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

The following article was originally published here.

Retail banking was one of the sectors most affected by Covid. Nation-wide lockdowns, sanitary measures and social distancing shook the day-to-day practice of banking to its core, with brick-and-mortar branches closing and digital demand skyrocketing.

by Bettina Vaccaro Carbone, Head of Research for SFP at Sopra Banking Software

And yet, despite this, there may be a silver lining for the incumbents in retail banking moving forward. The impacts caused by Covid-19 have forced them to accelerate their digital transformation strategies, while also damaging many of their challenger bank competitors, therefore levelling the playing field to some degree.

Legacy banks now have an opportunity to become the digital torch bearers for the financial services industry in the years, and perhaps even decades, to come. But it’s an opportunity they have to take now, because it won’t last long.

The decline of digital-only banks

The pandemic, to some degree, hit the reset button for the industry. Before 2020, incumbent banks were somewhat on the run from new, more agile competitors. There are swathes of statistics that highlight the success gained and ground covered by industry entrants during the last decade. Here are three that summarize their success and the reasons that incumbent banks were feeling the heat:

• European challenger banks gained more than 15 million customers between 2011 and 2019
• In a report published in February 2020, just before the pandemic hit, Accenture found that U.K. challenger banks were growing at a rate of 150 percent, year on year, compared to 1 percent by incumbent banks
• The global challenger banks market was worth $18.6 billion in 2018 and was predicted to grow to $394.6 billion in 2026

However, 2019 feels like a lifetime ago. Challenger banks and their ilk have taken a massive hit since the beginning of the pandemic. UK challenger bank Monzo, for example, laid off hundreds of employees and lost 40% of its valuation during the height of the pandemic last year; and others, such as Simple and Moven, called it quits altogether on their consumer activities.

Received wisdom would suggest that customers are more risk averse during risky times, and that even though the traditional banks are not soaring in terms of trust among end consumers, they have emerged as a preferred and stable choice.

Curious, given that challenger banks were supposed to be on the frontline of a digital revolution, and the impact of Covid demanded more digital banking services and bandwidth than ever before. But rather than flock to new digital-only banks during the pandemic, customers instead chose to stick with the traditional industry players.

Digitisation of banking services during the pandemic

Risk averse or not, there’s no doubt that customers want – and even need – digital banking services. This was true long before the pandemic, hence the rise of challenger banks last decade. A growing generation of digital-native consumers, a burgeoning digital ecosystem and the availability of new banking products and services all combined to ensure that the future of the financial services industry would be digital.

Conversely, traditional banks largely struggled to deal with this exponentially growing trend. Burdened with legacy systems unfit for purpose, rafts of regulations (from which their challenger bank counterparts were largely exempt) and reluctant-to-change cultures, the industry’s incumbents were falling behind fast. Indeed, 45% of banks and credit unions had not even launched a digital transformation strategy before 2019, per 2021 research by Cornerstone Advisors.

How things change. Catalysed by the pandemic, traditional banks – from big names like Bank of America and Chase through to regional incumbents – now boast of how digitally adept they are. In a period of intense digitisation, legacy banks have added a host of new and/or improved services, including video KYC, higher contactless payments and chatbot services, just to name a few.

Many of these technologies were in the pipeline for banks before Covid hit, but there’s no doubt that the pandemic accelerated plans. Speaking at the 2020 Bank Governance Leadership Network, one director said: “Suddenly the impossible became possible. Solutions that used to take 18 months to deliver are now happening in 18 days.”

Digital challenges for banks post-Covid

Despite this sudden surge, however, the traditional retail banking players may not have made the progress that the market demands. In some cases, far from it. A deeper look at some of the figures around the current state of legacy banks’ digital transformations makes for somewhat grim reading.

• Approximately 40% of banks which state they are more than half-way through their digital transformation strategies, have not deployed cloud computing or APIs
• Only a quarter of these banks have implemented chatbot technology
• Just 14% have deployed machine learning tools

It seems that many legacy banks have not made as many inroads into the digital future as some might claim, and certainly not as many as they need to, to be seen as progressive digital players. That will have to change, as customer expectations are becoming increasingly digital focused, and that’s reflected in their attitude toward retail banking. Many end-customers expect their banking habits to change over the long term because of Covid.

