By John O’Hara, Taskize CEO and Co-Founder of Taskize
Efforts to streamline and integrate systems to improve back-office efficiency need not involve major re-engineering but can instead be propelled by use of utility-based platforms.
In any supply chain, it’s the first and last mile that add the most value. This is where the successful service provider combines its broad domain expertise with its specific understanding of a particular market segment to tailor industrialised processes to meet individual requirements. In a fragmented supply chain, however, there is a risk that tweaking and tailoring at every link in the chain could result in a high degree of customisation that thwarts overall process efficiency, diminishing the end-user experience. And as products mature and priorities change, there is also a risk that yesterday’s differentiator becomes tomorrow’s commodity, further diminishing the value proposition.
This is where we are today in the back offices of the financial markets: processes and systems are so complex, customised and idiosyncratic that they are unable to interact effectively with parallel applications at similar institutions, but are so embedded as to be irreplaceable without considerable investment of time and effort. To take just one example of staggering inefficiency and duplication of effort, untold hundreds of man hours are still devoted to reconciling counterparties’ records of the same transaction, generated by slightly but critically different back-office systems. On top of these legacy challenges, new transparency requirements, increased collateral obligations, and ongoing service digitisation are among the forces generating even more records and accounts of financial transactions. This is potentially driving even more data divergence – and sheer ‘noise’ – if the outputs of recent OTC derivatives reporting rules are anything to go by.
Recent technology innovation offers a number of ways out of the quagmire. But often there is a massive gap to be breached between today’s balkanised legacy landscape of tried-and-tested, but imperfect and highly customised processes and platforms, and the much cleaner, simpler vision of tomorrow offered, for example, by proponents of blockchain-based solutions.
Blockchain undoubtedly has transformational potential. Among its many attractions, the ability of distributed ledger technology (DLT) to deliver a single, immutable and universally-accessible record of transactions – the fabled ‘golden source’ – could be a significant step forward in the simplification of back-office processes. At the recent Sibos conference, panel sessions were awash with optimistic speakers outlining proofs-of-concept for collateral management, bond issuance and equity trading, to name but a few. But migrating or replicating existing financial market workflows, practices and concepts is a hugely complex affair, with many moving parts. On the one hand, the industry’s governance and security standards have to be maintained, but on the other the technologies supporting new approaches still need to evolve. To take just one example, the Java-based programme typically used to build smart contracts is too powerful and offers too many choices, with serious potential security implications. Even through the most optimistic of lenses, one can see that the nirvana DLT promises is many, many years away.
As more than one observer has noted recently, the European securities market has just taken ten years to implement TARGET2-Securities, the European Central Bank’s single securities settlement platform. Deployment of blockchain-based solutions could take longer, given the technological, practical and regulatory hurdles that must be overcome. In a recent blog, independent financial markets commentator Chris Skinner pointed out that almost every current blockchain-based use case requires “massive industry changes before we can apply the technology”.
Such is the current logjam that banks cannot afford to wait another decade. They need results now to ease the pressure of regulatory demands, budgetary constraints and customer expectations. While the development of DLT-based solutions rolls on, the industry’s appetite continues to build for platforms to which they can connect to solve common challenges, specifically when they need to perform standardised tasks at scale and at speed.
Although the industry’s record is distinctly patchy when it comes to embracing collective solutions to raise all boats, the present post-crisis period is surely the age of the utility. As much at the behest of economic reality as regulatory diktat, banks are more likely than ever to turn to third-party services and platforms as a means of minimising operating costs, easing internal workload and focusing resources where they add most value to the client. A 2016 PwC white paper counted 40 recently-created market utilities across the financial markets, noting “market utilities are going to be a permanent fixture in the industry. The formation of cooperative functions is a necessary response to the massive structural changes that are sweeping the industry.”
To meet financial crime compliance obligations, banks are exchanging KYC documentation via standards-based utilities rather than bilaterally. To meet margin calls under new OTC derivatives rules, both buy- and sell-side firms are leveraging third-party platforms, often developed by market infrastructure providers that deploy common standards and connectivity protocols to mobilise collateral assets cost-effectively. The adoption of ISO 20022 by market infrastructures globally is paving the way for greater cross-border interoperability in payments and securities, making it easier to introduce new services and capabilities, upon which member banks can build new value propositions.
