At present, the financial sector is undergoing a pivotal moment where data has emerged as the core of all interactions. As financial institutions strive to shift from being mere intermediaries to becoming advocates, they must adjust their strategies in line with the changing digital landscape and incorporate new technologies. It is crucial to prioritize the key areas of focus, as juggling too many initiatives simultaneously can tie up resources and hinder innovation. 

While banks are still slow in adopting technology, FinTechs are using innovative technology to deconstruct traditional banking services into point solutions that can be rapidly deployed and adopted. 

Your competitiveness in the market hinges on your ability to concentrate and invest in the critical priorities that can have the most significant impact in the areas that count the most.
 

Why do Banks and Financial Service Providers Need to Undergo Digital Transformation?

Financial service providers are undergoing digital transformation due to the increasing demand for personalized services, intuitive interfaces, and robust security within financial services. This demand has led to an urgency to adopt data and insight-driven approaches. The financial sector, including banks, insurers, and payment processors, is exploring various technologies, such as cloud services and automation to enhance security and artificial intelligence for personalized services, to achieve a successful digital transformation.

This trend is responsible for reducing the risks inherent in digital transactions while increasing revenue and efficiency gains. Statistics suggest that technology and digital transformation improved operational efficiency by 40%, had faster time to market (36%) and the ability to meet customer expectations increased by 35%.

 

The Focus Should be on Leveraging Technology and Digital Power to Drive Growth

Today's customers, predominantly millennials and Gen Z, are driving banks to transform their operations. FinTechs are disrupting the traditional banking industry by leveraging technology to offer innovative financial solutions. By using modern technology and data analytics, fintechs can provide personalized financial services to customers at a lower cost than traditional banks. 

Additionally, fintechs often offer a more seamless and user-friendly experience, as their platforms are designed with modern user interfaces and functionality. These factors have made fintechs popular among younger consumers and those who prefer the convenience of online banking. While traditional banks still dominate the financial industry, fintechs are gaining traction and have become a significant disruptor in the market.

Technology is playing a significant role in all aspects of the industry, from retail banking to mobile apps, fintech, and neobank startups. Banking leaders are investing more in future-fit tech strategies and accelerating digital transformation, as evidenced by the increased investment in this area. According to Insider Intelligence forecasts, the banking sector’s overall IT and technology spending in the US is expected to rise from $79.49 billion in 2021 to $113.71 billion in 2025.

Technology can help banking in numerous ways: 

• Enhanced Customer Experience: Technology enables financial institutions to provide more personalized and intuitive customer experiences through digital platforms, mobile apps, and other innovative channels.
• Improved Efficiency: Technology can streamline banking processes, automate manual tasks, and reduce operational costs.
• Increased Security: Technology offers robust security features that protect customer data, prevent fraud, and safeguard against cyber threats.
• Data Analysis: Technology provides advanced analytics tools that enable banks to extract insights from large volumes of data, such as customer behavior, market trends, and risk management.
• Innovation: Technology drives innovation, enabling the development of new financial products and services, such as blockchain-based solutions, mobile payment systems, and robo-advisory platforms.

Overall, technology is crucial in driving growth, improving efficiency, enhancing customer experience, and enabling innovation in the banking and financial sector while keeping customer satisfaction at the core.

Key Priorities that Leaders must Focus on to Drive Transformation and Innovation in the Banking and Financial Industry:

Embrace digitalization: Adopting a digital-first approach and driving end-to-end digitalization is essential for banks to stay competitive and offer customer-centric products and services. This involves leveraging advanced technologies like AI, cloud, and automation to drive innovation, improve workflows, and foster an ecosystem of reliable partners. Exela can help prioritize digitalization and assist banks to build a more harmonious and secure internal and external ecosystem.

Streamline processes and products: In today's post-pandemic environment, optimizing day-to-day operations and workflows is critical to delivering a seamless customer experience. Banks must modernize legacy systems, migrate them to the cloud, and use technologies like AI and robotic process automation to streamline back-to-front office operations.

