Industry trends, viewpoints and thought leadership articles. Read what the experts in banking and technology have to say.
New Thought Papers
Banking Innovation
This thought paper explores the idea of a world without physical money, built around a card-based transaction system that will support a pre-charged card or card-based virtual wallet. The system will be free of commission or charges, secure and easy to use, and require minimal additional infrastructural support.
Technology circles are seeing lots of excitement around ‘cloud computing’, which means provisioning and using hardware and software over the Internet, leveraging Web technologies. This simple business model enables enterprises to take advantage of a range...
of Internet-based IT services. These give businesses the flexibility of a ‘pay-per-use’ model in which they pay for what they need when they need them – and without having to ‘own’ them.
The bank, like every other organization, is implementing eco-friendly practices in its day-to-day operations. As a prime mover of economic growth and industrial activity, the bank is well-placed to do much more toward greening the earth. Indeed, banks can influence large-scale changes...
by supporting sustainable investments, ethical lending, and green businesses as part of what they do.
This paper explores a possible route to know your customer (KYC) portability – the establishment of a central repository that is tasked with assigning a unique identity to every bank account holder. This is going to be a prior condition for one-time KYC compliance that can be shared by all banks.
As customers go about trying to manage their money, there is an opportunity for banks to show them that they’re not alone — by being the ideal financial partner who listens, understands needs, shows respect, acts with integrity, and serves with a purpose. And also by exceeding customer expectations...
through relevant products, services, and financial guidance. In other words, by becoming a smarter bank.
In the seven years since the renowned duo of C. K. Prahalad and Venkat Ramaswamy made the term ‘co-creation’ famous, what has been its progress, especially in the banking context? And where is it headed? Let us take stock....
For a customer shopping for banking products – whether online or across the table – the choices are fairly limited. So is the flexibility to create the ideal, completely customized product. When the customer is allowed to bundle a few products together, it is the bank that has the last word in what is permitted and what is not, and therefore, that decision usually goes in favor of products that need pushing.
Finding the right financial planning advisor is quite challenging for mass affluent customers. Most people mistakenly believe that financial planning is only for the wealthy. Often, they find it difficult to identify a financial advisor...
whom they can trust. Although there are many worthwhile investment options in the financial market, the cost of a good financial advisor might outweigh the additional gains that he or she might bring.
Decades have passed since information technology first made its appearance in banking. Financial institutions have invested billions of dollars in various solutions to literally change the face of their business. Over the years, from the days of legacy systems...
until now, business and IT have worked together, to globalize banking, raise efficiency, improve product innovation and revolutionize channels of delivery. Yet, as the surveys showed, the two functions are not nearly as well aligned as they should be.
If there wasn’t enough focus on it already, the financial crisis has taken innovation to the top of most banks’ agendas. In mature as well as emerging markets, banking institutions are differentiating their value proposition...
from that of their competitors by innovating upon their offerings, benefiting both customers and the organization in the process.
The pursuit of globalization and global standardization by banks has meant that innovations that originate in a particular region make their way quickly across the world, so that banking customers everywhere enjoy a similar, if not the same, usage experience.
When it comes to innovativeness, small banks have shown that size does not matter. Small banks, which we define as those with less than US$ 10 billion in assets for the purpose of this paper, typically include the likes of Credit Unions and Community Banks in the U.S., Building...
Societies in the U.K. and Co-operative Banks in India. (Some of these do have a larger presence and balance sheet, but they are the exception rather than the rule). That being said, these banks have a lot more in common, such as a co-operative structure, membership-based model and an aversion to risk.
Banks have traditionally reached their customers through branches. Thanks to improvement in communication technology and innovation, they now have several ways to contact their customers. Communication and servicing models have evolved to a great extent, and will continue to do so in the future...
Customers now have the option of accessing their bank accounts through Internet, mobile, telephone, ATM and of course, the time-tested branch. Channel diversity is no longer a differentiator, but rather a hygiene factor, expected by every customer and provided by most banks.
The challenge faced by banks today is to maximize the benefits of both self-service and fully assisted channels, while minimizing costs. Although branches are more effective in revenue generation activities, they are cost intensive. Contrary to this, self-service channels are cost effective but not very effective in generating revenue.
Banks need innovation to sustain in future. Corporate and retail banks are facing competition from new entrants and innovative business models. If that wasn't enough, shrinking margins and tighter regulatory requirements are adding to the pressure...
Going forward, innovation is perceived as the key to growth and competitive differentiation. Only those banks that can successfully develop new products, services and channels in response to the changed market environment will survive. This is echoed by the findings of a recent survey of European retail banks conducted jointly by Infosys and the European Financial Management Association (EFMA), which state that 4 out of 5 respondents said that innovation was extremely important for achieving growth and efficiency.
Innovation is a powerful weapon of differentiation for financial institutions. In recent years, banks have innovated on their products, processes and channel infrastructure to achieve multiple objectives such as raising operational efficiency...
, improving customer convenience and accelerating business growth. So how do banks decide what and how much to innovate? The following list of incremental banking innovations propose some answers..
Banking Transformation
Whether the intention is to expand capabilities, boost efficiency, or improve profitability, business transformation has become a way of corporate life. The successful delivery of a business transformation must be underpinned by a solid framework. This though paper explores how transformation impacts an organization and the essential capabilities supporting the framework.
The liberalization of the Indian economy in the early 1990s almost corresponded with the worldwide revolution unleashed by the Internet. These transformational forces doubly impacted India’s banks, which were stuck in old ways of functioning. But it was only a matter of time...
before India’s banks wholeheartedly embraced technology. This white paper captures the impact of IT on banking in India and significant milestones, and maps the way forward.
Banks are not the only place you can bank any more. Supermarkets, post offices, and news agents are some of the several non-banking institutions that are stepping into the banking arena. These agents are creating new opportunities, bringing multitude...
of benefits to banks, and enabling financial inclusion – by providing financial services at lower cost, wider reach, and greater convenience.
FATCA (Foreign Account Tax Compliance Act) goes beyond being just another regulatory or compliance requirement. Rather, it covers the entire value chain of U.S. financial services enterprises...
with offshore accounts. FATCA will require the creation of completely new and extended information and reporting systems, thereby impacting the banking industry globally.
The transformation initiative around every legacy banking system is unique, but there are concerns, questions and limitations that such initiatives have in common. Sure enough, there’s no silver bullet for legacy transformation. Even so, experience proves that a well-thought-out and pragmatic approach...
can go a long way in helping banks realize the full benefits of transformation. The author – an Infosys thought leader and industry principal for Finacle solutions – draws on his experience across several legacy transformation initiatives.
Ever since the financial crisis broke out in 2008, bank profits have been severely hit. The problem involved erosion of customer trust, so the knee jerk reactions of banks – like handing out pink slips, and cutting salaries and IT budgets didn’t help. This thought paper captures the way banks are now trying to rejuvenate...
themselves and drive growth through a renewed focus on the customer, technology and new channels.
Credit and debit card payments taken together accounted for a little more than 20% of the total non-cash retail transactions in India in terms of volume in 2010-2011, according to the Reserve Bank of India (India’s central bank). Even so, in terms of value, cards accounted for less than 1%...
of these transactions. By contrast, in the U.S. and Europe, cards are used for almost every retail transaction. Despite numerous advantages, card usage in India remains surprisingly limited.
Non-performing assets (NPAs) have outpaced credit growth, and Indian banks are facing a serious challenge from these burgeoning NPAs. Apart from regulatory and operational measures, using technology to automate asset classification and reporting...
by banks can help alleviate the situation. This will bring about a fundamental shift in the way Indian banks manage their NPAs.
India’s rural-urban divide is not a new story. And it continues to pervade every aspect of life in India – from the economic to the social to the demographic. Admittedly, there has been some improvement in banking access, but disparities remain. Penetration of other financial products like insurance...
and savings is much lower. Clearly, there is a huge task ahead for the financial services industry. This paper looks at what has been done so far and what more needs to be done to bridge the rural-urban divide in banking in India.
The following article presents a high level view best used by a CTO/CIO of a bank when deciding on large scale system transformation project such as core banking replacement. The article begins with an analysis of various parameters for finding problem areas in the current architecture...
after which they are analyzed for maturity levels of the target architecture. It then addresses the subject of measuring indicators for level of complexity of transformation. The decisions and analysis are indicative and are quite sophisticated, calling for some deep thinking. The user of this paper is expected to know the strengths of his/her organization, be able to evaluate them and compute maturity levels for the various parameters mentioned in the paper.
Business agility is the ability of a business to adapt rapidly and cost efficiently in response to changes in the business environment. Business agility can be attained by maintaining and adapting goods and services to meet...
customer demands, adjusting to the changes in a business environment and taking advantage of human resources.
When it comes to listing the forces that will influence banking in the coming decade, emerging economies rank right up there along with the digital consumer, mobility and green innovation. The term ‘emerging market’ was coined in the 1980s as a more positive way to describe...
what until then were known as ‘less economically developed countries’. But neither ‘emerging market’ nor ‘emerging economy’– words that are used interchangeably – do justice to a phenomenon that is not only about a particular geography or its state of economic progress.
A better description would be to say that these are regions undergoing an information and communication revolution despite being partially or less industrialized. Semantics aside, what sets emerging markets apart is that they are home to a huge community of new users adopting products and services in non-traditional ways, and a source of innovation in product technologies and platforms.
U.S. banks, collectively holding over US $7 trillion in deposit accounts, are highly reliant on their DDA technology frameworks. These solutions must be able to keep pace with the evolution of deposit accounts in terms of number, size, variety and complexity...
Moreover, the staggering volume of deposit accounts and related transactions is growing at a sharp pace as customers seek to park their money in safe avenues. Clearly, the efficient management of deposits is dependent on the resilience and flexibility of the technological solution.
For the banking industry, which finds itself in the eye of the storm, the need to raise efficiency has perhaps never been more crucial. Although cost cutting is the first thing that comes to mind, impulsive slashing of expenditure across the board could actually do more harm than good...
While there are several ways to trim the fat, not all of them are appropriate for all banks. Banking institutions need to realize that there is no one-size-fits-all solution to cost cutting; they need to do a great deal of analysis to arrive at the one that works best for them.
A successful banking efficiency optimization plan must look beyond mere cost cutting and draw upon a combination of the different strategies. Important as it may be during good times, the improvement of banking efficiency assumes paramount significance during bad. However, this calls for more than cost cutting – an indiscriminate slash and burn approach will not provide the right answers. 80 percent of cost savings can come from 20 percent of expense items; therefore, banks need to do some careful analysis before arriving at those that present the best opportunity. That apart, they must institute a host of measures to ensure all-round productivity.
Banks must launch a strong drive to create a risk-oriented culture, in which there is shared awareness across the enterprise about risk exposure and suitable defense measures. Core banking systems built on open standards can add teeth to banks’ risk management capability but providing enterprise-wide, comprehensive, “single version of the truth” data...
,essential for arriving at the right decisions while assessing and managing risk. By enabling automation and Straight-Through-Processing, they can also mitigate operational risk.
Going forward, it is predicted that risk management will assume greater dimensions as banks seek to maximize risk-based economic value.
The pursuit of pro-diversity and inclusive policies in banking is no longer a mere public relations exercise. The influence of the visible minority in Canada is on the rise; therefore, no business model can stand without catering to the needs of this important segment...
Most banks have caught on, and have instituted policies to ensure representation and fair treatment to members of minority and marginalized groups, whether employees or customers. Going forward, the effectiveness of diversity and inclusion initiatives could well differentiate the successful banks from the rest.
The ability of banking institutions to respond swiftly to change becomes all the more important during times of upheaval. Banks are continuously subject to change-bearing forces that could originate in the economic, regulatory, market or technological environment. Often, a dynamic market situation may necessitate decisive counter action – at these times, banks can ill afford to react sluggishly...
Unfortunately, there is a very real danger of that happening in the case of banks that are burdened by fragmented, legacy systems. When multiple systems operate in silos, they seriously hamper banks’ agility to respond to change. Moreover, it is likely that such systems are riddled with complexity and redundancy, presenting banks with a distinct set of challenges. The answer may well lie in the adoption of an Integrated Banking Platform. An integrated banking platform provides solutions at every step of the change response process - from gathering change-related information till effecting transformation.
Running a bank in these trying times is likely to be one of the most challenging jobs one can have. With the stalling economy, south-bound markets, tight credit, and massive cross-sector job losses, there just does not seem to be enough money, demand and hope to go around...
But direct banking can help a financial institution grow its customer base in these difficult times. By keeping customers happy - providing them with the best possible experience and high deposit rates, and meeting internal banking imperatives, a direct bank can break into new markets effectively.
Banks worldwide are facing a crisis of confidence. According to a nationally representative survey in the US, less than half the customers had confidence in the financial security of banks – not a faith-inspiring number when you consider the fact that this survey was conducted a week before the Lehman Brothers filed for bankruptcy...
The sub-prime fiasco, Madoff scandal and subsequent market downslide have destroyed customer faith and trust in financial institutions. They are worried about their savings and investments and will not think twice about pulling out their money from banks if they fear its safety is at risk.
As banks strive to satisfy customers and stave off competitors in these unsettled times, those with legacy systems and processes may be faced with the inevitability of undertaking the transformation journey...
One of the biggest deterrents to this pursuit is banks’ perception of risk associated with such deep-rooted change. However, by taking a risk-managed approach to transformation, in consultation with the right partner, banks can mitigate their risk exposure at every step, and progress towards a successful outcome.
In a recent global benchmarking study, respondents from banks located in 15 countries rated management of customer experience as the single largest factor for success, yet admitted that their performance in this area left more to be desired. Banking customers seem to agree with this view...
Their willingness to recommend their bank to others was among the lowest of all industries, in every market that was surveyed. While most banks realise that quality of customer experience is critical to their ability to retain customers and acquire new ones, only a few are able to render more than lip service. Delivering excellent customer experience requires enterprisewide orientation towards this goal, and that means integrating the front office with operations in the middle and back office – the good intentions of many banks fall by the wayside when faced with the enormity of the task.
It’s rough sailing for financial service providers in the wake of the enormous global turmoil. Hallowed institutions crumbled in a matter of days, and those that are still standing are scrambling to survive. In an environment of extreme uncertainty, banks are doing all they can to maintain their edge over competition – rationalizing costs, downsizing, innovating and importantly, managing risk...
More than ever before, they are seeking newer, more efficient ways to service their customers better.
To last out this period of pain and emerge stronger in a happier future, banks will need to be resilient enough to withstand the disruption that will arise broken only by shorter periods of stability. They need to be adaptive enough to deal with shifting business paradigms and agile enough to meet the demands of their customers within shrinking time frames. And that calls for transformation. The writing on the wall is clear – to win during adversity or “in the turns”, banks must either shape up or ship out.
