fintech innovation model 2015

FinTech Innovation Model 2015Technologies for the future

Technologies for the future

Welcome Contents

Three things are clear. Firstly, financial services firms hear the hype about new technologies, such as cloud and big data, but they do not necessarily understand their maturity or their relevance to banking. Of equal importance, FSIs recognise that technology will be critical to meeting business goals such as efficiency and customer satisfaction, but are not always aware of which technology is available at the leading edge. Finally, innovative business models are emerging that have the potential to reshape the financial services market, but they are not commonly understood. This creates a real dilemma. Should FSIs societies push hard to be at the leading edge, or leapfrog by applying technology that is currently in research and development, or play it safe and risk being overly cautious? HPE has created the FinTech Innovation Model specifically to help FSIs navigate this challenge. The HPE FinTech Innovation Model outlines, in clear terms, the extent to which different technologies have been adopted by FSIs.

“ Innovative business models are emerging that have the potential to reshape the financial services market, but they are not commonly understood.”

Financial Services Institutions (FSIs) know that harnessing technology will be critical to meeting their challenges. But deciding where and how to invest can be a daunting task, given tight budgets and resources. A new model guides financial services businesses, step by step, through this challenge.

David Rimmer Director

Financial Services

Andrew Dare Financial Services

CTO

It outlines the opportunities presented by four global technology megatrends: mobility, big data, security and cloud computing. The model also looks through a business lens examining the technology that can bring innovation in the key business areas of customer interaction, internal operations and payments. Furthermore, it examines the impact of new business models. The model is drawn from the perspective of financial services practitioners within HPE, the second largest provider of IT services to the global financial services industry. Moreover, since HPE spends $3.45 billion a year on research and development there is in-depth understanding of technology coming down the line. With an increasingly competitive market and the high expectation of customers, now is the time to determine how to grasp the opportunities presented by new technology.

10 Customer interation

12 Internal operations

04 Overview

07 New business models

14 Payments

16 Cloud

18 Security

20 Big data

Mobile

22 24 Conclusion


Technology for a competitive edgeThe Hewlett Packard Enterprise FinTech Innovation Model enables financial services institutions to gauge where they stand in the market versus their competitors and to plan their adoption of new technologies.

There is an alarming lack of literature explaining how technology can be applied specifically to retail financial services. Reports from technology vendors focus on buzzwords and marketing ideas, rather than specific business applications. In turn, much advice that FSIs receive is generic, failing to answer questions on what the state of the art is or how to apply technology to the specific challenges of financial services. The Hewlett Packard Enterprise FinTech Innovation Model will change this. It ensures businesses have a clear understanding of the technology available to them and of how widely adopted these systems are. As a result FSIs can see where they need to be if they want to be ahead of their competitors. Likewise, they can assess whether technology is ripe for adoption given their risk appetite. Here’s how the model works: it looks at each of the major technology trends (cloud, mobility, big data and security) and key business areas (customer interaction, internal operations, payments and business models). Within each of these areas, the model explains which technology is available and how mature it is.

The technology innovation lifecycleIn today’s technology-driven world, it is vital for businesses to shape strategy through an understanding of what is possible. Traditionally, IT strategy starts with a business objective and then asks which technology is available to implement it. This approach is still essential but it needs to be tempered by working backwards from an understanding of technology and how it can enable business opportunities. Technology passes through a standard innovation lifecycle from research and development to deployment by leading edge organisations, then the mainstream and ultimately those who are behind the times. It undergoes three or more years of research and development, including core technology research and incubation in start-up companies and technology labs, and only at this point does a workable product exist for industry. The focus in the model is on the leading edge and early adopters, since this is the stage where most FSIs are likely to be targeting technology for incorporation in their strategy and plans. At the leading edge, the most ambitious industries – often retail, hospitality and travel – will implement

the technology. Following this, the cutting-edge tier one banks and challengers will typically begin to adopt it, followed by mid-tier, ambitious rivals. Start-ups will also be in on the act, taking advantage of their higher flexibility and risk appetite. But this entire phase, which takes one to three years, tends to see only around five per cent of the financial services industry actually adopting the technology. In the following two to five years, many more ambitious banks will adopt the technology, raising the level of adoption to a quarter of the financial services industry. The two to five years after that will see the level rise to half of FSIs and the technology now considered mainstream. Some FSIs would prefer to play it safe, and wait to adopt technology in the mainstream phase, but it is too late. Adoption at this point puts them into the late adopters category, given the months or years required for implementation once the decision is made to invest.

“ Hewlett Packard Enterprise spends more than $3 billion a year on research and development.”

2+ YEARS

1-3 YEARS

2-5 YEARS

2-5 YEARS

5+ YEARS

• Idea inception

• Market research

• Feasibility investigation

• Core technology research

• Incubation in start-ups / IT labs

• Implemented in non-FSI industry sectors (e.g. retail)

• Innovators in FSI Tier 1 and Mid-Tier follow quickly

• Adopted by FSI challengers and new entrants with no legacy

• Ambitious FSIs who are quick to follow

• Widespread adoption across leading players in FSI market

• Catch up of rest of FSI market to near universal adoption

Mapping innovation across the lifecycle

R&D80%-100%

LATE ADOPTERS 50%

MAINSTREAM25%

EARLY ADOPTERS

5% LEADING EDGE


Multiple new business models are beginning to emerge in financial services, enabled by new technology. These trends pose a fundamental threat to existing players but also open up opportunities for them. Understanding these trends is vital, in order to avoid being left behind. Ten to 15 years ago, FSIs operated a broadly consistent business model that had prevailed for many years: a standard set of products offered through a branch network. This model started to change with the emergence of telephone banking, online banking, and increased intermediation from aggregators and comparison sites made possible by the internet. Nevertheless, these trends represented change in distribution, as opposed to fundamental innovation in products and services. What we have seen in the past few years is the emergence of completely new business models that overturn the fundamentals of banking. In the peer to peer (P2P) model, the role of the ‘bank’ is no longer that of a deposit-taker, merely a broker. Meanwhile, basic aspects of financial interest are challenged by community banks, such as Germany's Fidor, where more Facebook ‘likes’ translates into lower interest rates; by credit unions where interest is determined at year-end according to the amount of profit; and by social investment vehicles where the rate is not the most important factor. We have also seen the entry of new players that have chosen to dispense with offering a broad set of services in favour of specialising in a single market area, such as payments, savings or online-only banking. This approach enables them to focus on more profitable segments and avoid the cross-subsidies that universal banks have made for many years. All of these trends are underpinned by new technology, such as cloud computing, social media, mobility and big data. This is emphasised by the fact that some of the most threatening new entrants are actually technology businesses, such as Apple, Amazon and Google. There is also huge investment by the banks in financial technology innovation. A report by Accenture, called "The Future of Fintech and

New business models: keeping up with disruptive innovationTechnology innovation is enabling new models for banking that are transforming the competitive landscape.

Banking", found that financial services investment in technology, in the UK and Ireland, rose from £176 million in 2013 to £415 million a year later. London is now the biggest global centre for financial technology companies.

