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For the first time ever, eWallets such as PayPal and Alipay are outpacing credit cards as a method of payment for cross-border online shopping. The emerging trend, identified by Pitney Bowes in its 2017 Global Ecommerce Study¹, raises concerns for online retailers accepting only credit cards as a payment method.  With 70% of consumers now shopping online outside their own country, businesses must respond to consumers’ changing payment choices or risk losing customers at the checkout.

Fully 41% of global respondents surveyed use eWallets as their preferred method of payment, more popular than using credit and debit cards, bank transfers or mobile wallets. This varies from country to country, with the figure as high as 64% for shoppers in Australia and 61% for shoppers in Germany. Year-on-year growth is highest for Mexico, which has seen a rapid increase of 37% in the number of cross-border shoppers using eWallets since 2016, and a decline in the number of credit cards as a preferred payment option.  This popularity of eWallets is reflected in figures collated by Statista, which identified that in the third quarter of 2017, over 218 million PayPal accounts were active worldwide², a figure which has increased every quarter since 2001.

Marketplaces driving eWallet take-up

Consumers are increasingly using marketplaces – such as eBay and Etsy – for their online shopping. 62% of online cross-border shopping is spent on marketplaces as opposed to 38% on retailers’ own websites, according to the Pitney Bowes study. Marketplaces widely accept eWallets as a method of payment, so the trends may well be interconnected: consumers become more used to the convenience, and it’s easier to check out when mobile shopping, so it could be that marketplaces are driving up the use of eWallets.

However, there are some variations in eWallet usage between countries. Shoppers in Germany primarily use eWallets, by far the most popular method of payment for cross-border shopping: 61% prefer this method, followed by 26% credit cards and 10% mobile wallets. India is the only country which equally uses credit cards, eWallets, and debit cards or bank transfers. Yet eWallet hasn’t gained traction so far in Japan, Hong Kong, and South Korea, where credit cards are still the main payment option for cross-border purchases.

Buyer protection

 The study also revealed that 21% of respondents are concerned that personal information could be compromised. In the US, this figure rises to 30%. eWallets bring with them strong levels of buyer protection, and buyers are aware of this: PayPal, for example, monitors transactions 24 hours a day, seven days a week, and transactions are encrypted, too. Buyers can even be reimbursed for damaged or missing items. The more security-conscious buyers become, the more attracted they will be to those payment methods which provide them with better protection. Credit cards, under the Consumer Credit Act, must provide protection for purchases over £100 and below £30,000, but many online transactions fall below that threshold. A debit card does not carry the same reimbursement protection, although most major banks will flag unusual transactions and contact their customers accordingly. With this in mind, it becomes clear why eWallets are increasing in popularity.

Mobile wallets still in early stages of adoption

The study also researched the take-up of mobile wallets such as ApplePay. Just 4% of consumers, on average, said this was their preferred payment method when shopping online cross-border. The study shows that the payment method is still in its infancy in the majority of countries surveyed. China and South Korea have the highest levels of adoption, at 10% and 7% respectively, and the US follows closely behind at 6%. Across Europe especially, the take-up rate is low, and although the UK’s adoption rate is consistent with the global average of 4%, France’s usage has dropped since last year.

This could be because consumers are using mobile wallets for in-store, physical purchases of lower value, and prefer alternative methods of payment for shopping online, but more widespread usage in physical transactions is likely to influence usage for digital transactions – if you’re using it in Costa, for example, you’re more likely to turn to it if offered it on a retailer’s website. It could also be that further education is required before retailers include ApplePay as a payment method on their ecommerce sites.

Payment power

With average cross-border order values (AOV) 17% higher than domestic AOV, it comes as no surprise that 93% of retailers plan to offer cross-border shopping by the end of 2018. However, as retailers extend their businesses overseas, they must take time to identify the preferred payment options for shoppers in each region and to look at growth in payment methods. It isn’t just a case of ‘We’re expanding to China, we should offer Alipay.”

For some regions, payment methods are the result of cultural behaviours: some countries have an aversion to building debt, and fees may discourage merchants’ acceptance of credit cards, which makes their usage a less common practice.

Understanding these preferences is crucial. One in five shoppers are put off if their preferred payment option isn’t available – that’s 20% of potential business. With $4 trillion worth of goods left abandoned at the online checkout, retailers can’t afford not to address this³.

In the study, 37% of consumers surveyed said they would be more willing to buy cross-border if they were given payment options they prefer. This figure rose to 49% for India, 48% for Germany and 47% for China. It was cited as higher in importance than offering discounts and sales; than offering an easy returns process; and was even preferred to offering native language on a website.

Ecommerce companies must track emerging payment trends

Businesses must look at the emerging payment trends and currency preference for each country, as well as those methods which are in decline. Retailers are already exploring accepting Bitcoin and other cryptocurrencies, for example. Subway accepts Bitcoin, and Microsoft and X-Box do so for some transactions. Some retailers are hesitating, however, due to its fluctuations, with only three out of the top 500 online merchants⁴ offering it but again, this differs from country-to-country: China and Japan are two of the countries with highest Bitcoin take-up, according to a report in Business Insider⁵.

Historically, it’s fair to say that technology disruption in payment methods and preferences have been on the slow side. Now, digital transformation is accelerating the pace of change. Businesses need to understand the differences in consumer behaviour and preferences country by country and structure their business to respond to this change.

