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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 including the European Payments Initiative and highlight the new paths industry leaders are taking.

The following article was originally published here.

A new payment scheme is aiming to create a pan-European payment solution for both euro and non-euro markets. The European Payments Initiative (EPI) aims to be the new standard in payments across all types of transactions in Europe. While the promise of EPI is very real, the scheme is yet to be fully realised and has plenty of hurdles to overcome if it’s to achieve its ambition of launching a true pan-European payment solution.

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

It’s no secret that the European Central Bank (ECB) has long harbored an interest in breaking up the dominance of Visa and Mastercard over the European payments market. Indeed, 80% of European transactions are handled by the two US multinational financial services companies, according to estimates from EuroCommerce.

A series of initiatives have been rolled out by the ECB and other interested parties to challenge this duopoly. For instance, in 2019, Instant Payments were introduced to ease the payment experience for users across the continent and tip the balance in favor of homegrown players.

ECB board member Yves Mersch described Instant Payments as an ‘opportunity to instantly clear and settle card transactions, which would offer a possible way of supporting the interlinking and interoperability of national card schemes … Efforts to ensure the interoperability of schemes should be strengthened and should aim to foster a European identity.’

The Instant Payments initiative has indeed been a success, and its outlook is bright. Its value is estimated to rise to $18 trillion by 2025, up from $3 trillion in 2020. But to truly forge this ‘European identity’ for payments, the ECB has been calling on the support of major European banks to create a unified payments scheme relying on Instant Payments and other such initiatives.

Certainly, there’s a need in Europe for standardisation and interoperability, as far as payments are concerned, and without it the bloc risks falling behind in key areas such as card penetration.

However, action has been taken. In 2019 – the same year that the Instant Payments initiative was launched – the ECB announced that a number of Europe’s top banks were exploring the possibility of creating a rival payment scheme to take on the European market. Since then an interim company has been created by 30-plus banks – including BNP Paribas, Société Générale and La Banque Postale – and the goal is to launch in the first half of 2022.

Challenges and solutions toward mass adoption

Of course, implementing EPI successfully will not be easy. Challenging the dominance of Mastercard and Visa is no small task. These players have well-established solutions, large innovation budgets and many value-added services for merchants.

Furthermore, there’s the issue of migrating existing schemes to EPI and developing new network infrastructure – apps, platforms, cards, and compatibility with point-of-sale devices – could be a long and expensive process.

However, there’s plenty to be optimistic about, too. Research conducted by European payment leader Galitt suggests that consumers are, on the whole, positive about the prospect of a unified payment solution. Approximately 75% of users surveyed in France report being open to a change in payment scheme, and there’s also a noticeable bias toward European players for banking operations – with nearly 60% indicating they prefer their bank or a European company to handle their payments.

The major challenge for EPI and its stakeholders will be convincing consumers (and, by extension, merchants) to get onboard. To acquire and retain a critical mass of users, EPI must have strong user incentives. It needs a compelling business case to convince issuers to migrate from domestic or international brands and acquirers to enable acceptance. It also needs a winning narrative, and users must be able to experience the value for themselves. In this sense, possibilities include:

• Immediate payment guarantees and high security
• Capped debit interchange – lower fees
• A standardised solution accepted across Europe – easier travel and enrollment procedures
• European-centric product development, featuring a familiar customer interface
• Robust data privacy and protection guarantees
• Parallel development with Central Bank Digital Currencies and an identity scheme – enhanced user experience
• A consolidation of use cases – increased convenience
• The compatibility of existing card services with changes to other European payments schemes, such as SCT inst

The future of European payments

The EPI initiative represents a vision and a desire to create a modern, standardised, end-to-end European payments solution. With a system that will run on SCT Inst rails instead of more expensive card rails, EPI stands to make huge efficiency gains, and it could revolutionise how people pay across the continent. In this way, its architects have a unique chance to write the future of payments in Europe.

Had Ali Baba been a banker in 2021, had he wanted to open the door to digital banking, his encrypted exclaim may still be “Open Sesame.”As is often the case, the name, label or tag accorded to the ongoing transformation in Banking is easy on the lips yet understates the potential.

by Indranil Basu Roy, Chief Business Officer, Modefin 

Hark back to a time when mainframes gave way to the personal computer, yet not much importance was given to the term “PC.” Look at where we are three decades later in personal computing.

Or remember how COBOL and FORTRAN foretold the dominance of “software.” Application development has now advanced to AI and ML, with voice commands programmed to play our favourite OTT show, type as we talk, or stream as we walk.

