Financial Services Technology by Lyonsdown

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Why Alan Whicker was ahead of his time Shane Richmond on how the TV globetrotter set the pace when it came to paying his way around the world | Page 2 Financial

services technology

The power behind decisions

APRIL 2014

SPECIAL 16-PAGE REPORT ON FINANCIAL SERVICES TECHNOLOGY

an independent report from lyonsdown, distributed with the daily telegraph

Business Technology April 2014

2 | Financial services technology

Opening shots Shane Richmond

N THE mid-1980s, television viewers were accustomed to seeing famed globetrotter Alan Whicker promoting Barclaycard in a variety of settings. Whether chilling in the French Alps or sipping sangria in sunny Spain, Whicker’s message was the same: Barclaycard is accepted in more places worldwide than its rivals. These days, ads for credit cards don’t spend much time emphasising how widely accepted they are. Most of us now carry a card we can use in most places – you can travel without changing money first, trusting that your plastic will work in an ATM when you arrive. The widespread acceptance of credit and debit cards is convenient, but we still have to carry them around, along with a little cash for small purchases and the odd place that doesn’t take cards. But we also have our phone with us now. What if that phone could save us the trouble of carrying the cash and the cards? It’s not a new idea. Samsung demonstrated mobile payment technology at the London Olympics in 2012. Apple has dabbled in app-driven payments with Passbook, which collects virtual storecards and allows you to pay with your phone in places like Starbucks. The Apple Store app will even let you scan certain items in one of the company’s shops and then leave without even speaking to a staff member. But complicating the future of mobile payments

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Winners in mobile payments will be those who best understand Whicker’s world is the fact that device makers are far from the only players involved. Traditional financial institutions are highly interested, as you would expect. Barclays has been offering its Pingit mobile payment app for two years, and last month MasterCard announced plans to acquire digital wallet company C-SAM and extended its online payment system, MasterPass, to cover in-app purchases. Newer finance companies such as PayPal and Square are eyeing this space keenly too, as are internet giants including Google and Amazon. Google Wallet works online and within the Android mobile operating system, while Amazon has been experimenting in a more limited capacity with Amazon Coins that can be used on Android as well as on the retailer’s Kindle Fire tablets. Of course, since mobile payments are the future, the mobile networks are getting in on the act too. Weve, a partnership between EE, O2 and Vodafone, plans to launch its own contactless mobile payments service in 2015.

Shane Richmond travels the world advising businesses on changing technologies, and was head of technology (editorial) at Telegraph Media Group Twitter: @ shanerichmond

It’s a complicated picture, and that’s without mentioning the recent rise of virtual currencies, such as Bitcoin. Nobody could blame consumers for being baffled or even ignorant of mobile payments entirely. A degree of education has to happen before consumers are comfortable with the idea of paying with a phone and understand what these services offer. It will be crucial to ease fears that your bank account could be cleaned out by anyone who gets hold of your mobile. But there’s a more significant problem, and that’s the chicken-and-egg standoff between consumers and retailers as to who will embrace these services first. Retailers are reluctant to spend money adopting a service that might flop, while consumers have little interest in a payment system that only works in a few places. We’re back to the Alan Whicker problem again. The winner in mobile payments will be the one you can trust to be accepted on your high street, in Spanish beach resorts, and halfway up the Alps.

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Financial services technology | 3

26,000 new ﬁnancial tech jobs by June

The 2014 budget includes provisions for tax-free investment using peer-to-peer platforms

Chancellor Osborne backs peer-to-peer ISA platform By Dave Baxter

PEER PEER-to-peer lending could get a boost after a government decision to include it in tax-free ISAs for the first time. The change, which chancellor George Osborne announced in last month’s budget, means that individuals can invest up to £15,000 using peer-to-peer lending platforms without having to pay tax on any gains. The Peer-to-Peer Finance Association (P2PFA), which represents lending platforms including Zopa, Ratesetter, FundingCircle and Thin Cats, welcomed the move at the time,

with its chair Christine Farnish saying: “This is a great day for consumers who want a better deal from the financial services market. “It shows that peer-to-peer lending is moving into the mainstream and is here to stay.” Peer-to-peer websites bring together lenders and borrowers, allowing lending without the input of high street banks. It began in 2005 with the launch of Zopa, and has thrived in a time when banks remain reluctant to lend. According to the P2PFA, the industry more than doubled in 2013, with cumulative gross lending reaching a record

New smartphone service to enable account-free cash transfers A NEW system will mean smartphone users can carry out payments without needing another person’s bank account details. The Paym service will be integrated into mobile banking apps, and will let individuals

£843million for the year compared with £381million in the previous year. The P2PFA says the industry had attracted around 3,700 borrowers and more than 86,000 active lenders by the end of 2013. Peer-to-peer lending sites are another new threat to the banks, and could pick up more business once their users’ gains can be included in ISAs. But there are some worries about the risk involved. With peer-to-peer lending, an investor’s money is not covered by the Financial Services Compensation Scheme, a fund of last resort for the customers

send or receive money without an account number or sort code. The scheme is initially being taken up by Bank of Scotland, Halifax, HSBC, Lloyds Bank, Santander, TSB and Cumberland building society. It is expected to launch late this month or early in May. Adrian Kamellard, chief executive at industry body the Payments Council, which has worked on the system, said: “We’re all used to the idea of a mobile update to improve our apps – Paym is a mobile update for payments that means you can pay securely using just a mobile number.

Publisher Bradley Scheffer.......................info@lyonsdown.co.uk Editor Daniel Evans.....................................dan@lyonsdown.co.uk Production Editor Dan Geary.............d.geary@lyonsdown.co.uk Reporters...................................Dave Baxter and Joanne Frearson Client Manager Alexis Trinh...................alexis@lyonsdown.co.uk Project Manager .........................................................Simon Coggin Syndication .....................syndication@theinterviewpeople.com +49 (0) 8161 80 74 977

of financial services firms. And in China, where the industry has grown rapidly in recent years, there are worries over its future. Many of the country’s peer-to-peer lending websites failed last year, with borrowers defaulting on loans and concerns about fraud. There are fears that the industry has expanded too quickly without sufficient oversight. The UK has had no failures so far. As peer-to-peer lending se em s to appr oac h t he mainstream, it will come under greater scrutiny. In the coming months a consultation

“Paym will make it easier to repay a friend for cinema tickets, split a restaurant bill or settle up for a colleague’s birthday collection. “The service has the potential to link up every bank account in the country with a mobile number – millions of people will be able to use it this year and we look forward to expanding Paym even further.” Both PayPal and Barclays have previously launched payment systems using mobile numbers, but the Payments Council hopes the technology can be given wider reach.

is expected on how to include it in the world of ISAs. At the start of this month, the Financial Conduct Authority (FCA) watchdog introduced new regulations for peer-topeer lending, setting out criteria that must be met by potential investors. In order to use peer-topeer lending sites individuals must meet a nu mber of requirements, such as receiving regulated investment advice or classing as a “sophisticated” investor.

