The financial services (FS) sector is under more pressure than ever. Juggling the effects of the pandemic, technological disruption and high customer expectations, coupled with maintaining business continuity, has been a difficult balancing act – and yet these factors are critical to FS. Neil Murphy, Global VP at ABBYY, explores how this has led some teams to butt up against the long-held rules and processes of the sector.
In order to see success, banks and FS firms need to take a long, hard look at how their business really works. This means getting visibility into business processes as they actually behave, identifying variances in them, and discovering how they can better meet customer and business needs.
With the world under unprecedented pressure, finding out how best to manage rules and processes can alleviate the strain and set your business on the path to success. Our recent research found that almost half (46%) of banking and FS workers and 30% of insurance staff rigorously follow the rules – giving the industry a good head start in coping with what’s thrown at them.
But is following the rules always the best route? And what happens when employees break the rules?
Rules – there to be followed?
Banking and financial services staff are working harder than ever before to help customers, keep businesses afloat, and also digitally transform. In such a process-driven industry, honing the many rules and processes could be the key to survival in this economy.
Our recent research found that almost half (46%) of banking and FS workers and 30% of insurance staff rigorously follow the rules – giving the industry a good head start in coping with what’s thrown at them.
At this point in time, it’s vital that banks and FS teams check in on their processes often to see where issues lie, which processes are most problematic, and which are ripe for automating. Following the rules is the cornerstone of achieving the potential of digital transformation, according to a McKinsey study which found that half of the value from digital transformation can be realised from as few as 10-20 end-to-end processes.
What tech brings to the table
While digital transformation is nothing new to most banks and financial institutions, now more than ever, they must rely on technology. It will help them conduct better business, comply with regulations, connect with customers, and deal with an ongoing flood of emergency business issues.
Getting your processes in order before automating them is a crucial step to avoiding failure. Yet many banking and FS staff claim that processes are too complex or there are too many to follow.
This is where technology comes in, and encouragingly leaders are open to helping their staff using technologies that can lighten the burden. According to our research, almost all banking and FS bosses think process mining technologies would be helpful to their business (98%), as did 89% of insurance bosses. These technologies can free up time for finance staff, enabling them to work on more pressing business matters that require the human touch.
Bending the rules
Rigorous rule-keeping is a trait the financial industry needs to uphold, in order to comply with stringent industry regulations. But there is a flipside.
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Key to a bank or financial institution’s success, especially in this digital age, is how they adapt and respond to customer needs. This means that even in a process-driven industry like financial services, employees occasionally break the rules. Sometimes, they have good reason: the most common reason to break the rules is to provide good customer service, which is more critical than ever before. Our research found that 62% of insurance bosses have confidence that their employees break rules so they can meet the needs of customers, and 50% of banking and FS bosses agree.
Relationship-building services like customer care, supplier management, or simply supporting colleagues and staff, can go a long way in benefiting a business and boosting morale. Being willing to bend the rules when it’s better for customers illustrates that rather than financial services staff being solely process-driven, they are driven even more by customer satisfaction.
So where do we start?
Unfortunately, customers are used to delays and layers of processes when it comes to banking. But it doesn’t have to be that way. To better serve customers, while also ensuring staff aren’t straying too far from the rulebook, the FS industry needs to be able to identify the bottlenecks and blind spots in every engagement. They also need the ability to analyse and discover processes using all the data they have.
Process intelligence technologies offer a deep understanding and real-time monitoring of processes. It helps you drill down into the details, explain why processes don’t work and how to fix them, and provides the tools to solve problems a business didn’t even know existed.
Say a customer loses their debit card. They shouldn’t need to go through the time-consuming process of calling various support teams, keying in endless numbers, and being put on hold, only for their account to be frozen as a precaution. By having every process mapped out and every piece of data available on an analytics dashboard, staff are given the knowledge of where customer service bottlenecks lie and why delays happen, so they can resolve issues much more quickly and securely.
Process intelligence technologies offer a deep understanding and real-time monitoring of processes.
But it’s not only useful for directly customer-facing interactions. Take anti-money laundering and anti-fraud compliance efforts. At a time when fraud is more prevalent than ever, nailing the processes that catch odd customer behaviour patterns in your data, and being able to action them automatically, means customers’ accounts are safer and more secure, even with less staff in the office and more fraudsters in the system.
Looking ahead
A clear understanding of your business’ processes will identify inefficiencies that may be impacting the customer experience – that you would never have known about otherwise. Empowering your staff with the tools to analyse less-structured processes, identify opportunities for improvement, and increase both the speed and accuracy of executing said processes, will reap many rewards.
Not only will it ensure businesses are getting the most out of their huge investment in digital transformation – it will also ensure customers are getting the best possible service. Right now, there’s nothing more vital than that.
What are the things keeping senior finance managers and executives awake at night? The COVID-19 pandemic and resulting lockdown have put many finance departments under even greater pressure than before. Mark Vivian, CEO at Claremont, describes to Finance Monthly how the growing demand for financial services can be met using cloud technology.
Organisations are under pressure to grow revenues and cut costs. Businesses need to be more agile than ever before in order to survive and thrive in today’s economy. There’s also the latest finance regulation (e.g. IFRS16) that needs to be adhered to, or legislative changes that need to be made (e.g. HMRC’s Furlough Scheme).
It’s important that the day-to-day running of the finance department can keep going too: invoices continue to be raised, and cash collected. Supplier invoices processed and paid. Employees paid correctly and on time.
