Category: Banking Industry

Five FinTech Trends to Watch for in the New Year | Blog

Since every past economic slowdown in this century has led to accelerated innovation and growth for FinTech firms, 2023 should be no different. We expect financial technology players to answer investors’ demands for increased profitability by tweaking business models and product innovation. To learn what FinTech trends will dominate in the coming year, read on.

FinTech firms have a history of responding to tough economic times by adapting and coming up with new business approaches. Looking back at the downturn in 2008, new FinTech trends emerged, including personal finance management (PFM), insurance aggregators and marketplace, robo-advisors, crowdfunding, challenger/neo/digital-only banks, and cryptocurrencies. Following the same pattern for innovation, the pandemic-led slowdown has resulted in buy now pay later (BNPL), metaverse payments, decentralized finance (DeFi), and Web 3.0.

Let’s explore the following FinTech trends on the horizon for 2023:

Investors will push for profitability

Rising interest rates and slow economic growth have pushed FinTech investors to demand profitability improvements. As a result, FinTech firms that were built to drive growth at the expense of profitability to scale and acquire customers are now forced to adapt their business models and investments. We expect FinTechs to find alternative monetization models. One such alternative that FinTechs are exploring is selling/licensing their technology, such as core systems and machine learning models (that they built and trained), to other financial services firms. Accessing already built and trained machine learning models will enable financial services to adopt AI at speed and scale without additional time and expense.

FinTechs will target eliminating operational inefficiencies and data silos in core processes

The last decade has seen FinTechs eat into the front-office surplus of incumbent financial services firms. Now, they are increasingly moving into mid-and-back-office processes to streamline these processes and data systems. We see FinTechs targeting the hard problems that incumbent financial services firms are slow to resolve because of legacy systems, data, and established processes. For example, eight of the top 10 retirement plan providers in the US are struggling with legacy mainframe-based technology and processes. Newer firms such as Retirable, Penelope, Smart, and Silvur have entered the market to provide better retirement experiences. Firms like Alto are bringing innovation from the Web 3.0 space to the retirement market by offering Individual Retirement Account (IRA) platforms. These IRA platforms simplify investing in alternative assets, such as start-ups and cryptocurrencies, by using tax-advantaged retirement funds. Beyond the retirement and pension segment, we see similar activity in the treasury, investment banking, group benefits, and specialty insurance markets

FinTechs will move away from bundling/aggregation to financial ecosystem orchestration

Wallets and super apps are becoming the foundational blocks for enabling ambient banking, which is focused on meeting the business and/or customer at the moment of their need, crossing other industries. Firms like Roostify and Ribbon want to orchestrate the end-to-end home-buying experience. Players such as Nomi Health and PayGround seek to simplify the end-to-end healthcare payments experience. We expect to see more vertically integrated FinTech firms at the intersection of financial services and industry experiences (e.g., car buying, small business invoicing and billing, supply chain, loyalty, and travel). Cloud and APIs are two technology components enabling the technical architecture necessary for embedded banking.

FinTechs will tap into the sustainability opportunity

Environmental, social, and governance (ESG) is a major demand theme that represents a relatively untapped market by FinTechs. We expect areas such as carbon credit marketplaces, ESG data and analytics solutions, and ESG customer transparency solutions to dominate most FinTech activity in 2023. FinTechs that can offer support for ESG reporting and compliance for small- and mid-size financial services firms is a white space that should see significant growth in 2023.

Payments, wealth management, treasury, Web 3.0, and risk and compliance (RegTech) will be the fastest-growing FinTech segments in 2023

We expect a slowdown in lending and BNPL and challenger banking because of profitability challenges, whereas segments such as cryptocurrency will see some slowdown due to the tightening of regulatory controls and the FTX collapse, which led to a crash in prices. Markets such as supply chain finance, crowdfunding, PFM, and robo-advisory are becoming saturated and remain highly competitive for new FinTech entrants. Wealth management is an attractive adjacent market for banks, lenders, Non-Banking Financial Companies (NBFCs), and insurance firms. These new entrants in the wealth management space are working with FinTech firms that are configurable and born in the cloud architecture to assemble their technology stack. Web 3.0 is an emerging space with a broad ambit across industries with possibilities to manage the entire asset lifecycle better. These assets could be physical assets, digital assets, media, identity, equity, bonds, or even virtual assets in the metaverse. Breaking down process complexity and reducing costs of operations across payments, treasury, and RegTech areas will drive the growth of FinTech activity.

The FinTech outlook for 2023

In the upcoming year, we expect to see FinTech firms make deliberate moves to increase their profitability to meet investors’ demands. These actions will include firms selling/licensing their machine learning models, eliminating operational efficiencies through Web 3.0 innovations, focusing on the intersection of financial services and industry experiences, and making sustainability a priority.

If you have questions about FinTech trends or would like to discuss developments in this space, reach out to Ronak Doshi.

Also, watch our webinar, Key Issues for 2023: Rise Above Economic Uncertainty and Succeed, as we explore major concerns, expectations, and key trends expected to amplify in 2023.

Unlock a New Source of Value Creation – Integrate Sustainability into the GBS Charter to Help BFS Firms Realize Their ESG Goals | Blog

Global Business Services (GBS) organizations have a big opportunity to champion Environment, Social, and Governance (ESG) in banking and financial services (BFS) institutions. To learn about six ways GBS organizations can help enterprises reach their ESG goals and unlock greater value, read on.

ESG is creating new opportunities for BFS Global Business Services organizations. Fast-evolving consumer awareness about social, political, and environmental values, emerging regulations, and increased demand for sustainable financial products are pressuring BFS firms to prioritize ESG goals in operations and employment.

Let’s explore the significant role GBS units can play in enabling ESG for enterprises.

ESG products and services emerge

To meet new customer and investor expectations along with regulatory mandates, BFS organizations are building ESG products and services – such as green loans, sustainability-linked loans, and carbon-neutral banking – to make their operations sustainable.

Capital market firms are embracing green underwriting, while asset and wealth managers are steadily moving toward ESG investing. These organizations are also focusing on workplace diversity, pay equity, and good governance structure to meet their ESG aspirations.

