IBSi Blogs

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

by Mario Galatovic, Vice President Products & Alliances, Utimaco 

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

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

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

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

Opportunities and challenges for digital identities on the blockchain

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

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

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

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

How blockchain can secure identity

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

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

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

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

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

by Mike Whitmire, Co-Founder and CEO, FloQast 

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

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

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

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

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

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

IBS Intelligence is partnering with Sopra Banking Software to promote the Sopra Banking Summit, which takes place 18-22 October 2021. The summit is tackling the biggest issues in the financial sector. This weeklong festival of FinTech will touch on the hottest topics in financial services and highlight the new paths industry leaders are taking.

The following article was originally published here.

Regulatory reporting is a key part of the framework contributing to stability within the banking system. This is fundamental, as the sector’s business activity generates significant risk, which can affect the economy and its stakeholders, such as consumers, companies and governments. That’s why banking activity is regulated. Banks are required to report standardised information to supervisory bodies, known as regulatory reporting.

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

While the delivery of reports may be transactional, periodic and calendar-based, the requirements can emanate from separate legislative and banking bodies, even though all these stakeholders have the same objectives:

• Ensuring monetary and financial stability
• Promoting international cooperation and transparency
• Protecting customers

However, the notion of regulatory reporting is very broad and covers a variety of obligations, the requirements of which are constantly expanding. This complicates the burden on financial institutions and increases the cost of maintaining their compliance.

Today’s stakeholders believe that the current regulatory reporting system, following several attempts at harmonisation within the framework of European integration, is no longer fit for purpose. This has led European companies to agree on the implementation of a new reporting system: integrated reporting.

New proposals following attempts at harmonisation

The European Central Bank (ECB), responsible for compiling reports for statistical purposes, has been trying to harmonise its reporting requirements for some years. Corep and Finrep were the first reports to be standardised within the various EU countries, starting in 2007. Next came AnaCredit in 2019, along with the advent of granularity and the emergence of new technologies enabling the analysis and exploitation of large data sets. And finally, BIRD (Banks’ Integrated Reporting Dictionary) – a collaborative project that’s still ongoing between the ECB, National Central Banks (NCBs) and commercial banks, which aims to define a shared set of transformations for regulatory reporting purposes.

Today, the ECB would like to move toward more granularity and has launched an overhaul of its requirements via its Integrated REporting Framework (IREF) project, which should be completed by the end of 2024. It launched a ‘cost-benefit’ investigation, completed on April 16, to assess the relevance of the main scenario it would like to implement. This survey was sent to the entire industry, including national banks, commercial banks, banking associations and software providers.

Similarly, the European Banking Authority (EBA), in charge of collecting financial and risk data as part of the banking industry’s single supervisory mechanism, launched a public inquiry from March 11 to June 11. The inquiry aimed to assess the implementation of the IREF counterpart on the prudential and resolution part of the project, called the Integrated REporting System (IRES). This project has made less progress than the ECB project, so there is a question as to how the ECB and EBA projects will eventually converge.

While the EBA has not yet disclosed the next steps for the implementation of harmonised reporting, the ECB foresees the transition to integrated IREF reporting between 2024 and 2027 in the area of statistics – monetary, AnaCredit and securities holding, in particular.

Is integrated reporting the final step in regulatory reporting?

In recent years, the number of new reports has grown exponentially. And each new addition requires work, expense and time. The idea of an integrated reporting system that brings all the information together in one place is therefore attractive, but only if it does not follow the same dynamic as the previous ones. These questions must be answered in the coming years to ensure an effective and rapid transition.

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

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

The Technology Disruption

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

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

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

Automation for UCBs

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

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

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

Requirements for Smooth Implementation

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

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

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

VRP APIs are being implemented by the UK’s 9 largest banks to enable customers to freely sweep money between their accounts following a ruling by the Competition and Markets Authority (CMA) in July. In practice, that could help people avoid overdraft fees or increase their automated savings.

by Kat Cloud, UK Policy Lead, Plaid

This is a major step forward and a win for both consumers and businesses as the CMA continues to create more competition across the banking sector. Through this change, consumers and business owners can feel more confident in their money management without fearing unnecessary, not to mention avoidable, charges.

