Volume 5 (2020-21)

Each volume of Journal of Digital Banking consists of four 100-page issues. The articles published in Volume 5 include:

Volume 5 Number 4

Editorial
Simon Beckett, Publisher
Digital transformation and the COVID-19 challenge
Ravi Bhalla, Head of Group Design, Strategy and Transformation, Lloyds Banking Group and Elizabeth Osta, Chief Data Officer, Heineken; Visiting Fellow, Judge Business School, University of Cambridge

This paper aims to provide frameworks, insights and approaches for organisations ranging in size and sector, to help them navigate through the challenges that COVID-19 has presented. The authors maintain that the role and environment of digital transformation need to be reframed. They have constructed and posed a holistic operating model framework that has been designed for the challenge organisations currently face and will continue to face in the future. It argues that finance and technology are fundamental enablers that transcend across the model, while due consideration is required for customer, operations and supply chains. Sustainability risks and levers are posed for each model component together with examples of how organisations ranging in size, sector and digital maturity have responded either proactively or reactively to the COVID-19 specific challenges; therefore, each section provides useful lessons and takeaways for organisations to consider how best to apply in their specific organisations and contexts.
Keywords: digital transformation, COVID-19, finance, technology, customer experience, operations, supply chain, cloud, Application Programming Interfaces, agile, strategy, operating model
Are banks serious about customer experience? How to deliver market-beating customer experience
Claire Calmejane, Group Chief Innovation Officer and Member of the Group Management Committee, Societe Generale Group

With the market in flux, customer experience is more important than ever before. To thrive, banks must offer a customer experience that is at least as good as that provided by leading FinTechs. But that does not mean that banks and FinTechs are forever destined to be competitors. In many instances, the two can offer each other much of value and will profit by working together. Banks provide trust, access to customers, expertise, licencing and regulatory relationships. FinTechs, on their part, bring to the relationship agility, new ideas and innovative platforms and services. As well as partnering with FinTechs, banks can also incubate internal and external FinTechs. They can run innovation hubs, encouraging employees to think like start-up founders, and they can work with authorities to drive innovation across the whole industry. We have already seen examples of this in the way commercial and central banks have cooperated on central bank digital currencies for France in exemple. Working in these ways, banks — often in cooperation with FinTechs — can create new standards for customer experience across the widest range of connected platforms and ecosystems, and this is what customers want: the best service and the best experience as they move from mobile to desktop, whether they are in the bank’s own app or using a plug-in service on a retailer’s site. Banks are and will continue to be at the forefront of innovation, however, as customer experience design and implementation develop over the next decade. With their scale and expertise, they are ideally placed to lead the customer experience revolution.This paper discusses how banks are not only taking customer experience seriously, they are also leading the way in developing new models of customer experience, building on the best of digital and human expertise. It posits that, through internal innovation hubs and campuses, banks are already transforming themselves, using technology to provide bankers with the best tools to serve their clients.
Keywords: customer experience, digital transformation, innovation, tokenised securities, open banking, open finance
Moving an entire banking sector onto DLT: The Italian banking sector use case
Roman Stasi, Managing Director, ABI Lab and Silvia Attanasio, Head of Innovation, ABI

Blockchain technology has in recent years gained significant appeal worldwide in view of its potential to transform the way we do business. In this regard, one of the most attractive architectural concepts is the consortium Blockchain, where a group of peers, leveraging a common governance, collaborate to define rules and technology development. A consortium Blockchain is highly beneficial in a setting where multiple organisations operate in the same industry, but it is not immune from challenges, including investment, education and data standardisation. This paper provides an analysis of the evolution of Blockchain and Distributed Ledger Technology (DLT) technologies and the regulatory approach along with a practical case study on the use of Blockchain in the Italian banking sector. This sector has successfully pioneered the use of Blockchain/DLT with a new application, Spunta Banca DLT, for straight-through processing of interbank reconciliation. Finally, challenges, opportunities and important learnings are discussed.
Keywords: Blockchain, Distributed Ledger Technology, banks, technology, infrastructure, consortium Blockchain, governance, finance
Creating an AI-based personal assistant: Case study of Is¸bank ‘Maxi’
Halim Memis, Head, Innovation Unit; Mentor, Workup Incubation Programme and Zeynep Geylan, Specialist, Innovation & Digital Strategy Unit, Is¸bank

