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The financial sector comes around to the cloud

After initial hesitation, the financial services sector is warming up to the potential of cloud computing. The use of private and public cloud is growing exponentially in the space. Why? It’s due to a number of factors coming together.

A better development and deployment approach

Not surprisingly, it was the large internet companies and SaaS providers, such as Facebook, Google and Amazon, that that were first off the mark when it’s come to cloud adoption and benefiting from the innovative opportunities that these new ways of working provide.

Benefits include being faster to market with new products or initiatives, and increased agility in their ways of working. By adding automation to their cloud processes, these companies have been able to garner benefits such as improved flexibility in capacity to manage peak demands, and hence greater uptime in availability of services, as well improved automation allowing reallocation of expensive staff resources to more value-driven tasks, rather than wasting time on the mundane or routine.

In the financial services sector, many have similar pain points and have been aware that they too can benefit from these more agile ways of working. However, they have been slow to move to the cloud due to concerns over security, especially because of the high sensitivity of their data, whether it is trading information or clients’ personal information.

The development processes and tooling used have evolved by learning from the trailblazers, taking note of potential pitfalls to avoid and good ideas that might fit their own requirements. This new development approach uses a combination of tooling and processes, including tools like Platform-as-a-Service (PaaS), Continuous Integration (CI) and continuous testing architectures, based on Service-Oriented Architecture (SOA) and deployment based on containerisation.

The production environment can be a fixed IT estate or a dynamic cloud environment. This phased approach has largely allowed firms to tackle their concerns as they take their first steps into the cloud.

Peaks & troughs – efficient supply

Capital markets companies process vast amounts of information and are very time sensitive. Genuinely, time is money, and delays in market data, trading execution, pre- and post-trade risk calculations and pricing, clearing and settlement and regulatory reporting are all highly time sensitive. In the world of fixed IT estates, time criticality meant that the production estate needed to be large enough to cater for the very busiest periods, even when these only happened infrequently (peak days in the month like non-farm payroll day, ECB announcement days, etc).

Combined with the need to hold a suitable Disaster Recovery (DR) capability, this translates into a large amount of heavily under-utilised computing power for most of the time. Typically, we are talking about servers running at less than 20% utilisation over 95% of the time. Datacentre space is expensive, so that translates to huge wasted cost.

Quicker and easier

Ease and agility are two of the major hallmarks of cloud. Like many other industries, financial services are changing rapidly. Cloud makes it easier to develop and deploy web-based solutions and mobile applications for the digital world. It makes it easier to centralise support services and maintain infrastructure and just generally respond to changing business needs without procuring new hardware.

The answer is in the clouds

By using the DevOps techniques together with the problems of under-utilisation, the trading companies are now starting to use more flexible environments which can grow in capacity when the demand is there, and reduce when it isn’t. Initially, there was concern about running the trading engines in the public cloud, but the growth of either in-house cloud or private cloud means that security issues can be overcome.

Data centres have previously been described as complex, expensive and inefficient, but by adopting the cloud as part of their IT estate, businesses can benefit from the elasticity and ROI such a structure can provide, while maintaining confidence in being able to deliver constant uptime of services. What’s more, it doesn’t have to be a black and white, either-or choice: different systems can be migrated to the cloud gradually, reducing risk and diminishing fear of the plunge. That’s why the financial services sector is waking up to cloud.

By Guy Warren, CEO, ITRS 

 

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City Network brings OpenStack cloud hosting to the financial services sector with Canonical

Mark Baker, Field Product Manager at Canonical.

City Network is the first European hosting provider to offer Openstack to its customers. This is the largest deployment of Openstack-based public cloud nodes in the world and is a key step forward in putting core banking systems into the cloud.

City Network has partnered with Canonical to give the option to sell Ubuntu Advantage on to its own users. This opens up additional revenue streams for City Network, and enables its customers to enjoy direct support from Canonical. Johan Christenson, CEO of City Network, said: “Banks and insurance companies demand a very high level of security and support. So being able to offer Ubuntu Advantage is critical for us.”

