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“Your basket contains: one microwaveable lasagne, and a mortgage. Proceed to checkout”

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“Your basket contains: one microwaveable lasagne, and a mortgage. Proceed to checkout”

By Paul Bowen, Head of Financial Services, Avanade UKI

The idea of buying financial services from a tech firm or online retailer is no longer fanciful –in fact, it’s started to seem like an attractive option for consumers who are frustrated by the traditional banking sector’s apparent resolve to stay stuck firmly in the 20th century.

Paul Bowen

Paul Bowen

Retail banking was once the most “unchallenged” of industries, with new entrants to the market facing significant barriers to entry, such as obtaining startup capital and creating a national network of branches. The arrival of Tesco Bank to the UK in 1997 should have raised the alarm, showing how a new entrant could exploit its hundreds of physical stores and enormous financial muscle to provide banking services to its customers. Then came Amazon, which since 2011 has surpassed $3 billion of loans to small businesses through its Amazon Lending division.

It’s not their enormous market capitalisations that make companies like Amazon such a threat, but rather the fact that they have consistently demonstrated their ability to provide fantastic shopping experiences and customer service that puts their High Street rivals to shame. New online-only entrants harness the power of new technology, such as chat bots and predictive analytics, to dispense with the most frustrating elements of traditional banking, such as endless phone queues and long lunchtime lines at the branch.

Losing the race for relevance 

Little wonder, then, that almost nine in ten (85%) senior technology decision makers in the banking industry in Europe believe they are being overtaken by disruptive competition. According to Avanade’s latest in-depth research into attitudes towards disruption in the retail banking industry, there is widespread recognition that investment in technological innovation is absolutely critical if established institutions are to have any hope of catching up with new digital challengers.

Established banks are facing a race for relevance, where nimble startups (as well as established giants in the retail and technology sector) are far ahead in delivering great customer experiences and better financial products and interactions.

Perhaps the only positive for the traditional banking sector is that they understand the urgency of investing in technology to improve the services they provide, with 88% saying they need to improve customer experience. This includes factors such as increasing personalisation, providing a more seamless experience across multiple channels, and closing physical branches and embracing online-only services.

Strangled by legacy IT 

One of the main factors holding back the established banks from embracing new technologies is the fact that they are lumbered with a web of legacy infrastructure that is strangling any attempt at innovation. The only answer is to cut the Gordian knot, and make significant investment in replacing legacy IT systems. Expensive as this may be in the short term, the only alternative is to continue spending significant sums on administering clapped out, unreliable systems.

This makes poor business sense, with around half of banks saying that they spend more on maintaining their old IT infrastructure than challenger institutions do for their much more modern systems. With almost half of respondents saying that legacy IT costs too much to maintain, and two fifths believing that their IT department spends time on maintenance, now is surely the time for banks to embrace the power of the cloud.

Optimising operations and efficiency 

Currently less than a fifth of bank infrastructure is deployed on private cloud, and barely 10% on public cloud. In spite of this, banks realise the cloud is key to achieving operational efficiency, improving productivity, and deploying new services for customers.

Challenger institutions are making great strides with services based on cognitive automation, machine learning, and robotic process automation, benefitting from the scale and flexibility of the cloud. But moving IT infrastructure to the cloud can only be the first step, and almost every bank appreciates that it must engage third party services to access the skills and resources they need to develop and deploy new customer services or boost employee productivity.

Reimagining the customer experience 

Challenger banks offer a dazzling array of slick new services, from mobile money management to automated customer chat bots, but the basis of a great customer experience (CX) is actually quite a simple matter. Consumers’ main demand is access to a full range of services and products, coupled with the reassurance that their personal data is protected by industry-leading security technology, along with a desire for engaging digital interfaces on their chosen device.

These goals are highly achievable for any retail bank, with almost nine in ten of our respondents believing that their organisation could improve the way they personalise services for their customers, while more than half plan to remove human interactions from their retail services. Yet 64% admit that they struggle to provide a truly seamless experience – hardly surprising given their reliance on legacy technology and low levels of cloud adoption.

