Category: Banking, Financial Services & Insurance

BigTechs in BFSI: The Pragmatics of Co-existence for Market Expansion | Blog

Google recently announced that it is teaming with eight US banks to offer checking accounts powered by its Google Pay product and built on top of the banks’ existing infrastructures. Google is not the only BigTech firm that is pushing its play in the Banking, Financial Services, and Insurance (BFSI) industry. Facebook recently launched a new unit called Facebook Financial that consolidates all its payment products under David Marcus, the former President of PayPal. In a call with investors in July 2020, Tesla announced that it is planning to launch a major insurance company.

Eyeing the prizes

The transformation of the BFSI industry is powered by the ability to create innovative products and experiences using digital capability platforms and data. The BigTech firms see this as a massive opportunity to use their digital platforms and data processing infrastructures to gain a significant share of this transformational opportunity in the BFSI industry.

Additionally, the emergence of a globally connected ecosystem and ambient technology have led end customers to demand seamless experiences to manage their lifestyles and finances. Realizing yet another opportunity, BigTechs such as Amazon, Ant Financial, Apple, Facebook, Google, and Microsoft entered the BFSI industry to offer complementary financial services to support the BFSI firms’ core businesses. They gradually started providing technical capabilities to enable BFSI firms to enhance their operations, products, and experiences, eventually offering competing products and services. In fact, today, BigTech firms are at the epicenter of accelerating a shift in both demand and supply ecosystems, blurring traditional industry boundaries.

In our recently released report, BigTechs in BFSI Industry: The Theory of Co-existence for Market Expansion, we analyzed BigTech firms’ investments in the BFSI industry to dissect their strategic bets and provide recommendations for BFSI firms.

Building technological capabilities to compete

Traditional BFSI players are understandably concerned about BigTechs’ increasing sphere of influence, but their complex relationship with BigTechs makes it difficult for them to devise a focused strategy – to compete or collaborate – with their new peers. While some BFSI firms are expecting regulatory scrutiny and industry watchdogs to keep BigTechs away from their turf, others are developing technologies in-house and in collaboration with enterprise technology firms such as SAP, Salesforce, and Oracle to shore up their capabilities. For example, the top five banks in the US recently increased their technology budgets by more than 10 percent, with a large proportion focused on building proprietary technologies and platforms, as well as R&D, to better compete with BigTechs and FinTechs. In 2019, Bank of America alone filed 418 technology patents.

Our viewpoint

We believe BFSI firms should find a fine balance of working with BigTechs as fellow ecosystem players to leverage synergies and create a win-win for all stakeholders.  Here’s why.

A look at BigTechs’ scale of technology investments and R&D reveals that they heavily outperform BFSI firms in their technology capabilities. In 2019, AWS obtained 2,400 US patents and IBM obtained 9,262. These numbers indicate that their technology and research prowess position them as strong allies of BFSI firms. BigTechs have further strengthened their foothold in the industry through open banking and asset and data monetization models. FinTechs are already disrupting BFSI incumbents, with BigTechs powering many of them with technology and funding.

Thus, partnerships with BigTechs and other players in the ecosystem can help BFSI firms strengthen their role as orchestrators of customer lifestyle experiences. Armed with large technology investments and R&D budgets and a wide range of technology and IT infrastructure offerings, BigTechs have a lot to offer to traditional players. Cloud computing services such as Amazon AWS, Google Cloud, and Microsoft Azure can help – and are helping – BFSI firms improve their operational efficiencies and reduce costs. For instance, financial institutions in China are leveraging Ant Financial’s ZOLOZ platform for biometric authentication of customers.

Add to this BigTechs’ data and analytics capabilities, and the value they bring to the table increases manifold. BigTechs are not only helping incumbents manage and analyze their own data, but also offering aggregated data from various sources to support BFSI firms and deliver value to their customers.

And that’s not all. BigTechs enjoy a loyal customer base, and BFSI firms can tap into this vast pool. In fact, customers want to see their favorite banks and BigTechs come together to make their lives easier –the launches of Apple Card and Amazon Visa Credit Card are testimony to this fact.

Partnerships can also help banks reach out to the underbanked and underinsured populations. A case in point is Goldman Sachs offering credit to Amazon sellers. Facebook, with its widespread reach, can also act as a liaison between customers in remote areas and financial institutions that do not have brick-and-mortar branches in such areas. Addressing the issue of financial inclusion will not only help BFSI firms and BigTechs increase their market size, but also benefit the lives of those who still do not have access to credit and insurance.

It’s actually an equal partnership

When striking a bargain with BigTechs, BFSI firms must remember that they are equally powerful in the partnership. Traditional BFSI firms command customers’ trust and are better equipped to manage risk and compliance requirements. In contrast, BigTechs are struggling to make a name for themselves in the financial space and are eager to partner with BFSI firms to leverage the trust they enjoy, their access to vast capital reserves, and to bypass some of the regulatory compliance issues.