So far, City Network has transitioned seven data centres over to Openstack on Ubuntu, and is already seeing considerable benefits it claims. Since Ubuntu is so much easier to work with, City Network’s employees are significantly happier. The company’s operating costs are also lower, and it is able to pass on these saving to its users.

“Recently, one of Sweden’s leading banks engaged us to host the infrastructure for the heart of their business,” confirms Johan Christenson. “This is the first time City Network will be hosting the mission-critical applications of such a large bank, and Ubuntu was essential in securing the deal. Like us, Canonical are nimble and fairly priced – so together we can provide the flexibility that the bank requires, combined with compliance and value.”

“We’re delighted to be working with City Network to bring the OpenStack platform to the financial services sector,” says Mark Baker, field product manager at Canonical. “OpenStack on Ubuntu meshes perfectly with City Network’s tailored, agile approach to the cloud, and it’s so rewarding to see positive results already for employees and customers alike.”

There has been a huge rise in the popularity of infrastructure-as-a-service (IaaS). Yet, for many businesses, stringent laws and regulations make it difficult to adopt IaaS while remaining compliant. This is a problem in particular for highly regulated sectors such as financial services, but with the EU general Data Protection Regulation looming, compliance is becoming an increasingly widespread concern.
Today, agility is the key to business success. Companies in every industry are striving to deliver new services more quickly, and they are constantly looking for ways to increase the pace and cost-effectiveness of innovation.

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Some New Year predictions – starting with the customer

 

Financial services will become more reliant on customer experience

With the rise of open banking in 2018, there will be an even greater emphasis on Financial Services (FS) organisations to use customer experience as a means of differentiation in an increasingly level playing field. The end consumer will gain even greater control and access to their own data, and third party tools will start to break down the siloes between different banking groups. If Financial Services organisations want customers to continue to consolidate services within their one group, they will have to do more to win their loyalty through outstanding customer experience

 

Finding the right balance

We should expect them to continue to find the right balance between security, simplicity, convenience and innovation. Many of the above aspects are in direct competition with each other – for example, the quicker and more frictionless (i.e. the more convenient) you make a payment system, the more susceptible it is perceived to be open to fraud and security concerns. As consumers of other products outside the FS world continue to benefit from greater innovation and in a lot of cases simplicity, FS organisations need to follow suit and keep up, while at the same time allaying security fears that inherently come with the industry.

 

FS organisations will stretch the limits of CX

In my opinion, further blending a personalised experience with an increasingly tech and mobile heavy experience will become crucial for FS organisations. If these companies can find the right balance between the convenience of technology, with the personalisation of the human touch – especially needed on low frequency, high-value purchases –  this is where they will excel.

 From Ross Durston, MD Financial Services, Maru/edr:

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Banks need to overcome the ‘digital’ obstacle:

Thanks to the rise of digital channels, online accounts and investments in banking apps, banks have already successfully transferred many customers online, which has helped to bring an element of personalisation to the banking experience. But in their move to digital, banks face a key obstacle in that they don’t get to see or interact with their customer very often now that the majority of banking is done remotely and online. Their challenge is to map key customer journeys through their business to identify real moments – or “hotspots” – where they cannot fail. Doing this will also help banks to better understand where they have an opportunity to differentiate themselves.

Steve Brockway, Chief Research Officer, Maru/edr:

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Security by design

Google’s discovery of a flaw in the architecture of Intel and other chipmakers’ products highlights the urgent need for security vigilance when designing technology. Time and time again, we see how failure to design in security from the beginning, whether into software, hardware, or firmware, puts our data, our health and our privacy at risk.

“GDPR-like ‘security by design’ has not been the default position to date and we must take steps to make it so. It is therefore imperative that organisations make targeted investments in people, process and technology, to ensure we truly are secure.

