The sale of a kinetic 3-D video sculpture called HUMAN ONE earlier this month at Christie’s in New York was a milestone in the art world and not a bad day for the artist, Mike Winkelmann, better known as Beeple. The artwork sold for $29 million to a buyer in Switzerland, $14 million above the guide price.

by Adi Ben-Ari, Founder and CEO, Applied Blockchain 

What makes this piece different is that the video sculpture combines physical and digital technology. It came with an accompanying non-fungible token (NFT) representing the underlying digital assets. The artwork of an astronaut-type figure walking through an ever-changing backdrop draws on videos with an NFT on the Ethereum blockchain. The work was available for purchase using Ethereum.

The sale marks a coming of age of sorts for NFTs. To illustrate the speed at which this phenomenon has developed, even Beeple said he was unaware of NFTs a year ago. Since then, he’s sold around $100 million of digital NFT artworks – in March he sold a work entitled “Everydays: The First 5000 Days” for $69 million, the first of its kind.

NFTs are unique, digital certificates stored on a blockchain. They are a powerful tool to establish and demonstrate a type of ownership, particularly for digital assets which can be so readily copied. The non-fungible element reflects the uniqueness of each digital asset and the different values of each. Fungible assets include pounds, dollars, Bitcoin and other similar instruments that are identical and interchangeable. NFTs are generated using a “smart contract”, which is basically coding stored on a blockchain.

Digital art fuels public awareness of NFTs

What’s clear is that since NFTs entered public consciousness early in the year, they have seen a meteoric rise. Trading volume in the third quarter exceeded $10 billion, up 38,000% on the previous year. What’s more, artists, athletes and gaming developers are increasingly investing in blockchain technology to provide their audiences with unique digital assets, meaning that numerous NFT marketplaces are opening every month.

Cryptocurrencies have been around for over a decade – borne of the 2008 financial crisis – but only in the past three or four years have they started to become more mainstream. The NFT market has piggy-backed on that luring those investors who are seeking out the next new thing – the next big alternative asset class offering the potential for big returns. Blockchain is the engine for both instruments.

Blockchain records all transactions in a way that is indelible – records that are much harder to change or hack. As well, it is decentralised, meaning that control of security moves from a centralized entity, such as an individual or organisation, to a distributed network of people or entities. The technology demands transparency, accountability and puts the power into the hands of its users. That’s one of the appeals of NFTs.

One of the features of Ethereum is that it allows developers to implement so-called smart contracts. These smart contracts are essentially packets of code that may also define a digital asset and confirm that the asset as individually unique, traceable and verifiable. All NFTs have smart contracts attached to them.

Iron-clad indestructible proof of ownership

To date, NFTs have generally been linked with the art world. The value lies in the ability of the technology to prove its origin with absolute technical certainly. NFTs feature iron-clad, indestructible proof of ownership along with provenance that will last as long as the blockchain itself (forever?). In the future, every digital artwork is likely to have an associated NFT. The liquidity of an NFT certainty adds value – in the art world, that can be worth tens of millions.

An additional attraction of NFT marketplaces for artists is that they are cheaper. In the traditional art world, a gallery could easily take 30% or more of the takings on an art sale. NFT marketplaces typically charge less. This enables the artists to earn more, in particular on multiple and frequent secondary market sales, which matters because most are not as commercially successful as Beeple. NFTs also enable artists to connect directly with their customers as each purchase is documented on the blockchain and the creator is clear.

Collectors and investors are now scrambling to add such digital collectables to their portfolios, which is having a significant impact on the wider token and digital asset market. Digital collectables have driven many headlines, but the real-world application of NFT technology is even broader, extending across multiple sectors. Businesses, regulators, governments and authorities all, in different ways, stand to benefit if they are able to harness the potential of NFTs. In short, NFTs are not a fad.

So where next? The security and efficiency of smart contracts enable NFTs to be used as tickets for concerts, safeguards for digital identities or digitally tradeable representations of physical collectables and luxury items while those are in custody.

In the music industry, with the decline of physical sales and digital downloads, music artists often rely on income from streaming, which tends to reward intermediaries, such as the streaming platforms, and record labels disproportionately. NFT’s enable fans to engage directly with the artist through asset and financial transactions.

With collectable NFTs, artists gain the opportunity to establish a direct relationship with listeners and fans, enabling them to benefit financially. They also enable the payment of royalties to the original content creators – regardless of where or how the sale of NFT items occurs.

Other NFT applications are where the interest lies

One particularly valuable feature of NFTs is that they bring liquidity to previously illiquid assets. This happens through enabling ownership to change via digital platforms, especially those with global reach. Trading can be extremely efficient, requiring fewer intermediaries than traditional markets as a result of using digital guarantees. Innovative and efficient blockchain-based financing options in the form of DeFi (decentralised finance) are beginning to accept NFT’s as collateral for lending.

NFTs could also allow fractional ownership in assets such as property. This would mean property owners could unlock value from their properties and then raise funds without the assistance of multiple parties. Indeed, this approach could apply to the sale and exchange of businesses, or investments in sports star equity, whether in part or in their entirety.

Looking forward, blockchains need to become more interoperable with one another, so that an NFT minted on one blockchain is transferable to another blockchain. This is of growing importance, in a similar way that global mobile phone connectivity and then mobile app interoperability was such a big issue a few decades ago.