This paper looks at Is¸bank’s Personal Assistant ‘Maxi’ as a case study to demonstrate the important touchpoints in building a personal assistant and provides details of its construction. Is¸bank was established in 1926 and is the biggest private bank in Turkey. Its personal assistant Maxi was added to its mobile application in 2018. Since its launch, Maxi has recorded an impressive number of queries, overwhelmingly positive feedbacks and a very high percentage of accuracy, all of which demonstrate that the steps Is¸bank has taken have been effective. Contrary to the customary application of artificial intelligence (AI) in customer services in the finance sector as chatbots, Maxi was designed to be a personal assistant. Therefore, while acknowledging the existence and the advantages of chatbots in the banking sector, this paper dwells on the formation of a ‘personal assistant’, which, unlike chatbots, recognises its unique user, carries out certain tasks given to it and provides insights to assist the user with regard to financial decisions. A brief overview of AI will first be provided, followed by a detailed explanation of the seven steps involved in creating an AI-based personal assistant in banking.
Keywords: artificial intelligence, digital banking, mobile banking, personal assistants
Challenger banks are dead, long live challenger banks
Meaghan Johnson, Independent Consultant, Digital Magss

Customer experience is at the heart of the battle between incumbent and challenger banks. Despite the perception that challenger banks are winning this battle, a superior challenger bank customer experience presents itself in only a handful of important areas when it comes to customer needs. Moreover, a view of the entirety of today’s customers’ financial needs reveals no winner. Traditionally, six essential needs of customers have been recognised: onboarding, payments, saving, investing, lending and support. The challenger bank provides a better experience in only three: onboarding, saving and payments. Challenger banks are lacklustre in customer support and have minimal to zero experiences or products to fulfil the lending and investing needs of customers. Looking to the future, a new need is beginning to arise: data-driven insights. This seventh need will serve as the new battleground for incumbent and challenger banks, with the former in a better position to fulfil this need. Incumbent banks should therefore prioritise the creation of data-driven insights in order to stand up to challenger banks. This paper explores how challenger and incumbent banks compare with each other in providing exceptional customer experiences in six important needs. It identifies a new need, which will become pivotal in the next generation of digital transformation. It begins with a brief overview of customer experience, namely what characteristics are required to delight customers. It then identifies six important customer needs. Next, it outlines each of these needs and verifies how challenger banks have or have not provided a good customer experience. Lastly, it introduces a seventh core need, data-driven advice, analyses incumbent banks that have a head start in offering exceptional customer experiences in this need, and discusses how they are advantaged in their ability to win back customers by fulfilling this need.
Keywords: customer experience, challenger bank, insights, customer needs, UX
Contextual behaviour-driven strategy: Digital banking beyond internet and mobile applications
Lily Li, Innovation Lead, Citi Private Bank

We are witnessing an era of rapid behavioural changes and demanding expectations among clients. Society is developing different lifestyles and habits with trends in contact-free conversational voice control, simplified decision journey, real-time fee-free services and seamless digital experience. The COVID-19 pandemic has further accelerated such behavioural model switches. The time has come to transition away from simply internet and mobile applications. With such fundamental changes, client-centric strategies focused on historical data and incremental changes will no longer apply. Projecting client behaviours based on their underlying needs in context is critical. Clients desire no paperwork, no waits, no fees, no fuss with mobility. Strategy driven by contextual client behaviours shall be shaped to create a cohesive and consistent experience across personal relationships, digital media and AI automated services. This strategy should apply the partition idea behind 2-D puzzles that can be easily turned into 3-D Legos or any forms. Here, technology and the digital media are only a pathway towards connecting clients and their financial providers. This paper discusses the huge potential for banking to integrate financial decisions into clients’ lifestyles and fulfil their needs and to plan new behavioural guidance ahead to realise the compounding value in the long run.
Keywords: digital strategy, context, client behaviour, AI
Digitising investing in the light of behavioural finance findings
Jurgen Vandenbroucke, Managing Director, everyoneINVESTED

Investing is still very much the least digitised banking service. All too often, digitisation boils down to cold automation, which explains why digital conversion rates are well below those at a branch. This paper discusses that, in order to be successful, the process needs to (over)compensate the lack of human encouragement in a digital context. In this paper, we demonstrate how behavioural finance enhances the business value of digital investing. Use cases illustrate the power of insights from behavioural economics such as framing, nudging and refined investor profiling. We propose three important metrics to guide the digitisation of investing: conversion, rejuvenation and retention.
Keywords: digital, investing, behavioural finance, conversion, retention, rejuvenation
The Norwegian miracle: From crisis to cash in three weeks
Yngvar Ugland, EVP and Head and Geir V. Berglind, Chief Innovation Architect, DNB NewTechLab

