January

IBS Intelligence is partnering with Sopra Banking Software to promote the Sopra Banking Summit, which takes place 18-22 October 2021. The summit is tackling the biggest issues in the financial sector, including public cloud. This weeklong festival of FinTech will touch on the hottest topics in financial services and highlight the new paths industry leaders are taking.

The following article was originally published here.

Cloud computing has long been an attractive option for banks looking to optimise costs, improve flexibility and facilitate digital expansion. Historically, cloud adoption has meant private or limited deployments due to concerns ranging from security to compliance. But in a post-Covid world, the drumbeat of digitisation has gotten louder, and more banking leaders are moving past their reservations. And recently, the use of public cloud platforms is gaining traction. This is due to ongoing margin compression, the need to reduce costs, and the imperative for banks to innovate faster—all things the public cloud can help solve.

by Martin Lee, Head of Managed Services & Cloud, Sopra Banking Software

As more financial institutions move to leverage cloud providers’ huge investment in their tech stacks, it’s worth pausing to survey the landscape and understand the most important considerations for banks moving forward.

The state of cloud banking 

The phrase ‘cloud computing’ spans a range of classifications, types and architecture models. In simple terms, a private cloud means a dedicated cloud computing network. In contrast, a public cloud is cloud computing delivered via the internet and sharing underlying infrastructure across organisations. A hybrid cloud is an environment that utilises both physical and cloud hosting.

In the last decade, the use of public cloud computing via services like Microsoft Azure or Amazon Web Services has turned into a $240 billion industry. In banking, the public cloud is already commonplace for non-critical tools, and a typical bank’s computing environment already includes on-premise systems, off-premise systems and multiple clouds.

Indeed, 19 of the top 20 US banks have already announced public cloud initiatives. In late 2020, IBM rolled out a financial services-specific public cloud featuring 10 of the world’s largest banks as customers. While there is a lot of activity, maturity levels vary. For instance, according to a recent report, 80% of UK banks have migrated less than 10% of their business to the public cloud as of 2020.

But that’s rapidly changing.  Banks know they can no longer ignore the benefits if they want to stave off competition and remain profitable. Data from McKinsey underscores this point. According to one of its surveys, more than 60% of banks plan to move the bulk of their operations to the public cloud in the next 5 years.

Benefits of running a bank in the public cloud  

The trend of public cloud adoption is, to some degree, traditional banks following the model that FinTech proved, i.e., using the cloud to be flexible, agile, and responsive. Through our experience, we have seen several specific use cases where banks in the UK have benefited from the use of cloud-based services. These include:

• Avoiding high CAPEX costs for new and replacement hardware with a more efficient OPEX model, removing the need for future one-off hardware investment
• The ability to access and leverage a wide range of digital products, offerings, and integrations, which are only possible with cloud-based technologies
• Reducing the risk and impact of Covid-19 and other potential business continuity issues by avoiding the need for staff to physically access specific locations to deliver services
• Increasing and ensuring operational resilience in a cost-effective manner to meet the latest regulations
• Improving efficiency via automation and infrastructure-as-code reduces manual effort and improves response times—plus, it reduces complexity and technical debt related to legacy systems

Considerations and keys to success

While there is a general trend toward public cloud adoption across banks in the UK and elsewhere, there are a few important areas to consider to ensure the greatest odds of success.

Be clear on the specific benefits that cloud is bringing to your organisation 

The public cloud brings many potential benefits, but not all of these will apply to every circumstance. And a move to the cloud is generally most effective as part of an overarching business strategy, rather than a strategy unto itself. It’s therefore critical to define which business benefits a cloud migration is expected to deliver.

Don’t assume that the cloud will be secure by default  

Most cloud-related data breaches are due to misconfiguration, not a flaw in the infrastructure itself. This means that it’s essential to either develop the expertise in-house or work with a managed-services provider to ensure that issues around configuration and methodology are avoided.

Understand where your data is 

A well-established benefit of the public cloud is that it enables users to ‘go global in minutes.’ However, for European banks, there are often specific requirements around data residency and transit.

A proven and audited system design, combined with the right technical controls, is key to making sure that data is administered correctly and housed only in approved locations.

Maintain the right level of capacity 

While virtually unlimited amounts of capacity are available in the cloud, utilising it means there is a chance of paying for unnecessary resources. To make sure cloud environments are being used efficiently, it’s important to collect, monitor, and react to the data and metrics available.

Leverage cloud technologies to increase automation and agility 

A significant advantage to hosting applications in the public cloud is to leverage its elasticity, integration and orchestration facilities. Yet, to make use of these, a suitable level of staff expertise, modern working practices and system design is required. A simple “lift and shift” of current hardware will be unlikely to bring improvements with no other changes made.

Improve operational resilience 

The major cloud providers—Amazon, Microsoft and Google—operate at scales that few can match. By adopting best practices like AWS’s Well-Architected Framework, it is possible to increase operational resilience via many layers of redundancy, recovery automation, and the use of multiple regions and availability zones. However, these areas can be maximised only if the right skills, experience and approaches are used.

