Categories
Bank

Steps for Digital Transformation in Banking Industry

Consumers’ expectations from banks are changing and the need for seamless and efficient processes is growing. Banking Digital transformation helps banks evolve and stay competitive. Most banks have a huge task ahead of themselves and they need to step up to customer expectations to stay relevant in changing times. 

As per data collected through a survey, 14% of the US consumers were looking forward to changing banks, with 43% of customers planning to do so in the next 3 months. To retain customers and gain new ones, banks and financial institutions need to invest in digital and on-demand services. Customers who are on the market looking for a new bank will definitely prefer the ones that offer services beyond their expectations. This can be achieved by digital transformation in the banking industry

The financial services industry has been under huge turmoil in recent years, as tech companies have made subscription-based and on-demand services a normal habit. This unique environment has also entered the financial services industry. FinTechs have been filling the gaps that traditional banks lack. This newfound preference for FinTechs over banks is challenging for large financial institutions, as they need to innovate. This is why digital transformation in banking and financial services is becoming a necessity. 

Most financial institutions have started investing in digital transformation, and a lot of them are still struggling to keep their customers happy. In this article, we’ve mentioned the steps for successful digital transformation that banks can follow.

Best Steps for Successful Banking Digital Transformation

1. Leaders Should Focus on Innovation

Digital transformation in the banking industry requires huge changes and a cultural re-vamp. For innovation to be a major part of the industry, it needs to come from the top management to the lower level. To make this happen requires bringing in new leaders who have innovation experience. 

To embrace digital transformation in banking and financial services, leaders should be the ones who try to implement innovative solutions the most. The innovative ideas should focus on long-term ROI and should help in building a lasting competitive advantage rather than attempting to avoid the short-term costs of making impactful structural changes. 

To make sure the innovative processes are working ideally, there are six areas to focus on:

  • Skills: Build teams that have the skills to adapt to new methods
  • Security: Gain customers’ trust by providing data security
  • Stability: Create resilience in IT systems to ensure that digital and online apps don’t experience downtime
  • Scalability: The solutions should be able to scale up or down to meet changing customer requirements
  • Speed: Focus on building multi-functional teams that can handle several projects at once and can reduce time.
  • Satisfaction: Make sure that customers are satisfied with the end product.

2. Unlock Data Framework

Software built-in in older times didn’t take data integration in mind. Keeping customers’ financial data in silos that can’t be easily accessed outside the company. This is changing as people want to access their money anytime, anywhere. 

With the digital payments apps of today, it’s almost seamless to send and receive to friends and businesses. If a particular bank can’t connect to these third-party payment services, customers will switch to a bank that can. 

Financial institutions need to invest to build better online customer experiences, financial institutions should invest in a centralized data-linking system. To get a data linking system, financial institutions can either build one from scratch or choose a third-party vendor that can do the heavy work themselves.

3. Build Data Partnerships

Internal data is valuable, but it doesn’t provide the full picture of your customers’ financial lives. To offer the best products and services, you have to be able to access permissioned data from financial accounts they hold somewhere else. Up until recently, accessing consumer financial data from outside banks was next to impossible. But, in the last ten years, there are several technology companies that allow banks to do that. 

For retail baking customers, linking an external account is relatively simple. They select their outside bank and enter the username and password for those accounts. 

Data partnerships can paint the complete picture of a customer’s financial life, providing banks with the ability to build solutions that are able to keep up with customer demands. This can help in refinancing their mortgage at a lower rate or offer to target savings tips. 

In addition to data partnerships, banks can also consider relying on open banking API infrastructure that makes data sharing seamless. Partners like these can be a good solution for resource-limited banks that want to follow the digital transformation in banking industry.

4. Recruit Technical Talent

Technical talent is critical for successful digital transformation in the banking industry. Without proper technical talent, financial institutions can’t build the much-needed solutions. 

Recruiting high-performing product managers, designers, and software engineers start with building an innovative environment. Financial institutions aren’t exactly perceived as tech giants, so most technical talents don’t wish to work for financial institutions. According to a report, 50% of financial institutions say that they have challenges in finding IT talent. 

Fortunately, the culture is shifting, so banks need to offer enticing incentives for IT professionals. An ideal solution is to offer salaries that are up to par with top IT companies such as Google and Amazon. This may be the only way to recruit several tech workers, and possibly the most effective solution.