Back to the fable and the veiled allegory of a treasure cave. Technology has put on the virtual table a banking platform so vital and strategic that everything else seems small change.

Its name: Open Banking. Objective: Bringing together data, processes, and business functionalities of banks, FinTechs, and third party providers. Ultimate Objective: Transformation in Banking Services:  Limitation: None. Opportunities: Many.

The lucid or eloquent definition of Open Banking is the same, whether you are a dummy or techie. Here we go with three, not mutually exclusive but complementary:

• A platform designed to nurture openness, information exchange and transparency.
• A customer-centric configuration (as opposed to product-centric) that creates new solutions or enhances existing offerings by integrating an Application Programming Interface (API) and datasets.
• An alliance between banking institutions, FinTechs, and third-party aggregators for developing or infusing agile applications.

How does Open Banking work, especially in a digital world where the inherent promise is privacy and security? Well, for starters, the opening up of financial data is done only with the customer’s consent, with the flexibility to manage or cancel the access.

An elementary example of Open Banking is a third-party mobile wallet that you have installed on your phone. With access permitted to the bank account (by the user), the wallet replaces net banking by providing most services at the touch of an icon (QR code payments, P2P transfers, utility payments, EMIs, and more). In short, you can now bank without logging in to your bank account.

Here are five scenarios to illustrate the benefits of Open Banking to the financial services industry and the end customer:

• Data aggregation by a third party aggregator from bank accounts, such as spending habits, investments, or credit history – this will help the Bank offer a personalised wealth management tool for the end customer.
• Enables third-party credit providers to offer instant credit and execute immediate remittance, whereas earlier the process would be time-consuming and procedure-driven.
• Relevance and Personalisation – with APIs serving as a window to preferences, banks can generate personalised offers and provide relevant value adds such as loyalty rewards and financial education.
• Banks and fintech can co-exist rather than compete. Data-sharing agreements with FinTechs and other non-financial companies can open the door to newer and more agile services.
• Very soon, technologies such as voice assistants and augmented reality will be part of the bank’s digital interface. Banks can work with FinTechs to enrich the customer journey in this emerging space.

End of the preamble, parable and all other rambles. Let’s move on to an overview of the origin of Open Banking.

It all started with countries and governments realising digital banking is not just an enabler but a juggernaut that needs to be constantly fed with innovation. Taking cognizance of new-age solutions being launched by FinTechs, wary of their momentum from the periphery to mainline and capability to offer services akin to a bank (such as online lending or deposit creation), and appreciating that the trickle-down effect or financial inclusion is best achieved through collaboration rather than regulation, various governments began to “open up” banking.

While referred to as regulations, in reality, the promulgation from the helm of the financial realm, such as the apex bank of a country, tended to favour information exchange and APIs, the primary technology that facilitates account holders and the financial institutions to share data with 3^rd parties. Australia’s Consumer Data Right Legislation permits Accredited Data Recipients (ADRs), on behalf of a customer with the customer’s consent, to collect and use data held by a data holder to provide a specific product or service.

In the European Union, banks are legally obliged to facilitate access to account information through APIs, per the Revised Payment Services Directive (PSD2). In the UK, The Open Banking Implementation Entity (OBIE) creates software standards and industry guidelines to drive competition, innovation, and transparency in retail banking.

Well ahead of Open Banking initiatives, India has launched in the last decade landmark measures such as the creation of a unique digital identity for every citizen (Aadhar), enabling access to banking services for unbanked households (Pradhan Mantri Jan Dhan Yojana), and launch of Unified Payments Interface (UPI).

From an Open Banking perspective, such progressive steps in India have increased “interoperability” and created greater avenues for data sharing in the financial services sector. For example, Account Aggregators (AA) are authorised to enable financial data sharing from Financial Information Providers (FIPs) to Financial Information Users (FIUs), based on consent from customers.

Around the world, Open Banking has come a long way from the build and design phase. Unseen, unsung, and by that, I mean underestimated, it has arrived and is here to stay for the greater good.  As a representative of the FinTech sector, a key constituent of the digital banking ecosystem, here are my pointers that will help banks embrace Open Banking.

