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Banking at the cusp of digitalization and advanced analytics

Remember banks more than a decade ago, which were slower organizations, taking unusually long time to service their customers? The banker had to search through a number of files and documents to arrive at the records of any particular customer. Multiple departments across the banks worked in their own silos and individual smaller organizations by themselves. Things changed for the better about a decade ago. Digitalization as a concept was just about emerging with many banks. They were trying to play catch up with the leaders, in digitalizing their operations and dealing with multiple challenges that come up when organizations have to go through a fundamental change in the way of doing business.

Enter a bank today, and it is a transformed world. All information regarding any customer and the subscription details on any products and offers is stored digitally, easily accessible, and therefore the time taken to service a customer is much lesser. But being able to store customer data digitally and access it faster has been reduced to just a hygiene factor today and does not provide the banks with any competitive advantage. In order to stay ahead of competitors, in today’s digital age, the banks need to make intelligent use of the customer data and predict customer priorities and preferences. Customers today are well informed, digitally savvy, know the options in market and tend towards being “hard to please”. Service providers have to be intelligent enough to roll out an offer that is personalized to best suit customer interest, based on parameters like past historical transactions, context, personal preference, behavior, social interactions, and many more. Today’s customer wants to be treated special.

At the same time, banks are constantly trying to find better ways of optimizing the costs associated with compliance to the multiple regulations like Basel III, MiFiD 2, and many more, which necessitates that banks invest in new systems, procedures and practices. These regulations require banks to comply with policies around anti-money laundering, KYC, pricing and billing transparency, liquidity ratios etc. Banks would hugely benefit if they are able to take suitable measures to mitigate the risks associated with non-compliance than pay-up the costs of it at a later stage. A great deal of mitigation can be achieved if banks can make suitable use of data to identify risks at the right time and make course corrections to avoid further damage.

But many banks today, though custodians of large amount of data around customer profile, behavior, preference, historical transactions, etc. are not adept enough to make absolute sense of all the data, tie them together and use them in a methodical way to derive predictive insights and make informed decisions, either in the form of creating customer offers or risk mitigation. Although many banks have mastered the use of traditional analytics (business intelligence), which is largely based on historical static data, the journey towards real-time predictive and prescriptive analytics is a target to be achieved.

Predictive analytics uses a variety of statistical techniques like date mining, predictive modelling, machine learning in order to analyze historical data, current facts, and data from various such sources to make predictions of the future. Whereas, prescriptive analytics goes one step further by using mathematical and computational sciences to arrive at prescriptions as decision options against the predictions made.

Predictive and prescriptive analytics can used effectively to dynamically segment customers in real-time and arrive at the most optimal offer that will suit both the customers’ and the bank’s interests. This can help banks derive useful insights like customer lifetime value and help them cater to the fast changing requirements of the present-day customer. Banks can simulate offers, forecast revenue flow, and optimize offers before they are launched in the market. Product and relationship managers can arrive at the most optimal combination of products to up-sell or cross-sell and therefore acquire a larger share of the customers’ wallet.

Strategies like creation of next best offer to ensure conversion of the customers can be a cake-walk when aided by predictive and prescriptive analytics. Performance of offers and customer segments, post subscription, can be tracked with analytic dashboards that can provide further actionable insights when coupled with advanced analytics. Customer satisfaction can be tracked in real-time, with available options like social listening, and suitable actions be taken to retain unsatisfied customers.

While usage of advanced analytics to get closer to the customer and arrive at the most optimal offer is one of the most popular applications, the advantages are not limited to just that. Analytics can play a major role in helping banks comply with regulations and risk mitigation. Analytics, when implemented correctly, can provide useful information around calculating the creditworthiness of a customer and help track instances of revenue leakage, due to otherwise untracked transactions. Stress tests backed by analytics can help keep a check on performance of the bank against market fluctuations. Banks can also ensure compliance to regulations by forecasting cash reserve and working capital requirements in real-time.

Extending the usage further, analytics can also be used to manage the partner ecosystem more efficiently. Be it partners like retailers, merchants, loyalty partners in the retail banking space, or other fellow banks in the correspondent and corporate banking space, revenue share and profitability factors across the partners ecosystem can be easily managed when backed by analytics.

A huge number of platforms offering advanced analytical capabilities are available today for organizations to choose from. Gartner Magic Quadrant for advanced analytical platforms lists SAS, IBM, KNIME, RapidMiner and Dell as the Leaders.

But not many banks have been able to extract complete value from these platforms due to issues like legacy processes and siloed architecture of the technology ecosystem in the bank. Many of them have fallen behind due to the lack of an achievable strategy to leverage analytics.

While banks figure out ways to overcome these challenges, they do not seem to have much time to go up the learning curve. To achieve sustainable competitive advantage in this fast-moving world, these banks will soon need to make the necessary investments and process changes and get up to speed with advanced analytics, before it is too late. Else the banking ship is bound to sink and we might only find smaller and faster yachts sailing in the sea!!

Smruthi Bangera

Smruthi, is a marketeer working in the financial services domain, and can be reached at @SmruthiBangera.

Has password fatigue already set in? Is Biometrics the answer to this problem?

Banking services today have come a long way from say 25 years back, when visiting branches were the only way for customers to access their monies, or make any financial transactions. In the digital world today, the average banking customer has never visited the branch for day-to-day financial transactions. One can access his/her banking account/s via multiple digital touch points like web, mobile, ATMs, etc., which in turn has made life much more comfortable.

