The Current Account: The Latest Headlines From Across The Banking Sector - October

Welcome to the latest edition of The Current Account! This month's headlines look at how Generative AI (Gen AI) will transform the Banking Industry and the fallout since the implementation of Consumer Duty…

Generative AI set to transform the Banking industry…

• Bank chiefs remain upbeat on the use of AI to boost productivity within their organisations – FS companies are burdened with both large amounts of legacy technology and piles of unstructured data. Such is the impact to productivity, the CEO of JPMC believes AI will contribute towards a shortened work week.
• The impact of AI in Banking is seen most prominently across augmented Customer Services, enhanced Fraud Detection, and effective Risk Management. The challenges of AI within Banking still remain centred around privacy and security, securing a skilled workforce who understand the technology and clear regulatory guidelines. However, rather than being overly concerned about regulation, Bank chiefs are positive about the use of AI in tackling and fulfilling regulatory obligations.
• Such is the prevalence of AI, the ECB is now joining the Federal Reserve, the Bank of England, and the Monetary Authority of Singapore in exploring the use of AI in automating mundane tasks using off-the-shelf AI products. Its “infinity team” is exploring how to generate text, images, and computer software before considering its use in critical banking operations.
• The latest Mastercard Signals Report outlines the potential use cases, challenges, and long-term impact of Generative AI.
• Looking beyond the ‘hype’, in EY’s CEO Outlook Pulse Survey for July 2023, 71% of CEOs surveyed said AI is embedded in their transaction strategy processes, with over half the CEOs having integrated AI into their capital allocation for this year.
• Finally, the rise of AI is fuelling an upward growth in the global banking software market, valued at $11.7 billion in 2022, it is projected to reach a staggering $69.9 billion by 2032, with a robust CAGR of 19.8% from 2023 to 2032.

PEN Point of View:

There is no doubt that Generative AI (Gen AI) will be truly transformative for the Banking industry. And the experiences of Banks in trialling and then scaling AI over the last 5+ years have provided some invaluable ‘lessons learnt’ for the advancement and usage of Gen AI: Invest in your people – upskill them to be the workforce for the future. Deliver Value – win hearts and minds by creating value from the start. Customers come first – begin with having customer experience at the heart of what you do. 

The Consumer Duty deadline is here…

31st July 2023 saw the deadline for implementation of new rules set out by Consumer Duty and here we focus on some of the key callouts since then:

• The Financial Conduct Authority (FCA) has evaluated the savings products of nine firms due to concerns about potentially unjust savings offerings for consumers (this is the FCA’s first action under Consumer Duty). Their comprehensive 14-point action plan is aimed at ensuring that banks and building societies responsibly pass on interest rate increases to savers. The plan emphasises improved communication with customers and the provision of enhanced savings rate offers. We expect to hear the outcome of the review this Autumn…
• The introduction of the Consumer Duty is causing a significant number of financial advisers to contemplate leaving their positions. A recent survey by CoreData showed that:
• 46% of advisers see the Duty as a burden.
• 11% are considering leaving or retiring due to the Duty.
• Industry specialists at the annual Defaqto finance industry conference warned that the costs to comply with the duty will fall to customers - when asked if the government would assist companies in covering the extra expenses related to complying with regulations, the panel unanimously concurred that it would be the responsibility of the firms and, ultimately, their customers to bear the cost.
• The Fairbanking Foundation supports the introduction of Consumer Duty. Yet, their commissioned research raises concerns about financial services firms' comprehension of and responsiveness to consumers' needs. According to the Foundation, this also calls into question firms’ cultural capacity to truly impact change.
• New rules from HM Treasury mandate banks to give 90 days' notice and clear explanations before closing accounts, addressing discrimination concerns based on political beliefs, aligning with the FCA's Consumer Duty, and prompting banks to balance financial crime risk management with customer care amid changing geopolitical landscapes.

PEN Point of View:

Since the FCA released its definitive Duty rules in July 2022, it has consistently underlined its expectations through various means such as letters, webinars, reviews, and checklists. From these ongoing communications it is clear that the FCA believe there is still much more to be done by firms to comply with the Duty. With fair value assessments being reviewed and talks of costs being passed onto customers, the Price & Value and Consumer Understanding & Support outcomes must continue to be carefully considered, especially for closed products that provide different challenges for firms to overcome. We are holding a closed-door roundtable discussion with challenger banks and building societies in early November to talk through these closed product challenges and different approaches to tackling them. If you’re interested in joining, please reach out to Asha Sanderson-Frimpong.

In Case You Missed It:

• The Bank of England will delay the implementation of the Basel 3.1 global banking reforms in the U.K. to support companies in their planning processes.
• Chase UK blocks customers from buying crypto to combat fraud.
• Mercedes-Benz is joining forces with Mastercard to introduce embedded in-car payments at the point of sale.