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

July 20, 2015

Design considerations when using crypto currencies and distributed ledgers

Crypto currencies and distributed ledgers are the latest buzz in the financial services industry. Surprised! - Did not Bitcoin originate as a radical innovation and soon got dumped in to the dark side of underworld transactions? Central banks were concerned about how to control Bitcoin usage and warned of its risks, slowing down its adoption by mainstream. Nevertheless, researchers and innovators continued to build on Bitcoin and its technologies. Quietly, new innovations based on the utility of Blockchain and solutions to inherent issues in Bitcoin emerged. The technology has evolved from Bitcoin to Alt-coins to new technology layers on top of Blockchain to new peer to peer distributed ledgers very different from Bitcoin. Now, the world sees Bitcoin as an important nascent step in the evolution of crypto currencies and distributed ledgers.

Continue reading "Design considerations when using crypto currencies and distributed ledgers" »

July 15, 2015

Bitcoin ATMs - A hype or the future?

-by Irene Varghese and Shivani Aggarwal

Human race has seen drastic change in the money system, from barter system to physical currencies and now the much talked about crypto currencies - Bitcoins for example. If estimates are to be believed, then the number of active bitcoin users worldwide will reach more than 4 million by the end of 2019. If cash gets replaced by Bitcoin, then why not Cash ATMs by Bitcoin ATMs?

Jargonized Bitcoin ATMs, provide an efficient and secure way for people to exchange bitcoins - the decentralized digital currency - for cash without the need for a humans to facilitate the transaction through bitcoin exchanges - which faces hacking and fraud threats. The world's first-ever Bitcoin ATM was opened in Canada, in Oct 2013, by Robocoin - enabling Bitcoin owners to exchange the digital currency for cash, and vice versa!

Bitcoin ATMs are gaining popularity, with the number of Bitcoin ATMs going upto 400, registering impressive growth in 2014. North America is leading with more than 130 machines installed throughout the U.S., and 69 machines in Canada.

Bitcoin ATMs are worthwhile mainly because they make peer-to-peer, decentralized currency, online money transmission easy and in a near instant exchange time - taking less than a minute! Moreover, facilitates anonymity by allowing you to convert directly from cash to Bitcoin -- without attaching a bank account or identity credentials. Only a biometric palm identification is required, which is easy, quick, and at the same time, a unique identity confirmation. For consumers who want to use crypto currency right away to make purchases, buying Bitcoin through an ATM involves much less time and risk! Bitcoin ATMs also assist tourists' withdrawal of cash in native cash at competitive rates, without needing a bank account or ATM card.

Peeping into the days ahead, Bitcoin ATMs look promising for a cashless future, as they may prove to be the most useful tool in enabling cross-border e-commerce especially for the under-banked parts of the world! Robocoin has very recently released a second-generation Bitcoin wallet, which facilitates instant person-to-person money transfers. Consumers can send money on one end, and a consumer at the other end can withdraw it from a Bitcoin ATM even in under-banked parts of the world!

When crypto currency as a concept succeeds, ATMs will become incredibly opportune and a simple way for mainstream consumers to exchange cash for crypto currency. Thus, Bitcoin ATMs definitely have a future - promising truly hassle-free money transactions.

June 30, 2015

Enabling Workforce Management Solution in Bank Branches: Recommendations

In my last blog, I had posited that, a bank's branch channel transformation is incomplete without a robust technology-enabled Workforce Management (WFM) solution. This blog looks at how a bank can enable its WFM implementation.

