible work locations or flexible hours, was not just wanted by workers but demanded, with nearly 50% of firms implementing flexible working policies for this reason alone.

With the lockdown and quarantine restrictions caused by Covid-19, traditional companies are challenged even further in terms of their flexibility in leading teams as well as digital tools to run their businesses. This is cultural as well as technical. The winners are those corporate cultures who fully embrace flexible working, empowering their teams to deliver, demonstrating trust in their people, and focusing on outcomes.

Technical advances are of course necessary to enable this culture logistically. We now witness a clear return on investments, where significant spend on digital transformation actually delivered ability to work remotely, serving customer needs in a distributed environment.

While these success stories are still far from the majority in the traditional banking and FS world, they are increasing in numbers rapidly and fully adopted in the fintech world; and remain important examples as the flagships to drive digital economy forward. For businesses looking to gain a competitive edge or win the battle for top talent, recognizing and exploiting these movements may be what sets them apart in the years ahead. 

While tech investments are required to drive this forward, this is primarily an organizational and cultural shift. The culture comes first, and the tech comes second, not the other way around. Organizations that really want to embrace new ways of doing things, must embrace a different mindset, be more agile and interactive in the way that they approach things and be more acceptable of certain types of risks.

Since Covid-19 we have also seen a rise in rapid adoption of the online meeting and event platforms. Having said this, while the meetings and web conferences are maintaining the high quality of the content, in-person collaboration is still greatly missed in my opinion. I also have not seen an effective digital alternative to the traditional white board and running brain-storming team sessions via zoom calls remain a challenge for me.

What is your vision on agile working methodologies? Do they have a real impact on the results delivered or is it just a trendy thing?

The pace of change, technology revolution, and increased data literacy over the past year, have already introduced new requirements and high expectations of flexibility, transferrable skills, and dynamic learning abilities. I think these remain increasingly important facing the crisis and then driving the recovery. The evolving world will continue challenging us with a need for open collaboration, agile working, and effective prioritization.

Driving the economy forward, every single day counts: every day lost will make it more difficult to respond to the economic crisis. Complacency and inertia never helped our ancestors drive forward. Learning from the past and experimenting for the sake of a brighter future becomes critical. This most certainly requires courage facing unknown and uncertain territories, ability to try fast, fail fast, learn fast, and continue building and moving forward.

“Success is not final; failure is not fatal: it is the courage to continue that counts.”

The winners will be those who exercise diversity of thoughts and creativity of thinking; focusing on solving old and new problems with brave decisions and innovative solutions; and sharing infectious energy and positivity with each other to drive world forward.

Is open innovation the new and only way to stay ahead of the game for banks?

The FS system of the past was based on the distribution of localized physical assets and for the past few decades we have been successfully automating it. So, from horses we gradually moved to cars, trains, and then faster trains. 

The point we reached today - “For a G10 bank the customer acquisition cost is about $350, and the life-time revenue of a non-lending customer is about $250 … “

With globalization and increased international connectivity over the past decades, an international payment became a commodity product. Covid-19 only increased this trend. However, the cost of running the product is significantly higher than revenues it brings in on its own in the traditional banking world. These fundamental challenges of the current banking world are pushing for alternative economic models.

Through the centuries, mankind’s creativity is known for inventing solutions to expand their reach to a bigger space (e.g. railroads, space, internet…). In many instances those inventions followed from a period of crisis or stagnation.  

New tools and mechanisms usually bring opportunity to shift business and economic models, exploring new territories, navigating different trajectories. Historically most of them had a positive impact on the economies and growth.  

“Gartner predicts that 80% of heritage FS firms will be irrelevant by 2030.”

The technology revolution, emergence of new regulations and open data brings us to the new era of creating planes, adopting new concepts, and navigating a different trajectory. In the growing world of virtual assets and global distribution, it is important to consider and deploy new methods. We have the opportunity to leverage technology and data to simplify and provide access to products, as well as to enhance customer experience. This will not be achieved by automating structures of the past, we have to look for fresh ideas and designs. 

A more democratized access to the financial system today brings an opportunity for new customer-centric players to enter the banking and payments world, connecting dots to serve customer needs holistically and influencing the transition to a more open ecosystem or Open Finance.

The creation of a LEGO-like playground allows using various building blocks to create a unique blend of solutions. A more inclusive ecosystem and modern market infrastructures galvanize the emergence and co-existence of new business models and increased cross-industry connectivity. This creates the potential to develop novel partnerships and create innovative and competitive products and services for the benefits of end users, consumers, and businesses alike.        

