Download the Microsoft PSD2 and Open Banking whitepaper

For Microsoft, this is far from just exposing and consuming APIs. It is the creation of new business models and transformative products – for which business vision, design-led thinking, customer insight and rapid end-to-end solution provision is what will ultimately differentiate. The future of banking is agile, collaborative, ‘transparent’ and designed to encourage new business models – using ‘systems of intelligence’ in this transformation. We encourage our customers to look beyond API toolset capabilities and consider the bigger picture.

The industry and technology skills and expertise of our Microsoft Services team, combined with Azure cloud services helps banks to establish a foundation of regulatory compliance and then create differentiation by building capabilities such as analytics, machine learning and AI. These technologies drive new customer insight, bring life to existing application investments and allow banks to open new channels and new ways of meeting their customers on their terms.

CLOUD. Microsoft Azure is the platform that supports your open banking strategy: The identity, analytic, compute, database, mobile, networking, storage and web services provided in the cloud by Microsoft Azure, coupled with connectivity to your existing data systems through our hybrid integration offerings, create a unique platform of technologies that allows you to focus more on the swift creation of customer value than technology plumbing.

OPEN. Get full value from the open source investments that you already know: Our ever-growing support for open source technologies gives maximum portability and value from your existing investments. Azure supports a broad selection of operating systems, programming languages, frameworks, databases, and devices, so you can use the tools and open source technologies you already know and trust and extend to the cloud – or bring Azure capabilities to your datacenter with Azure Stack.

TRUST. Security and privacy are built in, and a priority at every step: Ninety percent of Fortune 500 companies trust the Microsoft Cloud and so can you. Azure helps protect your assets through a rigorous methodology and focus on security, privacy, compliance and transparency. The Azure cloud offers a comprehensive compliance coverage with 50 compliance offerings.

FLEXIBILITY. Adoption at a pace that is right for you: A cloud services model negates the need for large capital expense that stands up the infrastructure and minimizes your operational overhead and ongoing costs by leveraging a hybrid cloud service and a pay as you go model respectively.

A new set of capabilities are required to compete in this new environment and whilst API creation and management are a central component, it is clear that end-to-end connectivity, analytics and more are part of the larger view that needs to be considered.

There are a set of supporting technologies, as part of a broader API ecosystem, that are essential for connectivity, scalability, security, management and intelligence, which create an initial platform. But equally important are the tools, processes and mindset needed to evolve the platform at the new pace required to maintain currency in a highly competitive market.

These capabilities are also the building blocks on which other foundational technologies that are driving digital transformation.

Download the Microsoft PSD2 and Open Banking whitepaper. In this whitepaper, we explore the opportunities for innovation and how this acts as a catalyst for your digital transformation.

Read more on the Microsoft Banking & Capital Markets and Insurance blogs.

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Download the Microsoft PSD2 and Open Banking whitepaper

This first wave of PSD2 and Open Banking regulated APIs are designed as a small step to increase competition and innovation in the financial services industry. But it isn’t difficult to imagine these APIs being used in creative ways, combining services from different vendors and markets to form a single customer journey to a desired outcome. The customer experience would be defined by the purchasing context. Take the example of a car purchase: frequent car repairs, high fuel costs, imminent lease term expiry or other factors prompt or predict a need for a new car.

Responding to the prompt, APIs facilitate research across multiple vendors, ask social channels for recommendations, secure a loan or credit check, check availability and place an order – all from a single app or personal digital assistant.

The ultimate goal here is the provision of a single experience for customers through one interface that combines the best of third party prediction, recommendation, analytics, payment, product choice, delivery and ongoing support services into one seamless end-to-end journey to the desired customer outcome – in which payment or purchase is a fundamental component.

However, whilst APIs enable this, these new inter- and cross-domain partnerships could easily push many current common banking touchpoints to be invisibly integrated as part of the experience. The movement of money from one account to another could become nothing more than a behind-the-scenes transaction, with the bank in danger of being relegated to a bit-part in the overall journey.

Further, many other money management tasks will inevitably be automated through artificial intelligence (AI) or trusted digital agents such as Cortana, Alexa or Siri, which automatically synchronize the functionality of a variety of apps from a diverse range of vendors. In this event, the most successful agent and apps are likely to be chosen for ease of use and quality of insight, rather than brand and trust.

Banks are therefore ushered into a new battleground of integrated service, with the winners claiming the right to be a customer’s preferred digital point of entry into banking services. The customer experience differentiators will be based on insightful prediction of customer need, seamless integration, breadth of connectivity and assistive AI to support full lifecycle customer journeys.

