Tens of thousands of British citizens living in the EU have received notices from their UK-based banks warning them that their accounts will be closed by the end of the year, The Times has reported.
Major banks including Lloyds, Barclays and Coutts, have sent letters British account holders living in the EU with a warning that they will no longer receive service when the UK’s EU withdrawal agreement ends at 11pm on 31 December 2020.
Several thousand Barclays customers living in France, Spain and Belgium have already been given notice that their Barclaycards will be cancelled on 16 November.
In the absence of a Brexit deal, individual UK banks will now have to decide which EU nations they want to continue to operate in. As each of the 27 member states has different rules regarding banking, it will become illegal for UK banks to provide services for customers in these states without applying for new banking licenses.
Lloyds Bank has confirmed that it will no longer operate in Germany, Ireland, Italy, Portugal, Slovakia and the Netherlands; customers in these countries will have their accounts closed on 31 December. Coutts has also confirmed that its EU customers will have to make “alternative arrangements”, and Natwest and Santander have stated that they are “considering their options”.
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Nigel Green, CEO and founder of deVere Group, slammed the decision of banks to withdraw from EU nations and “abandon” their customers there.
“Once again, traditional banks are outrageously failing their clients who now need to take urgent steps to continue to be able to access, use, and manage their money,” Green said. “The move by these banks will be a major inconvenience to many tens of thousands of Brits living in the EU.”
“I would urge expats to now seek a financial services provider that already operates under pan-European rules,” he continued.
Accounts filed with Companies House this week have revealed that Revolut made a loss of £106.5 million in 2019, an increase from the £32.8 million loss it posted in 2018.
The loss comes despite significant growth in Revolut’s business, with its customer numbers rising from 3.5 million to 10 million over the course of the year. These customers held £2.2 billion on Revolut’s cards by the end of 2019, up from £1 billion in 2018.
Revenues also saw an increase of 180% to £162.7 million, but failed to outpace losses.
In an emailed statement, Revolut chief executive Nikolay Storonsky took an optimistic stance on the news, emphasising the past year’s growth.
“While we still have some way to go, we are pleased with our progress in 2019,” he said. “We tripled our revenues, increased retail customers from 3.5 million to 10 million, increased daily active customers by 231% and the number of paying customers grew by 139%.”
“Despite the current economic challenges, we remain focused on our goal of moving towards profitability.”
Revolut is a London-based fintech startup that aims to build a single universal platform for its customers’ financial needs, initially beginning as an app-linked foreign exchange card before expanding into stock and cryptocurrency trading. It is currently one of Europe’s fastest-growing fintechs, and received a valuation of $5.5 billion during a funding round in February.
Revolut also disclosed in its accounts that it has assisted the government during the COVID-19 pandemic by supplying data on how its customers’ spending habits have changed across sectors while lockdown measures have been imposed.
HSBC’s profits fell to $4.3 billion for the first half of 2020, dropping from $12.4 billion during the same period last year.
The British multinational bank also confirmed on Monday that provisions set aside for potential loan losses rose to $3.8 billion during the second quarter – about $1 billion higher than analysts predicted – and revised its forecast for loan loss provisions for the full year, raising the likely figure to between $8 billion and $13 billion.
Following the announcement, HSBC’s shares fell 4.3%, reaching the bottom of the FTSE 100 and dragging the index down to its lower level since mid-May. The bank also confirmed that it would accelerate its February-announced plans to cut 35,000 jobs worldwide in an effort to save costs.
The news comes as HSBC grapples with a major restructuring of its international banking operations, while also coming under fire for its support of China’s new national security law in Hong Kong.
In a statement on Monday, HSBC’s group chief executive Noel Quinn acknowledged the bank’s precarious political situation in a statement on Monday.
“Current tensions between China and the US inevitably create challenging situations for an organisation with HSBC's footprint,” he said. “However, the need for a bank capable of bridging the economies of east and west is acute, and we are well placed to fulfil this role."
Quinn noted the continuing threat posed by the COVID-19 pandemic: “We are also looking at what additional actions we need to take in light of the new economic environment to make HSBC a stronger and more sustainable business.”
As part of what is becoming a surprise leadership overhaul at the bank, a statement released Monday also suggested that former investment banker Robin Budenberg will be put in place as the lenders new chairman. If this happens, Budenberg will replace Norman Blackwell, who had discussed leaving the bank this year.
The surprise departure of Horta-Osorio scheduled for the end of June next year, poses more problems for Britain’s biggest mortgage lender as it wrestles with the economic recovery from Coronavirus pandemic and potentially one of the deepest recessions in centuries. The 56-year-old from Portugal, was seen by many as a steady hand at Lloyds, steering the Bank to profitability and full private ownership following a bailout during the financial crisis. Although his pay may sometimes have caused some negative column inches and discussions, the 56 year old will leave with a stellar reputation in the banking community.
In announcing the departure a year in advance, Lloyds will hope that this will leave plenty of time for the board to secure an experienced successor and ensure a smooth transition. The annoncement touched upon the fact that the banking giant will be considering internal and external candidates as they begin their search for a new chief executive in the near future.
During his tenure, Horta-Osorio cut thousands of jobs and managed a long-running and costly response to a scandal where British banks mis-sold insurance to consumers. He also pushed into wealth management and insurance as a way to diversify a revenue stream heavily dependent on the British economy and mortgage borrowers.
