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August 30, 2013

Presales Scoping of Core Banking Software Projects

Posted by Reghunathan Sukumara Pillai (View Profile | View All Posts) at 5:03 AM

Before a core banking project gets underway, it is vital to gather relevant information in order to achieve the desired end result. This "scoping" of requirement as part of presales is critical for successful implementation of a project. In a core banking context, project scope includes the identification of modular components like Trade Finance, Corporate Loans and so on, as well as optional features. Certain solutions, such as AML and Basel II/III are mandatory across banks worldwide regardless of whether or not they are explicitly mentioned in the requirement list.

Vendors should seek any clarifications at the concept stage to better align their products with the banks' needs, as even the most comprehensive requirement list can have elements missing. Vendors need to ask the right questions and gather pertinent information in order to better design products or solutions. That being said, the stated requirements could be interpreted differently, which could lead to an expectation mismatch. Often, complexities arising from different geographies also compound this problem. Despite being aware of the exact requirements, vendors sometimes tend to interpret them to fit their product profile resulting in scope creep as part of project implementation, increasing effort and cost.

Vendors submit a comprehensive bid document, which outlines the solution capability, design and price, for banks and consultants to evaluate. Since approvals are sought on the basis of this document, the bid price quoted by vendors cannot change drastically after the requirement analysis. Therefore, vendors need to be prudent in pricing their offering and allow for possible mismatch between the requirement analysis and bid document. Low presales pricing, which later increases on account of scope creep during implementation could lead the vendor to over-promise and under-deliver, whereas higher pricing during presales may adversely affect their prospects during evaluation. Presales expertise based on hands-on banking knowledge and sound judgment with fairly accurate assumptions will assist long-drawn core banking projects.

In summary, incorrect solution design with improper scoping will lead to failed implementation or extended delivery timelines, marring the vendor's reputation; whereas, one that is well thought-out, with detailed analysis and scoping, will ensure smooth and successful project delivery.

August 26, 2013

Conservative policy. Consistent progress.

Posted by Anuradha Mallya (View Profile | View All Posts) at 5:30 AM

According to recent reports, the Philippines' banking sector will start implementing Basel III capital standards in 2014, notwithstanding the 2019 deadline. The country's banking sector was also among the few to emerge unscathed from the global meltdown of 2008. Some of the credit for both these mileposts is due to the tradition of conservative banking policy adopted by the Bangko Sentral ng Pilipinas (BSP), the country's Central Bank. 

Years before the meltdown, the BSP embarked on a program of reform and closer risk supervision. As a result most of the local banks were reasonably positioned during the crisis to shift focus to profitable domestic opportunities like consumer lending. Prudent measures like higher credit, loss provisioning, capital reinforcement, etc., actually enabled these local banks to turn out a creditable performance even in the midst of the crisis. 

Since then the sector has been able to make all-round progress on the back of a booming economy and banking reforms. Today, financial inclusion, channel banking and remittances, along with consumer lending, are the major themes in the sector.  

Financial inclusion is a key priority of the BSP, given that only 2 out of 10 households have a savings account. The situation stems from lack of affordability - people just don't have the money, and access - 609 of the 1,634 municipalities don't have financial service providers. The BSP is now driving an innovative agenda to allow payment and remittance through convenience stores, moneychangers, mobile banking agents and other small establishments. Also, there is a strong microfinance sector working to spread financial inclusion.  

International remittances are a key contributor to the economy, with expatriate Filipinos sending back almost US$10 billion during the first six months of last year. Banks are exploring mobile technologies like digital wallets to facilitate the flow of these funds. 

Understandably, technology is high on the agenda and most banks are in the market for the entire range of solutions - from core to channel to mobility and beyond - and have earmarked more than Pesos 1.5 trillion for that purpose. Clearly, an industry built on conservative policy is looking at some liberal infusion of technology to take it to the next level of growth.    


http://www.risk.net/asia-risk/feature/2230588/early-adopter-philippines-set-to-introduce-basel-iii-by-start2014

August 22, 2013

Social Media Interaction - Are Banks Up to This Challenge?

Posted by Tarun Kishore Sonwalkar (View Profile | View All Posts) at 2:09 PM

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We have amongst us a whole generation that learned to type long before it could talk. Tabs and Smartphones figure at the top of a 10-year-old's wish-list. People experience extreme anxiety until they announce their "bad hair day" to the world; symptoms worsen if at least 2,000 people do not "like" it within 15 minutes. Proof enough of the extent to which social media has pervaded our personal lives, and also of the intermingling of our physical and virtual worlds. Businesses are now beginning to see an opportunity to cash in on this mass phenomenon. And when business and cash are involved, can banks be far behind?