5. Focus on Solving Customer Pain Problem

Once a bank gathers data and the people they need, it can probably identify the gaps that digital transformation can fill. For example, a bank’s data team may need to find a significant number of customers, the problem they’re facing, and how to fix them. 

Addressing issues customers face can involve working with designers and engineers to build innovative solutions that can fix the pain problems. This is one of the biggest benefits of digital transformation in banking, as it focuses on improving customer experience.

6. Adopt a Product Mindset

Digital transformation in the banking industry isn’t a one-off process, it’s a continuous process. Ahead evolving customer expectations require having a product-focused mindset.

Here are some of the key factors financial institutions need to keep in mind:

  • Identify a key performance metric to improve upon
  • Get to know the needs of your audience and the type of problems they’re facing
  • Figure out ideas on how to solve the problems for the target audience
  • Identify the top 3 ideas and build prototype solutions around them for testing
  • Measure the impact of those tests and evaluate their results.
  • Choose the most ideal process and implement it

7. Choose Carefully Between Building and Buying

Not every financial institution can shell out millions of dollars annually for seamless digital transformation. For most banks, the challenge is how to deploy limited resources in the most impactful way. To make the digital transformation successful, banks and financial institutions need to decide which solutions to build and which technologies to buy. 

Let’s say, if an institution has an amazing onboarding flow, they should build upon it and make sure that they boost the process. They can do this by updating their existing technology or getting third-party technologies such as online document verification solutions or other solutions to enhance the process.

Digital Transformation In Banking Can Overcome Consumer Problems

The financial services industry is changing and is soon to be disrupted by external factors such as FinTech and cryptocurrency. Under these circumstances, history has shown that only a couple of players stand tall at the end. Others either go out of business, get acquired, or slowly go toward the decline. The great news is that the standing players come out stronger than ever.

Categories
Fraud

Best Fraud Prevention Tips for Digital Currencies

Cryptocurrencies and digital currency trading and exchange platforms have been becoming increasingly common in recent times. For the first time, investors and crypto enthusiasts entered the market because of the sudden boom in the value of Bitcoin. As cryptocurrency’s core nature is anonymity, financial institutions are becoming increasingly aware of a rise in money laundering cases. To minimize the risk of fraud in digital currencies, financial institutions need to follow the best fraud prevention tips for digital currencies.

The nature of cryptocurrency relies on exchanging coins online or via a phone or computer. This also means that payments can be made almost instantaneously and without many legal protocols. Credit and debit cards have legal protection, this allows you to dispute a payment and get your funds back in case of fraudulent activity. With cryptocurrencies, reversing payment isn’t possible unless the exchange itself has regulations regarding it. 

With the growing interest in cryptocurrencies, the rate of money laundering fraud is also increasing. There are also a series of third-party websites that offer cryptocurrency mining opportunities. The use of these sites will boost the growth of new cryptocurrencies and provide a base of credibility for upcoming currencies.

Digital fraud is also increasingly committed by tricking crypto enthusiasts and new investors into sharing their personal details including bank statements and ID documents to make an investment or deposit into a legit business. These stolen bank details can be used to deposit money out of a person’s accounts and move it into a fraudsters’ behavior. 

Digital currency fraud including growing and well-known cryptocurrencies is becoming increasingly common. Plus, the fraudsters are becoming increasingly sophisticated. This is making it harder for financial institutions to detect fraud.

We’ve come up with a list of the best fraud prevention tips for digital currencies that can be followed by individuals and financial institutions.

Most Popular Online Scams in 2022

1. Social Engineering

Social engineering scams involve tricking customers into sharing their personal information. There are only two types of social engineering scams that you can find online including digital currencies:

  • Baiting Scams: Baiting scams include tricking customers by offering them something. The scams usually are based on impersonating an investment professional, representative of a legit crypto firm, or representative of a non-existent entity. Scammers tend to offer special rewards or extra earning to trick customers into divulging their personal information.
  • Scareware: A scareware attack involves customers being tricked by false threats and alarms. If you’ve ever visited a third-party website, you must have seen a pop-up something along the lines of “Your Device is Being Attacked”. 