Lloyds booked a provision of 1.4 billion pounds ($1.75 billion) for soured loans in the first quarter as the coronavirus lockdown crushed economic growth and caused the bank to scrap previous targets. Its shares have also suffered as the Bank of England pushed lenders to scrap their dividends amid the pandemic.
Lloyds have been due to announce their new strategic plan early next year, as their current one directed by outgoing CEO Horta-Osorio, which involved heavy investment in technology and cost-reductions comes to an end. It is unclear whether this will change their plans.
Although Horta-Osorio has suffered a few setbacks during his decade long stint at the bank, most notable when Lloyds cut his pay by 28% to 4.73 million pounds for last year and his handling of a recent whistleblower report into a fraud case, Lloyds will be disappointed to lose a chief executive who has broadly delivered excellent results throughout what has been a tumultuous time in the economic sector.
Lloyds shares rose about 2% in London trading, one of the smallest gains in a broad rally by the Whether by Horat-Osorio or the new CEO, Lloyds have some ground to make up, currently sitting 49% down this year, which ranks as the worst performance among Britain’s five major banks.
This article first appeared on our sister publication's website www.ceotodaymagazine.com
Matthew Leaney, Chief Revenue Officer at Silent Eight, examines the issue that correspondent banking poses to the financial sector.
On the one hand, it has long been a key mechanism for integrating developing countries into the global financial system and giving them access to the capital they need. On the other hand, correspondent banking relationships are inherently risky for the global banks that grant access to the respondent bank’s customers without being able to directly conduct Know Your Customer/Customer Due Diligence (KYC/CDD) checks on them.
It’s not a small problem: make access too easy and you risk allowing billions of illicit funds through your door; cut off the relationships and you starve emerging markets of capital and drive their transactions into the shadows.
To its credit, the Financial Action Task Force (FATF) understands the dilemma and has provided continued guidance to clarify the issue. In its October 2016 Guidance on Correspondent Banking Relationships, it explicitly stated that its standards “do not require financial institutions to conduct customer due diligence on the customers of their customer (i.e., each individual customer)”. Rather, they require the correspondent bank to conduct sufficient due diligence on the respondent bank’s processes to understand the risk they present and whether the risk is acceptable within their risk management framework.
Still, many global institutions have decided over the past few years to “de-risk” by shutting down or curtailing their correspondent banking relationships in many countries. It’s easy to see why. It makes sense to exit a relationship when the risk associated with it exceeds your risk tolerance. But the solution doesn’t need to be this drastic. After all, correspondent relationships aren’t inherently bad, they just present a higher level of risk than the bank is willing to accept. Lower the risk and you’re back in business.
It makes sense to exit a relationship when the risk associated with it exceeds your risk tolerance. But the solution doesn’t need to be this drastic.
The solution is straightforward, at least in concept: lower the risk by increasing the effectiveness of respondent banks’ AML/CTF programs. This approach is exemplified by our partner Standard Charter’s “De-Risking Through Education” strategy, featuring regional Correspondent Banking Academies to help raise awareness of best practices and emerging technologies.
Heidi Toribio,Managing Director, Global Head Financial Institutions, Global Banking,at Standard Chartered Bank said that the initiative was key to preserving correspondent banking relationships, and removing ambiguity from compliance standards through partnership. “Correspondent banking goes to the heart of facilitating cross-border trade and financing growth, which is central to our DNA and our purpose as a bank,” she said.
A key element to preserving these relationships is improving the controls within the respondent bank by leveraging emerging technologies like Artificial Intelligence. Silent Eight understands this and has developed solutions to meet this need. With its AI-driven screening system, banks in developing countries could demonstrate a data-driven AI process that learns and improves its output as it addresses alerts. The process gives reliable results, resolving each alert and documenting the reason for the action. The whole AI process is systematic, reliable, consistent and auditable, and provides the analyst clear information on which to make a final determination.
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Leveraging AI solutions into AML/CTF programs is a priority for banks in developing countries so they can demonstrate that their programs are up to global standard. It should also be a priority for global institutions that are or were acting as correspondents, since it allows them to diversify into a broader range of markets at an acceptable level of risk. Together with initiatives like De-Risking Through Education, the adoption of technology like Silent Eight can help developing economies once again gain access to global financial markets and help keep their financial transactions out of the dark.
Andrew Beatty, Head of Global Next Generation Banking at FIS, shares his thoughts on the inevitable evolution of building societies with Finance Monthly.
Building societies have grown with the communities they service. They have been in an area for decades and sometimes centuries, giving them a strong sense of place and knowledge of the needs of the communities they serve. This has been vital to their durability, and this knowledge is very much still valued by customers.
But it’s not enough in today’s digital world. Consumers demands are increasing. Personal, tailored services, such as what customers receive through Amazon and Netflix, in conjunction with seamless digital experience offering spread across all channels the likes of which we see from Google and Facebook is now expected from banks.
Building societies need to evolve, but they need to do it in the right way. Building societies needn’t rip everything up and start again in the pursuit of reinvention. When e-readers were invented, authors didn’t stop writing; a Nobel prize winner retains that distinction in hardback or Kindle. Instead, building societies need to adjust their businesses to maintain relevance.
While every building society is different, but here are four investments no society can afford to ignore.
