Traditional institutions within the currency exchange and money transfer landscape have long felt the tremors of disruption. In the last 5 years alone, the number of companies transferring money abroad has grown from 35 to 112 in the online space. With more than 100 different exchange rates available for the same currency, it’s little wonder that consumers are finding it difficult to compare rates all at once, let alone navigate their way through the minefield of complex charges and fast-fluctuating rate changes.
Ricky Lee, founder of currency comparison aggregator Find. Exchange shares his insight on how innovative next generation technologies are set to trigger the biggest shift yet in the currency exchange and money transfer world as they cut through the complexities to deliver a faster, safer, and more transparent experience.
With the Personal and SME Business transfer revenue markets valued at £1.1bn and £23bn respectively, there’s real opportunity for businesses young and old to take a significant slice of the money transfer pie.
To succeed in this space, however, there’s no sense in innovating for the sake of innovation: solutions must identify and address the pain points of the user and, utilising the right technology, be able to deliver an experience that meets the demands for convenience, transparency and security.
There have, of course, been important moves to shake up the way things are done on the money transfer scene, as disruptors look to improve costs, transparency and even aesthetics. But the actual underlying technology has not been revolutionary: the same things are being done, just in a different way.
Knowing your customer
The lack of technological innovation in the money transfer space means that businesses sending and receiving money on a daily basis are not only met by high fees but they must also navigate a money transfer minefield in order to achieve the best deal.
Within in a business setting, those who organise international money transfers – whether for accounting purposes, payroll or for travel – need the simplest route to the best deal. With the fast-fluctuation of rates and volatility of the marketplace, achieving the best results can squeeze a company’s time, resources and budgets. And so, it’s possible that these decision makers will default to existing partnerships to alleviate the pressures on time and resource. But in doing so, they don’t solve the cost element of the equation.
By understanding the key challenges businesses face – such as the complexities of comparing transfer provider rates – innovators can develop solutions that remove the friction from the experience. Resultantly, they will be able to offer up a quick and seamless service that alleviates the pressure on their time, resources and budgets.
Meanwhile, from a currency exchange perspective, inconvenience is the major pinch-point for corporate travel planners and business travellers alike – as it is for leisure travellers too. The out-in-the-field delegate is unlikely to want to spend time locating exchange bureaus or sourcing best rates, which are often unfavourably high. Ultimately, they want a seamless business travel experience. This means that the user experience is key. They need information at their fingertips, real time data to help them make the best decisions, and a platform that is fast and easy to navigate.
Therefore, any innovation that works to simplify the process and cut through the confusing layers made up of hidden charges, multiple rates and hard-to-locate bureaus, will immediately elevate the overall experience for the user.
While it may seem a straightforward equation to solve, innovation is struggling to progress with any real momentum – particularly amongst the heavyweights of the industry. This is largely due to an increasing shortage of talent.
A paradigm shift
The money transfer market is complicated, and any charge to lead the way needs to be spearheaded by the best. The problem for some of the largescale institutions is that ‘the best’ are increasingly attracted to the agile, in vogue and dynamic practises associated with startups.
The likes of Western Union, for example, have had more than seven years to evolve and catch up with innovation that’s happening across sectors, especially in terms of blockchain developments. But though they may be actively seeking ways to expand, progression hinges on retention of the best talent.
The changing patterns in consumer behaviour add another challenge to the innovation problem, as the marketplace is almost duty-bound to shift with every rise and fall: consider the evolution of players such as Revolut and Monzo, which started off as travel and payment cards, respectively.
Crucially, the move towards mobile has engendered a new paradigm shift that is forcing financial service companies to change: people can work from anywhere – home or away; accounts are multi-currency, meaning payroll has had to change. The mobile revolution isn’t new, but the prevalence of mobile for the banking customer is undeniably shaping the course of innovation.
As customers, we are time-poor and want to be able to organise transfers from our pocket without having to visit a local branch. But poor mobile offerings and antiquated, sluggish transfer systems from the larger players just aren’t meeting these needs. If transfer companies can’t innovate quickly enough and their mobile offering is insufficient, customers – who are increasingly promiscuous by nature – will leave. Ultimately, any innovation now has got to be user-centric. It’s not about reinventing the wheel, it’s about reinventing the customer experience.
While challenger banks are an attractive, cheaper, mobile-friendly option, they simply can’t compete with the customer experience of stalwart players like Lloyds Banking Group. Imagine, as a customer, you lose your card. Lloyds has the capability to respond immediately, asking questions after they have provided a solution to the customer. With challenger banks, you could have a three-month fight on your hands to reach a near-satisfactory result.
