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In 2020 Traditional Banks Will Reclaim The Upper Hand

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In 2020 Traditional Banks Will Reclaim The Upper Hand

By Steve Morgan, Industry Lead for Financial Services EMEA, Pegasystems 

This year, we’ve seen pressures mounting on the traditional banks: challengers have continued to creep in on their territory and the last effects of PPI and changing regulation has been an ongoing headache. On the other hand,the benefits of the latest AI technologies have been felt in myriad ways, and Open Banking has created a variety of new partnerships, to the benefit of both banks and consumers. We’ve come a long way over the last 12 months, so what can we expect to see in the sector as we head into 2020?

Bank branches get immersive

The growth of mobile banking is undeniable. A knock-on impact is the evolution of bank branches into education and financial advisory hubs. Yet, with limited staff, how will banks be able to guarantee that the required expertise to deliver these more complicated services will be available for the customer at their request? Consumers are used to banking on their schedule, so they won’t stand in line and wait anymore. As a result, financial institutions will seek to invest in technology that can facilitate this service offering virtually. For example, customers will be able to seamlessly book appointments online or have conversations via video conferencing facilities with the most appropriate member on staff, at a time convenient for them. Those banks that can do this well, should use this to their competitive advantage.

Micro advisory-focused branches become the norm

Which? recently reported that around a third of the UK’s bank branches have shut within the past five years alone, and the rate at which they are closing will not slow down. The banks that remain will start to concentrate on offering services that necessitate a face-to-face advisory service, mainly those associated with investment and lending advice. Consequently, throughout our cities we are likely to see a proliferation of specialised micro-branches. Included within these branches will be areas where customers can be educated on the latest offers and how best to use online banking tools etc. In addition, there will be private zones for advisory services and less frequently stations where declining volumes of basic transactions can be carried out.

Challengers find it hard to maintain market share

Simplicity is often cited as a USP for new challenger banks. But the unfortunate side effect is that their spread of financial products is somewhat restricted. While many have been able to build up their customer base using clever marketing campaigns, cool apps and excellent customer service, when it comes to retaining them, how can they keep these customers engaged while simultaneously maintaining their pipeline of new customers? In order to maintain their disruption, they will concentrate on refining customer experience and defining their USPs of the future, at the same time as broadening their assortment of products to drive growth of revenues.A significant barrier will be their limited balance sheet. Before they can offer shiny new products, they will need to build up their capital in order to have the ability to sell investment and lending services.

Restructure to thrive

To continue on their digital transformation journeys, banks are moving more of their infrastructure to the cloud and undertaking re-platforming projects. Furthermore, high customer expectations and burgeoning regulatory requirements are forcing them to consider in more detail their strategy for the best way to operate in the world of Open Banking. Over the next twelve months, banks will focus on being fully set up for three key technology areas: product, pricing and data. The effect of this will not be technological alone but will also inspire the restructuring of the business, as banks attempt to minimise organisational silos and establish how technology can be applied to facilitate new business opportunities as well as industry pressures.

So long to overseas operating centres

In the last 15 to 20 years, outsourcing has been viewed as a key lever to reduce your cost base. This was traditionally achieved by a combination of off or near shore cost savings and improved management and technology application. However, AI and machine learning have since arrived on the scene and banks are realising the power that these technologies bring. Often outsourcing would come first and the process and tech automation second. This should now flip for most banks. The result should be fewer customer operations staff and the ability to keep them closer to the customer. Some have already done this and even bringing operations back near or onshore. The benefits are multi-faceted: the elimination of friction effort and cost produced by management/colleague distance and time zone differences being a primary one. In 2020, enhanced AI, automation and next best actions will result in the further consolidation of customer operation centres worldwide.

Retail and commercial banks are grabbing the technology bull by the horns and making the most of the benefits that technologies such as AI have to offer. But we are only at the tip of the iceberg in terms of its true capabilities. At the same time, banks are heading into another difficult year, and part of their success will hinge on how investment in technology is made.As consumers and companies continue to move the vast majority of their banking activity online, it will be interesting to see which financial institutions can keep up with these preferences, and if challengers will continue to make an even bigger dent in the customer base of the traditional banks. If traditional players can get their restructuring right and improve their customer experience, then they shouldn’t have to worry about the competition snapping at their heels.

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? 1

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 2

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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Banking

Five things to look out for in HSBC strategy update

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Five things to look out for in HSBC strategy update 3

By Alun John

HONG KONG (Reuters) – HSBC Holdings PLC will update its “transformation” plan announced a year ago on Tuesday, when the Asia-focussed lender also reports annual results.

As part of its latest strategy, the bank said in February last year it would shrink its investment banking operations and revamp its businesses in the United States and Europe resulting in 35,000 jobs being cut.

HSBC’s pretax profits for 2020 is expected to fall 38% to $8.3 billion, according to analysts’ estimates compiled by the bank, because of the impact of the COVID-19 pandemic.

Here are five key things to look out for in the new plan to revive its growth —

1. How will HSBC boost fee income?

The bank has promised details of its plans to make more money from the fees it earns from selling products to customers than it does by pocketing the difference between the interest rates it offers savers and charges borrowers.

This could involve selling more products to wealth management clients, charging corporate clients in different ways, and maybe even charging retail clients for basic banking services.

2. What do the plans to double down on China and Asia mean?

HSBC intends to refocus resources from elsewhere on what it calls its “high returning Asia business”, but investors want to know what this means in practice for markets and business lines.

Politics could make this harder. HSBC has been attacked by British lawmakers for assisting Hong Kong police with investigations into pro-democracy activists, including freezing some bank accounts.

CEO Noel Quinn said last month the bank had to comply with police requests and he could not “cherry-pick which laws to follow”.

3. Will HSBC resume paying a dividend?

HSBC has not announced a dividend since the third quarter of 2019, on instructions from the Bank of England. This angered retail investors in Hong Kong who tried unsuccessfully to have the policy changed.

The regulator has since lifted the ban, and British rival Barclays said Thursday it would pay a dividend of one pence a share. However, despite beating analyst expectations with its 2020 results, Barclays shares fell as a vague outlook without profit targets left investors underwhelmed.

HSBC investors will be looking beyond the day’s numbers for concrete commitments towards improved returns and a more positive outlook for key economies.

4. How will HSBC shrink its U.S. and European footprint?

HSBC’s French high street banking operations are up for sale, but it has had trouble finding a buyer.

The market is due an update on whether HSBC has managed to find a buyer on terms it will accept, or whether it will seek to wind the business down more gradually.

HSBC will also give details of how it will accelerate its existing efforts to shrink assets, staff and branches in the U.S., which accounted for 0.5% of the group’s pre-tax profit in the first half of last year.

5. More job cuts on the way?

HSBC employed 307,000 people at the end of 2010. The bank’s management said last year it was aiming to reduce the headcount of 235,000 closer to 200,000 by 2023. Investors want to know whether the new plan will mean deeper cuts. Nearly every new strategy launched by HSBC in the past decade has resulted in fewer people being employed by the bank.

(Reporting by Alun John; Editing by Sumeet Chatterjee & Shri Navaratnam)

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