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  • user 10:40 am on August 2, 2016 Permalink | Reply
    Tags: , banks, , ibm watson,   

    Interview with David Kenny, GM @IBM Watson, on AI, Blockchain and Design Thinking in banking 

    AAEAAQAAAAAAAAjmAAAAJDIwOGJiMTM5LWE1NTQtNDQ3Ni1hOWE5LTI0ZGMyODgyNTkyNQ

    A few weeks ago, at Viva Tech’s International Summit in Paris, I bumped into David Kenny – one of my heroes. I will tell you why: David is a man with an entrepreneurial mindset who has deserved every bit of success that he has achieved. Currently, he is General Manager of tasked to build Watson into “artificial intelligence as a service”.

    I have been following David’s career since he was CEO of Digitas, a very successful digital media company acquired by Publicis Group in 2006 for $1.3 billion. At that period, I was running a small digital media company called Art House Media and, therefore, all of their moves were of great interest to me. 

    After that David moved to other demanding positions, but he is probably best known as Chairman and Chief Executive Officer of The Weather Company. I, on the other hand, moved into the financial services sector. 

    The Weather Company was acquired by IBM for more than $2 billion at the beginning of this year, and that’s when David was transferred to IBM’s Watson team.

    The reason why I told you this story is to emphasise that running a marketing and agency that was helping businesses adapt to the digital age, with more data and more analytics, 10-15 years ago; as well as more recently connecting hundreds of millions of sensors to produce more than 20 terabytes of data daily for The Weather Company’s apps and websites, definitely required a clear vision of the future driven by digitisation and innovative technologies.

    So, what did we talk about?

    Since I work for one of the big European , our discussion started with three early things AI can be used for in the financial services industry. 

    The first area is understanding data and rules, something Watson is really good at. When dealing with compliance, fraud detection, money laundering and all other processes commonly known as KYC, Watson is capable of looking at all the data in the public about each customer in a very private and secure way. Essentially, that ensures that banks fully respond to their responsibility of knowing everything they need to know about each customer. 

    David also mentioned that Watson was learning about  regulations and laws in different countries to help global banks deal with the compliance issue. Especially nowadays with Brexit, there is a new problem: Do you know that there are 10,000 rules between EU and Britain in banking? Well, Watson too needs to learn all these rules!

    David then moved on to the second area: customer connection, that is, the ability to use AI for managing text messages and Twitter accounts. In that way, Watson becomes a virtual agent that enormously helps the customer service agents by supplementing them.  

    The third is predictive models. Banks need to predict what the customer might need next and what information they might find useful. This is about personalisation – but with structured data. With Watson, it is possible to process so much more data; find out what is happening in someone’s business, in their environment, in their economy, in their life – so that banks can be ready to help them. 

    Inevitably, our next topic was . David told me that IBM had invested literally billions of dollars in research. They think that blockchain is really an important technology since it enables us to keep track of absolutely every transaction – banks in particular need to know that data or currency is in the right hands. Another advantage is that the sender and the receiver can be verified at an enormous scale!

    IBM thinks that blockchain needs to be baked into all of the Watson systems we have mentioned here because they do not do AI from search – which is very much about public knowledge. They are Watson for private data and, thus, need blockchain to make sure the data stays private and is only exchanged and secured by the right person on the other side. 

    Please note that IBM donated all of their blockchain technology to the Linux foundation because they want it to be an open source and they want everyone to use it. The aim is to make data more useful so that AI can work on private data, rather than just on the data available in the public search grid.   

    And, why is data so paramount? For two reasons. Firstly, the higher the quality of the data, the better AI algorithm results are. Secondly, that, in turn, helps us make much better decisions. Therefore, the data banks possess provides true competitive advantage!

    I learned that 80% of the world’s data was held within companies and organisations! Only 20% is stored on the Internet. Did you know that?

    Can you see now how we can improve our business significantly by employing new AI technologies to access data from all three: proprietary, third-party and public sources?

    Of course, I could not let David go without asking him about his view on design thinking. In my previous post How to ignite creativity and flair for innovation?”, I talked about a large-scale transformation IBM had undertaken to replace the company’s engineering and sales culture with the innovation mindset by bringing in design thinking. 

    David revealed to me that he himself was also a great believer in design thinking, and explained that it was the belief of Ginni Rometti that we were moving to a world in technology that was no longer B2B, but rather B2I (business-to-individual), that led to IBM’s transformation. 

    All this is highly relevant to us in the financial services sector as well, but I will leave if for one of my future posts. In the meantime, think of B2I as marketing on the individual level. The philosophy behind it is that companies should better tailor not just their products, services and go-to market strategies, but also their whole business models to the individual buyers’ wants and needs due to the rapidly shifting digital market and buyer behaviour. 

    David said that it was already possible to see that new approach in how they were working with Watson. Today at IBM, they actually start every project with design thinking to make sure they know the persona of the user and that their technology fits the user’s life. 

    They begin the design thinking process with the following questions: “How are our clients using the product? How is their day spent? What is the right way to connect with them? What is the right content to connect with them?”

    As a result, as David pointed out, although their main task is to show how AI can help their clients, they are also making sure that technology itself is not a barrier, that they are communicating in a normal language, that it is easy to find the next thing and that they are not overwhelming people with too much information.

    Thanks to design thinking, in Watson’s case, they took into consideration the end user – the retail customer; the decision maker; and the growing group of developers. Since the banks are increasingly bringing in tech people to work on machine learning, IBM made Watson easier for them. All they have to do is just take an API and use it. As straightforward as plug-and-play!

