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The Catalyst for Change

Billed as a game changer by most in the industry, Open Banking witnessed a managed roll out in the UK in April 2018, paving the way for customers to experience enhanced banking services through a variety of authorised providers. The Competition and Markets Authority ushered in Open Banking with the aim to improve the quality of banking and financial services, ensuring banks remain customer-oriented in an extremely competitive market.

Optimistic market forecasts estimate that Open Banking could generate more than £7.2bn by 2022 if various sectors tap into its massive potential.

Open Banking allows secure data sharing by using an integration technology called Application Programming Interface (‘API’) that accesses the account and transaction information of customers and even allows third party providers (‘TPPs’) to initiate payment on behalf of customers, only upon their explicit approval.

As we move into 2019, what has actually changed and what lessons can we learn? Has this ‘great disruptor’ in the banking sector lived up to its initial hype?

A Closed Mind to Open Banking

The CMA reported that in June, there were 1.2 million uses of Open Banking APIs, describing it as a slow but positive start to changing consumer attitudes and revitalising the banking ecosystem for the better.

However, one senior source at a financial technology company told The Daily Telegraph: “The lack of promotion by the big banks has been disappointing and it’s the main reason for the slow take-up”.

So what are the reasons for the slow start? Why are the big banks taking their time?

Anne Boden, CEO and founder of Starling Bank, has been quoted as saying that the big banks “are all using legacy technology that’s 20, 30 or 40 years old… there’s no commercial reason why they want to do it [Open Banking]. Without that it’s a very difficult thing to do.”

Though public sentiment towards Open Banking is far from effusive, do remember it is a complex change that will take time to transform the way banking is done. Open Banking inherently brings a raft of technological and economic risks for the traditional banking model and navigating those changes is going to be an uphill task. One of the biggest teething problems faced in the banking sector is the legacy technology that is still used in the major banks, preventing them from quickly benefiting from this ambitious regulatory-driven process. In some instances, the technology could be even thirty or forty years old. The cost of overhauling their legacy technology to allow integration with API is prohibitively high, adding further traction to the process of adoption. However, if banks and financial organisations are eager to monetise the myriad opportunities presented by Open Banking, they need to be quick about overhauling their systems and IT infrastructure. Further, they also need to constantly innovate and bring out banking apps and other technology-driven solutions to enhance the banking experience for their customers.

Though the CMA provides guidelines on security measures and details of regulated providers, it still fails to address the underlying issues of legacy technology to ensure that there is no loss in the transfer of customer data.

Driving the Change

Banks own valuable customer data and are fiercely protective of it. Also, consumers who are not familiar with the actual applications of Open Banking are reluctant to embrace it as they fear fraudulent transactions and other complications arising from this technology. Adding to this hurdle is also the lack of awareness of the risks and benefits associated with Open Banking that has limited its appeal among the masses.

Therefore, the challenge for the banking sector is in implementing these concepts on the ground. Any compromise on customer data will not only result in regulatory penalties but also in the damaging press. No wonder then that cyber and data security rank amongst the top priorities of every Bank CIO and CEO.

Since Open Banking requires banks to share detailed customer information (other than sensitive payment data), they are required to undertake due diligence while sharing the same, even under the express consent of the customer. Banks and TPPs need to ensure customer consent is taken with due emphasis on the customer’s ability to understand and appreciate the possible outcome from the provision of their data. Since banks are deemed to be the final custodian of customer information, they have to secure their systems against financial crime, fraud detection and AML, among other things. Further, a bank’s IT infrastructure will need to be more secure and resilient as it will now be exposed to threats ported through TPP systems. They have to invest more effort and energy to analyse and discover potential points of vulnerability and take adequate measures to address this holistically. Core banking systems need to adopt open API based peripheral development, delivering quicker implementation cycles and minimal customisation of the core product. Furthermore, the industry’s adoption of API standards should set a benchmark for all involved parties. Banks and TPPs should adhere to and promote development in line with these standards.

Finally, it is worth mentioning that many large payment systems and core banking providers have developed Open Banking-compliant solutions. Without going into a lengthy debate on the merits and demerits of each of them, it might suffice to recognise that these systems, along with robust identity and access management systems, can comprise a strong first line of defence for the Open Banking ecosystem.

The Best Has Yet to Come

While the consumer experience may not have altered significantly in the initial rollout of Open Banking, experts opine that it won’t be long before the positive effects of this innovative model trickle down to the end users.

Already, the market is charged with competition and has become riper for innovation. Positive changes are taking place internally and banks are strategising to become more customer-centric and proactive. This will bode well for the long-term relationships banks have with their customers. As we gear up for the next wave of Open Banking, we hope that its innovative model will lead to a level playing field for both customers and banks. For once, innovation will go hand in hand with pragmatism and plain grit, to script the winning equation for the future of banking.

