Below Simon Kenny, CEO of Hoptroff, explains that traceable time is not something you can just install and forget, but must be carefully integrated so that it maintains fully traceable time across all the servers the regulations require.

We have learnt that the challenge is not so much about installing traceable time, but more about adapting traceable time so it works within an existing infrastructure without interfering with performance. Many variations on solutions have therefore been installed, often based on different interpretations of what the regulators require. So the solution adopted by one enterprise might not work at all for another or even offer useful precedents on how to solve the problem.

The FCA is seeing the results of this fragmented development process. It has noted in its bulletins that it is finding that many companies have timing irregularities in their data records. However, it has not moved aggressively to generally enforce the timing regulations, preferring instead to give companies more time to find a compliance solution that works with their existing systems. But this position can only be sustained for so long.

Traceable timing was introduced because data records on automated transactions were unreliable and could not be used to reconstruct transactions after the event accurately. If market participants are to be able to trust reported outcomes from automated systems and have confidence in the market, then sequence and interval in event records need to be verified.

Traceable timing was introduced because data records on automated transactions were unreliable and could not be used to reconstruct transactions after the event accurately.

There might not be a simple solution everyone can acquire and install 'off the shelf', but traceable timing compliance is getting easier. Network connectivity providers such as BT are beginning to offer traceable time as a network service, where companies do not need to buy and integrate additional hardware.

Traceable time synchronization is done in software, using connections to cloud grandmaster clocks to provide trusted time sources. As this method gains adoption, the FCA will be less patient with bespoke timing solutions that do not produce the reliable records they need to regulate market practices.

This work being done by financial services will potentially become important in other industries that use widely distributed automated systems to conduct trading. The Information Commissioners Office (ICO) in the UK is currently conducting a review of the Real Time Buying (RTB) process in the digital advertising industry. This is the process through which a personally targeted advertisement is marketed, sold and provisioned in the interval between when you click on a particular website page and the advertisement actually appearing. It takes milliseconds, but can involve hundreds of third parties, all of whom get access to the personal information of the user as part of the process. However, under the terms of the General Data Protection Act (GDPR), that information is supposed to be under the control of the publisher, who has the permission to use it, not multiple unidentified third parties who don’t have direct permission. If the ICO wants to track this “data leakage,” so it can protect personal data then the work done by the financial services industry to create traceable records using synchronized time could be invaluable.

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Similarly, the online gambling industry uses fast, automated systems to offer and adjust betting odds on different outcomes in sporting events. In this process the precise sequence and intervals between events are important; if a user bets 'in-play' during a football match that a penalty will be given, and at that precise moment of making the bet a foul is committed which is then given as a penalty, the timing of events, and how they are recorded, will determine whether the bet is accepted. Did the bet happen in time? What mattered? When did the user pressed send, or when did the bet hit the platform server? The UK gambling commission is regularly being asked to look at disputes when gambling companies reject bets that would have won had they been accepted. If all the parties in the chain had traceable time to confirm the sequence and interval between events, disputes could be settled more quickly and much more cost effectively.

There are no traceable timing requirements in the digital advertising market, or in online gambling at present, but both have a need for traceable data records to underpin market confidence in non-transparent automated systems. The regulators will likely move cautiously on introducing a regulation like traceable timing. Like the FCA, they want to make sure that the potential market disruption this might cause is justified by the market efficiency benefits to be gained. But the faster the systems become, the wider they are deployed and the smarter the applications get, the greater the need for verified transactions records. Financial services are leading the way on developing ways to help keep automated systems accountable. Other industries will reap the benefits, because when additional regulators unveil a requirement for traceable timing, the systems developed for financial services will be available, almost 'off the shelf', to these other industries, which make automation more accountable but ultimately boost market confidence.

Here Martijn Groot, VP Marketing and Strategy at Asset Control , discusses how AI and Machine Learning techniques are finding their way into financial services and changing the way we do things, in particular how we invest.

Ranging from operational efficiencies to more effective detection of fraud and money-laundering, firms are embracing techniques that find patterns, learn from them and can subsequently act on signals coming out of large volumes of data. The most promising, and potentially lucrative, use cases are in investment management though.

Among the groups that benefit most are hedge fund managers and other active investors who increasingly rely on AI and machine learning to analyse large data sets for actionable signals that support a faster; better-informed decision-making process. Helping this trend is the increased availability of data sets that provide additional colour and that complement The typical market data feeds from aggregators, such as Bloomberg or Refinitiv, range from data gathered through web scraping, textual analysis of news, social media and earnings calls. Data is also gathered through transactional information from credit card data, email receipts and point of sale (“POS”) data.

The ability to analyse data has progressed to apply natural language processing (NLP) to earning call transcripts to assess whether the tone of the CEO or CFO being interviewed is positive or negative.

The ability to analyse data has progressed to apply natural language processing (NLP) to earning call transcripts to assess whether the tone of the CEO or CFO being interviewed is positive or negative.

Revenue can be estimated from transactional information to gauge a company’s financials ahead of official earnings announcements and with potentially greater accuracy than analyst forecasts. If, based on this analysis, a fund believes the next reported earnings are going to materially differ from the consensus analyst forecast, it can act on this. Satellite information on crops and weather forecasts can help predicting commodity prices.

These are just a few examples of the data sets available. The variety in structure and volume of data now available is such that analysing it using traditional techniques is becoming increasingly unrealistic. Moreover, some has a limited shelf life and can quickly become out-of-date.

Scoping the Challenge

Setting up a properly resourced team to assess and process this type of data is costly.

The best approach therefore is to more effectively assess and prepare the data for machine learning so that the algorithms can get to work quickly. Data scientists can then focus on analysis rather than data preparation. Part of that process is feature engineering, essentially selecting the aspects of the data to feed to a machine learning algorithm. This curation process involves selecting the relevant dimensions of the data, discarding for instance redundant data sets or constant parameters, and plugging gaps in the data where needed.

