Italy is an excellent destination because it has a broad market and multiple immigration options. In fact, you can obtain Italian dual citizenship by qualifying through the descent, marriage, or naturalisation routes. If you want to explore your options, get in touch with these Italian Citizenship experts for helpful guidance. Let us explain how Italian dual citizenship sets you up to fulfil your global business goals.
Learn about your alternatives
Start by learning about your citizenship alternatives so that you can pick the ideal one. The descent route works for people with ancestral connections in Italy, while the marriage alternative applies to people married to an Italian citizen. The citizenship by naturalisation process is apt for applicants residing in the country for more than a decade. Besides knowing the basics, you must dig deeper into the exceptions, requirements, and processes for each of these routes.
Seek expert assistance
Although the Italian citizenship alternatives sound straightforward, they can actually get confusing. The steps can be long and daunting, and the paperwork may be tricky for most applicants. An error or omission can land you in trouble with delay or rejection. You may have a tough time choosing the route if you qualify for more than one of them. Seeking expert assistance lets you be stress-free as they handle the process, and you can focus on your business goals.
Unlock the citizenship benefits
Italian citizenship opens up several benefits, regardless of the route you choose to obtain it. You can live, work, and establish a business in Italy just like any other citizen. You also get the best healthcare facilities and quality education on a budget. Once you have a second passport, you can travel to hundreds of countries without stress and hassles. Setting up your business is a breeze, as you can expand globally with the travel opportunities that let you explore overseas markets.
Create a legacy
Besides establishing your business in Italy, you can create a legacy for generations to come. Your dual citizenship rights pass on to your children and the next generations automatically. So they can carry your business and make it a successful multi-generational enterprise. An Italian passport is the best inheritance you can bequeath to your offspring and the next in line because it is among the most powerful ones.
Fulfilling global business goals takes more than passion and commitment. You need to take a strategic approach by choosing the right destination. Italian dual citizenship sets you up for success, provided you qualify for one of the routes. Consider their eligibility requirements and choose the best one. Even better, collaborate with an expert to show the way ahead.
Ian Perry, Principal Solutions Architect at Zscaler, shares his thoughts on financial services modernisation with Finance Monthly.
This past year has seen the financial services industry speed up the implementation of many digital processes. Not only did the global pandemic force banks to shut, employees to work from home and consumers to use digital payments services both online and in-person, it has also raised questions around the brick-and-mortar heavy model of banking, with many pointing to a fully digital financial future.
Maximising digital investments
Despite the technical capabilities available to assist in such a move, no analysis of how the financial industry is attempting to modernise would be complete without a reference to the sector’s legacy infrastructures holding them back.
This isn’t because of a lack of desire to modernise. In fact, most financial firms are quite well advanced in their cloud journey. The financial services industry as a whole has already invested heavily in digital transformation and is well aware of the benefits of moving workloads to the cloud in the backend. However, many financial services CTOs have not necessarily been able to move the corresponding infrastructure and users along the same path. This means that unfortunately, many financial services firms have been unable to fully realise their investments in new applications and cloud platforms to the frustration of many financial services CTOs and CFOs alike.
Many financial services are unfortunately falling into the trap of developing hybrid infrastructures that are flexible enough to adapt to some new digital services and requirements yet are still based within old foundations. We often see core banking applications stay in mainframe on-premise networks, whilst more general apps and functions, such as office and admin related tools, are moved to the cloud. For example, there has been a huge uptake in banks migrating to the cloud-based Office 365, which promises the agility required to adapt to our new digital ways of working. However, all the benefits and functions of new digital tools like Office 365 are often at odds with legacy network set-ups, and this inability to harmonise new tools with old systems is holding banks back.
The financial services industry as a whole has already invested heavily in digital transformation and is well aware of the benefits of moving workloads to the cloud in the backend.
The pandemic has only led to further existential frustrations around the banking model itself. For example, is there really a need for massive HQ locations? Is there still a demand for individual branches, which require complex architectures to secure all traffic? There are many predictions as to what the branch of the future might look like, but ultimately, the industry must face the facts that there will be less reliance on branches and more pressure on digital services.
Staying ahead of the curve
As other industries continue to innovate at a quick pace by maximising their cloud deployments, consumers and employees alike will increasingly expect seamless experiences across all their touchpoints with a financial services organisation as well. Taking a page out of the digital transformation of other consumer services, the finance industry must assess the journey of banking from a user’s point of view, rather than driven by processes and necessity. “Digital transformation” for banks is no longer providing the capability of a digitally scanned cheque – the ecosystem is far more reactive and more user-focused as the market opens with more options available, many of which are geared to disrupting legacy organisations and processes.
As such, agility is more important than ever if the financial sector hopes to adapt to new business models, while managing and deploying products remotely worldwide in a consistent manner. For financial teams spread across the world especially, agility in the market is more important than ever to manage and deploy products worldwide in a consistent manner. Many banks own different brands to drive differentiation in regional markets, and this behaviour needs to be reflected in their operating model. Not only do regional compliance needs apply, but markets have very different demands based on their local consumer needs.