Digital capabilities
Worldpay research shows that 73% of consumer banking interactions are now digital, a figure that has only been rising during lockdown. Providing customers with a frictionless, on-demand experience across multiple channels is imperative. Focus on getting the right mix of personalisation, agility and operational and financial efficiency.
Building societies have grown with the communities they service.
Platforms that are built to leverage artificial intelligence and machine learning give building societies the ability to deliver the kind of personalisation that reinforces their established brand image. Systems that are built to accommodate open application programming interfaces, or APIs, and that use mass enablement for new product features and service rollouts will make adding new innovations later both cost-efficient and operationally feasible.
The cloud
In banking, trust and security are synonymous, and investing in or partnering with companies that have invested in the cloud is an important strategic decision.
When executed properly, a private cloud infrastructure delivers greater resiliency, enables faster software enhancements and ensures data security. Other benefits include significant decreases in infrastructure issues, improved online response times, enhanced batch processing times and the ability to swiftly respond to disasters and disruptions.
Data
It used to be that only the largest financial institutions could afford good data. But now the ability to access, filter and focus on real-time data is within reach for building societies as well.
In addition to adding even greater personalisation to digital and mobile banking tools, building societies can make further use of data to drive cost efficiencies, growth initiatives and service improvement efforts, as they deliver that differentiated customer experience they were built on. For building societies workers who fear they can’t harness an influx of data: don’t let the flood of information incite “analysis paralysis.” Start with a focus on your key goals. Then, ramp up other functionalities as you gain more confidence and skill. Data is a tool for creating an even better bank.
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Regulatory compliance
To quote Spider-Man, “with great power comes great responsibility”. This rings as true as ever for building societies who, with increasingly stringent regulatory compliance burdens on their plates, need to make sure all the benefits incurred with increased data are analysed and harvested both legally and ethically.
It also demands that building societies put in safeguards as part of their fiduciary duty. Do your due diligence and make sure whatever method you choose, be that technological or hiring additional staff members, accounts for the ever-shifting regulatory environment and can ensure adaptability.
On your marks
Building societies need not despair at their technological deficiencies. After all, it’s far easier for a building society to catch up on five years of technical innovation than it is for a neobank to catch up on fifty years of hard-earned customer loyalty. Get in the driver’s seat, set the GPS for transformation, and start your digital journey.
Richard Billington, Chief Technical Officer at Netcall, explores the changes that AI has brought to the business world,.
From the recommendations we receive on Amazon or Netflix to the AI-driven camera software used to improve the photos we take on our smartphones, AI forms parts of the popular services that are used multiple times a day. Even the map and Satnav applications we use rely on AI. Company chatbots are a more well-known use of AI, and can now be found on nearly every company website you visit. In fact, it’s been predicted that 80% of companies will be using chatbots this year.
However, consumers today are getting ever harder to please. The growing ramifications of the ‘Amazon Effect’ means that today’s customers expect instant gratification when liaising with companies – placing more pressure on business leaders to provide more, faster and better. Digital banks such as Monzo and Starling are continuing to build upon these expectations by enabling customers to open accounts in a matter of minutes. And that’s not all: companies are now under pressure to offer 24/7 customer service through a multitude of communications channels, including Twitter, Facebook messenger and other social media.
Furthermore, as millions of individuals are quarantined and isolated amid the current COVID-19 outbreak, never has there been more pressure on customer service teams to facilitate rapid and seamless responses to enquiries on a broad range of issues. In a time of crisis, a customer’s interaction with an organisation can leave a lasting impression, and potentially impact future trust and loyalty – another headache for CEOs, CIOs and CTOs.
Digital banks such as Monzo and Starling are continuing to build upon these expectations by enabling customers to open accounts in a matter of minutes.
AI-enabled systems are increasingly being viewed as the perfect solution for optimising customer service – as it’s extremely beneficial in allowing companies to provide agents that are ‘always on’, as well as hyper-tailored experiences for customers. However, some businesses are yet to harness these technologies – along with their benefits.
The barrier businesses must overcome
For many business leaders, a lack of the right skills in the right place has hampered their ability to implement AI across their company’s customer service function. According to an IBM institute of Business Value study, 120 million workers in the world’s twelve largest economies will need to retrain as a result of AI and intelligent automation.
Other business leaders may face budgetary constraints and can find themselves put off by the significant investment often required when integrating AI systems in their existing IT infrastructure. Misunderstanding surrounding AI can also mean that some CEOs are understandably concerned that the solution they are putting into place may end up being not quite right for their needs. Therefore, concerns over wasted time, money, and other resources often result in a rejection of adopting new technology. However, these concerns will be outweighed by the repercussion stemming from an inability to unlock the true value of this technology – and potentially fall behind in today’s fast-paced market.
Unlocking the benefits of AI
Smaller businesses tend to fall short of the IT foundation and personnel needed to remain up to date with the latest technological advancements in enhancing customer service. But it will ultimately be these investments that enable business leaders to contend with customer demands and flourish in an ever-evolving landscape. Adopting these low-code solutions will enable resource-poor teams to quickly test specific features or workflows without the need for specialised technical skill – enabling employees to innovate and implement significant change, without relying heavily on the IT department.
