Bhupender Singh, CEO of Intelenet® Global Services, explores the competitive challenges that banks face from FinTech players.

The finance and banking sectors have experienced a radical shift, driven by mobile technology, Artificial Intelligence (AI), automation, and the emergence of new FinTech players entering the market. Traditional banks are now facing the challenge of high customer expectations, outdated technology, the pressure of regulation stemming from the financial crisis, and cultural resistance from those who are apprehensive or unable to utilise digital services.

With high street bank branches closing down, elderly people and those who do their banking in person, are at risk of making costly financial mistakes. In addition, a high proportion of customers maintain the desire for face-to-face interaction, particularly in the case of making major financial decisions, such as applying for a mortgage. Even in the case of common customer needs, such as the need to discuss overdrafts or the replacement of a bank card, face-to-face interaction is better equipped than a machine to efficiently handle the process from start to finish.

A major bank reported that 90% of customer contacts were through digital channels in 2016, an increase of 10% from the previous year. It is this shift in consumer behaviour that can be attributed to the increasing number of bank branches closing.[1]  In order to ensure customer satisfaction, banks will need to keep up to date with the latest technological advances, whilst also maintaining and providing new channels of communication to ensure that their customers are kept happy.

With the number of FinTech players and challenger banks slowly increasing, the need for banks to ensure their customers remain loyal has never been more important. Whilst the new breed of banks provide a mostly digital banking experience that can offer features such as real-time balance information, deep-dive spending data, biometric security, and instantaneous money transfers, the issue of trust still remains. Customers like to know that they can speak to another person when they need more information about a product or require help fixing a concern. In today’s automated economy, modern companies are conducting more and more business online, and so it has become increasingly important to not underestimate the importance of having a ‘face’ for your business. Relationships are built by people and based on these interactions and the level of customer service, customers will be more inclined to return.

Despite having the upper hand, in terms of a well-established customer base, the scale and speed of the digital revolution has left major players in the financial services sector struggling to keep up. Challenger banks actively seek to be different, and so to even the playing field, traditional banks must embrace technology innovations and employ next-generation tools. The technological revolution in finance is not a new phenomenon, yet, embracing this new landscape remains a challenge for most established financial institutions. Recent PwC research found that only 20% of finance executives feel their organisation is structurally ready to embrace a digital future[2].

In order to compete, traditional banks need to start offering a seamless blend of online and in-person banking which complement traditional services.  An effective omnichannel experience is one that will allow customers to benefit from the advantages of a physical bank branch, with the speed and agility available through a digital offering. Next-generation technology is heading in a direction where it will be possible to combine both the full benefits of online banking and face-to-face customer services. The future of branch banking, as we see it, could result in banks moving towards a mobile branch model.

One option could be a mobile advisor workforce, where customers can manage their services through a mobile app, and maximise the effectiveness of customer facing staff. By implementing this, banks could allocate mobile teams to nearby appointments. The next-generation technology available also has the potential to enable banks to connect roaming advisers to nearby customers, at any location and at any time.

One of the main advantages of a technology such as this, is that the high proportion of customers that prefer face-to-face interaction, will still be able to interact with banking staff – a service that banks are currently able to provide via the use of ‘micro-branches’. With market pressures to cut costs, and many providers being forced to reduce their front-end outlay, tools that allow banking staff to be mobile, are a step closer to modernising banks.

In the face of mounting competition against new players that are able to implement technological innovations quickly and effectively, it is essential for banks to overhaul their existing IT systems. Well established financial institutions tend to operate using outdated technology. These legacy technology stacks make it extremely challenging for them to compete with their more nimble competitors, as the aging technology obstructs the movement of data between silos, preventing the 360-degree view of the customer that is required to provide personalised services to customers anytime, anywhere. For this reason, we are witnessing a real desire from companies to work with experienced IT solutions partners, in order to adopt the latest technology and modernise their information security frameworks.

Legacy systems are one of the biggest barriers in keeping banks from imitating the digital experiences provided by the likes of the latest FinTech players. These companies deliver personalised services faster than banks can and are not hindered by aging systems. In order to start levelling the playing field, banks must first invest in the right partnerships. Banks must then look to provide a far more seamless omnichannel approach that embraces new technologies and will bridge the gap between their brick and mortar operations and their digital offerings.

Written by Gavriel Merkado, REalyse

In innumerable ways, technology has shifted the power paradigm from the elite to the many and has empowered investors to make better investment decisions. Big data and smart algorithms mean more information, quicker, which ultimately leads to less risk for investors.

Illiquid vs liquid assets

The enabling power of technology is particularly true for liquid assets such as stocks and bonds. Advancements in financial markets technology and data systems have led to transactions become safer, cheaper and faster. Technology has provided a more systematic approach to investment compared to previous methods based more on human instinct and intuition.

Utilising technology to make better investment decisions around illiquid assets is more complex. It’s harder to track the value of illiquid assets like collectibles, art and property due to a lack of transparency around pricings. While these assets have previously had to substitute speed for clarity, there’s now a growing trend of using technology to combine the two to help produce better returns.