By Georges Berzgal, vice president EMEA, global ecommerce, Pitney Bowes

In the third of this three-part article series on the effect of the 871(m), Daniel Carpenter, head of regulation at Meritsoft takes a look at some of the unintended consequences the finance industry may face once the ruling is fully enforced.

Speaking at the Vantage Melbourne rise of AI and automation conference last quarter, Telstra’s head of innovation, Stephen Elop, said that the “path to disruption is paved by unintended consequences.” This sound bite by no means only applies to the world of telecoms, it also relates to financial firms getting their houses in order for the impending 871(m) tax regulations.

Although it’s hard to imagine this looming change to the tax system having quite the same effect as the influence of AI, there will still be unintended consequences. The primary issue is whether 871(m) could reduce market participants interest in U.S equity derivatives products covered by the U.S Internal Revenue Service’s (IRS) rules.

It’s certainly a possibility, as confirmed by a senior tax specialist and Foreign Account Tax Compliance Act (FATCA) practitioner at an ‘871(m) lessons learnt in 2017 and what is around the corner for 2018’ seminar towards the end of last year. With the second part of 871(m) legislation, which is currently being finalised, scheduled to come into force in January 2019, 871(m) legislation is unlikely to be revoked.

But it isn’t as easy as simply deciding not to trade certain derivatives products covered by the 871(m) rules. One head of securities tax at a leading accountancy firm explained that they have found that clients have been unable to switch off U.S securities, in the context of securities lending, even if they wanted to. While firms might try to say that they don’t offer any service in U.S securities, they ultimately will because they’ll receive it in the form of collateral, for example.

Essentially, it’s near impossible to just tail-off U.S products, like an index or a basket of securities where an American company name pops up. While some of our attendees at the event explained how a number of their clients had made a conscious decision to disavow any kind of U.S strategy, they still end up with them. Although you can limit their exposure, you simply can’t exclude them altogether.

One expert revealed that his firm had also had discussions about whether, if you were on the ‘Long’ side, you could just use a U.S broker so that you would never have to withhold (i.e. through a ‘W9 form). However, he rightly pointed out that MiFID II and best execution requirements mean that it couldn’t be done either, aptly stating that “all of the sensible things one might think you could do just don’t work”.

While we should not, by any stretch of the imagination, be expecting the same sort of significant changes AI will bring to the telco industry, when it comes to 871(m), and many other new transaction taxes, we should definitely be considering them in whatever form they materialise, and addressing the potential inadvertent outcomes now is of the utmost importance.

Payments have come a long way since the days of waiting for a check to clear in seven days, paying for goods is now possible from anywhere at any time, on any device. What’s more, these purchases are no longer exclusively domestic. From the smallest micro-merchant to the largest corporate, trade and therefore transactions are now truly international.

However, the timeliness, complexity and opacity of international payments is still a very real challenge. Even in light of disruptive and far-reaching technological innovation, this basic and fundamental problem remains unfulfilled.  Which begs the question – Why isn’t there a standardised approach for global, cross-border payments compatible with today’s immediate, digital economy?

New age of payments

SWIFT is the current de-facto network for international payments and has the benefit of wide reach through being bank-owned and ingrained in the global financial system. Although it is the most widely accepted cross-border payments infrastructure, it is based on the 600-year-old correspondent banking system and therefore slow and filled with inefficiencies.

SWIFT’s nascent rival, Ripple, is based on blockchain and crypto technology and can provide speed and certainty that are effectively unmatched in today’s market.  Although it has attracted major financial institutions to pilot its platform, it does not yet have the scale or reach of global infrastructures and is still effectively utilizing a correspondent banking network.

The competition is clearly having an effect, as SWIFT recently completed a “proof of concept” test of blockchain technology finding, unsurprisingly, that blockchain technology needs to make more progress before it can handle the billions of dollars of daily cross-border payments between the world’s banks.

Is Instant the answer?

There’s a new player throwing its hat into the ring: the Cooperative model of Instant Credit Transfers.

43 countries are now using Instant Payments infrastructure domestically, including major economies such as Australia and the US. This begs the question as to whether primarily domestic networks can interoperate to create an international one.

SCT Inst partially answers that question by creating a pan-European, Instant Payments service linking those domestic instant payments schemes. SCT Inst enables transfers of up to €15,000 within 10 seconds, 24/7, to any of 34 SEPA territories – across multiple CSMs but still in the same currency. But is this enough to work on the global stage?

Inter-governmental considerations aside, from a technical perspective the answer is yes – those hurdles were overcome when we learned to make international phone calls reliably. The topic of FX conversions [the only cross-border consideration not addressed in SCT Inst] isn’t really a barrier either – just an item on the plan to work through.

And the payoff is significant. for the vast majority of transactions because payments are processed immediately, whether successfully or otherwise, there is no inefficiency in the form of delays or payments. Since more banks will participate directly, rather than through a correspondent, the cost will likely come down significantly, with fees trending towards domestic pricing and FX rates towards interbank with small margin on top. The transparency will also be improved – senders will be fully advised of any delays to a transaction.