THE UK financial services industry should have added 26,000 jobs in the year to June, according to a recent survey. The research, carried out for trade body the CBI, found that employment at the end of the second quarter should be 26,000 higher than a year before, indicating recovering strength in the sector. The survey also found that fi nancial services fi rms could ramp up IT spending over the coming year, noting: “Investment intentions for the next 12 months were positive across all investment categories, with IT predicted to grow most rapidly. “Firms indicated that the main drivers of increased capital spending were replacement, capac it y ex pa n sion a nd reaching new customers.” It also found that overall profitability in the sector continued to grow, if at a more moderate pace than previously. The report noted that growth was “not as strong as expected”, with more of a stable increase. Matthew Fell, CBI director for competitive markets, said: “Financial services firms are growing steadily and are optimistic about their business situation. The fact that competition is growing highlights intensifying activity in the sector. Businesses plan to spend heavily on IT and are scrambling to find staff to meet growth demands.”

an independent report from lyonsdown, distributed with the daily telegraph

Business Technology April 2014

ExpertInsight

4 | Financial services technology

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Using funds more eﬀectively for investment

and growth

New technologies allow financial services firms to be more efficient

INDUSTRY VIEW

or many, memories of the financial crash still feel fresh. Havoc broke out across the globe when it threatened not just people’s livelihoods but entire industries and economies. Years on, there are glimmers of recovery. But the crash will have an enduring legacy. This is evident in banking, where the dynamics have completely changed. Banks are under intense pressure to be transparent and wary of risk. At the same time, regulations mean institutions must be careful, for

example, about what levels of capital they hold. And after the financial shock of the crash, banks are minded to work more efficiently as they nurse wounds. These are all daunting challenges. But there is hope that change can make banks much more effective with investments and less vulnerable to risk. One move has been from checking trading results retrospectively to monitoring this on a transaction-by-transaction basis. Banks and other firms in financial services can check trades and balances as transactions take place using software – meaning there is much

greater transparency and awareness of risk. It means firms have more timely insights and can be more reactive. Darryl Twiggs, EVP of product management at SmartStream, who is pioneering the changes, says: “There needs to be a paradigm shift in banking operations. The traditional model of trade settlement by overnight batch reporting is no longer acceptable. It’s being forced to move to a intraday transaction process, driven by a greater need for transparency on liquidity. There’s a focus on ensuring banks indeed have sufficient liquidity to fund their transactions.”

Twiggs says the advantages are apparent across the industry. “For a Tier 1 bank doing millions of trades a day, doing that [monitoring transactions and having ample liquidity] is a substantial challenge. “The regulators want to see that banks have tight controls and are proactively monitoring liquidity. The win for the banks, of course, is that if monitors are in place the regulators will relax the amount of collateral banks are being required to hold under the Basel III ratios. The key point is that they can then use these funds more effectively for investment and growth.” He says new technologies have created other ways for financial services firms to be more effective. He notes that SmartStream runs the back-office on a single platform, overcoming the “frustration” of managing multiple individual systems – multiple systems multiply the cost of running them. “You can now move from a traditional back-office model with independent siloed operations, confounded by multiple technologies to a coherent operations utility platform. You could have someone whose job was to reconcile foreign exchange trading, but now they do foreign exchange, equities, derivatives and money markets in a single business system.” Twiggs says consolidation can make operations substantially more efficient, as well as cutting costs and removing the “spaghetti effect” in back-office functions. Above all, concludes Twiggs, it could move the back-office from focusing on costs to profitability – which could leave the financial crash with a positive legacy. info@smartstream-stp.com www.smartstream-stp.com

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Financial services technology | 5

Tightening the leash on the payday loan outﬁts By Dave Baxter

FTER many years of banker-bashing, the financial services industry has a new bogeyman in the form of payday lenders. Payday loans have taken off since the financial crisis limited consumer access to conventional finance, and the firms offering them continue to thrive. Wonga, the biggest payday lender, reported whopping pre-tax profits of £84.5million for 2012. But it is an industry that has been widely criticised. Labour MP Stella Creasy has launched a campaign against payday loans, arguing that they can lead to deeper financial problems. And Justin Welby, the Archbishop of Canterbury, famously vowed to put Wonga out of business through competition – before discovering, to some embarrassment, that the Church of England had its own links to payday lenders. Meanwhile, the industry has argued that payday loans are only intended for the short term and not designed to put people into a cycle of debt. Now, the sector is in for big changes. City watchdog the Financial Conduct Authority (FCA), which took responsibility for scrutinising payday lenders this month, has promised a review into the sector and a crackdown on unscrupulous practices. This has already received a warm reaction from some quarters. Richard Lloyd, executive director at consumer body Which?, claimed the FCA “means business” and called for the regulator to ban excessive fees and charges for when borrowers default on loans. It is expected that changes could drive many out of the market altogether. FCA chief executive Martin Wheatley notably predicted that up to a quarter of payday lenders could leave the market under pressure from tougher rules. Russell Hamblin-Boone, chief executive at the Consumer Finance Association (CFA), an industry body representing payday lenders including Cash Converters, QuickQuid, The Money Shop and Payday Express, believes the number could be even higher. “I think what we will see is only a certain number [of payday lenders] will be able to step up,” he says. “It will just become a more competitive market. I think the figure [for payday lenders leaving the market] will be more like half.” He admits that there have been issues with disreputable lenders, but believes that much of this is now a thing of the past. “It’s undeniable that in the early days of this market and post-credit crunch there was some bad practice and people Labour MP Stella Creasy is a joined in with the vocal opponent of payday loans intension of making

a fast buck,” he says. “A lot of those people have exited the market under threat of having to tolerate new, tighter regulation. The more reputable businesses have already implemented many of the changes that will be supervised by FCA rules.” Hamblin-Boone argues that payday lenders get high satisfaction rates from their borrowers, but suffer from an image problem among the wider public. “It may be that only 4 per cent in the population use payday lenders,” he says. “We have the opposite problem to the one in the banks. The banks’ problem is their customers don’t trust them. Our problem is everyone but our customers doesn’t trust us.” One area where payday lenders have excelled is on the technology front. Wonga has been known to carry out

thousands of data checks on people browsing its website in order to determine their creditworthiness before sending them money. And there are dividends from appealing to a new digital generation. “These sites are designed from scratch,” Hamblin-Boone says. “Bringing Wonga into it, they have recognised that people want very simple, easy-to-use, easy-to-understand products. “The Wonga slider [which allows people to indicate how much money they want to buy and for how long] has almost become the prerequisite of online lending. They have also recognised that there’s a generation coming through – Generation Y – a new group of consumers who are coming to the market, who haven’t had the benefit of the pre-credit crunch credit cards. “All of that has been restricted and the mainstream credit market has restricted its lending criteria in response to needs for capital recovery and the more risk-averse attitude to lending. “Those people are still taking credit but they are not the kind of customers that banks want because they don’t have the credit history.” He says that the speed and simplicity of payday lenders’ sites helps with younger customers – but short-term loans are drawing in a whole range of consumers who have found themselves unable or unwilling to get conventional forms of credit. “There’s a mix of people using payday loans,” he says. “There are young people in their 20s who have jobs and disposable income and manage their money online. They do online banking and they don’t work around paper. “There are also people who are on good salaries, they maybe have a couple of holidays a year and have one car and have a dual income, but they have children who are older but are dependent on them later into life. They also have parents who are living longer and become dependent on them.” With high street banks unlikely to target consumers who miss certain requirements, there is still a large niche in the market pay day lenders and others want to dominate. As the FCA sweeps in, it could clean up the payday loans industry. But whether payday lenders become popular is another issue.

