Estrazione Insights

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We live in a world that is more globalised than ever before. Making connections is now easy. Technology is to thank for this as we use it to support everyday activities from sending emails, calling friends, shopping at the supermarket, travelling on the tube and even buying coffee. Every one of these actions, and in fact everything we do, is generating data.

Many companies have begun to realise that they already have a lot of data at their disposal, if only they knew how to utilise it. This dataset is only going to increase with research reporting that 90% of data in the world was created in the last three years. The growth of social media has contributed to this with businesses now having to monitor and react in real time to what is being said on channels including Twitter, LinkedIn, Facebook, Instagram and Google+. Companies can become true social businesses, by driving growth and superior profitability through a better understanding of the customer through social. They can capture, analyse and utilise these new forms of communication and data to drive real and measureable strategic value.

Every industry from automotive to financial services and retail are sitting on masses of datasets relating to everything from machine data to customer behaviour. Data has significant potential as it provides an insight into human behaviour. Organisations are investing in business processes which depend on the accurate understanding of this data. They recognise that what was once regarded as ‘information overload’ can now provide valuable insights. When extracted correctly, data can help predict behaviours, classify profiles, decrease risk, identify opportunity, prevent fraud and can be used to discover meaningful patterns and trends. In fact, predictive analysis can help companies with customer service, compliance, financial management and making better informed business decisions.

Now that we understand that big data has value in it, how do you go about finding it? Using big data intelligently involves more than just creating a huge database of internal and external business information. It requires adopting a new paradigm for production and service delivery, using methods of computational intelligence, machine learning and evolutionary programming within artificial intelligence.

The global adoption of smart phones, tablets, wearables and the hype around the internet of things means that datasets that were once merely observed can now be combined with volunteered data (as we see on social media) and cross referenced against intelligent statistics. These datasets are then analysed further using artificial intelligence methodologies.

Digital transformation is unstoppable. Digital is persistent, ubiquitous and affects every industry and business. This means that all organisations need to understand the impact digital will have on their products, services, systems, infrastructure and, critically, their business model and organisational structures.

Today, despite the level of disruption, digital is only in its early days as mobility, analytics and agility fundamentally change the relationship between companies and their customers. The world of tomorrow is about connections. Individuals will find themselves interacting with hundreds of M2M devices as they go about their daily lives. Everything from security cameras, home appliances, traffic sensors, healthcare devices, navigation systems, ticketing systems, payment systems and even vending machines. Financial services organisations need to consider what a successful company will look like in the future and how digital disruption can be exploited.

Major companies mistakenly assume that they are being digitally disruptive when implementing new technology portfolios or using tools such as online platforms, social networking, predictive analytics and cloud. This is not enough. Using new technology does not automatically result in digital exploitation. First, you need to reimagine your business and meet the demands of customers living in a digital world. Then you need to predict behaviours.

Digital innovation has given birth to a new customer journey. It is transforming the way people interact, transact, learn and handle their finances. Companies increasingly find themselves in a situation where the customer is in control. So much so, that customers are directing and designing their own customised experiences. The digital customer cares about four things; convenience, simplicity, speed and insight. Customers want 24/7 access to services, response to any queries in real time and meaningful dialogues with the brands they interact with, across multiple channels and interfaces. They demand hyper customisation and are increasingly in control.

The Millennial population are a good example of individuals who from a young age have grown up using a smartphone and tablet. What started out a tool to make phone calls when out of the house or office, is now something much more as the millennial population intuitively make all their important decisions online. Mobility infrastructure has expanded and diffused to the point where almost everything is connected to a network. For Millennial customers, bank branches need to offer more than just financial advice for the visit to be worthwhile. Technology is also uncovering new un-banked and under-banked communities.

Banks are now finding themselves focusing their efforts on retaining customers and building brand loyalty whilst also competing with traditional institutions, challenger banks and non-traditional players from sectors as diverse as transport (e.g. Uber), retail (e.g. Amazon) and technology (e.g. Apple, Google, Facebook). Financial services companies must respond to customer needs quickly or risk losing to these smarter entrants.

Finance and risk functions within many financial firms have begun to build a closer partnership and a greater coordination, impelled by a combination of factors including cost and effectiveness pressures, regulatory demands, a desire to do more stress testing, reports on credit and market exposures with the goal to provide faster and more accurate figures to support the top management strategic and operational decision processes.

In this way finance and risk are different faces of the same coin and, though the two functions must remain separated, a closer collaboration is required to give different perspectives and vigorous debate to providing the CEO and Board with a balanced view.

Following areas should be the first testing ground to promote joint activities between finance and risk, while assuring their independence:

• Data quality: finance is, and should remain the ultimate custodian of data, however data quality should be a shared responsibility.
• Joint development of risk and capital models: risk models are developed by the risk function, but it must be done in close coordination with finance.
• A greater use of risk analytics: more and more organizations are using sophisticated risk analytics, not only to support credit and financial decision making, but to provide a stronger foundation for operational strategy. The risk function often provides analytics services to all functions, including finance, which can further foster integration (e.g.. stress testing).
• Regulatory reporting: new regulatory approaches now make compliance the common responsibility of the CFO and CRO (e.g.. Capital adequacy). Risk-adjusted capital models are at the heart of both the latest Basel regulatory initiatives in banking, and the latest Solvency initiatives in insurance. Implementing such models often involves extensive coordination by risk and finance on inputs, and possibly also on decision-making.
• M&A: it has been almost the sole domain of finance, but risk increasingly has a chair at the table, particularly during due diligence phases of an acquisition.

Some key issues should be addressed in order to reach an effective risk-finance collaboration:

• Establish integrated and shared data sources: solving data quality issues, including the development of shared data processes and systems, can be an effective way to reduce a common area of conflict and improve the risk-finance working relationship.
• Jointly develop risk and capital models: risk models development typically remains the responsibility of the risk function but data fed into models should come out of systems created by finance, and outputs from the models can in turn influence financial reporting (e.g. provisioning, ICAAP).
• Strike the right balance to promote interdependence and cross-leverage risk management and finance: independent CFO and CRO functions can actually provide a strong impetus for operational integration.
• Give risk input into strategy: even when working in close cooperation with other departments, allowing risk to retain its independent perspective can be essential.
• Increase the value-added provided by the risk function: risk should go beyond a compliance role to focus on adding value to the business.
• Rotate personnel between risk and finance: even if risk and finance personnel sometimes find themselves in opposition on an issue, speaking a common language and having common experiences can help enhance operational effectiveness.

Be Team has already started to support its Clients to be successful in this emerging trend. Quantitative skills in designing measures and reporting on the banking and trading book, culture in data quality  and knowledge of processes developed in the CFO area and data governance projects can be easily extended with few risk management skills to support an effective CFO CRO Convergence.

CFOs and CROs in the financial sector are facing a period of simultaneous and disruptive events consequent to the recent financial crisis. Markets and economic volatility together with regulatory and commercial pressures are producing a challenging environment never seen in the past.

Finance and risk functions within many financial firms have begun to build a closer partnership and a greater coordination, impelled by a combination of factors including cost and effectiveness pressures, regulatory demands, a desire to do more stress testing, reports on credit and market exposures with the goal to provide faster and more accurate figures to support the top management strategic and operational decision processes.

In this way finance and risk are different faces of the same coin and, though the two functions must remain separated, a closer collaboration is required to give different perspectives and vigorous debate to providing the CEO and Board with a balanced view.

Following areas should be the first testing ground to promote joint activities between finance and risk, while assuring their independence:

• Data quality –  finance is, and should remain the ultimate custodian of data, however data quality should be a shared responsibility.

• Joint development of risk and capital models – risk models are developed by the risk function, but it must be done in close coordination with finance.

• A greater use of risk analytics – more and more organizations are using sophisticated risk analytics, not only to support credit and financial decision making, but to provide a stronger foundation for operational strategy. The risk function often provides analytics services to all functions, including finance, which can further foster integration (e.g.. stress testing).

• Regulatory reporting – new regulatory approaches now make compliance the common responsibility of the CFO and CRO (e.g.. Capital adequacy). Risk-adjusted capital models are at the heart of both the latest Basel regulatory initiatives in banking, and the latest Solvency initiatives in insurance. Implementing such models often involves extensive coordination by risk and finance on inputs, and possibly also on decision-making.

• M&A – it has been almost the sole domain of finance, but risk increasingly has a chair at the table, particularly during due diligence phases of an acquisition.

Some key issues should be addressed in order to reach an effective risk-finance collaboration:

• Establish integrated and shared data sources – solving data quality issues, including the development of shared data processes and systems, can be an effective way to reduce a common area of conflict and improve the risk-finance working relationship.

• Jointly develop risk and capital models – risk models development typically remains the responsibility of the risk function but data fed into models should come out of systems created by finance, and outputs from the models can in turn influence financial reporting (e.g. provisioning, ICAAP).

• Strike the right balance to promote interdependence and cross-leverage risk management and finance – independent CFO and CRO functions can actually provide a strong impetus for operational integration.

• Give risk input into strategy – even when working in close cooperation with other departments, allowing risk to retain its independent perspective can be essential.

• Increase the value-added provided by the risk function – risk should go beyond a compliance role to focus on adding value to the business.

• Rotate personnel between risk and finance – even if risk and finance personnel sometimes find themselves in opposition on an issue, speaking a common language and having common experiences can help enhance operational effectiveness.

Be has already started to support its Clients to be successful in this emerging trend. Quantitative skills in designing measures and reporting on the banking and trading book, culture in data quality  and knowledge of processes developed in the CFO area and data governance projects can be easily extended with few risk management skills to support an effective CFO CRO Convergence.

The FX market volume – the market where currencies are traded – exceeds 5tn dollars a day, making it the biggest and most liquid financial market globally. The FX catalogue include cash products (spot, forward, swap, ndf) and derivatives (options, structured products).

The FX market is the backbone of international trade and global investing: on the one hand, it allows the sustainability of import and export whereas, on the other,  forex is an asset class that allows to take benefit from international diversification both to buy and sell foreign assets and securities or currencies directly. Forex rates also form the basis for performance evaluation and risk management as they are used for hedging purposes against currency fluctuations to manage risk or used to speculate assuming risk betting on earning a return.

Currencies are traded electronically and bilaterally over the counter: a must for a dealer is to be always connected globally to identify “where the market is”. The lack of transparency and the massive  volumes of transactions that describe the FX markets entitled the development of specific mechanism to identify the rate to apply: a sort of benchmark called “fix” that is a single rate that reflects the value  of one currency relative to others at a particular point in time, typically created from a snapshot of actual trades (unlike Libor that relies on estimated rates).

A recent regulatory spotlight on alleged market rigging has accelerated a longstanding move to automated trading platforms: word wide regulators and organizations are working on proposals for changing financial benchmarks as well as data providers. Banks, fearing a move towards exchanges as it would further reduce margins and the value of costly investments into their own trading platforms, are stepping up to move away from traditional voice trading that are at the center of the probes. Those concerns are reinforced by the fact that the Regulatory bodies are aiming to introduce transparency mechanisms, timely confirmation of deals, pre/post trade disclosures to clients and clearing obligations with the scope of forcefully making over the market operations subject to control.

As for the fix income and commodities products in the late 1990s, the change from voice to electronic in FX will be driven from a buy side reform: the adoption of transparent algorithms and the access to different size order, simply show a better alternative to traditional channels. In addition the electronic platforms enable a real global dimension to the FX business (resolving simple barriers like time zone constraints) allowing players to grant access to all emergent markets and meeting retail investor’s appetite.

Across all products, electronic trading volume moved from single-digits in the early 2000s to 74 per cent last year (according to Greenwich Associates, a research company), but about 35 per cent of volume in the global $2tn a day spot fx market – where currencies directly change hands and traders take risks as market makers – is still done over the phone (according to Bank for International Settlements data): the rise of machine-driven fx business is open.

