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

« April 2013 | Main | August 2013 »

July 30, 2013

Cash is King!

'Cash is king' goes the adage, and a king left unprotected can spell danger for the entire kingdom!

In the corporate kingdom, organizations take great care of this "king" and watch over him at all times. Guarded well, the kingdom remains strong and prospers. Poorly managed, the kingdom is bound to come crashing down or be taken over by the nearest rival.

Cash-flow management and projection is the key to making strategic and profitable business decisions. Corporates have been more focused over the last decade in terms of tracking and managing cash flows, and commercial banks have been offering a series of products for the same, ranging from controlled disbursement, account reconciliation, balance reporting, lockbox, and cash concentration services. All these, of course, aim at forecasting cash flows and providing investment opportunities. While the concept sounds simple, there are several emerging trends and challenges that banks need to closely look at. This write-up presents a point of view about the challenges that corporate banks are faced with today in the areas of cash management and how smart analytics and business intelligence can help organizations drive decision making.

First - cash flow is not just impacted by payables and receivables but also by other factors such as inventories, capital expenses, debt expenses, exchange rates and, most importantly, the variability of 'timing' in these cash movements. The timing factor is what is driving banks to provide companies with services that reduce operational risk via real-time reconciliations and same day exception detection and resolution. Statistical analysis and configurable models enable stakeholders to view historical trends and leverage actual transaction history to predict future cash flows and discern patterns.

Banks are topping their conventional services like account reconciliation, balance reporting, control disbursement, cash concentration, etc. with other value added services like real-time tracking of surplus positions, more visibility into global cash positions, and automated sweeps, which remove reliance on intra-day borrowings.

J.P. Morgan, saw the importance of serving its multi-national customer base and introduced a real-time enabled platform called iDDA for managing treasury activities globally. Such forecasting and tracking options help institutions better compete in international markets.

Another great example of banks going beyond the conventional services is that of Standard Chartered Bank. Their global liquidity management clientele grew by 15% as a result of implementing a complex cross-border multi-currency notional pooling system that enables customers to consolidate their balances across regions to attain higher interest rates.

Second - what corporates are constantly grappling with is to know how much is too much for cash reserves. The credibility that a company acquires with banks, creditors and other vendors is built over years but can be blown away in days if it falls behind on payments. Hence, investing liquid funds BUT maintaining the ability to satisfy all payment obligations when due requires a very careful balancing act.

From a simplistic view, the cash balance needed to be maintained by a bank should factor in:

  • Minimum depository balance: Deposits maintained by corporates
  • Operational balance: Cash needed to manage day-to-day operations, wages, inventory, etc.
  • Precautionary balance: Emergency liquid funds
  • Transaction balance: Money needed to fund outstanding checks, wire payments, etc.

Companies need to arrive at the magic number, one that will leave enough in the pocket to cater to even extreme conditions. Analytics plays an important role, with banks employing stress testing and other scenario analysis tools to gauge the impact of seasonal trends, sudden crisis or emergency events (terrorist attacks, stock market crashes, credit crisis, etc.) on the company's liquidity position. Companies that take a more risk-averse approach prefer using sweep accounts to move excess funds into the money market or other short-term investment opportunity. Sure, it will not earn you a fortune, but then the idea is to earn some interest while keeping the funds accessible.

J.P. Morgan's Access Liquidity solution for example, helps organizations better manage their liquid cash globally. Not only do they help companies track some of their trapped cash but also form a bridge to invest this cash by leveraging their asset management capabilities.

Third - there is overwhelming evidence that banks are focusing a lot on offering a consistent multi-channel experience for their customers. This aspect is so crucial that it is now a key factor that corporates examine when they decide to start a new relationship with a bank. The eruption of business usage on tablets and smartphones is changing the landscape of transaction banking. Treasury professionals are demanding that their banks offer a standardized multi-channel experience and banks have no option but to cater to this new generation of on-the-go customers.

A leading research firm's findings amongst a large section of treasury professionals surveyed showed that 43% of associates are presently using more than one channel, 80% of them consider multi-channel important and over 50% say it's a key factor in deciding a new bank relationship. This is clearly an area where banks need to act swiftly to gain an early mover's advantage.

The bottom-line is that a volatile economic situation forces an organization to refocus on the basics. In the wake of a crisis, cash management solutions are more relevant to corporations who are looking to unlock confined capital to achieve better rates of return across a global cash pool. Some banks that were hit hard by various financial crises have continued to augment their cash management business.

Citi is a great example - not only did they continue a high level of investment in their treasury and trade solutions technology, but also managed to build a new award-winning online cash management portal - CitiDirect Evolution.

Banks who are able to give their customers tangible and measurable value additions, provide flexible options for modeling and improve decision making will stand out in this economy. The customer wants every buck managed and utilized but also demands maximum bang for every buck spent! And why not? After all, cash is king!

July 12, 2013

Tablets can be the antidote to some of the banks' ailments: provided they follow the right prescription!

In my last blog, I had posited that tablets can be the antidote to the "ailments" of some banks. Through this blog, I will share recommendations on how banks should approach their tablet banking channel implementation for reaping maximum benefits.

