Issue 37
The Outlook for Bank Mainframes in 2022 and Beyond Page 26
We’re all talking about inflation – but can anything beat it? Page 16
Trends in carbon tracking banks should look out for in 2022 Page 18
www.globalbankingandfinance.com
EDITORS LETTER
FROM THE
editor
Chairman and CEO Varun Sash Editor Wanda Rich email: wrich@gbafmag.com
Dear Readers’
Head of Distribution & Production Robert Mathew
I am pleased to present Issue 37 of Global Banking & Finance Review. For those of you that are reading us for the first time, welcome.
Project Managers Megan Sash, Amanda Walker Video Production and Journalist Phil Fothergill Graphic Designer Jessica Weisman-Pitts Client & Accounts Manager Chanel Roberts Business Consultants Rick Saikia, Monika Umakanth, Stefy Abraham, Business Analysts Samuel Joseph, Dave D’Costa Advertising Phone: +44 (0) 208 144 3511 marketing@gbafmag.com GBAF Publications, LTD Alpha House 100 Borough High Street London, SE1 1LB United Kingdom Global Banking & Finance Review is the trading name of GBAF Publications LTD Company Registration Number: 7403411 VAT Number: GB 112 5966 21 ISSN 2396-717X. The information contained in this publication has been obtained from sources the publishers believe to be correct. The publisher wishes to stress that the information contained herein may be subject to varying international, federal, state and/or local laws or regulations. The purchaser or reader of this publication assumes all responsibility for the use of these materials and information. However, the publisher assumes no responsibility for errors, omissions, or contrary interpretations of the subject matter contained herein no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the publisher
This issue is filled with exclusive insights from financial leaders across the globe. The challenges posed by mainframes are significantly shaping enterprise digitization strategies and trends in the financial services industry. ‘The Outlook for Bank Mainframes in 2022 and Beyond’, explores navigating mainframe challenges, explains why it still isn’t the end for mainframes, and discusses the era of new outsourcing models. (page 28) Merchant bank Turquoise International, which specialises in energy, environment and efficiency, is seeing increasing numbers of investment opportunities emerge in climate technology, with investors keen to back products, solutions and initiatives capable of meeting the evolving demands of the world’s economy for decarbonisation and environmental improvement. Ian Thomas, managing director, Turquoise International, outlines the opportunities for investors in this area on page 24. Don’t miss, ‘We’re all talking about inflation – but can anything beat it?’, by Cameron Parry, Founder & CEO of Tally on page 16. We strive to capture the breaking news about the world's economy, financial events, and banking game changers from prominent leaders in the industry and public viewpoints with an intention to serve a holistic outlook. We have gone that extra mile to ensure we give you the best from the world of finance. Send me your thoughts on how I can continue to improve and what you’d like to see in the future.
Enjoy!
Wanda Rich Editor
®
Stay caught up on the latest news and trends taking place by signing up for our free email newsletter, reading us online at http://www.globalbankingandfinance.com/ and download our App for the latest digital magazine for free on Google Play and the Apple App Store
Issue 37 | 03
CONTENTS
BUSINESS
08
Why solving the data puzzle is key to business success Jonathan Westley Chief Data Officer Experian UK&I
Post Pandemic Remuneration: Champagne Problems?
12
Hannah Ford Employment Partner Law Firm Stevens & Bolton Tom O’Dell Trainee Solicitor Law Firm Stevens & Bolton
How organisations can align their digital sustainability credentials with existing physical sustainability philosophy
20
Amy Czuba senior account manager Nexer Digital
Digital marketing beyond personalisation Stuart Russell CSO Planning-inc
04 | Issue 37
40
CONTENTS
BANKING Trends in carbon tracking banks should look out for in 2022
12 18
Emma Kisby UK and Europe CEO Cogo
The Outlook for Bank Mainframes in 2022 and Beyond Owen Wheatley Partner ISG Sowmiya Bakthavatchalam Senior Lead Analyst ISG
42
26
How AI Helps Traditional Banks Compete Against Modern FinTech and Digital Competitors Sri Ambati CEO & Co-founder H2O.ai
49
Can Traditional Banks Stop Fintechs from Eating Their Lunch? Greg Cohen CEO and Chairman Fortis
Issue 37 | 05
CONTENTS
FINANCE The rise of embedded finance, and what it means for online retailers
14
Tom Bentley Chief Commercial Officer Vodeno
16
We’re all talking about inflation – but can anything beat it? Cameron Parry Founder & CEO Tally
INVESTMENT
FINTECH
30
The Fintech Road to Carbon Neutrality
24
Rising to the occasion
46
Augmenting the financial experience with hyperpersonalisation
Aaron Yeardley Carbon Reduction Engineer Tunley Engineering www.tunley-engineering.com
Ian Thomas Managing Director Turquoise International
TECHNOLOGY
32
Effective human interfaces are key to successful digital transformation Dr John Yardley Founder and CEO Threads Software
36
Understanding The Opportunities for AI-Cameras and LiDAR for Smart Road Infrastructure Dr. Georges Aoude Co-Founder Derq
06 | Issue 37
Rajesh Awasthi Vice President and Global Head Managed Hosting and Cloud Services, Tata Communications
Get Any Work Done Online!
https://gawdo.com/
BUSINESS
Why solving the data puzzle is key to business success Growth in data creation and replication soared in 2020, hitting 64.2 zettabytes. Considering that a single zettabyte is enough storage for 30 billion movies in 4K, or 60 billion video games, really puts it into perspective. It’s a lot of data. The volume, velocity and variety of data is growing each minute; our world is rife with opportunity for data. If companies were not familiar with the potential of data before the pandemic, they are now. With businesses shifting to home working, and consumers seeing examples of how data is used in our pandemic response, we really began to appreciate the range and power of data. But we’re neglecting the mass of data on our doorsteps. Less than 2% of the data created in 2020 was saved and retained into 2021. And while most businesses now collect data in some form, many are struggling to appreciate the potential of that data or hold it in formats that make it impossible to analyse.
08 | Issue 37
Organisations don’t make the most of data because they’re missing two-thirds of the puzzle pieces. To optimise data processes and extract the insights that will lead to better decision making, businesses need to build a “three-legged stool”. These legs are data, technology applications (like cloud computing), and analytics powered by Artificial Intelligence (AI). Barriers remain when it comes to putting this structure into practice. Everything from poor quality data and individuals’ distrust in data sharing, to a lack of skills in managing data is holding businesses back from accessing critical data insights. These barriers are not insurmountable. But leaders do need to make a conscious effort to overcome them if they’re serious about optimising their data use. For some (4) tips that will kickstart your journey towards building that “stool”, read on.
Invest in data leaders and talent For businesses looking to build strong data foundations, appointing a Chief Digital Officer (CDO) is a good place to start. Researchers have found that businesses with a CDO are twice as likely to have a clear digital strategy as those without. A CDO leads the charge on embedding a culture where data is seen as an asset that helps the business make informed decisions. They can also spearhead business responses to evolving data privacy regulations and policy, as well as lead strategies that will protect sensitive customer and business data.
BUSINESS
Furthermore, businesses should put the time into understanding their current state of play for handling, processing, and managing data. Conducting a data audit is one of the most effective ways of identifying problem areas and shedding light on how data assets are currently being used. It highlights levels of data literacy in a business, where money is being wasted, and how data might be better strategically used to increase profits. Identify opportunities for data use It’s not easy to know exactly where the next market disruption will come from, but it’s a challenge business must overcome to remain future-ready. Understanding the scope of this disruption is not only good for business performance; it’s vital for staying ahead of competitors and adapting business models to accommodate customer demands. Be prepared to disrupt yourself.
At present, many businesses underestimate the range of applications for machine learning (ML) and AI within their field. Instead, many digital transformation projects focus on enhancing an existing business model. The more productive – and in the long-run, profitable – pathway would be to explore how better engagement with data enables your business to operate, innovate and grow in new and more efficient ways. A customer-centric digital strategy, powered by ML and AI applications, can help businesses to uncover customer trends before competitors. Get company buy in Without the support of the wider company, data teams will likely fall at the first hurdle. At times like this, we can fall back on the wise words of the Chinese philosopher, poet and politician Confucius: “Tell me and I will forget; show me and I may remember; involve me and I will understand.” A bit of leg work to demonstrate exactly how data applications such as AI and ML can benefit different company divisions may be required to get everyone on board. These aren’t just buzz words they are technologies that will change outcomes.
Issue 37 | 09
BUSINESS
A simple way to do this is to look at a particular business function and highlight comparison points that demonstrate the effectiveness of AI and ML technologies compared to the status quo – or, indeed, alternative solutions. For instance, in financial services, it’s straightforward to show that AI does a much better job at determining credit risk than humans. Experian’s own analysis demonstrates that applying ML in credit decisioning can achieve a 25% reduction in bad debt over traditional linear regression models.
A good relationship with customers is vital if the data your business relies on is sourced from them. The effectiveness of AI and ML solutions is dependent on data quality, accessibility, and management. Rigorous and fair governance frameworks for data can help a business ensure that data engineering is tight and bias and unfair models are avoided. They also reassure customers, who are often sources of that data, that their information is in safe hands.
While it may be tempting to paint a promising picture of the company’s data-driven future, data teams should be wary of doing so. Setting realistic expectations with teams and leaders is critical for building long-term buy-in on a data strategy. After all, AI and ML applications likely won’t have perfect performance immediately; optimising them is a process of trial and error.
Putting the stool together
Build trust with your customers As well as involving internal stakeholders, a data strategy must take external ones – like customers and consumers – into account too. Customers will be some of the first to question how data is being used, stored and protected by a business. A key part of establishing trust with them is enforcing rigorous frameworks around how data is managed and used. Good data governance starts with being clear about what an organisation is trying to achieve. It should be outcome based, and it should be communicated in a transparent way. If what you’re trying to do is for the good of society or customers – that’s great, and that should be communicated too.
10 | Issue 37
Having data is only one part of the puzzle. Optimising its use in a way that produces valuable insights for a business means investing in technology applications and analytics technology, like AI and ML, too. Eradicating barriers like poor data quality, data skills shortages and customer distrust is vital for helping these investments to take off. Only then will business have a sturdy stool to stand upon, which can be used to support growth and reap the competitive advantages the use of data provides.
Jonathan Westley Chief Data Officer Experian UK&I
Try Our Guilt-Free Investment Sucorinvest Sustainability Equity Fund
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, INVESTOR MUST READ AND FULLY UNDERSTOOD THE MUTUAL FUND PROSPECTUS AND OR OTHER OFFERING DOCUMENTS BEFORE DECIDED TO INVEST IN MUTUAL FUND. INVESTMENT VALUE OF MUTUAL FUND CAN GO UP OR DOWN IN ACCORDANCE TO MARKET CONDITION, PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. PT SUCORINVEST ASSET MANAGEMENT IS SUPERVISED AND REGISTERED BY INDONESIA FINANCIAL AUTHORITY (OJK) WITH REGISTERED NUMBER KEP01/PM/MI/1999
BUSINESS
Post Pandemic Remuneration: Champagne Problems?