All this will take some time to materialize, but elements of the new landscape will appear in the short term. And whilst customer experience has always been a distinguishing feature for many banks, their competition has only really ever been other banks. PSD2 and Open Banking regulation accelerates the introduction of an API economy, expanding that playing field beyond traditional banking institutions and allowing recognized leaders in experience management to compete, setting the bar for customer experience far higher, and increasing every year.

Download the Microsoft PSD2 and Open Banking whitepaper. In this whitepaper, we explore the opportunities for innovation and how this acts as a catalyst for your digital transformation.

Read more on the Microsoft Banking & Capital Markets and Insurance blogs.

The post PSD2 and Open Banking: Part 3- Redefining the customer experience appeared first on Microsoft Industry Blogs.

1. Customer expectations
2. Competition
3. Technology

Download the Microsoft PSD2 and Open Banking whitepaper

Customer expectations

Customer expectations change rapidly and will continue to do so. Millennials and early adopters across generations are at the forefront here being far from loyal to high street banking brands, they expect full service digital banking – and often trust tech brands to provide better service.

More than ever a customer’s choice of bank is influenced by ease of digital access and ease of integration with higher level services, as much as it is with rates or premium account features or branch locations. Banking is fast becoming just one step in the way of getting the ‘stuff’ you need. Banks need to adapt and adjust to this new attitude to maintain market share. (Find out more about banking disruption at www.millennialdisruptionindex.com)

Although, this new model disfranchises the traditional card model, existing debit/credit card and PSD2 payment models will co-exist. According to a survey on PSD2 conducted by Accenture in 2016, more than 50 percent of consumers will use a PISP (payment initiation service provider) product that is secure and offers extensive retail options. One in three debit card payments and one in ten credit card payments are expected to move to PISP by 2020.

Competition

Today’s high street banks have evolved numerous layers of organization, process and technology designed to maintain stability and minimize risk.  When all around you behave similarly, this status quo is maintained. However, these rules will not be followed by new banking entrants without the legacy (fintechs that specialize or don’t fall under the same regulatory scrutiny, and disruptive entrants from other markets).

As most of this new competition will struggle to compete directly on price – agility and customer focus are the two factors most likely to disrupt – and this may well be attractive enough to make significant shifts in market share.

Technology

The checklist of potentially game-changing technologies continues to grow and drive customer expectations – AI, bots, bitcoin/blockchain, biometrics, big data, predictive analytics and Internet of things (IoT) are just some of the technologies promising to change the art of the possible. Regardless of the technology, easing customer journeys, automating the tedious, providing just in time and access-anywhere information and services are the promise of the new normal today. Before long, even this list will become commonplace or obsolete and replaced by new innovation capturing the attention of fintechs and consumers alike. Ultimately, it is the flexibility to rapidly experiment with, adapt to, and adopt emerging technologies that will allow for continued relevance in the marketplace. Uber is a case in point, bringing established technologies together to connect buyers and sellers via a marketplace which focuses on a great mobile experience, where payment is an integral but largely invisible by-product.

The old regulatory barriers that had kept competitors at bay no longer seem to work. Some bank competitors have emerged that simply do not care about regulation and have intentionally sought to thwart it – bitcoin and the payment ecosystem that has built up around it is a perfect example. Others, such as the large (and growing) accredited investor community, offer the ability to loan money to individual borrowers through marketplace lending platforms. Rather than coming to the banks’ aid with new types of protection, regulators have thus far encouraged competitors, with measures such as PSD2, Open Banking, and the US Office of the Comptroller of the Currency’s proposed fintech charter. Unbundling of banking services has become yet another tool for the prudential regulator to employ in combating moral hazard.

So, what is the opportunity presented by all this threat of change and potential disintermediation?

The bank that is most embedded in Facebook, Skype, Xbox, WhatsApp, Auto Trader, JustGiving and others, that facilitate these scenario-based customer journeys, will establish first mover advantage, mindshare and scale.

This ’presence’ will soon be matched by others and the progression will be to banks that can automatically create value chains personalized to the customer’s buying requirement. Imagine this as an emerging real-time spot market, in which multiple potential suppliers transparently bid for a link in the chain to meet your specific needs.

Banks will play different roles, as they do today, but those that act in the ’Intel inside‘ or ’powered by Visa‘ role in this new distribution model will retain some brand presence, access to data and the ability to aggregate and serve additional value. As customers come back to their traditional banking channels for higher touch services such as wealth advice, taxation or mortgages, this insight will enrich the customer experience and brand value and so diminish the threat of disintermediation.