2. Phishing Scams

When it comes to the cryptocurrency industry, phishing scams trick customers into providing their information regarding digital wallets. Specifically, hackers are interested in crypto wallets’ private keys. Scammers will try to take control of customer e-wallets and encourage you to disclose your password or other authentication measures. A phishing email asking you to share your information regarding digital wallets.

3. Website Cloning

More sophisticated scammers are able to create a webpage that looks exactly like the original e-wallet website. Once you try to login into the fake website the fraudster will have access to your information. Once you put a little more attention to the website, you’ll find some inaccuracies. These types of sites can usually be identified by differences in the URL link.

How to Prevent Digital Cryptocurrency Fraud?

As cryptocurrencies are becoming increasingly popular globally, crypto exchanges have to comply with KYC regulations and AML regulations. Customers are required to complete thorough ID verification for consumers in order to buy and sell cryptocurrencies.

Here are the best fraud prevention tips for digital currencies:

  • Familiarize yourself with all the basic fraud prevention tips offered by your crypto exchange provider. 
  • Check email addresses and contact names thoroughly before conducting any activity. 
  • Make sure to not share sensitive data such as personal details, passwords, and card numbers to new sites. 
  • Keep on the lookout for clone websites or website URLs.
  • Don’t sign up with crypto exchanges that don’t comply with KYC or AML regulations.

If you feel like you’ve been a victim of fraud, then the first thing you need to do is report to the nearest authority.

Categories
Fintech KYC/KYB

FinTech 2022 – A Brief Insight into Global KYC Regulations

Financial services globally are heavily regulated by regulated bodies. The number one concern of the government about FinTech companies is the growing rate of fraud. Over the years, FinTechs have achieved incredible growth and flexibility. They can launch new services quickly, focus on scalability and adapt fast. Although, the rapid growth of FinTechs doesn’t come without its challenges. As technology is added into the finance sector, regulatory bodies have implemented stricter regulations. Let’s take a look at what these regulatory challenges are for the present state of FinTechs.

Major KYC/AML Regulations for FinTechs in 2022

In many regions, the FinTech sector was unregulated a couple of years ago and became the ground zero for scams and frauds. Because the FinTech industry is so vast, it impacts several industries and the authorities can’t develop a single approach to the problems. 

For many areas, governments worldwide have updated the existing Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. Some regulatory bodies have implemented FATF’s risk-based approach to tackle fraud. However, FinTechs are affected in numerous ways, so an industry-specific customer due diligence (CDD) approach is vital.

United States Regulations

FinTechs in the US isn’t regulated by any particular regulation. However, the firms are subjected to the federal and state laws for registration, ID verification, and background screening is vital. The first fighter of fraud against the country “FinCEN” has issued a number of AML/CFT policies for FinTechs. The country’s FinTech companies have to perform customer due diligence during onboarding and submit Suspicious Activity Reports (SARs) to the regulatory body. 

United Kingdom Regulations

Just like the US, the United Kingdom doesn’t have any regulatory framework for FinTechs. However, any FinTech that offers traditional financial services, such as banking has to comply with the FinTechs set by regulatory authorities. If a FinTech wants to operate in the UK, they have to get authorization from one of the UK’s financial regulators – the FCA (Financial Conduct Authority) or PRA (Prudential Regulation Authority).

EU’s Anti-Money Laundering Directive

The latest AML Directive (AMLD6) has a more profound impact on different sectors of the FinTech industry. From cryptocurrencies to wallet providers, AMD 6 has a far better influence and impact on fraud prevention across industries. 

  1. Cryptocurrencies

Any platform that offers cryptocurrencies will have to go under tougher regulatory controls. All virtual currency exchanges have to register with the relevant authority, conduct necessary CDD protocols and submit suspicious activity reports (SARs). Financial intelligence units (FIUs) have to maintain customer records with the name and address of the customer buying and selling digital currency. 

  1. Prepaid Cards

According to the new AML directive, the limit for the prepaid card has been set between €150 to €250 and there’s a limit of €50 for online transactions. Additionally, cards are only allowed in the region unless a foreign provider meets the AML standards. Payments can only be accepted if the jurisdiction meets the AML standards.

  1. Beneficial Ownership

AMLD6 now requires all businesses to maintain publicly available and interconnected ultimate beneficial ownership (UBO) registries. National authorities will have access to these registries for trusts and bank accounts. 

