Finacle Blog

It's somewhat hard to imagine an agile bank, given the size, complexity and conservatism of financial institutions. But an agile bank isn't necessarily the fastest, but rather, is one that is fleet-footed, along with being nimble and flexible. It's a marathoner, not a sprinter.

A bank can be agile in different ways. A range agile bank is nimble enough to scale up (or down) its various capabilities as the situation demands. In banks that have modernized their core systems, even business users can tweak certain processes on their own, without calling for help from IT staff.  These banks can also add or drop products and channels quite easily. This is what range agility brings.

A time agile bank is one that is faster off the blocks. Once again, modern core platforms impart time agility, enabling banks to launch new products in a matter of weeks or less, when earlier they would take years.

There's a symbiotic relationship between agility and change. By definition, an agile bank is surrounded by and is constantly creating change; and only an agile bank can manage change successfully. Often, it is a change driver that makes the bank realize that it needs to become more agile. This is why it is very important for the bank to spot change drivers early, as well as identify those factors that will enable it to mount an agile response to change. Sometimes this change identification and response mechanism may involve big decisions, such as the introduction of service automation or a new banking channel.  Hence, it is crucial that the management of change and agility receives adequate attention from the top, and is backed on the ground by departmental teams responsible for ensuring smooth communication, implementation and transition. Also, best in class technology and analytics solutions can be a valuable asset while formulating change management strategy and decisions.

Posted by Kartik Ramadas at 9:51 AM | Permalink | Comments (0) | TrackBacks (0)

Each morning as I read my financial newspaper I see the world economy sinking deeper into a black hole. The learned economists say it's the proverbial second dip. The US economy is not likely to grow till 2013; the policy rates will be kept "exceptionally low". Europe is staggering to stay steady. Germany reported growth of 0.1% from April to June. The 17 member euro zone grew by 0.2% in the same period. Inflation is rising in Asia. So where will the corporates get money from? The banks of course, silly!  Do the banks have money? Yes. They do. The stress tests are teaching the banks fundamental lessons that liquidity is more valuable in difficult times than potential numbers from investments or for that matter risk based lending. The banks will not loosen the purse strings, they are very circumspect. The corporates will have to fend for themselves for liquidity and to be in business with little reliance on banks. This blog looks at the key focus areas where corporates on their own or in conjunction with banks can survive the eco tsunami.   Cash:
Cash is cash and nothing is more liquid. The smart corporates will look beyond lines of credit from banks as a source for liquidity. The cash component in the balance sheet will be substantial enough for a corporate to cover the working capital life cycle plus pay off the interest on debt demanded on periodic basis. This means addition to reserves, less dividend to shareholders. Thus the dependency on banks will be much lesser; so also reduced investment in areas such as Information technology. A safe corpus, unencumbered and free is what strong corporates will show in their balance sheet.  
Cash pooling
The cash assets (cash and bank balance) will be in currencies that are easily convertible and for companies that are global, ability to repatriate profits to the parent country will be the mantra. Here cash and liquidity management will play a key role for pooling funds. Banks that are global and have products that truly demonstrate the value to a corporate will benefit by attracting top tier corporates. This will enlarge the portfolio of fee based income. The pan global movement of liquidity from surplus areas to deficit areas without reliance on lines of credit from banks will be the order of the day.   
Liquidity management
The dependence on payment hubs will increase. In trade related transactions the real time settlement of funds with near real time pooling will enhance a corporates capability in optimising the intraday liquidity balancing the cash flows.  The corporates that maintain a near zero open position will reduce operational costs. It will make economic sense to have relationship with one global bank. The cash outflows and inflows will be netted of in a geography optimising the source and use of funds. The payment hub will seamlessly move funds within a bank and between banks. The banks with strong payment hubs will be in demand.
Trade finance services
Corporates will look to receive funds when due on the first day and pay out on the last day due; encourage prompt payments with discounts and receive cash incentives for early payments. The trade finance services will see more volumes. This will reduce risk for a corporate and add to fee based business to a bank. Banks that offer cross border consultancy will see business grow. Service innovation that creates a global market place for corporate customers will grow even faster. E-invoicing, financial supply chain management, business partner market place, will gain currency.   
Regulatory compliance
Regulatory compliance will be an obsession and will haunt both the corporates and banks. Investments will be made to comply with regulations. Better compliance will translate to increased business opportunities for corporates and credibility for banks.
Corporate treasury
Corporate treasury will see growth. With corporate specific risk management practices built into the system, counter party risk (banks and business partners) tools that have robust data visualisation and analytics will be in demand. A CFO and a CTO will collaborate and see eye to eye (at last) and investments in information technology will be a business decision.  
In conclusion
The corporates will be looking for 'fine' cash management by improving operational efficiencies in managing cross border liquidity with little dependence on lines of credit. The banks will scale up to the industry demands by offering products (payment hubs, cross border real-time pooling) and consultancy services (Trade advisory services, Business partner services) that will generate low risk, fee based income. Lending, if any will be collateral based. To a corporate it will be competitive with low interest rates and to a bank highly secure low risk asset. This sets a level playing field, with no losers in difficult times.

