January

Manish Patel, Chief Operating Officer, CRM, and James Mitchell, Managing Director (International), Tier1 Financial Solutions discuss why firms need to re-evaluate their technology requirements, and what is driving adoption of advanced CRM and compliance solutions in Europe.

With capital markets firms in EMEA already facing challenges on multiple fronts, why should they reassess their technology needs? And how has the Covid pandemic impacted working practices?

James Mitchell (JM): “There’s tremendous pressure on banks worldwide to deliver more with less. This is a pressing issue in EMEA, where research, sales and trading desks have seen budgets slashed and teams downsized. Many do not have the infrastructure to support advanced FinTech solutions that would enable them to maximise the value derived from client data, automate workflows and increase firm-wide collaboration.”

Manish Patel (MP): “The Covid pandemic highlighted the urgent need for digital transformation in capital markets. A year ago, we witnessed the rapid dispersal of entire workforces from the heart of Europe’s financial centres to remote environments, which in most cases meant home.

“Firms that were already well into their digital transformation journey, with tried and tested, integrated cloud-based systems in place, were able to adapt quickly. But for businesses heavily reliant on legacy systems and manual processes, the switch was far more challenging – not least because of the very specific and stringent security and compliance requirements of capital markets.

“As vaccine rollouts proceed and firms plan their tentative return to the office, they will need to decide which model – working from home, in the office or a hybrid of the two – is most appropriate for the business, its employees and clients. To ensure the business is flexible enough to adapt to changing circumstances, it will need robust technology solutions that are up to the task and a 360-degree view of clients that provides a more comprehensive picture.”

How can specialist CRM create value for capital markets firms?

JM: “The complex workflows of capital markets businesses require specialist solutions that can process huge, disparate datasets and securely deliver actionable, revenue-generating intelligence. European regulation, such as MiFID II, requires banks to have robust systems in place that enable them to track how they are servicing their buy-side clients.

“Specialist CRM can provide a ‘one-stop shop’ for managing everything from business-wide client interactions to corporate access events, delivering a comprehensive, 360-degree view of clients in a regulated, compliant manner. But we’re not talking about traditional CRM here; rather, capital markets-specific platforms – business intelligence solutions that enable firms to maximise the revenue-generating opportunities from client interactions, increase efficiency and productivity, and demonstrate their value to clients.”

MP: “The right, purpose-built solution will also enable increased transparency, collaboration, and connected data and workflows across financial institutions – from global banks to boutique shops. As a centralised hub for managing client information, the platform will deliver prompted insights, which in turn drives more informed, consistent and profitable business, and smarter client engagement.

“The adoption of new technology can be a complex, protracted and expensive undertaking – but with the right technology partner and solution, it doesn’t have to be.  Pre-packaged solutions and an accelerated delivery model can ensure rapid, seamless integration in weeks rather than months, at a fraction of the cost of custom-built platforms.”

Looking ahead, how should firms be approaching compliance when it comes to CRM in Europe’s capital markets?

JM: “In just over a year, there has been a marked shift in the capital markets landscape. Mobility and virtual accessibility are more important than ever, and data is our most valuable commodity. As the innovation curve progresses, vendors need to deliver more specialised, interoperable and relevant solutions to address the challenges capital markets professionals in Europe are facing – including being able to turn oceans of data into actionable insights.

“Although firms in the US and Europe have many of the same needs, it’s important to be attuned to the differences and nuances of these markets. Regulations will continue to shift and it is going to be imperative that end-users and vendors stay nimble in their approach to technology and, more specifically, CRM.”

As corporate banks look towards a post-Covid era, what Innovations should transaction banking heads fast track in 2021?

By Chetan Parekh, Partner Cedar Management Consulting International LLC

Covid-19 slowed down corporate and institutional business and, together with lower interest rates, has created a margin squeeze for corporate banks. Corporate income pools are shifting in a big way from interest to fees-based income from global transaction banking (GTB) services. GTB platforms have not only become important from the fee income perspective but they also enable corporate banks to lower costs due to innovation and STP enablement. GTB cash management services like liquidity management, collections, receivables, and payments are expected to contribute 60-70% of global transaction banking market revenues followed by trade finance and supply chain. This is a $1 trillion opportunity globally and worth $8 billion in the Middle East, according to recent research.