This situation makes the alliance between BFSI firms and BigTechs an accord between equals, a relationship that is mutually beneficial and sustainable. BFSI firms should confidently partner, co-innovate, and co-exist with BigTechs not only to carve a bigger share for themselves but also to share the benefits with their customers.

If you’d like to learn more about the role of BigTechs in the BFSI industry, please read our recently released report BigTechs in BFSI or reach out to me directly at [email protected].

How Changing Demographics and the Pandemic are Influencing Wealth Management | Blog

Millennials and Gen Xers currently account for a majority of the earning population worldwide. As a result, the largest demographic cohort looking to manage wealth or create retirement income is shifting from baby boomers to these population segments (see the exhibit below), which are generally more involved, aware, and digitally oriented than preceding generations. The new investor generations demand information at their fingertips, anytime, anywhere – something impossible to achieve with traditional wealth management methods.

Exhibit: estimated shift in wealth from baby boomers to Gen X and millennials from 2016 to 2046

estimated shift in wealth from baby boomers to Gen X and millennials from 2016 to 2046

The impact of COVID-19 on wealth management

The COVID-19 outbreak has brought some key challenges in wealth management to the forefront. First, it has highlighted gaps in traditional wealth management methods, accentuating the pressing need for digital transformation. COVID-19-induced restrictions have severely impacted agent availability and as well as customers’ ability to visit advisers. Firms that can leverage digital tools to balance business continuity challenges with customer expectations will be able to differentiate themselves from others in the current climate.

Second, revenue erosion resulting from the COVID-caused recession, combined with an increase in business costs, may drive consolidation in the industry, as smaller firms will find it difficult to stay afloat. We are already seeing a shift in asset classes’ preferences. High Net Worth Individuals (HNWIs) and Ultra HNWIs (UHNWIs) will be impacted, as the wealth managers’ diverse portfolios are impacted. More than half of respondents to a UBS Group AG survey of wealthy investors said they feared not having enough liquidity in the event of another pandemic, and a similar percentage expressed worry about leaving sufficient money to their heirs.

What wealth managers need to do

Wealth managers need to increase their focus on services such as workforce management, operations continuity, customer communications, digital, goal-based planning, and portfolio impact advisory to persist through the current challenging situation. At the same time, they shouldn’t lose sight of the perpetual risks to business, such as cyberattacks, money laundering, and other security threats. Wealth management firms will need to ensure – even in the absence of physical interaction and with limited agents – that leadership maintains the confidence of both customers and employees.

Digital will remain the overarching theme to address these challenges. In recent times, Business-Process-as-a-Service (BPaaS) for back-office operations and robo-advisory have gained traction, though the solutions’ scale and magnitude continue to remain low. While BPaaS helps firms bolster their critical operations,  technology leverage can be increased further via more digital products, automated cybersecurity systems, smart portfolio creation, trade analytics, and trade simulations for efficiency improvements, productivity gains, bandwidth creation, and customer satisfaction in the next normal.

As wealth management firms look to achieve these objectives, they will require support to quickly and efficiently adopt digital, set up the required infrastructure, move workforce interactions to virtual mediums, revamp operations and traditional workflows to minimize human intervention, and hedge location-based risks. They will have to carefully prioritize tasks and implement digital step-by-step, so as not to abruptly overhaul traditional methods and processes. For this, they could opt for off-the-shelf products or customized solutions, or choose an external provider to do it all.

To tide themselves over the crisis and prepare for what’s to come, we recommend that wealth management firms:

  • Instill confidence in their clients and employees and shield themselves against other risks to survive this unprecedented situation. It will also be vital to take additional precautionary measures to maintain investor confidence. Given investor loyalty to certain firms, it would be useful to focus on maintaining the customer base rather than acquiring new customers
  • Align themselves with and adopt emerging digital industry trends, including robo-advisory, automated workflows to close sales, remote due diligence, and subscription-based advice models
  • Ease the pressure on their bottom lines by focusing on reducing cost-to-serve; automating their middle and back offices could serve as a starting point
  • Continually assess their investment philosophies; while COVID-19 is a crisis like no other, firms must draw lessons from previous crises to diversify their assets and maximize their investments in passive funds that make reasonable margins

At present, digital transformation is no longer a strategy to cater to a specific customer segment but the very means to survive. It will help meet customer experience standards and preferences in relationship management, query resolution, and communication. For employees, digital tools will enable more robust decision-making and goal-based planning for portfolios, as well as help monitor them real-time to enable faster turnarounds and higher returns.

From Compliance to Competitive Differentiation: The Open Banking Journey | Blog

A sustained low-interest rate environment is compelling banks to diversify their revenue mix and reduce their dependency on interest-based products. In this scenario, banks’ scaled adoption of open banking – or offering data and services to third parties and customers via Application Programming Interfaces (APIs) – provides them with a unique opportunity to expedite the development of innovative products and services in collaboration with other financial institutions.

