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RETAIL BANKING: LEAN AND KEEN BANKING IN AN INTERNET AGE

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Danny Molhoek

By Danny Molhoek, general manager at Lexmark for the UK and Ireland

Danny Molhoek

Danny Molhoek

Although the economy is showing signs of life, retail banks are still under incredible pressure. As well as mounting market pressures, ever-increasing regulations and the entry of nontraditional entities, there is still lingering mistrust from ever more discerning customers and a host of new payment methods and channels to cope with. All of this is deeply impacting the bottom lines of retail banks.

Add in new regulations – ranging from the UK’s seven-day account switching through to Basel III, Foreign Account Tax Compliance Act (FATCA) and the Single Economic Payments Area (SEPA) – and it’s clear that there’s never been a greater need to streamline banking workflows to drive financial performance and exceed customer expectations – from the branches to the back office.

But the financial sector has always been an industry dominated by data. Faced with the daily flood of unstructured print and digital information in multiple formats, banks are struggling to manage all of it. Add in the fact that most of this data is siloed (across departments and due to mergers and acquisitions) and we start to see a very fractured landscape. There is also a technology disconnect suffered by many banks, who are dealing with legacy systems but looking to disruptive new technologies such as cloud and mobile to streamline processes.

Modern banks are striving to develop a 360-degree view of their customers. In this instance, they have one-click access to all relevant services and accounts, without having to repeat details or go through due diligence processes multiple times. Furthermore, harnessing big data, and developing lean and straight-through processes is the Holy Grail for most banks. Data has to be complete, accurate and traceable, but achieving this can be very complex, time consuming, disruptive and expensive.

But despite the ongoing digital revolution, banking remains heavily paper-driven. Even the most modern banks still need printed documents for loan applications, new account openings, mortgages and many of the other services customers want. But this leads to branch associates spending a lot of time searching for paperwork or struggling with printer issues and supplies. Just by reducing the amount of paper printed and processed and using on-demand forms and other centrally stored material, a bank can cut its use of supplies and device maintenance.

More importantly, existing processes lead to a lot of manual data input, which is a further time sink and leads to reams of unstructured data. Today, it is estimated that as much as 80 to 90 per cent of the data banks hold is unstructured content such as scans, pdfs, presentations, emails, saved web pages, videos, audio, images and instant messages. To give a sense of the scale of this issue, analyst firm IDC predicts that data will grow to 40 zettabytes by 2020, resulting in a 50-fold growth from the beginning of 2010. Dealing with this much unstructured information can quickly lead to mistakes being made. This can lead to poor customer service and the inability to meet industry regulations.

Ultimately, when output is unreliable and unmanaged, and when paper-based processes aren’t optimised, it wastes money and time that could be spent working with customers and running the rest of the branch office.

Implementing a holistic and comprehensive intelligent capture and document management solution can be the key to automating and optimising these processes. It enables a bank to quickly and effectively connect its structured and unstructured business documents, processes and people. This is a journey that begins with a thorough understanding of the business and evolves to improve device management, streamline document workflows and improve business processes.

A single capture platform is the first step, combining comprehensive document capture and centralised workflow automation technology with smart multifunction products (MFPs) in the branches. The MFPs act as digital collection points for paper and electronic documents, immediately identify missing documents and signatures while the customer is still in the bank. The system then classifies, verifies, indexes and automatically routes the content to the banking software platform, eliminating manual, error-prone data entry in the back office. This type of solution can easily scale to include an unlimited number of branches as well as multiple locations and languages.

To achieve this branch workers should be able to scan documents at their point of origin, index and link them to a specific customer. These high-quality images are then transmitted through the bank’s secure network for immediate verification and storage in a central electronic document management system.

This needs to be combined with comprehensive security, authentication and tracking features to ensure that sensitive information remains confidential and regulatory requirements are met.

This end-to-end approach is designed to better connect the people, processes and applications throughout the bank so the right information ends up in the right hands, at the right time and in the right format. By giving people on-demand access to the right documents when they need them, and then the ability to automatically and seamlessly enter these into an automated, digital processing platform, customers and co-workers can effectively collaborate across departments and long distances.

By following this approach to strategic document management, a bank can save as much as 40 per cent of its printing and document management costs, through greater operational efficiency, as well as improving transaction speeds and bolstering customer satisfaction and trust.

By taking a comprehensive approach to document and data management, a bank can evolve and optimise its infrastructure, deliver proactive management and streamline its business. This is precisely how Lexmark’s end-to-end workflow solutions help banks automate time-consuming, paper-intensive processes, transforming costly, error-prone practices into highly accurate, revenue-generating and value-added operations. Lexmark has been providing products and services to the financial services industry for more than 20 years, boasting nine of the top ten global banks as customers.

In short, its solutions can deliver a powerful platform that exceeds customer expectations, drives financial performance and promotes future flexibility.

Banking

AML and the FINCEN files: Do banks have the tools to do enough?