“Google is an excellent example of this, undertaking independent research is to find flaws in technology whether hardware or software.  In parallel, Sonatype has continuously invested in research to discover vulnerabilities in millions of open source software components, which comprise 80-90% of a modern enterprise application. These investments make it possible to quickly disseminate actionable information to help control and remediate these issues while keeping innovation moving at DevOps-native speed.

Derek Weeks, vice president and DevOps Advocate at Sonatype

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Cryptocurrencies: Is your compliance team ready to monitor the new wave of trading?

For those unfamiliar with Bitcoin, here’s a brief primer. Created in 2009 by an unidentified software developer and inventor who goes by the pseudonym of Satoshi Nakamoto, Bitcoin is a form of digital currency that’s created and held electronically. Bitcoins aren’t printed like traditional currency; instead, they’re produced by a network of ‘miners’ who create Bitcoins using a complex algorithm. The network of miners and machines (servers) operate independently of any central authority, government, or middle man. The miners receive Bitcoins as a reward for creating them. As they’re created and purchased, the coins are stored in a digital wallet and can be used for transactions, which are then tracked through Distributed Ledger Technology, also known as the Blockchain.

Why all the hype?

Bitcoin made its first appearance on Wall Street on December 1, 2017, when Bitcoin futures were traded for the first time ever on the Chicago Board Options Exchange (Cboe). In its impressive debut, Bitcoin’s price rallied, surging 26 percent, even causing a temporary shutdown of trading.
On December 18, 2017, Bitcoin took its place on an even bigger stage when the Chicago Mercantile Exchange (CME), the world’s largest derivatives exchange, rolled out trading of Bitcoin futures, which is likely to attract the attention of major institutional investors.
Today, Bitcoin is classified and taxed as a property by the IRS (not a traditional asset like gold or stocks), but CME Group’s Chairman Emeritus Leo Melamed stated that he sees Bitcoin eventually emerging as a new legitimate asset class and business line for investment banks, with futures trading being the first step toward Bitcoin’s mainstream acceptance.
Other firms jumping onboard the cryptocurrency craze include Goldman Sachs, which has said it’s exploring the possibility of creating a trading operation exclusively dedicated to Bitcoin and other digital currencies, and Fidelity which is rolling out a new digital assets business that “enables Bitcoin and blockchain users to track their investments alongside their more traditional investment categories, like stocks and mutual funds.”

The Future of Digital Currency: The Implication for Investment Banks

Even though Bitcoin is not yet an official financial instrument subject to U.S. trading regulations, it’s fair to say that futures trading and growing investor interest in digital currencies will eventually drive new regulations.
Whether this happens in the next year or a few years down the road, investment banks that trade in Bitcoin futures will also need to invest in technology to monitor communications around these new transactions, to identify and prevent market abuse, fraud and collusion. Even absent regulations and fines, the reputational damage that can result from nefarious actions is reason enough that firms should start making preparations today to equip compliance teams to monitor future communications around cryptocurrency transactions.
That said, cryptocurrencies such as Bitcoin could pose a great challenge for compliance teams around the world if they eventually become an official exchange-traded asset class.
While cryptocurrency trading is designed to be electronic and transactions are clearly reflected in an open ledger and verifiable via the blockchain, extensive verbal communications may also be necessary for trades to take place given the complexity of some cryptocurrencies including Bitcoin. Investment advisors are especially relevant given recommendations for buying and selling cryptocurrencies like bitcoin are not available in the traditional research departments. And herein lies the problem. Beyond retail investors, the new digital currency ecosystem also includes a complex web of competing miners who work outside of the purview of financial firms, and today, outside of any regulations. This means that automated, systematic means of surveillance of these communications will be all the more critical to preventing market abuse.