That said, sending money to “difficult” jurisdictions through Instant Payments could be one of the main sticking points in implementing a truly global system. Even if these geographies have or develop schemes in the future, current operators will be reluctant to connect to it, or banks will make sending payments to these territories prohibitively difficult. It is in those jurisdictions we see most cost and delay, and that is unlikely to change. Clearly, just having the technical capability is not enough; it must be supplemented by regulatory framework and woven into laws and industry practices.

Cross-border instant Payments may well be the catalyst for a new wave of innovative corporate banking, payments and cash management services. And since it has the benefit of starting from the already established domestic base, it may get to practical global ubiquity much faster than any of the competing approaches. It is the one to watch for in 2020.

By Gene Neyer, Chief Strategy Officer, Icon Solutions

While the benefits of fintech are being seen at increasing scale for consumers in the US, Europe and China, adoption among corporates is less emphatic. A recent paper from Wharton Business School highlights what many see as an ongoing challenge – the struggle between existing bank partners and new, challenger fintechs for that vital role with businesses, as they look to transact and manage cash.

Unfortunately, the competing pressures on corporate treasury are far more complex than this argument allows. We need only look to geopolitical factors that have had a knock-on effect on businesses, banks and treasury in recent (and not so recent) years. At this month’s EuroFinance conference, Strategic International Treasury, US tax reform is high on the agenda as businesses of all industries grapple with its implications. There certainly are opportunities following the legislation to adjust and re-think treasury activity, but there is no single approach, with it affecting different sectors and business models in very different ways.

Does this environment present an opportunity for investment in fintech from corporate treasurers? Certainly, but it’s equally useful to look at bank partners and ask – are they ready too? Myriad regulatory developments since the financial crisis mean that banks are potentially only now really ready to look at opportunities for game-changing, strategic technology that fintech provides. So where do the opportunities lie and how can we get there?

From siloes to an enterprise-wide perspective

For treasurers, a key challenge when coming to grips with the opportunities from fintech is attempting to understand the tangible benefits technology will deliver to their business as a whole. Organizational siloes prevent individuals from seeing how improved processes in one part of a business could either be beneficial or a burden in another. That enterprise-wide perspective is a crucial first step, before launching into a deep dive of whether DLT can benefit risk management in treasury operations.

That said, fintech needs to meet treasury in the middle by understanding the cultural differences between the two. Inertia may affect people in businesses because of the culture and habit around existing technology and incumbent infrastructures. If fintech aims to disrupt treasury then it needs to address how to solve existing problems and find ways of helping business in transformation. Just presenting smart new tech is not enough.

Business transformation has steadily evolved as a discipline to help overcome this very issue. For example, in the M&A process there is now an acceptance that merging two companies isn’t as simple as rationalizing costs, ditching an inefficient system and migrating data. Without understanding the people who will be adopting the technology, from CFOs and CTOs to accountants and cash managers, you aren’t laying the foundations for success.

Mass customisation: an achievable goal?

With the right mind-set, businesses can look to leverage the benefits from solutions that are steadily being developed by central and transaction banks, and fintechs. The speed and efficiency from AI and predictive capabilities, the effectiveness of work being done on emerging platforms and the learnings from pilot projects such as Hyperledger will all have lasting impact on treasury and related operations.

The most important thing to consider is how the specific use cases for each technology being developed can be made available at scale. Mass customisation is the missing piece in the growth of the technologies discussed above. There needs to be a shift away from a “one-size-fits-all” approach, to really reflect the pressing needs of individual treasury functions. Each treasury organization is part of a unique business with its own set of problems, so understanding this is the revolutionary change that businesses need to see in the solutions being offered by fintech and the banks.

About the author:

Robert J. Novaria has more than 30 years of corporate experience in the roles of treasurer, credit director, finance manager and controller at BP America and Amoco Corporation. Currently, he is a partner with the Treasury Alliance Group, leveraging his corporate experience in client engagements dealing with global treasury challenges, including risk and crisis management; cash management and cash flow forecasting; working capital management; shared service operations and general management. He also serves as a chairperson, moderator and speaker at treasury conferences worldwide.

For more information about EuroFinance: Strategic International Treasury and to book: www.eurofinance.com/miami

Remember Blockbuster? Woolworths? HMV? Comet?

These brands – once household names – are now a distant memory. But they do lead us to think about what lessons we can learn from their demise. Ultimately, if businesses do not adapt to new technology, they run the risk of falling behind the times, and eventually, failing.

It seems that across almost all sectors, there is a push to innovate. Yet credit and risk professionals continue to rely on traditional techniques, largely ignoring a key tool that could see the revolution of the marketplace – machine learning.

Machine learning is one of the top buzz words being used at the moment – but what does it mean? It is a form of artificial intelligence (AI) that can learn from data, identify patterns and make decisions with minimal human intervention. Once these patterns have been found, they can be used to make predictions and solve a range of data-related problems.

And for risk professionals, this can offer a wealth of benefits – including ensuring regulatory compliance and enabling transparency with data usage. So, it is time to ask firstly, why it is not more prevalent in the sector? And secondly, what can we do to move towards a future where machine learning is at the centre of financial decision-making.

Why now?

Talk about AI and machine learning started a long time ago, but momentum has picked up in recent years, and businesses have started to not just talk about the technology but actually implement it too.

The reason for this is simple – availability. The sheer amount of quality data and computer power we have available, combined with modern technology and the approval from regulators around the world make it easier than ever to use machine learning to make more informed decisions on lending or credit.