An active manager could potentially analyse hundreds of data sets per year; the procedure to analyse and onboard new data should be cost-effective. It should also have a quick turnaround time as the shelf life of some of these data sets is short.

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Addressing these challenges means that traditional data management (the structured processes to ingest, integrate, quality-proof and distribute information) has to evolve. It needs to extend data ingestion and managing data quality into a more sophisticated cross-referencing of feeds looking for gaps in the data; implausible movements and inconsistency between two feeds. For instance, speed of data loading is becoming more important as volumes increase. With much of the data unstructured, hedge funds should be conscious of needing to do more with the data to make it usable. More sophisticated data mastering will also be key in making machine learning work effectively for hedge funds.

This functionality coupled with the capability to quickly onboard new data sets for machine learning will enable funds to save money and especially time in the data analysis process. It will allow data scientists to focus on what they do best and generate more actionable insight for the investment professionals.

Reaping the Rewards

Machine learning clearly has huge potential to bring a raft of benefits to hedge funds, both in reducing the time and cost of the data analysis process and in driving faster time to insight. It also gives firms the opportunity to achieve differentiation and business advantage. Hedge funds need to show returns to attract investment in an increasingly competitive space, machine learning supported by high quality data management offers a positive way forward.

According to Ketan Parekh, Head of Financial and Insurance Services at Fujitsu UK & Ireland, Fujitsu recently revealed that 71% of financial services leaders believe that technology is vital to the future success and health of their organisation. Below Parekh discusses with Finance Monthly the prospects of fintech innovation in 2020, and the benefits for Financial services companies therein.

Every year new technologies are transforming the financial services industry, with technology such as the Internet of Things (IoT), Robotic Process Automation (RPA), Artificial Intelligence (AI) and blockchain completely changing the services that banks can provide to their customers. For example, Metro Bank is using a selfie technology to allow consumers to open current accounts online, whilst Facebook will soon let you send payments via WhatsApp. With so much innovation on offer, there is a huge opportunity for organisations to take advantage of new technologies to improve efficiency and customer service.

Our recent research of the sector also revealed that over half (55%) of UK financial services business leaders feel their organisation has been a leader in technological innovation over the last five years. And while many embrace the positive effect of technology, there are some risks associated with this rapid innovation. The explosion of new technologies combined with the rapid pace of change and ever evolving consumer demands means some organisations can be left playing catch-up and falling behind on innovation.

Investing in the future

It was recently uncovered that more than half (56%) of UK financial services business leaders worry their organisation could miss out on the benefits of technological innovation, because they haven’t planned radically enough. The truth is - organisations with the right foundations in place will be those to take advantage of what technology has to offer.

With no signs of innovation slowing down, it’s vital that the financial services sector builds on its existing strengths. Although significant steps have been taken already, to succeed in the digital age and bring innovative solutions to the market, business leaders will need to make a sizeable financial commitment. Now is the time for them to put the right plans in place to ensure they are prepared to tap into the innovations to come, and this includes making investments in digital technologies a key priority for the business.

Although significant steps have been taken already, to succeed in the digital age and bring innovative solutions to the market, business leaders will need to make a sizeable financial commitment.

Customer first

Financial services leaders have been faced with no small challenge. Currently, over half (55%) of financial services business leaders admit they are not able to predict what customers will want from their organisation in the future. Today their customers are hunting for convenience, and seeking innovation, new digital services, low rates, speed and security.

Take retail banking for example, where some banks are now beginning to roll out systems that learn the behaviours of their individual customers, and can recognise in real-time the ‘signature’ abnormal behaviours when these customers are influenced by scammers. It’s clear that financial services organisations are innovating but these organisations must ensure that the technology they offer actually meets the demands of individual customers.

Keeping the top spot

Financial services leaders have been faced with no small challenge. Their customers are asking them to innovate and provide new digital services, alongside threats in the form of data governance, protection and public trust. Yet one thing is clear - financial services leaders must continue to put the organisation at the forefront of innovation.

It’s now the time for them to put the right plans in place to ensure they are prepared to tap into the innovations to come. When organisations ensure they prepare, plan and put the customer first, successful technological innovations are possible. This way organisations will be able to stay ahead of competition and keep the UK’s financial service organisations at the forefront of innovation.

Here Andy Barratt, UK managing director at international cybersecurity specialist Coalfire, explores how the financial services sector can turn the tide on costly, high-profile cyber missteps.

It’s fair to say that the financial services sector has struggled to secure positive consumer sentiment for itself recently – particularly in relation to cybersecurity. At the end of October, the government’s Treasury Select Committee (TSC) went so far as to say that the number of IT failures at banks and other financial services firms has reached a level it deems “unacceptable”.

The criticism, which highlighted poor IT performance within financial firms and a lack of decisive action from their regulators, comes in the wake of a string of high-profile and costly cyber glitches in recent years. Most notable among those is TSB’s unsuccessful attempt to migrate its systems over to new parent company Banco Sabadell.

Customer details were left easily accessible and vulnerable to fraud attacks, as well as resulting in thousands being unable to access their accounts. But TSB are not the only culprits: Barclays, RBS and VISA are among a raft of other major financial service providers to have suffered serious technical glitches in the past few years.

Why then, with so much at stake, are financial firms lagging behind when it comes to their cyber strategy?

Complex legacy tech infrastructure

The first aspect that makes large firms so susceptible to attacks is that their IT systems are often complex and, significantly, outdated. Hackers can easily find weak spots in the system or, as in TSB’s case, vital information can slip through the cracks.