    At the end, I asked David to tell me what he thought about the use of design thinking in banking. Without hesitation, David stated that design thinking was actually essential! Then he explained it further: “The banks are built on trust. Your reputation is very trustworthy. Trust will grow if you bring it all together – if you look for business solutions from various perspectives, empathise with users, and address various stakeholders. Design thinking is used to build trust.” – What a fine answer!


    [linkedinbadge URL=”https://www.linkedin.com/in/deandemellweek” connections=”off” mode=”icon” liname=”Dean Demelweek”] is Agent of Change & Innovation Catalyst | Tech London Advocate and this post was originally published on linkedin.

     
  • user 12:18 am on August 2, 2016 Permalink | Reply
    Tags: , , banks, , , , , , , Pegg, Sage,   

    Goodbye admin, hello Pegg – Sage introduces its first small business chatbot 

                          &; The writing is on the wall for and their customers. Soon banking and all its associated tasks will be completely embedded in our everyday lives. Banking will live in the platforms we love to engage with, allowing us to accessRead More
    Bank Innovation

     
  • user 10:54 pm on July 30, 2016 Permalink | Reply
    Tags: banks, , , , Rights,   

    Individual Identity Rights 

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    I wrote about new business opportunities for financial services incumbents, specifically , in my previous post. More notably, I posited that 1) because banks were in the Trust Business 2) they have an opportunity to expand their offerings by 3) protecting their customers& and DATA much like they protect customer’s money today.

    Soon after I published that post, I came across a short video by Tyler Cowen (see here) in which he discusses the importance of trust in the banking relationship. He points out that trust is made possible by a shared understanding that property exist and will be enforced by the state.  A bank that takes customer money can’t just keep it, and has legal obligations to protect it. Tyler&8217;s video reminded me the multifaceted aspects of trust and that I had only touched on the trust between a bank and its customers.

    Given that I believe in how is and will enable individuals to utilize their identities contextually and enable them to monetize their own data, that video spurred me to think about data and identity ownership. To be clear, this post is not about exploring new business models, rather it is about understanding what data means legally to us and the implications of ownership and rights associated with data.

    Our lives are increasingly defined by the electronic data stored in third party databases that is generated by day to day activities, for which limited records existed even a decade ago.  Drive your car, by groceries, visit a web-site, pay a toll electronically – data is harvested, data is stored. When aggregated, these prosaic electronic breadcrumbs have massive economic value. Indeed, considering that our economies are undergoing a massive realignment and restructuring, moving away from the industrial age towards the digital age, it is easy to realize that the data and metadata we generate (about ourselves, our behaviors, our habits, our consumptions) or that of our own physical assets generate will be increasingly valuable.

    And the amount of data we generate is increasing, not decreasing. If our data and our identities are already valuable today, they will be more so tomorrow. At this particular historical moment, the commercial value of consumer data is a one-way street. Once a business has your data, they may have legal obligations to you, depending on the state or country where you live (HIPPA and Graham Leach Bliley are two U.S. examples). But you don’t have a financial stake in the data.  Say, (for example) that an advertiser makes money by sending an ad targeted to you because of knowledge about your purchasing preference. You’re not going to receive a commission for the use of or reliance on your data. Where does personal data fit into the framework of traditional property law?  This is an admittedly broad question, but we can make some general observations. Why does this matter?  Most economists &; or so I hope &8211; agree that a strong protection of property is one of the most important vectors driving economic activity and wealth creation. Western industrial capitalism is premised on the understanding that individuals have the right to enjoy their private property without fearing it being stolen or misappropriated by a third party, let alone a government.

    Generally speaking, there are two types of property. Tangible property, refers to physical things, (a house, a plot of land, a car, physical cash, gold&;). Intangible Property, refers to incorporeal assets (intellectual property (&;IP&;, copyrights, patents, trademarks), corporate good will, securities, security interests,  and dematerialized investments, money, &8230;).

    So – what is “personal data”, the stuff that makes up our identities. It’s definitely intangible, but it is certainly not a dematerialized investment or money. Could it and should it be considered and individual’s IP? The answer is most probably not. Could it be a corporation’s IP? Maybe so. The lack of clarity on data and its ownership is indeed tricky.

    The Merriam-Webster dictionary defines IP as &8220;something (such as an idea, invention or process) that comes from a person&8217;s mind&8221;. Modern IP laws arose out of the need to protect personal creation. The printing press, mass media, the internet are technology vectors that increased the value of one’s creation. Commercial interests required strong protection and licensing laws. As such, traditional IP comes out of active creation.

    Can we say the same of all the data and metadata associated with our health our payments history, our interactions with our social media/networks, our apps, our smartphones and IoT? Or are we faced with passive creation. Would these types of data and metadata be treated as IP or are they in a class of their own? My non-legal-expert view is that we are dealing with a new class of property borne out of new ways to create it, enabled by new technologies and ultimately supporting new economic activity which demands new legal constructs.

    The same questions and comments apply to our Identities &8211; physical, digital, private, health, financial.

    Clarity on what personal data is leads to clarity on what types of rights can be associated with it, and to the extent there are gaps, what types of rights should be developed.

    Ownership is equally important. Who owns our data? In some instances we do, in others we cede control as part of a Term of Service we barely read, and in yet others we probably wade in a grey area where those that use and monetize our data are more than content to keep the status quo and not explicitly spell out ownership.

