Our financial institutions must be more innovative, open – and protected from risk

Chief Product Officer, BAE Systems Applied Intelligence
Banks and financial enterprises must embrace and engage with external technology solutions providers new thinking, ideas and organisational culture.
Embracing Open BankingThe digital revolution is nothing without open innovation. This removal of barriers and silos is now mandated in the bank and financial services sector, driven by the introduction earlier this year of the EU Second Payment Services Directive (PSD2).

PSD2 requires banks to open up their payments infrastructures and customer data assets, giving third party organisations access to their back end data via Application Programming Interfaces (APIs). This access gives developers the ability to build new applications and services around others’ data. In practical terms, this means tools for banks, customers and others to understand credit histories or create brand new services.

If they do not want to see their power usurped, established banks and financial enterprises need to embrace and engage with external technology solutions providers – the Regtechs, Fintechs and Insuretechs – new thinking, ideas and organisational culture. Doing so identifies and attracts new skills and people, and uncovers new areas for growth.

Redefining our relationship with money:

It’s a rich seam to quarry. Venture capitalists, private equity firms, corporates and others have poured an unprecedented amount of money into financial technology start-ups that are fundamentally redefining the relationship we and our institutions have with money.

The Financial Conduct Authority is an enthusiastic supporter of this change, encouraging market participants to work collaboratively on shared challenges. The FCA’s TechSprints events bring together participants from outside and within the financial services sector to develop technology-based ideas or proofs of concept to address specific industry challenges.

Taking an energetic, enthusiastic part in change helps banks to disrupt their own business models, instead of merely standing by and watching challengers step in to the fray and disintermediate them.

Open Banking initiatives:

The good news is that many banks and financial services organisations are getting to work on Open Banking initiatives. Visa, for example, has launched Visa Developer, a new open platform providing developer access to Visa’s payments technology, products and services. Rajat Taneja, Executive Vice President of Technology at Visa, believes this will lead to entirely new digital commerce experiences that incorporate Visa payment capabilities with the right levels of security to protect consumers.

Start-ups, accelerators and innovative providers like BAE Systems are delivering the creative thinking, new ideas and new approaches  that are drive the new ‘openness’ in a secure manner. We have witnessed serious ‘risk gaps’ at some financial institutions – issues were starting to become a matter for concern with regulators. We’ve detected complex trade-based money laundering in a Tier 1 bank with our Network Analytics technology, quickly exposing and mitigating the risk.

As our detection model is completely open and accessible by clients, they can demonstrate clearly to regulators, law enforcement, or anyone else,  exactly what they are monitoring for and why an alert fired (or didn’t). This sort of open approach is one of the things that allows banks to embrace the new age of PSD2, while also ensuring they’re working with the right partner to find and tackle fraud or money-laundering scams.

Find out more and explore our Financial Crime prevention capabilities:

Neal Watkins Chief Product Officer, BAE Systems Applied Intelligence 3 October 2018