1. Do not view Open Banking as a solution; it is a platform, like a chassis around which parts of a vehicle are assembled.
2. As a Digital or Challenger bank, your goal is omnipresence – the ability to be present at every customer touchpoint. Make sure every product or solution in this journey is more like a Lego block and not a silo on the open banking platform.
3. If a traditional bank, do not fret over disruptors. By adopting Open Banking, you too can create greater stickiness, retain customers, and even onboard Generation Z.
4. Being a nascent and evolving practice, Open Banking cannot be created or delivered as a standard application. Talk to an evolved fintech provider who can create a customised platform.
5. Take a strategic approach first: Consider how to build a business model that maximizes your position in the Open Banking value chain.
6. Next comes the implementation of the application network connected by APIs – decide if this will be on-premises or in the cloud, developed in-house, or acquired from a fintech provider.
7. Look upon Open Banking as a holistic business transformation plan. If your strategy is defence, you will end up being reactive. The moment you set up an open banking platform, you are on the offence and you have the opportunity to offer greenfield services that will delight your customers and take the competition by surprise.

Time to end my open letter. In the final analysis, banks that resist change, desist from collaboration, or postpone migration, will find themselves forever at the entrance of a treasure cave. Those who have done too little and too late, and thereby fail to unlock the potential with “Open Sesame,” have themselves at fault.

Even though the banking sector has lent record amounts to small businesses during the pandemic, these same SMEs are increasingly turning to alternative finance providers. With smaller, more agile, digital-first players providing a range of new services to the small business sector, how can banks rekindle some of the love and loyalty they’ve lost to FinTechs?

by Yishay Trif, CEO, MoneyNetint

One answer is for banks to be ambitious on their customers’ behalf and, rather than just lending them the cash to stand still, help them expand into new markets by removing the cost and complexity that has always dogged cross-border payments.

An unequal revolution

Unlike multinational enterprises with their sophisticated e-commerce sites and worldwide banking relationships, the rest of the world has always been out of reach to the vast majority of SMEs.

While applications like e-wallets, real-time payment systems and credit cards are enabling businesses to sell their products and services anywhere in the world, many SMEs were unable to take advantage because it remained incredibly complicated, expensive and time-consuming to manage the minutiae of cross-border payments. Factors such as fast settlement, transparency, AML and regulatory constraints all push up the cost and complexity of international payments far beyond the resources of most SMEs.

As much as banks might wish to help SMEs spread their wings around the world, it’s uneconomical for them to open new payment channels between two different jurisdictions: they simply can’t justify the time and effort to establish bank-to-bank relationships in every one of the territories in which their customers wish to do business. But while that used to be true, there is now a new model of relationships between banks, one that’s powered by the blockchain revolution and the wave of new institutions harnessing this technology to build a new payments infrastructure for the whole world.

Blockchain: not just for Bitcoin

There’s an assumption that distributed ledger technologies like blockchain are limited to cryptocurrencies, but the most exciting (and relevant) applications actually involve traditional, day-to-day activities such as sharing information and conducting transactions.

Blockchain platforms like RippleNet and others were developed to address the challenges arising within traditional technological infrastructures. With use cases ranging from financial transactions to smart contracts, compliance to anti-money laundering, it’s no surprise that blockchain is transforming the world of legacy finance every bit as much as it is driving the new wave of crypto innovation. To deal with challenges in the traditional cross-border payments world, platforms like Ripple have developed standardised, decentralised infrastructure, with full visibility over fees, delivery and statuses, transaction route optimisation and overall cost reduction. In doing so, they are creating the technological foundation for a new breed of Payment Institutions and Electronic Money Institutions (EMIs) which are establishing a  new kind of correspondent relationships with banks around the world, lowering costs, lowering barriers for entry and improving efficiency creating one global standardized scheme.

These financial institutions take complete control of settlement and distribution in multiple markets to create payments networks on which any business can piggyback to start expanding into new markets. And not just businesses, but banks too. Thanks to blockchain platforms like Ripple, instead of paying to use traditional payment rails like Swift, banks today can facilitate secure payments via electronic means that enable their business customers to pay in local currency without losing out on transaction fees or unfavourable rates of exchange.

Changing the narrative

One of the charges levelled at banks — it must be said, often unfairly — is that they are reluctant to update their systems, processes, and platforms. Even when banks are slow to adopt new technology, it’s rarely the will that’s lacking and rather the limitations of legacy infrastructure. But that cuts little ice with SMEs, especially when so many FinTechs are waiting in the wings.

The beauty of EMIs and other payment service providers is that they are doing all this work anyway: they are building a new worldwide financial infrastructure that, like the Internet itself, is open for anyone to use. Instead of being competitors, these businesses are all potential partners for banks, enabling them to open up new markets and revenue streams for SMEs. The best providers manage the entire payment cycle, from receiving payments to paying invoices and salaries, in a secure, inexpensive and user-friendly way.

Partnering with EMIs and payment institutions requires minimal (if any) upfront investment; instead, banks can start providing more affordable, reliable and faster cross-border payments services almost immediately.

