#Banks have been working for years to achieve straight-through-processing (STP) but now #Citi has partnered with #HighRadius to bring artificial intelligence to the task.
Financial Technology
French essayist and critic Charles Du Bos summed up the ability of humans to change when he wrote, “The important thing is this: to be able at any moment to sacrifice what we are for what we could become.”
For a long time, most #banks have been one thing: vertically integrated product manufacturers and distributors, shops that sell only their own brand products. But with the move towards regulatory-driven Open Banking in competitive-friendly markets like the U.K., Hong Kong and Australia, new business models are emerging—including #Open #Platform Player, one of four bank business models we identified as winners in the digital economy.
Is the open platform bank an intermediate point on the journey towards lifestyle platforms, on which financial services are just one of many offerings?
Unlike a traditional bank, a banking open platform is like a department store that carries all your favourite brands and also helps you coordinate outfits and do your interior decorating. Open platforms create a market where producers (supply side) and consumers (demand side) connect and interact in efficient exchanges of value. The result is a bank-branded app store where consumers shop to assemble the products and services they need to satisfy their everyday financial needs, building their own bank from components they know will work easily together. In this business model, the platform owner has the opportunity to maintain management of the customer experience and vet the third-party products and services being offered in that experience. In turn, aggregation of demand allows them to extract economic rents from suppliers.
This business model is attractive to new entrants because it allows them to aggregate #fintech product innovations while focusing on customer navigation and advice. A good example is Belgium-based fintech banqUP. It offers a current business account, credit and debit cards, and business apps in a unified small- business banking platform. Another is the UK challenger bank Starling, which has moved to offer a wide array of third-party products and services anchored on a core current account.
For incumbent banks, the economic equation of becoming an Open Platform Player can be more challenging. While an open model offering best-in-breed products can be enticing for customers, replacing balance-sheet income with fees isn’t always an attractive trade-off. A $ 100,000 mortgage with a three-percent net interest margin is equivalent to a lot of traffic on a toll road. So rather than pivot completely to an open platform model, we are beginning to see established #players—like HSBC and RBS in the UK—experimenting with the introduction of third-party products that they either can’t produce as well as other providers, or which, for risk appetite reasons, they may not want to provide. In the US, for example, eight of the top 10 banks now have some sort of alternative credit provider for small-business lending that falls outside their risk appetite, creating an emerging platform model in that segment.
Of course, in an open platform model, there must also be suppliers. While fintechs like Transferwise are most prominent, there is also scope for traditional banks to componentise their product offerings and create APIs that allow easy plug-and-play with open platforms. This export model, where the customer interaction is ceded to a platform owner, requires changes in how a bank deploys its resources, people and #technology. For example, the focus of relationship managers and banking sales representatives would need to evolve to emphasize B2B customers, developers and community builders, rather than B2C interactions. It also means excelling at broader skills, such as ecosystem analytics, API security and identity management.
While becoming an Open Platform Player may look attractive to both new entrants and incumbents, it is interesting to ask the question of if the open platform bank is just an intermediate point on the journey towards lifestyle platforms, on which financial services are just one of many offerings.
Speculation is rife that Amazon will begin to offer a wider array of retail financial services products—including a checking account—which may pay no interest but instead offer discounts on other Amazon products and services as compensation for holding your balances in that account (balances which could be insured by them being held on a regulated bank balance sheet). In China, the WeChat messaging app has already become a true lifestyle platform where consumers are able to conduct a huge array of financial and non-financial transactions without leaving the app. In this world, the “Alibabas” and “Amazons” may truly become the “everything” stores through which we run our lives.
In an era of increasing fragmentation, banks could choose to establish Open Banking platforms that focus on financial services aggregation. However, we suspect that many banks will accept that competing against the likes of WeChat, Amazon and other bigtechs of the world is a losing proposition, and decide to focus on being a product supplier instead of trying to hold onto managing the customer relationship.
I invite you to read more about open platform banking in A New Era: Open platform banking
The post Banks as open platform players appeared first on Accenture Banking Blog.
Identification is a basic building block of e-commerce, finance, and also a key to help the right #victims after a disaster.
Financial Technology
On March 29, 2017, Britain decided to leave the European Union (EU) and invoked Article 50—following the referendum held on June 23, 2016, in which 51.9 percent of the participating UK electorate voted to leave the EU. Though the UK will officially leave the EU by March 29, 2019, followed by a transition period of 21 months, the exit decision itself triggered exchange rates so volatile that it became difficult for businesses to maintain clear visibility on their international transfers. #Brexit will eventually have an #impact on business, payment service providers, and consumers—but it will largely depend on how the UK’s future trading relationship is going to be with the EU.
