Finacle Whiteboard

The changing landscape is forcing banks to look at different ways to enhance profitability through the services they offer. From being a one stop shop for all financial service needs, banks are consolidating their profitable ventures and partnering with third parties in areas of non-core competence.  Partnership, by its very nature, allows banks to share risks associated with their unproven capabilities and achieve higher cost efficiencies. In a recent research, when asked how banks saw the potential for partnerships and collaboration with other companies, these were some partnership categories that emerged:

With distributors – here the format is to work with different kinds of distributers like a retail outlet, where resources are combined to create a unique value proposition for the customer. An example was Akbank’s work with Boyer Fashion Stores, where a new card targeting the younger, female audience was instantly issued in the outlet in less than 15 minutes and had some fantastic benefits including a non-stop lottery programme. Some 200,000 cards were issued in the first five months of the launch. 

With companies from other industries – this partnership format is fairly common with banks partnering with the likes of telecom players, utility companies and so on. Barclaycard launched a contactless card with Orange which allowed people to control their accounts by being able to set daily, weekly or even category-based spending.

With technology vendors – rather than developing in-house technology, more and more banks are looking at vendors to develop technology solutions that can help them become more efficient, flexible and adaptable. There have been enough innovations in the field of Internet and mobile where technology vendors have provided solutions that have transformed the way people bank. Earlier branches would have the highest number of transactions but now most progressive banks have moved over 80% of their transactions from branches to other cost-effective channels.

With smaller niche innovative companies – the trend is on the rise where banks form deep relationships with innovative players  for a specific period of time with respect to a key technology. Credit Mutual Arkea’s investement in UpandNet, the online giftcard company is an example that stands out.

With competitors – though this approach is the least adopted, due to regulatory constraints, most smaller banks are aggressive on this front. Bankinter worked with other banks, including key competitors to develop the HalCash remittance product where a customer could send money via SMS and the receiver could withdraw money from an ATM of any other bank without having a card.

I’m sure there are many more models of partnership that banks have adopted, based on local requirements and this trend of partnership is only going to increase as banks aim to become more accessible, affordable, convenient and simple.

It will be interesting get some perspectives on how models of banking partnerships will evolve in the future.

Posted by Navin Rammohan at 07:06 AM | Permalink | Comments (0) | TrackBacks (0)

The mobile channel emerged as the perfect solution for financial institutions in search of a way to extend reach, improve customer convenience and lower operating costs.  That being said, mobile banking may have enhanced customer experience and supported financial inclusion, but it has been dogged by security issues all along. Service providers have to safeguard transactions at three levels – authenticate user identity, protect devices against replication and secure data transmission. While various technologies such as user and mobile PIN, data encryption, limited on-device data storage and multi-factor authentication improved the safety of mobile transactions, they could not be universally applied and hence, excluded a huge number of older or less powerful devices.

With mobile banking morphing into the much larger mobile-payment, involving any number of third parties, the risks got bigger, extending as far as money laundering and terror financing. M-payments, which can be classified as proximity or non-proximity transactions depending on whether the paying and receiving devices are physically located near each other or not, present different security issues. One of the key concerns of regulatory authorities, banks and other service providers is to safeguard stolen instruments so that they cannot be used to perpetrate identity or financial fraud. They are addressing this threat through the use of firmware such as security-enhanced SIM or memory cards. Other measures include better KYC regulation, compliance and identity verification by the banks’ agents.

Although mobile security is making progress, there isn’t yet a "one size fits all" miracle solution mainly because of enormous device diversity. Hence, banks and other financial participants in the mobile transactions chain will have to pursue a multi-pronged approach, at least for some time. Moreover, they cannot go it alone, and will need to collaborate with regulators, telecom operators and technology vendors to ensure that transactions are secured from the regulatory, networking and infrastructure angles.

Posted by Kiran KSR at 02:53 AM | Permalink | Comments (1) | TrackBacks (0)

Banks in the U.S can no longer afford to go slow on core banking modernization. With the dust settling on the financial crisis, the view of the future just got clearer. Changes in regulation, customer outlook and demography will bring forth new expectations; how well banks adapt to these may well determine their future.

The proposal to revive the Glass-Steagall Act to once again separate commercial and investment banking interests clearly indicates that concerns of risk management and governance are top of mind for banking regulators. In general, banks should expect to face more heat on the regulatory front, and not just in the form of tighter KYC norms. Guidelines on improving financial and social inclusion or green banking will put more pressure from the compliance perspective.