By Shuvo G. Roy, Vice President & Head – Banking Solutions (EMEA), Mphasis

Julian Saunders, CEO and founder of personal data governance company PORT.im, discusses how alleged breaches of GDPR by Facebook and Twitter may just be the beginning

Cast your mind back to early 2018. The world was alive with the sound of GDPR commentary. In the run-up to the May compliance deadline, everything was up for debate. Would it spell the end of marketing as we know it? Was anyone actually compliant? Was it good news or bad news for businesses? And, getting the most airtime – would GDPR be a damp squib like the Cookie Directive?

If you were of the opinion GDPR was a lot of hot air, the intervening months may feel like vindication. GDPR has largely gone off the agenda of most media publications and with it the minds of many business owners. However, we’re merely in the eye of the storm. In the last few weeks Facebook, and now Twitter, have been squarely in the crosshairs of regulators for allegedly failing to comply with GDPR. The EU has issued a stark warning that big fines will be handed down before the end of the year. Similarly, the ICO has ramped up its warnings that major action is likely to be taken. Added to this momentum has been a seemingly endless series of high-profile data breaches with Google+ the latest casualty.

For business owners who put their GDPR compliance on the backburner since May, the warnings could not be clearer: If you aren’t GDPR compliant you’re likely to be in some serious trouble in the next few months.

Facebook has quickly become the poster boy for poor data governance procedures. Cambridge Analytica, data breaches, and GDPR failures have all come in quick succession and provide a case study for businesses on how not to collect and manage data. While it may be tempting to revel in some schadenfreude, a better approach is to see what every business can learn from Facebook and how they can protect themselves from the expected GDPR storm.

First, it should go without saying that financial organisations hold some of the most sensitive personal data. Thankfully, the most important data linked to account information has largely been well protected. However, having high security standards around bank accounts can breed complacency especially when you consider it’s not the only information the average financial company holds. The marketing, customer service and sales departments will all, usually, have their own customer databases which may be subject to vastly different security and governance standards. A breach related to any of this data could be fatal to a financial organisation and result in hefty GDPR fines.

General complacency is kryptonite for data management and protection. For Facebook, its complacency manifested itself in lax standards, questionable practices and a belief it would never be brought to account. For financial organisations, it can lead to blind spots related to data that is deemed less ‘sensitive’. Often, to enable smooth marketing, client management and sales operations, customer data is more readily accessible than financial information, shared with more parties, updated more frequently and inputted into more platforms. Each of these processes increases risk. Compounding this issue is a general lack of education related to the power of this data to do harm. Many would ask, what use is an email address to a hacker? The short answer is, a lot. This is why GDPR seeks to protect every piece of personal data.

If you’ve got to this point in this article and you’re beginning to feel some doubt surrounding your data practices – good. Now is the perfect time to audit and review all your data processes and security standards. The baseline should be – is everything GDPR compliant? If it was in May – is it still compliant? New technology, teams and initiatives can all impact your data processes and result in non-compliance.

If you avoided all of this in the faint hope that GDPR wasn’t going to be an issue, you need to get on it immediately. In this instance, buying in technology and availing yourself of the services of specialist consultants will be the fastest (but not the cheapest) option.

Next, what is the general understanding of your staff? All the procedures and technological safeguards will mean nothing if your colleagues do not understand what GDPR is and the danger of data breaches. Undertaking company-wide training regularly and incorporating data management expertise and ethics into staff development and assessment can be a powerful way to measure and improve education.

Finally, if the worst happens and there’s a breach – are you prepared? Time and again we see that a poorly handled response to the data breach generally do more damage than the breach itself. Again – I’ll point to Facebook and its slow, incomplete and unsatisfactory responses to each and every data issue it has encountered.

Slow responses are symptomatic of a failure to have the right procedures in place. This can be because there is no technology or expertise available to identify the breach in the first instance or the right people are not empowered to make quick decisions. You need to start from the position that any breach, no matter how minor it appears, is serious. It should be reported to a specialist team led by the CEO. Within that team should be the IT lead, marketing, customer service and legal. Consumers should be informed as quickly as possible, both to be GDPR compliant, and to reassure. The business needs to identify who is impacted, how, what went wrong, how it can be fixed and how consumers will be protected in the future. The faster these boxes are ticked and communicated the better the end result – especially if the ICO gets involved. As with anything, practice makes perfect. Conducting wargames and drawing up ideal responses and contingencies with this team could make all the difference.

We now live in a world where the reputation and future of a company can be destroyed by hacks and data breaches. Organisations are generally to blame for this environment. There has long been a culture that personal data is a commodity that businesses can deal with as they wish. Now the wheel has turned. If you’re one of the many business owners that still believe that data governance is just something for the IT department to worry about – you’re going to be in for a big surprise. By the end of the year, a number of large businesses will be hit with near-fatal fines as a warning to other companies. Acting now will ensure that your company is not one of these cautionary tales.

