IBSi Blogs

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

by Yishay Trif, CEO, MoneyNetint

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

An unequal revolution

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

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

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

Blockchain: not just for Bitcoin

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

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

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

Changing the narrative

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

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

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

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

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

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

by Michael Boguslavsky, PhD – Head of AI, Tradeteq

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

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

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

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

Hard questions and head-scratching in the c-suite

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

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

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

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

Integrating modern AI advances into the supply chain

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

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

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

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

Future-proof your supply chain now

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

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

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

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

by Sanat Rao, Chief Executive Officer at Infosys Finacle

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

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

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

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

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

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

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

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

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

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

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

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

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

by George DeCandio, CTO, Broadcom

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

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

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

Mainframes are fast – really, really fast

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

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

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

The backbone of FinTech’s future

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

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

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

Increased FX [foreign exchange] volatility and greater complexity in managing cashflow forecasting, is changing the way UK businesses are hedging.

by Richard Eaddy, CEO, Hedgebook

For a start, companies have moved from being hands-off to hands-on in managing their forecasts and FX hedging.  It is seen as a concern across the business, impacting sales, procurement, and the supply chain.  While the C-Suite are aware of the impact, it is often the board that is driving change in wanting to see a far more proactive approach in managing these risks.

The increased volatility in financial markets, is matched by increased uncertainty in business. Once stable supply chains now operate on much shakier terms if they haven’t disappeared altogether.  It means there is no longer certainty around when you will be making a payment or how long you will need to hedge.

Businesses working on low margins can be significantly impacted. A cancelled order or significant swing in foreign exchange that has not been hedged, leaves the business dangerously exposed. All of this has meant UK companies are looking more regularly at their hedging positions and reviewing the risk.

Many businesses are acting responsibly and adding FX Management to their library of risk management policies.  This gives the treasury team some real guidance as to the risk tolerance the business is prepared to work within.  The ability to model FX hedging options against this policy enables faster and better decisions to be made – with minimised risk.

Remote working also removed the expectation of a monthly or quarterly meeting where such matters were generally discussed.  The traditional round-the-table closed door reviews essentially disappeared during lockdown.

Very quickly, companies realised the need to proactively review their FX hedging positions and that players across the company needed to part of that.  Over 80% of surveyed customers using our FX tools now engage with them at least once a month, with 10% checking in on a daily basis.

Working remotely has also seen companies move away from spreadsheets being the default tool for managing FX hedging.  This is largely due to the increased risk around version control and data security when shared across multiple screens and locations.

But it also highlighted the spreadsheet owner as a potential single point of failure in the organisation. In many cases they were the only ones who could successfully run the formulas and manage the complex hedging situations the business was facing.   As a result, companies have proactively started looking for online tools capable of managing this for them.

They want to view data in real time, have secure access to their hedging positions and for everyone involved to be working off a single version of the truth.   Companies now say using online FX hedging reports and modelling saves them half to a full day per month – but the exponential value is in greater accuracy and faster, better decisions.

It is these companies that are driving change.  They expect their banker to be able be onboard with managing foreign exchange hedging online.  They want their broker to see the same information they are and be able to guide them through the options – modelling the different rates and hedging percentages as they go.

Even though cloud technology has driven the access cost right down, online treasury management is new technology for banks to become familiar with. Perennial slow adopters, banks are now realising they need to get onboard fast, or their customers will leave them behind – quite literally.

It really should be a win-win for everyone.  Customers limit their FX risk and banks become even more valuable and responsive to their customers.   It enables much better FX hedging decisions to be made faster and strengthens the banks relationship with its customers.  A definite change for the better.

Starting and running a business is no small feat, and as we all know, cash flow is the core fuel that powers any business. A set marker for identifying a healthy and thriving business is strong cash flow, and the importance of this particular resource is not lost upon any entrepreneur

by Mr Vineet Tyagi, Global CTO, Biz2X

They say that the first five years are extremely crucial for any business, and generally determine whether a company will crash or float. The question therein is why do various businesses that have a strong financial foundation and good initial investment, end up failing within five years?

The answer to this simply lies in their cash flow, so much so, that a recent study conducted in the US concluded that 82% of the time, poor cash flow management ends up contributing to the failure of an SME.

To understand how SMEs can manage their cashflow effectively, let us first take a look at the challenges:

Cash flow management challenges faced by SMEs

• Underestimating Start-Up Costs: Having unrealistic estimates and low cash reserve gets most SMEs started on the wrong foot. Obtaining capital and then not calculating realistic costs becomes like quicksand – quite difficult to get out of.