Sharing market news online

Another factor to consider – financial firms have strict guidelines and commonly accepted methods for sharing market news online about equities and other financial instruments. But there are no such guidelines around cryptocurrencies, despite the fact that many retail Bitcoin investors routinely follow social media for commentary, investment news and information.
Still, misinformation spread via tweets, etc., could unduly impact cryptocurrency market prices. This means that financial firms who trade in cryptocurrency will also need to take extra caution by imposing new guidelines, and implementing new tools, to monitor various types of communications, including social media. To do so, firms will need solutions that can natively connect to social media sources, ingest information and correlate it with other communications and trade data.
With the groundswell of interest around Bitcoin and other cryptocurrencies, preparing for this new wave of trading is something that firms should consider sooner, rather than later.
By Daniel Fernandez, Analytics Product Manager, Communications Compliance, NICE
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Cloud: It’s when – not if – for today’s businesses

Cloud is now enterprise-ready

The concept of Cloud is now firmly established among corporate decision-makers. But, rewind ten years, and the mere mention of Cloud would have been met with a furrowed brow. Times have changed, and for many, the adoption process went from never, to maybe, too – we need it now.

This main catalyst is that today’s world needs a new approach. For companies trading in complex markets like commodities, price fluctuations, increasing regulation and geopolitical uncertainty are the new normal. Add in increasing operational intricacy and an explosion in structured and unstructured data volumes, and it’s clear that a technology that enables precise risk management, scalability and data-enriched transparency is a must.

For firms exposed to these markets, the possibility of Cloud has largely been dictated by the availability – or, until now, the unavailability – of solutions that offer the rich functionality they need.

Ready for the enterprise

Now, a truly enterprise-level trading, treasury and risk management cloud solution exists. Breaking down the siloes between these functions will profoundly transform the way companies respond to customers, manage risks and run their business.

A Cloud solution means less hardware to manage, freedom for IT teams to focus on value-added projects and the ability to match operating costs with business demands in a much more agile way. It means a platform that’s built to address today’s security challenges, with Cloud operations typically offering much more robust, expert security than on-premise installations.

But the transformation goes much deeper. With a cloud solution that combines exceptionally rich functionality with vast, almost unlimited, computing power and extreme flexibility, traders and risk management departments are empowered. For the first time, the infrastructure can scale to meet peak demand, and scale back again. Firms have the resources to complete analysis of, and report on, previously unimaginable volumes of data, faster, to understand current VaR or P&L, without relying on an overnight run based on yesterday’s positions. They’re able to manage volatility in real-time. And they’re able to act on accurate real-time views of risk and take full advantage of the opportunities presented. Actions that were simply a pipe dream until recently.

A springboard to the future

From a finance perspective, Cloud provides the springboard to shape how the business operates, by providing accurate data to the Board to influence decision-making – data that has for too long been largely unavailable. This enables firms to develop strategies and carve out competitive advantages without being constrained by long lead times, or the costs and bureaucracy required to scale up their infrastructure and support capabilities. For the first time, CFOs can rely on the data they receive to get an accurate picture of cash flows and liquidity when it’s needed. Treasurers can shift their focus towards the annual capital allocation process, earnings and capital at risk. All of this makes it a far more strategic function.

Ultimately, the need for agility, scalability, security and flexibility will only be met through Cloud deployments. In the near future, on-premise alternatives will struggle to deliver what a modern firm needs, and in a very short time, companies will have to search far and wide for reasons not to move to the Cloud.

By John E. O’Malley, CEO, Openlink, in conversation with Marco Scherer, Head of IT, Uniper

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Mobile wallets in India: What the world can learn

India’s emergence as a digital payment powerhouse is an unlikely story. Until recently, cash accounted for 95% of transactions, 85% of workers were paid in cash, and 70% of online shoppers chose ‘cash on delivery’ as their preferred payment option.1 Yet, the Indian mobile wallet market is set to grow by 150% over the next five years, with transactions totalling $4.4 billion.2

Even though its circumstances are unique, the regulatory, technological and commercial drivers of India’s digital payment revolution reveal important lessons for the delivery of compelling mobile wallet platforms around the world.

Pulling the trigger

The main driver of the mobile wallet market in India to date has undoubtedly been demonetisation. In November 2016, a national banknote demonetisation removed 500 and 1,000-rupee notes from circulation, overnight.