1. Driver: Operations and not HR should drive WFM implementation initiatives. This is because, Operations has a better understanding of the channel's service delivery, productivity, and costs imperatives. It is important to note that Human capital management (HCM) and WFM are not one and the same.  While HCM is concerned with hiring, compensation management etc., WFM is all about the execution and optimization of the staff's efforts and productivity on a daily basis. To enhance ownership, all levels of branch operations should be involved from the early phases of a WFM implementation.
2. Technology: Enabling a robust WFM solution that has strong technical capabilities underpinning is crucial. Many WFM solutions that are still guided by archaic principles, lack optimal automation (e.g. manual data entry is required), require long lead-time for insights generation, have interoperability issues, and lack integration capabilities. The system's usability, flexibility, and agility are all key requirements for a robust WFM solution. The solution should be quickly deployable and require minimal training. It should integrate well with the General Ledger, HR, Origination, Marketing, Sales, CRM, and other systems, to allow for easy linking of the bank's branch performance with the workforce models and the staffing levels. Web-based WFM interfaces are also important for allowing the branch managers to forecast the staffing models according to their requirements and as per their convenience. Mobile enablement of WFM is also desirable in order to allow branch/division managers to review their workforce forecast and metrics on the go. Mobile capabilities would also let branch staff view and confirm their weekly schedules on the go.
3. Structured and phased approach: Basing the WFM business case on empirical evidence is crucial. In addition, the ROI assumptions must be validated against the results, post-implementation. A phased approach for WFM implementation is recommended - for example, a bank could first enable the core WFM functions around attendance and time. In the next phase, functionalities around scheduling, absence management, demand forecasting etc., could be implemented. Beyond that, eLearning, workforce analytics, desktop analytics, mobile self-service, and other advanced capabilities could be enabled.
4. Resource pooling strategy for branches could be considered. In this, a pool of regional branch staff is maintained by the bank - over and above its dedicated branch-wise staff. The resource pool staff can be deployed to different branches in the region at a short notice, and as per the urgent temporary demand (seasonal peaks, focused marketing campaigns, unplanned key staff absences etc.) thereby ensuring that a high service-level is maintained. The resource pool staff must be cross-trained on all applicable branch activities, services and products. WFM solutions should be capable of addressing the resource pooling needs.
5. Organizational Change Management is crucial for translating the WFO insights into tangible benefits for the bank. Leadership's establishing of the WFM priority is crucial. All stakeholders must be aligned upfront, with regard to its WFM strategy, objectives, and goals. A PoC trial at the onset is recommended, as it would help gain buy-in of all stakeholders; and help in understanding the key performance indicators, such as target staffing strength. The bank's initial staffing targets should be conservative. Once this is achieved with relative ease, they can revise the targets more ambitiously. Customer satisfaction measurements should also be kept track of diligently, at all stages of the WFM implementation journey - to make sure the WFM insights' implementation will not affect customer satisfaction adversely. Ensuring enterprise adherence to WFM is important. Banks must take due note of the WFM insights and take optimal workforce related actions. All branch aspects - service, sales, and operations - must be considered in the WFM model. For e.g. time tracking is just one aspect. Staff self-service capabilities, demand, and availability-based scheduling, customer service, and sales quality etc. are all important aspects. Outstanding staff performances towards achieving the WFM targets should be duly recognized. Communication and training aspects should also be focused upon. Banks can also consider having a "Workforce Management Chief" for driving continuous improvement on WFM strategy.
6. Leverage third party expertise: Banks should engage leading WFM solution vendors and consultants. Also, leveraging Cloud-based vendor solutions can help reduce the initial capital and in-house WFM expertise needs. Managed Services options can also be considered by banks - especially by the relatively smaller banks that are short of finances and staff. In Managed Services, the vendor enables the WFM solution in a hosted environment and themselves perform most of the day-to-day WFM analysis, reporting, and forecasting activities for the bank.

Where banks have taken a structured approach towards their WFM implementation, the gains have been immense. For example, the Commonwealth Bank of Australia could immensely improve its customer service by optimization of its consumer-banking workforce, leveraging the workforce optimization, desktop, and process analytics solutions from Verint. 

June 29, 2015

Look and Learn - Exploring ideas from outside the industry

Historically, financial services has produced limited indigenous innovation, with most new ideas coming from non-banking players. So, it is not surprising that banks have been proclaimed the most vulnerable to disruption from next-generation entrants and their technology-led business models. But even as they look to compete and grow in this environment, is there an opportunity to turn that challenge on its head by learning valuable lessons from outside players?

As an illustration, let's take the example of Netflix - how they redefined themselves as markets evolved and what banks and other financial services organizations can learn from their approach.

Netflix - Motion Picture

Netflix started as a subscription based DVD-by-mail service in 1997. By allowing customers to keep a DVD for as long as they wanted, without penalty, they shook up Blockbuster's monopoly on the home entertainment business. Around 2007, after the phenomenal success of their DVD-by-mail model, Netflix added a streaming delivery option.
By 2010, Netflix's streaming business started growing much faster than the DVD-by-mail business. Reading the tea leaves, in 2011, the company decided to offer standalone streaming packages and hive off the DVD business as an independent subsidiary (Qwikster) . This was met with a huge outcry from subscribers. Netflix lost ~800K of their 26 million subscriber base that year and their stock plummeted to $54 from a high of $295.
Yet, as we look at Netflix today, their customer base has grown to more than 50 million and the stock price is ruling above $400. The company has moved over 80% of their customers to the digital channel and is producing content that's winning wide recognition, forcing competitors like HBO to follow their lead.