Cryptocurrencies and distributed ledgers One of the largest changes is in cryptocurrencies, such as Bitcoin and Ripple, which are transforming payments. At this year’s Sibos event in New York, where 7,000 delegates come together to discuss innovation in banking, a whole day of the agenda was given over to cryptocurrencies with the focus on when and how the change will take place, rather than if it will. Governments are taking an active interest. The US Federal Reserve is looking into a government-backed digital currency, the FedCoin, and the UK chancellor, George Osborne, has announced a review of the potential of virtual and digital currencies. However, the implications are huge. Banks have been accustomed to playing a central role in payments, but customers see the appeal of putting the power in their own hands. This is not the only threat: the principle of the distributed ledger, where there is no central registry, can be applied to other assets, such as property, stocks and shares, bonds and beyond. However, the most fundamental innovation will come when cryptocurrencies are used not to replace today’s money, but to deliver completely different business models. P2P lending and crowd funding are an additional threat. The interest rates offered by P2P players represent a challenge to FSIs offering traditional savings products, as is the speed with which this sector is gaining acceptance. The UK government is currently consulting on the introduction of P2P lending within ISAs, at which point P2P will have moved from early adoption to mainstream, and the government-backed British Business Bank already lends through Funding Circle, a crowd-funder. Equally important are non-traditional businesses providing banking services. Payments (see dedicated section of this report on pages 14 and 15) are a point

“ By using the HPE FinTech Innovation Model, FSIs can decide their appetite for risk and innovation, and act on it.”

“ Cryptocurrencies, such as Bitcoin and Ripple, are transforming payments.”

Take a step forwardBy using the HPE FinTech Innovation Model, FSIs can decide their appetite for risk and innovation, and act on it. In some instances, firms may choose to adopt an across-the-board policy with respect to risk, only choosing to adopt mainstream technology, for instance. In other cases, FSIs may decide that innovation is critical in a specific technology or business area, and adopt technology that is less mature but enables them to gain a march on competitors.

It is our hope that with this model, you will be able to discern where your company is placed, and how you can use technology to make a tangible advance. As the global economy continues to recover after the 2008 crisis, competition remains tight, and FSIs need to plan innovation carefully. We urge you to consider the best steps you can take, and to discuss with us wherever you would like to see improvement – we will walk you through real, actionable steps. The potential for success is enormous. David Rimmer, Director Financial Services; Andrew Dare Financial Services CTO; Sue Charles, HPE Labs


• New types of community banks• Increased intermediation, e.g.

aggregators and comparison sites

• Telephone-only banking• Online banking

Definitions Research and development Shared-service provision of discrete banking services often exploiting cloud Banks consuming IT / business process services for standard banking processes, e.g. new account opening / ID&V and account log-in (e.g. via Facebook) using service-orientated / cloud based models Banks entering other sectors, e.g. retail As opposed to new players entering banking; banks entering other markets, exploiting assets and capabilities such as client base, online authentication and payment mechanisms Dutch auction of products Extension of Dutch Auction principles from share purchase and elsewhere to retail financial services Distributed ledgers Shared blockchain based registers of assets, ability to apply to new assets classes in addition to currency Leading edge Crypto/Digital currencies and payment methods Virtual currencies, such as Bitcoin and Ripple, using distributed as opposed to centralised ledgers Unregulated ‘banks’ that are not technically banks Companies providing traditional banking services that do not require regulation, e.g.Ffrees Services based on over-the-top technology Exploitation of existing IT infrastructure to create new services, e.g. Netflix or WhatsApp, now used in FS New types of community banks Banks and savings institutions whose customers form a community with a shared identity or purpose, e.g. FIDOR Early adopters Non-traditional players New players entering the market from other sectors (IT, retail and telcos), e.g. Apple, Google and SnapChat for P2P payments P2P lending / crowdfunding Lending money to unrelated “peers“or investing, without going through a traditional financial intermediary such as a bank Monetisation of data Banks making use of customer data for different purposes, e.g. selling aggregated customer data to 3rd parties Online only banking / mobile mainly banking New players without any branch, telephony or postal services Mainstream New common bonds and investment principles Organisations with a purpose other than pure financial return, e.g. credit unions and social investment Increased intermediation, e.g. aggregators and comparison sites Online intermediaries allowing product comparison and facilitate customer acquisition Late adopters Telephone only banking Telephone banking as the sole channel, e.g. FirstDirect Online only banking Online banks without their own branches that only use telephony for exceptions

of particular vulnerability for banks because they are one of the major touch-points with customers and are a historically significant revenue stream. Telecoms firms providing these services and new entrants, such as Simple, often work on ‘over the top’ models in the USA, offering easy-to-use services that exploit existing banking infrastructure and circumvent the traditionally high barriers to entry. Google, Apple and Snapchat are also becoming highly active. Meanwhile, no-frills e-money companies like Simple in the USA and UK-based Ffrees effectively operate as unregulated ‘banks’, because they are not technically banks. The different regulatory environment within which they operate could give them a competitive edge. New business models also allow new entrants to compete in traditional markets from a very much lower cost base. In online-only / mobile-mainly banking, IT costs will be less than ten per cent of administration costs compared with the more than 15 per cent of the larger banks, and they will have a comparable advantage in other operational costs owing to automation. A different type of threat to FSIs comes in the form of community / social media banks. An example is FIDOR, which currently operates in Germany but has plans to extend to other countries including the UK, and works as a community of users who log in on Facebook and share financial advice. Fidor converts its members from the community to banking services, polls customers on acceptable interest rates for new products and lowers interest rates when it has more ‘likes’ on Facebook.

“ New business models also allow new entrants to compete in traditional markets from a very much lower cost base.”

New business models

The change is driven by social factors, as people identify themselves less by where they live (as with a traditional local savings bank) and more by whom they regard as like-minded people with similar values. The appeal of the community model is strong.

Real opportunity All of these models are threats to existing market players, but they also highlight opportunities. Shared-service provision of discrete banking services, often exploiting the cloud, allows financial services firms to dissect their processes and specialise. Banks will be able to draw from leading edge IT and business process services to save them having to handle common processes, such as account opening, identification and verification, and account log-ins. Innovation in cloud service integration and management provides the mechanism to manage the integration of these services with in-house capabilities. There will also be opportunities for FSIs to tap new revenue streams, by exploiting their assets to address new markets. An example is monetisation of data, in which banks commercialise anonymous information.

2-5 YEARS

1-3 YEARS

2-5 YEARS

5+ YEARS

2+ YEARS

Further afield, banks may start to go on the offensive and enter new markets. Banks can digitally authenticate customers, take and receive payments, and they know a huge amount about their customers’ spending and finances: an ideal base to challenge segments of the retail, utilities, or insurance sectors. FSIs have to recognise the serious threats they face. Asking the key questions around long-term business strategy, by taking into account the emergence of new business models, will enable them to shape an effective long term plan of action. It is essential for their future. David Rimmer, Director Financial Services

• Shared-service provision of discrete banking services often exploiting cloud (e.g. new account opening / ID&V)

• Banks entering other sectors, e.g. retail• Dutch auction of products• Distributed ledgers / blockchain

• Crypto- / digital currencies • Unregulated ‘banks’, not technically

banks• Services based on over-

the-top technology• Community / social media

based banks

• Non-traditional players providing banking services, e.g. payments

• P2P lending / crowd-funding• Monetisation of data• Online-only banking /

mobile-mainly banking

R&D

80%-100% LATE ADOPTERS

50% MAINSTREAM

25% EARLY

ADOPTERS

5% LEADING EDGE


• Self service deposit machines

• Call centre using operators and IVR

• Online banking

• Self service kiosks• Real-time personalisation of

communication / offer• Online personal financial management• Dynamic online tools e.g. calculators• Single customer view

The evolution of customer expectations is driving huge changes in FSIs. Each generation increasingly expects to interact with the technology they use at home, so businesses need to integrate new channels continuously. Advanced financial services businesses are better placed to keep up with these expectations and transform the customer experience. The challenge for smaller FSIs is developing capabilities at a low cost. For the larger companies, it will be vital to decide which of the technologies at the R&D and leading edge stages they want to back. Major opportunities exist in serving expectations for seamless and intuitive interaction across channels. Many FSIs already have worked on enabling customers to self-serve through online banking and interactive voice response, and even self-service kiosks have moved to the mainstream. There are dynamic online tools to select products and online personal financial management and budgeting. Likewise, real-time personalisation has now become mainstream through tools, such as HP Inc.'s LiveSite.