There’s a parallel to be drawn here, relating to the emergence of streamlined models impacting the aviation scene. Ryanair’s popularity, for example, is down to pricing, not product or service, and there are many who will – through necessity or choice – trade customer experience for a cheaper price. But for those who favour experience over price, traditional carriers such as British Airways will win them over. In spite of elevated costs, they can ultimately deliver a better experience because they have the infrastructure and the staff, in place. It’s exactly the same in the banking world.
Building solutions block by block
While some players have moved to disrupt the currency market, actual ground-breaking technological transformation has been limited. But with the introduction of blockchain technology, the financial services ecosystem in particular is on the precipice of a new era. Even in its relative infancy, blockchain technology is making its mark and bringing with it the promise of real transformation.
Created initially as the mother of the payments world, bringing with it the arrival of the P-2-P payment process, it quickly became apparent that blockchain could be utilised across many other industries. For currency exchange, it’s the next logical step towards delivering a transparent, secure and fast service.
We are entering a new age of development and integration and we’re at the very start of the blockchain story; no one really knows what the next chapters will hold. What we do know is that next gen technology like this will be a game-changer.
Moreover, with privacy high on the agenda – a call that has given rise to the GDPR revolution – the timing for blockchain technology implementation couldn’t be better.
Blockchain is all about getting data from A to B as quickly and safely as possible, and this ties in well with the globalisation we are seeing. Blockchain is the perfect product to maintain the momentum of globalisation: at its core, it’s about communicating securely, rapidly and transparently.
The start of something
But there’s no doubt that it will take time to implement any meaningful end-to-end solutions. And traditional banks that are weighed down by antiquated legacy systems, not to mention the sometimes more out-dated thinking from within its top tiers, will find it hard to keep up. This is where dynamic startups will come into play.
Collaboration presents a fantastic opportunity for startups, more so than competing with the giants of the industry which have decades of experience and credibility behind their brands. However, the growth in startup culture, spurred on by proven companies such as TransferWise and Revolut, has authenticated startups as just that – the start of something. As such, their potential, hunger and ambition is being widely recognised, thus securing them a role in the future of fintech.
And while startups rarely offer an end-to-end solution, they do hold the important advantages of speed and agility, making collaboration an attractive option for both sides. Working together, startups can help more established companies to implement next gen technologies – combined with tried and tested models – to improve user experience and enhance functionality.
This amalgamation of the Davids and Goliaths of the financial services world could induce a powerful transformation of the fintech ecosystem as we know it, as they cut through the residual complexities and answer the demands emanating from shifting consumer behaviour and a rapidly expanding industry.
TCI: A time of critical importance
By Fabrice Desnos, head of Northern Europe Region, Euler Hermes, the world’s leading trade credit insurer, outlines the importance of less publicised measures for the journey ahead.
After months of lockdown, Europe is shifting towards rebuilding economies and resuming trade. Amongst the multibillion-euro stimulus packages provided by governments to businesses to help them resume their engines of growth, the cooperation between the state and private sector trade credit insurance underwriters has perhaps missed the headlines. However, this cooperation will be vital when navigating the uncertain road ahead.
Covid-19 has created a global economic crisis of unprecedented scale and speed. Consequently, we’re experiencing unprecedented levels of support from national governments. Far-reaching fiscal intervention, job retention and business interruption loan schemes are providing a lifeline for businesses that have suffered reductions in turnovers to support national lockdowns.
However, it’s becoming clear the worst is still to come. The unintended consequence of government support measures is delaying the inevitable fallout in trade and commerce. Euler Hermes is already seeing increase in claims for late payments and expects this trend to accelerate as government support measures are progressively removed.
The Covid-19 crisis will have long lasting and sometimes irreversible effects on a number of sectors. It has accelerated transformations that were already underway and had radically changed the landscape for a number of businesses. This means we are seeing a growing number of “zombie” companies, currently under life support, but whose business models are no longer adapted for the post-crisis world. All factors which add up to what is best described as a corporate insolvency “time bomb”.
The effects of the crisis are already visible. In the second quarter of 2020, 147 large companies (those with a turnover above €50 million) failed; up from 77 in the first quarter, and compared to 163 for the whole of the first half of 2019. Retail, services, energy and automotive were the most impacted sectors this year, with the hotspots in retail and services in Western Europe and North America, energy in North America, and automotive in Western Europe
We expect this trend to accelerate and predict a +35% rise in corporate insolvencies globally by the end of 2021. European economies will be among the hardest hit. For example, Spain (+41%) and Italy (+27%) will see the most significant increases – alongside the UK (+43%), which will also feel the impact of Brexit – compared to France (+25%) or Germany (+12%).
