Fintech’s role in shaping the financial services sector of the future has been well documented. But there are plenty of alternative and under-the-radar ways in which technology is changing both the customer experience and the way businesses operate – to everyone’s benefit
Picture the scene: a gambler – we’ll call him Jim – with a long-term addiction has been trying to turn his life around and hasn’t placed a bet for six months. However, in a moment of weakness, he enters the branch of a bookmakers on the hight street.
Suddenly, his mobile phone vibrates with a message from the customer relationship manager at his bank – informing him that, through the use of geolocation data (he had given consent to sharing), it has identified a risk and enacted a pre-agreed payment stop on his account.
Furthermore, the action automatically triggers a follow-up call from Jim’s support counsellor and a call from the bank to confirm the reason for the payment stop, and next steps.
We’ve all heard the more headline-grabbing ways in which tech is overhauling financial services – from automated payments to real-time access to information and even ‘robo-advising’. But Jim’s intervention, says Simeon Moss, Consulting Services Lead at Deloitte in the Channel Islands, is one of a number of lesser recognised – ‘alternative’ – fintech-powered financial services changes of the future.
They are being driven through ‘hyper-personalisation’ of products, consumer data consent and new thinking about how ‘corporate purpose’ can affect how we bank. “Through open banking, data sharing and connected devices, banks can use digital prompts to customers in a number of ways,” says Moss.
“A different example could be a customer walking around a property with an estate agent and receiving real-time information on whether they are suitable for a mortgage, alongside receiving various loan offers from multiple providers.
“Another could be an SME manufacturer whose credit engine is linked to its financial and operational data, and whose machines have Internet of Things sensors that mean that if a new order comes in or a machine breaks down, an automatic bank loan is triggered.”
Instinctive banking
Some of these types of ethical and instinctive banking are already happening. NatWest, for example, has partnered with fintech firm CoGo to offer carbon emission calculators to customers based on their spending habits. Their carbon footprint is measured, and advice is given on how best to reduce it.
Such digital innovations are certainly needed in financial services, and driven by demand. According to a recent report, The Multiplier Effect, from Deloitte and the World Economic Forum, there is growing pressure on the sector to embrace digitalisation in this way.
This, according to the report, is the result of rising competition from non-traditional financial players, growing demands from customers and increased flexibility from regulators.
Moss says banks are leading the way, with the investment management and wealth protection sectors rapidly playing catching up. “Financial institutions are still burdened somewhat by their legacy infrastructure and are trying to determine how emerging technology will shape their strategic direction,” Moss says. “It remains piecemeal and fragmented.”
Lee Bosio, Managing Director of regtech business Vaiie, agrees. “Bricks and mortar financial services providers still struggle to move at the same pace as online-only providers.”
However, both he and Moss see progress. “There are many areas of operation that are in their infancy and need to mature to leverage and harness the full benefits that tech can offer,” says Bosio.
Automation of tasks
Aside from the progress being made in banking, Moss says he is seeing more automation in financial services shift away from task-based to full end-to-end processes focused on customer and employee satisfaction.
“This takes in integration of digital workflow, intelligent document management, robotic automation and data and analytics, developing a complementary ‘digital workforce’,” says Moss.
“An example of this in the fund management industry is the digitalisation of end-to-end payment processes. For a long time, it has been a heavily manual process, but now we can scan in documents, automatically recognise the clients and the payment required, do the necessary approvals – such as checking bank details – ensure client due diligence and authorise the transaction for automatic payment.”
Moss says this improves fund management firms’ efficiency and reduces operational risk. “Importantly for the Channel Islands, it also frees up capacity to do higher-value activities,” he says.
The use of AI and robotic automation is also increasingly being adopted at BNP Paribas, according to Sales Manager Katherine Cartwright.
“AI, utilising natural language understanding and machine learning, including intelligent document processing, helps accelerate and automate repetitive processes. The robot looks for specific words or sentences within fund documentation and quickly pulls out the information required,” she says.
“At BNP Paribas, we can automatically capture, extract and classify data from documents such as fund prospectuses and order confirmations. This is fed directly into our operational systems and improves efficiency – because we can quickly process documents on a large scale.”
Previously, BNP Paribas staff would have had to manually download reports from each fund’s website and upload the information into the operational system.
“We see a huge efficiency benefit from this for our fund of fund or secondaries fund clients, with large volumes of fund assets and a constant flow of corporate actions, such as drawdowns. There is a better turnaround time,” she explains.