Our experience on FX programme at one of our largest clients. Since 2011, one of our largest clients launched a wide program including initiatives to develop capabilities and technological assets on FX, enabling itself to expand its positions in currency trading, including:

• adoption of an electronic trading service dedicated to financial institution and large corporate through Bloomberg, FX all and 360t multi dealers platforms;

• development of a pricing engine for cash products;

• strengthen pricing modelling to extend derivatives offer;

• development of a an integrated IT architecture to automate for instance sales to trader workflow, credit lines capacity controls, client data management.

Particular attention has been given to small/mid corporate and retail clients, developing a specific electronic platform integrated with the payment current services offered: the aim is to create synergies with all new potential FX transactions arising from products like structured export finance, trade export finance and cash pooling and to leverage its consolidated skills and competences on securities brokerage platforms (Market Hub).

This is the vision our client has on electronic assets:

• an investment to meet new customer and increase market share, with specific target on retail customers;

• a “must have” to serve financial institutions for which a multi dealer platform is considered as a baseline service;

• an advantage to concentrate all fx group needs;

• an opportunity to let desk sales concentrate on more profitable business (such as hedging or structured products).  As a continuous result, our client outstands most competitors in the 2013 poll launched by Risk Magazine: ranked third in four categories, placed in second position overall on currencies derivatives.

There is a clear picture described in the strategic business plan of our client: forex asset class has been recognized among the main profitable business for the next three years and the Group’s investment bank has been appointed as director to develop services and product to distribute a Group level.  Be Consulting has been confirmed as partner to support this new challenge.

Banks that are focused on service level and innovation have grasped that m-banking is the hint to manage all the aspects of their customers daily lives, providing access to financial services through mobile devices.

Mobile Payment represents a significant opportunity for Banks to create new revenue streams, being a centerpiece of a multi-channel strategy.

Different actors have shown interest to aggressively enter this new market, but there is still no evidence of the sharpest way to move forward. In order to maintain their competitive advantage against new Players,  Banks should leverage on their experience in dealing with security and data protection issues and exploit the value of mobility for customers (ubiquity, ease of use, convergence). Given Italian terrific penetration of cellular phones, m-Payment results in a great opportunity to attain the “War on Cash”, reducing cash related costs and enforcing Anti Money Laundering norms.

There is an already settled demand for different m-payment use cases:

• Person-to-Person Money Transfer: funds’ exchange through a brokered service provider;

• Purchase termination (C2B);

• Proximity Payment: transactions can be concluded at both attended and unattended POS locations. The consumer uses a mobile device, as a contactless card,  to interact with the POS system;

• Remote Payment: it brings e-commerce payment experience onto  mobile devices, accessing merchants’ mobile sites/applications.

Next step in the evolution path will be the introduction of M-Wallet, enabling a real convergence of multiple offers on a single device: loyalty cards, m-payments, couponing and geo-positioning offers.

The key market challenge is to redeem the conflict between Finance and TelCo’s players. Banks see in the m-payment an extremely valuable source of information on customers spending patterns and preferences, while MNO’s are starving for new data targeting and incremental advertising revenues.

The m-Payment market appears to be wide open to new entrants, with banks having a slight edge. To survive in this market Banks have to integrate mobile into existing offerings and rebuild loyalty engagement strategy,based on geosensitive and profiled push communications

At the same time Banks should truly address the market adoption of a NFC standard based on a micro-SD architecture, that’s allows them to counterbalance the overpowering strategy of new comers: Apple, Google, Paypal, TelCo’s and to catch new market opportunities deriving from:

• Customer Data and Ownership

• Marketing campaign

• Mobile advertising

A “wait and see” approach will let emerging providers peel consumers away from their banks. In this worst scenario Financial institutions will not only vanish m-payment new revenues opportunities, but will also suffer significant losses of current business.

Whilst the wealth management industry has been struggling with market volatility, low returns and increasingly risk averse clients, another phenomenon has been gradually gathering momentum. The incredible rise in ownership of smartphones such as Apple iPhone and Samsung Galaxy, plus plunging data tariffs and increasing broadband and Wi-Fi penetration has changed the way that people expect to be able to access and receive information.

Many wealth managers have the view that the more a person is worth, the more face to face time they require.

However, many of their clients priorities are different. They ask for more and better data, 24 x 7 access to portfolio positions, execution only trading with expert advice delivered not necessarily face to face, but at the clients desired time and place.

The role of the Relationship Manager is under pressure, they are a costly resource but their role is no longer absolutely clear. Many clients are increasingly mobile and time poor. Therefore, they have become unwilling or unable to conduct all of their business face to face with a Relationship Manager.

These evolving needs have resulted in an increased use of telephone and e-mail, neither of which however can deliver the richness of a person to person advice session. Some organisations have attempted to replace the face to face with video conferencing, but for anyone who has spent any time on Skype, the results can be very patchy. It may be fine for talking to relations, but not satisfactory for delivering complex investment advice!

One solution to this dilemma is starting to get traction, the use of co-browsing technology.

The concept is simple: a regular telephone call is made but both parties are also online looking at an internet browser. The advisor can “push” information to the clients’ browser, so that the client can see what the advisor is speaking about. All the client needs is a telephone, a laptop, tablet or PC and an internet connection.

Suddenly complex investment products can be illustrated and explained with diagrams, illustration or even video.

Documents can be securely and instantly delivered and agreement to compliance questions and statements can be remotely recorded.

On the client side, these sessions can be conducted at a time and place to suit their needs but, at the same time, they get a much richer discussion than a simple telephone call or e-mail could deliver.

This is certainly not a complete substitute for face to face, but where an existing relationship exists, or where time or geography are challenging, this type of meeting can have many advantages over a simple call or a complex video meeting.

So far, where this technology has been deployed the advisors have experienced significant uplift in conversion rates on product sales, shorter sales cycles and reported higher levels of customer satisfaction.

Because the entire conversation plus supporting documentation can be recorded in a visual audit, the numbers of complaints and miss-selling allegations has plummeted. In addition the advisors are able to deliver these sessions from their office and so save considerable time and cost on travel.

There is no doubt that in the longer term, video conferencing will replace much of the need for travel and face to face meeting, however in the short term, and in particular in parts of the world where local infrastructure and internet access is limited, co-browsing technology can deliver a cost effective and rich alternative to a face to face meeting.

With 25 million prepaid cards issued, Italy is the largest prepaid country in the world. It is seen by many as a case study of what can be achieved by prepaid cards and a laboratory for new successful products. Unlike in other regions, where prepaid cards are used by a small proportion of under banked consumers, in Italy these are truly mass-market payment tools.

Prepaid cards success in Italy is due to several reasons:

• Italy have a significant unbanked population (8 million people) and prepaid cards are the easiest way to convert cash into a digital mean;

• Many current account holders have only debit cards, which typically cannot be used online: prepaid cards are an easy tool for online purchases, providing also a safety net for security concerns;

• Italians have a history of mistrust in banks: prepaid cards pricing models are transparent, an initial purchase fee and flat fees for reloading and withdrawal;

• Italians are familiar to the prepaid concept: mobile phones top ups were an instant hit.

In Italy the majority of prepaid cards are issued by retail banks as general purpose cards, not targeted at specific consumer segments. Things are changing though: a growing number of non-banking institutions and service providers are looking towards the prepaid card market as a way to introduce innovative services and gain traction in the payments arena.

Reflecting country’s preference for cash, prepaid cards are used mainly occasionally, for online purchases or as travels pocket. Hence the total value of transactions still remains limited.

Given the record high penetration rate of prepaid cards, financial players face the challenge to increase cards’ utilization rate and move customers from plain vanilla prepaid cards to richer and more engaging products. Light accounts are a big step in the right direction: different pricing and additional services enabled by IBAN code allow for everyday usage and higher revenues. The market is already crowded, but new important products, such as Postepay Evolution from Poste Italiane, continue to emerge.

What is next? Innovative features will become a requirement for new successful products:

• Full card management through Mobile app: many prepaid cards are already paired with mobile apps but the functionalities offered are often not in line with customer expectations; a rich and well designed app can tilt the balance;

• Multi app functionalities through EMV chip: strategic deals between banks and service providers will allow for integration of new services (e.g. transport and event ticketing, identification);

• Engaging mobile marketing initiatives and loyalty solutions; Social Media integration and mobile marketing campaigns have been proved effective in a few new UK/US products.

We believe the prepaid space will stay as a profitable entry level for retail banks in the next years; increasing synergies between prepaid cards and smartphone applications will also ease the transition towards the approaching proximity mobile payments revolution.

Many European financial players are thinking of outsourcing large components of their operational and ICT services, as a consequence of a widespread trend to “focus on core business”.

This strategy needs the implementation of an “outsourcing supervision and monitoring system”.

This topic is subject to specific domestic and EU provisions which underline its growing importance in the broader context of the so-called “responsibility discipline” of financial players.

New regulations, combined with the increasing managerial need of supervision and monitoring for the performance of the “operating machine”, led Be Consulting to develop a flexible and scalable “holistic” approach to the Outsourcing Management topic. It is a six-step approach:

1. Definition of the project perimeter: in this step we clearly identify the outsorcing providers to be supervised, the services to be monitored and the “customers” of those services (who will then be responsible for controlling and monitoring the outsourcers);
2. Assessment of the current situation: as a second step, a quick analysis of the current situation of the outsourcing management framework is needed to identify and define the entire spectrum of project activities (see picture);
3. Organisation and internal regulation: in this phase we design the project organisational structure to carry out the relevant processes with particular focues on the so-called ‘Retained Organization’ (RTO) and  the relevant internal regulation/ policy;
4. Harmonisation/ integration of information baselines: we address and bridge the mismatch between how SLA/ KPI are measured and how the outsourcing costs are determined. Mismatches can also arise due to different suppliers covering  the same service;
5. Contract Management: in this step we define the optimal contractual architecture (e.g. protocol agreements vs individual contracts) and consequently update processes and repositories to keep  a clear reference to the outsourcing services contracts/ catalogues;
6. Monitoring and Reporting: we finally focus on creating a customised reporting system to periodically provide key indicators on the actual outsourcing cost and performance. Our support includes the design of the reporting template as well as the implementation of the  IT tool and the start-up of the distribution process.  As for the tool, we are in a position to market our own solution (developed by Be Solutions) which, according to the specific requirements, can also be integrated with market packages.

The financial crisis of the first years of the new millennium pushed national and international financial and monetary Authorities to re-think the payments and securities settlement context. With reference to the Eurozone, the ECB decided to evolve the security settlement landscape by adopting the same approach they had followed for wholesale payments with the introduction of “TARGET 2”. In other words, to build a single shared technical settlement platform managed at centralised level and offered to Central Securities Depositories (CSDs).

TARGET2-Securities (better known as T2S) is exactly that: a single shared platform, owned and operated by the Eurosystem, that has been offered to all CSDs interested to adopt it on a  voluntary basis. At the moment, 23 CSDs have already expressed their commitment to adopt the new platform by by February 2017. “Early birds” – including the Italian CSD Montetitoli (part of the London Stock Exchange Group) – will go live on T2S on 22 June 2015.

T2S is probably the largest project ever launched by the European Central Bank (ECB) in terms of resources and efforts. The rationale behind this tremendous effort relies on the fact that settlement is a critical process of systemic importance: it performs the closing of any securities deal as it allows the technical exchange of securities against cash, mainly in central bank money. For this reason, national securities settlement systems are (usually) considered as part of respective domestic payment systems.

T2S is part of a bigger picture aiming to build a single European payment system including retail payments (via SEPA), wholesale payments (via TARGET 2) and collateral management issues (via the Collateral Central Banking Model, also known as CCBM). Jean-Michel Godeffroy, chairman of the T2S Programme Board stated that “the ultimate objective of T2S can be summarised in just a few words: to make Europe a better place to invest” (T2S OnLine – Quarterly review – No 11, Winter 2012).