Property investment

Prop tech is one area that is enabling better investment decisions. At REalyse we empower property developers to efficiently make informed decisions about where, when and what to invest in. Using big data analysis REalyse tackles the unpredictable element of the market, allowing users to anticipate potential risks, while also cutting the time spent on weeks of personal market research.

Peer-to-Peer (P2P) platforms such as LendInvest have established a marketplace for investors to find and invest in new and existing property loans. By removing the need for a mortgage, these platforms help investors remain in control of how much they invest in conjunction with other investors. Similarly, companies, such as Yielders, have created opportunities for people to invest in property with shares as little as £100, permitting amateur investors to become equity owners.

Art/collectibles investments

Another example of tech enabling better illiquid investments is Arthena. This platform enables investors to make better decisions around the value of a piece of art. By taking into account the artist’s career, the year the piece was created and an analysis of art auction results, it helps to predict the risk and return on investment.

Financial investments

In the financial world, the rise of robo-advisors has given investors the opportunity to consult detailed data and information before making decisions at the touch of a button. Industry leaders, such as Nutmeg and UBS SmartWealth have provided their customers with around the clock access to their investments, giving them full clarity and transparency without having to consult a wealth advisor during working hours.

Blockchain has made dramatic steps in transforming the investment industry. Forbes reported last year that it could be Wall Street’s most game changing technology advance since the internet. In a highly regulated industry such as investment, Blockchain provides a transparent way to digitally track the ownership of assets before, during and after transactions, and it has the potential to transform everything from how stock exchanges operate to how proxies are voted.

Allocator is another tool transforming the investment management industry by streamlining the process to access the information investors need, in real time and in a format that’s useful. Fund managers control who they share information with and what exactly each investor can access.

Hedge funds are also now incorporating artificial intelligence to give investors quick, accurate and transparent data. An AI fund, such as Emma AI, is designed to operate autonomously in context of wealth management, financial analysis and research.

Conclusion

More than ever before, technology is empowering the investor to take control of their assets. From property to finance across liquid and illiquid assets it is transforming investment decisions.  As we enter the dawn of AI and machine learning, the technology will only get smarter, more intuitive and more effective. Being a technology innovator in the investment sector is a very exciting place to be right now.

Website: https://realyse.com/

Executives from finance, marketing, sales, logistics, and other departments and business lines play an increasingly central role in the evaluation, purchase and use of technology solutions, according to a new report released by CompTIA, the world's leading technology association.

"CIOs and information technology (IT) teams remain involved in the process, as their expertise and experience are valued," said Carolyn April, senior director, industry analysis, CompTIA. "But business lines are clearly flexing their muscles. It's another strong signal that technology has shifted from a supporting function for business to a strategic asset."

Among the 675 US businesses surveyed for the CompTIA report "Considering the New IT Buyer", 45% said that ideas about technology come from different areas of the organization; and 36% said more executives are involved in the decision making. More than half of respondents (52%) used business unit budget to pay for technology purchases in the last year.

Lines of business are also staffing their departments with technology-oriented job roles, from data scientists and business analysts to software developers and social media managers. Executives cite the need for specialized skills, faster response times and better collaboration as some of the reasons why they are staffing up on technology-oriented job roles.

"This isn't a case of rogue IT running rampant or CIOs and their teams becoming obsolete," April said. "Rather, it signals that a tech-savvier workforce is populating business units and job roles."

In the CompTIA study, 21% of chief financial officers said they have dedicated technology roles in their department, including data scientists, business analysts and software developers. More than half have created hybrid positions that are partly technical- and partly business-focused.

Technical job roles in marketing department are also on the rise. Social media managers and digital marketing managers are the most often mentioned positions. Systems administrators, data analysts, web analytics specialists, marketing technologists, and database administrators also made the list.

Within logistics and sales teams, the most common tech-related job roles include project management specialists, data analysts and database administrators.

Much of what business lines are buying today are cloud-based software solutions, which can be self-provisioned quickly within a department. For that reason, technology vendors, distributors and channel partners need to package what they sell differently.

"They need to speak the language of business because this new generation of buyers doesn't want to hear about the technical implications of their purchases," April explained. "Channel partners need to position themselves as consultants and service providers who can help customers make informed decisions about what they buy."

(Source: CompTIA)

CFOs and their teams have long been dedicated to supplying and analysing the data their companies need to make solid, fact-based decisions. However, finance departments have historically been constrained by basic forecasting techniques. Here Jean-Cyril Schütterlé, VP Product & Data science at Sidetrade, explains to Finance Monthly that CFO decision making, spending and innovating is more of an art that we’re led to believe.

The underlying data collection process is often time consuming and error-prone, and the result frequently lacks depth, scope and quality. Not only is the underlying data unsatisfactory, but its processing is suboptimal. All of these approximate figures end up being copied from spreadsheet to spreadsheet and undergo many manual transformations.

This approach has many shortcomings:

• Regardless of the quality of the forecasting process, if the data is not detailed, sufficient, relevant and up-to-date, the result will be inadequate.
• Making the assumption that “all other things will remain equal” is an over-simplification. No lessons are learned from previous errors

Digitisation now gives access to more granular and diverse data about present conditions or past situations and their outcomes. Any data set that may help describe, explain, predict or even determine a company’s positioning can now be stored, updated and processed.