Payday loan ﬁrms such as Wonga will be subject to more stringent regulation – and some may even go out of business

an independent report from lyonsdown, distributed with the daily telegraph

Business Technology April 2014

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Banking technology – friend or foe? Banks need to invest more in managing the customer experience INDUSTRY VIEW

n many respects, banks have become IT companies. Over the last four decades technology has become a determining factor in achieving commercial success. Most banks have pursued efficiency gains and economies of scale through automation, streamlining and straight-through processing, and have justifiably made IT investment a high priority. According to Celent, banks in Europe are forecast to spend more than $62billion on technology in 2014, an increase of 2.9 per cent on last year. Where bank mergers and acquisitions have been successful, that success has often been as much about systems integration as anything else. Now many banks are facing an IT crisis. The systems that have served them for a long time have become timeworn, ossified and outmoded. But a legacy systems environment is usually a symptom of a greater problem: engrained legacy business processes. Often these have evolved over many years to replace manual processes or to support new channels, such as branch, ATM, telephone, internet and, most recently, mobile. These systems and processes are often owned by different business units, reside in individual silos and are not integrated. The result: impenetrable balls of IT string with banks scared to touch one piece for fear of making another piece fall over, often with very public consequences. While banks have continued to invest in individual channels, the world has changed around them. For some, the technology that was once such a powerful engine of growth has become an encumbrance. Many banks can no longer adapt quickly enough to new business opportunities or offer the level of service expected in the digital age. So what’s changed and what can be done about it? A look backwards provides a better view of the future…

Branch out The branch network was once the beating heart of a bank. Nowadays bank customers seldom visit their branch and if they do, it is usually not to transact but to seek advice or to fulfil a specific need that cannot be accomplished online. Many banks recognise that the branch is no longer the core of their business. In simple terms, banks are manufacturers and distributors of products. Financial products have traditionally been designed and manufactured at head office, then distributed through

the branch network. Over the last few decades, the proliferation of “free” banking has necessitated turning bank tellers into sellers of financial products. To an extent, commissions on product sales have replaced fees as a source of bank income. However, bank products are also sold across other channels, including telephone, internet and, increasingly, mobile. The important point is that bank customers do not think in terms of bank channels – they think in terms of their overall relationship with the bank. It is vital that banks achieve a correspondingly holistic view of each customer relationship. While this seems obvious, for many banks it is proving difficult.Why? Many banks are ill-prepared to meet the needs of 24/7 multi-channel banking. This is the age of the customer experience. Supermarkets and online providers such as Google and Amazon have set high standards and built customer loyalty by offering a compelling online experience. But many banks do not have the necessary expertise or experience to manage customer data effectively. Worse still, a high, and increasing percentage of bank IT spend is committed to legislative compliance projects, which offer no business benefit. It has become clear that a bank’s heritage does not determine its future. Have they a choice?

New world, new view Many banks are grappling with similar challenges, including branch network shrinkage in size and importance, legacy systems and business processes, and escalating legislative compliance costs. With careful management, a branch network can evolve and remain an important customer touchpoint; however,

a bank’s back office is fundamentally a utility. Given that all banks within an individual jurisdiction face similar back-office and compliance challenges it makes sense for them to participate in a single banking utility solution. Many banks recognise the need for a new approach to IT to meet the diverse requirements of the digital age. Some are already pursuing new collaborative operational models to meet the ongoing challenges of legacy enablement and legislative compliance. With the right partner a bank can insulate itself from technical obsolescence and be assured of ongoing legislative compliance. There is a lot of compelling evidence that supports the business case for working with a technical partner.

Sainsbury’s Bank selects FIS as banking technology partner Sainsbury’s Bank has delivered five consecutive years of profit growth, with proven opportunities to complement its broader business. Developing complementary channels and services to the existing supermarket business is part of Sainsbury’s long-term strategy for growth and the bank has been an increasingly successful part of that development. Following its intention to acquire the Lloyds Banking Group 50 per cent shareholding in Sainsbury’s Bank, Sainsbury’s chose FIS to provide an integrated solution to support the bank’s deposit, savings, loan and credit cards accounts, and deliver seamless channel integration to enable customers to access their accounts through telephone, internet and mobile devices. The entire operation, hosted by FIS in the UK, allows Sainsbury’s to focus

on developing exciting new customer propositions rather than worrying about technology and legislative compliance.

India’s First Women-Focused Bank Bharatiya Mahila Bank is India’s first women-focused public sector bank. Its primary goal is the financial empowerment of women, particularly outside India’s main urban centres. The bank chose FIS to provide a fully integrated banking platform on an outsourced basis, including core banking, channels, trade finance, and the entire suite of payments services that ranges from transaction switching and debit card management to responsibility for the end-to-end operation of the bank’s ATM estate. The bank opened its first eight branches in November 2013, only two months after the selection of FIS as its technology partner. This example shows how partnership can accelerate market entry. But it also shows how new market entrants, unencumbered by legacy systems and processes, can deliver innovation that satisfies a latent demand, by bringing financial services to a broader customer base. As the pace of change in financial services accelerates, banks need to invest more in managing the customer experience without the distraction, risk and expense of running a back office. In uncertain times banks also need to mitigate operational and commercial risk. With the right partner they can do both in parallel. Jonathan Davis (left) is head of sales and business development within FIS’s EMEA region emea.marketing@ﬁsglobal.com www.ﬁsglobal.com

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Take the social media initiative, banks told

Financial services technology | 7

By Dave Baxter BANKS should focus on their social media efforts to retain customers, according to an analyst. Adam Hill, a senior analyst at Kantar Media, argues that while banks have been “a bit slow” with new technology, engagement across networks like Twitter could help them keep customers. He says: “If they want greater chance of retaining, working on social media is a thing to do. “The banks have been a bit slow with things like banking apps. It’s not really their fault because there’s so much regulation around fi nancial services, but social media does open it up a bit more. “For years, they have been looking at increasing satisfaction, because they view it as a way of retaining customers. “If we have got high levels of satisfaction, customers won’t move. It’s only dissatisfaction that makes people move – it’s very rare that people decide to move because they are going to get £100 or because of some marketing campaign.” UK research by Kantar Media TGI from the first quarter of 2014 suggested that social media fans could be more likely to embrace new banking technologies. It found, for example, that those who visited social networking sites at least twice a day were 22 per cent more likely than average to say that they liked to keep up with technological developments and 22 per cent more likely than average to have used contactless payment technology. It also found that members of this group were 46 per cent more likely than average to disagree with the statement “I am very good at managing money” and 33 per cent less likely than average to have at least £10,000 in savings or investments. It suggests that while social media users could be an important target for new banking services, they could need more help than other customers.

Hill says some banks have been more effective than others at social media. “Social media users are younger, so they will be more up to date with technology. So brands like HSBC that have a younger customer base are using social media more, because they know it’s going to resonate with customers,” he says. “But with Nationwide or Lloyds, they have an older customer base and they are a bit slower with that. “What financial service providers need to think about is, instead of being reactionary and thinking ‘We will go on Twitter and have a Facebook page’, they need to start thinking about what’s the next thing.” Some research suggests, at least, that banks are aware of the need for digital engagement. Last year

Efma and Wipro Technologies published The Global Retail Banking Digital Marketing Report 2013, focusing on digital strategies in the industry. It reads: “It was not a surprise to us to fi nd that banks in countries as different as India, Singapore, the United States and Sweden are all thinking about the same issues when it comes to digital channels and digital marketing. “Perhaps more surprising is the time it’s taking for banks to develop really world class digital marketing capabilities. Our digital marketing capability index shows that only a few banks can consider themselves to be world class when it comes to digital marketing. The potential for improvement at most banks is huge.”

