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Digital Financial Services and technology platforms

Digital Financial Services and technology platforms
  • United Kingdom
  • Financial services - Digital Financial Services


On 24 February 2016, Eversheds hosted the first in its Digital Financial Services breakfast briefings series: Digital Financial Services and technology platforms. Matthew Gough, Head of Digital Financial Services and Craig Rogers, Partner in IT and outsourcing were joined by Wayne Peacock, European Interactive Leader - Financial Services, IBM.

Matthew Gough opened the session by highlighting some of the hot topics in digital financial services, including:

  • proposed FCA guidance on the cloud
  • the new bank start up unit set up in January 2016
  • the report published by the government on new blockchain technology.

Matthew explained that we would be looking at technology platforms in the context of banks, building societies, insurers and asset managers producing new digital products for their customers. Craig would highlight the contractual issues involved and Wayne would give us the benefit of his recent experiences.

Download the event materials.

Digital Financial Services and technology platforms

Craig Rogers began by providing an overview of UK banks and their digital presence and reviewing the evolution of banking and payment technologies. This included a case study on new mobile technology being used in Kenya. There are now 17 million users in Kenya of mPesa, a mobile money transfer service launched in 2007. This new service is providing access to financial systems for the un-banked but has its challenges. Anti-money laundering and KYC checks are rudimentary so the risk of fraud is high and the mobile operator running the service is not regulated by the Central Bank.

In the second half of the session, Craig looked at the requirements for designing digital platforms and the extent to which customer and bank demands overlap. Factors such as security and availability 24/7/365 are common core requirements whereas issues such as speed of deployment and compliance with law and regulation are particular priorities for the banks.

Craig concluded his presentation by reviewing the key factors to consider when contracting for digital platforms both for the design build and the contract lifecycle. As a case study he focused on contractual considerations for a workable exit strategy with factors such as skills transfer, source code escrow and step in rights essential to get right in the contract from the outset.

Scaling and accelerating digital transformation

Wayne Peacock began by considering the term ‘omni-channel’. It is a term which means different things to different stakeholders so to deliver ‘omni’ requires a vision that is tangible, shared and focused on the customer. It also requires an organisation that is aligned to the vision and capable of delivering rapid, customer centric benefits.

Wayne emphasised the importance of storytelling and visualisation to accelerate digital transformation. Such tools are much more effective than a dense document which seeks to set out the next phase of a digital journey. Wayne referred to his own experiences in working with Nationwide on a project to encourage young children to save money to illustrate this point.

Rather than spend months discussing detailed requirements, Wayne and his team began work almost immediately on the build, producing the first prototype within three weeks. Nationwide could then experience the product, instead of trying to visualise the concept through written requirements. It was then much easier for Nationwide to articulate what worked and what didn’t. Wayne and his team could then move quickly to refine the product with everyone much clearer on the vision and how to achieve it.    

Wayne used the case study of Fidor, an innovative German bank launched in the UK last year, to illustrate where the market is heading and then questioned how established financial institutions can respond to this digital disruption. Having an API economy is fundamental to that response.  

So how do you build a digital bank? The core ingredients are:

  • building out existing architecture to introduce flexibility
  • ensuring customer data is unlocked, related and actionable
  • accelerating delivery through software solutions.

Panel discussion

The session concluded with a panel discussion, chaired by Matthew Gough, at which delegates were given the opportunity to ask questions. The panel members were Craig Rogers, Wayne Peacock and Simon Gamlin, Head of Eversheds International IT group.

What is the panel’s view on the FCA’s approach to innovation?

One of the FCA’s objectives is to promote effective competition. The FCA’s view is that innovation can be a driver of effective competition, so it wants to support innovation and ensure that regulation unlocks these benefits, rather than blocks them.

Focusing specifically on cloud technology, the panel noted that the cloud is essential to drive efficiencies with savings of over 15% achievable. The FCA accepts the architecture but has been slow to address the regulatory issues arising out of this technology.

Some assistance has been provided by the FCA’s consultation on proposed guidance for firms outsourcing to the ‘cloud’ and other third-party IT services, which closed on 12 February 2016. That consultation contained a useful statement of principle on the regulator’s view of the cloud. “We see no fundamental reason why cloud services (including public cloud services) cannot be implemented, with appropriate consideration, in a manner that complies with our rules.” The consultation does not however set out a minimum standard of security applicable to cloud technology. That will be for the market to determine itself.

Our tailored Cloud-readiness Workshops for financial institutions are designed to help you get "Cloud-ready". These workshops will help you assess the suitability and compliancy of existing Cloud arrangements and develop or refine strategies for future Cloud deployments.

Ultimately, the institutions, as well as the providers of the technology, must all work together with regulators to achieve innovation in financial services.

When working with suppliers on new technology, it is important to keep business requirements open but how do you maintain clarity in contract?

Flexible contracting and delivery models are becoming more common in the industry – they reflect the importance of reacting to changes in customer requirements and innovation. The example of ‘rapid prototyping’ was used to explain the benefits of agile, iterative delivery models.

That said the panel recognised the importance of working together with the supplier to monitor the number and impact of changes in requirements, to review progress against pre-agreed success criteria, and in particular to maintain transparency in costs. Well-defined change management and governance models are essential in the success of any complex program.

Has the panel seen any compelling propositions with regard to big data?

Big data creates opportunities for financial institutions to better understand their customers and offer an improved customer experience.

The panel referred to the example of a relationship manager visiting a client and having access on a mobile device to that client’s data to offer a more tailored service. That relationship manager would be better able to offer the right products to suit that particular client’s portfolio. However with increased mobility comes additional risk: Can that data be kept safe and secure?

Contracts with third party suppliers of data platforms should cover protection for personal data but also provision for who has rights to use other data.  

Does the regulator support a move towards paperless statements?

The regulators (the PRA in particular) are in favour of customer choice. Customers should have a choice whether to opt for paper or digital statements. There are many customers (particularly of the older generation) who are not yet ready to embrace digital technology and who rely on a paper statement. It is also important that charges (if any) for paper statements are proportionate and do not inadvertently force customers into adopting paper statements.  

Does the panel have any top tips for in-house lawyers working with digital project teams?

Active participation and an understanding of the business objectives and technical challenges is key to establishing a good working relationship with the digital project team. That means legal teams being involved from the outset, not simply being brought in at the end to get a contract signed. The lawyers then have the opportunity to ask the right questions and to advise at development stage on legislative, regulatory and governance issues.

The success of a good working model between the digital team and legal/compliance boils down to good project management and clear allocation of responsibility. 

What effect does the panel consider digital financial services is having on institutions’ wider business?

The rise of digital financial services has had some unforeseen consequences on the wider business. For that reason, it is essential that different parts of the business do not work in silos. For example, some firms have seen an increase in interactions with the branch network following an increased digital offering. This may be in part due to customers requiring assistance before adapting to self-service.

It is important that the wider business supports the rise of digital services. For example, an education or training programme is essential for branch and call centre staff to help guide customers through digital channels.

Some firms have seen a trend for lower call volumes with increasing call length, which may reflect the fact that simple transactions are being managed digitally while customers turn to the telephone for more complex advice/support.