Late to the party

The downside of machine learning is that credit and risk professionals are already late to the party as other industries, such as fintech, marketing and transportation have already adopted this technology.

However, this should by no means deter the credit and risk sector from starting to use it. In fact, it is even more critical that they get to grips with machine learning or they could be left behind. As an article in the Harvard Business Review summarises ‘AI won’t replace managers, but managers who use AI will replace those who don’t.’

Fear of the unknown

Due to the handling of consumer finance, trust and reliability are crucial for the credit and risk sector meaning that adopting new technology is often viewed as an uncalculated risk that many are unwilling to take. This puts the sector at a disadvantage in relation to others, such as retail and customer service which are historically more open to trialling new techniques.

Fraud professionals may trust the tried and tested traditional systems that alert them to a potentially fraudulent application, more than machine learning. Or risk analysts for creditors may be hesitant to allow machine learning to make important financial decisions instead of specialists (or pre-existing trusted algorithms).

Despite reservations, the time has come to move past this scepticism and embrace the fact that machine learning already surrounds us in every branch of society. Alexa uses machine learning to collect data and then provide a tailored service to your preferences, Uber uses algorithms to determine arrival times and pick-up locations, and Netflix uses machine learning as part of their recommendation engine. Machine learning is everywhere, and credit and risk professionals need to innovate before it’s too late.

Better decisions, better lending

As regulators begin to shift the parameters that lenders and financial institutions work within, it is important that credit and risk professionals are performing at the top of their game – and machine learning can help.

In fact, at Callcredit we ran a year-long machine learning trial to help highlight the potentially positive benefits of the predictive accuracy that machine learning can offer. The results of the study were very encouraging and point to potential financial benefits for adopters of the technology in the credit, fraud and insurance arenas.

In one modelled scenario, the level of default in a portfolio of 60,000 credit cards was reduced significantly, resulting in a 10 per cent decrease in overall bad debt. If used with other elements of the customer lifecycle, potential machine learning generated benefits could be even greater.

As the benefits of machine learning become evident and transparency becomes a main focus for the sector, machine learning can be used by lenders as a new way to explain lending decisions and to demonstrate that the data going in backs up the eventual decision that comes out. Machine learning can support lenders by analysing huge amounts of data and by doing so, it can discover relationships that have previously been hard or impossible to see, prior to making a decision. The lender can then use the machine’s output to justify its decision to a regulator or a consumer.

Businesses can either embrace the innovation that technology brings, or risk being left behind by it. Many industries are improving their efficiency and performance by using smarter technology and it will only be a matter of time before machine learning will be the norm rather than the exception. It is time for credit and risk professionals to get on board and harness this technology to make better decisions for better lending today.

By Mark Davison, Chief Data Officer, Callcredit Information Group

The Payments Service Directive 2 (PSD2) came into full force in January 2018, bringing with it dreams of open banking that will transform the way we move and use money.

PSD2 opens up banks’ payments infrastructure and customer data assets to third parties.

Expect PSD2 to bring more options and innovations in payments and information services for consumers.  In this new era, banks are required to provide other third parties such as qualified payment service providers (PSPs) connectivity to access customer account data and to initiate payments.

The Giant Leap to Commoditisation

 From a merchant acquiring bank’s perspective, it is exciting to see all the new opportunities that PSD2 will bring in terms of transparency, fair competition, and entry barriers being broken down for new payment services.

The EU banks’ monopoly on their customers’ account information and payment services will soon be in the distant past.  Bank customers will have the power to give third-party providers permission to retrieve their account data from their banks.

PSD2 makes the role of the merchant acquiring bank even more important than ever because now there will be an even stronger need for security and expertise.  It’s all the know-how of the ins and outs of global payment services to truly leverage the benefits PSD2 brings to the payments landscape.  There is going to be a greater need in understanding the intricacies of helping merchants and retailers connect directly to the consumer bank account to initiate payment. There will be a need to safeguard consumers from any bad ecommerce experiences, including fraud.

The Key is in Technology and Innovation

Retailers and ecommerce merchants as well as other third-party providers will look to bank with merchant acquirers and ecommerce FinTechs to help them achieve an improved payment experience.  They will need help to leverage the power of connecting with banking open application program interfaces (APIs) without the need to maintain anything else such as any other backend systems from the bank.

Through the utilization of banks’ APIs, non-banks can enter the financial market without the heavy compliance and infrastructure that banks are required to maintain. This ignites innovation in the financial market and brings fresh ideas about how to shape the banking experience.

However, technology savvy merchant acquiring banks are going to give ecommerce merchants a leg-up in enabling them to quickly deploy their go-to-market strategy and ultimately generate more revenues without the pitfalls.  They will be able to guide them, bringing them within the scope of PSD2 regulation.  They will also be able to provide them with onboarding gateways and beneficial applications to deliver a consolidated view across different types of accounts in a secure and safe way, resulting in better customer insight.  This is why it will be important to partner with the right FinTechs that have the knowledge, technology and services to do all of this.

Ultimately it will be critical for PSPs and online merchants to use payments technology to their advantage and optimize operational procedures in a safe and secure way without losing customers to shopping cart abandonment or have consumers frustrated and not completing their online purchase.  PSD2 requires stronger identity checks of users when they are paying online.  FinTechs that build artificial intelligence (AI) into their ecommerce business will provide better consumer protection against fraud.

