tag:blogger.com,1999:blog-72773663814713528202024-02-19T07:21:35.939+00:00IBS Intelligence - BlogIBS Intelligence is the definitive source of news, analysis and thought leadership relating to global banking and financial technology markets.
We cover what is really going on – the good, the bad, the lessons, the mistakes and the masterstrokes, with no advertorial or marketing hype.
IBS Intelligence Blog is an excellent outlet to voice opinions, views and share ideas about all things fintech, and editorial contributions are welcome! Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.comBlogger151125tag:blogger.com,1999:blog-7277366381471352820.post-46300714405184718842017-06-02T11:12:00.001+01:002017-06-02T11:12:55.429+01:00Client Reporting – time to evolve?<div class="separator" style="clear: both; text-align: center;">
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From both a business and a vendors’ perspective, the term ‘client reporting’ is increasingly inappropriate and lacks the necessary ambition to be effective in today’s investment management world. This situation is partially as a result of the terminology that the function uses and the perceived lack of added value within the client reporting process. <br /><br />Essentially, many of the reporting solutions on the market today are largely designed to solve existing problems, such as the automation, control and governance of the current client reporting and sales information. For almost every firm within investment management though, be they institutional asset managers, retail asset managers, wealth managers and even private banks, the focus should no longer be about client reporting; the emphasis has shifted to improving the client experience: ‘going digital’, using technology to improve the business model and enhance the client interactions with the investment manager. <br /><br /><a name='more'></a>Client reporting is one facet of an ever-evolving requirement and firms need to stretch their vision and ambition accordingly. In the current operational structure within most investment management firms, one of the areas of the business that is closest to client needs and demands is the Client Reporting team. <br /><br /><b>Artificial constraints</b><br /><br />Due to the fact that this area of the business calls itself ‘Client Reporting’, however, I believe it has become bound by the artificial constraints and limitations associated with the label. In fact, the reporting function is well positioned to expand its role and even place itself at the middle of this process of managing the entire client experience.<br /><br />In recent times the client reporting label has often been replaced by ‘client communications’, but this is equally problematic since it is not really clear what this term entails – it is so broad as to be meaningless. The reality is that many of the existing vendors and business areas are still providing the same data sets in a relatively uninspiring and restrictive manner. To some extent this is due to the fact that their user community is focused on the production of the current reporting requirements, and managers of Client Reporting departments are rarely focused on future needs and market changes. It is clear to me though that the winds of change are starting to turn. <div>
<br />If client reporting is going to unlock anywhere near the potential that it retains, it needs to find more ambition, starting with a new way to describe itself. The terminology and language surrounding client reporting must convey themes such as client experience, digital interaction and data exchange. It needs to stop talking predominantly about process, workflow, scalability and historical data. All those elements are part of the equation, but they are limiting and lack desire.</div>
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<br /><b>Future paths</b><br /><br />To my mind, there are really two paths that client reporting can take in the future. It can become a rendering tool for historical information that is delivered on a regular basis. This will ultimately become a low value commodity that provides little opportunity for differentiation in the marketplace.<br /><br />The other route is that client reporting expands its role to become the ‘data normalisation hub’ within the client interaction process. Some insightful firms are starting to explore building platforms to provide the customer with the information and experience they need. These platforms will be based upon a best of breed component architecture, to cover the array of functions required. The advantage of this approach is that as new demands and technical options emerge, they can be ‘plugged into’ the platform to keep the proposition moving forward as the market evolves. <br /><br />In this environment, investment managers will look to combine the best of existing suppliers with new technologies and horizontal technical solutions already available. There is an emerging demand from some investment management firms to ‘move the needle’ in this way and become more client-centric in their business models.<br /><br />Time to evolve<br /><br />One might argue that client reporting is losing its way to an extent, and may be approaching the end of its shelf life in its current, traditional format. It needs to evolve, otherwise the asset managers will begin to step beyond the current providers and develop their own solutions. <br /><br />Ultimately, the buyers of such software want to future-proof their investment, and if they have witnessed little notable innovation in the last ten years and an unconvincing roadmap for the future that does not account for changes in consumer behaviour, then there is a reasonable cause for concern that client needs will outstrip development.</div>
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<br /></div>
<div>
Steve Young,</div>
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Managing Partner</div>
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Citisoft</div>
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<br /></div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-3862065313368333772017-05-31T10:18:00.000+01:002017-05-31T10:18:10.596+01:00For operators, it should be ‘software-first’ to take the ATM into its next decade<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPvyIF28-5nsi8Ytlz56mcgFmmC95tyi_r0ypGM_36C6f3Q2xMWq0pteOWavxDAmMc8vh-6ZtNWFhpQgOuCzPDIDpMA-ekjrGiCTvKqhAO3iUJrLa8ox2Ygz4HnscoWOaalmvhhsJGqYRZ/s1600/ATM.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="783" data-original-width="1600" height="97" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPvyIF28-5nsi8Ytlz56mcgFmmC95tyi_r0ypGM_36C6f3Q2xMWq0pteOWavxDAmMc8vh-6ZtNWFhpQgOuCzPDIDpMA-ekjrGiCTvKqhAO3iUJrLa8ox2Ygz4HnscoWOaalmvhhsJGqYRZ/s200/ATM.jpg" width="200" /></a></div>
<br />As the ATM is turning 50 this year, it is at the centre of a massive overhaul of the retail banking landscape. Banks have to completely rethink the way in which they interact with their customers while the digital revolution is taking hold of the sector. The speed at which this change is happening is breath-taking: Data company CACI predicts that the total number of mobile app log-ins by banking customers are going to increase from 427 million in 2015 to 2.3 billion in 2020, while the number of bank branch visits is expected to almost half to 268 million per year over the same period.<br /><br />With the banking revolution right under way, most ATMs today are still based on a ‘cash and dash’ model with limited additional functionality. However, with the right software strategy, they have the potential to become a cornerstone for the omni-channel banking world as the last remaining touchpoints for banks in the majority of local communities.<br /><br /><a name='more'></a>Our survey of 13 major ATM operators, representing over 250,000 ATMs in 30 countries, shows that the industry is held back by IT challenges, with the largest one being the continuous change in operating systems. Every time a painful operating system change has been concluded successfully, the next one is already looming on the horizon. Software changes are a challenge in and of themselves, but if they also require changes to the core of the ATM IT hardware – the PC –, the costs for what is basically just a compliance initiative can be very high. The industry’s second biggest nut to crack is change management, as rolling out new functions requires long development times and complex integration with the existing, ageing host systems. Finally, with the sophistication of large scale attacks on the rise, security, especially around malware, is a pressing issue that the sector is currently trying to solve.<br /><br />The fact of the matter is that the ATM industry needs to re-think the underlying architecture of its systems if it wants the ATM to stay relevant in a modern banking world. The answer to this problem can only be to move away from PC-based hardware to a cloud based model, which would give the ATM technology that is out there the breathing space to innovate at the same speed as other channels such as mobile banking.<br /><br />In a cloud model, the role of the PC-core is reduced to manage the user interface, while the cloud controls the cash dispenser. This provides a higher level of security as the nerve centre is taken out of the ATM and placed within a safe distance. What is more, ATM functionalities could be based on an ‘app’ approach, which would speed-up product development and allow banks and ATM operators to add more features at lower costs. <br /><br />Rethinking the system architecture under these premises will allow the ATM to develop its full potential rather than continuing to be a simple ‘cash and dash’ facility. Moving to the cloud would be a natural (and potentially vital) development for the ATM industry and the financial services sector as a whole. The first step in this direction would be for operators to agree and implement a standard API, which would provide a set of protocols for building software applications, specifying how software components should interact. <br /><br />Cloud technology is high on the agenda of the next industry event <a href="https://www.atmia.com/events/atm--cash-innovation-europe-2017-(formerly-european-atms)/1328/">ATM and Cash Innovation Europe</a> and there are various other initiatives among the industry that are already well under way; all of which shows us that the cloud is the direction of travel for the ATM of the future.<br /><br />Eric de Putter, <br /><br />Managing Partner <br /><br />Payment RedesignAnonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-91905908049864002092017-05-26T09:54:00.002+01:002017-05-26T09:54:30.854+01:00Cryptocurrencies could fix our broken monetary system<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8B6QcgaybuijvsDlDBzkqZVKTY6UtQrTVwQoBTtLH6jOpS7rUekkFb7kfJAI5gfhH2lakZTeY36bv26UtU3nvXxGot9PvTfKo2SdHLCy6JfcL9xgTLEdLnlqgFT4Layk6g3vO5uOKUyCG/s1600/Bitcoin.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="408" data-original-width="780" height="104" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8B6QcgaybuijvsDlDBzkqZVKTY6UtQrTVwQoBTtLH6jOpS7rUekkFb7kfJAI5gfhH2lakZTeY36bv26UtU3nvXxGot9PvTfKo2SdHLCy6JfcL9xgTLEdLnlqgFT4Layk6g3vO5uOKUyCG/s200/Bitcoin.png" width="200" /></a></div>
In turbulent and fast-changing times, it helps to know that some of life’s uncertainties are anchored to something solid and dependable.<br /><br />So it will come as no solace whatsoever to remind you that the global currency system is anything but solid or dependable. That is one reason the world’s finances are in such a mess - but new digital cryptocurrencies like Bitcoin could bring us back down to earth.<br /><br />Let me explain. Once upon a time, the currencies we used to buy and sell things had real tangible value; coins were literally made from silver and gold. When governments introduced paper money and coins made from non-precious metals, they needed a proxy for their former value. So the so-called “gold standard” effectively made coins and notes into an IOU against gold, and everything remained stable.<br /><br />But when President Nixon ripped up the gold standard in 1971, currency floated free - the dollar became a so-called “fiat” currency, untethered to anything except its central bank’s ability to print more money.<br /><br /><a name='more'></a>This is critical, because the printing of more and more money is actually what is crippling the global financial system. In response to the global economic crisis, the UK has undertaken a programme of “quantitative easing” (QE) - pumping more new money into the system to keep its structures afloat.<br /><br />But ongoing and excessive money production is counter-productive. When more cash is made available, it necessarily devalues existing money from the rest of us. To put it brutally, QE is a theft of money from the people by the government, which is devaluing everyone’s money in order to take cash for itself.<br /><br />The current system is locked in a pattern that depends on more and more of this debt being created. Now the debts of many western economies are in the trillions. In effect, our financial system is a giant ponzi scheme - that is not sensible, and that can’t be sustainable.<br /><br />Here is where cryptocurrencies come in. In recent years, Bitcoin and its ilk have gained notoriety as a system of currency dependent on solving algorithmic problems, that includes a built-in public ledger and that, to many, has been a speculative investment.<br /><br />But cryptocurrencies’ real benefit is in its limitations - or, rather, one core limitation. You see, the life of a Bitcoin is somewhat tragic. Built into the system is a rule that puts a cap on the maximum number of Bitcoins that can ever circulate, reckoned to be 21 million.<br /><br />This rule makes cryptocurrency finite. In other words, there can be no unadulterated, never-ending supply of Bitcoin, no quantitive easing for crypto, and no government or central bank gaming the system. Just like the historic gold standard, the currency is tethered to something finite.<br /><br />Now, I don’t necessarily think Bitcoin will be the cryptocurrency everyone adopts - the value of Bitcoin specifically still fluctuates considerably, and it is still regarded largely as a speculators’ pursuit.<br /><br />I think that one flavour of cryptocurrency or another will, eventually, become a ubiquitous currency standard the world over. Many banks are already creating their own cryptocurrencies and, whilst consumer adoption is currently small-scale, I expect future uptake to be considerable, for both individuals and institutions alike.<br /><br />What will be the impact when that happens? Financial liberation. Cryptocurrency will put control back into the hands of people who own the currency, rather than leaving the banking system and governments in control.<br /><br />Today, all this cash being pumped out into the system by the banks is not helping ordinary citizens. Much of it is finding its way to already-wealthy organisations or is being put into property investments and other super-inflationary assets, which only serves to alienate ordinary consumers from vast sections of the economy and, indeed, society. How many more trillions will be misdirected in this way?<br /><br />It’s time to tie down our financial system again, to peg it to rules we can all agree on. Cryptocurrency carries possibility in its DNA. We may not be on the verge of this future right now, but I think the gold standard is in them there hills.<div>
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Lee Murphy</div>
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Owner & CEO</div>
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Pandle</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-14131521998292375672017-05-15T10:55:00.002+01:002017-05-15T10:56:20.705+01:00Blockchain is hot, but where’s the beef?<div class="separator" style="clear: both; text-align: center;">
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In spite of the hype—news of blockchain developments and its associated Bitcoin currency has become nearly ubiquitous—large-scale enterprises have been slow to adopt the emerging technology that promises to disrupt and improve a wide range of industries from finance & banking, insurance and real estate to cybersecurity and even music.<br />
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Companies have played with it; they understand what blockchain does and how it works. Their innovation labs have participated in proof of concepts (POCs) and may belong to one or more industry consortiums created to vet the technology, but they haven’t taken the next step and implemented the technology for any mission critical apps.<br />
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<a name='more'></a><b>What’s Holding Back Blockchain?</b><br />
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One of the fundamental issues holding blockchain or distributed ledger technology (DLT) back is the level of maturity of the technology, to wit, it’s current inability to support large-scale financial infrastructures by working in millisecond speeds. Currently the math, which is CPU-intensive can only support single digit to tens of transactions per second. It’s a bit of hurry up and wait!<br />
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The problem was highlighted in a recent article on <a href="https://www.finextra.com/newsarticle/30212/bank-of-japan-exec-warns-fs-firms-against-leaving-dlt-expertise-to-tech-providers" rel="nofollow" target="_blank">Finextra</a>, “Bank of Japan exec warns FS firms against leaving DLT expertise to tech providers." "There is absolutely no doubt that DLT is an unprecedented innovative technology,” said Bank of Japan executive director Shigehiro Kuwabara. “However, based on the level of its technology at this stage, it cannot be said to have yet reached the absolute superiority required to fully replace the current centralized system.”<br />
