Commentaries and insightful analyses on the world of finance, technology and IT.

July 23, 2014

AML vs FATCA: Implementation synergies

This blog is co-authored by Jay Chandrakant Joshi (


Regulatory compliance has become a buzzword these days, with an increasing number of banks finding it difficult to keep pace with the constantly-evolving nature of the regulatory world (A survey by NICE Actimize, published in June 2014, indicates that only 48% of financial institutions have a strong "Culture of Compliance" 1). Keeping in mind that regulatory spending, strictly speaking, is a non-discretionary expense for financial institutions and does not contribute to revenue generation, the focus should be on developing a common (generic) framework that can cater to similar regulatory requirements, thereby ensuring efficient utilization of regulatory budgets.

The Foreign Account Tax Compliance Act (FATCA), a US regulation applicable to financial institutions across the globe, has certain similarities to anti-money laundering (AML) requirements and makes a good case for developing a common framework. Both regulations require banks to develop a strong Know Your Customer (KYC) culture - while AML-KYC focuses mainly on determining the customers' identity (occupation, country of origin, etc.), FATCA-KYC focuses on separating potential US customers from non-US customers with the aim of preventing offshore tax evasion.


Broad-level similarities between the two can be highlighted as below:

  1. Ongoing due diligence, which means that customers need to be continually monitored even after the onboarding KYC checks are completed.
  2. Enhanced due diligence for a specific set of customers (albeit different sets).
  3. Screening and classifying customer profiles with the help of specific business rules.
  4. Both regulations involve similar actors like a central data warehouse, a team of investigators, relationship managers and a customer communications team.

There are, however, some differences between the two as well:

  1. AML is a classification based on a risk-based approach while KYC is a classification based on US indicia.
  2. AML regulations are not standard (although they are broadly similar, they tend to differ from region to region) across the globe since AML laws differ from country to country. FATCA regulation is standardized (IGA 1, IGA 2 or Full FATCA), thereby ensuring that the KYC requirements for FATCA are also standardized.
  3. AML is transaction-based while FATCA is profile-based.
  4. Reporting for AML (filing SAR) is to be done on a case-by-case basis, while that for FATCA is done on an annual basis. Further, AML reporting is done to the local regulator while FATCA reporting is to be done to IRS (exception model 1 IGA).

Despite these differences, at a broad level, the data requirements for the two regulations indicate a good amount of overlap.




This commonality makes a very strong case for devising a generic framework that can help a financial institution reap the rewards of synergies. The advantages that a common framework may provide are:

  1. Simplified on-boarding procedure: Collect the FATCA data along that required for AML, thereby reducing the burden on customers by doing away with multiple forms during on boarding.
  2. Centralized data storage: Streamline the KYC framework and store all the KYC data in one location. This will help in extending the same data to any future regulations that are similar.
  3. Reduction in hardware costs: This is achieved by consolidating both data sets and running the business rules on the same server. Since the FATCA checks can be carried out at any point during the day, it can be scheduled as a part of daily end-of-day (EOD) processes to avoid any overlap, thereby optimizing performance.
  4. Lower personnel costs: Investigators can be trained on both FATCA as well as AML. Since, after the initial screening, the volume of customers for investigations is unlikely to be very high, the same set of investigators can be used for both regulations.
  5. The looming possibility of similar regulations in multiple countries/regions: For example, countries like UK and China planning regulations similar to FATCA, makes a strong case for developing a flexible framework that can be extended to any number of countries.
  6. The ability to leverage existing processes for FATCA rather than develop new processes from scratch will also result in considerable cost reductions. Most financial institutions already use third-party tools for AML screening, and most IT vendors have developed a FATCA engine. It may also be worthwhile to check the feasibility of an existing tool being extended to cover FATCA requirements as well.


As we can see, the nature of the similarities between AML & FATCA enables synergies in implementation that offers a significant scope for cost savings. However, the decision on whether to implement a common framework for AML and FATCA should be taken only after due deliberation and impact assessment. If the impact of either of these regulations on a financial institution is limited, it may be wiser to keep the frameworks decoupled and implement independent small-scale (in-house) solutions.



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July 22, 2014

Digital Transformation in the Mortgage Industry

As the mortgage industry increasingly embraces technology and digitalization in every sphere of its business, it is witnessing a radical change in the way business is carried out. While this move is partially driven by competition, the transformation is also a proactive initiative on the part of lenders to delight digitally-savvy customers, who expect the ecosystem surrounding them to respond to digitalization, just as they do. When technology enables customers to use online channels to buy anything and everything, customers naturally expect their preferred lender to offer the ability to buy mortgage online as well. When technology enables customers to use their portable mobile devices as an alternative to a scanner, customers expect their preferred lender to offer the ability to use mobile devices to scan loan related documents and transmit them in seconds, rather than waiting for a day to visit the branch.

