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

January 27, 2015

CRS - Establishing the new world order

This blog is co-authored by Jay Chandrakant Joshi (


Introduction to CRS
By now, most non-US financial institutions have put in place a framework for FATCA implementation, and, as per the implementation schedule, are well on their way to meeting reporting requirements for the first reporting period. At the same time, a new regulation called Common Reporting Standard (CRS) looms large on the horizon.

While a group of early adopter countries have already endorsed their commitment to CRS (a joint statement can be found here), for most developed and developing nations, their participation in CRS is more a question of 'when' rather than 'if'. Countries like Australia, though not present in the group of early adopters, have already declared their intention to participate in CRS and, by 2018, most countries are expected to participate in CRS.


Common Reporting Standard, also popularly known as Global Account Tax Compliance Act (GATCA), is aimed at preventing global tax evasion. It aims to counter the beast of black money and tax evasion at a much larger scale than individual countries trying to fight their own battles. As a result, CRS promises to have a much wider appeal and bigger incentive for participation than FATCA. While FATCA focuses solely on identifying US tax residence, CRS takes a more global perspective and, as a result, the requirements become more complex.

Broadly outlined, the requirements for CRS are:

  • Identify all customers who are residents of any foreign country for tax purposes (as opposed to identifying only US customers for FATCA)
  • Obtain relevant reporting information from customers (for instance, obtaining the date of birth for all individual customers and tax identification number for each country of tax residence)
  • Report data to respective tax authorities (as opposed to just the American IRS)

Early analysis of FATCA-reportable client volumes in many financial institutions raises questions about the extent of technology investments and the choice between an automated or a manual approach. Based on minimal FATCA reporting volumes, many financial institutions have opted for a manual approach, treating FATCA as a standalone obligation without integrating it with existing processes. Many financial institutions have opted for a full-fledged automated FATCA solution that integrates completely with current on-boarding and customer contact management processes. The debate about the merits of implementing a strategic solution as opposed to a tactical solution for FATCA will likely linger on for a while.

However, for CRS, this volume is expected to shoot up drastically. A comprehensive change will be required across the board, from on-boarding processes to backend processes.


Implementing CRS
In order to build a sustainable framework for CRS, the first step should be impact assessment. A high-level analysis of citizenships or addresses of customers will provide an early indication of projected volumes of CRS customers. It will also provide an indication of the maximum number of reporting countries a customer is likely to have. This information is vital in designing customer on-boarding forms as well as back-end IT infrastructure. Although there can be any number of reporting countries for a customer, it may prove to be practically unfeasible to populate the number of reporting countries dynamically. It may thus be a good idea to fix the maximum number of reportable countries based on early data assessment in consultation with the legal department.

Once the impact assessment is done, the focus should then be on leveraging the existing FATCA and AML framework. For instance, the existing FATCA framework for the US can be extended to include other countries and the AML framework can be extended to identify 'Beneficial Owners' and 'Date of Birth'. Wherever possible, the current FATCA rules should be extended for CRS and, all the while, the focus should be on building a flexible, scalable solution so that the financial institution is well placed to tackle any such future regulation. Financial institutions can chose to train existing operations teams to handle additional responsibilities for CRS or build a separate team to handle CRS and FATCA. Such decisions can be taken after conducting impact assessment studies.

However, with increasing global focus on data reporting, the CRS implementation opportunity should definitely be used to strengthen existing data capture/reporting capabilities and upgrade legacy systems. This will place the financial institution in pole position to cater to all existing reporting obligations (like AML and CRS) and enable it to report data to multiple regulatory authorities while ensuring readiness in facing future obligations.

January 19, 2015

Banks - Don't Let Your Concerns Cloud Your Cloud Vision!

 - Anjani Kumar

Today, most banks endeavor to leverage IT for delivering bespoke, anytime, anywhere services and products underpinned by real-time analytical insights. Unsurprisingly then, at an average ~15% of total costs, banks' IT spending is the highest among all industries.