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However, consortiums like the <a href="http://www.hyperledger.org/">Hyperledger</a> are working on a new release of their open source code base that is supposed to support more than 1,000 transactions a second. What’s more, Hyperledger participant IBM’s new z Systems server platforms reportedly will be able to double that speed. Other developers like Ripple and Etherium are right behind; a lot of people are working on this.<br />
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Once the speed is there, which Oliphant thinks could be between the later half of 2017 and the first half of 2018, early adopters are expected to jump on it, followed by mass movement by the rest. “Blockchain needs to be mature first,” he said, “and we expect the rest to be fast-followers!”<br />
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ACI, which enables more than 5,000 processors and banks to transact $14 trillion daily through its suite of software-as-a-service tools, has been actively engaged with blockchain technology and POCs for the last two years. However it’s only been the last few months that its customers have started to step up to the blockchain plate.<br />
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We are just starting to see customers with requests for information (RFIs) and requests for proposals (RFPs). They want to engage with us and multiple blockchain providers. Our customers tend to have large payment infrastructures integrated to perform various payment functions and they are looking to ACI to help them integrate the technology with their existing payment systems. They want to move incrementally.<br />
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<b>What Should Customers Do Now?</b><br />
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We recommend that customers identify critical business use cases where they can use the technology to bring business value and improvement to existing processes or create new products and services. A compelling use case will help drive the technology (much as Bitcoin did originally). That will also make it easier for their CIOs to fund it versus launching a blockchain initiative that is looking for a problem to solve. Customers should be laser-focused.<br />
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Fortunately, not all use cases require high velocity/high performance blockchains. That means that institutions can be supported by the technology today. <br />
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<ul>
<li>Some of the top current use cases that do not require millisecond transaction speeds are: </li>
<li>Cross-border payments </li>
<li>International remittances: replacing current mechanisms to send money between family members. </li>
<li>Supply chain management </li>
<li>Centralized Referable Records/Data </li>
</ul>
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Several blockchain providers such as Chain Inc., IBM and Ripple are beginning to offer products/services in these areas. The important thing for customers is to identify use cases that would bring business value to them. Conversely, high velocity use cases, including clearing and settlement, and stock trading, will have to wait a little longer until the technology is ready. But as discussed above, potential customers will likely not have much longer to wait.<br />
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<br /></div>
<div>
Roger Oliphant,</div>
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Chief Architect</div>
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ACI Worldwide</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-30044582217318102502017-05-03T09:28:00.000+01:002017-05-03T09:28:09.371+01:00The Transformation of the Insurance Sector due to the rise of Artificial Intelligence<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvoyaWWzF5fNLQePf4BkmFa3Ri_xtNKecTmEbo9Am77WffBeTpO0PfB8wiyhE6j90LJ9Ysc999WfIJbe6LVHPJSaXmzjmKP-EZX-y9eiR9eVJpETIimseF1MVKIAGJzeuZDnzPpIdv-uMc/s1600/AI.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="111" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvoyaWWzF5fNLQePf4BkmFa3Ri_xtNKecTmEbo9Am77WffBeTpO0PfB8wiyhE6j90LJ9Ysc999WfIJbe6LVHPJSaXmzjmKP-EZX-y9eiR9eVJpETIimseF1MVKIAGJzeuZDnzPpIdv-uMc/s200/AI.jpg" width="200" /></a></div>
The need for a business to offer their customers’ personalised, efficient and reliable service has never been greater. Today, society demands instantaneous communication with one another. Technologies such as Apple’s FaceTime, Facebook’s Live Messenger and Microsoft’s Skype allow communication around the world to occur immediately. This ability has meant there has been a proliferation in the amount of data being shared and consequently, it has become expected that businesses provide the same level of communication across devices. Businesses must ensure they connect with customers on a more 1-1 basis and that the customer is at the centre of its business, regardless of time or location. <br /><br />The need for insurers to focus on customer service is even greater than it is within other industries such as retail, given insurance historically lags behind other industries.<br /><br />In years gone by Insurers operated in a highly regulated, controlled and predictable environment. They knew that individuals chose their insurer based on their parents previous decisions. Once chosen, individuals would stick to that insurance for years, even for life, accepting new charges and changes in operation as it used to be too difficult and complicated to change insurer, as well as challenging to gather the relevant information on what insurance policy was best for each individual. This is no longer the case.<a name='more'></a><div>
<br />UK consumers are starting to realise that it is easy and more cost effective to change insurance providers. A recent Switching Report by Gocompare.com found that Britain could collectively save up to £5.5bn a year if consumers switched car and home insurance along with their energy provider. This has increased the competitiveness within the insurance sector as consumers are no longer as constrained as they once were. <br /><br />In order to adapt and keep up to date with the digital transformation within society, the Insurance sector has begun to utilise Artificial Intelligence and machine learning. In 2016, Forrester, the influential market research company, <a href="http://www.businesswire.com/news/home/20160718005879/en/Forrester-Releases-2016-Customer-Experience-Index-Scores" target="_blank">named US insurer USAA</a>, which has a reputation for intelligent adoption and utilization of state-of-the-art technology, as the best in class when it comes to offering exceptional customer experience. To be named in Forrester’s list companies must not only meet customers’ basic needs but consistently connect with the customer at a more personal level. With customers becoming more connected it is becoming harder for a company to provide a personalised service without utilising AI. <br /><br />Insurers are not alone in turning to AI in order to become more customer-centric. For instance, the recent <a href="https://www.tcs.com/artificial-intelligence-to-have-dramatic-impact-on-business-by-2020" target="_blank">Global Trends Study (GTS)</a> on artificial intelligence by Tata Consultancy Services found that there is a clear correlation between investment in AI and business success. Based on the views of 835 business leaders from companies around the world, the GTS study found that while the majority utilise AI for its IT capabilities, by 2020 70% believe AI’s greatest impact will be in other roles, including admin, back office and sales and marketing. By adopting AI, American Express employees have been able to improve their first call resolution rates dramatically. Employees have had to contend with requests growing by 250% in recent years; however by combining AI with the data gathered from AmEx’s various customer touch points, employees have had access to a complete customer overview and can respond to requests accurately and at a lower cost than previously possible. This has led to Forbes naming <a href="https://www.forbes.com/companies/american-express/" target="_blank">American Express as one of the #25 Worlds Most Valuable Brands.</a> <br /><br />The insurance sector has long suffered from a perception of being confusing. This has been due to the complexity and monies involved in the sector. In 2016, the insurance sector alone contributed more than <a href="https://www.abi.org.uk/globalassets/sitecore/files/documents/publications/public/2016/keyfacts/keyfacts2016.pdf" target="_blank">£35bn to the UK’s GDP</a>, which equates to more than a fifth of the total gross value added for the financial services industry. Naturally, this amount of money has led to insurers being cautious. They are also subject to numerous industry regulations, with the knowledge that failure to comply with these can lead to sanctions and further disciplinary proceedings. It is not surprising therefore that in the recent Global Brand Simplicity Index 2017, there was no UK insurance company found in the Top 50. However, there are signs that this will change in the future. At No. 55, Direct Line rose 37 places in 2017 and in <a href="https://www.postonline.co.uk/post/news/1228007/direct-line-introduce-artificial-intelligence" target="_blank">April of this year</a> they announced they have introduced AI to automatically provide answers to customer questions, ultimately improving the customer service they provide. <br /><br />Insurance is split into various sectors, one such sector, Health Insurance, will be a huge beneficiary from the adoption of AI. With the proliferation of IoT devices and active trackers, health insurers are gaining data on all aspects of a customer’s way of life, although it can be difficult to utilise this information due to the amount of data being produced. With insurers beginning to harness AI capabilities and combining the technology with more sophisticated, quicker analytical programmes, they are now able to assess claims faster than ever before. Not only that, they can utilise this data to offer personalised, adaptable policies to consumers. Policies that can be changed with the lifestyles of the IoT user, for instance an overweight individual who decides to become more health conscious could see their premiums go down instantaneously with an active tracker sending their insurer data on their progress. <br /><br />With Gartner predicting that be 2020 there will be more than 20 billion devices connected to the internet, the adoption of AI to make sense of that data is vital. It will allow employees to focus on their day-to-day tasks and increase the speed at which customers receive their desired service or product. Undoubtedly, this automation will transform the jobs available within the sector. However, with the UK Government and businesses working alongside one another, business leaders are confident there will be an upswing of new types of jobs available. <br /><br />Fridtjof Detlefs, <br />Head of Insurance Domain, <br />Tata Consultancy Services</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-12695255752534125292017-04-27T11:42:00.000+01:002017-04-27T11:42:03.044+01:00Banking on loyalty – a bet worth making<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3G9xTu9PhLE1v4hilThPvklmQUYrZMsUqfguFS9T_PgBwZ6EYeEAIxnqMqGFK1EZ8rx1fUzpEiiXrxfos4fl0Ki2gHN8a5jhwAjBKOWy_cM-GiV2wn5hM2ly13b97V29_M-_mKULtW0Zq/s1600/fintech-featured+%25281%2529.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="112" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3G9xTu9PhLE1v4hilThPvklmQUYrZMsUqfguFS9T_PgBwZ6EYeEAIxnqMqGFK1EZ8rx1fUzpEiiXrxfos4fl0Ki2gHN8a5jhwAjBKOWy_cM-GiV2wn5hM2ly13b97V29_M-_mKULtW0Zq/s200/fintech-featured+%25281%2529.jpg" width="200" /></a></div>
Data protection has quickly grown from being a buzz-word to a concern keeping board-level executives up at night. <br /><br />As demonstrated by recent high profile cyber attacks, the cost of a data breach now comes in all shapes and sizes – from significant financial repercussions to damaged reputation and loss of existing customers. Ensuring this is avoided while improving the customer experience is the real tightrope challenge. <br /><br /><a name='more'></a>It is clear that law makers are only just getting started in their pursuit of stricter privacy measures. This time next year, there will be a raft of new regulations in place such as Payment Services Directive II (PSD2) and the General Data Protection Regulation (GDPR). <br /><br />While PSD2 is about making data of individuals available to third parties and creating a new world order of ‘open banking’, GDPR is about keeping that data safe. Both regulations share a substantial area of common concern: customer data. <br /><br />This leads to a fundamental issue. Every financial institution in the UK and Europe now faces a mounting tension between finding new ways to offer services most relevant to customers and implement technologies that protect and genuinely improve privacy.<br /><br />It is no secret that banks will be feeling the heat of that challenge, especially as they already struggle with customer retention. Since the Current Account Switch service launched in the UK, more than 3.5m people have swapped their bank accounts for alternatives.<br /><br />This is a pivotal moment for the industry. The push to make switching easier has put the power back in the hands of the consumers. Banks need to work harder than ever to keep them. And while they have the data at their fingertips to know customers in ways they could have only dreamt of previously, the onus on protecting this information almost makes it a double-edged sword. <br /><br />Those banks wanting to remain part of customers’ daily lives must find new ways for customer-centric form of smart and engaging banking. <br /><br />While a level playing field brought along by ‘open banking’ will enhance competition across the board, the responsibility will be on banks and third parties to ensure their data is as safe as possible and compliant with the new rules. <br /><br />Agile start-ups with digital readiness in their DNA will be quick to see the opportunity to fill a gap that banks with legacy technology might not be ready to embrace. <br /><br />For banks, there is an opportunity to turn the seismic shift in their favour by finding unusual innovation partners to identify new ways that ensure personally identifiable information (PII) is not compromised, leaving customers exposed. <br /><br />But stringent safety measures aside, banks have a bigger challenge in their hands. If new banking players find ways of engaging their customers better than they can, there is a very real risk that they are relegated to mere back-end service providers.<br /><br />We know all too well that the concept of loyalty has evolved rapidly in little less than five years. The days of first-time savers establishing an account used by their family and staying with that same institution for life are long gone. <br /><br />Generally speaking, banks have done well to weather the fallout of the financial crisis and kept hold of the majority of their customer base. <br /><br />But a new wave of disruptors are gathering pace: peer-to-peer (P2P) lending has been growing fast, as has crowdfunding, and scores of ‘challenger banks’ are getting their hands on banking licences and starting to build brands. <br /><br />It is not just smaller-scale disruptors, which pose challenges. Big technology companies with hundreds of millions of loyal users are already dabbling in the world of banking and financial services. <br /><br />Alibaba’s digital payments arm, Ant Financial, recently applied for an e-money licence in the UK, while Amazon Payments makes it easy for customers around the world to pay on thousands of merchant websites using the information already stored in their account. <br /><br />In less than 12 months, banks will have to open up their valuable treasure troves of customer data to all third-party providers, to established technology giants and smaller players alike. <br /><br />That said, banks are perfectly positioned to thrive in the midst of current tech disruption. <br /><br />They have a first-hand insight into how cardholders spend their money every day and have the ability to provide their customers with relevant offers that help to save both time and money. <br /><br />The key will be to focus on new sophisticated reward schemes to forge deeper customer relationships – not least because customers with positive experiences are significantly more likely to stay with their bank. <br /><br />The ability to leverage loyalty will favour the banks that push forward and define those whose role will relegate to mere pipes and fittings of the new system. Not underestimating loyalty and ensuring it is part of the existing boardroom discussions around customer retention will be a good place to start.<div>
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<div>
Campbell Shaw,</div>
<div>
Head of Banking at Cardlytics</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-70202496853278870872017-04-21T09:16:00.000+01:002017-04-21T09:26:01.795+01:00When you have to be right, right now<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-KF1bSiqbLMG1YLPg6tTVqFckh8gIR6-CsbDNTEj9Bu9j4DiQ8aeaLry6q1dy7Yg0H3_XhbFoJTuI1lmZYOOuzFskzoXD1yrjZrRKg4rtuSnyJGdz3hMGmwVey89RNBckbsBzYSR7PgCE/s1600/startup+idea.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="102" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-KF1bSiqbLMG1YLPg6tTVqFckh8gIR6-CsbDNTEj9Bu9j4DiQ8aeaLry6q1dy7Yg0H3_XhbFoJTuI1lmZYOOuzFskzoXD1yrjZrRKg4rtuSnyJGdz3hMGmwVey89RNBckbsBzYSR7PgCE/s200/startup+idea.jpg" width="200" /></a></div>
In-Memory Compute Grids (IMCGs) allow banks to process data faster and more accurately, too. Richard Bennett, Vice President of Regulatory Reporting for EMEA in Wolters Kluwer’s Finance, Risk and Reporting business, examines the latest trends banks need to consider.<br />