Most banks regularly hear the complaint that smarter, more disruptive competitors outperform them in delivering great customer experiences, and a clear majority (91%) say that they will need to spend more to improve the services they provide. On average, however, only 14% of annual IT budgets go towards enhancing CX – compare that to the 19% spent on maintaining legacy infrastructure, and the cost of old IT systems is put into stark relief.

No-one is claiming that updating decades-old  IT infrastructure will pay for itself overnight; however, the only alternative for established banks is to sink further into obscurity and irrelevance while their more nimble competitors forge ahead, unencumbered by branches and legacy technology. The one advantage the banks still hold over the disruptors is their large customer base; it’s high time, then, to begin treating them as valued consumers, and investing in the services they crave.

Banking

Take on more risk or taper? BOJ faces tough choice with REIT buying

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Take on more risk or taper? BOJ faces tough choice with REIT buying 1

By Kentaro Sugiyama and Leika Kihara

TOKYO (Reuters) – The Bank of Japan (BOJ) is under pressure to relax rules for its purchases of real-estate investment trusts (REITs) so that it can keep buying the asset at the current pace, highlighting the challenges of sustaining its massive stimulus programme.

The fate of the rules, which limit the central bank’s ownership of individual REITs to a maximum of 10%, could be discussed at the BOJ’s review of policy tools at its March 18-19 meeting, with an industry estimate putting nearly a third of its REIT holdings at close to the permissible threshold.

Given Japan’s fairly small REIT market, the BOJ may struggle to keep buying the asset unless it relaxes the ownership rule or accepts REITs with lower credit ratings, analysts say. The BOJ currently buys REITs with ratings of AA or higher.

“There’s a good chance the BOJ could tweak the rules for its REIT buying at the March review,” said Koji Ishizaki, senior credit analyst at Mizuho Securities.

The issue underscores the tricky balance the BOJ faces at the March review, where it hopes to slow risky asset purchases without stoking fears of a full-fledged withdrawal of stimulus aimed at weathering the prolonged battle with COVID-19.

As part of its stimulus programme, the BOJ buys huge amounts of assets such as exchange-traded funds and J-REITs.

It ramped up buying last March to calm markets jolted by the pandemic, and now pledges to buy at an annual pace of up to 180 billion yen ($1.68 billion).

The BOJ last year bought 114.5 billion yen worth of J-REITs, double the amount in 2019, bringing the total balance of holdings at 669.6 billion yen as of December, BOJ data showed.

The surge of its portfolio has led to the BOJ owning more than 9% for some REITs. An estimate by Mizuho Securities showed the BOJ owned more than 9% for seven out of the 23 REITs it held as of January, including Japan Excellent and Fukuoka REIT.

The BOJ did not immediately respond to a request for comment. The central bank normally does not comment on policy, besides public speeches and briefings by its board members.

BOJ Governor Haruhiko Kuroda has said the review won’t lead to a tightening of monetary policy.

But many BOJ officials are wary of relaxing rules for an unorthodox programme like J-REIT purchases, which critics say distorts prices and exposes the bank’s balance sheet to risk.

“Unless markets are under huge stress, it’s hard to relax the rules,” said an official familiar with the BOJ’s thinking.

($1 = 107.0200 yen)

(Reporting by Kentaro Sugiyama and Leika Kihara; Editing by Muralikumar Anantharaman)

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German watchdog puts Greensill Bank on hold due to risk concerns

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German watchdog puts Greensill Bank on hold due to risk concerns 2

By Tom Sims and Tom Bergin

FRANKFURT/LONDON (Reuters) – Germany’s financial watchdog warned of “an imminent risk” that Greensill Bank would become over-indebted on Wednesday as it imposed a moratorium on the lender making disposals or payments.

BaFin’s move is another blow to the bank’s owner, Greensill Capital, which said on Tuesday it is in talks to sell large parts of its business after the loss of backing from two Swiss asset managers which underpinned key parts of its supply chain financing model.