In recent times, while many banks have tried to effectively leverage their new tablet banking channels, unfortunately, not many have succeeded. There are inherent fallacies in such banks' approaches. For example, many of these banks have assumed that their customers are happy with just being able to access online and mobile banking channels through tablets. Resultantly, these banks have not bothered to develop tablet-specific banking websites or applications. No prizes for guessing then that the websites of such banks usually fail to provide customers with the expected levels of performance (page load time, download speed etc.) or user experience (UX) on tablets. These banks have ignored the point that the mouse and keyboard interaction models of PC-based websites don't work well for multi-touch devices like tablets. As an example, in online banking websites, a page has lot of content that is "un-swipeable". The content blocks and buttons are also smaller, and don't lend themselves well to tablets. Neither do the simply recycled mobile banking apps on tablets.

So how should banks approach tablet adoption?

  • Treat tablets as a distinct channel: Although tablets possess the characteristics of both the mobile banking and online banking channels, they have their own unique features. Disregarding this fact and force-fitting tablet banking into the definition of another channel is a mistake. Your bank can derive real-world benefits only if the tablet is not treated as just another variant of their mobile or online banking channels. Rather, they must treat and position tablets as a distinct channel - one that provides a unique customer experience due to its portability, simplicity, interactivity, ease of navigation (including tactile and gestural) and advanced graphic capabilities. The tablet's ability to offer complex functionalities on an intuitive and easily navigable touchscreen is well-tested and proven.


  • Focus on their user and know their context: It is important for banks to know why, how and where banking customers use their tablet applications and sites. Keeping customer use cases in mind and matching tablet channel capabilities with end user goals is imperative for developing and designing optimal tablet banking features, content and UX. It has been seen that in comparison to mobile banking, tablets are relatively less used by users for transactional banking activities (e.g. transfers, bill pay, or balance checks). Rather, users generally use tablets more for investment and other analyses, and in researching information about financial products. Using these insights, banks should consider enabling thought leadership and deeper content (including research publication) onto their tablet banking channel. Bank's focus demographics must also be catered to.

For example, for the wealthy demographic (households having income of over US$80,000 per annum), consider developing a tablet-specific app that aids financial management (through saving calculators, budgeting and other PFM tools). Citibank, for example, has deployed a PFM app for the iPad, and the app is considered an industry benchmark. This PFM app provides intuitive and simple task-flows and functions.

  • Optimize for tablet use: Banks should ensure that their mobile apps and online banking websites are customized and optimized for tablet use, rather than simply delivering their full online or mobile banking website or app content on tablets as-is. The first step towards achieving this is to reduce "heavy" and unnecessary content (including graphics). Also, while the availability and speed of tablets are important aspects, paying close attention to its users' interaction model is even more important. For example, optimizing the tablet sites for touch (e.g. spacing frequently-used and important links relatively far apart) is crucial. The tablet's increased real estate must be leveraged to the fullest to enrich consumer interactions, including using interactive and unique data presentations. Content aggregation is also important since the content tablets can display on one screen would require multiple screens on a smartphone. Banks can also consider providing widget-like layout of tasks to help users refer to the information in context (e.g. side-by-side views of the effects of the latest news on stock prices). Through "widgetization" and data compartmentalization, banks should also consider displaying same information through different forms - watch-lists, quotes, reports, charts, etc. For a decision on when to build tablet-specific app, banks must define a tipping point - e.g. one based upon a defined threshold for tablet device adoption amongst the user base. Considering focus demographics, and not just current customers in the user base measurement is recommended.


  • Position it right: For better visibility of their tablet banking channels, banks can launch it by enabling their staff tablets to provide face-to-face advisory services. Banks should position their tablet banking channels and associated website/app as competitive differentiators - instead of it being yet another banking channel. Also, while the tablet experience must be unique, a bank must also ensure that their positioning and user experience is in coherence with those of the bank's other channels (especially digital) and overall branding. Also, to truly bring in new customers, banks must ensure that their tablet banking offering is complemented by the bank's additional product and channel initiatives (e.g. those that cater to more affluent and younger customers).


  • Manage challenges by leveraging external expertise. Banks must be well prepared to face the challenges during their tablet banking adoption. For this, banks should consider partnering with a tablet technology solution provider who is also experienced with the design, development and implementation of all the other banking channels. Such a provider can guide banks on strategies to address their various concerns - including those related to device proliferation and the resulting need to:
      • Support new, popular devices (e.g. Microsoft Surface)
      • Need for adaptive architecture model
      • Multiple technology-related concerns
      • Address challenges around OS upgrades, data integration and functional/content aggregation
      • Ensure coherence of the tablet banking channel with other digital channels
      • Establish robust policies and processes to manage and govern their tablet banking channel

Lead the way

Venturing into tablet banking channel deployment for its own sake will be counter-productive for banks. The decision should rather be driven by the bank's business objectives and proven business trends, and backed with robust approaches. Citi, Bank of America and USAA are some of the major banks that have already shown the way in tablet banking. Citi, for example, has been leading the way in providing great user experience on tablet banking.