What are VRPs?

Like a direct debit, where a business is able to collect recurring payments from the same customer without permission for every payment, VRPs offer businesses and consumers a similar process through open banking. Banks integrating the VRP API will enable third party providers (TPPs) to initiate variable payments at variable times, without getting the permission from the consumer every single time. As with the overarching mission for open banking, VRPs are intended to create a seamless and frictionless experience for customers.

One of the most common use cases of VRP APIs is sweeping, also known as me-to-me payments, which use TPPs accessibility across different accounts to understand where people can seamlessly transfer money from one account to another. From a consumer perspective, there are many practical applications for this, such as transferring money into an account to prevent dipping into an overdraft therefore avoiding fees, or topping up a savings account by transferring the leftover cash from a coffee purchase.

How can VRP APIs help to eradicate financial vulnerability?

The VRP mandate is the latest move in protecting customers while helping them to lead healthier financial lives. Indeed, as open banking continues to foster an environment where consumers and businesses have access to a wide range of financial products and services, the VRP API is the next step in creating a seamless financial ecosystem that reduces stress, confusion and saves time.

For those in a vulnerable financial situation, the VRP mandate will help them to monitor and manage their accounts. For example, if a consumer has insufficient funds in one account, VRP APIs can transfer money over from another account to prevent them entering an overdraft. Given its smart nature, the API has the capability to move money seamlessly, without constant permissions. In turn this helps prevent consumers from being charged high overdraft fees and penalties, all while creating a pathway to a more secure financial situation.

What’s next?

Once again, the UK is leading the pack against its EU counterparts in creating a fairer financial system through the power of technology, while at the same time maintaining the central ethos of open banking – putting the consumer back at the heart of the financial ecosystem.

Looking ahead, VRPs will certainly have broader use cases in the future. As the process is like direct debit payments, we can expect to see variable payments for utilities bills, investment accounts, subscriptions and more. As we continue to transition towards open finance, the VRP ruling is an important step in promoting financial democracy while helping to eradicate financial vulnerability.

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

by Gavin Fallon, General Manager at Board

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

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

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

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

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

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

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

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

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

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

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

IBS Intelligence is partnering with Sopra Banking Software to promote the Sopra Banking Summit, which takes place 18-22 October 2021. The summit is tackling the biggest issues in the financial sector, including public cloud. This weeklong festival of FinTech will touch on the hottest topics in financial services and highlight the new paths industry leaders are taking.

The following article was originally published here.

Cloud computing has long been an attractive option for banks looking to optimise costs, improve flexibility and facilitate digital expansion. Historically, cloud adoption has meant private or limited deployments due to concerns ranging from security to compliance. But in a post-Covid world, the drumbeat of digitisation has gotten louder, and more banking leaders are moving past their reservations. And recently, the use of public cloud platforms is gaining traction. This is due to ongoing margin compression, the need to reduce costs, and the imperative for banks to innovate faster—all things the public cloud can help solve.

by Martin Lee, Head of Managed Services & Cloud, Sopra Banking Software

As more financial institutions move to leverage cloud providers’ huge investment in their tech stacks, it’s worth pausing to survey the landscape and understand the most important considerations for banks moving forward.

The state of cloud banking 

The phrase ‘cloud computing’ spans a range of classifications, types and architecture models. In simple terms, a private cloud means a dedicated cloud computing network. In contrast, a public cloud is cloud computing delivered via the internet and sharing underlying infrastructure across organisations. A hybrid cloud is an environment that utilises both physical and cloud hosting.

In the last decade, the use of public cloud computing via services like Microsoft Azure or Amazon Web Services has turned into a $240 billion industry. In banking, the public cloud is already commonplace for non-critical tools, and a typical bank’s computing environment already includes on-premise systems, off-premise systems and multiple clouds.