Adopting enablers
These growing pressures don’t necessarily mean that financial firms have to undergo complex and expensive overhauls of their existing legacy infrastructure to fully realise the promise of the cloud. A future-proof infrastructure that can support flexible requirements during the pandemic and beyond, while delivering a great user experience, increasing productivity, and supporting business continuity is possible to implement. Indeed, true network transformation drives beneficial outcomes from a risk and cost reduction perspective without requiring heavy technical lifting.
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For example, the growing popularity in the financial sector of the “Zero Trust” approach has been touted by many as a solid solution for financial services in particular. Many banks still rely on the legacy “perimeter” approach to securing their data – which focuses on stopping intrusions. However, the Zero Trust approach instead enables banks to “trust no one” as default, and requires further security before allowing access to secure assets.
This is every banking CTO’s dream as a Zero Trust model allows for traffic to run securely through the internet instead of having to run through corporate IT, which enables banks to have maintenance-free branches. Individual branches are not only more flexible and significantly easier to maintain – but costs are dramatically reduced. Furthermore, a Zero Trust model allows banks to fully realise the benefits of cloud-based tools like Office 365 as they can be deployed safely through the internet, rather than relying on legacy corporate IT systems. From this transition alone, it’s possible to see how financial services infrastructures can enable convenience and simplicity. A complicated refurbishment is no longer required to implement digital delivery of all the key requirements that customers expect from banking services, but with the same – if not more advanced - secure and frictionless experiences offered by other industries.
Looking ahead, it’s clear that financial services need to urgently assess their capabilities for keeping up customer demands and ability to innovate quickly, if they want to survive in our rapidly changing world. Only by truly realising the benefits that were promised by the cloud infrastructure financial services were so quick to adopt, can the industry shake off the curse of legacy infrastructure for good.
Matthew Glickman, VP of Customer Product Strategy, Financial Services at Snowflake, examines the benefits that the data cloud can bring to financial services.
In the wake of COVID-19, financial services have had to adapt almost overnight to the economic challenges presented by the pandemic. With cities across the world going into lockdown, consumers expect banking to deliver digital-first experiences that match their usual expectations. Digital innovation is very much at the heart of this transition. To navigate and thrive in the current climate, capitalising on the data cloud will enable fintechs to respond nimbly to customer demands and remain competitive.
According to an Accenture survey, over half of respondents in the retail banking industry believe cloud technologies have the biggest impact on improving operational efficiency, and 40% believe that it can also generate business value for the industry. The data cloud can provide the foundation on which companies can build a technology stack that delivers business agility and growth. Here are three ways financial services companies can benefit from harnessing the data cloud.
Personalising Customer Experiences
The cloud offers companies the opportunity to house all their various types of data in one secure place, enabling them to personalise services for customers. By using the data cloud, companies have a consolidated governed location for all types of data (for example, clickstream, transactional, and third-party) that can ingest data from new sources such as IoT devices. This enables organisations to gain a 360-degree view of customer behaviours and preferences from multiple inputs.
The cloud offers companies the opportunity to house all their various types of data in one secure place, enabling them to personalise services for customers.
A full customer view is fundamental for a successful personalisation strategy as it enables organisations to pinpoint high-value customers and ensure they have a good experience at every touchpoint. Without real-time visibility into customer interactions, providing the best possible customer experience just isn’t possible.
Over time, digital banking platforms will evolve to incorporate ML predictive models to drive even more personalised banking behaviours. This will only be achievable for organisations who successfully tap into the data cloud, as the success of ML models will require support from ever increasing volumes and access to datasets, both within and external to an organisation. The more an organisation can tap into customer personalisation, the better equipped they will be at customer retention and remaining competitive.
Boosting Data Visibility
To ensure fintechs can continue providing the best possible customer experiences, and adapt to any demands posed by the pandemic, having an acute awareness of all data available will be key for these insights. Adopting a cloud data platform that offers the direct and secure sharing of data without the complexity, cost, and risk associated with legacy data warehouses is one such solution. With simpler, enhanced data sharing, companies can quickly and easily add new data products, and get near real-time insights across the business ecosystem on how this is operating. Offering a standalone data product to data consumers can lead to substantial revenue. For example, financial companies that collect tick-by-tick stock market data can use a cloud data platform to create a data project that they can sell to hedge funds.
A cloud data platform can also reduce the manual effort and copying that is necessary with traditional data sharing tools. Instead of physically transferring data to external consumers, companies can provide read-only access to a segment of their information to any number of data consumers via SQL. By breaking through barriers between disparate data systems, companies will find new sources of revenue and opportunity.
Cross-Collaboration
The rise of digital-first banks, the increased availability of online services and the ongoing surge in mobile banking all represent the modern evolution of how customers now interact with their finances. To meet the demands of today’s customer, financial organisations will see big benefits in collaborating with other finservs through real-time access to data. For instance, if a customer is using a third party fintech to track their finances, a financial institution must share data with that fintech organisation so their customers can access their accounts.
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Last year, 65% of banks and 76% of credit unions said partnerships with fintech companies will be an important part of their business strategies in 2020. These numbers represent an increase from 49% and 60%, respectively, in 2019, showing a clear trend towards a more open banking landscape. Financial institutions that do not take steps to improve the accessibility of its data risk frustrating their customers or losing them to a more agile and collaborative financial institution.