The first aspect that makes large firms so susceptible to attacks is that their IT systems are often complex and, significantly, outdated. Hackers can easily find weak spots in the system or, as in TSB’s case, vital information can slip through the cracks.

Our inaugural Penetration Risk Report, which took place around the time of TSB’s issues, found that the largest firms are less likely to be prepared to face up to cybercrime than their mid-sized equivalents – despite greater budgets and resources – due to their cumbersome and slow-moving infrastructure.

More recently, we’ve seen those larger businesses close the gap, mostly through the support of in-built cloud security services, but the risks still remain for many. In the financial services sector specifically, this year’s study indicated that the level of external threat has actually increased.

The rush to implement services under a new ‘Digital’ initiative sometimes comes at the cost of addressing the underlying legacy issues too. Whilst the big banks rush to keep up with the online-only challenger banks they re-allocate budget for the new apps and forget the underlying infrastructure they depend on.

‘Yes’ culture

One of the key risks boosting that threat is a habit within large corporate cultures for IT teams or risk managers consistently ‘downgrading’ risks due to lack of understanding or complacency when reporting to those further up the pecking order. This is dangerous and can lead senior figures to the conclusion that everything is ‘ok’ within their organisation when, in reality, an IT crisis is just around the corner. This is particularly true when organised crime groups are targeting financial services with highly sophisticated attacks that are often discounted by management with a throw away ‘nobody would do that’ comment.

Companies should attempt to foster a ‘safe’ environment where staff feel comfortable raising problems they encounter so that solutions can be found before disaster strikes. They should also to remain current with intelligence from their incident response and forensic partners who will see the sophisticated threats when they do cause a breach.

An enhanced understanding of the issues facing the business is less likely to leave senior spokespeople up a creek without a paddle when facing the media. No one would expect a CEO to know all the ins-and-outs of their IT infrastructure, but basic comprehension can go a long way. Knowledge is power.

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Weak links in the chain

Due to the nature of the industry and the services they provide, banks and large financial firms are required to interact with third parties on a massive scale. Unfortunately, this isn’t without its drawbacks.

Many third parties – and, by extension, their own supply chain – lack the sophistication and / or the wherewithal to deal with cyberattacks. As such, they are often the first port-of-call for a hacker looking to worm their way into a major system.

An example includes the British Airways data breach in the summer of 2018, when hackers were able to take information directly from the airline’s website thanks to access from a third party.

Often, being subject to this form of intrusion is pure bad luck rather than bad planning. However, large firms must ensure that they’re sufficiently protected and that access for third parties is limited. It’s a simple case of making sure that your back’s covered wherever possible.

Human error

Perhaps the most common error (and the most tangibly addressable) is the human risk inherent within any business. Naturally, the larger your workforce, the greater the risk you face, which is a major issue within the financial services sector.

Phishing, a scam that prompts staff to provide their username and password, is still one of the simplest but most successful ways potential attackers get their foot in the door.

The key to combatting the danger is providing constant training to employees so that they’re fully aware of the threat and the responsibility that they have towards protecting the business.

What’s more, the high-profile cases mentioned above are dangers in themselves: when the glitch or failure makes the news, a sign post is placed for hackers looking to break in. Each headline is an ‘x-marks-the-spot’ for a company’s weak spot, as well as their competitors’.

It’s a brutal world that financial services businesses face as technology advances but, with such large amounts of money at stake, they must be up to the challenge.

The rallying call from Nigel Green, founder and chief executive of deVere Group, comes as world leaders, CEOs, academics, influencers and celebrities head to the Swiss mountain resort of Davos for the 50th annual World Economic Forum (WEF), starting Tuesday.

Mr Green comments: “As it celebrates its landmark 50th year, the World Economic Forum 2020 has the opportunity to champion and enhance the transformation of business, which has been dubbed the ‘Fourth Industrial Revolution.’

“We’re living through a pivotal moment in history in which increased and advancing technology is monumentally and profoundly changing the way we live, do business, and interact with one another.” 

He continues: “We can clearly see seismic shifts happening in the financial services industry – a sector trade and commerce is deeply reliant upon.

“The vast majority of this change is being driven by financial technology, or 'fintech.'  Mobile banking and investment apps, peer-to-peer lending, cryptocurrencies like Bitcoin, robo-advisers, and crowdfunding are all part of this fundamental shake-up of the space.”

Mr Green goes on to add: “The momentum and energy of this evolution now needs to be harnessed by delegates in Davos.

“They need to commit to fintech by using their time, energy and resources for its research and development for three principal, positive reasons.

“First, it benefits society. Fintech can speed up the pace of global financial inclusion. It can provide access to financial services for millions of people who live in remote areas and/or who might normally not be able to use financial services because of historical biases of traditional financial companies. Helping individuals, firms and organizations successfully manage, save and invest can only result in better, stronger and more stable communities for us all.

“Second, fintech offers companies the opportunity to be agile, to diversify, to cut costs, and to meet regulatory requirements all whilst improving the client experience. This will help them thrive in rapidly challenging times of change and disruption.

“And third, the revolution is happening with or without them. As consumers, we increasingly want all our financial services needs to be dealt with online and/or on their mobile devices. We demand personal service and instant access anywhere and at any time. This trend is only set to grow as we all become increasingly dependent on tech.”

The deVere CEO concludes: “Davos 2020 is the ideal forum in which to unite the best political and business leaders to galvanize the positive potential of the fintech revolution.

“With a slowing global economy, it is an opportunity that the world cannot afford to miss.”

Here David Orme, SVP at IDEX Biometrics ASA, discusses with Finance Monthly how Gen Z is set to chat the face of modern banking, as well as how banks can address fraud and security challenges and the role of biometrics in combatting fraud.