Understandably, banks are looking for impactful ways to bring down this cost.  Cloud Computing is a superlative means to achieve this goal, and can play a key role in helping banks transform their operating models. The Cloud enables secure deployment options, effective collaboration, new customer experiences, and shorter time-to-market for new launches. Cost savings and flexibility (through minimal capital investment and a pay-per-use billing model), enhanced business agility and continuity (through robust upkeep of the Cloud environment), and Green IT (by reducing both carbon footprint and energy consumption) are just some of the benefits of Cloud Computing.

It is estimated that by 2020, around 40% of the information in the digital universe will be Cloud-enabled. Further, research estimates that in about 18 months, more than 60% of banks worldwide will process high volumes of transactions over the Cloud.

Following are some of the functions that proactive banks have successfully migrated to the Cloud:

Mortgage/Lending Origination: Private / Community Cloud-based integrated collaboration lending platform -enabling customers to apply for loans and complete processes electronically

• Enhancement of customer relationships through consistent cross-channel experience
• Channel management (kiosk, ATM, online, mobile, call center) and content management using Private Cloud

Payments: Modernization and standardization of transaction processing

Micro Banking: Micro banking business execution

Analytics: Customer data integration across banking platforms for providing near real-time insights

Desktop Management: Centralized management of employees' desktops for greater remote management flexibility

•Access to bank's systems for branch employees via a secure Cloud
•Enablement of all customer engagement dimensions

Enhanced Business Services: Enablement of third-party services to extend banking ecosystem

New Service R&D: Research and development of new services


In spite of Cloud Computing's huge potential, many banks, beset with the following concerns are reluctant to leverage it:

Security: This remains a key concern. Many banks believe that the security and confidentiality of personal and commercial data is at risk in the Cloud.
Regulatory requirements: Many countries require banks to maintain their financial and customer data within the national boundaries.  Consequently, banks are concerned about the exact location of their data in the Cloud.

Operating control dilution and higher risk: Banks are concerned about an increase in operational risk, and its potential adverse impact on business and reputation should services over the Cloud be hampered.

Uncertainty over long term cost impact: Banks are concerned that a major strategic decision, such as switching to a Cloud-based model, is not easily reversed. They are also concerned about a potential lock-in with the Cloud service provider and unsure of how to bring the services back in-house later, if needed.  They are concerned of the huge cost and risk implications if IT systems need to be brought back in-house at a later point in time. They are also not certain of the long term cost implications of moving to the Cloud.

Concern over Cloud service providers: Banks are worried about a relative lack of standards for integrating Cloud service providers' services with their own servicing needs. They are also concerned that the solutions of many Cloud providers (across functional, operational, technical and commercial models) lack maturity. Many Cloud service providers lack proven credentials and a successful track record. Banks are also concerned that if the Cloud service provider suffers a major outage; it can have huge adverse implication for banks. Not even big Cloud service providers like Amazon Web Services have been totally immune to major outages.

That being said, success stories of banks' migration to the Cloud abound. Here are just two examples. Bankinter, the 6th largest bank in Spain, has crashed the time taken for credit risk simulation from 23 hours to just 20 minutes using the Amazon Cloud.  Commonwealth Bank of Australia cut its costs by half by moving its storage to the Cloud, and also achieved huge cost savings in app development and testing.
So what should banks, unsure of how to go about Cloud migration do, to reap immense business benefits? My next blog will provide actionable recommendations. Stay tuned...

December 16, 2014

Harnessing Big Data in Banking

- Anjani Kumar

Proactive banks understand that Big Data can be harnessed for risk-based, real-time pricing, unified customer view, product differentiation, compliance and risk management, fraud detection and prevention of false positives, product and service development, customer segmentation and targeting, customer retention and loyalty enhancement, cross-selling and optimized offers, and much more. 

Many banks have implemented Big Data solutions and are leveraging technologies like Hadoop for integrating heterogeneous reference data sources and distributing their data across the bank in real-time. Others are using Big Data solutions for globally integrating assorted banking solutions for better business decisions.

But away from the success stories, a large number of banks are still struggling with the why and how of Big Data, unable to capitalize on its opportunities.