GTB business services are going through disruption with FinTechs, which are playing a pivotal role, providing both complementary and competitive offerings to corporate banks. Areas such as trade finance and supply chain finance are moving from paper-based documentary credit business to blockchain-based smart contracts. Even banks’ supply chain finance businesses are moving from simple factoring products and supplier financing products to innovative buyer-led programmes, reducing the cost of risk for global corporate banks.

Why innovate?

It is imperative that banks look to digitising their corporate banking transaction volumes in order to remain competitive and improve accuracy and speed of transaction. The digital revolution is affecting the business at large and the choice is simple: either to be the disruptor or the disrupted! Innovation in services for a disruptor can offer an edge. Hence, many corporate banks are structurally moving income pools from interest to fees-based services through FinTech innovations. Note that JP Morgan invests $11 billion annually in ‘Future Tech’ to drive innovation.

How to innovate?

There are two major ways for corporate banks to transform their platforms: building a digital platform of choice using ‘agile’ practices greenfield; or, second, “buy/partner” with GTB platform and FinTech solutions. Each model comes with its pros and cons, and suitability based on size of bank, its clients, and its capabilities. For example, French bank BNP Paribas transformed and innovated its GTB platform with the latter approach, with an eco-system of FinTech players and a platform of repute from global solutions provider Finastra.

Innovation requires a bank to identify segments and key unmet needs or pain points and then apply a design thinking-based approach to identify and build solutions. FinTechs can be very handy to reduce time to build and provide sustainable solutions over the cloud. Most FinTech programmes have only 90-180 days launch time, offering quick-tomarket solutions for large corporates and SMEs.

Banks must start to innovate by building an architectural blueprint, which is flexible at multiple layers from front, middle and back offices, including common services and de-coupling, and leveraging their back office platforms like core banking, treasury, and trade finance. The plan should allow corporate banks to have multiple vendor solutions that can co-exist from build to buy and partnering with FinTechs through API based integrations through Open API.

Innovation 1 | Open B2B APIs

Many banks over the years have built monolithic transaction banking systems and proprietary Host-2-Host adapters with their corporate customers. These are now giving way to API-based B2B services. This is not only faster but much more economical. In a recent survey of banking executives, more than 60% of them are investing in B2B API solutions.

There is a clear business case for the B2B APIs in the areas of cash management, payments, invoice reconciliation, and working capital financing. The platforms being rolled out globally by regulators and, for example, unified payment systems in India are enabling banks to further leverage API platforms. Once moved onto a B2B API platform, a bank may consider how expensive and cumbersome H2H proprietary platforms may be retired in a phased manner.

Innovation 2 | Build smart onboarding by segment

Corporate banks have traditionally followed an RM and branch/ service centre-based opening of relationship. The time has come to innovate across segments and build a digital onboarding solution. Banks should look to develop a solution for self-service onboarding for small and medium size corporates in partnership with local chambers of commerce and registrars of companies along with start-of-the-art authentication solutions. Consider innovations such as “Click and Sign” (as already approved by the European Union). You may also bundle a small to medium size ERP solution.

Develop assisted onboarding for medium and large corporate and institutional clients, allowing RMs to have tablet-based apps with information services such as Moody’s being integrated for credit appraisal information. The objective here should be to make your RM invest most time in relationship building and offering customised solutions, and let his tablet CRM do the onboarding!

Innovation 3 | Drive your digital SME bank

The SME sector is an important business segment for corporate banks with 80-85% of clients falling within this segment for commercial banks. Financial institutions should strongly consider offering a digital SME banking solution, whereby onboarding, account services, salary processing, payments and certain basic trade services are offered through a digital platform well supported by virtual RMs and BOTs.