Applied Blockchain has built major NFT marketplaces for some of the world’s leading artists for both digital and physical art, as well as numerous other blockchain applications. NFTs offer a way to release inherent value and in doing so they create liquidity. It should be no wonder NFTs are generating such excitement across so many markets.

The payments industry has continuously evolved over the last few decades and the pace of change has only increased. Technology has contributed significantly to delivering payment services to the consumer. These changes are driven by the need to increase the lending portfolio reliably with a seamless customer experience.

by Aravind Irodi, Senior Vice President, Head of Practices, Attra, a Synechron company

The recent incarnation of Buy Now Pay Later products – as available against other financial services solution such as credit cards — to a standalone solution financed by FinTechs has taken the industry by storm. This has led to a number of new players, such as Klarna and Afterpay amongst others, achieving significant growth in lending volumes. These FinTechs are lending to the new age population and taking market share away from the traditional card players on short-term credit. The FinTechs are underwriting the risk and it has shown to be a profitable initiative for the now larger players. Additionally, other well-known retail platforms (like Amazon.com and Walmart) have recognised the vast opportunity and are implementing this phenomenon for their customers.

Traditional payment service providers (a.k.a. card issuers) have an opportunity to capitalise on their existing customer relationships to provide revolving credit in a Buy Now Pay Later fashion, independent of card networks. They can use their existing accounts receivable infrastructure to provide this service with changes at the point of sale (POS) to provide the payment option and direct settlement with merchants. These payments providers possess the added advantage of having an existing customer base and credit assessment infrastructure in place under which to make credit allocation decisions. Accelerated deployment of market-ready solutions is the key to ensuring that market share is retained as FinTechs disrupt the marketplace and bigger, steadfast participants seize the opportunity.

In pursuit of superior seamless payment experiences

There are also innovations happening on the merchant side to make payment experiences seamless. A key global trend across large merchants in recent years has been to provision an omnichannel experience to its customers. This is now coming of age, with technology solution providers building out solutions to cater to this need.

Customer touch points have evolved with payment options, such as contactless cards, wallets and QR code-based payments. Each of these payment options have penetrated markets to varying degrees across the globe. Contactless payments have been mainstream in Europe and Australia for the last decade whilst playing catch-up in other markets. QR code payments have had significant acceptance in the Asia Pacific market and are now finding greater acceptance across the globe. The form factor is also evolving with the usage of wearables, such as smart watches and voice enabled payments from devices such as Alexa, finding their way into the payment ecosystem. Digital wallets, an innovation that has been in existence since the emergence of PayPal, is now gaining market share in super app ecosystems with each of the major players coming up with their own proprietary wallets. Card issuers are also moving towards a digital form factor, particularly for their prepaid cards.

In an attempt to significantly improve the shopping experience with a completely seamless payments interface, Amazon has now pioneered ‘just walk out’ technology under the brand Amazon Go. It is now offering this technology to other retailers with the market expected to evolve in the near term. These innovations are leading to the co-existence of various payment options across the globe. The hybrid ecosystem is largely due to market segmentation, not just by geography but also customer demographics and investments for large scale deployment in larger markets.

Constant ecosystem technology updates   

These continued changes in improving customer experience and making payments seamless has meant that merchants and their technology service providers must constantly keep their systems up to date. Brick-and-mortar stores have a wide variety of POS infrastructures and increasing payment options mean constant updates to this ecosystem. The online payment options are relatively easier to change. Aggregated payment gateway service providers enable a faster deployment of the latest technologies for online payment service providers.

We foresee continued evolution of payments with an increasing focus on customer comfort and making payments as seamless as possible. This would require financial services organisations to enhance their technology infrastructure in order to support these advancements and in keeping pace with market leaders. The traditional payments service providers, such as card issuers, need to have a forward-looking business team looking to launch new product options for consumers and, equally as important, is to have a technology team to enable a fast time to market.

While disruption from the pandemic has highlighted many opportunities for development across multiple industries, it has especially emphasised the need for digital transformation within the financial services market.

by Hans Tesselar, Executive Director, BIAN 

At the beginning of the pandemic, financial institutions realised what it meant to be truly digital. Research from EY found that 43% of consumers changed the way they banked due to Covid-19 favouring a more digital approach. Almost overnight, banking organisations were forced to shift their focus towards becoming more agile, resilient and, above all, digital.

Despite the importance of transformational efforts, the financial services industry continued to come up against obstacles, highlighting the need for urgent industry action.

Digital-First Customer 

The financial services sector has realised that without the comprehensive digital infrastructure necessary for today’s environment, they are unable to bring services to market as quickly and efficiently as they would like – and need. The extensive use of legacy technology within banks meant that the speed at which these established institutions could bring new services to life was often too slow and outdated.

This challenge is also complicated by a lack of industry standards, meaning banks continue to be restricted by having to choose partners based on their language and the way they would work alongside their existing ecosystem. This is instead of their functionality and the way they’re able to transform the bank.

To move forward into the ‘digital era’ and continue on the path to true digitisation, banks need to overcome these obstacles surrounding interoperability. Additionally, with today’s digital-first customer in mind, financial institutions need to take advantage of faster and more cost-effective development of services. Failing to provide these services may force customers to take their business elsewhere.