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Low-code is helping companies surpass shortages within multiple digital skills, including AI, by removing the need for highly-trained developers who have traditionally been relied upon to bring new applications to the forefront. In fact, in a recent analyst report, Forrester predicts that savvy application design & development (AD&D) leaders will no longer try and reinvent the wheel and instead will now source algorithms and insight from their platform vendor or its ecosystem. Implementation consultants will now be able to differentiate themselves using AI-driven templates, add-ons and accelerators – particularly industry-specific ones.
With low-code software solutions, everyday business users are able to ensure automated and AI-driven solutions are up and running quickly and easily. Due to the lack of complex coding, the process of integrating AI is instantly simplified, and easily accessible by a range of workers across a variety of business sectors, regardless of size. The ability to test applications before implementation ensures business leaders are able to explore the capabilities of AI without investing valuable time and effort. As a result, they will be empowered to unlock a wave of new possibilities for AI development across a range of functions.
By breaking down walls between IT and other departments within organisations, low-code technology can be utilised to help bring teams together to work collaboratively on applications that rapidly improve processes, by harnessing the knowledge of customer facing wider-business teams. And as COVID-19 continues to cause ramifications for businesses across the globe, business leaders must respond with agility to keep up with increasingly complex customer demands. Speed of implementation and the technology that can help organisations get there is therefore essential when it comes to staying afloat and competitive. And, where many workforces are currently struggling from unprecedented circumstances, the adoption of AI processes through low-code applications can help minimise workloads and free up workers– enabling them to focus on more strategic tasks within the organisation, by automating some of the more mundane processes.
Andrew Raymond, CEO of Bolero International, shares his advice with Finance Monthly.
Reliance on paper documentation and manual processes means banks are struggling to meet the needs of exporters and importers as we emerge from the COVID-19 crisis.
The demand for fast digital services with minimal human involvement is gathering pace as global trade prepares itself for the big task of recovery. The WTO (World Trade Organisation) estimates trade could plummet by anything between 13% and 32% this year alone.
The critical role of paperless trade systems in fostering recovery is recognised in the ten-point plan issued by UNCTAD (The United Nations Conference on Trade and Development), which makes their introduction a key priority.
Apart from sheer speed of transfer, electronic versions of essential trade documents have the distinct advantage of not being held up at borders or lost during movement restrictions. This has become a vital attribute. Bills of lading, for example, are crucial trade documents that serve many purposes. Created by carriers, they can be used by exporters to draw under letters of credit from the buyer’s bank payable at sight, or to obtain finance in case of deferred payment. As “documents of title”, they confer ownership of a shipment and are forwarded to the buyer’s bank in exchange for payment against the letter of credit. The buyer will also use the bill to claim the consignment, once delivered.
The demand for fast digital services with minimal human involvement is gathering pace as global trade prepares itself for the big task of recovery.
Clearly, severe consequences ensue if documents such as bills of lading go missing or are held up. Fees and penalties mount as cargoes sit in port longer than necessary. This is where the advantages of digitisation are most obvious. Exchanged on a secure, purpose-built trade digitisation platform, trade finance instruments, electronic bills of lading (eBLs) and other digitised trade documentation, take hours to process instead of days or weeks for paper equivalents.
This is why banks are more likely to invest in paperless systems in the aftermath of the coronavirus pandemic. Yet digital trade finance solutions vary hugely and corporates must take care they do not sign up to services that are poorly designed, lack connectivity or have little acceptance in the wider trade sphere.
Here, then, are five points for corporates to ask a bank when it comes to trade digitisation.
1. Can you manage everything end-to-end from a single interface?
Any digital solution in trade finance must be comprehensive in every sense. From a single interface it should be possible to manage all the documentation required to support a transaction.
A single interface should provide simple access to multiple banks for fast comparison of credit lines, rates, fees and offers. This is the primary means by which corporate treasuries will improve their cash flow and use of working capital. Fast access to a wide choice of credit lines also reduces the need for expensive bank instruments.
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2. Does the solution bring everyone together?
Buyers, sellers and carriers – they all need to be on one platform. There needs to be a good, secure flow of information between all parties. Your bank’s digitisation solution should connect seamlessly with your back-office and your own eco-system, giving access to alternative funders and third-party providers such as logistics companies, carriers, insurers and counterparties. This is connectivity that should be easy and open to increase efficiency and provide customisation.
3. Does the bank and its proposed solution have the necessary expertise in-built?
It’s vital to ask if a bank and its solution-providers have the necessary understanding of trade flows and how your business fits in. Does the proposed solution have a proven network of users among banks and significant corporates, and is it sanctioned by national authorities and recognised within the trade community? Many platforms focus on their integration with emerging blockchain solutions. This is important but still requires a current network of users and documents based on real working practices in global trade.
4. Is the platform secure, compliant and fit for trade after COVID-19?
A critical electronic document such as an eBL must be underpinned by a respected body of law, such as English common law, to give both yourself and customers greater confidence. A platform must also conduct compliance checking in line with international trade rules such as those prescribed by the International Chamber of Commerce eUCP which govern letters of credit. For many corporates, the immediate post-COVID era will be one in which they cannot be certain of the solvency of their trading counterparties. Know Your Customer protocols need to part of the solution but not so laborious they become a barrier.
A critical electronic document such as an eBL must be underpinned by a respected body of law, such as English common law, to give both yourself and customers greater confidence.
5. Does the solution offer visibility of bills of lading as well as letters of credit from multiple banks?
A digital platform must give corporates access to electronic bills of lading (eBLs) as well as letters of credit and other trade finance options. As we have seen, bills of lading are critical documents, but often subject to change, which requires visibility and vigilance.
