IBSi Blogs

Data volumes are not just growing, they are exploding. Now measured in zettabytes – which could become yottabytes in the not too distant future – it’s not surprising they are causing more than a headache for today’s organisations. These vast pools of data are also putting traditional database architecture to the test.

Nowhere is this problem felt more acutely than in the banking industry, where the situation is exacerbated by a complex raft of issues. For example, many banks have had the same legacy systems in place for decades.

Often these are not fully-integrated with others in the organisation and, consequently, many applications still run in a siloed environment. In a recent study by analyst firm Enterprise Strategy Group (ESG), commissioned by InterSystems, 38% those polled reported that they had between 25 and 100 unique database instances, while another 20% had over 100. Although this was a general survey, not confined to the banking industry, it does give some idea of the scale of the problem.

So although many banks own these vast amounts of data, many of them are unable to do anything with it, especially analyse it in real-time. Which means that often they just don’t have the capability to provide the open banking demanded by new regulations such as PSD2.

Banks have been addressing new regulations in a piecemeal fashion for too long and this approach is now catching up with them. With each new ruling they have put a new siloed application in place to meet its specific needs and no more – but there’s a limit to how long this can continue. Today’s regulations are demanding an end to data siloes with integration enterprise-wide and the ability to analyse data in real-time.

These are broad-brush requirements. At a more granular level, banks must think through the step-by-step processes needed to meet compliance. Typically, they will need to bring information in from multiple applications, run reporting on this data on a real-time basis and generate that in a format that meets the regulator’s precise requirements.

As a result, banks must seek out a data platform that can ingest data from real-time activity, transactional activity and from document databases.  From here, the platform needs to take on data of different types, from different environments and of different ages to normalise it and make sense of it. The platform they select must be about to reach out to disparate databases and silos, bring the information back and then make sense of it in real-time.

This platform must also have the agility to separate out the data they need from the data they don’t need to access. It is also the case that, as businesses migrate systems and applications to the cloud, they are beginning to use software to ‘containerise’ their applications and modules. Once these containers have been set up in the cloud, they are then reusable by other applications.

It is crucial that a data platform enables data to be interrogated even if it is in large data sets and stored in different silos. This capability is important to enable the bank to comply with regulatory requirements such as answering unplanned, ad hoc questions from the industry regulators, for example.

The advantage of working this way is that it can take the bank far beyond compliance. It will now have a secure, panoramic view of disparate data which can be used for distributed big data processing, predictive and real-time analytics and machine learning. Real-time and batch data can be analysed simultaneously at scale allowing developers to embed analytic processing into business processes and transactional applications, enabling programmatic decisions based on real-time analysis.

So although many banks and other financial services organisations may feel they are being swallowed up by data, the need for compliance will ensure this doesn’t happen. The more they are storing on legacy systems, the more they are going to need an updated data platform. If they think carefully about selecting the right one, the move could result in improvements across data management, interoperability, transaction processing and analytics, as well as the means to address today’s and tomorrow’s regulatory demands.

By Jeff Fried, Director, Product Management – Data Platforms, InterSystems

 

It would come as no surprise if internet retailer Amazon announced it was taking over the world tomorrow. There seems to be very little that it can’t offer customers, whether it’s conquering Christmas lists, watching boxsets through Prime or managing life admin through the intelligent personal assistant Alexa, almost everyone uses one or more Amazon service on a regular basis.

One common denominator that defines Amazon’s success across all of its platforms is customer experience – providing simple, convenient and engaging solutions that go that extra mile to ‘wow’ customers and retain their loyalty.

Banks, however traditional or modern, can take a leaf out of Amazon’s book when it comes to engaging with customers and harnessing innovation to continuously improve their offering.

Here are five important lessons banks can learn from Amazon.

1. The customer always comes first

Listening to what the customer wants has been the driving force behind many of Amazon’s products and developments. McKinsey’s CEO guide to customer experience advises that the strategy “begins with considering the customer – not the organisation – at the centre of the exercise”.

This can often be quite a challenging ethos for the banking sector to buy into, particularly for the more traditional bricks-and-mortar companies where the focus is often on the results of a new initiative, rather than the journey the company must take its customers on to get there.

It’s a case of convincing senior management that the initiative is a risk worth taking and just requires some patience. Amazon originally launched Prime as an experiment to gauge customers’ reactions of ‘Super Saver Shipping’ and it was predicted to flop. Nowadays it’s one of the world’s most popular membership programmes, generating $3.2bn (£2.3bn) in revenue in 2017, up 47 per cent from 2016.