So, what did Netflix do right?

1. Reinvent the Business Model - One of their smartest moves was to recognize the power of the internet for entertainment and an increasing customer preference for online content , apparent in the growth of their "streaming only" customer base. Netflix responded by introducing streaming only monthly services packages, and significantly raising the price of the "DVD + streaming" package to discourage the DVD delivery option. At that time, this was met with significant resistance, but Netflix stood their ground to emerge a much stronger player in the media space. This is a great example of a company that is willing to reinvent their business model and also transform their identity by going digital.
2. Control the Supply Chain - Netflix is one of the largest buyers of content rights, having spent over $3 billion in 2014. Recognizing that better margins and market positioning are achieved through content ownership, the company has turned producer of original content (as an example, the television series 'House of Cards'). This is tightening Netflix's control over the supply chain and enabling them to attract new subscribers and improve profitability.
3. Use technology to drive business - Netflix has made significant investment in a recommendation engine. Today, 75% of movie selection is based on recommendation, not search. The company has also made key investments in ensuring speedy and uninterrupted delivery of entertainment by becoming the largest public cloud user (using AWS) and leveraging DevOps across the organization.

What Financial Services Companies can take from Netflix

1. Digital Transformation will require significant shake up of business models - Currently , most banks are focusing digital investments primarily on enhancing user experience. This needs to be significantly augmented with changes to business models, processes and value chains.
Today, there are very few examples of new digital business models in financial services, besides   Internet Only Bank - ING Direct, Capital One 360 and Robo Advisor, Charles Schwab's Intelligent Advisor. FIs need to create more business models that leverage the digital paradigm. 
2. There's a need for setting up and nurturing new supply chains - A classic example of supply chain control in financial services is the closed loop card processing done by AMEX and the insights they bring to their merchants leveraging the same. Chase launched ChaseNet, their merchant services offering in partnership with Visa to achieve similar control of their supply chain. ChaseNet, along with Chase Paymentech, ChasePay and ChaseOffers, enabled JPMorgan Chase to post $848 billion in merchant-processing charge volume (total amount charged by Chase merchants)  last year, up 81% from $469 billion in 2010.
3. Adopt evolving technology paradigms - Netflix has been a significant adopter of new computing paradigms, namely, the Recommendation Engine, Platform as a Service, Public Cloud and DevOps. This helps them meet ever evolving customer demand. Banks have similar opportunities to leverage technology to shake up business models, in the shape of Analytics, Digitization and Mobility.

Digital Transformation is forcing a new business order.  Its imperative upon Financial Services companies to redefine their business model to take advantage of evolving technologies like Netflix has done.

June 10, 2015

Workforce Management technology a must for true branch banking transformation?

While globally, consumer banks are focusing on transforming their digital channels (online, mobile); the branch channel would continue playing a crucial role. Branches would remain an important channel for banks to connect with their key customers, provide bespoke advice, and drive the bank's revenue and customer satisfaction. Although; to reap the maximum benefit, the future banks' branches need to be digitally transformed and have stronger multi-channel integration.

In years to come, the branches of proactive banks would offer a combination of state-of-the-art lounges equipped with Wi-Fi, Social features, digital queuing system and display, self-service kiosks, tablets for the customer-facing staff, video conferencing capabilities, kiosks and smart ATMs, video-tellers and many other innovative digital capabilities.

Amidst all these, a bank's branch transformation would still be incomplete without a robust technology-enabled Workforce Management solution. Workforce Management solution can provide a bank competitive advantage through the enablement of an integrated central staffing for the bank's branch, customer support center, call center, back-office operations etc. After all, for any organization, optimally engaged and skilled employees are its most valuable resource.

Why Workforce Management solution?

