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Bob Graham, SVP & Head of Banking & Financial Services, Virtusa

The pace of disruption in banking continues on a near weekly basis, creating challenges for banks to retain front of mindshare, and preserve and retain their customer base.  Consumer banks are threatened in nearly every traditional product area from upstarts and more nimble competitors, to  non-bank players that are disrupting the traditional interaction model between the bank and the customer.  Take a look at the Apple Pay announcement.  Most reports had banks breathing a sigh of relief because Apple chose not to change the core transaction model involving the card companies and the banks. Instead, Apple essentially layered a new front end on top, and it will use the existing rails of credit card processing, thereby preserving the precious fees card companies and banks make.  Announcements touted first-mover banks that were participating (JPMC, Bank of America, Wells Fargo, Capital One, and Citi etc.) and indicated roughly 500 others that were rushing to join the fold.

More mobile payments should be a good thing for banks but there are several reasons why banks should be worried. Firstly, Apple has inserted itself squarely into the payments game and has done something that the banks and card companies have struggled to do for years – create customer excitement and adoption around mobile payments.  Over a million customers enrolled in Apple Pay within the first few weeks. The retailer Whole Foods says it has seen over 150,000 transactions and McDonalds reports that Apple Pay has captured 50% of the tap to pay transactions.  The banks themselves are highlighting their support of Apple Pay on their websites.  More importantly – merchants are touting that they accept Apple Pay.   I would suggest this is the first of what is a major disruption to the system.  Apple has clearly stated that it is not tracking transaction data, hence at present; it will not provide any features tapping into rewards and loyalty.  Look for others to jump into the fray to create applications that bring this value added feature to the forefront.

Secondly, Apple has thrust mobile payments into the consumer consciousness and is spurring adoption.   There are multiple other mobile payment initiatives out there which are coming to market (MCX, Softcard, Visa etc.) and there will certainly be others that have not yet been conceived of today.  The point is that the door has been thrust open and the market will innovate. It is entirely possible that the bank’s position and their fee structure could be further eroded by a future change.

Thirdly, Apple just took a bite of the fees. While largely preserving the status quo in the payment processing ecosystem, Apple is getting a piece of the interchange fee, (reportedly .15-.20%) plus an enrollment fee at the same time.  It has also been reported that merchant fees will not rise, so Apple’s cut is coming from the banks. The rationale for the banks is that Apple Pay will yield a much lower fraud profile, because of Apple’s security features with card present transactions.  Banks also hope to see increased overall transaction volume over time. This seems to be a win-win: for merchants who do not have to support extra fees, for the card companies and banks, who get to maintain the status quo and get lower fraud expense, and for consumers being able to use an exciting new product. Note several banks have complained that the agreement is one sided, and several were said to be evaluating whether they wanted to participate in Apple Pay.

Bob Graham

Bob Graham

And they should. Similar to when it created ITunes, Apple has just created a significant new fee based revenue stream for itself by orchestrating a better user experience in an area where it had no presence before.   The pie is huge. Apple CEO Tim Cook indicated, while discussing the launch of Apple Pay, that the US payments market had a daily volume of $12 billion. That figure is expected to go up as the security and convenience of Apple Pay drives more usage.

Lastly, it is ultimately about customer experiences not transactions.  Banks have been working on mobile payment solutions for the last few years with varying degrees of success and equal amount of failures (e.g. partnerships with google wallet).  The two big issues for mobile payments have been security and convenience.  Tokenization, where Apple is not storing any card information on the device, handles the first concern.  In fact, this represents a far more secure transaction experience than the current plastic card swipe and signature.

The challenge of convenience has always been how to create another process that is as simple as the card swipe and signature.  Starbucks, and even Dunkin Donuts, have shown that if you can create convenient experiences on the smartphone, then consumers will use it.   Apple Pay replicates that in a seamless checkout.  No swiping, no signature – just scan your phone.  With the use of their biometrics reader, it makes it even easier to have your screen be ready for scanning.  Apple has now stepped into the forefront by not only combining features of its physical device, but also by using software to make mobile payments work in a way that transforms the customer experience.  This will become comparatively even more convenient next year, with the rollout of EMV that will require a swipe and pin at checkout.

While the naysayers will point out that despite early excitement, with over one million enrolled cards and 220,000 merchants on board, Apple Pay is barely moving the needle on the more than 600,000 US credit cards market and it has less than 3% of merchants supporting it today. But, there is a very critical point here that cannot be overlooked.  Apple has demonstrated that you can change the user experience around payments and in doing so, it has disrupted the status quo to the point where banks are now subsidizing Apple Pay. Apple has opened the door as a catalyst for further changes in the payments landscape.  Future innovations may come from Apple or other companies, but clearly change is on the way.  In this new mobile payment experience, how much are you thinking about your bank in this transaction versus thinking about Apple?  About as much as you think about the record company when buying on iTunes – that should be worrisome to banks.


