Article | April 27, 2020
Everyone wants to build a creamier, faster, and more efficient financial services journey — which in 2020 is not a point of controversy or friction.
Today, customer demand is touching peaks. It is customer demand that forces businesses come out of their silos and collaborate with others to create products and services that are open-source, non-proprietary, and do not lock down users into an ecosystem. The launch of Open Banking is initiated to fundamentally change the way consumers, businesses, and banks pay and get paid, and how they maintain their data. The foundation of a unified Application Programming Interface, or API, across financial institutions, constitutes a foundation in which data can be seamlessly and securely shared right away.
While open banking is in the initial stages of its evolution, many assume this trend to expedite and reshape the banking industry in significant ways. Thanks to open banking developments around the world, customers are becoming more informed of the essential value of their information and are increasingly seeking more command over their financial data.
Table of Contents
•Why is Open Banking Important?
•How Does Open Banking Work?
•Open banking in United States
•The Wave of Change in Payment Arena
•Cloud-based Processing Services
Why is Open Banking Important?
The most valuable asset in the 2020 world is data, and banking data is the finest of the crop, as it facilitates insight into how consumers and businesses are employing money, saving, and acquiring debt.
The data has got value and the data that the bank holds and the customers, belongs to the customer and not to the bank, that’s a fundamental realism or premise that the government has is writ large in European legislation. You will be pestered by its called GDPR but fundamentally enshrines the fact that the data belongs to you, the consumer or to the SME, not to the financial institution. And if you as a consumer want to use that information to get access to better products and better services, it’s entirely your right to do so. That’s what open banking is trying to deliver. It holds the promise of making finance more convenient, better tailored and fundamentally smarter.
From industry point of view, open banking promises to lower the barriers to entry to financial services and lower the barriers to innovation in financial services. That’s why it is so exciting for many of the fintechs.
Open Banking delivers enormous opportunities in 2020, for the fintech ecosystem that goes beyond necessary to invigorate customer relationships and transform businesses. Through ecosystem partners, banks can enter customer journeys earlier than before and create added value to expertly serve enduring customers as well as attract new ones. Customers foresee seamless digital experiences, and platform-based business models, that are a quintessential element of the digital economy. When embracing the opportunities Open Banking brings, banks can leverage the ability, speed, effectiveness, and innovativeness of startups to enhance their product and service offerings. Banks also have access to other banks’ data. By genuinely performing multi-banking services, they can drag competitors’ customers and spread awareness of their brand.
How Does Open Banking Work?
Let’s put this into three:
• What the banks do
• How you get registered
• What the customer sees
The banks have put into places API’s, this means they have made huge technology decisions to expose customer data and access the data from other third parties. For open banking to work, you have to be governed by the OBIE rules. The OBIE is open banking implementation entity and you can either be an AISP or a PISP that sits under the OBIE. The AISP essentially means you are an account information services provider and PISP means you are payment initiation services provider. One means you can aggregate transaction data and customer data, the other means the payments that you can initiate from your third party, from your bank. The third element to this is TSP, a technology service provider. And they basically provide all the rails between the banks and between third parties to make sure that this whole system runs right. From the consumer perspective, at the end, it gives them the ability to share their data with third parties but crucially have the permissioning power to be able to do that.
An AISP can condense reams of bank account statement data and pass it to the customer in a single interface, making it ideal for treasurers of multi-banked organizations. Payment service users – whether they are individuals or businesses, can guide their banks or payment service providers to share their bank balance and transaction data with regulated AISPs. To display this information on a user-friendly dashboard, the AISP can convert all this transaction data into the expected format and send it to the customer’s ERP or Treasury Management System.
Before the initiation of Open Banking, businesses and consumers were logging into each bank individually to initiate payments, using various workflows and security etiquettes. With the arrival of Open Banking, individuals or businesses are now equipped to mandate their multiple banks or payment service providers to receive payment instructions via their PISP’s app.
Learn more: Open banking in the same language
Open banking in United States
According to Deloitte Insights, The open data revolution is most obvious in Australia, the United Kingdom, and other countries in the European Union. Each has distinct regulations that require banks to share customer data with third-party providers as per customers’ instructions. Other countries, such as Canada, Japan, and Singapore, are also considering similar regulations. Australia, however, has taken it a step further: It has gone beyond the financial services sector, applying an expansive set of rules on consumer data rights and data-sharing to other industries as well. We do not know yet whether this will be a model for other countries, although, in the United Kingdom, similar efforts are underway.