Worse than the supposed lack of progress, however, is an apparent lack of awareness from some incumbent banks at where they need to be on the digital roadmap. According to the same Cornerstone Advisors study that cites the aforementioned developments, over a third of banks believe they are more than half-way through their digital transformation.

Incumbent banks have made digital strides during the pandemic, edging closer toward being a bank that appeals to a digital generation of consumers. Suddenly, they are no longer playing catch-up and facing imminent disintermediation across the board, at least not to the same intensity as before.

However, the job isn’t done. One could even argue that because of the ever-evolving nature of digital technology, the job will never be done; rather, digital transformation is a state of constant change and adaptation. For now, though, traditional players in retail banking can take a moment to reflect on just how far they’ve come since the beginning of 2020 and pause on what could be considered a sector reset in their favor.

But it’s a moment that should be taken quickly. Technologies will continue to develop; existing challenger banks will regroup, and new ones will be launched to challenge the status-quo. Any complacency or naval gazing will quickly see legacy banks lose ground to a new wave of resurgent digital players.

Cloud is the answer – what was the question?

Against the backdrop of the FinTech boom, technical innovation and turbulent post-pandemic markets, up to 90% of global bank workloads are estimated to be moving to the cloud in the next decade.

by Craig Beddis, CEO and Co-Founder, Hadean

Varying demand in compute power was one of the core motivations for moving to the cloud. Dr Michael Gorriz, CIO of Standard Chartered, recently described how the geographical spread of the multinational bank’s trading resulted in ‘varying compute need, dependent on the presence of different countries and regions at different times of day and the pattern of the activities’.

This pattern often creates an unpredictable compute load, meaning that infrastructures need to be able to scale to ensure reliable provisioning. Some cloud providers are solving this through a load balancing feature. This is where processing power is scaled across several machines dynamically, providing an overall much more reliable IT platform.

Goldman Sachs, HSBC and Deutsche Bank have all recently announced major partnerships with cloud platforms. It’s a move indicative of a broader industry trend towards cloud adoption, one initiated in part due to the emergence of containerisation. With traditional banks wary of hosting large quantities of sensitive information in a singular, outsourced location – containers have paved the way for a multi-cloud solution.

Containers enable the repackaging of applications for different cloud environments. This provides much needed flexibility in data abstraction and processing. Different cloud providers offer advantages for specific tasks, where for example one might offer greater upload speed, another might offer more security. Overall, being able to scale IT functions across these different clouds can help a financial organisation achieve greater agility in its services. Multi-cloud also represents a positive move for the industry as a whole. By allowing businesses and consumers to choose from a greater range of multi-cloud providers, these providers in turn compete on both price and delivery of service, improving the choice for the user. In essence, we have the recreation of competition that existed previously between banks but now in a more digitalised environment.

This migration however is no easy feat and while tech companies might have succeeded in convincing financial institutions of the merits of cloud computing, namely reduced overheads and a faster time to market, true success will lie in mapping out feasible cloud strategies. Decisions will need to be made on what to migrate, when and where.

Navigating the pitfalls that come with this change is difficult, particularly with the number of different options and choices that multi-cloud strategies offer. Taking a ‘cloud native’ approach has been popular among a number of financial institutions; for example, Standard Chartered’s digital bank Mox launched in Hong Kong as a cloud-based banking platform, while Capital One moved its entire service to run on AWS, saying that: “The most important benefit of working with AWS is that we don’t have to worry about building and operating the infrastructure.”

Wider economic effects, trends and hardship are also demanding change, with the pandemic putting on pressure to cut unnecessary costs. While changes of infrastructure have large initial costs, the move to cloud ultimately represents a more efficient mode of service delivery and will save money in the long run. The serious reduction of demand for in-person services that banks offer has also led to branches closing and the increased importance of digital services.

Open banking has been one of the most disruptive developments in finance of recent years with the customer’s information no longer exclusive to the one bank. It led to both an increase in exchange of data as well as a wave of innovation in banking services.

