Industry trends, viewpoints and thought leadership articles. Read what the experts in banking and technology have to say.

Core Banking

Get More from the Core: Drivers of Back-office Transformation

In the recent past banks were esoteric institutions that acted as custodians of cash and handed out loans. Today they have been transformed into dynamic, multichannel organizations that strive to continuously bring innovative products to the marketplace.... All this has been done in order to improve profitability in the face of relentless competition and increasingly savvy customers. The globally mobile customer is demanding low cost tailored products across multiple product channels. There clearly exists a need for banks to move from being product-centric to customer-centric. Unfortunately, the legacy systems, currently prevalent, lack the agility, flexibility and scalability needed to meet today’s challenges. Thus, they fail to provide a foundation for future growth.

To counter this, banks need to modernize and transform their core banking systems by moving towards a centralized back-office and standardized processes, or they run the risk of paying a heavy price in terms of higher costs and lower profits. At the same time leveraging SOA (Service Oriented Architecture) for IT will enable product bundling, cross-selling of products and service customization. With centralized SOA, banks can use data mining techniques to analyze customer behavior, thus creating cheaper, innovative and differentiated products.

This paper describes the drivers for transforming legacy core systems and examines various factors a core system needs to address to ensure a flexible banking operation.

Payments Business 3S Approach

Payments - the numero uno facet of a payment system, enables the circulation of funds. Without a robust infrastructure enabling smooth flow of funds, financial institutions can rarely assume the role of a financial intermediary in the economy.... In order to confront the numerous parallel players in the remittance market, banks need to maintain a payments system infrastructure and refine the processes and practices of delivering payment services. This will ensure better turn around time of payment cycles with faster availability of funds to customers. Banks have traditionally treated payments as a specialized stream and segregated the process from other banking business flows. This has led to the multiplicity of payment acquisition channels and a plethora of payment networks.

Now banks can capitalize on the payment hub architecture through a payments system model which is integrated with the core banking solution. Realization of this would pose survival challenges to average products in the market and cultivate value propositions for innovative products by scripting successful alliances with customers on one hand and technology partners on the other.

This paper describes the 3S objectives - Speed, Security and Standards that the payments market across geographies is witnessing and highlights why an integrated payment module is required to centrally manage the work flow of payment processes.

The Core Banking Juggernaut Rolls On

Tier 1 banks are taking the lead and embarking on a total overhaul of their core processing platforms. The verdict - new age core systems are leaving an indelible imprint on the banking landscape..., at least to the extent of gaining acceptance and engulfing few legacy systems in its wake. This article seeks to highlight some of the trends in the core banking space and what the next year holds out for the banking industry. In the near future one would see a complete confluence in the paths of banks and independent software vendors through the role of core banking systems. This shall be done in the quest to redefine their very existence, and for banks to survive and flourish in an intensely competitive and globalized landscape. There is a focus on factors that will have attained considerable significance for contemporary banks and will be the key drivers in selecting the platform that will power banks into the next orbit and beyond.

The paper also draws attention to the strategic challenges before the bank’s stakeholders as well as some of the critical success factors that banks need to be mindful of in order to derive the maximum out of their core banking transformation initiatives.

Key Challenges in Core Banking Replacement

Successful banks are those that understand the potential of new technologies. They align themselves to fully leverage the powers of these technologies by focusing on the adaptive changes that make the technology transformation process successful.... The current competitive environment with increasingly demanding customers is forcing banks to take a reality check on the technology environment and ensure that their IT strategy is aligned to their business objectives. And core banking replacement is often the only solution.

Herein banks need to be mindful of challenges like vendor capabilities and dependency on legacy applications which are generally associated with core banking deployments and replacements. These challenges once understood and mitigated properly can result in the bank leapfrogging to a high degree of differentiation and providing an enriched customer value proposition. On the other hand, it can also create considerable risks for the bank if the transition is not managed properly.

This paper details the key factors banks need to focus on, to enable them to make the core banking transformation a successful experience.

Managing Risks In Core Banking Replacements

Core banking replacement has for quite some time been considered fraught with high risks. The costs are potentially bordering on the prohibitive and many still believe that their present in-house systems are satisfactorily serving the purpose.... But the wind is changing direction and fast. There is a rising acknowledgement of the fact that banks, irrespective of size and geography, face the dual challenge of cutting costs and increasing their internal efficiencies. This is done with the ultimate aim of improving margins which are clearly under strain. Though it is easy to select a vendor for implementing a solution, the challenging part is carrying the project through to a successful implementation. Current requirement is for an experienced vendor with impeccable implementation credentials who has in the past managed all such challenges well. Banks thus need to take a holistic view while considering the replacement of their core banking platform.

Risks need to be mitigated and managed and following this line of thought, this paper delves into the risks that banks should take cognizance of before embarking on what is clearly going to be the single biggest technology initiative within the bank.

SOA Plug-and-Play Services

Shifting economic conditions and rapidly evolving IT strategies along with mergers and acquisitions have left few banks with an appetite to untangle the morass of legacy systems running their businesses.... But this, thankfully, is not holding up progress and innovation, thanks, in part, to the increased adoption of Web services and its conceptual cousin, the Service-Oriented-Architecture (SOA). SOA is neither a product nor a solution. It is an integration framework that binds internal and external services to create a solution. With SOA, instead of focusing on different applications that reside on different computers, the emphasis is on business services that represent several different underlying applications. As SOA can seamlessly be put into practice in existing IT environments it ensures that changes in technology and processes during core banking replacements can be phased out and managed effectively.

The plug-and-play benefits of SOA and Web services promises to increase the pace of innovation in financial services. Clearly, by adopting SOA and process driven core banking solutions banks worldwide can achieve tremendous benefits. Following this, this paper describes a banking solution framework which depicts how SOA delivers maximum agility.

e-Banking

Banking the Unbanked: Going Mobile in Africa

With an estimated 278 million subscribers, the mobile phone is a key economic driver in Africa. With only 25% of the population having bank accounts, the unfulfilled needs for financial services have found a solution in mobile banking.... The unbanked, if tapped, represent a significant growth opportunity for banks. A mobile and e-banking solution enabling convenient, fast, simple, and secure branchless banking, with the support of e-payment gateways, is indispensable for banks reaching out to the unbanked. Such a solution can help reduce costs while increasing speed and efficiency through SMS-driven banking services.