In the absence of clarity of the eventual shape of Brexit, certain financial institutions are planning for the “hard” Brexit scenario and making decisions about locations, hiring and #technology changes. From a #payments perspective, #banks are reviewing their solutions across Liquidity (notional pooling, cash concentration), payments (SCT, SDD, high-value payments, FX), cash management services (virtual accounts, receivables management) and Euro-denominated products to continue to operate across borders.
Post the transition period, the UK might also lose direct access to Euro Clearing & Settlement Mechanisms (CSMs) such as TARGET2, EBA EURO1 and EBA STEP2. UK banks may need to build Euro-clearing propositions in Europe to handle affiliates and third party/correspondent bank high-value clearing, which would involve rerouting transactions, indirect memberships via Europe branches, Nostro setups, reviewing charging models, etc.
Non-EU financial institutions will not be able to use their UK branches to pay and collect funds after Brexit takes place, and would need to consider transferring SEPA access sponsorship from the UK to European branches. However, if they remain part of the European Economic Area (EEA) and the European Free Trade Association (EFTA), they can continue to take advantage of SEPA.
Acquiring players may have to move their headquarters to other European markets and take new contracts to operate in the EU. Split of acquiring entities means a significant overhead by splitting scheme submissions across multiple BINs. Card machine providers would need to reclassify their machines as international or inter-regional so that customers and merchants are aware of all the changes while making card payments. The interchange classification of the UK will significantly affect merchant pricing with open questions such as the UK’s registration as part of the EEA post Brexit having significant impact on interchange base costs. Also, unknown regulatory position post Brexit on key issues such as interchange caps and card surcharges.
PSD2 is applicable to UK banks since it came into effect in January 2018. Banks have already spent more than GBP750 million in preparation for the regulation, but once UK has officially left the EU, the UK Open Banking initiative is more likely to replace PSD2 and potentially have limited impact on a practical level.
The UK startup ecosystem massively supported the “Remain” vote as it provides them easy access to the Single Market, which is an important asset for startups’ business development potential. Now, they are quickly adapting to the fast-changing environment—and developing cross-border business is anyway part of the tech entrepreneur’s DNA.
While negotiating exit from the EU, it is important from a payments perspective that there is no detriment for customers or businesses, and that the UK economy continues to operate smoothly. Without any solid evidence on the changes to current legislation, firms need to ensure that compliance and change teams are on the front foot to meet the requirements of the new ecosystem.
The post Brexit impact on payments appeared first on Accenture Banking Blog.
It’s no secret #distributed #ledger technologies (DLT) have been front-of-mind for financial institutions examining solutions to existing problems in institutional and retail #banking. While #blockchain #technology is still a greenhorn in the wilderness of capital markets, the underlying concept should be heralded as a catalyst for innovation. Blockchain has been the inspiration for solutions like […]
Bank Innovation
A lot gets published on a daily basis about the seemingly awesome, game-changing possibilities of #blockchain and other distributed ledger technologies (“DLT”) applied to smart contracts, optimising payments systems and other aspects of the financial markets. A growing number of financial entities are seriously investing in it, and we keep reading and hearing that this is the future of financial markets.
The message for financial entities being: get in the game now or risk irrelevance tomorrow.
So what are these distributed ledger technologies all about, and are they all they’re cracked up to be? DLT, in its various flavours, is the #technology behind #Bitcoin and every other #cryptocurrency. The blocks necessary to put together the puzzle to complete a transaction are distributed across a decentralised computer network of users, and DLT’s main selling point is that it’s self-authenticating and very difficult to tamper with.
Around 2016, #banks started to get very excited about DLT because they figured that it could be applied to efficiently and quickly settle payments and securities transactions, and even to develop smart contracts: algorithm-based programmes that use DLT to automatically detect when a party performs its obligations or fails to do so, and trigger payments or penalties accordingly. It’s easy to see why financial entities get so excited about DLT: it can significantly cut down the time required to settle transactions (a process that normally takes two or three days for securities), and automate verification procedures which are currently carried out manually.
Ever since that epiphany, financial entities’ investment in DLT has grown dramatically, whilst the rest of us wait with bated breath in anticipation of a brave new financial world any day now – only that it might not happen just yet.
The fact of the matter is that DLT was developed for the purpose of sustaining cryptocurrencies (and smart contracts, in the case of Ethereum), and it works well in that application. But just because DLT fits the bill for cryptocurrencies, does that mean that it will also do a good job when applied to the financial market infrastructures?