With the 2022 bonus season in full swing, the pressure on businesses to wow their rockstar performers with “the number” has never been greater. When it comes to performance driven pay, the finance and banking sector has of course always led the charge. 2022 is predicted to be a bumper bonus year, as global investment banks battle to win a fierce war for talent: City bars are reported to be running out of fizz as bonus pools increase by upwards of 20%. Other sectors including retail are closely following the pay bump trend. In March John Lewis announced that it was reinstating its staff bonus, after narrowing its losses to 26 million last year. It announced a 3% bonus to workers, equivalent to 1.5 weeks’ pay, alongside a general increase to staff pay by 2%. The legal sector is no different. Many
12 | Issue 37
recruiters report placing graduate lawyers on starting salaries of over £100,000 in the City, even rising as high as £150,000. With 48% of legal professionals expecting a pay rise in 2022, UK law firms are under increasing pressure to match the high salaries already offered by US firms seeking to expand into the British market and increase their budget for pay rises by as much as 15% - more than twice the rate of inflation. Of course, the fear is that this trend is simply unsustainable, which has led many to question the factors that are driving the bonus frenzy and pay hikes. Staff shortages Firstly, the HR press remains dominated by the record high number of vacancies currently being
experienced nationwide. The Office for National Statistics (“ONS”) recorded a high of 1,247,000 vacancies in the three months to December 2021, with unemployment rates at a notable low of 4.1%. Together, these pose a tricky landscape for employers to navigate: fewer people looking for each available job means employers are having to pull out all the stops to secure new talent and stop them from being snapped up by competing businesses. In some cases, this may take the form of offering flexible or hybrid working as a differentiator. The post-pandemic world Beyond vacancies, the post-Covid employment landscape has also changed shape demographically. The latest figures from the ONS suggested that there are 280,000 fewer over-50s either in work or looking for work than in January 2020. The ability to retire
BUSINESS
early indicates significant financial wealth, so it’s no huge leap to suggest that, in the financial services sector, these were high-earning, highly qualified individuals who have now hung up the power suit. This opens up employers to increase the wages of more junior employees who will be stepping up into the breach. Brexit The B-word continues to rear its head in many aspects of employment news and salaries are no exception. Brexit has been linked to the increase in vacancies across all sectors, especially in areas such as hospitality and logistics, with salaries in the former increasing by up to 12% in some areas in an attempt to woo workers to the field. The decline in interest for jobs traditionally populated by a workforce predominantly made up of EU nationals has undeniably triggered these raises, although these are traditionally low-paid jobs - far from the bubbly heights of the champagne finance sector. The cost of living The domestic headlines over recent months have become ever more daunting, with the cost of living rising at alarming levels. Global uncertainty over energy supplies is more concerning than ever, with energy bills and fuel prices rising day by day and week on week. In their announcement
of the restoration of the annual staff bonus, John Lewis executives cited the cost of living squeeze as a primary consideration in increasing salaries and bonuses, and undoubtedly this will be a concern shared universally. A recent survey by Wagestream found that almost 7 out of 10 UK employees are concerned with money whilst at work. Increases to salary seem a natural and obvious solution to allaying such concerns, but not every business can afford to throw cash at the problem.
Hannah Ford Employment Partner Law Firm Stevens & Bolton
But salary isn’t everything. Following the pandemic, flexible working has leapt up the priority list for employees. With the power balance of the job market firmly shifting towards employees, flexible or hybrid working patterns are now a necessity for employers to implement where they can and are expected by the next generation of talent. Primarily, these discussions and concessions will take place around working location, but hours and the length of the working week are now also falling under increased scrutiny.
Tom O’Dell Trainee Solicitor Law Firm Stevens & Bolton
Money doesn’t always talk - a fourday working week, unlimited holiday allowance, or location and working hours flexibility are more likely to be celebrated as true riches by a discerning talent pipeline…
Issue 37 | 13
FINANCE
The rise of embedded finance, and what it means for online retailers The past few years have been transformative for eCommerce. Not long ago, embedded financial solutions were a virtual non-entity in the world of online retail, with very few experimenting in the space. Today, consumer digital expectations, accelerated by the pandemic, require brands to ensure a seamless, convenient checkout experience. Brands are beginning to offer more and more embedded financial solutions directly to their customers at the point of sale, providing credit options, insurance, personalised credit and debit cards and even bank accounts. These novel services might have seemed out of reach for a non-financial business like an online retailer, but they are quickly becoming table stakes in the eCommerce space. The role of retail As embedded banking becomes the norm in the eyes of consumers and FS institutions worldwide, online retailers must ensure that they are doing enough to stay ahead of this trend and continue to meet rising expectations. Vodeno’s own research, which surveyed more than 750 retail decision-makers across the UK, Germany and Belgium, found that almost 75% of retailers are already offering embedded finance products on their platforms, such as credit cards, ‘Buy Now, Pay Later’ (BNPL) schemes and loyalty incentives, while 56% are planning to introduce even more schemes over the coming months. These figures belie the trend towards embedded finance within retail, although we are just scratching the surface of what is possible. With this in mind, what should be the top priorities for online retailers today? Why does this transformation matter? And what does the future hold for embedded finance within retail?
14 | Issue 37
Why embedded finance? In order to understand why online retailers are embracing embedded finance solutions at such an astonishing rate, Vodeno’s research asked business leaders to rate the key motivators behind this transformation. The most common response was the prospect of creating new revenue streams, which 41% of respondents listed as a motivating factor, followed by the potential for growing the customer basket (40%). While leveraging embedded finance to increase revenue streams and profitability is an enticing prospect, fewer than half of respondents listed either of these as key motivators, reflecting the variety of benefits that embedded finance can offer retailers. Embedded finance is more than just a money-maker – it also allows retailers to improve customers’ satisfaction with the brand (38%) and increase customer loyalty (40%). We are already seeing real-life examples of embedded finance being deployed in innovative ways to strengthen consumers’ relationships with brands. Kohl’s, a US-based department store chain, recently partnered with Capital One to produce a branded credit card that provides rewards and bonuses to consumers, encouraging increased customer loyalty. As embedded finance develops further, we will see more and more of these use cases taking hold. To succeed in the eCommerce space today, it is essential to understand a customer’s desires and ensure that their shopping experience is as smooth and seamless as possible. To this end, 39% of respondents listed improved customer insights as a key motivator, while 37% view embedded finance as an opportunity to utilise data in elevating their customer journey.
FINANCE
Tom Bentley Chief Commercial Officer Vodeno
It presents a virtuous cycle – as the introduction of embedded finance products has raised expectations for customer experience, those increased expectations will drive the further introduction of new and innovative embedded finance solutions. The retailers with the best customer experience will end up on top, which is why retail decision-makers need to have their priorities in order. The ins and outs of embedded finance Seamlessness is the watchword of superior customer journeys, where embedded financial products are not just present – they are smoothly integrated into the experience without hindering or disrupting it. This is why white-labelled solutions should be a priority for retailers – a thirdparty product does not just dilute branding and muddle potential insight, but being redirected to an external platform creates unnecessary friction for the customer.
Retailers are primarily non-financial entities, and the technological capabilities and regulatory experience necessary to build financial products are beyond the remit of most. This is where Banking-as-a-Service (BaaS) fits in, allowing retailers to offer their own white-labelled products that fit seamlessly within their ecosystem. 38% of respondents stated that a key factor in selecting their chosen technology vendor was that the comprehensive solution they offered required little to no development on the part of the retailer. Regulatory and compliance standards were also a priority for 31%, and a localised banking licence was a key factor for 34%. Again, the variety of priorities in this decision underlines the range of considerations retailers must undertake, particularly when selecting a BaaS partner. What’s next for retail The motivations behind the ongoing embedded finance transformation within the retail sector may be varied, but Vodeno’s research has presented some clear through lines – embedded finance is not just a means to boost revenues, but to improve every element of the purchasing journey and customer experience.
The requirements for building and maintaining value-adding products may seem unattainable to retailers who have no experience in finance and banking, but the rewards are too great to overlook. The next phase of retail is inexorably linked to the promise of embedded finance, and the retailers who stay at the forefront of this shift will reap the greatest benefits, while those who don’t will be left behind.. Tom Bentley is the Chief Commercial Officer of VODENO. Tom is an expert in the banking and financial services sector with more than 12 years of experience. Tom joined VODENO from Thought Machine where he was responsible for growing its business across Europe. Prior to Thought Machine, he held executive roles at banking software company, Temenos, across Asia and Australia, working with some of the most disruptive fintechs in the world.
Issue 37 | 15
FINANCE
We’re all talking about inflation – but can anything beat it?
Inflation is at its highest official rate in 30 years, yet the current monetary system is only 50 years old. Unfortunately, fiat currencies are long past their shelf life. Lessons haven’t been learnt since the Global Financial Crisis in 2008, with global debt continuing to pile up ever since. And the COVID-19 pandemic has only made matters worse. The value of fiat currencies has further plummeted and consumers and savers are feeling the impact. The latest ONS figures indicate that UK government debt is at 104% of GDP, and the US situation is even worse. Although there has been a slight drop since its peak, the US federal debt remains over 120% of GDP.
16 | Issue 37
Inflation is running riot, too. The UK’s official rate is 6.2%, although many see the actual rate far in excess of this with the prices of many key products soaring at a faster rate. The latest forecast is that we’ll see 8% inflation in the UK sooner rather than later, making the Bank of England’s target of 2% seem like a figure plucked from thin air (that the central bank never had control over). US inflation is at 7.9% and rising quickly, and is already at the highest level in 40 years. Can this go on? Unfortunately, yes. Central banks are likely to keep ‘printing’ money digitally, further devaluing fiat currencies. Less than 4% of pounds sterling are printed as banknotes, meaning over 96% of pounds are little more than a keystroke on a computer.