2. Create trends rather than follow them

To stay ahead of the curve amidst the flurry of digital fintech start-ups, banks need to come up with their own innovative customer experience solutions, rather than allow newcomers to do so first and then follow suit.

From the customer’s perspective, a proactive approach will always go down better than a reactive one. Amazon CEO Jeff Bezos has previously spoken about tech companies obsessing over their competitors and waiting for them launch something new so that they can ‘one-up’ it. He once wrote: “Many companies describe themselves as customer-focused, but few walk the walk. Most big technology companies are competitor focused. They see what others are doing, and then work to fast follow.”

What sets Amazon apart is listening to what the customer wants and prioritising them over competitors.

A great example in the banking sector is mobile-only bank Starling, which recently announced partnerships with several financial service providers that customers can quickly access via its in-app ‘Marketplace’. The first to become available is PensionBee, a digital pension provider that aims to consolidate pension pots into one. Others, including a digital mortgage broker and a digital wealth management service, are soon to follow.

Ultimately, Starling listened to and understood its digitally-minded customer base who, like most people, see shopping around for financial providers complicated and admin-heavy. One central app where you can seamlessly select a trusted digital partner would no doubt go down as good customer experience.

3. Use customer data to form any new idea

It’s no secret that Amazon is one of the leaders that has paved the way for analytics. It’s through the company recognising the need for them which has led to customers becoming accustomed to personalisation and expecting it as soon as they have had their first interaction with a business.

Banks are no exception to this and, while it may seem like a scary commitment to more traditional firms, it doesn’t have to be complicated. A classic, simple example is Amazon storing customers’ shopping habits and sending them prompts for new products similar or related to those they have purchased in the past.

In the financial world, digital bank Monzo is leading the charge by monitoring customers’ spending habits to offer them financial advice to help them save money and budget responsibly. For example, its data once showed that 30,000 of its customers were using their debit cards to pay for transport in London – so Monzo can advise them they could save money if they invested in a year-long travel card, for instance.

There are endless things banks can do using customer data to provide the customer with an experience unique to them, rather than continuing to make them feel like just another cog in the wheel. At Affinion we believe in ‘hyper-personalisation’, in that these days it’s no longer good enough to just know a customer’s history of transactions with a company and when their birthday is.

Customers are getting more tech-savvy by the day and are expecting real-time responses with a deep insight into their interactional behaviour – they won’t remain engaged if follow up contact is irrelevant and untargeted. Customer engagement has moved on from companies communicating to the masses, it’s about creating tailored, intuitive relationships with them on an individual basis.

4. Widen the offering beyond traditional banking

The way we live as a society is forever changing and, as we get busier and busier, any small gesture to make life that little bit easier goes a long way. The consolidation of services such as banking, insurance, mobile phone networks, utilities and shopping is a great way to ensure customers remain loyal to a brand as it will – if done right – add value and reduce hassle to their lives.

As an expert at disrupting industries, Amazon has taken note of this growing need for convenience over the years and has expanded its offering for customers, allowing them to carry out multiple day-to-day tasks with one account. In the last few months alone, Amazon has hinted that it may acquire a bank to break into the financial industry and potentially start its own healthcare company.

Regardless of size, banks should always be looking for new areas they could tap into to broaden their offering and show customers that their needs are at front of mind.

5. Engage with customers through goodwill

A rising factor in the way that customers align themselves to a brand is its stance on ethical issues and its contributions back into society. It’s a shift that seems to be most prominent with Generation Y, as the Chartered Institute of Marketing found that 81 per cent of millennials expect companies to make a public commitment to good corporate citizenship and nine in 10 would switch brands to one associated with a good cause.

Amazon has gone that one step further, with its AmazonSmile initiative that allows the customer to choose a charitable organisation that it will donate 0.5 per cent of eligible purchases to. Not only does this show Amazon’s commitment to charitable causes, it gives the customer control of where their money ends up.

This is an easy win for the banking sector, given that one of its sole purposes is to look after money and move it around. For firms that target younger generations in particular, looking at ways to involve customers in charitable donations in a fun, transparent and seamless way is a no-brainer for increasing loyalty and advocacy.

It’s time banks took customer engagement even more seriously

For many people, personal finance is perceived as a chore and often quite complicated. Improving the customer experience and building in programmes to engage them can help greatly with this and banks need to adopt the ‘customer first’ ethos that Amazon showcases so effortlessly. With new fintech disruptors creeping into view, keeping customers loyal and engaged has never been so important.

