Practice Director Ronak Doshi will speak at Blockchain Summit India (BSI) 2019 held on Februrary 22-23 in Delhi, India. Ronak will be joined by other industry experts on a key panel where they will discuss the evolution of blockchain and FinTech for a digital cashless India.
About the Session
India is passing through a wave of cashless and e-money formation. Innovation in this area by Indian FinTech startups, banks, and governments is at an all time high. The esteemed panel will discuss the formation of cashless India and what to expect in the next three years. They will specifically highlight a focus on what role cryptocurrencies and blockchain technology will play in this formation.
About the Event
Blockchain Summit India 2019 is the first edition in a series of Vision Blockchain 2030 events. Then Indian Government, various ministries, the country’s premium academic institutes, and the country’s most influential people are participating to support the initiative. Learn more about Blockchain Summit India.
Since the early part of this decade, when technology-backed disruptions started knocking on businesses’ doors, FinTech – or financial technology – transformation has been one of biggest opportunities for BFSI companies. But while they’ve consistently accelerated their transformation journeys, BFSI firms and the FinTech providers themselves have been impeded by multiple complex challenges. These include stringent regulatory requirements, exposure to cyberattacks, lack of customer trust, limited government support, and, most importantly, limited opportunities to refine and train their analytics engines in real environment.
The good news, however, is that now, even government bodies are starting to take up agendas to facilitate and foster FinTech innovation. Over the past two years, multiple countries, including Denmark and the Netherlands, have come up with their own versions of regulatory sandboxes to promote activity in the FinTech space. In addition to attracting a multitude of players looking to innovate and deliver FinTech services, these sandboxes have also contributed significantly to the overall business growth in the countries in which they’re located.
Lithuania’s FinTech Sandbox
Against this backdrop, let’s take a look at Lithuania’s newly-established FinTech sandbox through multiple lenses: what it means for the participants, how it will impact the country’s global services industry, and factors that BFSI and FinTech firms need to focus on to leverage innovation opportunities from these types of initiatives.
On October 15, 2018, Bank of Lithuania kickstarted a regulatory sandbox for FinTech start-ups and BFSI firms. The goal is to enable the companies to test their new products/solutions in a live environment with real customers, while Bank of Lithuania provides consultations, simplified regulations, and relaxations on supervisory requirements. After successfully testing their new products, the companies can implement them in a standard operating environment.
Key Highlights of the Lithuania FinTech Sandbox
Impact on Lithuania’s Service Delivery Market
While the Lithuanian FinTech market experienced 35 percent CAGR growth between 2015 and 2017, we expect it to grow by an additional 35-45 percent in 2019-2020. The FinTech sandbox will contribute significantly to this growth. Other drivers will include:
A large, tech-savvy, and growing workforce with relevant skills and educational qualifications (e.g., advanced degrees in science, mathematics, and computing)
Unified license providing access to a large EU market across 28 countries
Favorable regulatory policies, including expeditious licensing procedures and regulatory sanctions exemptions (e.g., remote KYC allows firms based outside Lithuania to open an account in the country without having a physical presence there)
Proactive government policies, including creation of funding sources (e.g., MITA), and streamlining laws and tax relief programs for start-ups
A state-of-the-art product testing environment for blockchain, through the country’s LBChain sandbox, which is set to open in 2019
Here are several aspects of Lithuania’s service delivery growth story that we expect to see in the next couple of years.
Delivery region: While service delivery demand will continue to be strongest from Lithuania and the Nordic countries, we expect strong growth in delivery to other European and SEPA (Single Euro Payments Area) markets. This will be driven by players looking to hedge their post-Brexit risks of buying/delivering services from only London
Segments/use cases: Most of the growth will come from lending and payments platforms, with relatively lower growth in capital markets and insurance
Business model: While B2B will remain the dominant model, we expect a significant uptick in in “B2C & B2B,” due to increasing demand for a better customer/institutional experience
Collaboration between startups and financial institutions (FI): Startups will continue to leverage FIs as distribution partners, but we expect significant growth in models where FIs partner with start-ups as customers or sources of funding
How Should BFSI and FinTech Players Strengthen their Own Growth Stories?
As BFSI and FinTech continue to walk the transformation tightrope in the everchanging regulatory space (e.g., PSD2 and GDPR), they need to focus on the following factors to successfully grow:
Understand the need: Look across your existing and aspirational ecosystem of FinTech delivery, and zero in on key priorities (e.g., solutions, target markets, need for regulatory sandboxes) if any, to enable a future-ready delivery portfolio
Establish your approach: Tune your delivery strategy to progressive principles such as availability of talent and innovation potential, not just operating cost. This includes prioritizing geographies with high innovation potential and next generation skills (e.g., Denmark, Israel, and Lithuania) over low cost but low innovation potential alternatives
Brainstorm your scope: Build relationships with leading BFSI players and start-ups to share/learn best practices around efficient operating models and promising use-cases. This specifically includes liasing with incumbents operating in sandboxes to prioritize select use cases with transformative potential before testing in a real environment
Get ready: Selectively rehash your technology model to simplify legacy systems, become more intelligent about consumer needs, and reduce exposure to cyberthreats
Keep an eye out: Look for opportunities (e.g., sources of funding, sandboxes, and partnerships) to help you innovate, develop, test, or successfully implement solutions
The good news is that the push (or pull) towards FinTech transformation is in same direction for all leading stakeholder groups – service providers, buyers, collaborators, customers, and government bodies. But, because the least informed is often the most vulnerable, BFSI, FinTech firms, and companies seeking their services must stay informed and keep looking for opportunities and solutions.