This accounted for 86% of all currency in India. Demonetisation has historically been the last desperate roll of the dice for failing economies battling hyperinflation or crippling public debt. This was different. The government aimed to use demonetisation as a proactive tool to promote digital payments, foster financial inclusion and promote transparency.

Whether demonetisation has been a success is the subject of an intense political debate that shows no sign of abating. Indeed, it may be many years until the impact of demonetisation is fully understood. What is clear, however, is that it has given a massive shot in the arm to Indian mobile wallet providers. For example, Paytm doubled its user base in a year, increasing from 140 million in October 2016 to 270 million in November 2017. 500 million users by 2020 is the next target.3

For banks, service providers, regulators and governments across the globe looking for ways to encourage mass adoption of digital payments, demonetisation clearly shows that directly disincentivising cash-use is effective. Whether the ends of demonetisation justify the means, however, is open for debate.

More broadly, we can also see the transformative impact of regulation. Although demonetisation is an extreme example, there are parallels between other markets. Consider PSD2 in Europe. Banks have an opportunity to capitalise on potential changes in consumer behaviour to drive adoption of new digital services, particularly in consistently conservative markets where uptake of digital payments has been modest.

Breaking down the barriers

Due to its proven ability to dramatically simplify the know your customer (KYC) process, Aadhaar (possibly the world’s biggest biometric database) has also played a critical role in supporting the development of the mobile wallet ecosystem in India.

KYC has traditionally been a face-to-face, in-branch process. In addition, KYC usually requires extensive documentation, such as full address histories and utility bills. In countries with isolated, rural communities like India, the rigours of the KYC process have prevented access to financial services and have contributed to a significant ‘unbanked’ population.

Biometric verification technologies are recognised as key to making the KYC process faster, easier and more inclusive, as they remove the requirement to present extensive documentation. Aadhaar is a perfect case in point. To date, 270 million bank accounts have been opened using only an Aadhaar ID and a fingerprint.4 Subsequently, the number of users able to access mobile wallet platforms has increased accordingly.

Financial exclusion, however, is a worldwide issue. Mobile wallet platforms should not just be the preserve of young, urban professionals. Asbanks increasingly move toward a fully mobile and digitised service experience, simplifying the KYC process with biometrics has the potential to enable wider access to innovative financial technologies.

Moving beyond ‘just payments’ 

The importance of value-added services (VAS) in driving sustained usage of mobile payment platforms is well-recognised across the industry. Beyond convenience, users need a compelling reason to use mobile wallets on a regular basis.

The continued growth of the Indian mobile wallet market demonstrates the power of VAS. Wallet platforms can be used to recharge mobile phone credit, secure loans, pay utility bills, book a holiday, buy entertainment tickets, travel on the metro, and even trade gold.

To improve the value proposition of a mobile wallet offering, banks should look to replicate the approach of delivering a comprehensive range of financial and product services within a single digital interface. Banks can leverage regulation such as PSD2 to partner with quality third-party providers, combining the products and services that consumers want and need. It is imperative banks recognise this opportunity and ­­seize the day.

The importance of collaboration

Overall, the rapid development of the Indian mobile wallet market demonstrates the importance of reactivity and adaptability. Huge opportunities await those who can successfully navigate the transformative impact of regulation, emerging technologies and shifting consumer expectations. For this reason, the ability to collaborate and learn lessons from players across the world remains as important as ever.

By Elina Mattila, Executive Director, Mobey Forum

[1]https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/wadeshepard/2016/12/14/inside-indias-cashless-revolution/

2https://www.mobilepaymentstoday.com/news/report-india-mobile-wallet-market-on-the-rise/

3https://www.emarketer.com/content/five-trends-that-shaped-india-s-financial-sector-in-2017

4https://www.bobsguide.com/guide/news/2017/Jan/30/indias-cash-crisis-is-a-short-term-pain-for-a-long-term-gain-interview-with-amit-dua-executive-vp-of-suntec/

 

 

 

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Looking beyond technology towards direct bank relationships

Many see the money transfer sector as a market that is more than ripe for technological disruption. While it is true that customer demand for digital options to transfer money is on the rise, we need to understand what a truly customer-centric approach to channel strategy looks like. After all, we are aiming to reach as large a range of consumers across the globe as possible. The world-wide rise in financial inclusion and the subsequent changes in how people manage their money plays an integral part in finding the right balance when it comes to our channels.