Data collaboration can also help improve instances where investment banks may otherwise have been forced to hold excess capital. This is because aligning on risk exposures and liquidity is executed through nightly correspondances instead of what could be real-time data sharing through the cloud.
With fully governed, secure data sharing, companies can also easily determine who sees what and ensure all business units and business partners access a single and secure copy of their data. Not only does this enhance efficiency, but centralising data into a single source of truth, rather than in separate locations, will boost data security.
Data is the lifeblood of the financial services industry. By migrating to and capitalising on the data cloud, companies can build a future-proofed technology stack that delivers business agility, enhanced customer experiences and data sharing capabilities that ensure business continuity during this volatile economic period. Prioritising these digital-first experiences for customers will ensure financial organisations have the competitive edge that these times demand.
Simon Shaw, Head of Financial Services and Insurance at Software AG, outlines three ways in which larger banks can – and must – make their business models more agile.
In the months since COVID-19 reared its ugly head and changed the way we live, there has been a noticeable uptick in conversations around digital transformation and embedding resilience. In the banking sector, the focus had been on the increased demand for online banking and questions around how banking monoliths will adapt.
The reality is that big banks can adapt – albeit slower than other industries. That’s not to say that change isn’t happening; banks have been transforming for years to align with changing customer needs. However, it’s a distinctly difficult and complex challenge. In fact, one of the primary challenges with digitalisation in banking is that moving quickly doesn’t happen easily. Of course, CFOs and financial leaders would love to quickly pivot their operations to meet changing needs and new requirements, but in their current state, most incumbent banks don’t yet have that capacity.
To achieve digitalisation, banks are grappling with many moving parts. From regulatory requirements, to safeguarding customer data, to overcoming silos – and that’s before we consider the sheer cost of it all. I have identified three ways for established banks to pivot more quickly and efficiently in today’s climate.
1. Go Hybrid or Go Home
A significant challenge in the digitalisation of big banks is that their ecosystems simply weren’t designed to enable quick transformation. Changes that may seem simple, or are simple in other sectors, can require full programme rewrites when applied in banking. The legacy systems on which most large banks are built are clunky and inflexible. Since these systems don’t run in real-time, they’ll never compete with the efficiency and analytic capabilities of challenger banks. Yet, despite that, these established systems actually hold the key to future success in banking – data.
The wealth of data contained within a heritage system has the potential to entirely transform the customer experience. However, to do so, banks must be able to access and integrate that data at speed.
A significant challenge in the digitalisation of big banks is that their ecosystems simply weren’t designed to enable quick transformation.
Hybrid cloud presents the best of both worlds; it combines the operational stability of on-premise solutions with the scalability, reduced cost and data accessibility of the cloud. Breaking up isn’t easy but, according to IBM, banks that are outperforming their competitors are 88% more likely to have incorporated hybrid cloud into their business model. For banks with decades of data in monolithic technology stacks, turning certain data and tasks over to the cloud can significantly lighten the load on their ecosystem to improve efficiencies.
2. Visualising Opportunities for Change
Digital transformation has changed banking expectations. Customers want speed and convenience and banks are competing to deliver. Excellence requires efficiency, but that can be difficult to achieve.
Process mining identifies optimisation opportunities and strives for excellence in process performance. As the name suggests, process mining delves into the detail of what occurs as a process is actioned, revealing patterns, anomalies and the root causes for inefficiencies. With greater insight into processes, banks are able to make informed decisions and tangible improvements to quality and performance. To compete with the challengers, established banks need to embed the ability to adapt to changing business requirements and make transformation routine. The first step to this is visualisation.
If hybrid cloud is the vehicle by which digitalisation is achieved, process mining is the check engine light.
3. The Building Blocks of Better Banking
One of the biggest challenges to transformation lies in evolving away from heritage applications. Transitioning from old to new is daunting and can come with a hefty price tag. Microservices enable banks to transform piece by piece and scale at a controlled rate.
Transformation in data-reliant and regulation-heavy sectors will never be a walk in a park, however, microservices start small by design. This returns much needed control to banks and ensures complex changes are developed and tested independently before being integrated into the banking ecosystem.
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To fundamentally change business operations, the very foundations of that organisation need to be redesigned. This applies across industry, which is why, between 2018 and 2023, the microservices market is predicted to nearly triple as more organisations shift their transformation up a gear.
Microservices embed agility and efficiency from the outset, making digitalisation a cultural and technological change. By returning control and enabling a customer-centric and scalable design, transformation can add big value to big banks.
Agility is essential, but moving a monolith isn’t easy
In banking, where archaic systems and rigidity have been governing organisational change for years, digital transformation really means reinvention and growth. While the end-goal is easily defined – agility, resilience, scalability, digitalisation, etc. – it’s difficult to know what’s needed to achieve it. When the dependencies, regulatory requirements and price of change are thrown into the mix, it’s no wonder that change takes time in the financial sector.
Hybrid cloud, process mining and microservices create the foundations for development by embedding transformation capabilities into the very core of a banks system. While financial institutes will always be subject to a high level of scrutiny, strategic solutions that bring order, visibility and an ability to compete with smaller and more agile banks are truly transformative.