The increased prevalence of social media can be attributed to rising tech-savvy, ubiquitous Smartphones, sophisticated mobile technology and high-speed Internet connections. If the number of Facebook and Twitter users is any indication, this trend is only poised to grow exponentially. Thus banks only stand to gain by harnessing the power of social media. And this they can do, not just externally - to engage existing or prospective clients but also internally - to connect with employees and vendors.

In addition to its "social networking" function, Facebook today also has a strong commercial aspect. Banks and other business establishments are recognizing the merits of marketing their offerings on Facebook. However, it would also bode well for them to utilize this channel "internally." For instance, messages circulated amongst employees could be made readily available as searchable content, facilitating faster and more efficient collaboration.

With some out-of-the-box thinking banks can devise interesting ways to reach out to customers through these sites to gather opinions, develop and market new products and services, and improve customer service while raking in profits.

August 7, 2013

Virtual Currency

Posted by Anupam Garg (View Profile | View All Posts) at 9:45 AM

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Currency is broadly defined as anything that can be used as a medium of exchange to buy or sell goods and services. This need not necessarily be a physical object. In the barter system, which was a precursor to the system of money, goods and services were simply "traded" without any specific medium of exchange.

Present day third party bartering is organized through barter exchanges that are developed specifically for this purpose. A sizeable number of companies today see some benefit in exchanging goods or services rather than paying or getting paid in cash; the Sodexho meal passes being a case in point.

In today's digitized era, money is not only viewed as hard cash but also as a number displayed on a gadget, be it computers, mobile phones or card swiping machines. Increased usage of credit/debit cards and online transactions has blurred the lines between real and virtual currency for the lay consumer.

Capitalizing on this growing trend, leading online social networking website, Facebook (FB) introduced Facebook Credits in 2010. A one-time purchase of these via a credit card in US Dollar currency, enables end users to buy "in-game merchandise" for various FB games, eliminating the need to use their credit cards multiple times for different games.

FB credits gained immense popularity to the extent that that they were, at one time, touted to become a global currency and app makers considered permitting lending in FB credits, possibly leading to the emergence of virtual banks. However, in the year 2012, FB stopped promoting usage of FB credits so as to allow non-US resident users to subscribe to FB games in their respective local currencies. Nevertheless, while they lasted, FB credits did pose a threat to banking as an effective online alternative currency.

The Bitcoin is another example of virtual currency. Unlike traditional currencies, it has no central monetary authority and is underpinned by a peer-to-peer computer network, similar to the audio-video service Skype. Bitcoins are generated by a procedure called mining. The process involves execution of complex number-crunching mathematical tasks within the computer network. The procedure is set in such a way that it becomes increasingly difficult to mine more Bitcoins; at most 21 million Bitcoins can be mined in the network. Thus, although the Federal Reserve may undertake a Quantitative Easing program, it is difficult to increase circulation of Bitcoins and cause their devaluation.

A Bitcoin can be bought and sold in return for traditional currency on several exchanges, and with the appropriate software, can also be directly transferred across the Internet between users. This makes it a potentially attractive currency with which to settle international transactions, avoiding inherent bank fees and exchange rate costs.

Ever since the Bitcoin gained in popularity, it has stayed volatile; going from a high of US$ 32 in June 2011 to US$ 2 in November 2011, and then again rising to US$ 7 in January 2012. Being unregulated and without collateral, the future of such a currency is uncertain. However, it does set a precedent for similar virtual currencies to follow.

Such a scenario presents the banking and financial services industry with opportunities as well as threats. Thus far, banks or credit card companies have been the gateway of access to FB credits and Bitcoins. Banks can capitalize on this by charging a fee for purchase of these virtual currencies. They can tie up with virtual currency providers to offer customers the flexibility to make payments through that mechanism, and in the bargain, attract more customers.

On the flip side, the regulation of virtual money and the prevention of its use to launder money, can pose major challenges to governments.

From barter to gold to paper-based and now digital currency, the concept of money has metamorphosed over the millennia. Its foray into the virtual realm, if and when that happens, would undoubtedly be epoch making.

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