Technology is necessary, but not sufficient in its own right

Operating with a singular and one-sided channel strategy is no longer a sustainable option in a world where consumers have grown accustomed to an increasingly customer-centric financial services sector. While digital solutions are an integral component for success in the cross-border payments industry, they are not enough to act on their own. A sustainable channel strategy must look beyond technology to deliver the widest range of choice for customers because offering more flexibility allows you to reach the largest possible amount of customers.

The right response to increasing financial inclusion

Despite the fact that money transfer businesses have traditionally been seen as competitors to the banking sector, a key focus for a sustainable and forward-looking strategy should be the development of strong relationships with financial institutions. This is because a growing banking sector across the world means that financial institutions will play an increasingly crucial role in letting people receive and access their money.

Between 2011 and 2014, over 700m people in the world received access to a bank account for the first time. While the current number of ‘unbanked’ people across the world is still estimated to be around 2bn, the World Bank and its partners are working towards reducing this number considerably by 2020: the target is to add another 1bn bank account holders by 2020. For markets like India and China, where currently almost a third of the world’s unbanked population is located, this rise in access to accounts is going to have a significant impact in the way that people handle their money and make use of financial services. In the money transfer sector, we can be certain that the demand for transfers directly into bank accounts will rise steadily over the next few years as a result.

Partnerships with banks as the way forward

Money transfer businesses which have a direct agreement in place with banks are best positioned to take full advantage of the rapidly increasing financial inclusion, because these relationships have an immediate impact on the user experience of our customers. Without a direct agreement in place, money that is transferred to banks disappears into the abyss of the international systems of inter-bank payments for several days. Usually, with a large number of middle-men in the picture, it is hard to predict exactly how long a transfer is going to take, or what amount of money will exactly arrive in the recipient’s bank account due to different exchange rates and fees applied by financial institutions along the way.

Developing direct relationships with banks makes transferring money overseas easier for the business as well as the customer. Money transfer businesses must consider taking advantage of the potential explosion in financial inclusion by going beyond a singular, technology-driven strategy, to a truly multi-channel approach that embraces technology, as well as alternative avenues that customers might use to transfer their money. By partnering with banks, money transfer businesses can complement their sophisticated digital solutions and make their channel strategy more sustainable. After all, we must remember that we are first and foremost a financial service – in other words, we must not forget the ‘Fin’ in FinTech.

Nick Day is founder and CEO of London-based money transfer business Small World FS

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Cloud: It’s when – not if – for today’s businesses

The concept of cloud is now firmly established among corporate decision-makers. But, rewind ten years, and the mere mention of cloud would have been met with a furrowed brow. Times have changed, and for many, the adoption process went from never, to maybe, to we need it now.

This main catalyst is that today’s world needs a new approach. For companies trading in complex markets like commodities, price fluctuations, increasing regulation and geopolitical uncertainty are the new normal. Add in increasing operational intricacy and an explosion in structured and unstructured data volumes, and it’s clear that a technology that enables precise risk management, scalability and data-enriched transparency is a must.

For firms exposed to these markets, the possibility of cloud has largely been dictated by the availability – or, until now, the unavailability – of solutions that offer the rich functionality they need.

Now, a truly enterprise-level trading, treasury and risk management cloud solution exists. Breaking down the siloes between these functions will profoundly transform the way companies respond to customers, manage risks and run their business.

Robust, secure and flexible

A cloud solution means less hardware to manage, freedom for IT teams to focus on value-added projects and the ability to match operating costs with business demands in a much more agile way. It means a platform that’s built to address today’s security challenges, with cloud operations typically offering much more robust, expert security than on-premise installations.