And the impact on our cash and savings is clear. Inflation devalues people's earnings and dilutes the value of bank customer's savings. To make matters worse, bank accounts are paying savers historically low interest, with many high street banks offering less (and often much less) than 1% interest on savings accounts. This is despite recent 0.25% interest rate rises announced in February and March by the Bank of England. Clearly, this 0.5% rate rise over the past two months hasn’t been passed onto most customers. Saving with traditional banks works to the detriment of the customer, who receives a minuscule amount of interest compared to the interest
FINANCE
the bank makes from leveraging the customer's savings. Savers see the spending power of their savings eroded when they entrust their funds to banks. This disincentivizes saving and demotivates productivity. It also undermines any sense of security or trust - 33% of UK adults fear that their money isn’t safe in the current monetary system. This rises to almost half (48%) of 18-24-year-olds. Save r s n e e d a s ol uti on desi gned to a d dre s s t h e mo n etar y trap they ’ re c a ug h t in . F ia t c urrenci es have p rove n t h at t h ey are no l onger fi t f or p u r p o s e f o r s avers, especi al l y i n t h e c u r re n t p e ri od of rampant i n flat io n . A s in f lati on soars, the d i min is h in g p u rc hasi ng power of f i a t c u r re n c ie s q ui ckens. There is only one dependable option for those looking to combat the effects of inflation. Over the last year, gold prices have risen 15% – a return that savers with traditional banks couldn’t dream of. Over the last five years, gold has grown by around 57% against the pound, a figure that takes into account the price dip in the summer of 2020.
Looking at longer term figures, over the last 20 years the value of the pound has fallen 89% against gold or, put another way, the gold price has climbed 540% in value against the pound. And this trajectory is far from unique. Historically, gold is proven to consistently grow in value over time against every fiat currency. Whilst GBP loses its value, gold tracks inflation The below graph demonstrates how closely the gold price tracks inflation. Whilst the CPI index depicted in the graph shows how the cost of living has surged since 2013, the value of gold has nearly doubled over the same period. In the below, the GBP price per gram of gold is shown on the left side and the inflation index is shown vertically on the right side, showing the strong correlation between the rising value of gold and the rising cost of living. This demonstrates the solution that Tally offers - an inflation-fighting commodity currency that protects the value of people’s money.
Cameron Parry Founder & CEO Tally
The current financial climate means it’s vital that people use a form of money that can hold its purchasing power. The incumbent system not only sees the purchasing power of cash decline, it also restricts control people have over their money and puts them at risk from the systemic failings of fiat currencies. It’s no wonder that alternative currencies have soared in popularity in recent years. Our research shows that 38% of UK adults would use an alternative currency to protect their savings if the safety of their money is guaranteed – this jumps to 53% of 18-24 year-olds. People may have long wanted change, but there were no viable alternatives to the pound for use as everyday money. This is no longer the case. As a full-reserve monetary system and payments platform that uses gold to protect account holder’s money, Tally, offers a choice in the type of money we use everyday. A reliable asset-based money insulating earnings from rapidly rising inflation and protecting consumers from risky banking practices. And now more than ever depositors and savers are realising they need to try a secure alternative everyday money.
Issue 37 | 17
BANKING
Trends in carbon tracking banks should look out for in 2022
Growing rapidly in importance over recent years, carbon tracking is fast becoming a diverse – if somewhat disparate – landscape. From multinational corporations all the way down to individual consumers, there is an increasing desire to be able to quantify and understand climate impact. The 2020s is likely to be the decade where carbon tracking reaches its inflection point and goes from being a peripheral to a central part of our efforts to combat climate change. Through our partnerships with banks like NatWest and TSB, we have seen first-hand how individual choices can ladder up to a huge collective impact. The unique relationships with customers and visibility of spending data that banks and other financial services players have access to puts them in the perfect position to help bridge the gap between potential
18 | Issue 37
and current scalability. As with any emerging technology however, there are at first several key obstacles which must be overcome. Here are a few that banks should be watching for in the coming years: Carbon tracking is still evolving Both the range of solutions coming to market and the number of users (consumers and businesses) that carbon tracking reaches will rise exponentially over the next few years. This will give users the chance to try different models and approaches – keeping things flexible and discarding those which are less fit for purpose. It should also support a rising tide of customer expectations, which will support ongoing innovation and continual improvement in the market as a whole.
With competition also comes the potential for collaboration between solutions that together are better than the sum of their parts. Even fairly niche technologies have the potential to make widespread change with the right partners. For example, widespread carbon labelling could be a gamechanger for carbon calculators, which would be able to apply their insights to not just a shop as a whole, but individual items bought. At Cogo, we have found that our carbon tracking algorithm works best when integrated and amplified by the strong infrastructure and user base of consumer banking apps. As these combinations of solutions are tested out, our capabilities to understand carbon emissions will become deeper and more contextualised.
BANKING
Convenience will be key to uptake There is also strong potential for technologies from other industries to be applied to the opportunities and challenges of tracking carbon emissions. One key area where emerging technologies like AI and blockchain could work well for example, is in making carbon labelling ‘smarter’. This would provide better traceability for products that make carbon impacts more accurate and convenient. QR codes in particular could be revolutionary, if they allow a quick scan with your smartphone to add the carbon impact to your total lifestyle ‘spend’. Think of the likes of wellbeing apps, like MyFitnessPal. In addition to reducing the burden of tracking carbon manually, such applications would also allow data analysis of how choices are made in real life. By understanding the customer mindset behind a piece of data more deeply, customer prompts and offers could be used to help consumers make more sustainable spending choices. Greater standardisation A key factor for highly regulated industries like banking will be to see standardisation introduced into carbon tracking. Many carbon tracking softwares have already become approved for use in the banking space. But there will also need to be greater consistency and agreement on how carbon emissions are tracked and calculated. In the same way that a consumer is able to compare current account options across providers online, banks need to be able to compare carbon tracking options to understand which best fits into their ecosystem and wider product offering.
To prepare for larger-scale adoption, there will certainly be a period of carbon education. In the shorter term, the priority should be to remove some of the confusion created by having non-comparable carbon-tracking systems. This would simplify the education step for B2B buyers and speed up the adoption process. Regulation on the horizon Another way to bring greater clarity to carbon tracking would be via the creation of industry bodies or voluntary charters. The TCFD, or Task Force on Climate-Related Financial Disclosure, already addresses this need up to a certain point. There are also some voluntary schemes, such as the UK Carbon Trust’s voluntary carbon labelling options. The results of these initiatives so far indicates that they inspire greater confidence in carbon tracking, thus encouraging other industries such as financial services to trial partnerships and other collaborations. While voluntary measures may only be taken up by the best-performing carbon tracking systems, nevertheless they are a good way to build confidence and trust in those providers.
Impact leads the way The uniting theme of all these trends is ‘impact’. While carbon-tracking solutions address the climate crisis in a variety of ways, they all share a core purpose to make it easier to track, measure, and understand carbon emissions. The current market is one with a wide variety of players, which we can expect to become more collaborative and integrated into banking systems in the coming years. The key will be to find and back the winning players early.
Official regulation is also no doubt on the horizon for the carbon-tracking industry. This may take years to come into law, but it is something that financial services organisations should start planning for now.
Emma Kisby UK and Europe CEO Cogo
Issue 37 | 19
BUSINESS
How organisations can align their digital sustainability credentials with existing physical sustainability philosophy The internet emits a massive amount of CO2, with its annual emissions exceeding those of the airline industry. The energy demand from data centres, where servers need round the clock powering as well as cooling to prevent overheating, means the internet and its associated products produce as much carbon as Hong Kong, Singapore, North Korea, Bangladesh, The Phillippines, Sri Lanka and Mongolia combined. Despite an ever-increasing focus on sustainability from businesses and other organisations, digital products are chronically overlooked in many cases, and this could be harming wider environmental initiatives. In recent years, businesses around the world have had to improve ESG strategies to meet the demands of customers and stakeholders and some progress is being made towards a net-zero future. For example, IKEA invested EUR 200 million into decarbonising its supply chain and supporting reforestation initiatives,
20 | Issue 37
as well as phasing out virgin materials and reducing single-use plastic packaging. Other brands are championing a circular economy, such as outdoor clothing brand, Patagonia, which offers repairs and recycling for its products in addition to all offices and stores being 100% powered by renewable energy. These strategies from large corporations are essential in curbing the climate crisis, but ESG needs to be holistic and consider digital as well as physical. Failing to minimise the impact of websites or apps could counteract wider sustainability successes. High energy use by the internet is something of an inevitability, but there are ways that businesses can reduce their digital carbon footprint to align with wider sustainability philosophies. Audit current output The current lack of importance placed on digital carbon footprints is largely due to a lack of awareness. The first step to changing this is becoming
informed on how much CO2 various digital processes emit and identifying savings from here. The starting point for physical sustainability strategies should be to carry out an audit to see where the organisation is and identify where improvements can be made, and digital impact reduction is no different. By measuring digital carbon footprint, organisations can make conscious decisions on their digital practices, and build a plan for better digital sustainability. A single email, for example, can emit 10g of carbon, increasing to 50g if sent with an attachment. In some businesses, thousands of emails will be sent and received each day, which demonstrates why digital sustainability needs to play a greater role in ESG strategy. When these emails are then stored on computers or clouds without an auto-delete retention policy, even more carbon is emitted to retain them. Introducing a retention policy which means all emails are deleted after five years, for example, will begin to improve a business’s digital footprint.
BUSINESS
Issue 37 | 21
BUSINESS
Websites are also key carbon emitters and an element that organisations must consider and improve to truly minimise ecological impact. The more complex a webpage is, the more polluting it is. For example, images, videos and even certain colours put more strain on the bandwidth and therefore use more energy. Website carbon output can be benchmarked using Website Carbon Calculator and this should be done at the outset of a sustainability journey so businesses can see how carbon-intensive their website is and whether the hosting servers are using green energy. Servers and hosting As with commercial and residential buildings, data centres can be powered by green energy or traditional energy. As power-hungry facilities, organisations should be looking to host their website on green-powered servers to minimise carbon footprint.
22 | Issue 37
The need for a greener web is becoming more recognised and several key hosts are adjusting to this. Microsoft, Amazon and Google all use at least 50% renewable energy to power their servers, so green hosts are not hard to come by for organisations looking to improve their credentials. To find out if their current host has genuine green commitments, organisations need to look for meaningful statements of green energy in data centres as well as other facilities and wider policies in energy efficiency, electronic waste and travel. The best policies will have tangible, measurable commitments rather than vague or unsubstantiated statements. Another decision for organisations to consider is if they use a dedicated or cloud server. Cloud-based servers are the eco-friendlier option, as well as more cost-effective for businesses, but may not be appropriate in every case.
The Green Web Foundation has a directory of sustainable hosts, which is a good place to look if an existing host isn’t committed to being green. Technical optimisation Better website sustainability does not have to and should not come at the cost of diminished user experience. There are a number of technical fixes that can be made to deliver a site of the same quality but without servers working so hard, reducing the amount of energy needed to deliver it. Compressing webpages will make them smaller and therefore less demanding on bandwidth and energy to load and caching delivers copies of stored pages or resources rather than having to redownload them from the originating server each time. Another way of reducing bandwidth strain is optimising the website to require fewer requests or bundled requests that spend less time loading.