Digital options are growing slowly but steadily in the mortgage industry. During the initial days, customers were able to use electronic means to just make their mortgage payments using the "bill payment" feature available with their banking facility. Due to the rapid strides in the industry, there has been a prolific change in the mortgage technology landscape in recent years. Technology supports each and every step of the mortgage life cycle, meeting the needs of lenders as well as customers.

Some of the trends gaining traction include:

1. Document verification
Loan processing always includes verification of documents, including paystubs, W2 statements, and tax returns. This is one of the crucial factors that determine mortgage turnaround time, a key metric of an efficient mortgage origination process. Lenders can have world-class technology to capture the loan application but it would mean nothing if the document verification process is lengthy and time-consuming. The InstantSOURC platform, a product launched recently by PointServ, addresses this need specifically. Using this platform, lenders can electronically request and retrieve borrowers' documents including W2's, bank statements and pay-stubs. InstantSOURC sources documents from around 19,000 partnered financial institutions and uses industry-leading secure practices. In addition to helping avoid delays, it also eliminates fraudulent document submissions.

2. Paperless mortgage
Mortgage is synonymous with paper, from disclosures to closing. In the mortgage world, it is not uncommon for mortgage documents to have dozens of signatures and hundreds of initials. However, banks have started realizing the benefits they can reap from paperless mortgage. It's not just the volume of paper that they stand to save but also the ability to strengthen the relationship with customer, who is likely to be delighted to view the closing or disclosure package online and imprint their signature using an e-signature technology. Customer acceptance used to be a roadblock a few years ago despite the availability of technology but times are changing, with statistics pointing out that, in the next four years, more than half of all mortgage loans are likely to originate online. However, the key to success is to establish online collaboration between internal and external stakeholders in the mortgage loan process.

3. Mobility
Mobile devices have had a far bigger influence than any other comparable technology in the recent past, with every industry vying to integrate mobility into their business model. Mobile apps around mortgage have increased as well. While there are mobile apps that can help customers track mortgage interest rates, there are dedicated apps that can streamline the mortgage origination process. Quicken Loans offers a mobile app that can enable the customer to apply for a mortgage, scan/fax their mortgage documents and schedule a loan closing.

4. Interfaces with third-party applications
Traditional loan origination systems (LOSs) typically interface with very few third-party applications, such as credit reporting and automated underwriting systems. As such, the ability of such systems to assess credit risk or provide accurate decisioning was minimal. A loan application with a good credit score and positive automated underwriting system (AUS) results alone cannot guarantee negligible credit risk. Imagine a scenario were the LOS interfaces with a market-leading analytics tool, exchanges loan data digitally, and receives the applicant's risk score. Or where the LOS communicates with a tool that enables monitoring of undisclosed debts that are not registered or reported in the credit reports. Such options provide lenders with the ability to better assess credit risk and adds sophistication and convenience to the loan decisioning process.


Digitalization is impacting the mortgage process and it is imperative for lenders to stay tuned to these changes and adopt them proactively. Technology is no more a roadblock and today's customers are very receptive to digitalization efforts. It is therefore crucial for the lender to expend time, money and efforts to identify digitization opportunities and translate them to services that delight customers.

June 26, 2014

Is digitization new to banking?

'Digitization' is the latest hot topic of interest among the executives of most of the banks. It has emerged as the key business trend in the banking industry, inspired by the success of the digital natives like Google, Amazon, and Netflix. Every bank wants to be a digital bank and IT is expected to drive the change. But, is not IT the digital arm of a bank? Infact, IT has been driving the business for many decades now. Banks and financial services companies are recognized as the early pioneers in the adoption of IT. Customers have been using online banking services for more than a decade now. Services like bill payments and money transfers are very common for quite some time. This raises the question - Is digitization new to banking?

Continue reading "Is digitization new to banking?" »

June 24, 2014

Making bank branches ready for the future

The number of bank branches is gradually reducing in many developed countries. In the U.S. alone, over 3,000 bank branches were closed between 2009 and 2012. In Spain, more than 5,000 branches have been shut since 2008. At the same time, bank branches continue to be the preferred channel for deposit account opening, loan application, high-value transactions, and personalized financial advice. The branch remains the main sales channel for high value added banking products.

Let us examine the factors that are driving changes in branch banking -

  • The new normal: Evolving regulations make it difficult for banks to operate branches. In addition, expensive real estate and the high cost of staffing adversely impact the profitability of banks.
  • Technology: Self-service channels have reduced the need for branches. Internet banking, ATM and mobile banking have made the transaction-only model of bank branches obsolete.
  • Demographics: Gen-Y, which is expected to account for almost 40% of total banking transactions by 2017, prefers self-service channels.  Gen-Y customers are more likely to use online payment tools and the mobile remote deposit capture feature than transact at a branch. In the case of their financial decisions, information from the bank's website and online discussions take precedence over the advice of a manager.
  • Consumer power: Customers have a wider choice and are willing to sign up with banks and non-traditional financial service institutions that provide more attractive offerings.

