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Banking and automation: how catastrophe led to innovation?

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Banking and automation: how catastrophe led to innovation?

Harri Lauslahti, Head of Banking and Insurance, Digital Workforce explains why UK financial services are surging ahead with automation while their global counterparts lag behind.

Memories of the 2008 financial crash remain fresh for those still in the industry. We’re all familiar with the cause; an overheated housing market stoked by unscrupulous lending to borrowers who couldn’t afford to borrow and the re-selling of these loans through obscure financial instruments that burrowed their way through the global financial system.

Harri Lauslahti

Harri Lauslahti

Thankfully global catastrophe was averted, just. Perhaps what we’re not so familiar with is how the crash paved the way for a technological revolution in the banking and finance sector, with the industry embracing innovative solutions, such as Robotic Process Automation (RPA) to keep costs down and increase business efficiency. This was driven by the wave of legislation that swept through financial institutions as governments sought the bolster the shaky global banking system. Many banks decried the legislation saying it tied their operational hands with unnecessary paperwork which would impact on customers.

In some cases legislation was watered down but forward looking organisations began to cast around for solutions and RPA was one of them. It addressed a lot of concerns by automating critical business processes with the use of software ‘robots’ or as some like to say Artificial Intelligence (AI) workers. Some financial companies were quick to catch on realising that at its simplest software robots learning from prior decisions and data patterns to make informed decisions was the ideal tool for automating costly and time consuming manual processes.

UK leading the charge

Since the post-crash days RPA adoption has been steadily gaining ground to the point where one in four UK organisations have adopted it with more planning to follow suit. And somewhat surprisingly it’s the UK that is leading the way. A recent PwC survey,‘PwC Global Fintech Report 2019: UK financial services firms trailblazing on automation efforts’, revealed that 37 per cent of UK respondents have implemented RPA compared to 28 per cent globally. The rationale is straightforward; harnessing the technological advancements of RPA gives firms greater leverage to retain existing customers, poach new ones and steal a march on rivals.

Banking and financial institutions deal with millions of customer documents and information collected from multiple sources. In just one simple example a credit card company validating customer information for a credit card needs to verify multiple documents. When carried out manually, this process can take days. It’s not only labour intensive but costly and can also have a negative impact on the customer experience. Financial organisations have a plethora of these manual, repetitive processes across many functions ranging from customer service to mortgage processing, deposits, fraud detection and many more.

And many of these processes are ripe for robot automation. For instance RPA can be introduced into the fields of risk and compliance, financial administration, sales, mutual funds and life insurance and contact centres.  For instance if we look at risk and compliance the most valuable automations include Anti-Money Laundering screening, Know your Customer functions, authorities’ inquiries,  payment transaction monitoring, the audit trail and compliance.

Winning customers

The sales process in branch operations is also another area ripe for RPA, especially on mobile devices. This is a winning move with customers. For instance, software robots can enable a faster response to customer requests, process online loan applications, complete pre-handling of mortgage applications and deliver fast credit applications. This can also include loan certificates, overdraft notifications, rescheduling of loan payments and month-end closing procedures.

Faced with this welter of manual processes and more effective technology options it’s hardly surprising that UK financial services in general is adopting RPA at a pace. For instance, increasing numbers of insurers use RPA in claims processing to speed things up and deliver greater customer satisfaction. In fact, in the insurance sector RPA is rapidly becoming the established modus operandi for claims processing.

Other firms in financial services are turning to RPA to reduce costs, provide better customer service and even make complex regulatory implementations work more efficiently. For instance there is certainly a gathering groundswell among shared services, finance, and operations teams at banking and capital markets.

Improving one-to-one customer interactions

One of the ‘hidden’ benefits of RPA that isn’t widely known is that it doesn’t require heavy lifting from IT teams, that is,traditional systems integration isn’t usually required.  The software can simply be installed on an end user’s laptop, obviating the need for developer configuration, and it can be managed from a central server.

However, the larger question is with UK organisations leading the charge towards RPA adoption why aren’t their global counterparts following suit? The PwC survey provides a strong hint. It reveals that UK financial services rank personal one-to-one contact with customers highly as an objective to be achieved while personal digital contacts is the least important of their objectives.

This strongly suggests that RPA usage is designed to improve back-office processes in order to provide a better personal customer experience at the front office. In contrast their counterparts abroad rank personal human contact as 10 out of 11. In turn, this strongly indicates that they are yet to realise the true value of using RPA as an important technology that can galvanise and grow their customer base. They are truly missing out.

Banking

ECB stays put but warns about surge in infections

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ECB stays put but warns about surge in infections 1

By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) – The European Central Bank warned on Thursday that a new surge in COVID-19 infections poses risks to the euro zone’s recovery and reaffirmed its pledge to keep borrowing costs low to help the economy through the pandemic.

Having extended stimulus well into next year with a massive support package in December, ECB policymakers kept policy unchanged on Thursday, keen to let governments take over the task of keeping the euro zone economy afloat until normal business activity can resume.

But they warned about a new rise in infections and the ensuing restrictions to economic activity, saying they were prepared to provide even more support to the economy if needed.

“The renewed surge in coronavirus (COVID-19) infections and the restrictive and prolonged containment measures imposed in many euro area countries are disrupting economic activity,” ECB President Christine Lagarde said in her opening statement.

Fresh lockdowns, a slow start to vaccinations across the 19 countries that use the euro, and the currency’s strength will increase headwinds for exporters, challenging the ECB’s forecasts of a robust recovery starting in the second quarter.