The strict and immediate lockdown of many businesses and the Norwegian society at large in March 2019 caused immediate apprehension of a cascade of liquidity problems and, worse, an ensuing cascade of solvency problems. In short, tens of thousands of businesses might go bankrupt unless they received cash support. The government decided to contribute with cash support but had no means of distributing the funds. While similar existing solutions could not be adopted, or at least not fast enough, there was a proposal to build a special purpose solution from scratch, focusing on effectiveness and efficiency, rather than laser-like precision. This paper tells the story from members of the core team, comprising a handful of people, who built the solution that changed the status in many companies from crisis to cash in just three weeks. Highly autonomous and accountable engineering teams with vast experience in iterating superfast and used to building solutions that did not exist before for problems one did not know one had was one of the many factors that made for success. Other factors included a high degree of trust between government, public administration and private companies, as well as highly trustworthy digital public registries and a society-wide public authentication mechanism.
Keywords: Norway, COVID-19, payments, private/public cooperation, digitalisation
Empowering Singapore’s SMEs: FinTech P2P lending — A lifeline for SMEs’ survival?
Grace Lee, Postgraduate Student, Master of IT in Business and Alan Megargel, Assistant Professor of Information Systems (Practice) and Financial Technology Track Coordinator, Singapore Management University

The COVID-19 pandemic has sent shock waves throughout the world, pushed countries into lockdown, and wreaked havoc on the world’s people and the global economy. The damage to economies around the world caused by the COVID-19 pandemic has far exceeded that of the global financial crisis. While all businesses suffered hugely, it would be of grave consequence if the small and medium-sized enterprises (SMEs), an important segment of every country’s economy, are unable to withstand the shock wave and sustain themselves beyond this pandemic. The COVID-19 pandemic has highlighted the importance of cash flow or working capital for the viability of SMEs, exposing their vulnerability and the deterioration in their business conditions, given their limited financial resources and weaker access to financing. Hence, enabling access to finance for SMEs is important in order to restore economic growth and help economies overcome the current crisis. This paper contributes to the literature by (i) providing an understanding of the financing gaps faced by SMEs and factors that impede their credit evaluation by traditional financial institutions, (ii) reviewing peer-to-peer (P2P) lending platforms as an alternative finance option for SMEs and (iii) proposing measures to be considered by regulatory bodies, in Singapore for example, aimed at facilitating the growth of the FinTech sector while expanding alternative financing options for SMEs. Proposed regulatory measures are given due consideration for the interplay between innovation, new risks and the existing regulatory landscape, in pursuit of the main objective of empowering SMEs to embrace the digital renaissance for a positive future.
Keywords: FinTech, SME, lending, platform, alternative finance, COVID-19

Volume 5 Number 3

Editorial
Simon Beckett, Publisher
Request to pay: Monetising the instant payments investment
Erwin Kulk, Head of Service Development and Management, EBA Clearing

For the past few years, payment service providers (PSPs) have come together in an attempt to harmonise European instant payments. At the back end, the effort undertaken to transform PSPs’ internal processes and the underlying payment infrastructures to transact in real time has been impressive; however, despite the significant costs associated with this back-end modernisation, pan-European front-end payment solutions capable of fully leveraging instant payments — and the accompanying investment — are yet to be realised. This paper proposes that the solution to this problem is implementing a request to pay messaging layer between existing end-user payment interfaces and PSPs’ SEPA Instant Credit Transfer (SCT Inst) settlement layer. This layer would be used for the secure exchange of messages before the payment is executed to facilitate pan-European request to pay type solutions. This approach promises not only to bring the full value of SCT Inst to consumers, promoting increased levels of certainty, transparency and convenience, but also empowers PSPs to monetise their instant payment investments by enabling them to offer integrated value-added services to their customers around the payment process. This is the missing piece of the puzzle for European payments, and its implementation should prove a crucial step towards attaining a ‘complete’ European payments ecosystem.
Keywords: instant payments, request to pay, SEPA, R2P, four-corner model
The digital bank: Has it come of age?
Faraaz Ali, Regional Head of Deposits and Secured Lending, DBS Bank

Digital banking for incumbent banks can be challenging given the difficulties with organisational fit, cultural construct, people skills and legacy systems having to coexist with the new way of doing things. But it is also a tremendous opportunity to build a world-class digital experience and to take the bank’s reputation as a solid and trustworthy brick-and-mortar institution that will stand behind its digital transactions, especially in a world where physical interactions are severely impacted by the COVID-19 pandemic. This paper discusses how the convergence of artificial intelligence, machine learning, computational power and data abundance creates the perfect ecosystem to deliver a compelling digital banking experience. It outlines how it is imperative for banks to invest smartly over the next few years in their infrastructure as part of their digital banking strategy so that customers who choose to conduct their banking services at a physical touchpoint can also have a state-of-the-art service experience.
Keywords: digital banking, new normal, ecosystems, human-centred design, data
Data and consent management services: An opportunity for banks to redefine themselves
Dârâ Hızveren, Head of Innovation, Garanti BBVA