Banks must reinvent their branches. A few strategies to get tech-savvy customers to the branch:

  • Choose a strategic location: Banks should focus on convenient placement of branches, and design the branch layout considering regional and customer demographics. The feasibility of customized branch variants must be explored. For example, a mini-branch in a grocery or convenience store, service kiosks at railway stations, bank-on-wheels, etc. Such customized branch variants can be used for bespoke services and products, while full-service branches focus on the bank's suite of products and services. Remote and small branches can be transformed into high-tech centers with skeletal onsite staff and 24-hour video conferencing facility. Further, as more and more retail customers adopt digital channels, the proportion of commercial and small business customers in bank branches will rise. Banks can consider a dedicated space at the branch for high-value commercial and small business customers. This 'business center' approach can be further enhanced with amenities such as a conference room, free Wi-Fi access, and printers.


  • Ensure operational efficiency: Technology and process automation improve productivity of the branch. Advanced teller automation technology, including cash recyclers and drive-up systems with vacuum-assisted tubes, reduce the time spent by tellers and other branch staff on routine transactions. Banks must consider migrating branch transactions to self-service channels such as mobile, online, ATM, phone, etc. Moreover, self-service devices at the branch can simplify the customer onboarding process, while promoting low-cost banking channels.


  • Transform customer experience: Banks should focus on personalized service at the branch. Adequate lighting and furniture as well as private space for conducting business delight customers. The branch concierge can be replaced with dedicated staff for every customer (at least high-value customers). Areas must be demarcated for functions - advice, service, etc. 'Teller pods' can be installed for an 'open' experience. A retail-oriented environment, in which the bank staff works as consultants / advisors rather than executors of basic banking tasks, improves sales effectiveness as well as the customer experience. Customers should be able to access the bank's product specialists either at the branch or through two-way video chat. Advisory services remain an integral part of branch banking. Instead of in-your-face cross-selling, banks should build customer relationships by proactively addressing the financial challenges and needs of customers. The PNC Bank is planning to roll out a sophisticated branch model with open floors and technology-enabled touch points. Bank employees will demonstrate technology, answer questions and offer financial advice, while tellers act as retail consultants. The bank's customers can conduct a majority of transactions using super-charged ATMs.


  • Connect digital channels with the branch: Bank branches must integrate online and offline channels to help customers initiate a transaction at the branch and complete it through another channel later. Branch transformation should be part of a multi-channel transformation. Biometrics-secured ATMs, touch screens, video conferencing, interactive desktop computers, high-tech lounges, plug-in points for consumer devices, Wi-Fi access, and self-service kiosks are some technology advancements that bank branches must consider during transformation. Citibank's 'smart banking' branches combine customized spaces with innovative technology, including interactive kiosks, media walls and work benches. The  BBVA Compass 'Virtual Banker' enables video conferencing between the customer in a branch and the bank's  advisors at remote locations. Integrated scanner, printer and document sharing functionality enable easy retrieval and exchange of signed documents. Bank of America's branches have comfortable lounge areas and iPads for customers. The branch staff uses tablets to serve customers at the lounge.


  • Enhance security: Continuous monitoring of branch exteriors, interiors and digital enterprise pathways is a business imperative. Difficult-to-access safes, barriers, intrusion alarm systems, and other measures ensure the safety of customers' assets.


Branch transformation should aim at enhancing the customer experience, convenience and engagement. Outsourcing partners help banks in redesigning branches, automation, security enablement, and hardware and software maintenance. First Citizens National Bank is implementing a branch transformation strategy in partnership with Diebold. Self-service and personalized digital interactions are being enabled across the bank's branch network. Deposit and teller automation will transform its branch operations. Is your branch relevant for tomorrow's customers?

June 4, 2014

Model 1 IGA - Australia's way forward to FATCA

This blog is co-authored by Mayank Goel (


The Foreign Account Tax Compliance Act (FATCA) Model 1 Intergovernmental Agreement (IGA) has been signed between the Australian and United States governments. Several Australian financial institutions have invested in developing a FATCA solution in-house or purchasing third-party FATCA products to meet the July 1, 2014 FATCA deadline.

Enacted in March 2010, as a part of the Hiring Incentives to Restore Employment (HIRE) Act, FATCA is effective from July 1, 2014. FATCA aims to combat cross-border tax evasion by US individuals and entities holding investments in offshore accounts. According to FATCA, foreign financial institutions (FFIs) and non-financial intermediaries must adhere to stringent Internal Revenue Service (IRS) disclosure requirements. Non-compliance with FATCA regulation can result in a 30% tax withholding.