Customer behavior, along with profile is also undergoing a shift. The once debt-dependent American is now putting away for a rainy day! Although the overall savings rate is still in single digits, it has improved a 100% in the last year. Should the trend gain momentum, U.S. banks could suddenly find a huge amount of retail deposits and a consequent asset-liability management challenge on their hands.

Although American banks are not new to customer diversity, the widening gap between the expectations of different segments comprising seniors, Hispanics, Gen Y and so on is stretching their ability to meet individual needs.

Hence, these banks must be at their innovative best to meet the challenges and manage the risks posed by these trends; what’s more, they must do so with fewer human resources. The challenges are compounded by the legacy systems that are still very much in use at several U.S. banks. Clearly, the best way out is to revamp the core banking technology infrastructure to render it robust enough to drive innovation in any form.

This means that a big opportunity awaits those core banking solution vendors that can fulfill new expectations. As U.S. banks take an enterprise-wide approach to their operations, they will need a banking platform that can enable both core and non-core banking transactions through a single front-end. Hence, the current integrated banking platform must morph into an enterprise banking platform soon. And yes, this platform must be able to handle emerging technologies such as web 3.0 / 4.0, mobile payments and convergence and their accompanying risks, as well.

Posted by Rajashekara V. Maiya at 10:11 AM | Permalink | Comments (0) | TrackBacks (0)

Every treasury worth its stash understands the vital value that derivatives analytics can bring. More so, after the losses suffered by the banking industry in the recent crisis. As banking products get more and more complex, the challenge to get their ‘mark-to-model’ closer to ‘mark-to-market’ is greater. And robust analytics can prove to be the differentiator for banks that aggressively innovate with products but seek to keep their risks manageable.

Treasurers have always known that the best of products will remain unleveraged unless they are priced right. That here’s where robust analytics can make a world of difference. But how geared are banks’ solution vendors to offer treasurers the pricing models they need? Most solution vendors barely offer more than the standard transactional software – which though critical for treasury operations, meets not the need of the hour on the analytics front. This most often results in banks seeking help from additional analytics solution providers. Bringing in the add-on hassles of multiple vendor management and interfaces.

What’s to stop banks’ technology solution partners from bringing in the added value of derivatives analytics in addition to their transactional automation, through strategic alliances with specialist pricing solution providers? This will promise banks the critical edge they need, with the convenience factor that’s critical to ensure the long-term feasibility of a value-partnership.

Few treasurers, I believe, would disagree.

Also read this thought paper - Modular Solution, Modular Implementation: A Stand-out Option for Medium-sized Treasuries

Posted by Milind G Kolhatkar at 10:20 AM | Permalink | Comments (1) | TrackBacks (0)

Small and medium-sized banks are often in a quandary about renewing their treasury systems. Implementation is not just a complex, risk-bearing, expensive affair; it could take so long that by the time it’s done, the original objectives may have changed. What’s more, those with modest treasury operations may not need the entire repertoire of functionalities built into a full-fledged solution. 

Pre-configured offerings available in the market enable accelerated implementation but offer virtually no flexibility or scope for customization. That’s not much use in present day banking when every organization has its own requirements and expectations.

Now, these banks have a viable and expedient alternative in the form of an innovative stand-alone solution that allows them to pick currently required functionalities from a menu and add more modules as they go along. It can be implemented within a short time, and at lower cost, since banks need only pay for the functions they choose to have. And since turnaround is quick, it circumvents most problems typically associated with treasury modernization – manpower constraints, project overrun and cost escalation.

Does this sound like something everyone outside of tier-1 treasuries have always been waiting for?

Posted by Milind G Kolhatkar at 03:50 AM | Permalink | Comments (0) | TrackBacks (0)

If your pocket is picked, lost cash may be the least of your worries. There’s a goldmine hidden in a driver’s license, Social Secuirty Card and other documents of identification. With one strike every four seconds, ID theft – stealing an identity for financial or other gain – is the fastest growing crime in the United States. What’s worse, this can be a slow burn, lasting indefinitely and hurting repeatedly.