Core transformation enhances a bank’s business prowess by empowering it with flexibility and scalability, ease of IT management and an enhanced customer experience. It lowers costs and makes the business future-ready by laying a solid foundation for effective opportunity management in a changed environment and driving growth...
However, to realize these benefits, banks must transform by adopting best practices and partnering with a proven transformation partner to guide them through the challenging process. After all, if you are changing your Boeing’s engine mid-air, you need the best pilot and technician in the business.
Buffeted by the rough winds of the continuing crisis of confidence and the dismal economic scenario, banks cannot afford to operate as they did during days when credit, cash and confidence were readily available and customers were relatively happy. Nor can they freeze the organization, and keep from innovating and launching new products, thus slipping on retaining and gaining customers...
Today, banks need business more than anything else – for survival, sustainability and growth. And to garner business, banks must take a host of measures, including creating personalized products, streamlining operations, and leveraging a more agile IT landscape. However, this must be achieved when resources are limited, competition is fierce and customers are distrustful. Surrounded as they are by tight credit, collapsing companies, bad loans, risk-averse investors, and nearly nonexistent margins, this is a challenge indeed.
As customers interact with their banks over a variety of channels, they demand a consistent and rich experience, regardless of the channel. A bank can deploy several innovative means to streamline the channel experience to achieve long-term sustainable profits...
As products change, a big expense is tied to rolling out the product separately across channels. However, integration can ensure that the change is made only once, but reflected across all channels. Multi-channel integration can help a bank lower costs since it involves a scalable technology platform, automation and cutting of duplication. Moreover, multi-channel integration provides customers the option of using more cost-effective channels which are also user-friendly and convenient.
Know the 9 steps of the journey to financial health, a bank must follow one principle – integration. A bank needs to integrate its IT landscape, its approaches, products, business models, processes...
, customer knowledge - all the wide-ranging components that help it function as an effective whole. The move to integration can be an incremental one, but the beginning must be made.
It is clear that banks will need to retain their customers to ensure a sustainable business. But how are they to do that? To meet this challenge, banks must transform their customer retention strategies, supported by technology....
Let us go down this transformation path, milestone by enabling milestone.
Silo-based IT systems create operational complexity and redundancy that can increase costs and diminish the bank’s ability to respond to change. Banks can no longer ignore the fact that a unified and common information architecture representing its identity...
,brand and image is as essential as the functionality it provides.
An Integrated Business Platform translates into standardized and enterprise-wide common information architecture, aligned seamlessly with a bank’s business strategy. It connects processes and information in a way that allows banks to flexibly react to the dynamics of customers and competitors.
The IBP has proven advantages and banks need to consider migrating to such an infrastructure. However, building an integrated setup need not be a risky undertaking. If fused in a phased manner with the help of a trusted transformation partner, the IBP can offer banks what a best-of-breed solution cannot – ease of use, agility, happier customers, lowered costs and increased profits. It can bring the different departments in a bank in sync with each other to pursue a common goal and enjoy a common ground for negotiation with the single vendor. This brings in much-needed standardization across the organization.
The flat world dynamics today are increasingly enabling large global competitors, who are nimbler, innovative and more cost effective, to play in any market regardless of size or location...
.In the face of such challenges mid-sized retail banks need to look towards business transformation solutions that can provide them with high level of automation in both the front and back office. This will need to be supported by a robust technology platform. Business transformation would provide the mid-sized banks with higher operational efficiency, the ability to tap into new sources of income, scalability, innovation, agility and moreover a lower total cost of ownership (TCO) of their IT infrastructure.
This paper details the various traditional approaches to technology led transformation. It highlights why mid-sized and small banks would benefit from technology solutions that come with integrated implementation framework comprising of essentials like pre-configured banking products, processes, templates and detailed documentation.
The paper also highlights the various features a bank-in-a-box solution provides and explains why in its optimal form bank-in-a-box will be a dynamic solution that evolves with the changing needs of banks thus arming them with the knowledge of best banking practices, processes and standards.
Globalization, demographics, technology and regulation – these factors have made the world a flatter place. Banks need to achieve a shift in their strategic and operational priorities and this can only be done...
if they effectively leverage technology. The requirement of the day is that banks should create a technology ecosystem that surrounds the business needs. In order to do so banks should change their approach to upgrading technology by moving from core banking replacement strategy to core banking led transformation strategy. The perfect technology framework would be one that goes beyond mere technology enablement and drive banks towards making strategic shifts in order to win in the flat world. Such a framework should offer banks a process roadmap to move towards the flat world through logically phased integration. This paper highlights the various lifecycle stages that provide a flexible approach to lead the transformation initiative, from visioning to deployment.
Successful banks are those that have understood the potential of new technologies and aligned themselves with able partners to fully leverage its power. These banks have focused on adaptive changes that make the technology transformation process successful. The paper details why transition of the vendor to ‘trusted transformation partner’ with end-to-end capabilities and credentials is vital and describes the key aspects that should drive vendor selection.
Channel Transformation
It is cost effective. It helps generate revenue and has unparalleled reach. Above all, it is a rich source of consumer insight. No wonder, mobile banking is on the innovation agenda of every bank.
Only 40% of rural households in India have access to formal lending institutions. The rest live in financial oblivion and when in need of credit, have to depend on moneylenders. Microfinance is one way to meet the financial needs of those at the bottom of the pyramid, and an effective one at that.
The obituaries for the branch quickly followed the advent and rapid proliferation of new-age banking channels – that are available anywhere, anytime and to anybody. Channel banking, which was hitherto considered a subsidiary of banking business delivery, is now the new mainstream, and the branch...
is being relegated to the sidelines. This is the new normal – and rightly so, considering the convenience of these channels which deliver banking-on-the-go.
Technology is evolving at a rapid rate, and banks are ready to jump on board to meet tomorrow’s challenges today. As part of this revolution, banks are increasingly implementing solutions in the area of mobile banking and payments to address the evolving needs of the marketplace. But questions remain around the compliance challenges...
that coincide with these developments in technology. Let’s take a look at what to expect in compliance.
Today, mobile phone users far outnumber people with access to commerce and banking services. Thus, mobile phone technology has emerged as the most potential channel for financial inclusion, a major concern for most developing countries. Mobile phones with their extensive reach can certainly play a critical role...
in the financial inclusion process, provided there is a regulatory framework in place to enable safe and secure transactions.
Banking channels of today are nothing like what they were 20 (or even 10) years ago. And their evolution is one that is getting serious attention. What are the key influencers of change in the banking channel? How will these impact the future of banking channels? Amidst all this mobility...
and Internet-led innovation, what will happen to traditional banking channels? This paper answers these questions and more.
How comfortable are we with Mobile Banking? Not very much, it seems. Even today, most of us who use mobile banking do so merely to check account information, transfer funds or pay bills. How many of us are aware of mobile technologies like Near Field Communication (NFC)...
and Remote Deposit Capture (RDC), which have evolved in response to customers’ need for a mechanism to make quick in-store/ transit purchases and check deposits without visiting a branch or an Internet banking site?
It is not an exaggeration to say that digital consumers are like no other. They belong to a generation that is more educated, more technology savvy and better connected socially than any other that came before. If they need information, they will research...
it on the Internet; if they want advice about a particular purchase, they will ask their social network. Their demands fuel innovation in the technology and communications space, giving rise to new, better products that they can’t get enough of. They seek convenience, reach, availability and instant gratification.
It’s ironic that in a world that has gone mobile, corporate treasurers and CFOs are still tethered to their desks because they need computer access to issue approvals using corporate Internet banking. While consumer mobile banking...
has soared in recent years ever since the smartphone arrived
on the scene, its corporate cousin is yet to take off. However, according to various industry participants, there is significant untapped demand for corporate mobile banking, as those finance professionals who use mobile banking in their personal lives – not just on mobile phones but on a variety of devices including tablets – want the same convenience at work.
Banks are constantly on the search for solutions which will help reduce their cost of operations and improve customer experience. In this continuous journey, the banking industry has seen several technology trends being adopted and several innovations delivered....
Innovations in banking delivery channels dates back to the introduction of ATMs as a self-service delivery channel. The ATMs heralded a new era of banking as the concept of self-service was introduced for the first time. ATMs also marked the entry of anytime banking as customers could now access money from their bank accounts at a time of their convenience. The wave of self service continued and the advent of Internet banking introduced the concept of anywhere banking as customers could now access their bank accounts from the comforts of their home or office.
There are several indications that mobile banking is making a comeback in the United Kingdom. Interested participants including financial institutions, telecom operators and other service providers have entered the market through a variety of arrangements....
This paper examines the bank-focused mobile banking model, its challenges and opportunities.
As per the Mobile Marketing Association, 1 in 7 adult Britons banked using their mobile phone in 2009. It also indicated that young consumers in the age group of 18-34 are most likely to use mobile banking. From a financial institutions’ perspective, it presents an excellent opportunity where the young population is becoming an early adopter.
The unbanked is estimated to exceed 2 billion people worldwide and this isn’t a problem limited to the emerging economies. Financial exclusion looms large in several growing economies across the world and not only reflects but also contributes to the stark socio - economic divide that exists in these economies....
In most countries, financial exclusion is a phenomenon which is restricted to rural areas where accessibility is limited and the population density is substantially lower. However, recently the phenomenon has also been observed in urban areas where some segment of the populace remains financially excluded in spite of the existence of bank branches, due to constraints such as access timings, and income potential.
Nearly 2.2 billion people, i.e. 62 percent of the population, living in Asia, Africa, Latin America and the Middle East are financially excluded. In China and India, only about a third of the population participates in the formal banking sector. In Africa the number is just 25 percent. Africa as a whole has 230 million unbanked households.
Although mobile banking has made a slow beginning in the UK, it is now poised to take a big leap. While market trends are similar to that elsewhere, the U.K. mobile banking delivery model is different, dominated by a service provider called Monilink...
,which has tied up with all major network operators to create a common shared services mobile banking backbone. Most big UK banks have registered with Monilink.
Since Monilink offers a standardized white labeled service which can be branded by user banks, mobile banking is largely undifferentiated in the U.K. That being said, there are opportunities to position a particular mobile banking service separate from the rest by enriching the choice of applications, enhancing security, enabling end-to-end transactions and offering value added services such as location-based alerts and financial planning tools. A convenient and cost effective mobile banking service with the aforementioned attributes will be a winning proposition.
ID theft refers to the misuse of stolen identity for financial gain. With the proliferation of online commerce, the incidence of ID fraud is on the upswing. ID theft is no longer the preserve of petty thieves; it has assumed ominous proportions, facilitating serious crime from money laundering to terror financing....
The emergence of new, loosely regulated payment channels on social networking sites and prepaid mobile phones has made it easier for fraudsters to carry on their activities. Effective and consistent regulation is therefore the need of the hour. Financial institutions must also strengthen their authentication processes, and make use of technologies such as Biometric, Multifactor and Adaptive Authentication.
But, perhaps the greatest responsibility lies with the users. By resorting to judicious financial practices, they can safeguard their interests and identity to a large extent. After all, prevention is better than cure!
Technology is indeed a great leveler. The commoditization of banking services is living proof: banks that have shifted from legacy to modern core banking systems are pretty much on equal footing in terms of the products, services and experience they offer....
So, how can banks build competitive advantage in a market where product differentiation is becoming blurred while customers are becoming increasingly fickle? The answer lies in innovation, which ironically, is enabled by the same technology.
Banking innovation can work at the product, channel, process and business levels, to name a few. While the relative importance of each is open to debate, there is no denying that channel innovation has impacted banking behavior the most. Channel innovation, which has changed the face of banking in recent years, must continue to spearhead the charge. There is much to be gained from innovation including improved customer engagement, agility and efficiency. Not to mention, that even banks’ long term future might depend on how well they innovate.
Emerging regulations across Europe and North America governing telecommunications and network services will impact the online delivery of services by most industries, including banking. In particular, banks will have to adapt their mobile...
and Internet banking offerings in a bid to fulfill a dual objective – comply with the new directives as well as leverage opportunities presented by them.
Shifting regulations may present challenges for banks from the compliance point of view, but they also open up opportunities to develop a more creative channel strategy. As banks look for ways to improve customer satisfaction, they must ensure that they have the right partner, channel and technology mix in place. At the same time, they must not lose sight of consumers' interests defined by their preferences and need for privacy and security.
Although the world is going through economic pain, there is also emerging from this turmoil, new and innovative means of addressing business challenges. A case in point is the surfacing of truly enabling technology-led strategies, in response to the evolving business climate....
Progressive banks believe that now is an opportune time for introspection and revalidation of business and technology strategies as well. A closer look at the strategies driving their delivery channels is on most banks' agendas.
Core Banking
This paper provides a deep understanding of the complex task of designing core banking products, and the strategies that software providers adopt to address the intricacies involved.
This paper analyzes the key features of an effective core banking implementation and the challenges therein, as well as traces the progress, all the way from implementation to transformation – and beyond.
The biggest challenge that the core banking vendor faces today is to keep the core banking solution in sync with current global industry requirements. The primary reason being that the business of banking is not the same across all geographies. This thought paper proposes a process-centric core banking solution that has the flexibility to be a truly global solution.
The card ecosystem — comprising issuing banks, application developers, technology vendors, and regulators — has taken several steps to secure banking applications and carrier networks against deliberate attack or unintentional breach. This paper discusses banking software application security...
practices in general, as well as how banks can comply with the provisions of the Payment Card Industry Data Security Standard (PCI DSS).
Have you ever wondered how it is possible to pay so quickly at the supermarket counter? Or about the nifty handheld gadget that the cashier uses to scan your stuff which sends all the details to the screen? Each item in the supermarket is labeled with a unique barcode. The barcode reader identifies this unique label...
and displays the related data on the user’s screen. Each barcode tag contains a unique identifier that distinguishes one item from another. Ideally, the tagging follows a standard format recognized across the supermarket’s ecosystem. A similar example is that of International Standard Book Number (ISBN). ISBN identifies the publisher as well as the specific title, edition and format of a book not only within a bookshop or country, but anywhere in the world. That’s the convenience and utility of standardization.
Since quite a while, data security technology vendors have been working on a new offering in the form of an “Information Rights Management (IRM) Solution.” As its name suggests, this solution enables financial institutions to control the rights to digital information...
that leaves their organization for further processing. Thus, a bank (or creator of a file) can specify who may read, edit or print a file, on which machines it may be accessed, how many times it may be used, or how long it must last before à la “Mission Impossible”, it self-destructs.
The expected benefits of core systems modernization – agility, integration, efficiency and reduced maintenance costs – should make it an easy sell. But in reality, executive leadership is often caught up in an intractable analysis of risk versus reward...
How can operational teams present a convincing case for core systems transformation that will justify both its considerable cost and risk? And having secured approval, how can they bring all key stakeholders, in whom the responsibility of implementation actually vests, on board?