Companies are restarting trade, often providing open credit to their clients. However, there can be no credit if there is no confidence. It is increasingly difficult for companies to identify which of their clients will emerge from the crisis from those that won’t, and whether or when they will be paid. In the immediate post-lockdown period, without visibility and confidence, the risk was that inter-company credit could evaporate, placing an additional liquidity strain on the companies that depend on it. This, in turn, would significantly put at risk the speed and extent of the economic recovery.
In recent months, Euler Hermes has co-operated with government agencies, trade associations and private sector trade credit insurance underwriters to create state support for intercompany trade, notably in France, Germany, Belgium, Denmark, the Netherlands and the UK. All with the same goal: to allow companies to trade with each other in confidence.
By providing additional reinsurance capacity to the trade credit insurers, governments help them continue to provide cover to their clients at pre-crisis levels.
The beneficiaries are the thousands of businesses – clients of credit insurers and their buyers – that depend upon intercompany trade as a source of financing. Over 70% of Euler Hermes policyholders are SMEs, which are the lifeblood of our economies and major providers of jobs. These agreements are not without costs or constraints for the insurers, but the industry has chosen to place the interests of its clients and of the economy ahead of other considerations, mindful of the important role credit insurance and inter-company trade will play in the recovery.
Taking the UK as an example, trade credit insurers provide cover for more than £171billion of intercompany transactions, covering 13,000 suppliers and 650,000 buyers. The government has put in place a temporary scheme of £10billion to enable trade credit insurers, including Euler Hermes, to continue supporting businesses at risk due to the impact of coronavirus. This landmark agreement represents an important alliance between the public and private sectors to support trade and prevent the domino effect that payment defaults can create within critical supply chains.
But, as with all of the other government support measures, these schemes will not exist in the long term. It is already time for credit insurers and their clients to plan ahead, and prepare for a new normal in which the level and cost of credit risk will be heightened and where identifying the right counterparts, diversifying and insuring credit risk will be of paramount importance for businesses.
Trade credit insurance plays an understated role in the economy but is critical to its health. In normal circumstances, it tends to go unnoticed because it is doing its job. Government support schemes helped maintain confidence between companies and their customers in the immediate aftermath of the crisis.
However, as government support measures are progressively removed, this crisis will have a lasting impact. Accelerating transformations, leading to an increasing number of company restructurings and, in all likelihood, increasing the level of credit risk. To succeed in the post-crisis environment, bbusinesses have to move fast from resilience to adaptation. They have to adopt bold measures to protect their businesses against future crises (or another wave of this pandemic), minimize risk, and drive future growth. By maintaining trust to trade, with or without government support, credit insurance will have an increasing role to play in this.
What Does the FinCEN File Leak Tell Us?
By Ted Sausen, Subject Matter Expert, NICE Actimize
On September 20, 2020, just four days after the Financial Crimes Enforcement Network (FinCEN) issued a much-anticipated Advance Notice of Proposed Rulemaking, the financial industry was shaken and their stock prices saw significant declines when the markets opened on Monday. So what caused this? Buzzfeed News in cooperation with the International Consortium of Investigative Journalists (ICIJ) released what is now being tagged the FinCEN files. These files and summarized reports describe over 200,000 transactions with a total over $2 trillion USD that has been reported to FinCEN as being suspicious in nature from the time periods 1999 to 2017. Buzzfeed obtained over 2,100 Suspicious Activity Reports (SARs) and over 2,600 confidential documents financial institutions had filed with FinCEN over that span of time.
Similar such leaks have occurred previously, such as the Panama Papers in 2016 where over 11 million documents containing personal financial information on over 200,000 entities that belonged to a Panamanian law firm. This was followed up a year and a half later by the Paradise Papers in 2017. This leak contained even more documents and contained the names of more than 120,000 persons and entities. There are three factors that make the FinCEN Files leak significantly different than those mentioned. First, they are highly confidential documents leaked from a government agency. Secondly, they weren’t leaked from a single source. The leaked documents came from nearly 90 financial institutions facilitating financial transactions in more than 150 countries. Lastly, some high-profile names were released in this leak; however, the focus of this leak centered more around the transactions themselves and the financial institutions involved, not necessarily the names of individuals involved.