The involvement of the Eurosystem in building T2S and the sponsorship of all European Authorities, including the EU Commission, has generated large expectations around the project. Among others, it is expected that T2S will contribute to:

• reduce the current fragmentation of securities settlement infrastructure in Europe;

• harmonize settlement services in Central Bank Money (CeBM);

• reduce costs of cross-border securities settlement to domestic level;

• increase competition among providers of post-trading services and break up monopolies;

• support to EU Financial Services Action Plan and contribute to removal of Giovannini Barriers;

• reduce risks;

• promote lower overall collateral requirements, reduce collateral costs and improve liquidity management.

But expectations are never for free: if there were no doubts that the introduction of T2S mainly impacts on national CSDs that decided to join it, there is now a general consensus on the fact that T2S will affect the current market positioning of all intermediaries currently operating in the Eurozone, i.e. global custodians but also local agents, Central Counterparties (CCPs), trading venues and asset managers. In order to remain competitive they should all take critical decisions as if stay or not in the securities business and, if yes, how to comply with the new business framework. In brief, they should assess their current business model in relation to the new scenario and, if necessary, think about adopting a brand new one. Furthermore, the impact of T2S on the organization, the operations and the IT structures of all those securities industry actors will be significant.

It was said that T2S will break up the current CSD monopoly at domestic level by “separating the ‘infrastructure’ from the ‘service’” (Ben Weller, June 2012). This was often (mis)interpreted as a commoditisation of the settlement services that will lead CSD to find new sources of revenues with higher margins: those services generally offered by Global and Local Custodians. The extent to which CSDs will succeed in offering other services, eminently banking, depend not only on legislation that will be introduced with the CSD Regulation but primarily on the reaction of those players whose business will be attacked by CSDs. CSDs will have to find a trade-off  between:

• develop a wide range of services in favour of a wide range of clients – from broker-dealers to the local custodians and asset managers – and thus collide with Global Custodians

   or

• “refine” and expand existing services in favor of Global Custodians (and of larger Local Custodians, able to act as concentrators in relation to other domestic operators) and of  Central Counterparties (CCPs), giving up to serve smaller or less sophisticated clients.

Some of today’s most competitive CSDs at domestic level risk to get  a worse market positioning as T2S will lead to an increase in their operating unit and to a greater competitive pressure on securities settlement fees.

As for CSDs, T2S represents a mix of opportunities and threats for Global Custodians. The few large operators that can be considered as truly global (i.e. those that act directly in any, single, financial center with their own organization) will probably plan, in the long term, to rationalise the number of CSDs they work with. In the short term, they would probably decide not to change the current business model based on direct membership. As the majority of them work through local entities that offer them agency services, they will be geared to reduce the number of current local providers; this solution will imply that they have to plan additional costs to insource skills and know-how.

T2S could have significant implications also for the sub-custodians (ie. the smaller local operators which normally act as local agent for global custodians). Even for them it could be necessary to rethink / refine their business model in order to keep the current competitive position. This will imply  new investments and their operating costs will rise in the medium term. In addition, not all sub-custodians will be able to cope with the new challenge: they are fully aware about this issue that explains why an high percentage of sub-custodians expressed a negative opinion on T2S. The fragmentation of European markets was, in fact, the key to their success so far. Concerns also arise from the fact that there is a significant probability that the national CSDs in T2S may extend their operating scope to local custody services (in particular in the field of management of corporate actions, taxation, etc.). This event would hardly be counteracted by the local custodians, who would lose not only revenue but also their raison d’être. In fact, there would be space for only few operators who can aspire to the role of single point of access to a country involved by T2S and the ideal candidate is surely represented by the national CSD. The most likely consequence is, in the medium term, a consolidation of local operators or their conversion to the role of traditional commercial banks.

CCP will play a key role in the post-T2S. Indeed, there are many clues to substantiate this statement. The new rules on OTC derivatives, the giving up to CCBM2 project, the increasing centrality of the role of collateral and – last but not least – the need to balance any negative network externalities, will make CCPs to become the key players in the development of the securities industry, even more than in the past. As the eminently domestic character of CCPs will lose importance progressively, only those structures able to support the growing demand for more sophisticated services, characterized by an international footprint , will survive. The others would probably be subject to mergers or acquisitions. The increased international competitiveness, together with the improved interoperability induced by T2S, could “crowd out” also those very efficient structures which, in terms of size, number of non-domestic participants and range of served asset classes, would be perceived as less “appealing”.

Also companies who manage trading platforms will not remain indifferent to the advent of T2S. An easier access to standardised settlement services and harmonised custody services will blow traditional domestic boundaries, opening to greater contestability of the trading business and, ultimately, to an increase in competition. The use of a plurality of interoperable CCPs, the level of specialization on one or more asset classes, the range of products offered and the level of sophistication of the same, the ability to adapt to a more international context – characterized by a greater dynamics / responsiveness – are only some of the potential variables to be considered. T2S will probably not have a direct impact on trading platforms management companies in terms of operating costs or trading fees. More likely, it will push for an increase of competition between those companies.

In conclusion, if for someone T2S can pose a threat to its competitive position, for someone else it could represent a source of new opportunities: “At the moment, the buzzword in the market is “collateral”. We are seeing considerable growth in secured borrowing. Also the future legislation on CCPs and OTC derivatives (EMIR) will require more margining. All regulatory initiatives point to the greater demands for more high-quality collateralT2S will enable banks to make very significant savings in collateral when settling securities transactions. T2S will eliminate the need for banks to hold multiple buffers of collateral in depository systems across Europe. Banks will have the possibility to have a single buffer based on their entire European business. A single pool of assets and liquidity automatically nets the short and long positions between various countries. A single settlement engine, central bank auto-collateralisation, a harmonised schedule, and many other features of the T2S platform, will also enable banks to reduce the amount of collateral that is left idle.”(Gertrude Tumpel-Gugerell’s keynote speech at the ECB’s conference on “Securities settlement in 2020: T2S and beyond”, Frankfurt, 4 October 2011).

The recent financial crisis has exacerbated the relation between efficient management of collateral and its impact on capital adequacy needs of European banks. Following completion of a capital exercise, the European Banking Authority (EBA) determined in 2011 that the aggregated shortfall – corresponding to a minimum Core Tier 1 ratio at 9% – exceeds over  € 100 billion.

Under the pressure of the new market discipline agreed at G20 level to mitigate and – to a certain extent – prevent any new financial and monetary crises of systemic impact at global level, retail and wholesale payment systems will necessarily evolve and unsecured interbank deposit markets would be gradually replaced by guaranteed ones.

Collateral is more and more a precious resource as it is more and more scarce: the current way of managing collateral shows some inefficiencies both internal (i.e. related to the specific business model of each market actor) and external (i.e. determined by the fragmentation of markets and platforms). These inefficiencies are estimated at about € 4 billion per year, of which about 10% originating from processes of over-collateralisation.

Financial institutions aiming to keep their competitive positions in the new scenario will have to define strategies for integrating cash and securities in order to optimize risk and profitability management. Banks will look for more efficient collateral- and risk- management tools that, being integrated with payment and compliance processes, are able to work in a proactive way instead of simply reacting to  market inputs.

In the last few years, the ongoing Italian recession has had a significant impact on the Mid Corporate Market.

Based on the latest Cerved data (i.e. an official Italian repository for Companies Balance Sheets) published in a report by the Bank of Italy, only 50% of companies have recovered their pre-crisis turnover. Moreover, companies have experienced a significant reduction of margins and profit, impacted by higher cost of credit (financial charge at 23% of EBITDA, +3% vs. previous year) and less fixed costs reductions.

In this difficult economic scenario, there has also been a significant drop in investments. The request for financing has increased, mainly for short term products, driven by the increase in duration of commercial credit collection (avg. at 104 days, +10% vs. previous year).

Given this challenging context, “Monti’s Technical Government” drafted several proceedings (collected in the “Decreto Sviluppo” document) to support the Italian economy. Among these, with particular reference to Article 32, are the new financial instruments designed to support the Italian SME market (Companies with turnover <50€m).

These instruments, called “cambiali finanziarie” (finance bills) and “mini bond” can be issued by SME that are not listed if assisted by a financial sponsor (e.g. Banks, Investment Banks or Funds). These new financing products (or rather the evolution of the existing ones adapted for SMEs) can be issued by companies to raise short and mid-term financing (from 1 up to 36 months), creating new opportunities for both companies and Banks.

This can be considered an important innovation if compared to the traditional SME financing approach, where the issuance of bonds was only possible for companies rated by an official Credit Agent. The effect of this old rule was to exclude SMEs from this market by definition.

With the introduction of the sponsor role, the “Decreto Sviluppo”, opens the door for SMEs to a new and alternative form of financing.

In this new scenario, banks can capitalize on new business opportunities and are set to play a centric role, firstly as a sponsor for specific SMEs and secondly as an investor in the Italian industrial sector.

As a matter of fact, with this new regulation, banks will be obliged to keep within their portfolio part of the securities which will be issued and distributed primarily to other financial institutions.

Be believes that there is a considerable business opportunity for us in providing a broader support to banks as they approach this new market.

For example, in the Commercial area, Be can provide market analysis and sizing, revenue pool estimation as well as identify the risk of cannibalization for their existing product portfolio.

In the Product and Operations areas, Be can support product and process design. On the latter, we are already in discussions with the Italian arm of one of the largest European banking groups, to define the scope of our assistance to the launch of cambiali finanziarie and mini bonds, through an “end-to-end” support (e.g. compliance, legal, booking, accounting).

Be believes that helping Banks to provide these two new forms of financing is set to be a very important area of development for our Company, which also includes an element of “social responsibility” as it represents a concrete support to Italian Economy.

The financial crisis is bringing deep repercussions for the SME sector (small and medium enterprises) resulting in shrinking revenues with reduced strategic vision and low investment capability. This challenge is common across the EU region, but Italy, given the weight of its SME sector (>95% of total companies) is significantly under pressure.

The primary effect of the crisis is the weakening of the balance sheet for SME companies and the subsequent difficulty in accessing credit via traditional bank lending products. 

In this difficult scenario, new alternative financing forms are being developed which allow SME’s to evolve their relationship with banks and buyers, leveraging the whole supply chain to gain easier and cheaper access to credit. 

Be has been engaged by a leading European bank to support the strategy definition of a new Supply Chain Finance offer for Corporate Banking, which will put us in a favorable position should the offer be implemented.

Supply Chain Finance is a set of services (financial and non) that allows suppliers and buyers to manage the whole production and distribution chain, reducing financial costs and increasing the efficiency from origination to destination of goods exchanged.

The key competitive advantage deriving from the SCF (the aforementioned set of products) is that is enables SME’s which supply a Large Corporate to finance their own working capital at a significant discount as, they can benefit from the credit rating of the Buyer. At the same time, Buyers are able to negotiate a better price for goods with their suppliers.

The relationship between Buyer and Seller is strengthened by an SCF solution, encouraging both companies to prepare a common, mid-long term plan.

Banks are increasingly entering this market, which is growing 30% y-o-y.  Although they appear to lose revenues by providing loans at lower price, they grow overall revenues through new customer acquisition not otherwise achievable due to restrictions in terms of Risk Appetite. The Banks also grow margins by reducing the cost of risk (impairment) thanks to the better quality of their SME portfolio. 

SCF is therefore a win-win product, where Buyer, Seller and Banks all benefit from an innovative way to exchange new information (strategy, production plans, commercial targets) progressing from using only “old” balance sheet information to access finance.