Select the right partner 

While the public cloud presents exciting opportunities, little can be done without the right partner. Unless significant investment is made in recruiting staff with extensive experience in cloud migrations, transformations and optimisation, capturing the full potential is challenging. When selecting a public cloud partner, there are several vital aspects to consider. These include certification and standards, technologies, data security and governance, reliability, migration support, and service dependencies.

Moving forward 

Adopting cloud technology isn’t a catch-all solution for banks. However, increasingly, doing so has clear benefits when compared to traditional IT deployments. By choosing the right partner, banks can enjoy all the benefits of the public cloud while ensuring security, compliance and support are maintained. In today’s world, progressive banks are meeting customers where they are—and that’s increasingly using services hosted in the public cloud.

VRP APIs are being implemented by the UK’s 9 largest banks to enable customers to freely sweep money between their accounts following a ruling by the Competition and Markets Authority (CMA) in July. In practice, that could help people avoid overdraft fees or increase their automated savings.

by Kat Cloud, UK Policy Lead, Plaid

This is a major step forward and a win for both consumers and businesses as the CMA continues to create more competition across the banking sector. Through this change, consumers and business owners can feel more confident in their money management without fearing unnecessary, not to mention avoidable, charges.

What are VRPs?

Like a direct debit, where a business is able to collect recurring payments from the same customer without permission for every payment, VRPs offer businesses and consumers a similar process through open banking. Banks integrating the VRP API will enable third party providers (TPPs) to initiate variable payments at variable times, without getting the permission from the consumer every single time. As with the overarching mission for open banking, VRPs are intended to create a seamless and frictionless experience for customers.

One of the most common use cases of VRP APIs is sweeping, also known as me-to-me payments, which use TPPs accessibility across different accounts to understand where people can seamlessly transfer money from one account to another. From a consumer perspective, there are many practical applications for this, such as transferring money into an account to prevent dipping into an overdraft therefore avoiding fees, or topping up a savings account by transferring the leftover cash from a coffee purchase.

How can VRP APIs help to eradicate financial vulnerability?

The VRP mandate is the latest move in protecting customers while helping them to lead healthier financial lives. Indeed, as open banking continues to foster an environment where consumers and businesses have access to a wide range of financial products and services, the VRP API is the next step in creating a seamless financial ecosystem that reduces stress, confusion and saves time.

For those in a vulnerable financial situation, the VRP mandate will help them to monitor and manage their accounts. For example, if a consumer has insufficient funds in one account, VRP APIs can transfer money over from another account to prevent them entering an overdraft. Given its smart nature, the API has the capability to move money seamlessly, without constant permissions. In turn this helps prevent consumers from being charged high overdraft fees and penalties, all while creating a pathway to a more secure financial situation.

What’s next?

Once again, the UK is leading the pack against its EU counterparts in creating a fairer financial system through the power of technology, while at the same time maintaining the central ethos of open banking – putting the consumer back at the heart of the financial ecosystem.

Looking ahead, VRPs will certainly have broader use cases in the future. As the process is like direct debit payments, we can expect to see variable payments for utilities bills, investment accounts, subscriptions and more. As we continue to transition towards open finance, the VRP ruling is an important step in promoting financial democracy while helping to eradicate financial vulnerability.

IBS Intelligence is partnering with Sopra Banking Software to promote the Sopra Banking Summit, which takes place 18-22 October 2021. The summit is tackling the biggest issues in the financial sector. This weeklong festival of FinTech will touch on the hottest topics in financial services and highlight the new paths industry leaders are taking.

The following article was originally published here.

Regulatory reporting is a key part of the framework contributing to stability within the banking system. This is fundamental, as the sector’s business activity generates significant risk, which can affect the economy and its stakeholders, such as consumers, companies and governments. That’s why banking activity is regulated. Banks are required to report standardised information to supervisory bodies, known as regulatory reporting.

by Aurélie Béreau Adélise, Product Marketing Manager for SBP, Sopra Banking Software

While the delivery of reports may be transactional, periodic and calendar-based, the requirements can emanate from separate legislative and banking bodies, even though all these stakeholders have the same objectives:

• Ensuring monetary and financial stability
• Promoting international cooperation and transparency
• Protecting customers

However, the notion of regulatory reporting is very broad and covers a variety of obligations, the requirements of which are constantly expanding. This complicates the burden on financial institutions and increases the cost of maintaining their compliance.

Today’s stakeholders believe that the current regulatory reporting system, following several attempts at harmonisation within the framework of European integration, is no longer fit for purpose. This has led European companies to agree on the implementation of a new reporting system: integrated reporting.

New proposals following attempts at harmonisation

The European Central Bank (ECB), responsible for compiling reports for statistical purposes, has been trying to harmonise its reporting requirements for some years. Corep and Finrep were the first reports to be standardised within the various EU countries, starting in 2007. Next came AnaCredit in 2019, along with the advent of granularity and the emergence of new technologies enabling the analysis and exploitation of large data sets. And finally, BIRD (Banks’ Integrated Reporting Dictionary) – a collaborative project that’s still ongoing between the ECB, National Central Banks (NCBs) and commercial banks, which aims to define a shared set of transformations for regulatory reporting purposes.