Choosing the Right Finance System
When choosing the right finance system, there are number of important considerations businesses need to take into account. This will be largely centred around functionality and whether businesses can find a finance system that is part of a wider set of integrated business applications, such as HR, Payroll, and CRM. Oracle’s E-Business Suite is a great example of this.
As part of their functionality consideration, businesses will also need to consider their specific use cases. For example, is the requirement to have a finance system capable of supporting global organisations working in multiple territories, with multi-currencies and multi-languages, and also local country legislation?
Organisations also need to consider whether they are happy to adopt largely standard “best practice” business processes, which usually necessitates business change, or whether to use customisation to the standard product so that it reflects the way your business works.
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Ground to Cloud
Lots of organisations that we work with have a “Cloud First” strategy, and have “Ground to Cloud” initiatives, moving their key business systems from their own data centres into the cloud. “Cloud” is a ubiquitous term, but it has a number of different meanings. When we are considering choosing the best finance system, there are typically two main choices: cloud-based applications and infrastructure cloud.
Choosing a suite of cloud-based financial applications offers businesses the benefit of streamlining their IT environment and business processes; procured as SaaS, typically over a 3-year duration.
Choosing infrastructure cloud on the other hand allows you to move your on-premise applications from physical hardware to a cloud platform, replacing the typical arrangement of leasing hardware with the rental of infrastructure cloud. It has lots of benefits, not least the fact that under the old model, IT departments had to predict future business activity for the next 5 years and size up and purchase hardware for the next 5 years on that basis.
A move to cloud infrastructure provides a much more flexible arrangement, where compute and storage resources can be flexed up and down in tune with the organisation’s requirements, either in the long term, or perhaps on a seasonal basis if your business volume requires it.
Partnering with a Managed Services Provider
Whichever model you choose to use for your finance applications and services, it’s vital to use it correctly and get the most out of your investment. Using a complex piece of software is a bit like running a Formula 1 car. It requires a team of expert engineers, with differing specialities, working on it in order to optimise it and make it perform at its best. This is where partnering with a managed service provider (MSP) can make a big difference.
Whichever model you choose to use for your finance applications and services, it’s vital to use it correctly and get the most out of your investment.
A managed service provider can work alongside your internal finance and IT teams to do this:
- Firstly, they’ll provide “fix on fail” support through an Incident Management process, and this will typically be against a Service Level Agreement (SLA) for both responding to and resolving the Incidents.
- Next is Problem Management; getting to the root causes of Incidents that are encountered and resolving them so that they don’t reoccur.
- An MSP will also help you with Change Management, dealing with all of those modifications that will come up over time as your business changes, or you have to comply with changing legislation.
- Finally, a good MSP will be proactive, and make suggestions for how you can optimise your financial applications, perhaps utilising new functionality to improve efficiency and save money.
We saw a great example of helping a Managed Services customer with critical and urgent Change work earlier in the year, when The National Trust came to us wanting to take advantage of the government furlough initiative during the COVID-19 pandemic to support their staff and protect their organisations as their sites began to close. We were able to configure their payroll solution to meet their requirements within a very short space of time.
The end product was deployed rapidly, automatically calculating the rebate amount for each employee, gave each employee a professional standard of notification, and required minimal payroll intervention. The first payroll runs of the month began on the 16th April and by the 25th April the National Trust had successfully processed over 14,000 employees through their payrolls.
Bringing it Together
The pace of change is increasing, putting finance departments under greater pressure than before and COVID-19 has presented an extra challenge over recent months. Many organisations are using Oracle E-Business software to run their finance and procurements processes. There are options to replace this with cloud-based applications, or to redeploy it on cloud infrastructure to help meet business drivers. Working with the right Managed Services provider can help you to optimise your existing software and help you to deliver real business benefit.
The coronavirus pandemic has left many businesses scrambling to adapt. The lockdown and social distancing measures now in place – likely to remain in place, in one form or another, for many months to come – are forcing organisations of all sizes and sectors to reconsider how they operate. Ammar Akhtar, co-founder and CEO of Yobota, shares his thoughts on what the newly adapted financial sector might look like.
As we so often hear, we must prepare for a “new normal”; a world where office working, unrestricted travel and regular visits to bricks-and-mortar premises for essential services is going to become increasingly rare. In short, the transition from physical to digital is being greatly accelerated.
In the finance industry, there is a huge amount at stake. Firms that are unable to deliver their services while the physical world is largely closed off from us are at risk of being left behind by their competitors.
Rising to this challenge invariably means turning to technology. Indeed, fintech has been championed as the future of the finance sector for a decade now, but it has taken COVID-19 to bring about a “fintech revolution” in any meaningful sense.
What will this ‘revolution’ look like?
The increasing prevalence of financial technologies has been a common subject in both consumer and business contexts for many years. The so-called fintech revolution promised open access to data, hassle-free banking experiences and fairer deals for customers.
Yet only relatively small steps have been taken towards this vision. Until now we have only really witnessed a cautious adoption of this technology as consumers, regulators and established banks became familiar with what it can enable – and this has still come at considerable investment.
The so-called fintech revolution promised open access to data, hassle-free banking experiences and fairer deals for customers.
Now, though, things are finally changing. Technology is now not just a competitive advantage for financial services firms; it is essential to their very existence.