Public funds attract an enormous number of organizations across Europe. Indeed, considering the overall amount of the funds and their relevance as tools for speeding economic growth and innovation, there is an increased attention from institutions and citizens to prevent this specific type of frauds. At EU level, OLAF (the European Anti-Fraud Office), has reported for 2012 and 2013 the opening of more investigations than in the preceding years (431 vs 253). However, also at national level, the fight against this type of frauds is progressing.  In Italy, for example, a very recent investigation ended in April 2014 and conducted by the Prosecutor’s Office and the Finance Police of Palermo, has led to 17 individuals being arrested for taking unlawful public grants worth more than 15 million Euros (financed by the European Social Fund, ESF).

An important Italian bank has engaged Be for an in-depth investigation of public funds fraud detection and prevention. Fraud against public funds actually may impact not only the public body itself but also other relevant organizations – mainly banks and other economic operators – who act as “outsourcers” of public funding provisioning services on behalf of Italian public bodies (e.g. the MISE, Ministry for Economic Development and the MIUR, Ministry for Research and Education). “Outsourcers” might appointed by the public bodies to oversee and/or coordinate a number of activities, e.g. the development and maintenance of the web portal to support the proposal submission and evaluation process, project evaluation, review and activity progress monitoring, the payment and monitoring of all economical aspects of the project (including on-site visits and audits).

Main objective of the project was the assessment of the bank’s processes, practices and tools (including IT systems) in terms of appropriateness for the detection and prevention of frauds events. The final output has been the identification of action items to improve the current processes, and specifically to develop tools enabling the early detection of frauds and reduce their potential impact. The overall project approach has been organized into two main phases:

1. during the first phase, risk factors within the bank have been identified, and related loss events and potential operational risks have been detailed;
2. during the second phase, the work has been focused onto the design and definition of actions in order to provide the Bank with an operational support for the discovery, early warning and prevention of fraud events.

Project phases, methodology and deliverables

In this project, Be carried out an in-depth analysis of the bank services and activities in the light of the potential happening of fraud and irregularities on public funds. The main goal of the project was to identify potential gaps in the bank’s processes and practices that could lead to frauds, and the design of appropriate detection tools in order to reduce fraud events and/or enable an early warning. To reach this goal Be has designed an ad hoc methodology for the definition of prevention tools and – whenever possible – of countermeasures that could strengthen the organizational and business structure against that occurrence of frauds. During the final phase of the project, we tailored an “ad hoc” tool (mainly in the form of KPI) to support the Risk Management in the discovery, early warning and prevention of fraud events.

Analysis model for risk factor, loss events and loss impact

The project started with an in depth assessment on a large sample of funding programs and the related “fraud prevention process” with a specific focus on the adequateness of internal controls and the presence of specific vulnerabilities that might favour frauds. Each risk factor was evaluated and associated with specific loss events, and related loss impact: loss events and related loss impact have been identified and characterized on the basis of the bank business activities, organizational framework, former fraud events, and other aspects which were considered as relevant.

The analysis was conducted through extensive evaluation of the available documentation on national funds provisioning. A number of follow-up interviews with the key stakeholders (e.g. responsible for overseeing grant beneficiaries and/or responsible for grant project administration) were conducted as well, in order to tune and contextualize the arriving from the documentation.

The investigation also included the analysis of specific case studies (selected in agreement with the Internal Audit itself) in order to realize a comprehensive investigation of activities that are/will be crucial for the business in the future.

In parallel, best practices (from other similar Italian and/or EU institutions or programs) were selected in order to define recommendations, guidelines and practical countermeasures to proactively prevent fraud throughout the overall grants lifecycle. Common fraud schemes (by entity and program type) have been also identified and characterized using scenario/event based descriptions.

The analysis also contributed to the definition of “red flags” and alerts for decision makers/operators in the case of fraud occurrence and the development of action items (short and long term) also including  “quick wins” to improve fraud monitoring and detection, and start up the actual implementation of fraud prevention and detection techniques.

The fraudulent behaviors in the Telecommunications market are traditionally very complex to a point where they look turbulent in their continuous development and extremely high variability, which is due to the rapid technological evolution. All of this requires the Telecom companies to invest substantially in anti-fraud research and innovation processes, as well as to suffer high running costs for the maintenance of appropriate security standards.

The usual technologies which are currently utilized to address and prevent credit and fraud risks have significant limitations both in relation to costs and their vulnerability. For this reason, Be has developed new innovative technologies based on quantitative methods, which are able to continuously learn from the observed behavior and, consequently, to rapidly adapt to the evolution of the “attack patterns” . In addition, the variety of Be services also includes best-of-breed technologies which allow our clients to innovate their internal processes at a very competitive cost.

This month Be is finalizing a first pilot of “Artificial Adaptive Systems” for one of the leading Italian Telecom operators, which will lead to a second experimental project for next 6 months. The tactical goal of this project is to automate part of the manual work, based on the experience of experts in assessing the consistency of the information provided at the time of underwriting a new customer. The strategic goal is to fully exploit the potential of our tools in the preliminary assessment of “client risk”, through a joint analysis of  company data available from CRM and other systems, and information provided by the client himself in the underwriting phase.

The use of our technologies is meant to support analysts in developing highly specialized professional skills in anti-fraud detection, as it will allow them to focus on the most critical and valuable fraud instances. This will result in both an anti-fraud performance improvement (in terms of effectiveness of results) and a significant saving coming from more efficient organizational processes.

The craft of  “good banking” is a fine art that has evolved over the centuries. It has always been based on a balance between  profit, containment of credit risk and liquidity management.

Credit risk is usually defined as the risk that a counterparty will not settle an obligation for full value. It stems out from the extension of any form of unsecured credit (i.e. non-collateralized) or/and from a failure in synchronizing the various interrelated elements (or “legs”) of a transaction.

The above leads to an obvious – but not trivial – assumption: in finding the balance between pursuit of profit, containment of credit risk and liquidity management, collateral play a crucial role. They have been used for hundreds of years to provide securities against the possibility of payment default by the opposing party in a trade.

In the 1980s, Bankers Trust and Salomon Brothers moved from simply “take” collateral to “manage collateral”. Collateral management includes a continuous process aimed to control the correspondence between the effective market value of the relevant collateral and their required value. At the very beginning, there were no legal standards and most calculations were performed manually. Collateralization of derivatives exposures became a widespread market practice in the early 1990s while standardization began in 1994 under pressure of IMF and Banking Associations.

Collateral management has evolved rapidly in the last 15–20 years with increasing use of new technologies, competitive pressures in institutional finance, and heightened counterparty risk from the wide use of derivatives, securitization of asset pools, and leverage.  The failure of Lehman Brothers on 15 September 2008 and the market stress that followed provided valuable insights into how market infrastructures and markets perform in very stressful conditions. Normally liquid markets become severely strained.

The recent financial crisis has also exacerbated the relation between efficient management of collateral and its impact on capital adequacy needs of European banks. Under the pressure of the market discipline agreed by G20 to mitigate any new financial crises, retail and wholesale payment systems will evolve and unsecured interbank deposit markets will be gradually replaced by guaranteed ones.

As a consequence, the use of collateral as a means for a balance between profit, risk containment and optimal management of liquidity has returned to play a central role in the art of banking. However, as collateral becomes scarcer it will also become an increasingly precious resource:  on one hand, the level of collateral required for regulatory purposes will increase significantly; on the other, the current way of managing collateral shows significant inefficiencies estimated at about € 4 billion per year (source: Collateral Management – Unlocking the Potential in Collateral, Clearstream, 2011).

The “next gen” in collateral management practices is represented by optimized use of collateral (substitution, re-use, etc.), a very complex process with interrelated functions involving multiple parties within banking organizations.

We all know that, in response to the recent financial crisis, regulators across the globe are focusing on a more robust supervision of all players in the financial services industry. A key effect of this trend is not only the launch of an increasing number of regulatory initiatives but also the fact that the Compliance function will become increasingly important in the near future.

In February 2011, one of our major clients launched a project aimed at reinforcing, mapping and harmonising the so-called “second level controls” throughout the Group, on the key regulatory areas that fall under the Compliance function remit; as a result of this initiative, our client’s Global Compliance Framework went into effect in June 2011. In addition, in May 2012, their IT Department launched a project aimed at providing the whole Group with a new platform to be able to manage all three levels of controls (from Internal Controls to Internal Audit through Compliance) on a single system. This platform is based on a market standard solution widely used in the Governance Risk and Compliance space.

The Open Compliance and Ethics Group (OCEG) defines GRC as a “system of people, processes and technology that enable an organization to”:

• understand and prioritize stakeholder expectations;

• set business objectives that are congruent with values and risks;

• achieve objectives while optimizing risk profiles and protecting value;

• operate within legal, contractual, internal, social and ethical boundaries;

• provide relevant, reliable and timely information to appropriate stakeholders;

• enable the measurement of the performance and effectiveness of the system.

The basic building blocks of a GRC application include:

• integrated dashboards and dimensional reporting;

• enterprise-class workflow;

• document management;

• security and access control;

• import/export capabilities ;

• loss event database;

• key metrics (KPIs, KRIs, KCIs) ;

• issue remediation;

• audit trail.

Return on Investment

Although it is difficult to quantify the value added of a “global initiative”, fines and censure can highlight the potential cost of non-compliance;In any case some metrics have been developed to help calculate the potential value (see picture).

Interaction with the “baseline”

Regulatory risk assessment should be undertaken by each business line but responsibility ultimately lies with Compliance, which must perform the appropriate level of oversight and challenge. Under this framework, the business line would be able to apply its knowledge to assess the regulatory risks to which it is exposed. Compliance would then oversee this process in order to challenge the business on the identified risks.

People prefer to interact and learn visually. Our perception of what makes a good experience is influenced by the context of interactions and the interplay between our senses. This is particularly important as customers increasingly desire (and often do) control the time, place, channel and form in which they receive information. To date communication technology could not fully translate these communication types involved in face-to-face, therefore a targeted approach to the use of video is critical.

A study of large European and North American banks and insurance companies found that 80% provided some form of video, either on their own site or on syndicated platforms such as YouTube, but very few have already started to interact with customers for retail banking, commercial or business banking.

The recent developments in the field of digital video and communications technologies, such has interactive kiosks, have opened full breadth of opportunities to create valued experiences and improve productivity. This can be achieved using several technology experience concepts:

1. Expert Anywhere – Enable customers in a branch, at home, or on the road to access experts, advisers or specialists located at other branches, contact centers or centers of expertise.
2. My Banker On Demand – Deepen the relationship between your customers and staff by enabling customers to use their device of choice, environment of choice and moment of choice to access information or make contact with known staff.
3. My Trusted Advisor – Become a vital part of customers’ day-to-day lives, using advanced digital interactivity to create exciting new, augmented experiences that add genuine value.

Be IT specialists can provide full project skills and experience in order to define the appropriate interactive model and implement video collaboration capability services throughout the bank.

As most industry analysts have noted, the financial services industry is starting to embrace multiple aspects of a paperless transformation. The benefits stretch beyond mitigating risk, eliminating costs and improving operational efficiencies and move toward ultimately improving the customer and employee experience. A strong unrevealed amount of digital data will also be available to marketing/risk managers to improve bank’s understanding of costumers behavior.

Individual approaches on paperless vary tremendously though. Some banks are slightly along the path and have implemented first electronic solutions, while others are just beginning to develop their strategies. Most fall somewhere in the middle still facing a long journey before they can reap the full benefits of an electronic environment and establishing a clear paperless operations acting at the core inner heart of the bank: the back office and the operations departments. 

A full paperless workflow would need 6 key elements in place to really take off in the bank organization:

1. “user friendly” digital signature capture devices spread across the front-end;
2. appropriate electronic signature instruments in relation to the strength of authorization level needed;
3. scanners and full digitalization & indexing platforms for inbound external documents (e.g. ID, salary statements);
4. powerful workflow platforms to handle document dossier lifecycle;
5. a paperless authorization procedure among all internal employees;
6. secure and reliable digital storage for a long term electronic documents archiving.

