Finacle Blog

It's not often that Bill Gates is proved wrong. However, banks have stoutly defied his famous proclamation that "the world needs banking but it does not need banks" thus far. Not only that, even branches continue to thrive as customers' preferred channel - this, in spite of banks' efforts to migrate transactions to other touch points.
So what is it about the branch that continues to attract customers? Why do branch-bankers walk a few blocks, when they could so easily do their business from home? How do otherwise impatient customers wait patiently in line at the teller window?

Sure, demographics, (a lack of) tech-savvy and force of habit have something to do with it, but in my view, the biggest reason why customers can't let go of their branch is because they feel comfortable inside it.  A branch may have its limitations, but it has one thing going for it, and that's its human touch.  Customers feel reassured when they see someone they know and trust. They know help is at hand, should they need it. It's that simple.

And this is exactly what other channels, like Internet banking, lack. A sure way of getting customers to use those channels is to make "human support" available on them. This is easily possible, thanks to the advances in Information and Communication Technology, which allow a web chat or video conference facility to be appended to an existing Internet or mobile banking offering. The other thing to do is to make banking a lot more interactive by taking it to the social web. There are some banks that have put "real people" (names and all) on popular social sites to represent their institution in public conversations.  Others (admittedly not many!) are using social forums to improve customer service. There's also speculation that a Facebook (or other) id might be used as customer identification - pretty much like the mobile number is today - to enable banking customers conduct basic transactions with their bank from within social networking sites. And the ultimate vision of Internet banking? That it will replicate the entire branch experience - tellers and all - in the virtual sphere. A virtual branch - Ah, maybe Mr. Gates isn't so wrong after all!

Posted by Sudha Annie Saigal at 5:05 AM | Permalink | Comments (0) | TrackBacks (0)

In 2008, the world performed nearly 300 billion non-cash transactions, using credit and debit cards, ATM/POS terminals, electronic payments, checks and drafts, to name a few. A complex maze of intermediaries such as banks, payment networks, gateways, processers, clearing houses, regulators etc. made these happen. Every day, banks deal with a microcosm of this complexity as they juggle millions of payment transactions of different types, and a different processing system for each. The systems work in silos, which means that they're devoid of a bank-wide view; are harder and more expensive to maintain; and obviously provide disparate experiences to corporate users. That's simply not good enough in the present banking environment where agility, quality of experience and efficiency are imperative for survival.

For some time now, there's been a call for an Enterprise Payments System, a one-stop solution for all payment related activities of a bank. An enterprise payments system integrates all the legacy payment applications within the bank to give it a consolidated view at every stage of the payment lifecycle, facilitate reporting, and ensure that users enjoy a consistent experience regardless of the type of payment in use.

This is arguably one of the most awaited developments in banking. With banks turning their attention to leveraging their payments infrastructure better, it is estimated that around 60 payment hubs will be deployed by 2012, which will rise to about 150 by 2014. While different technology vendors are employing different approaches, they all agree that in order to be effective, the solution must be able to handle every mode of payment and every type of payment network.

Amen to that.    

Posted by Krishna Kumar Saraf at 5:30 AM | Permalink | Comments (0) | TrackBacks (0)

A freshly appointed personal banker persuades a new customer to accept a credit card, assuring him that it is free. Come year 2, and the customer finds an annual renewal charge on his card statement. He shrugs it off, along with the credit card. Maybe the bank will win him back with an apology and fee waiver, or maybe not. Instances like these are small irritants, which if left to fester, can create a crisis of credibility for banks.
In the above example, an employee's over-enthusiasm almost nipped the customer's hard won trust in the bud. In a business like banking, which is built on faith, such a lapse could prove very costly indeed as the recent crisis showed, when the misplaced greed of a select few banks sent mighty institutions tumbling all over the world.  Customer trust, which until then was a given, took such a beating that banks are still in the process of restoring it.
While the task is not easy, at least banks don't need to grope in the dark. For banks that are willing to listen and learn, there are invaluable lessons in most customer interactions, telling them what they must do to win back confidence.
The first of these is creating openness. In the age of information, any business that lacks transparency is asking for rejection.   More so, after the crisis, which was precipitated by the creation of obscure products in the name of innovation. Customers have turned very vigilant about being presented with hidden charges and risks, and the only way for banks to keep their faith is to be upfront and open with the "fine print" and create simple "what you see is what you get" offerings. They must also use social media to establish a one to one dialogue with customers and rebuild broken bridges.
Thanks to the media focus on regulation, customers have become more aware of risk management and compliance, things that they took for granted or paid no attention to, prior to 2008. In parallel with their internal efforts to comply with heightened regulation, banks must launch an external communication campaign to generate awareness (and hence confidence) about these measures, which ensure that they are safe and reliable to deal with.  In a way, this is also an opportunity for differentiation.
It's also necessary to show empathy. Customers - not unfairly - believe that they are paying for their banks' excesses. It's time to lessen their pain with a more sympathetic approach to their problems, more generous terms of business, and a stronger commitment to service excellence.