July 11, 2013

Risk prevention - a framework for financial institutions

In today's digitally-connected world, applying for a loan is a cakewalk. As a result, the volume of credit applications have gone up exponentially in past few years across virtually every type of loan - from home and car to personal. Processing large volumes of applications and appraising the credibility of the applicants within stringent timelines is resulting in higher risks of default. Consequently, what the banking industry critically needs today is an advanced framework to analyze, detect and prevent risk early in the underwriting process.

Managing uncertainty is an area of significant importance for any financial institution. To effectively manage uncertainty, an institution needs to analyze critical credit history and other data (past and present) of each applicant. To aid this process, almost all credit bureaus worldwide are actively working on incorporating additional measures to augment the raw information provided in the report. Among the most valuable of these measures are early warning alerts.

In this approach, risk is rated and prevented but not managed as such. There is a fine line in between early warning and risk management. These early warnings help to manage risk efficiently and manage portfolio at a higher level. While early warnings can help prevent risk in the short term, risk management is the most effective mitigation approach for the long term. Early warning alerts are created based on several critical factors like past due, bankruptcy record, account balance, trade count, and many more. These alerts are dynamic in nature and keep changing with time.

While credit bureaus make every possible effort to provide financial institutions with early warning alerts that are timely, relevant and accurate, there are several challenges for banks. Some of the major challenges include:

  • How do I make proper use of these alerts and utilize them efficiently in risk mitigation?
  • How do I incorporate these alerts in the existing system in a timely manner?
  • How do I automate my process flow to trigger the right action from each alert?
  • How do I prioritize and handle large volumes of early warning alerts?
  • How do I generate reports for monitoring and analysis?

Use case: As a credit technology partner of multiple US and European large banks, Infosys has been involved in providing early warning risk prevention solutions - from idea generation to implementation of frameworks. Some of these frameworks addressed the need for banks to analyze and utilize large volumes of risk alerts to effectively mitigate risks.

Primarily used by the underwriting and risk monitoring areas in credit, a risk management framework typically involves:

  1. Customization of standard incoming alerts and aligning them with strategic objectives
  2. Analyzing and prioritizing alerts based on critical rule sets to manage large volume of alerts
  3. Developing in-house analytics tools and techniques for faster decision making
  4. Establishing a flexible framework to incorporate changes in risk management with minimum effort
  5. Building a repository over a period of time for internal customer history and fraud prevention

The predictive accuracy of identifying and prioritizing risk is very complex, and experienced analysts can yield value to the organization. It's critical to prioritize early warning alerts to eliminate the threat of losing potential customers. This entails timely identification of alerts and utilizing them to take the right decision. Automating the early warning process still deserves a closer look from the risk experts. Therefore, even if an early warning signal proves true, they can be routed through the proper line of business. This manual effort can be minimized with caution depending on the reliability of the early warning framework. Finally, the process of early warning detection ends with reporting, which refers to periodic analyses of historical and current data.


July 2, 2013

Audit management evolution: the role of platform-based solutions

Audit management is done to ensure the effectiveness of an entity, process or function within an organization. In the context of financial governance risk and compliance (GRC), audits are conducted to ensure effective risk and compliance implementations. Given the increasing complexity of regulations and risk management processes, it's no surprise that the necessity and reach of audits have increased multifold. They are becoming more frequent and covering wider areas of an enterprise than ever before.

Over the last ten years, there has been an understated shift in the operational model of overall audit execution. A function that conventionally used to be thought of as a post-process formality has gradually become an extended part of the overall GRC program. Until very recently, the process was typically conducted purely as a review activity and, as such, was not considered particularly important or worthy of a broader scope. Furthermore, the absence of a defined workflow meant that the audits were basically toothless - lacking the power to ensure that the recommended actions were implemented. As a result, the highlighted inadequacies of the audited entity often continued unabated. In order to overcome these limitations and conduct effective audits, the industry has moved away from traditional methods towards a process that has defined objectives, tangible results and end-to-end workflows. This shift is creating a more contextualized, risk-driven and workflow-based approach of conducting audits.

This process shift is transforming the technology landscape of financial organizations and moving from line-of-business (LOB)-focused, custom-based solutions to enterprise-level, integrated product-based GRC solutions. These platform-oriented products offer end-to-end capabilities, which means that they are able to conduct a contextual audit that begins at the point from from where the need originates - the GRC function. These GRC platform-based products accomplish an enhanced audit process by bringing the entire lifecycle under one roof. 


These leading GRC products integrate and automate the steps in the audit process - identification and assessment of the auditable entity, risk assessment, contextual audit planning, audit scheduling, on-the-ground execution, determining gaps and actionizing them. This ensures an effective, enriched and easier way of monitoring the audit process. Due to their workflow-based approach, these platforms also enable an organization to plan and track the whole effort spent on the audit process - starting from project planning, scheduling, costing, tracking and reporting. Some of the leading platforms that offer GRC Audit Management are MetricStream, IBM Open Pages and RSA Archer.