Innovation 4 | Digitise through blockchain and smart contracts

The trade finance business is being disrupted. Blockchain and distributed ledgers are here to stay. Documentation secured delivery and contracting were material pain points in the industry which are resolved through a consortium-based approach. Invest carefully, adoption needs to be measured to avoid the pitfall of investing in technology without measurable returns. Know your clients, understand the market realities and counter party readiness to transact. For example, in Citi’s CitiDirect BE trade services portal import L/C are assigned by a counter party digitally and processes automated, reducing both operational cost and the risks involved in physical documentation.

Innovation 5 | Partner with Cloud based SCF Platform with Ecosystem

Up to 10% of the revenue pool of corporate banks will be based on supply chain finance (SCF) products such as factoring, supplier finance, receivables finance and buyer-led programmes. These niche lines of businesses are very interesting and help banks in distributing risk across the SME customer portfolio. Many of these products may be offered via a platform with limited RM or operational interaction. Partnering with an SCF platform, within an ecosystem could be very rewarding for corporate banks as it brings in digitally originated and highly scalable business. Products such as distributor financing and buyer financing are low risk, high income products. There are multiple platforms available from suppliers such as Codix, HPD Lendscape, Neurosoft, Premium Technology, Aranova and Demica to name a select few. Banks also have the option to put this solution on cloud or on premise.

In summary, corporate banks must innovate, developing GTB platforms either by build or buy/partner with FinTech. They should create a flexible GTB system architecture, which allows the bank to invest into FinTech opportunities to build differentiated products and services for its business segments. Investment in next generation technology architecture offers the potential to disrupt the market, acquire clients at rapid pace and lead the way for industry rather than being disrupted!

Driven by the accelerating expansion of smartphone capabilities − alongside consumers’ increasing levels of trust − the opportunity for FinTech’s is unravelling at varying speeds across different international markets. Siri Børsum, Global VP of Finance Vertical Eco-development & Partnerships at Huawei Consumer Business Group, explores the ways in which different markets are racing to adjust to this digital revolution, and how smartphones are at its very centre.

When we look at the markets prioritising FinTech’s and their development, across the board we’re seeing waves of innovation, a surge in consumer trust, and a solution to supporting the unbanked. It’s clear that FinTech’s are changing the game, although some markets have recognised this faster than others.

Europe – record-breaking investment, but some serious catching up to do

Let’s take a look at Europe as an interesting example. Considered one of the fastest evolving continents in the FinTech sector, Europe’s capital investment reached a whopping €30 billion between 2014-2019 – Europe’s largest share of equity investment. This fed the growth of online and mobile banking startups, and now, online banking is becoming one of the most popular payment methods in Europe. Investment in this space shows no signs of curtailing, with data showing how the pandemic contributed to the acceleration of cloud services and similar solutions for the industry.

The Nordic FinTech scene, in particular, has shown immense strength. As stated in the FinTech Mundi report, some of the biggest names in financial technology came from the region. Northern Europe alone is home to 993 FinTechs, with several of its countries punching above their weight globally. The FinTech Mundi report also revealed that three Northern European countries (Lithuania, Sweden and Estonia) feature in the Global FinTech Index Ecosystem’s top ten, and all but Iceland feature in the top 50.

Yet, alongside the FinTech investment that we’re seeing in Europe, there’s the sobering realisation that we’re still very far behind. Europe’s FinTech development remains slower than other markets, with a plethora of challenges that need to be addressed. From consumers’ trust in traditional financial systems to relatively low interest rates depriving a mass-market adoption of alternative lending, lucrative investment opportunities are more complicated here − even when we consider the huge number of potential investors.

Banking and mobile technology still feels new in Europe. QR code payments, for example, saw an accelerated uptake as a result of the pandemic. But even now, they’re somewhat futuristic in this market compared to elsewhere, where a QR code payment is standard practice − and it’s been this way for a long time.

China’s flourishing FinTech sector, with smartphones at its core
So, if Europe isn’t leading the digital revolution through its investment and prioritisation of FinTech’s, who is? The answer is China. Thanks to the staggering rise of smartphones and online shopping, China’s FinTech revolution is in full swing, especially in the field of digital payments.