FinCEN Files and the Impact
What does this mean for the financial institutions? As mentioned above, many experienced a negative impact to their stocks. The next biggest impact is their reputation. Leaders of the highlighted institutions do not enjoy having potential shortcomings in their operations be exposed, nor do customers of those institutions appreciate seeing the institution managing their funds being published adversely in the media.
Where did the financial institutions go wrong? Based on the information, it is actually hard to say where they went wrong, or even ‘if’ they went wrong. Financial institutions are obligated to monitor transactional activity, both inbound and outbound, for suspicious or unusual behavior, especially those that could appear to be illicit activities related to money laundering. If such behavior is identified, the financial institution is required to complete a Suspicious Activity Report, or a SAR, and file it with FinCEN. The SAR contains all relevant information such as the parties involved, transaction(s), account(s), and details describing why the activity is deemed to be suspicious. In some cases, financial institutions will file a SAR if there is no direct suspicion; however, there also was not a logical explanation found either.
So what deems certain activities to be suspicious and how do financial institutions detect them? Most financial institutions have sophisticated solutions in place that monitor transactions over a period of time, and determine typical behavioral patterns for that client, and that client compared to their peers. If any activity falls disproportionately beyond those norms, the financial institution is notified, and an investigation is conducted. Because of the nature of this detection, incorporating multiple transactions, and comparing it to historical “norms”, it is very difficult to stop a transaction related to money laundering real-time. It is not uncommon for a transaction or series of transactions to occur and later be identified as suspicious, and a SAR is filed after the transaction has been completed.
FinCEN Files: Who’s at Fault?
Going back to my original question, was there any wrong doing? In this case, they were doing exactly what they were required to do. When suspicion was identified, SARs were filed. There are two things that are important to note. Suspicion does not equate to guilt, and individual financial institutions have a very limited view as to the overall flow of funds. They have visibility of where funds are coming from, or where they are going to; however, they don’t have an overall picture of the original source, or the final destination. The area where financial institutions may have fault is if multiple suspicions or probable guilt is found, but they fail to take appropriate action. According to Buzzfeed News, instances of transactions to or from sanctioned parties occurred, and known suspicious activity was allowed to continue after it was discovered.
How do we do better? First and foremost, FinCEN needs to identify the source of the leak and fix it immediately. This is very sensitive data. Even within a financial institution, this information is only exposed to individuals with a high-level clearance on a need-to-know basis. This leak may result in relationship strains with some of the banks’ customers. Some people already have a fear of being watched or tracked, and releasing publicly that all these reports are being filed from financial institutions to the federal government won’t make that any better – especially if their financial institution was highlighted as one of those filing the most reports. Next, there has been more discussion around real-time AML. Many experts are still working on defining what that truly means, especially when some activities deal with multiple transactions over a period of time; however, there is definitely a place for certain money laundering transactions to be held in real time.
Lastly, the ability to share information between financial institutions more easily will go a long way in fighting financial crime overall. For those of you who are AML professionals, you may be thinking we already have such a mechanism in place with 314b. However, the feedback I have received is that it does not do an adequate job. It’s voluntary and getting responses to requests can be a challenge. Financial institutions need a consortium to effectively communicate with each other, while being able to exchange critical data needed for financial institutions to see the complete picture of financial transactions and all associated activities. That, combined with some type of feedback loop from law enforcement indicating which SARs are “useful” versus which are either “inadequate” or “unnecessary” will allow institutions to focus on those where criminal activity is really occurring.
We will continue to post updates as we learn more.
How can financial services firms keep pace with escalating requirements?
By Tim FitzGerald, UK Banking & Financial Services Sales Manager, InterSystems
Financial services firms are currently coming up against a number of critical challenges, ranging from market volatility, most recently influenced by COVID-19, to the introduction of regulations, such as the Payment Services Directive (PSD2) and Fundamental Review of the Trading Book (FRTB). However, these issues are being compounded as many financial institutions find it increasingly difficult to get a handle on the vast volumes of data that they have at their disposal. This is no surprise given that IDC has projected that by 2025, the global “datasphere” will have grown to a staggering 175 zettabytes of data – more than five times the amount of data generated in 2018. As an industry that has typically only invested in new technology when regulations deem it necessary, many traditional banks are now operating using legacy systems and applications that haven’t been designed or built to interoperate. Consequently, banks are struggling to leverage data to achieve business goals and to gain a clear picture of their organisation and processes in order to comply with regulatory requirements. These challenges have been more prevalent during the pandemic as financial services firms were forced to adapt their operations to radical changes in customer behaviour and increased demand for digital services – all while working largely remotely themselves.