Ideally, a bank’s trade finance digitisation platform should offer you the ability to use critical trade documents such as eBL under any transaction. With so much competition in some of the toughest conditions ever experienced, open account trading is set to continue its dominance in cross-border transactions, so having access to eBLs is an important requirement.
These are just five points but they cover the main areas that corporates need to explore. It is important to weigh up the options quickly, but also to take the right decisions on trade document digitisation in order to maximise revenues as the world recovers from the pandemic and new rules apply.
The COVID-19 pandemic has not just had a devastating impact on health and society, it has dominated economic and business matters unlike anything we’ve seen in peacetime history, and, across the globe, schools, companies, charities and self-employed professionals are still adjusting to a brand new remote working contingency plan.
Fortunately, as a society, we are extremely well-equipped to adapt to remote working with a turnaround time of just a few days. This was proven by the sheer quantity of businesses, many of whom care for thousands of employees, who just a few weeks ago managed to transform their entire internal structure to a digital environment. Not only is this an inspiring example of human collaboration at a time of crisis but also a true testament to the power of the technology at our disposal.
In fact, remote working has proven itself so effective for some organisations, that it has gone beyond a short term contingency plan; it’s starting to look like remote, or at least flexible working, will be incorporated in the long term for thousands of office-based workers. Clement Desportes De La Fosse, Co-founder and Chief Operating and Financial Officer at Spearvest, shares his thoughts on how the finance sector will be forever changed by the pandemic.
Although it may sound premature to think about a post COVID-19 world, a majority of industry operations are sure to change forever, and, none more so than in the financial sector. For many years, traditional banks and financial institutions have been associated with outdated infrastructure and slow legacy IT systems, which are a burden for financial professionals and consumers alike. In fact, a recent study in 2019 revealed that UK banks were hit by ‘at least one’ online banking outage every day across a nine month period.
Today, the demand for banking and financial services has never been higher: emergency loans, government payment schemes and personal finance management are required for people to survive. What’s more, visiting a branch in person is no longer an option, and therefore financial institutions are forced to invest in capable IT infrastructure and relevant automation, regulation, and finance technology to deal with influx of demand.
For many years, traditional banks and financial institutions have been associated with outdated infrastructure and slow legacy IT systems, which are a burden for financial professionals and consumers alike.
Whilst it could be argued that this much-need update was inevitable, the pandemic has certainly forced many banks’ hands in enforcing this change, and means our financial institutions will emerge from the crisis with a much more capable IT infrastructure. The following areas are where banks are, or should be investing, in the coming weeks, months and years, with insight into how exactly these cutting-edge technologies are impacting the financial services sector for the better.
Artificial Intelligence
Artificial Intelligence (AI) has been a growing trend in finance in the past decade, primarily being used to address key pressure points, reduce costs and mitigate risks. However, the demand for digital banking services as a result of COVID-19 will likely push the sector in the direction of developing and incorporating sophisticated automation and customer service AI.
We’re a few years off the mass adoption of robotics technology of this nature, but it’s safe to say the COVID-19 threat has highlighted the pressing need for more automation and better service technology.
Public Cloud
The shift toward cloud-based computing has already been significant, with most financial institution operating cloud-based Software-as-a-Service (SaaS) applications for business processes, such as HR, accounting, admin solutions and even security analytics and know-your-customer verification.
However, advancements being made in cloud technologies and increasing demand for SaaS applications for remote workers means that soon we could see core services in the financial sector, such as consumer payments, credit scoring and billing, to become stored and managed in cloud-based SaaS solutions.
RegTech
Much like the increasing demand for AI and Cloud-based SaaS applications, regulatory technology (RegTech), can do important work in ensuring financial work remains regulated and legal. The right RegTech, such as automated customer onboarding technology, can also save a firm a lot of time, freeing-up much-needed time to focus on the work that can not be completed by software or a robot.
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Big Data
Customer intelligence facilitated by big data and consumer behaviour is an incredibly important tool which can be used for extremely accurate decision making, risk-assessments and revenue and profitability forecasts, to name just a few use-case example.
Some modern financial institutions and start-ups have been using big data and analytics technology for a number of years, and those more ‘traditional’ which may have neglected this cutting-edge technology are depriving their customers of top tier financial advice and insight at a time when they are in need of it most.
Security
Cyber attacks, money laundering and hackers have always threatened the financial services to a large extent. However, with entire workforces online, operating in a remote, sometime unsecure environment, the cyber-threat facing consumers has never been larger.
Thus, cyber-security has, and should, be invested in heavily by financial institutions looking to protect their own client, employee and company sensitive information. At the same time, safe internet and banking practice should be implemented and taught to all members of the general public to ensure they do not give away sensitive information such as payment details.
Fast forward, five years from now, we will look at the pandemic as a trigger that enabled us to spend our time more efficiently, and digital technology and the cloud will be key in facilitating this positive change.
Modern automation and computer systems, particularly in sensitive national industries like financial services, need accurate time to function efficiently and they depend heavily on satellite systems to provide it. Simon Kenny, CEO of Hoptroff, shares his insight on the importance of time as part of modern financial infrastructure.
