David Mackay, Senior Director, at Ness Software Engineering Services
The financial services industry is evolving at an exponential rate in this age of digital transformation. Shifting customer expectations, disruptive technology, and demanding regulatory requirements are constantly reshaping the sector. Many firms are finding that their current infrastructure and platforms are simply not capable of supporting the proliferation of user-centric, omni-channel capabilities that customers have come to expect from interacting with consumer-friendly software and apps created by internet giants like Apple and Google.
As banks and other firms continue to modernise IT systems, like moving to the cloud and virtualising data centres, addressing infrastructure and platform depreciation is often overlooked and contributes to ‘technical debt’ (also known as design debt or code debt). This debt is the additional cost of future development or maintenance of software attributable to structural problems which remain in or have been introduced into the software over time. It generally relates to how the software has been designed and built, rather than to functional or performance defects within IT systems. It typically crystallises at the point where software needs to be updated.
Many financial organisations allow technical debt to accrue because they are reluctant to upgrade legacy systems and risk introducing defects; they would rather just leave things running as they always have done. However, at the end of last year we saw several big banks experience billion dollar losses as they found themselves in positions where they could no longer delay a technology overhaul. Many experts say banks must clear these hurdles if they are going to survive in a sector where consumers expect to manage their money and other financial services from any device, with a seamless experience. Institutions will need to address accrued technical debt and its associated costs when contemplating digital enhancements aimed at driving growth and achieving business objectives.
In order to help financial services teams understand technical debt and minimise the total cost of ownership of software, it’s worth looking at three distinct stages of debt occurrence:
Stage 1: New software development
Often new software development takes place in a commercially-demanding environment, where quality can take third place after cost and time. Software is often created as a minimum viable product (MVP) to serve as a pilot system to deliver baseline capabilities. During development, many options are usually explored, and the code may be written in haste.
MVPs can be a very productive approach, as they encourage innovation to flourish. However, sometimes they are developed in a manner that doesn’t comply with development standards, such as going through a design review or adhering to naming conventions, and this isn’t best practice. There is often some work still to be done to refactor the code, tidy it up, and make it the foundation for subsequent development, as well as documenting it sufficiently. This is especially important in order to capture some of the design decisions that were made to aid subsequent development. At this stage, the technical debt is the difference between the cost incurred to deliver the project such that the functionality works, and the additional cost required to complete the project so that subsequent enhancements can easily be made to it at a later date. Normally a lack of budget prevents the technical debt from being addressed, which leads to problems in the future.
While later stages of debt are more likely to be encountered, this explains the creation of the original debt.
Stage 2: Ongoing software maintenance
Once software has been deployed to production, it usually needs to be maintained to keep track of evolving third-party interfaces, protocols, standards and other dependencies. Some of these updates are mandatory, such as changes due to regulatory compliance. This can require parts of the software to be enhanced, extended, refactored or rewritten. But often, the people charged with making these changes may not be that familiar with the code they are changing. Frequently the original code (or most probably a subsequent iteration) has functionality that has likely been subsequently replicated (normally through a “cut-and-paste” type copy) rather than re-used and adjusted based on the current context.
All of this leads to complications when upgrading software. Subsequent updates may be made without an understanding of the original design, which can add unnecessary complexity that itself needs to be maintained. In addition, customisations are often made to the code that then makes it harder to upgrade at a later date. This increases the cost and time to maintain and enhance the code.
Stage 3: Legacy software maintenance
These days, most enterprise software is created by large teams, with sharing of knowledge acquisition and transfer spread across a team. Many years ago, when older systems were being written that are still in use today – especially in huge organisations like banks – the nature of software engineering was very different. Software was created in antiquated languages by very small teams and sometimes even by individuals. These people were responsible for designing, developing, testing and releasing their code and were familiar with all aspects of the development lifecycle. This included an innate knowledge of the build process, build tools and scripts, deployment environments and supplementary information. Many of the original team members may have left an organisation – taking with them their knowledge – or simply forgotten how software they created 20 years ago actually worked and was built.
This is a common problem which results in the software having to be treated as a “black box” – viewed and analysed as a closed system in terms of its inputs and outputs. This means that when updates do need to be made, they can be expensive both in terms of finding people with the requisite skills, and in making and testing changes to avoid causing issues in other parts of the software.
Another challenge with legacy code is that while processes and tools have been created for more modern software languages to analyse non-compliance or bad-practice at the source code level, the tools simply do not exist for many legacy programming languages. These processes were not deemed important at the time and so associated tools were never created.
Addressing Technical Debt
There are established software engineering metrics that can be used to analyse technical debt. These include the ‘Maintainability Index’, normally calculated from lines of code measures, and ‘Cyclomatic Complexity’ which looks at the number of linearly independent paths through the source code, as well as statistical measures.
Many financial services in-house software development teams are striving to address technical debt and are turning to partners for help in this area, leaving them to focus on new software creation. Experienced software product engineering firms are ideally positioned as debt reduction partners. They are used to working on multiple engagements for multiple clients, have broad experience of many different platforms, and have invested in tools, repeatable processes and engineering talent to ensure a uniform and consistent approach. This allows technical debt to be minimised both in the current code and in subsequent enhancements to that code.
While technical debt may not seem, on the surface, to be a major problem, it accrues and compounds over time so that maintenance and updates to software become vastly more complex and costly than they need to be. Technical debt should be minimised throughout the software lifecycle as the nature of technical debt changes over the lifetime of a software platform. Putting strategies and partnerships in place to remediate this debt can help ensure the cost of the debt remains low in the future too.
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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