Mobile banking services have been successfully adopted by a few countries in Africa. For example, in Kenya customers exchange cash at an agent in return for an e-money account. South African customers can use their mobile phones to make payments, transfer money, and pay utility bills without worrying about minimum balance requirement and fixed monthly fees. Similarly, Nigeria and Egypt have also witnessed an overhauling of their banking systems with offerings like new scratch card-based savings payments system.

This paper details key success factors for such a solution as well as examines the mobile banking scenario in the African continent - the strategies adopted, the policies followed and the market realities.

Partner Portals – What's in it for Banks

Portals are those Websites that aim to be entry points to the World Wide Web, typically offering search engines and/or links to useful pages, and possibly news or other services. ... Partner portals are portals owned by companies that give access, based on the function involved, to their various partners so as to forge deeper relationships. The applications are transparent to the partners. Typically there is a single sign on mechanism used to log in the user. Based on the organization and the role of the partner access is given to various tools and the required application. Partner portals are popular with businesses that rely heavily on indirect sales and support.

Today banks are growing both organically and inorganically and partners have started to play a very important function in their growth strategy. Banks are increasingly using partners to expand business and enhance efficiency. A partner portal provides a common eco system and extends bank’s reach so as to provide seamless and efficient transactions with partners. Apart from access to applications, banks also provided information access to their partners so as to help them conduct business.

This paper highlights the available partner portal offerings as well as presents various scenarios describing the advantages for a bank that deploys partner portals.

The Next Wave in Internet Banking

The Internet banking model was originally built with a view to merely replace identified brick-&-mortar services and provide an online means of reaching out to the bank. This model was not mature enough for the market as these Internet banking solutions ... served as mere aggregating mechanisms. Slowly new features like inter-bank local payments, international remittances, communication through secure e-mail with dedicated relationship managers from the bank and exposure of account relationships through online channels were added. Banks then started to use the model as a ‘differentiating’ factor.

Today, the banking business is driven by one mantra - virtually all types and kinds of banking services to be made extendable across channels, including the Internet. With the growth of Internet banking being driven even harder by the retail boom, banks can increasingly rely on new-generation electronic banking solutions built on open architecture, with robust security features, that provide true relationship banking functionality as well as be scalable and flexible to meet the changing demands of the retail customer.

This paper looks at what Internet banking has been so far and delves into what the future ahead could be like. It also highlights the importance of having solution vendors who move in sync with the market, focusing on building beyond their core competencies.

The Next Wave Of Internet Banking

Online banking has come a long way over the past decade from having experienced the highs of the dotcom boom era to the subsequent lows of the immediate post-dotcom period when it was often accused of having reneged on its initial ... promise of providing low-cost convenient banking. Online banking has finally matured in recent years by not only attracting the urban educated banking customers that the bank can target for its cross-selling and marketing purposes but also by generating immense profits by adding certain banking functions and services that are best suited to an online audience. But not all banks have been successful at exploiting the benefits of Internet and achieving a high degree of penetration. A large number of banks are still struggling to make an impact.

To meet the challenge of creating an effective online banking service offering that meets the requirements of a sophisticated customer and is also secure, robust and future-proof, banks need to re-evaluate their existing platforms and harness new-age technology. What is required is a solution that is truly based on the ‘next’ wave of internet banking. Only then can banks truly exploit the full potential of the Internet.

The paper describes the fast changing pace of the Internet domain and how technology is evolving continuously so that sometimes even within 3 years a solution can be considered to have become a ‘legacy’ solution.

Enticing SMEs- The Online Banking Way

Financial institutions have started to give a serious look at the small & medium enterprises segment due to issues like global economic slowdown and want of better profit. But, there is a need to keep in mind that business scope and legal structure ... of the firm are criteria that should not to be overlooked while approaching the SMEs. The approach best suited for a bank should be dependent on existing customer profile and the strategic objective behind SME initiative. Some banks view SME banking as a specialized division within the bank. They claim that SME customers have specific needs, demand greater flexibility and need personal touch. However, this could mean higher operating cost and needs higher breakeven volumes. Some other banks consider SME banking as an extension of High Net Worth (HNW) banking. The basic idea is that owners of businesses are retail customers of the bank. On-line SME Banking offering is effectively a toned up version of the Retail Internet Banking offering.

This paper highlights approaches to SME banking that banks follow as well as the service expectations from on-line SME offering as it is one of the most efficient methods of delivering banking services and products to the SME segment and banks need to take higher efforts to increase adoption of the same.

Maximizing Value To Corporate Customers- A WBCM Approach

Cash management is evolving and gaining value in many countries across the world. Specifically, a lot of attention is being paid to the cash management services required by the corporate sector and quite rightly so as the volumes of business ensures ... the investment requirements for offering innovative solutions. These days’ sophisticated services are offered by banks to address the needs of the corporate treasurer, centered on the seemingly simple job of efficient management of receivables and payables. Companies are also becoming more and more receptive to the Internet model as security concerns are increasingly being addressed well by the world-class cash management offerings. They are becoming more open than ever to the idea of employing a cash management services provider. However there is a need to focus on certain criteria before deciding on a vendor. These criteria might include points like ability to provide strong back office capability, adequate delivery systems and reasonable pricing. The success of a cash management solution depends as much on the solution offering as on the operational and strategic support extended to the initiative.

This paper discusses the functional modules that should be expected of a state-of-the-art cash management system while keeping in mind the specific needs of a corporate treasurer. A detailed description of the common offerings in the area of Web-based cash management system will clearly emphasize the complexity involved in offering a value added service.