Today, the ECB would like to move toward more granularity and has launched an overhaul of its requirements via its Integrated REporting Framework (IREF) project, which should be completed by the end of 2024. It launched a ‘cost-benefit’ investigation, completed on April 16, to assess the relevance of the main scenario it would like to implement. This survey was sent to the entire industry, including national banks, commercial banks, banking associations and software providers.

Similarly, the European Banking Authority (EBA), in charge of collecting financial and risk data as part of the banking industry’s single supervisory mechanism, launched a public inquiry from March 11 to June 11. The inquiry aimed to assess the implementation of the IREF counterpart on the prudential and resolution part of the project, called the Integrated REporting System (IRES). This project has made less progress than the ECB project, so there is a question as to how the ECB and EBA projects will eventually converge.

While the EBA has not yet disclosed the next steps for the implementation of harmonised reporting, the ECB foresees the transition to integrated IREF reporting between 2024 and 2027 in the area of statistics – monetary, AnaCredit and securities holding, in particular.

Is integrated reporting the final step in regulatory reporting?

In recent years, the number of new reports has grown exponentially. And each new addition requires work, expense and time. The idea of an integrated reporting system that brings all the information together in one place is therefore attractive, but only if it does not follow the same dynamic as the previous ones. These questions must be answered in the coming years to ensure an effective and rapid transition.

eCommerce is seeing accelerated growth across Latin America, with overall retail eCommerce sales increasing more than 36% throughout the region in 2020 as compared to the same period in 2019. However, the social and practical realities of Covid-19 have exposed some significant pre-existing problems within the digital payment systems that underpin this region’s expanding digital economy.

by Juan Carlos Martinez, Director & Co-Founder, Bamboo Payment Systems

These problems include a lack of financial inclusion among the population, regional disparities in payment formats, arduous complexities in many cross-border transactions, a deficiency in available credit rating programmes, and shaky consumer confidence in digital payment methods – all of which represent major barriers to sustained growth in the sector. To maintain a competitive edge, online merchants must frequently adapt their eCommerce strategies to meet varying local needs, and regional payment service providers (PSPs) that cater to global merchants must allow for constant customisation of payment offerings and flows if they aim to maximise opportunities within the LatAm eCommerce space.

The issue of limited access to and/or adoption of digital payment methods among Latin American populations is nothing new and has traditionally been viewed as a primary barrier to the expansion of eCommerce throughout the region. However, the global pandemic has accelerated adoption of digital payments and eCommerce, in many cases as a resulting necessity of strict quarantine restrictions. However, cash payments remain a major component, and currently account for 20-30% of online purchases. More striking is the fact that close to 207 million Latin Americans – roughly 46% of the population – do not have access to bank accounts, an important catalyst for the adoption of digital payment methods like credit and debit cards.

The local experts

Regional payment facilitators play a crucial role in promoting cross-border eCommerce by offering global merchants simplified access to this fragmented eCommerce environment. The local knowledge of these PSPs and the connectivity with popular local payment methods including cash networks, bank transfers, and local prepaid cards enable the development of unique, tailor-made solutions for each merchant that reflect the realities in each country via a single platform. As consumer preferences evolve and new digital payment methods are adopted, PSPs adapt their connections to local acquirers accordingly, allowing international merchants to benefit from this quick adaptation to ever-changing market realities. Essentially, PSPs are the local experts. Global merchants can then leverage this expertise to maximize the conversion rates of their eCommerce sales and stay at the top of their game.

But how important is this market flexibility in relation to the digital payment methods offered by global merchants to local consumers? Let’s look at a few basic indicators within the top three eCommerce markets in Latin America: Mexico, Brazil, and Argentina, three countries that when combined represent approximately 75% of all eCommerce sales in the LatAm region.

Generally speaking, credit and debit card adoption rates are noticeably low across the board in these countries, underscoring the significant barrier a lack of financial inclusion presents. Furthermore, among those who do have them, a large percentage of credit cards and debit cards issued in these countries are enabled solely for domestic purchases. In other words, these cards will not function for purchases made on merchant websites abroad. Additionally, chargeback rates are high in the region. In Mexico for example, the industry standard can be up to 3-6% which is roughly triple the global average. Thus, regional PSPs are key in mitigating this risk via the utilisation of region-specific anti-fraud systems which incorporate localised transaction databases and region-specific rules.

Another reality is the informality within the LatAm labour market, something that is still quite prevalent, with cash payments being preferred by many consumers. In Mexico, the OXXO convenience store’s cash voucher system is still a highly popular payment avenue, in Argentina the national chains Rapipago and PagoFacil offer many popular local payment options, and in Brazil there is Boleto cash payments which are still popular despite them currently being supplanted by a new national online payment protocol, PIX.

Finally, local bank transfers via standardised protocols are crucial necessities for many consumers, for example the Bank of Mexico’s Interbank Electronic Payment System, SPEI (Sistema de Pagos Electrónicos Interbancários), which is widely relied on by citizens for payment purposes.