We are producing increasing amounts of data, which is fast becoming an extremely valuable asset. A handful of companies, dubbed Big Tech, control most of this ‘asset’ and are making forays into financial services, which is bound to commoditise financial services. How this ‘asset’ will be managed in the future, however, presents a potentially huge opportunity for banks if they can leverage their current advantages and boldly create new business models. This paper recalls the basics of the data economy, proposes three major approaches to fend off the threat of commoditisation and defines the opportunity to be seized.
Keywords: Big Tech, FinTech, financial health, open banking, data, consent management services, data ownership
Regulatory obstacles to organised trading in security tokens
Stefan Tomanek, Legal Expert, Florian Pekler, Supervisor and Ralph Rirsch, Supervisor, Austrian Financial Market Authority

The success story of the crypto-economy is undeniable. Crypto has gradually been making headway into the traditional financial sector. Acceptance of and demand for distributed ledger technologies (DLT)-based securities are on the rise. ‘Initial token offerings’ (ITOs) or ‘security token offerings’ (STOs) are on the verge of entering the mainstream — especially in the realm of small and medium enterprise (SME) financing. The borderline between the traditional financial markets and the crypto-economy is starting to blur. The players in the financial markets, however, are not the only ones beginning to realise the potential of Blockchain, and, more generally, DLT. The public sector is also slowly waking up. Recent developments include new legislation in Liechtenstein, France and Germany, as well as various initiatives in other member states. Amid all this enthusiasm and optimism, there is one issue that undeniably still dampens the mood: current EU financial markets law poses significant, and in some cases insurmountable, obstacles to the integration of DLT-based assets into the traditional financial system. In this paper, we analyse what currently appears to be the most pressing of these issues. These are the strict and inflexible rules of the Markets in Financial Instruments Directive/Markets in Financial Instruments Regulation (MiFID1/MiFIR2) regimes and the Central Securities Depositories Regulation (CSDR) in the area of post-trade securities settlement that do not do justice to the characteristics of DLT and that at present almost completely prohibit any organised trading in DLT-based securities.
Keywords: crypto-economy, initial token offerings (ITOs), security token offerings (STOs), SME finance, distributed ledger technology (DLT), EU financial markets law, DLT-based assets, MiFID /MiFIR, CSDR
Building the future of advisory in private banking
Muriel Danis, Global Head of Advisory and Diana Biggs, Global Head of Innovation, HSBC Global Private Banking

The wealth management industry is undergoing transformation, with developments, powered by digital, currently starting to accelerate. This paper describes how HSBC Private Banking is leveraging new technologies, such as BlackRock’s Aladdin Wealth platform, to build out a future-focused end-to-end advisory process. It outlines the transformation and new capabilities enabled by technology along each stage of the process and the organisational considerations required for such a transformation. The paper demonstrates how HSBC Private Banking is integrating innovative technologies to better serve clients by building a solution platform foundation for a future state of advisory that blends the best of human interaction with the power of digital.
Keywords: digitalisation, digital transformation, financial technology, private banking, portfolio management, wealth management
Experiences from the Dutch instant payment project: From 0 to 289 million in one year
Frans C. van Beers, Head Payments Product Management, Dutch Payments Association and Inge P. J. H. van Dijk, Director of Payments & Market Infrastructure, De Nederlandsche Bank

In May 2015 the leading Dutch banks announced their ambition to offer instant payments (IP) to the Dutch market in four years. The complex and innovative programme, led by the Dutch Payments Association, delivered, in mid-2019, a new IP infrastructure that has now become one of the fastest growing IP environments, with over 289 million interbank IP transactions processed in its first year (April 2019–March 2020). This paper looks back on that period and focuses on the elements that, in our view, were important to the successful introduction of this new payments infrastructure. The challenges, dilemmas and the rationale for the decision of the Dutch banking community to organise the IP project are described. The journey towards achieving all the set goals by means of a clear joint effort from the Dutch payments community was intense and rewarding. IP is expected to become the new normal for SEPA payments in the years to come, provided that some hurdles to full interoperability and reachability in SEPA will be overcome. This paper aims to share insights that may be useful to other parties that are considering introducing IP or that want to push a similar transition from conventional credit transfers towards a 24/7 available, interbank IP backbone.
Keywords: instant payments, interbank project, payments infrastructure, Dutch Payments Association, Netherlands, De Nederlandsche Bank, real-time payments, ISO20022, faster payments, EPC, TIPS, ECB, EPC SCT Inst Rulebook, SEPA Credit Transfer
What digital banks can learn from decentralised finance
On Yavin, Founder and CEO and AJ Reardon, Chief Editor, Cointelligence

Although digital banking has improved upon the traditional banking model, it could do more to revolutionise modern finance. Decentralised finance (DeFi) looks to make banking more accessible and more flexible for today’s global population. Banks should look to DeFi to discover ways to improve their own offerings. In this paper we outline the elements of DeFi we feel would be most beneficial if they were incorporated into digital bank offerings and what the potential benefits could be.
Keywords: decentralised finance, DeFi, online banking, distributed ledger technology, Blockchain
Instant payments in Asia are changing business models
Steven Pairman, Head of Digitisation Europe & Americas and Wanisri Sanggita, Director of Payables Products, Standard Chartered Bank