At a minimum, by using robust Workforce Management solution a bank can:

  • Efficiently forecast, plan, and schedule branch, call center and other back-office staffing requirements. Scheduling preferences and self-scheduling capabilities can also be enabled. The bank would be able to plan the deployment of staff in optimal numbers, at the right place and at right time. 
  • Reduce wait-time by minimizing under or over-scheduling of staff.
  • Revise its staffing forecasts and staff performance goals in real-time, based upon the staff-related KPIs. The staffing forecast would automatically consider historic staff performance data, workload information, as well as staff experience and skills attributes.
  • Reduce staff absenteeism costs, excess over-time, or leave liability.
  • Enhance staff satisfaction; with scheduling based on a staff preferences and availability, especially for the part-time staff.
  • Achieve cost and efficiency optimization with "shared" staff that can be deployed across any of the branches in the region, depending on the workload forecast.
  • Consistently enforce all workforce related policies.
  • Release branch managers' time by automating human resource management and administrative activities with the Workforce Management solution. Managers can now focus on more strategic activities like liaising and up selling to high value customers, and growing the bank's business.

More capable and advanced Workforce Management solutions can further help a bank in:

  • Staff coaching: Enabling robust workflow for staff coaching assignment, delivery, and tracking with individual evaluation and KPI scores generation.
  • eLearning: Providing automated training, delivered at the staff desktop at optimally planned times. This helps to keep staff continually updated on their evolving skill requirements, bank's processes, products, new regulatory requirements, and other relevant information.
  • Performance visibility: The unified solution can enable end-to-end visibility on staff work and processes. Branch managers would have a deeper understanding of their staff performance. Standardized frameworks for efficiently managing and improving the team and individual staff performance can be enabled. The solution can also aid in identifying training and execution issues. The customizable role-based staff scorecards and the predefined KPIs would aid staff in judging their performance against their goals.
  • Desktop Analytics capabilities of the solution can help the bank monitor and enhance its staff performance with the capture and measurement of their desktop application activities. Objective visibility into the staff's work performance at their desktop would be provided. Real-time guidance to staff can be delivered, as needed.
  • Identity management capabilities of the solution would help identify fraudulent callers to branch/call center. Customer-staff interaction security would also be enhanced.
  • Quality Management is enabled through secure capture, encryption, and archival of staff calls and screen interactions. The archives can be easily searched and replayed for liability protection, compliance, analysis, and general quality management. Efficient selection and evaluation of a large numbers of customer-staff interactions across numerous touch points can also be enabled.

What are your views on the role of a Workforce Management technology solution in the transformation of a bank's branch? I am keen on hearing your thoughts.

April 7, 2015

Belling The Cat - Addressing a dilemma faced by Investment Bank Risk Officers

Compliance in the trading world is more a topic for frequent discussion than proactive action. In case of investment banks, which significantly influence industry behavior, compliance is viewed more as a back-office function and hence, a cost centre. And when compared to profit centres such as frontline SBUs, the reputation of this function is a dampener for growth.

Though not publicly accepted, investment banks view many regulatory initiatives with apathy - just do what is required. Complying with the letter is more important than the spirit. In fact, if the front-office focuses on building flexible, real-time systems which are in line with stringent norms of microsecond advantage using superior process definition, technology and talent, regulatory compliance applications are built using batch processing legacy technologies. And the development team considers such assignments more as punishment posting than an elevation. In essence, effort is directed more towards 'complying'.

Although trading is supervised well from the perspective of 'front running' and helping their counter-party trader (prevalent in bond trading desks) within the investment banking, less has been achieved on employees' personal trading for a set of assets classes or individual securities. Over the years, there has been little progress on building a proactive mechanism of monitoring, reporting and possibly restricting personal trading. One reason is that monitoring personal trading significantly depends on manual processes such as paper submission using spreadsheets and investment banks lack the wherewithal to file personal trading details during an audit process. Where it exists, the process of filing external regulatory reports on employee personal trading is riddled with delays and inaccurate data attributes.

Within investment banks, employee personal trading falls under two categories - noncore and privileged. Noncore employees may not have access to privileged information and may fall in the outer layer. Privileged employees have privileged access to information related to the material interest of the bank. Such information has leveraging potential from the personal gain perspective. And while there are laws in place to closely monitor these conflicts of interests, many of the disputes between SEC / FSA and investment banks involve individual interests. These experiences form the basis for arguments to separate the research department from the investment banks.