Indeed, 19 of the top 20 US banks have already announced public cloud initiatives. In late 2020, IBM rolled out a financial services-specific public cloud featuring 10 of the world’s largest banks as customers. While there is a lot of activity, maturity levels vary. For instance, according to a recent report, 80% of UK banks have migrated less than 10% of their business to the public cloud as of 2020.

But that’s rapidly changing.  Banks know they can no longer ignore the benefits if they want to stave off competition and remain profitable. Data from McKinsey underscores this point. According to one of its surveys, more than 60% of banks plan to move the bulk of their operations to the public cloud in the next 5 years.

Benefits of running a bank in the public cloud  

The trend of public cloud adoption is, to some degree, traditional banks following the model that FinTech proved, i.e., using the cloud to be flexible, agile, and responsive. Through our experience, we have seen several specific use cases where banks in the UK have benefited from the use of cloud-based services. These include:

• Avoiding high CAPEX costs for new and replacement hardware with a more efficient OPEX model, removing the need for future one-off hardware investment
• The ability to access and leverage a wide range of digital products, offerings, and integrations, which are only possible with cloud-based technologies
• Reducing the risk and impact of Covid-19 and other potential business continuity issues by avoiding the need for staff to physically access specific locations to deliver services
• Increasing and ensuring operational resilience in a cost-effective manner to meet the latest regulations
• Improving efficiency via automation and infrastructure-as-code reduces manual effort and improves response times—plus, it reduces complexity and technical debt related to legacy systems

Considerations and keys to success

While there is a general trend toward public cloud adoption across banks in the UK and elsewhere, there are a few important areas to consider to ensure the greatest odds of success.

Be clear on the specific benefits that cloud is bringing to your organisation 

The public cloud brings many potential benefits, but not all of these will apply to every circumstance. And a move to the cloud is generally most effective as part of an overarching business strategy, rather than a strategy unto itself. It’s therefore critical to define which business benefits a cloud migration is expected to deliver.

Don’t assume that the cloud will be secure by default  

Most cloud-related data breaches are due to misconfiguration, not a flaw in the infrastructure itself. This means that it’s essential to either develop the expertise in-house or work with a managed-services provider to ensure that issues around configuration and methodology are avoided.

Understand where your data is 

A well-established benefit of the public cloud is that it enables users to ‘go global in minutes.’ However, for European banks, there are often specific requirements around data residency and transit.

A proven and audited system design, combined with the right technical controls, is key to making sure that data is administered correctly and housed only in approved locations.

Maintain the right level of capacity 

While virtually unlimited amounts of capacity are available in the cloud, utilising it means there is a chance of paying for unnecessary resources. To make sure cloud environments are being used efficiently, it’s important to collect, monitor, and react to the data and metrics available.

Leverage cloud technologies to increase automation and agility 

A significant advantage to hosting applications in the public cloud is to leverage its elasticity, integration and orchestration facilities. Yet, to make use of these, a suitable level of staff expertise, modern working practices and system design is required. A simple “lift and shift” of current hardware will be unlikely to bring improvements with no other changes made.

Improve operational resilience 

The major cloud providers—Amazon, Microsoft and Google—operate at scales that few can match. By adopting best practices like AWS’s Well-Architected Framework, it is possible to increase operational resilience via many layers of redundancy, recovery automation, and the use of multiple regions and availability zones. However, these areas can be maximised only if the right skills, experience and approaches are used.

Select the right partner 

While the public cloud presents exciting opportunities, little can be done without the right partner. Unless significant investment is made in recruiting staff with extensive experience in cloud migrations, transformations and optimisation, capturing the full potential is challenging. When selecting a public cloud partner, there are several vital aspects to consider. These include certification and standards, technologies, data security and governance, reliability, migration support, and service dependencies.

Moving forward 

Adopting cloud technology isn’t a catch-all solution for banks. However, increasingly, doing so has clear benefits when compared to traditional IT deployments. By choosing the right partner, banks can enjoy all the benefits of the public cloud while ensuring security, compliance and support are maintained. In today’s world, progressive banks are meeting customers where they are—and that’s increasingly using services hosted in the public cloud.