Today, people must be able to access critical financial services digitally. From taking out a new product (a loan or a credit card, for example) through to managing their finances and receiving advice, this must all be possible from within one’s own home. But more than that, the process of doing so must be fast, painless and personalised as possible.
There are credit marketplaces in the UK which already offer pre-approved loans that can be opened in just a few minutes with minimal clicks. This is possible because the lenders have made progressive choices in the way they develop or utilise technology.
Conversely, many finance companies still have data, systems and processes that are completely reliant on legacy technologies and on-premise servers. Simply put, these firms are under threat of becoming the Blockbuster or Kodak of the financial services sector (that is to say, businesses that were far too slow to respond to technological change).
Interoperability and the cloud
For financial technologies to be successful, two things are essential: interoperability and cloud computing.
Over the past decade firms have too often taken a piecemeal approach to adopting fintech; they have deployed specific technologies to solve isolated problems. That is because fintechs – financial technology startups – are typically created with that very focused mindset.
For financial services companies, particularly banking providers, a much broader perspective is required. Not only must each element of a business’ operations be built around best in class technology, but the technology must also be interoperable – it must fit together to form entire systems and processes that work seamlessly together.
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Take the example of someone applying for a credit card – something that is increasingly common as a result of the economic hardship brought about by COVID-19. There are various different stages that an applicant will need to pass through – identity verification; credit scoring; advice or product recommendation; application and assessment; and, if successful, creating the account.
Using interoperable fintechs on a cloud-based platform removes time, complexity and human interference in all of those processes. Data can be rapidly shared and analysed, allowing for the appropriate products – better yet, personalised products – to be shown to the user. There is no reason that an applicant cannot go from the start of the process to the end by themselves in minimal time; so long as the credit card provider invests in the technology that enable them to do so.
Embracing fintech to its fullest
We are in the midst of what, in ‘business speak’, they would call a paradigm shift. We are moving past the stage of thinking about financial technology as simply being a means of checking one’s account or transferring someone money. The fintech revolution is gathering speed, and it will lead us to a more open, connected form of banking where one can see and manage all their finances digitally, as well as accessing personalised advice and products all from the comfort of their sofa.
In this primarily digital landscape, financial services firms who cannot deliver an exceptional level of service to customers – be it consumers or business – risk losing them to those who can. Now is the time for the sector to embrace fintech to its fullest and build systems that are not just adapted to the new normal, but actually help to shape it.
Last week, news broke that EY auditors refused to sign off on Wirecard’s accounts for 2019, citing a missing sum of €1.9 billion that documents purported to be held in two bank accounts in the Philippines. CEO Markus Braun claimed that the company was the victim of “the victim in a substantial case of fraud,” and COO Jan Marsalek was suspended, later to be terminated. Braun then resigned from the company on Friday.
Braun turned himself over to Munich police on Monday evening after a warrant for his arrest was issued. He is suspected of recording false transactions to artificially inflate Wirecard’s sales, increasing its value in the eyes of customers and investors. Philippine authorities are also investigating the whereabouts of Marsalek as part of a broader probe into the company.
On Thursday, the company said in a statement that it would apply to the Munich district court to open insolvency proceedings as a result of its “impending insolvency and over-indebtedness.”
The company’s shares were suspended from the Frankfurt Stock Exchange before the announcement was released.
Wirecard was long regarded as a star in the German fintech scene – a DAX 30 company which was once valued at €24 billion. That value has plummeted through the floor as the week of revelations continued, though it saw a brief 27% uptick on Tuesday following the news of Braun’s arrest.
Trading on Thursday saw Wirecard’s value drop by a further 76% once news of its insolvency broke.
This AI ‘arms race’ is being driven by two tech superpowers: the United States and China. The US is barrelling ahead, with Washington recently signalling its intentions to promote AI as a national priority. Last year, President Donald Trump launched a national AI strategy – the American AI Initiative – which orders funds, programmes and data to be directed towards the research and commercialisation of the technology.
Government involvement and long-term investment in AI has paid off: US companies have raised more than half (56%) of global AI investment since 2015. China, meanwhile, is catching up quickly and is now vying with the US to become the dominant force in the area. In 2017, it laid out a roadmap to become the world leader in AI by the end of the decade – and create an industry worth 1 trillion yuan (or the equivalent of $147.7 billion). As part of the three-step strategy, China has announced billions in funding for innovative startups and has launched programmes to entice researchers.
Achieving economic and political prowess is the ultimate goal. Indeed, AI is a vast toolbox of capabilities which will give nations a competitive edge in almost every field. However, the question beckons: where does Europe stand in this race, and what is at stake? Nikolas Kairinos, founder and CEO of Soffos, offers his analysis to Finance Monthly.
Europe is falling behind
Thanks to great access to home-grown talent and an inspiring entrepreneurial spirit, Europe is still a strong contender in this race. According to McKinsey, Europe is home to approximately 25% of the world’s AI startups, largely in line with its size in the world economy. However, its early-stage investment in the technology is well behind that of its competitors, and over-regulation risks stifling further progress.
Thanks to great access to home-grown talent and an inspiring entrepreneurial spirit, Europe is still a strong contender in this race.
Early last year, for instance, the European Commission announced a pilot of ethical AI guidelines which offer a loose framework for the development and use of AI. The guidelines list seven key requirements that AI systems must meet in order to be trustworthy; amongst the chief considerations are transparency and accountability.