Long gone are the days when consumers were welcomed with toasters when they opened a checking or savings accounts at their local bank. Today’s consumers don’t want toast-making capabilities from their financial institution: they want cheaper, easy-to-use Internet- or smartphone-based financial products and services, including payment applications, lending platforms, financial management tools, and digital currencies, all with hyper-personalization. Most customers are quick to make a move if their current financial institution doesn’t deliver.
So, what do banks need to do to retain their customers? Two things. First, they need to deliver the banking experience their customers are increasingly demanding. Second, they need to reconsider much of their service delivery location strategy.
What do Bank Customers Want?
Let’s first look at banking customers’ requirements for a SUPER banking experience.
Few, if any, banks have the ability to deliver on these requirements. So, they’re increasingly partnering with financial technology start-ups – popularly known as FinTechs – to meet customers’ expectations.
This brings us to the second thing that banks need to do to retain and grow their customer base: reconsider much of their service delivery location strategy.
Cracking the Service Delivery Location Strategy Code
With innovation and personalization topping customers’ list of banking requirements, banks can no longer rely on the same location strategy they’ve used to deliver traditional functions such as applications, infrastructure management, and business processes. Why? Because FinTech requires a higher proportion of onshore/nearshore delivery compared to traditional functions and co-locating all FinTech segments such as payments, lending, and capital markets in the same region may be difficult given varying maturity of locations across segments.
With the framework, banks can evaluate all aspects of innovation potential, including the availability of talent with emerging skills (such as artificial intelligence, machine learning, and analytics), adequate cost of delivery, and providers’ financial services industry domain knowledge.
Framework to Measure a Location’s Innovation Potential
To develop our FinTech Services Delivery/Locations report, we started with a list of 40+ global cities with leading FinTech investment and market activity. Subsequently, we shortlisted 22 locations based on multiple criteria including overall investment, technology and infrastructure, and talent. Finally, we used our innovation potential framework, coupled with other factors such as maturity of the FinTech ecosystem and cost of operations, to determine the top locations banks should consider for specific FinTech use-cases such as payments, lending, and capital markets solutions.
Here are some key findings from our location strategy research:
Banks may need to create a parallel portfolio of FinTech delivery locations, as they may be far different than those that are mature in delivery of traditional functions
A location’s innovation potential (not its cost arbitrage or delivery efficiencies) is the most important factor for successful FinTech delivery. This is because the right location will offer depth and breadth of maturity across multiple financial segments, a vibrant startup scene, agile academic institutions, tech-savvy government, ample financing options, modern technology infrastructure, and friendly regulatory environment
Locations that are currently regarded as nascent (e.g., West Africa, Southeast Asia, and Latin America) may emerge as attractive alternatives as the market evolves.
Disruptive forces – open banking regulations, growing FinTech ecosystems, and increasing demand for a seamless customer experience – are forcing banks to make significant investments in digital technologies.
To effectively compete, banks must move away from being perceived as physical structures that offer financial services/products to an ambient fabric that connects people and businesses. They must transition from a transactional, product-centric approach to an intelligence-oriented customer-centric model centered around customers’ journeys. Artificial Intelligence (AI), API-enabled open banking architecture, and cloud are fast-becoming the foundations of banks’ IT architecture.
In order to evaluate and measure how organizations are faring in their leverage of digital technologies, Everest Group several years ago developed the Digital Effectiveness Assessment model.
On the Capability maturity axis, we measure organizations’ presence on all digital platforms, the quality of their mobile apps and online banking capabilities, their activity on various social media channels, their self-service innovations, and their open banking capabilities. On the Business outcomes axis, we measure their digital prowess using parameters including customers’ digital channel adoption, the customer experience (based on mobile app ratings, website optimization, and engagement), brand perception, and financial performance.
Earlier this year, we used the model to determine the European digital banking leaders. And from a field of the top 20 banks in Europe, we identified seven: Barclays, BBVA, BNP Paribas, HSBC, KBC Group, Lloyds, and Société Générale. These financial institutions have achieved:
Superior financial performance: 17 percent higher growth in deposits, and 3 percent advantage in efficiency ratio in 2017
Superior customer experience: Higher penetration of digital and social channels (e.g., up to 75 percent of BNP Paribas’ retail customers are using mobile app and online banking channels), mobile-based advisory capabilities, and personalized products and services. These leaders’ mobile application ratings are 7 percent higher than the other banks we evaluated.