Maintaining access to data will become critical to participate in the largely untapped channel of access to personal financial data. The huge wealth of deep insight into customer behavior that can be gained through analysis of spending history, financial health and financial products owned could be a lucrative source of income for those controlling access to it. There are of course enormous privacy issues to overcome before this becomes a widespread reality, but recognition of and preparation for this potential future can only be a smart move. All of this will require sophisticated orchestration, authentication and verification done automatically, and at speed.

Download the Microsoft PSD2 and Open Banking whitepaper. In this whitepaper, we explore the opportunities for innovation and how this acts as a catalyst for your digital transformation.

Read more on the Microsoft Banking & Capital Markets and Insurance blogs.

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The European Commission has reviewed and modernized its Payments Services Directive, to a new package of legislative measures on payment services – to drive increased efficiency, competition and security whilst encouraging lower prices for payments. At the same time, the UK Competition and Markets Authority (CMA) is driving Open Banking initiatives to increase competition, encourage new entrants, and create a new playground for new business models. The CMA is ordering several UK high street banks to ‘open up’ and adopt new open banking principles.

Within this new landscape, PSD2 and Open Banking are acting as a catalyst to incumbents and new entrants as the start of a new data revolution – cementing the customer at the heart of everything they do. In the future if a customer wants to switch accounts, a particular product or their bank (or perhaps we should say service provider), they may be able to with a simple click, or a trusted AI-based digital assistant may even have already done it for them. It’s no longer about loyalty, it’s about what works best for the individual consumer, who will ask how smart can ‘I’ be with my money?

Is this only a Europe-centric concern? No, whilst PSD2 in Europe and Open Banking in the UK is paving the way for new business models and standards, this is the enforced start of the transformation of all banking and financial services that reaches more broadly than the relatively narrow scope of this new regulation. Perhaps further regulation will be necessary, perhaps competition will force continued innovation.

Either way, greater accessibility to banking data and services and new market entrants will make it essential for banks to consider new approaches to transform products, optimize operations, empower employees and engage customers to stay competitive – and while Europe is forced by regulation to move, the rest of the world will have to follow to maintain parity.

Download the Microsoft PSD2 and Open Banking whitepaper

Two concepts and choices emerge here – the bank as a marketplace and banking as a platform. Common to both is an intelligent and connected ecosystem in which integration is the core component and where an API-enabled platform and marketplace is the key strategic consideration. And vitally, access to customer data drives higher level analytic and predictive services that create a competitive edge of intelligent customer insight and robo-advisory services.

Marketplace banking offers complementary third party financial services products alongside a bank’s core product, for example a current account. The bank curates a number of trusted third party providers to provide a more rounded set of financial services and offers these as either white labelled or perhaps as co-branded products. The key here is well-defined APIs to enable ease and richness of integration with the third parties.

In comparison, the banking as a platform concept creates a framework in which a bank creates an open set of APIs (perhaps monetized) for any third party to build products and services from these – and of which the bank ultimately has little control. The PSD2 AISP (account information service providers) model of open access to transaction data and third party aggregator portals is a clear example of this. The depth and breadth of the banking platform opportunity is driven by the scope and access of APIs provided, and by the level of uptake among third parties and fintechs.

Certainly, of the two, banking as a platform has the potential to offer the end consumer the broadest set of capabilities, but does come with some lack of centralized control of quality.

The answer, at least in the short term, is likely to be not one or the other, but a combination. Banks will choose to strengthen products in which they excel today and consider offering these services to others to white label and consume and gain value through scale. In parallel, banks or fintechs may choose to curate best-of-breed products from their own offerings and those of third parties – providing combinations that are compelling and unique. In either scenario, the bank that is most flexible to consume or offer products or services through APIs has the advantage.

Download the Microsoft PSD2 and Open Banking whitepaper. In this whitepaper, we explore the opportunities for innovation and how this acts as a catalyst for your digital transformation.

Read more on the Microsoft Banking & Capital Markets and Insurance blogs.

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You may have seen the recent announcements from #Microsoft’s CEO declaring that bots are the next big thing with the company creating a platform for the creation of bots on other platforms – including its own Skype Instant Messenger channel. Following this, Facebook also premiered their platform at their f8 conference.

I’ve been looking at the technology from a FinTech perspective and have recently come across an exciting startup, Action.ai, that is specializing in the creation of intelligent chat bots that can be used to extend and enhance existing commerce channels. These #bots are not the clunky rules-based bots currently being debuted, but make use of Natural Language Processing, a category of artificial intelligence used to elicit meaning from words and dialogue.

The recent popularity of chat bots is due to the fact that a great number of people are spending a good deal of their time in Instant Messaging platforms, chatting with friends, privately debating, even playing games. Facebook just announced 900m monthly users on Messenger with 60billion messages sent every single month.

