Technology is enabling customers to take control of their finances, that’s clear. However, I question whether customer service would be increasingly efficient if banks stopped taking an emotional role in helping their customers manage money, or if financial services remained apathetic.
Many are asking: what right do banks have to leverage data and tell consumers how to save and budget? While it is the customer’s choice to set up saving goals, it could also be argued that newer financial players are quite distant and only communicate with their users when they overspend. On the other hand, this is all part of the evolution of the financial advisor and instead of going into a bank branch to speak to someone, push notifications are now reminding consumers about how much they can spend.
However, a new obstacle is expected to come into play this year. Strong Customer Authentication (SCA) could undermine the progress that challenger banks have made to ensure that their younger customers are more financial aware. The counterproductive measures that banks release could threaten the consumer experience and topple the benefits of open banking.
Customers are now accustomed to using fintech applications, because they allow for increased visibility over their finances. These applications will be disrupted, and customers will lose the control that open banking promised them, resulting in friction. How will the challengers fare then? When their customers are constantly being asked to reauthenticate their data in order to sign in to a service that once told them they were in control of their data, and in turn, money.
Will the industry go back to square one? – result in anticompetitive behavior, put consumers at risk of fraud and customers could return to traditional lenders, the institutions that generations before them have trusted for decades. While this has been the case, speaking to Didier Baclin, Chief Innovation Officer, Zopa, he highlighted that the “last decade of the fintech revolution has fundamentally changed the way that people bank in the U.K.
“While online and mobile banking has given people a more complete view of their financial situation, one of the most significant shifts that has occurred is the way that people now shop around for financial products. Consumers can now choose the product that fits their financial needs, and offer them better value, without the hassle of visiting a branch, and most importantly, when they want to do it rather than what’s convenient for the bank.”
Baclin added that Open Banking has provided users with insights into their spending and in turn, help them manage their money better. Brian Costello, VP of Data Strategy at Envestnet|Yodlee described the U.K’s Open Banking standard has a “watershed moment” as “regulatory initiatives, like U.K. Open Banking, combined with advances in technology (e.g. cloud computing, mobile communications, smart devices) and data processing (e.g. machine learning and artificial intelligence) to enable the proliferation of hyper-personalized data driven apps and services across consumer financial behaviors for saving, spending, borrowing, planning and protecting.”
He continued to say that tech solutions that are built with the customer in mind empower them to take control of their finances, taking the power away from the banks and offering users choice. “How customers control their finances is solely their decision, no longer that of organisations.” Andrew Hewitt, Director Payments & Data Solutions at FIS, had a similar view and said that this empowerment is instilled “through increased visibility, easy budgeting, spending categorization and deal finding.”
Jonathan Jensen, Director of Identity Verification at GBG, echoes this point on empowerment and says that throughout these changes, “trust has remained a key issue in financial services – and a lack of trust in financial institutions has played a huge role in driving demand for challengers and fintech services.
“That is why the introduction of new rules such as SCA can be so significant. They will ensure that while consumers engage with new ways of taking control of their finances, they aren’t putting themselves at risk in the process. This will only continue to rise in importance, as authentication options like voice and fingerprint ID become the new normal. The goal should be increasing the speed of confirming an identity while decreasing the risk to both providers and customers – meaning everyone wins,” Jensen states.
What’s clear is that managing money is easier than it has ever been before, and it’s simply because customers are able to access all their financial services and products online. But should banks take on an emotional role in supporting users? Baclin states that while financial institutions “have always tried to use customer data, but they haven’t utilized it well due to the constraints of legacy technology and product silos.
“Traditionally, banks have used customer data to cross sell more products mainly to offset losses they make on other products – current accounts are a prime example. That’s meant that customers haven’t always got the best deals and banks have used that data specifically for their own benefit.” Baclin reiterated that there has been a shift and Open Banking has played an important part in returning control to the customer. Furthering the data debate, Costello revealed that because financial lives are “emotional, so emotion plays a direct role in these services; as does psychology, behavioural economics theory and literacy.”
Data is leveraged to improve customer service and advise users. Costello believes that perceiving this as ‘shaming’ is “a misconstrued way of looking at it. Customers tell apps to monitor their spending, and to tell them when they have hit a self-imposed limit. The power is with the customer, they control their limits and the experience they want.”
However, in my opinion, although the wording of my question and the use of the word ‘shaming’ may be a little strong, an app does not know how well a customer understands the financial product they have signed up for, or predict unforeseen circumstances that may result in customers spending more than their limits and more importantly, a mobile banking app cannot understand a customer’s guilt or stress after spending more than they had planned.
That said, Costello has a point and continued: “In terms of taking an emotional role, challengers should be more balanced. Not too much like traditional banks, but also not too emotionally invested in customers as this is when boundaries can be crossed.” But how does an institution know when a boundary has been crossed?
