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The future of blockchain in banking

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By Philippe Meyer, managing director of Avaloq Innovation

Blockchain has useful applications in various industries, with banks proving increasingly interested in this technology. So far, the only generalised example of this has been bitcoin and although the famous crypto-currency has been an undeniable success, blockchain is not a magic wand that will solve every bank’s problems.They shouldn’t expect it to revolutionise the whole industry overnight. While some stakeholders seem to have unrealistically high expectations, future developments will take time.

Bitcoin: Significant Interest

Philippe Meyer

Philippe Meyer

Bitcoin is one of the first examples of blockchain technology banks have shown interest in. Admittedly, this virtual currency remains somewhat mistrusted due to perceptions of this as a tax evasion tool. Despite this, more and more clients are asking their private bankers about the crypto-currency. Some clients have large bitcoin assets and wish to consolidate these with their regular portfolios. This pressure will push banks to adopt platforms enabling clients to visualise those assets directly while allowing customers with bitcoin assets to rely on their trusted banks instead of specialised bitcoin players who may not be firmly established.

Know Your Customer: A Major Issue

Know Your Customer (KYC), the regulatory process used to verify clients’ profiles, is also set to have a huge impact on the industry. This regulation makes attracting new customers increasingly demanding and complex for the bank, but also for customers, who have to complete seemingly endless forms.

In the future, it’s possible some KYC information will be factored and pooled between banks. “Regtech” start-ups are already offering products of this kind and customers have already shown interest in such solutions.

Blockchain shares and distributes information and encryption in ways that make it a particularly powerful solution for KYC obligations. Blockchain can be deployed on private networks, so cryptography can be implemented to shield sensitive information.

It’s impossible to set up a distributed KYC service without sharing some sensitive information. However, there is a potentially viable business model for scenarios when a customer completes a KYC process with Bank A before deciding to do business with Bank B. In this case, the customer could use a certificate from Bank A to prove to Bank B he has already completed a KYC process. Bank B would probably pay a fee to Bank A, but this would be small compared to the cost reduction..

In this model, the first bank would be informed its client has started a relationship with another provider. At a time where multi-banking is common, at least in the private banking world, this would not be an issue.

Payments Revolution

Blockchain is also a tool that can ease cross-border payments. For example, Ripple has set up a blockchain network connecting banks. The typical use case is a cross-border transaction between two SMEs. The standard correspondent banking scheme is quite inefficient;it takes five days to transfer the money, while transaction fees soon add up. With the standard scheme there is also a risk the intermediary bank will default, leaving transactions unmatched.

Blockchain offers a more efficient solution. In the case of Ripple, an internal currency has been created that is quoted by authorised market makers. Payment is completed in minutes and doesn’t depend on message exchange. As the internal currency is not a true digital currency, each bank still needs money to guarantee the transactions. Despite this small drawback, this solution is really promising.

Payments in Europe will be disrupted by the PSD/2 directive. Among other things this will enable clients to manage all the accounts they hold with different banks using a single interface. This revolution on the front-office side will massively impact the banking landscape. It could be accompanied by a similar revolution in the back-office. Blockchain technology would introduce payment systems that work using transactions instead of messages, making a clearing mechanism unnecessary.

Beyond Payments

Blockchain technology will also be used to setup “smart contracts” which execute automatically according to predetermined criteria.

In this instance, the advantages of blockchain can monitor the life cycle of financial products more complex than simple payments, including options and other derivative instruments. Due to their derivative nature, these products, whether they are OTC or listed, require both counterparties to monitor market conditions and track when barriers are hit.

Cash flows are generated when certain market conditions are reached.Tracking several hundred or thousands of products consumes significant resources and requires substantial reconciliation work. It would be more effective to automate the process using smart contracts to schedule these cash flows. Also,this solution combines the flexibility of the OTC world with the transparency demanded by regulators.