We got chatting about the crossover with #FinTech, and this video provides a taster of the potential in #Banking:

The more interesting chat bot technology will algorithmically learn based on instructions taught to it, and interacts with users using natural language. Bots learn to understand what you write. The recent announcements by Microsoft and Facebook along with the likes of Kik Messenger and Line, and the opening of IM platforms to third-party services, herald the start of a boom that parallels the arrival of smartphone apps.

Intelligent chat bots provide an intuitive end user experience without boundaries in which transactions can be made whilst on the move with a mobile phone. The premise is simple, an intelligent chat bot doesn’t require you to make a banking transaction and get all of the variables right or ask for the transaction to be made using a geeky language. If you miss something important, like the source account, it simply asks you or even makes an intelligent assumption that you’re talking about your principal account – a bit like a bank-teller would confirm. You could message an intelligent banking bot in the same way you’d message a friend, and it will understand you via its nifty artificial intelligence engine.

The AI takes care of all of the tedious detail for you

Conversational Commerce allows you to do pretty-much anything that’s possible with an app, such as making financial transactions and just via a text-based interface. There’s no need for tediously specified instructions or worrying about spelling errors or writing in code or a particular format. None of that will matter if you undertake financial instructions using Conversational Commerce. And the SaaS model allows seamless portability to other channels.

The #AI takes care of all of the detail for you, recognizing what you want to do from a normal textual dialogue, like “I wanna stop a transaction”. Easy. It knows you’re talking about your bank, knows your account details, and knows that you likely want to go to stop a direct debit. Now imagine the possibilities, and you’ll see why everyone’s getting so excited about it. It’s like Siri on steroids and, as a bonus, nobody gets to hear you clumsily and repeatedly speaking out loud into your phone like you’ve gone clinically insane. But we need quality bots.

Intelligent Chatbots can act as channel extensions or supplement existing channels, and can automatically triage to a real person when needed, just like in the Action.ai video. The promise of ubiquitous computing and ambient banking looks even more likely with this technology, accessing FinTech transactions in a frictionless way, from anywhere and at any time. Why shouldn’t you be able to access your bank balance directly from your xBox by simply asking a bot, and why shouldn’t you be given the option to open a dialogue with a real person during a transaction? And where best to receive triggered alerts for transactions, at real time, with the option to then ask about that event?

Well, if you embrace the future of technology, you’ll be excited to know that it’s a world that’s not so far away, especially with the major platforms opening their doors to allow software developers to create intelligent bots. And where is that channel best located? Why, in your pocket, of course. On your mobile phone.

The technology potential is enormous

Finally, there’s no reason why this bot technology needs to interact solely with just text. Not only can a bot send you a picture of the hotel you’re thinking of, or the taxi rating and a picture of your driver, but it can send you video – and video now can be made interactive. #Skype’s new APIs available through Microsoft’s Cognitive Services are offering some very wizzy functionality, and it won’t be long before you can ask to change the color of a clothing item worn by a catwalk model you’re watching on your phone through Skype video. And why not check into a physical store by simply sending a message? Your phone will be doing it all – and probably just using a single app, an IM Messenger.

So watch out for #ConversationalCommerce. It’s heading your way, strong and hard. It won’t of course replace all of our standard high street nor our eCommerce and FinTech experiences, but it’ll add to the mix, and make the whole experience richer and potentially more fun.

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The FINTECH Book is your primary guide to the financial technology revolution and the disruption, innovation and opportunity therein. With contributions from Microsoft and other prominent thought leaders in the fintech space, this book aggregates diverse industry expertise into a single informative volume to provide the answers you need to capitalize on this lucrative market. Key industry developments are explained in detail with critical insights from cutting-edge practitioners offering first-hand information and lessons learned.

Order your copy of The FINTECH Book

Check out the section on ‘embracing the connected API Economy’ from Microsoft. The API economy is changing the way businesses innovate. Markets and industries are changing faster than ever. Disruption takes many forms and financial institutions must grapple with the ‘innovators dilemma’: how to set the pace of change without stumbling. They need to embrace new technologies wisely to innovate fast at low cost and low risk – and Application Program Interfaces (APIs) offer a powerful way to do this.

The financial technology sector is booming, and the industry is scrambling for more information: Who are the key players? What’s driving the explosive growth? What are the risks? This book collates insights, knowledge and guidance from industry experts to provide the answers to these questions and more.

Find out what it means for you and how to join the revolution.

The post The FINTECH Book: An industry insider’s guide for the financial technology revolution appeared first on Microsoft Industry Blogs.