A few days ago, the Dutch Central Bank published a report with its conclusions on a series of blockchain trials conducted over the past three years to assess the actual usefulness of DLT in realistic financial market infrastructures scenarios. These trials are particularly insightful for a number of reasons:
When it comes to financial markets infrastructures, there are strict requirements in terms of authorisation, availability, capacity, costs, efficiency, legal certainty, reliability, scalability, security, sustainability and resilience, and each of them is a deal breaker. Current interbank payment systems, such as Target2 in the Eurosystem, meet all of the above requirements and, in the words of the Dutch Central Bank “are highly efficient, can handle large volumes and offer the legal certainty that a payment is completed.” It follows that any new technology must at the very least tick all boxes, and additionally show distinct advantages, if it is to replace existing systems.
So did DLT live up to the hype? Not quite, it seems. Again, quoting the Dutch Central Bank: “The blockchain solutions we tested proved to be inefficient – in terms of both costs and energy consumption – and unable to handle large numbers of transactions. Furthermore, several consensus algorithms we used will never achieve the full certainty of a transaction, so that it cannot be undone, which the central banks&39; Target2 system offers. Other algorithms are able to withstand parties with malicious intent and have the potential of raising the [financial market infrastructures’] cyber resilience, but they currently fail to meet other [financial market infrastructures] requirements. DLT may well offer enhanced efficiency in payments that involve multiple currencies, however”.
What does this all mean? It means that, though “the blockchain technology underlying bitcoin is interesting and promising, and future algorithms may well offer improved compliance with [financial market infrastructures] requirements” in its current form, DLT does not seem to cut the mustard.
Undeniably, DLT is an exciting technology and, in some form yet to be developed, it might be just the ticket to improve the efficiency of financial settlement systems. Just don’t expect that to happen next week.
[linkedinbadge URL=”https://www.linkedin.com/in/adolfo-pando-molina-5b4a7555″ connections=”off” mode=”icon” liname=”Adolfo Pando-Molina”] Adolfo Pando-Molina is CEO & General Counsel of RegBot®
In my last blog, I discussed how #technology and talent are the building blocks for #banks’ transformation to what Accenture calls “the New”.
But now let’s take a step back. Around five thousand years ago, humans in what is now China and Europe began working with an alloy of copper and tin. Combined, these two soft metals formed #bronze, a material harder than other metals available at the time.
In the Bronze Age that followed, civilization made great leaps in agriculture, writing and government, all enabled by the gains in productivity from this valuable alloy.
I don’t think it is unrealistic to believe that we are looking at the start of a new Bronze Age, an era of unleashed potential made possible by a new alloy: the combination of human and #artificial #intelligence (AI) in the workplace.
Our recent research into the attitudes of financial services executives and workers toward the future of the workforce indicates that this belief is widely shared. Nearly seven in ten (69 percent) financial services executives said the industry would be completely transformed by intelligent technologies, and nearly two-thirds (63 percent) said they expect AI to result in a net gain in jobs in their organization over the next three years. Bankers were even more optimistic at 74 percent and 67 percent, respectively. And 62 percent of all financial services employees (67 percent in banking) said they expect intelligent technologies to create opportunities for their work.
Across the board, survey respondents said they believed that AI would cause more jobs to be reconfigured than eliminated and that reconfigured jobs would be more strategic. Contradictions emerge, however, as many firms indicate that their people may not be ready for this transformation. Financial services executives say only one in four of their employees are ready to work with intelligent technologies, and nearly half (47 percent) say the growing skills gap is the leading factor affecting their workforce strategy. Yet only a small number (3 percent) indicate they plan to significantly increase their investment in reskilling over the next three years. Firms will need to resolve these contradictions to make real progress in creating the human/AI alloy needed for the new Bronze Age.
A few banks and insurers have already started applying AI to their HR management, but the journey through the three levels has not yet been made at scale and will require significant investment in talent management, retraining and redeployment. The new Bronze Age will confer advantages on firms that can harness the human/AI alloy, but doing so will require a serious commitment to the human as well as the AI part of the mix.
Learn more about Accenture’s research into automation and the future of the workforce in our report, Reworking the Revolution.
The post Will artificial intelligence launch a new Bronze Age? appeared first on Accenture Banking Blog.
#Chase has designed a bank account for millennials, a debit card linked to a mobile phone that bypasses paper and bank branches.
Financial Technology
#Developers and companies intrigued by #blockchain but who don’t know where to start can sign up for the IBM Blockchain Platform #Starter Plan to get a proof of concept up and running quickly.
Financial Technology
#Blockchain‘s future in #banking is bright, but right now, the industry is not prepared to take advantage of what the #technology offers, according to a new #McKinsey report on blockchain’s viability across various industries. The report, released last week, describes blockchain&8217;s suitability for financial services in this way: Financial services’ core functions of verifying and transferring […]
Bank Innovation
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