Here are a few ideas on what banks should do to improve the effectiveness of their Big Data solutions:

1. Strategic Planning: Banks must include Big Data in overall strategic planning. Instead of focusing only on the internal data in a few business areas, they must consider Big Data holistically, including data enabling a single customer view, as well as that related to product, service, regulatory compliance and risk. It is also necessary to focus on external data - not just credit scores or market data feeds but also data from social and streaming media and more. In the early stages of Big Data implementation, banks could fully leverage in-house transactional data before turning to external data sources. Technology teams must identify and prioritize the areas of high business impact, such as customer-facing processes like sales generation and lead enhancement, to be targeted first. Banks must evaluate off-the-shelf solutions to see if they suffice or whether a deeper bespoke solution is needed. While Big Data implementation could start as a small standalone piece, it is important to integrate it with existing systems and applications. Maintaining balance between cost and function, and technical requirements and privacy considerations is crucial. As far as possible, only one copy of the data should be maintained to ensure reliability. 

2. Robust governance and operating model. The Big Data and Analytics operating model and governance policies should be clearly defined. It is important to define how analytics would be embedded into the business, and the roles and responsibilities of all concerned. An executive champion must be empowered to enforce data discipline and governance across the organization. Drivers, objectives and success metrics must be clearly defined. Senior leaders must help to clear stumbling blocks. Predictive modeling must be used to run 'what if' scenarios and their associated cost/benefit analyses. A Big Data and Analytics innovation lab could facilitate quick idea generation and experimentation.

3. Information architecture. Banks must evaluate the robustness of their information architecture to ensure it can support the increasing complexity, volume and velocity of data. Most banks have complex base information architecture, spanning numerous products across myriad lines of business, geographies and channels. The new information architecture should enable an integrated, detailed view of enterprise-wide data and relevant external data, and facilitate data consistency, accuracy and auditability; it must also be agile, flexible and extendable. Formal data controls and governance will protect data integrity. To attain enterprise-wide data integration, banks should define their enterprise data architecture and roadmap, enable cross-functional data integration projects, enforce measurement of data quality, and institute processes for addressing data quality issues.

4. Privacy and security. Banks must leverage Big Data approaches to supplement fraud and risk management systems to bolster security and privacy. This will improve customer confidence and experience and also enhance the transparency of security processes.

Besides implementing the above, banks can learn from success stories like the following:

IBM has been enabling Mexico's Banorte Bank map out a new banking model and is using Big Data, marketing automation and innovations in analytics to create more personalized interactions and keener insights into consumer banking behavior. The Bank has redesigned its systems to advise staff on the products best suited to individual customer needs.

In 2014, Bank of North Carolina showed the way for community banks by enhancing investment in Big Data visualization. Using SAS Visual Analytics it standardized reporting, improved validation and report control and also enhanced speed and usability.  The Bank can aggregate data better for portfolio reporting, as well as implement detailed reporting across personnel and business lines

October 10, 2014

Emerging person to person payments business landscape

A WSJ report states that in US, each year the person to person payments are roughly about $900 billion that includes payments by cash, check, online, and mobile payments.  Online and mobile money transfers are standard features of most of the banks and payment providers like PayPal. In addition, money transfer operators like MoneyGram and Western Union are major players in both domestic and international person to person payments business. The incumbents - banks and money transfer operators have well established networks and systems in place to cater to a large global customer base. However, the person to person payments market is seeing increasingly new disruptive players. Convenience and lower fees are the two important levers used by these new players to take on the incumbents. The incumbents are under threat from three emerging groups of players in the person to person payments market.

Continue reading "Emerging person to person payments business landscape" »

September 25, 2014

The mortgage regulatory landscape - The way forward

The mortgage regulatory landscape - The way forward

It definitely appears like the mortgage industry is catching up with technology advancements and innovation. In the previous years, the mortgage divisions of the banks have engaged their resources to comply with the Qualified Mortgage standards (QM), Ability to Repay (ATR) regulations from Consumer Finance Protection Bureau (CFPB) in US and Mortgage Market Review (MMR) regulations in UK. But we can still notice a cautious optimism and enthusiasm in the mortgage players, lying in wait to innovate. The optimism can be attributed to the stabilized default rates along with the steady improvement in the housing index and the rising housing prices.