Foreign institutions can implement FATCA by adopting the FATCA regulations or adopting the IGA (IGA1 and IGA2) approach. The Australian government has adopted the IGA 1 approach to implement FATCA. It significantly reduces the pressure of implementing regulations by FFIs.

Adopting the IGA1 approach has several advantages:

1. Reduction in the cost of compliance: IGA helps Australian financial institutions reduce the burden of FATCA regulations

  • Australian financial institutions do not have to withhold 30% tax on payments made to recalcitrant accounts or close such accounts if the IRS receives information about recalcitrant accounts in a timely manner. In the event that IGA was not signed, Australian financial institutions had to withhold 30% tax on payments made to recalcitrant accounts.
  • Financial institutions do not have to enter individual FATCA agreements with the IRS. One agreement at the country level is applicable to all financial institutions
  • The reporting stipulation is significantly reduced for Australian financial institutions

2. Reciprocity of information between governments: The US government will also reciprocate by sharing information with the Australian government about accounts of Australian individuals maintained by US financial institutions. It is a win-win situation for both countries as they receive information on people   who evade tax by investing in foreign countries.

3. Addressing legal barriers: Several countries have restrictions on the level of information that can be shared with other countries. Signing the IGA provides direction to Australian financial institutions about the kind of information that they must share with the IRS. Financial institutions will share information with the Australian Competent Authority, which will consolidate information shared by financial institutions in the required format and share it with the IRS.

Compliance with FATCA

An Australian financial institution will be deemed as FATCA compliant and not subject to withholding when it complies with statutory requirements. However, if a financial institution does not fulfill the requirements, it will not be subject to withholding unless it is treated as a non-participating financial institution. A financial institution will be treated as a non-participating financial institution if it does not resolve significant non-compliance within 18 months from notification by the IRS.

Statutory requirements

1. Reports providing information about identified US reportable accounts to the Australian Competent Authority, annually
2. Reports to the Australian Competent Authority about each non-participating financial institution to which it has made payments and aggregate amount of such payments for 2015 and 2016, annually
3. Perform 30% withholding on any US source withholdable payment made to the non-participating financial institution if Australian financial institution has assumed withholding responsibility under Chapter 3. If the Australian financial institution has not assumed withholding responsibility and makes it's US source withhold payments to a non-participating financial institution, then the financial institution must provide information for withholding and reporting to the immediate payer of such payment.
4. The financial institution complies with IRS registration requirements provided on the IRS registration website


The signing of the IGA will benefit the Australian government, financial institutions and citizens. Both Australian and US governments will save millions of dollars from tax evaders based on the information exchanged. Financial institutions will have less pressure to comply with FATCA since IGA compliance is less stringent than FATCA Regulations. IGA also provides a level playing field for individuals which don't have investment opportunities overseas. In the long term, tax evasion will be curbed globally as regulations similar to FATCA will be drafted by governments. Do you have a road map for FATCA compliance and beyond?



1. FATCA IGA Model1 Agreement US Australia - 28.04.2014

May 26, 2014

Customer onboarding - An opportunity to raise the bar of customer experience

'Customer is king" is an adage that assumes significance in banking and financial services. Financial services institutions must compete with peers to attract, convert and retain customers. Consequently, the customer experience is becoming a focus area. Customer onboarding is the first touch point to offer the customer a superior experience.

Customer onboarding is decisive since it has a direct bearing on the client engagement, customer servicing and customer relationship, which in turn contribute to the bottom line. Financial services companies must enhance their customer onboarding process to expand the geographical footprint, acquire new and robust business, and establish themselves.

The process of customer onboarding involves information gathering, due diligence, customer evaluation, and completing the set up. Some financial institutions have an elaborate process to collect as much information as possible so that they need not go back to the customer seeking more information. Collecting too much information or collecting little or incomplete information is not worthwhile. Financial services institutions must strike a balance by redefining their onboarding process. The optimal solution is to get the right volume of information in a short time span, thereby enabling a convenient customer experience. It must ensure that information is shared and made available for cross-sell and up-sell opportunities in the future.

Several banks have excelled in customer onboarding:

• Go Bank's welcome email to new customers is a case study in effective direct marketing
• Bank of America registers new customers for online banking during account opening at the branch. The bank issues a temporary password and directs the customer to the bank's website with an email.
• Bank of the West uses multiple channels to explore cross-sell opportunities while onboarding
• Chase measures onboarding by using a combination of channels, messages and offers

Customer onboarding must be a consistent, real-time experience across touch points. The process must adopt a relationship-centric view. The onboarding experience will determine the intensity of the customer relationship. Financial institutions must focus on onboarding to enhance engagement, retention and wallet share of customers. A study on the 'State of Marketing in US Retail Banking' revealed that 60% of respondents consider onboarding as a key strategy. Will it spur innovation in customer engagement?