An earlier paper discussed ways to secure the buy-in of top management and key stakeholders for a core transformation decision. In this, we touch upon some of the IT challenges during and after transformation...
.
Typically, banks have built layers of IT infrastructure, from mainframe and client server applications to ERP systems and custom applications, creating an IT snarl beset with problems of cost, rigidity and lethargy. Ensuring the peaceful co-existence of new applications with the old is one of the challenges of core transformation. Another is the minimization of risks during data migration. All this while, the bank has to ensure that business is disrupted as little as possible, preferably not at all.
The global economic turmoil of the past months and consequent rise in loan losses poses a stiff challenge to collection management. Given that the problem is rooted in weak economic conditions and is impacting every customer segment, banks can no longer go only by procedure to recover their dues...
The role of collection managers has become more nuanced, requiring them to take a creative yet pragmatic approach.
While collection managers bring experience, skill and instinct to the table, technology provides rich information and the ability to process it on the required scale. And banks that currently lack the capability to handle the sudden pressure on collections could consider using the services of professional collection managers to tide them over.
In the recent past banks were esoteric institutions that acted as custodians of cash and handed out loans. Today they have been transformed into dynamic, multichannel organizations that strive to continuously bring innovative products to the marketplace...
All this has been done in order to improve profitability in the face of relentless competition and increasingly savvy customers. The globally mobile customer is demanding low cost tailored products across multiple product channels. There clearly exists a need for banks to move from being product-centric to customer-centric. Unfortunately, the legacy systems, currently prevalent, lack the agility, flexibility and scalability needed to meet today’s challenges. Thus, they fail to provide a foundation for future growth.
To counter this, banks need to modernize and transform their core banking systems by moving towards a centralized back-office and standardized processes, or they run the risk of paying a heavy price in terms of higher costs and lower profits. At the same time leveraging SOA (Service Oriented Architecture) for IT will enable product bundling, cross-selling of products and service customization. With centralized SOA, banks can use data mining techniques to analyze customer behavior, thus creating cheaper, innovative and differentiated products.
This paper describes the drivers for transforming legacy core systems and examines various factors a core system needs to address to ensure a flexible banking operation.
Payments - the numero uno facet of a payment system, enables the circulation of funds. Without a robust infrastructure enabling smooth flow of funds, financial institutions can rarely assume the role of a financial intermediary in the economy...
In order to confront the numerous parallel players in the remittance market, banks need to maintain a payments system infrastructure and refine the processes and practices of delivering payment services. This will ensure better turn around time of payment cycles with faster availability of funds to customers. Banks have traditionally treated payments as a specialized stream and segregated the process from other banking business flows. This has led to the multiplicity of payment acquisition channels and a plethora of payment networks.
Now banks can capitalize on the payment hub architecture through a payments system model which is integrated with the core banking solution. Realization of this would pose survival challenges to average products in the market and cultivate value propositions for innovative products by scripting successful alliances with customers on one hand and technology partners on the other.
This paper describes the 3S objectives - Speed, Security and Standards that the payments market across geographies is witnessing and highlights why an integrated payment module is required to centrally manage the work flow of payment processes.
Tier 1 banks are taking the lead and embarking on a total overhaul of their core processing platforms. The verdict - new age core systems are leaving an indelible imprint on the banking landscape...
..., at least to the extent of gaining acceptance and engulfing few legacy systems in its wake. This article seeks to highlight some of the trends in the core banking space and what the next year holds out for the banking industry. In the near future one would see a complete confluence in the paths of banks and independent software vendors through the role of core banking systems. This shall be done in the quest to redefine their very existence, and for banks to survive and flourish in an intensely competitive and globalized landscape. There is a focus on factors that will have attained considerable significance for contemporary banks and will be the key drivers in selecting the platform that will power banks into the next orbit and beyond.
The paper also draws attention to the strategic challenges before the bank’s stakeholders as well as some of the critical success factors that banks need to be mindful of in order to derive the maximum out of their core banking transformation initiatives.
Successful banks are those that understand the potential of new technologies. They align themselves to fully leverage the powers of these technologies by focusing on the adaptive changes that make the technology transformation process successful...
The current competitive environment with increasingly demanding customers is forcing banks to take a reality check on the technology environment and ensure that their IT strategy is aligned to their business objectives. And core banking replacement is often the only solution.
Herein banks need to be mindful of challenges like vendor capabilities and dependency on legacy applications which are generally associated with core banking deployments and replacements. These challenges once understood and mitigated properly can result in the bank leapfrogging to a high degree of differentiation and providing an enriched customer value proposition. On the other hand, it can also create considerable risks for the bank if the transition is not managed properly.
This paper details the key factors banks need to focus on, to enable them to make the core banking transformation a successful experience.
Core banking replacement has for quite some time been considered fraught with high risks. The costs are potentially bordering on the prohibitive and many still believe that their present in-house systems are satisfactorily serving the purpose...
But the wind is changing direction and fast. There is a rising acknowledgement of the fact that banks, irrespective of size and geography, face the dual challenge of cutting costs and increasing their internal efficiencies. This is done with the ultimate aim of improving margins which are clearly under strain. Though it is easy to select a vendor for implementing a solution, the challenging part is carrying the project through to a successful implementation. Current requirement is for an experienced vendor with impeccable implementation credentials who has in the past managed all such challenges well. Banks thus need to take a holistic view while considering the replacement of their core banking platform.
Risks need to be mitigated and managed and following this line of thought, this paper delves into the risks that banks should take cognizance of before embarking on what is clearly going to be the single biggest technology initiative within the bank.
Shifting economic conditions and rapidly evolving IT strategies along with mergers and acquisitions have left few banks with an appetite to untangle the morass of legacy systems running their businesses...
But this, thankfully, is not holding up progress and innovation, thanks, in part, to the increased adoption of Web services and its conceptual cousin, the Service-Oriented-Architecture (SOA). SOA is neither a product nor a solution. It is an integration framework that binds internal and external services to create a solution. With SOA, instead of focusing on different applications that reside on different computers, the emphasis is on business services that represent several different underlying applications. As SOA can seamlessly be put into practice in existing IT environments it ensures that changes in technology and processes during core banking replacements can be phased out and managed effectively.
The plug-and-play benefits of SOA and Web services promises to increase the pace of innovation in financial services. Clearly, by adopting SOA and process driven core banking solutions banks worldwide can achieve tremendous benefits. Following this, this paper describes a banking solution framework which depicts how SOA delivers maximum agility.
Corporate Banking
The worldwide payments landscape experienced huge swings in fortunes in the years before and during the recession. Analysts, bankers and technology vendors have proposed different strategies to enable the banking community progress in a world...
of rapid change, instant connections and growing customer expectations. One of the strongest suggestions aimed at growing the payments business and improving related services, is the adoption of Enterprise payments.
Traditionally, businesses have believed that profits indicate success. While it is true that profits are one of the key indicators of success,many are now starting to realize that there is something more fundamental to their very survival; and that is ‘cash’...
. ‘Cash is King’- And this holds true for every business irrespective of its size. The availability of cash balances is a key determinant of a company’s competitive ability, because it provides the means to invest in
people, technology, and other assets. Efficient Cash Management is therefore indispensable.
Companies heavily rely on knowing their cash position to manage working capital requirements such as ordering inventory, raw material, or acquisitions/expansion program, for which they need a clear idea of how much cash is required, and when. This is enabled by efficient cash management.
Technology can help a bank's users to configure the construction of the balance sheet and profit and loss account, cash flow statements and define financial ratios, for different industries. Borrowers in different sectors like manufacturing, financials, construction/real estate, commodities, technology would have unique financial statement structures...
, and hence technology can play a role in providing configuration capability for different spread sheet templates for these industries, as well analysis of the statements. Technology can help banks to define the competitors in the industry and to compare the borrower's financials against industry peers.
Ensuring smooth functioning of business houses by managing and maintaining adequate liquidity is one of the KRA's of a corporate treasurer. Cash flow management, appropriate investment of excess cash and borrowing cash...
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KYC or 'Know Your Customer has more than one connotation to it. The obvious connotation is from the regulatory viewpoint. The other dimension of KYC refers to knowing your corporate clients in order to design the right...
solutions for them, which in turn creates stronger business relationships. To the bank, it means supplementary business opportunities and better service, and to the customer, it means better business support and value for money.
The banking industry has seen investment of millions of dollars in technology-led business transformation. Myriad systems exist in a bank to manage corporate customer relationship, maintain customer databases, regulatory ...
compliance, origination and on boarding, financial analysis, accounting, transaction management, portfolio management and much more.
Deals in the corporate and investment banking world are significantly different from retail lending. With corporate houses getting a flurry of offers from several banks, deal structures, rates and fees are negotiated....
The banker or relationship manager who has the best relationship wins the deal, possibly not always on desired terms, but at rates closer to the best offered by competition. Given the relatively lower volumes, and the high degree of flexibility required (read manual intervention), it is no wonder that automation is yet to make a complete inroad into corporate origination. The senior corporate bankers are busy dealing with their high end corporate customers and sewing up highly structured deals. Accessing systems either for inquiry on the portfolio or originating a loan has, till now, been passé.
However, this view is set to change. This paper highlights that the rarefied world of corporate origination is now practically the final frontier for technology led transformation. Technology can play a significant role in transforming the current paper-intensive process into a more efficient one, improving productivity, reducing turn around time in processing credit applications, and more importantly bringing in electronic audit trails. From a system perspective, paper also discusses the various challenges that the elements of the corporate origination process pose for banks worldwide.
CRM
The microfinance industry faces major challenges. However the changes brought about by the industry in terms of successful implementations and functioning are considerably greater, and hence it is essential to use the right tools like customer relationship management (CRM) to increase...
the chances of success. Banking CRM has a lot to offer this industry and can make a positive difference, thus enabling the industry to achieve its goal.
In today’s world, Small and Medium Businesses (SMBs) are important contributors to banks’ revenue and bottom-line. Hence, it is imperative that they pay adequate attention to these customers and garner their loyalty....
This paper looks at how banks can employ sound CRM practices and strategies to foster retention and growth of the SMB segment.
Banks may derive both quantitative and qualitative benefits by upgrading their CRM system with Social CRM. On the quantitative side there are benefits of cost reduction. There is a benefit of reduced capital cost by owning less capacity database....
Further, there is a benefit of reduced operational cost by getting away from the maintenance of this database. On the qualitative side again there are benefits of cost reduction. Increased engagement of bank representatives and DSAs will result in increased productivity and hence reduced operational cost. Also, the way in which customer information is used by social CRM will result in to greater customer satisfaction and hence increased business for banks. Therefore, banks may improve both top line and bottom line numbers by adopting social CRM.
Conclusively, it makes sense to upgrade banking CRM with Web 2.0 capabilities and to assume that customer data may not be owned by CRM itself.
This paper brings forth the views that were discussed at FinacleConnect Virtual Industry Roundtable by a panel of industry experts who deliberated on the current trends in CRM, and how banks are using CRM...
to deepen their relationship with customers.
Basically, CRM is a key element of differentiation that lets banks develop their customer base and sales capacity. Today the environment is changing dramatically, and so is banks’ approach to their customers. A well thought out CRM strategy lets them improve the sales experience of the customer; develop the potential value for customers, increase sales, productivity and efficiency; and create personalized one-to-one service. It is important that the client not the product is in the center. This is the reason why banks should try to improve the following processes and support it with systems -customer service and advice, customer analytics and campaign-management .CRM, at the end of day, should be a business strategy more than anything else.
In the roundtable some issues discussed were benefits that banks can hope to achieve through deploying CRM solutions, how has the understanding of CRM in banking changed today as compared to a few years back and how the technology has matured in this time and the impact it has on banks today.
Customers and customer relationships lie at the very core of the business of banking. It is therefore not surprising that CRM (customer relationship management) solutions promising banks the ability to manage...
customer relationships were instantly popular when they were launched over a decade back. Unfortunately, a majority of these initiatives turned out to be costly, complex enterprise-wide projects with lengthy implementation time and banks did not get adequate returns from their massive investments. In those early days, neither banks nor the vendors realized that CRM goes much beyond technology. The organizational structure and processes at the bank need to change to adequately support a CRM solution. Now, banks realize that CRM is a continuous process – it is a journey, not a destination. To be successful in this arena, they need to embrace CRM as a philosophy and adopt a strategy for managing customer relationships that effectively addresses three key areas: people, processes and technology.
This paper emphasizes that in addition to the sales, marketing and service capabilities inherent in a generic CRM solution, these specialized solutions should offer banking specific features like a CIF tailored to the banking environment, ready-to-deploy banking templates and requests, origination integrated with sales and service and comprehensive support for call centre agents. Banks will, thus, easily be able to gain the long sought after 360 degree view of customers real-time. Buoyed by developments in technology that has made CRM deployment much simpler than before, banks are all set to ride the second wave of CRM.
Customer Strategies
Indian banks are increasingly using technology tools like touch screen kiosks, Internet banking, and IVRS, which is eliminating the need for human interaction. This thought paper discusses how the bank can fully realize its end goals by effectively balancing the human factor with technology adoption.
Changing banks is easier than changing lanes these days. Hence it’s imperative for banks to focus on customer retention. In a hard fought marketplace abundant with choice, customer retention doesn’t come easy. Banks need to make an effort to understand customers’...
needs and fulfill the same through highly personalized offerings. Integrating social media with regular banking channels can bring about this paradigm shift in retail banking.
Banks have been criticized in the past for treating customers as mere account numbers. Faced with a growing number of challenges, banks have come to realize the importance of leveraging relationships with their customers. This is where relationship-based pricing...
comes in as a service differentiator. Relationship-based pricing is a customer-centric framework that enables banks to treat each customer uniquely.
IT'S SOMETHING that makes a serious difference to building and maintaining customer relationships. It is part of every organization’s priority list. It’s the glue without which any relationship would fall apart....
We’re talking about trust, the bedrock of all relationships, especially those involving money.
Different organizations have taken different approaches to building trust. Some have intensified their customer focus, taking greater care to see things from their customers’ perspective, understand their needs, and work in partnership with them. Others have improved communication by developing practical skills such as listening, probing, summarizing, and rapport building.
Saturation of prime markets is forcing banks to look elsewhere for growth. Hence, in recent years, the world’s unbanked population has been at the receiving end of much attention from the financial community. And why not? Estimated at 2.5 billion adults located mainly in East Asia, South Asia...
and Sub-Saharan Africa, the financially excluded significantly outnumber those with banking access and represent a hard to ignore growth opportunity, at least in theory.
It is recognized that customer engagement, or repeated positive interaction which creates an emotional connect with customers is very important to a business’ success. Customer engagement studies show that it is viewed as a means to several ends...
..., such as increasing value obtained from and delivered to customers, enriching product offerings, strengthening brand loyalty, acquiring consumer insight and improving market share.