Increasing financial inclusion has also been a driving force on the consumer side, with FinTech start-ups forming to meet the demands of the rising number of people looking to increase ownership of their finances. This has put further pressure on accessibility in financial services, with the cloud’s flexibility primed to fill the gaps. It is cloud-native and scalable systems that will provide the ultimate platform for financial services and the various applications required to provide future innovative functions.

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

The following article was originally published here.

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

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

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

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

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

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

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

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

Challenges and solutions toward mass adoption

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

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

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

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

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

The future of European payments

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

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

by Indranil Basu Roy, Chief Business Officer, Modefin 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

by Yishay Trif, CEO, MoneyNetint

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

An unequal revolution

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

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

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

Blockchain: not just for Bitcoin

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

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

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

Changing the narrative

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

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

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

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

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

Legacy systems can become a major barrier to progress. By maintaining outdated legacy systems, the UK government risks wasting between £13-£22 billion over the next five years. The figures come from an independent investigation into the government’s Digital, Data and Technology function published by the UK Cabinet Office.

by Andrew Barnett, Global Head of Product Strategy, RIMES

It’s a lesson that investment managers know all too well. Currently, in many legacy systems data is centralised within firms and constrained by costly technology, such as Enterprise Data Management (EDM) platforms, Extract Transform and Load (ETL) tools and data warehouses.

As data volumes explode, firms are finding it more and more difficult to govern, quality assure and distribute data across the organisation with legacy systems. It’s little surprise, therefore, that only 4% of investment managers are happy with their data management systems.

The solution seems clear: make a clean break from the legacy systems of the past and invest in agile and scalable alternatives. However, for many firms this is a case of ‘easier said than done’. Often, asset managers simply lack the people or budget required to overhaul legacy technology and the valuable data trapped inside it. In other cases, firms are wary of potential hidden costs associated with decommissioning legacy systems, or the risk of disruption to business-as-usual, which they worry will negatively affect client service.

The cloud offers an alternative. In addition to cost-savings and the appeal of consumption-based pricing, the cloud provides a range of benefits for firms that makes data management transformation a realistic prospect for all asset managers regardless of their size, existing investments or budget/resource limitations. These benefits include:

• Ease of install. With a cloud-based delivery model, firms can avoid potentially disruptive upgrades of internal systems or being out of compliance with dated versions. Additionally, firms can migrate to the cloud one application or data set at a time due to the cost model and ability to operate over private and public clouds. As a result, they reduce risk by running legacy systems in tandem as they move to the cloud at a pace that suits them best without duplicating costs.
• Access to expertise. With the cloud firms not only access infrastructure and services, in many cases they can also draw on the expertise of a cloud-based partner. At a time when data skills are scarce this is a significant value add, as it allows firms to focus their internal data resources on value-generating data analysis tasks rather than low-value data management.
• Improved lineage and governance. Ensuring data governance, lineage and oversight is critical to compliance and staying in the terms of a licence, but it is often the area that firms struggle with most as legacy systems may not have the quality and governance needed in the modern highly regulated landscape. Cloud-based service providers can accelerate this process through automated services, delivering governed, high-quality data in a system-ready format.
• Adaptability. As operational data management issues arise, such as the need to adapt to emerging data demands, such as ESG, or manage intense market volatility, firms invest in people and technology to find solutions – some of which do not work. Cloud-based models avoid this waste. Relying on their service provider, firms can lean on proven service models, data expertise and scale to solve problems quickly and efficiently.
• Scale. A key reason these technologies have been allocated to the ‘sunsetting’ classification is that they do not have the cost-effective scale or flexibility that the cloud provides. We can’t predict the future but if we have a cloud-based cost model aligned with your revenue growth then we remove an important constraint.

It’s widely acknowledged that data insights will be essential to success in the investment management industry of tomorrow. Firms taking a legacy approach to data management will be at a disadvantage, hampered by uncontrollable cost increases and a dearth of talent needed to process data to then turn it into actionable intelligence. Coupled with the downward pressure on fees that continues to blight the industry, this approach is simply not sustainable.

Cloud-based managed data services offer an alternative by driving quality, efficiency, scale and adaptability across your data landscape, reducing waste and keeping a lid on costs. Make no mistake, firms need to oversee large scale changes to their data management systems. Fortunately, cloud-based managed data services make the case for this change stack up. More than that, they make it imperative.