Posted by Hema Singh at 5:24 AM | Permalink | Comments (0) | TrackBacks (0)

I log on to Facebook , click on the Mibank tab and select the Oneview option. I see a consolidated statement of all my bank accounts.  Next I go to Google + and hit on the Moneygone button.  My expenses for the past month show up.  I then use the Compare function and what I see worries me.  I am the second highest spender in my network.  Time for some belt tightening, I decide. Ok, so these tabs are a figment of my imagination, but the scenario isn't. In all probability, this is what social networking will evolve into in the future.  Banks are fast realizing the value of social media as a platform for not only communicating with customers and taking their feedback, but also for turning them into more financially responsible citizens. Among other things.
Today, one doesn't need a PC for online networking.  People can use an iPad or tap their smartphone to tweet, write on walls, share pictures, review a product, make a purchase or download an app. It doesn't even matter where they are - in the office, out shopping, or just hanging out in a park somewhere. But beyond pure mobility, the geo-location capability of these devices adds a whole new dimension to the usage of social media in business. For instance, some banks are partnering with retail outlets to pass on a discount coupon via their mobile banking platform to their customers in the stores' vicinity.
But that's the story of the first movers. However, there are still a large number of institutions that haven't yet got into social media. Or don't know how. For them, defining the objective is a good place to start.  Do they want to retain customers, heighten engagement, improve customer service, crowd-source ideas, improve market reach or do all of the above?
Once that is clear, they must draw up a plan detailing their agenda, identify resources and risk, allocate responsibility and establish performance metrics. In other words, approach their social media debut like any other strategic move. For that's exactly what it is.

Posted by TC Dinesh at 9:55 AM | Permalink | Comments (0) | TrackBacks (0)

More than ever banking is now about strict risk management, prudent lending policies (so much so that many politicians are accusing banks of not lending enough in these difficult times) and equally vital, nurturing and growing the deposit base. Indeed it is the deposit base that is the life blood of a bank, and in an increasingly risk averse world, it has turned into a critical business area for both banks and their depositors.  With the current market conditions of interest rates in the G7 at rock bottom, in some cases at levels not seen in decades or longer; bankers usually look to ride the favourable yield curve. In normal times, by relying on their credit worthiness they gather up large amounts of cheap deposits and then lend them in the government debt market making a healthy profit with low risk.
But in this particular credit crisis I think the rules have changed, the banks have potentially impaired creditworthiness, and even more extraordinarily so do some major governments. Sovereign debt is simply not as safe as used to be confidently assumed. As a result, the normal state of affairs has changed, with many large depositors being attracted to money market funds and signs that banks are struggling to build deposit bases. In addition the heightened worries about credit have changed the nature of the inter-bank lending market - banks cannot rely on cash rich competitors to supply liquidity via this market.
On the depositor side of the equation, we can see that the ultra low interest rates have spurred a desire to try and improve yields. The treasurer's conundrum of balancing risk with reward and maintaining liquidity is still a major preoccupation, but the reward element has been particularly challenging. The old market mantra of "hunting for yield" is in full force. In response to this, many banks have developed structured products that seek to produce higher returns, the most prolific of which have been the so called Dual Currency Deposits. By embedding short currency option positions within a deposit structure it has been possible to juice up the yield by utilising the premium received from the short option position. Of course risk is heightened in this strategy (basically creating an exposure to fx prices) but for the large and sophisticated depositor they hold certain attractions.
In parallel to this burst of innovation in products the technology has had to respond by being able to record, monitor and manage these more complicated investments. Increasingly both sides of the deposit market want instant flexibility across multi platforms and delivery channels. The technology arms race will be as important as the product innovation race.