The intentions behind such proposals are pure, albeit counter-productive. Proposing a new set of standards to be followed risks burdening researchers with excessive red tape. After all, AI remains a vast ocean of uncharted waters, and introducing ever-changing hurdles will only impede progress in R&D. Innovative new solutions that have the capacity to change society for the better might never come to light if developers do not have the freedom to explore new technologies.
Meanwhile, a European Commission white paper recommends a risk-based approach to ensure regulatory intervention is proportionate. However, this would only serve to deter or delay investment if AI products and services fall under the loose definition of being too ‘high-risk’.
Upholding human rights through proper regulation is of paramount importance. However, Europe must be careful to find the right balance between protecting the rights of its citizens and the needs of technologists working to advance the field of AI.
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The risk of ignoring AI solutions
What is at stake if AI development falls behind? The risk of ignoring AI solutions is immense, particularly for sectors like the financial services industry which must keep pace with evolving consumer habits.
AI has given the world of banking and finance a brand new way of meeting the demands of customers who want better, safer, and more convenient ways to manage their money. And with populations confined to their homes for long periods of time in the face of the coronavirus pandemic, the demand for smart digital solutions that allow people to access, spend, save and invest their money has peaked.
Those who fail to adapt by leveraging AI are at risk of losing their competitive advantage. The real value of AI is its automation potential; AI solutions can power more efficient and informed decision-making, taking on the data processing responsibilities that would normally be left to humans. If used wisely, smarter underwriting decisions can be made by delegating the task of assessing loan and credit applications to AI. Not only is this markedly faster than performing manual checks, but the chances of making risky decisions will also be reduced: AI software can be used to build accurate predictive models to forecast which customers have a higher likelihood of default.
Accurate forecasting is needed to ensure the continuity and success of a business. Again, those businesses that utilise the AI toolsets at their disposal stand to benefit from advanced analytics. Machine learning – a subset of AI – is adept at gathering valuable data, determining trends, anticipating changing customer needs and identifying future risks. Those who turn their back on AI risk losing out on sound risk management, leaving their profits and reputation vulnerable.
Accurate forecasting is needed to ensure the continuity and success of a business.
At the heart of any bank or financial firm, however, lies the customer. Traditional bricks and mortar banking is no longer the favoured option when money can instead be managed online. Yet, while online banking is by no means a new phenomenon, AI offers the hyper-personalised services that customers seek. Indeed, a global study conducted by Accenture recently found that customers today “expect their data to be leveraged into personalised advice and benefits, and tailored to their life stage, financial goals and personal needs.” Meanwhile, 41% of people said they are very willing to use entirely computer-generated advice for banking.
There is clearly an appetite for innovation from the consumer side, and financial institutions must step up to enhance their offering. Enhanced, real-time customer insights generated by AI will optimise recommendations and tailor services to each individual. AI-powered virtual assistants that offer personalised advice and tools which can analyse customers’ spending to help them meet their financial goals are just some of the ways that financial institutions can create a better customer experience.
These are just a few of the many incredible applications of AI within the financial services sector. Not only can it enhance a business’ core proposition, but the cost-saving potential and operational efficiency is becoming difficult to ignore.
AI technologies are transformative, and those who fail to invest in new solutions risk losing out on the multitude of benefits on offer. I encourage business leaders to think carefully about the about the outcomes that they want to drive for their institution, and how AI can help them achieve their goals. I hold out hope that Europe as a whole will ramp up AI development in the coming years, and I hope to see governments, businesses and organisations working together to continue to push forward the AI frontier and pursue innovative applications of this technology.
Nikolas Kairinos is the chief executive officer and founder of Soffos, the world’s first AI-powered KnowledgeBot. He also founded Fountech.ai, a company which is driving innovation in the AI sector and helping consumers, businesses and governments understand how this technology is making the world a better place.
This reputation has been particularly prevalent since July 1997, when the region gained independence as a sovereignty and set about establishing itself as a low-tax haven with a raft of lucrative free trade agreements.
In the modern age, however, what is it that makes Hong Kong such an attractive proposition for international investors, and what role does the digital sector play in this?
Accessing a Free Market Economy
The most apt description of Hong Kong was provided by the economist Milton Friedman, who opined that the region was the world’s greatest experiment in laissez-faire capitalism. There can be little doubt that Hong Kong represents the quintessential free market economy, and one that’s built on the principle of lowering trade barriers and minimising corporation tax (this is currently fixed at 16.5% and will not change until 2022 at the earliest).
This is one of the main reasons for the popularity of Hong Kong amongst overseas business owners, who’ll have the opportunity to minimise their operating costs and boost their bottom line profit accordingly.
The low rate of corporation tax is also appealing to forex trading firms, which already benefit from the fact that most brokers don’t charge a levy on currency trading. Not only this, but Hong Kong is now ranked as the fourth-largest financial centre in the world with a 7.6% share of the global forex market, while the region is also home to the second-largest exchange in Asia (behind Singapore). Hong Kong is also renowned for having the fifth-largest stock exchange and largest initial public offering market in the world, and this highlights the appetite for domestic and international investment in an open and prosperous economy.
The low rate of corporation tax is also appealing to forex trading firms, which already benefit from the fact that most brokers don’t charge a levy on currency trading.
The nature of Hong Kong’s economy also contributes to an incredibly influential and cash-rich consumer base, which ensures that firms are able to optimise turnover on an annual basis.
In US dollar terms, one in seven Hong Kong households exist in the millionaire category, and while real estate represents 70% of these assets, there’s clearly an opportunity for international businesses to thrive and target affluent consumer demographics.