Carl Slabicki, Head of Strategic Payment Solutions, BNY Mellon Treasury Services, explores the changing climate of US payments.
For a long time, banks in the US have competed primarily on price and service rather than as providers of payments solutions. But the payments and cash management space is now changing. New developments to existing payment rails, combined with the advent of new real-time solutions and overlay services are emerging, and organisations that are able to quickly adapt to the evolving payments landscape will be well placed to gain a significant market advantage.
As we enter this period of unprecedented disruption in the marketplace, the importance of expediting the journey from paper to digital transactions for payers and receivers is becoming increasingly clear; payments are faster, more streamlined and feature enhanced capabilities around validation, security and risk mitigation.
Certainly, in the current challenging environment, the continued investment in and implementation of digital solutions continues to highlight the timeliness of this initiative. Remote working has put a spotlight on the channels we choose to make payments, with the payments industry leaning more and more on a digital environment to stay connected and continue conducting efficient and timely business. So what changes are occurring, and how can organisations and their clients reap the rewards?
The payment system evolution
For over 45 years, the ACH network had been the core next-day batch settlements system in the US. But during its long tenure, the underlying ACH system – which is governed by the National Automated Clearing House Association (Nacha) – has continued to modernise and grow, with the latest figures showing an increase in transaction volumes of 8.1% year-on-year in Q4 2019. This growth has been driven by the increasing payment convenience brought about, in part, by the introduction of Same Day ACH (SDA), which from March 2020 has increased its transaction limit from US$25,000 to US$100,000 to help open up additional use cases for the market.
As we enter this period of unprecedented disruption in the marketplace, the importance of expediting the journey from paper to digital transactions for payers and receivers is becoming increasingly clear.
To meet that growing need, new payment rails are being introduced to replace legacy capabilities. For example, RTP® – the US’s real-time payments network – launched by The Clearing House in 2017, is providing real-time gross settlement on a 24/7/365 operating model. This is providing clients with greater speed, efficiency, convenience and transparency. What’s more, in a move that will further bolster the growth of faster payments in the US, the Federal Reserve has announced its intention to launch its real-time payments system, known as the FedNowSM Service, in 2023 or 2024.
Improving security
Sitting right at the centre of the evolving US payments landscape is the move towards pre-validation services – foundational tools that are addressing security concerns that surround the entire payment process. Regardless of the payment channel being used – whether it’s ACH, Wire, RTP or other – the question remains: how do you know the payment or account data you have been provided for a transaction is correct and legitimate?
Indeed, the advent of new technologies that have enabled faster and more efficient payments sits at the intersection of another trend, namely the sophistication of fraud in the payment space. And, as people have settled into working from home environments, such security concerns have been further accentuated. The need to positively verify that an individual is authorised to transact on a paying or receiving account is, as a result, also becoming increasingly important.
It is for this reason that market leading banks are turning their attention to delivering solutions that enable real-time pre-validation – meaning the confirmation that a payee is the legitimate party occurs prior to a payment being sent. These solutions leverage a national shared database, such as the one maintained by fraud management and prevention service provider Early Warning Services, to validate the routing and account number, and verify the owner on the account, before the payment is sent. This increases security and risk mitigation, reduces fraud losses, and helps reduce the costs and processes associated with checks and other legacy payment systems.
Digitalising paper
Elsewhere, a host of overlay services are coming to the fore to address historical market challenges. For example, the migration from checks to electronic payments remains a significant pain point for cash managers. Though accepting and processing checks comes with a heightened risk of fraud and an array of manual processes, they continue to remain necessary as many businesses do not have the information required, or the technology interface needed, to send or request a payment digitally.
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To address these issues, directories that allow payees to securely register their payment details and identities electronically are emerging, such as Zelle® in the US. Owned by a consortium of banks, the Zelle directory allows users to register identifiers, such as an email address or mobile phone number – referred to as “tokens” – which, following a thorough authentication process, can then be used to send and request electronic payments. Banks will then pull that authenticated token from the directory to find out the beneficiary’s bank, before using ACH or the card network to settle the payment. Going forward, Zelle, with the support of some of its member banks, including BNY Mellon, is working with The Clearing House to add RTP as an additional settlement mechanism. It is hoped that these capabilities will be implemented within the next year.
And while Zelle represents an effective way to securely send electronic payments to consumers and small businesses, there is also a demand for this in the business to business or vendor payments space. They too want to reduce the time and effort it takes to collect supplier banking account information, validate and keep it updated, as well as ultimately reduce or eliminate paper checks. This is increasingly achieved through settlement networks such as Paymode-X®, the largest business to business vendor payment network in the US, with over 400,000 members, processing over $200 billion in payments annually. It allows clients to convert vendor payments from paper (check) to ACH with electronic remittance, with the potential to earn revenue share on payables.
Adapting to the “new norm”
With the emergence of real-time payments, updated legacy rails and a new layer of overlay services, the US payments space is transitioning to an entirely new payments culture. Developments are moving quickly, with many banks looking to outsource their solutions to a trusted provider that already has the technology available – enabling them to swiftly go to market for a fraction of the cost.