Key Deposit Market Challenges
• Banks have to create more competitive products, as they can no longer assume they are the first port of call for spare cash. Sitting and waiting for spare cash is no longer an option let alone a business strategy. Agile and scalable cash management, risk monitoring and interest rate sensitivity tools are the core of any successful deposit management framework.
• Institutions and corporates are managing cash ever more aggressively. Leading players have a two pronged strategy; firstly a much more holistic approach to cash management integrating investments across multiple banks, money market funds and high grade short term paper, coupled with this significant investment in systems and messaging tools to enable seamless management.

Final Thoughts   
To summarise, I think that increasingly corporates know where every dollar is and is going to be, and where the "missing" dollars are likely to appear as well. Banks are being pressured by credit worries, poor offerings on vanilla products, and strong client demand for more innovation and originality in product offerings. The deposit market once a fairly sleepy part of banking has turned into a major battleground over the last few years. Cash management is turning from an art into a science.
Discussion Points
• How can banks match the competition from money market funds and short term high quality commercial paper etc?
• What next for corporates - might we even see a revival of an old idea of inter-corporate lending and dis-intermediating the banks?
• Will the "hunt for yield" bring up future horror stories when some investors are shocked by the risks in some structured deposit instruments?

Posted by Sanat Rao at 5:19 AM | Permalink | Comments (0) | TrackBacks (0)

We are now over four years into the Credit Crunch - and the financial and banking markets continue to remain fragile. Even the largest names are under extreme scrutiny and so accurate liquidity and cash management remain vital for both corporates and financial institutions alike. At first glance the simple business of monitoring and managing cash flows should be a straightforward management practice, but increasingly it's a complex undertaking with many links and dependencies that can test the most efficient organisation. I think we can see that the major challenges for bankers will continue to come from greater regulatory scrutiny (one could say it is the regulators top priority for banks following the liquidity drought of autumn 2008), the escalating needs of sophisticated corporate clients, and the age old balance between investing in new solutions and keeping costs down.
On the corporate side of the market, probably the most chilling phrase for treasurers will be "the information vacuum". The ongoing challenge of keeping close control on information as well as money and future claims is proving more complex than ever. Recent industry surveys have illustrated a significant number who do not have properly integrated information across their organisations. Clearly there is a need for further investment by the corporate sector in agile software that can account for new markets, the proliferation of payments systems, and the proper monitoring and valuation of outstanding positions. This underlying technology platform needs to be flexible and scalable if corporates are to maintain proper controls.
In addition there will be an increasing use of "off balance sheet" mechanisms, which are needed to record contingent claims that are currently often not properly monitored or factored into future forecasts. Cash cycle analysis is also likely to be another area that sees a leap forward as the more sophisticated corporates use predictive algorithms to forecast future cash flows, liquidity, hunt down "trapped cash" and potential trouble areas.
I think that all of this adds up to a management and cost challenge of huge proportions against the backdrop of a slowing growth in the world economy and underlying fears about general financial solvency.
The most important of these are as follows:

Key Liquidity Management Challenges
• Legacy and inflexible systems are still prevalent in many treasury operations. Systems that are scalable, flexible and able to integrate with latest enterprise payment systems, data warehouses, collateral management, credit line monitoring, custodian systems et al are going to be in huge demand. The days of simple spreadsheets and manual operations are coming to an end.
• The fragile global economy and the determination of regulators to ensure financial solvency and stability are going to put further pressure and outside scrutiny on bank treasurers. Also for corporates they will feel increased pressures from both clients and shareholders who will frequently judge their suitability as a business counterparty in terms of efficient settlement of transactions.
• The concept of an efficient Financial Supply Chain has still not taken hold in all corporates. Businesses that carefully manage their stocks and distribution networks are still being left behind by failing to adopt similar techniques in their finance function. Paradoxically this might mean some real laggards have a chance to leapfrog to the leading edge.
Final Thoughts
Borrowing from the old 1940's poster advice, every Treasurer's guiding principle should be "Keep Cash & Carry On!" Or perhaps more precisely keep the cash to be able to carry on - the liquidity management business is being transformed, laggards and those who don't upgrade and invest not only risk the wrath of regulators and dissatisfied clients, they also are courting commercial oblivion. The liquidity management game is being raised - everyone will have to improve with it.
Discussion Points
• Who will pressure bankers the most? Regulators, Customers or Shareholders?
• What is a "risk free" investment these days?
• Treasurers have to balance Liquidity, Credit Risk & Return - Is it realistic anymore to try and achieve high results in all three?