These initiatives all share the common characteristics of being standards-based platforms, designed with significant levels of industry consultation, that handle universal processes and tasks, offering maximum connectivity to peers with minimal in-house implementation requirements. In many cases, technology innovation plays its part, but it is most effective when it leverages or interacts with existing systems to generate new sources of customer value, such as API-based connectivity between service providers.
This utility approach can also deliver transformative change to those currently struggling to optimise reconciliation and other back-office processes. The staff and their systems are doing as good a job as can be expected in the circumstances, but they are hampered by their separation from their peers at counterparty organisations, caused in no small part by a lack of standardisation and communication, often the unintended consequence of attempts to customise a process for a client that no longer recognises or appreciates the effort. Like those standards-based, purpose-built market utilities, Taskize is focused on a specific but critical challenge: the replacement of email and other ill-suited channels by a dedicated interbank problem-solving network for operations staff. By discussing and resolving trade fails or other breaks and exceptions on a common platform, informed by domain expertise and evolving best practice, it is possible to cut fail rates and operations costs substantially, but without significant investment or delay.
The back office is no-one’s traditional idea of the last mile in the value chain, but such is the fragmented nature of financial service provision that efficient clearing, settlement and related processes are crucial to strong counterparty and customer relationships. Whether sparked into being by regulatory or economic factors, the momentum behind utility-type solutions must also derive at least in part from an implicit recognition that customisation is a double-edged sword. By using common platforms to handle processes that are no longer (or never were) sources of competitive differentiation, banks are better able to focus on meeting new customer priorities.
About John O’Hara, CEO and Co-Founder, Taskize
John O’Hara is Chief Executive Officer and co-founder of Taskize. A seasoned FinTech innovator before the term became popular, John has over 20 years’ experience delivering both trading and operations technology across the major business lines at Investment Banks.
John is the inventor of AMQP, an open-source technology for business messaging (ISO 19464) used by a range of organisations including Deutsche Boerse, the US Government and Microsoft. John was also part of the original team that created FpML to make electronic trading of derivatives more transparent and accessible. FpML is now used by banks and regulators alike to represent complex transactions and improve market transparency.
Prior to launching Taskize, John held executive and Managing Director positions at leading financial services firms including Bank of America, Merrill Lynch, RBS and JPMorgan Chase.
John holds a Bachelors Degree in Computer Science and Electronic Engineering from Aston University (England).
Market utilities in financial services: What role will you play? PwC 2016
ECB launches small climate-change unit to lead Lagarde’s green push
FRANKFURT (Reuters) – The European Central Bank is setting up a small team dedicated to climate change to spearhead its efforts to help the transition to a greener economy in the euro zone, ECB President Christine Lagarde said on Monday.
Lagarde has made the environment a priority since taking the helm at the ECB, taking a number of steps to include climate considerations in the central bank’s work as the euro zone’s banking watchdog and main financial institution.
She is now creating a team of around 10 ECB employees, reporting directly to her, to set the central bank’s agenda on climate-related topics.
“The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves,” Lagarde said in a speech.
She said that climate change belonged in the ECB’s remit as it could affect inflation and obstruct the flow of credit to the economy.
The ECB said earlier on Monday it would invest some of its own funds, which total 20.8 billion euros ($25.3 billion) and include capital paid in by euro zone countries, reserves and provisions, in a green bond fund run by the Bank for International Settlement.
More significantly, ECB policymakers are also debating what role climate considerations should play in the institution’s multi-trillion euro bond-buying programme.
So far the ECB has bought corporate bonds based on their outstanding amounts but Lagarde has said the bank might have to consider a more active approach to correct the market’s failure to price in climate risk.
“Our strategy review enables us to consider more deeply how we can continue to protect our mandate in the face of (climate) risks and, at the same time, strengthen the resilience of monetary policy and our balance sheet,” Lagarde said.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Emelia Sithole-Matarise)
What to expect in 2021: Top trends shaping the future of transportation
By Lee Jones, Director of Sales – Grocery, QSR and Selected Accounts for Northern Europe at Ingenico, a Worldline brand
The pandemic has reinforced the need for businesses to undergo digital transformation, which is pivotal in the digital economy. In 2020, we saw the shift to online and cashless payments accelerated as a result of increased social distancing and nationwide restrictions.
