By Martin Fincham, CEO – LANSA
A common misapprehension in the financial services sector is that its tight regulatory infrastructure prohibits Shadow IT activity.Shadow IT is any unofficial application development project that is commissioned, introduced or executed outside the IT department’s formal control or plan. However, in reality, there are numerous areas in this market where the practice frequently occurs and threatens the governance, compliance and risk management provided by the organisation’s official IT function.
Why does Shadow IT creep in?
Shadow IT happens for a reason. Many IT departments simply cannot cope with the demands from line of business managers for the applications they need.Typically, this is because IT departments are already under pressure delivering major mobile or web applications, integration projects, getting cloud-ready or driving other pressing digital transformation initiatives. In parallel, a significant percentage of their time is spent on the maintenance and support of enterprise apps. When it comes to developing new apps, Corporate IT usually has a 2-3 yr road map which is constraining a sector that is starting to feel the heat from new entrants such as Lemonade in the financial planning services space, which is making many more established players sit up and consider their own ability to respond. Line of business managers need to be as agile as new entrants, which is challenging when they have legacy systems to maintain. Inevitably,demand for new and innovative applications accumulates and Shadow IT is often the response of line of business managers as a means of ‘getting the job done’.
Line mangers, puzzled at the month or year long wait presented by IT to their demands, do what they believe is right for their own area of the business. In effect, they fill in the gaps for themselves. Typically, the skill level in Excel and other business tools is high, so business users are used to building solutions of their own. However, whilst this may meet their short-term requirements, the Shadow ‘rebels’ don’t always appreciate the considerable risks or complexity involved, or the Pandora’s box they may be opening.
Proliferation of Data Silos
Getting a single view of the truth is a major thrust in Financial IT. Just as IT pulls in the direction of integration in order to enable that single view, so Shadow IT can pull in the opposite direction, setting up new silos for their individual projects, using data which cannot be leveraged by the rest of the business.
The dangers of such proliferation are very real. Unchecked, Shadow IT can pose myriad risks. Application usage can spread to greater numbers of users than intended, and performance can be crippled. In addition, data usage by Shadow IT apps can violate privacy laws and sensitive data can be leaked through embarrassing security breaches. Of particular relevance to the banking and financial services sector is the imminent arrival of GDPR compliance rules. Shadow IT systems pose a risk to such compliance as the projects have no governance or guidance over them.
Who’s working in the shadows?
The sources of such unofficial systems vary. Shadow developers, also known as ‘Citizen’ or ‘Stealth’ Developers, can range from creative and technically aware internal marketing staff exploring exciting cloud apps, through to external ‘offshore’ development teams keen to get a foot hold in or reference check from a respected financial services organisation through a friendly contact.
From humble financial and management analysis systems through to highly sophisticated marketing and sales apps, the ‘outing’ of Shadow IT applications is often unexpected.
An executive might want to manipulate or represent their data in different ways. To achieve this, they download data from core systems, for example an asset management application, add macros and then run their own reports.These shared tools may include errors, and the misinformation proliferates. At some point, the error is discovered and IT is drawn in to fix it. The IT Department was most likely unaware that the application existed but are charged with fixing it regardless.In an attempt to control this activity,IT may allow circulation of files as PDFs only, but this in itself can be restrictive for business management.
In the insurance market, actuaries often create and use extremely complex spreadsheets to create precision pricing dependent on risk variables. Effectively, they are building their own complex pricing tools. They may involve hugely complex algorithms to generate pricing and which may be uploaded into corporate price books. The risk to the business in the event of errors being made is significant. It is unlikely that any extensive testing on these applications takes place.
Another common example occurs in the Marketing department, where shadow IT can proliferate as organisations seek to ‘know their customers’ better. From customer and sales analyses through to unofficial promotional web pages, marketing managers are responsible for organisational creativity and demand ‘competitor beating’ solutions.However,as they struggle to get to the top IT’s priority list, they resort to crafting their own solutions.
Evidence of The Rapid Spread and Growth of Shadow IT
Shadow IT is growing, but not without risk. Gartner estimates that by 2020, one third of successful attacks on enterprises will be through Shadow IT doors.The 2017 Application Architecture, Development and Integration Summit in London highlighted a 2015 Cisco study indicating that companies are using up to 15 times more cloud services to store critical company data than CIOs were aware of or had authorized. Supporting that claim, an NTT report in April 2016 indicated that 77% of business decision makers admitted to using a third-party cloud application without the approval or knowledge of their own IT department.Identity governance firm SailPoint claims that already over 70% of company employees have access to data that they shouldn’t have.