  1. High-Value Goods

High-value goods have been a part of money laundering activities for a long time. The use of high-value goods is now subject to new reporting requirements with updated thresholds. These goods include art, precious metals, artifacts, tobacco, and other items.

What FinTechs Can Do for Effective Compliance?

The FinTech industry is highly diverse and every sector has to re-evaluate and reform their customer due diligence programs according to the updated regulations. As a part of the FinTech industry you need to consider a few questions:

  • Are you complying with the country’s KYC/AML laws that you are serving in?
  • What customer due diligence protocols are you following as a business?
  • Is your customer screening process effective or is your drop-off increasing?
  • Is your customer due diligence process equally effective worldwide?
Categories
Finance

Online Payments: Reinventing Customer Experiences

The idea of the digital economy has been around for a long time, but the Covid-19 pandemic finally pushed the idea into a reality. Several businesses have made the idea possible by launching digital financial products and services. Before the pandemic, online payments were becoming highly famous among customers. Cash payments have been steadily declining since the year 2000, falling by around 10% every year, and the pandemic completely changed the process. According to industry experts, cash transactions will be eliminated in the next decade. 

However, traditional banking alternatives to cash still contain huge fees and inefficient practices. However, businesses are finding that traditional banking alternatives to cash aren’t equipped to deal with the modern instant economy and digitally demanding customers. 

Customers want a financial system that will allow them to send and receive money instantly and without much hassle. Leading more businesses to place more value on the online payment model. 

Open banking APIs allow businesses of all kinds to set up their own payment methods outside of traditional banking services. Open banking APIs leverage customer data, so they allow businesses to tailor build digital financial products and services for customers.

What are APIs and Their Value?

An API is software that allows two different applications to communicate with each other. One of the biggest and most common examples of APIs are food delivery apps or ride apps like Lyft, which offer customers an option for making payments inside the app. In the long run, it helps in improving customer experience. 

For the customers, the online payment process becomes fairly simple and it’s all possible due to APIs.

As the banks themselves aren’t equipped enough to handle online payments, this leads to slow payments, expensive transfer fees, and a completely inefficient process. After all, banks don’t have the technical prowess to handle growing customer demands. 

This is where open banking APIs come in. An API (Application Programming Interface) acts as a third party between accounts. APIs are specifically designed to offer a better online payment experience for customers.

Benefits of APIs

As customers are becoming more digital-friendly, they want more options for online payments. For banks and other financial institutions to keep up with customers’ demands, they need a seamless and secure payment method.

As traditional banking methods are expensive and inefficient, non-banks and FinTechs can struggle to find a payment infrastructure that can meet their customers’ expectations. Fortunately, open banking API can in fixing this problem by offering benefits such as:

1. Faster Payments

API software can support regulatory and operational tasks of plugging into payment schemes meaning that they can make online payments faster compared to banking methods. 

Businesses will be able to receive and make payments instantly, instead of waiting for days for a payment to be confirmed.

2. Faster Settlement & Reconciliation

APIs can make for better payment settlement, so accounts and debts are settled quickly. This means users are aware of their account activities at all times. This is coupled with faster reconciliation, so accounts show all the activities in real-time, ensuring better financial management.

3. Enhanced End-to-End Payment Experiences

The embedded payment feature reduces the need for customers to enter their financial details over and over again. APIs allow businesses to provide seamless online payment which can support customer needs. And, as the user’s accounts are never in direct contact with the bank’s servers, APIs offer an extra level of financial security compared to traditional payment methods.

Categories
Compliance

7 Reasons to Switch to Compliance Apps instead of Cross-Border Manuals

Compliance is a word that’s thrown around leisurely in the financial services industry. Banks, financial institutions, FinTechs, and other businesses operating in the financial industry need to comply with KYC and AML regulations. For years, businesses have been relying on country manuals or handbooks that are jurisdiction-specific. These guidelines contain all rules and guidelines for businesses and financial services businesses. 

Handbooks are essential for legal and compliance teams, but you can also be a compliant business activity of wealth as asset managers, HR, Marketing, and even IT teams.

What Are Compliance Apps?

Compliance apps are tools for financial institutions that need to comply with KYC or AML regulations. AML and KYC directives keep changing frequently, so it’s hard for most financial institutions to keep up with them. They allow for faster compliance and decision-making and efficient knowledge sharing between internal parties, businesses, and other departments throughout the organization. 