The work of instant payments has just begun. This paper aims to inform the reader of how the Asian marketplace is leading as the world moves to instantaneous payments, enabling real-time commerce. Digitisation is creating a technologically interconnected society that treasures immediacy, and payments are integral to this. Immediacy is not only a question of speed; it implies simplicity, ease, convenience and transparency. Across the Asia-Pacific, real-time domestic electronic payment schemes offer instant payments 24/7/365. These occur within seconds, provide immediate confirmation to payer and payee and are irrevocable. New payments models like instant payments foster new ways of doing business. They support an open banking environment that accelerates innovation to create a more cohesive, customer-centric experience, heightening connections between merchants and consumers as well as businesses and their supplier ecosystems. The unprecedented level of interconnectivity enabled by application programming interfaces (APIs) in an open banking environment, combined with instant payments, will enable banks to unleash vast troves of information related to payment flows. There is a massive opportunity for growth in domestic and cross-border markets. Companies readily will adopt instant payments where there is a compelling case for improving business.
Keywords: instant payments, Asia, QR, cross-border payments, API, real time
Request to pay: The missing piece of the puzzle
Francis De Roeck, Head of Industry Engagement for Payments, BNP Paribas Global Cash Management

This paper describes and compares the new European Payments Council SEPA Request-To-Pay (EPC SRTP) scheme with the open banking-based payment initiation. The SRTP solution is not a new payment instrument but a full four-corner ‘authorisation messaging’ concept that still needs to be launched, whereas the open banking payment initiation by third parties is already possible, albeit still with a slow uptake on the continent. SRTP has powerful advantages on customer experience, but needs reach. Open banking payment initiation can already operate today on any bank, but the model has not been proven yet. Both solutions can challenge each other.
Keywords: request to pay, open banking, third party providers

Volume 5 Number 2

Editorial
Simon Beckett, Publisher
The seven highly effective strategies to survive in the open banking world
Germain Bahri, Digital Banking Consultant and Tabitha Lobo, Consultant, Fidor

While open banking is expected to accelerate the pace of disruption and has brought a wealth of new opportunities for banks to better understand their customers and offer value-added services, changing customer behaviour and increased competitive offerings by new entrants are pushing them to look beyond their traditional territory. Embracing application programming interfaces (APIs) that enable them to plug-and-play in the digital business ecosystem is only one of the many ways in which banks can compete. This paper discusses, identifies and illustrates some of the most common strategies and business model archetypes banks can adopt to move beyond the required APIs and remain relevant in the years to come. The different business models portrayed in this paper encourage banks to consider the following strategies: the augment model, the migrate model, the platform model, the greenfield model, the marketplace model, the merger and acquisition and the banking-as-a-service model. Every bank will need to question its identity and central focus to select its most suitable strategy.
Keywords: Open banking, PSD2, digital transformation, platform, banking as a service, FinTech, marketplace
Building CEE’s largest banking partnership ecosystem
Christian Wolf, Head of Strategic Partnerships & Ecosystems, Tanja Imamovic, Open Banking Leader, Strategic Partnerships & Ecosystems, Catalina Arateanu, Product Owner, Group API Marketplace and Miriam Obetkova, Intern in Strategic Partnerships & Ecosystems, Raiffeisen Bank International

Digital platforms and ecosystems represent a phenomenon that has emerged from recent dynamics on the market such as global digitalisation and demographic and behavioural changes. In particular, the banking industry is undergoing a revolution based on a combination of technological progress, changing customer behaviour and new regulatory standards, all of which lead to a fundamental transformation of financial services. The paper discusses the shift in value generation, the transition of business priorities from traditional to digital environments and the move to cross-industry and beyond banking solutions. Industry incumbents are pressured to revise their traditional closed business models and base their new strategies on open innovation and collaboration. The authors of this article reflect on these challenges and share concrete steps that RBI undertakes in order to successfully transform the organisation on three levels: being alert to emerging customer needs, urging for new organisational capabilities and overcoming technical barriers of the existing IT foundation.
Keywords: digital platforms, banking, ecosystems, network value, open innovation
ISO 20022: Understanding the scale of change
Isabel Schmidt, Global Head of Direct Clearing and Asset Account Services, BNY Mellon Treasury Services

Payments are set to undergo phenomenal change. The industry-wide move from existing payment messaging formats to ISO 20022 incorporates cross-border, high-value payments/wire transfers and will touch the payment life cycle end to end. As the implementation deadlines draw nearer, the implications for banks are more wide-reaching and involved than many have yet to fully comprehend. This paper examines what is changing, what banks will need to consider and the opportunities that are being presented.
Keywords: ISO 20022, payments, SWIFT, coexistence, technology, data, operational efficiencies, risk management, straight-through processing, artificial intelligence, real-time payments, client experience
Dos and don’ts of immediate payment implementation: The Hungarian story
Róbert Kiszely, Director of Professional Services and Jozsef Czimer, Manager, Capsys Informatics