Finance giants invest in IBM launches African London tech start-ups research division FINANCIAL services giants are focusing on innovation in London as competition increases around the world. Barclays will weigh in this summer when it teams up with Techstars to run a financial services technology accelerator in East London, giving seed funding and mentoring to promising start-ups. It is not the first. Level39, a financial services technology accelerator based in Canary Wharf, launched in 2013 with the aim of becoming a hub for innovation. The project, which was backed by Accenture, has held hackathon events, networking sessions and workshops for young companies. It covers 44,000 square feet on the 39th floor of the One Canada Square

building and works with more than 80 technology companies. At the time of its launch, Eric Can Der Kleij, head of the project, said: “The objective of Level39 is to fuse together the technology and financial worlds to help the financial services sector to transform, enhancing London’s position as the digital and financial capital of Europe.”

TECH giant IBM has set up an African research facility to boost innovation in financial services and other industries. The technological research facility was established in Nairobi late last year for research into how sectors and infrastructure can operate, and to encourage co-operation between companies, research organisations and universities from Africa and around the world. The facility has a powerful computing hub, which will be used to analyse vast amounts of data to tackle problems. One example is using analytics and algorithms to interpret visual data from CCTV cameras around Nairobi, to give residents mobile phone updates on road conditions when

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they are driving and improve driver safety. IBM has outlined a number of areas to focus on, including energy, transportation, agriculture and healthcare. The company’s researchers are also focusing on what has been dubbed “financial inclusion”. This comes at a time when financial services are increasingly important on the continent, both for speeding up economic growth and for improving living standards. Kenya’s M-Pesa mobile banking system, for example, has been praised for giving people access to financial services in a country where bank infrastructure is scarce. Financial services are likely to become more important in Africa as businesses focus on the continent.

Regulation: how to lighten the load INDUSTRY VIEW Financial institutions have invested a lot of time, effort and money in complying with changes in regulation. And they will have to continue doing so for a few more years. Some of the work will have to be revisited. For instance, the MiFID review will change definitions currently used in EMIR and will have an influence on what is affected by the regulation. Is there a way to lighten the load? A clean database goes further. Regulatory change has an impact on data. Resolving duplication, reacquainting you with the data structure and having a documented data structure will speed up the overall implementation. Don’t chase the next deadline in isolation. Have a medium-term view of the changes. To implement FATCA, the LEI, EMIR, etc. you would have had to look at the client table in your database each time. It will save you effort, time and money to look at all of it once and make all the necessary changes. Try to have a workflowcentred rather than a regulation-centred view of the changes. For instance, look at everything that will affect the equity trading workflow in your organisation. Even if not all the changes are known, knowing of them will allow you to keep a door open for further changes. A regulator was quoted as saying: “Regulators do not need to know what the current business practice is; they shape the business practice.” Based on that statement, by 2020 business practices will look very different from the way they looked in 2010. A strategy for change, or at least seeking advice on a strategy for change, will make a huge difference on how much it will cost to get there. +44 (0)20 7423 5660 www.hatstand.com

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Business Technology April 2014

8 | Financial services technology

Integrating risk and ﬁnance: technology is ready, are you? INDUSTRY VIEW Regulators now insist that large financial institutions are capable of monitoring and managing their risks in a timely manner and on an enterprise-wide basis. This is easier said than done. A 2013 report from Chartis Research showed that 88 per cent of risk and finance practitioners in banks see the integration of their functions as a major priority. However, more than half have yet to implement an enterprise-level plan to achieve this integration despite clear business drivers. Why is this so hard? There are many challenges. Data is trapped in silos, which hides firm-wide risk accumulations. Inconsistent valuations and reference data exists across different parts of the firm. Few standards have been established for data, and data governance models are often inadequate. Risk systems do not allow for proper analysis of firm-wide exposure across risk dimensions, and counterparties and models generate incorrect forecasting of potential outcomes. For many banks, achieving enterprise risk management goals will require a new approach to managing not only risk data but all the data in the bank. Advances in technology, especially in-memory technology and cloud computing, are making the challenges far easier to overcome. Data centre-reliant risk modeling involving intensive computation is now a thing of the past. For banks to move forward on risk and finance integration, there are two fundamental steps to take. First, banks must choose a data platform to integrate disparate data and reduce the cost and complexity of data access. Second, they must choose a tool to help practitioners easily use that data to inform decision-making. The technology solutions are in the market. Why wait? riskmgmt@capgemini.com www.capgemini.com/ ﬁnancialservices

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The Big Four are facing an onslaught from smaller, nimbler ‘challenger banks’. But consumer inertia may yet buy them some time. By Dave Baxter

HE Y face deep public unpopularity, sophisticated cyber threats and a growing army of nimble competitors. But the likes of RBS, Barclays, HSBC and Lloyds may have one trick left up their sleeve: consumer inertia. Three quarters of personal current accounts are held by the biggest four high street banks, with a typical customer staying with one organisation for 17 years – but there have been attempts to change this. The Current Account Switch Service, an initiative launched last year, aims to make it easier for customers and small organisations to change accounts within seven working days, while a number of quick-footed competitors are offering rival services. But not everyone is convinced the main high street lenders can be dislodged. David Black, a banking specialist at research company Consumer Intelligence, argues that while smaller, so-called “challenger banks” and other financial service providers are making headway with consumers and businesses, the bigger names are unlikely to be abandoned soon. “Basically, there are a handful of banks that have most of the market share in certain areas, particularly the current account,” he says. “That’s the main product provided. It’s your main account. It gives the provider an awful amount of information about you, so it can target cross-selling. “Historically, people keep their current account for ages and ages. About five or six per cent of people change their account per year.” Challenger banks are on the offensive with a number of different strategies. This ranges from Metro Bank, which began as a start-up, to TSB, which was split off from Lloyds in September, and Virgin Money, which bought part of the failed bank Northern Rock. Black believes that although each of these models “has certain attractions”,

customers are unlikely to switch unless they have had a negative experience with their current bank. He says: “So many people can’t be bothered to switch. It’s general inertia. Even if you offer something overnight, you won’t be grabbing millions of customers. “The reason people change their current account is if they have had a bad experience.” But when it comes to the challenger banks, others are more optimistic. Brian Scott-Quinn, chairman of Henley Business School’s International Capital Market Association Centre (ICMA), is involved in plans to launch a new challenger bank. He b e l i e ve s t h e s e s m a l l e r organisations will be able to compete because they lack the costly, unwieldy infrastructure of the high street names. “They [the challenger banks] are going to find it difficult, because their market share is so small and their impact on pricing isn’t that great,” he says. “But I would think their costs are much lower than the traditional banks’. “Cost is a key thing we have been looking at and we think we can do it for a great deal less than even the earlier challenger banks. “Challenger banks can have lower costs and better service. They are potentially going to be very profitable if the UK recovers.” Scott-Quinn also notes that traditional banks are weighed down by out-of-date technology. “Obviously the existing banks have legacy systems which are

Customers queue outside a branch of failing bank Northern Rock in 2007; inset: Anthony Thomson, chairman of Metro Bank; below, inset: David Black of Consumer Intelligence

very out of date,” he says. “Keeping these systems going is expensive, and what’s evident is the regulators will expect these banks to replace the systems with something that actually works.” The vulnerabilities of these legacy systems have become more obvious

“So many people can’t be bothered to switch. It’s general inertia – you won’t be grabbing millions of customers” – David Black, Consumer Intelligence

over the last two years, with a number of failures which have brought down ATM and online banking services at crucial times, such as on pay day. Michael Allen, of IT services fi rm Compuware, believes these issues could get worse as consumers demand online and mobile services. “It’s affecting all channels, whether online banking or ATM systems,” he says. “My expectation is you will see a lot more outages in the mobile banking sector.” He warns that many of the banks have outdated systems which were not designed for services such as online banking, and building new layers

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on top of these only adds greater complexity. Allen says: “All these banking systems are built on older systems. We layer on more and more technology, which makes the system more and more complex. “It’s putting a stranglehold on the business.” He argues that, in order to avoid future failures and keep up with the nimble technology of their smaller competitors, the bigger banks now need to think about radical action. “We are starting to see some of the European banks rip up and replace their systems,” he says.