But with consumers turning to digital for almost every product or service, all the way from banking transactions, making investments, paying utility bills to something as basic as purchasing daily essentials, the number of passwords that one has to remember to access all these portals becomes a nightmare. The consumers end up with something called “password fatigue”, due to which they prefer using the same passwords over and over again thereby increasing the vulnerability of their accounts to cyber criminals. A study by Telesign says that about 54% of customers use five or fewer passwords across their entire online life, while 22 percent use just three or fewer. Almost 47% of customers rely on a password that has not been changed for five years!!” Certain customers have also been found to write down passwords, which all amounts to compromise on security.

But all said and done, one cannot expect consumers to maintain unique complex passwords for each of their online account, and remember them as well. At a time when it is being predicted that every person will have at least 200 online accounts by 2020, which means to say that if password security requirements are to be followed diligently, every customer should be remembering 200 unique passwords which is humanly impossible, unless one has the brains of a supercomputer!! Specifically talking about financial transactions, which are more susceptible to frauds and syphoning of funds, the password security requirements tend to be more stringent, in order to ward off any unwanted nightmares for the customers and banks alike. With the increasing processing power of computers today, password hacking has become easier, and when coupled with social media, finding vital personal information of an individual is not that difficult anymore. An article by Deloitte University press has compiled beautifully, as to why passwords have been problematic:

Biometrics – a suitable alternative for cumbersome passwords

Biometrics technology has come in as a welcome password alternative for banks grappling with the issue of simplifying customer experience while still ensuring security of their customer data and funds. The technology is seeing a slow yet steady adoption rate for authenticating customer identity before one can access any of their secure financial accounts.

The main idea behind biometric authentication is that certain intrinsic characters are very unique to any individual, easier to use and fairly difficult to replicate, thereby can be a strong alternative against cumbersome passwords. Biometric samples includes a wide range, all the way from DNA, fingerprints, vein patterns, iris, voice, facial expressions, gesture patterns and speed.

According to the Gartner Hype Cycle for Digital Banking Transformation 2016 biometric mobile banking authentication is maturing quickly as a mainstream customer-facing technology, and will bring in a significant shift in the way banks interact with their customers. The increased adoption of fingerprint-based authentication, for example in Apple Pay, Samsung Pay and Android Pay, the voice-based artificial intelligence by Apple’s SIRI, and many such innovations have encouraged banks to adopt this technology into customer authentication. A lot of leading banks have already implemented and made significant headway with biometric authentication for their customers. Bank of America, Wells Fargo and JP Morgan Chase, for example, use the fingerprint scanner to authenticate customers logging in to their mobile banking apps. Whereas, RBS and NatWest were the first banks in the UK to offer their customers with the option to login to their mobile banking app using fingerprint scanning.

While the fingerprint scanning as a biometric authentication method has been the most widely used form, questions have been raised about the possibilities of cyber criminals getting access to the fingerprint samples of the customers. There have been cases where professional hackers have managed to break through fingerprint authentication modes, like German hacker Starbug aka Jan Krissler, who hacked the Apple’s touch ID, roughly after a day post its launch.

Many banks are therefore exploring other modes of biometric authentication as well as 2-factor authentication methods. Barclays, for example, has leveraged Hitachi’s Vein ID technology to secure and simplify authentication for its corporate customers. The Vein ID technology is based on the fact that vein patterns (sclera) are unique to an individual and can be authenticated by placing a finger on a desktop scanner that reads the vein patterns. This technology has also been adopted by ATM’s across Japan and Poland. Wells Fargo has released the iris scan authentication using mobile for some of its corporate customers. The bank is also working with EyeVerify, to develop an authentication around scanning the eyes of the customer for a map of the veins on the white of the eye. Citibank received two Gartner Financial Services Cool Business Awards in 2015 for its agent-based voice biometrics authentication project. USAA, which pioneered the facial recognition technology in the year 2015, authenticates customers through their facial contours; and also offers voice and fingerprint recognition options. USAA further adds a second-level check with device recognition – i.e., biometric authentications are accepted only if entered from a device registered with the bank.

Banks are further building up the security factor by extending the 2-factor authentication beyond biometrics, to ensure trustworthiness of a transaction. For example, they are also leveraging artificial intelligence to keep track of parameters like habitual geolocations of the customers logging in, so that there is an extra check performed against forged entry attempts. Some of them are also using gesture patterns as passwords for second-level authentication, for example, the speed at which a particular customer blinks his/her eyes.

Gartner strongly recommends using multimodal biometric method to improve either accessibility or trust and accountability; and predicts that by end of 2019, “80% of organizations using biometric methods will use some combination of face, voice and passive behavioral modes, in preference to fingerprint, up from less than 5% today”. The potential of biometric authentication methods, though, other than fingerprint scanning, have not been fully realized yet, more so because of the dependence on other parameters for them to be implemented successfully. For example, the iris scan and facial recognition authentication methods require infrared cameras on the devices, which might not be necessarily embedded in the existing devices. They now come integrated within the endpoint devices, but a larger widespread adoption might require a hardware refresh at a significant scale.

All said and done, biometric authentication for banking is here to stay, and banks that do not get on the bandwagon may run a high risk of being perceived as laggards. Leaders who have implemented it already, are already impressing their customers with the ease with which they can access banking services, yet not be scared about security of their personal information. For example, since USAA began offering biometric authentication early last year, more than 1.7 million customers have been accessing their accounts using either their fingerprints, voices or facial scans.

If not already implemented, the time is now. It is a wakeup call!!

Smruthi Bangera

Smruthi, is a marketeer working in the financial services domain, and can be reached at @SmruthiBangera