The biggest challenge on all businesses into 2021 will be how they continue to adapt and react to the ever changing new normal we are all experiencing. In this context, what should we expect this year and beyond, in terms of developments across key sectors, including transport, parking and electric vehicle (EV) charging?
Mobility as a service (MaaS) and the future of transportation
Social distancing and lockdown measures have brought about a real change in public habits when it comes to transportation. In the last three months alone, we have seen commuter journeys across the globe reduce by at least 70%, while longer-distance travel has fallen by up to 90%. With it, cash withdrawals for payment has drastically reduced by 60%.
Technological advancements, alongside open payments, have unlocked new possibilities across multiple industries and will continue to have a strong impact. Furthermore, travellers are expecting more as part of their basic service. Tap and pay is one of the biggest evolutions in consumer payments. Bringing ease and simplicity to everyday tasks, consumers have welcomed this development to the transport journey. In-app payments are also on the rise, offering customers the ability to plan ahead and remain assured that they have everything they need, in one place, for every leg of their journey. Many local transport networks now have their own apps with integrated timetables, payments, and ticket download capabilities. These capabilities are being enabled by smaller more portable terminals for transport staff, and self-scanning ticketing devices are streamlining the process even further.
Ultimately, the end goal for many transport providers is MaaS – providing an easy and frictionless all-encompassing transport system that guides consumers through the whole journey, no matter what mode of travel they choose. Additionally, payment will remain the key orchestrator that will drive further developments in the transportation and MaaS ecosystems in 2021. What remains critical is balancing the need for a fast and convenient payment with safety and data privacy in order to deliver superior customer experiences.
The EV charging market and the accelerating pace of change
The EV charging market is moving quickly and represents a large opportunity for payments in the future. EVs are gradually becoming more popular, with registrations for EVs overtaking those of their diesel counterparts for the first time in European history this year. What’s more, forecasts indicate that by 2030, there will be almost 42 million public charging points deployed worldwide, as compared with 520,000 registered in 2019.
Our experience and expertise in this industry have enabled us to better understand but also address the challenges and complexities of fuel and EV payments. The current alternating current (AC) based chargers are set to be replaced by their direct charging (DC) counterparts, but merchants must still be able to guarantee payment for the charging provider. Power always needs to be converted from AC to DC when charging an electric vehicle, the technical difference between AC charging and DC charging is whether the power gets converted outside or inside the vehicle.
By offering innovative payment solutions to this market segment, we enable service operators to incorporate payments smoothly into their omnichannel customer experience that also allows businesses to easily develop acceptance and provide a unique omnichannel strategy for EV charging payments. From proximity to online payments, it will support businesses by offering a unique hardware solution optimized for PSD2 and SCA. It will manage both near field communication (NFC) cards and payments from cards/smartphones, as well as a single interface to manage all payments, after sales support and receipt with both ePortal and eReceipts.
Cashless options for parking payments
The ‘new normal’ is now partly defined by a shift in consumer preference for cashless, contactless and mobile or embedded payments. These are now the preferred payment choices when it comes to completing the check-in and check-out process. They are a time-saver and a more seamless way to pay.
Drivers are more self-reliant and empowered than ever before, having adopted technologies that work to make their life increasingly efficient. COVID-19 has given rise to both ePayment and omnichannel solutions gaining in popularity. This has been due to ticketless access control based on license plate recognition or the tap-in/tap-out experience, as well as embedded payments or mobile solutions for street parking.
These smart solutions help consider parking services more broadly as a part of overall mobility or shopping experience. Therefore, operators must rapidly adapt and scale new operational practices; accept electronic payment, update new contactless limits, introduce additional payments means, refund the user or even to reflect changing customer expectations to keep pace.
2021: the journey ahead
This year, we expect to see an even greater shift towards a cashless society across these key sectors, making the buying experience quicker and more convenient overall.