In banking, customer engagement is closely linked with the quality of user experience. Which is logical, since a customer who has just been through a forgettable experience is hardly likely to seek a repeat instance. The following steps can help banks crack the code:
Institutionalizing customer relationships
Improving cross-sell ratios
Increasing opportunity to be in touch
Keeping track of customer satisfaction
Building customer advocacy
Conventional CRM wisdom has it that, selling to an existing customer, is about six times cheaper than acquiring a new customer. This implies that revenue through cross or up sales would contribute much more to the bottom-line than the revenue through new acquisitions....
Cross-selling also helps to increase stickiness with the customer by forming a virtual exit barrier. Especially in the banking industry, by increasing the number of products or services availed by the customer, the bank can significantly reduce the tendency of the customer to shift to a new bank. This thought paper details the integrated approach that will enable the bank to set up an effective and sustainable cross-selling mechanism spurring organic growth.
Businesses basking in the security of satisfied customers have to think again. There’s a world of difference between truly loyal customers and those that are merely satisfied. A study of automobile customers conducted by a loyalty think-tank based in the UK showed...
that barely half of those satisfied with their purchase went back to the same dealer! With consumer inertia coming down, there’s a huge premium riding on customer loyalty. Small wonder, that loyalty programs have found their way into a huge number of businesses worldwide.
Drawing inspiration from customer-focused industries such as aviation and retail, the financial services sector added the loyalty program to its armory several years ago. However, barring the odd exception, banks’ loyalty programs are longer on rhetoric than ideas.
Royal Bank of Canada has shown the way by taking a highly customer-specific approach in their business. They used intense statistical analysis to understand customer potential and growth prospects to ultimately arrive at their “lifetime value”....
The analysis also enabled them to predict the need for additional products and services among different customers, based on which they were able to extend highly customized offers. At the same time, preventive measures were initiated to retain customers who were most vulnerable to attrition. The strategy paid off handsomely, with the bank being able to increase penetration and contribution by as much 10 percent.
By pursuing a concentrated strategy to retain, sustain and grow existing customers, as discussed above, banks vying for the Canadian market can also enjoy similar success.
Canadian banks are faced with the unique challenge of having to serve a customer base that moves location for a large part of the year. Their clients are also among the most diverse in the world...
Therefore, they need to have a fail-proof strategy that keeps them on their customers’ radar despite a lengthy separation. A combination of international branch expansion and channel innovation should help them achieve this objective.
The implementation of a new universal banking solution is invariably accompanied by a change in banking processes, which is necessary to deliver the benefits expected of the transformation...
A vendor with a long and reliable track record would immediately recognize those processes that need to be dismantled and have a clear perspective of the best practices that must be put in place. This allows banks to hit the ground running, and enjoy the benefits of their revised processes from the outset, without having to undergo a painful transition during which they are forced to juggle new systems with old processes.
Hence, it is imperative that banks ask their prospective vendors whether they can deliver an application-led business transformation. Does their application prescribe the best methods to conduct routine transactions, manage channels or decide pricing and so on?
e - Banking
The use of alternative channels like the Internet and mobile to exchange information and money is now commonplace. Although some security concerns do persist, the fact remains that systems such as RTGS (Real Time Gross Settlement), NEFT or SWIFT are among the most reliable and safe mechanisms...
of fund transfer and messaging that we have ever known. It is natural to ask how that is possible.
The secret to this is “Public Key Infrastructure” (PKI).
The Pew Internet & American Life Project Tracking survey of December 2010 said that nearly 60% of all Americans who used the Internet did some banking over it. In the United Kingdom, the number of bank accounts registered for Internet banking...
grew sharply from 28 million in 2006 to 45 million in 2010. With over 100 million, a Chinese bank has the largest number of Internet banking users in the world.
Demographic change and technology innovation have left a visible impact on the way that customers interact with their financial service providers. Today, customers rarely step into a branch, preferring instead the convenience, ease of access...
and all time availability of online channels. Not only that, they are demanding that these channels provide increasingly better functionality, service and experience.
Today, the banking community is hotly debating the role and relevance of social media to its business. While it is true that banks, which are cautious by nature and need, have not plunged in, there are signs that social media has already changed...
the way they do certain things. Take customer communication, for instance. Many factors including the squeeze on marketing spend brought on by the recession, and the uncertain ROI, limited reach and sheer cost of conventional media have reduced banking institutions’ exposure to traditional marketing channels such as print and television. Banks have also cut back on direct mail and phone campaigns for similar reasons.
For years, companies have struggled to manage their bank accounts which, thanks to the global nature of business, need to be maintained with multiple financial institutions all over the world. In a study of 1,500 corporate organizations, a leading provider...
of identity solutions found that on average, each company banked with 6 institutions, and 1 in 4 worked with more than 10! 2 out of 3 had multi-geography banking relationships across 25 countries, on average. Wouldn’t life be easier for corporate banking clients if they could access, use and manage all their accounts regardless of location from a single online portal? The good news is that such an alternative is in sight by way of an innovative solution called Electronic Banking Account Management (EBAM).
In its 2010 report on the state of online banking in the United States, a leading ‘digital universe’ research firm said that nearly 60 percent of all Internet users visited at least 1 of the top 20 financial institution websites every quarter. Another telecom research...
and consulting organization predicts that the number of mobile banking users will touch 400 million worldwide by 2013.
Clearly, customers have responded to the banking industry’s call to move more of their routine financial activity online, by conducting billions of transactions over alternate channels, through online banking sites, mobile phones, other handhelds and kiosks. As a result, a mountain of structured data is available at online touch points in the form of customer/account details and interaction history, increasingly supplemented by a wealth of unstructured data contained in social media conversations. Analytics can convert this raw data into information, and analyze that to create insight into customers’ online activity. Over the years, the banking industry has become one of the highest spenders on analytics, using it to build a knowledge repository of customer behavior and deploying their improved understanding of customer needs to enhance offerings and customer experience.
At its most basic, banking can be defined as “the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit.” It’s that simple. Yet, I doubt many banks...
see this definition, or would believe in it, for that matter. They are more likely to think that this is an antiquated view, one no longer relevant to today’s society and the role that they, the banks themselves, want to play.
If you’ve wondered at the marketing hoopla surrounding contemporary banking, you’ll know what I’m hinting at. And now, with social media capturing the imagination of banks’ marketing departments, the noise has reached fever pitch.
Of the different types of mobile phones owned by 5.3 billion subscribers around the globe, smartphones grew the fastest in 2010. Since their launch a few years ago, smartphones have transformed the nature and scale of mobile usage, from merely talk...
and text to lifestyle enablement thanks to their features, usability and a variety of downloadable applications. As they grow in sophistication, mobile devices are becoming an increasingly popular mode of data transmission and Internet access.
This progress has also rubbed off on the financial services space. Analysts predict that by 2015, approximately 1 billion people will use their handsets to perform banking and other financial transactions. The success of the mobile phone as a means of financial inclusion among the unbanked masses of Africa and Asia is now legendary; however, less known is the role that smartphones are playing in the opposite end of the market to mobilize wealth and investment management.
Till now, banks have taken several measures to secure mobile banking and payment transactions. The diversity of mobile handsets - from the very basic SMS-only phones to a huge number of intermediate phones to the sophisticated iPhone and BlackBerry...
, which support encryption and safe storage/transmission - makes it impossible to adopt a single universal security solution. Hence, banks have no choice but to take a multi-pronged approach, relying on technology, regulation and infrastructure as needed, to ensure that transactions on every type of mobile device are made more secure.
They will need to collaborate with a number of other parties in this endeavor - technology vendors for platforms capable of working with all types of devices and telecom firms and payment authorities for KYC compliance at the mobile-subscription stage. Improved transaction security will go far in making mobile banking and payments ubiquitous and universally preferred.
Web 2.0 is changing the way we interact online. Web 2.0 tools like Wikis, blogs, surveys, ratings, polls, widgets and social networking are being widely used across industry verticals for improving customer loyalty and thus business...
This paper attempts to explore the possibilities of Web 2.0 in banking and financial services industry and the ways in which such tools can be deployed to improve customer stickiness and bring increased business to financial Institutions.
Today's banking customers are faced with a problem of plenty. They are pursued by a number of competing financial institutions, all of them fighting for share of wallet. The decision process is further confounded by the variety of products on offer. Customers must choose between products that are largely similar, but subtly different....
When conditions are uncertain and finances under strain, customers are understandably more cautious about where they'd like to park their money. That makes the job of relationship managers even more challenging – they must recommend the right solution for their customer and maximize business for their bank. In order to establish credibility beyond doubt, they must be equipped with the right tools that can demonstrate the veracity of their recommendations.
Banks will do well to partner with an Internet banking solution provider which has not only the expertise to translate their vision into a cutting edge e-banking experience for the user, but also the foresight to define boundaries for safety....
With security concerns adequately addressed, next generation Internet banking is full of exciting possibilities. Banks that seize the opportunity may find that Internet banking can become a means of differentiating themselves from competitors, rather than a mere cost cutting tool. Clearly, providing a more powerful and interactive e-banking experience, is the way forward.
All over the world, people are experiencing the convenience of mobile banking. Gartner has estimated that there will be 33 million mobile payment users worldwide in 2008, expecting this number to triple to 103.9 million users in 2011....
Mobile banking is set for rapid growth with the number of global mobile banking transactions predicted to ramp up from 2.7 billion in 2007 to 37 billion by 2011, according to Juniper Research. The analyst forecasts 41.5 billion mobile financial service (MFS) transactions will be made by the end of 2011. In its report, ‘Mobile Financial Services: Banking & Payment Markets 2007-2011’, Juniper forecasts there will be an additional 517 million mobile users of MFS over that four year period, with a total of 612 million users globally generating more than $587 billion worth of financial transactions by 2011.
In contrast with the rest of the world, mobile banking in the US took some time to take off. One of the primary reasons was the legislative hassle involved. By tying a bank’s mobile service to particular telecom service providers, banks lost control over the application’s pan-American availability and its look and feel which were essential to brand identification.
The banking environment is a tough one in the best of times. The current economic situation is not helping. Thus, banks need to look at a channel that can help add value to customer relationships in a cost-effective and efficient manner.
With an estimated 278 million subscribers, the mobile phone is a key economic driver in Africa. With only 25% of the population having bank accounts, the unfulfilled needs for financial services have found a solution in mobile banking....
The unbanked, if tapped, represent a significant growth opportunity for banks. A mobile and e-banking solution enabling convenient, fast, simple, and secure branchless banking, with the support of e-payment gateways, is indispensable for banks reaching out to the unbanked. Such a solution can help reduce costs while increasing speed and efficiency through SMS-driven banking services.
Mobile banking services have been successfully adopted by a few countries in Africa. For example, in Kenya customers exchange cash at an agent in return for an e-money account. South African customers can use their mobile phones to make payments, transfer money, and pay utility bills without worrying about minimum balance requirement and fixed monthly fees. Similarly, Nigeria and Egypt have also witnessed an overhauling of their banking systems with offerings like new scratch card-based savings payments system.
This paper details key success factors for such a solution as well as examines the mobile banking scenario in the African continent - the strategies adopted, the policies followed and the market realities.
Portals are those Websites that aim to be entry points to the World Wide Web, typically offering search engines and/or links to useful pages, and possibly news or other services....
Partner portals are portals owned by companies that give access, based on the function involved, to their various partners so as to forge deeper relationships. The applications are transparent to the partners. Typically there is a single sign on mechanism used to log in the user. Based on the organization and the role of the partner access is given to various tools and the required application. Partner portals are popular with businesses that rely heavily on indirect sales and support.
Today banks are growing both organically and inorganically and partners have started to play a very important function in their growth strategy. Banks are increasingly using partners to expand business and enhance efficiency. A partner portal provides a common eco system and extends bank’s reach so as to provide seamless and efficient transactions with partners. Apart from access to applications, banks also provided information access to their partners so as to help them conduct business.
This paper highlights the available partner portal offerings as well as presents various scenarios describing the advantages for a bank that deploys partner portals.
The Internet banking model was originally built with a view to merely replace identified brick-&-mortar services and provide an online means of reaching out to the bank. This model was not mature enough for the market as these Internet banking solutions...
served as mere aggregating mechanisms. Slowly new features like inter-bank local payments, international remittances, communication through secure e-mail with dedicated relationship managers from the bank and exposure of account relationships through online channels were added. Banks then started to use the model as a ‘differentiating’ factor.
Today, the banking business is driven by one mantra - virtually all types and kinds of banking services to be made extendable across channels, including the Internet. With the growth of Internet banking being driven even harder by the retail boom, banks can increasingly rely on new-generation electronic banking solutions built on open architecture, with robust security features, that provide true relationship banking functionality as well as be scalable and flexible to meet the changing demands of the retail customer.
This paper looks at what Internet banking has been so far and delves into what the future ahead could be like. It also highlights the importance of having solution vendors who move in sync with the market, focusing on building beyond their core competencies.
Financial institutions have started to give a serious look at the small & medium enterprises segment due to issues like global economic slowdown and want of better profit. But, there is a need to keep in mind that business scope and legal structure...
of the firm are criteria that should not to be overlooked while approaching the SMEs. The approach best suited for a bank should be dependent on existing customer profile and the strategic objective behind SME initiative. Some banks view SME banking as a specialized division within the bank. They claim that SME customers have specific needs, demand greater flexibility and need personal touch. However, this could mean higher operating cost and needs higher breakeven volumes. Some other banks consider SME banking as an extension of High Net Worth (HNW) banking. The basic idea is that owners of businesses are retail customers of the bank. On-line SME Banking offering is effectively a toned up version of the Retail Internet Banking offering.
This paper highlights approaches to SME banking that banks follow as well as the service expectations from on-line SME offering as it is one of the most efficient methods of delivering banking services and products to the SME segment and banks need to take higher efforts to increase adoption of the same.
Cash management is evolving and gaining value in many countries across the world. Specifically, a lot of attention is being paid to the cash management services required by the corporate sector and quite rightly so as the volumes of business ensures...
the investment requirements for offering innovative solutions. These days’ sophisticated services are offered by banks to address the needs of the corporate treasurer, centered on the seemingly simple job of efficient management of receivables and payables. Companies are also becoming more and more receptive to the Internet model as security concerns are increasingly being addressed well by the world-class cash management offerings. They are becoming more open than ever to the idea of employing a cash management services provider. However there is a need to focus on certain criteria before deciding on a vendor. These criteria might include points like ability to provide strong back office capability, adequate delivery systems and reasonable pricing. The success of a cash management solution depends as much on the solution offering as on the operational and strategic support extended to the initiative.
This paper discusses the functional modules that should be expected of a state-of-the-art cash management system while keeping in mind the specific needs of a corporate treasurer. A detailed description of the common offerings in the area of Web-based cash management system will clearly emphasize the complexity involved in offering a value added service.