The open banking concept emerged in 2015 through a regulatory push for consumer autonomy and transparency, with banks in the UK and other European countries mandated to comply with the standards set by the Competition & Markets Authority (CMA) and the European Commission, respectively. However, as our second Open Banking PEAK Matrix® Assessment 2020 (which analyzed 110+ production-grade open banking use cases) reveals, open banking has fast evolved from a compliance-mandated initiative to a growth strategy focused on experience and product differentiation.

In our first open banking assessment carried out in 2018, we found that more than 40% of banks viewed open banking largely as a compliance mandate. In 2019, however, their priorities seemed to have shifted, with more than 35% of banks focused on driving business value and growing revenues from their open banking initiatives. The use cases have also evolved in line with this shift – from payment processing to complex processes such as cash management, financial wellness, credit scoring, and insurance.

The exhibit below highlights the key differences between a compliance-led open banking initiative and one driven by competitive differentiation.

The next step in the open banking journey – moving from compliance to competitive differentiation

Annotation 2020 07 02 154320

Currently, several leading banks are creating differentiated experiences using open banking to build the next-generation banking model. For instance, Bank of America is building a financial services-compliant cloud that will allow the bank and its partners to host all their services and data on the cloud platform, which will enable Bank of America’s customers and third parties to build applications that leverage these services and data to create differentiated experiences and manage end-to-end business operations. Another notable example is DBS, which has established travel, car, and property marketplaces by building robust ecosystems in collaboration with external partners. For example, the company’s payments-enabled travel marketplace brings flight booking, accommodation, and travel insurance partners onto the same platform, ensuring minimal customer churn from its banking platform. As the marketplace offers new customers as well as a payment processing functionality to its partners, DBS can earn commission revenue from these partners.

As banks move to a business value-driven approach to open banking, they need to identify the avenues to monetize their open banking investments and unlock a new model to create and deliver differentiated experiences to their customers.  A cloud-enabled platform can greatly assist in this regard, as it provides seamless access to banking APIs and services from a broad range of partners to build and deploy new products in a marketplace model.

Open banking IT service providers can help banks build the capabilities they desire. To do so, they are investing in business advisory assets to help financial services firms plug the gaps in their business change management initiatives. They are also investing in FinTech partnerships, talent and solutions across the API management life cycle, data and analytics, use case libraries, and virtual sandboxes to maximize the value from open banking.

Leading IT service providers, such as Accenture, HCL Technologies, NTT Data, TCS, and Wipro, have created open banking Centers of Excellence (CoEs) to drive a coordinated effort to help BFS firms eliminate any gaps in communication and realize the objectives of product development and open banking technology. They are also investing in cloud offerings to facilitate their BFS clients’ cloud transformation journeys.

If you’d like to more about open banking and its evolution, please read our recently published report Open Banking IT Services PEAK Matrix® Assessment 2020: Moving Beyond Compliance to a Platform-based Operating Model of Ecosystem Orchestration and Value Creation – Services. We’d also love to hear about how you are advancing on your open banking journey. Do share your views with us at [email protected] and [email protected].

Is COVID-19 Accelerating Responsible Investing in the Financial Services Sector? | Blog

Climate risk discussions and regulations had been gaining great momentum in the past six months as there had been increasing pushes from regulatory bodies and central banks to start stress testing climate risk scenarios. While the discussions have been somewhat back-burnered due to the pandemic, they will begin again in earnest during the post COVID-19 recovery period. And they will jump to the top of financial institutions’ (FIs) risk management agendas, instead of continuing to be considered a CSR activity.

Why COVID-19 will accelerate ESG reporting

Given the erosion in investment value across asset classes over the last couple of months, investors are looking to get better returns, and Environmental, Social, and Governance (ESG) funds have performed better. Indeed, a Morningstar analysis of 206 responsible investing funds found that 70% of these equity funds outperformed their peers in Q1 2020.  As the social component of ESG brings to focus companies’ relationships with their employees and customers, the governance aspect will also gain attention. Dedicated risk committees and boards of directors will set the tone for firms’ communication and branding strategies.

Another driving force will be the rising influence of millennial investors. As they move toward more socially responsible investing, firms that achieve high ESG scores will be the preferred choice for these investors. FIs won’t want to miss out on this growing segment and will look to align their portfolios accordingly to be an attractive investment opportunity. This change will spur the ESG reporting initiatives at these institutions and lead to evolution of the industry ecosystem as well.

Evolution of the industry ecosystem

FIs have ramped up hiring as they build their sustainability teams and task forces. Credit rating agencies and data firms like Moody’s and S&P have started to acquire climate risk analytics firms to enhance their coverage of ESG data reporting. Stock exchanges around the world are launching multiple ESG indices to measure listed companies’ commitment to ESG. Asset management firms are gradually incorporating ESG factors into their investment strategies while announcing divestment from industries that are considered problematic from an ESG reporting perspective. We are also seeing an uptick in the demand for sustainability consultants at financial services firms, with more than 15% year-on-year growth as demonstrated by job postings for sustainability roles in the financial services industry.