In UK market, the MMR regulation seems to have an impact on the cycle time taken to close the loan from the time of origination. While MMR mandates the transition from non-advised to the advised sales, there has been some delay in taking this change forward. This is in the terms of engaging sufficient number of mortgage advisors either in the branches or call centers. There has been a study in the market which says that the mortgage sales interview time has increased by a factor of two. If the sales activities are consuming significant pie of the time to offer, it is necessary to optimize the offer process to reduce to save time.The firms have to increase the number of mortgage advisors by optimizing their back office operations and deploying the, thus available personnel in the customer facing advisory roles. If process optimization, platform rationalization, automation of activities and outsourcing certain operations are a part of strategic roadmap, it is the right time for firms to progress towards these goals.

The banks will have to look at making the processes lean to get to the optimum cycle time that would in turn provide customer satisfaction. I recently worked with a large UK bank to optimize their mortgage sales and offer processes. Though the aim of the program was regulatory, we coupled additional features and optimized existing processes to reduce operational costs and bring significant business benefits to the bank. This is in line with the division's strategic roadmap of reducing the cost to income ratio. The consumer self-service is yet to take off in the UK market with the branches, call centers and intermediaries taking the precedence. With technological advancements, the banks should look at migrating their customers to a self-service model of operation. Most of the customers find the mortgage process to be daunting because of the complexities in understanding the terms, nuances of the product, the structure of the product, fees associated with it and the terminology. Most banks have put in features on their online websites to simplify these overwhelming tasks to the customers in the form of mortgage calculators, pre-qualification, e-documentation, mobile document capture to name a few.

According to a recent survey, most firms claim that 90% of the single-family mortgages fall under the category of qualified mortgages. Most of the firms expect to tweak their credit policies and tighten credit standards. But the same firms claim that they are reducing the repurchase risk with quality control activities and credit policy revision. Mortgage loans which have limited points and fees along with certain restrictive features are considered Qualified Mortgages, which may be acknowledged to comply with these new rules. Also, because of increased regulatory requirements, many lenders are looking at strengthening their quality control (QC) reviews. This is to enhance the mortgage quality, prevent fraud and reduce repurchase risk from the investors. Most banks expect their operational costs to increase as a result of QM rules.The banks have to offset the increase in operational costs with solutions that can cater to the need. This can be a BPM solution - a workflow solution along with an independent business rules engine that can make the division react to regulatory and policy changes with less turnaround time and cost. Banks have started embracing the confluence of big data, analytics and social media to improve the efficiency of customer scoring during underwriting. Credit scoring is undergoing changes with these advancements and the results of the ongoing analysis. Several start-ups are relying majorly on social network data to score customers based on their credit quality. This is an apt recommendation for mortgage and other lending divisions to bank on.

Most young buyers remain pessimistic about their ability to get a mortgage in contrast to that, younger home owners have grown more optimistic. Down payment and credit score are considered top obstacles for buyers in getting a mortgage. Better educational resources on credit, personal finance management, gamified tools and features can help existing customers of the bank, make more informed decisions about their housing and plan their finances early and efficiently in order to fulfill their goals.


September 18, 2014

Next Generation Trends in Trade & Supply Chain

Next Generation Trends in Trade & Supply Chain

The trade instrument, Letter of Credit has not changed much ever since it's been first used during the 13th Century AD. Trade finance has basically been the business of financing international trade, predominantly through the use of letters of credit, though perhaps the processes and regulations that have increased over time have tightened much more to curb frauds and uncertainties. However, the spread of digital technologies is now transforming all types of global trade flows in terms of goods, services, financial, people and data & communication. The pace of digitization for trade transactions was a bit slow until the past decade but now it has acquired the right momentum especially in the method of communication between partners, product innovation and in the area of mobility. The world is moving towards paperless trade and accepting global standards to communicate in a unique and consistent way. Banks cannot shy away from this deliberate attempt to achieve digitization, perhaps they should be aggressive to fuel their further growth and stay relevant in the market.

