It used to be that all any bank CEO wanted to talk to investors, analysts and journalists about was going global. Nowadays the main topic is going digital.
Apps delivered on smartphones might well be the future for banks covering not just retail customers, but high-net-worth clients, corporations and even institutions.
Get it right and banks could benefit from vastly reduced costs both of branches and human handling of all manner of back-end processing and even front-end advice. They could also generate invaluable data on customer behaviours that might support more intelligent product and service development.
However, embracing omni-channel digital distribution also brings big headaches and, perhaps inevitably, one of the most searing is regulation.
In normal face-to-face meetings, when a client sits down across from a banker and receives financial advice, minutes should record what was said, especially about risks and suitability. Phone calls are routinely recorded.
What about digital discussions on an investment that might start at a client’s office with a visit on his or her desktop to a bank’s website, continue by chatting to a relationship manager over an encrypted social network such as WhatsApp, perhaps include email delivery of a research report on a company whose stock or bonds the bank is recommending and finally conclude with the client out of the office and deciding to put money into the asset via an app on his or her smartphone.
You can picture your bank’s head of digital high-fiving the team at the very thought.
But hold on a minute. What happens when the investment bombs – as Euromoney understands they sometimes sadly do – and the client claims to have been mis-sold?
New rules soon to come into force through Mifid II in Europe and SEC 17a-4 in the US that require banks to record, store and maintain immediate access to every part of a discussion leading up to any financial transaction so it can later be checked for compliance with relevant disclosure requirements and suitability regulations.
That is not quite so easy with digital channels, even the old-fashioned ones. Some banks are still printing off pages of boilerplate from their websites and asking ultra-high-net-worth clients to sign it on their occasional visits to the branch. That does not sound very hi-tech at all.
Qumram is a Swiss-based fintech provider of digital compliance and risk-management solutions for the financial services industry, whose customers include large private banks in Europe and North America, such as UBS and Credit Suisse.
It records and stores all client digital communications with a bank across web, mobile and social channels, tags and archives these either in the cloud, or, if a client prefers, in its own servers, and permits easy search and replay.
“The most innovative thing is that we don’t deal with the back-ends of all these channels,” Patrick Barnert, president and chief executive at Qumram, tells Euromoney. “Rather we capture the visual side of the user-experience layer. We record the customer’s actual screen and store exactly what the customer sees and what the customer does; how the customer moves his or her mouse, how long the customer spends on the risk factors.
“And when we replay all this, it links the different sessions that lead up to a transaction together and shows them essentially like a short film.”
He adds: “The first reaction when customers see this tends to be, ‘Wow, that’s really impressive’ and the second tends to be, ‘Actually it’s a little scary.’ But in reality it’s no different from a bank recording your phone calls, or videoing your movements when you visit their buildings, which is routine practice.”
Employees must now know that even if they go into LinkedIn or WhatsApp, they can still be recorded- Patrick Barnert, Qumram
Qumram has been around since 2011, but really started building the business after 2013 when big early customers, such as UBS, firmly decided to plough ahead in digital and to be almost over-compliant in record keeping after paying a high price for earlier misdeeds.
The founders initially bootstrapped the company, then raised $4 million in an angel-funding round to build distribution in the US and UK. Barnert says the company might look to an A-round with venture capitalists next year when it hopes to get to 100 customers, with the next stage of its life to then go to 10 times that number.
“We’ve added a lot to the product in 2016, especially around capturing social media, which many banks are now grappling with as they strive to connect more with millennials and increase self-service,” he says.
“This technology has applications beyond compliance around risk disclosures and suitability. An obvious one is monitoring of behaviour that may indicate an attempted fraud, either by customers or employees. Employees must now know that even if they go into LinkedIn or WhatsApp, they can still be recorded.”
Another obvious potential application is improving the customer experience and customer support.
Barnert says: “When a client who is having trouble using a digital service contacts customer support by chat or even phone, the customer support staff can quickly review the exact recording of that customer’s recent digital sessions and spot a missed step or system error.”
One can imagine other potential uses, for example, tagging sessions when clients consider and act on investments with data about what was going on in the markets that day or at that moment.
No doubt banks would love to analyze behavioural signals about which customers look like profitable ones to acquire… and which ones do not.
That might be something for the future.