Reasons Why You Should Be Opening an Offshore Savings Account Today



Reasons Why You Should Be Opening an Offshore Savings Account Today 1

No one has to convince you that savings accounts are a bad idea. As a safe investment, this approach is hard to beat. It also has the benefit of allowing you to set aside funds for all sorts of purposes while you earn a little interest.

While this can be done with a domestic account, there are compelling reasons to consider opening an offshore savings account. How can you eventually use those funds, and why would it be better to house them in an offshore setting? Here are some ideas to consider.

1. Setting Aside Funding for a Short-Term Goal

You have a specific financial goal that you want to reach in five or ten years. It could be saving the money for a down payment on a home or possibly buying real estate. Any such goal requires dedicating a part of your income to reach it. Placing funds in an interest-bearing account in the interim is a good option. That’s where an offshore savings account comes in handy.

The temptation to withdraw money from an offshore account is less likely. While doing so would be easy, it’s not unusual for people to turn toward the balances in their domestic accounts before pulling money from offshore ones. The result is that you’re more likely to consistently make progress toward building the funds needed to reach your goals successfully.

2. Creating a Contingency Fund

No matter what your life circumstances happen to be, it’s a safe bet that you’ll need emergency funds at some point. Think of what it would mean to have six months to a year’s worth of cash to carry you over if your company went out of business or if you lost your job. Even if it took some time to find another full-time position, the money in a contingency fund allows you to maintain a reasonable standard of living while you’re in search of opportunities.

Using an offshore account to house your contingency fund works well because you are less likely to withdraw funds until the need is significant. By opting to set up recurring funds transfers from a domestic account to your offshore account, you can add to those emergency funds without having to give the process much thought. When the day comes when you need the money, it will be easy to transfer the funds back to a domestic account or use the debit card supplied by your offshore bank.

3. Building Assets for Retirement

As many people learned during the last recession, employer-provided pension funds may or may not be around by the time you retire. If the investments made with the retirement contributions tank, there goes all or at least most of the money you planned on using to live after leaving the workforce. Establishing your resources for retirement, and diversifying them, protect your financial future.

An offshore savings account can be one of those solutions. A time deposit account lets you build more reserves for retirement. Since the account is not tied to your employment status or to the investments used to shore up your pension fund, it will be there when you need it.

4. Growing an Education Fund for the Kids

Perhaps the plan is not so much about investing in your financial future. Education for your children may be what’s driving you right now. Knowing how much a college education costs these days, you realize that now is the time to start saving. Even if the kids can secure scholarships that cover much of the expense, there will still be costs that need attention.

An offshore savings account provides an excellent means of setting aside funds for education. Let the balances roll over from year to year and earn more interest. Take advantage of offshore accounts that provide higher rates of interest when the balances exceed specific amounts. This strategy will make funding college a lot simpler.

5. Building Reserves for Purchasing a Vacation Property

You’re reaching a point in your life when having a second property to use for vacations sounds appealing. Now is the time to start setting aside funds that will aid in the purchase. An offshore account can be the means of growing the balance a little faster. The result is that when you’re ready to buy that second property, there will be considerably less that needs financing.

This solution also makes the process of transferring funds for purchasing international real estate easier. For example, you decide to buy a vacation home in the same country where your offshore account is based. Your bank can make withdrawing the funds and remitting the money to the seller much simpler.

6. Protecting Some Assets Just in Case

You don’t have to work in a high-profile field to be sued. What would you do if things didn’t go your way? The court could order most of your domestic assets seized to settle the judgment. How would you get by then?

Here’s something that you may not know about the money in offshore accounts – domestic courts can’t order a seizure of the account balances. Even if a lawsuit means every asset you have at home is taken away, there is still the money in your offshore savings account to help you rebuild. It may also be the way that you keep a roof over your head and food on the table while you decide how to go about rebuilding.

7. Taking Advantage of Higher Interest Rates
If you compare the interest rates offered in many international settings with what you can command at home, the difference is immediately evident. It’s possible to open an offshore savings account with a relatively low balance and gradually add to the balance. Over time, you reach a balance level that allows you to earn some of the best rates found around the globe.

When the plan is to place money in an account to accrue interest for over many years, an offshore savings account is the way to go. Once the day arrives when you want to use those funds, the balance will be noticeably more than if you had invested the same proportion in a domestic account. Think of how good you’ll feel knowing that your money was able to grow simply because you chose the right offshore location for the account.

8. Enjoying Peace of Mind

At times, it seems increasingly difficult to find peace of mind in today’s tumultuous world. With money placed in an offshore savings account, it’s possible to secure a little bit of tranquility even when everything else is upside down.

By establishing an account in a politically stable country, offers excellent returns in the form of interest, and is protected from any domestic court action, you know there will be assets to draw on no matter what. That’s a good feeling.