Satellite Navigation Systems are today’s under-acknowledged global good. Knowing where you are appears to be yesterday’s problem; whip your phone out, and you can establish where you are and find where you need to go very easily using the GPS. However, the UK does not own or control a satellite timing and location system, we rely on the systems built by others, such as the USA, Russia, and the EU, to give us time and location.
We rely on them for our vital financial services industry to accurately execute transactions. If those systems were to be suddenly unavailable either because of accident, deliberate spoofing/jamming or because the provision policy of the owners were to change, then time accuracy would be heavily disrupted in the UK and so would the performance of automated systems that need accurate time to function. Financial services rely on stable time feeds to verify thousands of transactions a second and most of those time feeds are satellite derived, so in the absence of our own UK owned and operated system, we cannot take the risk of it suddenly being unavailable. This is why the UK Government is investing in the National Timing Centre, which will develop a system for distributing time across the UK that is independent of GPS and which would enable the tracking of transactions to continue should the satellite connections be lost.
Software – the efficient, reliable solution
A pound of butter is a pound of butter; it is part of a measurement of weight that it should not change suddenly. It is fixed, but time is cumulative, it is part of its nature that it should change. So, to know what the time is, you care about the total number of seconds that have elapsed and as even tiny errors happen, they quickly become noticeable and clocks begin to disagree. To correct this disagreement the only option is to reach a consensus between national standards bodies about what the time is and then share it freely. This consensus is UTC (Universal Time), the standard to which everybody regulates their clocks.
Financial services rely on stable time feeds to verify thousands of transactions a second and most of those time feeds are satellite derived, so in the absence of our own UK owned and operated system, we cannot take the risk of it suddenly being unavailable.
The importance of highly accurate and synchronised time across different points in a distributed process was made clear at the end of last year when the Bank of England discovered early access to Bank announcements was being sold as a service. An audio feed, set up to provide a resilient back up to the video stream, was received eight seconds earlier at key co-locations than the video. Eight seconds providing a clear window in which to arbitrage any market sensitive announcement by the bank.
To effectively release sensitive market information, it is necessary not just to release the information at the same time to everyone, but to also manage the delivery of that information vis different media so that it arrives simultaneously at sensitive market venues or Co-Locations. When early access to data can be leveraged into a trading advantage, accurate synchronization of devices is required to correct the distortion and allow markets to operate transparently.
The science of real time data can only be coherent if that time consensus can be distributed ubiquitously at low cost, and at greater accuracy than the speed with which machines make decisions and take actions. If the accuracy is not good enough, or access to reference source is lost altogether, then systems will be disrupted and records of what a machine has done will be unreliable. That sweet spot is around twenty microseconds today: the time is accurate enough to measure and monitor server activity, but it can be delivered through software and existing connectivity without the need for expensive timing infrastructure to be installed. If synchronized time is to become ubiquitous, then it needs to be cost effective and easy to manage.
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Software timestamping is a great solution to help financial institutions comply with MiFID II and CAT timestamping requirements not only because it is very cost effective, but because it can accept a time feed from different sources; a satellite or via a network cable feed, if the satellite becomes unavailable. It has been tested and verified that existing telecoms networks can distribute accurate time to any major data centre reliably and at scale. It is not necessary to have satellite antennae at each data centre location to connect to GPS. Resilient network connections, plus a local “Armageddon clock”, which can take over timing in the event of an interruption in connectivity, are less expensive and easier to maintain. The National Timing Centre will serve to expand the availability of a UTC time signal via multiple fibre networks, so the UK finance industry will have a cost-effective and resilient alternative to satellite available for all financial services companies.
The potential of nationally distributed timing infrastructure
If all the devices in a distributed process don’t share the same time to sufficient accuracy, then the records they produce will put events in the wrong sequence and with incorrect intervals. However, if the UK finance industry had cheap, ubiquitous, accurate time coming from a reference source, then UK market participants would be able to enjoy the benefits of a unique “Time Fabric” where all timestamps, in any application, would be verified and capable of acting as reference data in any analysis. Time intervals could be used to authenticate proper execution and identify early when a process is not performing as intended. A national timing infrastructure offers the potential to improve the quality and utility of market data not just in financial services, but in any industry using automated systems that chooses to adopt it.
Cloud computing is one of the most transformative digital technologies across all industries. Cloud services benefit businesses in so many ways, from the flexibility to scale server environments against demand in real-time, to disaster recovery, automatic updates, reduced cost, increased collaboration, global access, and even improved data security. Numerous financial institutions around the world are already reaping the benefits of cloud infrastructure to fit their technology needs today and help them scale up or down in the future as economies evolve. According to research by the Culture of Innovation Index, 92 per cent of corporate banks are already utilising cloud or planning to make further investments in the technology in the next year.
The Bank of England is the latest financial institution to announce it has opened bidding for a cloud partner to support its migration to the cloud. Craig Tavares, Head of Cloud at Aptum, explains the significance of the Bank's decision to Finance Monthly.
As the UK’s central bank seeks to move to a public cloud platform, IT decision makers are likely to encounter hurdles along the way. Figuring out the right partner will be half the battle for the Bank of England; it can be very difficult to identify and map out the broader migration and ongoing cloud infrastructure strategy.
The central bank’s cloud computing approach reflects an evolution in the way financial organisations are viewing data and the applications creating this data. The industry wide shift to viewing data as an infrastructural asset could have precipitated the Bank of England’s own move to the cloud. As such, the organisation should consider these four areas to determine their cloud strategy and partner -- performance, security, scalability and resiliency.