Banks and financial institutions have been hesitant to adopt public cloud technology due to a fear of losing control. What are the psychological barriers facing financial services executives and how may they be overcome?

By Neil Vernon, CTO, Gresham Technologies

Accelerated by the global pandemic, the financial services industry is undergoing a period of intense technological transformation. The impact of Covid-19 is putting incumbent banks and financial institutions under cost, profitability, and operational stresses; regulatory requirements are growing in volume and complexity; and legacy systems are increasingly putting businesses at risk of service failure, loss events, and reputational damage.

In this environment, there’s no doubt that the future of financial services is in the cloud.

Its potential to deliver greater agility, cost effectiveness, efficiency, scalability, and speed to market provides new opportunities for growth and innovation. What’s more, a cloud-first approach offers firms the ability to better control their data and remain connected, freeing up highly stretched resources to focus on other business objectives. Migrating to the public cloud can play a critical role in strengthening operational resilience, too. In the face of increasingly high customer standards and, in the UK, new rules from the FCA coming into effect from March 2022, IT and system failures will simply not be tolerated in future.

So why are we still seeing a hesitancy towards cloud adoption among senior financial services executives?

Outsourcing functionality, not control

For the most part, it is the fear of losing control. Regulatory changes are increasing the pressure to meet a greater number of more complex requirements. In line with that, the risk of more severe non-compliance and the consequences that follow are also increasing. Exacerbating this problem is a pandemic-induced move towards working-from-home or hybrid environments, leaving outdated legacy systems unable to cope with the agility this demands.

Ultimately, the data that banks and financial services firms handle is very sensitive, either regarding customers’ financial information or traders’ operations. If compromised, this could present significant financial and reputational risk. Capital One Bank’s 2019 data breach, for example, which affected 106 million people across the U.S. and Canada, resulted in an $80 million fine. And the reputational consequences were tangible: in the days following the breach, Capital One’s stock plummeted from over $100 to $85 – both a consequence and catalyst of the reputational damage that the bank suffered.

All of this means that data control is more important than ever. But the truth is that moving to the cloud does not mean sacrificing control.

It is critical for business leaders to understand that leaving processes on legacy systems increasingly exposes you to loss and failure events, and that outsourcing your data and processes to third-party cloud providers is actually a more secure alternative. It can significantly increase efficiency and reduce costs by simplifying processes, as well as reducing the risk of non-compliance while simultaneously avoiding expensive in-house IT projects, both in terms of time and money.

Gaining insight through connectivity

In fact, moving to the cloud can put you in more control by facilitating a holistic view of your relationships as your business grows.

Connecting to an ever-changing array of trading partners, venues, clients, and regulators – and ensuring these connections remain valid – is a dynamic process. What’s more, firms must manage, map, and maintain the widely diverse and constantly changing data formats that flow between these parties.

Navigating this complex data landscape can cost millions every year in internal resources or point solutions that become stale. Moving this process to the cloud can give you the scalability your business needs to grow its network with speed and ease.

Work with the cloud, not against it

Despite a reluctance to overhaul existing processes and the temptation to bend cloud software to fit your own objectives, executives must understand that, in order to harness the power of the cloud, you must work with it – not against it.

A flexible approach, whereby firms understand that successful cloud migration might require some upfront work, is key. Integrating cloud with non-cloud, or different cloud services with each other, is often complex. A rigid attitude will likely result in disappointing results and data migration complexities, costing time and money better spent servicing clients.

Part of this flexibility is understanding best practice around how to use the cloud. The Bank of England (BofE) has warned that additional policy measures may be required to mitigate financial stability risks from the growing concentration of power in the hands of global cloud providers, such as Amazon, Google, and Microsoft. In response, firms should be looking at the ways in which cloud service providers are different and playing to those strengths to diversify their cloud portfolio.

It’s vital that firms have the right partner to help them navigate the application of their cloud technology across the major providers with relative ease, flexibility, and portability. What’s more, in addition to new BofE policy, big providers could be dictating cloud terms and conditions to major financial firms in future. Understanding and reporting on these requirements will cost valuable time, money, and resources that are much better outsourced to cloud-native technology experts.