Current challenges for financial institutions

No clear framework has yet been institutionalized for FIs to start reporting their climate disclosures. Only broad frameworks exist that can serve as a baseline for them to start initiating stress tests and checking their exposures. Further, they face two major problems with consolidating and analyzing the right data sets. One is identifying the right data sources and the kind of data needed for analysis. The other is defining the methodology they should use to analyze these data sets. FIs’ existing analysis models and scenarios have been built with a timeline of five to 10 years. But incorporating climate risk into them requires scenario planning that looks 15 to 25 years into the future and into past data records as well.

So, what are the implications for FIs as climate talks and green investing discussions gain momentum?

  • Uptick in demand for data science teams and AI/machine learning themes FIs will need to set up extensive data warehouses and data lakes to analyze large and complex data sets to make efficient decisions. AI and machine learning themes will help in identifying correlations and anomalies in the comprehensive company data. There will be a rise in demand for AI programs and NLP algorithms that can help in assessing these data points.
  • Talent conundrum for executing sustainability initiatives In addition to the technology talent needed to tap into the data sets, there will be demand for sustainability consultants, ESG portfolio managers, and analysts who can act on the data insights. FIs will need to tap young talent from premier institutions and grow in-house talent to scale the talent landscape for sustainability initiatives.
  • Incorporate ESG data from partners into risk management FIs will have to embed ESG analysis into various facets of risk management like credit risk calculations and use it to identify and quantify the impact of emerging risks. The need for comprehensive climate risk data is fueling the emergence of ESG ratings data by start-ups and credit ratings firms like S&P. Partnering with one of these vendors will provide access to these scores that FIs can incorporate in the broader analysis.
  • Investments in communication and branding initiatives Given the rise of millennial investors who prefer to align their investments with their values, FIs will need to substantially invest in building a socially responsible brand to bring forth the right narrative. Thus, FIs will need to review their portfolios to align with ESG values and bring in the right industry leaders to drive the sustainability agenda.
  • Increased interest in service providers’ carbon footprints Increasing pressure on FIs for responsible and green investing will soon start to impact their sourcing decisions. Outsourcing and vendor management teams should start to assess their vendor portfolios on sustainability considerations like green procurement policy, waste management, carbon management, etc.

Everest Group’s take

Purpose-built platforms that are digital and cloud-ready for FIs to cost effectively scale their ESG strategies are currently in their nascent stages. There’s an urgent need to fill this gap.

There’s no single source of truth for the ESG data and the methodology to analyze it. FIs are unsure which data scores to utilize in their analysis and are increasingly setting up in-house ESG platforms to analyze ESG data and manage the end-to-end product value chain. This is a greenfield opportunity for vendors to gain first-mover advantage in this dynamic scenario and onboard FIs onto their platforms.

The current health crisis has only reinforced the need for sustainable investing, and governments have mobilized efforts to stress test their financial services sectors. As supply chains across the world are disrupted, investors are looking for safe havens in the form of companies that can weather such crises. FIs need to act fast to capture market share from the new generation of investors and tap into returns from ESG funds or risk being disintermediated in the long run.

What’s your take? What technology and data analytics challenges have you faced in your ESG journey? Please write to us at [email protected] or [email protected] to share your experiences, questions, and comments.

How COVID-19 Will Impact IT Services in the Banking and Financial Services (BFS) Industry | Blog

The BFS industry started 2020 in a cautiously optimistic mood, hoping for a rebound in global economic growth. But then the COVID-19 outbreak swept the world into a state of emergency. The current challenge is far greater for BFS firms than was the Great Recession, as they need to crack the code of how to deal swiftly with both demand- and supply-side shocks. In this scenario, banks face a dual mandate of:

  1. Playing a central role in stabilizing the economy
  2. Ensuring business continuity to maintain normal operations

Breaking down the impact of COVID-19 on the BFS IT services market

To illustrate the variation in pandemic impact across different BFS lines of business (LoBs), we analyzed the severity of impact and speed of recovery for each line. Our assessment of severity of impact involved modeling factors such as the COVID-19 revenue and profitability impact from both a near-term (3-6 months) and a medium-term (6-12 months) perspective. We gave more weight to the medium-term impact as the near-term uncertainty makes the modeling of impact very difficult.

And we mapped impact severity against the speed of recovery by gauging the time it will take for these LoBs to bounce back to the pre-crisis state; this is a function of the health of these business segments before the crisis, as well as expected changes in customer sentiment and buying behavior once the crisis is over.

