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Innovation in commercial banking: what’s the status?

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Innovation in commercial banking: what’s the status?

Over the past decade, the banking industry has made great strides when it comes to providing customers with better digital experiences – thanks in part to the rise of innovations like cloud computing and APIs. Increased competition from startup fintechs has also motivated banks to offer a broader range of digital products and services.

Despite the strides being made, the banking tech revolution has been largely targeted only toward retail clients leaving commercial clients to deal with inefficient, paper-based processes. For example, commercial clients are often forced to send the same piece of documentation multiple times to different internal bank departments just to set up one account.

The lack of innovation in commercial banking is somewhat counter-intuitive because commercial customers represent billions of dollars in assets – far more than the typical retail customer. These billions of dollars are often crossing multiple siloed systems via processes that are cobbled together piecemeal. The end result is a sluggish and frustrating experience for some of banks’ largest customers.

Challenges in commercial banking

According to a 2018 commercial banking customer survey, more than three-quarters of company executives polled responded that commercial banks should make investing in new capabilities their top priority. But with the IT infrastructure that is currently in place – infrastructure that is older than the legacy tech on the retail side in most cases – it is nearly impossible for most commercial banks to deliver the kind of experience their clients have come to expect.

For commercial banking customers operating on a global scale, dated banking infrastructure poses a particular set of challenges when it comes to making cross-border settlements. To help chip away at these challenges, the industry needs to address the ways in which data is shared and how systems communicate with one another.

Another challenge is banks may not fully understand the cost of not investing in innovation. Ernst & Young notes that digitization is lacking in commercial banking in large part because of “management’s reluctance to consider strategies that will be costly in the short term, even if they will drive long-term success.”

Reimagining the customer experience &leaving legacy tech in the past

By investing in financial technology and implementing a system with robust digital capabilities, commercial banks can revolutionize the large-scale customer experience. More and more, retail customers currently enjoy easy movement of money and a seamless digital experience in their personal lives, so why make them revert back to the old ways of mailing in paper checks when it comes to corporate accounts?

Some banks are realizing this disconnect and are forging ahead with making investments in the digital experience for commercial clients. For example, JP Morgan Chase rolled out a new client portal a little over a year ago, with features like a color-coded dashboard and greater insight into payment status and cash flow. ING is another that has made commercial banking a priority, investing in technologies such as artificial intelligence and blockchain.

Improving the legacy architecture that powers commercial payments means looking beyond just the customer experience. Maintaining and constantly bolting middle-ware onto legacy architecture is costly and time consuming for IT staff. Some estimates say banks spend as much as 75% of their IT budget on maintaining legacy systems. Without the added internal costs and time spent making updates to dated tech, banks could shift their focus to becoming more flexible to adapt to future needs.

As Deloitte puts it, innovation and disruption will not only transform how established commercial banks service their clients, but it will also reshape what their clients come to expect. “Commercial banks that succeed will put retention of the client interface and delivering increased levels of client value through customized and tailored services at the top of their transformation agenda,” the consulting firm writes.

It’s hard to argue with that. Now is the time to invest in modern IT architecture for commercial banking to both meet customers’ expectations and eliminate internal inefficiencies.

About John Mitchell:

John Mitchell is the CEO of Episode Six and an expert in the payments industry, with decades of experience in leading and growing startups. Prior to co-founding Episode Six, John was the CEO of Rêv Worldwide. Prior to Rêv, John was at NetSpend Corporation where he was the primary architect and strategist of NetSpend’s sales and distribution strategy.

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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