Managing Security in Mobile and Wireless Services

As banks adopt multi-delivery channels in response to customer demands for greater convenience and lower costs, the wireless channel has seen growing acceptance in the retail payments and brokerage segments.... This is being driven by the ubiquitous nature of wireless devices and their consumer acceptance as well as by the benefits of convenience and low transaction costs. With the increased benefits and convenience of mobile and wireless applications in the banking industry there are also increasing risks in security and hence, the need for security solutions. Three points of security vulnerability exist: the mobile device itself, the wireless channel, and the network connection between the wireless Web servers and the back-end transaction servers. Handheld devices and wireless local area networks (WLAN) are especially vulnerable to potential viruses. The wireless signals may also be picked up beyond the intended recipients creating potential security hazards. Thus, stricter security policies, WLAN security upgrades, the use of encryption technology such as virtual private networks and end-to-end security solutions are highly recommended. Effective enforcement of security policies is as critical to mobile security as is the implementation of comprehensive mobile security solutions.

This paper delves into the security challenges that mobile and wireless services face and also describes the need for end-to-end securities solutions.

Real-Time Alerts - A Big Step Forward in Collaborative Banking

In the age of the Internet, we can access the Web and get to-the-minute updates of events as they unfold anywhere across the globe. This is the age of the wired consumer - one who demands, and gets, information ‘here and now’.... Technology has obviously played a very big role in ensuring this. The challenge before banks in this era will really be to ensure that multi-channel integration ‘really’ takes place and this, in turn, will ensure that the customer’s experience is a more fulfilling one. Among the many different technologies that are contributing to this, one such is that of alerts. As the name suggests, these are essentially notifications or messages, which are sent to customers on the happening of a certain event. The alerts are delivered across a wide variety of channels and devices including email, mobile phones, PDAs, fax etc. Alerting technology is one that is expected to grow strongly, particularly as customers realize that it offers them increased control over their interaction with banks.

Alerting technology offers banks an opportunity to take a giant, but cost-effective step in refining their customer relationship management strategy.

This paper talks about other such drivers for implementing the alerting technology.

Corporate Banking

Corporate Origination

Deals in the corporate and investment banking world are significantly different from retail lending. With corporate houses getting a flurry of offers from several banks, deal structures, rates and fees are negotiated.... The banker or relationship manager who has the best relationship wins the deal, possibly not always on desired terms, but at rates closer to the best offered by competition. Given the relatively lower volumes, and the high degree of flexibility required (read manual intervention), it is no wonder that automation is yet to make a complete inroad into corporate origination. The senior corporate bankers are busy dealing with their high end corporate customers and sewing up highly structured deals. Accessing systems either for inquiry on the portfolio or originating a loan has, till now, been passé.

However, this view is set to change. This paper highlights that the rarefied world of corporate origination is now practically the final frontier for technology led transformation. Technology can play a significant role in transforming the current paper-intensive process into a more efficient one, improving productivity, reducing turn around time in processing credit applications, and more importantly bringing in electronic audit trails. From a system perspective, paper also discusses the various challenges that the elements of the corporate origination process pose for banks worldwide.

CRM

CRM in banking

This paper brings forth the views that were discussed at FinacleConnect Virtual Industry Roundtable by a panel of industry experts who deliberated on the current trends in CRM, and how banks are using CRM... to deepen their relationship with customers.

Basically, CRM is a key element of differentiation that lets banks develop their customer base and sales capacity. Today the environment is changing dramatically, and so is banks’ approach to their customers. A well thought out CRM strategy lets them improve the sales experience of the customer; develop the potential value for customers, increase sales, productivity and efficiency; and create personalized one-to-one service. It is important that the client not the product is in the center. This is the reason why banks should try to improve the following processes and support it with systems -customer service and advice, customer analytics and campaign-management .CRM, at the end of day, should be a business strategy more than anything else.

In the roundtable some issues discussed were benefits that banks can hope to achieve through deploying CRM solutions, how has the understanding of CRM in banking changed today as compared to a few years back and how the technology has matured in this time and the impact it has on banks today.

The 2nd Generation of CRM

Customers and customer relationships lie at the very core of the business of banking. It is therefore not surprising that CRM (customer relationship management) solutions promising banks the ability to manage... customer relationships were instantly popular when they were launched over a decade back. Unfortunately, a majority of these initiatives turned out to be costly, complex enterprise-wide projects with lengthy implementation time and banks did not get adequate returns from their massive investments. In those early days, neither banks nor the vendors realized that CRM goes much beyond technology. The organizational structure and processes at the bank need to change to adequately support a CRM solution. Now, banks realize that CRM is a continuous process – it is a journey, not a destination. To be successful in this arena, they need to embrace CRM as a philosophy and adopt a strategy for managing customer relationships that effectively addresses three key areas: people, processes and technology.

This paper emphasizes that in addition to the sales, marketing and service capabilities inherent in a generic CRM solution, these specialized solutions should offer banking specific features like a CIF tailored to the banking environment, ready-to-deploy banking templates and requests, origination integrated with sales and service and comprehensive support for call centre agents. Banks will, thus, easily be able to gain the long sought after 360 degree view of customers real-time. Buoyed by developments in technology that has made CRM deployment much simpler than before, banks are all set to ride the second wave of CRM.

Treasury

Basel II Compliance in Finacle Treasury

Basel II, the second of the Basel Accords, provides recommendations on banking rules and regulations issued by the Basel Committee on Banking Supervision. The Basel Capital Accord ensures that capital allocation ... is attuned to the risk that the bank is carrying on its books, segregates operational risk from credit risk and quantifies both ;finally it attempts to bridge the gap between economic and regulatory capital to reduce the scope for regulatory arbitrage. One of the principal objectives of supervision is to alienate depositors from the financial risks of the bank. In today's volatile markets, it is imperative to ensure that capital set aside for capital adequacy measures is readily available for depositors in adverse market conditions. However, it has largely left unchanged the question of how to actually define bank capital, which diverges from accounting equity in important respects. Basel II uses a "three pillars" concept to promote greater stability in the financial system - minimum capital requirements, supervisory review and market discipline.

In this document we will outline the key features provided by Finacle treasury solution to achieve Basel II compliance for each of the 3 pillars.

