With the arrival of fintech companies and the advancement of technology, banks have the most to gain and lose. Banks have to focus on data and understanding customer behaviour. Banks have to aim at obtaining data and place customer data security as its priority. Banks have to look at partnering with financial technologies to gain an edge with the threat of several non-financial entities entering the financial space. In the 3rd episode of Future on a Platter, we have Erik Bennerhult, CEO of Naktergal, speaking to Ashish Cherian on the impact of new age banks in a technology sound environment.
Below is a transcript of the episode.
Ashish Cherian: Since the past few years, there have been quite a few new age banks and challenger banks who have had quite the strategy and plan to enter the banking and financial services industry. As customer expectations have risen and customer loyalty has dropped which was something like a free fall, it’s the best time for new age banks to challenge stabilized banks. However before we get to that, why don’t you tell us a little bit about what Naktergal does?
Erik Bennerhult: Naktergal is a Swedish company where we build digitized mortgage engines. We supply the technology to a number of mortgage challenges in the Nordic region. In this business line, when you look at mortgages, it is the biggest source of revenue for banks, yet the least challenged by banks globally.
Ashish Cherian: With the advancement of fintech and investments, the financial services line is in for a gold heist. New age banks are trying to capitalize on the massive potential present that happened with the fintech boom. Investments are on the rise and banks and challengers are trying to take note by engaging aggressively in a very competitive field. Banks and fintech companies have to engage together to provide customer experience enrichment.
What is the biggest challenge that is calling on customers which new-age banks and other banks in general are trying to resolve, a challenge where the upcoming use of a financial technology can clear out the challenge?
Erik Bennerhult: In general, the biggest thing that a customer wants is when they don’t have to notice the fintech, the bank and the payment process, but get the end result. The process should be effortless and seamless. The biggest challenge is to make the financial process as easy and invisible as possible. The benefit is that, when it becomes efficient and the cost for the customer comes down drastically. You provide the means of transferring money from one entity to another, from people who have it to people who don’t and the more efficient, you do, the better it is on a larger scope. The best form of customer experience is when you don’t focus on customer experience. The less you notice the payments happening, the better the customer experience is.
Ashish Cherian: Moving to the recent GDPR regulations which got integrated into the system in Europe in May 2018! The playing field has altered slightly with the induction of the GDPR regulations within Europe by EU’s governing body. Banks amongst other companies have had time to change the way how they collect data and how they obtain customer intelligence. One of these rules seems extremely peculiar. This rule is the Right to forget where customers get to choose which data gets erased from the corporate database forever! Here we see that the EU believes in data being used as a one-time commodity that needs to be used sparingly and only for purposes which benefit the customer. However AI and ML frameworks become stronger with the increase in data. Increase in data, and they can detect more patterns and self-learn. Companies and banks in general are of the strong viewpoint that the more amounts of data, the better the AI system becomes closer to human beings and reaches a stage of understanding the next best action regarding the customer.
With the GDPR regulations having come into place, how have corporates in the financial space, particularly banks gone about restructuring their banking models or how have they integrated AI into their system without any violations?
Erik Bennerhult: Most banks have been working quite hard with this and they have changed a lot of policies and systems. But there is still a long way to go for a lot of banks and corporations in Sweden. Naktergal is only two years old and had the knowledge of GDPR when it came out. Hence we were able to build our system right from the start, thinking about the regulations. The key is to understand which data is different and needs to be treated differently. We had one separate database where we placed sensitive data, and hence it became easy to treat and handle the data accordingly. When you have an existing large bank, there are a lot of systems and databases, where finding the sensitive data become difficult. Most banks have done pretty well to protect the data in their databases, however they still have personal data lying around in paper binders in the office, which is harder to protect. This process of securing the privacy of the individuals will take time. With the amount of data that arrives every day, the process will understandably take time. It is important to respect privacy. It is not a one-time process. You have to find the balance between data, GDPR, analytics and AI. We always want to do more with the data, but it shouldn’t go to the extent of creeping out the customer.
Ashish Cherian: Will the new-age banks strongly challenge the major banks for major revenue collections in 2019?
Erik Bennerhult: In Sweden, I do see a major change happening for banks in 2019, especially in the case of mortgages.
Ashish Cherian: What do you think would be the major area of progression by banks as they partner with Fintechs to provide better customer experiences?
Erik Bennerhult: I am not too sure, what do you think?
Ashish Cherian: I feel that AI is the major commanding factor which banks have to try to implement. There is a lot of data running around and banks have to try to understand their customer behaviour. This, I feel would be what banks would be focussing on, to improve the customer experience. With so much of digital transformation happening within banks, there has been tremendous growth in the industry with potential for a lot more. However saying that, the digital transformation journey was and will be an uneven and uncertain road! For every strong push forward, there will be backward forces as well. And for every winning and successful banking model, there will also be several bad business models. It’s up to banks to figure out which one will work uniquely and adaptively for the services that they plan to provide.
Understanding the pulse of the customer is the first vital act for banks to get done. For this, banks need to be data enabled. Once customer data is collected, customer behaviour can be understood and banks can leverage and use the data in spite of data restricting regulations such as GDPR which have been implemented in Europe. Customer data security has to be prioritized while; customer centricity has to be followed throughout the entire workflow within the bank.
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