Here’s why you should use compliance apps. 7 Advantages of Compliance Apps

1. Clear Guidance on Compliance

Compliance apps provide users with simple answers to confusing questions related to business activities abroad. The answers are visually pleasing and straightforward and provide answers for endless business scenarios. Compared to hand-held cross-country manuals and static text, compliance apps provide information in a much more consumer-friendly method. Compliance apps provide clear guidance on the information you require, which requires compliance time. 

2. Flexible & Scalable Coverage

Compliance apps can support the growing needs of businesses. With compliance apps, businesses can choose a variety of business scenarios and new countries and add as many users as needed to access the app. Compliance apps compared to country manuals can provide scalable information. Country KYC and AML compliance manuals can’t grow according to businesses. 

3. Immediate Answers Regarding Regulations

Compliance apps offer a user-friendly comparison between different cross-border scenarios on a single screen. It’s easy to find out answers to complex situations, which isn’t possible with country compliance manuals, and exploring cross-border situations often takes days. 

4. Compare Cross-Border Compliance Factors in Real-Time

Compliance apps users can compare compliance rules and regulations all over the globe in real-time without having to do tons of research. Easily find out where the circumstance best fits products and services. Cross-border country manuals can’t support exploring the comparison of scenarios.

5. Up-to-date Knowledge

By using compliance apps, banks and financial institutions can reduce the risk of missing out on important updates, and they’re automatically applied to the knowledge consumed by users on the app. If you compare this advantage of compliance apps with country compliance manuals, then these manuals need to be updated and distributed manually whenever any update comes in KYC and AML directives.

6. Facilitate Knowledge Sharing Internally

Compliance apps provide users with an increased chance of knowledge sharing among business teams with just a couple of clicks. Communicating with teams and sharing even the smallest of information becomes easy and quick. This can’t be done with country KYC and AML compliance manuals.

7. Answers Offered on Instrumental Level

Compliance apps offer business activities not for just one country, most of them provide insights on a product level, adding context and providing highly tailored guidance that all businesses and teams can benefit from. There is a certain level of complexity that country compliance manuals can simplify.

Conclusion: Advantages of Compliance Apps

Banks and financial institutions that don’t focus on compliance as much as they should tend to get fined. By using tools like compliance apps and online KYC verification software, banks and financial services businesses can improve their overall compliance process.

Categories
Fintech

Challenges to FinTech Growth: Regulatory Compliance and Geographical Restrictions

When it comes to complying with regulations, FinTechs tend to face tons of trouble, be it KYC or AML. According to a survey, FinTechs all over the globe considers KYC and AML compliance one of the biggest challenges to FinTech growth. FinTech companies, regardless of their scale often face trouble with compliance. Let’s discuss all FinTech growth challenges and how they can prepare better.

FinTechs Regulatory Challenges Looking to Enter International Markets

There are a couple of challenges that FinTechs face while trying to enter other markets. Here are the biggest FinTech regulatory global challenges:

1. Expanding Digital Products and Services to Other Countries

FinTech companies such as Robo advisors and automated wealth managers run into lots of trouble while trying to enter new geographical markets. Apart from licensing issues, they also need to analyze and adapt to the needs of customers. This will depend on the customer’s nationality, domicile, and expertise, and will require acquiring knowledge of all customers involved. To do this, FinTech regulatory compliance needs to be followed thoroughly.

2. Offering Credit Cards in Other Countries

What are the requirements for offering free credit cards to a potential customer? There isn’t one perfect rule for all types of customers and every country. The requirements vary from country to country and these FinTech growth challenges. Understanding these rules can be challenging for small to big FinTech businesses.

AML Requirements for Onboarding Global Clients

Just like banks, FinTech needs to monitor and investigate suspicious activities. To make this happen, FinTechs require a robust risk management policy when it comes to onboarding customers from other countries.

Different countries have different AML requirements. One of the best examples can be the UK and Europe before Brexit, UK companies had to follow EU regulations for AML and KYC. With Brexit in place, financial services are now required to follow local rules and regulations for AML and KYC compliance. This is one of the biggest FinTech regulatory challenges.

This has led to the discontinuation of passporting across the EU, new implications for transferring and protecting data, and mandatory compliance with new regulations. If a company based in the UK wants to onboard a new customer in the EU, the company now has to acquire a license in an EU country and comply with the local rules and regulations of every country.