FinTech (as well as RegTech) brings an opportunity to find new solutions to the old problems - driving evolution and the digital economy, increasing customer choices, and expanding LEGO financial services. Further, over the last few years, the concept of a banking (payment) utility or the Bank-as-a-Service (BaaS) has emerged as an offering. Utilising BaaS brings the obvious benefit of reducing both the direct costs of building a product and the indirect costs of obtaining the necessary licences to offer the product.

The emerging FS landscape and digital tools offer us growing opportunities full of creative ideas and innovative solutions. As exciting and transformational as these changes are, they introduce new inherent risks and require relevant governance structures and practices to manage those risks effectively.

As industry players and responsible citizens, we all are collectively responsible to nurture the creation of new solutions as well as managing those new risks accordingly. I always believed that to succeed in business you have to take risks, very informed and measured risks, and to develop those structures and practices that enable businesses to achieve their ultimate goals.

The control mechanisms such as independent governance, risk and compliance framework, internal and external audits need to play their respective roles effectively; instead of blindly relying on the established legacy processes that may not be relevant any longer. The fundamental changes could and should be made in the industry to ensure healthy market growth and stability.

Digital channels are often criticized for their lack of human touch. How can we make them more human?

The world of business and commerce experienced tremendous change in previous years — from the rise of the digital nomad, international online selling, increased cross-border trade, the sheer scale of migrant working, and the birth of the gig economy. The global pandemic only increased these trends.  

As consumer behaviors continue embracing digital services, this introduces challenges and opportunities to provide diverse options of payments and wider finance capabilities and drive innovation forward, navigating through the crisis to recovery. Traditionally Banks and FS are organized around their own structures and products. While the core aim was always to service customer needs, the journey and expectations are for the customer to choose a selection of suitable products from the available pool.

At the same time, we are seeing an increase in customer cohort diversity and their preferences. Consumers are becoming more informed and demanding, being better aware of value exchange. Forward-looking businesses are pushing towards a digital and customer-centric model, with data and analytics shaping vision and strategy. This places data and technology at the core of enabling organizational strategy and governance, driving informed risk direction from the top. The business strategy and risk management are designed and executed in tandem, so as to avoid common issues of customer friction and poor outcomes on either sustainable growth or risk objectives.

A mix of regulations, modern tech, and open data are forcing and expanding boundaries of traditional FS to those customer-centric brands. The customer-centric organizations who have mastered customer segmentation, understand customer behaviours, target diverse cohorts meeting individual and relevant expectations; they tend to proactively bring solutions to customer doors.  

Finding the right compromise between customer experience and security is challenging. What is your vision on the different technologies and solutions that pop up in the industry?

Security and trust are critical components of customer experience. Achieving a positive customer experience requires a very good understanding of customer needs, predicting customer emotional state, and delivering to those with an extra touch. This involves meeting an array of very complex expectations – such as product (or service) quality, time, value for money, etc. Failure to deliver on those expectations – either in service level, security or quality, leads to destroying customer trust. 

And a wise person once said - “Trust takes years to build and seconds to destroy”.  

Fighting financial crime and money laundering is no longer an option for banks. How should they proceed? How can technology help?

Fighting fraud and financial crime is not a commercial issue. It’s a social issue and I do not think it was ever optional for the society. With the regulations evolving and technological advances emerging, an opportunity is increasing to collaborate and unite for this cause in standing together against the criminals.

Modern technology joined by greater data availability introduces additional transparency. This allows for new dynamic methods to prevent fraud and proactively detect suspicious activity.

In the past few years we saw some significant investments and efforts to enhance and create new proactive solutions preventing financial crime. This spans from innovation by the traditional players, as well as growing RegTech players.

There is however a fundamental difference in the approaches and Covid-19 revealed resilience weaknesses of some traditional solutions:

- Similar to the trend in the banking transformation in the past few years, established fincrime prevention solutions were tested and trusted by the market. Their upgrades were mainly directed on the front end and achieving interoperability of their outcomes with the digital world. Their back-end processes remained semi-manual and rather fragmented in many cases.

- The emerging RegTech players offer end to end digital solution, fully utilizing modern technology, using AI and ML to enhance their data quality and matching capability dynamically 24/7, with their matching IP as an integral part of the DNA.

However, the industry and community still have a lot more to do, globally. The international payments space, due to its DNA, will always be the target for criminals.

The pandemic has reaffirmed the need to enhance global cross-border payment arrangements to facilitate lower-cost, faster, more accessible, and more transparent payment transactions, including for remittances. In response to this, the economic regulators and international organizations are leading further enhancement of tools and mechanisms to tackle the problem.

In July the CPMI issued its report on the building blocks of a global roadmap for enhancing cross-border payments. The financial crime prevention enhancements are integral part of this work. G20 Finance Ministers & Central Bank Governors welcome the CPMI report, which sets out a comprehensive set of “building blocks” to enhance cross-border payment arrangements by addressing long standing frictions.