Consumers in Generation Z (those born after 1995) are the biggest market disrupters right now. They are predicted to make up 40% of all consumers by 2020, and will account for 32% of the global population overtaking millennials (31.5%, born between 1980-1994). As this generation’s spending power grows, they will change the consumer world in many ways.

Now, Generation Z looks set to transform the face of modern banking too. Our recent research into Generation Z’s attitudes towards banking and online security and biometrics found that nearly eight-in-ten (79%) 16-24-year olds think banks should do more to protect their customers from fraud.

Additionally, the youngest consumers in our study were 16-17-year olds, the target age for many new banking customers. Of this age group, a huge 95% think banks should be increasing fraud protection for their customers.

Why is Generation Z so concerned about fraud?

Having grown up around the threat of cybercrime, those in Generation Z are more aware of the risks of fraud than the more security-lax millennials (born between 1981 and 1994). Our research found that nearly three-quarters (74%) of 16-24-year olds believe it is too easy to find someone’s personal information online nowadays. Also, more than half (52%) of Generation Z are worried about someone stealing their identity.

I recently observed a focus group of 18-24-year olds to support our research and noticed a high level of awareness about banking and online security from the respondents. Interestingly, many of the young consumers showed they don’t just jump to install the latest banking apps simply because they are new or cool. They are thoughtful with their consumer decisions and assess how well services or technologies fit their security and financial needs first.

One respondent, Nikki, who is 24 and from London, stood out for rejecting mobile payment apps, the opposite of the perceived image of someone in Gen Z: “I only use my bank card to pay for things,” she said. “I deliberately keep my phone separate because I don’t want spending money to be too convenient.”

The security challenge

Like Nikki, many Generation Z consumers are more cautious while banking or shopping than retailers and banks often believe. The research shows that, far from being over-sharers of their personal information, more than three-quarters (76%) of Generation Z accept that it’s their responsibility to look after their data and keep their identity safe. In return, these consumers expect their banks and service providers to work just as hard to deliver a high level of protection for them.

Although new challenger banks, such as Monzo and Starling, are growing rapidly among young consumers, that doesn’t mean Generation Z trust them more when it comes to security than the high street giants. Michael, a 19-year-old student from London also in the focus group, summed up the care with which Generation Z approach digital banks: “I feel the online banks have to push up their security because there’s no physical presence,” he said. “So they’ve got to be more secure to be on top of their game.”

Although new challenger banks, such as Monzo and Starling, are growing rapidly among young consumers, that doesn’t mean Generation Z trust them more when it comes to security than the high street giants.

Our study also reveals a wider lack of confidence in all banks, as only half of Generation Z shoppers (54%) are certain that their bank would refund them any losses if someone fraudulently accessed their bank account and stole any amount of money. The new generation of banking customers expect greater security and responsibility from high street banks, which in turn is driving their consumer choices.

The biometric banking solution

The findings also show that Generation Z wants to see banks adopting new technology to combat card and online fraud. Nearly two-thirds of them (62%) think all banks should offer biometric payment cards to help reduce fraud.

Additionally, nearly half (45%) of Generation Z can’t believe credit and debit cards don’t already use biometrics for payment and ID security. Again, this is even higher among 16-17-year olds, with nearly two-thirds (63%) of them expecting banks to already use biometrics for payment card security. As high street banks often thrive on signing-up new customers while they are young, appealing to this new generation of consumers is vital for the industry.

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Therefore, financial institutions must now add biometric technology to the payment card market to attract young and potentially loyal customers. In fact, nearly half of those in Generation Z (46%) would choose a bank that offered biometric payment cards over one that didn’t.

Most importantly, Generation Z consumers are willing to pay for added security as two-in-five (43%) would expect to pay a little more for a biometric payment card, with a third (33%) willing to pay between £3-5 per month for it.

Banks need to act now

While many traditional banks have been slow to respond to the needs of Generation Z customers, it’s important for the success and future of the financial industry that they don’t ignore the demands of this generation of customers any longer. Unless high street banks act now to address the security concerns of those in Generation Z, they’ll soon be overtaken by fintechs and digital challengers who can innovate faster.

It is apparent under 24s expect to be using new, secure biometric technology today for increased payment security and convenience. Banks must now introduce innovative biometric payment cards to attract young customers, protect users from fraud and build trust with the consumers of tomorrow.

As John Murdock, CEO of business intelligence experts Centage, explains below for Finance Monthly, this has begun to shift over the past decade due to technology and automation.

Companies like Botkeeper and MindBridge.ai are fully automating tasks like entry and validation of transactions, line items, compliance and auditing corporate books. Other companies offer platforms that streamline budgeting, surface trends hidden in data, and a wide variety of classic financial team functions.

As these functions move into software, one of two things will happen: accountants will lose their jobs, or automation will prompt them to radically transform the office of finance. Even if  CEOs prefer people to AI, they may have trouble finding qualified accountants to staff their financial teams. According to Accounting Today: “Accounting, like many professions, is experiencing a shrinking talent pool as boomers retire and younger generations are opting for other careers.”

This evolution is going to kickstart some serious changes in the industry, which is why the AICPA, through its CPA Evolution project, is working to ensure CPAs continue have the skills needed to support the accounting profession. I see that there are five distinct transformations occurring in the office of finance that are a direct result of financial technology.

1. Finance teams are becoming business partners

Back office automation allows the financial team members to move in a more strategic, front-office role by offering their talents to the managers and department heads who run the day-to-day business. For instance, the financial team of a retailer can help the company optimize revenue per square foot, or understand the profitability of each product in order to tweak the brand’s merchandising strategy.

The financial team of a retailer can help the company optimize revenue per square foot, or understand the profitability of each product in order to tweak the brand’s merchandising strategy.