Benefits of Having Regulatory Answers

Regarding regulations, FinTechs have a tougher challenge to overcome compared to other types of startups. FinTechs have to penetrate a highly complicated and regulated market that acts as a hamper for growth. The best part is that there are endless benefits to being prepared to overcome FinTech regulatory compliance.

1. Scale Globally

For FinTech companies that want to enter cross-country markets, understanding the rules and regulations in every country is crucial for facilitating growth. It decreases the number of mistakes, enables the right partnerships, and supports a powerful growth that’s more calculated for growth.

2. Plan Strategically

Consumers will expect FinTech companies to consider and plan out financial regulations for growth. Consumers expect this because regulatory compliance can affect the business model, so it’s important to be strategic and plan. Based on the products and services, it makes sense to expand to one country rather than another.

3. Pick up Speed

One of the biggest FinTech regulatory global challenges is that the responses require a considerable amount of time even when they’re negative. The lengthy procedures reduce time in product development, expansion, and investment plans. 

Having the regulation answers ready via enterprise-ready solutions can bring down the time to reduce the market and cost of market entry.

Enhance Brand Value

In the end, it’s all about having solutions for regulatory compliance that decreases the risks of regulatory and reputational damage. Some FinTechs around the world are getting fined for not complying with regulations and it can hurt the brand’s reputation of the company.

The financial technology landscape world is still a new one, which means that the challenge to earning trust is higher. Being regulation-ready allows FinTech companies to stay compliant with KYC and AML regulations around the globe. 

Acquiring customers from other countries has plenty of challenges, and dealing with them remains a huge challenge for FinTechs. FinTech companies that aren’t prepared will spend significant time and resources on remaining compliant. 

With the right tools and solutions, FinTech companies can use regulation as a stepping stone for global reach. 

Categories
Fintech

Affect of Financial Data Aggregation and Digitization on Mortgages

As the Covid-19 pandemic slowed down almost every sector of the financial industry, some markets are finally starting to make a comeback. The Australian property market is experiencing a major comeback, and house prices are rising at a record level. 

This is the result of all-time low-interest rates and household savings that have accumulated to drive demand for property among first-time and veteran buyers. This is in line with this bullish housing market, home loan lenders have also started adopting digital services to make online customer onboarding faster and more secure. Companies like RBA Group have reported a rise in investment in technologies that are being made for streamlining the home loan approval process.

Barriers to Home Loans

The value of real estate in Australia has increased to $9.1 trillion, and it gained 1 trillion dollars in just five months, which was a whole new record for the industry. The unexceptionally high prices for the property are the primary barrier for customers to enter the Australian property market. More than 65% of all young people in Australia believe that it’s impossible to buy property in the Australian market. To fix this problem, innovative FinTech has started building products that can provide Australians with an opportunity to convert a portion of rent payments into equity payments. 

Not just FinTechs, other entities are also trying to help potential property owners. In an effort to protect borrowers and prevent risks in the home lending industry, the regulatory body “Australian Prudential Regulation Authority” (APRA) has issued a statement saying they will assess new borrower’s ability to keep up with their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate. 

Industry experts believe this movement to be a first to restrain credit and housing markets, with the biggest shock for homebuyers to come in 2023 when the hike is supposed to decline by 5 percent.

Reducing Inefficiencies in the Lending Process

There are countless high barriers to entry in the property market, such as:

  • Going through the tedious and lengthy mortgage procurement process. 
  • Paper-based customer ID verification and bank verification that can be solved with online bank account verification software. 
  • Human error in the loan approval process. 

All these barriers make entry into the market for buyers extremely tough. Sometimes, the mortgage approval process can even take up to 50 days. 

With digitization, it is easy to streamline the application process, which makes it easier for approving mortgage applications. Data aggregation and innovation throughout the mortgage providers are trying to provide a seamless customer experience and speed up the process. 

By using technologies such as online customer document verification software, online bank verification software, or online KYC verification software, the customer verification process can be enhanced. 

Open Banking can connect a person’s banking data and lenders can get a clear picture of an individual’s financial history, which means the one who approves the application can make educated decisions. The process of deciding if an applicant qualifies for a mortgage should be driven by data.

With data aggregation and analysis functions, there is a huge opportunity to digitally transform the mortgage approval process. This can significantly reduce mortgage turnaround time and allow more people to get a mortgage.