Lagarde saluted the start of vaccinations as “an important milestone” despite “some difficulty” and said the latest data was still in line with the ECB’s forecasts.

She conceded that the strong euro, which hit a 2-1/2 year high against the dollar earlier this month, was putting a dampener on inflation and reaffirmed that the ECB would continue to monitor the exchange rate.

The euro has dropped 1% on a trade-weighted basis since the start of the year, but is up nearly 7% over the last 12 months. Against the U.S. dollar, that number rises to over 10%.

MORE STIMULUS?

Opening the door for more stimulus if needed, Lagarde confirmed the ECB would continue buying bonds until “it judges that the coronavirus crisis phase is over”.

Lagarde also kept a closely watched reference to “downside” risks facing the euro zone economy, which has been a reliable indicator that the ECB saw policy easing as more likely than tightening.

But she signalled those risks were less acute, in part thanks to the recent Brexit deal.

“The news about the prospects for the global economy, the agreement on future EU-UK relations and the start of vaccination campaigns is encouraging,” Lagarde said. “But the ongoing pandemic and its implications for economic and financial conditions continue to be sources of downside risk.”

Lagarde conceded that the immediate future was challenging but argued that should not impact the longer term.

“Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term,” Lagarde said.

Benign market indicators support Lagarde’s argument. Stocks are rising, interest rates are steady and government borrowing costs are trending lower, despite some political drama in Italy.

There is also around 1 trillion euros of untapped funds in the Pandemic Emergency Purchase Programme (PEPP) to back up her pledge to keep borrowing costs at record lows.

The ECB has indicated it may not even need it to use it all.

“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” Lagarde said.

Recent economic history also favours the ECB. When most of the economy reopened last summer, activity rebounded more quickly than expected, indicating that firms were more resilient than had been feared.

Uncomfortably low inflation is set to remain a thorn in the ECB’s side for years to come, however, even if surging oil demand helps put upward pressure on prices in 2021.

With Thursday’s decision, the ECB’s benchmark deposit rate remained at minus 0.5% while the overall quota for bond purchases under PEPP was maintained at 1.85 trillion euros.

(Editing by Catherine Evans)

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Bank of Japan lifts next year’s growth forecast, saves ammunition as virus risks linger

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Bank of Japan lifts next year's growth forecast, saves ammunition as virus risks linger 2

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – The Bank of Japan kept monetary policy steady on Thursday and upgraded its economic forecast for next fiscal year, but warned of escalating risks to the outlook as new coronavirus emergency measures threatened to derail a fragile recovery.

BOJ Governor Haruhiko Kuroda said the board also discussed the bank’s review of its policy tools due in March, though dropped few hints on what the outcome could be.

“Our review won’t focus just on addressing the side-effects of our policy. We need to make it more effective and agile,” Kuroda told a news conference.

As widely expected, the BOJ maintained its targets under yield curve control (YCC) at -0.1% for short-term interest rates and around 0% for 10-year bond yields.

In fresh quarterly projections, the BOJ upgraded next fiscal year’s growth forecast to a 3.9% expansion from a 3.6% gain seen three months ago based on hopes the government’s huge spending package will soften the blow from the pandemic.

But it offered a bleaker view on consumption, warning that services spending will remain under “strong downward pressure” due to fresh state of emergency measures taken this month.

“Japan’s economy is picking up as a trend,” the BOJ said in the report, offering a slightly more nuanced view than last month when it said growth was “picking up.”

While Kuroda reiterated the BOJ’s readiness to ramp up stimulus further, he voiced hope robust exports and expected roll-outs of vaccines will brighten prospects for a recovery.

“I don’t think the risk of Japan sliding back into deflation is high,” he said, signalling the BOJ has offered sufficient stimulus for now to ease the blow from COVID-19.

NO EXIT EYED

Many analysts had expected the BOJ to hold fire ahead of a policy review in March, which aims to make its tools sustainable as Japan braces for a prolonged battle with COVID-19.

Sources have told Reuters the BOJ will discuss ways to scale back its massive purchases of exchange-traded funds (ETF) and loosen its grip on YCC to breathe life back into markets numbed by years of heavy-handed intervention.

Kuroda said the BOJ may look at such options at the review, but stressed a decision will depend on the findings of its scrutiny into the effects and costs of YCC.

He also made clear any steps the BOJ would take will not lead to a withdrawal of stimulus.

“It’s too early to exit from our massive monetary easing programme at this point,” Kuroda said. “Western economies have been deploying monetary easing steps for a decade, and none of them are mulling an exit now.”

(Reporting by Leika Kihara and Tetsushi Kajimoto; additional reporting by Kaori Kaneko; Editing by Simon Cameron-Moore & Shri Navaratnam)

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World Bank, IMF agree to hold April meetings online due to COVID-19 risks

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World Bank, IMF agree to hold April meetings online due to COVID-19 risks 3

WASHINGTON (Reuters) – The International Monetary Fund and the World Bank have agreed to hold their spring meetings, planned for April 5-11, online instead of in person due to continued concerns about the coronavirus pandemic, they said in joint statement.

The meetings usually bring some 10,000 government officials, journalists, business people and civil society representatives from across the world to a tightly-packed two-block area of Washington that houses their headquarters.

This will be the third of the institutions’ semiannual meetings to be held virtually due to the pandemic.

(Reporting by Andrea Shalal; Editing by Chris Rees

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