Deploy regtech solutions: Regtech solutions are essential for ensuring regulatory compliance and minimizing the risk of compliance failures. By prioritizing regtech, banks can ensure more robust reporting, minimize human error, and enhance the customer experience in areas like KYC.

Embrace open banking: An open API ecosystem enables banks to assemble best-in-class financial services that cater to the unique needs of their customers. Moreover, banks must design processes and systems while keeping API at the core to compete with FinTech, which use the same approach. Exela offers Treasury as a Service (TaaS),  enabling banks to deliver future-ready invoicing experience to improve customer satisfaction.

Ensure robust cybersecurity: As digital technologies become more prevalent, cybersecurity is an ever-present concern. Banks must use the latest tech tools for cyber defense and IT delivery to ensure secure banking experiences for their customers. A strong governance framework, regulatory risk assessment, and control testing and remediation monitoring are critical components of a stable and safe IT landscape.

Here’s how Exela can help

Our expertise in digital transformation, automation, and innovative technologies has been instrumental in helping banking and financial industry customers tackle operational challenges and meet customer expectations. 

The key imperative for banks is the need to design processes and systems from first-principles in order to compete with fintechs that are using similar approaches to deconstruct traditional banking services into point solutions that can be rapidly deployed and adopted. The question, therefore, is not whether a bank should add remittance features to a DACA account, but rather ask, what is needed for the remittance function or workflow, and how the bank can best service that requirement. This often leads to a process-first, API-first way of thinking, and the adoption of a fairly transparent "open banking" approach where the necessary account structure (not always a DACA) and risk framework are chosen so that the clients' time-to-market and speed-to-onboard metrics are met.

For example, online lending or account origination cannot co-exist in a workflow that needs 3-4 weeks and requires a manual DACA account to operate. 

We have assisted banks in transforming their operations, expanding commercial client relationships with comprehensive invoicing automation, cash management, treasury services and more.

Get in touch to know how our banking and financial industry clients have leveraged Exela’s expertise and advanced technology for their operations.

The exchange of value is one of the oldest markers of civilization as we know it. In fact, evidence suggests that some of the earliest forms of written communication were developed in order to keep track of trades, purchases, and taxes.

What began with simple bartering and trading of goods and services, has come a long way over the centuries, developing into complex, globe-spanning economic systems. First came metal coins, starting around 600 B.C. in the region now known as Turkey. Paper notes that could be exchanged between individuals didn’t come around for another few centuries. The earliest examples of paper currency come from China’s Song Dynasty, sometime between 997 and 1022 A.D.

European banks began issuing paper banknotes that could be used to make purchases or exchanged for their face value in silver or gold coins in the mid-1600s. Paper currency that could be easily mass produced and was more convenient to transport began to grow in popularity thanks to increased trade between Europe, Asia, and the Americas.

From Cash to e-Payments

Portability and standardization were both major drivers in the adoption of coins and paper currency, but in today’s fast-paced, hyperconnected, always-on world, it’s all about speed, security, and convenience. Cash and checks may have once dominated the payment landscape, but in many ways they’ve been supplanted by more efficient and less restrictive forms of payment.

Using cash can actually be more costly than many people might realize. From ATM and check cashing fees, to theft and theft mitigation, the cost of cash can be felt in a variety of ways. One study from Tufts University found that using cash costs businesses about $55 billion a year, and the average family about $1,739 a year. 

New communication technologies have made possible more convenient and less costly payment options like electronic wire transfers, debit and credit cards, and mobile payment apps. Third party payment providers like PayPal, Zelle, and Venmo have reached significant market penetration, providing even more convenience and mobility for individual payers and businesses, helping accelerate the industry’s push towards digitization.