Customer onboarding - Challenges and opportunities

Let us analyze how banks can transform challenges in customer onboarding into opportunities:


Focus area




Disparate onboarding processes requiring manual intervention


Banks must integrate onboarding process to avoid seeking the same customer information through diverse channels. It eliminates the need for multiple processes for different product lines and lines of business. Significantly, it helps communicate onboarding status to the customer at every point in the workflow.


Automation and digitization of the onboarding process minimize email communication, faxes and paper documents as well as manual intervention.


Process controls must be integrated with business workflows. Customers get frustrated when the bank has a different onboarding process for every country. Processes and sub-processes must be defined in line with onboarding needs across areas of business, products and countries. The workflows must adapt to business rules. The client onboarding portal must be linked to workflows and the business rules engine for easy client data validation.


Banks must account for differing local regulations, lengthy negotiations and documentation requirements.


Inability to determine the cost, time, effort, and productivity related to onboarding

Banks must strengthen the infrastructure used for onboarding in terms of cost, capacity, productivity, and operational efficiencies.


Customer onboarding is viewed as a back office function

Onboarding must be adequately funded by banks. Sufficient funding and efficient onboarding reduce attrition while increasing cross-sell opportunities. A survey of U.S.-based firms revealed that 70% of respondents viewed onboarding as a back office function, while 30% perceived it as a strategy to differentiate the bank from peers. 

Customer experience

Considered to be a routine activity

Banks should start viewing this function onboarding to create a competitive edge. The digital generation demands more convenience, better pricing and lesser face-to-face interaction. The older demographic seeks personal service and broader solutions to meet their lifestyle requirements. A consistent experience is imperative irrespective of the channels involved.


Onboarding must be a seamless process that can be initiated and completed across channels. The onboarding process must focus on operational efficiency. Process objectives, information and revenue earned must be shared among the teams involved.

Applications / systems

Absence of flexible / scalable platforms to onboard customers

Identifying different legacy systems, unifying similar tasks for client onboarding, and rationalizing activities help create a business process platform to deliver superior service.


Banks must optimize workflows across lines of business and product lines for better synchronization and automation. It accelerates onboarding cycles. It also enables a consistent user experience and contributes to operational efficiencies.


Absence of 'golden data' concept for client data

A unique client identifier used throughout the onboarding process flow ensures a 'golden source' of customer data. Accurate mapping between source and downstream systems minimizes manual rework and turnaround times. Significantly, it ensures smooth flow of consistent data, and traceability of customer data from source to destination.

Document management

Increased disclosures, controls and regulation lead to documentation overflow and complexity

Banks must define what is required, and compile a master list of document requirements for onboarding before contacting customers. Categorization of documents, indexing, and a document matrix simplify document management.


A rules engine for auto-identification of required documents and approvals, building document tagging and storage facility, and securing approvals and signatures in a consolidated process saves time and effort.

Is your customer onboarding program optimal and does it complement multichannel banking?

April 30, 2014

The influence of business intelligence on consumer and commercial lending

The financial industry has become increasingly dependent on IT tools and techniques. From marketing, prospect identification and customer acquisition to product lifecycle management and customer management, virtually every single process today is driven by information technology. Of late, banks have begun combining IT tools and techniques with analytics to improve efficiencies and drive better outcomes. The end goal is entirely customer-focused - improve customer trust, loyalty and delight. 

In the area of credit, it is now the norm for banks to possess enormous quantities of data that need to be stored. The size of this accumulated data continues to grow exponentially and, if leveraged properly, can help provide meaningful business direction and enable better decision making. However, due to the sensitive nature of credit data, it is mandatory to comply with regulatory requirements to avoid potential data ion protect breaches or an adverse impact on data security. Therefore, financial institutions have started segregating data based on confidentiality and accessibility. As a result, the questions that now need to answered are based on confidentiality levels of the data and power of access. Once the data is secure, it is then time to think about utilizing it's power and leveraging the underlying information within the data. Often, historical data helps provide valuable insights. Historical data talks about frequency, consistency, repeat behavior, trend, most or least, highest or lowest, etc. When subjected to extract, transform, load (ETL), data begins to take on a tangible "shape" and can provide very accurate direction, beside helping answer several questions like:

  • What's the current trend?
  • Where should the business focus be?
  • What parts of the business fare well and what parts do not?
  • When is the next change needed?
  • How can we satisfy the customer's requirements?


Identifying business needs

The most crucial aspect is to leverage BI to benefit your business as well as your customer. The first major step in this direction is to convert raw data into actionable information. With the help of BI frameworks, you can identify quality data, extract the right information from it and create reports that contain usable information for the business. This information can help decision makers make the right decision at the right time.

