With increasing diversity in the banking customers’ age groups, needs, values, priorities and perspectives, banks interact with several ‘generations’ of customers. Multigeneration banking evolved from the need for providing personalized and unique experiences to a variety of customer segments.
Changing demographics, incomes, attitudes and behaviours along with instant availability of information have empowered the banking customer to demand better choice, high quality service, instant response and transparency.
Banks are exploring super customized customer experience methodologies to retain existing customers and attract new ones. As a technology, AI has been helping banks interpret precise customer preferences to help them further personalize products and services.
Millennials or GenY-ers (25-34 years) have grown up amidst a liberal approach to politics and economics. Most millennials are driven by a ‘spend now, save later’ viewpoint. Primary financial behaviours include multilocation/multidevice account checking, online credit purchases and loan products analysis. Educated and mobile / internet savvy, they expect their banks to be real-time responsive. Being relatively less financial savvy, they expect quick assistance to manage activities such as reward points, home/car loans and understanding card offers. They are not renowned for their brand-loyalty and preferences are considerably influenced by own and peer experiences.
GenX-ers (35-49 years) have worked hard to accumulate wealth and have considerable faith in financial systems. Having experienced conventional banking, they have fairly clear expectations from banks and how digital banking must service them. They are relatively more loyal to their financial institutions and adapt readily to new technology if it helps keep their savings secure and enable growing it. They expect sound investment advice, tax strategies and secure investment avenues, but they are cognizant of frequent reports of data leaks, scams, and incidents of fraud.
Baby boomers (50+ years) as banking customers form a comparatively smaller segment (27%) than the millennials (32%) and the genX-ers (41%). Close to retiring from active work life or already retired, baby boomers are fairly frugal with spends but explore deals and offers (rebates, discounts, schemes, cashbacks, rewards, etc.). They are also known to bank with multiple financial institutions expecting to benefit from favorable deals. Cautious about their savings, they are open to investment opportunities that offer better rewards with minimum risk. Baby boomers also have relatively more cash liquidity.
Engaging well with the primary segments with highly customized and innovative products and programs with higher convenience levels is key for banks to stay competitive. The banking experience has to be tailored to suit the specific nuances and intricacies involved in engaging with the members of the customer segments.
Delivering personalized banking experience start with gaining a deep and wide understanding about the customers and their needs in detail and this can be onerous.
AI can help banks achieve the ultimate but elusive goal of making every customer feel special. AI makes it possible to quickly gain and analyze contextual customer insights and aid in custom designing innovative solutions. Banks are now developing AI-based systems to provide highly personalized experiences.
Banks expect AI to be their primary mode of interaction with customers over the next 3 years. AI has already been delivering exponential value to banks:
AI helps banks have a ‘segment of 1’ approach to customer experience by synthesizing and delivering highly contextual wisdom from across all banking channels in real-time or near real-time.
AI-based banking solutions study social media activities and compile data on purchase history, search history in combination with standard and hygiene information like bank details, loan history and credit card usage to derive a credit scoring known as Social Credit Scoring. This information is then used as the basis to design/market new products and services targeted at a specific genre of customers, in addition to business forecasting, risk analysis and creating customer awareness.
Banks are already experiencing an era of even more generational diversity: diverse platforms, diverse needs and diverse preferences. The challenge lies in sensing and addressing needs with a human brain like intelligence.
From innovative hyper-customized products and services to high precision customer targeting to shrinking operational costs to delivering customer wow faster, real-time AI-powered multigeneration banking is set to deliver exponentially more to every customer generation.
References:
28 July, 2017
ITC My Fortune, Bangalore
Conducted by India’s primary association of software companies, the second in a series of deep dive sessions on Big Data and Analytics focused on how risktech innovations are helping companies in various industry sectors leverage risk analytics to address the challenges of managing risk across operations, regulatory compliance, supply chain, finance, ecommerce, and credit. The session provided a forum to understand industry best practices and showcased the top 3 case studies in risk analytics. CustomerXPs presented its case study on how one of India’s prominent banks leveraged the company’s product innovation Clari5 to unify their Fraud Management and Anti-Money Laundering enterprise strategy with a single platform.
From driverless cars to virtual personal assistants, AI is transforming industry sectors but not really when it comes to banking regulatory compliance. With 300+ million regulatory documents expected to be published by 2020, implementing AI-based regtech early can help accelerate compliance efficiencies.
European leaders have long identified that the future of the financial services lies in the co-existence of the conventional banks with emerging fintech. However, to reach to that stage, security of the customer data is the major challenge. Despite industry efforts, fraudulent transaction levels are on the rise in Europe.
Payments Services Directive 2 (PSD2) introduces the concept of Strong Customer Authentication (SCA) to provide transaction security. However, this can put Payment Service Providers (PSP) in a Catch 22 situation by having them tread the thin line between transaction security and customer experience.
Let’s see how Risk Based Authentication (RBA) as mandated in the PSD2 guidelines can play the balancing act without compromising on security and ease of use.
PSD2 applies to payment services in the European Union (EU) and is framed by European Banking Association (EBA). The directive focuses on all electronic payments including card present and card not present transactions. PSD2 provides data and technology driven directive to regulate the previously unregulated third-party payment service providers.
In doing so, it increases competition with the aim of making payments and account access more innovative, transparent, efficient, and secure for the consumers.
