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Delivering services to the unbanked through Corresponsal Banking

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Mike-Alford
By Mike Alford, CEO of Alaric International

Central and Latin America are seeing the rapid growth of ‘corresponsal banking’. This is where retailers, with a wide geographic presence outside of the urban centres, are using a correspondent relationship with major banks to provide a broad and increasingly diverse range of banking services at the point of sale. Mexico is leading the charge and its citizens are benefitting from the convenience that corresponsal banking offers.Mike-Alford

Mike Alford the CEO of Alaric International believes that this trend points the way for many Western economies.  However, corresponsal banking organisations now have rigorous demands for the payment systems required to support such an increasing range of services.  With Alaric’s Authentic payment system already meeting these criteria with Central American retailer Grupo Sanborns, he draws on his own company’s experience to explain the benefits and demands of this retail based form banking service provision.

The payments market in Central and Latin America has some special characteristics which may serve to inform or even inspire developments in other parts of the world. Most governments in the region want to encourage their populaces to become banked to improve money circulation, to foster economic growth and, last but not least, to enable them to get a level of control over the cash economy and thus improve tax revenues.

Taking Mexico as just one example, there is a large unbanked population, with just 25 million bank account holders out of a total population of 120 million. Thus, with the proliferation of mobile phone usage (in total some 70 million handsets in Mexico) cell companies are vying to offer mobile banking services and to encourage their clients to become banked.

In addition, the banking infrastructure is predominantly urban in all the region’s countries. Mexico is no exception. Consequently, there is little in the way of a traditional branch network in remote locations or in those areas with difficult terrain. With only about 150 branches per million population in Mexico compared to nearer 400 or more in countries like the United States, Germany or France, the limited branch network is a serious handicap in reducing the unbanked population.  With the Mexican government’s active encouragement, this has given rise to the concept of ‘corresponsal banking’.

Corresponsal banking enables retailers with a wide geographic presence to have a correspondent relationship with one or more banks and therein to enable their clientele to perform a range of banking transactions in-store at the point-of-sale.At the most fundamental level,this delivers services such as balance enquiries, transfers, bill payments and also withdrawals. And it is important to note that these are account based banking services and not just an extension of the standard card transactions.

It has proved be a very popular development and as a result there has been significant growth in the provision of these retail based banking services. Many people prefer to withdraw money in-store rather than from a street-side ATM due to concerns about the risks of mugging and other criminal activity in exposed external locations. The long opening hours (for instance 7am to midnight) and weekend opening of the retail stores allows people to access their funds day and night, within the comfort and security of their local store.

Another noticeable sign of the success of this approach is the proliferation of services now available in-store. Some of these services are standard banking functions such as withdraw cash, pay in cash, cash cheques, transfer funds between accounts or get an account balance. But they are extended with a large range of functions.  Bill payment services such the payment of credit card bills, loan installments, utility bills and insurance premiums are common.  And some specific functions are also available such as the purchase of mobile phone top ups or paying for airline tickets.  So the retail store is providing the full gamut of banking services a consumer would expect to find in a bank branch.

The challenge for retailers like Sanborns is the need to handle traditional card based shopping transactions that will be authorised through the mainstream card processing channels, the retailer gift card or store card purchases which will be managed by the retailer themselves or a processor acting on their behalf and these more complex banking payments which need to be channelled to the specific bank involved.

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However, the benefits to the retailer of delivering these services are significant as they will attract customers into the stores with the opportunity to engage them in sales activity.  Although there is the additional complexity of training staff and deploying systems to handle these additional transactions, the additional footfall created and sales generated outweighs these challenges.  And there is a fee income stream generated for these banking services.

For the banks involved, extending their reach through partnerships with retailers allows them to grow their customer base without the significant cost of creating bank branches.  The major retail chains have typically thousands of outlets, a network that would be unachievable for any bank.  So the fees payable to the retail chain are a financially viable route to enabling wide access to the bank’s services.  The bank still needs to ensure its products and services are promoted in all regions to drive new customers.  And as these previously unbanked consumers become comfortable with making use of the banking system, there is the opportunity to engage with them through phone or internet banking or, more likely, mobile banking.