Accenture has completed its acquisition of Italian banking technology service provider, SEC Servizi Spa from the Intesa Sanpaolo Group. Accenture now has 80.8% ownership in SEC Servizi and will also be acquiring the remaining interests held by other shareholders.

Established in 1972, SEC Servizi is a consortium formed by Italian banks to provide IT services and outsourcing solutions for banks and other financial institutions in the country. Its offerings include application and facility management, centralized back office services and specialized multi-channel, consulting, education and support solutions. The company reportedly manages more than 21 million transactions per day for nearly 1,400 bank branches in Italy and had revenues of EUR 152 million by the end of 2017. Some of its clients include Banca di Credito Popolare, Banca Italo Romena, Banca Nuova, Veneto Banca, Allianz Bank Financial Advisors, others. Intesa Sanpaolo acquired SEC Servizi in 2017 as part of the acquisition of certain assets, liabilities and legal relationships of Banca Popolare di Vicenza S.p.A. and Veneto Banca S.p.A, both in compulsory administrative liquidation.

The acquisition of SEC Servizi’s expertise and technology and operational assets will enable Accenture to create an advanced and innovative core banking platform that can support banks in their transition to digital. This transaction will help to establish Accenture as a leader in the banking technology market in Italy, serving SEC Servizi Spa’s existing customers, including Intesa Sanpaolo and other mid-sized financial institutions in Italy.

After slowly recovering from the financial crisis, Italian banks are now looking at modernizing their technology infrastructure and are increasingly relying on digital resources to remain competitive in the market and align their services to the digital savvy customer. An indication of this is the drop in the number
of branches at the end of 2017 which was was 20 per cent lower than in 2008.  Banks such as Unicredit, Intesa Sanpaolo, Monte dei Paschi, Mediobanca, Banca Carige are leading the way with digitalization initiatives ranging from contactless payments, virtual reality branches, robo advisory service, etc.

For Accenture, this presents an opportune time to enhance its core banking technology services with the acquisition of SEC Servizi Spa.

Uncertainty around Brexit continues, but practical preparations have begun – many banks are now well in the throes of duplicating or moving systems and business processes from London to other financial hubs.

Extricating processes isn’t going to be an easy task. There are two aspects to this separation process – formal IT supported enterprise systems and the grey IT (or end user supported IT systems). Most banks have the understanding and the ability to effectively disentangle the core enterprise systems. Where in this extrication activity, banks are likely to come unstuck is situations wherever there are end user supported IT, commonly Microsoft Excel spreadsheet-based processes, that are deeply linked with the rest of the banking group’s enterprise systems.

If a bank is required to set up a separate entity in the UK, all the data residing in ancillary spreadsheets that feed data into the various systems pertaining to this jurisdiction will need to be delinked/duplicated and housed separately too. For instance, as banks separate their Treasury operations, there will likely be certain processes that heavily rely on common Bloomberg and Reuters market feeds that are owned by or have deep linkages to the banking group’s systems. Similar issues will arise for capital modelling-related processes. While previously a bank might be evaluating business risk based on its aggregated position across its European operation, post-Brexit, determining the UK entity’s risk position will require the financial institution to disconnect and separate the relevant data for this jurisdiction.

Essentially, as banks duplicate their enterprise systems for specific jurisdictions, they need to do the same for the spreadsheet-based application landscape that they rely on operationally.

Disentangling these unstructured, but business-critical processes manually will prove impossible and eye-wateringly costly.  Typically, spreadsheets surround the core systems such as accounting, risk management, trading, compliance, tax and more. Complete visibility of the spreadsheet-based processes landscape is essential to identify the ones that need to be duplicated/extricated for the new entity, but due to the uncontrolled nature of spreadsheet usage, there will potentially be 1,000s of such interconnected applications and no inventory of these processes.

Banks should consider adopting an automated approach to safely extricating their spreadsheet-based processes. Spreadsheet management technologies, can scan and inventory the entire spreadsheet landscape, based on very specific complexity rules and criteria. The technology can expose the data lineages of individual files across the spreadsheet environment to accurately reveal the data sources and relationships between the applications.

This approach is already proven in M&A type operational transformation situation, which to some extent resemble the Brexit scenario. Aberdeen Asset Management adopted this approach to separate the Scottish Widows Investment Partnership (SWIP) when it bought the business from Lloyds Banking Group. Due to the number of convolutedly connected spreadsheets across the vast spreadsheet landscape and the complexities of the business processes residing in this environment at SWIP, manually understanding the lay of the land was unfeasible. Utilising spreadsheet management technology, SWIP inventoried the spreadsheet landscape, identify the business-critical processes, and pinpointed the files that required remediation. Simultaneously, the technology helped expose the data lineage for all the individual files, revealing their data sources and relationships with other spreadsheets. SWIP was able to securely migrate the relevant business processes to Aberdeen Asset Management and where necessary decommissioned the redundant processes.