This 360° view provides an opportunity to discover correlations between the collected data and the figures tracked by finance executives in their modelling activity. But this trend line methodology is insufficient in itself to derive valuable knowledge from data diversity.

For the process of discovery to take place, this newly-found data trove needs to be mined with Machine Learning technology.

To put it simply, Machine Learning is the automated search for correlations or patterns within vast amounts of data. Once a statistically significant correlation is identified with a high degree of certainty, it may be applied to new data to predict an outcome.

Let’s take a simple example. Assume you are the CFO of a company selling goods to other businesses and you want to anticipate customer payment behaviour to prevent delays and accelerate total inbound cash flow.

The traditional approach would be to look at past transactions and payment experiences with every significant customer and infer a probable payment date for each.

But if you look closer at your data, you may find that your customer payment behaviours are not consistent across time, that your historical view is missing essential explanatory information about the customer’s behaviour that may or may not be specific to their relationship with your company. You end up shooting in the dark.

Wouldn’t your cash-in forecasts be much better if you had also correlated the actual time your customers took to pay you in the past, with detailed information about those transactions?

In theory, you cannot be sure that this model will perform well until you have run a Machine Learning algorithm on your own data, looking for predictive rules that relate each payment behaviour to the detailed information of the corresponding transaction or you have tested the predictive power of those rules on a set of examples.

In fact, the forecast is likely to be much more accurate than with the traditional methodology, provided that the data you fed the algorithm with were representative of your entire customer base.

That leads us to another question: can I find all this information about my past transactions while making sure they are representative?

Unfortunately, most of this information may not be readily available internally, either because you’ve never collected it or it is not flowing through your existing Order-to-Cash process. For instance, it is unlikely you know whether your customers pay their other suppliers late or not.

But SaaS platforms can capture most of this information for you and Machine Learning software will then be able to discover the predictive rules and apply them to your own invoices to forecast their likely payment dates.

But this is just a start. If inbound cash flows can be accurately deduced, so can other key metrics, such as revenue, provided the data is available. CFOs are the ultimate source of truth in an organisation. They manage skilled resources who translate facts into numbers and confer them credibility. They are therefore the best equipped to tap from as many diverse data sources as available, leveraging the power of Data Science to accurately forecast what comes next and thus gain marketing insight and competitive advantage for their company.

Thus, with their augmented capabilities, CFOs are now poised to be the digital pilots of today’s new data-driven organisations.

If you’re reading this article, you know all about digital. As of 2014, more than 99% of the world’s information was stored digitally. That’s astounding, considering we’ve only enjoyed around 50 years of a digital world. Here James Sheldon of Experian confronts the issue of individual engagement and the importance of user interaction in today’s markets.

In an addition, despite internet-based banking being first introduced in 1983, it took until 2011 for it to become a staple way for the public to engage with banks. There’s a lag between the introduction of new technologies and new ways of doing business whilst society gets to grips with it – but when we do, the whole world changes – fast.

This is why it is important that a digital approach is considered beyond the technology that delivers it. Equally, it is important technology isn’t generalised as ‘innovation’. Innovation is derived from formulating a response and journey from the customer needs; technology to deliver should be a secondary point.

It shouldn’t need to be said, but in a world of apps and widgets, sometimes innovation seems to happen for its own sake, and not focused on customer need. As more people engage online they become used to rapidly evolving processes and become fast adopters of new ways of working. Yet their fundamental needs haven’t changed. They still want support to manage their finances – perhaps in a more convenient way than they’ve been able to before.

Digital processes, interactions and transactions

It doesn’t need an in-depth focus group to know that customers want fast, responsive and personalised interactions. Financial organisations know this, and in order to deliver, use digital as the engine and technology as the way to serve it up. A key element to consider is the difference in both interactions served by digital, and transactions made by digital.

To achieve real-time, personalised interactions, there’s only one method that will enable a business to achieve the rapid pace and total awareness: A single customer view.

How do you tailor your communications and add value to any interaction? By understanding who your customer is, their needs and their wants. Further elements such as understanding an individual’s future propensity for product needs, or pre-qualifying customers, add new levels of personalisation.

Equally, transactions should be customer orientated. It’s easier to implement and manage your own and your customer outcomes with automation and process optimisation, which digital processes provide.

Experian found 70% of businesses would admit they are ineffective at delivering an optimised digital experience across all of their touch points. It’s clear that there’s a way to go before businesses are properly aligned to their customers.

What’s the result? More customer churn (35%), and more customers abandoning their journey mid-way (26%). So all in all it’s clear that optimising a process can add value; from pre-defining credit limits to identifying what the best channel of contact is at the right time.

When it comes to mobile, Experian and Forrester research showed that in 2015, mobile commerce grew 38% and mobile devices accounted for 37% of all website visits. More than half of millennials said they need constant internet access on the go, and spend about 9.5 hours a day online. Their perception is that everything will be facilitated by mobile.

For a business, mobile use can also enhance understanding of customers, from identifying device usage for fraud detection through to understanding more about the individual for marketing and customer engagement.