This has created a big opportunity for GBS organizations to move from being measured for their labor arbitrage and cost efficiency to the value they can deliver to enterprises. These units can become vital to the enterprise’s ESG agenda by expanding their sustainable service offerings and conducting ESG-specific due diligence and risk assessment. GBS centers’ strong visibility across the enterprise’s functions, operations, and capabilities to support their ESG initiatives will drive this new focus.

Six ways GBS organizations can support enterprise ESG goals and commitments

As BFS organizations increasingly look for ways to support and grow their businesses with an impact-driven mindset, GBS organizations should be at the forefront of defining and internalizing ESG goals.

The new environment has opened up many avenues for GBS organizations to maximize the value they can deliver and become ESG enablers for their enterprises. For a deep dive into the opportunities summarized below, please read our newly released research.

See how GBS organizations can promote ESG initiatives within the enterprise in the image below.

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GBS organizations can enable the following key opportunities for BFS firms:

  • Enhance sustainable investing practices – Support enterprise banks by running/enhancing sustainable investment initiatives, such as portfolio optimization and expansion, and positive and negative screening of these portfolios
  • Develop new sustainable products – Identify feasible opportunities to expand the green product portfolio for their respective enterprises following the regulatory and competitive landscape
  • Proactive ESG risk monitoring – Build on their roles in supporting enterprises in managing various risk types such as liquidity, credit, and operational so GBS can be leveraged as specialist ESG risk management centers by enterprises
  • ESG performance tracking and reporting – Set up dedicated ESG performance reporting teams at GBS centers, which, in turn, will own the management and execution of ESG performance tracking and reporting tasks
  • ESG compliance reporting – Track ESG-specific regulatory developments across different countries where the enterprise has an operational footprint. Accordingly, it can assess the impact of newly introduced mandates or disclosures requirements on the enterprise’s existing compliance processes
  • Implement ESG commitments of the enterprise – Undertake sustainability initiatives to integrate the ESG goals of the enterprise across its own operations, people, and functions. For example, a leading US investment bank committed to incorporating sustainability-focused features such as energy-efficient lighting and minimized water consumption policies in its new technology base in Poland. Similarly, a major European bank’s GBS center has been working since 2009 on a Train Green Program aimed at creating sustainability awareness among school children

Call to action for BFS GBS leaders

As GBS organizations take on more strategic roles, it becomes imperative for them to step up and become ESG enablers for their enterprises. To do this, GBS leadership must champion the development of ESG-specific capabilities and prioritize initiatives to drive enterprises’ ESG agendas, while embedding ESG and sustainability practices into their service delivery and operations.

To discuss how we can assist your enterprise with achieving your ESG goals, reach out to Sakshi Garg [email protected], Piyush Dubey [email protected], and Mohini Jindal [email protected].

Discover more about how to integrate sustainability and ESG initiatives into your organization in our upcoming webinar, Driving Larger-scale Adoption of Impact Sourcing from the Inside Out.

Unleashing the Potential of Data in Insurance – The Road Ahead | Blog

Leading insurance organizations seek to be more data-driven in their business decisions by harnessing the full potential of the data that resides within their enterprise boundaries. With the evolving technology landscape, real-time experience management, and explosion of data types, insurers are increasingly leveraging real-time insights to improve customer experience. In this blog, we will explore the potential benefits for carriers of unlocking data in the insurance value chain.

Insurance enterprises are facing a tough business environment marred by macroeconomic challenges, heightened natural catastrophes, and unfavorable interest rates. This is creating an urgency to re-evaluate underwriting and pricing models by taking data-driven approaches.

Data can help insurers unleash the next growth wave, enable targeted cross and up-selling generated through higher customer engagement levels, and provide a 360-degree view of their customer needs. For example, embedding data and analytics and Artificial Intelligence and Machine Learning (AI/ML) models within the claims workflow can enable zero-touch insurance claims transactions. The digital interaction process can flow seamlessly from intaking all filed claims consistently across channels, validating and assigning complexity scoring to each claim, segmenting and routing the claims based on complexity, to finally settling them as quickly as possible.

Infusing intelligence across insurance operations while investing in data and analytics capabilities can generate a surplus economic value of US$ 874 billion, according to Everest Group research, as illustrated below.

Exhibit 1

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Source, Everest Group

However, the industry faces challenges to effectively unlock the full potential of data in insurance, including:

  • Siloed and scattered data: Insurers face a high data spread across disparate systems, business lines, functional areas, and channels preventing them from gaining a 360-degree customer view, resulting in high integration costs
  • Inadequate enterprise-wide data strategy: Insurers need to foresee the entire insurance lifecycle to democratize enterprise-level data and analytics objectives and define how they can manage data as an asset and drive critical business decisions
  • Attraction and retention of skilled talent: Employees with technical expertise and domain-specific skills are scarce

The changing road ahead

Insurers are not only striving to make data-driven decisions but also beginning to explore new business models by combining available big data with advanced AI and ML capabilities.

Insurers are shifting from being risk mitigators to playing more of a risk avoidance role with data, cloud, and platforms being their foundational components. Digitization of the value chain, new business models, and underwriting transformation are helping insurers expand their roles from underwriters to risk decision partners who predict unforeseeable risks and ensure protection.

Data from connected devices is becoming a prominent source to assess and prevent risks. To illustrate, in the auto insurance industry, sensors, blind-spot assist, collision avoidance tools, and other safety systems have already been pre-built into vehicles using behavioral data to help improve safety.

Vast data stores are opening up opportunities to price risk more accurately and offer personalized product structures. For instance, utilizing climate and other third-party data empowers insurers to assess geographical areas that present greater catastrophic risk and charge higher premiums instead of measuring these types of risk through traditional approaches.

Deploying AI and other latest technologies not only assists with ingesting unstructured data but also helps generate actionable insights that previously were unavailable to underwriting and claims teams. Insurance data and analytics spend is growing at an accelerated rate of over 25% annually as insurers look to transition to being data-driven enterprises.

Leveraging data from different types of sources such as wearables, internet of things (IoT) sensors, and telematics through clients’ lifestyles and behavior, insurers are embarking on a new age digitized underwriting process. Smart loss capture and IoT sensors are expected to bridge the gap between the traditional claims processing mechanism to zero-touch claims transactions.

How will the insurance industry progress toward a data-driven approach?