In short, the disparities across countries and the widely-varying alternative payment methods available make regional PSPs an invaluable partner for global merchants wanting to access the hugely substantial and yet considerably underserviced LatAm population.

So, what is the outlook as we enter the second half of 2021?

As LatAm markets continue their transitions toward digital payment, as is the case of PIX increasingly replacing Boleto as the new gold standard in Brazil, the diversity of payment methods and consumer preferences across countries is profound, and highlights the supreme importance of regional PSPs as uniquely unifying entities for global merchants wanting to sell in Latin America.

Starting and running a business is no small feat, and as we all know, cash flow is the core fuel that powers any business. A set marker for identifying a healthy and thriving business is strong cash flow, and the importance of this particular resource is not lost upon any entrepreneur

by Mr Vineet Tyagi, Global CTO, Biz2X

They say that the first five years are extremely crucial for any business, and generally determine whether a company will crash or float. The question therein is why do various businesses that have a strong financial foundation and good initial investment, end up failing within five years?

The answer to this simply lies in their cash flow, so much so, that a recent study conducted in the US concluded that 82% of the time, poor cash flow management ends up contributing to the failure of an SME.

To understand how SMEs can manage their cashflow effectively, let us first take a look at the challenges:

Cash flow management challenges faced by SMEs

• Underestimating Start-Up Costs: Having unrealistic estimates and low cash reserve gets most SMEs started on the wrong foot. Obtaining capital and then not calculating realistic costs becomes like quicksand – quite difficult to get out of.

• Managing Receivables: Receivables, as most are aware, is the amount that is due to a company. Inefficient management of it ends up in a huge amount of outstanding receivables, which end up hampering cash flow.

• Managing Payments Efficiently: According to a study, almost 66% of SMEs revealed that the biggest impact on their company’s cash flow is due to the amount of time that it takes for money to process post receiving payments, with some of them having to wait more than 30 days for payments to clear. Thus, due to the time taken, if not managed well, it becomes a huge cash flow challenge for upcoming and ongoing projects.

• Ignoring Overhead Costs: A company with high overhead costs such as rental, travel, etc. will notice the profits depleting quickly. To cover such costs and break even, the organization will have to and hence, make more sales. Thus, to make a long-term difference to the business’s profitability and cash flow, overhead costs cannot be overlooked. 

• Low-Profit Margins: While they say that pricing is an art, the first step is always understanding your numbers. This means that knowing your profit margin is an extremely important metric for analyzing your prices. A low-profit margin implies that either business’s costs are too high or the pricing is too low or it could even be both. The lack of a sustainable and strong profit margin means that a business will always battle cash flow issues.

Having talked about the cash flow challenges faced by SMEs, let us talk about how FinTech can assist in overcoming them.

5 ways FinTech helps small businesses better manage their cashflow

1. Easier Business Lending: Traditional lenders, usually hesitate when handing out loans to SMEs with smaller loan amounts and what they consider to be inconsistent earnings, thus risky. Apart from this, the entire application process for the loan is quite time-consuming and cumbersome. With the advent of FinTechs, it has now become easier for SMEs to bypass the conventional loan obtaining methods and scale their operations faster owing to easier business lending. Thus, bridging the gap, with offerings such as through P2P lending platforms, FinTechs are making the lending space much more dynamic.
2. Simplified and Faster Invoicing Systems: Having access to simplified and faster-invoicing systems, it is now easier for businesses to thrive. Besides saving them from existing revenue losses or accumulation of bad debts, an efficient management system helps firms collect payments effectively, irrespective of the location or currency, thus, creating a sustainable flow of operations and cash flow.
3. Efficient Account Management Tools: Owing to FinTechs, SMEs now have access to a lot of options to help them control their costs and expenses. With the help of online accounting systems, they can monitor their cash flow in real-time, and ensure the smooth running of operations. Taking out the guesswork from running the business, FinTechs with the help of expenses and invoices apps, aid business owners in focusing on expansion and growth instead of other small details. 
4. Transparency: The proliferation of the internet and mobile, has helped FinTechs in creating digital banking solutions that reduce both the cost of transferring funds as well as the need for paper currency for conducting any kind of financial transaction. This aids in making the financial system much more transparent, and reduces the chances of tax evasion or other negative practices, thus ensuring that the business ecosystem becomes robust.
5. Increased Profit Potential: Post the advent of FinTechs, capital markets have witnessed a huge growth in terms of technology infrastructure. Irrespective of the industry or the type of organization, a reduction in costs ends up aiding an increase in revenue and profits eventually. The union of technology and finance has led to the rise of trading platforms that via ‘collection and analysis of market’ and ‘user data’ can help in uncovering trends, providing aggregated views of the market, and enhancing forecasting capabilities that eventually maximize the profit potential for firms and traders alike.

With FinTechs now making it possible for businesses to serve their clients irrespective of location, monumental strides have been made in the areas of payments, inventory management, invoicing, cost-reduction, etc. which were previously unimaginable. Many components of FinTech are now intertwined in business operations that can help in cash flow management for SMEs tremendously. Thus, offering capabilities to leverage technology, FinTechs can really make a difference for companies in keeping their cash flow positive even in times of crisis.

