Financial institutions are under immense pressure to digitalise, become regulatory compliant, innovate, focus on customer and client-centricity, and keep up with payments in their own countries and cross-border. Increasing transparency has been a central issue for banks over the past few years. Regulators are putting pressure on banks to improve transparency through acts such as FATCA and from the discussions at Sibos this week, it seems like banks have a lot of work to do in many different areas. According to Hans Tesselaar (Executive Director, BIAN) the Banking Industry Architecture Network (BIAN) banks want to interact better with their member base and this is a part of transparency. If banks are able to open up the front and the back office then this will increase transparency.
The overall message from the banking industry is that regulation is their biggest issue and finding ways to comply with regulation is what’s keeping banking executives awake at night. According to Alexander Tsigutkin, (CEO, AxiomSL) banks are under extreme pressure to provide transparency between operations and regulators now want banks to be ready to be ready within three months of announcing new regulation. Axiom help to provide banks with regulatory compliance solutions. “Axiom helps to ensure that regulators are satisfied with bank infrastructure and adverse risk environments. Overall our technology helps banks in the direct space and also to comply with FATCA and other compliance related factors. Axiom is the shortlisted bidder for the US securities audit trail and results will be announced at the end of the year.”
Banks are slowly adapting to digitalisation and faster payment solutions, however, some would say that banks are still struggling to keep up with the pace of non-bank providers. According to Sean Gilchrist, (MD Digital Channels, Global Transaction Banking, Lloyds Bank) Lloyd’s are set to launch their first digital platform for clients at the end of 2014. Gilchrist believes that this move is not just to catch up with competition but helps to differentiate them from what the competition is doing by thinking about their own interactions with their customers. Gilchrist believes that there are three challenges that Lloyds face when it comes to digitalisation; making the digital platform easy to use, understanding the digital process and building digital capabilities. “The first challenge is keeping a constant focus around building great digital propositions and making it easy for the clients and their users to do what they came to do. Another challenge is understanding how to digitise the process and make the front to back office processes flow easily. The third focus is building the digital capability through the organisation, we are a big old bank and we are educating staff to think digitally through our group digital academy.” Gilchrist believes that we are living in a time of transformation and a shift in the market. “We are seeing a trend in what we call the bleed-up and bleed-down. The bleed-down is the complexities in technology which is moving down into the mid-markets and the bleed up is the user experience in the retail space moving up in importance to larger corporates and the way they are expecting to interact.” According to Gilchrist their clients aren’t asking too much from them, primarily they want banks to make their transactional banking easier. Gilchrist also believes that new entrants are making banks less complacent. “One of the key elements of our strategy is to be more client-centric and active in helping the UK to prosper. New entrants into the market provide a great challenge for banks because it makes us sit down and think about what we are good at. The disrupters that we are hearing a lot about ensure that established organisations cannot be complacent.”
According to Henry Balani, (Head of Innovation, Accuity) banks are facing regulatory compliance issues and although they understand they have to face these, they also have to take into consideration the cost of compliance and the expectations of the regulators. Balani references a compliance talk at Sibos earlier in the week, which he believes indicates what is going on in the financial services industry right now. During this discussion the impact of regulatory pressure around transparency and how banks could deal with compliance challenges were both mentioned, alongside trade finance and Balani believes that there has been a significant increase in trade-based money laundering all over the world (tax evasion, avoidance and illicit money flows) which is very significant in emerging economies. Balani also mentions the UK Financial Conduct Authority’s (FCA) investigation of around 20 banks based in London in 2013 which found that while the banks policies and procedures related to payment transactions and account screening were good, their policies around trade finance and trade transaction were inadequate. “Banks face ongoing challenges, these include emerging economies trading with each other and the fact that regulatory standards are different around the world. I predict that there will be more enforcement around trade violations and trade-based money laundering.”
Collaboration has been mentioned a lot at Sibos this week. There has been talk of the possibilities for banks to collaborate with non-financial companies and start-ups that are providing payment solutions, and even using the underlying technology used by cryptocurrencies. Nanda Kumar (CEO, SunTec Business Solutions) believes that we are now living in a collaborated world and that banking attitudes towards innovation are changing because of the threat of new entrants into to market such as ApplePay. It was revealed last week that Apple now has about 800 million iTunes accounts, which means that it has an advantage over Facebook and Twitter in that it already has credit card information and the accounts have already had at least one transaction on iTunes. According to Ather Williams (Managing Director, Global Payments & Global GTS Strategy, Global Transaction Services at Bank of America Merrill Lynch) BofAML were one of the first banks to work with Apple and ApplePay. “From the consumer side of payments we realised that our customers are going to decide how they want to pay and if we don’t make it easier for them, then they will bank with someone else.”
Nandar believes that it could be possible for banks to collaborate with non-financial companies in the future and that this collaboration could reduce the need for one centralised agency or institution. Nandar believes that this kind of disruption could be seen as a good disruption because elements in the ecosystem are continuously collaborating and this is no different. The payments landscape is changing and according to Williams, in the US they are trying to make the change from paper payments to electronic payments and their new product Digital Disbursements helps to drive this change. The back office technology that banks use also needs to change, but this change is too big for many banks to consider right now. According to R.P Singh (Executive Director and President, Products, Nucleus Software) banks require flexibility on both pricing and reporting for corporates and their technology also needs to be flexible.
Banks have an large amount to focus on at the moment and with regulation at the top of the agenda, the general attitude is that this leaves very little room to think about anything else. Slowly but surely banks seem to be modernising and changing their attitudes and although they have a lot of pressure coming from different areas it's good for them to remember the General George S. Patton quote, "Pressure makes diamonds" which could reflect the outcome that all of this pressure has on the the banking industury in the future.
By Nicole Miskelly, bosbguide Lead Journalist