Posted by Sanat Rao at 5:16 AM | Permalink | Comments (0) | TrackBacks (0)

Is the biggest question in banking - How to make money when there are few good lending prospects? This is of course a provocative and simplistic question I am asking - but at its heart it touches upon a serious problem for banks. Western economies are getting uncomfortably close to a double dip, and despite their relative strength the BRIC economies will suffer (albeit probably only a slow down) to some extent as well. The financial markets are gripped by uncertainty, with many countries experiencing serious sovereign debt concerns. So where do banks lend their customer's money, and how can they increase their income and not their risk?
Folded into this issue is the wave of opinion that banks are both too big and that deposit taking retail operations need to be separated from their investment banking activities. When added to the economic backdrop the future healthy profitability of many banks looks at best suspect and for many rather poor. All told it adds up to a serious headache, with bankers being pressurised on all sides.
Classically the banks usually respond in two ways, they reduce their loan books (despite politicians' pleas to help boost lending) and they turn their attention to low exposure fee income generating parts of the market. This means a change in emphasis towards a more service orientated offering and keeping and gaining market share by going upmarket towards a relationship model, not just plain vanilla transactional products. Staff training, improved customer data gathering and management systems together with creative thinking will be necessary to make this strategy work. I think it is reasonable to assume that not all will achieve this complex transition in their business models.
I think that the areas which are increasingly attractive to banks include trade finance services, liquidity & cash management offerings and perhaps a little surprisingly (given many banks own fragile positions) insolvency advice. Also the move in private banking and wealth management will continue, though this is starting to become a crowded arena. Countering these growth areas the slowing economies have damped down prospects in M&A, and the recent high volatility markets have reduced bank's appetites for proprietary trading (which currently potentially offers the toxic combination of poor returns and vey high risk).
Of course, the lending business will still be a core part of the bank but will be less attractive and unlikely to see good growth in the next couple of years or so. Banks will prefer to syndicate much of their loans as possible, and to pick up advisory fees rather than take principal risk where possible. The business strategy will be relationship driven low risk services with little or no capital exposure.

Key Challenges
• Economic cycles and the hangover after the credit crunch point to a smaller banking industry and probably smaller profits. In response to the poor lending opportunities that are available, management will seek increased non-interest income - but this will be a competitive space.
• IT strategies will have to be honed towards smaller projects that have a shorter ROI as banks look for quick and easy wins in the service area.
• Although this is a change in emphasis from transactional banking to more relationship banking, IT infrastructures and in particular knowledge management systems will be vital and gain in importance.

Final Thoughts
The current business horizon for banks is not promising, and although they will try to grow new lines of business this will be harder and less rewarding than the boom days up until around 2008. The winners may do so by becoming smaller and quicker to spot fee gathering opportunities. Flexible working and equally vital, responsive IT frameworks could mean the difference between success and failure in this harsher environment.

Discussion Points
• Are banks (and their systems) agile enough to exploit new fee incoming generating opportunities?
• Are banks too big? If so, will the market effectively downsize them, or is outside political action the more likely outcome?
• How can banks "re-intermediate" themselves in a sluggish economy with technology pressuring many existing business models and profit margins?