Competition, customer insights, and making change

When Open Banking is introduced in 2018 competition will ramp up. More data will be available and there will be greater transparency on customer benefits. It’s possible that new entrants and fintech companies can capitalise on their youth and ability to adapt. For these firms, just as much as any other, focusing on building trust should be a priority. Open banking provides a foundation to deliver fast and personalised information that supports the customer, their applications and needs. It will impact multiple areas and roles, but it will also change what customers expect, changing their journey will become the future.

To respond to the challenge of adapting to this new era of the customer, organisations must be able to:

1. Deliver a 360 degree view of the customer across the lifecycle;
2. Fight fraud without compromising the customer experience;
3. Break traditional constraints to serve today’s non-traditional customer.

APIs are one area where businesses are benefiting from true technology-led innovation. Data can add value to any risk identification and functions like ‘pinning’ can enable organisations to pin data to an individual, giving a true single customer view that is validated from internal and external data.

Our recent survey conducted with Forrester highlighted that eight out of 10 businesses consider improved customer insight to be their top business priority over the next year. Growth, cost efficiency and data security are further top priorities.

It’s easy to see why. After all, it’s no secret that merging offline and online processes can lead to friction in the customer journey, increasing costs and leading to missed opportunities. Two thirds of organisations recognise their top business priority is to integrate physical and digital channels better. Getting it right will create a solid foundation for the future.

Be holistic above all

As businesses embark on transforming customer journeys via digital delivery, the danger is that it is done at the expense of other channels. Businesses should adopt a holistic, omni-channel approach to maintain focus across all channels, side-lining none.

Customers are more comfortable interacting with companies across a range number of channels. As a result, they are demanding a seamless and consistent approach across each. Companies with true omni-channel customer engagement strategies retain an average 89% of their customers, compared to 33% for companies with weak omni-channel customer engagement. Customers are also expected to have 30% higher lifetime value.

With any change, businesses need to consider flexibility for their ‘back end’. Agile, flexible systems will enable quick and efficient delivery that supports change instead of stalling it from the point of an idea. That way, whatever the next channel, or technology of the future, businesses can be ready to embrace their next opportunity.

And speaking of embracing, many organisations are looking at their partnerships and finding gaps. As a result, it might be that new partnerships should be formed to deliver the end-to-end solution that’s right for the challenge. Such partnerships may see the end of disjointed, legacy systems and encourage those involved to combine expertise, offering a fast and comprehensive solution to satisfy the changing needs of customers.

As technology changes, and thereby so does the customer, a banking revolution is at hand. Here Peter Veash, CEO at The BIO Agency discusses with Finance Monthly the sector’s adaption to the internet of things and the constant need to be ready for change.

High street bank brands have remained largely set up to cater to that customer who joins as a teen or young adult, who pops into the branch to pay in a cheque or withdraw some cash and once every few years might nervously make an appointment to plead for a mortgage. That customer doesn’t exist anymore.

That customer has diverse needs. They are used to transacting online and can’t understand why you wouldn’t do it all via smartphone. They also have some very pressing questions about why you won’t give them a credit card if you’ve been trying to sell them the very same credit card all over their social media. That customer knows you have their data and is baffled as to why you’re not using it.

Digital transformation is happening, the customer expects it and they’re not about to wait for you to catch up.

Customers don’t have to wait because there’s too much fun choice among new entrants. So, perhaps the newcomers don’t have bricks and mortar branches or they only offer a limited range of products. That’s not a problem for the consumer. They can just pick and mix their products and their providers and run it all off their phone.

It’s going to be challenging times for traditional banks but quitting isn’t an option.

For a start, legacy brands do have a lot going for them. They remain large, national and even international institutions. They are able to deliver a wide range of products and services that are trusted and competitive. Certainly fewer customers are using branches but the branch network is still vital and most legacy brands already have a physical footprint - it’s just about rationalising its size and purpose. For most legacy brands the building blocks of their response to digital transformation are there, they just have to use them.

Lloyds Bank plans to overhaul hundreds of branches as it attempts to cope with the rise of internet banking, which has seen fewer customers visiting high street sites. The bank is radically shifting its operating model and following the customer – which, in this case, is off the streets and towards the increased convenience, efficiency and improved user experience that online banking brings. The company plans to rollout high-tech micro-branches (these smaller branches will be run by just two employees equipped with tablets).

But this is just one approach which alone isn’t enough to stem the tide of competitive threat from fintech and startups. Online-only banking startup Atom has begun to popularise the ultra-low interest rate flash sale. It’s not necessarily intentionally marketed as a flash sale. The simple fact is that its operating model is lean enough to offer a limited number of very low cost deals. Customers flock to them, ergo, they’re sold out in a flash.

To reengineer decades of legacy process would take too long. Traditional banks need to find ways of bolting on innovations while working on the much longer term process of internal transformation. Whether this is through creating disruption task forces internally to brainstorm and boostrap solutions; buy in consulting, data and tech power or just buy up these entrepreneurial startups to become the fast-response arm of the existing business, each legacy business will have to decide for themselves.