Within this blueprint banks still need to do a lot. Be’s client teams at Unicredit and BNL-BNP Paribas are dedicated to help clients to manage this transformation. Be’s technology and operations are furthermore already in place to handle paperless back office processes as a service.

The long-lasting financial crisis has generated a range of effects: the increasing competitive pressure, the difficulty to keep stable revenues streams, the lack of a trusted relationship with the consumer and corporate customers. Overall, we can say that today’s strong appetite of both global and domestic banks to avoid new “financial disruptions” has caused a deep re-focus of the industry priorities.

Banks have now fully realized they need to redesign and reinforce the whole set of rules and tools devoted to control any form of risks. This is fairly easy to accept in relation to market and credit risks, as their potential impact is well known. But, and this is the real news, the “control framework” now needs to be extended to new risk areas, which had so far been considered as “lower priority”: the operational risk management.

What is an RTO?

In this context, banks are enriching their organizational structure with a new unit – the Retained Organization (RTO) – tasked to assure the appropriate level of control on those entities in charge of supporting the business: the outsourcers. The RTO remit is to guarantee that every service provider supporting the business operations, whether it is an external suppliers or an internal shared service center,  complies in full to banking authorities requirements.

How to structure an RTO?

Two years ago, Be has been engaged by  a leading European bank to manage a complex change program targeted at modeling and implementing the control framework for the main outsourcing providers.

Our proposed approach was to use an “holistic” RTO design and implementation methodology, which includes:

1. analysis of regulation and top management strategies;
2. organizational benchmarking;
3. RTO compliance requirements definition;
4. performance management framework design and implementation;
5. reporting implementation;
6. organizational set-up and sizing.

Based on this methodology, our target was to complete the RTO set-up (with the exclusion of change management and IT implementation activities) within 5 months from start.

Performance Management Model

A key aspect is to define a consistent performance management model,  to enable centralized monitoring of the providers’ business performance.

We used a 3-step approach:

1. define a performance measuring methodology, with coherent relationship between services (catalogue), costs (financials) and performances (KPI);
2. create a single reporting system, able to satisfy monitoring requirements from all users and allow comparison between internal and market data;
3. create a restricted list of KPIs, with a clear focus on those services who have significant “business relevance”.

The level of reliability and consistency of the performance management model has a big impact on the effectiveness of the RTO. In particular, a well-designed model is likely to provide a very significant contribution to the bank’s overall business performance in terms of improvement of the customer service quality and identification of potential areas for efficiency gain and cost reduction.

“End-2-End” is becoming a recurring definition to describe the new approaches utilised in the area of performance monitoring (and in banking, in general).

When this definition is not misused, an “End-2-End” approach implies that one activity (eg. a specific business process) is monitored from only two observation points: the input and the output. No matter what happens in the middle!

Applied to performance monitoring, “End-2-End” approaches produce the following implications:

Service model and monitoring model

Moving from a “service by nature” performance monitoring model to and “End-2-End” model implies a redefinition of final output accountability and forces a redefinition of KPIs, which evolve from being based on production factors (MIPS, FTEs, Function Points) to being based on business drivers (number of transactions);

Processes: Processes can be more easily coupled with the business they are supporting;

Market benchmarking: An “End-2-End” perspective allows an easier comparison of service quality and performance with external market players, without the constraints of considering the different infrastructure, applications and organisation utilized for service delivery;

Compliance: An “End-2-End” perspective can potentially be unsatisfying for a Regulator, who requires each Bank to control its operating environment with an approach that allows to detect and understand in detail any cause of potential issue.

This list of implications clearly provides an indication that any plan to switch to an “end-to-end” performance monitoring approach needs a preliminary “trade-off” evaluation between the expected value added and the “change” effort required.

The UK has suffered several mis-selling scandals including Payment Protection Insurance (with billions paid in compensation) through to interest rate hedging products which appear to have been unsuitable for small businesses in 90% of cases investigated to-date.  Little wonder the regulator is focused on improved customer outcomes. 

In the investment arena, we have just seen the first quarter since the implementation of the Retail Distribution Review and it seems that there have been two main changes:

All of the retail banks have stopped providing advice via branch networks with advisory services only for those with £100,000 or more in investible assets

Whilst independent adviser numbers are heading for a c15% reduction, this has been coupled to a move to restricted or tied advice – 8:10 biggest advice firms are now using the restricted model, marking a substantial swing from a pre-RDR independence ratio of 4:1

Fewer advisers and less choice are the unintended consequences of a drive for quality and a significant advice gap is now apparent.  Life and pension providers, fund managers and discretionary fund managers have started to look at new direct to consumer (D2C) operations, following on from the start-up firms from 2010 onwards that have looked to tap self-directed consumers.

All of the current solutions follow the same pattern, which is based on a stepped process to determine client suitability for a specific, but self-selected, product solution.  This begins with the consumer determining a goal; quantifying a target amount and a timeframe.  The user then tries to determine their risk appetite, typically via a questionnaire, followed by a check on risk capacity (the ability to sustain losses).  The profile is then matched to a model portfolio which may be made up of ETFs, pre-packed funds or a fund of funds solution.

The process is not really aimed at the novice investor and concepts of risk, return, volatility and even investment horizon do not speak to a client that is tentatively looking at better returns than they can get from cash deposits.  The mass affluent is looking for a greater certainty of outcome and capital protection – outcomes that currently tend to come from complex structured products with accompanying credit risk. 

The result is that unless simplified products are designed, with better underwritten outcomes for the mass of consumers, there will be no uplift in consumer investment even with improved technologies and online education.  Nor will the regulator be interested in dropping the bar on the regulation of the sales process until the consumer is better immunized against detriment from products and providers.  This situation is not peculiar to the UK and authorities elsewhere have looked for suitable solutions.  In the US, these have taken the form of “safe harbour” funds – protecting 401(k) plan sponsors from fiduciary liabilities and the UK tried once before with stakeholder products which were charge-capped.

Government-backed simplified product design thinking is so far only extending to general insurance, income protection and savings products – with investments deemed too difficult, or inappropriate for the mass of consumers.  But between below-inflation returns on savings and corporate pension schemes where members are bearing all the risk, the need for product-based solutions are clear and the firms that recognize this could capture a significant prize.

European insurers seem to be trapped in a pincer movement between regulatory change and the potential impact from sovereign debt defaults and recession-driven declines on the asset values supporting insurers’ liabilities on the equity market.  Low interest rates continue to impact financial resilience as life companies struggle to maintain margins and limit the impact on capital and reserves.   We have already seen some insurers trying to increase product prices, some of it under the cover of changes in distribution regulation, but limited by weak consumer demand.

In this tough environment, we can see some of the key responses from the main players:

• Focusing on customer growth opportunities in a low-growth region and trying to adapt to the increased regulatory focus on consumer outcomes;

• Developing new propositions and channels, especially in the digital space, re-engineering the business model for both revenue growth and cost reduction;

• Cautiously allocating capital and maintaining adequacy levels;

• Finalizing the testing and integration of Solvency II systems and looking to tax changes that are ahead.

In 2013, European insurers will increasingly focus on improving business retention and growth. Regulatory changes aimed at improving customer transparency about products and costs will sharpen this focus, guiding insurers to re-evaluate their business models and selling propositions. This is already seeing many insurers to alter their distribution, products and services — for example, shifting away from offering investment-linked options and emphasizing protection and customer service. 

In the UK, the implementation of the Retail Distribution Review has already been felt – leaving a significant regulated advice gap but a wave of new execution-only investment platforms. At the same time, Solvency II will pressure insurers to develop and market more products that shift risk to the insured and away from themselves and regulators have started to fear some consumer outcomes.

For self-directed consumers, the internet has furthered their ability to compare products and prices and obtain independent opinions before purchasing, even if they use an advisor to complete the purchase. But time-poor and cash-poor consumers see the life insurance industry as lagging other sectors, especially with regard to service delivery and rewarding loyalty. Most life firms have been slow to react to social-media challenges and to harness consumer analytics as consumer data often resides in disparate product administration systems and formats or is constrained by intermediary relationships.

So in 2013, European regulations will continue to have an important strategic and operational impact on insurers -MIFID II, PRIPs  and the IMD proposals will all be on the agenda of the European Parliament this year. Although many details remain to be finalised and the necessary operational changes will vary by country, they will challenge existing distribution methods while creating opportunities to develop new models. In the meantime, firms look to cash flow control and product margin to get through the troubled times.

Since the 2008, amid the financial market turmoil, numerous countries imposed short selling bans to limit market bets on EU listed shares or bonds that caused falling in prizes, thus affecting market stability.

From November, the new EU short selling regulation (236/2012) has come into force harmonizing provisions throughout the EU and soughting to regulate transactions outside its borders. It does not matter where a person entering into a short sale is located because this Regulation applies, broadly speaking, in respect of shares admitted to trading on EU trading venues, sovereign debt issued by EU sovereign issuers and related credit default swaps.

In a nutshell, the key requirement are transparency in relation to short positions in shares or sovereign debt, restrictions on uncovered short sales in shares or sovereign debt or uncovered short positions in sovereign credit default swaps, buy-in procedures and strict monitoring on exemption for market making activities. In this contest, one the major Italian Bank Institution has launched in 2012 an extensive programme aimed to ensure both detective controls to ensure monitoring and compliance adherence to the Regulation, and in 2013 preventive controls to address and monitor trader´s activities as well.

The nature of bank business involving large trading volumes, the coverage of 54 different countries and the gold plating role of local and EU regulators entails a significant level of complexity.

Be, enhancing compliance expertise and capital markets practices, has been asked to provide continuous guidance among the different stakeholders, facing the scale of the international business model and risk mitigation needs, extending contribution from PMO to SME contributions.

A Central Counterparty Clearing (CCP) interposes itself as legal counterparty to both sides of transactions in a market. Contracts are entered into bilaterally and then transferred by novation to the clearing house, which becomes the buyer to every seller and the seller to every buyer.

CCPs have long been used by derivatives exchanges and a few securities exchanges and trading systems.

In recent years CCPs have been introduced by many more security exchanges and have begun to provide their services to over-the-counter markets. A CCP has the potential to reduce significant risks to market participants, by imposing more robust risk control on all participants, by achieving multilateral netting of trades.

A Central counterparty does not remove credit risk by itself from a market. If a market participant becomes insolvent its loss will still be borne by some or all its creditors in some manner.  Instead a Central Counterparty redistributes counterparty risk replacing a firm’s exposure to bilateral credit risk (of variable quality) with the standard credit risk on the Central Counterparty.

In order to reduce risk the CCPs adopts collateral policies and monitors the robustness of their clearing members and risks from the business that they are bringing to the CCP.

This means collecting and analyzing information, from clearing members on large positions taken by their customers.

A CCP also tends to enhance the liquidity of the markets that it serves, not only because it tends to reduce risks to participants but also because it facilitates anonymous trading. This can be attractive to firms that, for example, may not want to reveal that they are large buyers or sellers because they fear a market impact.

The role of CCP is very important as a risk management failure has the potential to disrupt the markets that it serves. A Central Counterparty by definition concentrates and re-allocates risk. As such, it has the potential either to reduce or to increase the systemic risk in a market.

As a consequence security regulators and central banks have a strong interest in CCP risk management.

The CCP are de facto regulators and supervisors and impose financial discipline on the clearing members.

In this scenario we are working with our client to  support  and help them to improve their operational processes and the interests of Front Office trading system implementing the rules concerning regulation of Over-the-Counter (OTC) derivatives markets as follows:

1. Standardized highly liquid OTC derivatives are to be cleared via Central Counterparties (CCPs);
2. Standardized OTC derivatives are to be traded via electronic trading platforms;
3. Trades in all OTC derivatives are to be reported to central data repositories.