<br />
You’re limping through the desert, dying of thirst, when you come upon an oasis with what appears to be a bottomless well. You can’t believe your luck. Then you drop the bucket in and discover that the rope tied to it is so knotted and twisted that it stops short of the water line. By the time you straighten it out so that you can take that desperately needed drink, it may be too late.<br />
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<a name='more'></a><br />
<b> You can’t believe your luck.</b><br />
In the often unforgiving landscape in which financial service providers operate, Big Data is a lot like that well. In an age of exceedingly cheap and copious storage capacity, banks can accumulate seemingly endless amounts of information (at least until all the silicon is used up). But limitations in the design and implementation of systems in use at many firms ensure that access to it is exceedingly slow and cumbersome, with accuracy often sacrificed along with velocity.<br />
<br />
But gain access to it, they must. In this analogy, legislators and financial supervisors play the role of the sun relentlessly and mercilessly turning up the heat. This year, in fact, financial institutions are expected to have their own peculiar variety of global warming to cope with, or at least European warming, in the form of new sequels to the European Union’s Capital Requirements Directive and Capital Requirements Regulation.<br />
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CRD V and CRR II, which still must be enacted by the European Parliament, are coming along just three years after CRD IV and the original CRR were introduced. The revised versions, encompassing more than 500 pages of rules and regulations, are likely to keep banks and their compliance departments busy into the 2020s.<br />
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<b>The more data you have, the more data they want</b><br />
These revisions result in part from repeated rounds of competing innovations by supervisory authorities that demand more and better data, and information technology companies that contrive ever more sophisticated – and faster and cheaper – ways to provide it, with banks caught uncomfortably in the middle. The easier it becomes to generate bits of information, the more bits the authorities ask for, and on it goes.<br />
<br />
And a new set of rules often requires more than just one set of bits. National authorities often exercise wide discretion, tinkering with an edict to make it fit local needs and market characteristics. This is especially true with the Analytical Credit Dataset, or AnaCredit, a European Central Bank program that will require banks to collect and report numerous details about each credit on the balance sheet.<br />
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The Big Data phenomenon is not limited to financial services, of course, but it has been felt there especially keenly. Large financial institutions must process hundreds of millions, if not billions, of customer transactions and continuously monitor and update prices of assets and liabilities on their books. For it to be of any use, this raw data must be converted into a form that allows myriad interrelated variables to be calculated and analysed. As input values change for each one, so do output values on countless others and on key metrics derived from them related to risk and financial efficiency.<br />
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Banks must process this information to manage their operations effectively, make the right decisions, take appropriate action at various levels and functions and plan out their futures, so they have hardly been innocent victims as this technological and regulatory escalation has broadened. Their businesses have been, or at least should have been, benefiting from the enhanced capability to obtain and manipulate massive quantities of data.<br />
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But increased regulatory scrutiny has ratcheted up the need to produce it more frequently, often in real time and even in unreal time; stress testing using hypothetical dire scenarios is becoming more regular and elaborate, with greater consequences for failure. The expansion in the creation and manipulation of bits and bytes has been so sudden and immense that the term “Big Data” seems almost like a quaint relic. “Very Big Data” might be more apt today, and there’s a risk that the correct sobriquet tomorrow will be “Too Big Data.”<br />
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<b>The hive mind is here</b><br />
<br />
The need to keep systems from getting bogged down in the ever growing quantity of data led to the development of the In-Memory Data Grid (IMDG). As the name hints, an IMDG is a group of servers configured so that their random access memories (RAMs) behave as a single entity. This permits them to store massive datasets collectively in RAM that otherwise would be available only in conventional storage drives within the servers.<br />
<br />
It may be barely noticeable when you’re sitting at your workstation or in front of your laptop, but reading data from a whirring, humming hard drive takes an eternity, compared to reading it from RAM. Using an IMDG can allow a system to perform the task as much as 500 times faster – as long as a compatible processing capability is also in place.<br />
<br />
Indeed, storing data is only half the battle, the far easier half to win. At the risk of going to the well once too often, it might be worth thinking of an IMDG as an oasis in which water is all around you on the surface, rather than deep underground, but without the right vessel, taking a drink could still be slow and messy.<br />
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This is where an In-Memory Compute Grid (IMCG) comes in. This is a system that divides data processing, not just storage, among the collective RAM of multiple servers; the result is data that is retrieved with greater speed and agility and processed that way, too.<br />
<br />
A few years ago, when IMCG technology was still new, it was common to try to bolt a processor onto an existing IMDG system. Connecting sets of servers using different methods for the storage and processing functions, and connecting those functions to each other, proved problematic and limited the effectiveness of the grids. But the technology has moved on, and it is rare nowadays to find an IMDG designed without an accompanying IMCG.<br />
<b><br />Fast is good; fast and adaptable is better</b><br />
<br />
A system that has been upgraded so that an operation that once was processed in the blink of an eye now takes only a fraction of a sliver of a blink may seem gratuitously zippy. But as the demands on systems grow larger and more complex by orders of magnitude – in response to the greater demands on bankers to perform real-world and what-if analyses, provide efficient customer service and make the most prudent, effective decisions – so must the processing speed.<br />
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But as critical a feature of IMCG systems as speed is, they have a lot more going for them that is making them an essential resource for financial institutions. IMCGs are scalable – if you can link some servers’ RAMs, you can link some more – and flexible.<br />
<br />
An IMCG works by distributing software code across servers in the grid in the most efficient way. Once it has been designed and implemented, it becomes a comparatively easy matter to amend the processing method for use in any configuration of servers. This allows fast, two-way traffic among core functions within a firm and its narrower silos, too.<br />
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The advantages, the necessity even, of such a system are obvious at a time when supervisors are demanding data derived through a variety of means, at a finer level of detail, more often.<br />
<br />
With its speed, flexibility and scalability, IMCG is becoming the go-to technology for keeping financial organisations running at peak efficiency, especially large firms that engage in multiple business lines and in many jurisdictions. But regulatory and operational challenges keep expanding and evolving, and there is no end in sight.<br />
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Lawmakers and financial supervisors are unlikely to stop issuing new requirements anytime soon, after all – CRD VI, anyone? – and it would be foolish to expect customers and competitors to start settling for less, either, so banks and the personnel that make them run will require ever more sophisticated tools. That means innovation will have to continue apace, so is IMCG fated soon to become the went-to technology?<br />
<br />
That’s highly unlikely. Speed is its most visible benefit and probably its biggest appeal for IT departments at financial institutions. But its ability to be adapted readily to new situations and requirements, perhaps even ones not yet envisioned, is what should allow IMCG to serve as the backbone of the technological infrastructure in financial services for far longer than the blink of an eye.</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-27365070676015033482017-03-28T10:01:00.002+01:002017-03-28T10:01:26.837+01:00India’s take on large scale payments innovation: ‘Leapfrogging’ to lead the pack<div class="separator" style="clear: both; text-align: center;">
<a href="https://upload.wikimedia.org/wikipedia/en/thumb/4/41/Flag_of_India.svg/255px-Flag_of_India.svg.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="133" src="https://upload.wikimedia.org/wikipedia/en/thumb/4/41/Flag_of_India.svg/255px-Flag_of_India.svg.png" width="200" /></a></div>
A new wave of payments innovation is taking place globally and emerging, high growth markets are the ones to watch. Encouraged by increasing customer demand, favourable regulation and unburdened by legacy infrastructure, countries in high growth markets are beginning to lead the pack when it comes to large scale payments innovation.<br /><br />A great example of this leapfrogging trend can be found in India. As the country’s leading payments services provider, we are seeing first-hand that India is fast becoming a hub of payments innovation and disruption at scale. India is home to several of the ingredients necessary to encourage new technology to flourish and old systems to make way for new. Key among these ingredients are the increasing customer demand for digital payments, a supportive regulatory environment and a highly skilled tech market.<br /><br /><a name='more'></a>India’s intense smartphone growth is fueling the rapid adoption of digital payments. With 220 million users, India is now the second largest smartphone market in the world. Given that India has a population of over 1.25 billon, its appetite for mobile products and services is set to continue to boom.<br /><br />In more established markets, the fact that electronic payments have been a mainstay for some time is the very reason that innovation is often stifled. With legacy infrastructure and entrenched customer behaviour – such as the USA’s commitment to the cheque – new and innovative payment technologies don’t have an easy path to maturity.<br /><br />In contrast, smartphone growth in high growth markets such as India enables businesses who are unencumbered by ageing legacy systems to more easily adopt mobile-first, digital solutions. As smartphones become ubiquitous, consumers naturally seek frictionless payments that cater to their expectations. The better the experience on offer, the quicker the uptake will be.<br /><br />One of the key challenges for innovation in high growth markets is the ability to offer a wide breadth of payment options. Indeed, in high growth markets like India, alternative payments – which refer to payments made using something other than a credit card like cash, coupons, bank transfers, prepaid cards etc. – still represent as many as two-thirds of all payments. This means that, although regulatory and legacy system barriers don’t exist, offering a frictionless customer experience remains operationally challenging and cost intensive.<br /><br /><b><u>Regulatory support</u></b><br /><br />When it comes to the challenge of how to best support multiple payment types, interoperability and open platforms are critical to help break down the barriers. We’re already seeing European regulators attempting to tackle these issues with the scheduled implementation of the Payment Services Directive 2 (PSD2) in 2018. High growth markets are showing first signs that they will follow suit, looking at their local capabilities and infrastructures and how to make these more open.<br /><br />Fortunately, both Indian consumers and payment providers are supported in this open platform ambition by a progressive regulator that is open to adopting a legislative framework to promote innovation. This forward-thinking attitude was evident in the RBI’s November announcement of demonetisation, which laid out the mandate for the removal of as much as 86% of bank notes from the market. While the surprise element brought on personal difficulties for many citizens who rely on cash, the impact of this move also almost immediately changed the way people viewed and used digital payments platforms.<br /><br />At PayU, we saw our daily transaction volume skyrocket by 80% immediately after the announcement was made. It then settled to a 25% increase compared with pre-demonetisation – still a significant number. While the long-term outcome of this demonetisation is still to be seen, the bi-product is large scale payments innovation, made possible by a regulator ready to disrupt the market.<br /><b><u><br />Tech workforce</u></b><br /><br />India, like many high growth markets, has moved away from a commoditised, service/call centre-based tech economy to become a hub for technology development in its own right. Silicon Valley is no longer the only home for great startups and here at PayU we are working with entrepreneurs from India to Israel to bring world-leading tech to market.<br /><br />Local market insight is a powerful thing. We’ve encountered startups and growth companies such as Creditas in South America and Zest Money in India that offer world class solutions to advance access to financial services in high growth markets.<br /><br />This combination of consumer appetite, supportive regulation and a thriving entrepreneur community has laid the necessary foundation for India to leapfrog over more established markets. The conversation about high growth markets and financial services is no longer just focused on inclusion. With a strong pace of change, more and more payments companies from emerging markets are becoming the global leaders when it comes to worldwide payments innovation.<div>
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Laurent le Moal, <br />CEO<br />PayUAnonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-10594154443337311612017-03-14T15:02:00.001+00:002017-03-14T15:02:44.077+00:00Preparing data functions for the 2017 stress tests<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2ighyphenhyphens_neIiislhQjKznU_vmqMFcRxx0omRpUPGi85cf62R0bOpmPF1NGjxQKhG7YF9Ci85h32kBvXmjUz0h68u3YrRMbSV091u4jG-H8fZJNMQyOts7gz2542nuM7fMy-qOdYg0Wte_7/s1600/shutterstock_252360715.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="130" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2ighyphenhyphens_neIiislhQjKznU_vmqMFcRxx0omRpUPGi85cf62R0bOpmPF1NGjxQKhG7YF9Ci85h32kBvXmjUz0h68u3YrRMbSV091u4jG-H8fZJNMQyOts7gz2542nuM7fMy-qOdYg0Wte_7/s200/shutterstock_252360715.jpg" width="200" /></a></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">In November 2016, the Bank of England (BoE)
published the results of its 2016 banking stress tests which measured the
resilience of UK’s major banks’ balance sheet in adverse scenarios. These
incorporated a synchronised UK and global recession with associated shocks to
financial market prices, and an independent stress of misconduct costs. The
stress tests also represented the BoE’s first annual cyclical scenario (ACS), a
new approach to stress testing, which examines the resilience of the system to
a more severe stress than in previous years. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">In 2017, the BoE is expected to extend stress
testing even further by including a biennial exploratory scenario which will
test the resilience of banks to risks that may not be directly linked to the
financial cycle. At a UK level, the 2017 stress test scenario also includes a
severe level of stress, with substantial impact on UK residential and
commercial property, UK GDP and unemployment. However, the impact could be even
more severe if the economic and political challenges currently facing the EU
and Eurozone were to be incorporated, such as high-debt levels, security
concerns and Brexit.<o:p></o:p></span></div>
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<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;"></span></div>
<a name='more'></a>The introduction of an ACS and the exploratory
scenario demonstrates the BoE’s ongoing effort to ensure that stress tests
become more rigorous, complex and broader in scope. Banks in the UK need to
demonstrate that they have sufficient liquidity and capital positions in place
to withstand major disruptions and understand and capture the complexities of
these risks and their inter-dependencies across the global economy. <o:p></o:p><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">In order to prepare for the upcoming stress
tests, banks should ensure they have an effective analysis of balance sheet
vulnerabilities in place and adopt an integrated approach to their risk
management functions. An important part of this is to build optimal granular
data infrastructure and risk data aggregation as per BCBS 239 requirements.