Insurers need to actively engage with the ecosystem of data generated by the insurance enterprises as well as information coming in from external sources such as InsurTechs, and services and technology partners. By doing this, insurers can create and implement strategies that will lead to unmatched automated decision-making support that they can leverage to drive growth and efficiency and extract maximum value.

Exhibit 2

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Source, Everest Group

Data will be a central driving force to strengthen competitiveness in the industry moving forward – allowing carriers to leave behind their traditional approach of solely being risk protectors and move them toward being risk preventers.

As insurers look to become data-driven, data centers and cloud services can enable companies to respond to evolving customer needs, improve resiliency, instill agility, and drive enhanced operational efficiency. Similarly, leveraging AI/ML models and predictive analytics offer a major solution to the challenge of providing real-time actionable insights. Insurers that can create true differentiation and impact using internal and external data will be able to future-proof their business and be seen as leaders in times to come.

To learn more, check out our State of the Market Report 2022 – Unveiling the Economic Value of Data and the Road to Actualization. To discuss more on these topics and share your perspectives with our analyst team, contact [email protected], [email protected], [email protected], and [email protected].

The Evolution to Open Finance Offers Promise: Everest Group’s Open Banking Research | Blog

Open banking – a system that provides third-party access to financial data through application programming interfaces (APIs) – has unlocked digital financial innovation and disruption. Its next evolution – open finance – holds the promise to greatly enhance the customer experience and empower users of financial services. Read on for more on our latest open banking research.   

A combination of government regulation and market forces has created a growing demand for open financial data to build an expanded provider ecosystem beyond banks and financial institutions to also include non-financial platforms, FinTechs, and payment facilitators.

According to the recent forecast by the Open Banking Implementation Entity (OBIE), more than 6 million individuals and businesses in the United Kingdom regularly use open banking services. Payment volumes on open banking-related services increased dramatically to around 21.1 million transactions over the six months through March 2022, compared to 6.1 million during the same period.

The first wave of open banking has given customers and third parties easy digital access to their financial data from banks and other traditional financial institutions. This has solved critical issues for customers by ensuring better account visibility and convenient payment access.

In the next stage of open finance, an individual’s entire financial footprint, such as mortgages, savings, pensions, insurance, and credit, can be opened up to trusted third-party APIs with consumer consent. Brazil is expected to move into this final stage of its four-part implementation of open banking by the end of the year.

Open finance offers the following key benefits:

  • Improved customer experience – By opening access to financial instruments, personal financing, and asset and wealth management, companies can create personalized products and services to meet customer needs
  • More inclusive – Open finance has addressed the critical need of making financial practices more accessible and provides simplified banking for a large portion of the unbanked population in growing geographies
  • Greater transparency – Open finance lifts the veil for customers on their financial options, giving them clearer insights into their full financial pictures
  • Customer empowerment – Banking customers are better informed to decide if their current providers or services are best for them, giving them greater financial freedom

Open banking research findings

Let’s take a look at how banks and financial institutions, FinTechs, small- and mid-sized businesses, and banking and financial services (BFS) providers will be impacted by this powerful trend:

Banks and financial institutions

Data architecture will need to be redesigned to help banks manage data securely, quickly, and efficiently. Firms will use an API-based microservices approach to make data more accessible, thereby enhancing digital agility.

For example, US Bank and Plaid announced a partnership in 2021 to connect the bank’s customers to third-party accounts. Plaid will provide the open APIs to initiate third-party payments between the bank and financial apps such as Robinhood and Venmo.

This approach also allows banks to leverage their data internally. Bankers and traders can access personalized front-end applications.

The potential to develop new API-led products with relative ease is another exciting benefit. New API products can create additional direct monetization streams and access to newer customer segments. This can lead to better customer lifetime value and predictably improve long-term profitability. Barclays, for instance, enabled account aggregation in their mobile banking app to allow customers to view other bank accounts within the same app.

FinTechs

Open banking has produced a space for FinTechs to innovate in a sector otherwise dominated by traditional banks. It has created countless opportunities for competition and collaboration. Some examples include:

  • Payment infrastructure provider Dapi and FinTech firm Afterbanks launched real-time account and data aggregation services via an API in Mexico in 2021
  • Prometeo, an open banking platform provider, launched its payment API for the Latin American market enabling efficient exchanges using API connectivity and providing a single access point to information and payments

As illustrated below, the FinTech ecosystem has morphed into three distinct categories: challengers (direct competitors that have built digital-only banks and financial institutions), collaborators (partners with traditional banks to leverage open APIs), and enablers (infrastructure and platform support providers):

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Small- and mid-sized enterprises

Open banking creates efficient and seamless business processes for small- and mid-sized enterprises (SMEs) and can assist in effectively delivering accounting, payroll management, and auditing services. For example:

  • Mexican FinTech Kavak offers same-day application and loan approval to customers
  • Neobank Plurall launched its services in Columbia and focused on improving the financial inclusion of SMEs

BFS firms

Adoption of open banking poses some challenges for BFS firms that fall broadly under these categories, as illustrated below:

  • Change management and business alignment
    • As banks adopt a customer-centric approach and align their business strategies with customer engagement, they will need to expand their offerings to position themselves as end-to-end customer experience enablers
    • Banks must widely market their own APIs to developers for wider adoption across various open banking platforms being built
  • Extending offerings beyond the regulatory mandate
    • Enterprises should not limit their open banking capabilities to what is mandated by regulators but venture beyond to gain a competitive advantage. They should offer more APIs and undertake integration with new sales channels
    • Data security and privacy should take center stage in all branding efforts to earn consumers’ confidence
  • Augmenting the value proposition
    • Banks must focus on giving customers greater control over their data and enhancing the customer experience by providing more convenient payment methods, account aggregation services, and tailored product offerings as incentives to adopt open banking
  • Managing the shortage of trained talent
    • Access to the required skills for scaled open banking adoption is hampered by a demand-supply gap that requires BFS enterprises to pay a heavy premium for talent
    • Financial institutions must focus on workforce hiring, training, and revamping to equip their employees to contribute to the digital metamorphosis powered by open banking

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To learn more about our open banking research and discuss your experiences in these emerging areas, contact [email protected], and [email protected]. Follow our webinars and blogs to learn more about upcoming technologies and trends.