Within an investment bank, the personal trading compliance process follows four distinctive phases:

1. Restricted list watch: Restricted list of securities are predefined and broadly communicated to employees who matter from the perspective of privileged access. This list restricts employees trading in securities where the bank has built the holding and calls for mandatory disclosure. Depending on the holding percentage which may vary from country to country, it is the bank's responsibility to maintain and update the restricted list to avoid any conflict of interest. FSA in the UK, as per rule number 7.3, checks for possible conflict of interest which includes front running (staff deals ahead of investors in the securities based on privileged access). Similarly, SEC 17j-1, rule 204-A-1 calls for the employee to obtain a duplicate brokerage statement and submit it to their employer bank.

2. Pre trade clearance: Banks have a list of 'what not to buy'. However, pre trade clearances are obtained through e-mails or by signing paper documents and often, this is done post the trade. The delay in correspondence between the risk office and an employee often results in a breach of code of conduct. Eventually, these breaches find their way into audit reports and draw the attention of regulators.

3. Broker confirmation: Though many employees diligently submit their confirmation duplicate to the bank, it is generally filed with the individual employee's records. There is hardly any automated process to reconcile the various broker confirmation receipts that an employee files from time to time. Tracing back to the point of any breach of trust is not only time consuming but also manual which means there is scope for human error.

4. Documentation: This is one of the weakest links in the chain. Poor documentation of an employee's personal trading history affect the firm's ability to pin point where the blame lies. From a compliance perspective, gathering information from various sources to synthesize and then arrive at a meaningful conclusion is still challenging.

Emerging regulations across the globe clamor for a different approach. Considering the external stimulation and more awareness on the need for better conduct internally, investment banks are looking for solutions that will enable them to stay informed and track employee personal trading to the spirit of the laws rather than the letters. Essentially, this requires behavioral changes at an employee level. But automating the process of gathering and creating reports on personal trading compliance would reduce the number of questions raised by the auditor in the short-term, and help in brand building in the long-term.

April 6, 2015

Is Big Data Ready For Consumer Banking?

Is big data just a buzzword?

Big data has been a popular buzzword in the banking industry for some time. Banks that are always on the forefront of technological innovation have long recognized the need for harnessing the information captured daily through hundreds and millions of customer transactions and interactions. As competition becomes intense and need for customer engagement becomes the bedrock for sustainability, banks are desperately looking for help from technology to extract maximum value from their core data assets.

Over the past decade, banks have closely observed the development and successful deployment of big data solutions by new-age enterprises like  Google, Amazon, Facebook, and Linkedin, enabling them to provide highly personalized and immersive user experience. Banks have waited for this technology to mature and become commercially available to take it to the next frontier of innovation in the financial industry. So is big data now ready to meet expectations of the banking industry?

 Can big data scale up to meet expectations from banks?

Let's look at key challenges faced by banks today.

1. More regulations mean banks need to store more data for a longer period of time. Banks have a problem with the archival and timely retrieval of this data that sometimes runs into terabytes. Big data provides a cost-efficient and scalable solution of storing these terabytes, or if needed even petabytes of data in Hadoop File Systems (HDFS), distributing the data across multiple commodity hardware. The Hadoop-based storage solution is horizontally scalable and many banks have already implemented this solution.

Industry news: Morgan Stanley, with assets worth US$300 billion, has started with a 15-node Hadoop cluster that the enterprise is planning to grow.

 2.  Another problem faced by most banks is the existence of data silos. Even though most banks have enterprise data warehouses (EDWs) they are expensive and don't allow the flexibility to make modifications easily. One of the fast emerging use of big data is the concept of the data lake or the logical data warehouse. The data lake acts as an enterprise repository to store data of any format, schema, and type.  It is quite inexpensive and is massively scalable solution for enterprise data needs.

The data lake can support the following capabilities:
a) Capture and store high volume of raw data across the enterprise at a fairly low cost
b) Store variety of data types in the same repository
c) Provide the ability for schema definition on read enabling generic structure for data storage

With information being available in a single place, banks can leverage association and predictive techniques on this data to generate insights about customer behavior, churn, and identify cross-selling opportunities.

To overcome the technical complexity of retrieving information from data lake, Hadoop has introduced Pig and Hive. Hive provides an SQL-like interface to the data stored in HDFS while Pig provides a high-level platform for creating MapReduce programs to process data stored in HDFS.