A new experience Early adopters are moving ahead with full online application tracking and channel hopping. This needs to be seamless so that if a customer does not complete a mortgage or savings application, a customer service representative can contact them to pick up where the application was left and complete it. Mobile technology is essential here (see also the dedicated mobile section of this report on pages 22 and 23), as it enables services to be re-thought through location tracking, speech recognition and biometrics. Mobile has tremendous potential to reduce financial exclusion since, according to the UK telecoms regulator Ofcom’s "Adults’ Media Use and Attitudes Report 2014", 92% of adults own a mobile phone whereas only 82% have access to the internet at home. The point being that home broadband adoption continues to be highly correlated to education and household income. As with putting services online, successfully harnessing new channels, such as video, requires re-engineered processes. For instance, should mortgage advice provided via a video link work in exactly the same way as face to face in a branch when the customer and the advisor can share documents online? But whereas online, FSIs are following broadly comparable strategies, multiple branch formats, enabled by technology, in the branch multiple branch formats are emerging enabled by new technology quickly. Just in the UK we are seeing the Virgin Money lounge, M&S pop-up branches and the fully automated Barclays branch of the future.

Customer interaction: serving customers with excellenceAdvanced financial services businesses are investing in technology innovation to keep up with expectations to transform the customer experience.

Definitions Research and development Internet of Things Exploitation of data from bank machines, customer devices, wearables, etc. Advanced analysis of customer-related data Tailored, dynamic, proactive analysis using wide data sets User interface research Natural and intuitive interfaces to improve mobile and other interactions Personal cognitive assistants Support for customer interactions using context aware advice, e.g. to manage personal finances Activate now! (STP) Account opening through a customer’s ability simply to press a button, based on pre-cleared/populated customer data Leading edge “Branch of the future” Advanced branch technology for instant services e.g. card issuance and account opening Processes re-engineered to video Rethinking of processes and customer journeys specifically for video MyBank for sharing information Availability online of all customer documents, interactions and data for re-use and transparency Multi-party case management Workflow to manage complex transactions between banks, customers and intermediaries, e.g. mortgage applications Early adopters In-branch / online video calls with advisers Video conferencing to meet with advisers remotely Online application tracking and channel hopping Ability to save partially completed applications and to pick up WIP in different channels More complex online transactions Product switching, payment holidays, over-payments, etc. Personalised propositions Ability for customers to build their own products, and choose the economic terms, e.g. Novagalicia s Personalised Deposit Multiple branch formats Wide variety of branch formats, e.g. pop-up branches, stores and lounges Seamless multi-channel experience for voice/digital Social media, and customer choice of channels with consistent customer experience Mainstream Self service kiosks In-branch kiosks offering banking services and/or access to online banking facilities Real-time personalistion of communication/offer Dynamic content management using customer analytics and campaign management tools Online personal financial management Online tools to assist the customer with financial planning and budgeting Dynamic online tools Tools for customers to enter data and receive tailored advice e.g. calculators and product selectors Single Customer View Customer data aggregated from all / most systems under a “single pane of glass” Late adopters Self service deposit machines For cash and cheque deposits Traditional call centre and self service telephony using IVR First generation call centres supported by call centre staff and maybe IVR Online banking

Until now, much of the technology to enhance customer interaction has supported simple transactions, with customers doing what amounts to data entry. At the leading edge, this is changing. Instead, FSIs can use technology to collaborate with customers, sharing the information they hold about a customer in an online repository containing documents, call recordings and communication. This has two impacts. Firstly, transparency increases markedly and so, too, will customer trust. Secondly, once information is shared online it is possible to make more profound changes in customer interaction. With multi-party case management a customer, an intermediary and financial services institution can securely exchange messages and documents, allowing a process such as a mortgage application to be completed quickly with much less rework. In addition, straight through processing services exploit data services to complete KYC, AML, fraud and credit checks so that decisions can be made in real time. The next step will be ‘activate now’, where customers’ applications for products and services are pre-cleared and all they need to do is to use a digital signature to sign and accept the terms and conditions.

Geolocation and the Internet of Things In order to make the most of customer interaction, banks need to understand the whole journey and integrate every aspect, providing a depth and quality of customer experience. It is equally vital that they understand the future of technology development. The Internet of Things, meaning web-connected objects that interact with each other, is enabling a new outlook: there is huge potential to deliver deep customer relationships by taking contextual data from these devices to provide more responsive and tailored services. Within this, geolocation and artificial intelligence allow businesses to know and predict the desires of customers. Advanced analysis of customer-related data will increase the degree of tailored services and personal cognitive assistants will automate processes. Customers will be able to manage their financial affairs by scheduling account sweeps, balance reviews and payments. Understanding these new trends, and taking advantage of systems being used by the early adopters and leading edge companies, will allow FSIs to transform how they reach customers. By satisfying customer expectations in this way, there is an opportunity to deepen relationships and deliver success. Glynn Roberts, Financial Services Industry Practice

“ The Internet of Things will enable a new outlook and a huge potential to deliver deep customer relationships.”

Customer interaction

• Internet of Things • Advanced analysis of customer-related

data • User interface research • Activate now! (STP)• Personal cognitive assistants

• Branch of the future (instant card issuance, full automation, e-queuing and real-time personalisation)

• Processes re-engineered for video • MyBank for information• Multi-party case management

• In-branch / online video calls with advisers

• Online application tracking and channel hopping

• More complex online transactions • Personalisation of propositions• Multiple branch formats • Seamless multi- channel

experience for voice and digital

R&D


50% MAINSTREAM

25% EARLY

ADOPTERS

5% LEADING EDGE

2-5 YEARS

1-3 YEARS

2-5 YEARS

5+ YEARS

2+ YEARS


• Process modelling tools• Workflow and document

management• Agent assisted

automation• Legacy core banking

systems

Internal operations: improving innovation and efficiencyOperations in back offices of FSIs have been adopting the digitised route for some time now. It is an evolutionary process rather than a revolutionary one.

Definitions Research and development Cognitive Computing Systems that reason using machine learning algorithms Internet of Things Massive growth in connected devices for automation and personalisationIntegrated document lifecycle ecosystem Solutions for online and physical content comprising security, forensics, authentication and workflowsSoftware-defined infrastructure All infrastructure is defined via software for better orchestration of processesNew human computer interfaces and cognitive assistants To support advice and decisions including augmented reality Leading edgeEnd-to-end digitisation and STP Removal of physical documents, digitally processing all data to automate processes and decisions Complex event processing Using data from multiple sources within operations in real timeNext gen. search, KM and analytics Retrieval and analysis of virtually all information, regardless of source or formatCloud-based / shared banking platforms Next generation core banking systems, often shared and deployed from the cloudMiddle-office automation suites A single platform linking all front-end channels to back-office and 3rd party systemsOpen APIs Application programming interfaces based on common standards, enabling 3rd parties to develop services Early adoptersModel-driven process automation Generation of automated processes from tool-based modelsRules engines for complex decisions For example, for credit and fraud Task automation (robotics) Automatic population of data from one application to another Legal and eDiscovery Search, audit and hold of all enterprise content for legal, compliance and audit purposesClosed-loop knowledge management KM systems containing automated feedback to improve advice and guidanceEnterprise content management Integrated systems for accessing, storing and searching content in multiple formats Mainstream Business process management Discipline and IT to manage and optimise processesRecords management Systems to store and archive records in accordance with regulatory and compliance requirementsCore banking packages Off-the-shelf banking packagesService-oriented approaches Development and re-use of common business and IT services First gen. knowledge management Capture, cataloguing and making available knowledge - supported by little automation Late adoptersProcess modelling tools Process mapping, modelling and flowchart toolsWorkflow and document management Automatic routing of tasks and associated documents to work queues Agent assisted automation Tools to support agents such as desktop integration Legacy core banking systems

FSIs have been digitising internal operations, in the back and middle office, for many years. The work is an evolutionary, not revolutionary, process, and the objective is not just to drive down costs but to enable the creation of new products and services that depend on automation, for example, to enable immediate account opening or loan decisions.