To learn more about customer experience trends and how CX leaders are assessing their future customer experience delivery needs, watch our webinar, How are Leading Organizations Delivering Exceptional Customer Experience?

Unpacking the Low Code/No Code Opportunity in BFSI | Blog

Low code/no code development holds promise for banking, financial services, and insurance (BFSI) firms to gain agility and cost-effectively build innovative technology solutions – without needing professional developers who are in short supply. Learn about the market potential and provider landscape in this blog.

Digital consumption demand in the (BFSI) industry has seen a heavy uptick in the past year, driven by customer expectations for enhanced experience and the adoption of flexible work options to run businesses.

BFSI firms are under pressure to achieve profitability in an already volatile market and need to be more agile, collaborative, and responsive. These firms have to build stronger ecosystems and overcome the obstacles created by legacy systems.

This has increased demand for professional developers to manage complex technology stacks. But the fast digitization pace has caused enterprises to focus their limited development talent on workflow customization and business-as-usual activities instead of innovation and core product engineering.

Low code/no code technology answers these issues.

Tapping into low code/no code technology

Low code/no code technology has paved its way through these circumstances, easing operations and optimizing costs. This approach provides a visual modeling development tool that business teams can easily use in collaboration with the IT department, reducing the need to hire professional developers who are in short supply.

The exhibit below illustrates the drivers for low code/no code adoption.

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BFSI firms are successfully using this method. Let’s look at some examples:

  • Marex, a tech-enabled liquidity hub for participants in global commodities and financial markets, selected Genesis to fully digitize middle office workflows for its new equities market-making business
  • Unqork, an enterprise software company with a transformational no-code platform for financial services and insurance organizations, secured $73 million in two investment rounds from Goldman Sachs, demonstrating the shifting industry views on building enterprise technology

Low code/no code benefits

Benefits of low code/no code technology for BFSI firms include:

  • Reduced internal workflow processing time due to easier integrations, leading to increased efficiency
  • Decreased product time-to-market brought about by the simplicity of development
  • Increased ease to upgrade or introduce technology without affecting normal business operations because of the microservice architecture offering
  • Reduced cost by having internal teams for development and maintenance
  • Improved solutions resulting from the business-oriented development focus that combines business knowledge and IT skills

BFSI enterprises also have enhanced customer satisfaction by using low code/no code to quickly and effectively establish digital omnichannel experiences. This has satisfied customers’ appetites for remote consumption and also enabled the ability to personalize services by easily integrating other technologies such as Artificial Intelligence (AI), Machine Learning (ML), and Internet of Things (IoT.) Self-service applications for 24/7 support can be set up with less time and cost using low code/no code.

See common use cases across the BFSI in the image below.

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Evolving the low code/no code ecosystem

The low code/no code technology provider landscape is made up of many players as, illustrated below. These include:

  • Generalist low code/no code vendors who provide solutions that can be offered to any industry
  • BFSI specialist low code/no code providers who offer technology products for BFSI workloads and out-of-the-box accelerators for reusability and quick access
  • Big tech companies and core BFSI technology providers who are investing in low code/no code through partnerships, acquisitions, or developing the technology to provide standalone and bundled solutions to their customers

picture3

Grabbing the opportunity

Many BFSI firms who have adopted low code/no code technology are reaping the benefits, while others have experienced roadblocks such as limited options to scale the technology across the organization. To achieve success, the right procedures must be set up to avoid any pitfalls. Understanding the internal and external capabilities and challenges while moving along the path is critical.

BFSI enterprises should follow our CASE framework and have a clear vision, assess internal resources, select technology, and execute their roadmap as illustrated below:

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For a detailed view, read our report, BFSI Enterprise Adoption Guide for Low-Code/No-Code Technology – Market Trends and Provider Landscape, which covers the market challenges, drivers, and way forward in the low code/no code ecosystem from a BFSI perspective. To discuss this topic, please reach out to [email protected], and [email protected].

Read more about low-code adoption in our blog, Selecting the Right Low-code Platform: An Enterprise Guide to Investment Decision Making.

The Era of “Industrialization of Experience” Is Heralding the Metaverse and Web 3.0 Revolution: Are You Embracing It? | Blog

The advent of Web 3.0 is creating exciting new opportunities for Banking, Financial Services, and Insurance (BFSI) firms who invest in digital technologies to deliver next-generation customer engagement and enter the metaverse. To learn more about enterprises taking the lead in piloting metaverse and Web 3.0, read on.   

With Web 2.0 laying the foundation for unique customer interactions, BFSI firms are increasingly adopting an omnichannel approach as industry trends indicate consumer mindshare often translates into wallet share. Driven by consumer demand for newer experiences as well as the limited potential for further innovation in Web 2.0, industry leaders are looking at Web 3.0 as the future.

Let’s explore how Web 3.0 is enabling firms to evolve from customer interactions to engaging customer experiences in a connected ecosystem.

Defining Web 3.0 and metaverse

Web 3.0 is the next phase of web hyperscale systems built on decentralized, autonomous, and distributed technologies. It enables decentralized protocols and technology stacks that can be used to build new communities and economies such as metaverse.

Movement over the past seven years toward Web 3.0 stalled because of the lack of superior computing power availability and supporting systems to drive sustained momentum. Now, with changing consumer behavior following the pandemic, the rush toward digitalization has taken off.

The need to build differentiated experiences backed by the rapid maturity of cloud-based processes and overall sophistication of systems supporting the digital agenda are healthy signs for the next wave of innovation based on Web 3.0 – metaverse.

Metaverse is a persistent immersive mega virtual smart space, akin to a universe, where people have seamless digital experiences that can extend to the real world.

Metaverse creates a virtual community that can provide immersive client experiences, collaborations, and employee trainings. To meet this demand, technology and services providers need to invest in next-generation technologies such as cloud, Artificial Intelligence (AI), and blockchain to extract the best out of Web 3.0.

Today’s metaverse is focused on allowing users to build a digital imitation of the physical world, leverage mixed reality devices to engage in various activities, conduct commercial transactions using digital assets, and drive collaboration and engagement through virtual events.

Web 3.0 and metaverse will enable next-generation experiences and alter economic and business models. Excitement about the potential significantly outweighs concerns.