While the open banking model in the United States may take a different path, US banks can learn valuable lessons by looking at how it has been implemented in more regulatory-driven environments. Bank leaders may find it particularly helpful to review how different regions set technical and customer experience standards for data-sharing.
To date, there are no signs that new open banking regulations are being developed in the United States.
Learn more: Open banking model strategy
The Wave of Change in Payment Arena
One interesting example of the innovation encouraged by Open Banking is HSBC’s Connect Money application. This application enables customers to view all their accounts within single application-even if those accounts are scattered across different banks.
According to an article by Accenture "How Open Banking is Catalyzing Payments Change" Connect Money demonstrates one of the most fascinating features of Open Banking. Many Open Banking products and services are subject to “network effects”—they become more valuable as more banks participate. If Connect Money allowed customers to track only HSBC accounts, it might have been somewhat useful. The fact that the app connects across many banks is what makes it powerful.
This aspect of Open Banking can also make it easier for new entrants to grow and gain purchase in the market since more access to data means more opportunities to create value for customers.
In the payments platform, Open Banking is advantageous to small and medium-sized businesses (SMEs). This is because it facilitates account aggregation, better financial management, easier credit checking of customers, and the unification of lending and accounting applications. With Open Banking, SMEs can receive and make payments using different platforms with better clarity and best momentum.
Open Banking payments are validated instantly between consumers and their banks. This means the chargebacks that merchants must pay because of fraud or rejected payments becomes zero. This offers plentiful savings for all merchants. Payments powered by Open Banking also give real-time credit transfers, confirming the payment and empowering merchants to ship the product immediately.
Cloud-based Processing Services
Open Banking also maintains cloud-based processing services- a compelling alternative for decentralizing processing and encouraging payments innovation. The benefit includes:
• More economical costs
• More regular compliance maintenance
• Advanced enterprise agility
• The capacity to flex volumes quickly
The new payment option, called IATA Pay, provides customers more extensive selection of payment methods when buying airline tickets. The most popular services that are being worked in 2020 covers Request to Pay and P2P payments services. We can anticipate seeing many more in the following years.
Open Banking scales to opportunities preferably, then threats. Done perfectly, banks can flourish, encouraging their customer franchises and brand, securing a defined culture, and fostering business through open collaboration with the world beyond financial services.
We are witnessing the initial stages of a seismic industry migration that will come into full power over the next five years. The evolution of innovations with the potential to force simplicity and enhance flexibility is turning a once complicated web of financial institutions into centralized tools to maximize value creation. Open Banking scales to opportunities preferably, then threats. Done perfectly, banks can flourish, encouraging their customer franchises and brand, securing a defined culture, and fostering business through open collaboration with the world beyond financial services.
Consequently, any bank that needs to stay consistent in 2030 must begin to design their Open Banking strategy immediately.
Article | April 27, 2020
As technologies such as 5G, IoT and AI are rolled out across industries, old business models are being overturned and new ones created, all in the name of progress. Even the most established industries run the risk of being significantly weakened, or even made redundant – so organizations will have to embrace change to survive. Business agility is crucial to responding to market changes, challenges and opportunities. Embracing the latest technologies, and fast, seems to be the order of the day. But to ensure this can be delivered effectively, a new generation of enterprise resource planning (ERP) systems – powered by artificial intelligence (AI) – are making an entrance.
Article | April 27, 2020
In the past couple of years, we have witnessed a new trend in the payment industry – digital wallets. The European Central Bank came up with a report saying that consumers prefer digital wallets over cash and they also see a future where cheques will become a thing of the past. So, there is a clear shift from physical to virtual money that is going on in the payments industry, and business owners have to react faster to stay competitive in this era of digital transformation.
We are so familiar with seeing “Cash” as one of the payment methods, but the truth is, the world will be changing towards digital payments. And it isn’t that hard to understand why. Cash is inconvenient, subject to theft, not safe for all users, cannot be used by people who are blind, and becomes less efficient with growing traffic.
There are different ways to pay the bills online. With PayPal, credit cards, Apple Pay, Google Pay and Samsung Pay leading the way, it’s hard to understand what is happening with digital wallets. Below are some of the Digital Wallet trends that show how digital wallets are changing the way customers pay every day.