• Managing Receivables: Receivables, as most are aware, is the amount that is due to a company. Inefficient management of it ends up in a huge amount of outstanding receivables, which end up hampering cash flow.

• Managing Payments Efficiently: According to a study, almost 66% of SMEs revealed that the biggest impact on their company’s cash flow is due to the amount of time that it takes for money to process post receiving payments, with some of them having to wait more than 30 days for payments to clear. Thus, due to the time taken, if not managed well, it becomes a huge cash flow challenge for upcoming and ongoing projects.

• Ignoring Overhead Costs: A company with high overhead costs such as rental, travel, etc. will notice the profits depleting quickly. To cover such costs and break even, the organization will have to and hence, make more sales. Thus, to make a long-term difference to the business’s profitability and cash flow, overhead costs cannot be overlooked. 

• Low-Profit Margins: While they say that pricing is an art, the first step is always understanding your numbers. This means that knowing your profit margin is an extremely important metric for analyzing your prices. A low-profit margin implies that either business’s costs are too high or the pricing is too low or it could even be both. The lack of a sustainable and strong profit margin means that a business will always battle cash flow issues.

Having talked about the cash flow challenges faced by SMEs, let us talk about how FinTech can assist in overcoming them.

5 ways FinTech helps small businesses better manage their cashflow

1. Easier Business Lending: Traditional lenders, usually hesitate when handing out loans to SMEs with smaller loan amounts and what they consider to be inconsistent earnings, thus risky. Apart from this, the entire application process for the loan is quite time-consuming and cumbersome. With the advent of FinTechs, it has now become easier for SMEs to bypass the conventional loan obtaining methods and scale their operations faster owing to easier business lending. Thus, bridging the gap, with offerings such as through P2P lending platforms, FinTechs are making the lending space much more dynamic.
2. Simplified and Faster Invoicing Systems: Having access to simplified and faster-invoicing systems, it is now easier for businesses to thrive. Besides saving them from existing revenue losses or accumulation of bad debts, an efficient management system helps firms collect payments effectively, irrespective of the location or currency, thus, creating a sustainable flow of operations and cash flow.
3. Efficient Account Management Tools: Owing to FinTechs, SMEs now have access to a lot of options to help them control their costs and expenses. With the help of online accounting systems, they can monitor their cash flow in real-time, and ensure the smooth running of operations. Taking out the guesswork from running the business, FinTechs with the help of expenses and invoices apps, aid business owners in focusing on expansion and growth instead of other small details. 
4. Transparency: The proliferation of the internet and mobile, has helped FinTechs in creating digital banking solutions that reduce both the cost of transferring funds as well as the need for paper currency for conducting any kind of financial transaction. This aids in making the financial system much more transparent, and reduces the chances of tax evasion or other negative practices, thus ensuring that the business ecosystem becomes robust.
5. Increased Profit Potential: Post the advent of FinTechs, capital markets have witnessed a huge growth in terms of technology infrastructure. Irrespective of the industry or the type of organization, a reduction in costs ends up aiding an increase in revenue and profits eventually. The union of technology and finance has led to the rise of trading platforms that via ‘collection and analysis of market’ and ‘user data’ can help in uncovering trends, providing aggregated views of the market, and enhancing forecasting capabilities that eventually maximize the profit potential for firms and traders alike.

With FinTechs now making it possible for businesses to serve their clients irrespective of location, monumental strides have been made in the areas of payments, inventory management, invoicing, cost-reduction, etc. which were previously unimaginable. Many components of FinTech are now intertwined in business operations that can help in cash flow management for SMEs tremendously. Thus, offering capabilities to leverage technology, FinTechs can really make a difference for companies in keeping their cash flow positive even in times of crisis.

Digital banking has reached such levels of disruption that the disrupted are unaware of disruptors racing ahead.

By Indranil Basu Roy, Chief Business Officer, Modefin

Next to the “new normal,” the most overused term could be digital banking. What’s the tipping point of technology or service delivery that makes a bank truly digital? Net banking? Yes and No, as its entry dates to an earlier era. App-based access? You must be joking. Cashless payments… now we are talking.

Let’s take one step back to understand digital banking. Over time, as fintech progressed from state-of-the-art, to cutting edge, to leading edge, services offered by banks migrated from conventional delivery channels to online.

Banks, in their eagerness to keep pace, ensured they incorporated every facet of digital banking in their ecosystem. Somewhere down the line, the music stopped. After all, customers were not complaining – no branch visits, no staying on hold in the helpline, no relationship manager to deal with – banking was no longer a chore but a breeze.

