Paul Thomas is Managing Director of risk analytics and decisioning solutions provider Provenir
Money20/20 comes to Europe next month, providing the perfect platform for industry players and commentators to discuss developments, issues and challenges in the world of financial services and payments. It promises to be an exciting few days of debate, information exchange and networking.
As always, in this fast-paced and ever-changing industry, there will be much to talk about. The rate at which services and solutions supported by financial technology are being developed shows no sign of slowing down. Meeting the demands of regulation more effectively and efficiently dominate many agendas, as do the challenges of rising customer expectations and increasing levels of competition.
Five hot topics that I expect to hear about during the course of the event span the diverse areas of mobile payments, credit risk analytics, digitisation, vendor collaboration and small business lending.
- Taking the friction out of mobile payments
Online spending is on the rise and mobile commerce is contributing an increasing proportion of revenue. However, online shopping cart abandonment continues to be a problem for retailers and merchants with 66 per cent of laptop shoppers leaving without checking out and as many as 82 per cent using smartphones. Long, difficult online checkout processes contribute to factors that cause shoppers to abandon their purchases.
This is particularly the case for mobile users. What may pass as acceptable to the home-PC shopper doesn’t always work for the mobile shopper. This includes the most basic, until recent times fundamental, need to input payment information. Mobile shoppers don’t want to draw attention to themselves by taking out their credit cards in public. The raft of personal and payment details required by the online checkout process is a considerable obstacle for these customers.
Technology solutions can reduce the hassle of online transactions, particularly on mobile. Swedish e-commerce company Klarna, recognising that the lengthy tapping-in of information and revealing of sensitive credit card details is a significant barrier, takes friction out of the online buying process by separating the buying from the paying. Klarna makes a rapid risk decision on every transaction so shoppers need input only basic personal information – no credit card numbers – and can choose to make payment after goods have been received, creating a better customer experience. Through the Klarna partnership, merchants experience a 20 to 30 per cent increase in conversion rates.
- Expanding credit risk analytics
In today’s digital age, would-be borrowers generate huge quantities of behavioural and lifestyle data online all the time. This includes interactions through social media. The amount and type of data out there has changed, and the way it is shared has fundamentally altered.
Such data can provide indicators of creditworthiness and ability to repay that is useful to credit risk scorers. As complementary data sources to established resources, these can provide a possible alternative route to a credit decision.
Innovations in data analytics look to keep pace with the changing spectrum of customer data. For credit and lending, this can be instrumental in providing credit risk analytics that can dynamically tap resources to provide access to an enlarged data bank. Through advanced analytics that can make unstructured data useable, such output can help credit and loan providers serve the underbanked who may have struggled to secure funding in the past.
- The digital transformation trend
Across industries businesses are working to digitise. Isolated, manual, paper-based processes are limiting to all businesses. They are slow, error-prone, restrict action to one department at a time and are difficult to scale.
Customers won’t wait days for a credit or loan decision anymore. They expect rapid decisions, instant transactions and quick turnaround of requests. In short, they expect a near real-time experience.
This is unachievable for financial institutions tied-up by complex, resource-intensive processes. Manual processes and silos in the work stream are still common place and continue to be obstacles to the fast and efficient sharing of information.
Changing the situation to meet customer demands and be nimble enough to adapt in an ever-changing regulatory environment, requires a digital transformation of systems and processes. It’s a far-reaching, challenging exercise but through it, automation can increase productivity, reduce costs and improve customer service.
Information held and processed digitally provides greater traceability through a real-time status view across business functions. Not only does this improve operational efficiency, scalability and business insight but also helps with regulatory compliance.
- A wave of collaboration
Customer-centric businesses recognise that focusing on the core business of serving customers is central to success. There is a finite level of return from the proprietary development of internal technology. Through successful collaboration with technology partners, financial institutions can upgrade back-office systems and processes to best-of-breed solutions to match the digital customer-facing services they provide. Through such an association they can secure scalability and the flexibility to upgrade work flows across product sets.
Fintech provides exciting opportunities for financial institutions faced with expensive, resource-intensive regulatory and risk management obligations. Through collaboration with technology partners, enterprises can cut through patchworks of legacy systems, business process silos and labour-intensive manual processes.
Success in a vendor partnership lies in its ability to fulfil integration needs – to seamlessly integrate risk analytics and decisioning solutions with data sources and customer relationship management tools, and a single solution to meet the needs of all business lines.
- Bridging the SME lending gap
Small businesses, especially start-ups lacking a credit history, can struggle to secure funding from traditional lenders. It can be hard to assess the level of risk they carry and loan amounts tend to be smaller. For lenders, who have to satisfy internal safeguards and external regulatory mandates, the effort can outweigh the reward.
Plugging the gap, we see services built around technology solutions. Innovators working with the latest technology can build solutions specific to particular finance needs. They are unencumbered by legacy infrastructure and the ongoing need to support a wide ranging product set and customer base. Resulting innovations have been used to good effect, underpinning services such as peer-to-peer lending and e-commerce solutions. They have created an alternative, viable option for SME financing.
Through financial technology, traditional lenders can similarly deliver solutions that enable them to compete in their established markets, as well as helping to improve their own processes. Cloud-based software services free up institutions from building and maintaining everything themselves. Sourced from specialised solutions providers, they can support not only the processes that underpin credit and lending, but also the entire credit lifecycle.