The FX Marketplace: Trends, Opportunities and Challenges

The foreign exchange marketplace is in a state of flux. The rules of the game are being re-written by the advent of new players and different ways of transacting FX, thanks mainly to technology advances.... The so called 'real money managers' (insurance and pension funds), hedge funds, proprietary trading desks and leveraged investors are becoming increasingly interested in foreign exchange as an asset class, as an alternative to fixed income and equities. Technological advances are allowing the entry of many more exchange type places to offer their services to customers. Algorithmic trading is now being facilitated by proprietary desks and hedge funds that treat FX as an asset class. Also visible is a continuous growth in international trade and capital flows. Electronic trading is being seen as the only possible way to service low-value high-volume retail customers profitably and banks should make concerted efforts to move these customers online.

This paper discusses these and many more trends that are prevalent in the FX marketplace and details opportunities and challenges that the FX marketplace presents to the old and new market players.

The Changing Face of Treasury Technology

Bank and financial institution treasuries have traditionally been involved in in-house trading in foreign exchange, money markets, securities and derivatives and they also offer these products to their corporate... and retail customers. Banks deployed different systems in these areas which led to an increasing overhead of integrating them. However, the global FX market today is much different than what it was even few years back. Over time the banks have realized the importance of increasing operational efficiency and reducing operational delays by using straight-through-processing applications which combine front, middle and back office functionality in a single application. Banks offering e-trading facility to their institutional customers have seen increased cost savings on delivery of this service by further integrating customer facing applications with back-end treasury applications.

This paper delves into the various trends prevalent in the marketplace which are forcing this change and forcing banks and other financial institutions to re-examine their treasury business and technology strategies to better meet and exceed the requirements of internal and external customers. There is also a detailed description of the reasons behind explosive growth in the derivative markets and trading volumes.

Treasury Organization - Picking the Right Model

Treasury, in its strictest sense, refers to one function: asset liability management, especially when used in the context of banks. In a wider sense, treasury includes a whole range of activities encompassing various markets.... As the definition of treasury expands, companies must choose the treasury organization model they want to base their operations on, regardless of their underlying business. Organizations exhibit patterns in their choice of treasury organization models. Two important dimensions for which these choices differ are the range of activities covered by the treasury and the extent of centralization of management control.

This paper discusses these dimensions .It analyzes the relationship between various organization models and the factors that influence decisions on the model to adopt, the objective being to investigate if certain models are better suited for certain organizational situations. Also, key factors that impact the choice of model adopted are - the primary motive for the treasury within the organization, the scale of operations, the geographic spread of the business and the complexity. Thus, companies are also advised to consider certain key factors which impact the organizational models as these factors can be collated to form a decision matrix, which is a useful tool for any debate on treasury models.

Treasury: Back to Basics

The operating environment for bank treasuries has changed dramatically in recent months with news from the market only serving to exert greater pressure on the profitability of bank treasuries,... as inflation and interest rates are poised to scale northward. Prevention of increasingly sophisticated fraud is becoming a burgeoning concern and risk aversion is reaching phobic magnitude as treasurers focus on hitherto neglected operational and concentration risks. Awaken to a new reality banks are aggressively seeking to cut back the splurge, as they struggle to manage their cost structures.

In order for bank treasuries to be able to respond to the dynamics of this changing business world, to seize the opportunities it holds and emerge not just unscathed but successful they need to harness the potentials of three key fundamental but truly powerful enablers. There should be a move towards minimizing risks, maximizing simplicity and finally, optimizing their technology.

Technology will play an important role in a treasurer’s journey ‘back to the basics’ and provide bank treasuries the solutions to manage robust yet lean operations, strengthen risk management and rationalize costs. This paper discusses one such treasury solution that will empower treasury operations with the technology backbone to stand up to the challenges of changing business dynamics.

Wealth Management

China: The Wealth Management Agenda

China is the second largest wealth management market in Asia with significant wealth creation driven by unprecedented economic growth in recent years. However, the wealth management market in China remains in its infancy,... but it can be expected to evolve rapidly, in line with the development and de-regulation of financial markets. The key to growth is dependent on a number of factors but will first be prompted by continued local regulatory relaxation. The wealth management market place is evolving with the expansion of the affluent client pool and increased competition through mergers, acquisitions and the introduction of nontraditional players. The considerations to create or strengthen a customer-centric model are complex, but most firms have recognized that long-term success in this competitive market is dependent upon the ability to deliver customer-centric products and services.

Paper discusses the wealth management service canvas for banks as well as gives a componentized view of offerings of an efficient wealth management system. Paper also discusses the changing landscape of the wealth management environment by focusing on issues like present market dynamics, increasing focus on advisory services and the key technological trends – present vs. future prospects.

Wealth Management and the Retail Strategy – an APAC Perspective

There is a new segment of customers present in the market that is already sizable and growing at above-average rate. These customers are the “middle class millionaires”- those with net worth between... $1million and $10 million. Bankers are quickly realizing that the needs of this segment are markedly different from the rest of the middle class. In addition, banks can also make above average margins from these customers compared to a typical retail customer. It is, therefore, required of retail banks to carefully align their retail banking strategies to take into account the needs of these wealthy individuals.

Asia Pacific, as a region, holds the third largest number of HNWI (High Net Worth Individuals).But, despite the expanding wealthy class in the Asia Pacific region financial services institutions are inexperienced in providing services to this unique group of customers. Most are still in the process of exploring different models and approaches that would best suit their target clients and business environment.

Explaining briefly what wealth management is and how it is different from retail banking, the article proceeds to talk about the trends observed in the Asia Pacific wealth management market which include increasing breadth of offerings, selling competitor’s products, changing profile of wealth management providers et al.