Let us understand some of the remarkable innovations that have changed the face of trade and supply chain industry in the past few years, which would revolutionize the business in the near future as well:

1. Introduction of Bank Payment Obligation TSU - BPO; an automated alternative to Letter of Credit

Bank payment obligation (BPO) works like automated Letter of credit where no manual  intervention is involved. The trade transactions are electronically matched through a  trade service utility (TSU) which is primarily a centralized matching and workflow engine. What this means is that the TSU helps banks and customers interact on a  single  platform and helps banks  create irrevocable payment obligations which can be an alternative for  Letter  of Credit transactions. As TSU platforms are SWIFT enabled, end-to-end transactions and related communications can be electronically controlled  and managed. This mechanism helps banks and customers achieve paperless trade,  faster  turnaround time and a seamless  automated transaction flow. Global banks like CITI, JP Morgan are the frontrunners in implementing this instrument, but now many other tier1 banks across the globe are also  implementing BPO aggressively.

2. MT 798 - The Envelope Message Standard from SWIFT

SWIFT has come up with another initiative - automating the current transaction flows through envelope messages (MT79).This message type handles the entire LCs, Guarantees, Standby LCs and Common Group messages by effectively linking importers, banks and exporters - end-to-end connection. The result is again - improved process capabilities, paperless trade and reduction of process hassles without compromising on security.

3. Exchange for Receivables - A market place for Hedging Trade Instruments  

Receivables exchange is an electronic platform to auction receivables. Companies, especially small and medium segment enterprises can improve their working capital by auctioning invoice(s) to a global network of institutional investors/ buyers who compete to buy invoice(s) in real-time via electronic marketplace. By connecting businesses with factoring agents, financing  companies and a community of banks considering to purchase outstanding invoices, the  receivables can be liquidated in as little as 24 hours for very marginal discounts. Sellers can use the exchange platform as often or as little as they wish. This online market place offers a lucrative solution for companies starving for adequate working capital. 

4. Next Generation Portals, Dashboards and Mobile Banking Revolutions

With the advent of digitization, banks are taking a cautious but aggressive approach towards digitization. Next Generation Portals are offering a collaborative way of managing trade transactions. The new dashboards help customers analyze their positions, predict cash flows, interact with bank SMEs and track and monitor transaction flows online. Mobile banking capabilities are offered with payment facilities, transaction authorization and dashboard views.

Trade Finance has traditionally been an agreement to hold business. The short term nature of trade finance has often made it difficult to liquidate receivables due to excessive documentation and related processes. At this juncture, the need of the hour is to evolve new models of trade with the help of technology and innovation. There is also a growing need to source additional funding for trade flows as studies show that world trade is growing at double the rate of global GDP and soon there would be a liquidity crisis. As a solution to this problem, banks are starting to look towards non-traditional sources to ensure flexibility and consistency in their liquidity. Also from a technology standpoint, we foresee a deeper involvement of analytics, big data and mobility that would play significant role in demystifying the complexity of trade and supply chain transactions.

Technology has improved significantly and many commercial banks now have long term strategy in place to upgrade their trade finance capabilities to stay relevant in the constant dynamics of the market. This technology driven transformation is both an opportunity and threat at the same time, as early birds will have a higher chance of survival whereas those resting on past laurels may face the risk of extinction. Trade & Supply Chain Finance is undergoing a massive makeover, and it will surely catch the attention of many new players, unlike in the past!!!

September 16, 2014

Why it's not bad to be Gob-SMAC-ked!

- co-authored by Amit Lohani, Principal Consultant, Financial Services, Infosys

CIOs of banks face several challenges. On the one hand, they have to meet the requirements of the business and finance departments, which contend with wafer-thin margins and stagnant topline growth after the global financial crisis. On the other, they must address a rapidly changing technology landscape, which can make a dinosaur of the IT architecture, if it is not upgraded. Instinct suggests implementing the latest technology, but the numbers do not stack up. So what is the middle path - a solution that ensures the IT ecosystem is ahead of the curve and delivers optimal business results quickly and at low cost?

The answer lies in Social, Mobile, Analytics, and Cloud (SMAC).