Posted by Rajashekara V. Maiya at 7:23 AM | Permalink | Comments (0) | TrackBacks (0)

We can all see that the shock waves of the credit crunch continue to reverberate through the banking industry and that the whole episode is causing a radical rethink. How did it happen? Where did banks go wrong? Why didn't risk management systems pick up the early warning signs? Coupled with this, there is a feeling that banking needs to go "Back to Basics", yet at the same time there are pressures for bankers to lend more in a deteriating economic climate. All of this adds up to a large management headache on to how to plan future strategy.
With hindsight it is clear that all was not well in risk management - or perhaps more precisely banks didn't have the complete risk management framework that they imagined. The explosion of ideas, new models and framework didn't capture the true exposures that were uncovered in the crunch.
It is clear I think, that now is the time for some fresh thinking, or perhaps more precisely new and wider thinking in risk and a return to older narrower ideas in products and services. The new ideas in risk don't involve ditching the existing VaR based models, but rather look to limit their use to risks with frequent and high quality data that is suitable for modelling. For the hard to model infrequent data sets, we should expect to see in greater use scenario planning, stress testing and more scepticism about single risk solutions.
The move back to older thinking in products and services really relates to two strategies banks have used in past downturns, a return to higher service levels, trying to generate more fee based income; and move away from risk capital and towards more syndication. This general risk reduction strategy is likely to be in vogue until there are clear signs that G7 economies have fully recovered from the credit crisis.
I believe that both of these developments will require agile thinking across the bank - and a new approach to information. Future software will still have to correctly process the "hard" data, but increasingly softer measures will also be incorporated. This may be very new for the banking industry, but significant progress has already been made in other industries. Aerospace, Pharma and Oil companies are well used to such approaches and there may well be a cross fertilisation of ideas and techniques into banking.


Key Challenges
• Risk management is opening up to new ideas. Simple normal distribution models have been found wanting and now bankers will look to incorporate tools based around scenario planning, sophisticated stress tests, and the leading edge ideas coming from complex adaptive systems
• Coupled with a rethinking of risk management - banks will remain risk averse in this part of the business cycle. They are likely to recast many of their products around high level service, and prospects for enhanced fee income. New investment in risk systems will be in the new ideas surrounding complexity, monitoring cascading risks and deeper and wider integration of risk management within the business
• All of this means the collection, aggregation, distribution and intelligent use of data will be more vital than ever. Scalable and flexible tools will be essential - legacy systems will no longer be tolerated, they will be viewed as toxic.

Final Thoughts
The lessons from previous serious banking and debt crises is that it takes a long time for markets and the business cycle to return to normal. There is often a long adjustment period before the components are in place to kick start a new positive up wave in economic activity. During the recovery period, banks are repairing their balance sheets by taking on less risk and returning to simpler business strategies.
I believe the successful institutions will be those that can balance embracing the new methods and tools in risk management whilst developing a lower risk profile business model that can be expanded as and when the global economy fully recovers.

Discussion Points
• Will banks employ risk experts from other industries?
• Are the regulators leading the debate or caught up in trying to make sense of the current crisis?
• What are the new data requirements that will be demanded in the newer areas of scenario planning, estimating tail risks and sophisticated stress testing?

Posted by Rajashekara V. Maiya at 7:20 AM | Permalink | Comments (0) | TrackBacks (0)

The critical importance of the bank's treasury operation has never been more in focus than during the past few years. The shocks to the banking system have highlighted to banks' senior managers the overarching imperative to replace multiple legacy systems with single integrated platforms. It is simply not possible to conduct treasury business effectively, efficiently and contain costs without adopting such a strategy. This driver is not just commercial but regulatory as well - increasingly banks have to demonstrate robust systems to regulators as well as agile and efficient operations for their clients. With this in mind, I think we can predict that one of the consequences of the credit crunch has been a complete re-evaluation of the treasury function. Whilst it has always been at the core of the bank, far too often it was treated as a simple "plain vanilla" operation that didn't receive the attention it deserved. With bank funding and liquidity now in ever sharper focus this attitude has gone.
One particular dilemma that faces senior managers when considering technology investment is, with markets and products changing so rapidly, how committed one should be to any given solution. In today's environment, with increased market regulations and ever greater reporting requirements, together with new instruments and products, banks requirements are complex and diverse - flexible solutions are a must. Multiple products, on a global basis, with different reporting for a wide variety of regulators mean fast and responsive mechanisms are vital.
In addition to the need to beef up existing platforms I think we can see that a key development in treasury functionality is going to be in "predictive analysis". By this I mean more use of algorithms that attempt to predict likely cash cycles in both banks and corporates. To get this analysis to work efficiently a large amount of data will have to be aggregated and normalised from a wide range of sources, both in house information as well as outside market data etc. This will need a significant investment in time and resources, but the potential gains are very attractive. Passive approaches will no longer do, active management is the norm and this will include much more forward looking analysis.