Our analysis found that BFS LoBs cluster in four zones, each of which exhibits unique characteristics and will face a distinct set of technology and IT services implications. Taking it counterclockwise from the bottom right quadrant:

  1. Aggressive cost take out – Lying on the bottom right, the LoBs in this zone will face the highest degree of impact; we also expect their pace of recovery to be painfully slow. To aid in their recovery, these LoBs should rethink their operating models and get back to basic principles: focus on the core business of provisioning financial services, think of delivering more value to customers, and move away from non-core elements like engineering or IT services innovation.We expect to see heightened asset-heavy deal activity in this segment, as these LoBs will need cash to invest and rejuvenate growth in select focus segments. And they’ll be looking for financial engineering support through activities such as takeover of legacy assets, shared services carve-outs, and even signing of long-term integrated technology plus operations support engagements that are centered around specific business outcomes.
  2. Modernization –This zone at the top right comprises LoBs that we expect to rebound faster to pre-crisis growth levels. From an IT services standpoint, we expect these LoBs to focus on cost savings in the near-term by seeking price cuts on rate cards and pausing some change initiatives. However, soon enough, these segments will get back to modernization initiatives. Hybrid cloud will play a critical role, as these LoBs will place significant emphasis on digital enablement to fuel their long-term growth.
  3. Growth – Odd as this may sound, we expect these business segments to benefit from the crisis in the near term. For example, as governments across multiple geographies have announced relief packages for small businesses that are facing unprecedented economic disruption, banks are needed to facilitate these SBA loans. Financial services firms that have proactively invested in creating a scalable infrastructure and stronger business continuity plans are better positioned to take advantage of this opportunity by generating significant fee income. Enterprises with large LoBs in this zone will also be on the lookout for inorganic expansion and take advantage of the reduced evaluations. Enhancing customer experience, driving product innovation, and improving agility to quickly respond to market demands will be the key investment themes.
  4. Transformation – This zone comprises LoBs that will recover most slowly from this crisis. Hence, these business segments need to rethink their business models and diversify their revenue mix to sustain themselves in the long term. For instance, retail/consumer transaction banking will face profitability challenges due to reliance on interest-based income, and some of the fee-based commoditized businesses, like retail wealth management, have been under stress due to downward fee pressures. As a result, enterprises with large LoBs in this zone will look to transform themselves and invest from a long-term growth perspective.

 

COVID 19 impact vs. response matrix across BFS lines of businesses

Implications for BFS enterprises

At an industry level, we expect BFS firms to completely focus on running the business initiatives in the near term. Our research suggests that banks have put nearly 60 percent of change projects on hold. Most of these suspensions are temporary and will restart once the crisis abates; however, we believe that the prioritization and nature of these change projects will mutate due to a shift in business priorities and budgets.

As an immediate response to the current situation, designing and executing customer assistance programs should be the top priority for BFS firms. In the medium term, the firms’ focus should gradually shift to modernization of legacy systems that slowed down banks’ agility and ability to respond to this crisis. Post COVID-19, BFS firms will need to reimagine their products, pricing, and channel strategies to fulfill evolved customers’ expectations.

Our recommendation for BFS enterprises is to cautiously evaluate their exposure across each of their LoBs and carve out a holistic IT strategy that takes into account not only the near-term implications, but also their long-term business philosophy.

Please share your views on the impact of COVID-19 on the BFS industry segments with us at [email protected] and [email protected].

Anti-financial Crime Talent Imperatives in the Digital Age | Blog

For years, financial institutions have struggled to attract and retain quality anti-financial crime (AFC) talent, which remains a compliance program’s most vital asset. And the situation is only getting worse.  Why? First, both the importance and application of anti-money laundering (AML) and fraud risk management are increasing. Second, the requirements and expectations of regulators are snowballing. And third, demand for AFC talent is skyrocketing while unemployment remains low. It’s a perfect storm.

Perhaps most importantly, the AFC workforce must now be able to work with artificial intelligence and machine learning technologies. Financial institutions that can’t adapt their workforce to the demands of this new augmented human intelligence era simply won’t survive. Knowing what talent to look for – and how to attract, manage, and retain it – is key.

The changing definition of talent and the rise of “bilinguals”

In the past, whenever new compliance initiatives or regulations arose, banks tended to staff up operational teams to address them. Now banks realize that hiring operational staff isn’t enough. Instead, solving for the underlying problem – be it “Know Your Customer” remediation, reducing incidences of fraud, or ensuring better AML compliance – is the answer.

To do this, banks are breaking up their talent pyramid into tasks. Those tasks that are manual and repetitive (and therefore subject to a high degree of automation) sit at the bottom of the talent pyramid. And those requiring a high degree of judgment that can be handled only by skilled employees sit at the top. As a result, talent must now be “bilingual,” possessing not only the domain and operational expertise to drive judgments but also the technology expertise to help automate repetitive, mundane tasks.

Attracting talent

If a bank has bilingual workers, it’s not letting them go, so finding such talent at scale through hiring practices alone is unlikely. Instead, the challenge is to identify skilled workers from either a domain or technology background and train them to develop the skills they lack.

One solution is partnering with universities. For example, recognizing that ready talent is not necessarily available in the marketplace, some service providers partner with universities to identify suitable individuals for entry-level positions and then train staff in those positions on AFC fundamentals.