Re-engineering and consolidating business processes

The credit process includes several business modules like marketing & sales, loan origination, underwriting, fulfillment and closing & monitoring. Each module consists of several business process entities, actors and actions. For ease of management and maintenance, each credit module is considered an individual application. This has made each application move in different directions over a period of time. Some applications are coded in Java while others use DotNet. Some applications continue to use the legacy system of access database while others use advanced SQL Server. With the passage of time, as the process becomes more mature and customers become more knowledgeable, these different directions cause a conflict in interest. Higher maintenance, low compatibility and inadequate integrity demands need for reengineering and consolidation of business process. Business intelligence provides enterprises with the right path for business process reengineering, in addition to making sure that the initiative addresses all concerns identified through historical data and business intelligence.

Lessons from hands-on experience

We have partnered with clients and re-engineered their business processes for several legacy applications to resolve conflicts. These conflicts arose due to isolated individual applications, inconsistent and bulky data volumes, and lack of systematic processes to convert data to information. We introduced business intelligence tools into the system and, to their surprise the clients began reaping the benefits within a short span of time. There were changes and business process reengineering activities initiated by the meaningful direction provided by these tools. Through business reengineering and process consolidation, the customer started experiencing more benefits than expected. The steps followed to implement the solution are:

  • Analyzed several applications used within client organization in the Commercial and Consumer lending domain
  • Implemented business intelligence tools across applications in scope to gather meaningful data
  • Identified applications and processes to be streamlined based on the direction received from the BI tools
  • Qualified applications went through business process reengineering and business process consolidation
  • Improved data integrity and reusability through data consolidation and single view

The success of this systematic solution was the result of the close partnership with the client and the ability to leverage subject matter expertize from both sides. Actions were driven by data and results were driven by action. The client was able to address existing business issues and significantly enhance user experience. Infosys helped reengineering the user interface based on several attributes that were obtained through a thorough analysis of product-related data. These solutions resulted in the streamlining of legacy applications and created a single window view of the data and applications across the entire commercial and consumer lending domain.

In today's information-driven world, data is one of the most valuable resources an organization can possess. However, the data is only of value if your institution can analyze it to derive actionable insights and drive tangible, measurable improvements - for the customer as well as yourself. Leveraging the power of business intelligence to reengineer business processes can help you reduce operational costs and financial risk.

April 21, 2014

Big data use cases in financial services

In a hyper-competitive, customer-driven environment, Financial Services Institutions (FSIs) must capitalize on internal and external data sources to gain an accurate understanding of customers, markets, products, services, channels, and competitors. In addition to structured data, a vast amount of unstructured but valuable data is generated through social media. FSIs must index, consume, and integrate structured and unstructured data using big data technology to realize the value of data.

The big data market is worth over US$ 5 billion and is expected to exceed US$ 50 billion by 2017. Over 2.5 quintillion bytes of data is generated daily. With rapid advances in technologies like MapReduce, Hadoop, NoSQL, and the cloud, there is significant innovation in data. In addition, the cost of hardware (e.g., NAS-based storage, in-memory data grids/ RAM, etc.) is reducing. Further, software-enabled storage products are now available at reasonable prices. A combination of these factors facilitates highly scalable architecture required for big data implementations. 


Let me highlight key use cases of big data technology for FSIs:

1. Risk management: Big data helps FSIs manage liquidity, credit, default, enterprise, counterparty, reputational, and other risks. It also enables centralized risk data management. Real-time individual risk profiles can be created for customers based on their social networking activities, purchase behavior, and transaction data.
Big data can help meet regulatory requirements in a cost-effective manner. Regulatory mandates require storing and analyzing transactional data dating back several years. Big data helps build dynamic data structures that comply with changing reporting requirements. It also enables instant analysis of risk scenarios for institutions with growing data volumes.

A comprehensive view of aggregated counterparty risk exposures, positions, and impact enhances performance and reduces default. Big data helps analyze behavior profiles, cultural/ demographic segments, and spending habits of customers to enhance the lender's risk management capability. Predictive credit risk models based on a large amount of payment data helps prioritize collection activities. In addition, market events across regions can be captured and insights gleaned in real time from news, audios, visuals, and social media.

2. Fraud detection: Big data can help in fraud mitigation, Know Your Customer (KYC) and Anti-money Laundering (AML) monitoring, and rouge trading/ insider trading prevention programs. Big data analysis enables detection of deviation from a standard pattern of customer behavior for proactive fraud identification and prevention. For instance, real-time outlier detection and analysis can be undertaken for a credit card used in distant locations within a short span of time. Similarly, real-time analysis of transactions based on diverse data sets is possible. When fraud is anticipated, the transaction can be blocked even before it takes place. Significantly, big data can help in ATM fraud reduction through proactive analysis of geographical and other data points, and identification of ATMs that are likely to be targeted by fraudsters.