Key Challenges

• Banks can no longer operate with disparate and disconnected treasury operations over multiple incompatible platforms. The commercial and regulatory pressures are imposing much higher operational standards.  

• Technology offers abound in the marketplace - but banks need to ensure flexibility to respond to changing demands of clients and regulators. It is vital therefore that their technology strategy is aligned with business objectives and client demands.

Final Thoughts
We can think of treasury management as a form of never ending evolution. At its heart it is a simple business, but the day to day reality is a complex mix of competing requirements and demands. Banks have to achieve two critical tasks, efficient plain vanilla services that are cost efficient and responsive, and at the same time create value generating additional services that gives superior customer service. These twin challenges need a carefully integrated strategy and a supporting technology that offers agility, flexibility, superior service which can be implemented economically! This is a tall order - but the alternative is unthinkable - banks increasingly sink or swim on the quality of their treasury management strategies.

Discussion Points
• If a liquidity crisis hits banks again are they fully prepared in terms of reporting and analysis software?
• Is there a "squeezed middle" in Bank Treasury? Do mid-tier banks have the double challenge of competing against global banks but trying to retain their differentiation through bespoke service?
• Could banks be dis-intermediated? Will credit risk fears drive depositors elsewhere?

Posted by Milind G Kolhatkar at 4:50 AM | Permalink | Comments (0) | TrackBacks (0)

Money is a good servant but a bad master. Sounds quite clichéd but still holds the same old classic touch. As the World is slowly beginning to get to terms with the European crisis, double dip recession, shrinking margins and the US downgrade, hedge, fund managers and treasurers all across the globe are scampering towards one goal - to make their money work for them..  I wish there was a magic wand to take care of that but it does not really happen in the real world.  All it needs is smart and intelligent thinking on the one hand and exploring alternate investment strategies on the other. Strategizing
Never keep all your eggs in the one basket. Well, fund pooling seems to defy the logic for at least temporarily consolidating funds at a global centre. A global treasurer or an investment manager would like to have a global view of their cash positions to be able to finally park funds in high yielding O/N deposits or long term notes based on the gaps. Conserving cash and dumping it in low yield current accounts has long lost its sheen and treasurers are rather forced to churn out new strategies to make money work for them.
Globalization or borderless world; whatever we may call it, opportunities are galore in this world. Low interest rates in the West cannot stop investors from looking to the East. Investing in a high interest rates regime in Eastern markets makes a lot more sense than keeping money in low or negative yield current accounts. Who is stopping the Banks from the East from borrowing money at much lower indexes in the West? Converting high cost loans to USD or EUR makes a lot of business sense even after paying the forward premium. That's where simply managing cash differs from managing it with agility and efficiently, and profitably..
Agility and Intelligence
Remember those old docile treasuries where the money market desk and FX desk used to sit poles apart and would not even talk to each other. This is an absolute felony in today's context.  Both the markets are so tightly integrated that ripples in one will surely impact the other. Be it an inverse relationship between forward premium in FX and bond yields or a direct relation between FII inflows and currency movements, living in isolation is far from acceptable. An arbitrage window that is created by such movements can only be exploited by those who are abreast of Global Markets and keep a constant watch on the market pulse. All said and done, it does involve lot of agility and sophisticated tools to efficiently manage treasury operations. Given the complex nature of operations and high expectations from treasury operations, treasurers are always in a quandary. Amidst calculating the cost of funding and managing risk, treasurers depend on real time information to take decisions swiftly and accurately. Simple mathematics of matching outflows with inflows is just not acceptable either by investment managers (linked to huge bonuses) or by CEOs (target of increasing topline). Right from understanding technical charts to macroeconomic indicators such as the inflation index, CPI and PPI numbers, employment data, intelligence driving technology is the key. Treasurers need to explore new ways of managing money and they do need decision support systems and analytical tools to enable agile decision-making. Technology has proven invaluable for market research and to develop mathematical models. There is also increased focus on leveraging technology to manage risk and regulate markets. Intuitive dashboards, complex pricing, structured deals, VaR calculations are all being driven by technology.