Post-Brexit too, banks have a lot more to gain from automated spreadsheet management.  Spreadsheets will likely be the used to set up temporary business processes/solutions for the new operations. Spreadsheet management will embed best practice-led use of these tools across the lifecycle of such applications – from creation through to remediation and decommissioning into formal IT supported applications– encompassing spreadsheets and their unique data flows. It will also offer banks an in-depth understanding of their data landscape. This will help institute data controls and spreadsheet change management processes so that there is complete transparency and an audit trail tangibly reducing operational, financial and regulatory risks caused by spreadsheet error.

By Henry Umney, CEO, ClusterSeven

About the author

Henry Umney is CEO of ClusterSeven. He joined the company in 2006 and for over 10 years was responsible for the commercial operations of ClusterSeven, overseeing globally all Sales and Client activity as well as Partner engagements. In July 2017, he was appointed CEO and is strongly positioned to take the business forward. 

Danish encryption specialist Sepior, founded in 2014, was started on the back of ground-breaking encryption projects and the support of the EU’s Horizon 2020 programme. In discussion with IBS Intelligence it revealed that it has lots more surprises up its Fairisle jumper

Sepior’s big break came with the EU’s Horizon 2020 initiative, an irony not lost on CEO Ahmet Tuncay – as we spoke to him, the chaos which is Brexit continues to engulf Europe.

Ahmet Tuncay, Sepior CEO said: “Yes, we’re a truly Danish company and found our footing within the Horizon programme, which deals mostly with small to medium enterprise projects or SMEs.  For companies with promising technologies, the EU economic commission provides grants for the ones they believe will become a commercial success.  But there’s a fairly high bar for them to grant you this money, you have to commit to specific milestones and strict targets.  The commitment our founders of the company made was: ‘If you give us these funds and support, we’re going to create economic activity within the EU, which means hiring people and growing the company’.

He continued: “Our obligation was really to take that money and create a piece of commercially viable technology.  At the early stages, specific use cases aren’t as important as the foundational technology and broad market appeal.   Once the foundation is created,  we wanted to be able to acquire institutional funding to go and build a business.  In the long term our obligation is to create jobs, insofar as the EU is concerned, but now we have commitments to our shareholders, so it’s not just jobs that matter today.”

Tuncay says: “If you just look at the size of the market for encryption key management, you’re not going to be impressed by the number, it’s only around a $1 billion market.  But if you take the same technology, repurpose it and, apply it to commercial asset exchanges, which is a $300 billion market, and find a way to participate in a revenue sharing opportunity, you’ve moved yourself from a $1 billion market to a $300 billion market. You then have to figure out how to extract your fair share from that activity.”

The numbers are certainly impressive if you consider the amount of dollars that brokers and exchanges collect in fees – it’s a vast amount – it’s certainly more than the $1 billion market for encryption key management.  It’s several hundred billion dollars, it is super lucrative and it’s a great market to be in because few companies are good enough to offer a differentiated service to capture new customers..

Tuncay says: “Our investors recognised that the big pain of cryptocurrency activity is that if you lose the coins, they’re gone forever.  So that turns up the need for novel security solutions more than ever.  The digital wallet containing the cryptocurrency assets must be hosted in trusted custody and the transactions involving the wallet must be protected against malicious or incompetent brokers and clients. The need for a higher level of security means having multiple signatures and multiple approvers, which obviously more secure than having just one.  When you have the multiple approvers using our ThresholdSig technology versus a MultiSig or multiple signature technologies, we can deliver very high levels of security and trust along with some operational benefits for the exchange, because the administration of the security policies involving adding people, removing people, replacing lost devices, and who can participate in those signatures, that’s all done off-chain and it’s simple.”

The alternative approach is to use MultiSig, which is all on-chain, so when you change the policies you have to broadcast the policy, telling everyone who the approvers and policies are, which is not really good for security. You may also have to reissue or generate new keys.  There is a lot of administrative bureaucracy that goes with that approach.  Until recently MultiSig has been the gold-standard for threshold cryptographic currencies but ThresholdSig provides an equal or higher level of security with a more flexible, lower administrative effort environment and also has some potential efficiencies to improve and reduce the size of the recorded transaction on the blockchain.  That means that the way the transactions occur, they’re recorded on the ledger, and with MultiSig, the blocks actually contain multiple signatures that have signed off on the transaction, which of course increases the block sizes.

Tuncay says: “With ThresholdSig there’s only one signature that goes on the ledger, so it actually reduces the amount of data on the ledger. It turns out these signatures are a substantial portion of the total transaction size.  So, there’s this kind of tertiary benefit that could end up being quite material, because it means that the blocks can contain more transactions. Blocks are typically fixed in size, so if the transactions are smaller you get more of them onto the chain.  In some of the currencies, like Bitcoin, it’s already hitting capacity on processing.  So, if you can have the highest level of security and smaller transaction sizes it’s going to maximise throughput.”