3. Customer delight: Big data can help FSIs better understand the needs of their customers. Petabytes of data can be analyzed in real time to deliver bespoke services and products to customers. Real-time analysis of unstructured data from social media and other sources enables customer and trading sentiment analysis (find out how customers feel about a new product/ service, or assess influencers and customer sentiment in response to broad economic trends/ specific market indicators). FSIs will be able to better manage their brand image by proactively anticipating customer needs and issues, and responding to negative opinions.

Big data aids in micro-level understanding of clients and enables targeted and personalized offers. Significantly, it offers a 360-degree view of the customer. Issue resolution at contact centers can be improved through real-time analysis of unstructured data (voice recordings) for content quality, sentiment analysis, and trends and patterns identification. Internal customer logs and social media updates can be analyzed to identify customer sentiment and dissatisfaction points for timely action. Big data can recommend robust call center data integration with transaction data to reduce customer churn, enhance up-sell and cross-sell; and enable proactive alerts. It facilitates extraction of unstructured information from IVR and other customer service systems, and enables blending of internal data with social media inputs.

4. Sales enhancement and cost reduction: FSIs can gain useful insights into when and where customers use their credit/ debit cards, and customer behavior patterns from big data. Based on the monitoring of customer behavior, FSIs can take predictive actions and enhance their cross-sell and up-sell capabilities. Sentiment analysis-enabled lead management and sales forecasting can be initiated through social media analytics. It can also facilitate real-time and proactive micro-segmentation, and smart location-based offerings.

Several FSIs are challenged by legacy systems that are costly to maintain. These institutions can migrate their legacy data to integrated big data platforms and add valuable data sources to mine rich and valuable insights. Operational efficiencies can be further improved with big data platforms that enable monitoring and analysis of transactional and unstructured data (voice recognition, social media comments, and e-mails). The workload at financial service enterprises can be predicted and staffing needs in branches and call centers can be optimized.
5. Operations and execution: The operations of FSIs that have undergone mergers and acquisitions can be challenging. New core infrastructure solutions enabled by big data can streamline operations. For example, big data enables standardization of loan servicing time across channels and entities. In addition, institutions can adopt data processing approaches and optimize the supply chain. Enterprise payments hub optimization provides a better view of payments platform utilization.


Big data can improve operational capabilities of FSIs and enhance global, regional and local services. Real-time insights from transactions help provide the right services to customers and at the right price using the right channel. Capital markets firms have multiple data sources and data silos across the front, middle and back office. Big data allows operational data store consolidation. When data tagging is undertaken using big data, trades/ events can be identified, thereby preventing duplicate, invalid or missed trades. Big data enables storage of a large quantity of historical market data and allows feeding dynamic trading predictive models and forecasts. It also facilitates analysis of complex securities with market, reference and transaction data from diverse sources. In addition, organizational intelligence can be improved through employee collaboration analytics.


Have you taken the big leap yet?

April 1, 2014

The US Mortgage Industry Outlook

Regulatory impact

The mortgage industry in the US has undergone a significant transformation post the global financial crisis. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB) was formed in 2011. The CFPB has been very active in rule-making since then. One of the landmark events was the coming into effect of the changes to the Truth in Lending Act on 10th January 2014. The changes included the Ability-to-Repay and Qualified Mortgage Standards rules, which are expected to bring uniformity in the products offered by various lenders to borrowers.

Government-sponsored enterprise (GSE) reform

A majority of the mortgage loans today are guaranteed by GSEs Fannie Mae and Freddie Mac. The various policy announcements clearly indicate that there is clear consensus among authorities about reforming GSEs, reducing the role of government in guaranteeing mortgages and bringing private players back in the market. Work is already underway on building a new Common Securitization Platform (CSP) that will replace the two disparate platforms from Fannie and Freddie. This is another major event that is being tracked closely by the mortgage industry since it will require them to make significant changes to mortgage securitization and investor accounting practices.

Shift in originations from re-finance to purchase

The originations sector of mortgage lending faces headwinds after enjoying years of strong growth led by re-financing due to low interest rates. With rates expected to rise, lenders need to shift their focus to purchase loans, which require different sales techniques as compared to re-finance. In this challenging scenario, mortgage companies will need to show innovation to achieve growth. The role of IT will be a differentiator as newer channels, such as the Internet and mobile, will be critical to increase volumes and reduce cycle time to close a loan. As we see an increase in the millennial generation as first time buyers, lenders will need to look at these channels, which will have higher adoption rates with this demographic. The Qualified Mortgage rule from CFPB, which took effect in January 2014, and the soon to be announced Know Before You Owe rule from CFPB, scheduled to come into effect on August 2015 makes it even more critical for mortgage lenders to build the right processes and systems for originating and closing mortgage loans in compliance.