ID fraud has matched financial evolution step for step. “Friendly theft” - misusing an acquaintance’s credit card for petty gain is passé. Tricksters have moved on to bigger things, thanks to the emergence of more innovative and less regulated modes of online payment. Thus, phishing has reincarnated as “mobile phishing” and “cracking” is hacking’s newest avatar.
 
Social networking platforms, aspiring to become full-fledged payment engines of the future, are particularly vulnerable. A tie-up between ClickAndBuy and Facebook has enabled friends to send and receive money, but there’s no way for them to ascertain that the money is reaching the right person and not someone doing a clever impersonation using publicly available profile information.

Similarly, stored value accounts attached to prepaid mobile phones have made money transfer a cinch for not just the unbanked, but those with nefarious designs as well. Given the lack of KYC regulation, prepaid accounts can be had with a fake identity and email, making these accounts nearly impossible to trace.

No doubt there is a need for consistent and effective regulation; however, banks and their customers must also share the responsibility of guarding against ID theft. Identity verification by way of biometric, multifactor or adaptive authentication can help a great deal. So can measures to control and authorise access to customer information within the bank itself.  It is also banks’ duty to spread awareness among their customers about safe and prudent financial practices. On their part, customers must be more diligent in the way they use, store or dispose of sensitive information that is susceptible to misuse. Subscription to credit reports or transaction alerts can also provide a valuable safety net. And should something go wrong, they must call the right authorities without delay.

Posted by Arunnima B S at 04:57 AM | Permalink | Comments (0) | TrackBacks (0)

A wise man once said that “the most fertile source of insight is hindsight”. That’s never been truer than in the aftermath of the financial crisis, when pretty much everyone said they saw it coming! The U.S. is leading the damage control effort, having spent a couple of trillion dollars bailing out its beleaguered institutions and now trying to separate their commercial and investment banking businesses. Strengthening risk management within the financial system is currently a top priority of U.S. regulators, and why not? It may be justifiably said that short-sighted lobbying of big U.S. institutions led to dilution of KYC norms and took systemic risk up to break point. It is this very systemic risk that cloaked the unsafe practice of sub-prime lending.
 
That’s not all. Sovereign risk can have widespread repercussions on the domestic economy especially when the defaulting nation is a key trading partner. Banks’ wariness about taking on any counterparty risk has created a liquidity crunch among banks. Managing market risk arising from liquidity, interest and exchange rate movements is becoming more expensive. And enough has been said about credit risk in the market.
 
Since the global economy is a world-wide web, risk can no longer be isolated. Sovereign risk leads to currency risk which in turn escalates market risk and so on in a vicious cycle. Any of these could increase the threat of reputation risk, which is the worst outcome for a business that is founded on trust.
 
So, where do banks go from here?
 
Strengthening risk assessment and mitigation measures is a no-brainer. Basel II norms have linked capital charges to risk exposure and the quality of its management, making it harder for banks that are on the edge. Basel III and G20, currently under deliberation, will likely progress the same agenda.
 
Since risks don’t operate in silos, neither can mitigation. Going forward, banks must take a holistic, enterprise-wide view of all risks, so that they can assess and address them more effectively than before. Foresight beats hindsight any day, don’t you think?

Posted by Rajashekara V. Maiya at 09:15 AM | Permalink | Comments (0) | TrackBacks (0)

Collection managers have an unenviable task these days. The global economic downturn has made loan delinquency a near universal problem, no longer restricted to a few customers or segments. Although collection management has progressed from the old days of paper-based reporting and manual follow-up to a more automated system, it still has its limitations, particularly in the way overdue cases are bucketed together without differentiation based on size, age or tenure.
 
While the future of collection management lies in technology, auto-diallers and monitoring systems cannot substitute the intuition, skills and experience of collection managers. More so in these times, when banks cannot take a rigorous stand on debt recovery and must instead temper their approach with pragmatism. Thus, every delinquent loan must be weighed on merit and a mutually acceptable solution must be proposed to salvage the maximum possible value. On top of that, banks taking financial support from the Government in the form of capital participation or asset guarantee will have to ensure compliance with the terms of the deal and regularly report the usage of these funds.
 
Naturally, this puts an immense workload on collection managers. Since skilled personnel don’t come easy, banking institutions have to turn to technology to bridge the gap. For instance, a system that provides a 360 view of customers, consolidated across all the relationships they may have with the organisation, is a valuable asset to accounts receivables analysis. Technology can also be a key enabler of compliance and reporting requirements in collection management.
 