Financial inclusion: How digital lending can help

IBS Intelligence is partnering with Sopra Banking Software to promote the Sopra Banking Summit, which takes place 18-22 October 2021. The summit is tackling the biggest issues in the financial sector. This weeklong festival of FinTech will touch on the hottest topics in financial services and highlight the new paths industry leaders are taking.

The following article was originally published here.

Financial inclusion – its efficacy, implication and urgency – is becoming one of our industry’s biggest talking points. And this is a good thing. The more light that’s shed on the issue, the more likely we are as a collective to push its agenda.

by Nelly Kambiwa, Financial Inclusion Director MEA, Sopra Banking Software

However, there are still question marks over what exactly financial inclusion means. For some, it’s tied intrinsically to demographics; for others, it’s about politics. Most interpretations are not wrong, and almost all are well meaning, but perhaps the clearest and most succinct definition comes from the World Bank:

“Financial inclusion means that individuals and businesses have access to useful and affordable  financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”

Without this ‘access to useful and affordable financial products and services,’ people may not have a secure place to store money, no effective and free means of receiving payment, and no safe, reliable way to make payments.

And while great strides have been made around financial inclusion, there’s still a long way to go. According to the most recent Findex data, there are still close to 1.7 billion adults in the world without access to basic financial services

Financial inclusion in Africa

Of course, financial inclusion is not a challenge limited to a particular country, region or continent; rather, it affects areas all over the world. However, for the purposes of this article, we’re going to look at financial inclusion in Africa, and how digital lending can help to improve the financial lives of millions of Africans.

According to Global Finance, 50% of the African population is unbanked, equating to 350 million people. This is already a problem that needs addressing, but with the African population rising quickly – it’s set to double over the next 30 years, adding an additional 1 billion people – it could quickly go from bad to worse.

The role of digital in expanding access

Extending access to borrowers who are otherwise unlikely to receive it is key to improving the health of a society. Among all financial services, access to credit is perhaps the most important as it’s a force multiplier. To this end, innovative digital strategies and new technologies are enabling lenders to reach traditionally underserved people while securing their own interests.

Indeed, the use of big data, artificial intelligence, machine learning and open banking-enabled solutions is expanding the scope of what’s possible. Thanks to new products and soaring internet penetration rates, geographical limitations are being overcome. More sophisticated data analysis tools have come online and are enabling easier credit decisions in lieu of traditional credit scores.

This is particularly relevant to lending in Africa, where access to physical branches is an issue for many people. A recent white paper published by Sopra Banking explained how the rise in mobile money users in Africa is an opportunity and challenge that many incumbent financial institutions have yet to rise to.

Thankfully, that is changing, and many lenders are coming up with solutions that will allow them to provide digital loans to their customers in a safe and effective way for all parties. With the introduction of video KYC and account aggregators, lenders can easily access permissioned customer data and conduct better due diligence. And the digitization of the entire loan application lifecycle means that borrowers can apply for loans remotely—a benefit both in terms of reducing friction and expanding reach.

New-to-credit (NTC) customers

Historically, credit institutions have been cautious with NTC consumers, due to the lack of credit history to assess their probability of default. However, given technological advances, lenders can now more confidently lend to NTC borrowers. They can do this by leveraging some of the solutions mentioned above, solutions that afford new ways of analysing data, predicting a customer’s creditworthiness and gauging the risk involved in lending.

Analysing mobile and web data makes it possible to offer credit to individuals and SMEs without financial footprints. Over the past decade, this practice has emerged and really caught on in Africa, where FinTechs, microfinance institutions and traditional financial institutions like NCBA Group, Equity Bank and Orange Bank use SMS data to inform credit decisions.

While alternative credit scoring systems show great promise, they also bring up privacy and data reliability concerns. And in at least one case, have led to a large group of digital borrowers taking on unsustainable levels of debt.

Open banking as a catalyst

On the regulatory side, open banking is also driving improvement in lending processes. With access to more data (including non-financial data), lenders can do enhanced credit scoring and risk assessment. This provides additional insight, allowing lenders to assess a borrower’s eligibility more accurately. This not only drives down costs for the lender, but it improves the customer experience and, because it’s digital, it works in places without existing infrastructure.

For those most likely to be denied credit, the sub-prime loan application process can still be paper-heavy, involving the manual submission of payslips or statements. Furthermore, Covid-19 has underscored just how inefficient traditional loan processes are.

As an antidote, open banking is pushing financial inclusion solutions that make it easier to verify customer details in real-time—in some cases, going as far as automating the entire interaction. This makes the process easier for the user and significantly increases the chances of applications being accepted.

The good news is that African banks are taking notice of open banking and starting to take huge strides in furthering its implementation. For instance, in 2020, the Central Bank of Kenya – a country where 44% of the population is unbanked – included open banking as one of its main strategic objectives; and last year at the height of the pandemic, Nigerian startup Okra announced that it had received significant funding to develop an open banking infrastructure.