One thing is certain, consumers will continue to prioritise organisations that can offer services aligned to both their lifestyle and needs.

Coreless Banking 

The concept of a ‘Coreless Banking’ platform is one that supports banks in modernising the core banking infrastructure.

This empowers banks to select the software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability and being constrained to those service providers that operate within their language. By translating each proprietary message into one standard message model, communication between financial services is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data.

With the capacity to be reused and utilised from day one, and the ability to be used by other institutions, Coreless Banking provides these endless opportunities for financial services industries to connect, collaborate and upgrade.

The Future is Bright

It’s clear that the world is facing a digital awakening, and banks are eager to jump on board. Ensuring that the rapidly evolving consumer has everything they need in one place has never been more essential, and the time to enhance the digital experience is now.

Trade surveillance departments are under intense pressure from regulators to catch trade market abuse and fraudulent activity. But monitoring is becoming increasingly complex.

by Paul Gibson, Business Development Director, KX

Financial institutions must monitor activity relevant to their specific business, this means checking for market abuse, fraud, market disruption and fair practice as well as more malign abuses such as money laundering to support criminal activities like terrorism and people trafficking. This often means analysing vast amounts of both historical and real-time data, in a variety of formats from trade data to electronic communications. Analysts are becoming weighed down by large amounts of alerts and investigations, many of which prove to be unnecessary when other factors are considered.

To deliver a successful trade surveillance programme that satisfies the rigour of the regulators and the efficiencies demanded by the business, a consolidated approach is required. It must be effective across all lines of business for the detection of emergent, systemic and often unknown risk, and take a proactive approach to make sense of all of the interactions, dependencies, changes, patterns and behaviours across the entire trade lifecycle.

Cross-Product Analysis

Organisations need a platform that can process vast amounts of data from multiple streams in real-time, allowing users to make decisions on alerted behaviours much more effectively with significantly greater efficiency. This means using cross-product analysis to identify errors, automated techniques to reduce false positives and machine learning to extract insights from both historical and real-time data.

Traditional instrument-by-instrument trade surveillance techniques do not typically extend their analysis to related products. This means that in certain areas, such as credit and rates, the links between the topics and how they are affecting one another go unseen. This is opposite to risk management techniques across the same technologies where trade dependencies are closely monitored.

As such, it is important to incorporate risk management elements, such as benchmark and sensitivity measures to help identify potential abuse over a range of instruments. This enables products to be broken into their risk fundamentals and effectively ‘look through’ to the underlying securities in an analysis. In looking for evidence of manipulation of a Financial Risk Advisor (FRA), for example, the analysis may extend to monitor both futures and interest rate swaps too.

Reducing False Positives

The more information available to businesses means the more insightful judgements can be made. In regard to false positives, the presence of surrounding data can help contextualise results by automatically classifying high volumes of alerts. Analysis can then determine which are material and which are not. False positives reduction techniques fall into three areas:

• Data Filters – Filtering out specific data or activity that may not be applicable. For example, excluding immediate-or-cancel (IOC) orders from Spoofing profiles.
• Use of Dynamic Thresholds/Benchmarks – Replacing static thresholds with automatically adjusting parameters that reflect evolving market conditions and changing behaviours, not only of individual traders but across the market.
• Alert Feature Overlays – Including surrounding factors for context in assessing alert severity. For example, factoring in change in portfolio concentration when monitoring potential insider trading.

When used together, these factors help avoid unnecessary and time-wasting alerts that distract analysts from the more important and pressing investigations. Thereby, optimising both operational efficiencies and effectiveness for mitigation of true risks.

Future of Trade Surveillance relies on Machine Learning

From calibration to error reduction, machine learning enables a variety of business practices to be improved. Detection rates can be continuously refined using a blend of supervised learning, unsupervised learning and feature extraction techniques from the historical data store.

Supervised learning uses analyst feedback and assessment of historical results to train models and improve their accuracy. Unsupervised learning works on its own to discover the inherent structure of unlabelled data, using techniques like One-Class Support Vector Machines (SMVs) to detect anomalies to help classify results based on distributions and similarities.

SVMs establish normal behaviour by learning a boundary and then adding a score to the results, based on their distance from that boundary. This adjustment can then guide analysts on what investigations to prioritise. Indeed, the benefits of AI and machine learning are well documented, but their application for improving detection rates in trade surveillance is limited.

Regulators are still hesitant to allow machines to determine whether an activity is suspicious or not. This means that the majority of what we are seeing is a supervised learning approach. However, the regulatory landscape continues to evolve and the demand for real-time decision-making is mounting. Therefore, organisations will need to make a shift in mindset and capitalisation of narrow AI with unsupervised machine learning if they are keen to detect fraud effectively and accurately.

As a result of the ever-evolving market abuse tactics being detected, and which need to be prevented, the requirements for strong trade surveillance are more demanding now than ever. For firms, this increased complexity requires them to adopt a consolidated solution that delivers accurate insights when it’s most valuable – at scale both historically and in real time, enabling users to analyse data at a breadth and scale that wasn’t previously possible.