Figuring out the right partner will be half the battle for the Bank of England.
Performance
Traditionally, financial institutions are known for their risk aversion and have been hesitant to undertake digital transformation due to their reliance on legacy systems. Fraedom recently found that 46 per cent of bankers see this challenge as the biggest barrier to the growth of commercial banks. But due to issues surrounding compliance, moving completely away from legacy systems isn’t always an option. This is no different for the Bank of England which is looking to move to a public cloud platform in order to enhance the overall performance of customer payment systems in the new digital age.
Legacy IT systems can prove to be a challenge for financial organisations looking to move applications to the cloud. Outdated processes often lead to system failures, leaving customers unable to access services, resulting in increased customer loss. However, with public cloud it is crucial to find the right combination of cloud services by defining the proper metrics for application performance and storage of critical data.
Legacy IT systems will need to co-exist with new or refactored cloud-based applications. Because of this, the bank will need to consider different strategies using hybrid cloud and multi-cloud architectures to align performance and cost. And when it comes to time-to-revenue or time-to-value the bank will be looking at traditional IT methodologies while leveraging cloud native approaches. The cloud native approach will lead to adopting DevOps as a new culture and Continuous Integration and Continuous Delivery or Deployment (CI/CD) as a process. These practices automate the processes between software development and operational teams which as a result will allow the bank to deliver new features to customers in a quicker, more efficient manner.
Depending on the hybrid IT architecture being used and whether the approach is traditional IT or cloud native, there will be different ways to ensure the best application and data lake or data warehouse performance. In order to do this, the bank will need to partner with a technology expert who will be able to offer guidance on the different levels of technology stacks required during the cloud migration.
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Security
Central banks have traditionally kept close control of their IT systems and long expressed concern over the security of their customers’ information and financial transactions. As such, migrating to a public cloud platform and handing over to a cloud partner could heighten these worries. Global banks are expected to adhere to strict regulations to reduce the number of security issues within the financial sector and all new technology implementations must be compliant.
As complex regulatory requirements – such as the Markets in Financial Instruments Directive (MiFID) and Anti-Money Laundering rules (AML) - continue to cause a barrier to cloud adoption in the financial sector, the Bank of England should consider a partner that is able to adapt to high regulatory demands. As such, a three-way partnership should form between the Bank of England, cloud consultants and cloud service providers. This particularly applies if the UK central bank were to take on a multi-cloud approach – leveraging Amazon, Azure or both. This way, the three can be aligned and acknowledge the journey the bank has taken so far as well as the future of the financial organisation from a regulatory standpoint.
Adopting a partnership approach decreases the risk of security breaches which often cause client relationships to disintegrate. In the past, security was treated like a vendor-customer relationship rather than an important partnership from day 1. Data is a major focal point in this discussion - how the bank is protecting customer data or how they are managing financial data. Cooperation between partners ensures the configuration of every cloud service being used has the right security measures integrated into it from the start observing compliance requirements like GDRP, data sovereignty and data loss prevention.
Adopting a partnership approach decreases the risk of security breaches which often cause client relationships to disintegrate.
Scalability and Resiliency
With a growing abundance of data, The Bank of England will need a cloud platform that will allow them to scale up or down accordingly. Fuelling the growth of the bank’s data are its applications, which also need special scaling and resiliency considerations just like the data itself.
Keep in mind, cloud is not an all or nothing discussion. Not every application the Bank of England has needs to go to the hyperscale public cloud. For example, it may start with a progression to private cloud and then to a public cloud vendor agnostic framework based on the scaling and resiliency needs. The financial institution should understand which applications are best suited for the cloud at this time and which will be migrated at a future point. They should ensure that cloud is an enabler and not a detractor. It’s important to understand the cloud journey is an ever-changing process of evaluating business goals, operational efficiencies and adopting the right technologies to meet these outcomes at the right point in time based on ROI.
The UK central bank should consider moving to a container-based environment and cloud platform services (but as mentioned, in a hybrid cloud architecture), technologies that will enable an efficient process of building and releasing complex applications with the right scale in/out and uptime capabilities. The bank may incorporate Site Reliability Engineering (SRE). SRE is a discipline that leverages aspects of software engineering and applies them to infrastructure and operations challenges. The key goals of SRE are to create scalable and highly reliable software systems.
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The Bank of England has come to recognise the significant impact cloud can have on the business and the benefits cloud technology will bring to their customers. Banks will become leaders in setting the bar for other organisations and industries when it comes to moving to the cloud. However, when it comes to choosing the right collaborator, The Bank of England should seek a cloud partner who is able to meet their business objectives, understands both traditional IT and cloud native approaches, along with hybrid multi-cloud and the data challenge which includes performance, security, scalability and resiliency. Working with the right Managed Service Provider (MSP) partner can provide them with the necessary expertise and developing solutions that bridge the gap from where they are today, to where they want to go.
Today, generations have grown used to, or have never known a life without digital devices. These devices, and the emergence of the apps that utilise their unique user experiences, have changed and raised the expectations of customers across multiple sectors. Banking disruptors since the early 2010s have set a new paradigm with ‘the age of air’, aided by the emergence of open banking, which has flooded the industry with those looking to host customers that want to easily engage with their finances. Within this new model, how much do the established banks fear the disruption? Are the disruptors streaking ahead?