As banks look to transform in this way, it is vital that they are able to provide clients with the options and capabilities they need to enable their businesses to run effectively and efficiently in the new faster payments environment. There is not a single, optimal channel that can solve every issue and meet all requirements – making it crucial that banks have a variety of tools in their arsenal, ready for instant deployment. The opportunity to provide improved, digital services to organizations, with greater levels of security, ease and efficiency has arrived. By working together to achieve ubiquity and interoperability, banks are developing the modern tools necessary for delivering a truly optimised payments experience.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.
Nowadays banking is closely interlinked with technology. It’s also no secret that digital banking is many people’s preferred method of interacting with their money. Changes to the way we bank over the last decade and our increasing reliability on digital platforms have led banks to change their business models. Controlling money through online services has created a seismic shift in the industry and those who haven’t adapted are struggling to stay relevant. Jean Van Vuuren, Regional VP for UK, Middle East and South Africa at Alfresco, examines how challenger banks have pushed the industry forwards.
Despite the introduction of challenger banks to the industry, many of us still rely on large, traditional banks to keep our hard-earned money safe. So how do these institutions take inspiration from the new emerging banks and put it into practice whilst keeping themselves relevant to a society that is increasingly reliant on technology? And what is next in the wave of digital transformation for financial institutions?
Using AI as part of the customer experience
Banks prioritising the customer experience has increased by leaps and bounds in the last 5-10 years, but it doesn’t just end with the launch of an app or the re-design of an online experience. The customer experience needs to be revisited regularly and continually play a core role in the adoption of the latest technology available.
For example, the future of AI in the banking world is very exciting and is completely transforming the customer experience. Voice banking, facial recognition and automated tellers can help create a completely personalised experience for each customer. Someone could walk into a high street bank, AI sensors at the door could use facial recognition to let the teller know who has arrived and they could automatically pull up all the information about their account without having to ask for their bank card or details.
The customer experience needs to be revisited regularly and continually play a core role in the adoption of the latest technology available.
As technology gets more sophisticated, this opens up possibilities for banks to focus on advising customers rather than spending time on transactions and processes.
Trusting the security of the cloud for confidential documents
The cloud has completely transformed the way in which we store information on our smartphones, computers and within the enterprise. However, as with any technology it comes with potential security risks. Trusting a third party with your data feels risky in most industries because you no longer feel in control of it, but banks are often trusted with our most precious data – not to mention our money. Therefore, maintaining confidentiality is of upmost importance to banks in order to maintain the trust of their customers.
Financial institutions should make sure that they are not relying on security embedded in cloud platforms to do the heavy lifting. Implementing governance services that provide security models, audit trails and regulate access – even internally, and confidently demonstrate that compliance is key for an industry with so much access to personal information. Whilst working in the cloud offers flexibility, it needs to be made secure with intelligent security classifications and automatic safeguarding of files and records as they are created.
This also brings up the issue of legacy platforms from a security and feasibility standpoint. Fund management companies find that legacy platforms are very expensive and not cloud ready. There is very little room for innovation and it is hard to adapt them to meet customer demands. Even if a fund management company has migrated to a Saas or Paas solution, quite often regulatory obligations and the potential dangers posed by hacking and data breaches mean that they sometimes go back to using an on-premises solution. Instead of backtracking, financial institutions should spend time to understand what the best cloud option for them would be and how they would implement it within the confines of governance and compliance.
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Going paperless
Discussing going paperless in 2020 may seem like going back to the past, but for many financial institutions making the transition to fully paperless operations is still a work in progress. This is also a key area where challenger banks which have never had paper-based processes have an advantage, they don’t have to adapt simply because they were born paperless. There is also a new generation of consumers that embrace and often expect paperless banking.
While the fintech industry is intrinsically paperless, banks are still adapting to phase out paper support, but this transition should be an integral part of updating the customer experience. The paperless movement involves moving from simply depositing checks via smartphone to a complete digital experience from end-to-end.
Going paperless also provides an added layer of security in accordance with a rising tide of regulations and government mandates. With digital records, automated management processes allow companies to set up rules around metadata to file records, put security procedures around them and also deleting personal information within retention regulations.
Keeping pace with challenger banks who are born of today’s technology
In recent years, the introduction of technological advances such as digital ID verification, e-signature and risk analytics are transforming the way financial service providers interact with their customers. New challenger banks build whole systems in as few as two weeks and automate as much as possible.
By their very nature, challenger banks are pushing their competitors to be more agile and they are growing exponentially, something which the high-street banks had underestimated when they first entered the market. Created for the digital first generation, challenger banks won market share by putting customer-centric products at the heart of their business. They are also able to improve the product and the user experience quickly according to customer feedback.
Customers are flocking to the disruptors in the market who offer exciting functionality. Challenger banks providing customers with new online features, ones that let them take control of their finances, are thriving in the market. In the modern day, banks need to embrace new technologies and digitise processes to create a customer-oriented business and, ultimately, succeed in the market.
Challenger banks such as Monzo, Starling and Revolut are built to scale, evolve and improve their offerings easily and quickly, and are doing great extending their customer base. According to Ian Bradbury, CTO for Financial Services at Fujitsu UK & Ireland, they are also now beginning to slowly move towards becoming a full service bank for their customers, as well as branching out their offerings to SMEs.