Outsourcers are acutely aware of this, as many discover unaccounted for servers after contract wins. Financial Services customers provide a detailed list of servers to the outsourcer and bids are submitted and accepted on this basis with only high-level due diligence available. The real discoveries are made post contract award where additional servers and applications are found. One outsourced service provider quoted an instance where e.g. 850 servers & 42 line of business internal applications are listed in the outsource RFP, yet 982 servers are discovered & 65 line of business applications exist, all additional servers and applications were shadow IT projects.
Shadow IT ina Low-Code Light
Shadow apps are not, in themselves, a bad thing. Many of these systems fulfill a valid need and play a role in the success and or survival of the organisation. Some IT departments are now openly recognising this and seeking to bring the alleged ‘rebels’ back into the IT fold.
What IT really needsto achieve this, is a technology approach that helps them deliver on these requirements at speed; technology that means that they no longer have to say ‘no’ or ‘yes, but later’ in response to requests from the business. Enabling IT to be agile by using ‘low-code’ rapid application development tools to build apps at high speed, can overcome the bottlenecks. So instead of outlawing Shadow IT ideas, this new approach recognizes and utilizes their creativity. Low-code platforms, such as those offered by LANSA, provide the kind of prototyping capabilities needed to validate business needs, direct with the users, iterate as they formalize their requirements, then speed up the final development way beyond the timescales they have been used to. The resulting apps are robust, well architected, high performance, and, importantly, managed and easily maintained by IT. Low-Code can be a significant tool in the armoury of IT to keep IT relevant to the business.
Single View of the Truth
Once integrated within the confines of IT,management has a ‘single clear view’ of the entire IT estate, allowing them to utilize and maintain newly developed systems to optimal effect.
Through this approach, the very same IT managers and CIOs that are currently by-passed by ‘Line of Business’ managers are transformed into agile system leaders,able to respond quickly to business demands. They can take back control and re-establish a proper and secure governance infrastructure,through which they can monitor IT with a single integrated view of the truth. Most importantly, through the use of Low-Code development, organisations can now finally banish the spectre of Shadow IT & deliver a much brighter future for internal IT application development.
Financial transformation is the new digital transformation
By Luke Fossett, ANZ Head of Sales for global recurring payments platform, GoCardless
The term ‘digital transformation’ has become somewhat synonymous with COVID-19. As teams and operations became decentralised, companies looked to quickly build their remote tech stacks, striving for ‘business as usual’ despite the circumstances.
But in the background of COVID’s chaos, different regions and industries experienced major changes, sparking a different breed of transformation beyond the digital spectrum.
Take Australia as an example. In July, the market saw the local arrival of Open Banking, as well as further detail into the regulated and planned transition away from the existing Direct Debit system to the central-backed New Payments Platform (NPP) and it’s Mandated Payment Service. With these changes comes the impetus for a wave of ‘financial transformation’; a term that describes the process of making financial operations, processes and outputs more efficient.
Despite its potential for broad interpretation, financial transformation has the potential to produce use-cases that drive value for the customer; from things like seamless payment experiences, to data-rich APIs and integrations, to managing real-time bank to bank payment and the automation of everything from customer acquisition to using data to retry a failed transaction on the date that gets the best success. These innovations are well within reach for enterprise organisations, however, to extract real value, business leaders need to plan their financial infrastructure in parallel with making digital investments.
With the right deployments, financial transformation can reap significant rewards from a customer and internal operations perspective – so here’s why business leaders should be paying attention:
Value speaks volumes to the C-suite
Financial transformation benefits enterprise organisations as well as small and medium-sized businesses (SMEs) that need to create efficiencies as they scale, but translating its value is not always easy.
Payments are a complex part of any business, impacting many different consumer-facing and internal functions. Yet the role of ‘payments specialist’ is a rarity in most organisations.
Responsibility for financial transformation often falls – and gets lost – somewhere between the Chiefs of Technology, Information and Finance. That’s why leaning on platform providers and payments experts as early as possible, is key to understanding your customers and capabilities, before you implement and invest.
Outsourcing financial transformation initiatives is a much easier sell to enterprise decision-makers than redirecting IT resources to new DevOps projects. Credible payment providers, and the specialised knowledge that comes with good ones, are in most cases a more cost-effective solution than employing a full-time expert. Translating the value of financial transformation to achieve buy-in from the C-level boils down to maximising efficiency and return on investment (ROI).
A simple solution is using automation for tasks like streamlining processes, such as collecting payments on time without human contact. Find the sweet spot between how you want your customers to pay, and how they prefer to pay; then offer those options, while making sure they can be done with little to no touch internally.