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Exhibit 1: Everest Group

Pioneers piloting Web 3.0

Leading financial services players have started piloting Web 3.0 concepts and experimenting with metaverse to test the market response. We believe this marks the start of an evolutionary change that will undergo multiple refinements rather than be revolutionary.

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Exhibit 2: Everest Group

Most use cases we see are capitalizing on the following modular demand themes:

Banking:

  • Financial products and asset classes in the metaverse
  • Customer management through immersive technologies
  • Virtual branch inception
  • Affiliates and partnerships in the digital world

Financial services:

  • Portfolio management and client enablement
  • Front, middle, and back-office efficiency
  • Trade lifecycle management in the metaverse
  • Digital asset custody services
  • Decentralized brokerage systems

Insurance:

  • Decentralized insurance services
  • Risk profiling
  • Claim processing
  • Restructured underwriting services

Where is the market moving with regulations?

Despite the recent efforts, policymakers still need to be convinced to embrace the new possibilities of Web 3.0 to make it real for banking consumers and investors. Web 3.0 and allied technologies, such as metaverse, require a novel approach to regulatory thinking. Many governing bodies grapple with the nuances around Web 3.0 and the challenges it manifests. Governance and interoperability are critical elements to successfully scale Web 3.0 and metaverse.

Addressing these three regulatory areas can kickstart the formal growth of Web 3.0:

  • Investor protection – With blockchain-based transactions picking up pace, preventing fraudulent actions and safeguarding investors’ interests has become a priority for organizations such as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)
  • Privacy and disclosures – The intricacies around the nature and type of disclosures and the effect these may have on individual privacy could have serious implications as this technology gains momentum
  • Jurisdictional concerns – The key concerns around decentralized internet are around control, individual laws applied, and interpretations across different markets

The new computing possibilities of Web 3.0 has the potential to dynamically impact the BFSI industry structure. Data decentralization and democratization can bring investment opportunities to enterprises as well as IT providers. To seize this potential, technology and services providers must invest in cloud, AI, and blockchain to realize the many benefits Web 3.0 can deliver.

At Everest Group, we are closely tracking the developments in BFSI based on metaverse – both from the demand and supply side. For more insights, see our report, Future of Financial Services – Web 3.0, Metaverse, and Decentralized Finance, which sheds light on the future of financial services in the Web 3.0 and metaverse era.

We would like to hear your thoughts on Web 3.0 and metaverse and its growing adoption in the BFSI industry. Please reach out to us with your inputs at [email protected], or [email protected]

Listen to our experts as they deliver their perspectives on Web 3.0 and Metaverse and provide actionable insights to enterprises, service providers, and technology vendors in our webinar, Web 3.0 and Metaverse: Implications for Sourcing and Technology Leaders.

Cyber Insurance Market: Carriers Navigating through a Changing Risk Landscape

With increased cyber attacks and data breaches post-pandemic, cyber insurance to protect against the rising digital threats is growing in demand. Cyber insurers can benefit by partnering with service providers to seize opportunities for growth and profitability in this fast-growing market. Read on to learn how.     

Cybersecurity continues to be a top priority for enterprises across all industries, primarily driven by increased cyber attacks and data breaches in the wake of COVID-19. Enterprises are increasingly strengthening firm-wide cyber defenses and turning to cyber insurance as a mitigating measure to counter the rising threats in today’s increasingly digitized world.

In particular, the pandemic has accelerated the severity, frequency, and complexity of ransomware attacks. Data from the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) suggests the total value of suspicious activity reported in ransomware-related incidents during the first six months of 2021 was US$590 million, more than the US$416 million reported for all of 2020. The frequency has also gone up, with 658 ransomware-related suspicious incidents being reported during the first six months of 2021, representing a 30% increase from the total reports filed for 2020.

Costs associated with cyber attacks also are rising. According to the IBM Cost of a Data Breach Report, the average data breach costs rose from US$3.86 million to US$4.24 million in 2021.

All of these factors have led to a substantial increase in cyber insurance pricing across the world. An analysis by Marsh shows US cyber insurance pricing increased 96% year-over-year during the third quarter of 2021, which also represented a 40 percentage point increase from the second quarter of the year.

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Image 1: US insurance market pricing change – overall commercial vs cyber insurance segments

US cyber insurance market provides significant growth opportunities

Direct premiums for US-domiciled insurers stood at US$2.75 billion in 2020 – less than 1% of the overall direct written premium in the US property and casualty (P&C) insurance market – reflecting the runaway growth in cyber insurance. This segment has also grown at a decent pace over the last five years, registering a compound annual growth rate (CAGR) of 13.3% during that period.

Standalone cyber insurance policies are gaining prominence and have seen faster adoption than packaged policies sold as add-ons to other insurance products/policies. This can be attributed to enterprises’ need for broader coverage and a better understanding of policy terms and costs.

While most carriers have mainly serviced corporate clients, they are now starting to focus on the retail segment by providing standalone cyber insurance products that have typically been sold as add-ons to homeowners insurance. For example, Chubb recently launched Blink, a new personal cyber protection offering that covers expenses related to identity theft, fraudulent wire transfer, cyberbullying, and ransomware extortion.

Insurers are also offering joint go-to-market (GTM) products to provide comprehensive cyber risk management solutions to enterprises. In 2021, Allianz and Munich Re partnered with Google Cloud to launch a solution for Google Cloud customers that combines the risk-transfer expertise of Allianz and Munich Re with Google’s security capabilities to provide clients tailored coverage.

Advent of insurtechs in the cyber insurance market segment

The insurtech space has recently witnessed increased activity where most newcomers are catering to specific segments like small to medium enterprises. Insurtechs are leveraging their tech capabilities to make the underwriting process more streamlined and automated while incumbents continue to face legacy issues.

However, insurtechs lack the capital resources of their traditional counterparts and hence are forming alliances with traditional insurers to combine their respective capabilities. Some insurtechs are also offering coverage on behalf of incumbents through the Managing General Agent (MGA) model.