BUSINESS
Amy Czuba senior account manager Nexer Digital
Content optimisation Once a website is technically optimised, focus can then move on to ensuring the contents are as eco-friendly as possible. This means being mindful about the way videos and images are used on the website as they are energy-intensive and how intuitively the site can be navigated. Web content needs to be loaded, and therefore the easier it is to find required pages, the less energy is used. In addition, the more time users spend on a website, the more energy is used. Ensuring enhanced usability will decrease the need for excess navigation between pages and by making information clear and concise, site visitors will need to spend less time on each page. Both of these elements will reduce CO2 emissions. Running readability tests on content will ensure it is easy to understand, reducing the amount of time website users spend on each page. Improving search engine optimisation (SEO) will make content more accessible,
limiting the need for multiple Google searches and making the company website more visible in searches in the process. Case study – Royal Botanic Garden Edinburgh As an organisation delivering worldleading plant science, conservation and education programmes, Royal Botanic Garden has started to improve the carbon footprint of its website to align with its wider philosophy. The project started with an audit in December 2021, revealing its homepage’s baseline emission of 1.70g of CO2 for each pageview. It was also revealed that its server was running on non-green energy.
Conclusion A growing focus on sustainability cannot begin and end at how organisations physically operate. Of course, this is still crucial, but environmental strategies need to go deeper and make digital sustainability just as important. Doing so will ensure environmentalism is running through every strand of a business and that digital and physical philosophies are truly aligned for maximum impact.
Since the audit, there has been a promising start on a number of recommendations, such as looking at greener ways to host the site and improving the technical performance of the website so that it is lighter and less exhaustive on resources. This has already resulted in a 15% reduction in CO2 per homepage visit.
Issue 37 | 23
INVESTMENT
Rising to the occasion Merchant bank Turquoise International, which specialises in energy, environment and efficiency, is seeing increasing numbers of investment opportunities emerge in climate technology, with investors keen to back products, solutions and initiatives capable of meeting the evolving demands of the world’s economy for decarbonisation and environmental improvement. In this article, Ian Thomas, managing director, Turquoise International, outlines the opportunities for investors in this area. New analysis from PwC shows that climate technology investment from venture capital (VC) funds was three times higher in the first half of 2021 than the first half of 2020 1 . Recent market activity certainly backs this up, with SMEs that have solutions to needs ranging from battery storage to chemical-free weed control capturing investor interest on a broader scale. Indeed, 14 cents of every dollar of VC investment today is now allocated to the sector 2 . Since the conclusion of COP-26, a number of UK businesses have joined the ranks of ‘futurecorns’ – firms valued between $250m and $1bn, including Edinburgh-based Intelligent Growth Solutions, water technology brand Bluewater Bio and Tevva Electric Trucks 3 .
24 | Issue 37
Climate technology investment, or ‘green finance’, has evolved as a label for initiatives whereby providers of finance seek to support investments that are aligned with positive environmental impact. These include the issuance of bonds by public and private sector borrowers whose proceeds are deployed in environmentally beneficial projects, direct investments in green infrastructure and also venture capital investments in new, clean technologies. Turquoise has been active in this space for almost 20 years as an investor and also adviser to companies raising capital and/or selling their business to a strategic acquirer. Opening the door The Low Carbon Innovation Fund 2 (LCIF2), an early-stage fund managed by Turquoise that invests in innovative, low-carbon technologies in the UK, has made a range of key investments in the past year. Recent investment examples from across the LCIF2 portfolio include residential renewable energy platform Switchd and EV battery re-use specialist Connected Energy. Building up renewable energies to a position where they can replace coal and gas and be deployed at scale
is critical to future change. LCIF2 investee company Switchd offers energy supply switching services, including green tariffs, as well as MakeMyHouseGreen, a data-driven platform that allows homeowners to source and install domestic renewable energy generation, including solar panels and heat pumps. The combination of the ongoing crisis in the retail energy sector and the urgent need to decarbonise residential housing creates a strong need for the type of services that Switchd offers. Hitting the road Road transport is another area of increasing attraction to investors. Turquoise recently advised Gasrec, the UK’s largest dual provider of bio-Liquified Natural Gas (LNG) and bio-Compressed Natural Gas (CNG) to road transport, on a fundraising deal that led to bp acquiring a 28.57% stake in the business. bp will supply Gasrec with renewable biomethane produced mainly from organic wastes, with investment capital used to help the company expand its nationwide network of refueling stations. The agreement represented an important milestone for Gasrec, securing the brand a strong partner and reliable long-term supply of biomethane for its customers.
INVESTMENT
With new technology comes new opportunity. The European battery electric vehicle (EV) market was forecast to total more than one million units before the end of 2021, with EV sales accounting overall for one in five auto sales across western Europe 4 . By 2030, the EU estimates that there will be 30 million EVs in Europe, with demand for rechargeable lithium-ion batteries set to increase 14-fold by this date, compared to 2018 levels. However, it’s important to consider what happens to the batteries once they reach the end of their useful life in EVs. LCIF2 portfolio company Connected Energy has identified this as a business opportunity. Connected Energy re-purposes de-commissioned electric vehicle batteries and gives them a second life in grid-scale, energy storage systems, which play an important role in smoothing fluctuations both in demand by energy users and in supply by wind and solar farms. Founded by entrepreneur Matthew Lumsden in 2010, Connected Energy’s pioneering energy storage solution almost doubles a typical EV battery’s lifespan. With the transition to electrification continuing at pace, Connected Energy has a reliable supply of ex
automotive batteries. Indeed, industry projections suggest that the used automotive battery capacity available for repurposing could grow by 560% by 2030 5 . With systems operational in the UK, the Netherlands, Belgium and Germany, the company is looking further afield for opportunities across Europe, Japan, the US and other global markets, thanks to substantial investor interest. Brave new world There are also opportunities for fossil fuel companies to adapt their business models to embrace the low-carbon economy. Turquoise recently advised GT Energy, a portfolio company from its first Low Carbon Innovation Fund, that develops deep geothermal heat projects. Turquoise provided advisory services to support the company’s sale to IGas Energy, a leading UK onshore oil & gas producer. Under IGas ownership, GT Energy will progress its flagship 14MW project to supply zero-carbon heat to the city of Stoke-on-Trent through a councilowned district heating network.
Ian Thomas Managing Director Turquoise International
To the climate technology investor, energy use, environmental impact and resource efficiency are hugely significant considerations. As technology continues to evolve, and, crucially, attracts more capital, investor appetite will keep pace with innovation in new technologies and products. Indeed, the investment opportunities in climate technology are broader and deeper than they have been at any time to date. For more information please visit www.turquoise.eu.
1. 2. 3. 4. 5.
https://www.pwc.com/gx/en/news-room/press-releases/2021/pwc-state-of-climate-tech-2021-report.html https://www.ft.com/content/f65cf838-5adf-4720-92f2-e52abae74bc1 https://dailybusinessgroup.co.uk/2022/03/vc-investment-in-climate-tech-rises-since-cop26/ https://thedriven.io/2021/07/28/europe-ev-sales-hit-20pc-but-carmakers-still-eek-out-ice-profit/ https://www.iea.org/reports/global-ev-outlook-2020
Issue 37 | 25
BANKING
The Outlook for Bank Mainframes in 2022 and Beyond
Mainframes will remain in large financial institutions for some time to come, but many banks are grappling with whether to modernize or outsource them. The challenges posed by mainframes are significantly shaping enterprise digitization strategies and trends in the financial services industry.
growth in the coming years. Mainframe and cloud deployments will continue to co-exist as enterprises harness the strengths of both worlds to maximize value and scale. So why do so many anticipate the demise of mainframes?
Mission-critical applications in some of the world’s largest banking and financial services (BFS) enterprises still run on mainframe computers. Their sheer computing power and robust security features have made mainframes a trusted technology for BFS enterprises that want to scale their operations and ensure their data remains secure without major process breakdowns. The transactional integrity and pervasive encryption that mainframes offer remains unparalleled, and they easily support millions of daily banking transactions and manage critical workflows.
The popular perception of mainframes is that is that they are equivalent to heavy machinery in a factory. Mainframes were designed to manage high volumes of data in financial institutions that need to perform large-scale transaction processing, support several thousand users and application programs, handle terabytes of information, and leverage large-bandwidth communications. And mainframes do this well. The challenge today is the cost and skill needed to maintain them.
Despite the advent of technologically advanced cloud alternatives, the global mainframe market is still projected to witness substantial
26 | Issue 37
Navigating Mainframe Challenges
Many banks and other financial institutions are trying – where practical – to move away from the mainframe to address the widening
legacy systems skills gap, the increasing cost of running software on the mainframe, and the perceived disadvantage of missing out on emerging cloud technologies. However, moving away from mainframes has been more easily said than done for most large, established banks, due to the cost of migration and the significant risks associated with such moves – think heart-andlungs transplant. In addition, most technical experts will agree that mainframes still offer the most secure and effective platform for the large volume of workloads and IO-bound transaction applications that are typical of financial institutions. An emerging workaround for the mainframe migration conundrum is to develop a cloud-native infrastructure and use the “strangler pattern” method to incrementally replace legacy applications with new ones as part of a broader dual-core strategy. Alternatively, many large banks leverage third-party outsourcing to drive mainframe optimization and address the resource crunch.
BANKING
Issue 37 | 27
BANKING
Why It Is Still Not the End for Mainframes The pandemic ushered in seismic changes in the banking and financial services sector, forcing firms to reconsider their reliance on fivedecade-old mainframe technology to save costs and adapt to increasing customer demands. Demand for more modern technology is tempered by the realities of entrenched mainframe usage: Mainframes handle billions of ATM, credit card and trading transactions every year, and more than 200 billion lines of COBOL code remain in production, a number that’s increasing annually. This is precisely why the leader in the mainframe space, IBM’s Z platform—which in 2020 was used by 44 of the top 50 banks—has seen multiple reinventions, such as the inclusion of cloud-native development capabilities and enhanced processing power. But are these adaptations enough to keep pace with emerging, innovative technologies and rapid business growth? The spiralling cost to maintain a mainframe environment is compounded by the rapidly dwindling talent pool. In one notable example, the governor of the state of New Jersey, Phil Murphy, publicly pleaded for more COBOL programmers in April 2020 to help upgrade the state’s unemployment insurance system. While the talent crunch is real, corporations are also considering outsourcing to access contractual mechanisms that ensure compliance, security and continuity of service requirements and to reduce the total cost of ownership by optimizing software licenses and lowering
28 | Issue 37
operating costs. In addition, outsourcing can enable parallel transformation activities that must run on the mainframe and new cloud infrastructure, address in-house skills gaps and drive greater business value with increased agility and speed to market, all managed by contractual service levels. The Era of New Outsourcing Models Trends in mainframe usage – whether in-house or outsourced – vary by the size of the enterprise and the size of installed millions of instructions per second (MIPS) on the mainframe platform. Small users, with fewer than 5,000 MIPS, are in fact the only enterprises that are reducing mainframe workloads, with a decrease of approximately five percent per year in favor of shared data center models or phased rehosting strategies. Medium users, with between 5,000 and 20,000 MIPS, are increasing mainframe workloads by around five percent per year, typically keeping strategic applications on the mainframe and moving non-core applications into the cloud, leveraging cost optimizations and tactical modernizations to reduce annual license costs. Large users, with 20,000 to 75,000 MIPS, are increasing mainframe workloads by 10 percent per year and investing in mainframe platforms, adding DevOps and automation in parallel with cloud options, and following a strategic mainframe roadmap that keeps the mainframe at the center of the enterprise landscape. The largest users, with more than 75,000 MIPS, are increasing mainframe workloads by 15 percent per year, while optimizing, modernizing and engaging third parties to drive transformation.