    I strongly believe data ownership frameworks need to be brought up to the level of sophistication of data privacy laws. How our data can be used, how it should be protected data is a national and international discourse our governments, the corporations we interact with and ourselves are engaged in continuously and for many good reasons. No one can use or misuse private information without prior consent, no one can handle our private information carelessly. We already have the right to digital seclusion (i can restrict access to my Facebook or Twitter identity to a handful of trusted friends, or altogether shut it completely) and are slowly gaining the right to be forgotten digitally.

    Rights associated with having, owning and securing a personal identity are intertwined with self-determination, basic human rights and freedom of speech.

    Up to now the sum total of rights associated with data, which I label Individual Identity Rights have not coalesced into a systemic societal issue. Too many interested parties want their hands on our data with as little friction as possible. Enterprises because of monetization potential, Governments because of their thirst for transparency and control. The early stage of the digital age have mirrored the industrial age from a centralization point of view. Large intermediators such as Ebay, Facebook, Amazon or Google have dominated &8211; and will continue to do so for many years to come. Be that as it may, the potential of technology is enabling decentralized business models to emerge. Soon we may have the choice to conduct our private business (sharing with friends, buying, selling, creating) with a decentralized marketplace, a decentralized social network, a decentralized search engine &8211; the list goes on. The data we generate on these platforms will be our own, and we better have ownership rights that reflect such an unequivocal fact.

    Up to now the ways and frequency we have needed to produce a form of identity to gain access to a service, a product or a place has been limited. Both will increase and with them the complexity of provisioning and managing our identities. The multiple identities we will create and inhabit better have the same ownership rights that reflect how central identity will be in our post-industrial world.

    Up to now we have not paid much attention to our data and have been more than content to cede its monetization to third parties in exchange for convenience or entertainment. As data will rise as one of the central vectors of our economic and social engines we will want to control and share in the wealth creation, we will demand more transparency with regards to who will use our data, for how long and in what capacity, and we better have ownership rights that reflect these value chains.

    Individual property rights have been essential to wealth creation in the industrial age. Individual identity rights will be essential to wealth creation in the digital age.

     

    I would like to thank Stephen Palley for helping me think through my arguments, providing invaluable feedback and editorial support.

    FiniCulture

     
  • user 3:39 pm on July 27, 2016 Permalink | Reply
    Tags: banks, , , , , , Revamp   

    P2P Lending Platforms Revamp The Consumer Lending Industry 

    Peer-to-peer (P2P) , one of the hottest industries, has experienced tremendous growth in the past five years and is expected to be worth US$ 150 billion by 2025, according to PwC.

    After the financial crisis in 2008, P2P lending emerged as a new method for consumers to get loans easily and quickly, bypassing traditional that had tightening their lending policies.

    The model quickly grew in popularity, attracting borrowers with the new platforms&; perceived low interest rates, simplified application process, and quick leading decisions.

    In 2014, an estimated US$ 5.5 billion worth of loans have been issued in the US alone with an average growth of 84% per quarter since 2007.

    Growth has been largely influenced by technological breakthroughs and demographical shifts. Most particularly, the Millennial generation &; those born between the early 1980s and the early 2000s &8211; has set new standards in the financial services .

    P2P lending and Millennials

    Image credit: Rawpixel.com via Shutterstock

    Image credit: Rawpixel.com via Shutterstock

    This demographic is demanding greater convenience, mobility, real-time update, and are using entirely different channels.

    Tech-savvy and socially-minded, Millennials are changing the face of finance and have embraced fintech solutions. A recent report by Oracle and Wharton Fintech suggests a notable increase in the use of non-bank options by this demographic in solutions such as mobile wallets, mobile money and overall alternative payment solutions.

    In the P2P lending area, Millennials are ten times more likely to use P2P lenders than those 50 and older, according to the Fair Isaac Corporation. The demographic is becoming a larger portion of the consumer loan market as they seek credit to finance major purchases or refinance their student debt.

    &;The Millennials are prime targets for P2P lending as they value the convenience of transacting online and are less loyal to banks,&; according to PwC.

    P2P lenders vs. banks

    While the industry is experiencing strong growth, lending from large banks, on the other hand, has decreased dramatically. In the US, the ten largest banks lent US$ 44.7 billion in 2014, a drop of 38% from its peak of US$ 72.5 billion in 2006, according to Techcrunch.

    That said, banks shouldn&8217;t be afraid of these new players as P2P lenders &8220;are unlikely to pose a threat to banks in the mass market,&8221; according to Neil Tomlinson, Deloitte&8217;s head of UK banking.

    P2P lenders and banks collaborations

    Image credit: Stokkete via Shutterstock

    In a report released earlier this year, the consulting firm argued that these new platforms &8220;will not be significant players in terms of overall volume or share.&8221; It said that P2P lenders cannot compete with banks in mainstream markets and should in fact focus on profitable niche segment markets where their knowledge can be a competitive advantage.

    The report encourages banks to start collaborating with P2P lenders to deliver superior UX capability, maintain customer relationship, gain access to data to improve the bank&8217;s risk scoring, as well as provide an option to under-served segments.

    For these platforms, collaborating with banks would allow them to increase awareness among borrowers and investors, gain scale and lower their customer acquisition costs.

    A number of banks have already teamed up with P2P lending startups: JP Morgan Chase provides loans to its SME customers using OnDesk&8217;s platform; Metro Bank deploys customer deposits through Zopa; and RBS and Santander UK are both regering SME customers rejected for a loan to Funding Circle.

     

    Featured image by Anton Gvozdikov, via Shutterstock.com.