A majority of financial institutions has adopted SMAC, but invariably, the SMAC strategy is an incremental or supplemental activity to Business As Usual (BAU) operations. The marketing department of banks often perceive social and mobile as channels to push their products, and analytics as a source of business intelligence to market products with a high degree of accuracy. The cloud is perceived as a technology that may or may not have a long-term impact on business. Such an approach needs to change fast. Retail financial institutions share customers with online retailers such as If the rules of the game have changed due to emerging technologies, will the customer do business in the traditional way with financial institutions? Factors that have contributed to the success of online retailing are similar to the success of digital financial enterprises - convenience, speed and customization at a lower cost compared to the traditional business model.

Financial institutions should leverage the social channel not just for soft launch of products and build brands, but to deliver customized variations of the same product. Social networking channels provide institutions with a platform to connect customers at an individual level. Significantly, the platform increases the customer universe through referrals. Customer feedback and course correction can be prompt. Social media channels can mitigate risk and prevent fraudulent activities. The trends on social media platforms provide insights into customer behavior such as the tendency of willful defaulting, thereby providing an efficient risk management tool. Financial institutions should explore risk models that evaluate the 'social score' of potential customers before extending credit. Social networks can be used as crowdsourcing platforms to generate ideas for new products. The Moven mobile app integrates purchase behavior of customers with their social timeline and offers tools to better manage finances. Money managers can provide an app to create a more relevant financial plan for customers. On online platform Lenddo community members can use their reputation on social networks such as Facebook, LinkedIn, Twitter and Yahoo! to obtain life-improving loans, to use for education, healthcare, home improvement or a small business.

Similarly mobility needs to be looked at not just as a channel but also a way to increase the customer base. Internet on smart phones is going to change the Financial Inclusion paradigm. With Google announcing the launch of its new mobile OS Android One (launching on handsets in India this fall), specifically targeted at cheaper smart phone manufacturers, the way that banks need to look at Financial Inclusion changes. Till now an oft quoted statistic was that there are more mobiles in the developing world than there are bank accounts. Within the next decade it will change to "more-smart-phones-than-bank-accounts". The lowering tariffs of mobile internet, coming up of hot-spots across towns and cities and improving speeds with each subsequent generation of technology is going to make it possible. Banks and their vendors will accordingly need to adjust their offerings for the BOP customer. Banks will have to think about their BOP offerings also in terms of visual literacy in order to be relevant to an even bigger segment of customers and encouraging them to bank. The success of Square, which provides a credit card reader for the smartphone, illustrates how a smartphone can transcend a sales channel.

Analytics is leveraged by financial institutions to drive revenue growth and mitigate risks. Analytical tools can be used for customer acquisition and retention, risk management, marketing, customer service, and cross-selling services. We have barely scratched the surface of analytics. More data has been generated in the last two years than in the entire history of humankind. As the Internet of Things and wearable technology become more commonplace, there will be more data to manage. Financial institutions need to prepare themselves to address the tsunami of data.The proliferation of cloud technologies and improved bandwidth make it easier to set up branch outlets. Financial institutions should explore operating paperless service centers using minimal infrastructure with a majority of IT systems in the cloud. It will free up physical infrastructure during non-banking hours. A branch operating IT systems in the cloud, with appropriate security measures, can be used as a customer contact center to serve customers during non-banking hours. In Los Angeles, bank branches are let out as movie sets during non-banking hours, thereby freeing up physical infrastructure for alternative use.

Financial institutions should increasingly use social, mobility, analytics, and cloud technologies to remain competitive. They must explore new technologies to innovate their business models and not as sales or service delivery channels.

Has your financial enterprise been SMAC-ked yet?

September 11, 2014

Digital natives of the banking industry

Do you know of the digital natives in the banking industry? The online only banks that do not have any physical branches! Yes, there are such banks. Banks like Simple, Moven, GoBank, and Fidor Bank are attempting to disrupt the banking industry and are vying for the position of digital natives of the banking industry. When we mention this, people wonder how this is possible. Many of these banks have established a partnership with a larger or a parent bank to manage all the banking operations and focus primarily on providing a niche customer experience. They own product management and the customer channels and leave the backend operations to other banks.

Continue reading "Digital natives of the banking industry" »

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.