While few major banks have seriously considered moving their missioncritical workloads off the mainframe en masse, managed services providers are offering OpEx-friendly, on-demand models that supplant the heavy capital typically required so organizations can realize their performance goals without having to compromise on their technology or assume responsibility for end-to-end maintenance with a shrinking resource pool. Just as we see mainframe technology evolving, we are also seeing two commercial models gaining prevalence in the market: traditional outsourcing leading to Mainframe-as-a Service (MFaaS) and remote management. In a traditional outsourcing model, buyers typically transition all mainframe hardware, tape and storage operations to a supplier’s data center, where the supplier runs the mainframe environment on a managed service basis, billing the client monthly for capacity and storage based on agreed resource units and service levels. This model can involve the “sale” of client assets (hardware, software, resources) to the supplier, generating proceeds that may be used to drive parallel transformation to cloud infrastructure. In this model, the supplier has more scope to optimize and deliver the agreed-upon outcomes and can evolve delivery into an MFaaS model by operating a multi-tenanted environment with applications migrated and a pay-as-you-go pricing structure in place to reduce maintenance fees.
BANKING
Buyers of remote management services retain responsibility and ownership of the hardware and software, while the supplier delivers technical and operational services remotely. This model can be built quickly and provide faster access to skills, but enterprises may secure fewer cost savings since the supplier has less control. Enterprises can still drive mainframe optimization and transformation by contracting specifically (and sometimes separately) with the supplier and managing them via critical deliverables and/or service levels. Rather than moving away from the mainframe, financial institutions are now embracing this grand old technology at the heart of their broader digital transformation strategy. Whether it is through a hybrid cloud/mainframe model, the Mainframe-as-a-Service model, or a DevOps/AIOps model, firms have woken up to the fact that a multipronged strategy is probably the best way to achieve their technology and business goals. The key is determining which strategic levers to pull in what combination—a decision that will depend on each financial institution’s current environment and business imperatives. One thing is for sure: The mainframe is not dead yet.
Owen Wheatley Partner ISG Owen Wheatley is Lead Partner for Banking & Financial Services at global technology research and advisory firm ISG.
Sowmiya Bakthavatchalam Senior Lead Analyst ISG Sowmiya Bakthavatchalam is senior lead analyst at global technology research and advisory firm ISG.
Issue 37 | 29
FINTECH
The Fintech Road to Carbon Neutrality Fintech companies have huge implications in the world on the global economy, and on global warming. Currently, the world is facing one of its greatest challenges yet, to prevent rising global temperatures, by reducing greenhouse gas (GHG) emissions. The fintech industry can be said to have been a direct cause of climate change, having helped finance fossil fuel plants, and in the excessive use of energy for crypto mining. So, some might say the industry has a responsibility to provide innovative technology to help reduce GHG emissions. Currently, this can be seen through their use of technology to help integrate renewables into power grids, analyse bank statements to demonstrate the CO2 emissions from people’s lifestyles, and use of artificial intelligence (AI) to check if financial firms are greenwashing. Fintech companies are helping others achieve net-zero emissions. But more can be done by the fintech industry to directly address their own emissions.
30 | Issue 37
Fintech companies have always endeavoured to aid other companies, even now they are focusing on which solutions they can provide to help others reduce carbon emissions. However, the fintech industry itself is the world’s fifth-largest emitter of GHGs. It is pivotal that the GHG emissions produced by Fintech companies do not increase, thus becoming carbon neutral is essential and should be happening now. Then plans should be made to become netzero carbon ASAP. The difference between carbon neutral and net-zero is often unnoticeable, but it is important to understand they are not the same thing (Carbon Neutral vs NZC). Carbon neutral is where fintech companies do not increase carbon emissions and then use offsets to reduce the baseline value. Whereas net-zero carbon decreases carbon emissions using strategies, then offset as a last resort to reduce emissions to zero.
This is achieved through techniques that the fintech industry specialise in. Methodical, structured, and quantified approaches that can optimise the use of resources to help lower energy bills, reduce waste and deliver true reductions in emissions. First of all, a baseline carbon footprint measurement is required to understand where the GHG emissions are primarily sourced from. This first step demonstrates your commitment to environmental responsibility. Often this is done by following international standards such as the Greenhouse Gas Protocol. The two largest Fintech companies now provide their carbon footprint annually. But only since 2019 has Visa measured and reported their entire emissions inventory. This has been the case for most companies as the focus has been on emissions from direct operations and electricity consumption (Scope 1 and 2). Now, Scope 3 is arguably the most important to measure as the emissions a company are responsible for, but
FINTECH
Aaron Yeardley Carbon Reduction Engineer Tunley Engineering www.tunley-engineering.com
are indirectly emitted, are often the largest emitter of the three scopes. This includes the goods a company purchases right up to the disposal of products they sell. Yet often, Scope 3 emissions quantified by companies only include business travel. For example, Mastercard began publishing Scope 3 emissions from purchased goods, fuel-related activities, waste disposal, and employee commuting on top of business travel from 2018. So the two largest fintech companies now measure their entire carbon footprint annually, leading as an example for other companies to follow.
worth doing are never easy. To begin, fintech companies should prioritise behavioural changes to help reduce usage and waste disposal. Then, all fintech company-owned properties should be fitted with renewable energy sources, reducing GHG emissions from electricity and reducing reliance on the grid. Often fintech companies lease properties so full control over bills and maintenance is not possible. In this case, they should prioritise locations with green certifications and push landlords to implement environmentally friendly strategies to reduce GHG emissions.
Once a baseline has been reported, it is important to annually measure this again ensuring the GHG emissions do not increase further. Then commit to reducing emissions following accreditations such as the Science Based Targets initiative (SBTi), which will approve your reductions to ensure we limit global warming to 1.5°C. Strategies to reduce GHG emissions are difficult, but things
However, fintech companies' biggest hurdle will be from the use of data centres. They already use more than 2% of the world’s electricity and generate the same amount of emissions as the airline industry. Not only do data centres consume incredible amounts of energy, but they also go through computer hardware as technology is not designed to last. Consequently, the requirement for large amounts of energy and non-
sustainable technology hinders each other as the energy creates heat, which has to be removed through cooling systems before the sensitive IT equipment is destroyed. Creating an endless cycle of replacing equipment and dissipating heat. Thus, fintech companies have to be conscious of their use of data centres, choosing companies that have smaller power usage effectiveness. Or own their own data centre that is also an energy hub that produces, consumes and stores green energy. The strategies your fintech companies choose to become net-zero carbon depend entirely on understanding where each gram of CO2e is emitted from. This task will be no challenge for an industry as accomplished in the fields of quantification and technology as fintech is.
Issue 37 | 31
TECHNOLOGY
Effective human interfaces are key to successful digital transformation
There can be little doubt that more than most other industries, the global banking and finance industry has been in the vanguard of the digital transformation of business. Yet the people - staff and customers - on the receiving end of the transformation do not always perceive the benefit of digitisation. Why is this the case? One key separation in the digitisation process is how we get the digits in and out of machines versus what we do with the digits once inside the machines. The latter is the growth area and as we run out of simple things to do, such as adding them up, we are increasingly turning to sophisticated processes to extract hidden information. This largely falls under the umbrella of artificial intelligence. The ultimate winners will be those who can not only infer meaning from the numbers - but can successfully transfer meaning to humans that use them.
32 | Issue 37
The relatively straightforward process of converting hard-copy transactions into electronic digits has mostly been achieved. As any computer scientist knows, the first issue is getting the basic information into the system as 0s an 1s. The next step is moving those 0s and 1s around at least as well as was done when they were on bits of paper. Having achieved these goals, the focus is “can we get these digits in more cheaply and/ or quickly and what can we do with the digits that we could never dream of with bits of paper.” But there is no point in getting PhD whizz kids to predict a failing client from their last 10 transactions, if this information is never used, misunderstood or used in a way that is counter-productive. This falls under the largely neglected area of Man/Machine Interaction (MMI), and its importance in global digitisation deserves significantly more focus than it receives because efforts in making systems usable can yield greater returns than simply making them do more things.
Lest there is any doubt, ask yourself what percentage of Microsoft Word features you use, and whether there are things you wanted to do but did not know how to? If you cannot create a subscript, for example, it is not because Word cannot do it, it is because you do not know how to do it, ie, it is a failing of Word’s MMI not you. To put this issue in context, we need to go back to Alan Turing’s original definition of Artificial Intelligence, or as he described it, Machine Intelligence. To paraphrase, Turing said that once you abstract the human from the machine - for example with a telephone or computer screen and keyboard - if the human cannot tell that the machine is not a human, then the machine can be said to be acting intelligently. More plainly, does the machine react sufficiently like a human to fool a human? Turing’s definition generally stands up to any environment where we are seeking to replace humans with
TECHNOLOGY
machines. In most cases, a human expects an intelligent machine to act like another human and makes no allowance for the fact that the machine may compensate by performing some tasks more efficiently than a human. As an example, suppose it takes a machine 10 attempts to correctly recognise a spoken account number. This may still be quicker and cheaper than waiting for a human operator to answer the phone, yet the caller would be unlikely to see it that way. Another example might be a caller that is forced to listen to a 45 second legal disclaimer on each and every call before being able to speak to someone that can deal with the enquiry. This may make a subsequent litigation case easier to defend, but it takes no account of the effect it has on the caller. All the clever computation under the sun is of no use if the caller hangs up. The point about both these examples is that the machines are being used in ways that cannot be described as intelligent, despite the fact that in the case of the speech recognition at least, the technology deployed can be massive – that is, very large computers executing code that has taken hundreds of man-years to write.