The COVID-19 pandemic has also had a noticeable impact on individuals’ payment habits, also driving greater user adoption of digital and touchless payment technologies. A 2021 study from McKinsey found that 82 percent of Americans used some form of digital payment in 2021, up from 78 percent in 2020 and just 75 percent 5 years ago. Similarly, according to a survey from Visa, 78 percent of global consumers adjusted the way they pay out of concern for their safety. While the pandemic may have initiated the change, the convenience and speed of digital payments will likely make this shift permanent.

However, while we tend to think of digital solutions as moving at light speed, most digital payment transactions still lack the immediacy of a purely cash transfer. The time it takes for funds to become fully accessible in the payee’s account can stretch up to several days, depending on the service used, as the transaction needs to be processed, cleared, and approved - all of which take time.

The Future of Payments - Real-Time Payments and Open Banking

Once again, technology provides an answer. Industry leaders have been developing technology to enable real-time payments, combining the speed and immediacy of cash with the convenience and reach of electronic payments. Despite not yet being as widely available as most other payment methods, and being mostly targeted on peer-to-peer use cases, real-time payments have experienced immense and rapid growth in the past year. The number of real-time payments processed globally in 2020 surpassed 70 billion - jumping by 41 percent year-over-year. Adoption in commercial transactions may open a world of new payment possibilities.

As digital payments continue to grow in popularity, the commensurate rise in available data will drive even more payments innovation for increased customer convenience. Solutions such as Request to Pay will link billing data with payment data, which will improve automation and analytics, speed up reconciliation, and even help with spending decisions.

Frictionless communication and advanced data analytics will reduce both the cost and time needed to settle payment disputes, process chargebacks and settlements, and onboard customers. Artificial intelligence (AI) and machine learning (ML) systems can be applied to provide more accurate cash forecasting services and offer intelligent receivables and reconciliation making it easier to match incoming payments with outstanding invoices, and by providing better cash forecasting services.

Of course, with new technology comes new challenges, and new threats. True widespread adoption won’t come until the general public perceives the new technology as at least as secure as existing payment options. As real-time payments continue to grow, it becomes increasingly important to leverage AI and ML in authenticating payments, detecting fraud, and protecting customers and businesses from cybersecurity breaches. 

The biggest benefits will come from open banking and Account to Account (A2A) transactions, which will cut through intermediary processes that traditionally delay money flows. A2A simplifies the transfer, as it’s literally moving money from one account directly into another, with no intermediaries involved at all.

Open banking boosts competition by enabling third parties, such as fintech companies, to use customers’ financial data to develop new apps, services, and more convenient ways to pay. While the US has taken a slower, market-led approach to adopting open banking, an executive order issued by President Joe Biden on July 9, 2021 aims to make it easier for consumers to switch banks. One outcome of this will be increased competition and new innovation in payment options. The US is on track to see much wider adoption of open banking and A2A in the near future.

A2A transfers will go from an alternative payment option to a more mainstream choice.  Open banking also makes A2A transfer through third party payment initiation possible, allowing a third party app like Exela Request to Pay or a BPX payer app initiate the transaction, from the payer's bank account, from outside the bank. 

The exchange of value is one of the most basic building blocks of the modern world and society as we know it. As global trade has increased and the world has become more interconnected than ever before, new payments technologies that add value to both ends of the transaction - convenience for the payer, instantaneous posting of funds for the payee - help reduce friction and promote a healthy and active global economy.

Now that Brexit’s deadline has come and gone, there’s a new deadline on which U.K. banks are focusing. By March 31, 2020, all must implement processes complying with “Confirmation of Payee,” a regulation put into place by the U.K. payments authority, Pay.UK, that is intended to fight payment fraud in the context of real-time payments by giving bank customers assurance their payments are directed to their intended recipient. Essentially, Confirmation of Payee (CoP) automates payee-verification before a payment goes through in real-time.