In the past, if companies spotted a niche or an inefficiency in the market they would need to build all of the technology to create a new product offering. However, using APIs enables them to take their pre-existing intellectual property and link it to new services, saving time, money and allowing business to create new or extend existing value propositions. Although APIs have been available for many years, it is only the modern APIs that have been designed for today’s ‘plug and play’ world.

Simply put, at a very basic level, by simply enabling business to do more rapid prototyping, with low cost and overhead is a benefit in itself. Traditionally on boarding developers, creative agencies or even working with existing partners to do experiments was a long costly affair leaving businesses frustrated with the lack of agility. By making small changes to the way you partner, design, execute and orchestrate has big impacts on cost savings and agility.

The demand for data is strong across alternative lenders, accounting software platforms, comparison and advisory services, payment services and others. Many of these organizations already create considerable value from data. These organizations currently access data using means such as manual downloads, screen scraping, manual entry and occasionally bilateral data feeds. There is widespread consensus that these methods are hard to use, expensive, and have limited capabilities.

Stepping up
Banks and insurers in the financial services market have traditionally used a vertically integrated business model that enabled them to control everything from the presentation layer via the middle office to the back office. Owning and managing this type of model has advantages, but the main disadvantage has become the need to serve customers with the same enhanced digital experiences they receive elsewhere.

Third parties are reducing the value of the products financial services companies offer to their customers. For example, online money conversion service TransferWise has helped customers to transfer US$1 billion worth of currency internationally, taking millions from the fees that banks would have received if they had exchanged the money themselves. Plus, there are hundreds of examples of fintech companies that have provided innovative and modern solutions for payments, loans, mortgages, investments and savings.

Value-added services
The opportunity for banks is to build on their reputation as a regulated and trusted source to provide similar products and services that are more customer centric and aligned to customers’ digital lifestyles, not just their transactions. Banks can now combine their existing rich data with public data and partner with specialists to create new service levels. For example, they may team up with an automotive trading website such as AutoTrader. A potential car buyer who is known to have owned a car for three years may be targeted with advertisements for the bank’s personal loan products while they are using the AutoTrader website. In addition, AutoTrader may be able to facilitate the loan or organize an insurance policy from within the app, offering a seamless experience for the consumer.

An alternative benefit of the API economy is that banks may be able to sell products and create new propositions for their customers in ways they have not previously considered. In the Netherlands, multinational banking and financial services company ING has a small business offer that it promotes to small and medium businesses. As part of this offer, the company sells Microsoft Office 365, which can be extended through APIs with specific templates that increase the benefit for the business and enhance the long-term value of the bank. There are numerous opportunities based around the Internet of Things and other emerging technologies. It is almost impossible for financial services institutions to keep up with the pace of change if they own and operate all of the technology themselves, so the time has come for them to consider the options the API economy brings.

To list a few examples, the API economy for financial services enables enrichment in shopping, payment application, to build fun interactive financial views for children, gamify interactive mortgage scenarios, gamify donation for charities, smarter Jamjars for the unbanked, allow family members to approve online purchases or payments, target personal offers to consumers based upon their previous purchases, personal preferences, location and their latest social media posts, reward consumers by tracking behavior through internet of things and financial activities, standardize regulatory reporting, stress testing and to standardize and share fraudulent or suspicious activities to a wider security network quicker.

Embracing the API economy isn’t just all about exposing your API’s externally. There are benefits for using the model internally and also clearly applying it with partners. Being ready for when the business model is right and mature enough for your business is part of the winning strategy.

Empowering the Digital Bank
At Microsoft, we recently carried out research to determine what it’s like to be a banking customer today. To bring our findings to life, we have developed a video story to demonstrate some of the ways in which banks can play a much more active role in our financial decision-making processes and remain relevant in our connected digital lives. Our aim is to show you some of the opportunities available to banks to not only fulfill the service needs of their customers, but to develop their brand into an invaluable information service – a service that connects with customers in their daily activities and helps them navigate the milestones in their lives.

About Richard:
Richard Peers is Microsoft’s EMEA Banking Industry Lead working with their largest clients and Fintech innovators. He has spent the last 18 years at Microsoft in sales, services and marketing leadership, with the last three years deeply engaged with clients and agencies in the Financial Services and Retail space. Working on projects and engaging with leadership teams he brings an up to the minute insight on the vision and the practicalities of “Banking re-imagined”.

Richard is a regular speaker at events and contributor re: payments, innovation, technology and the environment via social media and is a member of the panel selecting the Fintech50 2015. As a member of Level39, London’s premier Fintech community he advises a number of start-ups in the banking space.

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