Apply Financial’s straight-through processing tools have helped insurers in the West save millions in back-office costs while simultaneously burnishing their reputation with customers. Now CEO and Founder Mark Bradbury is looking East.
While big strides have been made in digitally revolutionising a sector notoriously slow at innovating, much of the emphasis so far has been on insurance product development and user experience.
Telematics devices in vehicles to record and analyse data and reward less risky drivers with reduced ‘good behaviour’ premiums; embedding insurance in services offered by digital partners; providing users with more seamless and tailored experiences, not to mention faster claims resolution – no more sitting on the phone for hours waiting to get through to your insurance company – all dominate the insurtech agenda.
But while such innovations undoubtedly enhance an insurance company’s value proposition for customers in an era of weak or even negative growth and intense profit pressures, they don’t address where the biggest cost drains are. Many of these can be found in the middle or back office and one of the key issues is that of failed payments: the black hole of reconciliations where straight-through processing dreams go to die.
Payments processor and validation software provider Apply Financial estimates that every payment that fails to validate can cost an organisation – be it a financial institution, corporate or otherwise – £50 in charges, resending costs, time spent rectifying the problem and exchange rate fluctuations (in the case of crossborder payments). For a large insurer this can add up to a lot of manual processing hours and a bruising impact on the bottom line. In fact, Apply Financial estimates that an insurer making eight failed payments a day will spend £100k a year fixing them.
“The issue with a failed direct debit, in any company – not just insurance companies – is that you have to resubmit,” says Apply Financial’s CEO and founder Mark Bradbury, “and that’s a very costly process; it takes up time.”
Some of it’s down to fat-finger syndrome – wrongly keyed-in digits on the part of the insurer or the customer; a good proportion is due to oversight – the customer failing to update his/her information held on file by the insurer.
Apply Financial’s key offering to clients is its Validate software that verifies bank payments through an application programme interface (API) plugged into a customer’s payment system at the front end. Interrogating world-class, virgin data sourced from the originating providers, the Cloud-based service uses algorithms to identify, analyse and validate payment data by cross-referencing account numbers, branch codes, payment purpose codes, holiday dates and many more data requirements, country by country and bank by bank.
Validate can also generate IBANs (international bank account numbers) and BICs (business identification codes) from domestic account details and check a complete MT103 for SWIFT gpi payments, including the correspondent bank details.
If Validate identifies a problem, it gives the insurer the opportunity to stop a transaction before the system spits it out, the hassle and costs of a failed payment or collection. Meanwhile, the Validate Data Manager makes continual background sweeps of information and alerts the insurance company to changes in relevant client data. The company can, in turn, notify the customer to update the information in advance of any mismatches occurring.
“We have a database of 66 million data records – which has about 7,000 changes a day around the world of banking,” explains Bradbury, illustrating the scale of the reconciliation task. Apply Financial says clients have so far saved more than £500million in operational costs for processing £1trillion of payments by using its payment validation software. It might not be as sexy as a bot broker or microinsurance for today’s sharing economy but, given the current global outlook, it’s an investment likely to float any CFO’s boat.
EY’s 2020 Global Insurance Outlook identified achieving operational excellence and cost efficiency as top among its six key themes and priorities for the sector from now through to 2022. It went so far as to describe cost optimisation as ‘critical’, because without it, insurers will struggle to realise one of the other key goals: to free resources to invest in transformation and product innovation programmes, like those bots, clever apps and microinsurance services. By reducing the hassle and costs of fixing failed disbursements and collections, Apply Financial’s Validate helps clients achieve that aim. It also improves the insurer’s reputation in its clients’ eyes – especially around the emotionally sensitive time of a claim.
Validate’s application is not limited to direct debits, of course. Although they remain the legacy industry’s go-to payment method, Apply Financial is increasingly working with providers committed to instant payments, which don’t afford the insurer the luxury of sometimes T+3 processing time to spot an error and fix it. If anything, in that scenario Validate is an even more valuable tool, and it makes the company’s recent expansion into the Far East, where small-value, same-day settlements are increasingly common, a no-brainer. Indeed, EY’s 2020 Asia-Pacific Insurance Outlook predicts the region could hold the key to the industry’s future, thanks to being home to a third of the world’s population, some of the fastest-growing economies, rapidly-expanding middle class groups and low penetration by insurance products.
London-based Apply Financial, which was founded in 2010, already counts major financial organisations among its clients, including high street banks HSBC and Barclays, credit card provider American Express and insurers in the US, Ireland, the UK and Europe, such as AXA. In addition to offering them domestic and international account and payment validation services in more than 170 countries, Apply Financial can also help clients with compliance around the world by checking against up-to-date global payment rules. What it can’t do (yet) is identify whether there’s any money in the account. “That’s a whole different application set,” laughs Bradbury – although he doesn’t entirely rule out such services being possible in future. “We might be able to, eventually, if open banking allows us to,” he says.
So far, Apply Financial has worked direct with insurers, rather than the industry’s intermediaries, such as banks. “Although I’m not saying that won’t change, or they won’t come to us and say ‘we want [you] to look at our insurance side as well’,” observes Bradbury.
With insurance steeped in back-office processes that are high volume, repetitive and time-consuming, Apply Financial with its focus on artificial intelligence, machine learning and open (API) models that can free up capacity at enterprise level while improving customer experience and minimise operational risks, looks an obvious fit. As businesses look to revolutionise the front end, it must be good to know someone’s got their back.
This article was published in The Insurtech Magazine: Issue #3, Page 21 & 22.