Get Help Setting Up an Offshore Savings Account

These are just a few reasons why opening an offshore savings account is a smart financial move. There is no better time to start than now, and an excellent offshore location to choose is Belize.

Caye International Bank, located on Ambergris Caye island in Belize, Central America has helped thousands of people establish offshore financial accounts. We can help you, too, in determining which offshore accounts work best based on your goals. You’ll find that setting up an account is a lot simpler than you anticipated.

Author bio:

Luigi Wewege is the Senior Vice President, and Head of Private Banking of award-winning Belize based Caye International Bank, a FinTech School Instructor and the published author of The Digital Banking Revolution – now in its third edition. You can follow his posts on innovation trends shaping the banking and financial services industry on Twitter: @luigiwewege


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Former BOJ executive calls for ‘genuine’ review of central bank stimulus



Former BOJ executive calls for 'genuine' review of central bank stimulus 2

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) – The Bank of Japan must abandon the view it can influence public perceptions with monetary policy and conduct a “genuine” review that takes a harder look at the rising cost of prolonged easing, said former central bank deputy governor Hirohide Yamaguchi.

The BOJ will conduct a review next month to make its monetary policy tools more sustainable, nodding to criticism its policy is crushing bond yields, drying up market liquidity and distorting stock prices.

But Yamaguchi, who was deputy governor when the BOJ first began buying exchange-traded funds (ETF) in 2010, said the costs of the bank’s stimulus programme have become too large to mitigate in the review in March.

“It’s unlikely the BOJ can come up with an outcome that has a substantial impact on the economy and markets,” he told Reuters in an interview on Monday.

“The review will probably be just a show of gesture that it’s doing ‘something’ to address the cost,” said Yamaguchi, who retains strong influence on incumbent policymakers.

Under its yield curve control (YCC) framework, the BOJ guides short-term interest rates towards -0.1% and 10-year bond yields to around 0%. It also buys risky assets such as ETFs to fire up inflation.

Ideas floated in the BOJ, which could be discussed at the review, include allowing the 10-year bond yield to deviate more from its 0% target, and making its ETF buying nimble so it can slow buying when stocks are booming.

Tolerating bigger yield swings, however, could undermine the feasibility of YCC by highlighting the limits of the BOJ’s control over the yield curve, Yamaguchi said.

“It’s hard to control long-term interest rates within a tight range for a long period of time,” he said, calling for an overhaul of YCC – something the BOJ rules out as an option.

Yamaguchi also called for halting the BOJ’s ETF purchases, as the bank could “end up using monetary policy to prop up stock prices” if the programme continues.

“At the very least, the BOJ must end as soon as it can the current situation where its ETF holdings keep accumulating.”

When the BOJ began buying ETFs in 2010, it used a pool of funds to ensure purchases remain at a manageable level, said Yamaguchi, who was involved in the decision.

That cautious approach was replaced by Governor Haruhiko Kuroda, Yamaguchi said, after he took over as head of the BOJ in 2013. Kuroda ramped up purchases dramatically with his “bazooka” stimulus deployed that year under a pledge to deploy all available means in a single blow. Eight years on, inflation remains distant from the BOJ’s 2% target.

“It’s impossible for the BOJ to guide public perceptions at its will,” Yamaguchi said. “It’s time now for the BOJ to conduct a ‘genuine’ policy review and use the findings to modify its policy framework.”

(Reporting by Leika Kihara and Takahiko Wada; Editing by Ana Nicolaci da Costa)

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Metro Bank expects defaults to rise as COVID-19 support measures fade out



Metro Bank expects defaults to rise as COVID-19 support measures fade out 3

(Reuters) – Metro Bank posted a much bigger annual loss on Wednesday and said it expects defaults to rise through the year in line with its provisions as government support measures set in place due to the COVID-19 crisis are wound down.

The mid-sized company, part of a breed of challenger banks set up to take on the dominance of bigger and more conventional lenders in Britain, said underlying pretax loss was 271.8 million pounds ($385.58 million) for the 12 months ended Dec. 31 compared to 11.7 million pounds a year earlier.

“The pandemic has clearly impacted performance, leading to significant expected credit losses, but our transformation strategy is firmly on track and we have accelerated initiatives to shift our asset mix, bringing higher yield and improving net interest margin, as evidenced in the second half,” Chief Executive Officer Daniel Frumkin said.

Metro, which relieved some of the pressure on its capital levels last year by selling one of its portfolios to NatWest, estimated impact from the coronavirus pandemic to be 124 million pounds.

The bank, whose net interest margin fell to 1.22% from 1.51% in a low interest rate environment, said provisions to cover loan losses amounted to 126.7 million pounds at 2020-end, compared with 11.7 million pounds a year earlier.

The company said the increase in expected credit losses was driven by deteriorating macro-economic scenarios that have increased the probability of defaults.

($1 = 0.7049 pounds)

(Reporting by Muvija M in Bengaluru; Editing by Vinay Dwivedi)

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