    The post P2P Lending Platforms Revamp The Consumer Lending Industry appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.

    Fintech Schweiz Digital Finance News – FintechNewsCH

     
  • user 3:35 am on July 26, 2016 Permalink | Reply
    Tags: 000, , banks, , , c9c8cd, , F8F8F8, FFF, , , Instagram, , ,   

    Swiss Fintech Startups Accounts to Follow on Instagram 

    Just like Facebook, Twitter and recently, Snapchat, are one of the most active social media platforms which attract millions of users globally.

    instagram users 2016

    According to statista.com, Instagram users had increased from 9 millions in 2013 to 500 millions in June 2016, an impressive growth in such a short period of time.

    If Facebook is your big community to share interests and stay connected, Twitter is your latest stream of news and updates with simple texts, images and links, Snapchat is your place for live videos, then Instagram is your favourite daily photo album. It&;s all about images and just images.

    So, social media wise, does Instagram fit for , Fintech firms and companies to develop their awareness? The answer is, just like any other social media platform, it depends on what is shared with the community. Several Fintech startups have been picking up the trend and doing quite well on Instagram.

    In the list of Top 30 Swiss Fintech Startups, Social Media Ranking by Fintech News Switzerland, 11 out of 30 startups have been running an active Instagram .

    Top 30 Swiss Fintech Startups. See details at http://fintechnews.ch/top-30-fintech-startups-in-switzerland-2/ fintech customerexperience banking digital payments onlinepayment blockchain bitcoin insurtech financial technology cryptocurrency crowdlending crowdfunding Lending finance event startups entrepreneurship entrepreneurs bigdata cryptocurrency lending p2p peertopeer switzerland banking banks innovation insurance roboadvisors

    A photo posted by FintechNews (@fintechnews.ch) on

    Because of the uniqueness of Instagram, a few Fintech startups have been sharing their news and updates in form of images only with their followers in different ways.

    EthereumProject &; 1,071 followers

    ethereum &8211; bitcoin

    A photo posted by Ethereum (@ethereumproject) on

    Finance Fox &8211; 737 followers

    Crowdhouse.ch &8211; 128 followers

    Meilenstein für crowdhouse.ch: Luzerner Kantonalbank beteiligt sich strategisch an crowdhouse!!!

    A photo posted by crowdhouse.ch (@crowdhouse.ch) on

    Numbrs &8211; 136 followers

    Centralway Numbrs. Mobile Banking.

    A photo posted by Centralway Numbrs (@centralwaynumbrs) on

    Sentifi &8211; 97 followers

    truewealth.ch &8211; 30 followers

    truewealthoffice#finally#shows#color zurich#startup#windyday

    A photo posted by True Wealth Inc. (@truewealth.ch) on

    Other accounts are AdvanonCreditGate24KnipSplenditInvestiere

    > Follow Fintech News Switzerland Instagram

     

     

     

    The post Swiss Fintech Startups Accounts to Follow on Instagram appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.

    Fintech Schweiz Digital Finance News – FintechNewsCH

     
  • user 12:18 am on July 26, 2016 Permalink | Reply
    Tags: , banks, , , , Startupbootcamp’s   

    Breaking Banks: Startupbootcamp’s NYC Demo Day [AUDIO] 

    This episode of centers on the Startupbootcamp Day that took place last week in New York. Host Brett King spoke to Jesse Podell, who MC&;d the event, and Nektarios Liolios, the founder of Startupbootcamp Fintech.
    Bank Innovation

     
  • user 12:18 am on July 25, 2016 Permalink | Reply
    Tags: banks, , , , , ,   

    Breaking Banks: Fintech Bots, Brands, and Entrepreneurs [VIDEO] 

    On last week&;s episode of , host Brett King gets into the hot topic of and virtual assistants in the space. He speaks to Katie Aquino, better known as Miss Metaverse, about the future, and Scott Raskin, CEO of Spigit, about internal innovation at banks. Brett also &;checks&; out theRead More
    Bank Innovation

     
  • user 7:40 pm on July 24, 2016 Permalink | Reply
    Tags: , banks, financial market, ,   

    Alternative Global Financial Market Infrastructure 

    AAEAAQAAAAAAAAe5AAAAJGY5NDUxZjI2LTIxNmQtNGE3My1hZTdiLWFmZWZlNzFkZGFhMA

    “Huston we have a problem”[1]. The original Apollo 13 phrase back in 1970, is applicable to the current in 2016. 

    There are many commentators on the breath of the problems, but few practical solutions on the table; there are even people who believe the system is beyond fixing.

    This post will limit the discussions to addressing the technical aspects of a replacement Financial Market Infrastructure, and leave the  “economic theory” an “politics” to others.

    What is required?
    It is pretty obvious that the technical infrastructure of the existing FMI is beyond repair, it has evolved over a number of years to the point where it is simply unstable. Major pieces of the infrastructure are starting to fail[2]. In many cases the defects are
    Architectural and cannot be patched. Any system architect knows full well that KISS, always underpins any practical solution, and that legacy system migrations are both costly and high risk, especially systems such as the existing FMI. It is hard to completely identity, all elements, or risks of the existing global FMI.

    Where to start?
    One of the better documents in this space is the Bank of International Settlements (BIS) “Principles for Financial Market Infrastructure“. There is no reason why an  FMI should not meet the same principles, and applicable regulations as the existing  FMI.

    So lets set these as the starting point for our replacement Financial Market Infrastructure and check any proposed solution against these principles. We will perform a review of the proposal solution, at the end of this post.