The way banks make their money is by keeping administration costs low, managing the lending risk and investing wisely to receive good returns. Other income avenues include offering “added-value” services, such as payments, for which they take a handling fee (particularly useful when market returns are under performing, for example in the case of low interest rates).
Four digital-led factors to disrupt banking
Four interrelated digital-led factors are fundamentally transforming traditional financial services: new distribution models; cloud native computing; data enrichment in a hyper-connected world; and exponential increase in the rate of change. These four factors create new ways for banks to operate, to do business and to enhance their offerings for consumers - but they have not fundamentally changed their money-driven banking business model – yet!
Regulators have recognised the value that can be bought by these four factors to banking customers, and have sought ways to encourage the uptake of them – often also encouraging new digital-native entrants into the marketplace. Regulators have also sought to ensure that high-margin services can be “unbundled’, allowing new competition to compete in these areas.
In theory, it should not be difficult for banks to not only survive the arrival of these four digital-led factors – in fact with their financial backing, existing customer base, technology assets and regulatory status they should be able to thrive in this competitive landscape.
This is especially true as other potential non-banking competitors have to overcome complex regulatory challenges – besides not being set up to offer the basic banking business model.
Legacy problems
In reality, traditional banks are struggling to keep up with how the market is moving. The reason for this can be summarised in one word – legacy. Legacy culture, legacy skills, legacy controls, legacy distribution models, legacy systems.
Slowly, this is changing, but until these legacy bottlenecks are removed, banks will struggle to keep up. Those that do not move quickly enough to deal with this challenge are unlikely to survive.
Assuming that traditional banks can overcome these legacy challenges and become the truly agile, low-cost, open-driven, customer-obsessed, data-powered, highly automated businesses promised by the digital-native challenger banks then their traditional banking business model may well also change.
The banks of the future
Banks currently operate a fairly simple two-sided marketplace – they take money from depositors and give it out to borrowers, generating trust in the process. But what they really do is provide a two-sided marketplace for ‘value’ – which is currently focused on money.
Digital transformation potentially allows for other ways to exploit this value-based marketplace, with the data-insights and enrichment coupled with new distribution models creating potentially new services.
Besides this, the notion of value is changing in the digital age, with areas such as data, identity, reputation, authenticity and even perhaps social purpose falling within it. These types of values can potentially be digitally stored, secured, exchanged and exploited in a marketplace - just like money. Maybe for example the banks of the future will become the custodians of your valuable data, both protecting it and helping you generate benefits from it.
More than three-quarters (80%) of bankers believe challenger banks are an increased threat to their business, while almost one-third (30%) believe they will be the single most disruptive threat in 2019. The survey, commissioned by fintech provider Fraedom, found that in response the challenger bank threat, bankers expect their organisations to invest heavily in updating legacy systems (44%) and new technology (26%) in 2019.
“With challenger banks setting themselves apart by offering innovative technology platforms, commercial banks are now realising they must invest in key areas in order to counter this threat. This was also echoed by our survey which found other disruptive influences in 2019 to be digitalisation (36%) and consumerisation of technology (36%)” said Kyle Ferguson, CEO, Fraedom.
This comes as almost half (46%) of respondents perceive legacy systems to be the biggest barriers to the growth of commercial banks, while 32% cite it’s the pressure to save money.
With investing in new technology high on the agenda for commercial banks, the survey found that over half (53%) of respondents believe AI and Machine Learning will be the technologies to have the biggest impact on commercial banking in 2019.
“It is clear to see that challenger banks are a disruptive force within the sector. Through the use of innovative technology, these banks have plugged a gap left by established retail banks, and are acting as a stark warning to banks within the commercial space which remains open to similar disruption,” added Ferguson. “If commercial banks are to compete, they must become more agile and adopt new technology platforms suited to changing needs of businesses, or risk being left behind.”
(Source: Fraedom)
More than a third of financial institutions (37%) find that legacy data platforms are the biggest obstacles to improving their data management and analytics capabilities, according to research from Asset Control. Whereas, for 31%, the cost of change is seen as the biggest hindrance to progress.
The poll of finance professionals, conducted through Adox Research Ltd., also revealed that for more than half of financial institutions (56%), the integration of legacy systems is the biggest consideration as they plan investment in future data management and analytics capabilities.
“What we’re seeing is financial institutions being held back by legacy data management platforms which they have acquired or developed over the years. These systems can slow down organisations as they are costly to maintain, miss audit or lineage information, often cannot scale to new volume requirements, and do not quickly and easily provide business users the data they require. While businesses recognise there is a need to update their data management systems they are sometimes reluctant to do so due to cost of change and perceived difficulties of integrating their systems with new solutions. Although I understand where these concerns come from, businesses also see the risks posed by inertia,” says Mark Hepsworth, CEO, Asset Control.
However, when it comes to considering new data management and analytics capabilities, firms remain focused on the fundamentals. More than a third (36%) of respondents cited ease of use and flexible deployment as their top business consideration, while 41% deemed ROI to be the biggest determiner.