How is the Digital Sector Faring in Hong Kong?
Despite the issues that the region has faced in terms of social unrest and angst, it continues to record average annual GDP growth of around 5% in real terms. One of the key factors here is also the rise of digital and web-based businesses, with Hong Kong’s relaxed commercial climate ideal for low-overhead and tech startups who wish to target a vast and diverse marketplace.
The open nature of Hong Kong’s economy also means that it’s easier than ever for companies to invest in advanced technologies and computational infrastructure, creating a competitive and potential lucrative landscape where profit margins are often higher than in developed economies.
Make no mistake; there’s a clear alignment between the values of Hong Kong’s economy and the ambitions of domestic and overseas SMEs, and this continues to build the digital landscape and lead into a far broader economy-wide transformation. Of course, we’ve already touched on the viability of launching a digital forex trading business in Hong Kong, and this is indicative of an economy that’s perfectly suited to online companies and tech-led startups.
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In terms of the best practice, the way in which you open a business in Hong Kong (digital or otherwise) will depend on the sector that you operate in. For example, firms looking to operate in the competitive forex space will need to identify a key differentiator, while also relying on key knowledge and datasets from the Asian marketplace.
The same principle of standing out from the crowd also applies when launching a business in the digital space, with marketing and the ability to target key demographics in Hong Kong also crucial to new ventures.
Currently, $350 trillion worth of financial contracts reference the LIBOR rate worldwide. Banks and other financial institutions are now required to phase out any agreements that utilise LIBOR as a benchmark and transition to an alternative reference rate by the end of 2021. While this may seem like a long time from now, the process will likely be lengthy and complex. To ensure a smooth transition, banks and other impacted organizations will need to begin preparing well in advance. Right now, only 19% of firms say they’re ready. Neil Murphy, VP of global business development at ABBYY, discusses how these companies can best prepare for the changes to come.
The transition process will be no mean feat. It will involve creating task forces, sorting through immense volumes of documents, adopting new technologies, re-negotiating current agreements and developing entirely new financial products. Preparing early and thoroughly is critical for minimising risk from every angle – financial risk, legal and compliance exposure, and operational disruption. Planning ahead will also facilitate a smooth process for customers, helping maintain – or even increase – client satisfaction and retention.
While the transition may seem daunting for some organisations, it doesn’t have to be. To begin preparing, businesses need to understand what LIBOR is and how it will affect your business, including which products will be impacted, what the replacement options are, and what exactly the complex transition process will involve. Let’s start from the beginning.
What’s behind the transition?
According to the Consumer Financial Protection Bureau, the LIBOR rate is based on specific types of transactions between banks which now do not occur as frequently as they used to, making the rate less reliable. The governing bodies that oversee this index have stated that they cannot guarantee the rate will be available after 2021.
Certain private-sector banks which are currently required to submit information that is then utilised to set the LIBOR rate will stop being required to do so after next year, which means the rate will subsequently not be an accurate reflection of its underlying market. At this point, the quality of the rate will likely degrade to a degree at which it is no longer credible, which could cause LIBOR to stop publication immediately.
The end of LIBOR is imminent, which makes preparing for the transition and implementing alternative reference rates in advance an imperative for financial institutions. All types of banks and financial institutions will be impacted, from small regional banks serving local consumers to large global financial institutions providing commercial services to multinational enterprises. In addition, related industries, such as insurance, will also be impacted by the discontinuation of LIBOR. Even industries that are completely outside of the financial sector will feel a ripple effect.
The end of LIBOR is imminent, which makes preparing for the transition and implementing alternative reference rates in advance an imperative for financial institutions.
What’s the impact?
From 30-page mortgage agreements to 340-page commercial loan contracts, every type of financial product that utilises LIBOR will be impacted. First up is derivatives, including interest rate swaps, cross-currency swaps, commodity swaps, credit default swaps, interest rate futures, and interest rate options. Bonds will also be impacted, including corporates, floating rate notes, covered bonds, agency notes, leases, and trade finance. As for loans, the impact will be far reaching, from syndicated to securitised, business loans, real estate mortgages, private loans and even certain types of student loans. In short, any type of loan that utilises a variable interest rate based, in whole or in part, on LIBOR will be impacted.
There will also be an impact on short-term instruments such as repos, reverse repos, and commercial paper, and on securitised products like mortgage-backed securities (MBS), asset-backed securities (ABS), and commercial mortgage-backed securities (CMBS). Finally, in the retail sphere, it will affect loans, mortgages, pensions, credit cards, overdrafts and late payments.
To replace LIBOR, there will be various Alternative Reference Rates (ARRs), which will vary by geography.
How should we prepare?
Many companies have thousands, even hundreds of thousands, of LIBOR-based financial agreements circulating within their organisations. There are some global investment banks whose volume of related contracts reaches into the millions.
There will be many necessary steps in a successful transition. One of the most important is assessing where LIBOR is used across all business operations and identifying each individual contract, agreement and related document. Without a doubt, finding, collecting, and compiling every contract that utilises the LIBOR rate will be an extensive and complex process.
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Whether it’s a small- to mid-size bank or a large financial institution with hundreds of thousands of contracts, sifting through, reading, and pinpointing every document that references LIBOR will be cumbersome, costly and time-consuming if conducted entirely manually. The right technology, particularly those that are powered by AI and content intelligence technologies, could transform this process. They can sort through volumes of documents, accurately identifying relevant contracts thanks to advanced OCR and NLP technology, and automatically extracting relevant data. The right tools go a long way in simplifying the complex document-related processes involved in the LIBOR transition.