Regulatory and compliance gains
Fintech solutions are also being adopted to aid regulation and compliance. “You can monitor and automatically pick up, on a real-time basis, changes in regulatory guidance. It then flags up where you need to make changes to remain compliant,” Moss says.
Bosio stresses that it is still early days, however. “Regulation, compliance and onboarding remain very manual processes in private wealth management. There is a misconception that regtech solutions can be too complicated, costly and difficult to integrate,” he says.
“I see growth here as speed becomes more important and the reality of potential remote client management becomes more realistic. Governance, risk and compliance are all key areas of interest for the regulators.
"Firms will soon rather invest in technology to reduce liability than continue using manual processes, which often fall short of compliance mandates.”
Vaiie is focusing on jurisdictional and industry sector risk reporting and fraud prevention, along with automated due diligence using AI and machine learning. “It is feasible to imagine a point in industry where the technology can make the risk-based decision,” Bosio says.
When it comes to risk, due diligence is also getting the fintech treatment. Stephane Gimenez, Founder and Chief Executive of recently launched cloud-based business MYCDD, is focused on helping firms manage their due diligence and compliance documentation remotely, automatically and digitally.
“Every two or three years, financial services organisations have to redo the due diligence process – asking clients to once again send passports, and ensuring registered directors are up to date on anti-money laundering,” he says. “That’s okay if you have only 10 clients, but if you have thousands, the process becomes totally unproductive.
“Plus, there are often concerns around misplacing client information sent by email, and whether all the due diligence documents are up to date.”
Gimenez has created a subscription-based app service, where documents are uploaded to a secure site. It then automatically sends alerts to clients when documents need to be renewed.
“You no longer need to pester your clients. It saves time and cost,” Gimenez says. “Millions of pounds are spent each year gathering client due diligence and file review in Jersey alone.
“I know one company that has outsourced its file review process to Poland because it is more cost-effective. It is done manually on the telephone, chasing and chasing HNWI clients. It can’t carry on this way.”
MYCDD is also looking at integrating biometrics, as well as electronic identification and signatures, into the process. “We think everything can be done, including client due diligence, from your own phone or tablet,” says Gimenez. “We can’t be stagnant.”
Alternative assets
The alternative assets space is another area of financial services where fintech is playing an increasing role.
“We are looking at the use of tokens, digital assets and smart contracts on blockchain to completely transform the investment processes,” explains BNP Paribas’ Katherine Cartwright.
“Tokens allow for full transaction automation, improved asset liquidity, shorter, if not real-time, settlements and better market access for the assets.
“It is still in its infancy, and more is needed around regulations, risk management and technology investment to ensure its robustness and effectiveness.”
BNP Paribas has partnered with cloud-based digital asset infrastructure provider Curv to create a proof of concept to transfer security tokens on blockchain.
“This opens up a whole new world in sectors such as real estate, where the purchase settlement time can be extremely long,” says Cartwright. “Making the purchase digital would reduce time and help liquidity. You also have automation and standardisation of the transaction across the blockchain.
“Sometimes real estate and private equity assets are very large, with only a few market participants who can engage in them. This technology could allow people to use tokens to buy parts of the asset, not the whole. It could open up alternative asset classes to more people.”
Application programme interfaces (APIs) could also, she says, help with better access and sharing of data.
“Clients can get data on demand,” adds Cartwright. “That allows for new services to be offered, such as bespoke reporting, net asset value calculations and distributions.”
She also sees future growth in client portals for data analytics and management information. “We have taken a strategic stake in AssetMetrix, allowing general and limited partners to receive all their fund reports in their portals,” she states.
“It also allows for data analytics to be performed by the general partner – to help decision-making and risk-monitoring, as well as benchmarking against other funds.”
And, following a sustained period of heightened remote access and reliance on digital solutions, the pace of digital adoption is only likely to accelerate further.
“There is an understanding that business can be done remotely and there has been an acceptance by regulators that technology can be a more effective verification standard than some legacy approaches, such as certified documents,” says Bosio.
Moss believes organisations need to move away from thinking about digitalisation in a siloed way. “They need to consider how it can be adopted across all processes in an organisation, with a new innovative and agile mindset,” he says.
That should mean more collaboration with fintech providers. “Financial institutions have the data, understand it and have relationships with regulators,” Bosio says. “They need to start disrupting themselves by investing in fintech organisations either through partnership or acquisition.”