Posted by Vishwanath Thanalapatti at 4:55 AM | Permalink | Comments (0) | TrackBacks (0)

In my first lesson in banking in school I asked my professor a simple question "what do banks do?" Her response was "banks accept deposits for lending. In the process make profit from the interest difference." Fee based income (Non-interest income) was a mere footnote.  Over the last 20 years fee based income is the major contributor to a bank's income.
In Asia Pacific region more than 20 banks have more than 50% of their operating income from Non-interest income (www.theasianbanker.com/bankmetrics/ab500/prhnir). Statistics on the OECD portal (www.stats.oecd.org) has a very telling story on fee based income. The trend is here to stay and is true across all geographies. The traditional income structure for fee based income has also changed significantly. The new players such as credit cards, fiduciary activities and mortgage processing fee are contributing to a bank's kitty. There of course is the Durbin amendment. Fee from debit cards (currently in the range of USD $17 to $19 billion) business is likely to plummet. The global economy more pronounced in the last few weeks is going one way, south.  The banks have lesser options for quality lending and are risk averse to try out exotic products, with the past experience nothing to be proud of. Regulators are not very helpful either. How to keep the shareholders happy in the given economic environment? I see 'Business Partner Advisory Services' (a market place) and trade finance services (Letters of credit, bank guarantees, standby letters of credit and so on) that brings medium sized corporates to the business table to be the safe and profitable way forward.
Business Partner Advisory Services:
This will be the first stage in the financial supply chain management; a market place where the sellers and buyers (business partners) are brought together for a business opportunity. Banks that have global presence are best equipped to offer this service. Currently trade finance is a passive activity. The banks are processing and settlement factories. The innovation will be in creating a virtual market place for corporate customers. The benefits of globalization and technology will be efficiently leveraged to make this market place. The enterprise level global CRM for banks will be the key to this service. Customer analytics with intelligent analytical rule engine will be the distiller that will give the 'Business Partner Advisory Officer' information to broker a deal.  Let us see how this works.
GB is a global bank (say) having business in US and China. The corporate customers of the bank include a medium enterprise retailer in the US and a medium enterprise manufacturer in China. These corporates given their size cannot invest money in building cross border business models. GB is opportunistically placed to bring the seller and the buyer together having done the due diligence checks. GB adds credibility to this equation. The connect, once established will open up business opportunities for GB in trade finance.
Cash Management:
GB is on a core banking platform having a robust 'Business Partner Advisory Services'. The business partners, customers of the bank will use online e-invoicing service offered to corporates on e-channels. As per terms of payment contract, money is transferred from buyer's account to seller's account. GB will help the business partners in tracking the e-invoices receipt, payment processing and closure. The matrix of each business partner's relationship with the other and the Bank is managed by GB.  One seller can be connected to multiple buyers and vice versa. GB's mature operational efficiency will help in managing such complicated relationship.    GB becomes the collection and settlement agent for business partners. In the process perform the services for real time fine cash management.
The intermediation role for a global bank is more profitable less risky with new avenues to garner fee based income. This is what 'customer centricity' is by definition; offering services that bring value.  
If I go back to school today and ask the same question, the response I see will be "banks accept deposits and offer banking related services. In the process make profit from serviced based fees." Lending will be a footnote.

Posted by Vishwanath Thanalapatti at 5:19 AM | Permalink | Comments (0) | TrackBacks (0)

I would be the next Warren Buffett, if I'd only had the time to sit with my financial advisor. Right!

Jokes apart, there's a growing demand for sound professional financial advice from investors looking for ways to balance multiple goals - from living within their income to building a nest egg for retirement. Surveys show that this demand has intensified after the financial crisis.
But, getting the right advisor is a different matter altogether. Competent advisors don't come cheap. Other factors such as shortage of time or reluctance to discuss one's financial issues in person also prevent many people from seeking advice.