Identifying all related contracts is only the first step, however critical it is. After all relevant agreements have been compiled, the next step is to transition each individual contract to the new alternate reference rate. For many financial institutions, there will likely be a significant degree of re-negotiation involved in this process, particularly for contracts governing high-value financial products or agreements serving commercial clients.
The transition process is one that will likely involve many business units – from legal and compliance for managing risk, to product management for creating new offerings, to marketing and PR for developing effective communication strategies for customers, investors and stakeholders. Successfully navigating the transition will require a clearly defined roadmap, long-term vision, and the right technology. This combination will be crucial for firms to be prepared for the transition, and to ensure their business isn’t adversely affected by it.
While the deadline for transitioning from LIBOR may be over a year and a half away, time is still definitely of the essence. For businesses that want to minimise financial and legal risk, ensure a seamless transition, maintain their market share, and ensure customer loyalty, the time to begin preparing is now.
So why did blockchain adoption take so long compared to other new technologies such as cloud and AI? The slow adoption in highly regulated, complex markets such as the financial services industry shouldn’t come as a surprise. Blockchain is suited for complex, collaborative, multi-party, and critical application use-cases. This is another big reason why blockchain adoption has taken much longer than some predicted, as Rob Coole, VP of Cloud Technologies at IPC, explains below.
Next-generation blockchain
Next-generation blockchain organisations are leading the way showing how the technology can be used intelligently for the world we live in today. For example, R3, an enterprise software company, is working with an ecosystem of over 200 financial institutions, regulators, trade associations, professional services and technology companies to develop Corda, a Blockchain platform designed specifically for businesses to deliver two interoperable and fully compatible distributions of the platform that addresses issues such as transactional certainty, data privacy, and scalability limitations.
Gartner predicts that blockchain will be fully scalable by 2023. IPC’s sense of the future of blockchain, particularly in the enterprise space, is just as positive. We are seeing customers truly learning about the practical reasons to deploy, leading to more investment in time and money in blockchain.
Importance of complementary partnerships
Both application service providers and subscribers should partner with service and product providers at an operational level integration to be ahead in the blockchain curve. Real value is provided with the integration and support from the hyper-scale platform community such as Microsoft Azure and AWS together with open industry platforms, such as IPC’s Connexus Hub, that creates end-to-end solutions that solve business problems. The importance here is APIs. We believe in a API partner integration approach which gives institutions the ability to easily access data, provide insights and inspire innovation for the market need.
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Service providers, like IPC, can play a critical role here by supporting operationalisation in the systems-oriented context. Such providers are a natural connector embedding connectivity to key market participants. IPC, for example, enables access to all asset classes with over 2,000 sell-side firms, 4,000 buy-side firm and 75+ exchanges in its vast, diverse ecosystem.
What’s next?
COVID-19 has provided a ‘new normal’ that is impacting every aspect of our lives. Though this pandemic is devastating from a health, societal and economic perspective, blockchain may help the global economy rebound. The World Economic Forum believes technology such as blockchain “will benefit all countries currently impacted by COVID-19”, as it provides an efficient approach to reduce trade cost on a global scale.
Digital initiatives such as blockchain is non-partisan and open to all which allows users to act quickly at low cost with low barriers for innovation - all valuable factors in supporting the economy in an economic downturn. So, although blockchain adoption was slow in its early stage, 2020 seems to be the year blockchain comes of age.
Richard Billington, Chief Technical Officer at Netcall, explores the changes that AI has brought to the business world,.
From the recommendations we receive on Amazon or Netflix to the AI-driven camera software used to improve the photos we take on our smartphones, AI forms parts of the popular services that are used multiple times a day. Even the map and Satnav applications we use rely on AI. Company chatbots are a more well-known use of AI, and can now be found on nearly every company website you visit. In fact, it’s been predicted that 80% of companies will be using chatbots this year.
However, consumers today are getting ever harder to please. The growing ramifications of the ‘Amazon Effect’ means that today’s customers expect instant gratification when liaising with companies – placing more pressure on business leaders to provide more, faster and better. Digital banks such as Monzo and Starling are continuing to build upon these expectations by enabling customers to open accounts in a matter of minutes. And that’s not all: companies are now under pressure to offer 24/7 customer service through a multitude of communications channels, including Twitter, Facebook messenger and other social media.
Furthermore, as millions of individuals are quarantined and isolated amid the current COVID-19 outbreak, never has there been more pressure on customer service teams to facilitate rapid and seamless responses to enquiries on a broad range of issues. In a time of crisis, a customer’s interaction with an organisation can leave a lasting impression, and potentially impact future trust and loyalty – another headache for CEOs, CIOs and CTOs.
Digital banks such as Monzo and Starling are continuing to build upon these expectations by enabling customers to open accounts in a matter of minutes.
AI-enabled systems are increasingly being viewed as the perfect solution for optimising customer service – as it’s extremely beneficial in allowing companies to provide agents that are ‘always on’, as well as hyper-tailored experiences for customers. However, some businesses are yet to harness these technologies – along with their benefits.
The barrier businesses must overcome
For many business leaders, a lack of the right skills in the right place has hampered their ability to implement AI across their company’s customer service function. According to an IBM institute of Business Value study, 120 million workers in the world’s twelve largest economies will need to retrain as a result of AI and intelligent automation.