According to PwC, 88% of banks are still concerned they’ll lose revenue to innovators. However, the disruptors’ march to exponential growth has not been as great as financial forecasters and experts first feared. For established banks, the initially unnerving emergence of new disruptors is now appearing to shift towards a respectful viewpoint that holds opportunities for both types of organisations.
Whilst digital banking disruption continues to grow, a recent study by the Competition and Markets Authority (CMA) found that Barclays, Lloyds Banking Group, HSBC and The Royal Bank of Scotland Group have all retained a 70% share of current accounts. Why is this? Are the banks beginning to hold their ground? What have they learnt from the disruptors?
LOYALTY
While the disruptors have certainly unnerved the banks, they’ve also woken them up to new possibilities and to the acceptance of their frailties. Their inertia and internal constraints that cause a lack of true innovative thinking in the most recent digitally transformative years was a weakness. For all the revelations of their Achilles' heel, they also discovered what advantages they have over disruptors too. Despite the new, branch free, digital challengers offering innovative solutions and picking up new customers, gaining prominence and prestige, the established banks still have something on their side. Loyalty.
Data is the oxygen of the developing financial system.
Some may say that this loyalty could also be translated as long-term customers’ reluctance to change banks, but in reality, that ability to change banks has never been easier. Instead, analysts are beginning to believe that there is a deeper-rooted loyalty between the customer and banks than previously believed. And this, despite the catastrophes around 2008, is down to their trust in established institutions.
TRUST
Bricks and mortar buildings, whether or not they’re entered or used, seems to give customers a sense of security and trust that a digital bank - turning your money into air - can’t. FinTechs are admitting that banks still retain trust from customers a decade on from the financial crisis. With many believing that banks will be successful in managing a recalibration, even if the process may be uncomfortable. Although, that trust mustn’t be misplaced and they shouldn’t be complacent about this ‘captive’ group. They need to be understood to an even deeper level and recognise how their interaction and requirements of their bank changes throughout their own life. Nothing is guaranteed and banks must continue to work hard to retain their customers, building further trust and confidence.
CUSTOMER BASE
There’s an obvious observation to be made that outlines both the basis for trust and also for the possible advantage that established banks retain. They’ve been around for decades. In that time, the banks have accumulated streams of data from large groups of existing customers. In comparison, the start-ups and disruptors have a limited customer base to both build and develop data insight from. Some would go as far as to say that they also lack the ability to truly scale too.
Data is the oxygen of the developing financial system. Back in 2017, big banks took over 2 years to read, listen and learn from a client relationship. This may be improving, but digital banks have continued to shorten that timeframe dramatically. If big banks can begin to analyse their data in real-time with the right internal structures in place to act quickly, then they can remain competitive and not lose too much ground.
Disruptors have found more than 2.5 million customers and USD $1 billion in funding since 2014, however, they all still remain outsiders within the global economy.
SIMPLICITY
The disruptors understood one thing: simplicity. They offered low-cost solutions to niche customer groups and made it easy. From onboarding to client servicing, they had identified where established banks had over-layered simple decision-making to create complex processes.
So, by using streamlined digital processes, AI and machine learning, they were able to steal a march on the established banks with those disgruntled, but digitally savvy customers. Borrowing the approach the disruptors had taken and combining it with the mass of data from an established customer base should make the ‘big’ banks smarter; using data-driven insights to recommend products, services and advice across the entire customer journey. However, big banks, like big oil tankers, are hard to turn.
TRANSFORMATION NOT TECHNOLOGY
The slow turning is, in part, due to oil tankers having legacy infrastructure that’s still generating business and revenues, but the big banks acknowledge that they need to change and accelerate developments. However, banks must avoid tech-for-tech’s sake. Some would say that so much tech has already been thrown at problems without any real impact. Antony Jenkins, former Group CEO of Barclays has said: “People now want change, but we have to move beyond innovation to genuine transformation”.
NO NEW PRODUCT
“We have thousands of start-ups',' says Pepe Olalla, BBVA Compass Head of Business Development, “but all they are doing is offering the same type of products in a different way”. And he’s right. There’s not been a disruption in the products that the FinTechs are offering, it is all in the better delivery of the products that already exist. Per Christian Goller, CEO at Aprila Bank, believes in rebundling what banks already offer by integrating the revised products “into new environments where they are a more natural fit for the customer”.
PLATFORMS AND PARTNERSHIPS
What would that new environment be? Perhaps borrowing from disruptors outside of the banking business could be valuable. Airbnb and Uber have utilised product platforming and championed connection over control. This scalable model connects consumers directly to the services they need. Whether the banks create their own platforms or share others is still to be seen, but established banks are in a strong position to exploit this opportunity, especially through partnerships; whether this is collaboration and partnership with developers or with other businesses in other sectors. Taking advantage of other’s expertise, technology and insight may well help to transform the traditional bank offerings.
GIFT OF DISRUPTION
Disruptors have found more than 2.5 million customers and USD $1 billion in funding since 2014, however, they all still remain outsiders within the global economy. The greatest impact they have had on big banks is to kick them into action, to reconsider what they offer the customer and - perhaps more than anything - how they engage with the customer. This is not to say that they are not a threat, because they are. However, big banks must shift their perspective and not consider their future to be threatened, but look to the promise and potential of tomorrow instead.