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AML and the FINCEN files: Do banks have the tools to do enough? 1

By Gudmundur Kristjansson, CEO of Lucinity and former compliance technology officer

Says AML systems are outdated and compliance teams need better controls and oversight

The FinCEN files have shown that it’s time for a change in AML. We must take a completely new approach in order to catch up with the speed of innovation in financial crime.

Despite what you’ll read in news headlines, we can’t lay all of the blame for anti-money laundering failures at the doors of the banks. The majority of compliance teams are doing what they can, and what they are being asked to do.

Historically, AML has, in large part been a box-checking exercise. Banks have weaved through mountains of false alerts, investigated cases, sent SARs, and then got on with business as usual. In some jurisdictions, banks can‘t even interfere with customers under investigation, in fear of jeopardizing cases.

But the sentiment towards banks’ responsibility in AML is changing. They are increasingly looking at AML as a corporate social responsibility issue and even a competitive advantage. Banks are looking to protect their brands from the horrors of an AML scandal, and as such are taking a more proactive approach.

They are also throwing a lot of money at the problem. Deutsche Bank claims to have invested close to $1 billion in improved AML procedures and increased its anti-financial crime teams to over 1,500 people. Most big-brand banks have a similar story to tell.

With reputation on the line, better AML controls can become good business.

So where does the problem lie?

From the thousands of SARs discovered in the FinCEN files, lack of customer oversight is evident. Banks need to establish a method of knowing their customers through their actions across the organization and beyond the organizational walls. By doing so, banks can better understand AML and compliance risk, which gives them the necessary tools to bar customers from doing business or limiting their activity.

While banks are striving to better enforce regulations by pouring money and resources into CDD and transaction monitoring, forming this type of intelligent customer overview might be the real solution. Proper Customer Due Diligence and customer risk monitoring can only be achieved by continuously tracking customer behaviour and transactional networks. With the latest developments in Artificial Intelligence – that is now possible.

But, the reality for compliance teams is they are hindered by outdated technology in their risk assessment and transaction monitoring systems and because of this, banks are fighting a steep, uphill battle against serious organised crime.

In 2019, the Bank of England issued a statement that claimed: “existing (money laundering) risks may be amplified if governance controls do not keep pace with current advancements in technological innovation.”

I know from my time working as a senior compliance technology officer that many traditional AML systems are inefficient, slow and labour intensive, and often lead to inaccurate outcomes. In fact, most of the systems pre-date the iPhone, so they are using last-generation technology and techniques to detect criminal activity.

In short, legacy AML systems are not fit-for-purpose. Legacy vendors built them for the box-checking world of the past, and they are focused on one suspicious transaction at a time – rather than looking at ‘bad actors’ in the financial system, and patterns in their behaviour.

As launderers constantly evolve their techniques to circumvent rule-based or simple statistical detection, the AML systems market has not kept up. There is a dire need for innovation.

Unless systems are updated, banks can continue to file suspicious activity reports (SAR), but if bad actors can conduct their business ‘as usual’ and shuffle money around the globe to hide its malicious origin, the effectiveness of a SAR is significantly diminished.

What’s the solution?

I believe we need to rethink our entire approach to AML. We need to empower compliance departments with better controls and oversight, and move away from outdated, traditionally rule-based systems and towards a modern, AI-enabled, behavioural approach.

While the bad guys have learnt how to evade rule-based systems, they find it extremely difficult to get around AI algorithms that search for anomalies in behaviour. The advancement of AI algorithms, especially in the field of deep learning, provide an opportunity for banks to detect more complex and evasive money laundering networks.

So the answer is to establish continuous automated risk monitoring and implement a workflow system that provides money laundering risk scores for customers.

The latest AI software could kickstart a new age of customer AML risk-based overview. Instead of relying on static and self-reported KYC data, AI systems can analyse behaviour over a period of time and compare it with peer-groups and past actions. It provides compliance teams with a continuous risk-rating of their customers, actor insights and summaries to facilitate efficient and thorough investigations, and an organizational-wide overview.

Recent advancements in AI have not only made the above possible, but also practical. Our latest Human AI models contextualize and explain the appropriate data, making it easier for banks to spot sophisticated crime.

By looking at AML not simply as a box-ticking exercise, but as a competitive advantage that can increase customers’ trust in their financial institutions, banks have a lot to gain. Moving towards behaviour-based AML systems is a move towards making money good.

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Banking

Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild

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Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild 2
  • 23% of UK’s top performing businesses have been supported by local enterprise partnerships and growth hubs
  • Similarly, 30% of Britain’s strongest businesses have obtained external finance in the last 3 years
  • New findings come as part of an independent, holistic study into small business success, commissioned by Allica Bank to support British businesses

A new study, commissioned by business bank, Allica Bank, shows that a high level of engagement and interaction with external institutions and resources, is central to SMEs’ prospects of success.

The study analysed data from over 1,000 companies and ranked their success on a scale that evaluated factors including productivity, growth, consistency and outlook. To measure SMEs’ external engagement, survey respondents were asked whether or not they had engaged with local enterprise partnerships, growth hubs, or external financial advisers, as well as whether they had obtained credit or sought re-financing advice, in the last three years.