Not just retail or personal banking, the transformation had encompassed corporate banking as well, and had eased the procedures in document-oriented products such as Trade Finance.

Should we conclude that all is well, and congratulate the fraternity? Can we compliment the far-thinking CTOs and CMDs on their vision for digitization? Can we name the top 10 digital-driven banks and announce such other lists that make the jury glow and winners feel good?

If we do, we are falling into the trap that others have already got into. Let’s get this straight, digital banking has reached such levels of disruption that the disrupted are unaware of disruptors racing ahead.

As a banking institution, how do you gauge or ensure you are not left behind? Here are three test questions (don’t look for synergy, this is a random round):

• How equipped are you to compete with a wholly-digital bank that does not have a single brick and mortar branch?
• To enhance your digital capability, has your bank partnered with, or invested into non-financial players, such as a fintech enterprise, data analytics firm, mortgage-software start up or any other disruptor?
• Here are five terminologies that are the latest in fintech applications: If you have to look up any, you are labeled “behind,” if you have implemented one or more you are “ahead.”

Here we go: Social Banking, Digital Queue, Conversational Banking, Peer to Peer Payment Systems, Facial Recognition Banking.

Assuming that banks cannot endlessly invest in technology (tech is not their domain) the answer is cross-industry collaboration with fintech players who focus on agile solutions. If the engagement process gets further delayed, the next wave will be fintechs playing the role of banks in certain product areas (we already have several online lending platforms which are not backed by a bank). Look closely, lending platforms of today are replicating services that banks pioneered five years ago by offering instant loans based on a review of credit history.

Looking back, IBM, the one-time mainframe behemoth, proved elephants can dance by making a dramatic turnaround in the mid-1990s. Now is the turn of mammoth banks to appreciate that digital transformation calls for more than online banking. If not, they may as well recall the story of a humble ant that troubled the mighty elephant by entering its trunk (can’t think of a better disruptor-disrupted metaphor).

Beyond folklore and stories of yore, here’s a reality check reflected in a research report on ‘Digital Banking in Asia,’ published by Mckinsey & Company:

“The disruption caused by digitization can create or destroy significant value for banks, depending on their starting positions and how well they respond to shifting consumer behavior and other trends. Experience is showing that 30 to 50 percent of net profit is at risk.”

The findings are disquieting. Rather than assuage your anxiety, I end with a call to action. Start with an audit of your bank’s digital platforms and products, benchmark against the best in the industry, get to know where you feature, and get to work on greater transformation.

If the fraternity fails to keep pace, faster adapters, disruptors and other innovators will get ahead. No marks for guessing who could laugh all the way to the bank.

eCommerce is seeing accelerated growth across Latin America, with overall retail eCommerce sales increasing more than 36% throughout the region in 2020 as compared to the same period in 2019. However, the social and practical realities of Covid-19 have exposed some significant pre-existing problems within the digital payment systems that underpin this region’s expanding digital economy.

by Juan Carlos Martinez, Director & Co-Founder, Bamboo Payment Systems

These problems include a lack of financial inclusion among the population, regional disparities in payment formats, arduous complexities in many cross-border transactions, a deficiency in available credit rating programmes, and shaky consumer confidence in digital payment methods – all of which represent major barriers to sustained growth in the sector. To maintain a competitive edge, online merchants must frequently adapt their eCommerce strategies to meet varying local needs, and regional payment service providers (PSPs) that cater to global merchants must allow for constant customisation of payment offerings and flows if they aim to maximise opportunities within the LatAm eCommerce space.

The issue of limited access to and/or adoption of digital payment methods among Latin American populations is nothing new and has traditionally been viewed as a primary barrier to the expansion of eCommerce throughout the region. However, the global pandemic has accelerated adoption of digital payments and eCommerce, in many cases as a resulting necessity of strict quarantine restrictions. However, cash payments remain a major component, and currently account for 20-30% of online purchases. More striking is the fact that close to 207 million Latin Americans – roughly 46% of the population – do not have access to bank accounts, an important catalyst for the adoption of digital payment methods like credit and debit cards.

The local experts

Regional payment facilitators play a crucial role in promoting cross-border eCommerce by offering global merchants simplified access to this fragmented eCommerce environment. The local knowledge of these PSPs and the connectivity with popular local payment methods including cash networks, bank transfers, and local prepaid cards enable the development of unique, tailor-made solutions for each merchant that reflect the realities in each country via a single platform. As consumer preferences evolve and new digital payment methods are adopted, PSPs adapt their connections to local acquirers accordingly, allowing international merchants to benefit from this quick adaptation to ever-changing market realities. Essentially, PSPs are the local experts. Global merchants can then leverage this expertise to maximize the conversion rates of their eCommerce sales and stay at the top of their game.