The Winning Strategy

In conclusion, PSD2 empowers bank customers, giving them the option to use third-party providers to manage their finances. It wouldn’t be out of the question to use Facebook or Google to pay bills, make P2P transfers and even analyze spending, all while the money is being safely placed in a bank account. The newcomer tech companies and even well-known big-tech can be risky because they are not familiar with the payments market enough, and will provide substandard service to businesses while also carrying over their method of doing business, with privacy issues, etc.  Only tech-savvy banks are uniquely positioned to launch revolutionary services, mitigating risk.  Not only are they able to provide a breadth of services to customers of the post-PSD2 services, they are also able to support market newcomers via partnerships.

Consequently, the winning strategy could be “don’t wait for your retail bank to help you, don’t wait for the leading big technology firms either but rather seek a fast-mover that’s got your back.”  It is expected that third-parties will build financial services on top of banks’ data and infrastructure but they will need tech savvy acquiring banks to help get them there.  The winning strategy is to choose an acquiring bank that has the know-how to reinforce consumer protection, improve the security of internet payments and account access within the EU and globally. Seek out and partner with a tech savvy acquiring bank to get up and running fast. There will be a race to gain market-share and the customers that will, in the end, create their own collection of smaller service providers, instead of choosing one specific bank for all financial needs, will be the most successful.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought for any specific circumstances.

By Dr. Rachel Gauci, Senior Legal Counsel at Credorax

Don’t be daunted by the overwhelming technological resources of today’s market leaders, says Kevin Deierling, vice president marketing, Mellanox Technologies. Times are changing and that exclusive hyperscale architecture is now within reach of any large enterprise.

How to tame the tech titans asked a January 18^th Economist headline in Competition in the digital age. A more recent article (American tech giants are making life tough for startups) outlines the problems of startups in the tech giants’ “kill-zone” – where investors will shy away from any company that might appear to be entering the big boys’ territory.

You do not have to be either a startup or a direct competitor to the likes of the Super 7 – Amazon, Facebook, Google, Microsoft, Baidu, Alibaba, and Tencent – to feel daunted by their sheer market presence and technological dominance. Then there are the second tier “unicorns” like LinkedIn, Twitter and Instagram who share their secret of building massive network infrastructures to achieve

unprecedented power to mine data and automate business processes for super-efficiency. How can the average enterprise survive in a commercial environment that is dominated by such giants?

There are two keys to their market dominance. The first is to have exceptional reach – not millions of customers, but hundreds of millions or even billions. But the real advantage is to have “hyperscale” data ccentres specifically designed to accommodate and work with such a massive customer base.

Hyperscale

“Hyperscale” describes a data centre architecture that is designed to scale quickly and seamlessly to a massive and expanding population of users and customers, while maintaining reliability, performance and flexibility for ongoing development. Until recently there was nothing available that could deliver such a service, so those giants went ahead to design and build their own hardware and software so they could control every detail and achieve unmatched efficiency. This required teams of computer scientists and specialist skills to manipulate every configurable element – something that could not be achieved using off-the-shelf solutions.

By the end of last year there were nearly 400 such hyperscale datacenters in the world, nearly half of them in the USA. There was also a growing number of specialist providers of smart interconnect solutions specifically designed for exceptional performance and minimal latency in order to serve this market.

What has changed is that those same providers now have their eyes on a very exciting opportunity: to apply their experience and advanced technology to simplify the deployment and lower the cost of hyperscaling to bring it within reach of medium to large enterprises. This is wonderful news for thousands of enterprises that will benefit enormously from hyperscaling. For the providers, it also opens up a far larger market.

There are five key factors that must be considered to take advantage of this opportunity.

Key 1 – High Performance

The faster the data travels through a complex system, the more responsive and quick will be the benefits. The leading solution providers have been providing an end-to-end portfolio of 25G, 50G, and 100G adapters, cables, and switches to these hyperscale data centres, and the resulting intelligence, efficiency and high performance is now well proven. Your own business might not yet need 100G performance, but it no longer makes sense to buy 10G now that the cost of 25G is on a par with it.

Key 2 – Open Networking

In a traditional static network environment, the one-stop-shop approach is efficient and reassuring. But today’s business environment demands agility and an infrastructure that can be extended and optimised to meet less predictable changes. Sometimes that means choosing best-of-breed, or sometimes the most cost-efficient, solutions. An open and fully disaggregated networking platform is now vital for scalability and flexibility as well as achieving operational efficiency

Key 3 – Converged Networks on an Ethernet Storage Fabric

A fully converged network will support compute, communications, and storage on a single integrated fabric. To grow a traditional network it was necessary to scale it “up” by the disruptive process of installing further resources into the existing fabric. This is like growing business by recruiting training and accommodating extra staff, whereas in today’s business environment it is often more efficient to outsource skills to meet sudden demand. Hyperscale networks are designed to scale “out” disaggregated hardware, so you can add units of CPU, memory and storage independently – and an integrated, scalable, and high-performance network is the key to achieve this.

Key 4 – Software Defined Everything and Virtual Network Acceleration The hardware required for a converged network (Key 3) is fully integrated with software to orchestrate a virtual environment optimized for the needs of each specific application. The software controller enables the system to be managed from a single screen, and software automation removes most or all of the burden of manual commissioning and ongoing management.