  • Cowbell Cyber, a full-stack insurer providing cyber coverage to SMEs, raised US$100 million this March to expand its go-to-market channels and increase investments in data science, underwriting, risk engineering, and claims management
  • At-Bay, a cyber insurtech MGA, announced a partnership in September 2021 with Microsoft to offer data-driven cyber insurance coverage to Microsoft 365 customers

Challenges for insurers in a hardening cyber market

While cyber insurers have experienced significant top-line growth, profitability remains a major concern as payouts have outstripped premium growth. The increased payouts have led to higher loss ratios. The loss ratio for US cyber insurers increased from a 42% average during 2015-19 to 73% by 2020. Insurers are responding by narrowing the cyber coverage scope and limiting cyber capacity. They also are imposing sublimits for ransomware coverage and adding coinsurance requirements to cyber policies.

2

Image 2: Insurers narrowing cyber coverage scope and limiting cyber capacity

How can cyber insurers benefit from BPS partnerships?

Partnering with Business Process Services (BPS) providers can help cyber insurers in the following ways:

Providing underwriting talent: As the adoption of cyber insurance grows, it will also lead to higher volumes for carriers. Service providers can provide support by standardizing parts of the underwriting process to enable carriers to handle increased work volumes. This can include deploying straight-through processing by standardizing the intake process and applying rule-based engines for low-premium policies to free up time for underwriters to focus on larger policies. They can also take over non-core pre- and post-underwriting work and help create scalable Centers of Excellence (CoEs) at profitable locations.

 Enabling technology: As carriers tighten their underwriting requirements with an increased focus on analyzing enterprises’ history of ransomware incidents and cyber breaches, they will heavily rely on third-party tools and public data sources to evaluate the insureds’ level of risk. This provides an opportunity for service providers to work with carriers to provide such tools and applications to help them assess risks associated with a particular firm.

Ensuring compliance: Amid the ever-evolving cyber threat landscape, governments and regulators across the globe are introducing new cybersecurity-focused legislation. The US Congress passed a new cybersecurity law in March mandating critical infrastructure entities to report cybersecurity incidents and ransomware payments to the relevant authority within 72 and 24 hours, respectively. Service providers can support carriers on various compliance-related matters. While some providers have compliance-specific expertise in licensing and filings, others have dedicated teams for compliance review and obligations. Third-party BPS providers can leverage these resources and work with carriers to ensure compliance.

Partnerships critical to the cyber insurance market’s future

As carriers seek growth in the cyber insurance market, they will need to strike the right balance to also achieve profitability. At the same time, service providers will have to keep up with the evolving market and appropriately build their cyber capabilities.

By working together, carriers and service providers can address some of the current market challenges and capitalize on the opportunities in the cyber insurance space to achieve sustainable growth.

For more information, please read our comprehensive assessment of the players in the P&C Insurance BPS segment, Property and Casualty (P&C) Insurance BPS – Service Provider Landscape with PEAK Matrix Assessment 2022.

To discuss opportunities in the cyber insurance market, please reach out to Somya Bhadola at [email protected] and Dinesh Singh Udawat at [email protected] or contact us.

 

Deconstructing the Digital Assets Revolution – What Financial Institutions Can Learn from the Meteoric Rise of Coinbase | Blog

Digital assets have come a long way from only being Bitcoin to a complete array of increasingly used financial assets. Coinbase’s striking rise has demonstrated a growing acceptance for cryptocurrency that could stick with traditional investors. Is the future for digital currency real, and what obstacles do banks and financial institutions face to compete in this growing crypto market? Read on to learn more of our insights on the next-generation currency movement.  

Growing digital asset options

When Coinbase became the first major cryptocurrency start-up to go public on a U.S. stock market this April, the world started giving crypto more legitimacy and the company’s astronomical valuation has garnered great attention.

Along with the skyrocketing value of cryptocurrencies such as Bitcoins and Ethereum, Coinbase – the preferred platform for U.S. investors to purchase these assets – has grown ninefold over the past year. The investment trend over the past five years suggests that cryptocurrency valuation will cross US$24 trillion by 2027.

This rocketing rise can be attributed to increased interest by retail and institutional investors that started investing in Bitcoins and Altcoins as another option to falling interest rates across the world. Other crypto assets such as Non-Fungible Tokens (NFT) traded nine times in the first half of 2021.

Crypto assets have experienced great growth since their early days. Some of the new types (described below in Exhibit 1 and 2) have unique use cases and designs.

Exhibit 1

Picture1 1

Exhibit 2

Picture4

Investors paying attention

Improved technology and better financial services have fueled a remarkable demand in digital assets, especially by institutional investors, over the past 18 months.  Investor groups are getting involved in the market for various reasons, including:

  • Retail investors – improved personal finance management, easier payment and remittance services, and increased transparency offered by Distributed Ledger Technology (DLT) through openly verifiable and immutable transaction history databases
  • Institutional and High Net Worth (HNW) investors – lower operational costs, high reliability and security, faster transaction processing and almost real-time tracing of contracts and payments, and improved access to liquidity for fundraising

Technology firms partnering

As investor interest grows, several FinTechs and BigTechs are investing in technology and infrastructure to support digital assets. Google has partnered with exchange platforms Paxful and Coinbase to add crypto-based transactions on Google Pay. This also allows users to buy Bitcoins and pay using them. Similarly, leading banking software firms such as Temenos recently partnered with specialist digital asset and blockchain infrastructure player Taurus to help banks bridge the gap between traditional and digital assets.

Early access to data will give FinTechs and BigTechs an edge to better understand investor profiles, investment willingness, and funding goals of a large pool of clients. These larger investor groups are also nimble enough to partner with smaller FinTechs and InsurTechs to provide specialty services through a common digital platform.

Opportunities for banks

Since banks would need to cut through bureaucracy, change management challenges, and garner huge financial resources, it is not likely they will develop these technologies quickly enough for the market’s fast pace. However, we believe that increased participation from traditional financial institutions in managing digital assets will pave the way for digital assets in mainstream banking and payments systems as regulations improve.

Large financial institutions such as BNY Mellon recently invested in building a team of technology and business professionals to develop products and platforms that will allow customers to manage cryptocurrency alongside all their other assets. The custodian also received permission from regulatory bodies to offer crypto custodian services in February 2021.

Similarly, Singapore’s DBS Bank received approval earlier this year from the Monetary Authority of Singapore (MAS) to launch the DBS Digital Exchange for tokenized assets. Global banks such as Deutsche Bank are also building services such as institutional-grade hot and cold storage with insured protection for custody services. Huge potential exists to tap into business segments such as wealth management, estate services, financial planning, and asset services in crypto markets since the current penetration is very low.