Blockchain and other payments technologies can be the foundation for a new era of love and loyalty between banks and their business customers, but it’s important to think beyond the services and functionality they provide. If banks are to seize this opportunity with both hands, they should consider how they use these new capabilities to change the narrative around business banking.

As consumers, our expectation of what a bank should be has changed almost beyond recognition in the last few years; the same must happen for business customers. By choosing the right partners, banks have a unique chance to raise SMEs’ expectations, and to position themselves as their partners for success, not just in the high street at home but in every part of the global village.

What do manufacturers of automobiles, personal computers, refrigerators, and tumble dryers have in common? They were all caught out by the global microchip shortage. The list of blindsided companies with a disrupted supply chain includes some of the most advanced, technological companies of our generation worth multiple billions. How could they not have the foresight to be prepared?

by Michael Boguslavsky, PhD – Head of AI, Tradeteq

2021 was supposed to be the year of recovery for global trade, but it hasn’t quite worked out that way for thousands of companies across the globe. A fire at a warehouse in Japan and severe winter weather in Texas both resulted in a temporary pause in the manufacturing of microchips. As it turns out, the timely delivery of these chips was essential to companies in more than 150 different industries.

Billions of dollars in profits have been wiped from balance sheets. Customers are frustrated by the delays and the ramifications are likely to be felt for another 12 months, at least. It couldn’t have come at a worse time with the global economy still reeling from Covid and will set back the recovery.

For example, tech giant Samsung announced that television and appliance production had been interrupted, while car manufacturers paused production because of a shortage of parts. Ford put the cost at a whopping $2.5 billion.

This demonstrates the extent to which the global supply chain, and therefore global trade, is interconnected. If companies on different sides of the globe know how reliant they are on each other, it begs the question: who could’ve predicted the havoc this would cause on the global supply chain, and how could they let it happen?

Hard questions and head-scratching in the c-suite

That wasn’t a rhetorical question. There is a lot of head-scratching going on in boardrooms all over the world. Chips are essential components of the everyday technology that consumers and businesses use – from household electrical devices to heavy-duty machinery. How on earth did this fly under the radar of dozens of multi-billion-dollar companies across different sectors?

The shortcomings are further highlighted by the fact that these companies have access to, or have developed, advanced and complex technology that would’ve been considered science fiction a few years ago.

Large global companies cannot blame a lack of resources. They have some of the best operational and risk management systems in place, which ultimately failed to recognise how a microchip shortage would affect their operations and help them prepare accordingly.

The reality is that many companies didn’t take steps to mitigate supply chain risks or respond quickly enough. This is a moment of self-reflection and humility for the global business community. It needs to learn the lessons from this debacle and put improved supply chain risk monitoring and communication protocols in place.

Integrating modern AI advances into the supply chain

Numerous systems today enable companies to track how their consumers engage with them in real-time. Companies can send payments to their partners thousands of miles away, in real-time, and communicate with people across the world as though they are in the same room. Surely the technology exists to monitor risks in their supply chains, more effectively?

An example of this is artificial intelligence technology which can monitor risks in the supply chain and take steps to identify and mitigate those risks before they become a systemic issue.

If, for example, a supplier has a cash flow problem, or weather patterns affect their ability to manufacture a product, or an incident takes place that affects companies of a similar size and profile, companies can receive an early-warning sign to investigate what happened, how it might affect them and respond quickly.

This ensures businesses are staying ahead of potential risks and systemic events, rather than reacting to them. It is an example of technology making the global trade and supply chain ecosystem more responsive, agile and efficient; it reduces operational risks and means companies avoid the ire of customers.

Future-proof your supply chain now

Global trade is interconnected, and companies are more reliant on one another than ever before, which is why the impact of the chip shortage has been and continues to be so significant. The last year has shown that many global events cannot be predicted or planned for, nor can their impact be completely avoided. Technology, however, and in particularly AI models, can be used to manage and mitigate the negative effects.

Technology has been one of the biggest drivers for change in global trade in recent years. It can be used to digitise and speed up how information is shared and improve communications across supply chains. The former CEO of General Electric, Jack Welch, once warned that companies should change before they have to – the past few months have given proof to that phrase.

When future incidents, similar to the global chip shortage, become case studies in business schools, colleges and universities, will your company be consigned to the history section or be acknowledged as a trailblazer that embraced technology? It’s a question that c-suite executives should address sooner rather than later, or it will be answered for them.