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

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

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

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

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

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

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

What is a digital bank?

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

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

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

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

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

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

Challenges in building a digital bank

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

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

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

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

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

Building out a roadmap

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

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

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

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

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

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

This article was originally published here.

When seeking perfect data quality firms often look for a golden source of truth, what are the pitfalls to this approach? The fact that a golden source of data has historically been celebrated doesn’t make it right. How can firms successfully lay the foundations for true data integrity?

by Neil Vernon, CTO, Gresham Technologies

A golden source of data – a single source of truth to supply a business with all the information that it needs to rely on – has historically been seen as the pinnacle of data quality. But while financial institutions have long strived towards a utopia of data perfection, this approach does present some drawbacks. What’s more, just because a golden source of data has long been sought after, it doesn’t necessarily make it the best option.

Today, in an era of waning tolerance for poor data integrity, more complex regulatory reporting requirements, and increasingly tight margins, we ask: how beneficial is a golden source of data in the current environment, and is there another path to take us to the top?

Enhancing reporting across multiple counterparties

The original focus of golden sources of data centres around a financial institution’s internal data repositories. However, the ability of firms to report accurately, on time, and in full, is often bound up with that of their counterparties – as is the case in the recently introduced Consolidated Audit Trail regulation.

This has led to questions over whether there should be golden sources developed across the industry which each firm can access as needed for regulatory reporting and other requirements. It is easy to see the appeal of this – one single source of truth, properly managed, would reduce error rates in transaction reporting dramatically, as well as decrease or eliminate time spent on counterparty communication. If you and your counterpart report from the same repository, how could you possibly report differently?

An innovation roadblock

However, creating such a golden source has a major drawback: it would significantly limit the abilities of financial institutions when it comes to innovation – another current ‘hot topic’ area. Coming with strict usage and management requirements, a true golden source would inhibit the kind of ‘fail fast’ experimentation with processes and products which the industry has been so at pains to encourage.

And of course, there’s the unavoidable fact that everyone’s truth is different. The questions that you are using your data to answer will determine the lens through which you should view it. For example, analysing data for product purposes will require you to consider accurate product hierarchy.

Practical realities: Why accuracy holds the key

But if creating a true golden source is neither practical nor desirable, what should firms do instead?

As far as internal data goes, firms should certainly still strive towards a reliable data source – but they should also recognise that a general-purpose solution is not always possible.

Rather, appropriate control processes should be applied to ensure that there is no slippage in data quality and that the organisation fully understands its usage. Managing data lineage through systems that allow complete visibility of the data lifecycle makes the source of data easily traceable, enhancing understanding further and ensuring that any issues can be easily fixed.

In addition, education is key: organisations should ensure that data consumers have sufficient understanding and knowledge that, when using data, the right ‘lens’ for the situation is applied.

These steps will also help to resolve many of the issues that banks experience when dealing with their counterparties, since each side will have improved the accuracy of its data. Resolving linkage issues with counterparties consumes valuable resources, particularly where escalation is required. But by giving themselves maximum visibility and control over their data, financial institutions can stop many of these issues before they start.

Financial institutions should not change their ambitions to create a strong data source, but a golden source is a naïve objective: it is too simplistic, and harms more than it helps. True data integrity does not come from such a one-size-fits-all approach. Full control and knowledge over the lifecycle of your data, and the upgrading of legacy systems, is the only way financial institutions will be able to build the strong foundations of true data quality.

As the trend of digital transformation continues to impact the financial services industry, progressive Credit Unions in the US understand that to keep up, they must re-evaluate their digital platforms and convert to a new system that will offer their members a better banking experience.

by Michael Collins, Associate, Credit Union Practice, Qualitest Group

When we think about enhancing members’ digital banking experience, we often think about adding new features and capabilities, and making the system easier to use. But what about simply making sure the new system can run without any slowdown in response times, or worse crashing completely? After all, what could be a poorer experience for members than not having access to their money when they want it? This is where performance and stress testing is crucial for digital banking systems.