A number of large U.K. banks have already adopted CoP. Others still lag behind, which might seem surprising considering the pounds equivalent of more than $430 million was lost to payment fraud in 2018 alone. But the deadline looms, and Exela is prepared to assist its global banking customers with its own CoP solution, which leverages the Open Banking Directory and artificial intelligence to exchange CoP requests and work toward validating destination and account holders. Exela’s solution, which debuted at Finovate Europe 2019, is part of its highly-regarded Banking and Financial Services Suite and is expected to work as an important step in the process of combatting payment fraud.

In a recent article for B2C, Exela’s Senior Vice President, Business Strategy and Sales, David Jones, reviewed the imminent need for CoP in the U.K. and the how Exela’s solution works in a way that will be transparent to bank customers (except in those instances when a mismatch is identified). Jones also notes that due to Exela’s flexible deployment model, the service can be delivered to banks at a relatively low cost.

“We are excited about the expansion of our global banking solution with the launch of Exela CoP,” notes Vitalie Robu President EMEA, Exela Technologies. “Our team will continue to explore new technology-enabled solutions to improve the lives of our customers, and work with global financial institutions to automate their business processes.”  

Around 90% of everyone either shops or banks online, or both. Unfortunately, this has spawned a virtual cottage industry for payment fraudsters. In fact, approximately 63% of businesses have experienced fraud losses in the past 12 months, with $1.2 billion having been stolen during 2018 in the U.K. alone. Enter Exela’s new Request to Pay solution, on which it has partnered with Mastercard Vocalink in the U.K. Under the venture, Exela is developing the Request to Pay Solution, which Mastercard will host and run and Exela will act as distribution partner.

What is Request to Pay?

Request to Pay is a secure messaging service for overlay on top of existing payments infrastructure as a new flexible way to settle bills between businesses, businesses and individuals, and individuals and social contacts. Request to Pay allows end-user solutions to interconnect, and at the same time, provides the basis for the development of new pan-European payment solutions. 

For each “request to pay” transaction, the payer and biller will have the opportunity to communicate in real-time. Supporting and expanding e-commerce and opening up opportunities for value-added services to existing repertoires (such as transaction-financing, liquidity financing, and cash management). Overall, Request to Pay should reduce reconciliation costs and reduce fraud for all parties.

Let’s walk through a Request to Pay use case

For example, let’s envision a consumer traveling for business. Through Request to Pay, the consumer purchases train tickets, and in return, receives a payment confirmation through the communication platform. That’s nothing new, of course, but there’s plenty of opportunity for adding on for the benefit of all parties, as we’ll see. For example:

• The transportation company can use the communication platform to upsell (for example, ticket upgrades) and cross-sell (for example, amenities for the train ride), in all cases, allowing pre-payment with electronic confirmation, and as an add-on, payment and financing options.
• Through partnerships with hotels, restaurants, shops, and attractions at the destination, the platform can be used to cross-sell additional goods and services to the consumer, for which the consumer can utilize the same variety of payment options.
• Billers can use the platform to apply for invoice financing, while the bank can use the platform to analyze investment risk, initiate credit checking, and manage payments.

Request to Pay at the European Digital Banking Summit

Exela recently had an opportunity to present Request to Pay at the European Digital Banking Summit (EDBS) in Berlin, Germany in late November 2019. The EDBS is a private invitation-only gathering that plays host to a community of senior digital banking and FinTech leaders from across the European Banking sector who come together to address key challenges and opportunities within the industry.

There were approximately 50 banks and financial institutions in attendance, although the setting was refreshingly personal, according to Ralf Kastner, Christ Vincent, and Huib Gerrits, who represented Exela at the event.  We also gave a series of 30-minute one-on-one presentations to a select group of banks and other financial institutions. We look forward to rolling out our brand new Request to Pay product demonstration in the months to come.

Stay tuned for 2020 updates to our Events calendar, and don’t miss Exela at the 2020 Diamond Resorts Tournament of Champions in Orlando, Florida. We’re a proud premium sponsor and are hosting two pro-am teams of four golfers.