These principles, which were published by the Basel Committee on Banking
Supervision, came into force in January 2016 and aim to increase the ability of
global systemically important banks to aggregate and report risk data and cover
a range of topics including data architecture and IT infrastructure, the
completeness of data, as well as the timeliness and frequency of reporting. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">In addition to the core data, the BoE will
continue to make scenario-specific data requests as appropriate and the
requested information will give the central bank the flexibility to gain deeper
insight into the way banks have taken account of specific features of such
scenarios in their projections. This will allow the BoE to examine areas of
balance sheets that are likely to be affected in a given scenario.
Consequently, the provision of core data will need to become more automated
over time and participants will have more time to provide scenario-specific
data.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">The BoE is not expected to release details
about its biennial exploratory scenario before spring this year; however, banks
need to ensure that they have appropriate resources in place to run two or even
more scenarios simultaneously. In order to do so, they should start identifying
key data gaps and limitations that could be exposed through these new
scenarios.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">Questions remain as to whether banks are
prepared to fully capture risks or whether the established BoE stress test
templates, such as the firm data submission framework (FDSF), are the most
effective method to determine balance sheet vulnerabilities. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">The Prudential Regulation Authority has
developed FDSF to provide quantitative, forward-looking assessments of the
capital adequacy of the UK banking system and individual institutions within
it. FDSF is likely to be managed by risk teams, who have up until now focused
on internal reporting and who will now need to upgrade their technical
infrastructure to comply with external disclosure requirements. In order to do
so, they will need robust calculation engines to run the stress tests and the
ability to reconcile the results with data reported as part of other regulatory
requirements.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">Finally, banks need to ensure that they have
the flexibility to model their own scenarios, not just comply with regulatory
requirements, but also as an internal capital management exercise. It is
imperative that calculations, regulatory and internal reports are all
consistent and banks have to be able to trace back results and calculations all
the way from regulatory returns to originations, with the ability to view the
entire data lineage. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
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<br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">In short, in order to be prepared for this
year’s stress tests, over and above the methodology, design and implementation
of models, banks need to ensure that they have the appropriate controls and a
comprehensive governance process.<o:p></o:p></span></div>
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<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;"><br /></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Sufyan Khan, </span></div>
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<span style="font-family: "Arial",sans-serif; font-size: 10.0pt; line-height: 115%; mso-ansi-language: EN-GB; mso-bidi-font-weight: bold; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-font-kerning: 1.5pt;">Product Manager, EMEA, </span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">AxiomSL</span></div>
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Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-28876867719781031502017-02-24T10:46:00.000+00:002017-02-27T13:40:34.811+00:00NSFR implementation in Hong Kong: practice makes perfect<div class="separator" style="clear: both; text-align: center;">
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As banks in Hong Kong gear up for the 2018 implementation of the Basel III net stable funding ratio (NSFR), the Hong Kong Monetary Authority (HKMA) has launched another study into its likely impacts that should both reassure the local financial sector and also serve as a reminder of the need for careful preparation, not least on the technology front. Here Amita Cheung, Regulatory Reporting Manager for Wolters Kluwer’s Finance, Risk & Reporting business, examines the challenges ahead.<br />
<br />
<div>
The HKMA’s quantitative impact study (QIS) on the modified net stable funding ratio (MNSFR) is the third of its kind and part of a broader, multi-year consultation exercise on NSFR’s local implementation. While previous studies targeted so-called ‘category 1’ institutions - generally larger, internationally active banks - that will be subject to the full force of NSFR requirements, this study will gauge the ability of smaller category 2 banks to adhere to MNSFR, essentially a less stringent ‘NSFR light.’<br />
<a name='more'></a></div>
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<b><br />Not a level playing field</b><br />
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The HKMA is currently taking the view that there is a clear need for all institutions active in Hong Kong to be subject to core funding requirements of some kind, and the NSFR/MNSFR distinction represents the regulator’s attempt to implement the NSFR regime across all banks while acknowledging the operational constraints faced by smaller institutions.<br />
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NSFR definitions, calculations and reporting requirements have much in common with the Basel liquidity coverage ratio (LCR), which has already been implemented locally for category 1 banks, while category 2 institutions are subject to a separate liquidity maintenance ratio, or LMR. Category 1 banks therefore have something of a ‘head start’ on NSFR, but as category 2 institutions report the LMR, it is operationally difficult for them to calculate the LCR required for NSFR reporting. In addition, there is less argument for subjecting category 2 foreign bank branches with a limited local deposit base to the 100% NSFR requirement.<br />
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The HKMA is therefore proposing the ‘light’ version of NSFR, MNSFR, for category 2 institutions, which will be required to maintain a MNSFR of 75% on average for each calendar month. The sample reporting form used in the MNSFR QIS (which targeted institutions have to complete using data from June 2016) is also substantially simpler than the form used for NSFR reporting, substituting LCR with similar LMR outputs. For example, in NSFR reporting marketable debt securities are classified into various high quality liquid asset (HQLA) and non-HQLA categories, whereas under MNSFR they fall under the same ‘marketable debt securities and prescribed instruments’ category recognised in LMR reporting.<br />
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Banks aren’t due to submit their sample reports until February 2017, and the results of the MNSFR and NSFR studies may alter the HKMA’s implementation approach somewhat. However, in our view the HKMA’s forms and guidelines are broadly consistent with Basel recommendations and have no doubt already been subjected to comprehensive internal analysis, and may therefore be viewed as relatively complete. <br />
<br />
<b>Constant management challenge</b><br />
<br />
Since most of the reporting output required under NSFR and MNSFR can be mapped to pre-existing LCR and LMR requirements, both category 1 and 2 institutions should be able to collect the necessary information from existing data, and the new standards should not present a massive burden from the compilation perspective. Neither are they likely to require massive investments in new systems. <br />
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That said, there will be a certain degree of complexity associated with the need to calculate and monitor ratios daily – this will create an extra burden for staff on top of the daily LCR / LMR monitoring.<br />
<br />
The advent of NSFR will also present new challenges to funding management. Risk and treasury functions will have to be fully aware of the necessity of meeting new statutory requirements on a rolling basis, and banks may need to forecast NSFR to ensure treasury can meet these obligations. Banks will also need to revisit their balance sheet structures with an eye to prioritising stable medium and long-term funding. Excessive reliance on short-term wholesale or interbank funding will be riskier in the emerging environment, and may see institutions struggle to consistently meet minimum ratios. <br />
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Arguably the best way to prepare for the NSFR shift is a trial run that tests the institution’s ability to manage funding or structure the balance sheet in a way that meets standards across a sustained time horizon. The HKMA’s impact studies represent one such opportunity, albeit on a limited scale. With the studies wrapping up early next year and the regulator determined to meet the Basel timeline, the HMKA’s exercises are also a timely reminder institutions need to be ready for new funding obligations.</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-67644321275548974892017-02-22T10:48:00.001+00:002017-02-22T10:48:12.083+00:00Fighting the friction: Bridging the gap in innovation between B2C and B2B payment solutions<div class="separator" style="clear: both; text-align: center;">
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The elimination, or at least reduction of all forms of ‘friction’, perceived or obvious has been an enduring human obsession, and great excitement surrounds new discoveries. One can only imagine the furore that followed the first ancient Mesopotamian saying to his or her peers, “Hey guys, instead of dragging this heavy wooden box across the ground…why don’t we attach some round things that spin to the underside?” <br /><br />Fast-forward 5,000 or so years, and though the types of friction we are seeking to reduce have become a little more nuanced, the excitement of a new discovery is just the same. It’s what makes FinTech such an exhilarating industry to be a part of, as such discoveries and innovations are increasingly prolific. ‘Friction’ in our industry usually refers to the time taken to make payments, and ‘frictionless payments’ are those transactions that can be completed in an instant. <br /><br /><a name='more'></a>Take, for instance, American coffee giant Starbucks. A new feature on their downloadable app cheerily instructs users; ‘Skip the queue, happy you’. What they’re referring to is a facility on the app that allows the user to select their Double Ristretto Venti Half-Soy Organic Gingerbread Frappuccino and Ice, and pay for it on their way to the actual shop, collecting it immediately on arrival. Depending on how busy the shop is; a saving of easily three or four minutes, even if paying by contactless. Though minor benefits in the scheme of things, dodging queues and human interaction to get hold of a product ordered are in high demand.<br /><br />The rate at which friction is being conquered, and the variety of methods on hand contributing to its demise, leads to a nagging question. If consumers are being presented with such an arsenal of advanced payment methods, why is the same thing not happening in business to business payments? Because if it’s friction you’re looking for, look no further than the arduous world of B2B. Export a file from a system, upload into another system, send some emails to get payment files signed off, go back into the system or portal, submit the payment file and then days later login to yet another system to download some reports to see whether your payment file even worked. One can imagine even the ancient Mesopotamians shaking their heads. The point is, cumbersome processes like these take time and resource, two things that directly impact the lifeblood of a business. So again; why don’t we hear more about ‘friction’ in business payments?<br /><br />Theories are not in short supply. For some, it’s simply that B2B payments aren’t as wide-reaching as B2C payments. After all, we all must make payments for things in life, but not all of us have to make business payments. Others will say it’s that business payments struggle to match the sex-appeal of consumer payments. Flashing mobile devices in front of screens, tapping away at apps, flicking cards across chip and pin and devices all appeal to our inner James Bond, and 007 demands innovation. Even that most besieged of generations, the Millennials are finding themselves in the dock. Though undoubtedly driving demand in the B2C payments revolution, there are some that claim they are failing to break down the ‘we’ve always done it this way culture’ prevalent in so many organisations. <br /><br />It’s possible there’s another, simpler explanation though – the lack of a fitting and agreed upon term for a B2B payments revolution. If this is in fact the reason, let’s start nailing some colours to the proverbial mast and get one of our own. Let’s start talking more about ‘embedded payments’. Payments solutions and access to financial services that will glue seamlessly into an organisation back office systems and bank, or payment service provider accounts. One window into all your financial data, no elongated, painful, error prone processes. One application, embedded into your business. One ring to rule them all. (It’s a little-known fact that LOTR was actually an allegory for frictionless business payments). <br /><br />In business; frictionless = embedded, or at least it will, eventually.<br /><br />Dan Greenall<div>
Head of Marketing</div>
<div>
AccessPay</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-22952649830002244732017-02-10T10:03:00.002+00:002017-02-10T10:04:18.877+00:00Boost revenues and cut wasted marketing spends with enhanced insight into digital sales<div class="separator" style="clear: both; text-align: center;">
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Digital marketing and promotion is now commonplace in retail banks. And with the rise and popularity of online banking, how customers consume financial products has also been transformed. Sales, the crucial link between the two, is also making digital progress too. The top ten banks across the UK, US and Australia now offer digital applications for 6 in 10 personal banking products. The ever-growing power of the internet makes the need for this integration of digital – and the opportunity it presents – obvious.<br />
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While substantial progress has been made it also shows there is still room for improvement. And this is especially true when it comes to digital sales. For example, retail banks are behind when it comes to the sharp rise in smartphone use, and the potential for mobile as a sales channel. Despite the availability of online digital applications, only 9% of personal banking products in the UK can be applied for using a mobile device. With two-thirds of UK adults now owning a smartphone, there is every reason to forge ahead in this area.<br />
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<b></b><br />
<a name='more'></a><b>The abandonment problem</b><br />
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Having a digital or mobile onboarding process, while a step forward, is only the first step in digital sales. Many banks still run into ‘the abandonment problem’ – customers who start the process but drop out before the end. Imagine a consumer viewing a TV ad for a new credit card. They use their smartphone to visit the bank’s website to learn more; perhaps they’re even ready to apply. But if the mobile application experience is poor (perhaps the onboarding process was designed for a PC rather than a mobile device), too much typing is required, or the application isn’t touch-friendly, the customer is likely to abandon.</div>
<div>
The reasons behind abandonment are numerous. However, there are some big problems and pitfalls that crop up time and time again. For instance, a good user experience typically starts with the easiest questions and leaves the more difficult questions until the end of the process. Yet a lot of digital onboarding processes tend to operate in the reverse. If a question requires effort, for example forcing the customer to go and get their wallet (which may be in another room etc.), then it is much more likely to cause abandonment at the start of the process rather than the end, by which time the customer will feel far more invested (“I’ve come this far”).<br />
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It isn’t uncommon to see abandonment rates of 85-90% for new product applications: a major and unnecessary loss. As well as being potentially brand damaging, it wastes marketing budget not to mention lost revenue from the product itself.<br />
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Reducing the number of questions and amount of information customers are required to fill-in themselves is also key. Too often the onboarding process operates in a silo, separate from the bank’s primary data stores, meaning the customer is asked redundant questions to which the bank already knows the answer. Similarly, there is a tendency for different departments within the bank to all add their own questions into the process, inflating the application. Reducing the number of questions involved is a key way to reduce abandonment rates. Other typical examples include the overuse of capital letters or non-conversational English, as well as the lack of a ‘save and resume’ feature which prevents a customer from starting an application online and finishing it with help from a bank employee. <br />
<br />
<b>Gaining insight into the digital sales process</b><br />
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These problems are often the result of in-house onboarding processes that have been designed and put together in an ad hoc fashion over time with the needs of the back office in mind. This is understandable; the focus to date has primarily been to get online applications running in the first place. However, many banks are now starting to take a more sophisticated, customer-centric approach to the digital sales process, tailoring the experience to minimise abandonment.<br />
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Central to this is the use of big data and analytics to shine a light on what’s really going on during the application to see where customers are dropping out, and – crucially – why. Up until now, the analytics capabilities available in this area have been limited and top-level; such as the ability to see whether customers are dropping off from a mobile or desktop device. But with the latest technology it is now possible to get a far more granular picture. This involves, for instance, seeing how long users spend on each page, which fields and questions they struggle with the most, where errors are made, where the customer is using pre-fills as opposed to entering information directly – and so on. And this can all be done through metadata, avoiding any data confidentiality issues.<br />