As banks adopt multi-delivery channels in response to customer demands for greater convenience and lower costs, the wireless channel has seen growing acceptance in the retail payments and brokerage segments....
This is being driven by the ubiquitous nature of wireless devices and their consumer acceptance as well as by the benefits of convenience and low transaction costs. With the increased benefits and convenience of mobile and wireless applications in the banking industry there are also increasing risks in security and hence, the need for security solutions. Three points of security vulnerability exist: the mobile device itself, the wireless channel, and the network connection between the wireless Web servers and the back-end transaction servers. Handheld devices and wireless local area networks (WLAN) are especially vulnerable to potential viruses. The wireless signals may also be picked up beyond the intended recipients creating potential security hazards. Thus, stricter security policies, WLAN security upgrades, the use of encryption technology such as virtual private networks and end-to-end security solutions are highly recommended. Effective enforcement of security policies is as critical to mobile security as is the implementation of comprehensive mobile security solutions.
This paper delves into the security challenges that mobile and wireless services face and also describes the need for end-to-end securities solutions.
In the age of the Internet, we can access the Web and get to-the-minute updates of events as they unfold anywhere across the globe. This is the age of the wired consumer - one who demands, and gets, information ‘here and now’....
Technology has obviously played a very big role in ensuring this. The challenge before banks in this era will really be to ensure that multi-channel integration ‘really’ takes place and this, in turn, will ensure that the customer’s experience is a more fulfilling one. Among the many different technologies that are contributing to this, one such is that of alerts. As the name suggests, these are essentially notifications or messages, which are sent to customers on the happening of a certain event. The alerts are delivered across a wide variety of channels and devices including email, mobile phones, PDAs, fax etc. Alerting technology is one that is expected to grow strongly, particularly as customers realize that it offers them increased control over their interaction with banks.
Alerting technology offers banks an opportunity to take a giant, but cost-effective step in refining their customer relationship management strategy.
This paper talks about other such drivers for implementing the alerting technology.
Islamic Banking
Islamic Banking is set for a steady growth, with global assets expected to cross $2 trillion by 2015. Research suggests that half of the global population that follows Islam would opt for Islamic finance, if Islamic Banks offer advanced and innovative services as provided by conventional banking services.
This thought paper provides a quick summary of the facts around Islamic banking, highlights why India needs it, and its challenges in India.
Islamic banking has a come a long way from its initial focal point of ‘interest free banking’. Today it has a diverse range of financial products flourishing throughout the Middle East, Europe and Asia, with assets of approximately US$1.2 trillion as of 2010. The industry is expected...
to grow at an annual rate of 25 percent.
By the end of 2010, 63.4 per cent of the $1.2trn was held in Islamic instruments such as Shariah - compliant bonds (Sukuk), insurance (Takaful) and equity products; 31.1 percent in broader-based assets (mainly in Shariah - compliant bank accounts and money-market vehicles) the rest was held in -
dedicated Islamic funds.
Islamic banks are on the threshold of a historic opportunity. Oil prices are rising; the banks are flush with funds and are driving growth on the back of strong recent performances....
However, to deliver on the promise they need to address certain issues. Of primary concern are the disparate interpretations of the fundamental Islamic financial principles. Investments history is being re-written with the release of the first index series premised on faith-based investing. The companies included in the Index are screened according to principles found in religions, though the belief is that its range of environmental, social and governance (ESG) screens will appeal to a spectrum of investors, inside and outside of these religious practices. The emergence of a clear standard and a common framework will help bring about improved products along with more effective accounting, governance, transparency and management practices at Islamic banks. This can help these banks build stronger brands for improved scale and better performance leading to faster growth and higher margins.
The concept of interest is fundamental to the business of banking but Islamic banks function without interest and are still profitable. They also are growing at an astonishing rate in terms of assets, customer base and popularity. This paper focuses upon what and how aspect of this astounding banking process while exploring Islamic banking in the Middle East– specifically in the Gulf Cooperation Council (GCC) countries, the opportunities that beckon and the challenges that need to be overcome.
Unlike conventional banks, Islamic banks share business risks with investors and borrowers.The fundamental difference between conventional and Islamic banking, from a risk perspective, is in the nature of risk sharing....
The profit sharing model in Islamic banking differentiates the nature of risk that the institution faces. This facilitates equitable distribution of profits and losses between depositors and banks or partners. With returns on the depositor’s investment offered on a profit sharing basis, they have an equal share in the business risks of the institution. Similarly, financing based on Islamic tenets changes the nature of risks faced by Islamic institutions. While the conventional bank assures fixed rates on deposits, regardless of whether it makes profits or losses, the Islamic bank offers no such guarantees. If the bank earns profits during the financial year, it offers depositors the agreed rates; conversely, if the year has brought in losses, depositors share the burden together with the bank. One of the most important risks unique to an Islamic bank is the risk of non-compliance with Shariah principles.
Retail Banking
Branch banking is at a crossroads. Although it is still the single largest mode of banking, the proportion of branch transactions to the total is falling thanks to the rising popularity of channels like the Internet...
and mobile, which are quicker to use, easier to reach and are always open. On their part, banks are vigorously encouraging customers to migrate routine transactions away from the branch to self-service channels, because they cost far less to support.
That being said, the branch is still the first choice for some customers and certain types of transactions. Senior citizens are generally more comfortable with face-to-face in-branch
interaction, and less with self-service technology. Moreover, they draw confidence from the physical environment of the branch.
In a market chock full of similar products, delivering a strong customer value proposition is one of the most important ways in which a bank can create a space for itself. Post-crisis, the
balance of power has shifted clearly towards the banking consumer, who is demanding greater...
convenience, functionality, value, transparency, and above all high quality service and experience from his bank, and is willing to switch his service provider for these, if need be.
The banking consumer has also started to behave differently, and nowhere is this more apparent than in channel usage. A study conducted in April this year found that being able to use self-service channels was the biggest priority for 2 out of 3 banking customers.
The 21st century will bring about all-embracing convergence of computing, communications, information and knowledge to radically change the business of banking. The growth of high
speed networks, coupled with the falling cost of computing power, is making possible applications undreamed...
of in the past. Voice, data, images, and video may now be transferred around the world in microseconds.
Not only has technology transformed the internal accounting and management systems of banks, it has also fundamentally changed the delivery systems they use to interact with
their customers.
As part of a highly commoditized business, banks are seeking new ways of differentiation, customer service being one of them. They are not just aiming to satisfy customers through service; their new agenda is to use service as a tool to build a memorable customer experience...
and long lasting relationships.
The branch was – and continues to be – at the heart of service delivery.
In recent years, customer experience has caught the imagination of banking, as it reinvents itself from a utility business to one that is based on service and enduring relationships. This is a far cry from the banking scenario of 15 to 20 years ago, when the branch was the only available channel...
and pricing, the sole plank of differentiation. With products, prices and even channels becoming uniform, the only way that one bank can differentiate itself from the others while trying to woo customers and retain them is by offering superior and innovative service – which forms the backbone of positive customer experience.
“Experience” can be defined as “an event or activity which leaves a lasting impression”. From a customer’s perspective, this lasting impression is usually the result of needs well fulfilled....
Organizations that deliver exemplary customer experience share a set of integrated business disciplines that drive their success. Their efforts are paid back in the form of higher customer loyalty.
In the service and relationship-driven business of banking, customer experience is an important competitive differentiator. It is also becoming a key driver of innovation, as the realization that experience will drive customer retention, growth and perhaps even future sustainability, sets in within banks. Technology integration is playing a key role in enabling differentiated customer experience through innovation.
Catalyzed by the growth of the domestic economy, the banking sector in India has truly come of age. But with the current slowdown and fears of a global recession, the Indian economy and the banking sector have been looking for new avenues of growth....
In the face of these circumstances, it is ironic that rural banking which has hitherto been a slow growth sector could prove the next development engine for Indian banks. With affordable and relevant technology driving penetration as well as providing an improved service experience, rural banking could bring in financial inclusion and help banks grow their business radically.
Driven by forces that are often beyond their control, the banking industry in general and retail banking in particular are undergoing a major transformation. Banks are introducing enterprise-wide changes, spanning the dimensions of people...
..., process, and technology, to deal with the challenges and retain their competitive edge.
What impact will these changes have on the bank? What will the bank of the future look like? This paper seeks to explore banking of the future and its characteristics to better understand how a bank can ride the wave of change and use the gathering momentum to advantage.
The Latin American banking market is changing rapidly. From the mid-1990s, American and Spanish banks have led a foreign invasion, radically changing the banking landscape. Through a series of dramatic moves and mergers and acquisitions by global players...
..., process, and technology, to deal with the challenges and retain their competitive edge.
such as Banco Santander, BBVA and HSBC, the share of foreign ownership in the banking systems of Latin American countries has soared. Most of these acquisitions have been made by non-US institutions. Thirty-one of the Top 100 banks are foreign-owned, 29 by single banking entities, and two either by banking consortia or non-banking companies.
This paper explores characteristics of retail banking in Latin America that will help us understand the way forward for institutions to capitalize on the opportunities in the region.
Treasury
Structured products are hybrid financial instruments designed through combination of a bond / deposit / swap with one or more derivatives. They are aimed at providing a customized risk-return investment alternative. The building blocks of a structured product often involve...
a bond / deposit / swap, which acts as a bearing instrument, often called the “host contract.” Read this thought paper to know more about handling structured products.
Responding to one of the worst financial crises in history, regulators made some major changes in the way banks are regulated. One of these regulations, the Basel III accord, has far-reaching consequences for the banking business...
and its systems. With Basel II as its foundation, Basel III focuses on capital requirement, liquidity, leverage and counterparty risk.
The core objectives of a bank’s treasury are clear; to conduct the asset liability management process and in particular, to invest in creditworthy assets, to maintain sufficient liquidity and to maximise returns....
The challenge is that these three objectives are not always mutually compatible; as a result the Treasurer and their team has a delicate balancing act, how to measure and manage these complex factors and to keep proper control of all the processes.
The events of the past three years have illustrated these difficulties in stark relief – the fallout from the subprime crisis rapidly cascaded across all the elements of finance, with previously sound credits suddenly in doubt or worse, market liquidity soon started to dry up and the pursuit of returns was quickly abandoned as many institutions had to concentrate on staying solvent and minimising credit risks. The credit crunch was in many ways a perfect storm for bank treasurers and so what are the lessons we can learn from the whole experience?
Conventional treasury transformation is plagued by concerns of long lead times and the need to dedicate expert personnel during and after project implementation. It also carries significant risk of yielding less than expected benefits when execution lacks perfection....
While a pre-configured system reduces implementation lead time, the package underlying Treasury-in-a-Box needs to be enriched with features that enable users to reap its benefits quickly, effectively and efficiently. Thus, the treasury package can facilitate real ‘business transformation’ and not mere ‘technology transformation’. What’s more, the ideal standardized package is ‘mass customized’, making allowances for small changes to accommodate the unique requirements of different banks.
The complexity, lead time and cost of conventional treasury implementation put it out of reach of most mid-sized banks. For these banks, Treasury-in-a-Box - a pre-configured package which can be executed quickly at a significantly lower cost - is a decidedly attractive....
Product, people and processes are the three pillars of any technology-led transformation. At the heart of the Treasury-in-a-Box package lies a product with performance, user-friendliness and ease of customization as its hallmark. This is supported by a capable and experienced team from the partner organization. Last but not least, the package offers process maps aligned with best in class processes to ensure true transformation.
The decision to go in for a new treasury solution is a tricky one, particularly for mid-sized banks, as it is fraught with complexity. For big banks with operations spanning the entire treasury spectrum, from money markets to equities to credit derivatives...
, the logical option is a big-bang transformation with a full-fledged treasury solution, as a part of, or on top of their core banking application. However, those that are just starting out or have limited play in this area have an expedient alternative in the form of a best-in-class, boxed-up package that can be deployed modularly and quickly, but at the same time be customized to their needs.
Basel II, the second of the Basel Accords, provides recommendations on banking rules and regulations issued by the Basel Committee on Banking Supervision. The Basel Capital Accord ensures that capital allocation ...
is attuned to the risk that the bank is carrying on its books, segregates operational risk from credit risk and quantifies both ;finally it attempts to bridge the gap between economic and regulatory capital to reduce the scope for regulatory arbitrage. One of the principal objectives of supervision is to alienate depositors from the financial risks of the bank. In today's volatile markets, it is imperative to ensure that capital set aside for capital adequacy measures is readily available for depositors in adverse market conditions. However, it has largely left unchanged the question of how to actually define bank capital, which diverges from accounting equity in important respects. Basel II uses a "three pillars" concept to promote greater stability in the financial system - minimum capital requirements, supervisory review and market discipline.
In this document we will outline the key features provided by Finacle treasury solution to achieve Basel II compliance for each of the 3 pillars.
The foreign exchange marketplace is in a state of flux. The rules of the game are being re-written by the advent of new players and different ways of transacting FX, thanks mainly to technology advances....
The so called 'real money managers' (insurance and pension funds), hedge funds, proprietary trading desks and leveraged investors are becoming increasingly interested in foreign exchange as an asset class, as an alternative to fixed income and equities. Technological advances are allowing the entry of many more exchange type places to offer their services to customers. Algorithmic trading is now being facilitated by proprietary desks and hedge funds that treat FX as an asset class. Also visible is a continuous growth in international trade and capital flows. Electronic trading is being seen as the only possible way to service low-value high-volume retail customers profitably and banks should make concerted efforts to move these customers online.
This paper discusses these and many more trends that are prevalent in the FX marketplace and details opportunities and challenges that the FX marketplace presents to the old and new market players.
Bank and financial institution treasuries have traditionally been involved in in-house trading in foreign exchange, money markets, securities and derivatives and they also offer these products to their corporate...
and retail customers. Banks deployed different systems in these areas which led to an increasing overhead of integrating them. However, the global FX market today is much different than what it was even few years back. Over time the banks have realized the importance of increasing operational efficiency and reducing operational delays by using straight-through-processing applications which combine front, middle and back office functionality in a single application. Banks offering e-trading facility to their institutional customers have seen increased cost savings on delivery of this service by further integrating customer facing applications with back-end treasury applications.
This paper delves into the various trends prevalent in the marketplace which are forcing this change and forcing banks and other financial institutions to re-examine their treasury business and technology strategies to better meet and exceed the requirements of internal and external customers. There is also a detailed description of the reasons behind explosive growth in the derivative markets and trading volumes.
Treasury, in its strictest sense, refers to one function: asset liability management, especially when used in the context of banks. In a wider sense, treasury includes a whole range of activities encompassing various markets....
As the definition of treasury expands, companies must choose the treasury organization model they want to base their operations on, regardless of their underlying business. Organizations exhibit patterns in their choice of treasury organization models. Two important dimensions for which these choices differ are the range of activities covered by the treasury and the extent of centralization of management control.