Conclusion
As stakes run high in global treasuries and the investment banking space, no one wants to leave anything to assumption. How to make more money and make money work on its' own is a challenge and not everyone except for few like George Soros can master it. Highly qualified investment managers, quants, risk managers and state of the art technology is what defines modern treasuries. Need of the hour is is to convert the crisis into opportunities and not simply watch haplessly.

Posted by Sanjeev Kumar nargotra at 4:48 AM | Permalink | Comments (0) | TrackBacks (0)

"One more farmer commits suicide" - Did you know that this headline would appear less often if more villages had banks?  How are they connected, you may ask.  Well, in the absence of banks, unscrupulous money lenders offer loans to the village folk at such absurdly high rates that repayment becomes virtually impossible and death turns out to be the best option. Sad, but true!  It is said that India lives in its villages. Isn't it strange then that only 5% of them have proper banking services and that there's only 1 branch per 14,000 persons?  Especially when the people belonging to these very villages contribute significantly to the GDP!
Agreed, the regular banking model is not always feasible in rural areas.  But with the kind of technology available today, I am sure that new realistic mechanisms can be created/ adopted which, far from burdening a bank's balance sheet, will indeed strengthen it.
One method would be to have banks tie up with village post offices and issue biometric smart cards to rural customers.  And how would customers be served?  The friendly village postman carries a Point of Transaction device, which the customer uses to swipe his card.  This is as good as a signature and illiteracy is no longer a barrier.
Similarly, other ways and means of financial inclusion can be worked out. Banks can appoint business correspondents. Or have a van equipped with a computer and other paraphernalia double up as a bank, where villagers can borrow loans and deposit money.  Considering the ubiquity of the cell phone, introduction of mobile banking in local languages would be a good idea. Banks can collaborate with microfinance organizations to improve their reach.....  The list goes on.
Until now, banks have viewed the rural side of their business as a regulatory obligation. What is required is a changed mindset, and the will and enthusiasm to introduce new measures and implement them.
Banks have already taken small steps in this direction; isn't it now time for confident strides?

Posted by Seetharaman Sriraman at 10:19 AM | Permalink | Comments (1) | TrackBacks (0)

The enterprise payments arena continues to present challenges to bankers and their clients alike. The familiar issues for banks of increased regulation, numerous new payment channels, cost pressures, cross border pricing rules and client demands for process simplification are still very much in the forefront. In addition the challenge from cloud based payments services is another factor in the mix.  As a result banks are having to adopt strategies that satisfy these increasing demands and that can still provide a good return on investment, all against a background of intensified competition and increasing signs of commoditisation at the lower end. Unsurprisingly this is proving hard, though many banks through careful incremental IT investments, rather than any unrealistic "Big Bang" approaches, are proving these challenges can be met. However, once again it is the "squeezed middle" in banking that face the hardest decisions.
With so many variables to consider I think that most banks are wise to adopt a stage by stage approach to building their enterprise payments infra-structure; this has the benefit of more controlled IT expenditure, an ability to build scalable services and to remain flexible in the face of an increasingly demanding client base. Corporate demands are the main business driver, along with further regulation, and any bank that cannot supply this core service is in danger of losing valuable clients.
Clearly we can see from the customer's viewpoint this is a buyer's market and certainly the largest players have been quick to increase their demands on banks and to exercise their market importance to extract lower and lower fees. The accelerating move from paper to paperless transactions is boosting this process. I think this situation is unlikely to change soon as corporates increasingly expect superior payments integration and delivery as part of any banking counterparty's core services.
I think the upshot is that banks are moving towards relationship based business models and away from the older product based pricing. As a result increasing emphasis is being placed on offering multi-bank reporting, developing scalable and flexible interfaces, and widening the offering by integrating processes with partner banks. Another factor that has spurred the banks has been the increasing commoditisation of the low end payments business. To counter this they are moving aggressively into customised solutions and looking to gain the associated fees. For example, banks have sought differentiation through "least/cost optimal routing" services which address the corporate clients desire for the fastest and most optimal combination of cost and speed of payment. All of this moves banks away from the low end commodity end of the business which is increasingly seen as unprofitable and not sophisticated enough to retain high end customers.