Brad Hyett, Managing Director – Europe, BlueSnap explores how challenger banks should take an emotional role in managing money, and are already doing so to a certain degree with “emotive images, colors and graphs to illustrate their customers’ finances, whereas apps and services from traditional institutions are all about basic function, only highlighting words and numbers.”
Hyett adds that “while most banking apps provide customers with a granular level of data on their financial health, the best apps present this data in a way that is useful to customers (e.g. they help set goals, predict trends, etc.). Right now, challenger banks are using data to tell a story and legacy banks are simply offering up the raw data.”
Here we return to the topic of financial insights and although, newer financial players are leveraging customer data in a different, more valuable way, how can banks ensure that users will read, and process, the push notification sent to them informing them of how close they are to their budget? This is all up to the customer now, as the control has been handed back. Baclin offers his view on financial insights: “An insight into financial data, whether that’s how much a consumer has spent one week to another or how much they’ve spent on coffee is useful, but ideally it should have a genuine action to help that customer make the best decisions with their money.
“Every individual financial decision should be made by a customer, but banks have an obligation to be open and honest with those customers on the decisions that they make and provide data so that they can make informed decisions.” Baclin suggests that a holistic approach is the best approach. However, this could all change after SCA is introduced in September 2019. Could SCA undermine the progress that challenger banks have made, in ensuring that younger customers are more financially aware? Could this threaten consumer experience and topple the benefits of Open Banking?
Baclin believed that the “extra layer of security mandated by the SCA and PSD2 will be important in cutting down on online fraud, but it will add more friction into the customer journey when shopping online.” However, he goes on to make an interesting point that both challengers and incumbents will have to implement the changes. “Ultimately, those digital banks with a flexible and intuitive tech stack will be able to incorporate the changes into their processes more seamlessly than the traditional banks, which notoriously struggle with legacy technology.” Or so you would think?
Costello agreed with the friction point: “SCA has the potential to create unnecessary friction to the user experiences for account linking, account management and, most concerning, each data refresh.” He went on to discuss how it has been proven that friction interferes with trust and adoption. “This interference occurs at either a fundamental emotional level by triggering inherent questions like “is this really safe” and/or at a practical level (i.e. “I don’t have time for this”). It can also render services that work in the background, like money coaching or fraud monitoring, ineffective by denying timely access to current transaction data, upcoming financial events and balances.”
“When 3D Secure first came out, it was a process that hindered with the seamless customer journey. This led to huge basket abandonment and very unhappy merchants – something that is foreseen coming September this year. However, 3D Secure is now an accepted part of the customer journey because on one side, the process has improved, and another, because the consumer accepted and even embraced it as it offered greater security.
“In the short term, SCA methods will likely have a negative impact on speed and convenience, which is bad news for challenger banks who rely on offering a great user experience. But in the long term, SCA methods are likely to reduce fraud and merchants may start seeking out financial providers with a good record of fraud prevention, as this would allow them to offer more convenient payment options to their consumers,” Hewitt explained.
However, while a frictionless service may be a priority for some customers, Jensen stated that security is far more important. “Regulation exists in financial services to keep markets fair and, most importantly, customers safe. So, while new regulations like SCA can be viewed by some as hindering innovation and adding friction to existing processes, they exist for a reason that will always matter more: protecting both sides of the market. Forcing the banks to check account names when making payments, for example, will reduce authorized push payment (APP) fraud.”
Jensen added that SCA gives challengers another “opportunity to further differentiate themselves from the traditional banks. Most of the challenger banks are, of course, typically app based – and therefore don’t have to worry about implementing two factor authentication outside of their app-based experience, nor the impact on legacy hardware or software which many incumbents still rely on.
“I believe they should extend their smart use of technology to create a smoother SCA experience than traditional banks, with that in mind. Since they are already using two factor authentication in many cases for the login process and some payments, via fingerprint or face authentication (e.g. with Face ID and Touch ID), it’s a simpler step for them to add this process for higher value payments.
Hyett had a similar attitude and said: “If the consumer has to constantly reauthenticate data, it will definitely be a turn-off. However, technology now exists, especially in an app on a mobile device, so that you don’t have to authenticate data in the first place. You can now achieve secure customer authentication completely invisibly.
“While the new SCA requirements are the same for both challenger and legacy banks, the way they will achieve the additional level of security will be very different. It’s expected that challenger banks will roll in third-party services to ensure authentication can be achieved invisibly. For instance, there are third-party services that analyze multiple sets of data – from the device, telecommunication provider and geolocation – to seamlessly authenticate data.
“Legacy banks will likely implement something very basic or the minimal viable product (e.g., a one-time password or text message authentication). SCA will not cause anyone to return to traditional lenders. It will be the traditional lenders that will be most challenged by SCA and data authentication.”
Date: July 03, 2019