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

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June 26, 2014

Is digitization new to banking?

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


Before answering the question, let us understand where companies are digitizing of late. Some of the common use cases are analytics in sales and marketing, analytics in gaining customer insights, real time business intelligence, IT driven new products and services, co-creation and self-service with customers, and in offering more services online and through mobile. In a way more and more processes are getting digitized. This is no different from what was happening before and IT has always been driving such changes in banks. So, can we conclude that digitization is not new to banking? Probably not.


While digitization is not new, the current wave of digitization is about leveraging the emerging technologies to massively scale operations, process more data, automate more business processes and offer more convenience for customers - exponential raise in speed, scale, smartness, and scope of IT in driving the business. The key to this change is the innovation mindset! IT executives must realize that the current wave of digitization is about IT led innovation. Innovation is what is driving the digitization efforts today.


Most often innovation generates a lot of buzz within the IT organization. Leaders urge their teams to focus more on innovation which leads to executives starting innovation initiatives within their groups - ideas get generated and discussed. Enthusiasm builds up among the technologists but very soon the momentum is lost. The key reason is that the innovation initiatives at the ground level are not getting aligned to the strategic goals of the IT group. To overcome this problem, first innovation should become a key part of the agenda of IT. IT executives must re-think their value proposition to focus on innovation and IT management should add new capabilities on :

    1. How to partner with business to identify problems, prioritize projects, and drive innovation together?
    2. How to incubate ideas?
    3. How to re-design the governance of IT with focus on innovation?

The bottom line is imbibing innovation capability within IT is important to the success of the digitization initiatives in banks and successful banks will be those that connect the pieces of the innovation puzzle to create a new agenda.

June 24, 2014

Making bank branches ready for the future

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

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

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

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

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


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


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


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


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


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

June 4, 2014

Model 1 IGA - Australia's way forward to FATCA

This blog is co-authored by Mayank Goel (


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

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

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

Adopting the IGA1 approach has several advantages:

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

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

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

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

Compliance with FATCA

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

Statutory requirements

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


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



1. FATCA IGA Model1 Agreement US Australia - 28.04.2014