“It is clear that while firms are currently being held back by the cost of change and legacy systems, they can see that both these challenges can be overcome with the right solution. While ROI is, of course, important in any business, these organisations must also consider how much their current data management systems are holding them back by delaying processes, lowering productivity and causing data discrepancies because they lack a clear and comprehensive view on their sourcing and validation process,” adds Hepsworth.
(Source: Asset Control)
A decade on from the great financial crisis and the fall of Lehman Brothers and Europe’s financial services is the only sector not to have returned to pre-crash levels. Below Finance Monthly hears some expert commentary from Beranger Guille, Global Editorial Analytics Director at Mergermarket, an Acuris Group company, on the current state of European M&A in the Financial services sector.
Despite an appetite for large-scale banking mergers and an eagerness to create pan-European banks capable of challenging rivals across the Atlantic, Europe still operates under strict rules that have so far prevented such merger ideas from materialising.
Between 2006 – 2008, Europe saw a total €607.9bn change hands across 1,592 deals. Since 2016 to date, activity remains still nowhere near these pre-crisis levels, with a mere €221.1bn traded over 1,251 deals and a spectacular absence of mega-deals that were once a prominent fixture in the build up to last financial crisis.
10 years later
A decade on from the crash, regulators continue to introduce new rules on top of what is already a very comprehensive rulebook. Basel III and Solvency II: the first ever set of rules on liquidity, placed a robust set of capital requirements on banks and insurers, with additional process still not complete. The capital conversation buffer, which ensures banks build up capital reserves to weather losses incurred during downturns, will take effect on 1 January 2019. In 2013, The European Market Infrastructure Regulation (EMIR) drove the centralised clearing of derivatives and promoted robust reporting requirements to trade repositories. While most recently, the Markets in Financial Instruments Directive (MiFID II) and Central Securities Depositories Regulation (CSDR) has pushed more transactions to occur on exchanges to improve transparency and the overall efficiency and safety of securities settlement.
In the build up to the crash, Italian lender Unicredit conducted a string of mergers between 1998 – 2006, while Royal Bank of Scotland spent €71.1bn acquiring Dutch lender ABN Amro on the eve of disaster. Both left shareholders and taxpayers alike reeling from heavy losses.
The current situation
Today, mega-mergers are once more mooted with cross-border deal discussions between Unicredit and Société Générale reportedly taking place. However, “there is nothing on the table,” according to France’s Minster of the Economy and Finance, Bruno Le Maire.
There is also talk of potential national mergers afoot. In the UK, Barclays chairman John McFarlane is eager to do a deal with Standard Chartered, while German lenders Deutsche Bank and mull a merger of their own.
But, despite an apparent eagerness to get deals done, there is a lot of cold water that investors and analysts are only too quick to pour on such tie-ups.
There is a lack of strategic rationale behind a Barclays-Standard Chartered deal, with two banks having little to no geographical overlap, with the former boasting strong ties in the UK and US and the latter firmly focused on emerging markets in the Asia and Africa. Meanwhile, discussions between Deutsche Bank and Commerzbank certainly offer a stronger rationale, but it should not be forgotten that Deutsche Bank launched a €8bn rights issue – its fifth capital hike since the crash – to plug holes that continue to leak.
A political climate
Given the political environment in the EU, and that there is a degree of nationalism when it comes to banks, large-scale cross-border deals look anything but likely. Two years ago, Swedish lender Nordea made an approach to acquire ABN Amro but had its offer slapped down by the Dutch government. Some bankers were even brazen enough to pitch a merger between Barclays and Santander. Cross-border European deals for the time being at least seem off the table, but domestic mergers could provide dealmakers something to chew on.
The timing of renewed merger talks is interesting, with the next cyclical downturn expected to come to bear in the next two years.
Calls for consolidation amid so much uncertainty is cause for concern, but desperate times lend themselves to management contemplating desperate measures. Weak profitability is putting pressure on banks to take action at a time when big tech, fintech and alternative lenders threaten to grab market share. And while the appeal of cross-border mergers may provide a boost to the sector's profitability, bigger banks, history tells us, are not necessarily healthier banks.
FinTech companies have been the foundation of innovation in the payments and financial services sphere over the past decade, whilst legacy financial institutions, such as banks, have struggled to keep up. Generally considered in competition with one another, what would happen if FinTechs and Banks joined forces? Prabhat Vira, President of Tungsten Network Finance, explains.
Recent research shows that financial institutions are increasingly forming partnerships with fintechs to create products that streamline and improve the customer experience and eliminate inefficiencies. In fact, when questioned by PwC, 82% of banks, insurers and asset managers said they expected to increase the number of fintech providers they work with over the next 3-5 years. So what is driving this trend and how can commercial banks follow the lead of their retail counterparts?
A symbiotic relationship
Over the last few years, fintechs have evolved the customer experience – prioritising the user experience to connect with and empower customers with alternative finance. Many banks are coming to the realisation that if there is a great opportunity to participate in fintech developments.
In light of this, instead of competing with fintechs, some banks are seeing the wisdom of embracing the dynamic nature of fintechs and are actively collaborating with them. It is a very positive step forward as each party has something significant to offer the other. Fintechs require access to capital, and Banks in contras, are looking for ways to innovate more quickly, provide a slicker customer experience and leverage data to mitigate risk. Collaboration with fintechs enables banks to outsource their R&D to them and bring new products to the market much more quickly and for less cost. Ultimately, the partnerships between banks and fintechs are creating a unique opportunity for the expansion of finance solutions, and thereby adding real value for customers.