‘Best-in-class’ platform providers typically describe innovative fintech companies, who, as opposed to generalist banks, are deemed specialists in niche elements of financial services.
Again, using the example of Australasia, there are nearly 5,000 active fintechs, and it’s a market that legacy-laden big banks are tapping into. For example, Australia’s largest bank, the Commonwealth Bank of Australia, recently partnered with venture capital firm Square Peg, and AI-focused capital fund Zetta Ventures Partner; pouring $AUD28 million into new financial technology that delivers better digital banking services to its customers.
Fintech-led transformation doesn’t only have to benefit the customer; it can offer significant value for financial teams too.
In an enterprise environment, choosing the right technology allows for slick front end payments, but the true value comes in optimising financial management behind the scenes.
Take the rising consumer demand for subscription services as a use-case. According to Zuora’s Subscription Impact Report, 50 per cent of all subscription companies are growing just as fast as they were before the pandemic, while 18 per cent are actually seeing subscriber growth rates accelerate. With this trend comes a rise in companies looking to invest in recurring billing platforms that make it easy to accept regular payments, however, finding a low-touch platform that offers the financial infrastructure to support subscription-based payments will generate much greater ROI. There is no point blowing budgets on a ‘rip and replace’ billing platform if internally, finance teams still have to revert to a manual process of uploading payment files in a spreadsheet.
The future is financially transformed
The Reserve Bank of Australia’s latest Consumer Payment Behaviour survey shows that in 2007, cash was used for 69 per cent of all transactions, while last year it accounted for just 27 per cent. Additionally, over 50 per cent of Australian businesses prefer bank-to-bank payments, known as Direct Debit, over credit cards as a way to collect payments.
Payment preferences are rapidly evolving, and keeping up with consumer payment trends is key to staying competitive. To be effective, however, you need to have the infrastructure to support and accept diverse payment methods.
‘Payments as a Service’ (PaaS) is a phrase used to describe platform providers that connect multiple payment systems, enabling companies to offer several payment options while replacing outdated practices like paper-based Direct Debit.
In 2020, the most successful enterprises are utilising PaaS providers, built for self-serve and high rates of conversion. Take Bulb, for example; the UK-based energy company allows users to sign-up, switch energy providers and lock-in their payment preferences, all in under two minutes. Better yet, the process requires almost no people management.
Taking a visionary lens on financial transformation means building greater payment efficiencies for both the customer and the enterprise. Additionally, the specialist and agile nature of fintech platforms puts the organisations who use them on the cutting-edge of innovation, future-proofing operations in a fast-moving market without significant investments in research and development.
Best-in-class platform providers are driving financial transformation change; helping business navigate and plan so they are prepared for today, and for what’s coming.
RegTech 2020: Exploring financial crime and the emergence of RegTech in the USA
with host, Alex Ford, VP Product and Marketing, Encompass, and guests, Dr Henry Balani, Head of Delivery, Encompass; Pawneet Abramowski, Chief Compliance Officer
Today, financial institutions deal with increasingly complex transactions and regulations that are continually changing. For the financial services industry, the cost of regulatory obligations has dramatically increased in recent years and, as a result, there has been a strong demand for more efficient reporting and compliance systems to better control risks and reduce compliance costs.
The complexity of regulation has made it more difficult for compliance and legal teams to manage risk. Also, the rise in large monetary fines, the impact of reputational damage, personal liability and even prison sentences have all played a factor. However, it remains essential that RegTech and AI is not seen as the only answer to addressing all financial crime risk, but rather a tool that, if used properly, can create more efficiency in the management of money laundering, bribery, corruption and fraud.
This month’s insightful and thought-provoking RegTech 20:20 podcast, from Encompass Corporation, delves into these topics from a US perspective, as guests, Dr Henry Balani, Head of Delivery, Encompass, and Pawneet Abramowski, Chief Compliance Officer. Pawneet has more than 17 years of combined experience in both public and private sectors with a focus on compliance and Henry has experience supporting innovative technology solutions that address issues of financial crime and money laundering. He advises technology firms as a Non-Executive/Board Director.
Encompass Corporation aims to demystify RegTech for listeners and understand what practitioners and experts are doing to overcome organisational challenges. This time,
Pawneet discusses how the US is at the forefront of the utilisation of technology, while also reflecting on the long history of money laundering and financial crime there, saying that “the birth of RegTech in the last 5-7 years has been really prominent in the United States”.