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

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

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

Marketplaces driving eWallet take-up

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

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

Buyer protection

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

Mobile wallets still in early stages of adoption

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

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

Payment power

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

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

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

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

Ecommerce companies must track emerging payment trends

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

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

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

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

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

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

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

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

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

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

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

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

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

New age of payments

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

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

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

Is Instant the answer?

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

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

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

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

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

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

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

By Gene Neyer, Chief Strategy Officer, Icon Solutions

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

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

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

From siloes to an enterprise-wide perspective

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

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

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

Mass customisation: an achievable goal?

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

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

About the author:

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

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

 

If there’s one positive thing about social media, it’s that it’s keeping everyone on their toes – especially service providers. Woe to the retailer, airline, bank, etc. that can’t keep its operations running so that they are available when and how users want them, 24/7, regardless of volume, transaction level, network congestion, or any other factor.

And the users are often merciless; just ask the folks in the IT department at banks like Natwest, Lloyds Bank, HSBC, Nationwide UK, or any of the other banks that experienced temporary service outages in December alone. Angry customers who couldn’t access their accounts, move their money, pay bills, or otherwise access banking services angrily vented their frustrations, using language that would make even sailors, in an ongoing barrage of rants against the institutions.

Ask any IT person whose managers are breathing down his or her neck for answers: It’s not an experience one would want to repeat. In fact, IT personnel likely resent being the ones left holding the bag when there is an outage; they may have recommended more advanced monitoring systems that management baulked at paying for, for example. They’re forced to make do with what they have – and what they have may not be up to the task at hand, ensuring service stability and presence during times of network stress, due to extra volume, network congestion, etc.

On the other hand, you can’t blame management for baulking at investing in the latest and greatest system that might solve outage issues, as opposed to systems that definitely will solve them. Vendors wax eloquently about how their solution is the solution to, for example, cybersecurity issues, but despite the money, companies throw at these solutions, hacking is as bad as ever. You can’t blame the C-suite folks from being sceptical when it comes to outage solutions, as well.

While IT departments might dither on cybersecurity solutions, the answer to their outage issues is already at hand – in their often overlooked but always important log files. These files provide a wealth of information about everything that goes on in an organization. Data from infrastructure, applications, security and IoT areas can provide insight into CRM, marketing, ERP and other initiatives for the business – as well as provide insights into why outages occur, and what to do about them.

But parsing through log files searching for actionable insights is a difficult job – too difficult for human beings. What’s needed is a machine learning, artificial intelligence-powered log analysis system – a system that enables its users to parse through unstructured data in order to develop actionable insights. Such systems allow users to define what they are looking for with a data structure, and feature an analytics system smart, fast, and robust enough to parse through thousands, if not millions of files and data streams.

It makes sense. Just think about the installation of a new piece of network software: How many DLL’s get written, how many dependencies are created, how many config files are adjusted? Too many to count, that’s for sure – and go figure out where all those changes were made. Yet one small “adjustment” in a config file could be enough to halt network traffic for hours. With AI-based log file analysis, however, it would be possible to prevent such outages; as soon as an unwelcome change is made, the system could alert IT managers and provide them with the exact information they need to resolve the issue.

And that AI-powered system could be used to analyze log files for many other purposes – providing organizations with insights about customer behaviour, expenses, better ways to do marketing – the list is endless. What’s needed is not a “new” system that will promise to solve a problem, like outages – but one like AI-powered log analysis, that will unlock the data companies already have.

Everyone has a digital identity that represents you as a unique individual. But, says Dr Michael Gorriz, group chief information officer at Standard Chartered Bank, that which distinguishes you in the physical world is generally irrelevant to how you are identified in the digital one

The challenge for banks, technology firms and governments is how to make it easier and safer for people to identify themselves online while allowing them control over and giving consent for use of their digital identity (DI). These days, you are asked to create a new login when you apply for each new service, so you potentially have to log in your details a few times a day and remember multiple passwords. A universal DI for everything would make life much more convenient.

Passports, driving licences, birth certificates – documents that identify us in the physical world will no longer be necessary. A business trip or vacation would be a seamless experience, where passport control may no longer be required, and banking services will be a breeze because of robust and trustworthy KYC (know your customer) processes.