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“I think the more forward-thinking organisations have realised they need to invest to solve these issues.” As technology lowers the barriers to entry, high street banks are seeing greater competition in other areas, such as lending. Scott-Quinn, who is also involved in a peer-to-peer lending organisation, believes the banks could start to become involved in these new areas of financing. “We had one of the big banks come to us with the possibility of backing our system,” he says. “They [the banks] see it as something to do at some point, or they will lose business.

“It would make sense for the banks to run such sites themselves, because they compete with existing banks.” While challenger banks and new funding platforms are gaining a profile, there could be bigger threats on the horizon for the established banks. Black believes that this could come from retailers. Marks & Spencer has already launched a current account this year, and Tesco is expected to join it later in 2014. “You still end up with the big banks if you have current accounts,” he says. “But you have Tesco launching a current account, and it will have far more impact.”

April 2014

Business Technology

Financial services technology | 9

Why it’s time the US learnt a thing or two from Britain VIEW By Keil Hubert WE’RE making progress. Before this year, on trips to the UK my American banks didn’t offer chip-and-PIN cards. When I came over for this year’s European Information Security Summit in February, I finally had two chip-and-PIN cards, and they both worked flawlessly. All it took was last December’s cyber-crime attack on retail giant Target to finally convince American banks that the time was right to start adopting the simple security technology that Europeans have taken for granted for many years. What struck me as most compelling about the rollout is that the implementation was – from a consumer’s point of view – utterly uneventful. That’s the brilliant advantage that comes with adopting common standards: once you’ve proven something works, it’s more efficient and less stressful to latch onto an industry standard than it is to try and compete endlessly with different proprietary techniques. Case in point: we’ve had mobile banking on our smartphones for years. The Texasbased USAA, a financial services company, has made it extremely simple for me to instantly deposit cheques using their iOS app and my iPhone’s camera. I just click the deposit button, hold the phone above the endorsed cheque, snap pictures of the front and back and, 30 seconds later, have the money transferred into my account. I have accounts with two other American banks, and neither of those smartphone apps allows me to deposit cheques. USAA’s app also lets me pay my bills from my smartphone, something that my other banks (who shall, for decency’s sake, remain anonymous) can only handle from a desktop PC’s browser interface. The best that my other banks’ iOS apps can do is allow me to transfer funds between accounts and check current balances. That’s inadequate. Similarly, my sons’ Boy Scout Troop uses Square’s tiny credit card reader widget to support their annual fundraising. In the three years since they adopted Square’s tech, their earnings increased an average

of 21 per cent because donors could pay via credit card. They tried out a competing product that used a different technical interface, and had to abandon it because it didn’t measure up. I raise these examples because we always seem to be perpetually on the brink of introducing reliable digital payment solutions. Yes, I’ve seen people buy things from vending machines using their phone. I’ve used keychain-based Near-Field Communication widgets to buy petrol. I’ve used the Starbucks app’s barcode scanner that links back to a serialised gift card. There are a lot of interesting ways to simulate being paperless and cardless in the economy, but they all – in the end – took us back to a traditional bank and a traditional monthly bill. It’s obfuscation, not true evolution.

“Once you’ve proven something works, it’s more efficient and less stressful to latch onto an industry standard” If we’re ever going to deploy digital payment technologies, we’re going to have to select the engineering front-runner and double down on their technology as a common, multinational standard. Pick the total solution that works best and commit to it early. For best results, select one that incorporates biometrics, behaviour modelling, and geospatial location-aware services for a truly secure implementation, and then take it to market. Today, I have to call my bank and warn them that I’ll be traveling overseas. A global deployment should always know where you are, and that you’re the one authenticating your purchase. Simple, efficient, and intolerant of drama. I’m hoping that when I return for the 2015 European Security Summit, I’ll be able to leave my credit cards at home and just bring my mobile phone to pay for everything.

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Inspector Dogberry Are the banks – a notoriously oldfashioned bunch – going hi-tech? Over the coming years they could, according to research. Ovum, a ﬁrm that interviews around 400,000 staff a year from the worlds of business and technology, thinks IT spending will go up across the ﬁnancial sector between now and 2018. A recent Ovum report reads: “There is a consensus across the capital markets, corporate banking and asset management that tech spending will grow between

now and 2018, with overall ﬁnancial markets spending exceeding $100billion in 2018. “This is attributed mainly to investment in IT driving cost savings elsewhere in the business.” The report notes that much of this could be used to cope with increased demand. Capital markets will want to transform their trading platforms, asset managers are looking to diversify what they offer and banks want to make more intelligent lending decisions.

For newshounds like Dogberry, there’s no place like London. It draws the world’s talent and generates stories that move the business world. London is an international financial hub. But it may be on a downward trajectory. The Global Financial Centres Index (GFCI), which comes out twice a year, recently proclaimed that London had been displaced by New York as the world’s top spot for finance. This has been blamed on a number of recent scandals, from the antics of the “London whale” trader to the Libor and foreign exchange controversies. But the report warns that other innovations, from peerto-peer lending to crypto-currencies, are giving the “top Asian markets” an edge. Global power may be shifting. Should Dogberry pack his bags?

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Twitter: @dogberryTweets

All of this requires technology that is more sophisticated and able to take a heavier workload. Daniel Mayo, Ovum’s financial services technology practice leader, says: “Banks are currently renewing their platforms and are investing in IT for the future. This will be mostly focused on the front office to improve order systems, but we will also see significant investment in the back office to improve automation and scalability.”

Virtual currencies, which allow individuals to circumvent banks in transactions, have drawn a fair amount of attention in the last year. But Bitcoin, the most famous of these, has had a turbulent year so far. MtGox, the world’s largest Bitcoin exchange, filed for bankruptcy in February. And more recently Vircurex, which trades Bitcoin and other virtual currencies, froze its accounts because of financial difficulties. Dogberry is perplexed. Virtual currencies are popular, partly because they lack a connection to national or financial institutions. But without this backing, can they ever achieve stability?

New crimes for a new era The financial services sector has had its fingers burned in recent years. After years of fat profits, the financial crash came as a shock to the banks. They have been squeezed by regulators, bashed by politicians and hit by fresh scandals, such as the one around Libor rates. All serious problems. But as the financial services sector embraces technology, the new threat of cyber crime looms. PricewaterhouseCoopers’ 2014 Global Economic Crime Survey of companies around the world revealed that 39 per cent of respondents from the financial sector said they had been victims of cyber crime, compared to just 17 per cent in other industries. A note accompanying the report reads: “The advancement of technology in business services, combined with the explosive

growth in social media and data connectivity, has permanently altered – and in many ways, brought together – the business and consumer landscapes. “Unfortunately, connectivity and access also have a dark side – one which empowers motivated, sophisticated criminals able to operate below the radar.”

