Fintech – financial technology changing the banking sector!21 December 2016
It is hard to disagree with the fact that the digital revolution has dramatically transformed the functioning of the financial sector. One may even speak of a special symbiosis between the financial industry and IT, which together drive the rapid development of fintech (financial technology) services. On the other side of the coin, customer expectations are changing rapidly and tend to favor the convenience that technology brings, as well as offers tailored to their specific needs. The days of mass service “at the counter” are a thing of the past. Traditional banks, as well as insurance companies and brokerage firms, must therefore face up to the new reality. But how to manage it?
The world of startups and the sharing economy
The era of classical globalization of the 1990s was a matter of concern for its opponents due to the growing dominance of international corporations. The Internet and digital technology have done much to change this situation. Today, every company can have worldwide reach. Corporations must therefore compete not only among themselves but also with startup unicorns (tech startups which have reached a value of at least $1 billion) and a huge number of small, local projects, which take their clients and profits.
But the problems don’t end there. Thanks to universal access to the Internet, many services which were previously monopolized by large institutions with vast resources can now be successfully provided by the community of users. Crowdfunding makes it possible to raise funds for any selected project, where funds are provided by those who are interested in the project. So young entrepreneurs, who are potential clients of banks (though often with poor credit ratings), are able to access alternative sources of financing for their projects.
Thanks to digital technology, we are also better equipped to cope with common threats posed by on-line services. The risks associated with loans given out based on the social lending model can be successfully solved with the help of the mechanism traditionally used for sharing files on P2P networks. In practice, one borrower receives funds provided by many lenders, so that financial risk – even in cases in which the recovery of funds is problematic – is spread out and thus relatively low. In addition, intermediary services may use different kinds of security, allowing for the verification and identification of potential cheats and assisting in risk estimation based on data from public sources (such as a register of debtors).
What does this mean for financial markets? Using fintech applications, it is not only possible to obtain funding, but also to exchange currency (not to mention the possibility of allocating funds and conducting transactions using digital currency) and to invest. And all this outside the traditional business circulation – and often without the tax burden as well.
The digital revolution is not only a question of new tools. It is also a huge change in the business operations of traditional companies and institutions, which need to come to terms with a completely new model of services and competition from players to whom regulations or tax do not apply. The Americans have calculated that for each car rented according to the C2C model, as many as 13 fewer new cars are sold, meaning less profit for producers and salesmen, subsequent job losses in the automotive industry and lower tax revenues. Banks are also affected by such issues. In the era of universal online banking and aggressive competition, supported by modern technology, it is already apparent that operating a traditional network of branches is no longer the way forward. And that also means a reduction in the workforce.
Polish banks are a global leader in innovation
It is also clear, however, that banks have no intention of giving up so easily. While the digitization of the Polish economy is progressing rather reluctantly, and is more associated with spectacular failures such as unsuccessful attempts to computerize public institutions or the failure of systems which support the counting of votes in local elections, the situation in terms of the banking industry is quite the opposite. Polish banks are perceived worldwide as role models when it comes to the use of technology and innovative solutions. Not only that, but such innovative solutions are created in Poland and are tested in Poland on millions of customers, and later transferred to foreign markets.
We asked Tomasz Chmielewski, a manager in the Next Generation of Banking program at ING Bank Śląski, about digitalization and his vision for the future of banking.
JCommerce SA: As a manager in the Next Generation of Banking program, you work on innovative solutions for the banking industry. What exactly is worked on in such projects?
Tomasz Chmielewski: In our program, we build a new generation of banking – as the name says. This means not only creating web and mobile applications using new technology, but also a change of approach to creating such solutions. The ‘My ING’ system was created and is being developed in cooperation with business processes, IT and User Experience specialists. Functionality, the way it is used and the visual elements of the front layer of the application at the design stage are the result of broad consultation with selected groups of customers. Hundreds of hours of research have assured us that the end result of our work is customer-friendly, understandable and intuitive.
The development of this kind of application also requires the creation of many new modules in the banking system and the modification of existing ones. This allows us to take advantage of new technologies and optimize processes, so that the means of communication with the customer, the data communicated to him and the presentation of it, were specifically adapted to his needs and were universal across all channels of communication with the bank.