Unfortunately, the term artificial intelligence seems to have lost the meaning that its creator originally intended. Nowadays many people regard the processes rather than the behaviour as intelligent. Intelligent processes are now seen as those that mimic the human brain’s operation rather than its perception. A good example of this is a neural network, which seeks to perform a task by learning in the same way as does the human brain. This is good for the programmer because once a neural network has been coded, you can throw almost any arbitrary task at it without needing to understand the underlying science behind it. All you need are a great many examples of doing it right and doing it wrong. All this would be academic but for the fact that in our quest to provide more sophisticated processes, we seem to have forgotten the human factors that convey the information to and from its ultimate goal, the human brain. The reason these situations arise is that little or no attention has been given to the Man-Machine Interface. This is because the system has not been designed in a holistic way. Computer programmers generally love systems to have many features - socalled feature bloat - and lawyers like to preempt possible future cases to be defended. Neither see the system as a whole.
Issue 37 | 33
TECHNOLOGY
Now that our technological infrastructure is approaching the intrinsic limits placed upon it by physics, Artificial intelligence seems the only way to gain the competitive edge against rivals. The broad categories where this can be applied are as follows: •
• • •
•
•
Data networks - data transmission, analysis of networks and dataflow – for example, switching, transmission lines, etc. Data processing - algorithms, databases, indexing, operational analysis, and so on Learning and adapting – for example, neural networks. Security and privacy - improving security using statistical methods, through, for example, cryptography, block-chains Technology - improving performance and efficiency by mechanical and electronic evolution via for example, semiconductors, quantum computing Man-Machine Interaction - pattern recognition, language translation, user interfaces (GUIs and so on), heuristics.
So what should we do? Well, we need to balance the development resources between the data processing and the communication. Furthermore, the skills necessary to produce a great human interface are rarely the same skills that are required to write highly efficient programs or produce watertight legal agreements. The only person that has these human interface skills is the person putting the data in or getting the data out. While there is a lot of science in human psychology, we don’t often know what works until we try it. We should therefore consult the user before, during and after developing the human interface. Indeed, we should decide on the human factors before we write a line of code to do the data processing. Some key points in designing human interfaces are: • •
Viewed in the context of things we can potentially apply our resources to, MMI seems to not to account for much. Yet it is the critical path.
•
Yet the term “intelligent,” as defined by Turing, is irrelevant for all but MMI. It does not matter how complicated the interface between one computer and another becomes because either it works or it does not. Yet this is exactly where we concentrate our resources.
•
34 | Issue 37
• •
Identify the points where humans are involved Establish the minimum amount of information that needs to be exchanged Use as much context as possible to avoid exchanging unnecessary or redundant information (eg how many times do you need to ask for an account number you already have?) Always allow the human operator to go back, or to continue after a break without re-inputting data Test the interaction before, during and after the system development Regularly solicit feedback from users and act upon it
TECHNOLOGY
Lastly, as a good example of the importance of human factors, let's look at cookies. Whenever we interact with a service using a web browser, the interaction is what is technically described as “stateless.” This means that upon each exchange of information, data cannot be carried across from one part of the process to another. This can have some rather drastic effects on the usability of a service, and programmers overcome this using things called “cookies” to store information on the user’s computer. For example, a username might be stored in a cookie to save the user entering it every time. At various points in time various countries have decided that cookies were potentially a breach of our privacy rights and users should not be using them without knowing. As a result, most websites will not allow access without first going through some interaction agreeing to their use. On opening a page for one of the main UK clearing banks, the user is asked whether he or she agrees to the bank’s cookie policy. If the user does not know what a cookie is, let alone what the
bank’s cookie policy is, the only option is click the “preferences” button (not that it is obvious what preferences are) and get a 1,000-word description of cookies and what they might be used for. While the designers of this website can legitimately claim that they are forced into the cookie interaction due to regulatory constraints, it becomes clear that this has been turned into a form of absolution. This may not be apparent to the bank, but it is to the customers and there is mounting evidence that cookie consent notices are meaningless and manipulative. If the customer rejects all cookies, the situation can be equally counterproductive. Of course, the legislators must take responsibility for not thinking through the implications of their legislation, but the situation could have been more palatable to clients if some intelligence was applied to the human factors of dealing with them. So, to summarise, effective man-machine interaction is just as much a part of the digital transformation as artificial intelligence algorithms. The financial services businesses that realise this will ultimately be the winners in the race to attract and keep customers.
Dr John Yardley Founder and CEO Threads Software John began his career as a researcher in computer science and electronic engineering with the National Physical Laboratory (NPL), where he undertook a PhD in speech recognition. In 1990 he founded JPY Limited, a state-of-the-art distribution, software development and consultancy company. Today, JPY represents manufacturers of over 30 software products, distributed through a channel of 100 specialist resellers. In early 2019, John founded Threads Software Ltd as a spin off from his company JPY Ltd to commercialise and exploit the Threads Intelligent Message Hub, developed originally by JPY Ltd. John brings a depth of understanding of a wide range of the technologies that underpin the software industry. He has a PhD in Electrical Engineering from the University of Essex and a BSc in Computer Science from City University, London.
Issue 37 | 35
TECHNOLOGY
Understanding The Opportunities for AI-Cameras and LiDAR for Smart Road Infrastructure As the Consumer Electronics Show (CES) in January sparked a new wave of autonomous vehicles (AVs) coming to the automotive market in the next few years, much focus as of late has been on the technology of these vehicles themselves. However, the technology embedded in road infrastructure is also beginning to see more conversation between service providers and municipalities. With advancements in artificial intelligence (AI) and 5G network connectivity, smart-road infrastructure technology offers the promise of being added to many different roads, bridges, and other transit systems across the U.S. in hopes of improving real-time traffic analytics and tackling the most challenging road safety and traffic management problems. One technology at the center of this discussion is on the present-day use of AI-enhanced cameras and tomorrow’s promise of LiDAR technology. Artificial Intelligence Will Enhance Camera Sensing Performance Today there are hundreds of thousands of traffic cameras deployed in the U.S. alone, and even millions more when CCTV cameras are considered. They are mainly used for road monitoring and basic traffic management applications (e.g., loop emulation). However, bringing the latest advancements of AI to these assets can immediately improve basic application performance and unlock more advanced software applications and use-cases.
36 | Issue 37
AI and Machine Learning deliver superior sensing performance over traditional computer vision techniques found in legacy cameras. They enable more robust, flexible, and accurate detection, tracking and classification of all road users with algorithms that can automatically adapt to various lighting and weather conditions. In addition, they allow for predictive capabilities to better model road user movements and behaviors, and improve road safety. Agencies can immediately benefit from AI-enhanced cameras with applications such as road conflict detection and analysis, pedestrian crossing prediction and infrastructure sensing for AV deployments. LiDAR Technology Cannot Fully Replace Cameras LiDAR can provide complementary and sometimes overlapping value with cameras, however there are still several safety critical edge cases where LiDAR’s technology does not perform well (e.g., heavy rain and snow, granular classification), and where cameras have been proven to handle better. Moreover, today’s LiDAR technology remains expensive to deploy at scale due to its high unit price and limited field of view. As an example, it would take multiple LiDARs at a hefty investment to be deployed in a single intersection, where just one 360-degree AI-camera can be a more costeffective solution. For many budget-focused communities, AIcameras remain the proven technology of choice today. Over time, as the cost of LiDAR technology moderates, communities should evaluate augmenting their infrastructure with such sensors.
TECHNOLOGY
Dr. Georges Aoude
Eventually, Sensor Fusion Will Drive Strong Results When the cost of LiDAR technology eventually sees an anticipated reduction, it will be viewed as a strong and viable addition to the AI-enhanced cameras that are being installed today. Similar to autonomous vehicles, sensor fusion would be the go-to approach for smart infrastructure solutions and would allow to maximize the benefits of both technologies. See table below.
The use of a cost-effective and performing AI-powered camera today, combined with the great potential of LiDAR in the coming years could help communities and municipalities achieve a win-win scenario today and tomorrow.
Co-Founder Derq About the Author: Dr. Georges Aoude is the co-founder of Derq, an MIT spinoff powering the future of connected and autonomous roads, making cities smarter and safer for all road users, and enabling the deployment of autonomous vehicles at scale. Derq provides cities and fleets with an award-winning and patented smart infrastructure Platform powered by AI that helps them tackle the most challenging road safety and traffic management problems.
At the end of the day, the goal is clear in improving overall traffic flow and diminishing vehicle crashes and fatalities, but the technology and implementation strategy has to be right in doing so. The technology monitoring our roads needs to change too, thus calling for the consideration of AI-powered cameras today with the promise of LiDAR tomorrow.
Feature
Legacy Camera
AI-powered Camera1
Lidar
AI-Powered Camera and Lidar Fusion
Challenge lighting (low light, glare)
Low
Medium
High
High
Adverse weather conditions (snow, rain, fog)
Low
High
Medium
High
Localization
Low
Medium
High
High
Classification
Low
High
Medium
High
Affordability
High
Medium
Low2
Low2
1. Assumes presence of with IR or good low-light sensor 2. Expected to improve with time
Issue 37 | 37
Call For Entries INVITING BANKS
INVITING BUSINESS
INVITING
SHOWCASE YOUR ACHIEVEMENTS
FINANCIAL ORGANIZATIONS
LEADERS
Submit your nomination today to awards@gbafmag.com OR Submit Online at GlobalBankingAndFinance.com
2022
BUSINESS
Digital marketing beyond personalisation According to the ONS, back in 2020, 92% of adults in the UK were recent internet users. That was even before the entire population was forced to stay at home and search online for the products and services they needed, so imagine how crucial it is today. With the digital race speeding up by the minute, it’s become more common to see conventional businesses across industries make efforts to level up digital maturity, and your competitors are no exception. This is because, according to McKinsey’s latest ‘Next in Personalisation’ study, it’s the companies excelling at customer intimacy that generate faster rates of revenue growth than their peers. Simply put, the closer you get to the consumer, the bigger the gains. And before your marketing team thinks hyper-personalising campaigns will be the differentiator for that slice of the 4.66 billion of internet users you’re trying to reach, here’s one for you: personalisation is actually seen as an expectation by 71% of consumers. This means that tailored marketing is no longer a nice-have, but a must. And customers expect more from brands now.
40 | Issue 37
While marketers continue to grapple with this approach, it’s important to remember that there’s more to digital marketing than achieving one-toone personalisation with customers or securing immediate transactions, and this is where you can truly set yourself apart. Beyond personalisation Launching a digital marketing strategy and enhancing it with a CRM software shouldn’t really be in question at this point. It’s cost-effective, generates leads, and has an infinite engagement and retention potential. But that’s the issue with sticking to the standard playbook: it’s so fundamental that almost every other business can do it; and is doing it. With the prevalence of data readily available to marketers, customers expect high-level personalisation to be part of this value exchange. Despite this, effective personalisation still presents a challenge. However, there are a few brands out there stepping up to the challenge and showing the way beyond
personalisation, like eBay. During the pandemic, in the worst of times for the retail industry, the eCommerce giant showed exceptional empathy to struggling retailers by launching an accelerator program called ‘Up & Running’, which was specifically designed to help those without e-commerce experience to sell online. Back then, the company pledged up to $100 million in support for small businesses across North America, which, according to eBay, resulted in a remarkable increase in their business registration numbers. Taking advantage of the pandemic and its subsequent dramatic rise in eCommerce might have secured immediate transactions, but certainly not loyalty like ‘Up & Running’ did. Show your true colours It’s hard connecting with someone, but it's more difficult to connect with a brand that shows little regard for anything besides driving revenue. Your firm surely has a purpose beyond making money, and sharing yours should go from being a to the priority.