As more stringent regulations come in to play and financial services firms look to keep pace with escalating requirements from regulators, consumer demand for more online services, and the ever-evolving nature of the industry and world at large, it’s vital they do two things. Firstly, they must begin to invest in the technology and processes that will allow them to more easily manage the data that traditional banks have been collecting and storing for upwards of 50 years. Secondly, they must innovate. For many, the COVID-19 pandemic will have been a catalyst for both actions. However, the hard work has only just begun.
Traditionally, due to tight budgets and no overarching regulatory imperative to change, financial institutions haven’t done enough to address their overreliance on disconnected legacy systems. Even when faced with the new wave of regulation that was implemented in the wake of the 2008 banking crash, financial services organisations generally only had to invest in different applications on an ad hoc basis to meet each individual regulation. However, as new regulations require the analysis of larger data sets within smaller processing windows, breaking down any and all data siloes is essential and this will require financial institutions that are still reliant on legacy systems to implement new technologies to meet the regulatory stipulations.
With this in mind, solutions which offer high-quality data analytics and enhanced integration will be key to the success of financial institutions and crucial to eliminate data silos. This will enable organisations to achieve a faster and more accurate analysis of real-time and historical data no matter where they are accessing the data from within smaller processing windows to keep pace with regulatory requirements, while also benefiting from low infrastructure costs.
This technology will also play a huge part in helping financial institutions scale their online operations to meet demand from customers for digital services. According to PNC Bank, during the pandemic, it saw online sales jump from 25% to 75%. Therefore, having data platforms that are able to handle surges in online activity is becoming increasingly important.
Real-time analysis of data
While the precise solution financial services institutions need will differ based on the organisation, broadly speaking, the more data they are storing on legacy solutions, the more they are going to require an updated data platform that can handle real-time analytics. Even organisations that have fewer legacy systems are still likely to require solutions that deliver enhanced interoperability to help provide a real-time view across the business and enable them to meet the pressing regulatory requirements they face. Let’s also not lose sight of the fact that moving transactional data to a data warehouse, data lake, or any other silo will never deliver real-time analytics, therefore, businesses making risk decisions based on this and thinking it is real-time is completely inappropriate.
As such, financial services firms require a data platform that can ingest real-time transactional data, as well as from a variety of other sources of historical and reference data, normalise it, and make sense of it. The ability to process transactions at scale in real-time and simultaneously run analytics using transactional real-time data and large sets of non-real-time data, such as reference data, is a crucial capability for various business requirements. For example, powering mission-critical trading platforms that cannot slow down or drop trades, even as volumes spike.
Not only will having access to real-time data enable financial institutions to meet evolving regulatory requirements, but it will also allow them to make faster and more accurate decisions for their organisation andcustomers. With many financial services firms operating on a global basis, this is vital to help them keep up not only with evolving regulations but also changing circumstances in different markets in light of the pandemic. This data can also help them understand how to become more agile, help their employees become productive while working remotely, and how to build up operational resilience. These insights will also be vital as financial institutions need to consider the likelihood of subsequent waves of the virus, allowing them to gain a better understanding of what has and hasn’t worked for their business so far.
The financial services sector is fast-paced and ever-changing. With the launch of more digital-only banks, traditional institutions need to innovate to avoid being left behind, with COVID-19 only highlighting this further. With more than a third (35%) of customers increasing their use of online banking during this period, it is those banks and financial services firms with a solid online offering that have been best placed to answer this demand. As financial institutions cater to changing customer requirements, both now and in the future, implementing new technology that provides access to data in real-time will help them to uncover the fresh insights needed to develop new and transformative products and services for their customers. In turn, this will enable them to realise new revenue streams and potentially capture a bigger slice of the market. For instance, access to data will help banks better understand the needs of their customers during periods of upheaval, as well as under normal circumstance, which will allow them to target them with the specific services they may need during each of these periods to not only help their customers through difficult times but also to ensure the growth of their business. As financial institutions not only look to keep pace with but also gain an advantage over their competitors, using data to fuel excellent customer experiences will be essential to success.
With the current economic uncertainty and market volatility, it’s critical that financial services are able to meet the changing requirements coming from all angles. With COVID-19 likely to be the biggest catalyst for financial institutions to digitally transform, they will be better able to cater to rapidly evolving landscapes and prepare for continued periods of remote working. As they look to achieve this, replacing legacy systems with innovative and agile technology solutions will be crucial to ensure they can gain the accurate and complete view of their enterprise data they need to comply with new and changing regulations, and better meet the needs of consumers in an increasingly digital landscape, whether they are located in an office or working remotely.
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