Industry news: HSBC implemented a Hadoop-based data lake platform to support their ongoing and future regulatory needs, thus eliminating restrictions related to data availability.

 3. The techniques described earlier process data in batches but in banking a lot of functionalities require high throughput of data. To solve this problem Apache developed Cassandra - a fully scalable distributed database system with high throughput. Many companies have benefitted from successful deployment of Apache Cassandra. The benefits include enterprises being able to identify fraudulent transactions or determine suitable offers for customer at real-time. 

Industry news: Real-time offers through online channels needed a high throughput database. Bank of America supports this high volume and high throughput data through Cassandra.

4. Big data is associated with two important capabilities - storing high data volume and generating insights. Thus, it is not only important to store these petabytes of data but also derive key business intelligence at real-time.

Apache Mahout is a library of scalable machine-learning algorithms, implemented on top of Apache Hadoop using the MapReduce paradigm. Banks can use Mahout on a huge amount of customer information stored in HDFS to have a customer 360˚ view and provide need-based customer offers.

Apache Spark provides similar functionalities in real-time as it runs in-memory in clusters. Spark analyzes data at real-time to generate time-sensitive business intelligence; for e.g., identifying fraud based on outlier behavior pattern or providing location-based offers.

Industry news: Deutsche Bank has recently implemented Apache Spark to support its real-time data needs for fraud detection.

Can banks afford to ignore big data?

We are witnessing that big data platforms are maturing rapidly to meet the demands of the financial industry. Tools are becoming less complex, reducing learning curve and resulting in the availability of more skilled personnel.

As most of these tools become commercially available, this is an ideal time for banks to invest in big data and set up the right platforms. If not, they may have to play catch-up as other industries surge ahead with the knowledge and use of big data platforms.

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March 27, 2015

How to comply with new regulations such as fast pay-out? - A banker's dilemma

The new guidelines on fast pay-out issued by the financial regulators of FSA, are changing the perspective of banks and other deposit-accepting financial institutions on achieving consolidated and comprehensive views on their customers and their activities irrespective of their touch points. These guidelines and the consultative framework, which FSA is building, will significantly speed up processing of claims of the depositors. The consultation prescribes a mandatory period of seven days to process the claims and settle them. An important element of the proposals is the introduction of a clause requiring the banks to be able to furnish a Single Customer View (SCV) to ensure that they are in a position to provide the aggregate balance held by each eligible depositor (FSA UK).

In its attempt to solve the depositors' difficulties to gain their money back from the banks as well as to assure that bank will not have a run on them, FSA is asking a few fundamental questions to banks. These questions can be summarised as:

a. How do banks store and retrieve all their customer information?
b. Are systems and applications that the banks have built over a period capable of extracting vast amounts of data attributes to create meaningful information?
c. Can the banking and other financial organisations realistically establish a relationship between depositors A and B when they are the same or are interconnected with transactions?
d. How do banks manage their customer information particularly in the context of mergers and acquisitions?
e. Can the two systems - acquired and acquirer bank be integrated in a way that enables single view of their customers and their activities?

Traditionally, banks have organized themselves in silos created on the basis of products/services or geographical processes. Further innovation in products has made it difficult to share customer information between different SBUs seamlessly. In addition to this, disparate systems exist between different divisions of the banks, making it all the more difficult to extract the information in real-time basis to understand depositors' exposure to the banks.  Though in the last few years banks have spent significant effort and money to implement robust CRM systems and other applications such as KYC to meet internal and external compliance matters, a comprehensive view providing a greater depth of knowledge about their customers is far from reality. The key stumbling blocks to achieving single views on customer data between different products and service lines include the lack of an information bridge between business architecture and technology architecture and the difficulties in building common symbology across source systems.

Historically, organisations have approached the solutions from the perspective of building large data-warehouses. This approach of building large-scale databases to load customer information, analyse them through data marts and data processing applications were built as additional layers to create meaningful reports and views about customers and their activities. However, issues such as duplications, re-creation of customer data in addition to effort, the requirement to maintain structured and unstructured data along with real-time update of changes, have limited the benefits of these built data-warehouses.

To be in a position to meet the FSA's deadline, banks now need to relook at their entire IT landscape. Sooner or later, IT management of these banks have to take a deeper look on the multiple databases they have built over a period of time to maintain and manage their customers across the globe. They need to be in a position to seamlessly distribute and redistribute information as, when, and where needed. To comply with FSA, banks need to initiate a few first but important steps.