Gold Rush: The Shift Towards Wealth Management in Banking

Similar to retail banking, the initial wealth management offerings were largely undifferentiated and commoditized, with some cosmetic changes by way of stratifying higher-end retail customers as ‘Gold’, ‘Preferred’, ‘Platinum’ etc.,... which was often based on very simple criteria like account balances, deposit/ asset values etc. But the market is seeing an emergence of a new subset of “individual” or “retail” clients who have the potential to amass significantly higher levels of wealth. Naturally, such clientele require a higher level of personalization, both in terms of relationship management as well as product offering. There is a need to understand the customer’s current financial position, ongoing financial needs, funds flow requirements, risk appetite levels and provide a basket of investment options and value-added advisory services so as to enable maximization of wealth of the customer. Banks have acted swiftly in responding to these interests. After all the “high perceived value” of wealth management has more attraction than the “low cost transaction” for the retail market. This brings unique challenges for the service provider and opens up immense opportunities for IT players to offer solutions which can cater to the entire life cycle events of wealth management offerings.

This paper tracks what are the requirements from a financial advisor and the wealth management products and services that are present in the market. Paper also discusses the impact that technology and IT platforms has on wealth management domain.

Wealth Management Boom Time in 2008

Global stock markets have rebounded sharply and posted hefty gains during the last four years, after bottoming out in 2003. Property and commodity sectors have done exceptionally well.... Buoyed by rising global wealth, private banks and wealth managers globally are upbeat about the prospects for this sector. Notwithstanding the US sub-prime meltdown in 2007 and its attendant impact on the US and world economy, the core drivers for wealth creation including increasing integration of world economies, use of technology, changing demographics, creative finance, supportive governments, rule of law and immigration and trade are likely to ensure that wealth and correspondingly the wealth management business continues to grow at above average rates during the foreseeable feature.

Financial Planning Services – A Boon for Banks

In the current market scenario wherein advisory services from retail banking customers is steadily on the rise mainly owing to increasing market transparency, it is imperative for a progressive bank to transition... from transaction oriented banking to relationship oriented banking in order to differentiate itself from competition. At such a stage providing financial planning services to customers and prospects can have multifold advantages.

This paper highlights these advantages and also brings to light the fact that while deploying planning services might be a worthy investment for banks, it must essentially follow a careful consideration of the bank’s readiness to take on the rigors of the task. A bank needs to ask itself whether its financial consultation and planning regime is up to the challenge as most clients make their investment decisions or seek financial advice without providing sufficient information about their goals and requirements. By arming themselves with the relevant expertise, exploring service possibilities with disciplined yet groundbreaking thinking and harnessing the insight gained, banks can effectively leverage the advisory service advantage to gain an edge over competition.

Islamic Banking

Banking on Faith: Islamic Banking in the Middle East

Islamic banks are on the threshold of a historic opportunity. Oil prices are rising; the banks are flush with funds and are driving growth on the back of strong recent performances.... However, to deliver on the promise they need to address certain issues. Of primary concern are the disparate interpretations of the fundamental Islamic financial principles. Investments history is being re-written with the release of the first index series premised on faith-based investing. The companies included in the Index are screened according to principles found in religions, though the belief is that its range of environmental, social and governance (ESG) screens will appeal to a spectrum of investors, inside and outside of these religious practices. The emergence of a clear standard and a common framework will help bring about improved products along with more effective accounting, governance, transparency and management practices at Islamic banks. This can help these banks build stronger brands for improved scale and better performance leading to faster growth and higher margins.

The concept of interest is fundamental to the business of banking but Islamic banks function without interest and are still profitable. They also are growing at an astonishing rate in terms of assets, customer base and popularity. This paper focuses upon what and how aspect of this astounding banking process while exploring Islamic banking in the Middle East– specifically in the Gulf Cooperation Council (GCC) countries, the opportunities that beckon and the challenges that need to be overcome.

Risk & Compliance Management in Islamic Banking

Unlike conventional banks, Islamic banks share business risks with investors and borrowers.The fundamental difference between conventional and Islamic banking, from a risk perspective, is in the nature of risk sharing....

The profit sharing model in Islamic banking differentiates the nature of risk that the institution faces. This facilitates equitable distribution of profits and losses between depositors and banks or partners. With returns on the depositor’s investment offered on a profit sharing basis, they have an equal share in the business risks of the institution. Similarly, financing based on Islamic tenets changes the nature of risks faced by Islamic institutions. While the conventional bank assures fixed rates on deposits, regardless of whether it makes profits or losses, the Islamic bank offers no such guarantees. If the bank earns profits during the financial year, it offers depositors the agreed rates; conversely, if the year has brought in losses, depositors share the burden together with the bank. One of the most important risks unique to an Islamic bank is the risk of non-compliance with Shariah principles.

Trends in Banking

Go Direct for Deposits

In this increasingly demanding world, banks are traversing a rocky road and need every deposit that a customer may make. They face both economic and business hurdles.... The consumer may have very little to save and, consequently, banks will get lesser money to put in their coffers. Even in these trying times, bank customers continue to be discerning, asking for exemplary service, convenience and tailored products. As they face the economic reality of slowing growth, high prices and lower wages, customers are more savvy than ever and willing to switch their business if they do not get value for their money. Banks are asking themselves: How can we cut costs and increase deposits even as growth slows, inflation soars and customers demand more?

Branches were set up as primary customer touch points, and, as the need for convenience increased, banks turned to ATMs. However, both require the bank to invest heavily in infrastructure and manpower, while customers need to travel physically to transact business. With the advent of direct banking, banks have a service delivery mechanism that ensures several advantages – both for the bank and customers. Direct banking offers financial institutions economies of access. Customers can reach the bank in cyberspace at any hour and from anywhere, thus offering them absolute convenience. On their part, banks can ensure customer delight in a cost-effective manner.

This paper brings to light the various steps a bank can take to turn their customers into bigger depositors. The paper also discusses how innovation and agility can help a bank meet challenges like increasing competition, rapid technological evolution, and the race to grow deposits.

Win the Global Challenge: Consolidate and Standardize

Banks are striving to win in a daunting new world – brutal competition, low margins and customers who want everything and more. The rapid opening up of emerging economies ... and the saturation of developed markets have banks scrambling to tap emerging global opportunities. A reverse osmosis from the developing nations is also reshaping the industry, all with a view to attain sustainable growth. As emerging economies open up to offer new opportunities, banks are setting up operations in multiple countries hoping to gain a fatter wallet-share. They are opting to expand their presence by entering newer areas in these countries, taking up ambitious Greenfield projects or extending footprint through mergers and acquisitions. A new trend is emerging wherein local banks are becoming regional and regional ones are growing into global players.