If they still can’t cope with the pressure, banks can seek the help of professional collection managers until their own infrastructure is scaled up.

Posted by Ashwini Kumar Achutha at 02:46 AM | Permalink | Comments (0) | TrackBacks (0)

Agility is not about “fastest-finger first”. Rather,  it  is an attitude, a value system, a willingness to be nimble of mind as well as quick of body. It is about understanding that to achieve greater competitive advantage and higher shareholder value, organizations need to innovate  consistently – moving quickly and thoroughly through product and process development – in other words, be more agile. Clearly, there is no place for status quo.

Of course, banks must direct their innovation energies towards finding ways to leverage existing resources fully before investing a single dollar in new ones. Efforts need to be made to identify latent customer desires and learn from cross-vertical best practices - An excellent example is that of the music industry. MP3 invasion was becoming a download phenomenon. Rather than fight it, which would have been in vain anyway, Apple recognized an opportunity in the strong consumer demand for “playlist music” and went after it. Apple showed the world how innovation and agility can win the day.  The iPod became an instrument that allowed consumers to easily and legally access their choice of music using iTunes, and in this way, connected service providers with end users. The rest, as they say, is history. Clearly, agility is about fitting rather than fighting.

Banks are no different and face similar pressures from regulators expecting greater conformance, customers demanding better performance and rivals looking to wean away their customers and their employees. It is probably more prudent for them to find innovative ways to fit into the ever changing environment rather than fight the elements.

Another facet which demands banks’ attention is firmly keeping long-term aspirations in mind. Banks must pack their products, services, channels and other offerings with lasting differentiation.  They must be inherently robust so that their core proposition remains valid despite changes in market needs or regulations and flexible so that they can be innovated upon from time to time.

Taking this thought process forward I have authored a paper “The 10 Innovative Ways to Achieve Greater Agility in 2010”, which will be published in the next issue of FinacleConnect.

Posted by Rajashekara V. Maiya at 11:37 AM | Permalink | Comments (0) | TrackBacks (0)

Social and development banking is emerging as an exciting landscape. The unbanked have   special needs - proximity and ease of access, flexibility in savings and repayment schedules, simplicity and speed in processing, small product sizes for loans and low-balance savings accounts, basic financial education and information. More than anything else it is the convenience in banking as simple as buying something in the Kirana/mom-and-pop shop next to his house.  With pressure building up to continually explore new growth avenues, banks are  recognizing the potential  of  the previously unbanked market – In India alone  the  rural population counts for nearly 70% of the entire population i.e. a multifold increase in customer base. According to a 2007 survey, the number of RRBs serving this population is around at 91 with over 14,000 branches, spread across 585 of the 622 identified districts.

In order to achieve a compelling strategic advantage and adequate penetration into markets like these, these banks will need to focus on aspects like customer-centricity and an enterprise-wide view of operation. The bank’s business strategy has to reflect the needs of this segment and should have the ability to handle the challenges of social and development banking. This, however, is easier said than done. RRBs today continue to traverse an increasingly rocky path, facing significant economic, infrastructural and business hurdles that heighten in complexity with every passing year. There is a lack of automation, large dependence on manual operations, dynamic market conditions and most importantly, lack of adequate infrastructure which translates to high project preparation costs, and risk aversion amongst sponsor entities.

The RBI’s diktat is for RRBs to achieve automation before the dawn of 2011. Automation is a mandate and rightly so! A robust technology solution can enable RRBs to confront several current market and business challenges. From empowering RRBs to define products through a flexible product definition capability to parameterization of product features to enable re-use of components; from configuration of consumer banking offerings to managing subsidized offerings by effectively supporting both principal and interest subsidy products - The right technology behind the regional rural banks can meet challenges of managing change, competition, compliance and customer demands effectively.

Today, functionally-rich modules are essential in order to provide RRBs with a varied choice of features to continuously innovate on their product and service offerings. Simultaneously, in order to enhance operational efficiency and facilitate ease of use, banks must look at the technology that can be easily integrated with industry standard-based framework and provide secure and scalable reporting infrastructure to meet various reporting needs.

Posted by Rajashekara V. Maiya at 03:47 AM | Permalink | Comments (0) | TrackBacks (0)