Software defined networking, storage, and virtualization – or software defined everything (SDX) – transforms what would have been an impossibly complex aggregate into an intelligent and responsive whole.

Key 5 – Cloud Software Integration

It goes without saying that you will want your new hyperscale network to be fully integrated with popular cloud platforms such as OpenStack, vSphere, and Azure Stack. It should also support advanced software defined storage solutions such as Ceph, Gluster, Storage Spaces Direct, and VSAN.

One integrated whole

These five key factors show that we have come a long way from a bank’s traditional static datacenter – and this is the way to go. The “Super 7” may be way ahead of anything most enterprises can even dream about, but many more companies will be facing similar pressures for flexible and efficient scalability. A retail or food chain going international could be taking on millions of new customers. There are numerous IoT initiatives that will manipulate terabytes of data flooding into their systems and a company needs massive in-house capability to run and evolve new algorithms. The result could be disastrous unless the systems are designed to scale to meet the needs of the business, while maintaining performance and reliability.

A recent example was provided by Vault Systems, a company that delivers ASD certified Government Cloud to Australian federal, state and local government agencies and their partners – managing sensitive data at the highest levels of security. The company wanted an open, flexible 100GbE network that would at the same time maintain its high level of security. They chose a supplier of hyperscale network solutions to the tech giants but one that also provides for high performance computing, enterprise data centers, cloud, storage and financial services that do not have a hyperscale budget or resources. In the words of Vasult Systems’ CEO and Founder, the resulting system has “contributed to the high performance of our cloud and also given us the confidence and peace of mind that our network is the fastest and most resilient available in market today. We couldn’t be happier with the results we have seen so far.”

Conclusion

All the five keys listed above are bread and butter to the companies that supply those “tech titans”. But don’t be daunted by the thought of asking advice from a company whose customers include giants like Netflix. As a more normal size enterprise you represent their next, even bigger, market opportunity. They will be keen to prove that they can build you hyperscale networking – without a hyperscale budget.

Digital disruption in the banking industry is something that’s gradually been gathering pace in recent years, but it’s about to get much more prevalent. Enter the GAFAMs. Google, Apple, Facebook, Amazon and Microsoft – the big five global tech companies that have made their presence known by expanding their customer offering and disrupting multiple industries in recent years. In the world of finance, Amazon has just made headlines following the announcement it’s investing in a digital insurer, while Facebook has secured an electronic money license in Ireland.

Banks beware. PSD2 has allowed GAFAMs to access customer data with their permission and use it to provide innovative solutions to their needs and the issues they face when it comes to banking. The GAFAMs have enviable digital prowess and knowledge, not to mention near-limitless funds. Combine this with data-rich customer insight and they could easily change the face of banking forever. So how will this affect the industry as it stands?

 Could challenger banks be the underdog?

Challenger banks have been quietly but effectively shaking things up in the industry, in particular looking at ways customers interact with their bank and providing a more seamless, convenient alternative. The initial Open Banking fears that challenger banks would immediately start stealing vast amounts of market share from high-street banks have been quashed for now, but they have certainly raised standards across the board when it comes to providing a slick customer experience.

So much so that Paul Riseborough, CCO of Metro Bank has stated that it will take a while before Open Banking starts to get exciting, with real innovation approaching in “about three to five years’ time”. In contrast however, PwC revealed last year in some research that 88 per cent of the financial industry is worried they will lose revenue to disruptive innovators. While there is uncertainty regarding challenger banks, it’s more likely that GAFAMs will have more power and influence when it comes to innovation and changing how customers engage with the banking industry.

 Finance and tech crossing over

The lines of relationships between financial organisations and technology platforms are becoming increasingly blurred, as China’s WeChat app has proven. Launched in 2011 with an initial concept similar to that of WhatsApp, it has since evolved into a much broader service that allows its one billion users around the world to do everything from ordering a taxi to arranging a doctors appointment, but also money transfers and other banking transactions.

Given that the GAFAMs are all heavily tech-led, if they were to establish a presence in the financial industry and introduce a similar all-encompassing product, retail banks face a further risk of falling behind in customer engagement and losing market share.

 Investing wisely

Amidst the uncertainty and potential threats brought about by GAFAMs, there is opportunity for banks to improve their innovation strategies using information they already have on their customers. McKinsey recently said in a report that banks may be at an advantage compared to the industry’s disruptors, as “customers would not find it attractive to provide third parties access to their data or accounts.” If banks can harness their data in the correct way before the tech goliaths come into view, they could strengthen their customer retention.

RBS is staying ahead of the curve as it announced earlier this year that it plans to launch a digital-only bank to complete with existing challenger banks such as Monzo and Starling. On a more international scale, a survey by PwC shows that 84 per cent of Indonesian banks are likely to invest in technology transformation over the next 18 months.

Partnerships and collaboration are also key and fast-becoming a growing trend. Software developers are being encouraged to use existing APIs to build platforms that allow financial organisations to improve both the internal and customer-facing elements of their businesses. Avaloq is a good example; its developer portal aimed at freelancers, fintechs and large banks currently has more than 1,000 developers collaborating and sharing insight with the global financial sector to drive innovation. For retail banks, it’s certainly worth taking advantage of the tech and insight on offer from external parties.