Choosing the right technology and business partner for mortgage lenders is now more critical than ever given the significant challenges expected in the future. We are already witnessing churn in the mortgage industry, leading to some companies gaining an edge over the rest of the pack by being more agile in responding to the changes in the market and leveraging innovative technology and business solutions to differentiate themselves.

February 19, 2014

Breaking the Glass Ceiling in IT Leadership

Over the past decade and a half, large numbers of women have joined the IT workforce, albeit mostly at the entry and junior levels. The percentage of women in middle and senior leadership positions are disproportionately low. Looking at this imbalance, one is forced to question the wisdom of the age-old saying "The cream always rises to the top"

Surely history has proved time and again that women in leadership positions, irrespective of industry or sector, are no less capable than men - Margaret Thatcher in politics, Indira Nooyi in FMCG, Marissa Mayer in IT are just few examples. So why then are so few women visible in middle and senior leadership positions in the IT industry? What are the invisible barriers and biases against women that are stopping them from gaining their rightful positions commensurate with their potential?

In my view, following are the few key factors:

  • Assumptions (often made subconsciously) by managers that women may not be able to take up critical/stretch assignments due to family and personal commitments. This leads to women with potential ending up with "soft" assignments where they don't have enough opportunities to prove their leadership capabilities. Consequently, they get trapped in a viscous circle and the professed "lack of ambition" becomes a self-fulfilling prophecy.
  • In spite of their rapid entry into workforce across geographies, women face a key barrier - the lack of supporting ecosystem. In majority of instances, working women are the ones who take care of the home and children. Add to this mix inflexible work policies (e.g., no or limited work-from-home facility or extended leave policy) and/or lack of supporting infrastructure (e.g. daycare facility) and working women's situation becomes truly difficult. No wonder then, a significant number of women with high potential are left with no other option but to slow (if not totally abandon) their thriving careers midstream. Unfortunately, in most such cases, managers construe this as "lack of ambition" or "personal constraints" on the women's part, and don't really analyze the root causes and try to address them.
  • Another key factor that holds women back is "stereotyping". There is a significant lack of awareness of gender diversity at middle and senior leadership levels. Considering the low percentage of women at these levels, there is really no credible benchmark and awareness on the unique attributes women in leadership positions often exhibit (building relationships, resolving conflicts amicably, inspiring and motivating others, etc.). Furthermore, the same personality attributes are often looked at differently in men and women. So, for example, the "go-getter" approach in men is looked at as being positively assertive while if women use a similar approach, they are considered aggressive.  It is also a fact that, to an extent, women themselves contribute to the stereotyping. Many women have been raised in environments that dictate certain personality characteristics as becoming of women; or where sons have always been treated superior to daughters. For example, many of these women have been taught in their formative years that being submissive, always putting others before self and not being ambitious but accommodating are the superlative virtues they should possess. No wonder then, it becomes difficult for many women, with otherwise excellent leadership capabilities, to get rid of such limiting traits and beliefs.

So what can be done by IT organizations to truly level the playing field for women and men in middle and senior leadership positions? I am interested in knowing your views. Following are my thoughts on some of the solutions.

  • Over the next several years, IT organizations can actively focus on hiring or promoting more women in middle and senior leadership positions. The approach should not be seen as a favor to women but a belated attempt to right long-standing gender imbalance issues. Care should be taken that only truly deserving women are promoted or hired to leadership positions. And certainly, when looked at with an open mind and without any biases, there is no paucity of deserving women in the IT sector. The active promotion of women in leadership positions will enable the creation of role models who would inspire and mentor other women leaders to gain confidence in their own unique leadership capabilities. Ultimately, this will create a virtuous cycle resulting in an increasing number of women rising to leadership positions. Organizations should also proactively focus on enabling networks for women leaders at all levels - so they can actively seek mentoring and guidance on leadership aspects.
  • Organizations should also proactively enable gender diversity orientation education at all levels of leadership. Managers should be clearly aware of prevalent biases (even if subconscious) against women in leadership. Such a focus on gender diversity awareness will help create a more gender-neutral environment, where women with potential remain focused on enhancing their leadership skills rather than constantly looking over their shoulder at how their leadership traits are being perceived by their manager.
  • Every organization should create enabling policies and infrastructure using a two-pronged approach of entailing changes in the organization's workplace policies as well as a change of mindset among decision makers across all levels. Women-oriented policies (e.g. extended leave policy, working from home, flexi-timing where appropriate) and infrastructure (e.g. day care facility) is certainly the way to go. However, this is not enough. Managers at all levels should be sensitized that these policies are meant for both genders and imperative to create a more equal opportunity workplace. It should also be made clear that business results and value added would be the sole criteria for a leader's performance evaluation. And factors like the number of leaves taken, work from home hours availed, hours worked, etc. are immaterial.
I am sure you would have additional valuable insights on the said subject. I would be interested in knowing your views. You may please post your comment on this blog space or email me @