Personally, I see this as a positive development. I never saw the benefit of sequestering such an important role in the office of finance. The finance team is responsible for ensuring company priorities are funded. How can they do that if they don’t understand how or why those things become priorities to begin with?

2. Finance teams will recruit more graduates with business and operational knowledge, not just accounting degrees

The more the financial office moves to the front-office, the more executives will value people who have degrees and backgrounds in business strategy, market differentiation, and competitive positioning. These are the skills that inform strategic decision-making and can help the business chart long-term strategies.

This is a reversal of a trend that began after the 2008 financial crisis and the passage of Sarbanes-Oxley. According to the executive search firm Spencer Stuart, the number of CFOs with CPA certification rose from 29% to 45%. But now that compliance and auditing can be automated, I believe that CPA certification will be less of a priority for management teams.

The accounting industry itself is undergoing a similar shift. Non-accounting college graduates accounted for 31% of new hires across public accounting firms in the US in 2018. The Journal of Accountancy cites the need for tech skills as a primary driver of the shift: “Increased demand for technology skills is shifting the accounting firm hiring model,”  Barry Melancon, CPA, CGMA, AICPA President and CEO and the CEO of the Association of International Certified Professional Accountants, said in a news release. “This is leading to more non-accounting graduates being hired, particularly in the audit function.”

3. More CFOs will have a non-traditional path to leadership

The other day I listened to a podcast of the Boston Red Sox, Tim Zue, describing his rise to CFO. He didn’t come from a finance background (he studied mechanical engineering in college). But after working for the Red Sox organization for more than 18 years, he developed a keen understanding of the business, which more than made up for his lack of a finance degree. He knew the right questions to ask in order to make strategic business decisions. As a result, he now believes that the only way to gain such a deep understanding is to get into the front office and work with the people who are running it day-to-day.

The only way to gain such a deep understanding is to get into the front office and work with the people who are running it day-to-day.

I agree wholeheartedly with Zue, not the least because I experienced the same trajectory in my own career. I earned my bachelor's degree in engineering and worked in sales and marketing prior to becoming a chief revenue officer. My experiences as CRO positioned me to become a CEO.

4. Technology will increase the demand for strategic thinkers

This may seem counterintuitive, but as AI merges with business intelligence to alert the finance teams to trends inside the business as well as trends within their markets, companies will need CFOs who are highly strategic thinkers. After all, if everyone uses the same software to guide decisions, they’ll all make the same decisions. We see this phenomenon in our everyday lives all the time. For instance, Waze does a great job of informing drivers of traffic congestion and suggesting alternative routes. But if enough drivers take that alternate route, it just creates another traffic jam.

To complete the metaphor, successful companies will need CFOs who can see the out-of-box alternative route to long-term sustainability and growth.

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5. Finance and engineering will merge

Financial degrees are already becoming more data and tech centric. This past October, the Pratt School of Engineering at Duke University announced it will offer a masters degree in financial technology. There is compelling reason why these disciplines are merging: both center around data. Fintech is still in its infancy, and it offers significant opportunities for engineers to build out automation around financial rules. It makes sense for engineering schools like Pratt to train their students in the ins and outs of finance. I can’t emphasize enough how radically the coupling of these disciplines will transform accounting and finance over the next decade.

Accountants and finance teams shouldn’t fear technology. It will certainly change the way they think about their roles, but that’s a positive, not a negative development, especially for ambitious people who are eager to play a more strategic role in their corporations.

New challenges are being laid down and to remain relevant, businesses are facing tough decisions on how to best align to the current economic climate.

With significant change comes great opportunity. As we step into 2020 and the next decade, Stephen Magennis, MD for UK Quality Business at Expleo, acknowledges that in spite of market challenges, it is an exciting time for businesses who are looking to use technology to drive their future success.

The Biggest Change of the Past Decade: Fast money

Currency has been used to trade in exchange for goods and services for millennia. Each evolution has been prompted by a shift in convenience. Bartering? Too variable. Bronze replicas? Too cumbersome. Metal coins? Too heavy. Paper? Too bulky.

For a long time, plastic cards seemed to have cracked the problem: easily portable, quick, convenient. Then Apple launched the iPhone in 2007, which represented a seismic cultural shift in how we go about our daily lives.

This one device enables us to stay connected and productive in so many ways, that it was inevitable it would also be the catalyst for another evolution in the story of currency. Contactless payments are designed to be seamless and convenient. One tap, and the shopper is on to their next errand. Simple.

Arguably, of all the technologies which have emerged over the last ten years, contactless payment has claim on being the most impactful on our daily lives.

Arguably, of all the technologies which have emerged over the last ten years, contactless payment has claim on being the most impactful on our daily lives.

Here it is worth thinking of the proverbial swan, calm and collected floating on the lake’s surface, yet paddling away under the water. The technology used to deploy, integrate and support contactless systems is complex. Layers of data and functionality are in play, with security constantly being tested, reviewed and enhanced so users can remain confident that their money is protected.

Across travel, retail, entertainment and beyond, experts are already looking for the next technology evolution in the payment space that will ensure customer experience remains paramount. In the early 2020s, we are likely to see regulation technology move into the spotlight while biometrics become mainstream.

The businesses leading the charge will be those who can ensure systems are fit for purpose, delivering a simple user interface and offering rigorously-tested security.

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The Differentials to Come in the Next Decade:

1. Winning the data war

Managing data in a way that combines and analyses knowledge from across global organisations is still a major challenge. Stricter data integrity and protection laws, heavy fines and lower customer trust won’t make this critical opportunity any easier to grasp.

However, those that can master big data, real-time analytics and enhanced cognitive capabilities will be better equipped to counterstrike the Fintech threat and remain relevant.