 Going above and beyond

The disruptors and challengers which have already made a mark on the financial services industry have done so by going above and beyond the perceived limits of retail banking. It’s something that retail banks need to take a step back and look at to learn from.

Many are already making strides, such as a group of big banks including Bank of America, Citi and Wells Fargo reacting to newcomer Venmo marking its territory on instant transfers. They’ve partnered with P2P payments app Zelle to integrate directly with their own apps.

Instant transferring follows a wider trend of convenience that consumers have come expect from all industries. Banks can go even further by looking at non-banking services which ensure they are making more a positive impact on their customers’ lives. Whether it be the introduction of lifestyle benefits such as high-street discounts, or helping customers to simplify their monthly bills, offering add-ons that increase convenience or reward the customer is likely to make them want to stay. In fact, our ‘Connected Customer’ report shows businesses that offer three or more additional products have considerably higher customer engagement scores, resulting in customers staying longer and spending more.

 Planning ahead

With PSD2 and Open Banking making an impact, it’s all change in the banking industry and as GAFAMs enter the market, banks and fintechs need to plan ahead to maintain their presence and stay relevant to customers.

Innovation and collaboration are the two key ingredients to improve their offering and position. The introduction of GAFAMs and other new players is a healthy addition to the financial sector, as it drives positive change and competition, while customers will reap the benefits.

By Karen Wheeler, Vice President and Country Manager UK, Affinion

For years, cybersecurity was considered a “check-the-box” discussion during the merger and acquisition (M&A) process. It was almost always examined to ensure there weren’t any glaring issues or major red flags—but due to limited time resources, or the ability to parse out qualitative responses during M&A from real performance, there wasn’t a great deal of importance placed on it.  Very few transactions would be prevented due to cybersecurity practices today, however, each M&A does require a financial business case created regardless. This may be as simple as assessing integration costs.

You are probably aware of the security breach at luxury retailers, Saks Fifth Avenue and Lord & Taylor, that compromised payment card information for over 5 million customers. As a result, Hudson’s Bay Company (HBC) who acquired Saks and brought the retail chain to Canada five years ago, suffered a 6.2% drop in shares the following day. Although HBC was able to quickly recover, history has shown that a lack of due diligence on cybersecurity during or after the acquisition process can be devastating to the acquiring organisation.

The reduction in the price of Yahoo, following the acquisition by Verizon is a clear demonstration of the business impact. Following the occurrence of two major Yahoo data breaches, Verizon announced in February 2017 that they have reached new acquisition terms. After slow progress of acquisition following the data breaches, Verizon lowered its purchase price for Yahoo by $350 million, down to $4.48 billion.

Up until recently, cybersecurity due diligence consisted of a set of questions that the acquiring firm presented to the target firm maybe an on-site visit or a phone call. Today, security is a boardroom issue, and the implications associated with it can seriously diminish the value of a future organisation, especially with regard to sensitive data and intellectual property. These have a direct impact on your ability to do business and as a result on the valuation of the deal (Yahoo lost 350M in purchase price value after disclosure).

Typically assessments carried out to measure cyber risk have been point-in-time assessments, such as audits, questionnaires, penetration tests and so on.  However, these only provide a snapshot in time of true security posture.  Businesses that rely on this type of reporting, especially during the M&A process should consider moving towards more continuous monitoring of the business they intend to acquire and also its third-party ecosystem in order to mitigate any risk that could flow into their organisation upon acquisition.

Luckily, there are security rating tools available that can help you understand the true cybersecurity posture of your acquisition. Security ratings are much like credit ratings in that they measure an organization’s security posture.  These are objective tools that deliver a standardised method of reporting risk to the board in a meaningful way.

Below is an information security due-diligence checklist, highlighting the four reasons you should consider using security ratings before, during, and after any merger or acquisition.

1. It saves you money in the immediate future.

You likely remember the newsworthy fiasco between Canadian-based TIO Networks and PayPal: the payment processing company was acquired by PayPal in July 2017 for $238 million. Just a few months following the acquisition, TIO Networks revealed that as many as 1.6 million of its customers may have had personal information stolen in a data breach.

Companies that conduct thorough due diligence of the security posture of acquisition targets using security ratings review historical security data and can use that information to better structure M&A deals. If their acquisition target has a long or constant history of security issues they may be able to negotiate a lower sale price to counteract potential cyber risks. More importantly, acquiring companies may also be able to help targets improve their security posture, thereby reducing the level of risk incurred as a result of the transaction.

2. It saves you money in the long term.

While some companies have been breached during a merger or acquisition transaction, others have been breached well after the deal has gone through. A prime example is TripAdvisor’s 2014 purchase of Viator, a tour-booking company. Just a few weeks after the completed transaction, Viator’s payment card service provider announced that unauthorised charges occurred on many of its customers’ credit cards. The breach affected 1.4 million users and led to a 4% drop in TripAdvisor’s stock price.

Security ratings can help. Security ratings are correlated to the likelihood of a breach, so if the rating of an acquisition target indicates they are at risk for a future cyberattack, that risk is inherited by the acquiring company as part of the deal.