With the availability of systems capable of being deployed in-house to support the increasing sophistication of corresponsal banking, the chances are that its spread will continue. It is also fair to say that whilst the populations of Central and Latin American may remain relatively unbanked in the traditional sense, the facilities offered in such countries will continue to be more advanced than those in some other Western countries.

 
 
 
 
 
 
 
 
 
 

Banking

What banks need to know about observability

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What banks need to know about observability 1

By Abdi Essa, Regional Vice President, UK&I, Dynatrace

More aspects of our everyday lives are taking place online  from how we work, to how we socialise and, crucially, how we bank. To keep pace, financial organisations have stepped up their digital transformation efforts, supported by a shift to dynamic multicloud environments and cloud-native architectures. However, traditional monitoring solutions and manual approaches cannot keep up with these vast, highly complex environments. As a result, many banks are turning to new, observability-based approaches to understand what is happening in their digital ecosystems. These approaches, however, bring new challenges to overcome.

Here are six things banks need to know about observability to ensure they can gain true value, combat the complexities of their modern multicloud environments, and drive digital success in 2021 and beyond.

  1. Most banks have very limited observability

The scale, complexity, and constant change that characterises hybrid, multicloud environments presents a real challenge to banks’ IT teams. Our research found that, on average, banking digital teams have full observability into just 11 percent of their application and infrastructure environments – not nearly enough to understand what is happening, and why, across the digital ecosystem. Additionally, 87 percent said there are barriers preventing them from monitoring a greater proportion of their applications – including limited time and resources. Without improving observability across the entire cloud environment – by drawing in metrics, logs, and traces from every application – banks’ IT teams are limited in the success they can have driving initiatives to deliver the new banking products and quality user experience customers want.

  1. You can’t bank on manual approaches

With many banks beginning to rely on more dynamic, distributed multicloud architectures to deliver new services, IT teams are stretched further than ever. More than a third of financial services organisations say their IT environment changes at least once per second, and 65 percent say it changes every minute or less. This rate of change creates a volume, velocity, and variety of data that has gone beyond banks’ IT teams’ ability to handle with traditional approaches – there’s no time to manually script, configure, and instrument observability and set up monitoring capabilities. The need for automation is therefore critical. By harnessing continuous automation assisted by AI in place of manual processes, teams can drastically improve observability to automatically discover, instrument, and baseline every component in their bank’s cloud ecosystem as it changes, in real-time.

  1. Cloud native adoption is obfuscating observability

To remain agile and keep up with the rapid pace of digital transformation, banks are increasingly turning to cloud-native architectures. Our research found 81 percent of them are using cloud-native technologies and platforms such as Kubernetes, microservices and containers. However, the complexity of managing these ecosystems has made it even harder for banks’ IT teams to maintain observability across their environments. Nearly three-quarters of banking CIOs say the rise of Kubernetes has resulted in too many moving parts for IT to manage, and that a radically different approach to IT and cloud operations management is needed. Such an approach should be based on a solution that is purpose-built to auto-discover and scale with cloud-native architectures.

  1. Data silos result in tunnel vision

To boost observability, many banks have simply thrown more tools at the problem. Our research found that most organisations use an average of 11 monitoring solutions across the technology stack. However, more isn’t always better, and multiple sources of monitoring data can result in fragmented insights. This fragmentation makes it harder to understand the full context of the impact that digital service performance has on user experience and unravel the nearly infinite web of interdependencies between banks’ applications, clouds, and infrastructure. Instead, financial organisations should seek a single platform with a unified data model to unlock a single source of truth. This will be integral to ensuring that all digital teams are on the same page, speaking the same language, and collaborating effectively across silos to achieve business goals.