Tesco, British Airways, Amex Membership Rewards, Millemiglia, Bonus Garanti, Sconti Banco-Posta, Nectar. We all know those loyalty programmes first as consumers and then as advisors of many of these market players.

Since early 70’s, when manufacturers launched initiatives to stimulate their goods purchases (independent points collection), the loyalty initiatives have become the core of marketing planning for Retailers, Airlines, Fuel company (which launched the multiplayers collections and catalogues). By the end of 90’s Loyalty Programmes extended their application in the Utility and Banking industries.

Loyalty became the crucial marketing tool (the 5th P of the Marketing Mix) when the mass market scenario changed in a “hypercompetitive” arena: consumers have been offered multiple choice, with an always growing number of players, higher penetration of products and a decreasing pricing curve. Brand loyalty has definitely lost its strength in keeping the relation with customers and the strategic marketing focus moved from customer acquisition to fight to maintain their monthly budget share. Different Loyalty initiatives offered all possible ways to drive profitable behaviors among customers, using any means possible: points, miles, rewards, incentives, enhancements, cashback.

At Be we partner with some of the best-known global brands, helping them attract and retain customers by offering rewards for using their products. We develop loyalty solutions that are adaptable and flexible – tailored to the Partners’ specific needs. An effective Loyalty Programme can only be a customized one, based on:

• Competive positioning

• Integrated offer with Retailers

• Deep knowledge of customers

• Clear definition of the programme Targets – Increase share of wallet, via shifting spend from the competitors and increasing spend via crosssell and up-sell initiatives; Increase market share in environments of competitive parity; Improve lifetime customer value by identifying and overcoming sources of attrition; Enhance the customer experience in order to create loyalty and brand advocacy.

As a Business Consultants firm we support our partner to identify the Best Option Loyalty Plan, independently of the technical solution. Paramount is to talk to each customer in the proper way and to avoid standardized rewards to all clients. Needless to say, we put all efforts driving innovation in the emerging digital and mobile spaces, the new innovative solution, with higher chance of success.

Our aim is to align the loyalty to the business strategy ensuring a positive ROI. The virtuous circle we advocate to our Partner is based on:

1. Business intelligence: aiming to segment customer base and understand a likely migration path to exploit maximum value from customers and avoid their attrition
2. Marketing and Communication: to customize offer to different cluster stimulating up selling and cross-selling and to maintain the customer lifecycle
3. Campaign management activities: aimed to define rules of contacts, execute marketing campaign offering each cluster the right value proposition via the appropriate channel
4. CRM data enrichment: to improve segmentation, leverage on previous experience and track marketing results at single customers level

Increasing competitiveness in financial markets and the (“expected”) growth of both volume and complexity of financial instruments are bringing banks to enhance their technology platforms to ensure greater flexibility and be able to face challenges with an efficient time-to-market.

More than two years ago, one of our clients, the Investment bank of a leading Italian banking Group, launched a challenging program in Italy to change their IT “skin” by implementing standardisation and better competitiveness in the investment banking business.

The “New Architecture” program represented one of the most ambitious, challenging and large engagements ever launched in the IT Capital Markets environment to date in Italy, and definitely the biggest in the last few years, with over 70€ML budget in a 2-year timeline.

The scope of the program was the complete IT architecture review, through the development of a new approach involving decoupling integration layers at all application levels, the adoption of the latest releases for core software suites (Golden Source, Mx3, Calypso) and the consequent changes to the operating models. With the main strategic objective of reducing the bank’s time-to-market through the improvement of the IT&OP Service Model,  this immediately became the most important project for the bank itself and their large IT division. Project representatives were selected from all areas of the bank (IT, Operations, Business, Organization, Risk Management…), which created the need for a significant coordination effort delegated to our Be Consulting team.

To give an idea of the complexity of such a wide program, one of the first challenges addressed was the definition of the program organizational workforce, with about 15-20 different Consulting and Integration companies and also 250 FTE on the field. Even logistics was an issue to address at that point! In addition, the bank found it very difficult to identify the Program Head, given the extensive mix of managerial and technical backgrounds involved in the project.

On this engagement, today Be still covers the Program and Project Management role with activities distributed across four levels of the client’s organization structure: Program Head, Stream Leaders, critical sub-streams and support to functional teams on specific areas.

Setting up a Be team (on average 15 FTE, with a peak of 22) with the appropriate level of expertise in both project management and investment banking products, as well as with significant vertical IT system knowledge, was key to satisfying the client’s high expectations.

During August, while our office was closed for summer holiday, we were forced to ask our team for an additional effort, as an important project milestone had been postponed from July to mid-August. Internal and external resource availability became a critical problem for the Program Head, particularly if we consider the size of the impacted release. The whole project team worked incessantly for four weeks (including weekends!). We gave a fantastic example of client commitment, as we were the only consulting firm who was able to immediately guarantee the requested support during the holiday season, and provided a clear contribution to achieving the project goals.

Thanks to this performance and trusted cooperation, Be has been able enlarge its presence at this client, by securing new contracts both in terms of project follow-ups and new engagements with this leading Italian bank.

Due to the evolving landscape, banks are currently facing more challenges than ever before. With sub-10% ROEs and external factors such as low interest rates, banks are constantly having to rethink their business models in order to survive in this persistently subdued economy.

One of the biggest problems facing the UK retail banking market is the inability to stand out in an increasingly commoditised and competitive marketplace. It is therefore vital that banks keep up with environmental changes and trends in order to maintain a competitive edge.   Most banks will need to focus on launching major repositioning strategies and in order to do this, senior management must look towards the future and not allow themselves to be dragged down by legacy issues.

With the recent events in the banking industry over the past 6 years, many people have lost trust in the banking industry. New regulation has been implemented in the industry in order to enhance efficiency and avoid repetition of these events in the future. Banks need to undergo fundamental changes in their culture and behaviour in order to win back the trust and loyalty of their customers and remain consistent with industry changes.  Customers are now more likely to switch banks regularly or have multiple bank accounts with multiple banks. Globally, nearly 10% of customers say they are likely to switch banks in the next six months, while more than 40% are not sure if they will stay with their bank in the next six months. The quality of overall service is the primary factor that drives customers to leave their bank. Understanding behavioural changes, banks must be attuned to their customers’ needs and ensure they are providing the best service across all channels in order to gain customer loyalty from existing and new customers.

Banks must ensure that they continuously respond to the changes in the environment, whether they are technological, cultural, behavioural, legal, and so on. They need to accept these changes and adapt in response to them or face the possibility that they will not be able to survive.

The major retail banking operating models are changing, a brief overview of the different facets of banks operating models are outlined under a number of core areas:

• Multichannel approach – Retail banks have relied on branches as their key banking channel. Although they still do remain one of the main banking channels that command the highest share of sales volume, there has been an increase in banks taking a multichannel approach.  They need to focus on building capabilities to deliver the right products, through the right channels, at the right time and to deliver a consistent multi-channel experience to customers.

• Mobile – Banks must first focus on improving their existing channels, especially mobile. Mobile banking has been continuously increasing in popularity over recent years. It is convenient for customers and reduces overall operational costs for banks. It is therefore a great area for banks to invest in and improve on. Customers are evaluating the quality of mobile services in their decision to choose a bank or leave it. Developing advanced mobility capabilities is emerging as a strategic imperative for banks today.

• Social Media – There are now also newer direct channels such as social media that have recently emerged and banks need to take full opportunity of this. Banks have been quite late in embracing these platforms as they have had an aversion to the operational, compliance and reputational risks previously associated with them. Banks are now investing more and more in Web 2.0 tools such as blogs, wikis, and social networks to communicate with customers, to better understand their behaviours and expectations, to create awareness and expand their reach.

• Big data – Big data refers to datasets whose size is beyond the ability of typical database software tools to capture, store, manage, and analyse. Banks have started working with big data gained from their customers. By implementing analytical tools banks can convert this data into actionable insights which will enable them to deliver enhanced customer value and increase market share.

• Reorganisation – Banks have previously illustrated an unhealthy focus on profit at the expense of the customer’s needs. One aspect institutions must bear in mind as they restructure their sales and service models is, whether the proposed reorganisations correspond with developing needs of customers. Ensuring interaction with customers is enhanced will be a step towards becoming a more efficient service provider.

• Regulation – The current landscape of the financial sector has attracted widespread scrutiny. Post- financial crisis, the financial sector has weakened its reputation following a series of revelations regarding poor standards and professional failings, specifically challenges around miss-selling, LIBOR and anti-money laundering. Regulators have made clear their desire to see banks in a position where they are able to identify potential issues and implement an intervention programme by undertaking a root cause analysis which repairs the problem. Transformation of the banking industry is not just a regulatory-driven issue, press commentary and social sentiment highlight a downward turn in the public’s assessment of the sector.

• Operations Landscape – Due to constant mergers and acquisitions the structure of many banking institutions has evolved dramatically over time. Operating models have inevitable developed alongside these structural changes for many reasons, such as unsuitability to the bank’s structure or old-fashioned models. As discussions continue, it is expected that more and more institutions will incorporate restructuring strategies to better reflect new technologies and customer needs.

• Productivity – Training staff and ensuring their knowledge and advice is up-to-date is a key factor when driving efficiency. A clear educational structure which focuses on the training of frontline staff across all branches, sales force and telephone banking will oversee service expectations. Increasing opportunities will also emerge for banks to learn from other sectors and advance their productiveness throughout the institution.

• Back Office – The sharing of back-office infrastructure will rise as banks aim to fully utilise products and equipment whilst keeping costs low. An additional operational function which has become a tactical tool within productivity is the management of seamless multi -channel integration. Developing a structure to address and effectively manage channel networking will promote an efficient service globally.

• Behaviour – In order to successfully implement new operating models, it is vital that they are matched by a behavioural shift within the institution. There needs to be a universal goal of ensuring that the bank’s new strategy is reflected through the behaviour and conduct of its staff. One area which often needs addressing is that of communication and conflict. It is important that senior management highlight the necessity to report issues and where any differing cultures have been fostered by different sectors of the bank, there needs to be a united approach.

Our response.

In the UK Be is building a Retail Banking team with transformation professionals who have the knowledge, skills and experience to lead, advise and support large scale, complex transformational change. Within Retail Banking there are significant pressures to deliver benefits within tight time and cost constraints whilst minimising risk. Our team draws upon skills, techniques and expertise acquired through experience to provide our clients with valuable advice and support.

Our team provides solutions which address the range of challenges facing organisations as they adapt to changing regulation, customer requirements, channel and digital journeys, technological developments and enhanced operations, as well as changes brought about by restructuring, mergers and acquisitions, performance improvement and stakeholder pressure to increase profitability. The ability to shape, deliver and assure transformation is crucial in minimising the risk of delivering the change whilst maximising the benefits.

Our approach focuses on achieving key strategic imperatives and benefits to deliver a sustainable and successful transformation programme rather than the traditional project approach focusing only on time, cost and quality.

We are actively assessing the market from a recruitment viewpoint and cherry picking consultants at multiple level and grades to develop a truly unique team in the UK market. Consultants are from big four and industry backgrounds, alongside a more junior consulting team, allowing us to build multi hierarchical teams to win and deliver larger transformation engagements.

Traction across the UK market is strong with sold work the Co-operative Financial Services, Barclays and Barclaycard, and upcoming sales in Nationwide, American Express and Bankia and an increased footprint with multi location teams from  Italy and UK actively working together in an end to end client solution.

Comunicazioni in merito a tutti gli eventi societari di Be Think, Solve, Execute.