There is the hope that ThresholdSig transactions will also have lower transaction fees than MultiSig. ThresholdSig transactions appear as a single signature transaction on the blockchain. Historically, single signature transactions are the smallest in size, allowing for maximum transactions per block and typically have the lowest mining transaction fees. Our expectation is that the exchange could end up with lower transaction fees, with higher security and lower administrative overhead. So, there are some very compelling reasons why this technology is going to be relevant to a far wider audience than up to now.

Sepior’s investors were on the front edge of recognising threshold schemes, the cryptography approach with multiparty computation, and how that technology could bring real benefits in this use case.  As Tuncay says: “We’re focusing on the implementation around cryptocurrency exchanges and hot wallets, but this technology is applicable to a much wider range of applications.  So next month we’re going to be making some announcements around more blockchain generic solutions, to provide more privacy on private blockchains in general. There are a whole series of problems with using distributed ledger technology for business and one of these is scalability.  How do you support – for example, in the case of logistics tracking operations,  a container being loaded and shipped from a point in China to destination in Los Angeles? Sometimes there are 35 or 40 different parties involved in that transaction.  These parties don’t necessarily need to know everything on the blockchain.  Effectively all the transactions are on the chain.  So all parties that are participating in the chain can validate and see their own transactions but need not see the confidential data of other parties.  One strategy for this has been to create virtual blockchains called channels, which is used in Hyperledger fabric, but it’s use creates a messy scalability problem.

Tuncay says: “If I were to generalise it further, while a blockchain is supposed to contain transactions that are immutable because everybody on the chain can validate them, the downside is that everybody on the chain can also see everything on the chain.  So how do you create an application like logistics tracking where there are 30 parties on the chain and you want every party to have a different view of it?  Our solution to this – and there are existing solutions which have proven to be unscalable, is based on access control policy that relies on encryption to make only the intended parts of the chain available to users based on their permissions.

“There is nothing magical about this, we’re just using our underlying key management system and fabric.  But once we make this available, it will also enable the creation of privacy-preserving chains that are massively scalable than what is possible today.  We think there’s value there, again this is something that we’re going to go and test out and we’re involved in activity with several large companies, to validate this.  We think that it’s worthwhile.:

Fundamentally Sepior is providing fine-grained control over who has visibility to what on the blockchain.  The key words here are ‘threshold cryptography’.  Sepior is pioneering and leading the industry in the field of threshold cryptography, to apply these key management concepts in a manner that’s more scalable and works in distributed environments with a high degree of efficiency.  Part of the threshold aspect, the threshold cryptography, in the case of a crypto wallet is that you might have four parties who are available to approve a transaction, but you might have a threshold that says if any three are available it will be accepted as a valid transaction.  Therefore, you can define a threshold so that if somebody loses their phone or their device gets hacked and we no longer want to trust it, it can be excluded but continue to transact and do business.

Tuncay says: “When you move into the blockchain application the threshold aspect is more around signing key availability and management. What we’ve done here is to take the key management function and distribute it using multi-party computation (MPC).  We’re able to distribute the key generation and management functions across multiple virtual servers, if you will, in the cloud, such that no individual server has a full key that could be hacked or stolen.  But collectively maybe two out of three of these virtual servers can provide keys for all the users that require access to the content on that blockchain.  This threshold aspect gives a high degree of availability, reliability and integrity of both the encryption and the availability of key management.”

For this Danish company, it looks like blockchain will be The Killing it deserves.

Successful compliance and risk management programmes within financial institutions depend on effective Know Your Customer (KYC) processes yet most have found these processes to be increasingly onerous, both in terms of time and cost. 

This is further complicated by an ever-changing and progressively stringent regulatory landscape. As a result, consortiums of banks, governments and vendors have explored the possibility of reducing costs and improving customer service through the establishment of industry-wide KYC processors or Utilities, with the intended aim of standardising KYC processes.

The latest region to look into adopting this approach is the Nordics, following a series of high-profile money laundering cases there. Leading banks DNB Bank, Danske Bank, Nordea Bank AB, Svenska Handelsbanken and Skandinaviska Enskilda Banken banded together in May last year to announce their intention to develop “an efficient, common, secure and cost-effective Nordic KYC infrastructure” called Nordic KYC Utility.

If designed and executed properly, the potential benefits of a shared infrastructure are clear to see, not least raising KYC compliance standards across the financial industry as a whole. However, there are challenges, as demonstrated by the Monetary Authority of Singapore shelving its plans for a centralised Utility late last year due to spiralling costs. Here, we look at what the objectives of a Utility and the key factors to be considered to ensure success.