The benefit to small businesses in making the most of external resources are clear to see, with a quarter (23%) of the UK’s top performing SMEs – those in the top tenth percentile – actively engaging their local enterprise partnership or growth hub in the last three years. This compares to just 16% of all other small businesses. With such a clear benefit to businesses, these external networks must not only be protected but prioritised by any Government plans to rebuild the economy post-COVID.

Similarly, of the top performing SMEs in the country, 30% have obtained external credit in the past three years, compared to less than a quarter (24%) of all other businesses. This figure drops even further for the weakest performing businesses – those in the ninetieth percentile – where just 12% of businesses have obtained external financial support in recent years.

Chris Weller, Chief Commercial Officer, Allica Bank, said:

“At Allica Bank we understand that no two businesses are the same. We also know that no-one knows a business as well as its owners and managers. But they can’t be expected to be experts on everything.

“In the UK there is a wealth of external advice and support for small businesses and we urge each and every business out there to tap in to the external resources around them. Third-parties, such as business clubs, chambers of commerce, local enterprise partnerships and trade bodies, can be invaluable sources of advice and further resources. And although they have excelled in their given field, business owners may still lack knowledge in many other areas of running and growing a business. Therefore, engaging with third parties can give business owners the kinds of insight – and fresh perspectives – they need to succeed.

“As the economy and the country comes to terms with the impact of the COVID-19 pandemic, it is important these vital SME resources are protected and given the funding they need to continue providing invaluable insight and support to small businesses up and down the country.”

Allica Bank’s SME Guide to Success identified six ‘rules to success’ that were more likely to be displayed by top-performing SMEs compared to their counterparts. The full report contains a wealth of additional data and insight into each of these topics.

As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.

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Banking

Do we really need banks? Yes, but digital transformation industry-wide is vital

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Do we really need banks? Yes, but digital transformation industry-wide is vital 3

By Charley Cooper is Managing Director at enterprise blockchain firm, R3

The Coronavirus crisis has taught us that we are capable of going digital quickly when we need to. As the banking sector faces a second wave, the ability for individual firms to grow and succeed will be reliant on better connectivity and efficiency at the industry-level, writes R3’s Charley Cooper.

The sudden and dramatic pace of change has been seen globally over the last six months. Decades of paper-based practices are being updated, digitised and overhauled as the whole word adapts to working online. As of today, countries are accepting “alternative arrangements” for original paper export certificates, New York is allowing notary services by video, and global banks are accepting “original” documents and acceptances by email.

Over the coming months, we will see this digital transformation extend from individual use cases and firm-level deployment to entire industries. And perhaps in no other industry is this more critical than in financial services, where the role of banks continues to be challenged because of the inefficiencies they face as a result of decades of siloed technology deployment.

While unquestionably an improvement over reliance on manual processes, regular “digital transformation” as implemented by a single bank has limited benefits. These typically include greater automation of business processes, acceleration in adoption of electronic channels, elimination of manual processes, standardisation of non-value-adding business practices and a focus on driving up data quality and speed of information flows.

Now consider achieving digital transformation at the level of the entire market, rather than on a bank-by-bank basis. Whilst a digital transformation project for a single bank might automate a business process between a front and back office, a digital industry transformation project might optimise the trading and settlement of the asset between buyer and seller and their custodians too.

Of course, such things have been attempted before. But there have been many failures and the successes are notable by how they have resulted in new dominant centralised providers – for example for market data, messaging or settlement. The advent of blockchain architectures showed us there was a new way to tackle the problem, one that worked with the grain of existing markets.

Done right, the prize is a huge “productivity dividend” as entire markets are unshackled from their analogue histories.

Tackling interbank reconciliation at the industry level

The Italian financial services industry provides a pertinent use case of digital industry transformation. 32 banks in Italy went live in March with one of the first real-world deployments of enterprise blockchain technology in interbank financial markets. 23 more banks went live in May, with further institutions scheduled to go live this autumn. Built by the Italian Banking Association, ABI, the Spunta Banca DLT app on R3’s Corda Enterprise platform tackles the market-wide issue of interbank reconciliation.

The traditional reconciliation process for interbank transactions in Italy—formerly governed by the “spunta” process— is notoriously complex. Resolving mismatches in transactions is a labour-intensive process, hampered by a lack of standardisation, fragmented communication and no “single version of the truth.” The Spunta Banca DLT app automates the reconciliation process and enables banks to pinpoint mismatches in interbank transactions quickly by sharing common data in a secure way.

Connecting such a large and diverse group of banks in a live environment to tackle a shared problem is a major milestone for digital transformation in the Italian banking sector, providing a glimpse into a brighter, more efficient and interconnected future for all financial markets.

Changing mindset

The current crisis has accelerated the launch of digital technology for many use cases across a diverse range of sectors, but those that stand the test of time will be developed with an industry-level mindset, not firm-level.

It is now clear that the age of inter-bank optimisation is over – the path forward from this crisis will be paved by software that focuses on adding real value for entire markets, connecting banks to overcome the biggest challenges they share as an industry.

Banks must adapt and start thinking about technology in new and innovative ways if they are to retain their critical role in the global economy.

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