Business Technology

Financial services technology | 11

By Matt Smith, web editor

u Editor’s pick Bobsguide.com www.bobsguide.com/blogs.html The blogs section of bobsguide. com features articles on financial services technology from a range of industry experts, as well as reviews of conferences and shows from around the world and interviews with leading figures in the field. The section is updated frequently so check back regularly for the latest opinions and insights.

Bank Systems & Technology Blog www.banktech.com/blogs Looking for opinions and advice on how advances in technology can make ﬁnance and banking safer and more efﬁcient? Look no further than Bank Systems & Technology’s blog, where experts from various companies and publications offer their thoughts on making the most of your tech and complying with regulations.

Forrester Digital Financial Technology http://thefinanser.co.uk/fsclub/ technology Research ﬁrm Forrester offers case studies and thoughts on ﬁnancial services technology in this dedicated blog category. VP and research director for e-business and channel strategy Benjamin Ensor’s articles include events and trends in the sector – well worth exploring.

Financila Services Club Blog http://thefinanser.co.uk/fsclub/ technology

Barclays Pingit (Free – Android)

Paypal Instore (Free – Android)

This innovative app lets you send and receive money using mobile phone numbers – even if you’re not a Barclays customer.

This app from PayPal allows users to pay for purchases in stores by showing an on-screen barcode to the shop assistant.

Balatro chief executive and chairperson of the Financial Services Club Chris Skinner runs this blog for ﬁnance and tech professionals, which covers issues including how best to protect your data against cyber attacks, how banks can use cloud technology, and thoughts on what 2014 holds for the industry.

Why we will see the return of the Bank of Relevance Time to reclaim the advantages of heritage INDUSTRY VIEW

nce, banks stood at the centre of the society they served. Their employees were trusted figures. Their services figured in the key life decisions of their customers. Banks had a purpose. They were relevant. Today, in stark contrast, many customers have lost confidence in the banking system. In many instances the dialogue between customer and bank is broken. Meanwhile, outside competition is threatening to make significant inroads into the market. But this is not the end of the road. A reinvigorated consumer banking model can fulfil all the goldenera roles again. It can hold a sustainable position in

an extended ecosystem of stakeholders. How? By becoming relevant once again. • Relevant personally – oﬀering products and services consumers want, at the moments and through the channels they prefer • Relevant socially – providing society with a positive example and exercising a positive inﬂuence • Relevant economically – returning to profit and offering shareholders an attractive and sustainable return The relevant bank will be technology-enabled but will remain human. It will grow as an enabler for individuals to effectively manage one of their most important resources. It will overcome legacy

issues (structural divisions, technology complexity) and it will reclaim the advantages of heritage (experience, longevity, brand familiarity and trust). Differentiated by style, underpinned by substance and delivered through a thoughtful balance of highprofile initiatives and underlying structure and process change, the Bank of Relevance is no fantasy. It is desirable, credible and achievable. It will leverage the most positive aspects of the past to create a viable, competitive future – in existing and new markets. Making it happen demands vision, courage and leadership. There is no doubt an industrialised approach both de-risks the change journey and makes it more accessible. But the journey to relevance must start now. Nic Parmaksizian is a director at Capco +44 (0)20 7426 1500 www.capco.com

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Business Technology April 2014

12 | Financial services technology

Business World Scotland A newly independent Scotland could benefit if its financial services relocated to the UK, according to a credit rating agency. In a report on the creditworthiness of an independent Scotland, Standard & Poor’s has warned that the country’s financial sector appears “unusually large” but could be moved to the UK. It reads: “The composition of Scotland’s external balance sheet is as yet hypothetical, but our initial observation is that the Scottish financial sector is unusually large, with total assets estimated at 12.5 times GDP. “We would therefore likely view the financial sector as a significant contingent risk to the state. At the same time, a large part of this activity could be re-domiciled to the UK.”

India

ExpertInsight

India’s central bank has warned its financial sector to beef up security for systems including ATMs which still rely on outdated software. The Reserve Bank of India (RBI) told the industry to take immediate steps after Microsoft announced plans to stop

updating its Windows XP software from April 8. Without Microsoft’s technical support it may be difficult to defend systems from cyber attacks and other risks. Some banks around the world are paying to extend the deadline at which Windows XP support ends. American bank JPMorgan has bought a one-year extension.

China MasterCard is attempting to entice Chinese shoppers with the launch of a virtual payments system. The payments company has launched its MasterPass tool, which allows people to make in-app transactions across various devices. As China grows in wealth, its consumers, who are keen to shop and carry out transactions online, could become a key target for the financial services world. The country’s “singles day” celebrations, which fall on November 11 and give singletons an excuse to treat themselves, has become the biggest event of the year for e-commerce.

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From growing Esendex technical director Alex Lea on the challenges of IT management – and selling runner beans to pay for a new modem. By Dave Baxter

BizTech’s

C-Suite spo t

LEX Lea was a young boy during what he describes as his “fi rst career moment”: growing and selling runner beans. T hough it sounds u n c onve nt ion a l , L e a , t e c h n i c a l d i r e c t or a t Esendex, which provides messaging ser vices, s ay s t h i s “c h i ld hoo d enterprising spirit” helped him afford a new modem after his previous one was fried in a lightning strike. In the days before internet, he used this to access the local online community, as well as dabbling in programming. “Your modem would dial and you would connect to a computer, one person at a time,” he says. “I would have these games and trivia. It was

Meeting needs of investment managers INDUSTRY VIEW

ortfolios of investment managers are, on the whole, made up of fixed income securities and equities. However, one of the clearest differences between these two asset classes is the extent to which analytics play a role in portfolio and risk management. Equities go up, they go down. Fixed income securities however, are subject to numerous parameters such as credit risk, yield-to-maturity, default risk, duration risk to name but a few. Most investors understand equities, yet the vast majority would probably struggle to explain the mechanics of fixed income. This is despite the fact that fixed income strategies – spanning government bonds, high-yield corporate bonds, mortgage-backed securities and emerging market bonds – remain an integral part of investors’ portfolios; typically 40 per cent. And while the debate continues as to whether a “great rotation” from fixed income into equities is now underway, a new white paper by Misys – The ‘Real’ Great Rotation: Analyzing Shifts Within Fixed Income & Towards Liability Matching – suggests that the reality is more nuanced. Rather than rotating fully out of fixed income, investors are looking to asset managers to find opportunities within new realms of fixed income. “Diversification within fixed income portfolios helps reduce volatility, at least from a regulatory viewpoint. Furthermore, the move towards electronic trading of bonds on Swap Execution Facilities will add more transparency to the way fixed income securities are traded. These drivers are pushing managers to explore new opportunities, trade new instruments and widen their asset class coverage,” comments

Tim Green, general manager, Buy-side at Misys. This combined with the fact that people are enjoying longer retirements following the effects of the 2008 financial crisis explains why pension fund investors are increasingly mandating asset managers to run liability-driven investment (LDI) strategies in order to meet their funding gaps. To keep on top of these trends and challenges, Misys Sophis delivers IT systems to fixed income managers to give them the ﬂexibility and confidence to trade new asset classes such as derivatives in a single portfolio. Adding the necessary analytics in a realtime environment is crucial for managers who want to effectively use portfolio and risk management as a way to improve overall fund performance. After all, the quicker they can trade new markets and seize the opportunity on behalf of their investors, the better. Green adds: “Having a ﬂexible framework to manage risk makes it easier for managers to expand into other

asset classes such as non-bank loans, which are increasingly popular among asset managers. Misys Sophis can support the risk controls needed in monitoring and managing these types of assets.” This is what Green refers to as supporting data aggregation across multiple axes – ie, the ability to trade across different asset classes to stay ahead of the curve. As yield pressures push managers into new areas of global fixed income, risk management becomes much more complex. Having an integrated portfolio and risk analytics solution overcomes the challenges of relying on disparate systems, which could potentially give managers an inaccurate view of their portfolio. Integration. Scalability. Asset class coverage. These are three clear benefits that Misys Sophis can bring to today’s ambitious investment manager. Tim Green (left), general manager, Buy-side at Misys im.misys.com