3. It aids collaboration between the acquiring company and their target.

Since acquiring companies inherit the digital footprint of organisations they buy, security and risk departments at both organisations need to have a simple and effective way to collaborate and plan appropriate integration investment Here is how BitSight Security Ratings can help with this process:

• Acquiring organisations can invite any target company to take a look at their own digital infrastructure and security posture free of charge.
• Target companies can then use the platform to review their own digital infrastructure, including any owned IP addresses and domains. This is a very important step as many companies often own IP space they may not have accounted for. The acquiring organisation needs to know precisely what is being consolidated, because once the deal is finalised, the acquiring company has a much larger attack surface—so they must be aware if there are any infections or issues so they can monitor adequately going forward.

4. It gives you a competitive business advantage.

Today, cybersecurity is a business differentiator, and organisations who have a good security rating may use it as a selling point. For example, a highly-rated law firm would be considered more trustworthy. The same idea can be applied to acquisitions. Acquiring a company with a good security posture could be a strategic move, as it could either reinforce or enhance your company’s own security posture and strategy.

In a nutshell, using security ratings is a critical step to continuously monitor your acquisition before, during, and after an M&A deal. Without this real-time look at your target’s security posture and performance, you could end up acquiring vulnerabilities that could cause major damage if exploited.  Indeed analyst firm Gartner issued an M&A report earlier this year stating how important Cybersecurity is in the due diligence process.  Not only will this save your organisation money immediately but prevents future risk of financial losses, aiding your collaboration with the target company and improving your business prospects.  For more information, you can download this data sheet.

By Tom Turner, CEO, BitSight

In the midst of complex mergers and acquisitions negotiations, deals more often than not face unexpected developments that can cause significant delays.

Even the most common hurdles – such as misplaced documentation – can have a significant material impact on a business’ speed-to-market and share valuation. This is a key reason why it is time that those involved in M&A negotiations must embrace virtual deal room technologies.

Whether they are buy-side or sell-side, dealmakers need to take a holistic view of every single step of the process, from networking and idea generation, sourcing and marketing, to due diligence and integration planning.

Speed and efficiency through the deal lifecycle

Each of these processes takes up considerable man hours, pressuring M&A professionals amidst a challenging industry backdrop to adopt better, faster tools to ensure speed, efficiency and continuity throughout a deal’s entire lifecycle.

The financial services industry has been rapidly transformed by digitisation in recent years, with the British fintech boom a clear example of how this has impacted the sector. However, while trading floors are now almost entirely driven by algorithms, investment banking has remained wary of adopting these new streamlined, automated digital processes.

The truth is that many people within the investment banking industry simply feel as though it does not lend itself to automation, viewing success as reliant on the strength of personal relationships. The reality, however, is a fear that new processes could end up reducing the number of jobs available.

New tech means better deals and more jobs

Selecting the right technology has the ability to enhance investment bankers’ knowledge and capabilities, allowing them to become more efficient, competitive and therefore attract greater amounts of business.

Virtual deal room technology, to use one prime example, can change the way in which investment bankers go about the M&A process, through provisioning a safe space for parties to manage and store their critical information during negotiations.

Being able to provide this unique tool allows investment bankers to close deals faster rapidly, accelerating speed-to-market and maximising the transaction value for both buyers and sellers, all the while minimising security that can compromise a deal – i.e. information leaks and data hacks.

Easy online networking & speedier information flows

The old world perception of a well-connected investment banker, doing face-to-face deals with his personal network on the golf course or in the private members club is rapidly becoming an outdated myth when it comes to the reality of how the industry works in practice.

Clearly, it is impossible for an M&A professional to know every buyer in the market, which is why fast and efficient online networking is a key way in which they can transform the ways they identify potential buyers out there.

Additionally, there is still far too much of the investment banking workflow that takes place through cumbersome tools like Excel, PowerPoint and email. Such tools slow the deal-making process and, more worryingly, put sensitive data at high risk of unwanted disclosure.

There are a number of ways in which innovative technology can help improve this necessary flow of investment information – I have outlined three of them below:

1. Buyer Identification – Bankers typically spend years building relationships with potential buyers, both financial and strategic. Barring perhaps a handful of industries, it’s impossible for an M&A banker to really know every buyer in the market – especially when the market is now global. Online networking – the world’s biggest Rolodex – can bring the right people together at the right time to expand everyone’s opportunities.
2. Information flow– Much of the investment banking workflow still takes place through Excel, PowerPoint and email. Not only do these tools slow the deal-making process, but they can also put sensitive information at risk of unwanted disclosure. Sending, sharing and storing NDA files or the due diligence Q&A process on a secure electronic platform can massively improve efficiency and security.
3. Artificial Intelligence (AI) – Some banks are beginning to explore whether tasks like modelling can be more effectively handled by AI. Such tools can read, review and analyze vast amounts of information in mere minutes, thereby expediting knowledge-based activities to improve efficiency, accuracy and performance.

The three points above offers a snapshot of the key areas in which the investment banking industry is clearly ripe for technological process improvement.

Adopting these new technologies – particularly for the old-guard who have done the job ‘their own way’ for generations – is certainly going to take the initiative of a few early adopters to show success before the rest of the community crosses the chasm.

The bottom line is this: it’s no longer a matter of if these changes are necessary. It’s merely a matter of how long this digital transformation of the investment banking industry will take, and who will be leading the charge.

By Philip Whitchelo, VP for strategic business development, Intralinks