As banks expand to newer markets, their processes and products must measure up to the challenge of compliance with varied regulations. In addition to this, it is imperative that banks stay a step ahead of the next wave of change by gearing themselves with the latest robust technology ammunition.

This paper explores why banks need to leverage IT for competitive advantage and roll out an operating model for technology that allows people and processes to meet a common business objective. The paper highlights that consolidation of IT infrastructure and standardization of products and processes across the bank’s various entities are the two critical imperatives which can be enabled through a powerful technology platform in a multi-country scenario.

One Billion Opportunities: Banking the Unbanked Globally

There is a billion-strong globally distributed market actively seeking financial services which remain largely unattended to. These prospective customers...represent enormous earning potential for banks, but constitute the unbanked. The unbanked are those who do not utilize banking services and have limited banking needs. The unbanked are not the poorest of the poor. However, they certainly include those whom banks need to serve but cannot do so profitably in the existing banking environment.

Though these consumers need access to banking for savings, loans and microfinance, they do not have bank accounts. The reasons for this include lack of steady and substantial income leading to a fear of insufficient funds for an account, limited access to banks (especially in remote areas), lack of formal employment that precludes a financial history, poor financial literacy or even psychological factors such as mistrust of financial institutions. Another important reason for this predicament of the unbanked is that banks do not offer them suitable products tailored to their needs. In effect, they have been excluded by the banks’ inability to understand the unbanked market requirements and the banks’ unwillingness to adopt innovative models to serve them. However, this billion also constitutes an enormous opportunity – if banks are willing to accept the challenge of including them with an eye on the bigger picture.

This paper provides a regional perspective to this issue and examines what banks can do to capitalize on this opportunity as converting the periphery into the mainstream has now become a business imperative.

The ASEAN Retail Banking Agenda

The retail banking industry accounted for a dominating 57 percent of global banking revenues till recently. Boston Consultancy Group expects this trend to continue till 2015 and even beyond.... However, to make this a reality the industry needs to continuously deal with increased global competition and issues like transitioning to e-products and handling of numerous regulations. At the same time the ever changing needs and behavior of customers should be satisfied.

The growth opportunity in the ASEAN region in retail banking is being seen by top consultancy firms, like McKinsey, as among the biggest and potentially the most lucrative one with estimated revenue of about $180 billion by 2010. But banks need to realize that growth requires innovation and flexibility in products, services, strategy, mindset, technology, processes and operations. Hence, there is a need to align and integrate processes across channels and the various entities of the entire organization, while employing suitable IT solutions. In order to present a truly customer-centric experience banks need to leverage their knowledge of various markets and establish a robust back office infrastructure.

This paper outlines the imperatives impacting retail banking products and services with specific reference to the ASEAN nations, and explores what banks need to do to forge winning strategies in the dynamic and demanding retail banking market.

A Framework for Business Transformation for Mid-sized Retail Banks

The flat world dynamics today are increasingly enabling large global competitors, who are nimbler, innovative and more cost effective, to play in any market regardless of size or location.... In the face of such challenges mid-sized retail banks need to look towards business transformation solutions that can provide them with high level of automation in both the front and back office. This will need to be supported by a robust technology platform. Business transformation would provide the mid-sized banks with higher operational efficiency, the ability to tap into new sources of income, scalability, innovation, agility and moreover a lower total cost of ownership (TCO) of their IT infrastructure.

This paper details the various traditional approaches to technology led transformation. It highlights why mid-sized and small banks would benefit from technology solutions that come with integrated implementation framework comprising of essentials like pre-configured banking products, processes, templates and detailed documentation.

The paper also highlights the various features a bank-in-a-box solution provides and explains why in its optimal form bank-in-a-box will be a dynamic solution that evolves with the changing needs of banks thus arming them with the knowledge of best banking practices, processes and standards.

Banking the Unbanked: Going Mobile

A new billion-strong segment is slowing emerging today which is increasingly catching the attention of banks worldwide. This segment includes those unbanked people whose requirements for financial services ... has remained unsatisfied due to reasons like lack of steady and substantial income or limited access to banks due to dwellings in remote areas. Though these consumers need access to banking for savings, loans and microfinance, they do not have bank accounts. The challenge for banks is to service this segment and to do so profitably in the existing environment.

Mobile and e-banking solution is emerging in a big way as it enables convenient, fast, simple and secure branchless banking. By leveraging the mobile Short Message Service network, which will quickly and cheaply provide SMS-driven banking services in unbanked areas, banks can increase their outreach. Banks, thus, need a solution vendor who provides the right IT infrastructure which will enable mobile banking in becoming a success.

This paper provides an insight into the special needs of the unbanked population and also gives a detailed checklist of a mobile banking solution’s architecture and functionality that a bank needs to look into.

Championing the Customer Cause at the Bank

Managing customers is of prime importance and this realization has placed customer management at the core of all other strategies that are being devised by banks. Banks all over the world are making a visible effort ... in moving from being product-centric to becoming customer-centric. But, banks need to understand that customer-centricity is not about just wanting to strengthen relationships with customers. Nor is it about having a customer strategy which unequivocally states that customers are a bank’s most important asset. To achieve customer-centricity it is important that everyone in a bank realizes that each fragment of information about a customer should be recorded, analyzed, understood and then re-used to not only develop meaningful responses but also to address the needs of that particular customer. Progressive banks would do well to capitalize on some key initiatives like taking customer management and related issues straight into the board room, charting robust customer strategies and effectively managing shifting customer demographics.

There is an increasing diversity in demographics even within a local region and this is opening up a whole new world of challenges and banks need to become highly successful in exploiting the potential of any region. This paper explains the various factors banks should focus upon in order to ride the continuous demographic transitions that customers go through.