Stronger customer engagement: A superior user interface (UI), feature-packed mobile apps (e.g., BBVA offers 80 percent of the mobile features evaluated) and online banking platforms, self-service technologies across branch/ATM network (e.g., Barclays offers card-less cash withdrawal, bill payments, and check deposits through ATMs), and meaningful social media content.
Higher business growth: Wider adoption of digital banking channels, superior efficiency ratios, adoption of an open banking ecosystem, and innovative product offerings, particularly through the wider set of APIs they offer.
These leaders have re-designed their customer journey to adapt to external disruptions by:
Calibrating current customer satisfaction: Formulating a unique customer engagement model based on insights gained on each customer’s digital readiness and adoption.
Benchmarking current digital maturity with best-in-class enterprises: Evaluating their digital channel maturity and customer satisfaction scores against best-in-class peers, and then tailoring their digital strategy to bridge the gap in their organization’s vision of the customer experience.
Redesigning the customer experience: Incorporating human-centric design principles to address customers’ stated and unstated requirements and desires.
Optimizing their channel strategy: Developing a comprehensive channel strategy to drive customer adoption and acquisition, and changing the business model to deliver digital experiences.
Innovative product offerings: Offering personal finance management features through digital channels that are intuitive and simple for users. Other services include payments through multiple messaging and social media channels, and intelligent voice-based payment solutions.
Our banking analyst team just finished its evaluation of how the leading North American retail banks are doing in their efforts to create the best digital customer experience, and we want to share some highlights from this breakthrough research. This is our third year of assessing 30 of the largest retail banks. The premise for the research is to examine the new consumption context of financial services – where customers are demanding a SUPER (Secure, Ubiquitous, Personalized, Easy, Responsive) banking experience.
Our research assessed the functionality and pervasiveness of the banks’ consumer-facing digital interaction layer to help establish correlations with superior customer experiences, stronger customer engagement, and higher overall business growth.
Based on our research, nine U.S. banks (Ally Bank, Bank of America, Capital One, Chase, Citi, PNC, SunTrust, USAA Bank, and Wells Fargo) and two Canadian banks (CIBC and RBC) have been featured as “Digital Banking Pinnacle Enterprises™.” These banks demonstrated business results that stood above the rest:
Better growth – 3% higher growth in deposits
Better efficiency – 9% lower efficiency ratio
Better customer experience – 20% higher mobile application ratings
We have also recognized four retail banks as “Agile Performers,” as they made the greatest improvements in 2017. These banks include Ally Bank and Bank of America, both of which launched multiple initiatives to meet millennials’ customer experience expectations, such as virtual assistants for personalized experiences and voice-command enabled banking capabilities. USAA demonstrated best-in-class adoption of digital banking channels and maintained its frontrunner position in customer-centric innovation. USAA also joined the cryptocurrency world by adding the ability to display customers’ bitcoin balances. SunTrust made considerable investments into self-service technologies across its branch network and recorded strong growth in customer engagement on social media.
The retail banking industry will continue to make dramatic changes in the next few years. These shifts will require banks to have increased capabilities to deliver an enhanced customer experience whose key elements include:
A paradigm shift from the current “product” mindset to a “customer lifestyle” mindset to combine, package, and offer products/services from banking and allied businesses
Open banking and partner ecosystems leveraging APIs to integrate third-party services into the bank’s digital banking platforms
Collapsing the siloes across the front-, mid-, and back-office to create a frictionless front-to-back experience
Harmonized data repositories to enable a unified view of the customer
A technology operating model that embraces automation, AI, blockchain, and cloud to enable the needs of the “new business”
We believe the current Digital Banking Pinnacle Enterprises have created superior customer experiences because they deliberately invested in their digital capabilities. But the bar for success is constantly moving, as the industry continues to witness rapid and significant changes. Nonetheless, our data from the last three years establishes an increasing correlation between digital functionality and business outcomes. Banks that are able to quickly adopt a human-centered design thinking approach, build usable experiences, and create a culture of obsessive customer focus will be able to better differentiated experiences, achieve growth, create shareholder value, and ensure market relevance.
To read all of our research findings, see our report: Digital Effectiveness in Retail Banking | Pinnacle Model™ Assessment 2018: Journey of North American Banks to Build SUPER Experiences
If you have visited a U.S.-based Starbucks recently, you may have noticed how the ubiquitous coffee retailer is offering a Mobile Order & Pay program to enable customers to preorder and avoid long queues and wait times.
And if you have an iPhone 6, you may have quickly paid for your daily cup of Joe at Starbucks by using Apple Pay, which allows you to pay for items by holding the iPhone in front of a reader at the checkout desk.
Or, if you live in Seattle, you may have avoided the checkout line altogether by visiting the prototype Amazon Go grocery store, where you can scan your phone on the way in, grab whatever you need and walk out without a checkout line in sight.
These are just a few examples of how payment technologies are changing the way we purchase food. The fact is, payment technologies are disrupting the entire food value chain.