The launch of the Faster Payments System in 2008 in the United Kingdom was the start of the modern era of immediate payments services. More than 50 countries have joined the UK since, and instant payment services have become to be the norm in the payment industry. The number of countries is growing from month to month, and the emphasis is already being placed not merely on the implementation of new systems but, even more, on reaching interconnectivity among systems and offering instant payments across the borders too. Hungary has always been an innovative country, and tourists had the option of paying with bank cards, for example, as early as in 1961. It is not surprising, therefore, that the National Bank of Hungary made a bold decision to implement immediate payment services in the country. In just over three years a unique system was launched that offered immediate payments services in Hungarian Forints. This paper offers comments on the project based on a review of the implementation period.
Keywords: immediate/instant payment, implementation, testing, lesson learnt, Hungary
PSD2 Secure Customer Authentication and customer experience: Ensuring a positive impact
Roxana Sacaleanu, Global Product Manager and Eric Tak, Global Head, ING Bank

In this paper the authors describe the current diverging views on how to comply with PSD2 Secure Customer Authentication (SCA) requirements for card-not-present (CNP) transactions that are due to kick in come December 2020. Many parties argue the focus should be on the six possible exemptions to SCA to avoid, as much as possible, having to apply SCA and thus ensure smooth customer experience. The authors, however, referencing good experiences with that in The Netherlands, argue that the focus should instead be on making SCA itself smooth and seamless. Leveraging mobile banking apps and the nascent Secure Remote Commerce (SRC) standard, the cards industry can copy what is already commonplace in the Netherlands. That way a universally smooth experience can be created, and investments can be focused on providing seamless SCA rather than spreading it too thinly across many exemptions, which will not solve the issue in many instances anyway.
Keywords: PSD2 Secure Customer Authentication, SCA, shopping, checkout, biometrics, seamless payment, customer experience, e-commerce security
The smartphone, not the tablet, now rules the mobile banking experience
Sandrine Prom Tep, Associate Professor, Manon Arcand, Full Professor and Sara-Kim Diotte, Graduate Student ESG Business School, Université du Québec à Montréal

Even though 56 per cent of Canadian Internet users conduct banking transactions on mobile devices, most studies still focus on factors governing its adoption rather than its use. To better understand what mobile banking means, the tablet versus smartphone experience is compared using a sample of 375 Canadian mobile banking respondents. Survey results show that the mobile experience, though socially friendly, is frustrating when conducted on a smartphone. This paper describes how, despite specific characteristics and benefits associated with each device, there is no difference in the effect on the cognitive, sensory/positive emotional and behavioural dimensions of the mobile experience mostly because of the increasing mobile device format evolution.
Keywords: banking, user experience, mobile devices, channel services
Assessment of micro, small and medium enterprises (MSME) financial inclusion initiatives by commercial banks in Lesotho
Lefeela Joseph Nalane, Section Head, Market Conduct and Consumer Protection and Lira Peter Sekantsi, Acting Head, Policy, Oversight and Research, Central Bank of Lesotho

This diagnostic study sets out to assess micro, small and medium enterprises’ (MSMEs’) financial inclusion initiatives undertaken by commercial banks in Lesotho. Data for this study was collected by administering a semi-structured questionnaire in four commercial banks operating in Lesotho. The feedback was analysed using descriptive statistics. This paper presents how study revealed that all the commercial banks have, to some extent, tailored their financial products/services and non-financial services to the needs of MSMEs. There are, however still gaps related to the scope and intensity of their actions on MSME financial inclusion. Almost all banks lack separate and comprehensive MSME financial inclusion policies. The implication is that the MSME financial inclusion aspects of the Financial Sector Development Strategy (FSDS) will not be implemented successfully in this context. There is a very limited adoption and adaptation of innovative loan products for MSMEs. On the basis of the findings and gaps, it is recommended that banks develop MSME financial inclusion policies. The policies should specify value propositions, organisational structures, products, processes and systems with which to respond to the MSME financial inclusion dimension of FSDS. Banks should adopt innovative MSME loan products such as financial leasing, factoring, commercial agriculture loan products that are particularly suited to the peculiar needs of crop, wool and mohair farmers and fruit growers, among others. The banks should adopt a common standard for defining MSME. The Government and the Central Bank of Lesotho should identify MSME financial inclusion indicators, develop a measurement framework thereof and institutionalise the periodic reporting of MSME financial inclusion information. This requires that banks upgrade their data management systems/management information systems to enable the capturing, storing, reproduction and sharing of accurate, timely and reliable MSME financial inclusion data.
Keywords: MSME financial inclusion, commercial banks, financial inclusion policies, strategies, Lesotho