Commercial banks following retail counterparts
However, this subject is not purely theoretical for us – we have recently teamed up with BNP Paribas, a leading international bank, to offer e-invoicing linked Receivables Purchase and e-invoicing linked Supply Chain Finance (e-SCF) to large corporates in the USA and Canada. Our customers can now obtain an attractive working capital solution through the same technology provider they use for e-invoicing and procurement activities. It is the first partnership of its type and a sign that commercial banks are following the lead of their retail counterparts in collaborating with fintechs.
By linking e-invoicing with supply chain and receivables purchase, customers are offered a one-stop solution that brings together process efficiency and working capital optimisation in a single portal. They are offered attractive rates in a straight-forward, hassle-free way. From the bank’s perspective, a lot of energy can be spent connecting clients and on the payables side, on-boarding suppliers onto the system. This creates friction in the relationship, and inhibits the supply chain. The advantage for a bank and for the customer is that by partnering with a fintech like us, these trade flows are already on our platform. Therefore, both do not have to onboard suppliers twice and deal with complex technology integrations. Ultimately, the partnership helps to make the supply chain process smoother for all.
We believe partnerships such as this are shaping the future for businesses and financial institutions alike. They are enabling us to work more smartly and offer added value to customers. Speed to market is of the essence in our fast-paced, consumer-centric world and fintech providers are agile by nature and best placed to bring innovations to the masses. As retail and commercial banks realise the mutual benefits of partnering with fintechs, we are certain we will see more and more collaborations that will delight customers around the world.
How are banks meant to co-exist, work with or become the initiators of fast-developing fintech when most are so caught up in legacy systems? Below Finance Monthly benefits from expert insight from Kyle Ferguson, Chief Executive Officer at Fraedom, on the potential avenues banks could focus on in the pursuit of tech advancement and the maintenance of a competitive edge.
Legacy systems are seen to be the most common barrier preventing commercial banks from developing fintech applications in-house. That was a key finding of a recent survey conducted by Fraedom. The research that collected the thoughts of shareholders, middle manager and senior managers in commercial banks revealed that more than six out of ten (61%) of banks are being held back by this technological heritage.
The banking industry has historically found it difficult to make rapid technological advancements so in some cases it is unsurprising that older systems are holding them back. However, with this in mind, smaller fintech firms have already started to muscle their way in to help assist retail banks with providing a more comprehensive range of services to consumers.
Banks now have the option to negotiate the obstacle of legacy systems through partnering or outsourcing selected services to a fintech provider. Trusted fintech firms are offering banks the chance to reap the benefits from technical applications that can lead to more revenue making opportunities, without taking the large risk of banks taking the step into the unknown alone.
However, a shift does appear to be on the horizon with only 26% of commercial banks not outsourcing any services 41% of respondents globally stated that their bank currently outsources payment solutions to fintech partners. This was in comparison to 33% who say they do the same for commercial card management solutions and 26% who claim to do so for expense management solutions.
It was also interesting to note that banks are planning to ramp up their fintech investment over the next three years, with 77% of respondents in total believing that fintech investment in their bank would increase. This feeling was especially strong in the US where 82% of the sample stated this belief opposed to 72% of those based in the UK.
This transitionary period is great news for ambitious fintech firms. Banks are starting to realise that established fintech providers can make a big difference in areas of their business by providing technical expertise as well as in-depth knowledge of local markets.
It’s all about selecting key, digital-driven services that will help retain customers and entice new ones. The ability to offer card expenditure and balance transparency can reduce risk and costs for issuing banks. It is a service that can be joined on to an existing business with little overhead costs.
This is just one of several ways that partnering with fintech firms can bring substantial benefits. This increase in agility also helps banks to speed up service choices and improve customer satisfaction.
Forming a partnership can provide banks with a way around the issue of coping with legacy systems and avoid implementation costs. By forming a partnership, outsourcing banks buy in to a product roadmap that will keep their offerings ever relevant as fintechs develop the technology required.
The partnering approach is becoming more appealing to commercial banks. They understand their customers value their reliability, trustworthiness and strength of their brand. But increasingly, they also understand the importance of encouraging innovation to remain ahead of the technology curve, while recognising it is not the bread and butter of their business.
While legacy systems appear to be the most common factor in preventing banks from creating in-house fintech applications, the study did also reveal that a lack of expertise - recognised by 56% of respondents was also a major stumbling block.
To innovate and grow, banks and fintech firms alike must have employees that understand the technology – developers, systems architects and people with a record of solving problems. Taking a forward-thinking approach to recruitment is key.
If they want to attract and retain the best talent, organisations need to be listening, adapting and trusting each other to work together to resolve issues and frustrations. We believe all the above elements will become increasingly important in any successful business.
Overall, the research represents growing strength within the fintech sector and it is great to see that more banks are beginning to see the value in partnering with a fintech provider. In turn, this is delivering a better service for banks and customers alike and it is a trend that I expect to continue as banks fight to keep on the pulse of technology in the sector.