Such developments are becoming increasingly common throughout Africa and bode well for the future of financial inclusion across the continent.

Looking ahead

Digital lending is redefining the dynamics of the credit market in Africa. With a lower cost base and improved reach, financial institutions – including banks, MFIs, neobanks and Telcos – can simply do more with less. Digital lending cuts the cost of offering services and streamlines onboarding. It also enables instantaneous and remote approval and supports data-driven mechanisms to initiate repayment. At the same time, open banking facilitates greater access to data than ever before and unlocks new use cases.

Ultimately, expanding access to credit requires careful planning and is more of a journey than a destination. The use of alternative credit scoring is still in its infancy, and open banking is only a few years old. At its best, digital credit can be responsible, inclusive and affordable. And it’s something every financial institution should strive for, as it not only helps individuals and communities, but it drives economic growth, too.

Customer-centricity and financial inclusion remain a challenge for the financial services sector. With banking products offered to customers becoming increasingly commoditized, AI-powered analytics can help banks differentiate themselves, provide competitive edge and enable personalised customer experience. The coming of age of such technologies allows banks to develop a strategic and organizational focus in analytics and adopt it as a true business discipline.

by Krish Narayanaswami, President & Global Head – Banking at Azentio Software

The analytics and business intelligence (BI) software market grew by 10.4% to $24.8bn in 2019. The world of banking has encountered unprecedented change over the past few years, and trends show that this will be the norm for a while longer. Modern BI platforms continue to be the fastest-growing segment at 17.9%, followed by data science platforms with a 17.5% growth (Source: Gartner).

Banks have been an early adopter of BI and analytics to drive business growth, reduce risk and optimise cost. With the rapid growth in digital banking, the velocity of transaction data has increased multifold. This data has now unlocked tremendous opportunities for banks in understanding consumer behaviour and tailor make specialised offerings by leveraging analytics as Decision as a Service

How will changes in banking laws and regulations affect profitability? Which stress scenarios should be considered? Who are the current ‘high-value’ customers? Which customers have the highest potential to ensure revenue growth? Can the bank create an early warning system to prevent fraud by identifying patterns? Increasingly, data analytics is seen as the answer that banking leaders are looking to, to successfully navigate this volatile environment.

Present Day Strategy and Key Drivers

According to a recent Deloitte survey, frontrunners benefited from early recognition of the importance of analytics to the overall business success. This recognition has helped them shape a specific analytics implementation plan that considers holistic AI adoption across the enterprise. The survey indicates that many frontrunners launched analytics centres of excellence and established comprehensive, companywide strategies for AI adoption for their internal departments, recognizing the strategic importance of AI.

The following strategies should be taken into consideration while adopting an analytics framework across the organization.

Prioritize the focus areas

Identify key areas where data and analytics can have the greatest impact and obtain leadership engagement from the start (for example, customer, risk, finance). This must reflect in the immediate goals and vision of financial institutions.

Streamline your data

Provide an integrated view of high-quality data vs. siloed pockets across product and business lines (for example, single view of the customer, aggregated risk exposure by product). Setting up a data warehouse/data lake and further creating specialized data marts to make the data more structured and easily accessible to the respective stakeholders.

Integrate with decision management systems

The key is to develop data-driven strategies at every step to arrive at smart decisions. Analytical insights can be plugged directly into decision management systems to arrive at the next best action.

Onboarding the right skillsets

Finding the right talent for statistical modelling little data and big data is one of the biggest challenges. Develop a talent plan that builds on both existing internal talent and external sources.

Leverage the power of cloud

Leading cloud providers like AWS, Azure, OCI and GCP are providing powerful analytical offerings as services and have the power to run heavy compute. The ability to scale up infrastructure to run high loads and to bring it down when not required helps in optimising costs.

What is the way forward?

According to a 2020 McKinsey study involving over 25 use cases, AI technologies can help boost revenues through increased personalization of services to customers (and employees); lower costs through efficiencies generated by higher automation, reduce errors rates and improve resource utilization. It can uncover new and previously unrealized opportunities based on an improved ability to process and generate insights from vast troves of data.

The potential value creation for banks is one of the largest across industries, as AI can potentially unlock approximately $1 trillion of incremental value for them annually.

Realising the need for going mainstream with AI, banks internationally have already started harnessing the power of data to derive utility across various spheres of their functioning, including sentiment analysis, product cross-selling, regulatory compliances management, reputational risk management, and financial crime management.

AI and analytics will eventually become a part of every major initiative, in areas ranging from customers and risk, to finance, workforce, and supply chain.

Personalised experiences and products powered by advanced analytics and machine learning will be key to wooing customers in this era of intense competition. Banks have a chance to overcome the hurdles and join the analytics arms race before the frontrunners extend the gap that would be too far to bridge.

Legacy systems can become a major barrier to progress. By maintaining outdated legacy systems, the UK government risks wasting between £13-£22 billion over the next five years. The figures come from an independent investigation into the government’s Digital, Data and Technology function published by the UK Cabinet Office.

by Andrew Barnett, Global Head of Product Strategy, RIMES

It’s a lesson that investment managers know all too well. Currently, in many legacy systems data is centralised within firms and constrained by costly technology, such as Enterprise Data Management (EDM) platforms, Extract Transform and Load (ETL) tools and data warehouses.