Historically, China has demonstrated fertile ground for a FinTech revolution – it boasts a growing and underserved SME market alongside escalating e-commerce growth. Combine this with a timely explosion in online and mobile popularity (we’re talking about 1.3 billion mobile internet users), and it’s clear why the Chinese market has spearheaded the boom.

We can trace the progression China has made back to 2016, by which stage, 40 per cent of consumers were already using new payment methods rather than traditional ones − 35 per cent of which were using FinTech’s to access products. Going back to QR codes, mobile payments in this way have been commonplace in China for a decade, while Europe’s most common payment method in 2010 was still debit and credit cards.

Now, China is leading in the digital payments and alternative lending sectors, both crucial to the progression of the FinTech industry, and it’s predicted to stay in the lead until at least 2025. Why? The country’s total digital payments transaction value is likely to hit over $4,185 billion by 2025, compared to the world total of $10,520 billion.

China ‘s FinTech success: all-inclusive technology
So, what’s the point? Arguably, the most important question when assessing the possibility of FinTech’s is: what are the benefits to the end-user? How will FinTech’s improve our lives? Technology must be used to enhance our lifestyle and drive change in the areas where we need it most.

This is something that FinTech’s are confronting head-on. As more players enter the market, more solutions are becoming available to consumers. China’s FinTech sector for example is driving innovation which is leading to better technology and enhanced consumer experiences. Because of the market’s approach to alternative lending, accounting for 86 per cent of the global share in its transaction value, China can offer smaller FinTech players the chance to compete in a flourishing industry. This, in turn, promotes competition for innovation, which drives choice for consumers.

Markets that are prioritising smaller organisations’ access to funding are also the ones to see that investment returned – China’s growth rate shows no signs of slowing, with estimations that the country will account for a global market share of 88 per cent of Alternative Lending by 2025. The demand for alternative payment solutions will only continue to grow, meaning that as more organisations launch a greater choice of services, we can drive the prospect of global Financial Health into existence. As is always needed when addressing a lack of inclusion, smaller players must disrupt the industries previously dominated by traditional systems.

Open Banking creates innovative technology to connect the dots
From Europe to China, one thing is clear: FinTech startups are driving the financial revolution. And, when looking at achieving Global Financial Health, there’s an obvious solution at our fingertips. It’s never been more important to champion the smaller FinTechs and facilitate technologies such as Open Banking. This is something we’re committed to at Huawei, partnering with FinTech providers to support their development and growth while also offering our mobile users’ access to a choice of the services that they need the most.

Open Banking is a product of the growing competition and consumer-centric model in the FinTech sector, and a bridge to connect the technologies needed to meet customer expectations. It has the potential to help banks learn about customers’ patterns of behaviour, financial health and investment plans and goals, enabling them to create better services and products.

Industry leaders are being advised to make strategic partnerships to make the most from Open Banking, identifying new capabilities from partners that can help to enable compliance and operational readiness. Through forming third-party partnerships and gaining access to new resources including data-sharing, organisations can create more competitive products, services and experiences for end-users. We believe that we’re only at the start of an Open Banking future and better global financial health, and more competition in the FinTech sector will only help to drive this journey.

Driving global financial health for all
Financial Health means all individuals, businesses and organisations around the world having access to a choice of the financial services that work best for them. It’s our vision for the finance industry, and a top priority with AppGallery.

To drive Financial Health, FinTechs and banks around the world need access to a global audience, as well as the full-spectrum support, advanced technological capabilities and commercial opportunities needed to help them grow.

After three years, AppGallery is the third-largest app marketplace globally, with over 540 million MAU, so banking and FinTech app developers can trust that they’re tapping into a truly global audience from launch.

It’s through partnerships, competition and mobile technology that we, as an industry, can achieve global financial health together, bringing better solutions to every home, business and organisation.

Siri Børsum
Global VP of Finance Vertical Eco-development & Partnerships
Huawei Consumer Business Group

Digital banking has long been considered the ‘future of banking’. We’ve seen numerous market entrants look to bring customer-led propositions to market to bring the experience customers have come to expect from all their online services.