Henry, having had more than 25 years’ of financial services industry experience, speaks about how so many transactions worldwide are cleared in a US bank and how the US dollar is a powerful weapon, especially when money laundering comes into play.
When asked about her thoughts on technology assistance, Pawneet suggests that organisations are having to continuously evolve their programme and controls, telling the audience: “I think that’s where this desire for having technology assist in making things more efficient and operationally effective”.
Henry gives listeners an insight into regulatory penalties being a driver in changing behaviour, suggesting that this type of enforcement is a successful method.
“…as we see the increasing use of these penalties, organisations are noticing the reputational damage as embarrassing. We have seen a lot of these companies coming to RegTech firms asking for solutions to help them identify these potential challenges and issues”
Later on in the podcast, he goes on to speak about the challenges for regulated banks in the US. Breaking down the latest data and survey figures, Henry insists that the US has huge workforces in this organisation of growth. “To be a compliance professional, you are certainly in huge demand.”
Technology advancement is increasing at a rapid rate in the US. Regulated firms have a challenge not only to stay ahead of criminals, but there is often a rush to introduce new technology and continue to improve the experience of customers. Regulated bodies in the US, especially banks, have long been reinventing and adapting their compliance programmes to meet both their legal and community obligations and, as Pawneet explains, “it feels like a constant regulatory revolving door as a compliance professional”.
More expert commentary, RegTech conversation and industry insight can be found in the full episode of RegTech 20:20. You can listen here https://www.encompasscorporation.com/regtech2020-podcast/, and across all major podcast players
86% of UK businesses face barriers developing digital skills in procurement
A shortage of digitally savvy talent, and a lack of training for technical and soft skills, hinder digital procurement initiative
Research from Ivalua, a leading provider of global spend management cloud solutions, has shown that a majority of UK businesses (86%) face significant barriers developing digital skills in procurement. The findings reveal that a shortage of digitally savvy talent (31%), a lack of training for technical and soft skills (28%) and a lack of understanding of the skills required (13%), are some of the main barriers preventing UK business from developing the digital skills they need. Additionally, over half (55%) of UK businesses say that digital skills in procurement are less advanced compared to other departments
The research, conducted by Vanson Bourne on behalf of Ivalua, surveyed 200 UK-based procurement, supply chain and finance professionals about the true nature of digital skills within procurement, and the challenges businesses looking to digitally transform will face. More than eight-in-ten (84%) UK businesses believe that the skill set required of procurement professionals has shifted from procurement-first to digital-first. The study also highlighted that most respondents believe that greater digitalisation (84%) and better digital skills (83%) in procurement would have enabled UK businesses to mitigate the impact of the COVID-19 outbreak more effectively.
“Over the last decade, the role of procurement has transformed from one of cost-cutter to a vital ally that can help inform and enable a business’s strategy. The global COVID-19 pandemic accelerated this trend even further, reinforcing the importance of procurement as businesses adapt to the new normal,” commented Alex Saric, smart procurement expert at Ivalua. “However, for too long, procurement has been seen as a digital laggard, with technology adoption trailing behind other departments. In order to keep its seat at the table in strategic discussions, procurement must ensure it has people with the right skills in-house, as well as easy to use technologies, or risk being unable to offer significant strategic value.”
Challenges in hiring digital skills in procurement
As part of ongoing digital transformation efforts in procurement, the report found that UK businesses have started to introduce new technologies such as data analytics (55%), cloud-based platforms (53%), automation (35%) and AI/machine learning (30%) in the last 12 months.
But when it comes to deploying these technologies, UK businesses are finding it difficult to complement them with the digital skills required. The study found that 88% find it challenging to hire the right digital skills to work with technologies such as AI, cloud-based platforms or data analytics, while 76% say they are concerned that existing procurement teams will struggle to work with new technologies. Developing digital skills is vital for businesses, as 91% of respondents say that improving digital skills can make procurement more strategic, while 94% say it will help them gain a competitive advantage.
“In a rapidly evolving business environment, digital skills are essential for procurement teams to analyse and mitigate risk, identify new opportunities and collaborate with suppliers. However, procurement teams are struggling to both attract digital talent and upskill existing teams, which puts them at risk of falling behind competitors, losing market share, and struggling to identify risk and opportunities ahead of time,” comments Saric.
“To address the digital skills gap in procurement, UK businesses need to ensure they are focusing on adopting tools that are easy to use and improve access to actionable insights. By making procurement smarter, businesses are giving teams the tools and skills needed to thrive in the new normal, allowing the business to react and proactively address the shifting sands of a post-COVID world.”
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