The flexibility of a high-performance streaming analytics platform is a game-changer for real time intervention where necessary and the timely flagging of abnormal behaviour based on large amounts of historical data. By using this technology, firms can take a proactive approach in their response to abnormal behaviour in as quick as microsecond, instead of reacting when it is too late. By doing so, firms can work to improve detection rates and make significant savings through fewer false positive cases and ensure operational efficiency is met.

Unsurprisingly, building a digital bank – either from scratch or from an existing infrastructure to become truly digital – is no mean feat, and there are plenty of obstacles along the way. (We’ll come onto those later).

by Max Johnson, Global Head of Business Solutions at Fidor Solutions, a Sopra Banking company

Meantime the number of challenges that legacy banks are facing is stacking up: Keeping pace with new and changing regulations; loss of market share caused by struggling to meet the needs of digital and non-digital native consumers alike; maintenance of outdated systems. They’re all issues that banks have to contend with.

And while new industry entrants are also up against problems of their own, they’re often immune to some of the issues faced by their incumbent competitors.

To remedy this, many legacy banks look to their modern, more agile competitors for inspiration, and digital transformation is often at the heart of their strategic response. By digitising their existing processes – and doing so at speed – and offering customers truly digital, innovative products and services, they hope to beat the digital banks at their own game.

Likewise, non-legacy bank organisations sense an opportunity. The number of new digital banks being created has risen exponentially in recent years, quadrupling from 60 worldwide in 2018 to 256 in January of this year.

Nevertheless, whether it’s legacy banks looking to accelerate their digital transformation or new industry entrants interested in building something from scratch, the question remains: How can you build a digital bank?

What is a digital bank?

At a quick glance, a digital bank is simply an organisation that provides traditional banking services via a computer or mobile device. Indeed, the core products and services offered by digital banks don’t necessarily differ from those of their incumbent competitors. However, there are some key differences that set digital banks apart.

For a start, digital banks tend to target digital native customers who, oftentimes, feel neglected by legacy banks. Some important customer needs met by digital banks include:

• Transparency: Digital banks rarely have hidden or excessive fees
• Experience: Digital banks typically offer fast and easy-to-use services and support
• Accessibility: Digital banks often allow their customers to access their services at any time, from anywhere

Targeted customer-centric service is at the heart of what makes a digital bank. Rather than resting on their laurels, digital banks are known for continuously adapting their value proposition to better meet the needs of the market. Fidor bank, for instance, has focused on customer engagement by giving customers a voice in how the bank is run, by “discussing the future interest rates, or naming the current account card that the bank will use.”

Such an approach has reaped rewards, even during the pandemic. In the US, for instance, the number of customers served by digital banks rose by 40% from 2019 to 2020, per a recent Forrester report.

By offering user-friendly and relevant services, digital banks can set themselves apart from their incumbent competitors. It’s both the definition of what makes a digital bank and part of the key building blocks required in building one.

Challenges in building a digital bank

It’s easy to say that building a digital bank is the future, but there are of course challenges.

First and foremost, acquiring customers, deposits and active accounts is always the biggest hurdle to overcome, especially getting money into the system to begin with. Offering prospective customers with USPs and attractive products and services (such as those mentioned above) is a great place to start, but building such a strong portfolio can be time consuming and costly.

There’s also the red tape to bear in mind. While it differs from region to region, banking is an extremely regulated sector, and there are plenty of administrative hoops to jump through. This can be a lengthy and expensive process, which is why many emerging digital banks often partner with legacy banks. The US-based digital bank Chime, for instance, partnered with Bancorp, who provides the banking license and deposit insurance.

Of course, legacy banks wishing to go digital are less concerned with banking licences and building a customer base from scratch, but they do have different challenges to overcome.

Many legacy banks have cultures and technologies that are difficult to change. Becoming truly digital means having agile technology capable of continuously adapting to an ever-changing market, as well as having an open culture of change within the organisation. And in the same way that creating the building blocks of a digital bank can be time consuming and costly, so can implementing the change to go truly digital.

Building out a roadmap

Clearly, launching a digital bank is far from easy. There are plenty of boxes to tick and potential problems to be navigated. Furthermore, launching a digital bank is by no means a guarantee for digital success. The market is becoming increasingly crowded, and plenty of digital banks have already failed, including Bo by Royal Bank of Scotland, Finn by JPMorgan Chase and Greenhouse by Wells Fargo.

It’s therefore vital to approach building a digital bank in the right way. We believe that approach starts with putting together a roadmap. On a macroscale, this involves outlining the objectives, mission and vision, and identifying the short and long-term values to be achieved. On a more detailed level, it’s about research and testing – identifying target segments, understanding customer needs and pain points, and using that data to create high-value USPs.

Building iteratively on this type of approach – including listening to and acting on customer feedback – gives organisations the best chance to succeed.

Of course, putting together and following a roadmap toward building a digital bank is, in itself, not self-evident. Organisations need to understand the intricacies around it, such as customer journey, technical architecture, the associated costs and licenses involved. That’s why having the support of an experienced and trusted partner during this process is crucial.

As is becoming increasingly the case in the banking world, partnerships here may be the key to survival. Banks and organisations need to seek out tried-and-tested expertise in order to help them build out their digital roadmaps, as going alone will not be successful.