2. Guaranteeing financial resilience

Since the 2008 banking crisis, regulators have forced institutions to swell their reserves in case of another crash. With the growing dependency on technology – and the potential threat of disruption from cyber terrorism, outages and data breaches – Financial Institutions (FIs) may soon need to guarantee their operational resilience too. Or they may choose to advertise resilience as a competitive advantage.

3. Making use of robotics

AI assistants and humanoid robots are constantly evolving. These technology advancements are key for FIs becoming cognitive – replicating the human ability to learn and respond to the preferences of customers.

That said, there is still work to be done in convincing customers that a personalised service from a chat bot who can understand your speech, gestures and even your facial expressions is a good thing.

4. Do not write off the human touch

One of the many benefits of digital transformation is its ability to automate the most routine office tasks. Undoubtedly, this upheaval will cause widescale restructuring in FIs. However, employers will still need people with the soft skills, who can create a human experience for customers and keep the brand relevant to everyday community life.

To the future

As technological advances revolutionise FIs, efforts to drive efficiencies, improve processes and overhaul supply chains will become central to delivering best-in-class customer service.

The challenge for FIs, is to assure that whilst these innovations offer significant benefits to businesses and consumers alike, transparency and trust is set to become the ‘crucial’ offering.

Below Finance Monthly hears from Jayakumar Venkataraman, Partner at Infosys Consulting on the key predictions for 2020’s finance sphere, considering key topics including the rapid growth of the API Economy and data, as well as operational resilience, fintech acquisitions by banks, the growth of Regtech and new ways to reduce costs.

1. 2020, the year of the Ecosystem Approach and the API Economy

In 2020, we will see the rise of the ecosystem approach in creating new propositions and delivering banking and financial services to customers. Globally, open banking and PSD2 have enabled newer players to enter the market and gain access to customers’ data that was previously the sole preserve of the banks. This has given rise to many third-party providers (TPPs) that are developing more exciting product propositions for customers, particularly in personal financial management, using customers’ financial data from the banks.

We will see this approach growing significantly in the world of Trade Finance. As well as this, banks will bring together multiple players such as shipping companies, local chambers of commerce and insurance companies to create richer product and service propositions for their customers. We will see blockchain-based solutions continue their pivotal role in helping bring a digital ecosystem’s players together.

All of this will be underpinned by rapid growth of the ‘API economy’, where banks and the other players in the ecosystem are exposing APIs for all their key capabilities, using this to integrate and orchestrate new products and services for their customers.

2. In 2020, data will drive more customer insights than ever

In the last few years, we have seen a significant rise in digitalisation and the amount of data that is collected on customers and their preferences, transactions, and market and industry data.

In 2020, we will see the emphasis shift to using this data to drive a much richer understanding of customers, predicting and responding to their needs and transactional patterns. This will generate much greater insight into their lifecycle stage, and help create personalised offers that address their needs. Equally critical will be the use of this good quality data in risk assessments, compliance and fraud monitoring, to deliver safe banking services to customers.

For commercial customers, banks will bring together the vast amounts of transactional data across multiple product lines – such as lending, trade finance and payments – to create a much richer understanding of transactional patterns, business seasonality and the resultant impact on their financial needs. This means that they too can proactively engage their customer with tailored propositions.

To make this intensive, customer-centric approach to data work, we will see more banks adopting AI and machine learning technologies across their businesses to make sense of all their data. These initiatives are currently constrained by the availability of good quality data, which does not help in building models that are robust and yield correct decisions. In 2020, we will see banks scale their investment in data initiatives that focus on improving the comprehensiveness, availability and the quality of data, so that AI and ML can be used effectively and reliably.

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3. Operational resilience needs the right technologies

Operational resilience is emerging as one of the top agenda items for senior executives in banks – and also for the regulator, to avoid the threat to their individual and organisational brand. Certainty and continuity of service availability is very important for customers, so it is important for regulators too. Operational resilience relies on tightening controls and governance around business and IT operations, while continuing to invest in the infrastructure for the future.

Modernisation and transformation of the IT infrastructure in banks – in particular the adoption of cloud and migrating the hosting and delivery of key capabilities in the cloud – is emerging as a major strategic direction. As well as eliminating the costs from maintaining their own data centre operations, migration to the cloud also offers resilience, agility and flexibility, advanced analytics, and innovative applications that are built on a cloud-first approach. All of this significantly improves integrated working and removes some serious challenges.

4. Fintech acquisitions on the horizon for banks

The trend of fintech firms disrupting the way banks and financial services players deliver products and services to their customers is here to stay. The way banks think about the fintech players has also undergone a significant shift. While they were once seen as fringe players, this year, banks will be looking at using fintechs to fill gaps in their own offerings, giving much richer propositions to their customers.

Banks are acting as investors, incubators, collaborators and strategic partners. Banks have set aside formal bandwidth to engage with the fintech community to identify the upcoming stars, to understand how their capabilities can be integrated into their product propositions, and to ensure they don’t fall behind their competitors. In some cases, banks have also bought out the fintech firms outright, as a move to gain competitive advantage over their competitors. Santander’s acquisition of ebury is one such example, and we will see many more acquisitions of fintechs by banks in 2020.

Banks have set aside formal bandwidth to engage with the fintech community to identify the upcoming stars, to understand how their capabilities can be integrated into their product propositions.

5. Regulatory compliance and the growth of Regtech

Regulatory compliance will continue to be a top spend area for banks, as the need to comply with existing and emergent regulatory and industry initiatives continue. There are plenty on the agenda: FRTB, EU Anti-Money Laundering Directives and other industry initiatives such as ISO20022 adoption and IBOR Transition, as well as a slew of other national and regional requirements. With all of this, banks will have their hands full in 2020. Banks will be looking to be efficient about how they approach these initiatives, to then structure their programmes of work so as to minimise duplication and rework in their efforts.