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Once armed with an accurate and detailed picture of the user experience, tweaks and improvements can be made and then tested – creating a feedback loop. In our experience working with banks to improve the visibility they have over their processes, we find the abandonment rate can typically be reduced from 85% to 50% in a short amount of time simply by addressing these common issues. <br />
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This represents the ‘catching up’ of digital sales to marketing and service provision, where many of these big data/analytics principles have been in play, to a relatively sophisticated degree, for some time. It goes beyond the abandonment problem too; more granular insight – with breakdowns for age, gender, background, device and so on – opens up the possibility of tailoring the onboarding process for different groups of customers with different preferences and needs in the future.<br />
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This is only the beginning. With continued analysis and improvement the abandonment rate can be driven further still. The closer it can be driven down to zero, the closer the bank is to making every pound of marketing budget count.<br />
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To a great degree, the use of Big Data and analytics to this major step in digital banking is unavoidable. As more and more banks start applying it, information about who is doing it well – and not so well – will wind its way into the public domain. In a complex market environment, characterised by squeezed revenues, high competition, and low interest rates, there is probably no easier or low cost way to boost revenues and cut waste. And as always, those who take action early will gain an advantage.<br />
<br />
Don Bergal<br />
CMO <br />
Avoka</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-55054109688827195542017-01-05T09:10:00.000+00:002017-01-05T09:10:08.706+00:00What will the loan industry look like in 2017?<div class="separator" style="clear: both; text-align: center;">
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2016 was a busy year for the UK lending industry. The Financial Conduct Authority (FCA) continued to tighten regulation, while consumer credit grew at its fastest rate since before the financial crash. Sarah Jackson, Director, Equiniti Pancredit, looks ahead at the trends and technologies that will shape the sector in 2017<br /><br /><b>Outsourcing will get smarter</b><br /><br />Deloitte’s Global Outsourcing Survey revealed that not only is the use of outsourcing increasing, but attitudes among banks about how they engage with outsourcers is also on the move. Once seen as merely a cost-cutting approach – and make no mistake, this remains a significant motivator – service providers have widened their offerings to provide end-to-end solutions that offer a far greater depth of service support than before. More than ever before, outsourcers are becoming key business enablers that actively promote innovation. This is a key trend that will continue to shape the industry in 2017.<div>
<b><br /><a name='more'></a>Biometrics in 2017: Not ‘if’ but ‘which?’</b><br /><br />Biometrics as a form of authentication has been gathering steam for several years - the more accurate authentication processes are, the less vulnerable the lender is to fraud. Given the speed and convenience of these solutions, biometrics hold a special place in the authentication debate; banks in particular are perpetually seeking ways to enhance their mobile user experience. As these technologies become more practical and cost effective to implement, which biometric modality to implement will become an important decision in 2017. <br /><br />While fingerprint sensors are the most prevalent in consumer devices, many fintechs are leaning towards voice and face recognition as potentially more accurate alternatives. Behavioural and document recognition would have immense value for lending providers too. These technologies will be an area of major focus in the year ahead.<br /><br /><b>The move to mobile</b><br />The migration of financial services from branch to desktop to mobile device has transformed the landscape almost beyond recognition. Recent research by Equiniti, conducted with a nationally representative sample, revealed banking on a smartphone or tablet to be the most popular method, with 48% of respondents using a mobile banking application, and more than a third using that app at least once a week. In 2017 the lending industry will need to make sure that its mobile offering matches that of its telephone, branch or online services.<br /><br />Additionally, while the survey found a significant appetite among consumers for financial services, there remains widespread concern about security. The lending industry, and financial service providers in general, will need to invest in effective security for their apps and mobile-optimised websites and communicate this to the public.<br /><br /><b>Uncertainty</b><br /><br />The economic atmosphere of uncertainty, thrown into the spotlight by Brexit and the American presidential election, to name just two recent surprises, presents a challenge to lenders. This climate affects key factors impacting lenders’ forecasting, such as interest rates and consumer borrowing behaviour. In order to mitigate the risks associated with unpredictable economic behaviour, lenders will need to maximise their capabilities and improve the accuracy of their forecasting. The best way to do this will be to employ intelligent software with smart - and often predictive - analytics, thereby eliminating human bias and error.<br /><br /><b>Heightened regulatory environment</b><br /><br />It’s news to no-one that the FCA has focused attention on ethical behaviour among lenders in 2016. Next year, this ever increasing scrutiny, and consequential emphasis on compliance, will push lenders to look for innovative, end-to-end, technological solutions. In a nutshell, solutions that effectively hardwire compliance and responsible lending policies into their systems.<br /><br />RegTech, the new and much vaunted term to describe technologies designed to simplify compliance with regulation, will continue to grow swiftly, as more lenders zero-in on their primary offering and seek to contract out their compliance, together with other business functions, to specialist financial managed service providers.<br /><br />With such change afoot, the next 12 months present challenges and opportunities for us all.</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-81323556882663090562016-12-20T11:02:00.001+00:002016-12-20T11:03:11.700+00:00Another year (nearly) over<div class="separator" style="clear: both; text-align: center;">
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It was all change at IBS Journal and IBS Intelligence this year. I joined as Senior Editor in February (having previously been Group Editor of rival banking technology title, FStech). Just in case you missed my debut Editor’s Letter, which can be found in the March issue of IBS Journal, I have almost 20 years of experience in journalism, during which time I have held senior editorial positions at and contributed to a number of business and technology-related publications. At FStech, I covered various financial sector technology topics, and my main areas of expertise include FinTech, core banking systems, Bitcoin and the blockchain, the European, US and Australian retail banking sectors, mobile payments and challenger banks.<br />
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As I’m sure you’re aware by now, IBS Intelligence has become a division of Cedar Management Consulting International, a leading global management and technology consulting practice. So, new owners, new Senior Editor, new Senior Reporter (congrats to Alex Hamilton who was recently promoted from the position of Reporter) and also this year IBS Journal underwent a major redesign. Out went the front cover stories, replaced by a more modern take on the magazine’s contents. And in came a number of new sections, with an increased focus on FinTech, including Startup of the Month (which has proved to be particularly popular), The Big Interview, Who’s Been Saying What? and The Month in Numbers. Some of our rivals have ditched their printed editions, but here at IBS Intelligence the magazine continues to be a major part of who we are.<br />
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<a name='more'></a>Digital is, of course, also massively important, so we have strengthened the online offering, upping the number of daily news stories and adding various new features and functionality, as well as recently launching a mobile app. Yep, IBS Intelligence is now on the <a href="https://itunes.apple.com/in/app/ibs-intelligence/id1149341124?mt=8">iOS App Store</a>, <a href="https://play.google.com/store/apps/details?id=com.reader.yudu.ibs">Google Play Store</a> and <a href="https://www.amazon.com/IBS-Intelligence-Publications/dp/B01M8GN2HL/ref=sr_1_1?s=mobile-apps&ie=UTF8&qid=1476694922&sr=1-1&keywords=ibs+intelligence">Amazon App Store</a>. Our free app includes such features as My Library, which represents a subscriber’s book shelf, enabling them to access and download their reports and journals. You can also catch up on the latest FinTech news on the go, register for and read our weekly e-newsletter, and connect with us through our Facebook, Twitter and LinkedIn channels. Enter IBS Intelligence to download the app on your iPhone/iPad or any Android Phone or tablet.<br />
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Hopefully, dear reader, you’re a fan of everything I’ve outlined here. I’ve had some great feedback from you guys and welcome further comment (good or bad!) at: <a href="mailto:scott.thompson@ibsintelligence.com">scott.thompson@ibsintelligence.com</a><br />
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I’ll sign off by wishing all our readers, advertisers and clients a Merry Christmas and a Happy New Year. Here’s to a prosperous 2017!<br />
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Scott Thompson<br />
Senior Editor,<br />
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IBS Journal</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-53975330392740235712016-12-02T09:45:00.001+00:002016-12-02T09:45:18.331+00:00Tesco cyber-attack provides regulatory food for thought <div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: 16px;"><b><span style="vertical-align: baseline; white-space: pre-wrap;">Every little helps when it comes to controlling the financial system, but Giles Kenwright of </span><a href="http://deltacapita.com/" style="text-decoration: none;" target="_blank"><span style="color: #0563c1; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Delta Capita</span></a><span style="vertical-align: baseline; white-space: pre-wrap;"> explains why the Tesco cyber-attack will hopefully trigger banks and regulators to look at the bigger compliance picture </span></b></span></div>
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<span style="font-size: 16px; vertical-align: baseline; white-space: pre-wrap;">A cyber-attack that wiped £2.5 million from a major supermarket’s client accounts in just a few hours, should ring alarm bells across the boardrooms of Britain’s biggest banks. While the damage to Tesco’s brand reputation may be substantial, more significant still is that this attack could be a sign of things to come for the wider banking sector. </span></div>
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<span style="font-size: 16px; vertical-align: baseline; white-space: pre-wrap;">It is not as if the major players have been burying their heads in the sand. Eight of the largest firms, including JP Morgan, Bank of America and Goldman Sachs, teamed up earlier this year to tackle the growing cyberthreat. While still in its infancy, the group is already sharing information with eachother about where future threats could materialise. The trouble is that, at the same time, these conglomerates are entangled in the weeds of other regulatory issues, which is eating into time that could be spent developing a longer-term plan to tackle cybercrime. </span></div>
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<a name='more'></a>MiFID II is a prime case in point. Just under a year out from implementation, there is concern that like many of the waves of recent regulation, it focuses on closing the stable door of problems that have already occurred. The expanded scope of asset classes with MiFID II to cover Fixed Income and OTC derivatives products, brings greater transparency for instruments that were central to the 2008 Financial Crisis. The greater precision demanded by the new clock sync rules, allows the regulation to catch up with the explosion in algo trading and HFT, addressing some of the lessons learned from the US Flash Crash, over six years ago.<br />
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<span style="font-size: 16px; vertical-align: baseline; white-space: pre-wrap;">So the key question is, what is the next big threat to the financial system and can the regulators be more proactive? Many senior banking executives are already well aware of the risk of cybercrime. But while a bank can get its own house in order, can it be sure that their counterparts are following suit? The global banking system is highly connected but only as strong as the weakest link. And there is more than one type of hostile actor at play, each with different objectives. While a criminal gang is likely to have profit as the primary motive, a ‘hacktivist’ group may want to obtain confidential data, and a rogue foreign state may want to delete or corrupt data without being detected, which may lead to greater disruption in the long-term.</span></div>
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<span style="font-size: 16px;"><span style="vertical-align: baseline; white-space: pre-wrap;">Unfortunately, cyber regulation didn’t arrive in time to stop the Tesco breach, but what if the next instance were to involve a banking behemoth. Also, what if the amount of money involved couldn’t be absorbed by shareholders? Cybercrime has the potential to eclipse the Lehman Brothers collapse. There is a start at least; on 13</span><span style="vertical-align: super; white-space: pre-wrap;">th </span><span style="vertical-align: baseline; white-space: pre-wrap;">September, New York’s Department of Financial Services announced a new series of </span><a href="http://www.dfs.ny.gov/about/press/pr1609131.htm" style="text-decoration: none;" target="_blank"><span style="color: #0563c1; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">cyber security regulation</span></a><span style="vertical-align: baseline; white-space: pre-wrap;">, coming into effect in 2017. It only applies to New York state and is unlikely to be rigourous enough to protect the global banking system but it is a step in the right direction.</span></span></div>
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<span style="background-color: white; font-family: Calibri, sans-serif; font-size: 16px; vertical-align: baseline; white-space: pre-wrap;">Let’s hope that politicians and regulators across the rest of the world follow suit, before there is a more significant cyber-security breach. There are a number of simple measures that banks can conduct to better protect themselves in the meantime. From regular ‘penetration testing’ of their computer interfaces, to ensuring that staff undergo awareness training as simple ‘confidence tricks’ can often bypass sophisticated controls. Outsourcing certain regulatory tasks could also free up some capacity for banks. While this approach may not provide all the answers, the recent attack on Tesco proves that every little helps when it comes to solving the longer term cybercrime challenge. </span>Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-54234918411504451262016-11-30T08:53:00.000+00:002016-11-30T08:53:01.923+00:00Back to the future for IBOR<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: 16px;"><span lang="EN-US"><span style="font-family: inherit;">The complexity of the investment management industry is growing and the data that needs to be analysed is richer than ever before. This is a consequence of the thinning geographical boundaries within portfolios and the search for alpha that drives managers to incorporate different and more esoteric asset classes within a single portfolio.</span></span></span></div>
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<span style="font-family: inherit;"><span style="font-size: 16px;"><span lang="EN-US">The impact of this changing environment has been a resurgence in the industry's use of the Investment Book of Record (IBOR), a central and comprehensive source that tells the complete story of a firm's portfolio activity. </span></span><span style="font-size: 16px;">An IBOR provides a timely view of a firm's exposures, portfolio positions and cash. The fullness and clarity of the picture it paints means that it provides the intelligence and insights on which many portfolio decisions are made.</span></span></div>
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<a name='more'></a><span style="font-family: inherit;">Although popularity and use of the IBOR is growing, it is now much more difficult to develop an effective one. This is not only due to the increasing complexity of the investing industry, but also the existing technological limitations.</span><br />
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<span style="font-size: 16px;"><span style="font-family: inherit;">Legacy systems – in essence old technology that is no longer fit for its original purpose – and the use of multiple platforms across the front, middle and back offices that more often than not do not 'talk' to one another, are huge issues for many buy side firms.</span></span></div>
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<span style="font-size: 16px;"><span lang="EN-US"><span style="font-family: inherit;">Technology shortfalls often mean that the front office can't access timely and accurate information about investment positions, which makes well-informed decisions difficult. Ultimately, this can hold a firm back from entering new markets, processing investments and accessing up-to-the-minute data.</span></span></span></div>
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<span style="font-size: 16px;"><b><span lang="EN-US"><span style="font-family: inherit;">A go-to source of truth</span></span></b></span></div>