IBS Intelligence partnered with Sopra Banking Software to promote the Sopra Banking Summit, which took place 18-22 October 2021. The summit tackled the biggest issues in the financial sector. This weeklong festival of FinTech touched on the hottest topics in financial services and highlighted the new paths industry leaders are taking.

This article was originally published here.

If corporate finance leaders were focused last year on reducing the cost of operations, to ensure their enterprises survived the biggest business challenge in a generation posed by a global pandemic, what’s changed today, is finance decision-makers are being challenged now more than ever, to prioritise revenue growth through new technology and business models.

by Gavin Fallon, General Manager at Board

This return to an emphasis on transformation, as well as managing and restoring enterprise financial health, creates a whole new set of challenges, and pressures on finance leaders which have wide-ranging implications across the complete office of finance function.

The C-suite demands acceleration of the digital enterprise, growth, and new genuinely transformative business models as a number one strategic priority. They expect their finance leaders to play a crucial role in making this all happen. The Resurgent Finance Leader research amongst 600 finance leaders worldwide, explores the transformation of the office of finance, provides a view from the top and evidence into how well global finance leaders are making progress on these strategic priorities and expectations today.

If the C-suite expect digital technology to transform their industries and are racing to accelerate these plans, then it’s clear the office of finance will have to rise to the challenge too and transform fast, in parallel with the acceleration of the digital enterprise. These research findings show how finance leaders know they have the backing of management to do so, and how business leaders are ready to embrace the finance team, as a key player to support business goals.

The vast majority (94%) of global finance decision-makers surveyed believe their organisation’s executive leadership are willing to completely rethink traditional finance roles and responsibilities. Further reassurance is taken from the fact that the same proportion (94%) believe their executive leaders are willing to support the office of finance, to become more strategic and accelerate the digital enterprise by enabling the function to become the hub of the of the most important strategic asset to the business: data.

The research findings reveal now is the time for finance leaders to back their own transformational capabilities and take on a more strategic and valuable role in the business. These finance decision-makers know the office of finance could be potentially automated out of existence unless it makes the leap from background support function to strategic hub for vital data. Perhaps then, it’s no surprise that most finance leaders agree, it’s time to accelerate the change from being a scorekeeper to performance driver, and finance should be the natural home for all data.

The report also shows, however, that whilst finance leaders worldwide know now is the time for the office of finance to make the transformational leap to become the strategic hub for driving more value from their data, not all of them are completely convinced their office of finance is entirely ready to drive business decisions, profitability, and performance.

Just under half (47%) of all global finance leaders surveyed are totally confident in their office of finance’s capability to capture valuable insights which drive business decisions and profitability. The report identifies 62% of finance leaders who don’t believe current finance reporting enables them to totally accurately project performance and adapt forecasts in real-time to reflect changing market conditions. Perhaps more concerning, is the report’s evidence highlighting most finance leaders (81%) believe how their office of finance uses technology to influence business decision-making and drive strategy needs a complete overhaul OR a lot of improvement.

Our research suggests that progressive finance leaders know a change is needed, with more sophisticated insights and planning capabilities to be able to change and keep on changing, plan for the unexpected, and generate new meaningful insights, beyond traditional budgeting processes, to plan and be ready for new opportunities when they arrive. The research also shows that despite receiving the validation of their organisations’ leaders, who are ready to embrace the finance team as key player to support business goals, finance decision-makers believe transformation of finance needs to be reflected in wider finance team skills and culture.

Just under half (44%) of all finance leaders surveyed are totally confident their organisation has the right technical skills and talent within the business to ensure technology is driving better business decisions, and a huge majority (92%) of senior finance decision-makers worldwide believe that company culture should encourage the finance team to be creative, curious, and rebellious, allowing them to think quickly and constantly challenge the status quo.

There’s a huge opportunity for finance decision-makers who can enable the winning combination of transformative skills, culture and technology across the office of finance to unlock the value of vital data insights, and play a strategic role in shaping the digital enterprise. At the same time, it shows there are still gaps to fill when it comes to pulling all these vital elements together.

Thankfully, it doesn’t have to be this way. The opportunity exists right now for finance leaders to fill these gaps, starting with democratising access to intelligence, analytics and planning delivered via the cloud, to provide a genuine empowering and transformative experience across finance teams, utilising a winning combination of technology, skills, and culture, to transform the office of finance today and lead the digital finance function of the future.

As with every other sector and industry post Covid-19, the Indian banking system has also become increasingly hybrid. However, the banking system is one of the first sectors to have experienced consistent digitisation, even before the onslaught of social distancing and mandatory lockdowns. The banking and financial services industry in India has undergone a transformative phase over the last ten years, with lending and banking models witnessing sea changes and coming into their own in the information age.

by Kamal Sharma, Head – Business Development (Regulatory Practice), Profinch 

The Technology Disruption

The Indian banking landscape has seen major changes, especially over the last two to three years. In fact, 2019 was the first year wherein Indian fintech companies surpassed global counterparts when it came to raising funds, attesting to the strength of the Indian banking demographic. United Payments Interface has, since then, become omnipresent, with even the smallest tea shops and snacks centres flaunting the ubiquitous QR code which allows Indians to make transactions and payments without carrying cumbersome wallets or debit cards.

