Frictionless Banking: A New Alignment Between Banks and Businesses

The steady, ongoing elimination of pain points allowed by developments in technology is creating a closer alignment between the two. By removing friction from the banking side of a transaction, business can be quicker, more efficient, and more productive.

In this interview with Kyle Boag, Managing Director and Regional Head of Global Payments Solutions, MENAT, at HSBC Bank Middle East, we explore the concept of frictionless banking and what it looks like in practice.

What is frictionless banking?

The premise of it is that it allows the customers to do exactly what they want. They want the transactions to happen quickly, in a way that makes it as easy as possible between the two parties. For instance, when you send a payment you, want the customer to know what they've received. Or when you receive a payment, you want to know that your customer has paid. It is about providing banking services in a way that makes it easier for businesses to do business.

Is it about seeing your services as a bank through the eyes of the customers?

Absolutely. A good example would be when a company doesn't want to keep selling to a client that has not yet paid for previous sales. The company wants to know as quickly as possible when they've been paid so that they can sell again. What we would do in that case would be create virtual accounts, where companies can assign a dedicated account to every customer that they have, so that they know when the money comes in from that customer paying that account. This takes away the need for time consuming reconciliation processes. All the large teams that are doing that reconciliation can then be assigned to more productive tasks. It takes friction out of our customers’ businesses.

How important are developments in underlying systems and infrastructure in achieving frictionless banking?

It is key because you need to be able to provide automatic updates. Ultimately, what is needed is an API that goes to an ERP system and updates so that your ERP knows straight away that a payment has been received from this customer. With the introduction of ISO20022 for SWIFT messaging, payments can also carry a lot more data. That is really important because when a payment is received, it can explain what the payment is for - even if it is covering multiple invoices that might have been sent. Another new infrastructure trend that will allow this is SWIFTgpi pre-validation, where before you make a payment, you can actually pre-validate that the payment will go to the right account.

How is frictionless banking divided between these deeper applications and the front end customer experience?

It is a bit of both. It is about both how you make it frictionless internally, and it is also about how you use frictionless banking to make it better for your clients. For example, if a customer calls up an insurance company to make a claim, the insurance company employee on the phone can look at that policy, see the claim is absolutely valid and immediately pay the claim. That is an experience that makes the customer go wow. The question is how do you enable that customer experience? You need to have the systems that can make that payment go straight through and into the purchaser’s account.

How has this concept been informed by retail and is it now being used in the wholesale market? Or are these slightly separate tracks?

I think they are separate tracks. I think the difference between wholesale and retail is that retail tends to set the standards and business then follows. People are used to using Apple Pay and Google Pay for their personal expenses and a card for corporate. That is why we have just activated Apple Pay and Google Pay for corporate cards, so if people need to pay a corporate expense they can do it just the same as they do with the personal payments.

There is a need for more accountability and control with corporate payments. How can you embed that into the offering without adding friction? How can you keep it frictionless whilst having these kinds of controls in place?

A great way is through the use of virtual cards. One of the things that some companies don't like about giving employees corporate cards is that it feels like handing them a blank cheque book, where they can do anything they want with the money. That’s why we have developed virtual cards. These can easily be programmed to only be used with certain merchants, or with a certain code of product, or with a certain code of action. And they can only be used once and up to a certain amount. This puts a lot more controls and certainty around what employees are doing and gives companies a lot more comfort.

This is the first in a series of articles in which we will explore and articulate the practical applications of frictionless banking. We will look at a variety of sectors and use cases, while examining the technologies that can be deployed, and the regulatory landscape that surrounds it.