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<span style="font-family: inherit;"><span style="font-size: 16px;"><span lang="EN-US">So what makes the IBOR the go-to source of truth in more and more investment firms? Often, legacy technology results in a separation between the Trading Book of Record and the Accounting Book of Record. This leads to investment decisions based on an incomplete, out of sync, and hence incorrect view of positions and investable cash. </span></span><span style="font-size: 16px;">The IBOR solves these problems by capturing and centralising, intraday, all events across all asset classes and systems to maintain a position record that is always up-to-date and correct. This position – effectively a 'golden copy' – is available to front office users as a far better foundation for investment decisions and risk assessments.</span></span></div>
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<span style="font-size: 16px;"><b><span lang="EN-US"><span style="font-family: inherit;">Why now?</span></span></b></span></div>
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<span style="font-size: 16px;"><span lang="EN-US"><span style="font-family: inherit;">While the IBOR concept is not a new one, there are a few overarching factors that are behind its growing popularity. For example, the reality that the operational breaks that result in one part of a firm, typically the back office, which operates on an end-of-day process, do not flow through to other parts of the firm, in most cases the front office, which works on an intraday and real-time basis, means there is no consistency across different parts of the investment chain. This is a key factor behind the IBOR adoption in the front office since portfolio managers need to react to volatility in multiple asset classes and investors require insight over intra-day positions.</span></span></span></div>
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<span style="font-size: 16px;"><span lang="EN-US"><span style="font-family: inherit;">The fast moving regulatory environment is also at play here. Regulatory requirements around the use of collateral, and the resulting cash and securities movements, are an example of the kind of change that has altered the information needs in the front office. Furthermore, regulations such as the European Market Infrastructure Regulation (EMIR) have introduced intensive and frequent reporting requirements, increasing the relevance and necessity of an IBOR. They have also emphasised the importance of data management for efficient compliance. </span></span></span></div>
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<span style="font-size: 16px;"><span lang="EN-US"><span style="font-family: inherit;">Firms are also starting to realise that the ubiquity of rich data is not simply something to manage – it actually creates a significant opportunity, where innovative products can be developed, more complex investment strategies supported and new markets opened. Firms unable to capitalise on this trend lose their ability to effectively compete and generate alpha. </span></span></span></div>
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<span style="font-family: inherit;"><span style="font-size: 16px;"><span lang="EN-US">Of course, an IBOR can only be as good as the quality of the data going in. While the vast majority of investment managers believe data quality within their firm's daily operations is extremely important, many are still sceptical their firm can deliver consistent data across their entire system. </span></span><span style="font-size: 16px;">What is clear to them is in this increasingly complex and competitive investment world, they must take a different approach to how they manage multiple sources of data. Portfolio managers need to know exactly what is and what isn’t included in their position view. Access to information that is accurate, complete and timely is vital to decision making across the firm. Not only is this in the best interest of their clients but also the long-term success of their investment strategy and objectives.</span></span></div>
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Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-61158660456147277992016-11-14T09:20:00.003+00:002016-11-14T09:20:15.522+00:00The new Basel IRRBB: regulatory and internal consequences <div class="separator" style="clear: both; text-align: center;">
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Last April, the Basel Committee issued its new standard on the interest rate risk in the banking book presenting a new standardised framework. This new standard is to be implemented by 2018. Here Xavier Dubois, Senior Risk & Finance Specialist for Wolters Kluwer’s Finance, Risk and Reporting business looks at some aspects of the standardised framework, how it could be implemented in Europe and its interest for the bank governing bodies.<br /><br />In April, the Basel Committee on Banking Supervision issued standards for Interest Rate Risk in the Banking Book (IRRBB). The standards revise the Committee's 2004 Principles for the management and supervision of interest rate risk, which set out supervisory expectations for banks' identification, measurement, monitoring and control of IRRBB as well as its supervision.<br /><br />In a nutshell the new standard realises a significant improvement in the management of interest rate risk in the banking book. Not only does it provide a standardised measurement closer to economic reality, and thus more useful for the bank management, particularly in this time of low interest rates, but it also provides standardisation that increases transparency, not only from banks, but also from supervisors. Banks will have to adopt this new framework and should take this opportunity to move towards a technologically sound and solid risk framework with automation and integration, for supervision and, last but not least, for the governing body.<br /><br /><b><a name='more'></a>A real improvement: the new standardised interest rate shocks</b><br /><br />The current prescribed interest rate shocks for IRRBB by Basel are at +/- 200 basis point parallel shift. This simple shock had the advantage of being simple and easy to compute, but it is way too far from reality.<br /><br />The new standardised framework for IRRBB comes with six scenarios to measure changes of the economic value of equity (EVE): 2 parallel (up and down), a “steepener” and a “flattener”, and two short shocks (up and down). More than the names, the below graphics make these shocks easy to understand.<br /><div class="separator" style="clear: both; text-align: center;">
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<br />Obviously, these shocks provide significant improvement in the coverage of shock patterns, which the market could face. They make the shocks more realistic and still understandable for the governing body of each bank (that) is responsible for oversight of the IRRBB management framework, and the bank’s risk appetite for IRRBB (Principle 2).<br /><br />Not only are these standardised interest rate shocks more instructive, but they are now better linked to the actual local market situation. In order to do this, the Basel Committee determined the size of the shocks (parallel, long, short) for each major currency based on historical rates. So the standard parallel shock can range from 100 bps for CHF and JPY to 400 bps for BRL and RUB, keeping 200 bps for EUR and USD.<br /><br />Reflecting historical data (from 2000 to 2015) of local rates, this second adaptation definitely improves the relevancy of the scenario results. Another positive point is theses shock sizes per currency are meant to be reviewed to really keeping up with the local market reality of interest rates. <br /><br />No doubt that the combination of the new six scenarios accommodating the local currency conditions bring better insight into the interest rate risk of the bank and are of direct benefit to the “governing body” of the bank. It is another good example of the movement of regulatory requirements getting closer to economic reality, and thus of the movement to increase their added value for the management of banks.<br /><br /><b>Coincidence? Low interest rate environment</b><br /><br />Coincidence or not, the low interest rate environment makes the new standardized framework and its six interest rate shocks even more relevant to the situation. Low, and sometimes negative, interest rates reduce bank margins and have significant impact on profitability, depending on the part of interest margin in the bank overall revenue. In some countries, the move towards more revenue resulting from fees is already sensible, such as a general increase fixed costs for current accounts.<br /><br />The new standardised framework and interest rate shocks get even more value, such as the impacts of changes on very low interest rates, which are more difficult to evaluate. It is a macro-economic of which we have very limited or no experience and it is the same for consumers and corporate behaviors in such circumstances. Therefore, with its far more accurate measurements, the new framework really provides better tools for banks to assess their interest rate risk in such an unknown environment. As implementation must be finished by 2018, early adopters might still experience the new framework in the current interest rate environment.<br /><br /><b>What will Europe do? 3 questions</b><br /><br />Last year (22 May 2015) the European Banking Authority (EBA) published its revised guidelines on interest rate risk arising from non-trading activities, and less than one year after, the Basel Committee updates its guidelines introducing the standardised framework for IRRBB. Will EBA update its guidelines so shortly after revising it is the first question? The second question is: will EBA impose the standardised framework for IRRBB? The last question relates to regulatory reporting: will EBA take the opportunity of the standardised framework for IRRBB to create a standardised IRRBB reporting within the EU reporting framework?<br /><br />Regarding the first question, there is a high probability that EBA will update its guidelines – effectively, European supervisors are active members of the Basel Committee. The contrary would be odd.<br /><br />Secondly, will the EU/EBA impose the standardised framework for IRRBB to all member states? There has been no publication from EBA about this. However, we can acknowledge that imposing a standardised framework would fit the current trend of standardisation in order to achieve comparability. This is true in general, with e.g. IFRS, and, closer to the subject, with the new market risk framework that redefined more strictly the boundaries between trading and banking book, and imposed a standardised framework for market risk for all banks, even the ones applying internal models. It would also fit the will to reduce the number of national discretion in general within the CRR-CRDIV. Therefore, considering EU track record, we expect the standardised framework for IRRBB to be imposed in Europe.<br /><br />The last question is about regulatory reporting. Currently reporting about interest rate risk of non-trading activities is part of the local reporting defined by national supervisors. Is the standardised framework not an opportunity for European authorities to strengthen and enlarge the Single Rule Book to a key risk factor for banks? It would make sense.<br /><br />The final element: Brexit. Now that the UK voted for Brexit, the FCA and Bank of England will be clearly out of the negotiations. Will this have any influence on the decision, or its speed of application? Wait and see. <br /><b><br />What’s in for the governing body? What should it expect?</b><br /><br />As per the Basel Committee standard principle 2, “the governing body is the body that supervises the bank management and that is responsible for the oversight of the IRRBB management framework, and the bank’s risk appetite for IRRBB.(…) While governing body members do not need individually to have detailed technical knowledge of complex financial instruments, or of quantitative risk management techniques, they should understand the implications of the bank’s IRRBB strategies, including the potential linkages with and impact on market, liquidity, credit and operational risk.”<br /><br />In the first instance, and as mentioned earlier, the six standardised scenarios are really understandable and thus the governing body should get better insight in the implications of the bank’s IRRBB strategies.<br /><br />The governing body should also understand “the potential linkages with and impact on market, liquidity, credit and operational risk.” This is something where technology can really help and where vendors such as Wolters Kluwer demonstrate an innovative approach. While the standardised framework for IRRBB will need a significant time to be calculated according to the book (and the same applies to market, liquidity, credit risk), a top-down approach (using proxy of exact calculation) allows the governing body to see the impact of interest rate changes on IRRBB within a few seconds, together with the impact on liquidity or credit risk, applying the same proxy techniques on a top-down approach. Firms could benefit from technology to assess the impact of any key risk factor on all key risk metrics at the same time, within seconds. As the new IRRBB standard requires supervisors to publish their detailed criteria to determine outlier banks, the same technology could show outlying limits and limits breaches to the governing body in nearly real-time mode.<br /><br />In conclusion, the new standard realises a significant improvement in the management of interest rate risk in the banking book. Banks will have to adopt this new framework and have an opportunity to move towards solid risk framework with automation and integration.<br /><br />Xavier Dubois<div>
Senior Risk & Finance Specialist</div>
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Wolters Kluwer Finance, Risk and Reporting<br /> <br /><br /> </div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-7048877588680224552016-11-08T13:33:00.003+00:002016-11-08T13:33:38.612+00:00Why banks need consumers to detect imposters<div class="separator" style="clear: both; text-align: center;">
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In the first half of 2016 alone, there were more than <a href="http://www.actionfraud.police.uk/news/financial-fraud-incidents-up-53-per-cent-in-first-half-of-2016-sept16">one million</a> incidents of financial fraud, an increase of 53 per cent on the same period last year; with identity fraud against individuals costing an estimated <a href="http://www.bbc.co.uk/news/uk-36379546">five billion pounds</a> last year. <br /><br />Identity fraud occurs when an imposter pretends to be someone else. To prevent this, banks ask customers for passwords, but judging from the fraud figures, this isn’t working and things are getting worse. The reason is simple: data cannot differentiate. A password provided by the true customer is exactly the same when that same password is provided by an impostor.<br /><br /><a name='more'></a>Banks need to reconsider the security practices they put in place so as to allow consumers to tackle this fraud. Rather than continuing to impose a practice that everyone acknowledges is fundamentally flawed, banks need to reach out to consumers for help. <br /><br /><b>Why banks are not doing enough</b><br /><br />Over the past ten years or so, the response to the rise in identity fraud has exemplified Einstein’s definition of insanity: keep doing the same thing, just more of it. Passwords had to be longer, then they had to contain numbers, then with upper and lower case letters, and symbols. Along the way we had to provide random characters from a ‘memorable’ word, and ‘secret’ answers to an array of personal questions.<br /><br />To be fair, banks are not alone in persisting with this broken method. They inherit an information technology practice that has persisted for fifty years. Passwords were first used in a system called CTSS developed at MIT in 1961, and we’ve barely moved ever since.<br /><br />Attempts to try something different have involved the introduction of card readers, dongles and using your phone to send you a PIN. This so-called two factor authentication (2FA) is intended to make it harder for those secrets to fall into the hands of impostors. The problem is that ultimately it’s still just data, to which the golden rule applies: if you can know it, a fraudster can know it too.<br /><br />Although 2FA represents an improvement, it is not widely adopted. This has been highlighted in the last month, with <a href="https://www.theguardian.com/money/2016/oct/20/banks-online-security-is-failing-customers-says-which">five</a> of the UK’s biggest banks scoring poorly in security tests and failing to invest in systems to better protect their customers. This is not without reason: apart from the weakness inherent in using data to distinguish between customers and impostors, these methods are costly and require customers to perform awkward tasks, such as fiddling with card readers and copying PINs from one device into another. <br /><br />I believe banks have been trying to solve the problem, but in the wrong way. Attempts to fix it to date have made a bad situation worse. Consumers are unwilling or unable to remember long and complex passwords and instead choose to use the same password for everything, or write it down. Consumers are also warned not to put information on social networks, such as their date of birth, where they were born, went to school... But why shouldn’t they? The real question is this: Why is any bank using personal information as a guarantor of personal identity? The current system has always been destined to fail.<br /><br /><b>Banks can help not hinder</b><br /><br />To increase identity protection, detect imposters and make consumers lives easier, banks need to disrupt the security industry, turn it on its head and drive change towards a better system. To do this, they need to consider the origins of identity itself. <br /><br />People already have an excellent identity system that has been refined over thousands of years of human evolution. The ability to tell friend from foe has been a matter of survival. When someone comes in your house and you see your partner, you know it’s them. You don’t need them to wear a badge or give a password. It is all based on visual identity – our inbuilt facial recognition software, if you will.<br /><br />Remarkably, information technology has overlooked this natural capability. By capitalising on visual identity, banks can help transform the practices around online identity and leave our broken system behind. A few years ago it would have been impossible to do online identity visually. However, with almost every consumer having a digital camera connected to the internet in the form of a mobile, now is the perfect moment to put this practice into place. <br /><br /><b>People know people</b><br />This means that a person requesting access can present themselves to the camera on their mobile, so allowing natural, real-world identity to be brought into play. Verifying identity becomes a social activity – as it always has been. If the account holder shows up they will be recognised, but if anyone else shows up, the imposter will be detected. This not only prevents fraud from occurring, it also catches the criminal in the act – a significant deterrent. <br /><br />By relying on visual identity, banks can help people protect one another from fraud using the identity system they have been using for millennia – their eyes. The reality is that organisations don’t know people, people know people. When it comes to personal identity, the customer really does know best.<div>
