Customer experience management in banking: the risk perspective
By Rupert Nicolay, Financial Services Architect, Microsoft Enterprise Services on April 11, 2018
Filed under Financial Services - Banking & Capital Markets
New financial services ecosystems and technologies are driving banking and insurance customer experiences that are at once more relevant and accessible. They can help engage existing customers, improve loyalty, and achieve product cross-sell. They can also draw in new customers from new market segments. Innovative examples—and opportunities for further improvement—abound.
New technology-enabled customer experiences have tended to achieve greater customer adoption in emerging markets, where new entrants have been able to identify opportunities to meet entirely unfulfilled needs or leapfrog legacy financial services offers. In markets with very mature financial services—such as the UK, where the regulatory environment leans heavily toward simplifying and encouraging account switching—the actual number of customers switching to new digital banks (some with great digital customer experiences) has not been as high as one might expect. Celent offers some interesting research on this very point.
Some of the most successful implementations represent a novel approach to risk management, whether in terms of leveraging technology to simplify customer experience that might otherwise have included more tedious onboarding, origination, or other steps; or by using technology as part of managing the actual product or service risk (e.g., credit risk or fraud risk).
Improvements from innovations in managing identity and KYC risks
Consider the following examples of managing identity and know-your-customer (KYC)-type risks in a way that improves customer experience:
- Document verification. Banks and insurers are incorporating document verification technology, including facial verification, into their apps and services to optimize initial onboarding processes that requires identity and sometimes address-verification steps. An example of this is the technology provided by Onfido* that scans and checks identity documents from many countries, matches a selfie to a document, and performs other required background checks by means of an API.
- Identity verification. To reduce identity verification risk, banks have also used behavioral biometrics technology such as that from Microsoft partner Biocatch. Biocatch tracks behavioral patterns during login, form completion, and other activities to identify possible fraud in a unique way without intruding on the customer experience by adding additional anti-fraud steps.
- AI-based application log analytics. Microsoft Enterprise Services is working with customers to build artificial intelligence (AI) models that review application log files representing customer activity in internet- and app-based banking services along with transaction information. The objective is to improve fraud detection by modelling the use of features available in their custom applications.
- New technologies for user authentication. Microsoft Enterprise Services is also working with a number of banking customers to implement Strong Customer Authentication (SCA) for PSD2 as described in the European Banking Authority’s Regulatory Technical Standard. With the help of identity technologies available on Azure, the aim is to achieve a seamless yet secure experience for bank customers consuming services from third parties (such as fintechs) by invoking the bank’s own app to validate the user identity through multi-factor authentication when required. Microsoft’s identity technologies can also open the path to securing subsequent customer communications—for example, an email confirmation of a new account just opened—using capabilities provided by Azure Information Protection.
In each of the above cases, customer experience is improved through improved fraud detection as well as the reduced incidence of annoying false positives.
Improvements from innovations in risk evaluation or management
Better customer experiences also result from innovations in evaluating or managing financial risks. The following scenarios illuminate the possibilities:
- Credit risk scoring. Credit risk scoring—and, in particular, so-called “thin-file” scoring that works with limited customer data—has seen significant innovation. Solutions such as MyBucks Haraka and Tala use mobile device usage patterns (including how apps are used) with a customer’s permission to judge risk and to offer small and mid-sized loans to those who might struggle to access traditional financial services. These solutions have transformed the customer experience of accessing a loan for hundreds of thousands of individuals and entrepreneurs in sub-Saharan Africa.
And in the UK, Microsoft partner AdviceRobo has developed psychographic credit scoring that can also solve the problem of thin credit file decisions in a different and innovative way. Applicants answer a series of online questions that are scored by a continuously updated model. The score is used as one of the determinants in deciding to grant credit. Their analysis shows that this method of credit scoring improves acceptance rates without increasing average default rates.
- Payment initiation. Apart from well-documented major e-wallet solutions that may provide a more secure method of presenting a card for a transaction, there are various simple solutions that enhance usability while retaining security. For example, PayKey* gives banks the ability to include payment initiation services in popular chat interfaces while still managing the delivery of the service from the bank’s own app.
- Account-to-account payments. Innovative approaches to account-to-account payments—particularly in areas where new instant payment schemes have launched or are launching— have also seen success. In the US, participants in the Zelle instant payments scheme have incorporated new customer-friendly payments experiences in their banking apps, resulting in significant uptake to a degree that compares favorably to established peer-to-peer payments vendors. Australia may see similar innovation with the arrival of the NPP instant payments scheme and its associated tokenization technology, which allows payments to be directed to email addresses or cell phone numbers to make for an easier customer experience and reduced risk through disclosure of banking details. And in India, participating banks have experienced remarkable success with the IMPS instant mobile payments scheme, which delivers a simple, user-friendly experience based on some of the same principles.
Innovative approaches to managing various types of risk are at the heart of some of the most exciting developments in enhancing customer experience in financial services. Financial services organizations interested in envisioning the best new customer experiences may benefit from including multiple risk disciplines in their teams from the outset and considering case studies such as the above as they generate their next round of ideas.
*Disclosure: Microsoft Ventures is a shareholder in Onfido. Paykey was part of the Microsoft Accelerator program.
For more insights and findings, download Microsoft’s The Future Banking Ecosystem ebook.