This paper discusses these dimensions .It analyzes the relationship between various organization models and the factors that influence decisions on the model to adopt, the objective being to investigate if certain models are better suited for certain organizational situations. Also, key factors that impact the choice of model adopted are - the primary motive for the treasury within the organization, the scale of operations, the geographic spread of the business and the complexity. Thus, companies are also advised to consider certain key factors which impact the organizational models as these factors can be collated to form a decision matrix, which is a useful tool for any debate on treasury models.
The operating environment for bank treasuries has changed dramatically in recent months with news from the market only serving to exert greater pressure on the profitability of bank treasuries,...
as inflation and interest rates are poised to scale northward. Prevention of increasingly sophisticated fraud is becoming a burgeoning concern and risk aversion is reaching phobic magnitude as treasurers focus on hitherto neglected operational and concentration risks. Awaken to a new reality banks are aggressively seeking to cut back the splurge, as they struggle to manage their cost structures.
In order for bank treasuries to be able to respond to the dynamics of this changing business world, to seize the opportunities it holds and emerge not just unscathed but successful they need to harness the potentials of three key fundamental but truly powerful enablers. There should be a move towards minimizing risks, maximizing simplicity and finally, optimizing their technology.
Technology will play an important role in a treasurer’s journey ‘back to the basics’ and provide bank treasuries the solutions to manage robust yet lean operations, strengthen risk management and rationalize costs. This paper discusses one such treasury solution that will empower treasury operations with the technology backbone to stand up to the challenges of changing business dynamics.
Trends in Banking
Small savings are essential for any country. They form an important source of budgetary resources for the government, which uses these funds for developmental activities. Most governments are cognizant of the potential of the postal network in supporting these objectives, given its unmatched reach and customer trust.
The account maintained by a bank with another bank is known as a Nostro account, and the statement which it receives from the bank with which it maintains accounts is known as a Nostro account statement. Through the process of reconciliation, banks can track the status of cash...
received / receivable and the amount paid / payable, and track unsettled transactions either in mirror or in actual Nostro accounts.
In the light of recession, which had devastating consequences, Basel III aims to create more resilient individual financial institutions. This in turn can lead to a far more stable financial sector. By plugging the gaps in the earlier versions, Basel III recommends better mechanisms for risk and liquidity management.
Banks are becoming increasingly aware that the future of their business depends on what they do with their data. This in mind, more and more banks are investing in technologies that can help them extract value from their data resources.
Banks are now realizing the power of data available to them, which could help in predicting future business and defining growth strategies. Research suggests that analytics is going to be one of the primary areas where banks would invest heavily – with a view to identify growth opportunities as well as enhance customer service.
With the ‘go green’ mantra permeating all spheres of life, the banking sector too has adopted sustainable practices to reduce its carbon footprint. Collectively termed ‘green banking,’ these initiatives range from day-to-day banking operations to investments in companies involved...
in renewable and clean energy technologies. Read this thought paper to know more about the technology-led initiatives in green banking.
This paper provides an overview of the microfinance business, the models practiced in many countries and their challenges, as well as some ideas for improvement.
Automobile loans were not so common in India until the 1990s, and were mostly restricted to the affluent. All that changed around 20 years ago with the liberalization of the Indian economy, which led to fewer government restrictions in this area. This paper examines the impact of affordable automobile loans...
on the mindset of middle class consumers in India and its long-term implications for Indian society.
This paper gives an overview of the fraud that paper-based and electronic banking transactions are prone to. Currently, banks alert customers after, and not before, their accounts are debited. The paper says banks can reduce the incidence of such fraud by adopting...
a check truncation system (CTS), which shares the image or details of a check or payment instrument with the customer before it is debited to her/his account.
Big data has inspired the development of a large number of technologies to support aggregation, manipulation, and visualization, and draws on diverse sciences such as statistics, computer science, and applied mathematics. This white paper reveals that many banks lack the skills...
to process their big data online, and proposes high-performance analytics solutions that can help ease this situation.
This thought paper traces banking history all the way back to the days of manual banking operations and the challenges they posed. It also explores the development of banking technology and its benefit, and then examines the drivers of next generation banking and the role that technology can play in delivering business growth along with customer satisfaction.
Securitization has come a long way since its first appearance in the U.S. home mortgage markets during the 1970s. It has evolved with time, and in the process, has taken various shapes and forms, but it is still going strong as it continues to...
establish a global presence. Technology has played a crucial role in transforming securitization and provided limitless capabilities to several processes in the securitization lifecycle transaction.
Writing good code is an art. But equally important is the programmer’s awareness of secure coding practices, and how carefully the programmer defines variables and structures, and passes references and pointers from one module to another.
Today, much of the information exchange in the financial services industry between clients and counterparties happens electronically. Therefore, the development of messaging standards that multiple institutions...
can follow has become an absolutely necessity. This thought paper explores some of the popular messaging standards and the possibility of unifying messaging standards, and outlines future trends in this area.
A significant number of India’s 650,000 villages do not have even a single bank branch to bank with. Plainly speaking, this means a large segment of the country’s rural population still lives outside the pale of banking. Importantly, this is the same segment that India’s development...
is dependent on for the most part. Therefore, it is absolutely necessary to bring this unbanked segment into the ambit of banking.
Emerging market banks, which were already growing faster than their developed world counterparts prior to the crisis, have picked up the pace further in the last few years. This paper outlines the role of technologies such as mobility and cloud computing in the success of these banks. It also provides...
insight on how banks in developed economies can learn from emerging market banks in the areas of innovation, inclusion and infrastructure.
Over the years, banks and financial institutions have compiled huge amounts of business and customer data into large electronic repositories. This data can be a liability if left unused, but it can also be an asset if its value is extracted by unlocking, analyzing...
and recognizing its patterns. This paper traces the uses of business intelligence in trend analysis, customer relationship management, risk, compliance, and operations.
Reputation or goodwill - that invaluable asset of the banking industry - is also probably its most fragile one. Reputation risk (the risk of loss of reputation) is also called the “risk of risks” as it often comes on the heels...
of other risks in banking. Even so, the fact that reputation risk is intangible and hard to measure makes it different from other risks
Sustainable development is the only way out of the socio-ecological impasse that the world is at. It is high time that the sustainability intent emerged from the boardroom to infuse the smallest aspects of business activity.
Four years after the Western banking crisis, Greece and a few other nations are looking to survive. Others like China are trying to make use of this quiet period to take giant leaps forward and emerge ahead of developed nations...
in the race for global supremacy. As the economy’s backbone, the financial sector will play a huge role in the dynamics of a likely shift in the world order in the 21st century.
Over the last 10 years, the lifestyle of the average Indian has undergone a sea change. The emerging India story has endured the ups and downs of the Indian economy, and nowhere is this more evident than in the burgeoning
portfolio of luxury class loans...
of large banks. The mindset seems to have changed from that of ‘save-to-spend’ to one of ‘spend-to-save’.
In the early 2000s, private sector banks dominated the auto finance market, with Citibank leading the pack. However, ICICI Bank was quick to spot the opportunity and took an aggressive selling approach to cut down
Citibank’s share from 27% to 8% within a few years. It’s own share of the auto finance market rose to 29% to script its well-known success story.
We are in an age where customer focus is a key objective of banks. Until the advent of the technology era, the customer was given a little personal touch, but the customer service efforts were disjointed. This was because banks used customer...
data gathered on different occasions, or occasionally employed traditional tools like surveys to get customer feedback, and used these disparate insights to improve their level of service. Some branches provided better service by building a rapport with customers over the years.
Channel innovation has had an immeasurable impact on banking. Starting with the advent of the ATM, followed by phone, Internet and mobile banking, the last couple of decades have been characterized by the emergence of anytime, anywhere banking. Efforts by banks to encourage customers to use such channels...
for routine transactions have begun to pay off, and many studies have documented the increasing adoption of self-service, multi-channel banking.
Trust and service form the bedrock of the relationship between a bank and a customer.
Besides these, other factors like pricing and convenience influence the customer’s choice of banking service provider...
It is observed that customers are increasingly banking with multiple institutions for various reasons, ranging from deterioration in service extended by their current main bank to a change in professional and personal life circumstances.
This Knowledge Paper makes an effort to elucidate the concept of remittances in the international context and is focused on the remittances sent by emigrants to their families back home, for domestic consumption and investment. The paper highlights the significance of International Remittances...
to the global economy, details existing business models, and examines emerging trends as well as challenges faced by an industry which is to poised to play a bigger role in the globalization process.
Social media/networking sites such as Facebook and Twitter are changing people’s lives across the world. Their adoption and usage have increased by leaps and bounds in the recent past. Latest reports suggest that Facebook has more than 700 million users; it is estimated...
that over half of them are active users. In fact, social media is considered the biggest innovation in the Internet world after search advertising and e-commerce. Google’s recent service offering is a testimony to this growing trend.
The vibrant Indian economy and its growth story are fuelled by the rapid and steady growth in the per capita income of our billion strong population. While on the subject of population, consider the fact that 61.35 % of Indians live in rural areas. The rural masses are sharing in the country’s economic growth...
and the significant rise in per capita income reflects that.
The following facts present a snapshot of India’s rural demography:
» 740 million people
» 6,38,000+ villages
» Rural GDP of US$ 460 billion (Rs.20.70lakh crore)
» 135 million rural households
» Have higher percentage of Disposable Income than urban population
The Philippines banking industry weathered the global financial crisis of 2008-09 reasonably well, owing to a numbers of factors – very little exposure to the U.S. sub-prime markets, banks’ inherent resilience and strong balance sheets, conservative risk management...
and disclosure practices, and regulatory reform. The industry’s income touched a high in 2007 before the crisis broke, and although it dipped the following year, by 2009, even while the crisis was underway, Filipino banks registered a healthy performance all-around: in lending, capital adequacy and profitability. The well-being of the industry is reflected in the 8.6% compounded annual growth in outstanding loans between 2006 and 2010. The outlook remains bright as young, educated, upwardly mobile Filipinos embrace banking products and services to add to the number of bankable households.
Telecom market observers predict that approximately 1 billion people will use their mobile devices to conduct financial transactions in 2015. These will span a range of services including basic banking, remittances and mobile wallets. Around...
that time, every other mobile user will also use the handset to make payments or purchases, 500 million from the Indian subcontinent alone.
Although shopping on the mobile web will still account for less than 10% of the e-commerce market by the middle of this decade, there’s no denying that mobile commerce is the object of serious attention among industry players.
There is a sea change in the way people perceive microfinance today than from a decade ago. The industry has grown to USD 300 billion, coming a long way since the first micro loan of USD 27 was given in 1976 by the generous Dr Mohammed Yunus to the needy women of Bangladesh....
The microfinance industry is typically defined by its underlying Group Lending model, which is quite different from traditional forms of lending. Microfinance Institutions (MFI) the world over use variants of group lending, achieving repayment rates between 95 percent and 98 percent, results that traditional lending aspires to. This paper delves into the proven group lending model, which is the hallmark of the microfinance industry. Worldwide, IT service providers, regulators, banks, NGOs and academia are closely tracking this sector with a clear motive to leverage any upswing.
The world is witnessing a shift in social interactions with the advent of Web 2.0. The online communities are transforming the way people interact with each other across the globe. Peer-to-Peer (P2P) lending is an integration of these online communities and financial services...
It leverages on the P2P networks concept of connecting internet users directly with each other. P2P lending platforms enable the lenders and borrowers to directly deal with each other, facilitating the lending transactions.
The basic aim of P2P lending is to match borrower’s demand with the lender’s supply and in the process avoid banks and other middlemen. The guiding principle for P2P lending is that borrowers and lenders are better-off dealing directly with each other, rather than through a financial institution. The money transactions between the borrowers and the lenders are anonymous. The borrowers are also not troubled with marketing calls as is the case with the traditional online lending companies.
The whitepaper attempts to forecast the market potential of modern core banking systems in the U.S. markets by analyzing the benefits of modern systems and the lacunas of old legacy systems....
There are several strategies to analyze this situation, but here the analysis is based on a simple mathematical model called the “Diffusion Model”. The model will eventually quantify the adoption rate and the actual number of customers who may move to the modern core banking system.
The journey so far has never been a bed of roses for the MFIs. The usurious interest rates, limited products, lack of accessibility have always won them brickbats from the critics and skeptics. The emergence of regulatory body for MFIs, enactment of legislation, performance rating by industry bodies, increased funding...
,increasing spends on technology and innovative products indemnify the potential of MFI industry. Only 28 percent of the total demand for microfinance services would be covered by the MFI globally by 2010 with the World Bank estimation of microfinance requirement at USD 300 billion.
The world leaders at UN Summit 2005 have set the goal of reducing the extreme poverty in the world by half by the year 2015, as one of the Millennium Development Goals. In that all-encompassing journey undoubtedly MFIs play a pivotal role. The producers of software, hardware and associated infrastructure required by the MFIs should by then acknowledge the undeniable prospects of MFIs and prepare themselves accordingly. And by doing so they are also contributing to a larger social cause; of course with business objective!
The cost effectiveness and convenience of online channels makes branchless banking in the U.K. an irresistible option for both banks and their customers, just as it is in other parts of the world. Although the branch network will endure, future growth will clearly be driven by mobile, Internet and newer forms of delivery....
Banking organizations must leverage their multi-channel network to the fullest, ensuring that online channels are used more and more as a sales vehicle, while branch capacity is reserved for performing an advisory role.
That being said, financial service providers must fully address their online customers’ principal concerns, regarding security risk and impersonal service, by deploying appropriate technologies that safeguard and humanize transactions as required. In particular, niche online banking players must differentiate themselves from their more established rivals by providing best in class security and customer service.
Payments frauds have been pain points for banks and customers from the reputational, legal and financial risk aspects. With roll out of Basel II norms on operational risks, payments operational risk carries capital charge also....
In this context, banks need to implement and establish strong lines of defense to combat payment frauds. Lines of defense offered by integrated payments module within core banking system are discussed here specifically with check frauds in focus. The objective is to provide trusted applications, which enables banks to offer “Fraud-Free” environment to their clientele.
For financial inclusion to live up to its promise, the benefits of the country’s economic process must be shared with its unbanked masses. Inclusion must go the way of Internet and mobile banking to encompass a full gamut of financial and non-financial services including...
, but not limited to, crop loans, health insurance, welfare programs, investment products and more. Importantly, any inclusion initiative must pay heed to the specific needs of the audience, such as easy accessibility, simplicity, flexibility in terms of use and identity management. Although banks have relied on their own infrastructure and the services of business correspondents from community organizations that are in touch with the end customers on a daily basis, it is clear that a personalized medium is neither viable nor scalable to meet the country’s outreach needs. Even as technology by way of mobile communication, laptops or VSAT helps to bridge this gap, customers must be trained in the use of simple self-service options.