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<i><span style="background: white; font-family: Arial, sans-serif; font-size: 11pt;">Jeremy Newman, </span></i></div>
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<i><span style="background: white; font-family: Arial, sans-serif; font-size: 11pt;">Founder, Executive Director</span></i></div>
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Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-42355203237089625162016-11-02T09:05:00.001+00:002016-11-02T09:05:15.423+00:00Key to the highway: The changing face of high and low touch execution<div class="separator" style="clear: both; text-align: center;">
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In the beginning, there was high touch where brokers provided a high-value, solution-based approach to finding the liquidity their buy-side clients were looking for. This worked in an era of high fees and low scrutiny of what end investor trading commissions were actually funding. But as markets electronified, and buy-side operations tooled up, a new paradigm was born, low touch. This reflected the buy-side's growing desire for cheaper execution, especially for trades that weren’t that hard to execute, and it also offered a path that minimised information leakage. <br /><br />The result? Two routes to market with very different price tags. The problem was that brokers had to duplicate their trading infrastructure despite receiving fewer net commission dollars. This spawned the short-lived concept of mid touch which offered the worst of both worlds: junior sales traders with neither the experience nor the expertise to manage either. And so the industry muddled along ignoring the operational overhead of running two technology stacks.<br /><br /><a name='more'></a>Today, however, the industry is at a crossroads. Regulation, combined with the global economic environment, means that the idea of providing separate high and low touch channels is more flawed than ever. A radical new approach is needed. One that converges technology stacks where appropriate and equips brokers to provide a blended service of premium (high touch) and standard (low touch) services. Most important is that they can be provided to the buy-side in such a way that they switch seamlessly between the two, across the day and throughout the lifecycle of each individual order.<br /><br /><b>Hellhound on my trail</b><br /><br />The determination by regulators to increase transparency and accountability remains unbowed. The most recent example is the European move to unbundle the relationship between research provision and trading execution fees. Soon investment managers will be forced to either pay for research out of their own P&L or ensure that execution commission payments are clearly not to the detriment of their end investors.<br /><br />The flip side of this regulatory coin will be a renewed focus on execution outcomes and so providing the optimum combination of high and low touch services will be more important than ever. On top of this, the regulators are doubling down on their requirements over the transparency of the buy/sell-side relationship which means further costs to keep both high and low touch platforms in line. And it’s not as if finding liquidity is getting any easier, especially when firms wish to trade in size. As a result, a number of initiatives such as intraday auctions, block crossing capabilities and other matériel, have all aimed to orchestrate the liquidity available, but because they compete the resulting cacophony just makes matters worse.<br /><br /><b>Change my way</b><br />The good news is that the buy-side is willing to pay to resolve this complexity, but it requires a completely different approach from the traditional high/low touch separation of old. The fragmented nature of equities trading means that even a relatively low touch order in a liquid stock needs to visit tens of venues in order to be properly executed. Low touch platforms therefore need to stretch across many different venues. The challenge to create a single market access fabric is considerable. Furthermore, sophisticated low touch algorithms are needed to nullify the effects of this fragmentation and provide good execution outcomes for clients.<br /><br />Today’s high touch trader needs a range of technology too. This might be dark-seeking algos, smart routing or CRM systems that track who is holding or likely to be holding liquidity. The high touch desk will often look at the automation and tools employed by low touch or program trading teams for inspiration, and, in some cases, borrow their technology directly.<br /><br />So while the activities and business models of high and low touch are diverging the underlying technologies are converging. This requires careful management to avoid unnecessary duplication and cost while optimising the very different business service a high or low touch client receives. This then allows a standard (low touch) and premium (high touch) service to coexist and be interlinked. If architected correctly then the separation between these two can be viewed as a permeable membrane though which orders can travel in either direction, at the client's discretion, with a higher fee charged whenever the order is in the high touch/premium zone.<br /><br /><b>Smokestack lightning</b><br /><br />It is a simple fact that low touch service lines were established after high touch ones and so made the creation of a second whole new technology stack inevitable. This led to a new set of market gateways, a super-lite OMS that could support low touch algos and a FIX interface for receiving client order flow. But, by then, the high touch desk was receiving the bulk of their orders electronically too and, of course, sending them out to market the same way.<br /><br />The sensible approach, then, is to collapse all the technology supporting both business lines together. This allows more effort to be put into market and asset class coverage, performance, speed and resilience – benefitting both high and low touch service lines. It is something that can be extended to other desks too, such as program trading, and even between asset classes or completely separate business units.<br /><br /><b>Cross Cut Saw</b><br /><br />The premium zone is where the real differentiating technology can be found, but because it is now sitting on a converged stack its operational costs are much lower. This frees up resource to deploy cool, high touch tools that can quickly solve any liquidity problem. <br /><br />Intelligent IOIs are one way to do this, but only if they can be underwritten by genuine merchandise. Another will be pulling together all the information held within a firm about a particular stock. Other decision support tools will all form part of a more sophisticated, but above all technology-fuelled, high touch service.<br /><br />This then allows for some intriguing approaches to solving trading problems for clients. One example is that an investment manager may be using a low touch channel for an order so as to minimise its execution cost. It may be, however, that a smart IOI has uncovered a large block in the same stock over on the high touch desk. Because they both share the same technology, it's now easy to communicate the block opportunity to the client and execute it. In this way orders can navigate through high and low touch zones so as to achieve the optimum liquidity outcomes for clients.<br /><br /><b>This is hip</b><br /><br />The terms high touch and low touch seem clunky and outdated as they are simply too crude a reflection of the practical realities of trading today. They might well be part of the lexicon of our industry but they imply a separation of technology that simply doesn't have to be there. This costs money and worsens execution outcomes for clients.<br /><br />While it is true that the spectrum of trading challenges is getting broader, truly effective trading is about allowing clients to combine a range of different services. <br /><br />Firms that implement a blended approach will be able to dominate liquidity in their chosen areas. What's more they will operate at lower costs whilst providing a more valuable service to clients. <br /><br />They really will have the key to the highway.<br /><br />Steve Grob <br /><br />Director<br /><br />FidessaAnonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-62602697171588281512016-10-27T11:41:00.000+01:002016-10-27T15:59:52.865+01:00 Lost in translation: Smart contracts for financial services<div class="separator" style="clear: both; text-align: center;">
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The concept of smart contracts is simple; clauses and rules are embedded in software which is distributed via networks to provide an interface which formalises a transaction. Bitcoin has a distributed ledger a distributed consensus mechanism, and a distributed set of business rules and conditions. The contract for Bitcoin is relatively simple: ‘are the parties who they purport to be’, ‘do they have permission to buy/sell’ and ‘does the buyer have funds’. This is a straightforward smart contract which is actioned and then fulfilled for every buy or sell on the Bitcoin network.<br />
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The idea of a smart contract is very powerful; putting your trust in a set of rules and a shared consensus mechanism rather than any one party seems, on the face of it, an ideal solution. In finance we already trust in rules and triggers such as ‘stop loss orders’ and ‘buy triggers’ for share trading. This kind of trigger is relatively simple but still this transaction has its fair share of intermediaries and parties. For a wealth product, where I may be buying units in a fund which will trigger purchases in multiple markets and assets there are many more intermediaries and contracts. This increasing level of complex relationships and parties means that the contracts and rules must also be more complex and brings me to my concern in developing even medium complexity smart contracts with high levels of automation. <br />
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<a name='more'></a>Even short simple texts can, if the recipient is in one mood or another, be read with the wrong inflection or intent. This is without the misspelling and dressed (dreaded) auto-correct. In the world of software there is a plethora of opportunities for missing or misunderstanding information in the journey from defining requirements to writing code. In the transformation world we are used to catching these at the normal approval, testing and release gates and yet still bugs creep through the process. For most commercial applications such errors can be embarrassing and occasionally costly but, for smart contracts, bugs in the code and mistranslation of rules could be catastrophic.<br />
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This was highlighted in the recent DAO hack. The DAO is a crowdfunding Decentralised Autonomous Organisation. The creators codified the rules and decision-making process to bring in funds to the DAO that represent ownership and then those owners have the right to vote on the use of funds to anyone submitting a proposal for funding to the DAO. It relied exclusively on its rules and code to run the business. Though there are some suggestions that the business model was not fully ratified, it raised $150 million for distribution. The DAO went live with some vulnerabilities and these where exploited by a hack taking out $50 million. The possibility of a hack or wrong doing had not been considered, the whole distributed codebase had to be forked into leaving this business in some disarray. Essentially this was a code writing problem, but it shows how a small issue in the software can be very costly in relation to smart contracts. <br />
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That doesn’t mean we should avoid applying smart contracts technology to financial services and I see plenty of opportunities in Know Your Customer (KYC) and sign-off processes that are not that complex where the technology could really prove itself. But before we jump head-long into ‘consensus driven distributed autonomous smart systems’, maybe the financial services sector just needs to think about smarter ways to help the customer. For example, my heating oil company gives me interest on credit, monitors my oil level and fills the oil tank at the best time automatically. That feels very smart to me. <br />
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Michael James<br />
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Principal Consultant</div>
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<a href="https://www.altus.co.uk/consulting/services/consultancy--technical-architecture/">Altus Consulting</a></div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-78436908894123330342016-10-17T09:21:00.000+01:002016-10-17T09:22:14.602+01:00MAS: Bringing compliance closer to the cloud<div class="separator" style="clear: both; text-align: center;">
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The Monetary Authority of Singapore (MAS) has helped dispel some of the uncertainty around outsourcing and cloud-based models in the governance, finance, risk and compliance (GFRC) context, with the inclusion of guidance on cloud computing services in its updated guidelines on managing the risks associated with outsourcing. Here Wouter Delbaere, Asia-Pacific Market Manager, Regulatory Reporting, for Wolters Kluwer’s Finance, Risk & Reporting business, explores this welcome development that should pave the way for greater adoption of these services - and hence a more efficient and cost-effective approach to GFRC - among financial institutions.<br />
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Banks in Asia are increasingly aware of the potential of cloud computing to reduce the costs and enhance the flexibility of their information technology infrastructure, and many are turning to cloud solutions in areas such as software development or customer relationship management. However, the security concerns and regulatory restrictions surrounding sensitive customer and financial data make service-based IT approaches to governance, finance, risk and compliance (GFRC) less common.<br />
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<a name='more'></a>While these concerns will remain top of mind for most banks, MAS has helped dispel some of the uncertainty around outsourcing and cloud-based models in the GFRC context, with the inclusion of guidance on cloud computing services in its updated guidelines on managing the risks associated with outsourcing. This is a welcome development that should pave the way for greater adoption of these services - and hence a more efficient and cost-effective approach to GFRC - among financial institutions.<br />
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<b>A blueprint for safer outsourcing</b><br />
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MAS’s new guidelines on cloud computing services are the result of an extensive two-year consultation process and are designed to better reflect the increasing prevalence and complexity of outsourcing arrangements since standards were first introduced in 2004. Among the key changes are the removal of the expectation for financial institutions to notify MAS in advance of any material outsourcing arrangement. This is an outsourcing arrangement that in the event of a failure or security breach has the potential to significantly affect a bank’s operations, reputation, profitability, or risk and compliance practices - and also, under the updated guidelines, control over some kinds of customer information. <br />
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The guidelines call for senior management to evaluate the risks associated with outsourcing arrangements and develop policies in response. They also instruct banks to: <br />
conduct comprehensive due diligence on service providers; <br />
put outsourcing agreements in place that clearly define responsibilities as well as dispute resolution, incident reporting and disaster recovery procedures; <br />
allow for audits and inspections, including by MAS; <br />
avoid outsourcing via providers in jurisdictions where MAS may be denied access to relevant information, or that are subject to significant political or economic risks. <br />
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Institutions should also maintain a register of current outsourcing arrangements based on a MAS template that could serve as a ‘checklist’ for the risk management process, with sections covering the above areas and for the assessment of service provider substitutability (please see diagram 1 for our interpretation of the data points that may be needed).<br />
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Diagram 1: A potential MAS outsourcing ‘checklist’<br />
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<img src="file:///C:/Users/AlexIBS/AppData/Local/Temp/msohtmlclip1/01/clip_image002.jpg" /><br />
Source: Wolters Kluwer<br />
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<b>Recognition for cloud computing</b><br />
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Significantly, the updated guidelines contain a new section on cloud computing services. These make it clear that MAS considers cloud services a form of outsourcing that institutions can use to enhance their operations and efficiency. The guidelines also state that the risks posed by cloud computing are similar to those inherent in other outsourcing arrangements, and that institutions should adhere to the same mitigation principles in working with cloud providers, maintaining a degree of oversight and ensuring external partners are capable of identifying, segregating and securing customer data. <br />
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Given the recent global and regional proliferation of regulatory requirements, the temptation may be to view the updated guidelines as just another compliance framework banks have to contend with. But in our view they represent sound best practices to follow in any outsourcing case, and are more forward-looking and potentially transformative than restrictive.<br />
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According to recent research by the Asia Cloud Computing Association, the region leads the world in terms of cloud readiness, based on factors such as international connectivity, broadband Internet quality and datacentre risk1. And within Asia, Singapore stands out for its focus on and investments in a platform for the safe and efficient delivery of cloud and ‘on-demand’ technology services, evident in the establishment of its new Cyber Security Agency and the Smart Nation Singapore initiative. <br />