Even if banks choose to retain their core brand behaviour while trying to respond quickly to changes in customer behaviour, they will eventually have to evolve. Creative thinking has to become part of the banker DNA. Too much is said about the agile organisation without taking into account the agile mindset.

It is often asked of agencies, consultants or experts - ‘what will the next big change be?’ No-one can predict the future beyond saying that those companies who fail to adapt to today’s changes will surely become obsolete. And we can say with relative certainty that companies who react to today’s challenges without keeping one eye on tomorrow’s are only putting off their fate.

By maintaining an agile mindset, companies - even traditional retail banks - can become agile and responsive to change. Being an innovator is good but being a fast follower is just as relevant to consumers. Organisations can only follow fast if they are primed and ready for change.

Disruption has always been an inevitability for the banking sector. The financial revolution is happening before our eyes. But what these large heritage institutions do next, however, will determine whether they survive this next wave of innovation by fintech players such as Atom and Monzo, or whether they become relics of an antiquated past.

The next Thought Leader that we reached out this months is Tim van Delden, the co –founder and CIO at Amsterdam-based independent private equity firm- HPE Growth Capital.  Despite his university background as Mechanical Engineer, Tim’s career began in investment banking at Morgan Stanley in London and Frankfurt. His investment banking experience was then followed by career steps at global growth investment firm General Atlantic Partners, where he worked for 5 years, before joining the Avenue Capital Group in London, a NY HQ Special Situations Hedge Fund. Here Tim shares with us details about the setting up of HPE Growth Capital, the company’s ethics and goals and his role within it. 

As the Co-founder and Chief Investment Officer at HPE – could you tell us a bit more about the company? How did the idea about it come about?

HPE Growth Capital is a private equity platform which is dedicated to fast growing technology companies headquartered in Europe. HPE is focused on later stage investments across Europe, though core focus is Germany and the Benelux. HPE likes to back companies with highly-skilled management teams that have the ambition to strongly internationalize, also beyond Europe. HPE invests up to €30 million per Portfolio Company, for a significant minority stake.  At the moment HPE has more than €400 million Assets under Management, plus specific co-investment programmes. Although HPE is headquartered in Amsterdam, we also have an office in Düsseldorf in Germany. HPE is a regulated firm and carries the EuVECA label, and is signatory to UNPRI, while having a strict ESG policy.

Although the company was founded in 2008, HPE’s first investment fund was launched in 2010. Hans van Ierland and I recognized that between 2004 and 2009 the European market for late stage growth investments in technology companies has become an underserved market. Prior to 2004, this market was often dominated by US players, such as General Atlantic Partners, TA Associates or Warburg Pincus. They have grown so dramatically in Assets under Management that their investment ticket sizes have grown from € 10-30 million, compared to € 100-300 million, and thereby, leaving a specific market segment behind which actually was one of the highest deal flows in Europe.

HPE was founded in the midst of the financial crisis – how did you manage to grow the company despite the difficult economic climate?

The ‘secret’ for growing the company, despite the economic climate, was believing in our team and constant persistence. We started HPE right before the Lehman Brothers collapse, so not everything was easy. However, my partner Hans van Ierland and I, as well as our colleagues who joined us later, never had a second of doubt, knowing that we bring all the good ingredients in order to pull it all off. LPs (investors) who were joining HPE must have felt this determination, starting to believe in our team - something that we are still truly grateful for today. Eventually, I’d say it was a combination of lots of hard work and a bit of luck. Speaking in sport terms: “If you keep hitting good shots, one day you will score” – this has been our mentality since the start.

What were the goals that you arrived with when co-founding the company. Nearly 9 years later, would you say that you have managed to accomplish them?

HPE was founded with the ambition to build a Tier I private equity platform for technology growth investing. We are still a young firm, but we are on the right path to achieving the aforementioned goal.  It is my belief that the key ingredient for achieving this is building the right team and I am confident that our current team outperforms our expectations! Years ago, we wouldn’t have thought that we’d be able to bring in two more partners, who both have had long-standing careers in the US, and relocate them to the Netherlands. Today we are so happy to have Harry Dolman, former Co-Head of Disney Consumer Products and Manfred Krikke, a seasoned Silicon Valley tech investment banker and investor, on board with us. There’s outstanding unity between our team and we all share the same ambition – to build HPE into a recognized market leader.

Although some people might say that we have already achieved our goals, at HPE we feel that we have just started. We know what it had taken to bring HPE to where it is today, but also what it needs to be done in order to develop the company further.

What are the company’s top priorities towards its clients? How have these evolved over the years?

We have two types of clients: our LPs (investors) and our portfolio companies.

LPs expect great returns, which is their overarching priority. However, considering that the lifetime of a fund is approximately 10 years, occasionally not everything goes as planned, be it a political crisis, Brexit, unforeseen currency volatilities etc. Therefore, our priorities towards these clients are to carefully listen and communicate and act transparently.

Portfolio companies expect a true partnership with a solution-oriented mind set. Due to the nature of the sector, again things often don’t go according to plan. A finger-pointing mentality does not help in such situations, but our support in finding the best possible solution is highly respected and appreciated by our clients.

Your role focuses on investor relations – what are some of the challenges that you are faced with, in regards to this part of your work?

