How Intelligent Connectivity Enables Multi-Channel Finance

ByWilliam Genovese

September 16, 2018

William Genovese

The financial services industry is feeling the impact of the digital revolution. Maintaining growth and profitability is an enormous challenge for banks as they need to keep tinkering with the customer experience, not only to provide financial services for their customers, but also to stay more relevant in customers’ lives to keep their attention.

The 4th Industrial Revolution
Bringing active digital intelligent connectivity to every individual, home and organization is of critical importance for a fully inclusive Financial World. We’re helping to ensure the industry and ourselves are prepared, as we’re very quickly entering the fourth industrial revolution.
The Financial Services Industry is facing the confluence and convergence of emerging technology (Artificial Intelligence, IoT, and Blockchain) as an enabler of the fully connected digital and intelligent world, as well as a disrupter to traditional organizations and business models.
The Rise of Fintech
Digital platforms are fueling the on-demand economy by matching supply and demand in an accessible, low-cost way. Uber, Amazon, and Alibaba show the disruptive power of these sharing technology platforms, where buyer-seller interaction is high, a diverse range of goods are on offer, and the marginal cost of rolling out a new product or service is approaching zero. In essence, digital platforms seed trust.
Fintechs are disrupting the industry by both cooperating and competing with banks for customer attention and thus their wallets. Customers no longer have to engage with their bank or purchase goods or services separately. Shared marketplace platforms are injecting more relevance for customers, letting them navigate the buying experience from end-to-end and make and pay for purchases on-demand.
 Challenges in the Digital Age
As banks move into the third digital revolution and as the lines are blurred even further as we enter the fourth industrial revolution, customer experience is transforming. Banks are faced with the following challenges:
Growth and profits: This is the number one challenge – banks need to keep their customers and current profits, but also offer new products and services.
Customer experience: Digitally enabled, the customer experience has been transformed. Customers are now valued clients who engage with banks on a level above transactions. Banks are an extension into other areas of their lives, and so the relationship needs to broaden and deepen.
Compliance: The rapid change and broad impact of the digital revolution means that banks, legislators, and regulators are being challenged to an unprecedented degree, and for the most part, can’t cope.
Fraud and cyber security: No longer a “behind the data center firewall” issue, diligent focus is required to develop a cyber security ecosystem.
New technologies: Customers are quickly adopting new technologies, which pressures banks to deploy digital solutions in a customer-facing way. But, not all banks are agile enough to do so quickly. Some big multinational banks are partnering effectively with Fintech start-ups and providers, while smaller regional and community banks have different challenges. They can move quickly and are partnering with Fintechs to solve resource, skill, and capability challenges.
A Paradigm Shift
To accommodate their customers’ digital journeys, banks are undergoing their own paradigm shift.
In the past, a customer typically interacted with a bank within its walls or boundaries, either physically in a branch or virtually in a call center or to access certain online services. Characterized by slow analog manual processing, the old system saw products, admin, and infrastructure centralized and siloed. Today’s customers expect everything, anywhere, anytime, with an experience that’s seamless, integrated, and mobile. The bank’s walls and boundaries are no more.
Near instant experiences are available for services like savings, instant financing, and purchases for non-traditional banking goods or services from an integrated marketplace retail account. Integrated payment and transaction processing augmented with artificial intelligence providing recommendations are delivering highly contextual and relevant services for customers.
Banks’ business strategies and service delivery models are changing. The interesting questions are how will the new monetary system be organized and structured, and how it will transition and change from what it is today?
One change is disintermediation. IT is reducing search costs and enabling demand and supply to meet directly regardless of distance, so online intermediation platforms are taking over from business models where an intermediary creates value.
In banking, disintermediation began in the late 1970s with the securitization of loans. In the 90s, banks established transaction platforms that were off-balance-sheet as legal entities, because they were much more flexible in terms of the securitization. But, the financial crisis and its resulting increase in regulation ended the disintermediation trend.
Banking models from the 1970s to 2025, and the evolution of banking

Source: Banking 2025: The Bank of the Future – Rainer Lenz

Banks are now creating platforms and infrastructure that enable open banking based on hybrid APIs and web-based intermediation platforms. They can then integrate their legacy, centralized computing stacks with decentralized, shared platforms.
The following illustrates the evolution of banking from informal banking to “invisible” or “ubiquitous banking” in the future.
To some degree, the industry is going “back to the future” or at least revisiting the past of informal banking with the advent of crypto and digital currencies in terms of nascent currency/trading systems.
As banking has moved into and past Omni- Channel Banking and as companies expand, particularly into emerging markets, a multi-channel approach is a necessity from the following perspectives in the 4th industrial revolution.

    • Risk management: From a risk management perspective, it is better to be diversified in the event of security breaches or unpredicted network outages or downtimes.
    • Worldwide coverage: Not all services are available in every country, but some may be the best choice for a specific region or payment type.
    • Scalability: A single host-to-host connection may be all you need as a small organization making payments through a single bank in a single country, but this will not be scalable as your business grows.
    • Flexibility: Having multiple connectivity options makes a business more adaptable, allowing you to more quickly expand the scope and reach of your business into new areas.
    • Service availability: The availability of network services varies from bank to bank. It’s worth checking with banks what network they support to make the best choice in regard to channel, costs and implementation efforts.
    • Format availability: Not every payment, statement or bank confirmation format is available via each channel with your banks. Where sophisticated channels like SWIFT FileAct allow you to exchange local formats used for many years, newer channels such as EBICS may only support certain types of ISO20022 (XML standards).

Industry standards: The lack of consistency in formats and communication protocols, different languages and customs, and often no underlying common infrastructure can lead to increased time-consuming manual processes. While this may seem like an argument against multi-channel connectivity, it is in fact the opposite.Using more than one bank connectivity channel is a smart choice.

Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Huawei Technologies.

Leave a Comment

Posted in Technology Posted in Technology
Published by

William Genovese

VP, Corporate Strategy Planning & Research, Banking & Financial Markets. Based in Huawei's Shenzhen HQ, Bill is a thought leader in Fintech & how ICT is shaping the sector.

View all posts >