Some governments have taken the lead as part of their development of digital economies. With Singapore’s MyInfo one-stop database of personal data, citizens can apply for government services or open a bank account without filling in multiple forms or providing supporting documents. India’s Aadhaar project provides a unique ID to each citizen so they have access to healthcare services, education and government subsidies. It is a key driver of socio-economic development and ensures benefits directly reach unbanked pockets of the population.

The role of financial institutions

Banks need to give their customers a seamless and convenient experience. That is why Standard Chartered has participated in pioneering DI initiatives such as PayNow in Singapore which makes peer-to-peer payment easy as it only requires your national ID or mobile number. The development of a universal identity system needs robust processes to recognise and authenticate a person’s data. The system also has to work for myriad institutions with complex, interconnected operations across different geographies.

Financial institutions including banks have traditionally performed the role of custodians of data and have established cross-border operations, so are well-positioned to support the creation of DI systems. Banks are also incentivised to collect accurate data because the viability of their business depends on it.

New anti-money laundering directives and KYC rules mean regulators expect financial institutions to maintain high standards for identity verification of new and existing customers. To that end, Standard Chartered has started a proof of concept with fintech firm, KYC Chain, to improve our client onboarding process. The project, which uses blockchain technology, can recognise and verify identities of clients in a reliable way. Blockchain allows entities independent of one another to rely on the same shared, secure, auditable source of information.

Who owns the data?

Any universal identity system should allow the ownership of personal data to lie with the individual, who chooses what information to share to gain access to services. Bblockchain, the distributed-ledger technology behind the digital currency Bitcoin, has been seen as providing a potential technology solution.

With about half of the world connected to the internet, having a DI is in some quarters regarded as a fundamental human right, because proof of identity is required to gain access to a range of services. Achieving a universal DI would have many advantages but making it work would require cooperation among financial institutions, governments, technology companies and more. The benefits in terms of cost, time and user satisfaction are so great that we are optimistic a comprehensive and holistic solution may not be too far in the future.

Last week a technological glitch at the Bank of England led to delays on transactions across the whole of the UK, illustrating how technology related glitches are still very much a thing of the present. This type of issue is nothing new, and has been known to have monumental consequences in other scenarios. For example, in 2012 it took just 30 minutes for Knight Capital to lose $440 million because of glitches in newly deployed code. The incident became the infamous poster child of the perilous reputational consequences of poorly monitored trading infrastructure. The recent BofE problem, although thankfully limited to some panic around the whereabouts of a much needed January pay check, does highlight that the financial services industry still needs to prioritise creating safeguards to monitor and anticipate problems in complex IT systems.

So how can the various stakeholders in electronic trading become more proactive in minimising technological risk and protect their reputation? Part of the answer lies in better real-time monitoring.

Reputation is intangible.  A reputation can be tarnished when a bank fails to meet its expected obligations to its stakeholders: its customers, the regulatory and the public at large. On an executive level, acts that sabotage reputation include financial mismanagement and breaching codes of governance. On a lower level, poor customer service and inappropriate behaviour may pose a risk.

However, these are largely reputational risks stemming from human error or misconduct. But in an increasingly automated environment, technology is also a key driver of reputational losses. The high-octane world of financial trading is a prime example of technology’s paradoxical effects.  On the one hand, algorithms and machines can eliminate labour and make processes, such as executing trading strategies both faster and more efficient. On the other hand, when things go wrong, they go wrong in catastrophic proportions.

While the electronification of trading has created a more robust audit trail than ever before, banks’ inability to keep up with and process this information often leads to disasters.

Investment banks

Investment banks provide execution services to traders including algorithmic trading, order routing and direct market across different venues as well as, sometimes,  in-house (such as a dark pool).  The complexity of a bank’s IT operations – a myriad of numerous applications, servers and users – poses a monitoring challenge.  In addition, banks also have increasing regulatory obligations, with a growing pressure to stamp out illegal or abnormal activity and to provide more granular reporting.

In 2013, the EU imposed a $2.3 billion fine on 6 global banking giants for rigging the Libor rates.  In most of these cases, an adequate real-time trade surveillance system would have provided early notifications of illegal activities and could have minimised damage.  By analysing a combination of network data flowing through multiple systems and real-time log data from applications, banks have complete real-time visibility of trading activities.  This data can be visualised or stored for compliance purposes. By having a single pane of glass across different systems, banks can bring illegal activity out of the shadows more quickly and into the hands of compliance professionals, and not the newspaper headlines. Furthermore, they can mine this data for market intelligence on how and what their clients are trading, and use these insights to drive their strategies to achieve, and maintain, competitive edge

Exchanges

Similar to large investment banks, global stock exchanges have a highly-distributed trading and market data infrastructure. With increasing trading volumes and high-speed trading, exchanges are under pressure to optimise operational performance and to meet customer and regulatory expectations.