Ultimately, a fear of losing control shouldn’t act as a barrier for cloud adoption. Once properly understood, the power of the cloud and its potential impact on business performance cannot be overstated, offering unparalleled benefits that, in an era where data control, integrity, and connectivity rule, could make or break financial institutions across the globe.

Customer-centricity and financial inclusion remain a challenge for the financial services sector. With banking products offered to customers becoming increasingly commoditized, AI-powered analytics can help banks differentiate themselves, provide competitive edge and enable personalised customer experience. The coming of age of such technologies allows banks to develop a strategic and organizational focus in analytics and adopt it as a true business discipline.

by Krish Narayanaswami, President & Global Head – Banking at Azentio Software

The analytics and business intelligence (BI) software market grew by 10.4% to $24.8bn in 2019. The world of banking has encountered unprecedented change over the past few years, and trends show that this will be the norm for a while longer. Modern BI platforms continue to be the fastest-growing segment at 17.9%, followed by data science platforms with a 17.5% growth (Source: Gartner).

Banks have been an early adopter of BI and analytics to drive business growth, reduce risk and optimise cost. With the rapid growth in digital banking, the velocity of transaction data has increased multifold. This data has now unlocked tremendous opportunities for banks in understanding consumer behaviour and tailor make specialised offerings by leveraging analytics as Decision as a Service

How will changes in banking laws and regulations affect profitability? Which stress scenarios should be considered? Who are the current ‘high-value’ customers? Which customers have the highest potential to ensure revenue growth? Can the bank create an early warning system to prevent fraud by identifying patterns? Increasingly, data analytics is seen as the answer that banking leaders are looking to, to successfully navigate this volatile environment.

Present Day Strategy and Key Drivers

According to a recent Deloitte survey, frontrunners benefited from early recognition of the importance of analytics to the overall business success. This recognition has helped them shape a specific analytics implementation plan that considers holistic AI adoption across the enterprise. The survey indicates that many frontrunners launched analytics centres of excellence and established comprehensive, companywide strategies for AI adoption for their internal departments, recognizing the strategic importance of AI.

The following strategies should be taken into consideration while adopting an analytics framework across the organization.

Prioritize the focus areas

Identify key areas where data and analytics can have the greatest impact and obtain leadership engagement from the start (for example, customer, risk, finance). This must reflect in the immediate goals and vision of financial institutions.

Streamline your data

Provide an integrated view of high-quality data vs. siloed pockets across product and business lines (for example, single view of the customer, aggregated risk exposure by product). Setting up a data warehouse/data lake and further creating specialized data marts to make the data more structured and easily accessible to the respective stakeholders.

Integrate with decision management systems

The key is to develop data-driven strategies at every step to arrive at smart decisions. Analytical insights can be plugged directly into decision management systems to arrive at the next best action.

Onboarding the right skillsets

Finding the right talent for statistical modelling little data and big data is one of the biggest challenges. Develop a talent plan that builds on both existing internal talent and external sources.

Leverage the power of cloud

Leading cloud providers like AWS, Azure, OCI and GCP are providing powerful analytical offerings as services and have the power to run heavy compute. The ability to scale up infrastructure to run high loads and to bring it down when not required helps in optimising costs.

What is the way forward?

According to a 2020 McKinsey study involving over 25 use cases, AI technologies can help boost revenues through increased personalization of services to customers (and employees); lower costs through efficiencies generated by higher automation, reduce errors rates and improve resource utilization. It can uncover new and previously unrealized opportunities based on an improved ability to process and generate insights from vast troves of data.

The potential value creation for banks is one of the largest across industries, as AI can potentially unlock approximately $1 trillion of incremental value for them annually.

Realising the need for going mainstream with AI, banks internationally have already started harnessing the power of data to derive utility across various spheres of their functioning, including sentiment analysis, product cross-selling, regulatory compliances management, reputational risk management, and financial crime management.

AI and analytics will eventually become a part of every major initiative, in areas ranging from customers and risk, to finance, workforce, and supply chain.

Personalised experiences and products powered by advanced analytics and machine learning will be key to wooing customers in this era of intense competition. Banks have a chance to overcome the hurdles and join the analytics arms race before the frontrunners extend the gap that would be too far to bridge.

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 bank’s relationship with its customers.  A definite change for the better.