Digital payments have risen steadily, and the banking system has transformed itself into a digitally mighty entity further supported by the rising presence of neobanks offering online-only services to new-age customers. While the industry was developing steadily, the pandemic turned into the ultimate catalyst for the hybrid movement, prompting people to forego physical visits and turn to their phones and laptops to access bank accounts and complete transactions.

With the Reserve Bank of India (RBI) increasingly widening the horizon of data capture from Indian banks, this blog focussed on RBI’s mandates for one of India’s growing Banking sectors – Urban Co-operative Banks.

Automation for UCBs

RBI recently implemented Centralized Information Management System (CIMS) to replace their existing Data Warehouse system. The objective of CIMS is to collect and process all returns from regulated entities and various Central Office Departments of RBI. RBI intends regulated entities to build a system to help their data flow automatically from their IT system to CIMS without any scope of manual intervention. After its thorough research on the automation/integration of a sample of banks, RBI announced CIMS in 2020. As of now, CIMS has reached its advanced stage. RBI has also released a web portal called Staging Area Data Portal (SADP) which is for the distribution of system-to-system software components of CIMS. Technically speaking, CIMS architecture is made of four layers; namely, Data Collection, Data Governance, Big Data repository and Centralized Integrated Analytics. The functionality would work by collecting data from multiple channels and by including a system-to-system automatic interface, file upload, API, web-screen and a few other components.  Top 14 Indian UCBs have been selected by DoS to implement data collection for the system-to-system channel for CIMS. These UCBs will be responsible for building a central data repository and all their returns will also be generated in XML/XBRL format as specified by the RBI.

With widespread digital transformation of banks, there is a need for stringent norms and regulatory oversight. Indian lenders, including Urban Cooperative Banks or UCBs, must initiate detailed regulatory reporting to ensure compliance with all statutes and this leads to the generation of a tremendous volume of data. Combing through the generated data and culling out insights becomes a tough task for the UCBs and their employees and this is one more avenue where technology offers a helping hand, furthering the digitisation drive. Software aimed at creating automated data flows and centralised information and management systems are coming to the aid of UCBs that are burdened by regulatory requirements. It is also wise for banks to use their Automated Data Flow/CIMS system to help their business reporting and other MIS requirements. It helps then convert its RBI investments into a business centre and not just turn into a cost centre. Banks can also utilize the additional value, like customer insights/spending patterns/demographic/gender/age base customer analysis, that will come from this architectural change.

The RBI is keen on digitising the banking sector and, accordingly, the central bank in August 2021 directed UCBs with assets worth 2000 crore rupees and above to implement system-based asset classification from June 30 onwards this year. Following the mandate, asset classification, including both upgrading and downgrading would be carried out by computerised systems, in a fully automated manner, mitigating possibilities of human error. The move is aimed at enhancing efficiency, transparency, and integrity of the process and is a definitive stride towards digitisation and technology adoption.

Requirements for Smooth Implementation

While regulations and mandates provide a roadmap, it is up to the UCBs and service providers to ensure that the mandate on automation is carried out successfully. The RBI has advised concerned UCBs to conduct pilot/parallel runs and evaluate the results for accuracy/integrity of the asset classification to ensure that implementation of the system proceeds smoothly. Further, the central bank has also stated that UCBs not meeting the criteria can also voluntarily implement the framework in their own interest. It is in this scenario that technology solutions and service providers come to the fore to enable UCBs in meeting regulatory demands and requirements.

For instance, fintech companies are now offering banks pre-built frameworks for automated data flows, ensuring faster download of latest templates configured using business rules and in-built calculations. Such systems facilitate data integration across sources and aid collaboration among valid users. Further, innovative solutions empower UCBs to respond to regulatory questions on calculation methodology and reporting values by offering drill downs, configurable business logic definition screens and the capability to upload supporting documents and re-generate old reports with previously submitted data. Audit trails for easy traceability is another service offered by such solutions.

With the amalgamation of automation and stringent regulatory mandates, UCBs, and the Indian banking ecosystem at large, are on their way to a more efficient, accurate, and transparent future – while offering customers the best of digitisation, convenience, and security.

Historically, accounting software has been designed to help finance teams manage time-costly tasks, improve accuracy, and counter the repetition of month-end tasks needed to close the books. The pitfalls of this approach and the focus on the ‘task’ has resulted in models that have made it more difficult for accounting professionals to rise above the numbers. In other words, software tools have traditionally placed an outsized focus on the minute details of closing tasks which have stymied accounting professionals, ensuring better accuracy, and visibility at the expense of a more analytical interpretation of the financial data.

by Mike Whitmire, Co-Founder and CEO, FloQast 

Conditions are optimal for software that provides a more elevated approach. A new trend emerging within the sector is that accounting is increasingly intertwined with and responsible for the business operations function. This occurs by virtue of the fact that accounting underpins the ability to operationally run a smooth department and, more importantly, the entire company.

Unquestionably, this trend has been accelerated by the pandemic, where teams have become remote and increasingly siloed from one another. In functions such as accounting, there is an important need for collaboration and transparency when it comes to completing functions around the month end. Controllers were faced with a greater challenge than ever before, how to maintain collaboration and communication remotely?