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There is therefore no doubt that Asia, and Singapore in particular, has the technical infrastructure for financial institutions to adopt cloud computing services for GFRC as well as other processes - and therefore reduce IT costs via a ‘pay-per-use’ model that allows them to rapidly scale resources up or down depending on demand. However, up to this point the corresponding regulatory understanding and infrastructure has been lacking. MAS’s move is one step in addressing this gap and demonstrates an openness to the cloud model that other regulators are likely to emulate. <br />
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Research carried out by Wolters Kluwer suggests that about 30% of financial institutions in Singapore now hope to leverage cloud-based technology for GFRC within the next three years - vs close to 0% in 2013. The new MAS guidelines will provide the impetus for more institutions to act on this ambition.</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-26100691190941850542016-10-13T09:57:00.000+01:002016-10-13T09:57:23.630+01:00The future of the banking industry<div class="separator" style="clear: both; text-align: center;">
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Every month we see huge developments and changes happening in the banking industry. In September, <a href="https://ibsintelligence.com/ibs-journal/ibs-news/banks-hurtle-toward-blockchain-adoption-ibm/">IBM released research</a> suggesting that 65% of banks have plans to put blockchain projects in production in three years’ time. Meanwhile the CMA recently released findings stating that banks are not working hard enough for their customers, and the BBC claims <a href="http://www.bbc.co.uk/news/business-36268324">more than 600 High Street bank branches have closed in the UK</a> in the past year. On top of this, traditional retail banks are facing increasing competition from digital-first challenger banks such as <a href="https://www.ft.com/content/f5439ae8-5fab-11e6-b38c-7b39cbb1138a">Monzo</a> (formerly Mondo) and <a href="https://www.ft.com/content/d44266e4-1a60-11e5-a130-2e7db721f996">Atom</a>. <br /><br />The changes aren’t just coming from within the industry, but also from a huge shift in customer expectations. <a href="http://www.pewinternet.org/2013/08/07/51-of-u-s-adults-bank-online/">51% of US adults bank online</a>, as do <a href="http://www.statista.com/statistics/222286/online-banking-penetration-in-leading-european-countries/">47% of Europeans</a>, and this number is likely to increase as more Millennials buy in to financial services. This is part of a wider customer attitude that banks should be using the latest popular technology to provide the best service to their customers. However, with new expectations and technologies emerging all the time, how can the banking industry adapt to this digital world?<br /><br /><a name='more'></a>While tying all these different changes together may seem complicated, the key to the future of the banking industry is actually relatively straightforward. Banks looking to provide the best possible services for their customer now need to place a seamless, connected omnichannel experience at the heart of their business, knitting together the opportunities of new technologies and traditional banking into a coherent, organised strategy. This is something that NCR were among the first to realise, investing $230 million in research and development. <br /><br />The rise of digital banking does not mean a bitter end for High Street branches; there is still a correlation between branch location and market share. Mark Welbourne, Head of Retail Delivery and Group Retail Strategy at Nationwide, has observed that: “Nationwide’s share of the Current Account market is higher in populations closer to the Nationwide branch network. As this is true for both new business and stock (back book), it would suggest that accessibility to a branch is still an important factor when selecting Nationwide.” However, physical locations alone are no longer enough, and banks need to embrace new and emerging technologies to meet the needs of a varied customer base.<br /><br />The first step for banks is to rethink the architecture they are using to bring together elements of transaction processing. Much of what occurs in a teller interaction, call centre, mobile environment or ATM channel requires similar information to authorise. By bringing together transaction processing and organising it in granular elements that can easily be combined, the specific needs of each channel can be included in the orchestration of the transaction. <br /><br />For example, in a call centre, the customer is authenticated via a passcode – whereas at an ATM the customer is authorised using a PIN. Meanwhile, a transfer transaction used to pay a utility bill goes through exactly the same steps regardless of the whether it is carried out on an ATM or through a call centre. This kind of omni-channel transaction processing enables the consolidation of connectivity to internal and external services, thereby reducing the cost of managing and maintaining these links and allowing for new ones to be added quickly. It also allows for transactions to be started in one channel and completed in another – perhaps the prestaging of an ATM withdrawal on a mobile device; or the partial completion of a loan application online with the completion over the phone.<br /><br />Next, banks need to consider which technologies can improve customer service at physical locations. One example of this is the increasing use of mobile tablets, service kiosks and digital signage in-branch to help staff better serve customers. These types of digital devices offer additional insight into each customer as an individual, and allow bank staff to provide the right services to the right people, communicating the bank’s understanding of each individual client. <br /><br />Once banks have successfully combined the insights of their existing channels, the third step is anticipating what the next avenue for customer transactions might be. For example, in 2016 there was significant Q1 growth in the global wearables market (<a href="http://www.idc.com/getdoc.jsp?containerId=prUS41284516">67% YoY</a> according to IDC), and banks may want to be prepared to offer services catered as much for the wrist as the mobile device. <br /><br />Finally, on the back-end of banking technology, we have blockchain. Blockchain has the potential to significantly disrupt banking over the next few years. When successfully rolled out, it can help banks safeguard against data tampering and revision. Furthermore, even while customers may not be conscious of blockchain supporting their transactions, it can add significant benefits that drive up customer satisfaction and loyalty. These include the possibility of faster international payments, reward points systems and faster, more transparent automated processes for complex banking transactions requiring layers of approval, such as mortgages.<br /><br />Every aspect of the future of the banking industry relies on the customer, and banks looking to succeed will need to make the most of their customer insights to guide their transformation process. This means tying in new technologies that customers adopt within an existing omni-channel infrastructure to provide a seamless banking experience, wherever and whenever the customer wants it. <br /><br />Andy Brown<div>
Marketing Director, Payments</div>
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NCR</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-89883152729440258412016-09-22T14:23:00.002+01:002016-09-22T15:01:32.211+01:00Notes from America<div class="separator" style="clear: both; text-align: center;">
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<i>UK-based micropayments venture tibit (IBS Journal’s very first Startup of the Month) launched in the US last week at the Online News Association’s Denver event. Carl Beetham, Business Advisor, brings you this post from his travels</i><br /><br />I’m the least-travelled of individuals and the daily commute to Peckham still fills me with an equal combination of trepidation and excitement. So you can only wonder at my feelings when faced with the joyous prospect of a business trip to the US – imagine a midget ginga Mickey Rooney-esque individual playing the Eddie Murphy character in Coming to America and you won’t go far wrong.<div>
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<a name='more'></a>In the event, I can report that the escapade passed without drama though I can’t really claim to have experienced much of Denver, Colorado, as the only places I saw were the insides of a conference hall, a motel and a cab between the two. However, as jet lag kicked in straightaway I did manage to catch more than my fair share of early-morning American TV, specifically CNN & Fox News. And if you thought the panic about Brexit was nerve-jangling, you ain’t seen nothing yet. In an election that polarises opinion like none before, extreme reporting and journalistic battle-lines have well and truly been drawn, but ultimately beg the question of what is true and what isn’t?<br />
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In the space of just three days here’s what I saw being earnestly debated: President Obama was born in Kenya (the ‘Birther’ issue); Hilary Clinton is dying and wouldn’t see out her first year in office (the cough that turned into pneumonia); Trump orders Hilary’s assassination (his idiotic analysis of her ‘second amendment stance’ and musings that guns should be taken off her security detail); Obama is going to make a last minute decision to change the constitution and re-stand (he didn’t mention Hilary by name in his final speech to the Congressional Black Caucus); Clinton is pathologically unable to take action, any action (she wanted to get the full facts before declaring the NY bomb a terrorist act); If Trump loses, the election was rigged and, if it looks like he’s going to win, the state will rig some catastrophe which triggers Marshall Law and no election can take place if the state of Marshall Law exists (WTF). Phew.<br />
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Yep, nonsense the lot of it but what is apparent is that liberals and conservatives, left and right, are no longer able to communicate across the ideological divide. And needless to say, they have little or no chance of cooperating on any subsequent policy and actually getting anything done as they no longer agree on any objective set of facts. A mainstream media based upon objective analysis and debate, with a little subjective spice thrown in for good measure, would help facilitate this but I can’t see that happening anytime soon. <br />
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Carl Beetham<br />
Business Advisor<br />
tibit</div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-68914432453004633352016-09-21T09:16:00.001+01:002016-09-21T14:08:52.776+01:00imaginBank: Simpler banking for the digital age<div class="separator" style="clear: both; text-align: center;">
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"I don’t need an elaborate banking service with branches, passbooks, letters in the post, an annual financial review and a bank manager that knows my name. Interest? I don’t save enough to accrue any, or I put my money somewhere else. All I really want is an account that will accept my deposits, hold my money and release it when I want to make a payment or transfer. I don’t want to wait for transactions to appear on my balance or for transfers to clear. An automatic payment function would be useful, so I can settle my bills easily. But most important of all, I want to do everything, repeat everything, on my phone. Some exclusive offers and deals would be good too. That’s it."<br />
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Welcome to the mindset of a growing demographic of today’s banking customers. All are committed device users - not power users or early adopters - just people that manage their lives using phones and tablets. Many are young – Millennials - but not all. Most have modest incomes and are determined to live debt-free and unconstrained by financial commitments.<br />
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<a name='more'></a>As a customer segment, this group holds little traditional revenue potential for a bank. Instead of writing it off, however, Spain’s CaixaBank has embraced it wholeheartedly, launching an entirely new mobile-only proposition: imaginBank. I caught up with Jordi Guaus, CaixaBank’s Head of Digital Marketing and Chairman of Mobey Forum, to understand the thinking behind imaginBank, which launched earlier this year.<br />
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“Customer behaviour is changing,” says Guaus. “We knew this segment was growing and that if we didn’t offer a banking service that would address these changes, then another bank would. We also know that once a customer switches banks, it is very difficult to win them back. Many of the customers in this group are young and in the early stages of their careers, so instead of focusing on immediate revenues, we are taking a longer term view. At least some of today’s imaginBank customers are going to need more sophisticated services in the future, at which point CaixaBank will be there to help.”<br />
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When asked about the development of imaginBank, Guaus is quick to praise CaixaBank’s forward thinking culture. “It is not easy to gain internal support when you’re developing a completely new proposal focused on simple services, even at CaixaBank, which is known for innovation and its willingness to buck the trend.<br />
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“The biggest hurdle we faced was to accept that the digitalisation of financial services is going to change everything, and that we need to change as a result. There are customers that feel they don’t need branches, for example; so for them a digital banking platform is more than capable of delivering day-to-day banking services. On the plus side, however, this also means that we can take out many traditional costs of delivering services. As it is mobile-only, imaginBank is a far leaner proposition; we don’t need to make the same margins for it to be commercially viable. In many ways imaginBank is one big experiment – we’re using it as a way of testing different services and models which we might someday adopt at CaixaBank. For us it’s a win-win; it brings new customers with us and enables us to trial new ways of operating.”<br />
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Guaus understands that mobile adoption hasn’t been the only factor driving change in the way customers approach their finances. “The past decade, with the housing crash, poor economic conditions and high levels of unemployment in Spain have definitely had an impact,” he says. “Many customers, especially those that are younger, are looking for a different way of doing banking. imaginBank is designed to deliver a banking experience that this customer set wants: a no cost, mobile bank that delivers simple services in an immediate and totally transparent manner. Even now when the Spanish economic situation is improving, imaginBank’s value proposition fits perfectly with those that are focused on day-to-day financial services and a great user experience.” <br />
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Guaus is enthusiastic about the additional value added services that the bank can also offer using the mobile-only model. “We are offering great discounts for other digital services that are also targeting this segment, like Ticketmaster and wauki.tv,” he says. “We’re also able to give customers more control over their finances with tools delivered via the imaginBank app. They can view their account securely from within Facebook, for example, draw money from an ATM without a card and send money to friends using only an email address or mobile number. We are very satisfied with the results: we have attracted 70,000 active customers during the first six months of imaginBank.”<br />
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There is little doubt that today’s disruptive digital market is challenging banks to think differently, but Guaus is confident that banks are in a strong position to protect themselves from disintermediation. “Sure, there are more new market entrants offering digital services, but it is the banks that still have the trust of their customers. We continue to work in a closely regulated environment and have a long history of defending customer confidentiality. People won’t put money into an institution they don’t trust, so as long as banks can adjust to the changing requirements of their customers, I think their place in the future of financial services is secure.”<br />
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<b><span style="font-family: "times new roman" , serif; font-size: 12pt;">Sirpa
Nordlund</span></b></div>
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<b><span style="font-family: "times new roman" , serif; font-size: 12pt;">Executive Director</span></b></div>
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<b><span style="font-family: "times new roman" , serif; font-size: 12pt;">Mobey Forum </span></b></div>
Anonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0tag:blogger.com,1999:blog-7277366381471352820.post-63649807874167934992016-09-05T09:17:00.000+01:002016-09-05T09:17:58.477+01:00Apple stays in the payments picture<div class="separator" style="clear: both; text-align: center;">
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Apple, good products, horrible company…The EU ruling that Apple must pay over $14 billion in back taxes to Ireland has been hogging the headlines, but the tech giant’s increasingly hostile face off with Australia’s banks <a href="https://ibsintelligence.com/ibs-journal/ibs-news/aussie-banks-hit-out-at-apple-pay-again/">is equally as compelling a story</a>. In a nutshell, all of Australia’s big banks (except ANZ which is rolling out Apple Pay) are looking to gain access to the inner workings of the mobile payment platform. If successful, third parties would be able to bypass Apple Pay and create their own apps.<br /><br />Apple has countered by arguing this would compromise the iPhone’s security, reduce innovation and hamper its entry into the Australian payments market. It told the Australian Competition and Consumer Commission (ACCC) that “allowing the banks to form a cartel to collectively dictate terms to new business models and services would set a troubling precedent and delay the introduction of new, potentially disruptive technologies”.<br /> <br /><a name='more'></a>Apple, unlike Google and Samsung, is all about their cartel being bigger than your's. That’s the Apple way, take it or leave it. I’m siding with the banks on this one, although it seems unlikely that they will emerge victorious. The company’s reaction to the aforementioned EU bombshell (why should the mighty Apple pay a fair rate of tax? Outrageous!) was bad enough, but labelling others control freaks? Please. Is there another company more control freaky than Apple? I’m struggling to think of one.<br /><br />Scott Thompson<br />Senior Editor<br />IBS JournalAnonymoushttp://www.blogger.com/profile/11664317331366382903noreply@blogger.com0