  1. Observability alone is not enough

Simply having observability doesn’t help banks achieve tangible benefits or reach their business goals. To get true value, the data processed must be actionable in real-time. As such, observability is most effective when paired with AI and automation. This observability enables teams to instantly eliminate false positives, prioritise problems based on the impact it will have on the wider organisation, and understand the root cause of any problems or anomalies so they can resolve them quickly. The alternative is to manually trawl through dashboards and data to find insights, which is incredibly time-consuming and makes it almost impossible to act in real-time. Our research found that 94 percent of CIOs think AI-assistance will be critical to IT’s ability to cope with increasing workloads and deliver maximum value to the organisation. AI is clearly no longer just a ‘nice to have,’ but a business imperative.

  1. Observability isn’t just for the back end

Far from just having observability of their multicloud environments, banking IT teams also need to be able to see how the code they push into production impacts the end-user experience, and how that in turn affects outcomes for the business. This is a major goal for many CIOs, with 58 percent citing the ability to be more proactive and continuously optimise user experience as a benefit they hoped to achieve from increased use of automation in cloud and IT operations. By harnessing automatic and intelligent observability, banks’ digital teams can unlock code-level insights and precise answers to their questions about user experience and behaviour, so they can continuously optimise their banking services.

Observability is key for modern financial organisations looking to accelerate their digital transformation. By understanding these six key things about observability, IT teams will be better placed to master dynamic, multicloud ecosystems, and drive better digital banking services for the business and its customers.

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Banking

Hackers can now empty out ATMs remotely – what can banks do to stop this?

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Hackers can now empty out ATMs remotely – what can banks do to stop this? 2

By Elida Policastro, Regional Vice President for Cybersecurity, Auriga

In 2010, the late Barnaby Jack famously exploited an ATM into dispensing dollar bills, without withdrawing it from a bank account using a debit card. Fast forward to the present day, and this technique that is now known as jackpotting, is emerging as a threat and is growing as an attack on financial services. Recently, a hacking group called BeagleBoyz in North Korea have caught the attention of several U.S. agencies, as they have been allegedly stealing money from international banks by using remote hacking methods such as jackpotting.

The reality behind jackpotting

Jackpotting is when cybercriminals will use malware to trick their targeted ATM machine into distributing cash. As this criminal method is relatively easy to commit, it is becoming a popular tool for cybercriminals, and this trend will sure continue in 2021, unless financial organisations implement policies to prevent this and protect consumers.

During this difficult time, when access to cash has never been more important to banking customers, it is imperative that banks give their customers reliable ATMs that work, 24/7, 365 days a year. However, due to the sensitive data that ATMs possess, such as credit card or PIN numbers, they have now become a profitable object for cybercriminals to manipulate. As cybercriminals have been evolving in their efforts of attacking the IP in ATM machines, we will definitely see more jackpotting stories emerge in the coming months, especially with the large return on investment.

How criminals exploit the vulnerabilities found in ATMs

Since ATMs are both physically accessible and found in remote locations with little to no surveillance, this gives an opportunity for criminals to carry out jackpotting, especially with the software vulnerabilities that may exist in many ATMs.

ATM machines have been easily manipulated due to the outdated and unpatched operating systems that they run on. If banks wanted to resolve this issue and update these systems, it would take large amounts of time and money to do so. However, some banks do not have such resource and because of this, cybercriminals take advantage by penetrating the software layers in ATMs and exploiting the hardware to dispense cash.

How can banks tackle this?

As the sector has a complex technical architecture, banking organisations will have to make sure that they have control over the transactions that take place, and this includes the management of security when it comes to communication between various actors. When financial organisations are reviewing their ATM infrastructure, they will also need to protect their most vulnerable capabilities within their cybersecurity. Banks, for example, can encrypt the channels on the message authentication, in the event bad actors try to tamper with their communications.

Because ATM networks need to be available 24/7, banks not only, need to implement greater protection over their systems, but they need to do so with a holistic approach. One action that banks can take is to implement a centralised security solution that protects, monitors and controls their various ATM networks. This way banks can control their entire infrastructure from one location, stopping fraudulent activities or malware attempts on vulnerable ATMs.