Calendario societario

Calendario_eventi_societari_2015_2

“End-2-End” is becoming a recurring definition to describe the new approaches utilised in the area of performance monitoring (and in banking, in general).

When this definition is not misused, an “End-2-End” approach implies that one activity (eg. a specific business process) is monitored from only two observation points: the input and the output. No matter what happens in the middle!

Applied to performance monitoring, “End-2-End” approaches produce the following implications:

• Processes –  Processes can be more easily coupled with the business they are supporting;

• Service model and monitoring model – Moving from a “service by nature” performance monitoring model to and “End-2-End” model implies a redefinition of final output accountability and forces a redefinition of KPIs, which evolve from being based on production factors (MIPS, FTEs, Function Points) to being based on business drivers (number of transactions);

• Market benchmarking –  An “End-2-End” perspective allows an easier comparison of service quality and performance with external market players, without the constraints of considering the different infrastructure, applications and organisation utilized for service delivery;

• Compliance An “End-2-End” perspective can potentially be unsatisfying for a Regulator, who requires each Bank to control its operating environment with an approach that allows to detect and understand in detail any cause of potential issue.

This list of implications clearly provides an indication that any plan to switch to an “end-to-end” performance monitoring approach needs a preliminary “trade-off” evaluation between the expected value added and the “change” effort required.

Recent disruptions in finance and overall market scenarios have imposed to European Regulators to build up significant barriers to limit the risks associated to banking and financial activities.

These barriers are developing Financial transactions, Payment services , Credit and generally avoiding dangerous events happening again at system level, by asking Institutes to be traceable in transactions (e.g. FATCA, PSD), compliant with directives, standardised in instruments and processes (e.g. SEPA, Target 2 Payments and Securities) and reliable to customers (BAS III).

Significant investments are in place and forecasted to build up these barriers, representing more than 40% of Institutes yearly budget, in particular on ICT. To strengthen ICT infrastructures and to learn operational and governance processes, investors need to improve quality on the internal and customer side of the business and to create an interconnected framework of controls. Banks immediately realised the opportunity to”leverage on compliance to gain effectiveness”, to enable a natural convergence between compliance and efficiency objectives, empowered by a main strategy of reducing costs.

What is not so clear is that this opportunity might be intended, in some cases, as an enabler for business revamping, as following cases demonstrate:

• To work on Lean processes and Operations, effectiveness can drive a renewal of the Service Model to the Customer (from Customer segment driven to Customer business driven), or a Network agencies model restructuring (from attended to unattended, from generalised to specialised);

• To increase transparency and control on internal costs, can lead to a redefinition of Pricing Strategies, moving from a simple “revenue driven” to a more sophisticated “value driven” approach;

• To align to European transactional framework, eliminating specific domestic services, can be a great opportunity of restructuring transactional offering to the Customers, being more competitive on the market in terms of pricing and consolidating Customer fidelity through providing of VAS services embedded in the offering (on direct channels, on linking payments and invoices, on monitoring liquidity trend, on creating tailored bundles);

• To adhere to a new settlement system on Securities is a big chance, in particular for the big Institutes, to set-up a B2B no captive offering within the financial industry, enabling fresh revenues.

At Be, we strongly believe that now is the crucial moment where we must be able to create this connection, by “smartly merging” within a single and harmonised “action framework” Compliance and Performance improvement, both on the internal side and on the market perspective.

The open-source cryptocurrency protocol (i.e. Bitcoin) was published in 2009 by Satoshi Nakamoto, an anonymous developer (or group of bitcoin developers) hiding behind this alias. The true identity of Satoshi Nakamoto has not been revealed yet, although the concept traces its roots back to the cypher-punk movement; and there’s no shortage of speculative theories across the web regarding Satoshi’s identity.

Bitcoin spent the next few years languishing, viewed as nothing more than another internet curiosity reserved for geeks and crypto-enthusiasts. Bitcoin started has one of the new era currency before backed by a heterogeneous amount of groups. Through the years, the virtual currency has gained credibility to reach today the spotlight. As an example, several tech giants have started to adopt bitcoins.

While it is usually described as a “cryptocurrency,” “digital currency,” or “virtual currency” with no intrinsic value, Bitcoin is more than that.

However, the technology on which Bitcoin is leveraging is the real “Big Deal”. Indeed, the BlockChain is the system used by the cryptocurrencies to record the transactions. In the last years has gained an incredible popularity and is seen as something achievable and not just visionary as Bitcoin.

Looking Beyond The Hype – Into The BlockChain

So what is BlockChain? BlockChain is the technology backbone of the BitCoin network and provides a tamper-proof data structure, providing a shared public ledger open to all. The mathematics involved is impressive, and thanks to the adoption of specialized hardware to construct this vast chain of cryptographic data makes it impossible to replicate.

All confirmed transactions are embedded in the BlockChain. Use of SHA-256 cryptography ensures the integrity of the BlockChain applications – all operations must be signed using a private key or seed, which prevents third parties from tampering it. The network confirms transactions and this process is handled by miners that are the nodes of the BlockChain. Mining is used to confirm transactions through a shared consensus system, and usually requires several independent confirmations for the transaction to go through. This process guarantees random distribution and makes data alteration hardly achievable.

However, it is theoretically possible to compromise or hijack the network through a so-called 51% attack, which means that a unique source is controlling the major part of the network. By the sheer size of the network and resources needed to pull off such an attack make it practically unfeasible. Unlike many bitcoin-based businesses, the BlockChain network has proven to be very resilient when under threat.

Cryptographic BlockChain could be used to digitally sign sensitive information, and decentralize trust. Other applications are in the areas of smart contracts, escrow services, tokenization, authentication, and much more. BlockChain technology has countless potential applications. However, the potential has not been yet realized due to a fragmented market that is seeking for a platform rather than for ad-hoc application. Hence, the revolution is just around the corner.

So what about that potential? Is anyone taking BlockChain technology seriously?

Potential Uses And Implications Of BlockChain Technology

There are already thousands of developers and dozens of companies experimenting with BlockChain applications. For example BoE is investing 10 £ million in this technology. However, we have not yet seen large scale projects build around BlockChain technology that are not bitcoin or “altcoin” related. IoT could bring BlockChain technology to the masses. Research firms expect the user base to grow at a compound annual growth rate of 17.5% this decade, with up to 28.1 billion IoT devices in the wild by 2020, and revenue passing the $7 trillion mark the same year. The role of BlockChain will be to bring IoT to the next level. For example can you imagine to rent a house and in few minutes sign the contract, settle the payment and have the key available in your mobile?

The potential of this technology is comparable to a previous technology called “internet” in the 90’s. Decentralizing trust is a “big thing”, allowing the creation of vast and secure networks without a single point of failure. You can think of them as an additional layer of the internet, a layer that can be used for authentication, signage, secure communications and content distribution, financial transactions and further applications.

BlockChain technology could allow developers to outsourcing security and privacy issue at a reasonable cost by releasing the potential of all the applications that are lacking cryptography system or facing high cost to protect their customer’s data

The elusive goal for all BlockChain developers is to make the technology just as seamless and not intrusive as internet protocols. For example, how many people realize they are using TCP/IP every time they start browsing the net? This is the ultimate goal – to make the use of BlockChain technology invisible to the end user. BlockChain technology can really be the basis to build up secure and solid solutions with innovative functionalities and reducing the cost of developing alternative solutions to protect the end user.

BlockChain Technology to revolutionize Financial Services

The interesting aspect of the BlockChain technology for Banks is not (clearly) the decentralisation of collecting and storing the information that may imply a looser connection with their data. Rather, they are interested in finding a more efficient and secure way to do it by cutting the intermediate actors involved in every transaction and dramatically reducing the reconciliation processes needed when using decentralised or private databases. To give an example, using BlockChain could allow to immediately check and verify if the information / asset / ownership declared by the counterpart is real and verified simply by checking the relative block in the chain. In banking transactions, it could mean making the clearinghouse and most of their processes redundant, quite a big saving.

The use of BlockChain based technology is becoming popular also in non-financial related industries, such as ride sharing companies (La’Zooz), home automation using IoT (Chimera), digital archive (UK Gov), but for sure the Financial Services industry looks more likely to benefit from its wide spread adoption.

The main reason is probably that being a relatively new technology it requires massive investments under high uncertainty, given that the outcome is still not determined, and only big players can afford it. Indeed, if we look at the capital market spending over the last years, it is increasing at impressive rates (+50% YtY in 2015) and it is expected to reach $400m by 2019.

The greatest push in this sense comes from the creation of the R3 Distributed Ledger Group, a consortium of over 40 global banks with the objective to study the BlockChain technology, set utilization standards and shared solutions at a global level. Currently, it is known that each bank is working on a specific topic with the aim to continuously share the results to arrive as soon as possible to conclusive ideas and practical application of the shared ledger infrastructure.

If we look at real application of BlockChain solutions in the financial services, virtually all departments and areas in the Financial Services industry could benefit from it. In B2C payments, BlockChain could help reducing the existing latency gap between the approval of the payment and the receipt of the money. For reporting, it would be easier to retrieve information on past transaction. In Operations could help in improving organization and storage of transaction and asset specific data. In the area of IT cards system can reduce drastically the cost and time of migrating from one software to the other one.

However, due to its natural “digital attitude”, it is evident that CIB (Corporate Investment Banking) and specifically Capital Markets, in the Bank Division with the potentially greater gaining, such as:

• Increase efficiency in capital markets: today transactions rely on the reconciliation performed by intermediaries to ensure that both parties actually have the underlying transaction asset. This process is quite inefficient and time consuming in such a fast moving industry as it requires the involvement of multiple parties (e.g. clearing houses, custodians). Using a shared ledger it would be possible to (virtually) immediately verify the claiming of the other party without having to rely on an external check, thanks to the possibility to show the entire chains of transaction done for a given asset. This would imply a relevant operational cost saving for banks, also considering the increasing regulatory attention in this sector and how it impacts the banks account (in 2015 the agglomerate cost of fines hit the 215$bn)
• Increase transparency: linked to the above point is the potential full visibility over the entire chain, making possible instant check and verification both, as already seen, for the parties and for the institutions. This aspect offers also important linkage to the possibility to collect and easy verify information about a given asset. For example to ensure it responds to all the money laundry prerequisites and can clear all doubts related to the ownership.
  Moreover, being able to immediate verify the holding of the counterpart could help reducing the credit exposure by limiting the amount of assets to use as collateral and reducing the related margin and coverage requirements.
• Reduce fraud: Trade finance still operates in much the same way as it has for hundreds of years. There are often at least 5 or 6 parties involved in the buying or selling of a particular item (e.g. the buyer, the buyer’s bank, the shipping company, the courier, the seller and the seller’s bank). There have been attempts to both standardize and create central utilities in trade finance. Shared ledgers offer some unique advantages.
  A ‘partially permissioned’ system using smart contracts could enable the secure signing of a digital document, easily recognized and legally bounding by all parties. In addition, rather than simply storing the documents, as is done today, a shared ledger system would record immutable proof of the state of those documents.

Use Cases

What we have seen so far is still very theoretical so it may be worth analysing real use cases, which are solutions already under investigation by the relevant actors and have the greatest potential and scalability to see those apply to the daily activities.

1.     Client Relationship Utility

Existing service providers are under intense scrutiny by global regulators and banking laws to disclose ever more details about fees, charges, conflicts of interests, personal data protection and privacy, etc. In order to better safeguard against reputational and regulatory risks, firms could utilize BlockChain technology when engaging and on boarding clients to deliver critical information about fees, charges, privacy, etc. in a more structured and transparent manner. The solution can involve a private ledger overlay with an enhanced mobile application that reflects the client’s accounts and monitors related accounts and transactions to ensure the contractual rules are being followed and applied appropriately. In this way, ensuring the proper level of privacy and reading right, the same structure could be also used to respond to the upcoming requirements of the PSD II regulation, requiring a greater among of customer information to be shared among different actors (banks or institution in general). If for example, different banks adopt a shared BlockChain solution, it would be easier and cheaper to share and collect the same information without the need to replicate the same record for the same customer in the databases of the parties involved.