Complex processing and advanced automationMost financial services firms have at least partially implemented business process management, a single view of the customer and first generation knowledge management which have now become mainstream. But deploying these technologies across all products and processes is an immense task and huge opportunities remain for automation to reduce cycle times, exception handling and manual processing. The key is dedicating a proportion of resources every year and running short, self-funded projects using Agile development for rapid payback. Often there is no need to buy new technology: it’s more about stitching existing systems together and turning on unused functionality in software packages. Early adopters are now taking advantage of model-driven process automation, developing easily intelligible business process models that can quickly be converted into IT systems with minimal coding. FSIs become much more agile as responses to new regulations, for instance, can be implemented through updating models instead of an extensive recoding exercise. Similarly, rules engines for complex decisions allow risk and compliance functions to define and refine policies that are deployed in fully automated operational processes. Leading-edge businesses do this with complex event processing, analysing huge datasets with sophisticated algorithms to address compliance, risk and fraud while helping automatically upsell and cross-sell to customers. Essentially, they are able to apply end-to-end digitisation and straight through processing - something to which financial services firms have long aspired. This has brought leading-edge organisations to a tipping point where they can allow customers to fully self-serve which opens up the potential to design very different products and services. Capabilities to manage unstructured information have progressed enough for early adopters to have widely deployed enterprise content management systems. The leading edge now entails next-generation search, knowledge management and analytics. This enables FSIs to access virtually all of their information, no matter where it resides, and perform sophisticated analytics on technology such as HPE’s HAVEn big data platform. A further area for improving internal operations lies at a more technical level through service-oriented

approaches and service integration that enable re-use of standard processes, data and interfaces. Service-oriented approaches can be considered mainstream, but many companies have not applied them right across their operations. They will be taken a step further by the creation of open application programming interfaces (APIs) based on common standards, enabling third parties to develop their own services, transforming business models and the customer experience. Task automation (robotics) is also gaining ground, enabling clerical processes to be performed by a software ‘robot’. Meanwhile, cloud-based banking systems (see pages 16 and 17) offer a different option, moving to a ‘green field’ that simplifies and automates core banking; and integration technologies such as France's StreamMind that enable processes to be streamlined rapidly. An example is SEPAmail which was delivered in partnership with HPE.

Future opportunityAs with all areas of their business, FSIs need to understand the technology in development. One of the key areas is cognitive computing, in which machines can learn context and apply ‘reasoned’ actions within set parameters, in order to more greatly automate business processes and real-time decision-making.

Work is also proceeding on developing new human computer interfaces, including better visualisation and cognitive systems. In the design industry, HP Inc.'s Sprout creative 3D workstation allows a new and tangible way of working with a computer. No such interface changes have been developed in the office environment, and new technology such as smart wearables and cognitive processing will play a major role in changing this.

The Internet of Things is equally vital to the internal operations of a financial services firm. Systems are being developed to enable data from all types of devices and systems to be streamed directly into cognitive analytics engines, improving the speed of decision-making and supporting better automation. Taking advantage of the many strands of new data, at greater volume, variety and velocity (see pages 20 and 21), enables an understanding of different customers, what they are doing and what to sell to them. FSIs must keep working on improving their internal operations in order to get the most from technology and empower innovation. HPE has practical experts who help companies to digitise operations, and drive their business forward. Ralf Fluegge, Financial Services Industry Practice

“ Leading edge businesses use complex event processing, analysing huge datasets to address compliance risk and fraud in real time.”

Internal operations

• Cognitive computing for greater automation

• Internet of Things• Integrated document lifecycle

ecosystem• Software-defined infrastructure • New human computer interfaces,

visualisation and cognitive assistants

• End-to-end digitisation and STP• Complex event processing • Next gen. search, KM and analytics• Cloud-based / shared banking platforms• Middle-office automation suites• Open API’s

• Model-driven process automation• Rules engines for complex decisions• Task automation (robotics)• Legal and eDiscovery• Closed-loop knowledge management • Enterprise content management

• Business Process Management• Records management• Core banking packages• Service-oriented approaches • First gen. knowledge management

R&D


50% MAINSTREAM

25% EARLY

ADOPTERS

5% LEADING EDGE

2-5 YEARS

1-3 YEARS

2-5 YEARS

5+ YEARS

2+ YEARS


• Non-traditional FS players• Cognitive computing:

for security and payment systems management

• Reduced or changing regulation

• Mobile activated ATM withdrawals• Person2person payments (e.g. Paym)• Contactless (Card) payments • Mobile wallet (money, loyalty

and rewards)• Mobile location in card payment

fraud rules• Basic biometrics

• Carrier Billing• Mobile Points of Sale

• Online/Banking app initiated payments

• Faster payments

Payments: undergoing great change after years of continuityThe management of payments is a well-established process for FSIs, but the landscape is undergoing huge changes.

Definitions Research and development Reduced or changing regulation Enabling new players to enter the marketplace Cognitive computing Use of machine/deep learning-based analysis for security and payment systems management Non-Traditional players Emergence of new OTT players in market evaluating how they can play in the eco-system, e.g. SnapChat with P2P payments Leading edge Cloud Based non-card Payment Emergence of alternative payment schemes, non-card based, centred around mobile (i.e. Zapp) Crypto/Digital currencies New payment methods based on emerging and virtual technologies. Examples being cryptocurrencies, such as Bitcoin and Ripple Beacons Devices typically located in retail establishments emitting radio signals that alert mobile devices to store offers and can enable online cloud based payment from an online wallet Online wallets Launched by Visa and MasterCard to facilitate payment on retail checkout pages. Improved checkout experience on VBV/3D secure a la Paypal Contactless (Mobile NFC) Payments Based around mobile wallet and payment credentials stored on SIM or utilising Host Card Emulation Tokensisation Utilisation of tokens as a replacement for PAN numbers. Complimentary to HCE solutions Early adopters Mobile activated ATM withdrawals Ability to generate a code through an app which can be used to withdraw cash from ATM without a card Person2person payments (e.g. Paym,) Ability to pay by transfer direct to account or by mobile number linked to their current account Mobile wallet Money, loyalty and rewards Contactless Card Payments Tap card at POS to pay Mobile location in card fraud rules Geo-location built in to fraud evaluation rules, in particular in relation to overseas transaction Basic biometrics Mainstream Carrier Billing Use of mobile bill to pay for goods and services through simplified billing via mobile number Mobile Points of Sale Retailers using card acceptance devices tethered to mobile devices or with embedded mobile connectivity Late adopters Online/Banking App initiated payments Online or app based access to accounts to make payments to third parties, either to personal accounts or to make bill payments Faster payments Domestic payments made between institutions same day, often immediately

Payments are a crucial part of national infrastructure and help drive the economy. Even though managing payments is a well-established process for any financial services institution (FSI), this area is undergoing huge changes. For FSIs, the perfect storm is emerging: numerous start-ups are entering the payments market, prompting consumers to have increased expectations, whilst legacy technology and regulatory challenges continue to hamper service improvement and innovation. It is crucial that financial services firms understand this. Customers increasingly expect elegant and intuitive payment journeys, across devices, and they are looking for a more immersive experience. Meanwhile, FSIs are grappling is grappling with their existing systems at a time when data insight and compliance demands dominate. The struggle to keep on the lights is a priority, and when payment systems fail, the reaction on social media can be very damaging. In spite of the disadvantages that established players – such as banks, card issuers and online wallets, including PayPal – face in quickly adapting to new challenges, those firms continue to dominate consumer payments. The reason is that customers trust them and have already set up their money there. But without action, start-ups could take away chunks of business.