Volume 5 Number 1

Editorial
Simon Beckett, Publisher, Journal of Digital Banking
Readying the open banking system for success
Jim Wadsworth, Senior Vice President, Mastercard Open Banking Solutions

Open banking is now the accepted norm across Europe and beyond thanks to mandated legislation. For financial institutions, however, it is no longer deemed the compliance exercise it once was. Many have realised that it offers an opportunity to innovate and, importantly, compete; open banking is the architecture that allows them to rethink audiences and transform product portfolios accordingly. The potential for open banking to revolutionise the financial well-being of millions of individuals and small businesses across Europe is beginning to unfurl. But to reach its true potential, there are still challenges to be overcome within the open banking ecosystem and its architecture. This paper addresses some of those issues, such as Application Programming Interface (API) multiple standards, which are causing unwanted layers of complexity, confusion and expense for both third-party providers (TPPs) and banks; trust and security problems posed by the validation of TPPs — particularly in cross-border transactions; and also the complexity of dispute resolution where no central records or consistent formats exist. Additionally, readers will learn whether the topic ‘open banking’ itself really matters to the success of open banking-enabled products and whether FinTechs, banks and financial institutions are wasting their energies marketing the underlying technology. Readers can expect to get a clear picture of how all of these challenges — interoperability and standards, secure transactions, clear means of resolving disputes and marketing — can be overcome to create an efficiently functioning architecture that allows powerful open banking-enabled practical tools and solutions to be transformational for both people and businesses.
Keywords: open banking, API, PSD2, TPPs (third party providers), FinTech, banks
Consumer-centric commerce: Why banks and merchants need to step up their game on customer experience
Chris Kronenthal, President and Chief Technology Officer, FreedomPay

E-commerce is growing year on year, with expectations that US$4.6tn will be spent in this area by 2022, but with this growth come a variety of problems and opportunities that need to be addressed. Consumer interaction with today’s brands is changing as technology advances, and mobile technology dictates how customers want to pay, buy, browse, receive offers and earn loyalty rewards. Any merchant or service provider wanting to retain a foothold in ever more competitive markets needs to embrace this technology and use it to both their and their customers’ advantage. Merchants have real power when they get this loyalty piece right, increasing customer sales but also creating the opportunity to generate additional revenue from banks and credit providers, who increasingly want access to a merchant’s loyal customers. Trust is an issue for financial institutions, so piggybacking on the existing trust between merchants and their customers makes perfect sense. Payment services technology allows the seamless integration of the range of services necessary to facilitate these transactions, enabling the management of all interactions with clients. Robust and secure systems that comply with the latest regulatory requirements, including payment card industry (PCI) compliance and strong customer authentication, offer a secure and technologically advanced environment that will keep up with whatever payments methods or regulations are devised next. This paper discusses the result: potentially limitless benefits to all parties that can be adapted to suit future needs at will, thanks to the seamless integration of a single-platform service that provides benefits to all simultaneously.
Keywords: customer experience, commerce, technology, payments, consumer-centric commerce, digital
Personalising digital banking with human middleware — why humans still have a place in customer service for banking
Nicola Lambie, Marketing and Brand Strategy Manager, Energy Super

As the world marches irrevocably towards fully digital experiences, consumers increasingly expect to be able to fulfil their banking needs online, whenever and wherever they want to. Two of the main challenges facing banks in the race for digitisation, however, are how to deepen customer relationships within a remote channel and how to meet the continued customer desire for advice from a real person in complex transactions, such as buying a home or financial advice. This paper discusses the current trends in banking channel preferences for consumers and examines how front-line teams are meeting those needs. It explores the concept of human middleware, defined here as the intersection of humans and technology in delivering banking services. And with the need to balance customer service expectations alongside productivity, efficiency and cost management, it provides a case study of some of the steps smaller financial institutions are taking to remain relevant in the banking market by leveraging ‘human digital’ services for customers.
Keywords: digital transformation, channel transformation, digital banking, online customer experience, human digital, banking innovation
Evolution of the invisible bank: How partnerships with FinTechs are driving digital innovation
Mayank Mishra, Global Head of Digital Channels, Treasury and Trade Solutions and Global Head of Online Banking Services, Citi