Objectives of a shared KYC Utility

First and foremost, a Utility should provide benefits to ALL its stakeholders – from the participating banks and their customers to regulatory authorities.

For banks, the Utility should streamline KYC and customer onboarding, reduce costs and enhance KYC standards and auditability. Meanwhile, their end customers should benefit from a smoother customer onboarding journey and reduced friction.

From the perspective of the regulators, the primary objective of a successful Utility should be to raise confidence – among themselves and society as a whole – that banks are working to the highest KYC standards to more effectively combat financial crime, money laundering and terrorist financing.

Considerations for success when designing and implementing a Utility

The failure of the Singapore KYC Utility has highlighted areas of caution to be considered in other jurisdictions. In a report published by the Association of Banks in Singapore (ABS) after the project halted, it was revealed that “the overall margins at a systemic level did not allow for a viable business case in a projected term, and the proposed solution was going to cost more than the savings that banks would get out of it.” So, what can be learnt?

Approach the project with a thorough understanding of participant needs

It’s important to recognise that, despite all the participants operating under the same legislative and compliance regulations, their interpretations and – importantly – risk appetite will vary immensely. It is therefore crucial to establish a deep level of understanding of the needs of each participant in terms of existing KYC processes, risk methodologies, data and technology requirements.

The reality is one size never fits all. Participating institutions may vary significantly in their need to access various specific sources or adapt certain processes by jurisdiction or customer type based on their established compliance policies. This places extra demand on the Utility operator to select and deploy highly configurable best-of-breed technology, data and processes in the early stages.

Build design with flexibility at front of mind

The report highlights the importance of the core design, stating that “significant priority was given to design choices which represented a highly ambitious ideal” and that “more agility in governing the interaction between design and cost could have helped”. This emphasises the need for flexibility and adaptability, since initial requirements often evolve and so an agile approach and design thinking are essential to ensure the Utility truly delivers value based on the actual needs of the participating parties.

Ultimately, it was the cost of integrating an inflexible solution into a bank’s established compliance processes that proved to be the Singapore Utility’s primary downfall. The ABS report noted that the banks are “all at various stages of sophistication and evolution in terms of client data systems and KYC workflow systems”, and acknowledged that integration costs would account for over a third of the project costs. Therefore, ensuring there is flexibility in the design and technology used to build a Utility is critical in managing costs and ensuring participants realise maximum value today and into the future.

A Utility simply won’t work if its infrastructure is not future proof from advancements in regulation, technology or user experience expectations. For instance, here at encompass we recently launched global biometric identify verification (IDV), and this is the type of feature that Utility participants may well want to use in the future, so the infrastructure has to got to be able to adapt for this.

Are Utilities the way forward?

Given the amount of time and money financial firms currently spend on KYC and customer onboarding, it isn’t surprising that the Utility concept is gaining such traction. While there are certainly questions that remain to be answered – such as whether one Utility can realistically meet all the requirements of multiple, diverse institutions – the arguments in favour are certainly persuasive.

Industry pundits have debated the likely success of a regional KYC Utility and time will tell whether the proposed Nordic KYC Utility will achieve its desired outcomes. However, it is an encouraging move by the main Nordic banks to up the ante in the fight against financial crime, and rebuild their standing in the eyes of both regulators and customers. With a high level of engagement among key stakeholders, there shouldn’t be any reason why the project does not succeed, should it stay true to its primary objectives and understand that design thinking based on inherent flexibility is absolutely critical.

By Wayne Johnson, Co-Founder and CEO at encompass corporation

Research firm IDC is predicting banks worldwide will spend more than $4bn on Artificial Intelligence (AI) in 2018. If we factor in PwC’s Sizing the Prize report to understand the broader trend for global business, it seems AI could add a further $15.7 trillion to the global economy by 2030. Undoubtedly AI will lead to a significant change in the way banking operates, but let’s consider what that might look like.

By Dr Giles Nelson, CTO Financial Services, MarkLogic

Firstly, think about customer relationship management in retail banking. Most traditional banks still have a largely transactional relationship with their customers, providing deposit and payment services. But consider for a moment the information that a bank typically holds about an individual – their financial history gives a unique insight into a customer’s commitments, preferences and desires. By using AI techniques to analyse this treasure-trove of information, banks can deliver suggestions to tailored financial products and, indeed, other consumer products.

This kind of personalisation has begun with the introduction of chatbots in banking. AI is enhancing customer relationships by using natural language as a way in which customers can interact and ask questions and promises better customer satisfaction and lower call centre costs.

Fraud and anti-money laundering (AML) are also perennial issues. AI techniques, particularly using machine learning, are used today in these areas, and their use will only increase as models and databases of source information get more sophisticated. This is also a constantly evolving area as anti-fraud staff battle with bad actors who are also employing the latest technologies. With richer datasets and more advanced AI techniques, this will only get better, leading to less financial loss and less annoying false positives. With the right data of past and current transactions, the typical behaviour of customers can be learnt, and anomalies detected. Transactions can then be stopped, perhaps even before they have occurred, or confirmation from the customer requested before the transaction can proceed.