A new environment For FSIs, by understanding the technology approaches of their competitors, as well as the opportunities, there is a strong opportunity to push ahead. Among early adopters, mobile payments have been a focus. In Poland HPE implemented person-to-person payments for Polski Bank, allowing people to pay others by simply entering a mobile number and to withdraw money from an ATM using their phone instead of a card. Hewlett Packard Enterprise is now moving to the next stage in the technology'smaturity by developing a solution called blik across aconsortium of Polish banks. Meanwhile, for online retailers e-wallets allow consumers to store payment details for quick transactions, and in-store mobile points of sale and contactless card payments are also becoming popular. Mobile-activated ATM withdrawals allow people to take out money simply using a code from an app.

At the leading edge, cloud-based non-card payment systems, such as Zapp, and biometrics for authorisation of mobile payments, including Apple’s Touch ID, are easing and speeding buying processes. In research and development, over-the-top non-traditional FS players, which provide services using existing banking infrastructure, are evaluating what they can do to take a further role in the market, at a time when cryptocurrencies, such as Bitcoin, are revolutionising payment.

Modernising payment methods In order to stay ahead of the curve, established businesses need to react to the changing competition, customer demands and the technology on offer. Alongside a transformation in their payments infrastructure, they can draw on HPE’s strong experience in finance, processing, broader technology and outsourcing, no matter where they reside in the payments eco-system. Among the most important innovations, many financial services firms are interested in working on

recent developments around host card emulation, in which appropriate smartphones can effectively act as contactless payment devices. Equally, tokenisation means payment card data can be robustly protected in these transactions. This opportunity cannot be missed: by taking advantage of the changes, financial services firms can embed contactless mobile payment capabilities within their standard apps. At the same time, value added services are booming. Customers using newer forms of payment channels, such as mobile, increasingly expect a more in-depth experience. By adding rewards and location-based vouchers, within existing mobile banking or payment apps, companies can secure greater business. Making the most of these incoming opportunities is essential for FSIs in remaining ahead of the curve in the hugely competitive payments arena. The potential is there for the taking. Markus Orth, Payments Practice

“ Many financial services firms are interested in working on recent developments around host card emulation.”

Payments

• Closed non-card based payments (i.e Zapp)

• Beacons• Online Wallets (V.Me and MasterCard

Paypass)• Contactless (Mobile) Payments – SWP

or Host Card Emulation• Tokenisation • Crypto/Digital currencies

R&D


50% MAINSTREAM

25% EARLY

ADOPTERS

5% LEADING EDGE

2-5 YEARS

1-3 YEARS

2-5 YEARS

5+ YEARS

2+ YEARS


• Traditional infrastructure

• Public cloud for non-critical systems • On-premise private cloud • Converged infrastructure• Service Integration and Management

• Evolving computer architectures such as The Machine

• Software-defined infrastructure • Cognitive computing for real-time

automated service management• Advanced analytics and Big Data

processing for the Cloud (*aaS) as well as “the Edge” (IoT)

The financial services industry has often looked at cloud computing through a sceptical lens. Concerns over where data resides, privacy, security and the capacity of systems have dominated this debate. However, we are seeing the tide turn, and financial services firms are starting to exploit the many opportunities cloud computing provides. For FSIs to understand cloud and the opportunities available for them, they would be wise to consider it from two angles: horizontally, using cloud for IT infrastructure; and vertically, applying cloud to consume business applications and services over the internet.

Transforming infrastructure The attractions of cloud for computing power are evident: speed, flexibility and pay per use. As a result, public cloud for non-critical systems has now become mainstream – as has on-premise private cloud for mission critical systems, where businesses establish dedicated services within their firewall. For example, Deutsche Bank and HPE have announced a ten-year, multibillion dollar agreement, under which HPE will provide dedicated data centre services on demand, including storage, platform and hosting.

Early adopters, meanwhile, are moving towards more advanced off-premise private cloud and virtual private cloud. The Leeds Building Society is one such

Cloud: a bright road ahead After a great deal of initial scepticism, the financial services sector seems to be understanding much better the real benefits that can be derived from cloud computing.

Definitions Research and development Evolving computer architectures such as The Machine Reinventing the fundamental architecture of computers to enable breakthroughs in performance and efficiency Software-defined infrastructure Infrastructure defined via software for better service management and orchestration Cognitive computing Machine learning-based analysis for real-time automated service management Advanced analytics and Big Data processing for the Cloud (*aaS) as well as “the Edge” (IoT) The concept that data, processing and analytics will occur in highly distributed environments and exploit data from multiple sources Leading edge Cloud-based banking platforms Core banking software architected for the cloud. Cloud-based bureau services Cloud based services on a pay per use basis, e.g. credit data and payments Cloud storage and collaboration for customers “Personal cloud” for brokers and customers to store documents and information for re-use SDI Software defined infrastructure allows infrastructure to be administered by software Service Management of Hybrid environments Bringing together public, private and virtual private clouds under a single service delivery model Seamless Service brokering Brokering of services, as opposed to systems, from public, private and virtual private clouds through a single pane of glass Early adopters Private cloud and virtual private cloud for critical systems Computing via elastic pay per use infrastructures in vendor DCs or on site Cloud end-to-end managed development and test Delivered in an elastic manner and pay per use PaaS Platform as a Service is the combination of cloud based infrastructure and software stacks to provide a platform such as e-mail IaaS Infrastructure as a Service delivers cloud based compute platforms Branch virtualisation Delivery of branch systems on a virtual / cloud model allowing central management of applications Cloud-based storage Storage hosted in cloud environments Mainstream Public cloud for non-critical systems Public cloud based systems for non-critical systems such as HPEcloud.com for development projects On-premise private cloud Cloud environments within an organisation’s own DC facilities Converged infrastructure Infrastructure where components are grouped into a single, optimised computing package Service Integration and Management Provision of single service management and integration platforms Late adopters Traditional infrastructure delivery Such as mainframes, servers etc. based in customer or hosted data centres

organisation, using HPE’s virtual private cloud for a fully hosted core application for mortgages and savings.Adoption of cloud alongside traditional IT leads to hybrid environments, and leading edge businesses are employing service management of hybrid environments to manage public, private and virtual private clouds in one seamless delivery model.

