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Muhammad Asim, Director at Arro Money, discusses his take on the Fintech year ahead. 

2017 was a disruptive year for the banking sector. The rise of the challenger bank has shaken up the market, and a growing number of newcomers are now posing serious competition to the traditional high-street banks. But, if established banks think 2018 will be any quieter, they will be in for a surprise.

Here are some of the ways banks will continue to be transformed in the New Year:

  • A focus on user experience 

There will be a renewed push to boost the user experience in banking. We’ll see artificial intelligence (AI) move further into the mainstream, in the form of chatbots to provide advice and guidance to clients and account holders.

Accounts will be redesigned with flexibility in mind to help consumers choose the best service for them, ensuring their specific needs continue to be met.

In addition, bank customers will see a new focus on instant alerts to help them better manage their money. Arro is already providing this to account holders – its instant alerts and push notifications ensure its customers know exactly how they are spending in order to manage their money in the most efficient way.

Companies offering such services will stand out against traditional banks that are slow to adapt. The customers must be at the forefront of companies’ mind, and there will be further pressure on the financial services to offer greater flexibility and choice in their services to ensure their customers are getting the most relevant service.

  • Challengers in partnership with Banks 

Due to their size and age, high-street banks are often very slow to adopt new technologies. This has fast-become a challenge, as traditional financial institutions struggle to adapt to the growth in eMoney and cashless payments.

With this in mind, we can expect more close partnerships with alternative banking providers in 2018. This teamwork and co-innovation will help tackle a range of industry-wide issues, from user experience, to solutions to address fraud and chargebacks.

Challenger banks have a strong record of Fintech innovation that can be a real benefit to traditional institutions. In particular, they are actively taking steps and adopting solutions designed to make it easier to identify and prevent fraudulent activity on consumer accounts, and to protect businesses from friendly fraud. Speed in this regard is crucial, as chargebacks have to be issued within two hours of the initial claim being made. This leaves very little time for banks to investigate and get to the bottom of the issue.

Working together in the New Year, both traditional and alternative banks can go a long way towards creating new processes designed to protect both their consumer customers and businesses from all kinds of fraud.

  • Tougher KYC and KYB checks 

The lack of face-to-face customer contact could lead to some scrutiny for challenger banks in 2018, not just relating to the public’s perception of their customer service, but to their approach to tackling financial crime as well.

2017 saw tougher anti-money laundering (AML) and terrorist financing regulations, requiring banks and other financial institutions to tighten up their Know Your Customer (KYC) and Know Your Business (KYB) checks to ensure compliance. Financial institutions must know who is using their services and perhaps more importantly how these services are being used in order to tackle money laundering and similar crimes effectively.

With many challenger banks operating entirely online or on mobile, it is even more important that they have the highest possible standard of customer background checks and identity verification processes in place to demonstrate comprehensive due diligence.

To achieve this goal, many challenger banks are implementing innovative new solutions to balance optimum KYC with frictionless account opening. Arro Money, for example, has 25 different algorithms in place designed to help the organisation quickly and accurately conduct enhanced due diligence in order to prevent criminals from using its services, without leading to unnecessary delays for customers.

  • eMoneylicencing issues 

The Second Payment Services Directive (PSD2) will come into force in January 2018 and, in order to continue complying with the law, all institutions dealing with eMoney will need to reapply for their licences.

This re-application process will cause considerable unrest in the industry in the New Year, with the resulting complication leading to disruption for many institutions. Indeed, if renewals are delayed – or refused – it could be detrimental for the companies affected, having a significant negative impact on their income with lasting effects. Those unable to get a licence in the UK may look further afield, applying for licences in mainland Europe.

With this in mind, I think we can expect to see a lot of movement in the industry in the New Year, with some businesses moving overseas, or closing their doors entirely.

  • Brexit fallout

Despite the recent announcement that EU and UK Brexit negotiators are ready to move on to Phase 2 of talks, there is still no clear idea what the final deal will look like, and banking institutions remain uncertain what form the post-EU regulatory landscape will take.

With the confusion over how financial institutions may be affected by the UK leaving the EU, we will begin to see many financial institutions set up hubs in both the UK and the EU from 2018 onwards, to facilitate compliance with the regulations in each jurisdiction once the UK has fully left the EU.

These duplicated offices, combined with the need to apply for two licences and meet two sets of legislative requirements will inevitably increase costs. Nevertheless, I do not think this will put financial institutions off establishing their businesses in the UK. Many will continue to see the two jurisdictions as one and the same for many years to come.

New Year, New Banking Sector 

The New Year will bring considerable change to the financial industry – from new regulations, to the finalising of the UK’s withdrawal from the EU. Nevertheless, this an exciting time for the sector and the pace of progress is, no doubt, exhilarating for all of us.

Whatever happens over the next 12 months, financial service providers like Arro will continue to put customer needs first, in order to offer the best possible financial services for their individual requirements. And, while Brexit means the sector will need to be ready for further changes in regulatory requirements across the continent, financial institutions will continue to thrive and grow in the UK and beyond well into 2018.

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