Role of Digitization in Mortgage Approval

The recovery of the Australian property market after the Covid-19 pandemic has also boosted the prices of houses. The role of digitization is simple, it helps in streamlining the mortgage application process and makes it accessible for customers who’re looking for a mortgage.

Categories
Bank

Open Banking: Global Developments, Current Landscape, and Future

If there’s one core element that can be credited for the surge of digital transformation in the financial industry, it’s the global COVID-19 pandemic. It’s more than clear that banks, credit unions, payment providers, and other financial service providers are looking to take advantage of technologies to gain an upper hand against their counterparts. The adaptation of Open Banking has also seen an upward curve in the last couple of years. According to industry experts, the total number of Open Banking users globally will reach 64 million by 2024. 

While there’s obviously a global development of Open Banking in the industry, it’s still the beginning. If careful measures are taken, Open Banking can take the financial situation to a whole new level for businesses and customers.

Revolution of Open Banking

The gist of Open finance is that it provides customers with complete control over financial data which in turn can change the financial habits of millions of users regarding money and savings. 

In the future, third-party service providers, by gaining customers’ consent, will be able to access mortgage data, investment data, insurance, savings, and pension data. Data is the core element in Open Banking and Open Finance. By leveraging this crucial customer data, existing companies of the future will be able to tailor financial services based on customer needs and interests. 

With access to seemingly endless data about customers’ financial lives and habits, there will be no end to personalized services and products. With every FinTech, Bank, and other financial institution trying to build custom products and services, there will be a surge in innovation throughout the financial industry. Ultimately encouraging the businesses to leverage the latest tools and technologies as much as possible to stay relevant in the industry while ensuring the best products and services for existing and potential customers. 

Collaborations for a Better Open Finance

Countless businesses across the globe have their own unique take on Open Finance and their own ideas on how to utilize the data to build better products and services for the customer. To help the Open Banking revolution take a better turn, companies across the world need to move ahead with a centralized approach. Without proper frameworks or the incentives to work on Open Finance, it’s less than likely that the industry will be able to utilize the full benefits of open finance.

There needs to be an untied sense of urgency for open banking to take the center stage in the financial industry. FinTechs all over the globe is focused on developing Open Banking APIs that banks can collaborate with to enhance day-to-day workflow. Open Banking APIs like online document verification APIs, online proof of address verification APIs, online bank account verification APIs can streamline the KYC, KYB, and AML workflows. 

Regulatory bodies will need to be more vigilant as open banking becomes more prevalent in the financial industry. With so much customer data open to access, there will be a need to build strong rules and regulations. If we talk about the situation of open banking in the USA, then President Joe Biden has issued a series of customer-friendly executive orders that are primarily focused on ensuring that the US banking system can transition to open banking as seamlessly as possible. 

Australia’s consumer data right offers Australians the right to access all their financial, utility, and telecom data. While it’s true that the open-by-default approach has taken more time to implement than expected, the country is now well on its way to building a strong and secure open banking infrastructure. Another example of the Open Banking revolution is in Canada, similar to Australia, they’ve built a similar plan of action, and they’re expected to roll out their open banking infrastructure by 2023. 

To successfully deliver open banking to consumers on the large scale, there will be a need for collaboration between banks and the government. As the main regulator for most of the firms that would work on the open banking landscape, the regulatory bodies will have to set forth some key rules and regulations. To successfully deliver innovative open banking products and services to the customers, the Bank-FinTech collaboration will be essential. The primary example of this is Open Banking APIs offered by FinTechs globally that can enhance the day-to-day of banks.

What’s Next for Open Banking?

The next step for global open banking is straightforward, it has to be based around a centralized, top to down approach. There have been some great initial steps from regulatory bodies and government entities, but there needs to be a centralized approach to building a proper Open Banking infrastructure. Only then will companies be able to leave traditional banking behind and transition to open banking. Needless to say, open banking and digital transformation are well on their way, the result is just about time.

Categories
Fintech

How Community Banks can help with FinTech Due Diligence

Since the last couple of weeks, bank regulatory bodies have released tons of publications applicable to Community Bank FinTech partnerships. This can be called a newly proposed guidance, a FinTech due diligence guide, and a Federal Reserve white paper on types of FinTech partnerships:

The growth of FinTechs is a major concern for Federal bodies and regulatory bodies. With the release of recent publications, the efforts made by regulatory cross agencies continue to ensure growth throughout the evolving space. To boost that growth, the FinTech due diligence guide was made.