BUSINESS
According to Harvard Business Research, 64% of consumers connect with a brand generally because of a shared value, and digital marketing and customer data can certainly help your firm achieve this level of connection. You can’t put a price on trust and loyalty, and that goes for both customers and brands, as building this level of intimacy will be beneficial for both. The truth is that your digital marketing strategy will only be as successful as the purpose you put behind it. Referencing McKinsey’s report again, companies which excel at customer intimacy “generate faster rates of revenue growth than their peers”, so the key differentiator will be showing your true purpose and making an effort to see what resonates the most with your customers, ultimately allowing the firm to better understand its customers. Predict and target Words are one thing; but actions are another. This type of hyper-personalisation certainly requires a level of sophistication that would necessitate robust data and creative teams to implement in-house, but there are other ways businesses can still keep the pace and deliver empathic, purpose-driven messages to the right people at the right time.
Machine learning for one can do the job, as it can easily take a company’s first-party data to industrialise and operationalise insights across the whole customer base, ultimately making CRM more effective and scalable. The only real problem in all this though, would be refusing to see that personalisation is far from being the finish line, and that dodging the solutions that enable its augmentation at scale will inevitably put you behind others. With three-quarters of consumers switching to a new store, product, or buying method during the pandemic, the businesses that grew fastest drove 40 percent more of their revenue from personalisation compared to slowergrowing counterparts, demonstrating the importance of creating content that not only resonates with customers and creates deeper connections, but having processes that make it easy to implement and consistently improve upon.
Stuart Russell CSO Planning-inc
Ultimately, when it comes to this type of content, there is always more room for improvement.
Issue 37 | 41
BANKING
How AI Helps Traditional Banks Compete Against Modern FinTech and Digital Competitors
AI is becoming an essential technology for the financial services and banking sector as it can help keep organizations stay a step ahead of ever-evolving challenges in meeting customer demands, such as delivering personalized interactions, expanding financial inclusion and ensuring secure, connected experiences across commerce, payments and banking. Traditional banks, which had once dominated financial services options, are being increasingly disrupted by digital native banks and tech giants, such as Google and Apple, who are now offering more convenient and personalized payment services of their own. While personalizing the customer journey with AI has become key across sectors including retail and ecommerce, it is now critical for traditional banking institutions that must acquire and retain customers at greater speed and accuracy than ever before. Customers now expect intuitive and intelligent experiences across credit approvals, recommendations for account types and greater transparency in explaining how decisions that impact them are being made. Traditional banks may
42 | Issue 37
still have customer trust today, but in order to maintain their competitive advantage against more agile fintech newcomers and technology giants, they must incorporate AI-native experiences for customers. AI Can Help Traditional Banks Provide Better Experiences for Customers AI can help traditional banks improve and optimize experiences for customers across a number of use cases. For example, personalization of customer experiences can provide consumers more convenient online options to seek assistance if they are unable to make an in-person trip to a branch. Effective personalization showcases a financial institution’s ability to understand and anticipate customers’ needs in the present and as they evolve over time. As such, traditional brick-and-mortar banking giant, Bank of America, launched a personal AIbased automated help feature, Erica, in 2018 to help streamline processes internally. This allows bank employees to dedicate more focus towards more fulfilling and impactful tasks while simultaneously giving the customer more flexible options to help problemsolve from anywhere, any time, with more efficiency.
Additionally, banks are working with AI providers to rapidly adopt ML to improve offerings in areas such as credit risk and financial crimes, compliance, customer assistance and market risk. Banks are prioritizing catching up to, and staying ahead of, the digital game to personalize customer experience, drive sales for merchants, better predict bills and forecast cash flows for customers to offer more control over their businesses, among other benefits achieved by leveraging AI solutions. AI’s Role in Assessing Credit Risk and Combating Fraud AI is also helping traditional financial institutions refine existing credit risk decisioning, making credit scoring more intelligent by expanding the true addressable market and increasing access to the underserved. AI enables financial institutions to more accurately assess risk factors such as tracking fraudulent activities through analysis of highly unusual data points. This helps institutions capture greater market share without needing to change the profile of their risk appetite.
BANKING
Sri Ambati CEO & Co-founder H2O.ai
The traditional scorecard method used by banks is based on broad segments leading to denial of credit to consumers without considering their current situation. AI models provide a more granular and individualized approach that gives banks the ability to more accurately assess each borrower, opening opportunities for people with income potential, such as new college graduates, who would have been denied credit under the traditional credit scoring system. Further, AI can be utilized to satisfy regulatory requirements to provide reason codes for credit decisions that explain the key factors in making them. Explainable AI helps banks demystify more advanced AI capabilities and express results in terms that the industry and consumers are accustomed to receiving and with plain language explanations they can understand. Indeed, AI is better suited to adapt to real time changes in the market than traditional models, allowing institutions to move at the speed of business rather than adjusting six months down the line.
Finally, banks must continue to work to stay ahead of already advanced and increasingly sophisticated fraudsters, while also avoiding the introduction of customer friction that results from blocked transactions, identity verification and more. In today’s global financial ecosystem, solutions must meet customer demand for both safe and seamless transactions. AI and machine learning systems can process transaction requests in realtime and accurately pass legitimate customers through their banking journey within milliseconds. For customers who do become victims of fraud, AI can find fraud patterns and ensure that support teams are able to provide meaningful customer support and resolution. Harnessing the Power of AI to Remain Competitive in a Shifting Business Landscape As one of the world’s most demanding, intricate and heavily regulated industries, the financial services sector requires organizations to tackle the biggest data sets and most complex challenges. From
operational processes, essential customer offerings such as fraud protection, lending decisions and risk management, imperative aspects of banking can improve and scale with the help of AI and machine learning technology. In a growing digital world where customers demand faster, more accurate and more personalized options, artificial intelligence is becoming even more critical for enabling traditional banks to evolve and deliver the personalized and relevant customer experiences needed to keep pace with modern competitors. Banks already have the data. which is very valuable and fuels their operations today. Augmenting that data with alternative data including data extracted by AI from unstructured sources like images, video, and voice boosts the power of the fuel. AI is the engine using that fuel to power decision making to deliver value for the bank and its clients. The combination of holistic data and AI gives banks a competitive and differentiated advantage in the market.
Issue 37 | 43
TECHNOLOGY
Why AI isn’t enough in Financial Services When the volume of data started increasing so drastically in Financial Services (FS), businesses turned to technology to help them manage this data, make sense of it and get valuable insights from it. Data analytics, Business Intelligence (BI) data modelling, data warehousing, and Artificial Intelligence (AI) were all used for this purpose. AI was especially effective and played a significant role for FS firms in automating various processes, saving time on previously manual tasks, gathering data and much more. However, AI does have its limitations. For FS organisations to truly reap the benefits of the data they hold, AI must be further enhanced, and augmented intelligence is the answer. The limitations of AI There is no doubting AI's impact on many banks and other FS institutions. Yet there are some limitations that have given way to the need for augmented intelligence. Human input is still hugely important, especially in areas of FS such as real estate and institutional asset management. These sectors have traditionally relied on relationships when it comes to deals. AI can help empower this process, providing information to relationship managers, but there is no instinct, creativity or ethics with AI. It presents information dispassionately and without intent, which limits its usefulness. There are also issues around AI and access to data. Much of any organisation's data is siloed, stored in many different systems and repositories, which makes it much harder to view it in context and its entirety. Furthermore, the most insightful data in banking is invariably
44 | Issue 37
the unstructured data – the call notes, client emails, news alerts and premium data sources that help build up a comprehensive 360-degree view. Yet most organisations and their AI solutions cannot work with unstructured data scattered across different systems, meaning these insights are left unused. AI can take an organisation so far before its limitations become apparent. The insight era While big data is potentially rich in value to any FS firm, much of that potential goes unrealised without a
way to extract the value from data – particularly the unstructured data. We live in the insight era, and without insight, data is virtually worthless. Augmented intelligence - which combines the power of AI with the imagination, intuition and intelligence of humans - delivers that insight. Cognitive search for example, can improve access to information and business efficiency but augmented intelligence goes even further, marrying data with the user’s content and intent to deliver even better results. Augmented intelligence can also offer vertical-specific solutions
TECHNOLOGY
The Bank of England deploys Cognitive Search to provide unified search across data sources, delivering a new way of visualising the available data. In addition to faster and more accurate results that draw on all data stored on any platform, the application uses self-learning algorithms to enhance relevance. The future of sales Business development, sales, retention and acquisition – in corporate FS, these are all of the highest importance and augmented intelligence can play a significant role in powering them. Digital-first is becoming the new normal for B2B buyers, who have less time to interact offline with suppliers. Gartner has predicted that by 2025, ‘80% of B2B sales interactions between suppliers and buyers will occur in digital channels.’ This clearly impacts traditional ways of selling in FS, which have been dependent on customerfacing interactions, and clears the way for a brand new future of sales.
to address concrete challenges, rather than using the more common 'one size fits all' approach of AI. Augmented intelligence can provide tangible benefits to any bank. The European Central Bank, for example, uses augmented intelligence for risk assessment. It connects all its data sources, applies Natural Language Processing (NLP) and Machine Learning (ML) to them, and uses that insight to monitor all potential risk factors. It then provides users with next-best-action recommendations to help actively assess and mitigate ongoing risk levels.
Anyone with a sales remit in FS needs to adopt a digital mindset and focus on multipipeline selling via digital channels. This will exponentially increase the number of touchpoints and interactions between buyers and sellers, creating interdependencies and interconnections that will be hard to manage without the right data and analytics tools. This is where augmented intelligence will prove so valuable by enhancing sellers’ experience and intuition with data-driven insights. Intuition and knowledge are not enough for the new virtual selling. A sales team's talents need to be enhanced with technology that can gather and process data from disparate sources to provide highly valuable information to the sellers for effective customer engagements.
Dr. Dorian Selz CEO and co-founder Squirro which works with organisations to bring them greater insight from their data.
Augmented intelligence and a deeper insight While AI can be impactful, human intelligence is still imperative to many elements of FS. AI can help gather data sources but augmented intelligence solutions allow a bank far greater access to information and deeper insight collected from unstructured data. This is presented to the user in the form of insightbased recommendations, which can mean more effective risk management/mitigation, improved CX and quicker adaptation to the future of sales. For any bank that wants to differentiate and adopt an insightbased approach to data and technology, augmented intelligence is undoubtedly the way forward.