But how important is this market flexibility in relation to the digital payment methods offered by global merchants to local consumers? Let’s look at a few basic indicators within the top three eCommerce markets in Latin America: Mexico, Brazil, and Argentina, three countries that when combined represent approximately 75% of all eCommerce sales in the LatAm region.

Generally speaking, credit and debit card adoption rates are noticeably low across the board in these countries, underscoring the significant barrier a lack of financial inclusion presents. Furthermore, among those who do have them, a large percentage of credit cards and debit cards issued in these countries are enabled solely for domestic purchases. In other words, these cards will not function for purchases made on merchant websites abroad. Additionally, chargeback rates are high in the region. In Mexico for example, the industry standard can be up to 3-6% which is roughly triple the global average. Thus, regional PSPs are key in mitigating this risk via the utilisation of region-specific anti-fraud systems which incorporate localised transaction databases and region-specific rules.

Another reality is the informality within the LatAm labour market, something that is still quite prevalent, with cash payments being preferred by many consumers. In Mexico, the OXXO convenience store’s cash voucher system is still a highly popular payment avenue, in Argentina the national chains Rapipago and PagoFacil offer many popular local payment options, and in Brazil there is Boleto cash payments which are still popular despite them currently being supplanted by a new national online payment protocol, PIX.

Finally, local bank transfers via standardised protocols are crucial necessities for many consumers, for example the Bank of Mexico’s Interbank Electronic Payment System, SPEI (Sistema de Pagos Electrónicos Interbancários), which is widely relied on by citizens for payment purposes.

In short, the disparities across countries and the widely-varying alternative payment methods available make regional PSPs an invaluable partner for global merchants wanting to access the hugely substantial and yet considerably underserviced LatAm population.

So, what is the outlook as we enter the second half of 2021?

As LatAm markets continue their transitions toward digital payment, as is the case of PIX increasingly replacing Boleto as the new gold standard in Brazil, the diversity of payment methods and consumer preferences across countries is profound, and highlights the supreme importance of regional PSPs as uniquely unifying entities for global merchants wanting to sell in Latin America.

When a human being or even an animal faces risk, there can be one of two reactions – fight or flight. Risk is inarguably ubiquitous and something that most of us deal with on a daily basis. However, rather than fight or flight, sometimes the best way to deal with risk is to buy protection. And, this is where the insurance industry plays an integral role.

By Vijay Kasturi, Head of Sales & Business Development – Western Europe at Profinch Solutions 

The insurance industry enables you to protect the downside of unforeseen events and mitigate the impact of risk events. Traders and mariners have been buying insurance for the last 500 years. Inevitably, the insurance industry has significantly evolved over this vast period of time and shape shifted in response to the changing environment. Today, the industry is in the midst of another important transition precipitated by technology and in response to changing consumer needs. It has finally started its delayed, but firm, march towards digitization. While digitization is being embraced across the value chain, its importance in claims management needs to be highlighted.

The digital claims value proposition

For an insurance company, the moment of truth comes at the time of claims processing. An efficient and timely settlement of claims can lead to a positive experience for the customer and help the insurer engender trust. Digitisation can help enable this in several ways. However, in the digital age, a truly robust claims value proposition needs to go beyond the traditional after-the-event claims management exercise. It needs to be holistic and foster an end-to-end partnership with the customer. This means digitizing the entire claims journey starting from digital claims prevention and digital first notification of loss (FNOL) to digital loss assessment and automated settlement, especially for clear and simple cases.

What does digitizing the claims process mean for insurers?

Automated and intelligent interactions can facilitate the faster settlement of claims.  Insurers can leverage Artificial Intelligence (AI) to create chatbots that can act as the first call of support for customers. These chatbots can address basic settlement queries and even commence the claims settlement process. For example, chatbots can easily avoid the need to check the policy number for identification by simply verifying it with the policy documents, photographs, and other documents submitted by the policyholder. Further, they can interact with the customer, assess the requirement, and then suggest the best course of action. A process that would normally take a number of days can be done in just a few minutes with the assistance of chatbots. The best part is that since chatbots are available round the clock, customers can interact with them and have their queries addressed almost as soon as the need arises. This can be invaluable to a customer who is looking to make a claim.