Olympic Growth Retail Banking in China

China’s banking sector is growing enormously akin to the country’s economy. It has been estimated that 30% of future growth and profitability will come from retail, small business lending and fee-based lending.... This is why domestic players and foreign banks are fighting tooth and nail to dominate the Chinese retail banking industry. Until a few years ago the banking sector of China had maintained a very conservative approach but today’s zooming economic growth coupled with wide-scale liberalization policies has thrown open numerous financial service options to the Chinese. Experts feel that to reap early profits and reduce the time required to understand the market foreign banks will need to enter into partnerships with local banks. Chinese banks also need to attract the vast population of unbanked customers, provide innovative products for different sections of people and incorporate efficient risk management processes.

In order to comprehend the Chinese banking sector one needs to study the growth of retail banking products as well as understand what might be the key future trends in the retail banking scenario in China. This article examines the booming banking sector in China and takes a look at the players, products and prospects.

Can Usability Improve Productivity in Banking?

Today, every major bank has invested largely in IT or has lined up plans for major investments. Banks look towards IT to improve productivity, operate in a global scenario and offer services in a wider market around-the-clock.... The organizational aim for higher productivity can be achieved only if end users of a product are able to use it to its full extent; in the manner it is best intended. Users should be able to learn the software and get productive quickly. Requirement is for software that lets the user create ‘n’ number of customers per hour increasing productivity of the bank by leaps, as compared to software that lets the user create only a fraction of that. A usable product is one that is easy to learn, increases users’ efficiency, minimizes user-errors and guides the users to resolve errors when they commit any. This will result in subjective satisfaction for users. That is, higher the usability higher shall be the productivity of employees. Productivity is basically a measure of the efficiency of production. Software that increases productivity also adds to the banks’ return on investment (ROI).

This paper looks into the main quality components that define usability to its essence. Usability includes all features that make the software usable for its intended users and paper emphasizes that the software is on target only if users can accomplish their intended tasks satisfactorily with the software.

Transforming to Win

Globalization, demographics, technology and regulation – these factors have made the world a flatter place. Banks need to achieve a shift in their strategic and operational priorities and this can only be done... if they effectively leverage technology. The requirement of the day is that banks should create a technology ecosystem that surrounds the business needs. In order to do so banks should change their approach to upgrading technology by moving from core banking replacement strategy to core banking led transformation strategy. The perfect technology framework would be one that goes beyond mere technology enablement and drive banks towards making strategic shifts in order to win in the flat world. Such a framework should offer banks a process roadmap to move towards the flat world through logically phased integration. This paper highlights the various lifecycle stages that provide a flexible approach to lead the transformation initiative, from visioning to deployment.

Successful banks are those that have understood the potential of new technologies and aligned themselves with able partners to fully leverage its power. These banks have focused on adaptive changes that make the technology transformation process successful. The paper details why transition of the vendor to ‘trusted transformation partner’ with end-to-end capabilities and credentials is vital and describes the key aspects that should drive vendor selection.

Can Emerging Economies Bank on TV?

As banks reap the benefits of non-branch service delivery channels that came of age in the recent past, their quest to expand reach via innovative offerings never ceases. Banking services made available via television media ... have been one such innovation. Banking industry analysts had initially written off this mode of service delivery for advanced geographies, primarily quoting the bright future of Internet/PC paving the way for internet banking as the preferred option over television as the reason. However, most banks have realized that online banking channel feats can only be complemented by using ubiquitous presence of television infrastructure as a viable channel. T-Banking is about exploiting television’s existing reach into households as a viable banking service delivery channel. The commercial applications that can be further built on top of this platform could enable users to perform T-Commerce activities like paying for tele-shopping, making bill payments et al.

This paper highlights some published trends on the internet, that showcase the potential of T-Banking and T-Commerce market, particularly for India. There is also a description of how bankers can exploit the innumerable T-banking and T-commerce opportunities that are present in the market and what are the channel adoption risks and remedies.

BPM, Not Just Another Technology Fad

Business processes control and describe how business is conducted internally and externally in terms of data and information flow, and also details the interactions between individuals and partners... with the concerned organization. However, business processes are complex in nature, span across multiple systems and involve interactions across several business units and trading partners. So to keep a particular process operating smoothly, employees devise workarounds and links between applications such as manual transfer of data, telephone conversations, fax, email or simply face-to-face meetings. Unfortunately, this is a sub-optimal solution as organizations are not able to achieve maximum operational efficiency, nor are they equipped to deal with change if business processes evolve, as they inevitably do. Now a new approach labeled Business Process Management (BPM) is emerging which is essentially an approach to effectively automate and manage cross-functional processes by orchestrating people and applications using supporting software tools. But, it is important to realize that unlike other technology trends, with BPM, ‘IT’ does not take precedence over ‘business’. Technology does not dictate the way a firm’s processes are structured. Rather, it is a collaborative approach between business and technology.

Paper discusses the various benefits that an efficient business process management system will bring to the bank that deploys it. A point of focus is how BPM has grown from being a mere concept to becoming an essential in the banking industry.

Strategic Agility Planning for Banks

The growing banking industry needs greater agility to address challenges such as vulnerability to economic cycle vagaries, transient customer loyalties, increasing regulatory pressures and heightened expectations from other stakeholders.... Also, agility is required for harnessing new opportunities such as Mergers and Acquisitions (M&A) and new product segments. Thus, banks need to carefully factor-in agility into their ‘Business-As-Usual’ (BAU) philosophy.

Agility is a mean to achieve and sustain high performance on accounts such as customer base, employee satisfaction, IT infrastructure. An agility framework, if adopted effectively, can provide banks with a structured, mutually exclusive and exhaustive set of methodologies to initiate, measure, track and monitor agility programs. Banks while adopting an agility framework should keep in mind challenges faced by the same which vary from proactive tracking of drivers to controlling the spill-over of program indicators such as time and cost. A comprehensive framework will help banks overcome such challenges.

This thought paper provides an insight into the various components an agility framework should encompass. Paper also highlights the importance of an agility dashboard for keeping the stakeholders informed and with the help of case studies, illustrates the different focus areas in developed vs. developing countries.