A quantum leap in software delivery Within applications, a major change is taking place in how FSIs draw from the cloud. Historically, software as a service has been used for non-banking applications including human resources, finance and sales. But at the leading edge, financial services firms are connecting to cloud-based, shared banking platforms, in which the core banking software has been designed specifically to be delivered in the cloud. The potential is great: banks can make large savings in operational costs, compared to managing systems themselves, while enabling faster change. Those companies at the leading edge are even prepared to trade lower costs and higher flexibility for less functionality when the situation requires it. Meanwhile, cloud-based applications are enabling brand-new business models, transforming customer service and the structure of the financial services market. They are generally consumed on a pay per

use basis, and include cloud-based services for data and payments, and even account opening. Cloud services can also enable more collaborative customer service models, for example, cloud storage customers / brokers and financial services firms for the processing of mortgage applications. With the Internet of Things (IoT) connecting everyday objects to the web, so that they can communicate with each other and humans, there will be greater interaction between automated processes. Traditional computing will not be able to process these volumes of data. The cloud will be the only option for organisations that want to design new services based on real-time, context-rich data from the IoT. But, ultimately, even the cloud will not generate enough computing power to meet the demands of big data and IoT. HPE Labs’ biggest project is The Machine, which aims to reinvent the basic architecture of computers.

Grab the opportunities Within this complex landscape, there are two vital areas in which all banks can experience a dramatic advance by making use of the cloud: speeding up development and testing and virtualising branches. All FSIs are hampered by projects moving slowly through a complex web of development and testing. In order to expedite this, leading edge organisations are turning to the cloud for end-to-end managed development and testing. This opens up a common development and testing architecture to enable agile development, collaboration and smooth transition from each stage of the lifecycle. Finally, branch virtualisation, in which cloud infrastructure is managed centrally across all branches, offers huge benefits, including a cut in operational costs and allowing reliable and fast change. FSIs must take note of the many opportunities created by the cloud, and of the way that challengers are able to launch new cloud-based services. The businesses that see best where and when to adopt the technology are the ones that will succeed. Andrew Dare, Financial Services CTO

“ New businesses are entering the market at a lower cost, thanks to cloud-based shared banking platforms.”

Cloud

• Cloud-based banking platforms• Cloud-based bureau services • Cloud collaboration for customers / brokers• Service Management and orchestration of

Hybrid environments• SDI• Service Management of Hybrid

environment• Seamless Service brokering

• Off premise private cloud and virtual private cloud

• Cloud end-to-end managed development and test

• Platform as a service (e.g. for e-mail)• Branch virtualisation• Cloud-based storage• IaaS

R&D


50% MAINSTREAM

25% EARLY

ADOPTERS

5% LEADING EDGE

2-5 YEARS

1-3 YEARS

2-5 YEARS

5+ YEARS

2+ YEARS


• Electronic document authentication• Mobile phone for two-factor

authentication (e.g. Mobile secured credit card)

• Two factor authentication• Enhanced web security

• Resilient security and privacy approach• Dynamic data lifecycle security and

privacy• Cognitive Security• Integrated document lifecycle

ecosystem• Secure network architectures• Next-gen encryption• Next generation biometric security

Definitions Research and development Resilient security and privacy approach Dynamic, proactive, and self-healing across entire FS security “kill-chain” Dynamic data lifecycle security and privacy Secure data management across the entire data lifecycle Cognitive Security Use of machine/deep learning-based analysis that supports data security and privacy for resilient systems (see above) Integrated document lifecycle ecosystem Solutions for document/content (online and physical) security, forensics, authentication, tagging, document workflows Secure network architectures Secure peer-to-peer networks (using block chain protocols) for transactions, contracts and other financial activities Next-gen encryption Ability to do processing/analytics on secure (encrypted) data; may include advances in homomorphic encryption and other techniques Next generation biometric security Going beyond fingerprints towards facial recognition, blood vessel analysis, retinal scan etc. Leading edge Geo- and behavioural data for transactional security Identify and stop potential fraudulent transactions by comparing against analysis of typical behaviour and customer location for that account Mobile payment fraud prevention Fraud prevention specifically aimed at mobile applications and payment solutions Data-centric encryption and tokenisation End-to-end protection of the data itself, e.g. HPE’s Voltage Crypto/digital currencies New payment methods based on emerging and virtual technologies. Examples being crypto-currencies, such as Bitcoin and Ripple Early adopters Voice authentication Use of voice characteristics to identify and verify customer identity, usually in contact centre Federated identity / shared authentication Use of third parties for identification purposes e.g. “sign on with Facebook” Basic biometrics Use of unique biological markers, mainly fingerprints, to identify and verify customer identity Mainstream Electronic document authentication Providing a secure authentication mark on documents such as e-signature Mobile phone for two-factor authentication (e.g. Mobile secured credit card) Alternative two factor authentication protocols for mobile devices where the shared platform for app and communication could represent a security risk Late adopters Two factor authentication Two factor authentication using physical tokens Enhanced web security Greater web security based on combinations of PIN code and passwords. Text validation of transactions

Financial Services are the driving force behind these figures, revealed in an HPE Survey conducted by the Ponemon Institute, is the growth of the digital economy and the associated black market. IT security is a critical issue for any financial services business, and it enables all of the other technology to work effectively and safely. Traditionally, FSIs have had their focus on the perimeter, using firewalls to stop hackers getting in. Now, companies need to assume a state of compromise, focusing on protecting the data such as with advanced persistent threat protection, based on the philosophy of defence in depth.

Segmentation and end-to-end control The continuous innovation of cybercriminals means that FSIs need to stay abreast of security. Early adopters are already conducting proactive segmentation and monitoring of their systems and data, identifying which are the most essential assets, applying appropriate defenses based on risk and sensitivity. They are also exploiting big data for enhanced security and fraud detection, processing huge volumes of information to identify intrusions or internal compromises. Extensive work is also going ahead around federated identity, in which a single authentication token is trusted across multiple organisations. In Denmark, a person logs into their online bank and is able to access the systems of other trusted organisations. The same principle is even used to enable collaboration across US defence. Federated access improves take-up of digital services because people do not need to register countless times and remember multiple logins. At the leading edge, financial services companies are going much further to protect themselves and their customers, with end-to-end next wave security operations centres, which observe and control security on all levels, from technology to buildings, including swipe cards, third party access and CCTV.

Security: keeping a step ahead of cybercriminalsWith cybercrime on the increase and posing a more serious threat to companies, sound IT security has become of paramount importance.

Such businesses are equally looking to encrypt at the data level, rather than just at network entry. Through Voltage Security, a company acquired by HPE, businesses can take advantage of encryption built into the data itself rather than simply protecting at the network edge.

Consumerisation and security The consumerisation of technology is transforming how FSIs secure their systems and customer accounts. While banking access online has traditionally been a combination of passwords and two factor authentication devices, the proliferation of smartphones has made authentication available through generating a unique code on a banking app. Meanwhile, voice authentication has gained ground in New Zealand, where one million people have signed up to access Inland Revenue Department services through speech identification that allows customers to automatically check their account balance, track tax refunds, and reset passwords. In addition to this, with the fingerprint scanning and facial recognition capabilities on newer smartphones (see also the article on mobiles on pages 22 and 23), banks are able to use next generation biometric security to control access to accounts. At the leading edge, companies, such as Halifax, are trialling access on cardiac pattern authentication,

through a wristband. It is also possible to authenticate customers by the blood vessels in their fingers, or by examining their eyes. Businesses also need to be aware of the technology that is in development in order to map out their long-term plans. Cognitive security allows artificial intelligence to learn the context of data. Other work in the research phase includes proactive security response across the entire ‘cyber kill chain’ through both the hacker’s testing and subsequent execution of their attack, as well as full security across the integrated document lifecycle in which papers can be quickly compared and verified. It is essential, therefore, that FSIs understand these trends so they can act. With the right security in place, they can make the most of other technology while knowing their data is well protected. Chris Cooper, Security Practice

“ The continuous innovation of cybercriminals means that FSIs need to stay abreast of security.”