Greensill, which was founded in 2011 by former Citigroup banker Lex Greensill, helps companies spread out the time they have to pay their bills. The loans, which typically have maturities of up to 90 days, are securitized and sold to investors, allowing Greensill to make new loans. Greensill’s primary source of funding came to an abrupt halt this week when Credit Suisse and asset manager GAM Holdings AG suspended redemptions from funds which held most of their around $10 billion in assets in Greensill notes, over concerns about being able to accurately value them.

Two sources told Reuters on Wednesday that SoftBank-backed Greensill Capital is preparing to file for insolvency, adding that the sale talks were with U.S. private equity firm Apollo.

Greensill and Apollo did not immediately respond to requests for comment on Greensill’s insolvency preparations, which were earlier reported by the Financial Times, or on the sale talks.

Japan’s SoftBank, which has invested $1.5 billion in recent years in Greensill, also declined to comment.

BaFin said an audit found that Greensill Bank could not provide evidence of receivables on its balance sheet purchased from mining tycoon Sanjeev Gupta’s GFG Alliance. GFG did not respond to a Reuters request for comment on BaFin’s findings.

“The moratorium had to be ordered to secure the assets in an orderly procedure,” BaFin said in a statement, adding that the Bremen-based bank would be closed for business with customers. It declined to elaborate.

Greensill Capital said in a statement that Greensill Bank always “seeks external legal and audit advice before booking any new asset.”

CASH RETURN

Greensill Bank had loans outstanding of 2.8 billion euros and deposits of 3.3 billion euros at the end of 2019, rating agency Scope said in an October report, which did not detail the bank’s exposure to GFG.

The bank is a member of the Compensation Scheme of German Banks which means deposits up to 100,000 euros ($120,740) are protected. The German regulator said withdrawals were not currently possible, but gave no further detail in a statement.

Prosecutors in Bremen said earlier they had received a criminal complaint from BaFin regarding Greensill Bank, but did not provide further details on it.

In Britain, meanwhile the financial regulator took action against GFG’s own trade finance arm Wyelands Bank. The Bank of England’s Prudential Regulation Authority said it had ordered Wyelands to repay all its depositors. It said in a statement that it had been engaging closely with Wyelands, but did not say why it had taken the action.

GFG said Wyelands, which had over 700 million pounds ($979 million) of deposits according to its latest annual report, would repay deposits and planned to “focus solely on business advisory and connected finance”.

A GFG spokesman declined to comment on the BoE statement.

Credit Suisse said on Wednesday it is looking to return cash from its suspended funds dedicated to supply chain finance, which is a method by which companies can get cash from banks and funds such as Greensill Capital to pay their suppliers without having to dip into their working capital.

“Given the significant amount of cash (and cash equivalents) in the funds, we are exploring mechanisms for distributing excess cash to investors,” Credit Suisse said in a note to investors on its website.

Credit Suisse said that more than 1,000 institutional or professional investors were invested across its funds.

($1 = 0.8282 euros)

($1 = 0.7153 pounds)

(Reporting by Tom Sims and Patricia Uhlig in FRANKFURT and Tom Bergin in LONDON; Additional reporting by Brenna Hughes Neghaiwi and Oliver Hirt in ZURICH; Editing by Alexander Smith)

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Banking

Britain to review surcharge on bank profits

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Britain to review surcharge on bank profits 3

LONDON (Reuters) – Britain’s finance minister Rishi Sunak has said the government will review the surcharge levied on bank profits, in a bid to keep the UK competitive with rival financial centres in the United States and the European Union.

Sunak said in his Budget statement on Wednesday he was launching the review so that the combined tax burden on banks did not rise significantly after planned increases to corporation tax.

Leaving the surcharge unchanged would make UK taxation of banks “uncompetitive and damage one of the UK’s key exports”, the government said in its Budget document.

Changes will be laid out in the autumn and legislated for in the forthcoming Finance Bill 2021-22, the document said.

The surcharge on bank profits raised 1.5 billion pounds for the government in 2020, the document showed.

It is separate to the more lucrative bank levy on bank balance sheets, which raised 2.5 billion pounds.

(Reporting by Iain Withers, Editing by Huw Jones)

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