Exchanges must offer rapid access to liquidity and process millions of trades per second at up-to-date prices.  In order to maintain this, they must monitor their complex infrastructure in real time and correlate all order events as they encounter gateways, middleware matching engines and market data streams.  Tracking trades requires pulling information from different sources across the trading infrastructure and using high-performance analytics to calculate latencies between the various checkpoints in the lifecycle of each trade. This information can further be sliced and diced to see how execution performance varies across different times of the day, different clients and different symbols.

Poor performance with stock exchanges trickles down to the rest of the financial system, including the broker-dealers, market-makers and the end-investors.  Equally, the effects of having good technology will be felt and recognised by the wider financial community.

To a certain degree, fines, losses, and reputational damage are unavoidable and unexpected.  Firms need to act quickly to remedy and minimise damage when catastrophes occur. However, prevention is always better than cure and this is where technology comes in.  Better technology leads to better decision-making and minimising avoidable errors. It not only mitigates risk but is also a competitive advantage, giving financial institutions better visibility into what is going on in their business and how to use it to their gain.

Jay Patani

Tech Evangelist,  ITRS

Cybercrime is an ever-increasing risk for financial institutions. While the wealth management industry has thus far been less affected by major breaches than other sectors, wealth managers should be arming themselves with the right tools in the fight against hackers.

A DDoS attack is one of the biggest cyber threats currently faced by fintech companies. This ‘distributed denial of service’ occurs when cybercriminals flood a website with traffic in order to overwhelm it and shut down services. The very nature of their business makes financial institutions an obvious target for hackers; attacks are relatively easy to launch and smaller companies’ systems can be overwhelmed by them.

The motives for these attacks can vary but might include demanding a ransom in return for stopping the attack, or as a diversion to tie up security staff while hackers carry out a more significant assault. The good news for smaller companies is that, unlike their larger rivals, they are unhampered by cumbersome legacy systems. Agility, innovation and collaboration are key to combating cybercrime, and small firms can harness the power of cloud-based DDoS protection services.

It’s all down to your capacity

These services have a huge network capacity so they can filter out large amounts of DDoS traffic without being overwhelmed. This allows legitimate traffic from customers to get through without interruption. This can also be used to intercept scanning activity. ‘Scanning activity’ is used by hackers to attempt to scan a company’s computer systems by sending traffic to its network in the hope of finding software with known vulnerabilities that can be exploited.

Criminals may also try to gain access through social engineering. This often involves emailing or calling staff and tricking them into believing they are talking to a fellow employee. A workforce that isn’t sufficiently trained to know what to monitor for when it comes to phishing emails or other malicious tactics can leave its organisation very exposed.

While social engineering methods pose a major cybersecurity risk for any company, these malicious techniques are theoretically a greater threat to larger organisations with bigger workforces that are harder to train and monitor. Nonetheless, firms of every size and scale should have effective training and processes in place to help mitigate risks.

Combat the criminals

Increasingly sophisticated tools are available to combat the criminal on the street trying to log into, for example, a victim’s online banking or investment portal. A large number of financial services firms now use ‘panic password’ technology to protect their clients, whereby you can enter a special PIN code (i.e. not your actual password) if under duress, that will automatically notify your security teams that you are being coerced. Further to this, the app will appear to continue to work ‘normally’, leading the attacker to believe that they are able to steal funds and transfer them to a particular account.

Another way in which providers can protect clients is via two-factor authentication. Many large financial institutions require some extra information in addition to a password to log on to a service, often a one-time password or PIN that is sent to the customer’s phone via a text message or generated by an app on their smartphone. Other companies offer dedicated security tokens that generate a shortcode on a built-in screen.

Two-factor authentication provides better security than a password alone because even if a hacker can guess a user’s password, they can’t use it unless they have the smartphone or security token as well. This type of technology is relatively low cost, making it perfectly feasible for smaller fintech companies to implement. And in a world that is seeing an alarming rise in the size and scale of cyber attacks, firms must take every step possible to mitigate exposure.

Dmitry Tokarev

Chief Technology Officer, Dolfin