Another way for banks to reduce the risk of jackpotting attacks is to update their ATM hardware and software. To do this, they will need to closely monitor and regularly review their machines in order to spot any emerging risks.

What the future holds for the banking industry

As confirmed by the warnings from the U.S. agencies, jackpotting remains a very serious threat for financial organisations. Evidence has also emerged, which shows hackers are becoming more innovative in their tactics. It was reported last year, for example, that hackers stole details of propriety operating systems for ATMs that can be used to form new jackpotting methods.

The emergence of jackpotting highlights the need for banks to actively work to protect their customers’ personal information and critical systems now and for the foreseeable future. In order to stay secure and reduce the risk of attacks, they will need to put in place the aforementioned solutions, which include updating their ATM hardware and software as well as closely monitoring and regularly reviewing their ATMs. As cybercriminals continue to become more innovative in their ways of attacking the machines, the issues mentioned will only continue to rise if they are not addressed. Although the method of jackpotting requires little action from cybercriminals, if financial organisations can implement a layered defence to their ATM security, they can stop themselves from becoming another victim to this type of attack in the future.

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Banking

SoftBank Vision Fund set for new portfolio champion with Coupang IPO

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SoftBank Vision Fund set for new portfolio champion with Coupang IPO 3

By Sam Nussey and Joyce Lee

TOKYO/SEOUL (Reuters) – SoftBank’s $100 billion Vision Fund is poised to have a new number-one asset in its portfolio with the upcoming floatation of top South Korean e-tailer Coupang, furthering a turnaround that has seen the fund yo-yo from huge losses to record profit.

The $50 billion target valuation that Reuters reported this month would likely see the decade-old firm surpass recently listed U.S. food deliverer DoorDash Inc on a roster of assets that also includes stakes in TikTok parent ByteDance and ride-hailers Grab and Didi.

The Vision Fund built up its 37% stake in Coupang for $2.7 billion, mostly at an $8.7 billion post-money valuation, a person familiar with the matter said. The fund is not expected to sell shares in the initial public offering (IPO) that Coupang filed for in New York, the person said, declining to be identified as the information was not public.

SoftBank Group Corp and Coupang declined to comment.

Achieving a $50 billion valuation would add to good news for the fund which is bouncing back from an annual loss in March. This month, it announced record quarterly profit, driven by the listings of DoorDash and home seller Opendoor Technologies Inc and share price rise of ride-hailer Uber Technologies Inc.

HIT PARADE

The fund has written big cheques for late-stage startups to fuel rapid growth, with two-thirds of the value of its portfolio concentrated in 10 assets including Coupang.

The 10 include 25% of British chip designer Arm – to be sold to Nvidia Corp pending regulatory approval – but not stakes in high-profile stumbles like office-sharing firm WeWork.

The fund’s largest assets include its 22% stake in DoorDash, whose share price has doubled since the firm’s December IPO, sending its market capitalisation to $65 billion.

FACTBOX: Vision Fund’s investment hit parade

SoftBank initially invested in Coupang in 2015, adding it to a stable of e-commerce hits that included 25% of China’s Alibaba Group Holding Ltd, before placing it under the fund.

The e-tailer has grown rapidly during stay-home policies while the COVID-19 pandemic has forced other portfolio firms like Indian hotel chain Oyo to scramble to preserve cash.

Analysts see Coupang’s $50 billion valuation as feasible given its first-mover status and as it expands beyond replacing brick-and-mortar retail with a rising number of online channels.

It is the biggest e-tailer in South Korea that directly handles inventory, with 2020 purchases at about 21.7 trillion won ($19.62 billion), showed data from WiseApp.

“The market’s assessment isn’t exaggerated,” said analyst Park Eun-kyung at Samsung Securities. “Coupang’s market leadership is a premium factor.”

($1 = 1,106.1800 won)

(Reporting by Sam Nussey in Tokyo and Joyce Lee in Seoul; Editing by Christopher Cushing)

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