According to Sandstone Technology’s Chief Customer Officer Jennifer Harris, 2024 will bring a return to ‘normality’ – or the closest we’re likely to get, post pandemic.
Jen and colleague Michelle Yu, Chief Product Officer, came together to discuss the question: ‘What does 2024 have in store for financial services organisations?’ Below, we cover regulatory changes, Gen AI, cybersecurity threats and more.
For three years, Covid walloped global economies and brought waves of change in the banking industry. By 2023, financial institutions were busy realigning processes to achieve the all-important work-from-home balance. They were also focused on adapting risk and security postures after numerous cybersecurity threats, which also affected vendors and suppliers in the banking ecosystem. Not to forget, all of this was happening within a period of extreme economic turbulence, as we outlined in our 2023 wrap-up.
Looking ahead to 2024, Jen Harris believes the industry will find its feet. FIs’ will be tentatively re-opening the purse strings and re-allocating budgets previously held back as interest rates and cost of living rose, and consumer confidence fell.
While budgets may revive in 2024, the C-suite is still being asked to maximise budgets and do more with less, as the cost to do business continues to rise.
Operational resilience and its impact on FIs
Regulatory change will put a further squeeze on FI budgets, with operational resilience rules already in effect in the UK and becoming law in Australia in 2025 with CPS 234. These regulations focus on the service that FIs provide to customers. They require financial providers to identify their key services and the value chain around them, and monitor it closely. If any part of that value chain breaks down, the organisation must identify where the break is and how they will recover from it – quickly - so they don't impact the customer negatively.
As Michelle Yu says, “This year, FIs will be ramping up their preparation for these changes. There’s a lot to be done, operationally, along with policy changes, and managing suppliers. In some cases, where the FI outsources a lot of functions, it may mean consolidating vendors so there are fewer to manage and fewer points where the chain might break down.”
Complying with these regulations will involve a significant change management process. It’s likely many FIs are underestimating the costs associated with these changes, and the impact of funneling other budgets into compliance.
Banks and other FIs will also need to be confident in their reading of the regulations. “We've had conversations with different customers who've reviewed the same regulation, but interpreted it slightly differently,” Jen says. And even FIs who do have a good understanding of what regulators are looking for will need to have systems and assets in place that allow them to demonstrate their compliance.
In 2024, regulatory prepping will definitely put even greater pressure on smaller community-owned banks and building societies. For many years, these organisations have lobbied the government to re-consider their regulatory burden, both in the UK and in Australia; and the regulators have started to listen, according to Jen.
“I think we will start to see changes coming into effect that mean it won’t be a blanket rule for every ADI (authorised deposit-taking institution),” Jen says. “It will actually be more of a tiered approach.”
No let-up on the cyber security problem
The widely reported cyber breaches of 2023 and the size of the brands involved have shown that cybersecurity is a hugely complex space, with social engineering fraud getting ever more sophisticated. Today, criminals can create messages and emails that are deceptively on-brand.
“The ‘from’ email addresses are similar to the organisation’s official addresses, and some attacks are engineered to come off the back of a real interaction with the FI, bolstering its legitimacy in the customer’s eyes”, Michelle says. "Even technologically savvy customers are getting scammed, and the attacks are getting more prevalent".
While the UK has regulations that put the onus on the institution to reimburse customers for losses arising from cyber fraud, and a voluntary code that reimburses victims of scams where the victim has authorized the payment, there’s no regulation or voluntary code to that effect yet in Australia. However, new laws are often replicated in other jurisdictions, and there is already a push by the ACCC and the Consumer Action Law Centre for Australia to adopt a similar approach to the UK
Some Australian banks are already responding to societal pressure to reimburse defrauded customers on a case by case basis, but it’s far from across the board. Educating consumers is the main solution proposed for reducing losses. Bearing in mind that it’s not only customers who fall victim. Many breaches are caused by individuals within a company who have unwittingly exposed the organisation. FIs need to educate their staff as well, because opening the door to bad actors could put millions of dollars at risk.
As Jen says, “Yes, there are tools, there are processes that everybody can put into play, but you're only as strong as your weakest link. And in most cases, that weakest link is a human being.”
Gen AI still high on the agenda
Tier-one banks have been investing heavily in Gen AI for years, including building out large language models (LLMs) to speak with customers in everyday language. It’s the rest of the market that’s catching up.