Step 1: Build an enterprise wide roadmap for master data quality: It is a known fact in the industry that in large organizations, there are multiple formats and versions of master data. Having a defined view on how customer-related information will be captured and maintained is the first foundation stone. De-duplication of customer information and building a standardised format through which, customer information acquisition can happen is important and critical for the intended strategy of building a SCV.

Step 2: Build an Information Architecture: Within banking organisations, different business and technology architectures exist. The missing link has been the lack of a clear vision on building a unified information architecture. Defining the process for building a common symbology to serve as a single-source for cross-reference is critical. This will not only help in seamless update of all downstream systems but will also play a significant role in how information is received from upstream systems without any manual, intervention-based data cleansing effort. Limiting manual intervention can significantly reduce errors that typically occur during the creation of customer information.

Step 3: Define the view on solution choice: data warehouses and SOA both provide ways to achieve the single view on customers. Depending on the number of source-systems, data volume, and integration complexities, an organisation needs to have a clear perspective on the solution, which not only caters to the current needs but also addresses the needs of the business and customer growth in the foreseeable future. If the choice is to build a large data warehouse, it is important to understand how a single update of the other databases that store customer information can also happen.

In a nutshell, there is no silver bullet to addressing these requirements.  In order to optimise the tools and technologies to ensure that organisations have a single view on customers, they need to consider cost-effectiveness, flexibility, and analytical requirements. Building a single view on customers will help organisations benefit beyond regulatory compliance requirements. Finally, it is the deep understanding of the customer, which differentiates and propels competitive advantage for organisations.


March 19, 2015

Are The Clouds Over Core Moving?

Are FSIs still slow and hesitant in looking for core banking solutions on the cloud?

Operational risk is a major issue that inhibits companies from moving to a cloud business model for core banking. It was once believed that FSIs would never move their core systems and applications to a public cloud infrastructure or purchase core services under a public cloud, software-as-a-service (SaaS) model. IT adoption is following a familiar pattern of embracing new technologies, leapfrogging developed economies, and their legacy systems.

Here are some success stories:
Microsoft and Temenos launched a cloud-based, pay-per-use core banking platform under a cloud-based delivery model and pricing approach that had 12 Mexican banks as their first customers. PNC bank is on its path of modernizing the legacy of its core banking systems. They want to rationalize and simplify their legacy core applications, reduce the time to market (TTM) innovative products and services vis-à-vis their peers, and prepare for hosted and cloud computing solutions.
It would be impossible for banking industry to adapt to cloud based solutions without some common standards. These standards will help integration of different services t from and to the cloud interoperable. The cloud solutions are going to throw open and allow multiple options. Then the big, enterprise wide solutions are slowly going to become a thing of the past. (When we say cloud here, we mean private, internally hosted cloud services and these are not public cloud offerings like those offered by Google, Amazon and Rackspace.)

The banking industry architecture network (BIAN) is not going to help banks to make or manage their private clouds or their SaaS applications. Yet, BIAN could be the best catalyst to help the entire banking industry gear up to become cloud-ready.
There are still many hurdles for financial services industry specific SaaS deployments and services. Issues such as privacy and safeguarding business secrets coupled with the larger problem of non-availability of specific appropriate financial services and some particular SaaS offerings are preventing banks from taking the cloud adoption route. BIAN has multiple a components to help them create a value in the SaaS space. BIAN's idea of cloud-enabling the banking industry will become a reality once these hurdles are removed.

In general while looking for cloud as a solution, Banks and financial institutions are placing transparency, robust auditing controls and better data encryption mechanisms on top of the list when it comes to expectations from their cloud service providers. When we try to understand why Banks are going to the cloud, flexible infrastructure capacity and reduced time for provisioning were listed as top objectives. Customer relationship management and application development are the top services being adopted by banks for moving to the cloud.

So, Clouds over core banking are clearing slowly and banks need to gear up and get ready.