Speed of Adoption

The speed at which blockchain technology is adopted will be determined by differences in the structure of the banking market from country to country. Progress will be faster in smaller or non-existent ecosystems. If we look at geography, a country like Australia,  could adopt blockchain technologies faster than others as there are only four banks. The same could be said of Switzerland, where integration is already quite strong thanks to the SIX[i]centralised payment system. However, the presence of such an effective centralised tool will make it more difficult to migrate to an alternative.

However, while the securities chain will benefit from this technology, adoption could take between 10 to 15 years due to the lack of ambition to transform the industry.

The more attractive the use case in terms of potential cost reduction, the higher adoption reluctance is likely to be. This is because there will be more intermediaries, all with something to lose.

In the coming months, we can expect to see the first blockchain initiatives reach production stage. These potentially competing initiatives will pose integration problems to the industry. That said, these challenges will not necessarily be more difficult than those we face already in securities, for example.

Despite the lack of standardisation of blockchain solutions, this technology is here to stay; it allows all assets to be truly digitised.

Banking

The Next Evolution in Banking

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The Next Evolution in Banking 1

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

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Banking

Banks talk a good game, but are bankrupt when it comes to change and innovation

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Banks talk a good game, but are bankrupt when it comes to change and innovation 2

By Erich Gerber, SVP EMEA & APJ, TIBCO Software

You hear all the time about the incredible pace of change in technology and the way that it affects business, but sometimes we kid ourselves about the real speed of that change and the depth of its effects. Retail banking is a perfect example to illustrate the yawning chasm between the illusion and the less attractive reality. In this article, I want to provide a critique of the banking sector and its failure to change fundamentally and to modernise.

Banking is an old sector: the Banca Monte dei Paschi di Siena has its roots in the 15th century and the oldest UK banks go back to the 17th century. We often talk about legacy holding companies back, restricting their speed of operations and hampering their ability to adapt. Well, established banks have legacy in spades.

They also have cultural challenges. The old saying has it that something is “safe as the Bank of England” and that is a standard for security. But today we need banks to be more dynamic and represent something more than being a deposit box for our wealth. Consumers are accustomed to the superb customer experiences in entertainment (Spotify), devices (Apple), retail (Amazon), travel (Uber) and much else. Surveys show that they want their banks to be responsive, easy to use and available across multiple channels. They’d like banks to be secure but also to be advisors, enable flexible movement of assets between accounts, provide useful data analytics, be cloud- and mobile-friendly and offer deals that are specifically targeted at their interests.

S-l-o-w progress

At their core, banks now must become digital enterprises but, frankly, it has been slow going. As Deloitte observed: “While many banks are experimenting with digital, most have yet to make consistent, sustained and bold moves toward thorough, technology-enabled transformation.”

Erich Gerber

Erich Gerber

We all know that retail banking has changed significantly: you can see that in the proliferation of apps and the fact that, in pre-pandemic times, the morning and evening commute are peak times for transactions as people arrange their finances while sitting in trains, buses and subways. Banking has become a virtual, often mobile business, thanks to new tech-literate consumers pushing banks in that direction. But my fear is that the banks aren’t moving even nearly fast enough and that’s bad for us as consumers and bad for the banks themselves.

Banks are under pressure to change because challengers don’t have the legacy constraints of incumbents and because PSD2 and open banking regulations are having the intended effect of promoting banking as a service, delivering transparency and greater competition.

Attend any business technology conference and banks will talk about their digital transformations and customer experience breakthroughs, but it’s my contention that a lot of this work is more window-dressing than platform building. Or, to put it another way, banks are injecting Botox, rather than undergoing the open-heart surgery that they really need. It’s a case of ‘look: fluffy kittens and shiny baubles’ in the form of apps and websites, but the underlying platforms remain old and creaking and that means that the banking incumbents are hampered.