FinTechs need to be careful moving forward and build sustainable mutually beneficial partnerships between banks and FinTechs. So what does the FinTech due diligence checklist have in place?

A Pathway Towards Innovation

The last 10 years have been an incredible time to build a FinTech company as global equity investments in FinTechs have reached more than a trillion dollars with a 45% annual growth rate. The FinTech industry is becoming a threat for banks as they offer better services when it comes to online banking services. When it comes to community banks, FinTechs are even a bigger challenge as they don’t have the scale to access the expertise of a large institution. 

Additionally, this is the best time for community banks to choose innovation over anything else. Community banks can provide their relationship experience and knowledge of compliance in partnership with FinTechs that are building innovative financial solutions that are focused on fulfilling customer needs. This is the core aim of the FinTech due diligence guide. 

The US Paycheck Protection Program (PPP) increased the possibilities of community bank-FinTech relationships as FinTechs helped in enhancing the PPP loan application portals and also became a source of distribution. After all their help in enhancing the banking sector during the pandemic, it’s clear that by building relationships with FinTechs, banks can take their services to the next level. Regulatory bodies have shown more interest in the role that innovation can play in the financial sector and this led to them addressing the FinTechs. There have been several regulatory bodies sponsored events to facilitate better community bank-FinTech relationships. 

The new proposed guidelines were released in July 2021, and the complementary guidelines released in August 2021 by regulators stated that FinTech partnerships are becoming vital in the growth of the financial industry. The proposed FinTech due diligence checklist acknowledges the importance of innovative partnerships for financial institutions.

With increasing relationships, the due diligence process should also be built around the relationships keeping in mind that FinTechs don’t have the compliance experience or infrastructure of a mature bank. The Federal Reserve even acknowledges that keeping up with due diligence is a huge burden for smaller banks, that’s why the “Due Diligence Guide” was built to reduce the burden by offering some tips and tricks.

What Should Sponsor Banks Do for FinTech Due Diligence?

Based on the new proposal guide, there are four main suggestions for sponsor banks to keep up with required FinTech due diligence:

1. Review Current Due Diligence Process Against Suggested Process

The first and foremost step is to conduct a high-level assessment of the current due diligence process against all the suggested areas in the proposed guidelines. Regulators don’t want the process to be exactly as they suggest, but comparing your current due diligence process against their suggested key areas can help enhance the process in the future. 

This is also a great opportunity for businesses to review their contracts as the due diligence guide offers suggestions and examples of ideal contracts between sponsor banks and FinTechs. These contractual guidelines will help in mapping out the bank’s oversight and FinTech’s responsibilities.

2. Build Due Diligence Process based on Maturity of FinTechs

The second step for better FinTech due diligence as proposed by the guidelines is to tailor build the due diligence process based on the FinTech you’re partnering with. Sponsor banks should review their process for FinTechs that have several levels of maturity. 

Let’s say a FinTech company is taking its baby steps, their projected financials won’t have as much weight, and they won’t have a perfect management team and a stable source of funding. Understanding these things as a sponsor bank can help build better and secure bank-FinTech relationships.

3. Your FinTech Partnerships Should Act Like a Portfolio

The FinTech due diligence process is the best way to understand how a FinTech can help in making your relationship portfolio stronger. Similar to a portfolio manager that assesses the correlation and concentrations on their investments, sponsor banks also have to evaluate whether their FinTech partnerships are focused on specific customer segments or specific industries. 

For community banks that are always full of deposits, having a better understanding of balance sheets and regulatory ratio impacts can become an essential part of the due diligence process.

4. Learning When to Say No

Both the guidance and the Federal white paper revolved around a key factor “aligning the sponsor bank’s diligence and decision making on partnerships.” In the Federal White Paper, there’s an example where a bank refused to partner with a FinTech solely based on how they handled customer data.

Each bank needs to have core principles and regulations regarding the type of FinTechs they’re open to partnering with. These principles can be based on product type, industry type, maturity, and level of sophistication. Sponsor banks should also be ready to present their concerns to regulators about why they turned down a deal due to certain findings or simply due to misalignment of business goals.