By Sarah Carver, Head of Digital & Trevor Belstead, CIO Wholesale Banking & Post Trade, Delta Capita

This expectation has increased with the pandemic, which effectively operated a digital-first experiment, forcing banks and customers to embrace it. Over the past year, consumers have got used to doing almost everything online.

This has led to a fundamental shift in customers’ expectations with them now expecting this level of ease on everything, including their banking. In parallel, banks have seen the potential for both the NPS improvement and reduction in cost to serve through increased self-service by investing in their digital channels.

Digital banking is not a new trend; branch usage has been in a gradual decline as banks have continued to invest in digital channels and reduce branch density. However up until now this customer shift has been a gradual process and the experience (or lack thereof) hasn’t been sufficient to make customers switch en masse to digital challenger banks as their prime account. Albeit many have dipped their toe in the water with Monzo, Starling, Revolut amongst others as a secondary account. However, this shift has sped up over the last year with 27% now having an account with a digital-only bank in the UK.

So why are people opening digital-only accounts? Convenience is, as expected, reason #1 with 26% citing this, closely followed by users wanting a ‘secondary account’ and finally ease of transferring money. However, it’s not all about functionality and servicing; 1 in 10 consumers are still drawn predominantly by the brand, citing the ‘cool cards’ as a reason to get an account. This is a more challenging one for the heritage banks to contend with given their brand values driven by trust, security, steadfastness rather than a challenger which can ooze coolness with a neon or metal card and informal website copy which connects with customers on a more personal level.

How can heritage banks respond?

• Ensure you are not held back by your legacy stack: This is the number one challenge we see with our clients. Where, in the desire to digitise and create that perfect customer experience, there’s a sidestep around their legacy technology. Without tackling this challenge, the spaghetti junction of systems can prevent the organisation from doing anything quickly or add a burden of cost which limits where the spend should be going, which is differentiating that front-end customer experience. It’s perhaps not the most glamourous part of the digital transformation for an organisation but it is a critical one.
• Validate tactical tech: At the start of the pandemic, banks had to react and adapt in a very agile and quick manner. Depending on the level of digital maturity many had to quickly spin up digital banking solutions and embed new tech to deliver to their customers. However, now it’s critical to take a step back and ensure that all tech is strategic and integrated in a way that ensures it is future-proofed. This is a particularly challenging area given in some cases there has been large investments made but now is the time to ensure that what you’ve got is not just ‘good enough’ given digital banking will only grow over the coming years.
• Really take the time to understand your USP: Partnering has become the standard in the industry with an increased appetite to partner or buy rather than build in-house. This has hugely expedited delivery and has also ensured organisations aren’t investing unnecessary budget in what is ultimately non-differentiating services. However, there is still a need to invest in research and understand your target customers. Stepping back with a critical lens is important because if you streamline your digital journey but it’s still essentially a non-differentiated vanilla offering, you’re not going to see the adoption you expect. This can be through many different guises, new product or service offerings, brand positioning such as sub-brands to target different segments and critically understanding and utilising your data to speak to your customers in a far more targeted way.
• Do you have the right business model: The evolution to digital banking is not just technology, it is organisational and business focused as well. To really achieve a digital bank, the organisation itself must become digital and agile across the board. Traditional banking models that were previously used in the branch cannot just shift as is to meet the digital ecosystem the bank needs to operate in. The organisation needs to look at its business model across the board, starting at customer servicing, product development, operations, and technical delivery.

By David LaFalce, Managing Director, Global Head of Business Continuity & Resilience at the Depository Trust & Clearing Corporation (DTCC)

Planning for operational resilience will unquestionably be a strategic priority for firms over the course of 2021 and beyond. In an increasingly interconnected and digitalised world, organisations can be vulnerable to disruptive events related to technology-based failures, system outages and cyber-attacks. This has been further highlighted by the Covid-19 pandemic, with organisations needing to adjust their operational resilience plans to take into account not only the health impact to employees, but also the effects such as the shift to remote working. At the same time, because of climate change, firms also need to consider the increased likelihood of natural disasters threatening significant operational disruption.