It’s no surprise, therefore, that the pandemic has also increased the need for cloud-based solutions to engender better communication across distributed teams. Tech of this kind has taken centre stage, proving its utility in enabling simple processes, such as end of the month, to be completed more efficiently, giving way for accountants to increase their focus on much needed strategy and agile thinking during such unprecedented times.

The use of artificial intelligence and machine learning technology has helped automate the ‘low hanging fruit’ functions with modern accounting software allowing finance professionals to apply their human intelligence to solving higher level problems. In essence, when the small stuff is automated, individuals can better see the forest, without having their field of vision obscured by the individual trees. However, in order to achieve this level of focus, it is important that the software used is intelligently designed to enable it.  At its heart, software needs to be informed by the people doing the job, in this case, the accounting team. This way it can address and solve the very real day-to-day challenges and become indispensable, whilst freeing up time of the controller to enable strategic thinking.

Taking the time to consider practical use cases and listening to customer challenges is also equally important for software design. Companies will often start using accounting software as a way to optimise accounting functions alone but may move beyond that, wanting more from their software. For example, by offering a way to collaborate and provide transparency around any process under the function of the controller.

Understanding and delivering on customers’ needs should be a fundamental driving force behind any accounting software and will lead to greater credibility for the product. Likewise, an ability to free senior finance professionals from the burden of repetitive, number-crunching tasks will enable them to open their eyes, offering strategic input to fuel improved decision making, and ultimately lead to stronger business performance.

Most people associate the word ‘blockchain’ with cryptocurrency and given the amount of press coverage the latter has received, particularly in the last two years, it may seem that the two are indistinguishable, but that is not the case.

by Mario Galatovic, Vice President Products & Alliances, Utimaco 

Blockchain is ultimately a means of storing information, no different in some respects from an Excel file, SQL database, or even a hard drive. The major difference is that this technology is distributed over a network of peers called ‘nodes’. Each entry in a blockchain contains a cryptographic hash linking it to previous blocks in a chain, meaning that once data is recorded it cannot be altered without altering all subsequent blocks.

Given their high level of security, blockchains have been mooted as a solution for a range of problems, and despite the ‘wild west’ reputation that it has due to some spectacular security breaches in cryptocurrency trading, major companies like IBM are using it in applications ranging from trade finance to vaccine distribution.

One key application that would solve a huge number of problems is that of identity: identity theft is a growing problem, and proving identity is a difficult task that places a huge administrative burden on companies and individuals. Before getting a loan, buying a house or starting a business an individual has to prove their identity, and this can be an onerous task, particularly if you are one of the 1.7 billion people in the world without a bank account, one of the world’s 82.4 million refugees or an undocumented migrant.

So how might blockchain technology help create digital identities, and how might they be secured?

Opportunities and challenges for digital identities on the blockchain

The idea of creating a secure digital identity isn’t new, but the need for it is becoming more pressing by the year, as more problems with our current system of disconnected digital and analogue documents certified by multiple authorities become apparent. A so-called ‘Good Digital Identity’ was one of the pillars of the 2018 World Economic Forum meeting in Davos, aimed at creating ‘a new chapter in the social contract’. Worldwide the market for identity services is expected to reach $14.82 billion this year, and the administrative and social costs of the difficulty of proving identity is impossible to estimate but likely to be much higher.

Real-world applications of this technology already exist: the UMHCR already uses blockchain technology to distribute food to refugees based on biometric data, and it is possible that the technology could be used to prevent the estimated $40 billion in corruption caused by aid not reaching the people it is intended for. Both applications depend on identity: being able to link a person’s iris scan to a ledger of when they last received food aid and being able to ensure that payments reach a particular person or agency and no others.

There are also uses for this technology that could become more widespread: international travel could be sped up considerably by having digital instead of analogue passports, as anyone who has lost a passport before travelling could tell you. Background checks when applying for sensitive job roles could also be done instantly as opposed to through contacting multiple agencies. Transferring healthcare information internationally, which often involves fax machines, would also speed up considerably.

Returning to the subject of cryptocurrency, despite the security inherent to storing financial information on the blockchain, many cryptocurrency users have either had their wallets compromised or simply lost the passwords for them because there is no way to connect that wallet to their physical identity. If you forget the PIN for your bank card it can be reset because there is always a ‘you’ to connect that account to, but if a cryptocurrency wallet that can be accessed with only a username and password is lost then it could be gone for good. A robust digital identity system could solve this problem.

How blockchain can secure identity

Blockchain technology is a sensible way to achieve a ‘good’ digital identity. Although there have been concerns about speed when applied in the cryptocurrency space, where making a payment or transfer can take considerable time as the blockchain works through a backlog, blockchain technology is potentially very fast, and being ‘centralised’ (in the sense of all being in one blockchain) means that auditing information will be much faster and tamper-proof. Being decentralised, an identity blockchain could be accessed from anywhere but would be extremely secure: for example, if you were applying for a loan online you could grant the lender access to the details they need and nothing more, just as when you sign up to a service with Facebook it will tell you that it will have access to your friends and so on.

When applying for a new job you could allow access to your work history but not your medical record, when having a check-up with a doctor you could grant access to medical records but not your work history. Because each granting of access would be a ‘transaction’ on the blockchain you would have oversight on who has access to which elements of your digital identity, and this system could even use smart contracts to allow time-limited or conditional access to certain records.