As data volumes explode, firms are finding it more and more difficult to govern, quality assure and distribute data across the organisation with legacy systems. It’s little surprise, therefore, that only 4% of investment managers are happy with their data management systems.

The solution seems clear: make a clean break from the legacy systems of the past and invest in agile and scalable alternatives. However, for many firms this is a case of ‘easier said than done’. Often, asset managers simply lack the people or budget required to overhaul legacy technology and the valuable data trapped inside it. In other cases, firms are wary of potential hidden costs associated with decommissioning legacy systems, or the risk of disruption to business-as-usual, which they worry will negatively affect client service.

The cloud offers an alternative. In addition to cost-savings and the appeal of consumption-based pricing, the cloud provides a range of benefits for firms that makes data management transformation a realistic prospect for all asset managers regardless of their size, existing investments or budget/resource limitations. These benefits include:

• Ease of install. With a cloud-based delivery model, firms can avoid potentially disruptive upgrades of internal systems or being out of compliance with dated versions. Additionally, firms can migrate to the cloud one application or data set at a time due to the cost model and ability to operate over private and public clouds. As a result, they reduce risk by running legacy systems in tandem as they move to the cloud at a pace that suits them best without duplicating costs.
• Access to expertise. With the cloud firms not only access infrastructure and services, in many cases they can also draw on the expertise of a cloud-based partner. At a time when data skills are scarce this is a significant value add, as it allows firms to focus their internal data resources on value-generating data analysis tasks rather than low-value data management.
• Improved lineage and governance. Ensuring data governance, lineage and oversight is critical to compliance and staying in the terms of a licence, but it is often the area that firms struggle with most as legacy systems may not have the quality and governance needed in the modern highly regulated landscape. Cloud-based service providers can accelerate this process through automated services, delivering governed, high-quality data in a system-ready format.
• Adaptability. As operational data management issues arise, such as the need to adapt to emerging data demands, such as ESG, or manage intense market volatility, firms invest in people and technology to find solutions – some of which do not work. Cloud-based models avoid this waste. Relying on their service provider, firms can lean on proven service models, data expertise and scale to solve problems quickly and efficiently.
• Scale. A key reason these technologies have been allocated to the ‘sunsetting’ classification is that they do not have the cost-effective scale or flexibility that the cloud provides. We can’t predict the future but if we have a cloud-based cost model aligned with your revenue growth then we remove an important constraint.

It’s widely acknowledged that data insights will be essential to success in the investment management industry of tomorrow. Firms taking a legacy approach to data management will be at a disadvantage, hampered by uncontrollable cost increases and a dearth of talent needed to process data to then turn it into actionable intelligence. Coupled with the downward pressure on fees that continues to blight the industry, this approach is simply not sustainable.

Cloud-based managed data services offer an alternative by driving quality, efficiency, scale and adaptability across your data landscape, reducing waste and keeping a lid on costs. Make no mistake, firms need to oversee large scale changes to their data management systems. Fortunately, cloud-based managed data services make the case for this change stack up. More than that, they make it imperative.

The Covid-19 pandemic triggered an unprecedented macroeconomic shock that impacted the global financial system. The resulting market turmoil, together with significant spikes in volatility and trading activity, presented particular challenges to the design and the resilience of risk management in Financial Market Infrastructures (FMIs).

by Adrien Vanderlinden, Executive Director, Systemic Risk Office, DTCC

With the benefit of hindsight, FMIs around the world have successfully navigated this real-life test. That said, these events have also highlighted 5 focus areas for FMIs and their participants to proactively manage risk in a post-pandemic environment.

Risk model performance

First, it should be recognised that the market stress that emerged as the pandemic started to spread strained the ability of certain risk models that are based on historical data to produce reliable output. That said, models designed to function in ‘normal’ markets should not be discarded simply because they have limitations in extreme market circumstances. Instead, what this episode illustrates is a well-known fact that is not new by any standard: FMIs should have the requisite model performance monitoring, strategies, and governance in place to identify and address emerging model risk issues on an ongoing basis.

Margin procyclicality

Second, while margin procyclicality was already a topic of debate prior to the pandemic, the extreme market volatility we saw in March and April 2020 will likely make the issue much more prominent going forward. The most important goal for CCPs (central clearing counterparties) is to make sure that they collect enough margin to protect their members, underlying investors, and themselves in times of stress. It is also important to note that risk-based margining methodologies are naturally procyclical, as they tend to generate increased margin requirements during times of market volatility, which in itself is not inherently problematic. A potential mitigant is education so that FMI members are sufficiently prepared to anticipate the impact of volatility spikes and clearing activity changes on their margin requirements. As such, FMIs must further promote margin transparency through the continued availability of tools that allow their members to understand risk models and estimate margin requirements under a wide range of circumstances.