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April 2014

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Business Technology

Financial services technology | 13

beans to growing ﬁrms

ExpertInsight

this novelty at the time. It seems normal now. “I was probably between eight and 15, something like that, then I got slightly older and started socialising more and things took over. I swapped weekends on the computer writing games for playing football, meeting friends and going out for drinks.” This didn’t dull his interest in computing. After school he spent a year working, but realised he wanted to find a specialism. “I had a year out which was uneventful, doing the night shift at Tesco and selling sheds,” he says. “That was fun but not my calling in life.” He initially studied electronics and engineering at university, but, lacking motivation for the course, switched to computer science after the fi rst year. Later, this led him to question the relevance of university education in the IT industry. He says: “I feel like I got about three months of education in the total three years in terms of what relates in my day-to-day job now. “It goes w it h a disc ussion of how useful university education is if you want a career in IT. A lot of it is similar to craftsmanship. Do you need the academic learning to succeed in this job? “A lot of people I know haven’t got university degrees and have been the best.” He notes that Esendex gives talks at the University of Nottingham, which can show people the jobs available in IT. “It helps with recruiting,” he adds.

This is a large part of his job. Lea, who has served as technical director at Esendex since it was acquired by Darwin Private Equity in the summer, says his challenge is finding talent for a growing business. “I’m covering two or three roles at the moment,” he says. “There are the day-today duties of a technical and development manager, looking after the teams and making sure we have got a good technical direction. “There’s also hiring, which takes a lot of time with a growing business. We invest a lot of time finding the right people. “It’s about the interest the person has for the job. It’s passion and teamwork over experience of having used those things at another organisation. People have got to care.” He says growth can also present logistical issues. “We have 50 to 60 staff. Lots of new starters. I think growth is a challenge in terms of the technology, such as internal processes and information flows,” he says. “We want to be a big small company, not a small big company. “Growing the company requires fi nding the right people to work for us. There’s a lot of companies based around Shoreditch that share our company culture.” Esendex provides something we give little thought – text messaging services. Lea says: “We are almost

INDUSTRY VIEW

ruphone’s journey began in 2001, on a farm in Kent. There, inventor James Tagg felt frustrated that he couldn’t get a clear mobile signal – why shouldn’t he be able to communicate clearly, wherever he was? Tagg decided to solve the problem once and for all. Within a short space of time he’d built the world’s first internet calling (VoIP) application for mobile phones – but he didn’t stop there. Today, Truphone is the first global mobile network that gives you the same experience, even if you’re outside your home country. Truphone provides mobile communications in more than 220 countries to FTSE 100 and Fortune 500 companies, including three of the five largest banks in the world. Key to Truphone’s continuing success is its unique network, which uses a unified global infrastructure to offer several unique benefits to international businesses. For example, Truphone users experience faster download speeds and greater call quality when they travel.

Multiple international numbers – one SIM Today, Truphone continues to create innovative solutions to the frustrations which limit global communication – and for international businesses, this means keeping staff in closer contact with their international colleagues, contacts and customers, without additional costs. One way Truphone does this is by ensuring users can talk, text and download like locals and at local rates within the Truphone Zone, which includes the UK, US, Germany, Spain, Poland, Australia, Hong Kong and the Netherlands. This enables staff to stay connected as normal when

We ha ve of new 50 to 60 s ta challe starters. Gro ff, lots ng w techn e in terms th is a ology o . We w f the a big ant to small co be small big co mpany, no ta mpan y.

It’s ab ou intere t the st has fo a person r the j ob passio n and . It’s teamw o exper rk over ience. Pe have g ot to c ople are.

How to turn business abroad into business as usual Keeping staff in contact with international colleagues without additional costs

exclusively a B2B supplier, dealing with Ocado, Virgin Media, and people who care about the message getting there. “It’s where you need to get a message to someone for a particular reason, like a taxi company. The customer needs to know the car’s outside their house that minute, when it arrives. It’s time-critical messaging. “It’s things like delivery notifications, appointment reminders and some marketing. They cut costs for a business.” Lea say his new role gives him better insight into the decision-making process. “Before t hat I was work ing as a deve lopme nt m a n a ge r for one of the company founders who was chief technical officer (CTO),” he says. “I had a lot of the responsibility. “Now I have got more exposure to the financial side of the business. It’s a good perspective to have because you understand why decisions are made.” We now l ive i n a world of new, competing messaging services. But when it comes to the future of the humble SMS, Lea is unfazed. “People say, isn’t SMS going to die? But it has got lots left in it,” he says. “People use them for different reasons. We are working with our current products and services, broadening our reach and looking at M&A to grow and look further.”

they travel, avoiding exorbitant roaming fees and maintaining productivity outside of the office. Truphone brings contacts closer by offering multiple international numbers and a single voicemail service, all on one SIM. By bringing businesses closer to their customers and contacts, Truphone enables greater collaboration, helping businesses make better business decisions, faster. Recent research from CCMI shows that 40 per cent of large businesses limit how much staff use mobiles when they travel – and some have lost business as a result. Truphone helps businesses overcome these issues, improving productivity while reducing overall mobile spend and encouraging greater collaboration. As part of its commitment to improving global communication, Truphone ensures users enjoy a high-quality service with dedicated business support backed up by innovative technology. For example, Truphone’s unique Parachute Box technology simulates real-world usage within the network and enables Truphone engineers to identify issues before they occur – something no other network can do. Truphone has also created solutions tailored to specific markets. Truphone Mobile Recording, for example, helps financial institutions comply with industry regulations by recording calls and SMS messages in multiple countries around the world. Unlike other secure recording platforms, Truphone Mobile Recording operates without delays so that business can continue as normal. With Truphone, business abroad is always business as usual! 020 3006 4300 www.truphone.com/UK

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Business Technology April 2014

BizTech Zone

14 | Financial services technology – Industry view

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The future Out-of-date technology is crippling ﬁnancial services

o you want to know why financial services change programmes are so costly? Do you want to know why seemingly simple changes incur such long lead times, significant funding and endless amounts of red tape? Of course, any changes need to be fully tested and go through the appropriate governance, but to be frank that’s the easy bit. It is the changes that impact data, processes and systems that are the money burners. Having numerous experience on large change programmes over the last 15 years, we have seen that implementing change within financial services is often more costly and more complex than implementing change within retail, logistics and manufacturing. The key driver of this is inefficient technology. Retailers, for example, are more likely to have state-of-the-art data warehouses, dynamic reporting and interdepartmental strategies that are built for change. Retailers need to be nimble in order to deliver new and innovative products, be first to market and predict customer needs. Financial services are not generally renowned for their agility, commonly being referred to as giants. Over the last economic cycle, financial services have suffered from dramatic overhauls, restructures, mergers and acquisitions, all requiring change across multiple processes. It takes years to deliver a streamlined operating model over a single platform following a large takeover or merger. I have witnessed long-term benefits being sacrificed to manage costs in the shortto-medium term, resulting in strategic plans never fully coming to fruition. There needs to be a significant

shake-up in the current approach to embrace technological change rather than shy away from it. Banks need to avoid multiple change projects delivering sub-optimal solutions and start to think big: continue to simplify the architecture and embrace the latest technology. Having a simplified, state-of-the-art system architecture will significantly reduce ongoing maintenance costs, speed up end-to-end processing and support a strategic operating model. Heritage systems are much costlier

to run and maintain, less likely to be able to deliver change on a large scale and have slower performance. The question you need to ask yourself is: “Why wouldn’t you improve the underlying technology that supports more efficient, quicker and cheaper change management?” Dr Heidi Kharbhih is a management consultant at Optimise Your Business +44 (0)845 519 3940 www.optimiseyourbusiness.com

In focus: Big data? Worry about big audio Woody Allen Money is better than poverty, if only for financial reasons.