Issue 37 | 45
TECHNOLOGY
Augmenting the financial experience with hyper-personalisation An environment where the industry landscape and customers’ realities are constantly evolving, the combination of data and technology is proving to be a powerful tool to meet and exceed expectations. With business strategies pivoted on customer-centricity, organisations are harnessing this power to deliver authentic and tailored experiences for their customers. This is the world of hyper-personalisation where targeted experiences and meaningful interactions with the customers are created with the help of advanced technologies and is elevating the end-user experience. The earliest adopters of technology such as banking and finance industries are accelerating the holistic adoption of next generation technologies to offer the most personalised financial experience to the new-age customers. By capitalising the intelligence on the generated customer data and a scalable, secure and compliant digital venue for execution, financial institutions are addressing these needs and becoming the trusted advisors.
46 | Issue 37
Some of the key considerations to make the financial services ecosystem more robust to leverage the data effectively for hyperpersonalisation are: 1. Cohesive IT systems: Financial services IT hosts valuable customer data which when seamlessly integrated can extract data values that can help build an in-depth consumer profile for a hyperconnected experience.
2. Compliant and secure platform: Data privacy and hyperpersonalisation sit at opposite ends of the spectrum. While there is an expectation of delivering a highly personalised customer experience, it is also accompanied by a strong ask for data privacy. Thus, organisations need to adopt the right digital platforms which enable them to innovate while meeting the regulatory compliance guidelines.
TECHNOLOGY
Customisation on cohesive and complaint cloud Banks are exploring new business frontiers by striking the right blend of cloud solutions and enhanced security. A cloud transformation can alter challenges into opportunities aiding a seamless and personalised customer experience through following features1. Unified Cloud Platform – This can dissolve the technological barriers of collaboration by providing a single platform for gathering, segmenting and integrating data from all first party, second party and third-party domains. It helps in homogenising the consolidated data pool, making it easier for computing and analysing as it now provides a 360-degree view of the organisation. This data integration ensures harnessing the utmost potential of data resulting in better product adoption and customer retention rate. The critical data analytics facilitated through a comprehensive cloud platform can drive business innovation along with agility and scalability. 2. Privacy and security – Establishing digital trust is a key imperative for all banks. Building a highly resilient, agile and compliant platform from the ground can come attached with exorbitant prices. By investing in a security-rich financial cloud, organisations can take off the burden of hosting these services by themselves. This will allow them to pivot their focus on bettering their customer experience while remaining untroubled by additional responsibilities such as upgrading its security services regularly to meet with the constantly updating regulatory standards.
Also, as data travels across the world, abiding by the privacy laws become all the more important. Considering, most governments have been monitoring compliance closely, financial institutions in India are mandated to incorporate the guidelines issued by regulatory bodies. Therefore, banks are increasingly partnering with the right cloud service provider that can take care of both security and compliance guidelines. 3) An API Driven approach– Using APIs allows financial institutions to make its data available to partners while removing the technical complexities associated with it. This facilitates banks to augment the data and other complimentary specialties of the third party within its ecosystem to offer enhanced personalisation for more targeted customer experiences. Open banking also creates large volumes of data, insights from which help offer bespoke propositions to the customers and drive innovation for the industry. 4) Integrating latest technologies– With the consumer needs constantly evolving, banks are gearing to be future-ready to cater to the new-age requirements. This calls for a high-quality predictive analysis model that can be facilitated by advanced technologies like Artificial Intelligence (AI) and Machine Learning (ML) to sustain customer satisfaction. ML algorithms help in detecting the behavioural pattern of consumers and provide actionable insights which would be otherwise difficult to detect via manual intervention. With the confluence of ML, AI and cloud, BFSI companies will be able to offer real time, contextual recommendations to its consumers, resulting in higher engagement.
Rajesh Awasthi Vice President and Global Head Managed Hosting and Cloud Services, Tata Communications
Thus, to augment the hyperconnected customer experiences, the ‘behind the scenes’ digital architecture needs to be evolved. Data, analytics and advanced technologies need to be embedded through the customer journey to generate personalised customer insights for driving innovative experiences for them. A comprehensive and compliant cloud framework will be the key to reimagine the future of banking.
Issue 37 | 47
100 350 Serving customers
Creating
in over 100 countries
ecosystems with over
across 5 continents.
350 institutions.
Discover how we link real life needs to smart digital solutions, helping customers in industries ranging from banking, commerce to mobility to create meaningful ecosystems.
info@bpcbt.com bpcbt.com
BANKING
Can Traditional Banks Stop Fintechs from Eating Their Lunch? For decades, banks fulfilled a vital role in the economy, lending money, providing credit, handling deposits and facilitating withdrawals for consumers and businesses. Financial institutions, especially larger ones, have profitable investment banks too, but receivables, payables and ultimately serving as a treasury department in business and consumer cash management processes has been smaller banks’ bread and butter. Over the past few years, fintechs have positioned themselves to disrupt the traditional banks’ role. As fintechs like Square, Stripe, PayPal and others experience explosive growth and amass assets, they’re diversifying activities and expanding capabilities. After carving out a role as embedded payments leaders, fintechs started expanding their value proposition to include a myriad of other banking services for small businesses. And because the fintechs enable a hassle-free way to pay for small business goods and services, they changed expectations for the consumers, too, by establishing banklike relationships one transaction at a time. Venmo, owned by PayPal, and Square Cash are great examples as fintechs literally creating bank accounts by transforming digital wallets into virtual deposit accounts for consumers who purchase goods and services through these providers. Additionally, these fintechs have the ability to issue credit and debit cards
to these consumers, offer traditional banking services and even enhanced services like crypto-exchange capabilities, further establishing the bank-like relationship and appeal to the everyday consumer. Banking for consumers isn’t the only area seeing a shift from a rise in fintech innovations. Fintechs Expand Business Services, Cutting Traditional Bank Revenue Streams Traditionally, merchants looking for capital and other financial services would approach their bank for a loan. Today, fintechs often get the first look as product expansions like Square Capital, which offers business loans, are an existential threat. For businesses, fintech innovations like Stripe Treasury often attach embedded commerce through business software or platform integrations, becoming a powerful draw to businesses since it can create a better client experience and increase sales through a more seamless offering than those offered by banks. A merchant who uses Square commented on the integration between seller and payer transaction ecosystems and said he was “stunned by how easy and intuitive” transactions had become for staff and buyers alike. He remarked, “Our customers love the ability to scan a QR code and quickly pay right from their phone, which has simplified and sped up our checkout process.”
“Buy Now, Pay Later” (BNPL) offerings from Affirm, AfterPay (now owned by Square) and many others are making further inroads into what was traditional banking turf. BNPL offerings extend credit to a consumer at check-out, allowing businesses to collect cash immediately while purchasers pay over a period of time. This method of financing is hugely popular with younger consumers as Gen Z and millennials comprise nearly 75% of users. This means instead of using credit from banks, these buyers are getting credit from fintechs. Factors That Hold Traditional Banks Back Fintechs will continue to diversify and innovate, cutting into traditional bank revenue. Smaller banks are most at risk since the financial services they offer to smaller businesses is a crucial revenue stream, but big banks can’t ignore the fintech revolution either. As JPMorgan Chase CEO Jamie Dimon said of fintech and big tech innovation on a 2021 analyst call, “Absolutely, we should be scared s---less about that.” The playing field isn’t exactly level. Traditional banks have a valuation disadvantage because fintechs are rewarded for growth, so they can plow profits back into development. Banks are valued on profit, dividends and return on assets, so they don’t have the same internal investment options. Banks are also hemmed in by a regulatory environment that fintechs operate outside of, and that’s unlikely to change in a major way.
Issue 37 | 49
BANKING
Organizational culture is another potential obstacle to traditional banks’ competing effectively with fintechs. The banking industry is inherently risk averse, so traditional banks aren’t as nimble in their reaction to marketplace changes. All of these factors explain why many banks find themselves at a crossroad now, with companies like Square, Stripe, Affirm and others, carving out larger slices of the pie and smaller fintechs picking off vulnerabilities from the side. Here’s How Banks Can Fight Back The path banks choose now will make all the difference. Banks will need to overcome a risk-averse infrastructure and create a digital strategy that leverages existing assets and advantages to fight back effectively. Overcoming legacy obstacles and operating more nimbly will require elevating decision-making about the digital strategy beyond a subcommittee within the organization. Chief digital officers and the retail or small business side of the house need to make the business case for change at the top.
Creating the right solution and digital strategy will require holistic thinking. Banks should evaluate what is truly core to their business and then work to build, buy and/or partner to meet the business needs and various objectives of this platform strategy. It will be critical to think in terms of a holistic offering and delivering a myriad of solutions to maintain relevance in a rapidly changing sector. The key, though, will be the execution – and now is a crucial time to implement and ensure the right infrastructure and strategy are ready in place. Banks are already rethinking distribution, and that’s important. But when addressing the fintech threat, they need to methodically create a strategy centered on goals like attracting more deposits with alternative channels, as well as capitalizing on the assets they have that fintechs don’t, like personal relationships and physical locations in the communities in which they operate.
The good news is banks have opportunities to partner with companies designed to support the incumbents and build many of these infrastructure services that are an internal challenge to establish and will help banks compete in the long run. Some partners are fairly simple to work with and even allow an opportunity for banks to test their solutions before they buy or build. Often entering a partnership is a great way to understand what pieces of the digital infrastructure it makes sense to own. Traditional banks can stay relevant and compete effectively with fintechs, but they’ll need to evolve quickly to make up for lost time. They’ll need to create a strategy, bring in resources to formulate a roadmap, and then effectively execute it. Banks that take these actions now can not only stop fintechs from eating their lunch — they can create new opportunities to evolve, grow and deepen relationships essential for remaining competitive as “traditional banking” becomes a novelty of the past.
Greg Cohen CEO and Chairman Fortis
50 | Issue 37
HEADER
More than...
40 years serving Egyptian Economy 230 branches in all Egyptian governorates 6900 banking professionals at your service 870 ATMs
Name Title Company
QATAR NATIONAL BANK ALAHLI S.A.E Call 19700 or visit us on qnbalahli.com Tax registration: 204-899-052
Issue 37 | 00
A digital bank, just like you. YOU ARE PART OF THE BEST DIGITAL BANK IN CHILE
Thanks to you, we have been recognized in the Global Banking & Finance Awards® 2022 for the third consecutive year. Because you inspire us to improve your digital life every day. Best Digital Bank Chile 2022
Excellence in Innovation Digital Banking Chile 2022
Fastest Growing Digital Bank Chile 2022
Banco Santander Chile. Infórmese sobre la garantía estatal de los depósitos en su banco o en www.cmfchile.cl. Publicidad válida solo para Chile.