Last but not least is AI’s impact on trading technology. Much investment over the last 10-15 years has gone into making automated trading systems, whether trading equities, FX or derivatives, faster and more responsive to changes in the market. AI techniques, such as neural network machine learning systems, have also been used for some time. As AI tools and the data available to them become more sophisticated and richer, so these systems will get better.  Better at spotting opportunities to trade, and better at spotting the occasional examples of abusive behaviour.

Tackling a fractured data landscape

This is all seemingly beneficial and promises a lot, but here’s the rub. AI thrives on lots of data. To make AI useful, data from different parts of an organisation need to be accessible so the AI systems can use it. Data sitting in remote technology silos may be vital to a particular application, but if it isn’t easily accessible it may as well not exist. What’s more, that data has got to be well organised too – there is no area of technology where the aphorism ‘garbage in garbage out’ can be applied more strongly than with AI.

Furthermore, the data systems underpinning AI need to be agile enough to deal with new challenges quickly. Businesses cannot afford to spend months waiting for the right data to become available before launching new services – by then the competition will likely have an edge.

So, having the right data technology foundations is critical to delivering the process of AI, but a lot of banking organisations today don’t have this and are dealing today with a fractured data landscape.

The path to data-driven decision-making

Data silos are an undoubted issue together with the rigidity of most conventional data management systems. If financial organisations can go beyond this – delivering a holistic view of their data together with the agile data models that can evolve easily as business requirements change – then they can become truly data-driven. Competitive advantage will come from how smartly that data can be accessed and deployed.

More personalisation of retail services will occur, and banks will have the opportunity to strengthen their customer relationships and become more valued partners with end customers rather than just providing commoditised banking services. This will enable banks to provide services traditionally only targeted at the wealthy through private banking, to a much bigger segment of their customer base. Similarly, risk, fraud and money laundering should all ultimately reduced with the greater insights that AI can bring, making the whole financial system safer.

As with any new generation of technology, change can be both positive and negative, but one of the most scrutinised areas of disruption is the jobs market. With the introduction of AI, jobs will also change, and that’s the key point. One of the main purposes of any new technology is to make people more productive and to get ‘up the value stack’. This will need a willingness on behalf of people to embrace and, indeed shape, new AI-powered tools.

AI has the power to transform the banking sector, but only with the right data infrastructure. Banks should be acting now to ensure they have the right tools in place to make the most of the data at their disposal.

Kevin Day, CEO of HPD Software, a provider of technology that facilitates banks’ ability to provide asset-based finance, outlines the technologies banks should be considering to ensure that they are able to attract and retain the fastest growing SMEs as clients. They should embrace automation, offering integrated invoice finance platforms, upgrading mobile banking applications, introducing biometrics, and tapping into the vast potential of the blockchain.

In recent years, technology has fundamentally changed how the financial services industry operates. Fast-paced innovation in the FinTech sector has meant that SMEs should benefit from the cutting-edge technologies that are being developed when it comes to managing their everyday banking requirements. Yet many business customers are instead turning to more nimble digitally-driven platforms as traditional lenders have been slow to embrace such technology. This is beginning to change, however, as FinTech is starting to become integrated into the growth strategies of traditional lenders and other financial services providers that had previously taken a less tech-focused approach to the way they did business.

Mobile payments

Mobile payments may be old news for retail customers, but, in business banking it is now starting to catch up. In November 2018, Barclays became the UK’s first high street bank to launch a mobile invoicing application for its SME clients, which aims to reduce overhead costs and speeds up the payment cycle.

A recent report found that 80 per cent of businesses surveyed wanted time-saving measures to improve efficiency, with 56 per cent stating that these resources have a significant impact on their business and positively affect their decision to use what’s on offer by a financial institution. [1]Mainstream banks control 68 percent of the SME market share, so naturally technological innovation, like online and mobile banking, is playing a role in their continued dominance of the sector.

Biometrics

When it comes to business banking, online security is a concern that towers above the rest. Extending this functionality from a consumer platform into corporate banking has the potential to make payments and account management more seamless and secure. HSBC was the first to introduce biometric face, voice and fingerprint recognition for corporate clients in May 2018, and with its HSBCnet banking app, with single amounts of up to US$1 billion authorised on their platform, efficient, streamlined security is paramount. Biometrics has the potential to become significant for banks providing invoice factoring and other forms of asset finance, to authenticate the transfer of assets and to increase security around access to invoice finance platforms.