When undergoing a complex digital banking conversion, there needs to be rigorous testing of the system to ensure it is functioning properly and free of any bugs that will impact the user. Most Credit Unions understand how critical it is to test functionality and ensure all the data has been migrated over successfully to the new system, but they often overlook the performance and stress tests that ensure the system’s availability, responsiveness, and scalability. Performance and stress testing ensures that a new system can handle the expected usage of Credit Unions’ members and is well-equipped to scale as membership grows.

The need to ensure the availability and responsiveness of a digital banking system is more important now than ever before, as the pandemic has led more and more people to abandon in-branch transactions and to choose to do their banking digitally.

Why Is performance testing so important?

Everyone can relate to the frustration caused when trying to use an app or website that is running slowly or crashes altogether. This frustration is amplified when dealing with our money. People have an expectation that their right of access to their own money is a given and are rightly very upset when they lose this access or cannot perform transactions in a reasonable timeframe. These situations can ultimately damage your Credit Union’s reputation and lead members to lose faith in their banking system. To ensure that members never run into these issues, Credit Unions must run performance tests on their banking platforms.

Configuration is key

When slow response times or crashes occur, it is often due to the system not being able to handle the volume of usage it is experiencing. There are simply too many people trying to do the same thing at the same time. Performance tests are meant to simulate the usage a Credit Union can expect its system to encounter, and then measure the response times to ensure they are up to standard and being executed quickly. They allow for the creation of scripts that will run and mimic the workflows Credit Union members carry out when banking. A well thought out performance test will account for the factors below to accurately represent the actual usage by members:

• Choosing the right workflows – A Credit Union will want the workflows being run in the performance tests to be around the activities and transactions its members carry out the most frequently. For example, paying a credit card bill, opening an account, transferring money, etc. A performance test can simulate many users performing these different types of transactions concurrently.
• Establishing a baseline for average expected usage – It’s important to accurately determine the average number of members who are accessing the system at the same time. Performance tests allow for the simulation of this amount of activity to provide an accurate representation of the number of concurrent users trying to perform similar transactions at the same time.
• Generating traffic from the right location – Another nice feature of performance tests is that they can simulate user activity from a specified location. If most of a Credit Union’s members reside in a particular geographical region, the performance tests will generate activity from the area specified.

To accurately capture all of the above factors in performance tests, a Credit Union will want to examine activity data from its old system and use it as a baseline for the activity a new system will face. If the Credit Union has plans for growth, that should also be accounted for, and the activity level simulated should be even higher than average.

Once tests have been configured appropriately, it is time to run the tests and see how the new system stands up to the type of activity it can expect to face. The goal is to confirm that the new system has not suffered any degradation to end user response times and can handle the amount of activity expected from members, allowing them to carry out their banking transactions quickly. The response times that are measured can then be used as a baseline standard for the system moving forward. If the system has suffered any degradation to response time, this is an issue that should be fixed immediately.

Running performance tests will give a Credit Union the confidence that its system will be able to handle the expected usage from its members, but what happens when facing uniquely high levels of traffic? Will the system crash, leaving members scrambling for answers?

Stress test for success

Unlike a performance test, which aims to replicate the average amount of activity a system will face, a stress test looks to simulate and establish a baseline for the peak activity level the system can withstand before crashing. The method for configuring the test is the same, but this time with a much larger number of users being simulated. A good way to come up with the activity level is to look at the peak usage level the system has faced historically, run the test using that amount, and see if the new system is able to handle that load without any outages. If it is, then the usage level should be increased, until the system ultimately reaches the peak level it can withstand.

Stress testing is not only a valuable way to mitigate risk and ensure the stability of a Credit Union’s digital banking system under unusually high activity levels. It can also give an institution confidence that its system will continue to perform as the business grows and the number of members using the system increases.

In conclusion, while it is important for Credit Unions to test their digital banking systems to make sure all of the features and functionality are working properly, it is equally important to confirm that the system is ready to withstand the traffic it will encounter from members. Running these performance and stress tests will provide confidence that members will be able to carry out their banking transactions quickly and without disruptions to service.