Developing talent

At the same time, the half-life of professional skills is decreasing at an alarming pace. Regulations and technology are constantly changing, so talent agility is key. Organizations must create an environment of innovation, training, and enabling people to do their jobs faster and better, including enabling them with access to the right tools, be they bots or data libraries.

Firms are increasingly using techniques such as micro learning, which breaks information into bite-sized pieces, and spaced learning, which identifies the right moment for intervention so that trainees retain more information. Gamification is another technique that makes learning fun and increases retention.  Through a combination of these approaches, firms can train employees and develop talent much more efficiently.

Retaining talent

Today’s banks are losing employees not only to other banks, but also to techfin firms. Amazon, Apple, Facebook, and Google are all making forays into banking, and they’re always on the lookout for people who can help their engineering teams understand the financial payments and risk disciplines. To retain talent, it’s important to drive workers’ aspirations.

Keeping employees engaged is essential to retention. Engagement can be accomplished through creative challenges and contests that instill sustainable change and help employees use their skills beyond their day-to-day work.

When it comes to AFC talent, it’s a battlefield out there. To learn more about how financial institutions can attract, manage, and motivate AFC talent to achieve the best balance between human and technical intelligence, check out the webinar I recently conducted with Genpact on this topic.

The Google, Citigroup Partnership: Another Sign that the Banking Ecosystem is Evolving | Blog

On November 13, Google announced that it will partner with Citigroup and a credit union at Stanford University to launch a checking account that will be linked to Google Pay.

Citi and the credit union will be taking care of the financial and compliance aspects, while Google will ensure that customers can access their accounts via the Google Pay app. This partnership is similar to others – like Apple’s co-branded credit cards with Goldman Sachs, and Uber and BBVA joining hands to launch banking accounts on the Uber app for drivers – wherein big technology companies make inroads into the financial services sector by front-ending the program while the bank manages the finer aspects of regulations and compliance.

This partnership is yet another sign that the future of banking is slowly changing as BigTechs enter into the financial services industry. Indeed, tech firms’ ability to consume the APIs that are exposed from the banks’ core systems is rendering banking a plug-and-play service. Banks are now providing an as-a-service platform to help third parties integrate with them. The focus is on enhancing the customer experience and bringing in a single view of the customer. This is turning banks into ecosystem enablers, while the technology companies are entering and embedding themselves in this ecosystem.

Blog

The value of these partnerships for banks: gain/retain their customer base

Even though banks are rich data houses, they struggle with analyzing and gaining insights from data. Because of their demand for digital experiences, customers are increasingly embracing the financial services offered by technology companies. Banks understand the need to partner with these companies to remain in the ecosystem and retain their customers. Indeed, the Stanford credit union defined its recent partnership with Google as “critical to remaining relevant and meeting consumer expectations.”

The value of these partnerships for tech firms: access to customers’ financial data

By their very nature and design, the BigTechs have built a comprehensive ecosystem that gives them access to data on their customers’ behavior, choices, and habits. However, the data on customers’ finances still eludes them. As strict regulations and managing compliance prove to be barriers, collaboration is the only way they can get a foot in the door.

What will happen next?

The partnership trend will continue, because both the banks and the tech firms stand to gain so much from them. But the tech firm side of things is a bit troubling. Getting access to the goldmine of banking customers’ financial data will make them nearly invincible. They’ve targeted the front-end of banks’ target operating model, where customer-facing applications, and thus customer stickiness, live.

Further, what is stopping technology players from offering other allied banking services like issuing loans and providing interest payments? Even though lawmakers and regulatory bodies would meticulously scrutinize such models, we are fast-moving to a world where alliances between technology firms and banks will become more frequent.

Of course, it remains to be seen how customers adapt to this new way of working. We are already seeing privacy concerns arise over the financial data in such partnerships. This will lead to the emergence of a data exchange platform to control data access and set terms of use.

The next wave of change in the banking ecosystem will be when banks move to an as-a-lifestyle model. In that model, banks will define an IT strategy with customers at the center, and integrate with allied businesses. But to be successful, banks would need to ensure that they are able to influence the customer experience over all channels…theirs and third parties’. With technology players entering the financial services space, the banking IT landscape is already undergoing a shift. To remain relevant, banks will have to move upstream and coordinate the entire ecosystem while getting integrated into everyday transactions.

Wealth Management: Market Trends You Need to Know | Blog

When you outsource your wealth management function to a third-party service provider, you’re not responsible for handling day-to-day operations and client contact. But you still have a huge responsibility in making sure your provider is fully capable of serving your clients’ needs.

Here are five major market trends that are affecting the wealth management industry. Is your provider addressing them?

Trend 1: End of bank secrecy

As the global crackdown on bank secrecy continues, wealth management advisory firms have no choice but to quickly move from secrecy-led tax services to a more holistic and comprehensive approach to investor portfolio management.