As Chief Investment Officer I am responsible for following our investment strategy and taking care of our relationships with existing and potential investors. I’d say that the key challenge that I am faced with is the transparent communication, when it comes to unforeseen and unexpected bad news. Although the investors sometimes may not like what they’re hearing, they always appreciate and respect the transparency and the fact that they are being informed about the given issues up front. However, luckily, most of the news that we share with our investors are good ones.

As a thought leader in this segment, how are you developing new strategies and ways to help your clients?

We consider sufficient available growth capital as one of the core elements for innovation and employment in Europe. Through our statistics, we see the high number of jobs that start-ups currently create, which has led us to embark on working with Government institutions towards supporting growth capital. Young entrepreneurs continue to thrive in European cities such as London, Berlin and Amsterdam and HPE is proud to be helping the “entrepreneurial financial ecosystem” in Europe, which is still far behind the US.

An independent study commissioned by Dun & Bradstreet has shone a light on the complexities of the modern Financial Leader role – highlighting a community under intense pressure to balance traditional accounting tasks with more strategic revenue-generating activities.

Of the 200 UK Financial Leaders surveyed, almost three-quarters (71%) believe finance teams are under too much pressure to be business protector and growth driver and 56% believe their board has unrealistic expectations.

Exploring the evolving nature of their role, almost all (97%) financial leaders surveyed say their responsibilities have changed over the last three years. Most pointed to a growing emphasis on strategic responsibility, with 59% revealing their job now includes more risk and compliance responsibilities.

Dun & Bradstreet’s Tim Vine, head of Trade Credit for UK & Ireland, explains, “The role of the financial decision maker has transformed over the last few years and, while many (74%) financial leaders feel this has been a positive shift overall, it’s still a major challenge. Suddenly, teams who have reduced in size now have to manage a complex dual role – business gatekeeper and revenue creator.”

Yet despite their expanding role, 60% of respondents say their team has decreased in size over the last three years. As a result, 53% admit reduced resources increase the risk of serious mistakes being made. Almost two-thirds of respondents (59%) suggest their organisation sometimes rushes through the compliance process to support revenue-generating activity and 55% reveal they feel uncomfortable with the extent to which their business sometimes gambles on risk management.

To meet the expectations of their businesses and fulfil their roles effectively, the majority of respondents (45%) believe data is “extremely important” to make smart decisions and forecasts. The biggest data benefit cited by 43%: helping collate customer intelligence. However, 57% of financial leaders admit their business lacks the ability to access accurate and current data. The biggest barriers respondents see are: a lack of skills (23%), lack of investment in technology (21%) and inaccurate data (20%). As a result, almost two-thirds (65%) admit it’s difficult to find and capitalise on strategic opportunities.

“The UK’s financial leaders know how powerful data analysis and smart use of technology can be in helping them meet business expectations in their new joint role as business guardian and revenue driver,” continues Vine. “Despite the challenges they clearly face, these two roles are not opposites. Protection and growth can go hand-in-hand, but only when they are underpinned and supported by the resource, tools and data to allow for smarter decisions that will grow the business. If financial leaders are to fulfil this duel objective, they must gain support for the data and analytical capabilities needed to empower their insight.”

(Source: Dun & Bradstreet)

JLL has launched ‘More than the last mile’, a research report which examines how smarter logistics will help shape cities in the future. Commenting on JLL’s report, Andy Harding, lead director of JLL’s Industrial & Logistics Group, said: “Spurred by the growth of e-commerce and demand for last-mile fulfilment facilities, there has been increasing interest in urban logistics among property developers and investors. However, this is only a part of the story, as the issues associated with logistics in cities are much wider than servicing e-commerce growth. Cities present many challenges but also significant opportunities for real estate in the future. We believe that environmental and efficiency challenges will transform logistics operations in Europe’s major cities.”

Key JLL research highlights include:

• Anticipated rise in demand for different types of logistics facilities, including transhipment facilities (where goods can be transferred onto environmentally friendly vehicles); shared-user consolidation centres; local facilities for last mile fulfilment; multi-storey buildings and underground facilities.
• A need to find new models of city logistics which are sustainable and maximise efficiency while minimising adverse environmental and social impacts, such as air pollution and noise.
• Developing technologies have the potential to address both efficiency and environmental objectives but there are no immediate quick wins.
• Old technologies should not be ignored as partial solutions may be found by looking ‘back to the future’, including, for example, the use of rail or bicycles.
• Increased night-time deliveries in cities would make more effective use of the transport network at times when it has capacity and would cut down peak traffic impacts.
• Logistical considerations need to be at the forefront of city planning and building design.
• Warehouses and suitable land for logistics activities will remain critical for efficient city logistics but if these activities are pushed too far out of the cities they service, this will drive up ‘stem distances’ (from warehouse to customers) and potentially emissions.
• Varying interests of the different stakeholders in city logistics need to be addressed in order to identify new approaches that satisfy all of them.
• Logistics in cities present big opportunities for real estate developers and investors due to strong demand and supply dynamics.