Sector-specific approach to managing credit risk

Third, FMIs need to take a more sector-specific approach to managing credit risk due to the significant divergence of pandemic recovery prospects across corporate sectors, geographies, and other variables. A key consideration is the extent to which banks and other financial institutions are exposed to sectors that have been particularly adversely impacted by the pandemic, such as travel and leisure. As a result, credit risk assessments need to include a sector-specific review, with a focus on firms with the greatest concentration of risk. In the banking sector, additional indicators of risk can be found by analysing stress test results, as well as reviewing macroeconomic and loan delinquency data released by various sources, such as the Federal Reserve and credit reporting agencies.

Continuous assessment of FMI members’ available liquidity

Fourth, given the spikes in volatility, trading volumes and margin calls, FMIs should continue to closely monitor clearing members’ financial resources, in particular available liquidity, on an ongoing basis, as this can change quickly in a crisis. Financial firms face trade-offs between maximizing profitability and ensuring they have access to sufficient financial resources in a crisis. While retaining surplus capital or maintaining sources of liquidity may appear suboptimal from a capital usage and profitability perspective, it can be crucial to surviving a crisis. FMIs must assess how their members balance these trade-offs and whether they have allocated sufficient resources for normal times, mildly stressful circumstances, and extreme events, such as the Covid-19 pandemic.

Impact of remote working on operational risk

Finally, FMIs must consider that remote work can create new operational risks that need to be managed on an ongoing basis. FMIs successfully transitioned their workforces during the early stages of the pandemic without material impact to services thanks to well-planned risk management strategies, as well as significant pre-pandemic investments in business continuity planning and supporting technological capabilities. An extended remote work environment and the development of return-to-office plans that may involve a change in staffing models will require developing and implementing new capabilities that support the identification, monitoring and managing of associated risks. Further, the growth of remote work in the future may create additional cyber security vulnerabilities that must be monitored and integrated into existing cyber risk management frameworks. FMIs will also need to evaluate strategies and controls to mitigate the operational risks created by a potential outage related to a critical third party.

The impact of the pandemic on financial markets created a real-life stress test for risk models as margins surged amid spikes in volatility. FMIs around the world clearly met this challenge, helping to safeguard global financial stability. While their robust financial risk management frameworks and BCP strategies proved effective, FMIs will need to continue to bolster efforts in these five areas to be prepared for the next market disruption or crisis.

Before Covid-19 emerged, the way employees viewed work was limited. With defined working hours and fixed office space, it was hard to imagine the drastic change that was coming. Today, more workplaces have adopted both hybrid and remote working, as employers learnt just how much could be done from home, or at least outside of an office.

by Joshua Bao, Co-founder, SUNRATE

This has resulted in a decrease in full-time workers, with employees taking on more freelance and flexible roles. Beyond remote working, the way the workplace may evolve and change are hard to predict, but what we do know is that it will impact the payments industry.

The changing workforce

Remote working existed prior to the pandemic but was not adopted as widely as it is now. Employers are currently offering remote and flexible working to stay competitive in the market, with studies showing that 70% of the workforce will be working remotely at least five days a month by 2025 – but this is not the only change.

Lockdown gave many a new approach to working. Around the world, many people started their own businesses, left their old roles and most interestingly, more became freelancers. A recent survey by freelancer platform UpWork found that in the U.S, 20% of current employees—10 million people—are considering doing freelance work. Not only are employees becoming more open to freelance work, but employers are, too, with the study also showing that nearly half (47%) of hiring managers are more likely to engage independent talent in the future.

How does this affect the payments industry?

From Bark and Toptal to Upwork and Fiverr, freelance marketplaces play a key role in connecting freelancers with businesses looking to hire. With more organisations based around the world employing freelancers, cross-border payments will be required at a much higher rate. Cross-border payment services will be needed more than ever to collect money from international clients and pay overseas freelancers.

The financial payments space must set itself up for the growing globalisation of the workforce, and as the world embraces flexible working and freelancing, this creates greater opportunities for platforms in the cross-border space to provide their services. This is especially important given the forecasted rise in the value of cross-border payments over the next six years – with research from the BCG predicting that the value of cross-border payments will increase from almost $150 trillion (2017) to over $250 trillion by 2027.

With the reach of freelance marketplaces growing, they must ensure the best processes are in place in order for funds to be transferred successfully – this is where cross-border payments services come in. Freelancing platforms must work with multinational payment service providers to help advise on overseas regulations and also provide fast payment speeds, payment tracking, strong security and transparent pricing. This will ensure the platforms pay and get paid efficiently.

What caused the workforce revolution?

These changes are important to note, but the catalyst of these must be understood too. A key cause of the change in the approach to working is technology. Digital communications platforms such as Zoom and WebEx have meant that staff are able to work collaboratively without being in the same room. Of course, many of these apps existed before, but with the emergence of Covid-19, the public put them to the test and became reliant on keeping in contact with colleagues. This created a “new normal”.

While major events such as a pandemic cannot be predicted, the payments space can now prepare for changes to the workforce. The increase of both remote and freelance work is likely to stay, and businesses should do what they can to prepare themselves for the modern and future ways of working.