But the transformation goes much deeper. With a cloud solution that combines exceptionally rich functionality with vast, almost unlimited, computing power and extreme flexibility, traders and risk management departments are empowered. For the first time, the infrastructure can scale to meet peak demand, and scale back again. Firms have the resources to complete analysis of and report on, previously unimaginable volumes of data, faster, to understand current VaR or P&L, without relying on an overnight run based on yesterday’s positions. They’re able to manage volatility in real-time. And they’re able to act on accurate real-time views of risk and take full advantage of the opportunities presented. Actions that were simply a pipe dream until recently.

A deeper transformation, not a pipe dream

From a finance perspective, cloud provides the springboard to shape how the business operates, by providing accurate data to the board to influence decision-making – data that has for too long been largely unavailable. This enables firms to develop strategies and carve out competitive advantages without being constrained by long lead times, or the costs and bureaucracy required to scale up their infrastructure and support capabilities. For the first time, chief financial officers (CFOs) can rely on the data they receive to get an accurate picture of cash flows and liquidity when it’s needed. Treasurers can shift their focus towards the annual capital allocation process, earnings and capital at risk. All of this makes it a far more strategic function.

Ultimately, the need for agility, scalability, security and flexibility will only be met through cloud deployments. In the near future, on-premise alternatives will struggle to deliver what a modern firm needs, and in a very short time, companies will have to search far and wide for reasons not to move to the Cloud.

 

By John E. O’Malley, CEO, Openlink, in conversation with Marco Scherer, Head of IT, Uniper

 

 

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Are you an enemy of the cashless society?

As we digitise our lives and businesses pell-mell, we are going to have to find answers to some awkward philosophical questions that don’t bother many of us at the moment. Such as – who will the final central bank be – an actual banker or a government bureaucrat? Can do without counterfeiters? And why can’t I choose to make that $120,000 car purchase in good-old soiled bank notes taken from my lifetime’s savings under my mattress?

A friend of mine inherited a small house from his uncle. He sold it and immediately his bank – with which he had had an otherwise happy 30-year relationship – froze his account and demanded to know where the large sum of money in his account was from. He refused to tell them on privacy grounds. They hounded him so much he took all of his funds (and his company’s money) out of this High Street bank and opened an account with Coutts, bankers to HRH. They assured him they would never ask where he got his money from – that would be a vulgar impertinence. #

Born in the USA

It was the USA which started downsizing the face values of dollars in the 1970s as it waged its first war on drugs. Every subsequent war on anything from drugs to Furbies is presaged with a warning on the need to stamp out money laundering and the denominations on our notes get smaller and smaller.

Even though the US Federal Reserve has devalued the dollar over 80% since 1969, it still will not issue notes larger than $100 – in a country which once boasted a $10,000 note. This makes it very difficult to use cash for large transactions, which forces people to use electronic payment methods. And that is its purpose – to track all of our transactions and allow Google and Facebook to make wads of cash selling our data.

But it is not the mighty USA which is winning the mad dash towards a cashless society – it is a little Nordic country called Sweden. Sweden is now famous for more than alcoholic CEOs* and Abba.

Sweden’s supply of physical currency has dropped over 50% in six years. Many Swedish banks no longer carry cash. Virtually all Swedes pay for newspapers, sweets, and coffee electronically. Homeless street vendors use mobile card readers.

And this is where it gets interesting. An increasing number of government restrictions are making sure that the Swedes are happy to be cashless. The excuses from the bureaucrats are familiar… fighting terrorism, money laundering, making criminal transactions more difficult, etc. In effect, these restrictions make it inconvenient to use cash, so people don’t.

Renting the vaults that make you poor

The other sting in the tail is negative interest rates – where the user of the bank has to pay for the privilege of depositing money in the bank – surely the most perverse upending of the movement of market forces by technology. With cash, you can decide to leave your stash under the mattress. As Denmark, Sweden and Switzerland all have negative interest rates and are all in the advance guard in the use of digital currencies that should worry us.