The emergence of RegTech firms is a key development that can aid the banks in their compliance initiatives. Estimates on the size and the growth of the RegTech industry vary significantly, but we know that this sector is set for rapid growth. Regtech firms are focused on developing solutions in data collection and reporting, decisioning, predictive analytics and risk identification and management. Like with fintechs, we expect banks will co-opt these firms to aid their compliance initiatives.

6. New ways to reduce costs

Given the recent trend of results posted by the banks, cost reduction and rationalisation will be an important focus for 2020.  As opposed to outsourcing and offshoring of work to lower cost locations, and the adoption of automation and RPA to drive costs down, in 2020, cost rationalisation will focus on a more fundamental operational transformation.

This will involve a radical rethink of the way banking processes are designed and delivered, and the adoption of an automation-first approach. This approach will be supported by a much smaller team of multi-skilled expert operations teams that oversee business processes, and can jump in to manage any exceptions or incidents with expertise.

As well as a radical redesign of operations, we will also see banks drive operational costs down through the monetisation of assets and mutualisation of costs. Banks will carve out operations and technology capabilities to a strategic partner that also offers such services to other banking clients. We have already seen some of these deals executed, and we will see these conversations picking up scale in the coming year.

Compliance is a must-do activity, not a nice-to-have. According to Colin Bristow, Customer Advisory Manager at SAS, it is essential that companies extract maximum value from compliance processes, reducing the possibility of it being considered a cost centre.

Technological innovation can help to lift some of the compliance burden. The level of technology you can realistically implement depends on how advanced the organisation is to start with. One company’s moonshot could be another’s business as usual. Assessing the starting point is just as important as considering the benefits and end goal.

RegTech, AI and the future of compliance

This is the question that the burgeoning RegTech (regulatory technology) industry is seeking to answer. AI is typically at the forefront. RegTech partly focuses on improving the efficiency and effectiveness of existing processes. As part of that improvement, organizations are using AI, machine learning and robotic process automation (RPA) to smooth the integration and processes between new RegTech solutions, existing legacy compliance solutions and legacy platforms.

Why look to AI for help? Recent regulations, such as GDPR or PSD2, are handed down in the form of large and extremely dense documentation (the UK government’s guidance document for GDPR alone is 201 pages). Identifying the appropriate actions mandated by these lengthy documents requires a great deal of cross-referencing, prior knowledge of historical organisational actions, and knowledge of the relevant organisational systems and processes. What’s more, several regulations attract fines or corrective actions if not applied properly (like the infamous "4% of company turnover" penalty attached to GDPR).

In short, the practical application of regulations currently relies on human interpretation and subsequent deployment of a solution, with heavy penalties for noncompliance. This is where AI can help, reducing the workload involved and improving accuracy. Here are three key examples of how AI can help companies turn compliance into a value-added activity.

1) Reducing the risk of nonconformity

Following the deployment of compliance processes, there is often residual risk. This can be as a result of unforseen gaps in compliance processes, or unexpected occurrences that become apparent when operating at scale.

That’s partly because there are usually a lot of steps and processes to be carried out during the data collation stage of compliance programmes. RPA can help reduce administrative load associated with these processes that include a high degree of repetition – for example, copying data from one system to another. AI can then help process cross-organisational documentation, combining internal and external sources and appropriately matching where necessary.

AI can also help to reduce companies’ risk of noncompliance with, for example, privacy regulations. Furthermore, using AI techniques, organisations can automate transforming and enhancing data. Intelligent automation allows companies to carry out processes with a higher degree of accuracy.

2) Improving process efficiency

Inefficient processes can also hinder compliance. For example, automated systems that detect suspicious transactions for anti-money laundering (AML) processes are sometimes not always as accurate as they could be. A recent report highlighted that 95% of flagged transactions are closed in the first stage of review. Effectively, investigators spend most of their day looking at poor quality cases.

Use of an AI hybrid approach to detection ensures there are fewer, higher quality alerts produced. Furthermore, it is possible to risk-rank cases which are flagged for investigation, speeding up the interaction and relegating lower-risk transactions. Although AI forms an underlying principle across most modern detection systems, maintenance is key to managing effective performance.

AI can also be used to bolster AML and fraud measures more widely. For example, applying AI to techniques such as text mining, anomaly detection and advanced analytics can improve trade finance monitoring. This, in turn, can improve the regularity for document review and consignment checking, improving the validation rates of materials as they cross borders.

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3) Keeping up with regulatory changes

Compliance never stands still. Businesses have to contend with a constantly evolving landscape, potentially across several regions. AI can help to optimise the processing of these regulations and the actions they require, helping companies keep up to date. Companies that need to effectively comply with several differing regulations require a wide range of understanding across all parts of the business. The size, complexity and legacy systems of the business can be significant obstacles.

To mitigate this risk, companies can use natural language processing (NLP) to automate aspects of regulatory review, identifying appropriate changes contained in the regulation and then relaying potential impacts to the appropriate departments. For example, AI could help geographically diverse companies determine whether changes in the UK have an impact on their Singapore office.

Humans still needed

It’s important to note at this point that AI and RegTech are not expected to widely replace humans. We are seeing early AI entries in the RegTech space, but they’re primarily helping with lower-hanging fruit and repetitive tasks. AI is primarily enhancing the work humans do, making them more effective in their roles.

AI does not come without some considerations, however. There is a great deal of focus and scrutiny on associated possible bias in AI deployments. Other discussions are exploring the transparency and governance of applications and questions around who owns generated IP. As a result, it’s essential that AI works closely with humans, enhancing activities and balancing an appropriate level of manual oversight.

AI is augmenting compliance practices by providing faster document review, deeper fraud prevention measures and greater contextual insight. It is also reducing noise in high-transaction environments and lightening the documentary burden on staff. From the start of the regulatory review to the end of the compliance process, AI holds part of the overall solution to a more efficient and valuable compliance function.

