Bank Techno Geeking

AI and blockchain are the keys to a banking future which starts in the computing cloud

From open banking to consumer experience to, yes, blockchain, the hardcore of the technologies that make finance and payments run dominated my experience Wednesday at Money20/20 Asia.

I heard presentations on the guts of financial systems and how to make them scale larger at less cost and greater security. I met also with vendors seeking to make payments, lending, and investment with both current and cryptocurrencies. No easy technical tasks.

Setting open banking standards

What’s far harder, however, are the governance, business, and design agreements that the successful projects agree on first. It takes collaboration with regulators, business partners, technology staff to agree on governance, problem definition, design standards, and technology stacks.

Ultimately, formal standards are required, argued Gavin Littlejohn, chairman, Financial Data and Technology Association, who spoke about standards setting for open banking in the U.K. and Europe. The core agreement from the outset was that customers owned their data, not the banks they used, a realization pushed by new business models and finalized by regulators, he said.

The standards process is not focusing on technology, however, but on governance and security. “Most FinTechs and increasingly most of the banks are starting to recognize the allure of open standards (for banking) and an international governance framework that governs interoperability, liability, and security.” It’s something corporates want as well.

The liability model is important because when banking systems are open, and third parties can access and use customer data that happens to be on a bank system and something goes wrong, who is liable? In the current regulatory regime, Littlejohn noted, regulators simply rely on the bank balance sheet.

That doesn’t work with smaller companies, even if they are well funded. Instead, standards settings are working on a using a system of cyber-risk insurance, along with a basic governance structure that enables an insurer to price risk.

In the context of commerce

ceBut how do you make money? The open-banking model looks to cut out the bank’s primary competitive advantage: ownership of customer data, and everyone asks this question.

Megan Caywood, chief platform officer at London-based Starling Bank, one of the most visible of the “challenger banks” in the U.K. Starling is built from scratch as a digital bank, including a financial marketplace that shares customer data with other financial firms.

Starling is building a “truly open marketplace” based on “a generic platform where third parties can integrate APIs, and the bank can share” technical details and methods. The idea is to reduce friction and increase customer conversion on all offered products and services.

“We don't upsell our own financial products,” she said. “We are giving customers a marketplace where they can manage all their finances in one hub. . . . It’s a very different model of banking and a very exciting time.”

The bank is enabling financial-services commerce. Singapore-based DBS Bank is another pioneer. I had a chance to talk with Neal Cross, chief innovation officer at DBS Bank. In explaining how the bank build its digital bank, Digibank, which initially launched in India and is moving into Indonesia, the designers put the context of the customer’s experience first.

“It’s not just a generic financial service,” he said. It’s more like: Hey, it’s you again. We know what you have done, and what you want to achieve. Accordingly, DBS is built into the flow of a customer desire, such as buying a home, rather than getting a mortgage. “It’s friction free and contextual,” Cross said.

UI and UX mark the way

A relentless focus on and integration of the user interface and user experience into the right customer-focused problem also makes digital banking successful. Regardless of the masterful achievements the latest technologies solve, customer onboarding is still the initial friction and pain point for most banking customers. Nigel Verdon, CEO and cofounder of Railsbank, a London-based open banking API for global corporate banking, noted that building compliance into the system from the very beginning makes it work.

“We see UX and APIs not just visual UX but part of a workflow. Part of our workflow is compliance. So it's baked in,” he said.

Another interesting UI-UX case came from Google, which worked with four banks in India to create the Tez payments system. “We tried to take the complexities of the payments infrastructure from the users. Rather than how payments are classically done, the UI is designed around conversations or interactions (consumers) are having with a peer or a business,” said Diana Layfield, vice president, Next Billion Users, Google. (How would you like that title?)

Notably, the partnership included and was supported by the work of the Indian bank regulators. Tez is built on the India Stack, “a set of APIs that allows governments, businesses, startups and developers to utilise a unique digital Infrastructure to solve India's hard problems towards presence-less, paperless, and cashless service delivery.”

And in case you were wondering: “We do believe that open ecosystems and plural systems will win. Google has no interest in being a bank. We want to work with them, not in opposition to them,” Layfield said.

Up in the cost-efficient cloud

There’s a lot of important talk about blockchain, AI, and machine learning. Ant Financial held its tech conference in the afternoon, and it was both mind-blowing and mind-numbing. It was system diagram heaven and too much detail for me.

At the same time, I see them working out problems of system scale that dwarf most I know about, with the possible exception of the highest-volume algorithmic trading systems. Hu Danqing, head of blockchain product development, Ant Financial Technology Labs, ran through the firm’s blockchain technology, which it plans to make publicly available later this year. At least one of the use cases and proofs-of-concept is expected to be production ready.

Yet the biggest technological concept and advancement in banking, moving into wider production use today, is this: the cloud. DBS points out that it was able to build its digital bank and reiterate it for different markets because the MAS allowed the use of the system in the cloud. One of the Ant Financial speakers acknowledged the same importance of the cloud infrastructure, especially in terms of scaling a large system over multiple countries while maintaining performance.

One of the key changes made by the Monetary Authority of Singapore, according to Cross, is its acceptance of cloud computing. “It’s the biggest and most important tech trend at the moment, as we can move a lot of our systems around. It reduces iterations, so we can use the money for innovation,” he said.

Note that “systems” does not mean “customer data.” The ability simply to duplicate systems in the cloud inexpensively gives a financial the same cost savings and development efficiencies of a startup that spins up another server on the Amazon cloud.

Who are you?

The final technology trend discussed concerns identity. Although identify theft and fraud is a major problem and cost in the United States, in emerging economies, the problem is the lack of identity and authentication methods. The India Stack uses biometric identity systems, where a simple thumbprint can positively identify a paying consumer.

This, too, required work on standards, with regulators, financial institutions, and tech firms. It also required a national identity system, something that’s difficult to imagine in the United States.

Sopnendu Mohanty, chief FinTech officer for the Monetary Authority of Singapore, mentioned the push and pull of collaboration between market participants and regulatory agencies in making consumer and business financial services more accessible and less expensive. As he put it, “We have to be guide dogs before we can be a watchdog."