 Key Challenges
• The one stop solution for a full Enterprise Payments offering for banks is not practical - the way forward is building scalable and flexible products with rich services
• Regulatory pressure will continue to bear down on banks as the compliance requirements continue to pile up. Bank's have already cut their other costs pretty much to the bone, but cannot easily exit a business that is an essential part of their core service
• Commoditisation is pressuring payments profits, banks will have to adopt the old mantra of get big, get niche (or in this case more upmarket offerings) or even get out.
• Relationship management will become vital - it is no longer simply a product business.
Final Thoughts
For banks their Enterprise Payment Strategies are clearly evolving into a service and relationship based business, rather than just a rag bag of products - clients are demanding and getting much more integrated and flexible solutions, this trend is set to continue. The overarching challenge for the banks is to deliver this against a back drop of more investment and squeezed margins. To recoup their investment banks are going to have to be innovative and service led in the enterprise payments arena.
Discussion Points
• Outsourcing of payments - are cost savings now outweighing security concerns?
• Banks are keen on co-creation and collaboration with one another in payments innovation. How far will this trend extend?
• Could the whole payments business become a centralised global service mutually owned by the banks? Or set up by competition?

Posted by Rajendra Kumar K. L. at 11:31 AM | Permalink | Comments (0) | TrackBacks (0)

In the aftermath of the recent financial crisis, governments and regulators have responded by strengthening financial regulation, supervision and market infrastructure. Banks and lenders are striving to strike a balance between risk management, scalability and profitability. The recent market turmoil acted as a wake-up call for the industry and created the need to reconsider the overall risk management system. The immediate challenge for the industry, regulators and government is to reinstall confidence in the banking sector.
The crisis in the banking industry was preceded by a decade of strong growth and expansion. The era witnessed the banking sector growing leaps and bounds on the back of innovative product offering and growth opportunities available in the industry. However, a parallel focus required on building scalability and strong risk management system was missing which led to the recent collapse of banking sector.
The banks are on the slow road to recovery post the meltdown. Government and Regulators have taken steps to boost the faster recovery of the sector in the form of injecting liquidity, regulatory changes for sustainable growth and so on. The Banks have also realized the challenge and taken steps towards reforming the overall risk management framework.. The emphasis is on simplifying the operations and going back-to-basics.
Looking at the situation on hand, one of the better alternatives with the bank is to go for more of Syndicated arrangement. The main advantage of Syndicated Lending is that it allows sharing of credit risk between various financial institutions. Syndicated Lending offers a win-win situation for both borrowers and lenders where borrowers are saved from the mammoth task of managing multiple bank relationships and lenders also are able to arrange for huge sums of money with sharing of credit risk amongst financial institutions. Other advantages of syndicated loans include:
• Flexibility in structure and pricing.
• The borrower can leverage on market information put forth my multiple banks as part of Syndicated arrangement.
• The lenders can also leverage upon the collective assessment of proposal by various financial institution being part of the syndicated arrangement.
With increased demand in syndicated loans, banks all across are looking to invest in IT support for syndicated lending. Syndicated arrangements typically involve huge administrative efforts in terms of managing notices, regulatory requirements, coordinating for drawdowns from various participants, managing assignment and sell down by participants and so on. These complexities had made Syndicated Lending less common so far. Due to lesser focus and handful number of deals, the Banks had been managing the operational aspect of the Lending arrangements without much of technological support through tools like spread sheets etc. However, with the increased focus on syndicated arrangements, the banks have been forced to evaluate their existing infrastructure. There is an increased need for technological support to meet the voluminous operational aspects of syndicated lending. Banks are continuously revisiting their operations for streamlining processes and also approaching IT companies for products specifically to support syndicated loans. IT companies are also welcoming the trend as this has led to a new market for Syndicated Loans products which had been riding on the back seat so far.

Posted by Vineet Maini at 5:32 AM | Permalink | Comments (1) | TrackBacks (0)