The use cases are huge, from money transfers, loan applications, account management and financial planning to insurance claims and customer service. Two specific use cases stand out for Jen.
The first is a combination of virtual assistants and Gen AI used to elevate customer experience. These tools draw on customers’ banking data and behavioural insights, and can validate the customer, and return responses to questions, within seconds. The institution no longer needs a person to sit at the other end of the phone, trawling through documents, potentially putting the customer on hold multiple times, and having to transfer them to other departments, Jen says.
This drives efficiencies for the FI, with customer service people having more time to attend to more complex cases that genuinely need manual intervention. Response times are quicker and customers don't have to call during business hours. Using an automated system also lowers the cost to serve.
These Gen AI solutions are hyper-personalising customer contact and removing friction, which will become a key strategy for differentiating a provider, especially if FIs start to drop the cashbacks and rate reductions in their savings and refinancing offerings.
Leading FIs will invest in optimising their essential contact channels in 2024, researching the behavioural aspects of consumer interactions, and exploring how they can use the channels to communicate, market, upsell and cross sell.
Staff harnessing Gen AI
Jen’s second use case for Gen AI is in relation to FI staff searching for information in the organisation’s back-end systems. If an employee is doing that manually, they’ll be rifling through multiple policies, which could take 15 minutes. (Multiply that by the number of times that happens in a day/week/year!) Whereas a Gen AI tool can respond to the staff member’s query in seconds. Embed that functionality across the business, and not only are you seeing rapid cost savings, but you’re increasing productivity.
For organisations, especially smaller FIs, that are suffering from AI decision paralysis, Sandstone generally recommends they “just start”. Focus on a use case that is high value for the FI and its customers. Play with it, learn from it, and then take the next step.
“You don’t want to be left behind on Gen AI,” Jen says. “We’re about to enter a world where we’ll deliver information based on predictive behavioural modelling – a whole new way of developing products and servicing customers based on what we believe the customer will do.”
That said, Michelle points out that when the law catches up with the technology, organisations will need to work within strict ethics frameworks for respecting IP ownership, privacy and personal data, especially if they’re employing models that use individuals' personal data to predict their activities. Inevitably we’ll also have very tight guardrails around accessibility to data by bank staff.
Automation, digitisation and the cost to serve
Automation and digitisation are at the heart of lowering cost to serve. But FIs must balance the ongoing migration to self-service digital banking solutions, against the use of higher-cost channels such as branches or call centres. A human component is still essential for certain milestones.
“Take someone’s first home loan: that's essentially someone's life savings in that deposit. Do they really want to do that digitally?” Michelle asks. “There are a lot of individuals who would be much more comfortable with a face-to-face engagement in those circumstances. Digital banking technology will never fully replace in-person - the two will complement each other.”
Jen gives a perfect example of that in the home loan journey. While the customer may prefer to deal with a broker or a relationship manager from the bank at the point where they’re kicking off the application, once it’s submitted, their main priority is speed. Sure, they crave that safety and security that springs from the personal relationship, but they also need a fast loan approval so they can bid on a house.
Sandstone Technology as a partner of choice
Also crucial are the FI’s relationships with the vendors who provide banking technology and solutions. Organisations need to feel they can talk openly to their technology partner. The vendor also needs to feel comfortable sharing with their client, Jen believes.
“Building a level of trust and confidence is essential,” she says. “We want clients to be confident enough to leave us to do what we’re experts in doing; and give them the ability to do what they do best, which is supporting their customers.”
As Jen explains, Sandstone works very hard to make sure they have the right security posture around their digital banking solutions, and a high level of governance around everything they do. Sandstone can provide the relevant documentation and information around ISO compliance, and they maintain a regular cadence with existing customers using issues registers, risk registers and escalations. Issues are identified and documented with full transparency and even if Sandstone isn’t the root cause of a problem, they work to resolve it as quickly as possible. Their success comes from their customers’ success.
“Our customers are looking for us to be industry leaders, to take our learnings from markets we’re in, and bring them across to other markets, making solutions available to customers earlier,” Michelle adds. “That covers regulatory changes in different markets.”
Customers look to Sandstone for advice on how to navigate trends and pitfalls, whether it’s technological, regulatory, social or economic. As Jen says, “We are always thinking on behalf of our customers, and our customers’ customers, and bring that knowledge and those insights to the table.”
For more relevant insights, read past updates on digital customer experience, Gen Z and Y preferences, and cyber security threats.