    The Vision, is  a Continuous Global Market, which never closes?
    The attention and responsiveness participants bring to the Market, joins them together across intuitions, space and time. All participants observe the Market continuously (without any interruption) with synchronicity and temporal immediacy. Everyone on the planet sees the same Market simultaneously and in real-time. A new  level of global integration, and interdependence will emerge, as temporal, systemic risk and significant “tied up” clearing capital within the existing market simply vanish, or gets redeployed in more productive venues.

     

    The Key Design Principle

    Simplify the existing highly complex systems and procedures,

    while reducing

    Systemic RISK.

    The System Building Blocks

    Secure Global Identity

    A global secure Identity underpins all elements of the FMI, and is embedded into each of the FMI elements.

    • there is no centralized infrastructure or entity required
    • the secure identity is under the exclusive control of the Individual
    • can securely support the full range of Identity and authentication requirements

    Identity Attributes:

    • Ownership can be digitally proven with high assurance, and possible non-repudiation
    • Disposable
    • Support digitally signed by owner
    • Third parties may offer digital attestations:
      • Identity Verification, Inc. digitally signs as passing their 100 points check.
      • Auction Provider, digitally signs as having a certain reputation score, on their website.
      • Decentralized market users, digitally sign one another’s attributes, building a decentralized reputation, social network. 
    • Full compliance with KYC, AML/CTP and cross boarder regulations
    • Needs to assist with financial inclusion, and remove the “unknown” within world population.

    Global Payments Rail

    Supports the global PVP unconditional settlements.

    1. Scalable, known risk solution
    2. Utilizes Secure Identity for entities
    3. High Assurance global P2P Payments Rail
    4. Supports Fiat Digital Currencies, as legal tender
    5. Provides “trust” between unknown and untrusted P2P entities
    6. Requires zero, payment specific hardware, or technologies
    7. Can be globally deployed without any barriers, technical, or regulatory
    8. Provides a “known level” of security, and hence risk
    9. Leverages existing commercial FIPS 140-2  certified  TPM’s, protection profiles and libraries
    10. Secure all existing ecommerce sites, with same trusted path assurance of all payment parties via HSM protected keys
    11. Provide a more secure, lower risk, solution than any existing hardware based payment solution, like ENV chip cards or ATM, and POS terminals
    12. Require zero shared secrets in any element which participates in the network.
    13. All payments are P2P occurring inside and between two FIPS-140-2 certified HSM’s;
    14. Mandatory security policy, which all parties, including all nodes hosts and processes must be mutually authenticated via hardware (HSM)  key pairs.
    15. All ownership of all payments are codified on a Public  Block Chain Ledger
    16. Needs to support financial inclusion, and remove the “unbanked” of the worlds population.


    Global Asset Settlement Rail

    Supports the global AVA and BIS DVP Model 1, unconditional settlements

    1. Scalable, known risk solution
    2. Global Asset Identifier which supports all existing  securities or assets without any central registration.
    3. Utilizes Secure Identity for entities
    4. High Assurance global P2P Settlements Rail
    5. Provides “trust” between unknown and untrusted P2P entities
    6. Leverages existing commercial FIPS 140-2  certified  TPM’s, protection profiles and libraries
    7. All asset transfers are P2P occurring inside and between two FIPS-140-2 certified HSM’s;
    8. All payments are P2P occurring inside and between two FIPS-140-2 certified HSM’s;
    9. Mandatory security policy, which all parties, including all nodes hosts and processes must be mutually authenticated via hardware (HSM)  key pairs.
    10. All ownership of all assets are codified on a Public Block Chain Ledger

    Global Market Place

    Essentially, the existing order, trade and execution, except that there is now full transparency via the Public Block Chain Order Book, and tightly integrated into the other FMI elements, this is essential for the overall FMI security and systemic risk. The main changes are identified below.

    1.  Global Asset Identifier which supports all existing  securities or assets without any central registration.
    2. Global Secure Identifiers
    3. All Market Orders available in real-time via Public Block Chain Order Book

     

    Global Asset Registers
    Support the legal codification of various forms of assets, examples are land, art, gold etc, which may be transacted as codified digital assets. 

    • All ownership of all assets are codified on a Public Block Chain Register

    Done with the key Elements..

    Ok so lets see how the above will meet the BIS principles

    • Settlement finality, done in real-time.
    • Money settlements, done via fiat legal tender
    • Physical deliveries, covers all digital assets, others TBD.
    • Central securities depositories, deprecated by P2P
    • Exchange-of-value settlement systems, all transfers are instantaneous and “atomic”
    • Participant-default rules and procedures, adapted to support the simpler solution
    • Segregation and portability, deprecated as all assets and currency directly held by P2P entities.
    • General business risk, no process change
    • Custody and investment risks, custody deprecated as all asset ownership codified on the Ledger, investment risk no change
    • Operational risk, no process change
    • Principles 18->23, no process change.
    • Disclosure of market data by trade repositories, all data is publicly available in real-time via the relevant Public Block Chains

    What exists today?
    The following is based on an existing commercial POC including all of the above elements and is available today. See Slideshow links below, for technical details of one such solution, we expect to see many more in the near future.

    Market Trading, Order Book, Matching Engine and market data distribution. Matching engine lastency ~256ns.

    DVP Model 1 Settlement,  continuous atomic P2P unconditional settlement ~ 50ms.

    Conclusion
    It is possible to provide a technical alternative to the existing FMI, in  a low risk, incremental manner, while meeting all of the regulatory and compliance requirements.

