Maikki Frisk, Executive Director at Mobey Forum, discusses the key trends from the seventh annual Mobey Day Barcelona, hosted by imaginBank.
We are approaching the most critical juncture in the history of modern banking. The impact of regulation, in concert with the increasing deployment of transformative technologies, is permanently altering the way banks operate and do business.
Banks as ‘connectors’
imaginBank’s David Arranz used his keynote address to set the tone, leaving delegates in no doubt that business models need to diversify in the open banking era. This change, however, can be positive. Juan Jose Romero from Everis highlighted how diversification has been the hallmark of the technology giants’ success. He cited Amazon Web Services as an example of the potential opportunities to be seized by banks. Despite being far removed from its core service offering, AWS is now the company’s most profitable division.
Partnerships hold the key to successful diversification. According to Arranz, the dawn of open APIs means financial services will not be the sole (or even the main) revenue stream for banks, perhaps as soon as within two-three years. Instead, banks will become ‘connectors’ and data providers, partnering with third-party providers (3PPs) to create and facilitate new business models and opportunities. Nordea’s Jacob Groth agreed, adding that by embracing collaboration and working with high-quality 3PPs, banks can combine their reputational muscle with fintech brains to access previously untapped revenues. As Francesca Maria Terrell from Ikano Bank identified, however, the move from legacy systems and services must be accompanied by a fundamental mindset shift to ensure innovation is not stifled by traditional constraints. PSD2 represents the perfect opportunity to press the reset button and drive real cultural change.
Amidst these shifting sands, it is important to not bury heads. Much like the secret to winning in chess is to make the best possible move, the secret to winning in the open banking era is to identify the right partners to work with. Easier said than done. The inconvenient truth today is that many partnerships fail to deliver on the value initially anticipated. According to a snap poll of Mobey Day attendees, 51% felt this was primarily due to a lack of internal alignment. A panel of representatives from Diebold Nixdorf, Blue Code, Fjord, BeeOne and UBS agreed, but also saw unrealistic expectations as a barrier to success.
Steve Kirsch from Token, however, held a different view. He argued convincingly that a narrow focus on the immediate business case was holding banks back, explaining how the internet started with only two ready-made use cases, email and file sharing. As open banking is unpredictable, and no-one knows what ‘the’ killer application will be, the easier banks make PSD2 for developers, the greater the potential benefits.
Delivering compelling services
As banks look to expand, their range of services must remain compelling.
Putting the customer first and enhancing the user experience is essential to delivering compelling services. Luis Villa del Campo from Fjord highlighted that banks currently know their customers, but don’t really understand them. Only by accepting customers as people driven by emotions and shaped by experience, rather than a collection of basic, static demographic data points, can they develop truly tailored services. Erste Bank’s Jalal Duoame also explained that the data needs to come first when building products and services, as customer-centricity cannot be achieved by simply selling a pre-packaged offering.
With banks moving to deploy these hyper-personalised services, the opportunities afforded by artificial intelligence (AI), machine learning (ML) and predictive analytics technologies become increasingly powerful. The challenges facing AI and ML deployments, however, must be addressed. Amir Tabakovic of BigML highlighted that successful, mature implementations are scarce. Improving data quality, enhancing skills and using smarter tools are all vital if this field’s huge potential is to be realised.
Mobile payments beyond NFC
As banking business models have changed, so too has the mobile payments ecosystem. Historically, the term ‘mobile payments’ has been synonymous with NFC. For years now, the industry has been asking the same question – ‘when will mobile NFC payments really take off?’
Perhaps now is the time to ask different questions.
Consider Starbucks, Alipay and WeChat Pay, which are the real outliers in terms of adoption and usage. Rather than relying on the existing payment infrastructure, all these platforms use optical scanning technology such as QR Codes and barcodes to simplify deployments and broaden acceptance, a point highlighted by Chris Pirkner of Blue Code as he presented his vision for a new European payment scheme leveraging barcodes.
Similarly, the growth of omnichannel retail and the rise of ‘connected commerce’ has led to significant growth across both in-app m-commerce and e-commerce transactions over the past twelve months. Looking to the future, both Hans-Jorg Widiger from Swiss bankers and Jukka Yliuntinen from G+D Mobile Security identified in-car payments as a key driver of future mobile payment growth.
As the mobile payment ecosystem has expanded beyond mobile NFC, so too has the security landscape. The question of how to successfully apply existing technologies such as tokenization and biometrics to these new use cases, whilst maintaining a seamless user experience and commercial viability, is now a key priority.
Blockchain and DLT – from experimentation to development
Talk of blockchain and distributed ledger technology (DLT) has dominated banking and fintech for some time. We have been promised a solution to solve the world’s problems, but so far, despite the interest and considerable endeavours of the world’s leading companies, institutions and academics, there has been little in terms of material success.
This could be about to change. According to Nordea’s Ville Sointu, blockchain has now moved beyond the ‘experimentation’ phase (characterised by excessive hype) and into the deployment phase. The question now is, what should these deployments look like? For Consult Hyperion’s Dave Birch, banks should not use DLT to simply rehash existing services. Rather, a more radical approach should be considered, using the power of DLT to create new markets that work in new ways.
The plurality of debate and discussion throughout the event demonstrated that the financial services industry is on the cusp of new greatness. Adaptation remains the big challenge. Banks and financial institutions are working to re-evaluate their business models, commercial strategies and operational practices to ensure continued innovation, interoperability and, ultimately, competitiveness. What is apparent, therefore, is that industry collaboration is more important than ever.
Hackers can now empty out ATMs remotely – what can banks do to stop this?
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.
SoftBank Vision Fund set for new portfolio champion with Coupang IPO
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.
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)
Five things to look out for in HSBC strategy update
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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