There is also the matter of security. Blockchain technology is innately more secure than other information storage technologies because of the very fact of it being a ‘chain’ – you cannot go back and alter a piece of information, deleting the record of a payment so that it ‘never happened’ for example. Although it would be very difficult, this would be hypothetically possible in current forms of data storage – your bank balance is effectively a number in a spreadsheet. Blockchain technology wouldn’t allow for this, making it ideal for highly sensitive applications like identity.

Of course, blockchains can and have been compromised, so they will need to be secured with similar technology to that which secures more traditional information storage. Public and private keys backed by strong, quantum-safe cryptography generated by hardware security modules will enhance the safety of blockchains and allow for the creation of secure digital identities.

It may seem like a paradox, but as the devices people use to bank get smaller and smaller, the amount of data involved in those services gets larger and larger. So, with all that data already increasing so dramatically, what’s going to power the future of FinTech as the number of transactions made each day reaches high into the billions? The answer is the mainframe!

by George DeCandio, CTO, Broadcom

I’ve spent decades working with leading organisations in the financial industry, and in that time I’ve seen a lot of impressive innovations that have reshaped the FinTech industry (and financial services in general). Take the advent of online banking in the 1990s, or the rise of blockchain and cryptocurrency in the 2000s, and the introduction of online payments like Apple Pay in the 2010s. It’s worthwhile to note that each of these innovations – and many others – would never have been possible without a host of significant technological advances taking root ‘behind the scenes;’ advances that enabled the tremendous amounts of financial data associated with those innovations to be handled efficiently, effectively and reliably.

As any financial industry CIO will tell you, big data calls for the Big Iron… the mainframe. You might be surprised to learn that over the past 5 years, as more and more transactions happened through apps and online, the amount of financial data processed on mainframes has actually gone up. That’s right. Up! While an account holder might use an iPhone to pay a bill, there’s almost a 100% chance that the transaction was powered behind the scenes by a mainframe.

It’s easy for people to see just the consumer-facing technology and apps as modern and cutting edge while regarding other systems in the same way they might their parents’ wardrobe – dated. I’ll admit I have a few shirts in my closet whose best days are now long behind them, but that’s not at all the case with the mainframe. These systems aren’t out of date. They’re very much cutting-edge technology, continually growing in capability and keeping pace with the world around them.

Mainframes are fast – really, really fast

Thanks to their speed, security, and flexibility, today’s mainframes can perform a blistering six billion transactions a day. If you want to know why no banks reported system failures during the pandemic despite all of the stress that has been put on the financial system, there’s your answer. And these systems will continue to be even more vital as the world moves into a digitally powered future.

Thankfully, most of the mainframes that are in use today – including the powerhouse IBM z15 – are actually new. I know … whenever a movie character mentions the mainframe, invariably there is a massive room-sized computer laden with pneumatic tubes and steam vents that looks like it belongs in a Jules Verne novel. But more than 90% of major banks in the US are using a mainframe that’s less than two years old. Instead of envisioning the deck of the Nautilus from Verne’s Twenty Thousand Leagues Under the Seas, it would be more accurate to picture today’s mainframes among the amazing equipment in Tony Stark’s lab from a Marvel Avengers movie.

Then we get to flexibility. Just about every app and tool that people use to send money (ranging from Apple Pay to Zelle to PayPal) depends on the mainframe. If you really think about it, none of us have bank accounts with Apple, meaning that when we use an iOS app to transfer or access funds there needs to be an integration with one or more banks. And all those touch points involve mainframes. Just because consumers don’t see it, doesn’t mean it’s not there.

The backbone of FinTech’s future

Not only is Big Iron (the affectionate term that mainframe aficionados use to describe these systems) driving FinTech tools that are in common use today, but it is ideally positioned for emerging technologies including digital currencies, digital wallets, payment gateways, peer-to-peer lending, and microfinancing. I recently rented a beach house for a weekend on Airbnb, and I know for a fact that there was a mainframe involved in the transaction. Even Bitcoin touches the mainframe, which is amazing to think about. Emerging FinTech models may seem like strange bedfellows with a bedrock technology like mainframe, but the reality is that if funds are involved, the mainframe is ideally positioned to be the reliable technology backbone to make it safe, fast, and secure.

Bridging these two worlds is a new generation of open-source approaches and standards, making it so that literally anyone who knows how to use a computer can use the mainframe. That’s why the Linux Foundation has a major initiative called the Open Mainframe Project that is specifically designed to drive mainframe innovation. This gives traditional financial institutions an opportunity to mine the talents of cutting-edge app and platform developers to roll out services that would have been unfathomable to think about even five years ago. It all comes back to APIs, which give forward-thinking technologists ways to access the mainframe without having to buy their own machines or build completely new infrastructures to take advantage of their power and flexibility.

When most people think about innovation in the financial sector, they think about disruptive products such as PayPal and Apple Wallet. But while those applications get all the glory, they are the 10% of the iceberg that everyone sees. If you look closer, what makes it all work is the venerable mainframe, which quietly keeps the entire FinTech world, and indeed the financial sector in general, afloat.