    I keep seeing posts by regulators and incumbents who simply have not spend the time and effort to understand what modern technologies make possible, plus a lot of FUD from those who see their business disappear. It is time for everyone with their wide and varied perspectives to focus on the future which fixes the broken FMI as it exists in various stove pipes and national systems today, the alternative is an world where risk runs rampant. End soapbox.

    The  most significant change is one of “mindset” within existing market participants, central  and regulators.  With  a level of understanding of the alternative FMI, a number of the current issues identified such as Basel III, Ring Fencing, and other organizations, can be more readily addressed.

    The key is a fully integrated, holistic solution, for an alternative  Global Financial Management Infrastructure, which can be incrementally deployed within an alternative “green field” solution space.

    The Road to 2020
    Ok, so we have solved the bits, but this is only a small part of replacing an existing “regulated” and typically entrenched monopolies or oligopolies.  High risk and significant capital requirements are useful barriers to entry, within distorted markets caused by misguided “regulation”.

    Lets look at one perspective of a commercial pathway, to achieving a fully functional  Global Financial Market Infrastructure by 2020.

    2016: Regulation.

    Its a commercial reality, that to achieve a 2020 objective, any solution MUST fit inside the existing legal, regulatory and compliance framework as it exists today. Experience has shown it will take at least a decade to effect any change, so no point. While most of the issues are simply mind sets, this will take at least a year to adapt the technologies to the various global jurisdictions. The road map envisions a limited set of use cases being taken though the process during 2016.

    Global Secure Identity system and  infrastructure fully operational.

    2017: Addressing the Payments Rail, this is the year for getting the Payments side of the DVP Model 1 settlement sorted. The CCP is no longer involved in the payment settlement the objective solution is fiat “legal tender” but with the ability to provide cross ledger “atomic” transfers with the Asset Rail. This year will see the very first “Market Place” with fully integrated trade and settlement, on  a limited set of securities and orchestrations.

    2018: The establishment of a alternative Global Market Place, with a limited set of assets. The market place operates with zero closing times and on a continuous trading and settlement basis.  The first truly low risk global FMI operating P2P BIS DVP Model 1 unconditional settlements.

    2019: The “migration” from the high cost, high risk legacy system to the new Market Place. The migration will be driven by “clients” or buy side institutions, not regulators or regulated market participants.

    2020: The volume of trades executed and settled on the Global Market Place, exceeds the legacy systems, which are now becoming uneconomical to operate. The legacy systems rapidly deprecate, from this point onwards, as they cannot compete. People are voting with their feet.

    One last observation, simply because the business of existing players has become extinct, does not mean there is a regulatory failure!

    Lets take a look at what this all means to the existing parties.
    Based upon the experience with the Global Market, Payment and Settlement Rails, the following is the my view of the future:

    Brokers these disappear, replaced by accounts held directly with Market Participants.

    Exchanges these remain, and typically will provide the FMI to their participants.

    Clearing Participants gone..

    Settlement Participants, remain and become the only operational element of the CCP. Payment settlement done via Bank FMI, no need for banking licence or central bank RTGS.

    Central counterparty (CCP), operational functions are deprecated, same with the major part of the capital requirements and liquidity as P2P DVP Model 1, has zero counterparty risk, and zero liquidity requirements., and there is no clearing function. The CCP provides the regulatory and licensing to the Settlement Participants.

    Central securities depository (CSD), gone. All assets held in high assurance HSM’s directly by the client.

    Custodians  gone, all codified assets held directly

    Registry gone, but functions performed directly by issuer. All ownership, holdings, distributions and notifications are now in real-time on the Block Chain.

    Market Makers as P2P promotes buy-side liquidity over traditional market markers, liquidity is not likely to be an issue; but jury is out.

    Market Data Providers as the Order Book and the Trades are all on the Public Block Chain, these providers have no function, these ledgers also provide full market transparency on a level playing field.

    Banks, not required as all fiat Digital Currency, held directly by client within the bank provided FMI. Like the CSD no bank can be involved within any high assurance P2P exchange. Banks will become the suppliers of technology ~  to old world “bank vaults”, the FMI infrastructure.

    Central Banks the jury is out, one view is that Central Banks will  connect directly to customers via fiat Digital Currency, no need “helicopter money” simply inject directly into the economy? The alternative view is as most of the “money” is actually created to day by commercial banks, they could simply form a consortia, and make central banks obsolete? Technology today, can support both view, only time and the market will tell.

    SWIFT, gone as security moved to HSM secured application datagrams over commodity Internet or 40Gb market networks.

    True change is driven by Empowered Individuals,
    not regulation or incumbents.

    AAEAAQAAAAAAAAl3AAAAJGJhOTM1ZDBjLTVlNmMtNDI0Mi1iMmY2LTE2NGMyYWMwZDY3MQ

    FAQ
    Q: We need a CCP with novation and netting to manage risk?

    A: One needs to think about what a continuous market, where trade and settlement happens in less than 50ms actually looks like. 

    Typically this question is predicated on the systemic risk that sits in the delay pools, there is a wad of theory on why Model 3 can have some advantages over model 1 settlement ( mostly when true DVP is not possible), the second driver is the obsolete transactional engines, in the back office world.   Today any exchange worth its salt, can match and execute a trade in around  256ns, the same technologies applied to a similar architecture, supports a P2P DVP Model 1 unconditional settlement in ~ 50ms today, in fact settlements can actually happen in ~ 1ms in several use cases. This produces the lowest possible systemic risk as the latencies of the trade and settlement are now compatible. Both of these deprecate the existing Model 3 novation and netting approach.