Security

• Geo- and behavioral data for transactional security

• Mobile payment fraud prevention• Data-centric encryption

and tokenisation• Crypto/digital currencies

• Voice authentication• Federated identity / shared

authentication• Basic biometrics

R&D


50% MAINSTREAM

25% EARLY

ADOPTERS

5% LEADING EDGE

2-5 YEARS

1-3 YEARS

2-5 YEARS

5+ YEARS

2+ YEARS

• True in-memory computing • Evolving computer architectures

such as The Machine• Advanced analytics using deep

learning/cognitive systems• Internet of Things • Advanced analytics as-a-Service• Dynamic data lifecycle security and

privacy

• Business intelligence - Structured data (mostly internal) - Retrospective reporting and analysis - Periodic / batch

• Analysis of siloed unstructured data (e.g. voice)

• Real-time consumption of external data services

• Traditional static visualisation tools• Automated data cleansing

• Aggregation of internal structured and unstructured data

• Social media monitoring• Data lake• Advanced dynamic visualisation tools• As-a-service IT deployment models• Schemaless Databases

• Big Data across the enterprise • Real-time • Extreme scale• New data sets, many machine

generated • Optimisation and prediction• Data monetisation • Data stewardship approach


Definitions Research and development True in-memory computing (or non-volatile memory) to enable extreme scale analytics on devices of all sizes Evolving computer architectures such as The Machine Reinventing the fundamental architecture of computers to enable breakthroughs in performance and efficiency Advanced analytics using deep learning/cognitive systems For real-time prediction, decision making and automation Internet of Things (IoT) Use of machine-generated data in real-time for analysis and automation of transactions Advanced analytics as-a-Service Predictive and “real” cognitive analytics delivered via cloud Dynamic data lifecycle security and privacy Secure data management across the entire data lifecycle Leading edge Real-time Real-time querying or continuous updating of pre-set data views Extreme scale 100% of data Aggregation of data from wider sources Broadening of data sources (especially web and social media) Optimisation and prediction Models for optimisation and prediction with ability to run ‘infinite’ scenarios Data Monetisation Using customer data for new purposes, e.g. selling aggregated customer data to 3rd parties Data Stewardship tools Tools that support stewardship of data across the lifecycle and cleansing at multiple points Early adopters Aggregation of internal structured and unstructured data Combination of data in various formats to create a single customer view and support analysis Social media monitoring Real-time monitoring to follow trends and identify customer service issues Data lake Storage of large amounts of data whose subsequent value and use is determined through test As-a-service IT deployment models Analytical tools, mostly cloud-based, especially for discovery and test of new data sets and tools Advanced visualisation tools Dynamic data, visual querying, linked multi-dimensional, visualisation, animation, personalisation, and actionable alerts Schemaless Databases Databases where data that is modeled in means other than the tabular relations used in relational databases Mainstream Real-time consumption of external data services Access to data provided by data bureaux as a service, e.g. credit records Analysis of siloed unstructured data Tools to monitor and analyse unstructured data (voice, video, text) Traditional visualisation tools Static visualisation tools presenting data with relatively little ability to support interaction Automated data cleansing Tools, processes and governance for data parsing, profiling, matching, validation and enrichment Late adopters Business intelligence Exploitation of structured data using datawarehousing and operational data stores primarily for reporting and online analytical processing

Big data analysis is having a transformative effect across science. In genetics, researchers are analysing large sets of data and finding associations between genes and diseases to fulfill the promise of personalised medicine. In astronomy, the data that has come back from the Hubble Telescope has transformed our understanding of the universe. In financial services, however, the impact of big data has barely been felt. Yet, over the next decade, every aspect of a bank or building society, from risk and compliance to marketing and operations, will be transformed by managing and analysing big data. The ability to harness information is driving innovation in other technology domains, including security. According to Gartner, a leading information technology research group, big data is not just about the volume of information, but also about its variety and velocity and complexity - and the topic is best thought of across each of these dimensions. Winning in these areas gives organisations real insights they can apply to operations and strategy.

Data deluge Data-warehousing to store and process siloed information has now been deployed for more than 25 years and is mainstream. Even so, in most businesses, the potential to exploit it further remains substantial, with islands of information scattered across

Big data, big opportunitiesIt is not just a case of the volume of information gathered, but also about its variety, velocity and complexity and most importantly how quickly intelligence is created and acted upon.

the enterprise. This is one reason why business intelligence investment continued after the global financial crash in 2008. By using ‘schemaless’ databases, early adopters upload structured and unstructured data, and draw out useful information. They can process huge volumes of it, and still derive useful responses, pulling on vast data lakes, which are made possible by cheaper storage. They work on the principle of a business collecting whatever it can and then assessing it, instead of deciding what to store before keeping it. Many FSIs already process an ever-growing variety of data that is drawn from outside the boundaries of their own organisations, with a recent area of interest being sentiment analysis of social media. Early adopters, however, also look at more broadly-located datasets, such as geographical and government information. At the leading edge, they use image processing to match a video or a still photograph to a database when a person walks into a bank. Underpinning all these techniques are data stewardship systems, which are vital to help manage and oversee information assets and ensure they are easily accessible in a standard format. In terms of the high velocity of data processing required for fast analysis, at the leading edge

sophisticated work is taking place to run in-memory databases and complex event processing allowing potential fraud detection as it happens. Analytics are being embedded across the enterprise, within objects and wearable technology connected to the Internet of Things, with banks using machine-generated data in real time for analysis and automation of transactions. Extreme scale processing gives those companies fast results. Evolving computer architecture is in the development stage, to support massive data volumes.

Deriving useful insight Historically, businesses have run dashboards and reports in order to gain insight. This will continue, but they will need to add new ways to interpret data, progressing from static visualisation to advanced dynamic visualisation that allows people to explore data. This reflects somewhat of a change in how data is used. No longer are people only tackling standard, known-world problems, they now want to discover new patterns and unknown relationships, for example, to cluster the data and draw out predictive analytics from a variety of segments. These techniques are essential in fields such as legal and e-discovery where complex models are used to identify activities and underlying patterns across large sets of structured and unstructured data. At the leading edge, real-time analytics on a variety of data is crucial. In addition, machine learning, or self-optimisation and prediction, means algorithms become cleverer. At the research and development level, natural language queries will see more intuitive responses drawn out of databases, instead of the user having to enter exactly the right wording.

How to succeed The only way to succeed in all of these data areas is to have the right data scientists in place, as well as the people who can bridge the gap between them and the business users. New and more advanced tools will assist the business users in this area and will allow some degree of self-service but ultimately the variety, velocity and complexity of data will require specialist skills and experience.

HPE can guide organisations on this journey, starting with improving basic functions before advancing. Shaun Connolly, Analytics and Data Management Practice

Big data

“ At the leading edge, sophisticated work is taking place to run in-memory databases and complex event processing.”