Jon Sleeman, JLL’s head of EMEA Industrial & Logistics Research, added: “From a property market perspective, city or urban logistics buildings are often considered a separate market segment, distinct from ‘big box’ logistics properties, that are mainly clustered at Europe’s major gateways (seaports and airports), along its strategic transport corridors and around its major cities. This segmentation may be valid from a property market viewpoint, but these different types of property are often part of the same supply chains. This being the case, to understand potential opportunities for change in city logistics, we need to take a wider supply chain perspective.”

(Source: JLL)

According to Ismail Ertürk of the Alliance Manchester Business School at The University of Manchester, banks and regulators are mis-selling the free banking argument, implying that consumers should not have to pay for the outdated technologies of banks and prop up their ill-designed profit models. Here, Ismail introduces Finance Monthly to a history of banking regulation and potential solutions that exist in eliminating this consumer-bank barrier.

Before the global wave of deregulation and liberalisation of banking industry and products since the early 1980s a typical commercial bank would earn its profits mainly from credit intermediation- collecting deposits from public at low cost and lending these to borrowers at a high margin. The name of the game was: 3-6-3 (borrow at 3% lend at 6% and go to play golf at 3pm). The well-meant but badly realised deregulation and liberalisation reduced net interest margins in banking to very low levels forcing banks to search for business models to increase fee income by selling financial products ranging from insurance to asset management. Around this time, a new global bank regulation called Basel Capital Adequacy Accord came into effect too shifting the focus in bank financial performance measurement from net interest margin and return on assets to return on equity. Stock markets started to use return on equity as the key financial performance metric to value banks. Fee generating businesses including securitisation of loans- like sub-prime loans that caused the financial crisis of 2008- do not require capital under Basel risk algorithm and make it easier for banks to achieve high return on equity targets.

Such historical understanding of bank business models and the role of net interest income in bank valuation by investors is very important because today's discussion about free banking being detrimental to bank profitability cannot be sensibly made without understanding how we arrived here. Currently with banks in the UK and Wells Fargo in the US paying substantial amount of fines for mis-selling products to their financially illiterate customers it is absurd to argue that bank retail customers have been enjoying free banking. Banks have been using free deposit products as a bait to charge all sorts of unjustified fees and commissions to their customers from mis-selling borrowing related insurance products to overcharging for overdrafts. Therefore, the argument that banks provide free banking for deposit customers needs to be factually supported. The issue could be that banks are under pressure from stock market investors to achieve unrealistic return on equity targets under the current low interest rate environment and therefore are looking for ways to overcharge their retail customers. Regulators should first fully understand this shareholder value-driven bank business model before supporting banks for the end of so called “free banking”, which really is more like banks asking for a licence to overcharge consumers.

At a time when developments in digital technologies make electronic payments almost costless and globally available 24 hours the demands by banks, regulators and international official institutions like IMF for uncontrolled charges for payments in the name of ending the sol-called free banking look unjustified and not supported by facts.

What we need is not the end of so-called “free-banking” but a new non-bank shared public technological infrastructure fit for purpose for our digital times for payments. The cost of this infrastructure should be met by a public body that recoups its costs from banks and other users. With big data analytics, it should not be difficult to do maths for transparent costing and pricing under such system. Therefore, ending the “free banking” is a false debate that is likely to support outdated bank IT infrastructure and bank business models that promise to the stock market unrealistic return on equity targets. With the developments in payment technologies the regulators should creatively think a payments infrastructure that is run in the interest of consumers of retail financial services. In addition, regulators should scrutinise shareholder value-based bank business models and ask justifications for profitability targets that banks promise to their investors. It is time to reshape banking radically to introduce digital technological developments in payments for fair pricing and economic efficiency. Consumers should not be paying for banks’ ill-designed and not fit for purpose business models.

Against the backdrop of evolving business demands and rapid technological disruption, the Robert M. Trueblood Seminars for Professors enhance accounting and auditing education to build the next generation of accountants and auditors to meet the needs of today's capital markets. For more than 50 years, the annual seminars, hosted by the Deloitte Foundation and the American Accounting Association, have provided cutting-edge resources and hundreds of case studies that keep university faculty and their students connected to the real-world issues and challenges currently facing the audit and accounting professions.

"The auditors of the future are not siloed to financial reporting," said Tonie Leatherberry, principal, Deloitte Consulting LLP and president of the Deloitte Foundation. "Future auditors will need up-to-date technical and data science skills to go along with their deep industry and cross-functional expertise. Moreover, they will need to sharpen their analytical skills and ability to interpret data, and demonstrate strong business acumen, superior communication skills and leadership. The Trueblood Seminars continue a long-standing tradition of assisting those charged with developing curricula that is futuristic and embodies the spirit of innovation."

This year's seminars marked a continued focus on audit innovation as technology continues to change the face of the profession. The proliferation of data analytics and artificial intelligence has enhanced the audit process and has helped open the door to transforming the manner in which an audit is conducted. The result is a new type of auditor and deeper insights that can benefit companies being audited and provide value to capital market participants. Additionally, there is an appreciation among business leaders for the opportunities audits can provide to help companies improve business performance.

Participants analyzed case studies on leasing arrangements, accounting for cross-hedging instruments, business combinations, revenue recognition, and understanding and evaluating control deficiencies during an audit, among others.