To stay ahead of the curve, banks should follow this three-pronged strategy to build, partner, and acquire digital assets skillsets in the market:

  • Partner and collaborate: Traditional financial institutions will face several issues in developing
    in-house solutions to adopt new financial technologies, such as updating legacy systems and regularly innovating solutions offered to remain competitive in the market and keep up with global regulations. These institutions can partner with FinTechs specializing in developing and servicing such solutions at a global scale in a plug-and-play model
  • Build and develop: Large financial services firms are developing capabilities and skillsets to stay ahead of the competition in the crypto asset services market. Large Banking and Financial Services (BFS) firms such as Wells Fargo have introduced cryptocurrency funds focused on high net-worth individuals. Similarly, JP Morgan has already tested its stablecoin, JPM Coin, which has been pegged against the U.S. Dollar, and offers a solution to cross-border trade between banks and corporates over blockchain
  • Acquire and invest: Financial institutions can nurture and acquire FinTechs start-ups that are aligned with the future of financial technology. They can also directly acquire solutions already developed in the market to enhance their platforms in serving their customers with the latest technologies

 Exhibit 3

Picture3

Regulatory and other obstacles to overcome

While its potential is promising, banks still face many challenges around regulations, disaster management, private key recovery, insurance-backed custody, and systems for fraud prevention. The biggest roadblock for BFS firms is the lack of clarity of a regulatory framework around digital assets. The process of building a regulatory framework for digital assets will take several years and be iterative. In the interim, policies that are uncertain and not applicable to digital assets should be brought to the notice of regulators and industry bodies as they continuously evaluate policies and provide clarifications.

Banks and financial institutions also will need to make enormous investments in data and technology systems to manage the Risk and Compliance (R&C) around digital assets. Financial institutions will have to adopt a compliance-by-design approach to build platforms to manage the digital assets transactions and the associated mid- and back-office operations. This will require building new data and technology systems for R&C initiatives as no commercially off-the-shelf software in the market has matured enough to manage scaled compliance workflows and operations for digital assets.

For more insights on digital assets adoption, please read our detailed perspective in the report, Deconstructing the Digital Assets Revolution – What Financial Institutions Can Learn from the Meteoric Rise of Coinbase.

If you would like to share your observations or questions on the evolving digital assets landscape, please reach out to [email protected], [email protected], or [email protected].

In the “Next Normal” for Consumer Lending, Cloud-first Platforms Offer a Silver Lining | Blog

The post-pandemic world has created a disparate consumer landscape, with many finding themselves with more disposable income from stimulus checks while others struggle financially. What does it mean for consumer lending?

The consumer lending industry is poised to see tremendous growth post the pandemic, but most lenders’ credit risk appetite has shrunk, given the economic uncertainty.

With consumer expectations and behaviors continuing to change, cloud-first consumer lending platforms will play a key role in driving growth in this new era.

Let’s take a look at what’s changing and what innovative solutions lie ahead. Loans delivered through mobile apps, banking without humans, and consumer banks offering more lifestyle experiences are all trends to watch for.

A new market

The lending industry has been battered by a series of challenges over the last year as COVID-19 caused a significant decline in economic activities and consumers across the globe braced for a recession.

With economic hope in sight and consumers ready to release their pent-up demand and make up for lost spending, demand is now rising. Although it is important for lenders to take caution, they must take care of their shrinking book size by targeting the right set of customers with the right products.

But today’s consumer is different than in the past. They demand different experiences and loan products. As a result, lenders must rethink their product, experiences, and channel strategy and adapt to changing consumer expectations.

Changing consumer behaviors and new consumer segments

The fundamental tenets of Secured, Ubiquitous, Personalized, Easy, and Responsive (SUPER) lending experiences have not evolved; however, the relative importance of these tenets has changed. As we are seeing everywhere, customers have become more comfortable with digital transactions and expect to shop for loans through an end-to-end digital lending process with minimum assistance from humans.

Consumers also have grown increasingly concerned about their financial health and credit standing during these times. This has increased demand for small-ticket loans for financing short-term requirements versus large long-term loans.

Also, expect new consumers to join the market for the first time who have limited or no credit history. These include the digital-savvy, well-educated Generation Z segment and financially-distressed consumers who are seeking loans as a result of government economic revitalization programs during the pandemic.

Picture1

Both of these groups will be crucial in driving growth in consumer lending, especially in personal loans. According to research by Experian, while the overall growth in personal loans in the U.S. has declined 6 percent in 2020 compared to 12 percent the prior year, Gen-Z consumers saw their personal loan balances grow 33 percent compared to less than five percent for other age groups.

How lenders should prepare

We are moving from a “low demand, low supply” state to a climate of increasing demand while the supply side struggles to keep pace. Besides their conservative approach, lenders also face challenges to manage consumer behavioral change and provide the right products and experiences.

To cater to this new demand pattern and tap into the new customer segments to revive their shrinking loan books, lenders must leverage data and technology thoughtfully in their loan origination process. Here’s how:

  • Understand and adapt to the new consumer behavior: Lenders must equip themselves with a modern data stack and the right technology such as behavioral AI, which will enable a comprehensive view of a consumer’s situation and provide insights. New initiatives like video-based customer service and the use of bots for assistance will resonate well with customers and deepen relationships and trust
  • Nudge consumers towards low-cost, digital-first channels for acquisitions: While traditional marketing and referral sources remain important, digital channels are becoming mandatory for lenders wishing to compete across all consumer segments. Digital acquisition channels increase efficiency and provide a rich source of digitized data that can further be used to assess the customers and push customized product notifications
  • Offer integrated experiences by introducing lending as part of regular buying processes: Lenders must look to integrate their products as sub-sets of consumer’s home, auto, and other buying processes. An ecosystem approach by partnering with local businesses, e-commerce players, educational institutions, and other relevant parties and leveraging their consumer bases will be key. Next-generation customers will shift towards a mobile-based super-app ecosystem for all their lifestyle and financial needs, and lenders must not miss that opportunity to be an integral part of that ecosystem
  • Offer contextualized products for evolving consumer needs: In today’s scenario, it has become extremely important to be able to create lending products that are flexible enough to meet evolving customer needs without significantly changing the operations side. To successfully grow their consumer loan books, lenders must be able to identify financial issues consumers are facing and support them while also protecting their portfolios. One example of this would be providing advisory services for their existing customers to acquire hardship loans as a result of the pandemic
  • Create a unique experience for each hyper-segment: Lenders should reimage their product portfolio to cater to micro-segments of customers. As consumers become more value-conscious, offering a unique lending product, providing a real-time, hyper-relevant, and personalized experience for each customer will be important

 The solution: cloud-first, platform-based operating models

As banks and financial institutions shift towards a digital lending culture with new products, new channels, and new experiences to meet consumer demands, they must have the right level of agility to respond to the continuous changes in the demand side.