As is the case with most problems these days, the solution can be found online in the form of a Virtual Financial Advisory Service. This service enables investors to interact with financial advisors over the Internet, immediately slicing through the barriers of time, space and distance. It's possible to book appointments, seek opinion, resolve queries online, and much like in a physical seminar, also network with fellow investors in a discussion forum. A video chat facility makes the interaction more comfortable for those who are unaccustomed to the online world, and because there is a panel of advisors, advice seekers don't have to wait in queue.

Several organizations, including Bank of America, GoSimplifi.com and HelloWallet are offering virtual financial advice to customers, to everyone's benefit. Besides all the good stuff that it offers to individual investors, this facility enables financial organizations to tighten their grip on customers and snap up additional revenue in fees and commission, and helps advisors reach a much wider audience.

With life turning increasingly digital, it is only a matter of time before online financial advisory takes root. At that time, it won't restrict itself to websites, but will penetrate the mobile and social web as well.

Posted by Pooja Agarwal at 12:38 PM | Permalink | Comments (0) | TrackBacks (0)

It's been a long journey for banking innovation, from when it started out some 1,800 years ago when Persian merchants issued the first "checks", to its current state.  While there have been ups and downs, financial services innovation has endured, to revolutionize the business of banking, enable struggling institutions to claw back, and now, allow non-banking firms to make a statement with disruptive offerings. Barring a few detractors, the overwhelming majority believes that banks must innovate, or risk the consequences.
Infosys has always been a strong advocate of innovation, putting in years of effort and investment into creating technology products and services to support banking institutions globally. And now, we've launched a new initiative, jointly with BAI (Bank Administration Institute), to recognize the achievements of banks that have created a positive impact on customers and organizational profitability with breakthrough innovation.
The 2011 BAI-Finacle Global Banking Innovation Awards is a prestigious program that will honor game-changing products, services and practices from the world of global banking. Awards will be given in three categories, namely Product Innovation, Service Innovation, and Disruptive Innovation. The award in the first category will go to a bank that has created excitement among customers, new revenue opportunities, or competitiveness with a new product. The service innovation award will be given in recognition of service and customer experience excellence across all banking channels. The award for disruptive innovation will honor a bank that has made a global impact by challenging the norms of retail banking with a radical product or service.
The jury consists of an eminent panel of industry analysts, consultants, academics and retail banking professionals, who will decide the winners based on Originality, Applicability and Impact.

Posted by Navin Rammohan at 6:25 AM | Permalink | Comments (0) | TrackBacks (0)

Who can deny that information technology has changed banking beyond recognition, making it big enough to straddle continents, yet small enough to fit into the palm of one's hand? So, it's understandable if the layman is taken aback by the constant tug of war between the business and IT sides of banking.
However, for those within the banking industry, this is a mere truism. Surveys have shown time and again that banking professionals believe that the relationship between business and IT is a major barrier to innovation. On the ground, communication issues and the hard-to-resolve question of who should be leading lead whom, often plague this relationship. The lack of alignment is so commonplace that many people believe it can never be any other way.

I disagree with that view. Together, banks and IT have achieved much over the years. Imagine what an improvement in their relationship could bring. I know of a number of frameworks for improving business IT alignment, and in short, this is what they say:

Business and IT must jointly work towards business goals. If technology is driven by the same goals as business  - for example, improving the bank's agility or scaling up transaction volume - the two will naturally pull in the same direction.

IT must outgrow its image. Technology does itself no favors by behaving like a support function. It must believe that it is part of the business, with equal responsibility for achieving business goals and overcoming business challenges. By positioning itself as a provider of business services and solutions, rather than a custodian of hardware and software systems, IT can claim an equal place at the table.

On its part, business must pay more attention to IT resources, which are often neglected. This is because the quality of these resources could make or break their competitive edge.

IT must drive business value. The true worth of any technology investment is measured in the value it brings to the business by way of improvement in revenue, profit or speed. Unfortunately, pinpointing value is tricky because of a number of reasons - in most cases, there's no single definition of business value accepted by all stakeholders; when several projects run in parallel, it's hard to segregate the value created by each; and often, business value isn't tracked at all. But, if IT could prove that its initiatives have helped achieve hard business metrics, it will put the alignment debate to rest once and for all.

Posted by Balwant C Surti at 4:31 AM | Permalink | Comments (0) | TrackBacks (0)