All participants in the inclusion eco-system, including banks, technology service providers, vendors and regulators have a shared responsibility to take the agenda forward. Should they succeed, unlimited opportunity awaits them.
Partner portals provide an excellent opportunity for banks to consolidate all their partners at one place. A well designed partner portal can extend the reach of a bank across borders and across products....
This will not only result in increased efficiency for banks but also help banks in achieving better partner relationship and increased customer satisfaction through integrated servicing option across partner applications. This paper illustrates how banks can leverage their network of partners effectively to achieve a better partner relationship and increased customer satisfaction through Partner Portal.
The fact that customers have lots of choices before them makes it imperative that banks keep innovating and bring in perceptible value to their customers. Packaging of products and services has the potential to emerge as the next big thing for banks that are looking for innovative marketing and positioning of their products...
Packaging has the potential to emerge as the crucial differentiator in the otherwise level playing field. With the right kind of technology, it is easier than ever before to design and sustain package accounts and banks the world over are increasingly looking at leveraging this to their advantage.
Banking customers' demands have kept pace with the rising complexity of their needs. They expect banks to address their individual requirements with relevant products and services. This implies that banking institutions must acquire a deeper understanding of their customers at a one-to-one level, and deploy that insight into product and service innovation. Customer segmentation is central to this objective....
Current segmentation practices are mostly unidimensional and based on a single parameter such as relationship value. Although the relevance of relationship value as a measure of customer loyalty is beyond doubt, it cannot be the sole criterion for segmentation. Going forward, banks must refine their segmentation strategy by taking into account a combination of demographic, social, economic, geographic and linguistic factors. Other innovative approaches to segmentation include grouping customers on the basis of financial behavior, customer sophistication or life-stage.
As banks in the U.S. and elsewhere plot their strategies for a future in the new world order, they can draw upon lessons learned from the past. Going forward, it will serve them well to leverage business insight to the fullest, to create a more efficient and stronger organization...
However, that is easier said than done; despite years of experience in data management, organizations have not always been successful in accessing customer data. It is here that the support of a credible technology partner with a proven solution could make all the difference.
The smarter U.S. banks are leveraging business insight to fuel their organizations’ growth, acquire new customers, manage risk and compliance and improve agility. Having the right data is central to the generation of reliable insight and better decision making. Therefore, there is a pressing need to integrate enterprise-wide data, particularly that which pertains to customers. An integrated banking platform allows banks to achieve many of their critical data management goals, and sets them up nicely to transform business insight into meaningful results.
About 75 percent of American banking customers surveyed during an October 2008 study reported using online banking to keep track of their expenses. Not surprisingly, a similar number confirmed that they were watching their finances more closely during the current economic downturn....
Online banking reported the strongest growth among all channels customers wanted to watch their finances more closely, at least cost, and online banking served both ends.
This means that although business volumes may be down, customers are paying more attention to their banking activities. Importantly, this opens up opportunities for banks to intensify their customer relationships, albeit in ways that are not immediately measurable in dollar terms. To do so, banks must maximize the impact of every customer interaction, delivering a unique and memorable experience.
Banking innovation is subject to closer scrutiny during tough times when there are larger hopes pinned on favorable outcomes, and greater concerns regarding resource utilization. Arguably, service and product innovation are at the forefront of most change-bearing initiatives....
Banks are under unprecedented pressure today – from customers demanding more for less, from regulators expecting tighter compliance and from competitors vying for market share. In order to stay on top of their game, banks need to take innovative action, and make it count. That calls for some lateral thinking, and they may do well to look at innovation in other industries or geographies for inspiration. By leveraging the collective wisdom, techniques and technology at their disposal, they can emerge winners, ready to face a brighter future.
Relationship managers at banks are going through a tough phase in their career. They have the seemingly impossible task of retaining clients who are becoming increasingly jittery in the face of steady asset erosion....
To add insult to injury, some banks have raised fees in order to compensate for losses – and it falls upon the relationship manager to convey the news to clients. The relationship manager is once again the bearer of bad tidings in case of a margin call arising due to a sharp drop in an equity portfolio.
Therefore, it is no surprise that clients, who rarely call during boom times, are now demanding accountability from their relationship managers. It is critical that relationship managers handle their clients' expectations very carefully in this tenuous environment.
Web 2.0 has already made a huge impact on human interaction. Now, it is up to individual banks to craft creative strategies that will help them make the most out of Social Networking, Social Commerce and Social Media opportunities. Recognizing the potential of this technology...
, forward-thinking banks have appointed dedicated teams for channel development under the leadership of a Chief Channel Officer. No doubt there will be many more initiatives in the days to come. Those banks that taste early success will be better placed to march ahead.
A slew of shotgun weddings are being consummated between banks in the aftermath of the global meltdown. Wells Fargo has bought Wachovia, JPMorgan Chase got its teeth into Washington Mutual, and Bank of America snapped up Merrill Lynch - just three among several couplings....
Dictated by the needs of market consolidation, competition, globalization, and regulations; cashstrapped sellers, bargain-hunting buyers, and interventionist governments are buying into a new future though rapid-fire mergers and acquisitions (M&As). In fact, governments around the world gobbled up $242.5 billion of stakes in financial institutions in October. Finance M&As in the US totaled $180 billion.
In this increasingly demanding world, banks are traversing a rocky road and need every deposit that a customer may make. They face both economic and business hurdles....
The consumer may have very little to save and, consequently, banks will get lesser money to put in their coffers. Even in these trying times, bank customers continue to be discerning, asking for exemplary service, convenience and tailored products. As they face the economic reality of slowing growth, high prices and lower wages, customers are more savvy than ever and willing to switch their business if they do not get value for their money. Banks are asking themselves: How can we cut costs and increase deposits even as growth slows, inflation soars and customers demand more?
Branches were set up as primary customer touch points, and, as the need for convenience increased, banks turned to ATMs. However, both require the bank to invest heavily in infrastructure and manpower, while customers need to travel physically to transact business. With the advent of direct banking, banks have a service delivery mechanism that ensures several advantages – both for the bank and customers. Direct banking offers financial institutions economies of access. Customers can reach the bank in cyberspace at any hour and from anywhere, thus offering them absolute convenience. On their part, banks can ensure customer delight in a cost-effective manner.
This paper brings to light the various steps a bank can take to turn their customers into bigger depositors. The paper also discusses how innovation and agility can help a bank meet challenges like increasing competition, rapid technological evolution, and the race to grow deposits.
Banks are striving to win in a daunting new world – brutal competition, low margins and customers who want everything and more. The rapid opening up of emerging economies...
and the saturation of developed markets have banks scrambling to tap emerging global opportunities. A reverse osmosis from the developing nations is also reshaping the industry, all with a view to attain sustainable growth. As emerging economies open up to offer new opportunities, banks are setting up operations in multiple countries hoping to gain a fatter wallet-share. They are opting to expand their presence by entering newer areas in these countries, taking up ambitious Greenfield projects or extending footprint through mergers and acquisitions. A new trend is emerging wherein local banks are becoming regional and regional ones are growing into global players.
As banks expand to newer markets, their processes and products must measure up to the challenge of compliance with varied regulations. In addition to this, it is imperative that banks stay a step ahead of the next wave of change by gearing themselves with the latest robust technology ammunition.
This paper explores why banks need to leverage IT for competitive advantage and roll out an operating model for technology that allows people and processes to meet a common business objective. The paper highlights that consolidation of IT infrastructure and standardization of products and processes across the bank’s various entities are the two critical imperatives which can be enabled through a powerful technology platform in a multi-country scenario.
There is a billion-strong globally distributed market actively seeking financial services which remain largely unattended to. These prospective customers...
represent enormous earning potential for banks, but constitute the unbanked. The unbanked are those who do not utilize banking services and have limited banking needs. The unbanked are not the poorest of the poor. However, they certainly include those whom banks need to serve but cannot do so profitably in the existing banking environment.
Though these consumers need access to banking for savings, loans and microfinance, they do not have bank accounts. The reasons for this include lack of steady and substantial income leading to a fear of insufficient funds for an account, limited access to banks (especially in remote areas), lack of formal employment that precludes a financial history, poor financial literacy or even psychological factors such as mistrust of financial institutions. Another important reason for this predicament of the unbanked is that banks do not offer them suitable products tailored to their needs. In effect, they have been excluded by the banks’ inability to understand the unbanked market requirements and the banks’ unwillingness to adopt innovative models to serve them. However, this billion also constitutes an enormous opportunity – if banks are willing to accept the challenge of including them with an eye on the bigger picture.
This paper provides a regional perspective to this issue and examines what banks can do to capitalize on this opportunity as converting the periphery into the mainstream has now become a business imperative.
The retail banking industry accounted for a dominating 57 percent of global banking revenues till recently. Boston Consultancy Group expects this trend to continue till 2015 and even beyond....
However, to make this a reality the industry needs to continuously deal with increased global competition and issues like transitioning to e-products and handling of numerous regulations. At the same time the ever changing needs and behavior of customers should be satisfied.
The growth opportunity in the ASEAN region in retail banking is being seen by top consultancy firms, like McKinsey, as among the biggest and potentially the most lucrative one with estimated revenue of about $180 billion by 2010. But banks need to realize that growth requires innovation and flexibility in products, services, strategy, mindset, technology, processes and operations. Hence, there is a need to align and integrate processes across channels and the various entities of the entire organization, while employing suitable IT solutions. In order to present a truly customer-centric experience banks need to leverage their knowledge of various markets and establish a robust back office infrastructure.
This paper outlines the imperatives impacting retail banking products and services with specific reference to the ASEAN nations, and explores what banks need to do to forge winning strategies in the dynamic and demanding retail banking market.
A new billion-strong segment is slowing emerging today which is increasingly catching the attention of banks worldwide. This segment includes those unbanked people whose requirements for financial services...
has remained unsatisfied due to reasons like lack of steady and substantial income or limited access to banks due to dwellings in remote areas. Though these consumers need access to banking for savings, loans and microfinance, they do not have bank accounts. The challenge for banks is to service this segment and to do so profitably in the existing environment.
Mobile and e-banking solution is emerging in a big way as it enables convenient, fast, simple and secure branchless banking. By leveraging the mobile Short Message Service network, which will quickly and cheaply provide SMS-driven banking services in unbanked areas, banks can increase their outreach. Banks, thus, need a solution vendor who provides the right IT infrastructure which will enable mobile banking in becoming a success.
This paper provides an insight into the special needs of the unbanked population and also gives a detailed checklist of a mobile banking solution’s architecture and functionality that a bank needs to look into.
Managing customers is of prime importance and this realization has placed customer management at the core of all other strategies that are being devised by banks. Banks all over the world are making a visible effort...
... in moving from being product-centric to becoming customer-centric. But, banks need to understand that customer-centricity is not about just wanting to strengthen relationships with customers. Nor is it about having a customer strategy which unequivocally states that customers are a bank’s most important asset. To achieve customer-centricity it is important that everyone in a bank realizes that each fragment of information about a customer should be recorded, analyzed, understood and then re-used to not only develop meaningful responses but also to address the needs of that particular customer. Progressive banks would do well to capitalize on some key initiatives like taking customer management and related issues straight into the board room, charting robust customer strategies and effectively managing shifting customer demographics.
There is an increasing diversity in demographics even within a local region and this is opening up a whole new world of challenges and banks need to become highly successful in exploiting the potential of any region. This paper explains the various factors banks should focus upon in order to ride the continuous demographic transitions that customers go through.
China’s banking sector is growing enormously akin to the country’s economy. It has been estimated that 30% of future growth and profitability will come from retail, small business lending and fee-based lending....
This is why domestic players and foreign banks are fighting tooth and nail to dominate the Chinese retail banking industry. Until a few years ago the banking sector of China had maintained a very conservative approach but today’s zooming economic growth coupled with wide-scale liberalization policies has thrown open numerous financial service options to the Chinese. Experts feel that to reap early profits and reduce the time required to understand the market foreign banks will need to enter into partnerships with local banks. Chinese banks also need to attract the vast population of unbanked customers, provide innovative products for different sections of people and incorporate efficient risk management processes.
In order to comprehend the Chinese banking sector one needs to study the growth of retail banking products as well as understand what might be the key future trends in the retail banking scenario in China. This article examines the booming banking sector in China and takes a look at the players, products and prospects.
Today, every major bank has invested largely in IT or has lined up plans for major investments. Banks look towards IT to improve productivity, operate in a global scenario and offer services in a wider market around-the-clock....
The organizational aim for higher productivity can be achieved only if end users of a product are able to use it to its full extent; in the manner it is best intended. Users should be able to learn the software and get productive quickly. Requirement is for software that lets the user create ‘n’ number of customers per hour increasing productivity of the bank by leaps, as compared to software that lets the user create only a fraction of that. A usable product is one that is easy to learn, increases users’ efficiency, minimizes user-errors and guides the users to resolve errors when they commit any. This will result in subjective satisfaction for users. That is, higher the usability higher shall be the productivity of employees. Productivity is basically a measure of the efficiency of production. Software that increases productivity also adds to the banks’ return on investment (ROI).
This paper looks into the main quality components that define usability to its essence. Usability includes all features that make the software usable for its intended users and paper emphasizes that the software is on target only if users can accomplish their intended tasks satisfactorily with the software.
As banks reap the benefits of non-branch service delivery channels that came of age in the recent past, their quest to expand reach via innovative offerings never ceases. Banking services made available via television media...
have been one such innovation. Banking industry analysts had initially written off this mode of service delivery for advanced geographies, primarily quoting the bright future of Internet/PC paving the way for internet banking as the preferred option over television as the reason. However, most banks have realized that online banking channel feats can only be complemented by using ubiquitous presence of television infrastructure as a viable channel. T-Banking is about exploiting television’s existing reach into households as a viable banking service delivery channel. The commercial applications that can be further built on top of this platform could enable users to perform T-Commerce activities like paying for tele-shopping, making bill payments et al.
This paper highlights some published trends on the internet, that showcase the potential of T-Banking and T-Commerce market, particularly for India. There is also a description of how bankers can exploit the innumerable T-banking and T-commerce opportunities that are present in the market and what are the channel adoption risks and remedies.
Business processes control and describe how business is conducted internally and externally in terms of data and information flow, and also details the interactions between individuals and partners...
with the concerned organization. However, business processes are complex in nature, span across multiple systems and involve interactions across several business units and trading partners. So to keep a particular process operating smoothly, employees devise workarounds and links between applications such as manual transfer of data, telephone conversations, fax, email or simply face-to-face meetings. Unfortunately, this is a sub-optimal solution as organizations are not able to achieve maximum operational efficiency, nor are they equipped to deal with change if business processes evolve, as they inevitably do. Now a new approach labeled Business Process Management (BPM) is emerging which is essentially an approach to effectively automate and manage cross-functional processes by orchestrating people and applications using supporting software tools. But, it is important to realize that unlike other technology trends, with BPM, ‘IT’ does not take precedence over ‘business’. Technology does not dictate the way a firm’s processes are structured. Rather, it is a collaborative approach between business and technology.