A platform-based operating model, which is flexible enough to accommodate the changes, will be essential to react to these evolving demands with speed as well as scale. Cloud technology is the infrastructural element that will enable the agility, flexibility, and scalability of the platform.

At the same time, lenders must reimagine their traditional data value-chain with future-ready data exchanges, enabling real-time data analytics and decision support to provide deeper customer and channel insights. Cloud allows lenders to utilize the data and AI technology that hyperscalers and cloud technology vendors offer to make the best use of internal and external data.

Many banks and financial institutions already rely on third-party digital loan origination platforms to modernize their processes, reduce operational costs, and improve customer acquisitions and revenue. Such platforms deliver enhanced omnichannel customer experiences and operational efficiency through AI or machine learning as well as analytics-rich solutions to enterprises by enabling fraud mitigation.

 Looking ahead

The consumer lending industry will only evolve further and a pragmatic approach to adoption of cloud, data and analytics, and exponential technologies will help lenders realize value from technology buzzwords and impact customer experience and business performance objectives. Innovative solutions from product vendors across the lending value chain will enable lenders to close the gaps in their current systems.

If you would like to better understand how a platform-centric approach can transform your consumer lending business in this dynamic environment, please reach out to [email protected] or [email protected].

You can also download our complimentary viewpoint Consumer Lending on the Cloud.

The Rise of Core Life and Annuities Insurance Platforms | Blog

Disruption in the Life and Annuities (L&A) insurance industry has been brewing for some time now, and the COVID-19 crisis has added more fuel to the fire. L&A insurance carriers are facing a host of challenges, including a demand slump, profitability pressures, complex regulatory compliance mandates, and an uncertain macroeconomic environment. At the same time, consumers want more direct channels and are demanding digital experiences and products.

L&A insurers’ ability to satisfy their customers’ emerging and evolving needs has been hampered by a plethora of antiquated core systems built on old technologies. Now, carriers are actively looking to jettison this legacy burden by adopting core, cloud-based platform software solutions that have an open architecture and are readily configurable to deliver modern policyholder experiences. Indeed, they are viewing core system modernization as a strategic mandate to enable digital transformation and drive digitalization across the insurance value chain to offer new experiences and improve service quality. They recognize that taking a cloud-based platform approach to modernization will drive improved operational efficiency, agility, scalability, accelerated business value realization, and better front-to-back customer experiences. They also understand that implementing a platform-first operating model will ensure their business operations are more resilient to future challenges and black swan events such as COVID-19.

The technology vendors’ changing value proposition

Technology vendors are responding to L&A carriers’ new requirements by building digital platform capabilities across the insurance value chain and evolving from being just pure-play product vendors to being SaaS players, with a growing portion of their revenues coming from subscription and support services. They are investing heavily in platform solutions with a high degree of cloud-readiness to enable rapid time-to-value for insurance carriers. They are focusing on building modularized platform solutions with a modern technology architecture that are API-driven and microservices-enabled. Enabling business-friendly, codeless configuration while supporting extensive out-of-the-box functionality is also a key vendor priority. That is because it will help carriers reduce platform implementation costs and time, seamlessly make platform enhancements and upgrades, and effortlessly integrate with other B2B partners to harness the immense potential of the insurance innovation ecosystem.

The partner ecosystem

As the market evolves and expands, there is a greater need to rethink partner strategy to succeed. The right set of partners can greatly enhance the value proposition of any core platform for a carrier. As a result, L&A core platform technology vendors are strategically focusing on expanding their partner network with InsurTechs, implementation and SI partners, and other third parties to create more opportunities for innovation for carriers. Having a multitude of options to seamlessly plug-and-play different kinds of offerings – such as unstructured data sources, analytics applications, and automated claims management portals – is a win-win situation for all the parties involved. Thus, bringing in different pre-built solutions from multiple partners, bundling of offerings from InsurTechs, and the depth of integration expertise of technology and system integration partners, are becoming quintessential to beat the competition, enable sustained growth, and drive differentiation for the core platform technology vendors.  Having a sound partnership strategy allows carriers the flexibility to individually pick and choose added functionality from the ecosystem that they want on top of the core.

Core platform systems are the foundation on which insurance carriers run their business. L&A insurers are increasingly recognizing that to compete in the age of digital insurance, they need a cloud business platform with modern, data-driven capabilities that enables rapid product innovation and delivers speed to implementation, speed to market, and speed to revenue. With customer experience becoming a game-changer for the industry, the need for carriers to drive a modernized core is becoming paramount to drive growth and differentiation in a post-vaccine world. This provides core platform vendors a tremendous opportunity to support insurers on their core modernization journey by providing innovative platform solutions to create digital-first stakeholder experiences and drive strategic impact on insurers’ businesses.

To learn more about the ongoing trends in the L&A insurance core platforms market, please read our recently published report, Life & Annuities (L&A) Insurance Core Platform Software Adoption Trends – Unlocking Efficiency and Growth for L&A Insurers. Or, you can reach out to [email protected], [email protected], or [email protected] to talk in more detail about the trends.

Everest Group is also conducting a market study of leading policy administration platforms in the L&A insurance industry. This is the inaugural edition of this study, and we are excited to invite all the leading platform vendors to participate in our research. Please see the invitation here. You can also contact [email protected], [email protected], or [email protected] to learn more about the participation process.

Access the Invitation for participation in Policy Administration Platforms in the Life and Annuities (L&A) Insurance Industry Market Report.

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