R&D


50% MAINSTREAM

25% EARLY

ADOPTERS

5% LEADING EDGE

2-5 YEARS

1-3 YEARS

2-5 YEARS

5+ YEARS

2+ YEARS


• Information services • SMS• Balance and payment info

• Basic greater apps• Person2person payments • Mobile wallet • Basic biometrics • Business banking services

Definitions Research and development Wearable devices Services accessed via wearable devices such as smart watches and Google Glass New user interfaces To provide more intuitive services via mobile Next generation biometrics Going beyond fingerprints towards facial recognition, blood vessel analysis, retinal scan etc Personal clouds or “servers” Continuous broadcasting of data from mobile devices creating opportunities for real-time services New nano- and compute- technologies New forms of non-volatile memory, photonics, and architectures for tiny devices Leading edge Branch queuing App to start queuing at a branch before a customer arrives Greeter apps exploiting customer data Branch greeter using tablet to advise action according to the particular customer Contactless mobile payments Chip embedded in mobile phone linked to payment card that enables contactless payments Geo-services / context awareness Mobile app to determine user location and present relevant data, such as nearest branch and local offers Mobile scanning / image capture Mobile / tablet cameras to capture document images Closed non-card based payments Alternative payment schemes centred on mobile (e.g. Zapp) Augmented reality Layering of digital information, such as video, on top of the physical world to enable customer interaction, e.g. HP Aurasma Mobile payment fraud prevention Fraud prevention solutions aimed at mobile applications and payments Early adopters Business banking services App functionality for business customers Basic biometrics Use of unique biological markers, mainly fingerprints, to identify and verify customer identity Basic greeter apps Branch greeter using tablet to provide generic greeting service Person2person payments (e.g. Paym) Payment by direct transfer to account or by mobile number linked to an account Mobile wallet Money, loyalty and rewards Mainstream Mobile optimised site and forms Websites that automatically adapt content for mobile devices Non-payment transactions Low risk transactions, e.g. inter-account transfers, within a single institution Mobile Points of Sale Retailers using card acceptance devices tethered to mobile devices or with embedded mobile connectivity Late adopters Information services Generic information, e.g. product info. and contact details SMS SMS to update customers, e.g. on the status of an application, to request information or to prevent fraud Balance and payment info Viewing of account information

Mobile: becoming further entrenched in our daily lives The ever-stronger importance of smartphones and tablets in our daily lives is undoubted. As such, it is fast becoming the financial services companies’ primary channel of contact with its customers.

Mobile websites and apps used to be an optional add-on for FSIs. Increasingly, financial services firms have a strategy of mobile first, or even mobile only. Providing all services on mobile, and making it the primary channel of contact with the customer, makes sense given the technology’s popularity and strengths. Crucially, mobile technology opens up banking to many more people. While many have been excluded because of a lack of broadband internet, the proliferation of smartphones and tablets means there is a much greater access to financial services. The starting point for mobile has been the provision of information services including branch opening times, as well as balance and payment information. In the mainstream, most financial services companies have taken a step further to offer mobile-optimised sites and forms. Inter-account transfers and other non-payment transactions are also now commonplace.

Geolocation and full mobilityThe next stage in mobile has been to re-think services, as opposed merely to enabling existing online offerings to be accessed on mobile devices. Mobile is a more powerful channel, because mobile devices can readily incorporate voice, camera and biometrics. Moreover, most people carry their device with them all the time. The combination of GPS and carrier information means companies know where someone is when they use their device. This launches a completely new type of app, one that understands ‘context’. Early adopter financial services firms are focusing on offering mobile payments, such as person to person (P2P) payment services, including industry initiative blik (see payments section on pages 14 and 15 for more info). Mobile wallets, in which card details are stored, as well as loyalty and rewards coupons, are increasingly popular. Consequently, there is a growing need for mobile payment counter fraud that makes use of transaction, customer, device and location data.Within branches mobile points of sale are increasingly popular in-place of the traditional ‘service window’. This has major impact on the improvement of customer service, the number one generator of customer loyalty. A basic greeter app, that allows a branch employee to gather information about a customer and why

they are visiting the branch is another major step forward being pursued by many early adopters. At the leading edge, geolocation and context awareness services are crucial. This means users can download a bank’s mobile app and be presented with relevant information on their current location, such as the nearest branch and local offers, and even line up in the queue virtually, before they arrive. Equally, augmented reality technology on mobile phones gives banks the chance to improve the experience on screen – such as Westpac in New Zealand, which is allowing customers to scan their cards and see a visual graph of categories they have spent in. Augmented reality can also be used in retail so that customers scan images in shops, online and in shopping catalogues. Contactless mobile payments allow customers with NFC-enabled phones to easily make in-store payments at various retailers by touching their phone to a reader. The strength of technology on mobile devices opens up other opportunities, and at the leading edge, biometrics allow the use of voice, image or video, or even fingerprint or iris scans, to access applications. Business banking is inherently more complex than pure retail banking and leading edge financial services firms are only now thinking through how it can be optimised for mobile, such as enabling companies to check their payroll run and find out the latest cash flow situation. Leading-edge FSIs are also using mobile scanning and image capture so that the same technology employed in a central scanning centre can now be deployed to the mobile device. Intelligence can be

applied to the process to enable banks to recognise quickly what the document is, such as whether it is a driving licence or utility bill, and to quickly extract the key information or flag an exception.

The future Mobile devices are enormously more powerful than laptop technology, because of their immense functionality and the fact that customers nearly always have the devices with them. As the Internet of Things takes off, including connecting wearable devices, there is the opportunity to embed further high performance, nano and compute technology on mobile and advanced IoT devices. Meanwhile, a more immersive experience with intuitive services can be provided on smart watches and glasses. Work is also going ahead for distributed mesh computing, in which servers are located in many locations to help process and analyse the massive amount of data from IoT devices. Additionally, personal clouds enable users to store documents and to draw on contextual services based on their activities and location. FSIs need to start with a mobile-first mindset, if they are to take advantage of all the new opportunities available to them. This thinking enables the proper back and mid office operations to be established, as well as the right security. By taking advantage of the systems on offer, they can capitalise on customer opportunities and greatly improve the digital customer experience. Paul Evans, Mobility and Digital Customer Experience Practice

“ Personal clouds enable users to store documents and to draw on contextual services based on their activities and location.”

Mobile

• Wearable devices (e.g. Google Glass)

• New user interfaces including advanced augmented and virtual reality

• Next generation biometrics security • Personal clouds or “servers”

enabling contextual services• New nano- and compute- technologies

• Branch queuing• Greeter apps exploiting customer data • Contactless mobile payments • Geo-services / context awareness• Mobile scanning / image capture• Closed non-card based payments • Augmented reality• Mobile payment fraud prevention

• Mobile optimised site and forms

• Non-payment transactions • Mobile Points of Sale

R&D


50% MAINSTREAM

25% EARLY

ADOPTERS

5% LEADING EDGE

2-5 YEARS

1-3 YEARS

2-5 YEARS

5+ YEARS

2+ YEARS


Conclusion: choosing the optimum model The way forward for FSIs to approach innovation is to plan carefully and identify which technologies have the most potential.

Four technology megatrends are having a huge impact on financial services organisations. Cloud computing, security, big data and mobility are providing significant opportunities for FSIs to strongly grow their business and enhance efficiency. These trends offer financial services organisations the opportunity to maximise their core business areas of customer interaction, internal operations and payments. Technology is also enabling disruptive business models that bring both threats and opportunities.

“ By taking action now, financial services firms can gain a march on their competitors and stay well in front.”

Now is the time that businesses must act, drawing on the expertise in this model. With global economies growing and regulation increasing, expectations are high for FSIs to meet the challenges and deliver innovative, reliable, intuitive and personalised services. The only way to approach innovation is to plan carefully and identify which technologies have the most potential. In order to achieve this, the first step businesses need to take is to discuss where they are along the innovation lifecycle described in this report, in each of the megatrends and core business areas. Following this, they must decide where they want to be in commercial terms and what their risk appetite is. HPE, with its extensive experience in financial services, can help guide banks and building societies of all sizes through these complex and strategic decisions. By taking action now, financial services firms can gain a march on their competitors and stay well in front.

For further information, contact:

David RimmerDirector, Financial Services HPE Enterprise ServicesMobile: +44 (0)7790 490827Email: [email protected]

Andrew DareChief Technologist, Financial Services UK&I HPE Enterprise ServicesMobile: +44 (0)7717 541277Email: [email protected]