    Quite simply continuous P2P BIS DVP Model 1 unconditional settlement in ~ 50ms is the lowest possible systemic risk solution.  Plus there is now zero counterparty and liquidity risk as the settlement is instantaneous and “atomic”. 

    Q; One needs  real-time payments system

    A: Correct, the latency of the payment system must match the latency of the asset transfer to ensure atomic transfer of asset with payment a s required by BIS DVP Model 1 gross settlement.

    Q: Traders need to have the payment sitting in their account to trade.

    A: Correct, with continuous trade and settlement occurring in ~ 50ms, anyone entering a market trade must have the capability to actually make payment. A Global Block Chain Ledger Payment Rail underpins the settlement process, within our POC the trade execution is the place where this check is performed. The days of individuals, institutions and HTF traders playing with almost zero risk in “delay pools” are over. These types of trades will now have the market allocate the correct risk to these activities, they will operate inside the market not on the outer. 

    Q: Market models currently go to great length to anonymise participants at different points in the transaction lifecycle.
    A: The days of market manipulation by large institutions are also over, the market now has full transparency to all market participants on a real-time and equal basis, this is what a perfect market requires. If an institutions wants to make a large trade, then this will be appropriately priced by the market, as it should be. 

    Q: Fat fingers

    A: Yet mistakes and failures  will have a cost, as they must. All such corrections will now be on market as they must be.

    Q: Naked short selling in the new FMI?

    A; Simply cannot exist,  this a variant of the payment side Q above.

    Q: Meeting new regulatory requirements on capital and transparency

    A; Enter a new world, where everyone has full transparency in real-time not just regulators, this is provided as zero system cost, as it is a fundermatal aspect of the new FMI.  It will be interesting to see what happens with true market transparency is provided.

    Q: Are smart contracts needed in the FMI.

    A: In short no, the existing orchestrations are well known, nothing new is required in this space, a ledger has been doing this for 50 years, and will continue to meet these requirements. Its just a Ledger..

    Q: What would FX trading and Liqudity look like?
    A: Most FX trades are OTC, and based on a “quote” driven market, the has proven to produce an unfair market, where nabks can easly distort the FX prices. We expect that FX will move to an order book, with P2P market trades ebign the norm. The existing market makers being primarly replaced by “Buy” side liquidity.  The net result will be FX becoming just another tarde, and brough into a “fair” market. This should initially see rates in the 0.09% to 0.29% range.

    Further Reading
    Securities Clearing, and the Dodo Bird..

    The Holy Grail of Settlement
    The Global Block Chain Payments Rail 

    Regulation and the Block Chain Ledger
    Your Identity is yours and yours alone.

    Slide Share

    The Global Block Chain Payment Rail

    The Global Block Chain Securities Settlement Rail

    References

    1. “Originally a genuine report of a life-threatening fault.”

    2. http://qz.com/639369/a-1-billion-cyber-heist-against-bangladeshs-central-bank-was-thwarted-by-a-spelling-error/

    3. http://www.bis.org/cpmi/publ/d101a.pdf Updated 11 December 2015
    4.
    Contagion in Payment and Settlement Systems 

    5. https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf


     [linkedinbadge URL=”https://www.linkedin.com/in/charlesmooreau” connections=”off” mode=”icon” liname=””] is Managing Director, System Architect | Technology Strategist | Business Analyst, and this article was originally published on linkedin.

     
  • user 10:00 am on July 24, 2016 Permalink | Reply
    Tags: , banks, ,   

    Really Thinking Outside The Bank 

    AAEAAQAAAAAAAAgPAAAAJGM1Y2U5NjJkLTQzMmEtNDNiMS1hNmU2LTA2Y2M5ZjgyYjE4NA

    I was lucky enough to be invited to a panel discussion recently and given the privilege and opportunity to express my opinions about what digital means to banking. What became apparent from the discussion and questions was most people link digital to . If not about technology, it was about how new development was undertaken; be more like the fintechs, don’t fear failure, etc., etc.

    But to me such discussions miss the point entirely. While no doubt there’s an element of being digital in back office efficiency (such as robotic process automation) the real digital focus for should be in creating market differentiation.  Differentiation won’t be achieved through making processes faster and more efficient.

    Recently, when taking a more design-led approach to digitisation and removing the constraints of the current offerings and technology altogether, I’ve been amazed at the number of simple yet effective offerings banks could make with very little effort. It was during that panel discussion that I became even more aware that people really weren’t, despite the rhetoric, “thinking outside the bank”. Gartner was telling us the two most asked for features were proactive security and some other enhancement to the current standard fair. But that is tunnel vision. Customers don’t expect banks to truly innovate and are used to them remaining confined to the products and services they’ve always delivered.

    With the real threat to retail banking being that in the near future the standard offering will be as much a utility service as turning on a tap, concentrating on the water pressure and flow rate isn’t the way to maintain or increase market share. Banks need to offer a compelling differentiation to attract customers as account switching continues to rise. By thinking a little more laterally, this isn’t a difficult thing to do.

    I think the blinkered thinking is all down to how analysts and those in the banking industry look at the problem. By focusing on feedback from users of current services and products, the drive is to make these more efficient and with lower friction, moving from multi-channel to omni-channel. But how about forgetting channels altogether? Yes, we need to make whatever the new world efficient and frictionless, but that’s just a faster car, not anything new. Very soon everyone’s car will be faster. The fintechs are starting to reshape the user experience of banking and, like Mondo’s transport for London payment reminder, are starting to look outside of the existing standard service.