As a result, merchants and operators must make the consumer experience their top priority as trends shift towards simplicity and convenience, ensuring online and mobile payments processes are as secure as possible.
Opportunities and challenges facing financial services firms in 2021
By Paul McCreadie, Partner at ECI Partners, the leading growth-focused mid-market private equity firm
Despite 2020 being an enormously disruptive year for businesses, our latest Growth Index research reveals that almost three quarters (74%) of mid-market financial services companies remained resilient throughout the pandemic.
This is positive news, especially when taking into account the economic disruption that financial services firms have had to go through since the crisis began. No doubt 2021 will also hold its own challenges – as well as opportunities – for firms in this sector.
Unsurprisingly, the biggest short-term concern for financial firms for the year ahead involved changing pandemic guidance, with 42% citing this as a top concern. With the UK currently experiencing a third lockdown many financial services businesses will have already had to adapt to rapidly changing guidance, even since being surveyed.
Businesses will also be considering the need to invest in working from home operations, and there may be uncertainty over re-opening offices on a permanent basis. According to the research 30% of financial services firms are planning to adopt remote working on a permanent basis, so decisions need to be made now about whether they invest more in enabling staff to do this, or in their current office premises.
Due to Brexit, UK financial services firms are no longer able to passport their services into Europe, which may cause problems, particularly in the next 12 months as the Brexit deal is ironed out and the agreement is put into practice. Despite this, Brexit was only cited by 24% of financial firms as a short-term concern. While it’s comforting to see that UK financial firms aren’t hugely concerned about Brexit at this juncture, it is going to be vital for the ongoing success of the industry that the UK is able to get straightforward access to Europe and operate there without issue, otherwise we may see these concern levels rise.
Looking ahead to longer-term concerns for financial services businesses, the top concern was global economic downturn, of which 40% of firms cited this as a worry when looking beyond 2021.
Investing and adopting tech
Traditionally, the financial services sector has been slow to adopt digital transformation. Issues with legacy systems, coupled with often large amounts of data and a reluctance to undertake potentially risky change processes, have meant many firms are behind the curve when it comes to technology adoption. It’s therefore promising to see that so much has changed over the last year, with 45% of financial services firms having invested in AI and machine learning technology – making it the top sector to have invested in this space over the last 12 months.
One business that exemplifies the benefits of investing in machine learning is Avantia, the technology-enabled insurance provider behind HomeProtect. The business has undergone a large tech transformation in the last few years, investing in an underlying machine learning platform and an in-house data science team, which provides them with capabilities to return a quote to over 98% of applicants in under one second. This tech investment has allowed them to become more scalable, provide a more stable platform, improve customer service and consequently, grow significantly.
This demonstrates how this kind of tech can help businesses to leverage tech in order to offer a better customer experience, and retain and grow market share through winning new customers. This resilience should combat some of the concerns that firms will face in the next year.
Additionally, half (51%) of financial services firms have invested in cybersecurity tech over the last year, which allows them to protect the platforms on which they operate and ensure ongoing provision of solutions to their customers.
Clearly, there is a benefit of international revenues and profits on business resilience. In practice, this meant that businesses that weren’t internationally diversified in 2020 struggled more during the pandemic. In fact, the businesses considered to be the least resilient through the 2020 crisis were three times more likely to only operate domestically.
Perhaps an attribute towards financial services firms’ resilience in 2020, therefore, was the fact that 53% already had a presence in Europe throughout 2020 and 38% had a presence in North America. This internationalisation gave them an advantage that allowed them to weather the many storms of 2020.
Looking at how to capitalise on this throughout the rest of 2021, half (51%) of are planning overseas growth in Europe over the next 12 months, and 43% in North America. Further plans to expand internationally is not only a good sign for growth, but should further increase resilience within the sector.
While there are many concerns, the fact that financial services businesses are investing in technology like AI and machine learning, as well as still planning to grow internationally, means that they are providing themselves with the best chances of dealing with any upcoming challenges effectively.
In order to maintain their growth and resilience throughout the next 12 months, it’s imperative that they continue to put their customers first, invest in technology and remain on the front foot of digital change.
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