Trend 2: Evolving investor requirements

There’s a very different advisor-investor dynamic with millennials than with baby boomers. The younger investors, especially those of the entrepreneurial class, are looking for a much wider range of services from their wealth advisory partners. Beyond tax management and planning, millennial investors want:

  • Access
    • Seamless access to wealth and investment advice across platforms and channels
    • Greater access to investment ideas relating to environmental responsibilities and social impact causes
  • A networking support platform where they can exchange notes about financial management with fellow investors, colleagues, friends, and social media, instead of solely depending on regular report and data feeds from their advisors
  • Passion-based investments that are not only used as a diversification strategy but can also yield high risk-adjusted returns. Popular examples we are seeing include wine, art, watches, coins, and cars
  • DIY, wherein investors are provided with tools and advice to perform their own research
  • Highly tailored investment strategies, e.g., for female entrepreneurs
  • Real-time updates and faster turnaround times for almost all processes within the wealth management lifecycle
  • Access to the specialized set of offerings, unconventional risk management strategies, and alternative investments funds wealth managers typically offer to just Ultra High Net Worth Individuals (UHNWI.)

Trend 3: Robo-advisory platforms

Despite the robot versus human debate, robo-advisory platforms continue to gain prominence. And investors are increasingly embracing a hybrid approach where they can get low-cost advice from robo-advisors and leverage human advisor expertise when more nuanced investment decisions come into play.

Trend 4: The digital disconnect

A technology-enabled front-office certainly helps financial services firms achieve some of their efficiency and client service goals. But RPA in the back-office can make their operations even more efficient and effective, and analytics in the back-office can help them make faster, better investment decisions, and anticipate customer behavior with greater precision.
Evolving fee models

Facing diminishing returns, investors are increasingly demanding more transparency around the fees they are charged. In turn, the fee model is gradually moving from commission-based to performance-based. For example, some providers are charging their fees linked to how well they perform against a particular benchmark index or rate.

Trend 5: The compliance conundrum

Despite rising costs, enterprises continue to remain skeptical and cautious about outsourcing large chunks of the compliance function. They’re increasingly outsourcing some transactional activities, such a regulatory reporting and basic documentation vetting, to their third-party providers. But they’re still holding more critical services, such as due diligence, end-to-end KYC, and AML processes, close to their vests. And this guarded position makes very smart business sense. Because they are ultimately responsible for correct compliance, and because so much is at stake, enterprises should only consider outsourcing these types of processes if they have full confidence in their providers’ expertise and ability to effectively fulfill their compliance obligations.

What trends are you seeing in the market? Is your wealth management provider able to keep pace with your evolving requirements? How are they charging you for the services? Please share your thoughts with me at [email protected].

What Analytics Hot Spot Is Right For Your BFSI Business? | Blog

Enterprises that operate in the BFSI industry are the biggest consumers of analytics services. They realized earlier than companies in other sectors how powerful analytics can be in offering targeted and customer-centric solutions, exploiting the massive amount of available data, meeting dynamic customer demands with their expectation for real-time solutions, and helping them adapt to changing business environments.

There are four different regions around the world that provide analytics services to BFSI companies: India, Asia-Pacific (APAC,) nearshore Europe, and Latin America. Each has its own unique capabilities, characteristics, and value proposition.

To help BFSI firms select the right delivery location for their specific needs, we recently completed a “Locations Insider Report” named Global Hotspots – Analytics in BFSI.

Following is a look at the findings. To add context to them, we classify analytics solutions into four types based on their sophistication and business impact, as you see here.

What Analytics Hot Spot is Right for Your BFSI Business?

India

India is the leading delivery destination for analytics services in the BFSI industry. It has a large talent pool (more than 65 percent of the global sourcing FTEs in nearshore/offshore locations,) and offers high cost arbitrage. Because of these factors, a large number of BFSI companies have chosen to set up analytics Centers of Excellence (CoE) in key tier-1 locations such as Bangalore, Delhi NCR, and Mumbai. While both tier-1 and tier-2 locations support traditional analytics services delivery, and largely support customer, fraud, and finance risk analytics functions, advanced analytics services delivery is concentrated in tier-1 cities.

India is also seeing an uptick in start-up activity in analytics services delivery across multiple functions including customer, credit, fraud, and risk. Because these service provider start-ups can provide accelerated access to skilled resources either through partnerships or acquisitions, BFSI companies may want to factor this into their location selection strategy. In the PEAK Matrix evaluation included in our report, Bengaluru and Delhi emerged as “Leaders” because of their high cost arbitrage and significant talent availability. We identified Mumbai as a “Major Contender” due to its healthy mix of cost arbitrage and talent availability, and high maturity in traditional analytics services delivery.

APAC (excluding India)

Manila and Shanghai are the top locations in the APAC region. While services delivery is dominated by service providers offering traditional analytics services, a few locations also have a sizable shared services – or global in-house center – presence. The geography primarily supports finance and fraud risk management functions, and some companies are setting up analytics CoEs.