“

our organisation is awash with data: emails, IMs, Word documents, spreadsheets, PowerPoints… And all but the best managed, best resourced companies have trouble storing and indexing them, let alone trying to make any sense of them. But look around you. How many people do you see on the phone, making decisions, giving information and dealing with customers? How are you tracking all of that? Some companies record this data (for “training purposes”), using the cheapest possible technology, and then bury it in a data silo. Send £10 to a company whose call centre you have called one day, and ask them to send you a recording of the call you had, a “subject access request”. It will cost them so much to

process their share price will go down. There is as much value in phone calls as in any data source. But because it’s not text, people are frightened of it. And the big recording companies conspire in this myth, making it look difficult and expensive. Because of this, you should record every call in your company. It can be cheap, easy to retrieve, and moreover it can be stored with your text data, if you index it at source. If you know what people are saying, you can better understand your business. If you record now, then take a step back and ask yourself why, and then look at the how. Finding your voice is as easy, or as difficult, as you want to make it. 020 3627 2670 www.intelligentvoice.com

Tapping into consumer attachment to cash Ukash, the leading online cash payment provider, is capitalising on the latest innovations in technology to make it even easier for consumers to embrace new payment techniques as convenient alternatives to more traditional payment methods. Addressing consumer empowerment, Ukash is focusing on giving consumers who prefer to use cash, or who can’t access mainstream banking and payment methods, a range of ground-breaking solutions. Technological developments have increased consumer convenience at street level and nowhere is this causing a change in behaviours more than in the delivery of cardless services at ATMs. Tapping into the continued consumer attachment to cash – withdrawal of cash at ATMs continues to rise – the Ukash Cash Withdrawals service provides individuals with a unique code which can then be redeemed at a cash machine, without the use of a card, making Ukash the first non-bank in the UK to launch cardless ATMs. For consumers who want the social inclusion of plastic but don’t want to worry about managing credit, the new Ukash Prepaid MasterCard is providing the answer. There’s no need for a bank account or a good credit rating to be accepted for a Ukash Prepaid MasterCard, and the free Ukash app enables cardholders to manage their money anytime, anywhere. The card can be loaded with cash, is available in four currencies and can be used anywhere MasterCard is accepted worldwide, online or in-store. Finding a balance between the technological advancement of the financial sector and appealing to old habits will be the key to success in the future of the payments industry. And Ukash is at the forefront of enabling developments in this evolving sector. ukashbusiness.com commercial@ukash.com

an independent report from lyonsdown, distributed with the daily telegraph

April 2014

Business Technology

Financial services technology – Industry view | 15

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The debate How is technology driving the financial services forwards?

Philip Schoch

Jonathan Gray

Alan MacDougall Patent attorney Mathys & Squire LLP

CEO Red Zebra Analytics

Management consultant Optimise Your Business

Technology that eliminates human error, boosts productivity, and champions compliance will propel the finance services forward. Faced with soaring global competition, the wealth-management industry can’t afford delays or mistakes, especially when it comes to client onboarding. In order for companies to efficiently onboard clients and comply with local and global regulations, technology has to give relationship managers peace of mind. In an age when KYC is critical and regulations like FATCA cannot be overlooked, technology should ensure the necessary steps are taken without depersonalising client relationships. To achieve this, technology must be lightweight, release-independent, device-agnostic, adaptable, and fast. Speed is a key factor, determining how quickly products can be released, new regulation implemented, and locations or business streams put into production. As the global leader in client onboarding for the finance industry, Appway is committed to smooth, faultless automation along every step of the client onboarding process.

The biggest challenge facing banks is how to serve increasingly connected customers while driving inefficiencies out of the business. Banks find themselves being pulled in two directions. The only way to meet the expectations of digital consumers while reducing costs will be to industrialise fundamental operations and simplify the delivery of services and products. As well as trimming costs, this ensures that customers can interact with the bank as easily they do with friends and social groups both online and face-to-face. Banks can then focus on differentiation by providing superior customer experience. But industrialisation goes further. It gives banks the chance to build digital platforms where customers can interact with their peers and share insights based on their own financial aspirations and experiences. As these interactions and conversations build over time, the bank earns the right to offer customers more sophisticated services and so become a trusted partner that helps them realise their ambitions.

Operators within the financial services sector are increasingly using sophisticated technology to secure and maintain a competitive edge. In investment banking, the ability to make trades quicker than a competitor provides an immediate edge. Thus, ever-more-sophisticated proprietary systems are being developed to speed up transactions and overtake rivals. Indeed, within the global derivatives marketplace, complex computer-based platforms are routinely relied on to facilitate the analysis, decision-making and trade execution process. In retail, mobile banking and the use of Near Field Communication technology has revolutionised the transaction process. While the convenience factor is an attractive selling point, it also helps drive down banking operational overheads. Financial institutions are also discovering that the initial investment in new technology can be recouped by patenting the intellectual property and licensing it to third parties, generating additional revenue that can be reinvested into further research and development.

With the onset of digital technology, banks have radically improved their customer interactions and product offerings. Going forward, banks can now apply data intelligence to offer customers better ways to interact and make financial decisions. With an eye on data security, Red Zebra has been working hard to deliver in-statement offers to drive loyalty and engagement to the banks’ products. Our loyalty platform – 3D Offers – provides dramatic improvements to the customer experience and triggers increased product usage. When customers log into their digital bank account, they are presented with various cash-back offers. If they see an offer they like, they just click to accept it. Later, when shopping, they simply pay with their bank’s card. Everything takes place with no vouchers, no coupons and no hassle. The deals are linked to spending patterns, so customers can make direct savings, and merchants can place highly targeted, relevant offers. What’s more, it moves the bank’s cards front of wallet.

In my view, technology is not driving financial services forward, it is more the reason that customers are not satisfied with the services they are receiving. Technological advances over the last half century have been vast. According to Wikipedia, a proposal for what would eventually become the World Wide Web was written by Tim Berners-Lee in 1989 – that’s only 25 years ago! Now we have mobile technology, wireless connections, tablets and instant access to information at our fingertips. Consumers want this instant access to apply to every aspect of their lives, including banking. Financial services are constantly having to play catch-up to techsavvy customers’ demands, but are constrained by out-of-date support systems. In order to keep up with the technological advances that will continue to grow and develop, financial services need to significantly overhaul their core systems and simplify their system architecture, which will empower them to make ongoing developments more rapidly and at less cost.

+41 43 204 0608 www.appway.com

+44 (0)20 7426 1500 www.capco.com

+44 (0)20 7830 0000 www.mathys-squire.com

www.redzebra-analytics.com

+44 (0)854 519 39 40 www.optimiseyourbusiness.com

Practice lead Appway

Partner, banking Capco

Attul Sehgal

Dr Heidi Kharbhih