To be fair, I have lots of sympathy here. They simply can’t move as fast as the challenger banks that have had the luxury of starting their infrastructure from scratch and sooner or later that will come back and bite them. Look, for example, at cloud platforms where only 10 or 20 percent of infrastructure has been migrated despite promises of cloud-first strategies and the banking data centres where monolithic on-prem hardware still reigns.

You feel that slowness of action in your interactions with banks that communicate only via issued statements, letters notifying you of changes to Ts and Cs, and threats when you go into the red. Inertia is nothing new in banking either: we like to think that technology change happens in the blink of an eye but in banking contactless NFC took the best part of 20 years to go mainstream.

This is the dirty secret of banks. They see the need to change but remain shackled. Why are the banks so slow? Historically, because it was hard for competitors to gain banking licences and the capital to really challenge so there was no catalyst or mandate for change. Also, because change is tough and fear of downtime or a security compromise to critical systems is very real. More recently, because internal wars in organisations set roundheads against cavaliers, the risk-averse against the bold, resulting in impasse and frustration.

I said change is tough and that’s why banks need to power through on the basis of Winston Churchill’s wisdom that ‘if you’re going through hell, keep going.” How? By a combination of maniacal focus on expunging legacy systems, placing maximum emphasis on superb customer interaction experiences and digitally enabling anything that moves.

Right now, the banks are surviving, not thriving; they’re rabbits blinking into the headlights of approaching traffic, frozen in the moment. But they need to disrupt themselves before others do it to them: change is painful but not as painful as the alternative. They have to do much more or they will see a decline in their fortunes due to their bankrupt capacity for innovation and their inflexible infrastructures.

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Banking

Vietnamese National Citizen Bank Rises to Excellence with Three Global Financial Awards

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Hanoi, Vietnam – Global Banking & Finance Review is proud to announce the sweeping victory of National Citizen Bank in the 2020 Global Banking & Finance Awards®. The bank was recently presented with three prestigious global financial awards: Best Place to Work Vietnam 2020, Fastest Growing Retail Bank Vietnam 2020, and Best Investor Relations Bank Vietnam 2020. The Global Banking & Finance Awards® recognize the innovation, enterprise, method, progressive and influential transformations that transpire every year within the global finance community. National Citizen Bank would like to extend their thanks and appreciation to the community and their customers for their continuous loyalty and support throughout the last 25 years.

Vietnamese National Citizen Bank Rises to Excellence with Three Global Financial Awards 3

 

The National Citizen Bank was recognized for its all-inclusive professional working environment and ongoing staff development that enhances its internal communications and employee relations. Throughout the last 25 years, National Citizen Bank has focused on the core fundamentals of regulatory modifications with the underlying goal of dividing the volume of both business and administrative tasks. As a result of this, the bank has successfully strengthened its staff’s capacity to obtain, manage outstanding liabilities, and acquire assets to negotiate and retrieve capital efficiently and reliably.

When asked what allowed the bank to triumph against the fierce competition, Wanda Rich, Editor for Global Banking & Finance vocalized, “one of the key factors that stood out to the committee is that National Citizen Bank strives to maintain and maximize profit to shareholders through the implementation of stable, sustainable business operations and advanced production methods. The bank has also remained stable, positive, and had a high growth rate in all of its activities, which is not often seen; however, it clearly indicates how prestigious and overall accomplished they are. They should be exceptionally proud of all three awards.”

About National Citizen Bank

The National Citizen Bank was initially established as a rural bank in 1995 under the name Bank of Kien River. The bank optimized its competitive standing within the global financial industry, later transforming into an urban banking institution where they reinstated their name as the National Citizens Bank. With a team of highly professional financial experts and customer service representatives, the bank embraces each customer’s diverse needs to ensure customary, efficient, and trustworthy experiences from start to finish. Over the years, the bank has prided itself on its continued emphasis on risk management and global business relations with investors, customers, and partners. For more information, please visit the National Citizen Bank.

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