Machine Learning (ML), a subset of AI, can further augment the value being generated by automating a significant part of the claims process. Imagine this scenario – an individual interacts with a chatbot to initiate the claims process. At the back end, ML tools have already converted all the files and information into digital assets and made all the information available to the chatbot via cloud. The chatbot can now point the customer in the right direction. Next, data analytics and drone technology can be leveraged to assess or verify the damage for which the claim is being made. For example, the claimant can take a picture of the damage and share it with the insurer. Digital tools can then be applied to scan the picture, compare it to a repository, and verify the actual damage. Or, unmanned drones can be deployed in case of large-scale damage where individually assessing the damage might not be possible. With assessment done, settlement of small value claims can be automated while large value claims can be referred for further evaluation. With the entire process automated, it becomes more efficient and seamless.

It is important to recognize that automated risk assessment is actually the first step in improving the claims management process. AI can enable insurance companies to improve the risk assessment and underwriting cycle. Insurance companies can leverage AI and predictive analytics to access data related to the risk metrics of individuals rather than groups of people and assess it more efficiently, thereby improving the risk assessment and the claims cycle. According to a report by PWC, the initial impact of AI will primarily relate to improving efficiencies and automating existing customer-facing underwriting and claims processes.

Clearly, digitization of the claims process can be highly value accretive for the insurer as it leads to faster settlement of claims, improves the customer’s claim journey by making it more seamless and efficient, and helps in achieving cost efficiencies.

Today, the average insurance customer is already accustomed to digital interactions and is, in fact, demanding digital journeys in most spheres of their lives. For insurance companies, it has now become essential to holistically embrace digital solutions in order to meet the customer’s needs and thrive in the new normal.

Irrespective of where they are in the world FinTech companies are vulnerable to cyberattacks and deploying the kind of encryption and security technology that major banks use is costly and requires technical expertise.

by Eyal Worthalter, Vice President – Global Solution Sales, MYHSM by Utimaco

FinTechs are not just getting more customers and larger investments, but we are seeing new FinTechs founded in sub-Saharan Africa and cities like Tel Aviv, Stockholm and Hangzhou beginning to compete with traditional cities such as New York, London and San Francisco as major hubs of innovation.

Cybercrime is a global problem

Cybercrime cost the world $1 trillion dollars in 2020, more than the combined cost of all natural disasters and the costs of adapting to climate change, and this number is only going to rise. Data breaches can cost companies as much as $3.86 million and take as long as 207 days to discover. Some companies have been the victims of particularly damaging, headline-grabbing hacks: after 147 million people’s personal information was exposed in the Equifax hack the company spent $1.4 billion on security upgrades.

Although the global pandemic helped FinTech companies by showing many people that they could easily administer their financial lives from their phone and pay for goods and services without cash, it also drastically increased the amount and sophistication of cybercrime. At any time when there is a global financial downturn more people will turn to crime of any kind to make ends meet.

FinTech companies may seem like low-hanging fruit to criminals when compared to banks. Both keep and process customer payment data, but banks have extensive security operations – one survey shows that banks spent on average 10.9% of their IT budget on cybersecurity, and this is growing every year. FinTech companies will have the same challenges but significantly lower budgets, which leads to a situation in which criminals perceive them as weak and are more likely to target them, increasing their need for cybersecurity when they are least able to satisfy that need.

This is a particular problem for companies based outside of the traditional tech hubs, and even more so for startups in the developing world. There is already a skills shortage in the cybersecurity industry, and the limited number of experienced professionals know that they are more likely to get high-paying jobs in the world’s major tech hubs than those cities that are still developing their FinTech industries. This leaves the younger companies who need the most support without the critical skills that they need.

Cloud-based encryption can bridge the gap

Encrypting cardholder sensitive data such as PINs during online transactions is hugely important to minimise any fraudulent activity. The use of a Payment HSMs in the financial services industry is mandated by PCI Security Requirements and are a fundamental requirement to become PCI PIN compliant. However, Payment HSMs require significant investment and specialist knowledge to operate and manage. For these reasons, they may be out of reach for small start-ups and companies in the developing world.

Cloud technology has clear advantages for FinTechs and the recent pandemic has accelerated the use of cloud-based systems in the financial world and increased the use of cloud systems by FinTechs, 55% of which say they use multiple clouds. Cloud technology may be deployed quickly without the need for new hardware, it scales to meet surges in demand, backs up all of a company’s data and can often be paid for monthly rather than as a single expensive purchase.

Furthermore, cloud-based services allow smaller companies to deploy the same level of security and compliance that is used by much larger companies at a fraction of the price. This means that startups can focus on their core business knowing that security and compliance is taken care of, which in today’s cybersecurity climate will be a major relief for the company.