Without going into the nitty-gritties of the guidelines, here’s a summary of the major FAQs.
Introduction of New Players: PSD2 defines the role of Third Party Providers (TPPs) and their services. There are two types of TPPs viz. Payment Initiation Service Providers (PISPs) may initiate a payment transaction directly from the customer’s bank account and Account Information Service Providers (AISPs) consolidate the customer’s account and transaction details from multiple banks in one portal
Transparent Access to Accounts: PSD2 formulates the rules for access to the customer’s accounts (XS2A). Banks are mandated to open their core banking infrastructure via APIs to licensed TPPs. This will allow TPPs to provide account information services and enable payment initiation services.
Strong Customer Authentication: SCA is an authentication process that shall include two or more authentication factors viz. knowledge, possession, inheritance (biometrics). PSD2 mandates the use of SCA whenever the customer initiates any electronic payment transaction, whether to make a payment or access bank/TPP services.
PSD2 introduces strict security requirements for the initiation and processing of electronic payment transactions and access to accounts. One RTS in PSD2 is focused on a definition of Strong Customer Authentication (SCA), including when and how a PSP must ensure it is their customer making a payment or request for account management.
In a nutshell, SCA is a customer authentication process that must include at least two out of the three authentication factor types:
As per the draft technical standard published by the EBA, SCA has to be applied in 3 cases.
PSD2 brings into the jurisdiction, one legged transactions, i.e. those payment transactions where the payer’s or the recipient’s PSP is based outside of the EU. So, SCA has to be performed for these transactions as well.
The impact of PSD2 therefore is more global instead of localized only to Eurozone, as anticipated earlier.
Customers have been prioritizing experience over security, but this seems to be slowly changing with regulators driving greater security.
The impact of the requirements for Secure Customer Authentication is set to radically change the customer experience and journey. Initiating a 2-factor authentication for every transaction or account access has a serious impact on customer experience.
‘One click checkouts’ will be thing of the past and many fear it will stifle innovation in the Payments space rather than promote it.
However, EBA has allayed fears of banks, merchants, e-commerce companies, etc. by including clauses for exemptions from Strong Customer Authentication.
The exemptions for SCA are debated, because of the need to find a balance between security, fraud reduction, innovation, competition, user-friendliness and accessibility.
In the EBA guidelines, the situations where a PSP is not obliged to use SCA include when the customer is:
Evidently, these clauses correspond to either fixed restricted usage rules or prior authenticated parties. But the final case provides PSPs with a certain level of control for transaction, provided they perform Transaction Risk Analysis.
It lays down the foundation of Risk-based authentication of the payment transactions thus playing crucial role in reducing customer friction.
Risk-based authentication is not a new concept by the EBA. It has been around for quite some time now. However, this time the concept has emerged as an unambiguous and fair solution for security vs convenience trade-off.
The EBA has mandated PSPs to put in place transaction monitoring mechanisms in order to enable them for detecting unauthorized or fraudulent payment transactions.
PSPs are expected to ensure that the transaction monitoring mechanisms takes into account, at a minimum, certain risk-based factors on a real-time basis:
What this means for the PSPs is that, using these transaction monitoring systems, they are able to record these parameters and further use them to validate incoming payment transactions from a fraud perspective.
PSPs can use these parameters to risk rate the payment transactions and in turn use it as a criterion to avoid Strong Customer Authentication.
As per PSD2 guidelines, PSPs on a minimum shall –
If there is a fraud indication in any of these checks, then that shall call for either strong customer authentication for the transaction or rejection of the transaction. The final outcome desired is that by using these checks, PSPs shall be able to keep their fraud rates below the reference fraud rates set by EBA for remote payment transactions.
By achieving this, they will be able to accept and process payment transactions without applying further SCA and as a result be able to provide better customer experience.
Reference fraud rates asset by EBA:
The PSPs shall notify the national centralized authorities about their intention of using exemptions from SCA basis the lower fraud rates. The minimum requirement is reporting detailed loss rates by exemption every 90 days.
These statistics must be broken down across all payment types, remote card payments and remote credit transfers, including where no exemption is used. If for a PSP, the monitored fraud rates are above the EUR 100 reference rates for 2 consecutive quarters, then that PSP shall cease the usage of exemption from SCA. However, if the monitored fraud rates fall below the threshold for a consecutive 90 days, they are free to exempt future transactions from SCA.
PSPs also must have real-time fraud management, so that being able to know the trends in fraud rates on a daily basis will allow them to tune authentication policies. Else, how will the PSP know the fraud rates at the time of reporting? Also, Daily Fraud Rate is a better measure of fraud rate compared to the Daily Average Fraud Rate, which is computed at the end of the quarter.
The need of the hour for PSPs is to balance security and customer experience. As evident from the EBA guidelines, there’s no single way to combat the problem. We need a multi-pronged strategy. PSPs must adopt a hybrid approach to fraud detection and prevention, which should include a rules based system, behavior profiling of customers/devices/users, link analysis between entities, and machine learning based predictive risk scoring.
These features can help reduce fraud at the bank while also reducing false positives which in-turn will help PSPs to provide a superior customer experience.
80% of bankers believe that AI will revolutionize the way information is gathered and expect AI to accelerate better customer experience. See the stats and how AI is set to transform customer experience in banks.