Biometric Authentication to rise:
The digital wallet is gradually becoming a more mainstream concept along with Biometric Authentication. Whether it’s lack of physical cash, or the need to access funds from different accounts, the average person now understands the importance of storing their debit cards, credit cards, and even private banking information in a secure app.
Digital wallets, which store card details and other personal information, are convenient, but safety is still a key. As a result, biometric security is making waves, as are new security features, such as fingerprint scanning, face recognition, heartbeat analysis, vein mapping, etc.
Biometric authentication is steadily gaining popularity with digital wallets, integrating it with the most famous two-step verification. Security experts have looked into the feasibility of using fingerprints, irises, and heartbeats as verification methods for a safe and successful transaction on customer’s wallets. In addition, several banks are testing facial recognition technology, while Visa and Mastercard are testing vein mapping.
The QR Code entangled in Digital Wallet:
QR codes are everywhere these days. They prove to be extremely useful in multiple industries, including the FinTech industry, retail, transportation, and entertainment. The digital wallet is transforming the way customers make and receive payments. QR codes turn the phone into a payment portal — just like a credit card or cash — and are already a common sight in stores, hotels, events and more. But QR codes aren't just about making payments easier. They are a powerful marketing tool for online stores, allowing them to insert enticing offers directly into their store windows.
Because QR codes are encoded in the barcode's image, they can be incorporated into any design, making them a highly effective marketing tool. QR codes are especially effective on short-term promotions, such as a newspaper ad with a code that links to a shoppable page on the store's website.
QR codes are simple to create and incur no extra expenses. Businesses can generate it quickly and start using it for various platforms, and they can be reused and recycled, making them a cost-effective alternative. QR codes are widely applicable to sellers of all sizes, from big e-commerce shops to tiny retail enterprises.
Due to its high usability and inexpensiveness, we can conclude that digital wallets will be incomplete without QR codes.
AI and ML to keep your wallet safe:
For many industries, machine learning and artificial intelligence (AI) are already securing the way we do business, from healthcare to transportation. Now, they're taking the digital wallet world by storm.
AI and ML-based tools and systems are helping businesses detect and prevent fraud. They’re also helping banks manage risk more effectively by spotting anomalies and behaviour that could indicate fraud or money laundering. According to Deloitte, AI and ML-based tools will power 60% of financial fraud detection systems by 2025.
“We're seeing technology advance and be commoditized in a way that we've never really seen before with the advancements around artificial intelligence and cloud capability, or even the revolution that we're seeing within the core banking sphere is really changing what financial services actually means.”
-David Brear, CEO and Co-founder at 11:FS
AI and ML-based fraud detection tools are already being used in a variety of ways. For example, you can use them to monitor customer transactions in the digital wallet and spot fraudulent or unusual activity. They can also monitor customer behavior patterns, such as unusual logins or patterns of spending across multiple digital wallet platforms.
AI and ML-based tools can also improve fraud prevention in digital wallets by making predictions based on information that’s already available, such as payment history and transaction patterns. For example, an AI-based tool might analyze a customer’s payment history, say, and predict when the customer is about to miss a payment.
NFC (Near Field Communication) in Digital Wallets:
Convenience has overtaken security as the key driver in contactless payments. We all like paying with contactless cards because you don't need a PIN. A contactless card is like a credit card without a magnetic stripe on the back.NFC (Near Field Communication) payments, like Apple Pay, work with NFC-enabled POS (point of sale) devices already installed in millions of stores.
The consumer benefits of contactless payments are clear. Merchants embrace NFC technology because it enables shoppers to quickly pay for items by tapping their phones on special readers. NFC technology also reduces the time spent at checkout, and it's secure, as only authorized users can use their smartphones. In addition, contactless payments reduce fraud, save time and improve the checkout experience. As a result, the adoption of contactless payments in digital wallets is on the rise.
MasterCard estimates contactless payments will represent 10% of all digital transactions in 2021, rising to 36% in 2027. The convenience of contactless payments has surpassed security concerns, eventually forcing merchants to upgrade their POS devices.
Merchants with older POS devices can't accept contactless payments. So, they have to upgrade their hardware to NFC-enabled devices. With more advanced POS devices, retailers can protect their customers' card data by using point-to-point encryption (P2PE), which encrypts card data before it's sent to the POS device.