Paper discusses the various benefits that an efficient business process management system will bring to the bank that deploys it. A point of focus is how BPM has grown from being a mere concept to becoming an essential in the banking industry.
The growing banking industry needs greater agility to address challenges such as vulnerability to economic cycle vagaries, transient customer loyalties, increasing regulatory pressures and heightened expectations from other stakeholders....
Also, agility is required for harnessing new opportunities such as Mergers and Acquisitions (M&A) and new product segments. Thus, banks need to carefully factor-in agility into their ‘Business-As-Usual’ (BAU) philosophy.
Agility is a mean to achieve and sustain high performance on accounts such as customer base, employee satisfaction, IT infrastructure. An agility framework, if adopted effectively, can provide banks with a structured, mutually exclusive and exhaustive set of methodologies to initiate, measure, track and monitor agility programs. Banks while adopting an agility framework should keep in mind challenges faced by the same which vary from proactive tracking of drivers to controlling the spill-over of program indicators such as time and cost. A comprehensive framework will help banks overcome such challenges.
This thought paper provides an insight into the various components an agility framework should encompass. Paper also highlights the importance of an agility dashboard for keeping the stakeholders informed and with the help of case studies, illustrates the different focus areas in developed vs. developing countries.
Today, money laundering has become a key funding mechanism for international religious extremism and drug trafficking, and curtailing these illegal activities has become an important focus....
These activities pose a serious threat to financial institutions present worldwide. While many Anti-Money Laundering (AML) solutions have been in place for some time within the financial community, the efficiency with which these older AML solutions were able to detect, alert and prevent potential money laundering schemes was dependent on the quality of the data collected by the financial institution and the capabilities of the tools that were tasked with analyzing that data. As a result, a “second” generation of AML technologies has emerged with the ability to monitor every single transaction, discover various types of unusual behaviors and alert officials to the activities that represent true risk to the financial enterprise. These “intelligent enterprise system” are able to learn and adapt, comprehending new money laundering schemes as they arise. They take an enterprise-wide approach, determining every transaction that is unusual, as opposed to looking for a specific patterns or behavior, while analyzing both the client profile and the transactions undertaken by the financial firm.
The paper discusses in detail the key risk assessment components that these systems use.
The ever growing internet is finding its foothold in the banking industry as retail customers are quickly coming to realize the advantages and benefits. It is not surprising that banks and their corporate customers have begun jointly...
... to explore the mutual benefits that could possibly accrue to them by leveraging the Internet. Over the years we have seen a strong shift, in some parts of the world at least, from text-based systems to computer-based solutions and finally to the present situation, namely, Web-based cash management systems. As the demand to move from a thick-client to a thin-client system increased among corporate clients, it is natural to expect that customers would want to have and retain every bit of functionality around the traditional services of collections, payments and reporting and this is where Web-based management system comes into picture.
Web- based management system can be used for multiple operational front-end systems such as customer relationship and branch banking and this is precisely the reason why large numbers of leading companies from different industries are investing heavily in this region.
This paper describes the advantages a Web-based management has for both - the customers as well as the banks and how technology can be an enabler for a smooth- transitioning to a more efficient processing architecture.
Businesses, today, are increasingly valuing agility in their processes and systems, and past models of monolithic application design are no longer effective. One way of increasing agility is to leverage the twin advantages...
of a Web services-based architecture – openness and modularity. Web services improve the flexibility and reach of existing IT infrastructure enabling businesses to fundamentally change the manner of enterprise application development and deployment. Web services attempt to address the problem of integration, though many banks have been reluctant to adopt such new technology.
In its specific implementation in the cash management process, the role of web services in large banks is to provide better integration of data and ensure better interaction between legacy and newer technologies so as to protect investments. Simple web services were initially expected to aid projects that leverage on the characteristics of Internet-enabled computing to showcase applications that have an outward (inter-enterprise) focus; later the requirement was for facilitating what is termed “global collaboration”. However, this requires buy-in from senior management of the potential of web services architecture, and needs management’s shared vision of the long-term business advantages.
This article is an executive’s guide to web services and how they are likely to impact the cash management function in financial institutions.
Wealth Management
Exchange Traded Funds are essentially Index Funds that are listed and raded on exchanges like stocks. Until the development of ETFs, this was not possible before. Globally, ETFs have opened a whole new panorama of investment opportunities to Retail...
as well as Institutional Money Managers. They enable investors to gain broad exposure to entire stock markets in
different Countries and specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investing.
Over the past decade, the growth that commodities have seen as a unique asset class is difficult to ignore. This commodity boom has given rise to a new class of investors who bet on price movements in commodities. ...
Commodities form the base of the production chain and investors prefer buying such resources or commodities directly over investing in the companies that are using them. Commodities are natural resources which are supplied without any difference in the quality across a market.
Traditionally, banks were defined as financial institutions for safe custody, loan, exchange or issue of money for the extension of credit and for facilitating transmission of funds. While these remain as the core services offered, a host of additional services have come under the ambit
of revenue generating avenues for banks....
Under the wealth management space, banks
extended their business by offering bank-owned
and third party products to their clients. The
demand for advisory services has also risen
in recent times post the global financial crisis
as customers seek investment guidance in
difficult times. Today, financial planning services
are offered by most banks in the wealth
management domain. This extension of banking
services makes logical sense since banks aim
at providing holistic solutions to all financial
needs of their customers.
Some financial and investment products have been around since decades. The most successful ones have attracted investor attention by providing consistent returns or maintaining a favorable balance between risk and reward. There are a host of financial products...
available
in the market, issued and guaranteed by government / quasi-government institutions or
corporate entities.
All products, including financial ones, go through a lifecycle; however, the stages of a financial product lifecycle are slightly longer because they mirror the life stages of their users.
Recent studies show that eighty percent of customers are not interested in purchasing investment products over electronic channels or phone; they would rather meet a financial
expert or analyst in person...
before coming to a decision. It is also true that even now, sales
are high from branch banking in wealth management, but alternate channels provide convenience for the regular transactions and provide banks with higher profits with lower operational expenses and transaction cost.
The wealth management industry remains as dynamic as ever. Market fluctuations across geographies over 2008 and 2009 have resulted in new trends in the wealth management space....
Providers and consumers have revamped their strategies and needs and 2010-11 promises to be a year of hope. Providing wealth management services to individuals remains a top priority for financial institutions. As firms continue to move away from a transaction-focused revenue model to a diversified fee-based revenue model, the importance of attracting the affluent customers will continue to take centre stage.
Robust GDP growth over the last few years coupled with significant increase in income levels of middle class families have provided wealth management service providers a significant opportunity in the mass market segment....
The Indian mass market can broadly be defined as families having investible surplus between INR 2 lacs and INR 10 lacs. Traditionally, this market has been addressed by independent investment advisors and insurance agents, with some portion of assets being managed through brokers and banks. This segment has been targeted with product-based selling approach, with rebates providing sustenance to the intermediaries.
Over the past three decades the business of serving the wealthy has transformed from what started as personal banking services to private client services, then progressing to wealth management and finally, to high-end private banking....
The business of wealth management has evolved to become one of the most critical avenues for revenue generation for a bank or a financial services firm. The greatest demographic shift, that is also affecting the way wealth management is evolving, is the movement from a generation of baby boomers to Gen X, then to Gen Y and moving further on to Gen Z.
Wealth management primarily consists of three steps - wealth creation, wealth accumulation and wealth transition. Earlier most wealth managers had channelized their energies and resources to assist the High Net Worth Individuals (HNWI) in the areas of accumulation and retirement planning.
In pursuit of fee based income avenues, banks across geographies have joined the Bancassurance bandwagon. Various business models have been implemented by banks to leverage the bancassurance opportunity....
Models like working as a pure distributor, setting up new insurance businesses, acquiring existing insurance firms and setting up joint ventures along with seasonal insurers have been observed across the globe. In certain cases, a reverse flow has also been witnessed whereby insurance companies have set up / acquired banking business to compete with the serious bancassurance players.
Among the various business models available, the pure distribution model, wherein a bank ties up with insurers to distribute insurance products to their customer, has been particularly popular. The reasons that work towards making this an attractive proposition are primarily low capital requirements, lesser time to market, simpler regulatory requirements and ability to generate considerable income streams without getting involved in core insurance processes like underwriting, risk management, claims and benefits processing, among others.
Here we will take a brief view on the distribution based bancassurance model and highlight the technological solution required to harness the true benefits of bancassurance business.
The wealth management business is a significant revenue generator for banks and financial institutions today. Banks have progressed from being mere distributors, facilitating transactions in various mutual funds to performing an advisory role for their clients....
Client expectations have also increased manifold with the emergence of a stronger relationship between the bank as wealth managers and their clients. Customers are looking at banks as a one stop shop to meet their financial needs. On the other hand, wealth managers aim at managing their clients’ wealth holistically, offering solutions for all their financial requirements.
Relationship managers are expected to manage their clients’ mutual fund portfolio in such a way so as to meet their stated investment objective. Wealth managers aim at growing their clients’ wealth by constantly tracking their portfolio, comparing it against benchmarks and re-balancing when required. This expansion of banks’ role as wealth managers provides new opportunities to enhance their fee income generation capabilities.
A corporate action is any event that results in a material change to a company and affects its stakeholders. The ranks of stakeholders include shareholders, both common and preferred, as well as bondholders....
Processing scenarios for corporate actions are many and varied and pose a serious challenge to any attempt to automate. Some events are simple and in a sense passive as it results in automatic disbursement of cash or securities or other entitlements. However the discretionary or voluntary options e.g. rights, buy backs or dividend options require the investor to make a decision and are complex and more difficult to automate.
China is the second largest wealth management market in Asia with significant wealth creation driven by unprecedented economic growth in recent years. However, the wealth management market in China remains in its infancy,...
but it can be expected to evolve rapidly, in line with the development and de-regulation of financial markets. The key to growth is dependent on a number of factors but will first be prompted by continued local regulatory relaxation. The wealth management market place is evolving with the expansion of the affluent client pool and increased competition through mergers, acquisitions and the introduction of nontraditional players. The considerations to create or strengthen a customer-centric model are complex, but most firms have recognized that long-term success in this competitive market is dependent upon the ability to deliver customer-centric products and services.
Paper discusses the wealth management service canvas for banks as well as gives a componentized view of offerings of an efficient wealth management system. Paper also discusses the changing landscape of the wealth management environment by focusing on issues like present market dynamics, increasing focus on advisory services and the key technological trends – present vs. future prospects.
There is a new segment of customers present in the market that is already sizable and growing at above-average rate. These customers are the “middle class millionaires”- those with net worth between...
$1million and $10 million. Bankers are quickly realizing that the needs of this segment are markedly different from the rest of the middle class. In addition, banks can also make above average margins from these customers compared to a typical retail customer. It is, therefore, required of retail banks to carefully align their retail banking strategies to take into account the needs of these wealthy individuals.
Asia Pacific, as a region, holds the third largest number of HNWI (High Net Worth Individuals).But, despite the expanding wealthy class in the Asia Pacific region financial services institutions are inexperienced in providing services to this unique group of customers. Most are still in the process of exploring different models and approaches that would best suit their target clients and business environment.
Explaining briefly what wealth management is and how it is different from retail banking, the article proceeds to talk about the trends observed in the Asia Pacific wealth management market which include increasing breadth of offerings, selling competitor’s products, changing profile of wealth management providers et al.
Similar to retail banking, the initial wealth management offerings were largely undifferentiated and commoditized, with some cosmetic changes by way of stratifying higher-end retail customers as ‘Gold’, ‘Preferred’, ‘Platinum’ etc.,...
which was often based on very simple criteria like account balances, deposit/ asset values etc. But the market is seeing an emergence of a new subset of “individual” or “retail” clients who have the potential to amass significantly higher levels of wealth. Naturally, such clientele require a higher level of personalization, both in terms of relationship management as well as product offering. There is a need to understand the customer’s current financial position, ongoing financial needs, funds flow requirements, risk appetite levels and provide a basket of investment options and value-added advisory services so as to enable maximization of wealth of the customer. Banks have acted swiftly in responding to these interests. After all the “high perceived value” of wealth management has more attraction than the “low cost transaction” for the retail market. This brings unique challenges for the service provider and opens up immense opportunities for IT players to offer solutions which can cater to the entire life cycle events of wealth management offerings.
This paper tracks what are the requirements from a financial advisor and the wealth management products and services that are present in the market. Paper also discusses the impact that technology and IT platforms has on wealth management domain.
Global stock markets have rebounded sharply and posted hefty gains during the last four years, after bottoming out in 2003. Property and commodity sectors have done exceptionally well....
Buoyed by rising global wealth, private banks and wealth managers globally are upbeat about the prospects for this sector. Notwithstanding the US sub-prime meltdown in 2007 and its attendant impact on the US and world economy, the core drivers for wealth creation including increasing integration of world economies, use of technology, changing demographics, creative finance, supportive governments, rule of law and immigration and trade are likely to ensure that wealth and correspondingly the wealth management business continues to grow at above average rates during the foreseeable feature.
In the current market scenario wherein advisory services from retail banking customers is steadily on the rise mainly owing to increasing market transparency, it is imperative for a progressive bank to transition...
from transaction oriented banking to relationship oriented banking in order to differentiate itself from competition. At such a stage providing financial planning services to customers and prospects can have multifold advantages.
This paper highlights these advantages and also brings to light the fact that while deploying planning services might be a worthy investment for banks, it must essentially follow a careful consideration of the bank’s readiness to take on the rigors of the task. A bank needs to ask itself whether its financial consultation and planning regime is up to the challenge as most clients make their investment decisions or seek financial advice without providing sufficient information about their goals and requirements. By arming themselves with the relevant expertise, exploring service possibilities with disciplined yet groundbreaking thinking and harnessing the insight gained, banks can effectively leverage the advisory service advantage to gain an edge over competition.
Banks in the GCC region are transforming themselves into end-to-end service providers straddling core banking services at one end and investment management or wealth management services at the other end....
This shift is in line with the huge amount of wealth being generated in the region, the changing profile of customers who want to have more say in how their investments are managed and increasing importance being attached to expertise offered by the bank in this niche area. Players across the spectrum from local regional players to specialized private banks are increasingly transforming themselves into one stop shops with wealth management services as a differentiator.
One of the clear differentiators adopted by GCC banks is to offer Islamic banking services. Another equally important transformation relates to the increasing need for these banks to offer wealth management services. Though most of the wealth creation is happening in the government sector; due to numerous actions taken by successive governments to share this wealth with the public at large, either through generous pay packets or with partial public ownership of these assets – the number of high net worth individuals in this region is increasing significantly