Mobile applications for electronic banking are highly popular in Poland, and as for electronic payments, contactless payments, and payments by smartphone, Poles use these solutions readily and often, eclipsing even those from Western societies. But tough competition means that “gadgets” alone won’t attract customers. What is the strategy of digitization of the banks and what can a big bank base its competitive advantage on, in terms of technology?
Tomasz Chmielewski: In the case of ING Bank Śląski we have been heading towards full digitization for years now. We are not just a bank with traditional branches, but one that is seen as modern and innovative. Our web and mobile applications have long been among the most popular on the Polish market.
We are open to all kinds of cutting-edge developments, both in customer service processes, the choice of IT technology, and in work methodology. We work with many suppliers, not just buying ready-made solutions, but above all co-creating them, combining workgroups comprised of specialists from the banking and IT sectors. Our priority is long-term cooperation, because only then can partners get to know the specifics of the business and respond effectively to the current challenges. Here I also have JCommerce in mind, as their specialists have been participating in the development of our solutions for over 8 years now.
In the first phase of creating solutions, we use models and prototypes of solutions. Just like ‘fintechs’, we are not afraid to introduce new technologies and implement functionalities which we have not previously used, keeping in mind the quality and security of our applications. We learn by building our products on strong foundations, but develop them iteratively, placing great emphasis on the repeatability of the production process, which allows for conclusions to be drawn in retrospect and thus continuous optimization.
We also take advantage of the fact that we are part of the ING Group. That means we can use solutions developed in other countries in which the group operates, and share our own. Such cooperation is not only the invaluable exchange of knowledge and experience, but also reduces costs due to the sharing of certain modules, data processing engines, or even entire applications.
Big data, data analysis and reporting, and data mining are hot topics right now. How are they used in the banking industry?
Tomasz Chmielewski: By creating a database of customer activity and analyzing the way they navigate – for example on a web application – we can draw conclusions and optimize our processes. This enables the preparation of personalized offers for customers, the development of a more transparent service model, and finally more effective advice for our customers.
It’s a vast amount of knowledge which we are still learning to make optimal use of. The reporting of these data sets online, in place of monthly summaries which are often received late, allows for a faster response to change and means that we can be highly proactive in our activities.
At the same time, the more we know about the client, the more we can support him. The ‘My ING’ application gives users a new perspective on their products and the expenses which they generate. They can be analyzed both in a daily, monthly or annual summary, and according to category. In turn, the newly introduced Financial Trainer solution plays the role of a friendly adviser. There would be no such solutions without the possibility to obtain large amounts of data and use it skillfully.
Electronic banking is also unfortunately the dream target of cybercriminals. How are banks coping with the threat?
The fight against cybercrime is nothing new in banking. Since the inception of web applications, security is unquestionably a key aspect taken into account in the process of creation. While hackers are creating new tools that allow them to attack banking systems or customers’ computers, we cooperate with specialized suppliers to run tools and systems to counter such threats. Banks and other organizations cooperate with each other in detecting this type of hazard and trying to prevent it.
When creating an online banking application and mobile apps, we take care of safety at every stage of production. Tools are used to control the code which has been created in terms of its accuracy and lack of susceptibility to various kinds of attacks. The application is subjected to a variety of tests, using both automated tools and manual activities undertaken by IT security experts.
Another element of the fight against cybercrime is the continuous analysis of customer activities, which aims to capture abnormal behavior, or gives rise to the suspicion of fraud. Online monitoring can prevent the vast majority of adverse events and makes customers feel secure.
The education and awareness of clients as to the risks that they may encounter when using the Internet is another important aspect. For example, in cases of data phishing, as vital as effective safeguards and tools are, the responsible and proper behavior of users is just as important.
Along with the increasing use of Internet technology in our daily lives, we will modernize the mechanisms to counter attacks and fraud, so that the applications that we provide to users are both user-friendly and secure.
Digitalization is a huge challenge, but is also a great opportunity for both innovative fintech initiatives and for banks, if they are able to take advantage of it. So who does the future belong to? Fintech startups certainly have the potential to revolutionize the market, but the advantage of large financial corporations is the economies of scale – both in terms of access to resources, and constantly refined technology.
We will most probably see a synergy effect, because startups are still in need of funding, and banks have the means to benefit from new technologies, and so can afford to take over these more promising fintech companies. The digital banking revolution can currently be observed, so it is probably just the start of a very interesting story in which AI computers are the heroes, and it’s a real opportunity to shake up the market – and not only in terms of financial services.