Cloud technology to the rescue
Cloud technology is becoming pervasive, and it's changing the way companies do business. Cloud computing allows businesses to run several applications on a single server, and it's increasingly being used to increase operational efficiency.
Cloud usage isn't limited to large enterprises. Small and medium-sized businesses are also jumping on the bandwagon, and there's one area in particular accounts for a big part of the cloud market: payments.
Today, companies are using cloud computing to make digital payments. As customers become more accustomed to the idea of making payments through digital payment methods, many vendors are creating digital wallets that can be accessed and payments can be made through a number of channels. This is increasing convenience for customers and suppliers.
Digital payments, however, aren't without their drawbacks. Late payment, for example, is one of the biggest problems that businesses face. With traditional payment processing, payments take several days to clear, and customers often find themselves unable to pay their bills on time.
But thanks to cloud technology, digital wallets can be configured to clear payments almost immediately. This eliminates the risk of late payments, allowing businesses to provide a better customer experience.
The digital payments market has been dominated by centralized payment service providers (PSPs) and fintech. Still, recent developments have made it clear that the market will broaden to embrace new forms of payment. In 2020, we saw a boom in digital wallets, with companies like Apple, Google, Samsung, Alibaba, PayPal, WeChat, Alipay, and Stripe providing payment solutions.
However, the pandemic has shown that customers need applications, and apps require merchants and payment providers. Therefore, we anticipate digital wallets to grow much more in the coming years.
What is the future of digital wallets?
Digital wallets offer retailers a more diverse and efficient way to manage payments. They will likely see particular use in the food and beverage industry, where customers often buy expensive items. 37% of retailers currently support mobile payments at the point of sale, according to a recent survey by Javelin Strategy & Research, and 20% of consumers currently use their smartphone for payments which is increasing as days pass.
What are the benefits of digital wallets?
Mobile payments have come a long way in recent years, so it's easy to whip out your phone and buy a coffee, beer or hot dog using just your phone. But that's only the beginning. Digital wallets give users more control over their spending, security and convenience. For instance, people can set up automatic payments from their wallets. This feature helps users save money and enables them to pay off their debts on time.
Will digital wallets be mandatory in the future?
If digital wallets can provide convenience to the customers and the retailers, it's more about adopting and not forcing anyone to adopt this technology. With more convenience for the customers to pay through digital wallets, and easy transaction handling for the retailers, digital wallets will be more of a handy technology rather than making it mandatory for transactions. It will be mandatory for a successful business.
Are digital wallets more secure or not?
Most digital wallets use a secure tokenization system. Instead of storing your actual credit card number, a token is created that's used instead. Then, when you make a purchase, the token is verified on the merchant's end, who then sends the token to your bank or credit card company. Digital wallets like Apple Pay, Android Pay, Samsung Pay and PayPal Pay let you pay using your iPhone, Android, smartphone or tablet.
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"text": "Mobile payments have come a long way in recent years, so it's easy to whip out your phone and buy a coffee, beer or hot dog using just your phone. But that's only the beginning. Digital wallets give users more control over their spending, security and convenience. For instance, people can set up automatic payments from their wallets. This feature helps users save money and enables them to pay off their debts on time."
"name": "Will digital wallets be mandatory in the future?",
"text": "If digital wallets can provide convenience to the customers and the retailers, it's more about adopting and not forcing anyone to adopt this technology. With more convenience for the customers to pay through digital wallets, and easy transaction handling for the retailers, digital wallets will be more of a handy technology rather than making it mandatory for transactions. It will be mandatory for a successful business."
"name": "Are digital wallets more secure or not?",
"text": "Most digital wallets use a secure tokenization system. Instead of storing your actual credit card number, a token is created that's used instead. Then, when you make a purchase, the token is verified on the merchant's end, who then sends the token to your bank or credit card company. Digital wallets like Apple Pay, Android Pay, Samsung Pay and PayPal Pay let you pay using your iPhone, Android, smartphone or tablet."
Article | April 27, 2020
Machine learning has had fruitful applications in finance well before the advent of mobile banking apps, proficient chatbots, or search engines. Given the high volume, accurate historical records, and quantitative nature of the finance world, few industries are better suited for artificial intelligence. There are more uses cases of machine learning in finance than ever before, a trend perpetuated by more accessible computing power and more accessible machine learning tools (such as Google’s Tensorflow).