Such a diverse risk landscape requires firms to continuously evaluate how they operate, communicate and safeguard against threats – some known, and some not yet known. While predicting a disruption can be challenging, there are measures organisations can adopt to further evolve and enhance their operational planning and response. This is even more pressing in light of the growing attention from global regulators and government agencies who have been gradually increasing their focus and oversight of firms’ operational resilience plans.

In the US, recently, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) released an interagency paper outlining sound practices drawn from existing regulations, guidance, statements, and common industry standards, designed to help large banks increase operational resilience.

In the UK, the Bank of England, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have proposed a regulatory framework to promote operational resilience of firms and financial market infrastructures (FMIs). This has culminated in the three UK supervisory authorities publishing a shared policy summary and coordinated consultation papers aimed at prompting a dialogue with the financial services industry on new requirements to strengthen operational resilience across the sector.

In Europe, policymakers are also addressing this topic, with the European Commission adopting the Digital Finance Package (DFP) in September 2020. This includes the Digital Operational Resilience Act (DORA), which requires participants in the financial system to have the necessary safeguards in place to mitigate cyber-attacks and other risks around the use of information and communications technology (ICT).

Until recently, operational resilience was typically developed with a risk-avoidance mindset focused on the end goal: full recovery. However, given the increased regulatory focus in this area, and with organisations facing a greater variety of operational threats than ever before, businesses must widen their planning scope to ensure the continued delivery of critical services, even with some systems becoming unavailable. In response, firms must consider evolving their operational resilience practices while focusing on three key areas:

1. Tailored approach
Firms must assess and develop long-term business continuity plans and operational resilience strategies in accordance with their specific needs and those of the clients they serve.

Developing maturity matrices – a “checklist” intended to evaluate how well-developed a particular process or program is – can be beneficial to establishing resilience program goals, as well as to managing expectations and measuring a firm’s performance against those predefined goals. It is no longer sufficient to have an optimum system of risk identification, evaluation, and assessment; companies must now be able to predict potential disruptions and be agile, adaptable, and resilient to continue to thrive. This premise has driven firms’ shift from a pure risk focus to a risk and resilience approach.

2. Know your assets
Firms and FMIs can identify relevant risks by mapping important business services to their operational dependencies, including locations, systems, suppliers, and people. For example, organisations need to ensure they know where the critical workforce, such as subject matter experts, key decision-makers and employees with critical skills are located and ensure that the risks associated with geographical locations are understood. A crucial part of an efficient operational resilience strategy is conducting a thorough “bench-strength” analysis, assessing critical processes and the depth of people who are able to provide support. This should include an estimate of the timeframe required for peers to take over the responsibilities of those who are not able to perform them.

3. Supply chain disruption
The use of third, fourth and even fifth-party suppliers to deliver a firm’s services, specifically those related to critical operations, has risen in recent years. As such, organisations are increasingly required to establish detailed processes to measure, monitor and control the potential risk exposures associated with outsourcing these services. This includes consideration for testing and availability of backup providers and failover procedures.

One of the crucial issues that requires thorough evaluation is how far back in the supply chain organisations are able to go to assess risk threats, particularly for third-party suppliers providing critical services. While opting for supply chain restrictions may be challenging in today’s interconnected operational environment, it is important for firms to realise that it might be more difficult to achieve operational resilience if they rely heavily on vendors with whom they don’t have direct contact.

As a result of the challenges revealed by the Covid-19 pandemic and increased regulatory focus, operational resilience will continue to be a high priority for financial services organisations in the coming months and years. Building a robust operational resilience model is critical to ensure the continued delivery of services. By moving away from a “one size fits all” resilience approach to each firm knowing their unique assets and understanding the implications of a potential supply chain disruption, organisations can tackle key issues head-on and better prepare themselves against future threats.

David LaFalce
Managing Director, Global Head of Business Continuity & Resilience
DTCC