Business banking as we know it is changing in ways that could hardly have been imagined less than a decade ago. The introduction of next-generation technologies, such as application programming interfaces (APIs), artificial intelligence (AI), machine learning and robotics, is poised to deliver the ‘invisible bank’, where treasury and banking functions merge together seamlessly, bringing customer experience to a new level of convenience. This paper discusses the need to extend the reach of banking solutions beyond the bank’s own channels and technologies, incorporating them into day-to-day treasury management functions. In this way, the friction between corporates and banks is reduced — making it impossible to tell where the bank ends and treasury operations begin. By leveraging treasury data in a more contextual way, banks will be able to integrate banking functions and services into the daily duties of treasury professionals, delivering tremendous convenience and a greatly improved client experience. Digital technologies, such as APIs, are allowing banks and corporates to be more agile in connecting and collaborating with each other to bring innovations to market faster, meeting the needs of their customer base. In fact, Forbes reports that 80 per cent of large enterprises are already generating more than US$5m a year from APIs.
Keywords: Business banking, next-generation technologies, application programming interfaces (APIs), AI, machine learning, robotics, invisible bank
A ‘Digital Euro’ as an approach for frictionless payment processes
Udo Milkau, Chief Digital Officer, Transaction Banking, DZ Bank

Digitalisation is changing the way we think of money and payment architectures in the 21st century. Within global competition, economic benefits for the consumers and corporates in terms of convenience and efficiency will be the benchmark for success. App-based solutions with strong brands and centralised payment platforms proliferate, while Europe has a fragmented landscape of various elements for fully digitalised payment processes. Frictionless payment processes could be facilitated by a ‘Digital Euro’ as an interface between digital (and more and more automated) payment initiation at the frontend level and real-time processing and settlement at the back end. Such an approach could provide an end-to-end cross-industry synchronisation of processes with payment automation as an integral solution. This paper discusses a special case machine-to-machine payment in the Internet-of-Thing payments at the ‘edge of networks’, as they could generate a tremendous volume of ‘localised’ transactions that require dedicated solutions compared with networks with their principal overhead.
Keywords: digitalisation of payments, payment architectures, customers’ perspective, CBDC, blockchain, M2M payments
Technology-driven next-gen corporate banking: Trends and implications in APAC and Japan
Eiichiro Yanagawa, Senior Analyst, Celent

Corporate banking is at a critical juncture of accelerated change. External factors are driving disruptions and opportunities in corporate banking. Banks are at risk of falling behind in their response. Players in the corporate banking arena need to ensure that they keep pace and take significant strides to compete effectively with financial institutions at the vanguard of technology as well as digital giants and FinTech firms. Companies need to cease product-centric approaches and embrace a customer-centric approach, one that reimagines and improves the customer journey. Banks need to digitise paper-based processes and assign top priority to shifting from intuition-driven decision making to data and analysis-driven decision-making. Asia-Pacific (APAC) dominates the global bank profit landscape, generating 43 per cent of total global bank revenue, with the Chinese market forming the centrepiece of growth strategies for the region. Having said that, moving ahead, China will not be the sole growth engine. The global situation is characterised by uncertainty stemming from factors ranging from negative interest rates and the emergence of trade protectionism to US-China trade friction and Brexit and now coronavirus (COVID-19). Against this backdrop, the future of corporate banking growth can be expected to be heavily dependent on performance in digital economies, where technology plays a prominent role. This paper discusses how, now more than ever, as technology iteration continues to speed up, banks should seek to pursue evolution and innovation in the corporate banking arena.
Keywords: legacy and ecosystem migration, Innovation and emerging technology, digital transformation, transaction banking, SME banking, next-generation corporate banking
The inverted bank: How platforming helps exploit ecosystems
Sankha Som, Chief Innovation Evangelist and V. Ram, Chief Technology Officer, Tata Consultancy Services

Ecosystems are emerging as major drivers of economic activity all across the world. The emergence of ecosystems is seeing a fundamental transformation of traditional business models across all sectors of the economy. The FinTech movement has been one of the earliest ecosystem-based disruptions that have profoundly affected the banking sector. The banking sector globally has been trying to build strategies to engage and exploit ecosystems with varying degrees of success. Community banks have been early adopters of ecosystems, leveraging the traditional banking infrastructure to take deposits, underwrite loans and provide the regulatory governance infrastructure to FinTechs, whereas FinTechs provide the necessary customer experience layer and create innovative new products and services. While large banks are pursuing major digital transformation programmes to make banking services more accessible to customers and partners, smaller community banks are devising new ways of remaining low-cost players with personalised services. Digital ecosystems are now opening scope for API-fication and AI-based decision-making. Smaller niche firms are now able to build and integrate faster and demonstrate business agility. In this paper we present a summary of the macro environment that is driving changes to business structure in enterprises. The present FinTech engagement strategies of banks are presented through the lens of motivation to go-to market with new products and features that appeal to the end-customer. We have also attempted to analyse the relative merits and demerits of each strategy. If banks must emerge as ecosystem orchestrators, they will need to re-architect themselves into digital platforms. This is even more relevant for community banks. We present a logical architecture of such banking platforms and important features that need to be built into these platforms. Finally, we have presented a model of an ‘inverted bank of the future’, where many existing production activities of the bank, large and small alike, will be performed outside the bank’s boundaries by the banks’ ecosystem.
Keywords: ecosystem, platform, FinTech, digital, open banking