Blockchain

For such a tightly regulated industry, banks have historically been sceptical of whether blockchain technology is secure enough, but that attitude has shifted dramatically in very recent years. A recent Deloitte global survey finds that 43% of senior executives believe integrating and deploying blockchain to be one of their top-five strategic priorities.[2] Recent developments suggest blockchain technology is very quickly making the jump from niche application to mass market appeal, with growing consensus it will fundamentally change the way we think about asset financing and how banks and financial institutions operate.

We can see the benefit of blockchain in smart contracts – self-executing contracts on the blockchain, and in security – where transactions are immutable due to the decentralised nature of the distributed ledger. Among the areas where blockchain could be most beneficial for banks, is in their services for their asset based finance clients, as it can improve trade financing by keeping all stages of the process, including letters of credit and import/export authorisation, on the blockchain, which helps optimise settlement times, adds transparency, and lowers transaction costs.

Assed based finance tech priorities – automation and integrated platforms

The technology options available for banks are vast, and there are some which top the list, with digital, integrated, intelligent platforms being one of them. One of the areas poised to adopt technological innovation, where they can provide benefits for both banks and their business customers, is in facilitating asset-based finance.

ABF management software functionality and transaction streamlining have been transformed in recent years – the technology is now able to update collateral values as clients generate invoices in their day to day business, thus reducing the lead-time between raising an invoice and receiving funding. Banks should consider such platforms to automate and streamline data capture requirements and more efficiently deliver a seamless financing product to their business customers. Platforms such as our own HPD LendScape automates and streamlines data capture, offers real-time risk management, and provides insights and analytics into reporting.

As blockchain gains traction to support the business and trade transaction flows, there is an opportunity to connect ABF into the process; greater granularity and enhanced data quality can only help banks to provide enhanced funding into supply chains.

Outlook

Though mainstream banks initially appeared slow to react to the rapid changes, and adopt innovation with less agility then many alternative FinTech providers, they will likely remain their corporate clients’ main source of finance. However, clients will expect easy to use, fast and secure digitalised services as an integral part of the package or they will look elsewhere. Many major banks are acquiring FinTechs to take advantage of technical innovation and bring it to the mass market; we are starting to see the banking world rollout these technologies for the benefit of their business clients. If major banks want to stay ahead of the more nimble digital challengers, and retain and gain some of the fasted growing SMEs, they need to stay on top of the technology innovation game.

[1] https://www.pymnts.com/news/b2b-payments/2016/sme-mobile-banking-correlation-business-growth-performance/

[2] https://www.americanbanker.com/slideshow/the-many-ways-banks-are-using-blockchain

From the major European banks scaling back their trading units to the world’s largest investment managers slashing research spend by 40% – consolidation seems to be very much the theme of 2019.

By Daniel Carpenter, Head of Regulation at Meritsoft

Regardless of whether you sit on the sell or buy-side, here are four cost centres that financial institutions should take a hard look at if they are to harbour any hopes of seeking out much-needed efficiency savings from across the business.

1. CSDR: The Central Securities Depositories Regulation is one of the key regulations coming into effect in 2020. Though European, CSDR will affect all banks catering to European investors and is poised to be an operational nightmare if not handled properly. To comply with CSDR, banks will have to handle fails management, penalty of fails, buy-in process (sales settlement & reporting).

2. Preparing for more FTTs: Banks should be prepared for additional countries enacting financial transaction taxes in 2019 and the years to come. We’ve already seen talk of these taxes coming into effect in Spain and Germany, and rumours continue that there will be an EU-wide tax. Any banks that cater to ex-pats living abroad with US investments must be prepared to manage this slew of transaction taxes coming into play and consider what it means from an operational cost perspective.

3. Brokerage: Large banks are paying in excess of £100 million per year for brokers to facilitate transactions with counterparts across multiple desks. Banks can, of course, negotiate rates with their brokers. However, often the issue is that most have, until now, failed to find an accurate way to track and validate exactly how much they’re paying them per transaction and which rates are being used across desks, and across different units of the bank. Inadequate information, not being able to account for discounts, and a lack of comparability into how brokers charge for the same service, are all key factors behind failing to find an accurate way to measure and reduce costs.

4. Income management: While the primary focus of investment banks is making money, something not often considered enough is that banks also have to manage the process of giving investors money back in the form of claims and recovering Claims from counterparties. Claims arise in many forms, for example when coupons or dividends happen to come across mid flow between buying and selling. This means money can end up in the wrong accounts on more occasions than banks might consider, which can inadvertently become a significant cost center and risk mitigation aspect. With a significant amount of capital still tied up in old receivables, not to mention capital tied up in interest rate costs on outstanding receivables, banks need to seek out ways to track cash management and cash flows (receivables and payables) between their counterparties.

As 2019 begins to take shape, those that consider these four areas will be best placed to not only reduce operational overheads and funding costs, but to crucially handle mounting pressure from the boardroom to make efficiency savings.