    This is what I believe banks need to do more of. Whether you use design-led thinking or just sit down and wonder, with the information that a bank has about me, what should it be able to do?

    Two examples came to mind on my flight down to the panel discussion. The first was, wouldn’t it be handy if when I landed at the airport my banking app asked me if I am here for business or leisure? I’d choose business and the banking app would now know to tag any payments as expenses, such as the hotel room. When I land back home the banking app, in addition to welcoming me home and offering to call a cab, should ask if that concludes this trip. Answering yes, it would then send me an expense report with digital receipts for me to claim back – even better if it offered an API to my expense system to do this automatically. There’s nothing in this idea that isn’t already available to a bank. They know where I stay, they know how much I’m spending and on what, so it’s a very simple but effective value adding service. Similarly, when I was a one-man-band contractor (like over 3 million others in the UK) I spent £125 per month for an accountant. How many of these potential 3 million plus customers wouldn’t switch if a SME business bank account offered to automate their accounts creation? The bank has all the information and should easily be able to derive the context of the expenditure or prompt via the website or their app for this to be added where there’s doubt (it’s not as if there’s lots of transaction) and by integrating a simple accountancy engine, the bank could spit out the annual accounts and tax return. Add in connectivity to GOV.UK/Verify as Barclays have and there’s no reason it couldn’t submit them for you on your behalf as well.

    Neither of these ideas are difficult or ground breaking but I was faced with a sea of blank faces when presenting them. Rather than UK banks spending over £400m trying to convince customers to switch with cash incentives, how about giving customers a real reason to move (or stay put). By truly thinking digitally and outside of the bank? Then simple and compelling offerings can be created that will fight off the threat of the aggregators and . If you’re not thinking in this way then it doesn’t matter how good the user interface becomes or how many keystrokes you remove from the application process. You’re not going to prevent a flash aggregator post PSD2 making your hard work redundant.

    Banks need to think not just about cost savings or application dropout (as important as these things are) but also about how to turn the customer and bank engagement relationship from transactional to a valuable daily experience. This means not just replicating what is done in the branch but offering a whole new set of services that may only bring value to the customer and no additional revenue to the bank. But in doing so the banks will have market differentiation and create real benefit for their customers. This, I believe, is the only way to maintain any control over the user engagement channels and not relinquish it to the aggregators but to do so takes a real commitment to thinking right outside the bank.


    [linkedinbadge URL=”https://www.linkedin.com/in/fegan” connections=”off” mode=”icon” liname=”Gary Fegan”] provide Financial Services Solutions at Fujitsu Digital, and this article was originally posted on linkedin.

     
  • user 6:00 am on July 24, 2016 Permalink | Reply
    Tags: banks, d+h, , , , ,   

    Lloyds Banking Group Selects D+H for White Labelled Bacs Payment Solution [PR] 

    AAEAAQAAAAAAAAheAAAAJDQxYjgzZjY1LWU2MjQtNDY1OC1hM2E2LWIwNjk1MzQ1MWI4Zg

    London, July 21, 2016, CNW –  Corporation (TSX: DH) (“D+H”), a leading provider of solutions to financial institutions globally, today

    announced that Banking Group has selected its Bacs payment service to optimise Direct Debit and Direct Credit processes. The D+H solution, which is being white labelled by the bank, will enhance the suite of payment solutions available to its UK clients.

    As an integral part of its strategic investment in digital services to meet more of their clients’ needs and build stronger client relationships, Lloyds Banking Group sought to provide new payment services to enhance clients’ payables and receivables processes. The bank will initially offer the D+H-powered Bacs capabilities to small- and medium-sized enterprises and mid-market clients, but the solution can scale easily to meet the needs of any global transaction banking/large corporate bank client. The solution will provide the bank’s clients with Direct Debit and Direct Credit connectivity, automated retrieval of Bacs messages, a full service Direct Debit management suite, integration with clients’ ERP systems, and ease-of-use with minimal training required, among other features.

    Lloyds Banking Group selected D+H’s Bacs payment service because it met all of the bank’s requirements including quick time-to-market, resiliency, and proven disaster recovery and business continuity capabilities. The solution will broaden and deepen already strong client relationships and unlock opportunities that could not previously be pursued.

    “There is increasing demand for businesses of all sizes to focus on driving down costs by reducing or eliminating manual processing and increasing cash flow,” said Dyfan Williams, business unit head, D+H. “By providing a Bacs payment service, Lloyds Banking Group is enabling its clients to minimise manual work, reduce costs, and eliminate errors. This level of control and flexibility enables buyers and suppliers alike to take advantage of preferred payment terms, further increase the positive impact on cash flow, and develop strong working relationships.”


    About D+H

    D+H (TSX: DH) is a leading financial technology provider the world’s financial institutions rely on every day to help them grow and succeed. Our global transaction banking, lending, and integrated core solutions are trusted by nearly 8,000 , specialty lenders, community banks, credit unions, governments and corporations. Headquartered in Toronto, Canada, D+H has more than 5,500 employees worldwide who are passionate about partnering with clients to create forward-thinking solutions that fit their needs. With annual revenues in excess of $1.5 billion, D+H is recognized as one of the world’s top companies on IDC Financial Insights FinTech Rankings and American Banker’s FinTech Forward rankings. For more information, visit dh.com

     
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