"Case-based discussions are a critical component of the seminars because they present realistic, complex, and contextually rich situations that encourage critical thinking and professional judgment," said Michael Iselin, 2017 Trueblood co-chair and accounting professor at the University of Minnesota. "Faculty are able to return to their universities and use Trueblood case studies as an excellent tool to foster critical thinking skills in the classroom."

More than 2,100 professors from across the country are registered users of the Trueblood case studies.

The 2017 Trueblood Seminars were held at Deloitte University in Westlake, Texas. More than 60 leading accounting and auditing educators and professionals attended the February and March sessions. The program featured guest speakers from the Financial Accounting Standards Board, accounting professors from several colleges and universities, plus Deloitte subject matter leaders. Deloitte professionals also discussed innovative audit technology and approaches, and shared their experiences through the case studies to illustrate the evolving skillsets needed in the field.

"The skills required to complete a high-quality audit five to 10 years ago are not the same as the skills you need today," says Leatherberry. "It's an exciting time for educators to encourage tech-savvy audit professionals to join the wave of innovation as 'big picture' thinkers."

Through this lens, the Trueblood Seminars continue to give accounting and auditing professors curriculum resources they need to educate the auditors today's business world demands.

The Robert M. Trueblood Seminars have been held annually since 1966 under the auspices of the Deloitte Foundation. In 1975, the American Accounting Association joined the Deloitte Foundation in administering the seminars. Through the years, more than 2,400 professors have attended the program.

(Source: Deloitte)

Many banks are facing the ‘double-whammy’ of having to replace their ageing systems while also having to reduce their overall IT spend. Finextra asserts that 80% of banks will replace their core systems within the next three years. Grant Thomas, Head of Practices at BJSS tells Finance Monthly it’s more likely that it will take between five and ten years before this journey is completed.

It may come as a surprise to learn that many banks rely on systems written in COBOL (and even Assembler). Some of these run on hardware whose spare parts can only be sourced from Gumtree.

Many of the technologies underpinning core systems are at least 20 years old and the people who support them are even older. Assembler anybody? Fortran? Zumba and whist drives may soon be replaced in retirement communities with therapeutic programming.

Time is literally running out for our time-honoured financial institutions. They have left it too late, mostly (and perhaps understandably) as a result of prioritising revenue growth and meeting fiduciary obligations.

However, it is also human nature to put off doing hard things until the last moment. Which begs the question: is IT modernisation as hard as everyone thinks it is? The biggest challenges may not be either technical or financial in nature.

7 steps to success

1. Get a sponsor with big boots

The bank is going to be spending a lot of money (between tens and hundreds of millions) so you’ll need someone senior to argue the case that your plans are of sufficiently high priority to get funded. You’ll also need someone who will keep the funds flowing when third quarter results are pressurising IT budgets.

2. Start at the end

While the first question is usually ‘why’, it should probably be ‘what will we get out of this?’ instead. It’s a subtle difference, but one which reorients the discussion from ‘problem’ to ‘benefit’.  The answer to this question will probably depend on who is asking. For the Board, the answer needs to be a blend of the strategic (‘how will this help us to deliver future plans?’) and the tactical (‘what does this do for our C:I ratio?’). For P&L owners it might be ‘when do I see the benefit?’ and CIOs will want to know ‘what will this look like when we’ve built it?’

3. Fail fast

Whilst it’s important to celebrate success and build positive momentum, organisations should also acknowledge that every failure is an opportunity to learn. People will be asking ‘will this work?’ and ‘how will we…?’  A lack of certainty combined with a natural fear of failure will impede progress unless the organisation embraces risk from the outset.

4. Share the benefits

Technical Debt isn’t glamorous and doesn’t attract the same attention (or funding) as other types of IT delivery. It can therefore be beneficial to deliver some components of your overall IT modernisation on the coat tails of other projects or sources of funding. For example, a project to deliver an improved digital customer experience might provide the perfect opportunity to deliver the shared components that will replace a legacy solution.

5. Prioritise something

There’s an inherent risk of trying to do too much. Try to be clear about what you want to achieve and when. Understand how you will prioritise scope and benefits. Get agreement from your Sponsor and ensure that the rest of your organisation knows what you will do and what you won’t. Guard this jealously!

6. Pick your dependencies

This is possibly the biggest challenge for core systems replacement. There will be more dependencies than would seem possible to manage. To help mitigate this, it will be necessary to both reduce the number and extent dependencies when possible and industrialise dependency management.

7. Don’t forget to run the business

Big technology and change programmes can be a big drain on an organisation’s resources. They often require skills and experience which may be in short supply - if they even exist at all! Significant amounts of staff, management and executive time will be diverted from BAU activity to the programme. Organisations typically underestimate the impact of this and are caught out by falling business performance.

Banks which fail to modernise are missing an important point: their problem isn’t going to go away. Through inaction they place themselves at unnecessary risk, and might even be failing in their fiduciary obligations. Replacing core banking systems isn’t as hard as it looks, and a ‘legacypocalypse’ can be easily avoided with a mission directed team applying these seven steps.