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March 13, 2015

Overcoming the cloudy concerns: Recommendations for banks

-Anjani Kumar

In my previous blog, I had posited that banks should not let their concerns deter them from leveraging and reaping cloud computing's immense benefits. That said, banks need to adopt a structured approach towards their cloud implementation. In my view, there are four essential ingredients of a well thought-out cloud adoption approach:

1.Choose the cloud model judiciously: No single cloud model (public, private) can meet all of a bank's requirements. Hence, while choosing the cloud models, banks should consider the regulatory, security, cost efficiency, operational agility, and scalability aspects of the model. In the initial implementation stages, banks can plan to have a federated ecosystem comprising a combination of cloud-based and on-premise application portfolio mix. Such a federated ecosystem will allow banks to have myriad cloud models (private, public and hybrid) implementation and flexible capacity for incremental adoption.

Depending upon their business needs, banks can opt for large-scale hybrid cloud model which comprises a combination of public and private cloud features. In this, the computing resources and capabilities are owned by both the bank and the cloud service provider. It allows banks to reap the benefits of optimization offered by cloud, and also ensures high-level of data confidentiality and security. Public cloud capabilities of the hybrid model could be used for general computing, while sensitive data and functions could be enabled in the private cloud. Similarly, for core banking aspects, and also for cases where regulations prohibit processing and storing customer data outside the country, private cloud could be leveraged. An example of private cloud adoption of Westpac New Zealand which recently opted for IBM's private cloud technology to become the country's leading digital bank. The bank will migrate some of its business-critical applications to IBM's Auckland based datacentre.

2.Avoid the big-bang approach: Banks should develop a business case for their cloud adoption and take an evolutionary adoption approach. A mid to long-term roadmap for cloud migration is crucial. Starting with small and less mission-critical legacy applications that have already been architected for meeting external integration and security challenges is the way to go. Also, the relative data importance vis-a-vis the regulatory requirements of data privacy and residency should govern the adoption prioritization. Cloud migration strategy should take into consideration the systems' integration (batch, real-time, etc.) and performance requirements. Business domain wise, lower risk projects such as ECM, CRM, collaboration and workspace are good candidates to begin with. Payments and corporate banking functions such as credit risk simulations, payment settlement, corporate actions, etc. are also well suited for the cloud. In collaboration and workspace, cloud (public or hybrid) can be leveraged for back-office and horizontal processes such as email, internal collaboration, knowledge sharing, etc. UBS has leveraged Oracle's cloud-based Fusion HCM to support its HR function. Similarly, BBVA's entire workforce is enabled through the cloud email and collaboration suite (Google Apps). In content management, Barclays' private cloud-based service named "Cloud It" provides a cloud-based document management system for customers to store their personal documents.

3.Focus on security: Banks should clearly understand and comply with cloud related data confidentiality and regulatory requirements. For instance, regulators such as FINRA may want to audit the bank's cloud architecture. Depending upon the local regulatory needs, many banks may have to keep sensitive data (e.g., customer details) within firewalls and in private cloud. Amazon Web Services has launched AWS GovCloud to allow the U.S. government agencies and contractors to move their sensitive workloads into the cloud by taking care of their specific compliance and regulatory requirements. IT teams should thoroughly test all systems to be enabled on cloud for strong data and application security, performance, regulatory, business continuity, disaster recovery and risk management aspects. Cloud security should integrate well with the bank's existing security processes and platforms. A secure, sophisticated and easy-to-use remote access management solution for cloud which can support all operating systems is desirable.

4.Engage in partnership: Banks should engage a leading cloud solution provider to gain expertise and ensure compliance. Cloud service providers can also be engaged to educate regulators on cloud capabilities concerning data security, residency and privacy. Chosen cloud services providers should have clearly defined strategy, demonstrable ROI and proven capabilities. Banks should get all key information from the providers upfront; including the costs and other implications of migrating the existing infrastructure and applications to the cloud. Banks should also examine the service providers' external security and audits certifications before engaging them. Service providers' performance vis-à-vis transaction volumes, reliability, availability and quality of the services should be scrutinized closely. Stringent SLAs with guarantees and remedies / penalties should be enforced. Banks should have the service provider work with their risk, security, and legal teams and aid in developing cloud migration plan. Where multiple providers are engaged, ensuring that the applications and data can be moved throughout the cloud environments, as appropriate is important. A good example of a third-party cloud solution is the Infosys' Cloud Ecosystem Hub. It is a first-of-its-kind solution helping enterprises build and manage unified hybrid cloud environment. The solution helps to rapidly create, adopt, and govern the cloud services across the clients' ecosystem.

In your view, what are the other key aspects banks should consider during their cloud deployment? I am interested in knowing your views.

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