The pandemic escalated the creation of digital banking business ecosystems. In this article, Sanat Rao, CEO -Infosys Finacle, speaks about eight new and innovative digital business model archetypes that banks need to thrive in these ecosystems.

by Sanat Rao, Chief Executive Officer at Infosys Finacle

The conversation about digital business model innovation is not new, but it has never been more pressing. As CEOs grapple with their biggest challenge, namely, how to stay relevant amid rapid change and uncertainty, the legacy pipeline-based business model was often at the heart of the problem, and ecosystem-led business model, invariably, at the heart of the solution.

Digital technologies are unlocking opportunities to create, deliver, and realise value in new ways. By and large, the traditional universal bank is built on a pipeline model where the bank does everything, from manufacturing to selling to distributing, on its own, using in-house resources.  This vertically-integrated pipeline business model is breaking apart, giving way to fragmenting value chains and new business model opportunities.

Our latest research study on digital banking business model innovation, conducted in association with 11:FS, organized the new models into 8 distinct archetypes, which are briefly described below:

Digital-only banks: Digital-only banks deliver banking services entirely (or almost) through digital touchpoints. Their key competitive advantages are high-quality self-service experiences and much lower operating costs than traditional banks. While digital banks mostly target digital-native/ tech-savvy consumers and small businesses, some start with narrower segments and gradually expand their reach to other groups. Digital banks are mobile-first, with some online banking offerings; and even their customer service is digital-first, chatbots led with limited human support. There is a long list of such banks, among them, Marcus by Goldman Sachs, Liv. By Emirates NBD, Digibank, Monzo and Kakao Bank.

Digital financial advisors: The digital financial advisor model brings the private banking experience to a much larger customer base. With data proliferating rapidly and becoming highly accessible in the open banking economy, firms, such as Plum, Snoop and TMRW by UOB, are able to run it through AI algorithms to understand a customer’s financial situation and offer highly personalized, appropriate financial advice. The traditional relationship manager is replaced by a hybrid of self-service and personal assistance rendered by both humans and chatbots.

Finance marketplaces: Finance marketplaces enable customers to choose financial services from a variety of third-party suppliers in an open environment.  These marketplaces are accessed through websites and apps, and also developer portals and APIs. Examples include BankBazaar, Stripe, and Raisin. As the industry embraces open banking and open data paradigms, these marketplaces would increasingly democratize and facilitate easy access to the best products and services.

Non-finance marketplaces: Financial Institutions-led non-finance marketplaces – such as those from DBS Bank and Paytm – enable customers to choose a range of (non-financial) goods and services from suppliers in an open environment. For instance, DBS Marketplace is a one-stop portal to browse property listings, cars, book travel flights, book hotels, and compare utility providers, with financing options bundled along.

Banking as a service (BaaS): In this model, a bank offers complete banking processes around their financial products such as payments, loans or deposits as a service that third parties can embed into their products and services. BaaS enables integration of financial products seamlessly into the primary journeys of the customers such as getting instant auto loans at the dealer site. Typically delivered through well-defined APIs and business partnerships, BaaS is gaining significant traction across the globe. Banks of all sizes and persona such as BBVA, Goldman Sachs, Sutton Bank, ICICI Bank, and Solaris Bank are actively building their business using this approach. In addition, specialist BaaS intermediaries such as Galileo, Marqeta, and Setu, are also getting significant traction.

Banking industry utilities: Banking industry utilities specialize in delivering non-differentiating services by pooling resources, expertise, and capabilities to increase the efficiencies of all industry participants. The utilities offer a Business platform as a Service (BPaaS), combining technology, operations, and data. Examples include ClearBank – UK’s new clearing bank, Stater – The largest mortgage service provider of the Benelux that services 1.7 million mortgage and insurance loans for about 50 financial institutions in the Netherlands and Belgium

Banking curators: New-age digital banks following this model aim to offer best-of-breed products by combining basic accounts with financial advice and a curated set of third-party products on a single platform.  N26, Monzo and Starling Bank are all examples of banking curators.

Embedded finance: Companies with frequent engagement and deep customer understanding are embedding banking and payments into non-financial products and services. The interest for embedded finance is rising across industries. Digital technology giants, e-commerce companies, retailers, travel – companies from across the spectrum are actively embedding financial products in their user’s customer journeys. For instance, buy now pay later proposition at the time of checkout or offering cash-flow based credit products to suppliers in association with banks. Shopify offers a good example here. It offers a ‘Buy Now, Pay Later’ option for consumers, a business debit card for merchants, and plans to offer  business bank accounts with Stripe Treasury.

Like most businesses, banking is also going the way of the ecosystem. A scan of the landscape shows that few, if any, banks are succeeding by standing alone. But to thrive in an ecosystem, banks need to adopt new business models, such as those identified above.

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.

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.

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.

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.