Other business leaders may face budgetary constraints and can find themselves put off by the significant investment often required when integrating AI systems in their existing IT infrastructure. Misunderstanding surrounding AI can also mean that some CEOs are understandably concerned that the solution they are putting into place may end up being not quite right for their needs. Therefore, concerns over wasted time, money, and other resources often result in a rejection of adopting new technology. However, these concerns will be outweighed by the repercussion stemming from an inability to unlock the true value of this technology – and potentially fall behind in today’s fast-paced market.
Unlocking the benefits of AI
Smaller businesses tend to fall short of the IT foundation and personnel needed to remain up to date with the latest technological advancements in enhancing customer service. But it will ultimately be these investments that enable business leaders to contend with customer demands and flourish in an ever-evolving landscape. Adopting these low-code solutions will enable resource-poor teams to quickly test specific features or workflows without the need for specialised technical skill – enabling employees to innovate and implement significant change, without relying heavily on the IT department.
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Low-code is helping companies surpass shortages within multiple digital skills, including AI, by removing the need for highly-trained developers who have traditionally been relied upon to bring new applications to the forefront. In fact, in a recent analyst report, Forrester predicts that savvy application design & development (AD&D) leaders will no longer try and reinvent the wheel and instead will now source algorithms and insight from their platform vendor or its ecosystem. Implementation consultants will now be able to differentiate themselves using AI-driven templates, add-ons and accelerators – particularly industry-specific ones.
With low-code software solutions, everyday business users are able to ensure automated and AI-driven solutions are up and running quickly and easily. Due to the lack of complex coding, the process of integrating AI is instantly simplified, and easily accessible by a range of workers across a variety of business sectors, regardless of size. The ability to test applications before implementation ensures business leaders are able to explore the capabilities of AI without investing valuable time and effort. As a result, they will be empowered to unlock a wave of new possibilities for AI development across a range of functions.
By breaking down walls between IT and other departments within organisations, low-code technology can be utilised to help bring teams together to work collaboratively on applications that rapidly improve processes, by harnessing the knowledge of customer facing wider-business teams. And as COVID-19 continues to cause ramifications for businesses across the globe, business leaders must respond with agility to keep up with increasingly complex customer demands. Speed of implementation and the technology that can help organisations get there is therefore essential when it comes to staying afloat and competitive. And, where many workforces are currently struggling from unprecedented circumstances, the adoption of AI processes through low-code applications can help minimise workloads and free up workers– enabling them to focus on more strategic tasks within the organisation, by automating some of the more mundane processes.
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.
Around a third of Americans are currently working from home in order to help prevent and limit the spread of the novel coronavirus. However, while not physically in the office, keeping track of things such as employee time can prove to be quite a challenge. From payroll to efficiency, modern business technology might be able to help. With that said, here’s how the utilisation of time tracking software can be useful, especially when it comes to a business's financial aspects.
What is time tracking software?
Time tracking software is a computer software that allows businesses to accurately keep track of an employee’s time that’s spent on projects. Many industries utilise this type of software, as it proves to be especially useful for those who work in the freelancing industry and for those who bill their clients by the hour. Not only can this eliminate paperwork and physical means of timekeeping, such as spreadsheets or paper, but some time tracking software allows you to enter both time on and time off of work, along with expenses on one interface. This not only reduces stress for business owners and employees alike, but it is extremely convenient to use as well.
In the new age of the COVID-19 pandemic where working from home has become the norm, time tracking software can become even more valuable. For example, it can become difficult to track employee time when the employees are working from remote locations, though time tracking software can become a solution to that issue as it allows for full transparency. Not only that, but it can help greatly when it comes to keeping track of worker productivity, motivation, and increasing efficiency within the business as a whole - though there’s more to it than that, and especially so though a financial standpoint.
In the new age of the COVID-19 pandemic where working from home has become the norm, time tracking software can become even more valuable.
Saving money and cutting costs
One of the greatest benefits of utilising time tracking software is the fact that it can save businesses money in a number of different ways. By seeing where employees specifically spend their time, companies can save when it comes to payroll, by accurately paying employees for the work they do — thus working to effectively cut out any guesswork on the employee or employer by creating far less work in the payroll department.
This also allows for clients to be billed for the exact amount of time spent on a project, which can benefit the client and create clarity when it comes to billing, and can also act as proof that they didn’t get overcharged. Unsurprisingly, this can help result in a more satisfied customer, improving relationships between the business and consumer. Time tracking software can cut costs in other ways as well. For instance, many kinds of software can be integrated with a businesses existing payroll or accounting system. By doing so, implementing the software can not only be convenient, but time and costs can both be reduced in the process.
Gaining valuable insight
Time tracking software also brings the benefit of bringing valuable insight to businesses, by allowing them to view the software analytics. Since time tracking software allows businesses to see exactly how workers spend their time, adjusting their pricing models accordingly can become much easier and even save time. Time tracking software can also be beneficial in planning and budgeting, too - for instance, consulting with the analytics from the time tracking software can give business owners a general overview that can help decide how they should go about certain affairs, as they can see how much time it takes to complete certain tasks.
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Maximum efficiency
For many businesses, the coronavirus pandemic has brought uncertainty, especially when it comes to finances. While working from home is becoming the new norm for now, 74% of CFOs and business finance leaders expect that at least 5% of their workforce will actually continue to work from home permanently — even after the pandemic is over. With that in mind, time tracking software can help to seamlessly maximise efficiency and help to create a sort of certainty in the process, whether it be short or long term.