Challenger banks such as Monzo, Starling and Revolut are built to scale, evolve and improve their offerings easily and quickly, and are doing great extending their customer base. According to Ian Bradbury, CTO for Financial Services at Fujitsu UK & Ireland, they are also now beginning to slowly move towards becoming a full service bank for their customers, as well as branching out their offerings to SMEs.

The way banks make their money is by keeping administration costs low, managing the lending risk and investing wisely to receive good returns. Other income avenues include offering “added-value” services, such as payments, for which they take a handling fee (particularly useful when market returns are under performing, for example in the case of low interest rates).

Four digital-led factors to disrupt banking

Four interrelated digital-led factors are fundamentally transforming traditional financial services: new distribution models; cloud native computing; data enrichment in a hyper-connected world; and exponential increase in the rate of change. These four factors create new ways for banks to operate, to do business and to enhance their offerings for consumers - but they have not fundamentally changed their money-driven banking business model – yet!

Regulators have recognised the value that can be bought by these four factors to banking customers, and have sought ways to encourage the uptake of them – often also encouraging new digital-native entrants into the marketplace. Regulators have also sought to ensure that high-margin services can be “unbundled’, allowing new competition to compete in these areas.

In theory, it should not be difficult for banks to not only survive the arrival of these four digital-led factors – in fact with their financial backing, existing customer base, technology assets and regulatory status they should be able to thrive in this competitive landscape.

This is especially true as other potential non-banking competitors have to overcome complex regulatory challenges – besides not being set up to offer the basic banking business model.

Legacy problems

In reality, traditional banks are struggling to keep up with how the market is moving. The reason for this can be summarised in one word – legacy. Legacy culture, legacy skills, legacy controls, legacy distribution models, legacy systems.

Slowly, this is changing, but until these legacy bottlenecks are removed, banks will struggle to keep up. Those that do not move quickly enough to deal with this challenge are unlikely to survive.

Assuming that traditional banks can overcome these legacy challenges and become the truly agile, low-cost, open-driven, customer-obsessed, data-powered, highly automated businesses promised by the digital-native challenger banks then their traditional banking business model may well also change.

The banks of the future

Banks currently operate a fairly simple two-sided marketplace – they take money from depositors and give it out to borrowers, generating trust in the process. But what they really do is provide a two-sided marketplace for ‘value’ – which is currently focused on money.

Digital transformation potentially allows for other ways to exploit this value-based marketplace, with the data-insights and enrichment coupled with new distribution models creating potentially new services.

Besides this, the notion of value is changing in the digital age, with areas such as data, identity, reputation, authenticity and even perhaps social purpose falling within it. These types of values can potentially be digitally stored, secured, exchanged and exploited in a marketplace - just like money. Maybe for example the banks of the future will become the custodians of your valuable data, both protecting it and helping you generate benefits from it.

To answer these questions and to put a perspective around various drivers responsible for encouraging more women to join the fast-growing blockchain industry, we caught up with Marie Tatibouet, CMO at Gate.io. Marie is also a blockchain influencer and a thought leader in the space.

1. How did you develop an interest in blockchain technology? Can you tell us about your background?

I majored in finance and marketing, and since then I have loved how the two subjects drive change in today’s world. After completing my education, I worked with the consumer technology space. Later, I founded a marketing consultancy that helped tech companies with their marketing strategies. It wasn’t until 2016 that I fell down the wonderful rabbit hole that is blockchain technology and subsequently returned to the finance world. It was 2016, and I joined an online platform called 21, mostly using it for fun and I then started researching how to withdraw the BTC a few months later and found myself hooked to the idea. Two years later, I was offered this exciting role at Gate Technology, where I love how I engage with the larger community to spread the word about Gate.io.

2. What do you think women in the industry have achieved and what do they want to achieve in the future?

We are seeing an increased number of women emerging as blockchain influencers. Some like Neha Nerula are putting their technical skills to work and others like Angie Lau and Molly Jane Zuckerman are asking the right questions to ensure that we understand both sides of the (crypto) coin. However, industry calls for more women to take up leadership roles, reducing the gender gap and encouraging diversity. Apart from seeing a greater number of women in the industry, I would like us to create a space where women feel appreciated not just for their technical skills but also for their ability to use design thinking in various applications of blockchain technology.

3. Why is the blockchain technology space so male dominated?

The roots of blockchain technology and cryptocurrency, tech and finance are still struggling to become gender balanced. This trend kept women at the back foot when blockchain technology was introduced a decade ago. It is undeniable that every technological application needs diversity to scale and succeed. Women are also more risk-averse than men, which keeps them from entering the industry. However, as the sector becomes more mainstream, we need to take more steps to eliminate these barriers to improve gender diversity. However, we are seeing more women coming into space because their contribution to the finance industry is something the sector cannot ignore.

4. Why are women key for innovation in blockchain technology space?

Women bring unique experiences and expertise to the table. Research has shown that women have an inherited quality to keep going back to the fundamentals, which is a better approach to learning, and an incredible quality to foster innovation. I firmly believe that blockchain technology’s mass adoption is almost impossible to achieve unless all diverse minds put their thoughts and experiences together. They are also great community builders, something that the crypto industry thrives on. All these qualities can help businesses and communities understand the intricacies of various applications so that solutions can be tailored accordingly.

5. How is Gate.io contributing in this realm?

Gate Technology is headed in the right direction when it comes to striking the right gender balance in an organization. Forty percent of our workforce are women, holding important positions across horizontals like product development, marketing, communications, and technology. A gender diverse team is key to being inclusivity to business solutions, especially while designing and creating strategies around user experience, marketing, etc.