Nearshore Europe

In nearshore Europe, the top analytics services delivery locations are Budapest, Edinburgh, Prague, and Warsaw. While companies leverage the geography for both traditional and advanced analytics, advanced analytics services delivery for fraud and finance risk management is gaining traction, primarily due to region’s availability of high-quality talent and the ability to support work in many European languages. Certain nearshore locations, such as Belfast and Edinburgh, support high-end predictive and prescriptive analytics, not only because a highly qualified workforce is available, but also because of the need for advanced processes to be in proximity with business customers. Just like India, Poland is experiencing an uptick in start-up analytics service providers.

Latin America

Latin America is an emerging destination for analytics services. One of its key advantages is its ability to provide real-time monitoring and data analysis to the North American market due to its similar time zone. BFSI companies primarily leverage key locations in the region, such as Mexico City and Sao Paulo, for traditional analytics services across risk management functions such as credit and fraud.

Because of all that’s at stake, BFSI companies need to carefully evaluate locations for analytics services delivery against their specific business requirements. To learn more about the global analytics services landscape – availability of both entry-level and employed talent pool, market maturity, cost of operations across top locations, and implications for stakeholders including service providers, GICs, BFSI companies, country associations, and industry bodies – please read our recently released report, “Global Hotspots – Analytics in BFSI.”

Banks Increasingly Tapping the Extended Ecosystem to Reverse Their Fortune | Blog

To reverse their precipitous loss of competitive advantage and market share, traditional banks are increasingly transforming themselves from financial products/services providers into customer lifestyle experience orchestrators. One of the key levers they’re pushing to bring about this innovation turnaround is expansion of their ecosystem to include academics, regulators, FinTechs, telecom firms, and technology vendors.

Everest Group’s recently-released report, Guide to Building and Managing the Banking Innovation Ecosystem – Case Study and Examples from 40 Global Banks, revealed four distinct ways in which banks are working with the ecosystem to drive their innovation strategy.

FinTechs

This is all about exploiting the symbiotic relationship between banks and FinTechs. Serving as “enablers,” FinTechs are helping banks provide more choices to customers and expand the set of services and features in their current offering. For example, Royal Bank of Canada (RBC) collaborated with WaveApps to integrate invoicing, accounting and business financial insights into its online business banking platform. This enables RBC’s small business clients to seamlessly manage their full business financial services’ needs — from banking and bookkeeping to invoicing — in a single place with a single sign-on.

Taking on the “enabler” role, banks allow FinTechs to gain access to their customers, data, capital, experience, and platform. This collaboration helps FinTechs avoid the challenges they face in scaling their services independently.

Banks and FinTechs are also combining their unique strengths to solve specific business/customer issues in co-branded partnerships. As the banking industry moves towards lifestyle orchestration services, banks need to launch products that cut across industries such as travel & hospitality, manufacturing, and retail & CPG. This can be achieved by meaningful cross-industry collaborations like the one between Citi and Lazada Group, an e-Commerce site in Southeast Asia. The partnership allows Citi card holders to enjoy a discount of up to 15 percent on selected days when shopping on Lazada, while shoppers who sign up for a new Citi credit card receive additional discounts on Lazada. The move drives growth in Citi’s cards business via increased customer loyalty.

Internal innovation

To build their internal innovation ecosystem, banks are conducting hackathons and establishing digital R&D hubs that help them retain talent and bridge the digital skills gap. For instance, Bank of America launched its Global Technology and Operations Development Program – which is called GT&O University – to train workers for new and evolving roles related to artificial intelligence (AI) and machine learning. This has helped the bank not only upskill its workforce but also enhance its retention-oriented employee value proposition. And banks, including ING, are tapping open banking by providing external developers, industry innovators, and clients with access to their APIs. This helps them expand their offerings, provide new channels to serve customers, build new experiences for clients, and enable open collaboration.

Investments

Banks are closely tracking the innovation ecosystem through multiple programs such as investments, incubation support, and partnerships to avoid threats of disruption and competitive disadvantage. This includes investments across academic institutions, startups, and service providers. Interestingly, our research suggests that banks are likely to continue investing in startups via acquisitions or venture capital financing to accelerate their transformation efforts. This is evident from TD Bank’s recent acquisition of Layer 6, a Canada-based AI startup, which adds new capabilities to TD’s growing base of innovation talent and know-how.

Co-innovation

Through co-innovation partnerships with startups, consortiums, academic institutions, and technology giants, banks are jointly developing innovative solutions and technology. Leading banks are forming consortiums with other banks, technology firms, and other participants across industries to solve industry-wide issues such as cybersecurity, API security, and regulatory technology, building platforms and standards for the industry. For instance, TD Bank joined the Canadian Institute for Cybersecurity to co-develop new cyber risk management technologies. And HSBC is working with IBM to jointly establish a cognitive intelligence solution combining optical character recognition with robotics to make global trade safer and more efficient.

To learn more about banks’ leverage of the extended ecosystem to drive competitive advantage, and details on the “why’s” and “where’s” banks are focusing their innovation efforts, please see our report titled “Guide to Building and Managing the Banking Innovation Ecosystem – Case Study and Examples from 40 Global Banks.

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