For example, by reporting exactly how an employee’s time is spent, you can see which employees are truly contributing to the team, of which can save money in the long run should you determine an employee to be extremely unproductive by letting them go. While the efficiency gained from time tracking software can seem quite beneficial for managers and business owners alike, employees can also take advantage of this feature by viewing their progress and learning from it on how they can be more productive in the future.
For many businesses that have chosen to operate online by having their employees work from home during the coronavirus pandemic, time tracking software can prove to be a real asset, especially with the benefits that it can bring financially. From saving money to providing valuable insights that can help with pricing and budgeting, time tracking software can bring a myriad of benefits to those who choose to implement it, and can introduce businesses to a helpful tool that may be able to help them even after the pandemic ends.
Andrew Raymond, CEO of Bolero International, shares his advice with Finance Monthly.
Reliance on paper documentation and manual processes means banks are struggling to meet the needs of exporters and importers as we emerge from the COVID-19 crisis.
The demand for fast digital services with minimal human involvement is gathering pace as global trade prepares itself for the big task of recovery. The WTO (World Trade Organisation) estimates trade could plummet by anything between 13% and 32% this year alone.
The critical role of paperless trade systems in fostering recovery is recognised in the ten-point plan issued by UNCTAD (The United Nations Conference on Trade and Development), which makes their introduction a key priority.
Apart from sheer speed of transfer, electronic versions of essential trade documents have the distinct advantage of not being held up at borders or lost during movement restrictions. This has become a vital attribute. Bills of lading, for example, are crucial trade documents that serve many purposes. Created by carriers, they can be used by exporters to draw under letters of credit from the buyer’s bank payable at sight, or to obtain finance in case of deferred payment. As “documents of title”, they confer ownership of a shipment and are forwarded to the buyer’s bank in exchange for payment against the letter of credit. The buyer will also use the bill to claim the consignment, once delivered.
The demand for fast digital services with minimal human involvement is gathering pace as global trade prepares itself for the big task of recovery.
Clearly, severe consequences ensue if documents such as bills of lading go missing or are held up. Fees and penalties mount as cargoes sit in port longer than necessary. This is where the advantages of digitisation are most obvious. Exchanged on a secure, purpose-built trade digitisation platform, trade finance instruments, electronic bills of lading (eBLs) and other digitised trade documentation, take hours to process instead of days or weeks for paper equivalents.
This is why banks are more likely to invest in paperless systems in the aftermath of the coronavirus pandemic. Yet digital trade finance solutions vary hugely and corporates must take care they do not sign up to services that are poorly designed, lack connectivity or have little acceptance in the wider trade sphere.
Here, then, are five points for corporates to ask a bank when it comes to trade digitisation.
1. Can you manage everything end-to-end from a single interface?
Any digital solution in trade finance must be comprehensive in every sense. From a single interface it should be possible to manage all the documentation required to support a transaction.
A single interface should provide simple access to multiple banks for fast comparison of credit lines, rates, fees and offers. This is the primary means by which corporate treasuries will improve their cash flow and use of working capital. Fast access to a wide choice of credit lines also reduces the need for expensive bank instruments.
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2. Does the solution bring everyone together?
Buyers, sellers and carriers – they all need to be on one platform. There needs to be a good, secure flow of information between all parties. Your bank’s digitisation solution should connect seamlessly with your back-office and your own eco-system, giving access to alternative funders and third-party providers such as logistics companies, carriers, insurers and counterparties. This is connectivity that should be easy and open to increase efficiency and provide customisation.
3. Does the bank and its proposed solution have the necessary expertise in-built?
It’s vital to ask if a bank and its solution-providers have the necessary understanding of trade flows and how your business fits in. Does the proposed solution have a proven network of users among banks and significant corporates, and is it sanctioned by national authorities and recognised within the trade community? Many platforms focus on their integration with emerging blockchain solutions. This is important but still requires a current network of users and documents based on real working practices in global trade.
4. Is the platform secure, compliant and fit for trade after COVID-19?
A critical electronic document such as an eBL must be underpinned by a respected body of law, such as English common law, to give both yourself and customers greater confidence. A platform must also conduct compliance checking in line with international trade rules such as those prescribed by the International Chamber of Commerce eUCP which govern letters of credit. For many corporates, the immediate post-COVID era will be one in which they cannot be certain of the solvency of their trading counterparties. Know Your Customer protocols need to part of the solution but not so laborious they become a barrier.
A critical electronic document such as an eBL must be underpinned by a respected body of law, such as English common law, to give both yourself and customers greater confidence.
5. Does the solution offer visibility of bills of lading as well as letters of credit from multiple banks?
A digital platform must give corporates access to electronic bills of lading (eBLs) as well as letters of credit and other trade finance options. As we have seen, bills of lading are critical documents, but often subject to change, which requires visibility and vigilance.
Ideally, a bank’s trade finance digitisation platform should offer you the ability to use critical trade documents such as eBL under any transaction. With so much competition in some of the toughest conditions ever experienced, open account trading is set to continue its dominance in cross-border transactions, so having access to eBLs is an important requirement.
These are just five points but they cover the main areas that corporates need to explore. It is important to weigh up the options quickly, but also to take the right decisions on trade document digitisation in order to maximise revenues as the world recovers from the pandemic and new rules apply.