If there is a Nordic push towards stimulating spending by making it punitive to save, then I’m worried even more. I want the choice to do with my money what I want, and I don’t want every penny I spend being logged and making money for the Google’s of the world as tiny bites in the big data picture.

Full digitisation of currency would put the counterfeiters out of business but only on the surface. It would mean that only the hugely rich and the hugely powerful can create or take away our money.  Or print it.

* Ingvar Feodor Kamprad ex-CEO of IKEA and self-confessed alcoholic. Stood down as CEO in 2013.

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Client Reporting – time to evolve?

From both a business and a vendors’ perspective, the term ‘client reporting’ is increasingly inappropriate and lacks the necessary ambition to be effective in today’s investment management world. This situation is partially as a result of the terminology that the function uses and the perceived lack of added value within the client reporting process.

Essentially, many of the reporting solutions on the market today are largely designed to solve existing problems, such as the automation, control and governance of the current client reporting and sales information. For almost every firm within investment management though, be they institutional asset managers, retail asset managers, wealth managers and even private banks, the focus should no longer be about client reporting; the emphasis has shifted to improving the client experience: ‘going digital’, using technology to improve the business model and enhance the client interactions with the investment manager.

Client reporting is one facet of an ever-evolving requirement and firms need to stretch their vision and ambition accordingly. In the current operational structure within most investment management firms, one of the areas of the business that is closest to client needs and demands is the Client Reporting team.

Artificial constraints

Due to the fact that this area of the business calls itself ‘Client Reporting’, however, I believe it has become bound by the artificial constraints and limitations associated with the label. In fact, the reporting function is well positioned to expand its role and even place itself at the middle of this process of managing the entire client experience.

In recent times the client reporting label has often been replaced by ‘client communications’, but this is equally problematic since it is not really clear what this term entails – it is so broad as to be meaningless. The reality is that many of the existing vendors and business areas are still providing the same data sets in a relatively uninspiring and restrictive manner. To some extent this is due to the fact that their user community is focused on the production of the current reporting requirements, and managers of Client Reporting departments are rarely focused on future needs and market changes. It is clear to me though that the winds of change are starting to turn.

If client reporting is going to unlock anywhere near the potential that it retains, it needs to find more ambition, starting with a new way to describe itself. The terminology and language surrounding client reporting must convey themes such as client experience, digital interaction and data exchange. It needs to stop talking predominantly about process, workflow, scalability and historical data. All those elements are part of the equation, but they are limiting and lack desire.
Future pathsTo my mind, there are really two paths that client reporting can take in the future. It can become a rendering tool for historical information that is delivered on a regular basis. This will ultimately become a low value commodity that provides little opportunity for differentiation in the marketplace.

The other route is that client reporting expands its role to become the ‘data normalisation hub’ within the client interaction process. Some insightful firms are starting to explore building platforms to provide the customer with the information and experience they need. These platforms will be based upon a best of breed component architecture, to cover the array of functions required. The advantage of this approach is that as new demands and technical options emerge, they can be ‘plugged into’ the platform to keep the proposition moving forward as the market evolves.

In this environment, investment managers will look to combine the best of existing suppliers with new technologies and horizontal technical solutions already available. There is an emerging demand from some investment management firms to ‘move the needle’ in this way and become more client-centric in their business models.

Time to evolve

One might argue that client reporting is losing its way to an extent, and may be approaching the end of its shelf life in its current, traditional format. It needs to evolve, otherwise the asset managers will begin to step beyond the current providers and develop their own solutions.

Ultimately, the buyers of such software want to future-proof their investment, and if they have witnessed little notable innovation in the last ten years and an unconvincing roadmap for the future that does not account for changes in consumer behaviour, then there is a reasonable cause for concern that client needs will outstrip development.

Steve Young,
Managing Partner
Citisoft
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