Understanding the Role of Technology in Anti-Money Laundering Compliance

Today, money laundering has become a key funding mechanism for international religious extremism and drug trafficking, and curtailing these illegal activities has become an important focus.... These activities pose a serious threat to financial institutions present worldwide. While many Anti-Money Laundering (AML) solutions have been in place for some time within the financial community, the efficiency with which these older AML solutions were able to detect, alert and prevent potential money laundering schemes was dependent on the quality of the data collected by the financial institution and the capabilities of the tools that were tasked with analyzing that data. As a result, a “second” generation of AML technologies has emerged with the ability to monitor every single transaction, discover various types of unusual behaviors and alert officials to the activities that represent true risk to the financial enterprise. These “intelligent enterprise system” are able to learn and adapt, comprehending new money laundering schemes as they arise. They take an enterprise-wide approach, determining every transaction that is unusual, as opposed to looking for a specific patterns or behavior, while analyzing both the client profile and the transactions undertaken by the financial firm.

The paper discusses in detail the key risk assessment components that these systems use.

The Adoption of Web Based Cash Management Systems

The ever growing internet is finding its foothold in the banking industry as retail customers are quickly coming to realize the advantages and benefits. It is not surprising that banks and their corporate customers have begun jointly ... to explore the mutual benefits that could possibly accrue to them by leveraging the Internet. Over the years we have seen a strong shift, in some parts of the world at least, from text-based systems to computer-based solutions and finally to the present situation, namely, Web-based cash management systems. As the demand to move from a thick-client to a thin-client system increased among corporate clients, it is natural to expect that customers would want to have and retain every bit of functionality around the traditional services of collections, payments and reporting and this is where Web-based management system comes into picture.

Web- based management system can be used for multiple operational front-end systems such as customer relationship and branch banking and this is precisely the reason why large numbers of leading companies from different industries are investing heavily in this region.

This paper describes the advantages a Web-based management has for both - the customers as well as the banks and how technology can be an enabler for a smooth- transitioning to a more efficient processing architecture.

How will web services impact cash management?

Businesses, today, are increasingly valuing agility in their processes and systems, and past models of monolithic application design are no longer effective. One way of increasing agility is to leverage the twin advantages... of a Web services-based architecture – openness and modularity. Web services improve the flexibility and reach of existing IT infrastructure enabling businesses to fundamentally change the manner of enterprise application development and deployment. Web services attempt to address the problem of integration, though many banks have been reluctant to adopt such new technology.

In its specific implementation in the cash management process, the role of web services in large banks is to provide better integration of data and ensure better interaction between legacy and newer technologies so as to protect investments. Simple web services were initially expected to aid projects that leverage on the characteristics of Internet-enabled computing to showcase applications that have an outward (inter-enterprise) focus; later the requirement was for facilitating what is termed “global collaboration”. However, this requires buy-in from senior management of the potential of web services architecture, and needs management’s shared vision of the long-term business advantages.

This article is an executive’s guide to web services and how they are likely to impact the cash management function in financial institutions.

Australian Banking - Retail Assets - Part 3

The banking industry is characterized by intense competition and information transparency. With a gamut of changes happening that are driven by customer, regulator and competition, it is certain that the retail banking ... and its role in banking & financial sector is changing fundamentally. Retail banking is also becoming highly regulated. Participants need to comply with numerous "consumer protection" statutes such as the Consumer Credit Code, Privacy Act, and Trade Practices Act. Also, organizations may be subjected to a number of industry codes of practice such as The Code of Banking Practice, The Building Society Code of Practice et al.

This paper discusses the operational aspects of a one specific retail asset - loans, with Australian market as point of focus. It covers all the stages of a loan account starting from customer eligibility, to processing a customer’s loan application to fees and charges associated to a loan account.

Paper also elaborates the system features that users expect from usability perspective and thereafter, provides a summary of regulatory and compliance related practices.

Australian Banking - Retail Assets - Part 2

The banking industry is characterized by information transparency that is forcing banks to build a high performance culture centered on the customer. To better manage the retail banking customer experience... the banking industry needs to empower the IT that supports their bank’s alignment around retail banking customer. Building a high performance culture centered on the customer and driving the customer experience requires banks to consider a combination of convenience, value and service. They need a broader transformation to be truly customer centric organizations.

Retail Banking is becoming highly regulated and the retail banking products are also becoming more sophisticated with changing delivery channels. Reasons for these are mainly convergence within the industry, increased competition, technological advances and an explosion of financial products in the market. Retail banking products in some instances can be activated and deactivated at the request of the customer and customers may incur a fee each time they are switched on or off. This section details the majority of the product attributes which generally are applicable across the range of loan types, focus being on the Australian market.

Australian Banking - Retail Assets - Part 1

Australian banking industry has been experiencing enormous changes driven by deregulation process and increasing competition as now non-banking financial institutions are offering products... and services that were traditionally a domain of banks. Deploying IT systems will only help in managing the retail banking customer experience. Increasing competition demands better service as well as pricing and when revenue growth is difficult, lenders must lower costs to meet profitability expectations. With lower volumes forcing lenders to keep a close eye on the cost side of the cost-income ratio, the focus is on operational efficiency, improved time-to-market and customer service.

The objective of this paper is to introduce the reader to the philosophy and operations of retail assets within retail banking industry in Australia, the processes and environment in particular under which the banks operate while giving a general overview of the products with regard to the operational aspects. This paper is part 1 of a 3-part series. The subsequent parts have been updated at this same location.

Technology

Best Practices in Test Management for Product Testing

The changing dynamics of business is bringing about a paradigm shift in the way organizations ensure reliability, security and predictable performance of their IT solutions.... The price of failure is high; defective solutions impact revenue, profit and customer loyalty, thus affecting business competitiveness. Today, a software product is that critical bridge between the organization and its customers and partners. The availability, reliability performance and security of applications are key to the organization’s performance and success. It is therefore imperative that the testing of a product uses validation methodologies to consistently deliver high quality solutions.

This paper throws light on how testing for a product differs from that of a project and discusses the challenges existing in a product testing environment. Paper showcases the best practices in project management for a testing project in a product environment and highlights what results can be expected by adopting the key practices discussed.

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