2.     KYC / AML & Suitability / Appropriateness

Big challenges facing existing service providers today involves the on boarding and ongoing maintenance of customer accounts and relationships as it relates to Know-Your-Customer, Anti-Money Laundering and combating the financing of terrorism (CFT). This process results in both significant costs and risks to all existing players that is duplicated  across competitors across the global industry. Additionally, the risks associated with “soliciting” clients have become so great that the majority of industry participants avoid solicitation at all costs to avoid regulatory risks causing in reduced fees and a much less interactive client relationship leaving clients feeling dissatisfied. BlockChain allows for the delivery of a market utility based on a “write-once / read-many” model where client backgrounds and investment profiles can be vetted by a single source and shared with parties of interest. This allows financial firms to recognize operational efficiencies, significant cost savings and risk-reductions while allowing them to focus on the overall customer relationship and experience. This also allows the client to “mobilize” their profiles thus allowing them to transition seamlessly across various service providers with very limited personal disruption caused by repetitive processes. If a consortium quasi-private ledger is less than optimal, existing firms could maintain private ledgers that allow profiles to be inter or ex-changed between other private ledgers as/when a client requests to ensure mobility for clients and cost-savings to the industry.

3.     Client, Regulator and Intra-Industry Disclosures, Contracts and Reporting

Periodic reporting and ongoing monitoring of contractual obligations between clients, service providers, regulatory bodies and between other peer institutions (professional and eligible counterparties) is a major effort to implement, maintain and monitor. Private ledger that allow the issuance and monitoring of contracts allows for a more streamlined / lower risk process to minimize risks and costs in what is largely a “paper-based” system with disparate rules and methods. Such a system could involve legal documents from Terms of Business, Privacy, Prospectus, Risk Disclosures, Inducements, Client Order Handling, Client Assets and Client Money, Passports, Transaction Reporting, Trade Execution Policies, etc.

4.     Peer-to-Peer payment solution

There are currently multiple solutions trying to define a valid P-2-P solution for banks not requiring the creation of a cryptocurrency and thus compliant with the current regulation. The most promising solutions currently under analysis enable almost real-time transaction (<5 seconds) in any currency and market allowing the automated selection of the best Market Maker (MM) based on the preferred conditions. In order to guarantee both parties and minimize the trust barrier for the counterparties and the Market Maker, the underlying escrow system takes the funds for the MM from the sender only after receiving a proof that the receiver has been paid eliminating the risk of illegal fund appropriation. Another great advantage of such system is the ability for the MM to link separated ledgers also using different protocols, thus virtually overcoming drawbacks deriving from different standard utilisation.

Such and more other solutions are under investigations by the main players in the Financial Sector, collaborating and leveraging each other on their own capabilities, sharing solutions to make BlockChain become reality. Some pioneers are also adopting internal BlockChain solutions in order to evaluate concretely the possibility of this technology and its potential implementation

There are still topics to be investigated and defined to ensure a sector-wise adoption of the technology (e.g. Regulations, Storage requirements, Latency limitations) but the solution is concrete and the potentialities are so disruptive that being part of the game is a must.

Technology has been the driver of change in recent years. New arrivals in the tech landscape including mobile payments and business diversifications like M&S or Tesco cards have made innovation critical for differentiation. At the moment, Apple and Samsung payments coexist with cards, but the future may be different. The smartphone has already become the central hub for how we manage our lives. With fast changing trends and the increase of ferocious competition within cards, loyalty and engagement programmes have become a norm to compete for market share and build brand advocacy.

Credit and debit cards companies, issuers, banks and even networks have their own loyalty schemes, offering points that can be redeemed for rewards. This is typically extended to hotel chains, airlines and football clubs. It started as a successful way of differentiation, but are these programmes really doing a good job of engaging customers with the brand and transforming clients into advocates? Furthermore, even if the overall membership numbers of loyalty schemes increase, it does not mean that the numbers of loyal customers are increasing. After all, taking out a membership does not mean you actively use it. So how do you build affinity?

Customers want to have a full range of products and loyalty schemes to choose from. Taking it one step further, they want to be able to choose which brands to get loyalty points from and how to redeem them. Cardholders have become rewards bargain hunters, addicted to earning more and more points (especially when it comes to collecting air miles). Companies, on the other hand, are trying to increase profitability. Card schemes are already losing revenue due to interchange fee regulations. We are therefore seeing an uptake in companies offering redemption offers such as allowing customers to pay with existing points, converting points to cashback etc. This is not only convenient for customers, but also helps companies reduce the value of points, resulting in savings.

Relying on loyalty points to drive engagement is a big risk; however, whenever companies reduce the value of points, disappointed clients can often move to cards with a better loyalty scheme value. Companies need to do more to stand out and create real “fans” of a product. Creating cobranded products, thinking beyond usual rewards offerings and considering how customer pools can be shared between brands will help companies secure a larger share of the pie.

Big companies are already clawing back from points, relying on other projects and programmes to drive additional engagement. American Express, for example, has created Amex Offers and Amex Invites as additional benefits, maybe preparing the path to move away from pure rewards schemes. The MasterCard Priceless Cities programme offers issuers and MasterCard cardholders a huge range of offers and experiences within retail, fashion, art, cinema, music or sports. On top of the common rewards, customers can access raffles to win exclusive experiences that are impossible to buy.

The future of loyalty and engagement will come through experiential and emotional marketing and making customers feel involved, relevant and excited. There is a lot to be learnt from lifestyle brands and banks, payment and card schemes will benefit from putting the customer at the heart of the journey.

Finance start-ups and traditional banks are now living the honeymoon period; finally convinced that alliances are better than direct competition. There is no question of absorbing a promising start-up to stifle a potential competitor but rather to guarantee the same level of autonomy and conditions specific to these young businesses.

The big bank players have understood that in order to be sustainable, they will need FinTech DNA combined with a focus on consumer needs which have, until now, been poorly served in the eyes of customers.

The process of digitization that the banks have been engaged in for years, is not enough to meet the challenges of the digital revolution in progress – the latter brings in its awakening a deep upheaval of uses. The main challenge resides in the capacity to invent bank 2.0.

Unlike mature organisations such as universal banks, which offer a wide range of products, FinTech companies focus on very specific niche markets with the goal of providing the best value proposition in their segment. These start-ups have no risk of conflict of interest nor the risk of possible impact of a new service over another – they do no need to wait for a series of green lights to launch an app.

The least powerful financial institutions have quickly understood the value in creating alliances with these actors, seeing an opportunity to expand their offering at a lower cost (as well as their income…) The FinTech firms also have the advantage of sharing the same ecosystem and relying on the existing banking infrastructure despite how innovative their services can be. A good illustrative example is Citigroup who recently teamed up with Lending Club, an online lender, to set up a separate unit called Citi FinTech.

The biggest players are no less concerned – FinTech activism, combined with new digital capabilities has considerably modified our relationship to time. It is therefore also due to increasing agility and responsiveness that they have multiplied contacts with these small players, through acquisitions as well as incubators or partnerships. They can learn from their operations, including their own innovation clusters, breaking silos for use by projects bringing together all the necessary expertise. This comprehensive remedial process is probably just a start to what is about to happen – similar to what happened in the 2000s, we will still experience a few years of turmoil with an inevitable movement towards consolidation.

In this process, some FinTechs could also aggregate multiple players to become robust financial services platforms to compete with banks, or even add a second “F” to the acronym GAFA, Google, Amazon, and Facebook Apple… For it is these technology giants that banks must especially fear.  Managing consumer digital identity is the key to customer experience. If the integration of financial services is required to achieve this, GAFA will have no qualms. In this big fight for creating the strongest customer relationships, the ability to be one with the FinTech world will be the decisive factor.

Efficient and secure payment systems are the foundation of stable financial systems. The German Central Bank secures and monitors cashless payment transactions in the financial markets in Germany, provides processing and clearing services, and participates in the further development of a standardized payment transaction system in Europe. To fulfil these requirements, a payment landscape has been provided and will continue to be provided by the German Central Bank, which will secure national, Europe-wide and international payment transactions for single as well as bulk payments.

A continuous development of such a payment landscape took place over the last 15 years. The best-known developments are surely the development of TARGET2 and the on going development of T2S. In collaboration with the different TARGET systems, and in part also independently, clearing and payment transaction functions were developed and put into operation that work together with these systems or use liquid assets from these systems.

R&L, part of the Be Group, has actively participated in these activities throughout the last 15 years and made significant contributions to the design of business processes, system designs and their technical implementation.

During the course of these developments, the entire existing master data management system proved to be out of date and risky (different key terms, distribution and redundancies, inconsistencies that resulted in reputational damages, etc.). To reduce the risks and set the base for a state of the art information management, R&L continues to support the Deutsche Bundesbank, to set up and develop a new master data management system that:

• provides all of the required master data to individual users for payment processing (at the basic level, > 20 applications).
• allows at any time comprehensive information about user or systems and the usage of the payment systems within the German Central Bank (in the basic level approx. 500 user/systems, distributed all over Germany).
• defines the key requirements, for reorganizing various company divisions to concentrate the administration of master data management in one company unit (5 company divisions at 2 locations).

Our team has been involved in and has shaped all of these developments from the first step until today. This includes tasks such as technical and methodological coaching of the staff, participating in data and process modeling, technical specifications and migration as well as drafting test methods and test scenarios.

Innovation in loyalty models combined with Big Data and analytics opportunities can create huge opportunities for many brands, especially in those industries that mostly engage customers on their passion and interests.

Sport, Entertainment, Travel & Leisure are high potential sectors in this perspective, even if each of them implies different business models and engagement processes.

In the football industry, some leading brands have already achieved relevant results in this field, leveraging on their large fan base and strong brand positioning in domestic and foreign markets.

The value of their fan base data can be very attractive for sponsors and commercial partners, who are interested in developing sales and increasing their customer base. Those football clubs who launched structured programs aiming at increasing the value of their fan base, are now succeeding in commercial revenue growth, thanks to sponsor agreements, partners loyalty agreements and co-marketing initiatives.

The key steps to build and enhance the value of a fan base are the following:

One of the most recent best practice for all this is certainly Real Madrid, an excellent example of synergies between brand strength, fan base passion, loyalty strategy and technology.

Real Madrid launched a new “app” to engaging fans in a wide range of actions and challenges, boosting the size and the value of database. The rewarding offering is quite attractive and includes a wide choice of videos about Real matches and footage on their most popular champions. Fans can reach different levels in the gaming framework, which allows them to achieve more and more appealing rewards. Moreover, for those fans who want to enjoy specific benefits on match-day as well as non-match day experiences at the club and its facilities, Real Madrid offers the “Madridista Program” that allows priorities, discounts and exclusive experiences to members.

In this way, Real Madrid developed a strong knowledge of their fan base profile, with the support of Microsoft, and achieved a relevant upgrade in their sponsor and partnership business model. As a result, the agreement with Adidas – that allows the leading German brand to target the Real Madrid fan base – has been uplifted to € 130 million per year.

There are of course other significant case histories in the market. Manchester United also stand as a best practice in this field, together with other leading English football clubs. But there is still a lot to be done. Markets like Italy or Germany, for example, show big opportunity, if we consider the value of their football brands and the significant size of their worldwide-spread fan base. Innovation is starting to spread across Europe and we expect to see the first effects in the short term.

Digital disruption has made its mark, changing how consumers interact with and consume banking services. For banks there is no way back from digital. A new landscape has been forged and they must find their place within this new operating environment.

Ever evolving consumer needs, the curse of legacy systems, the relentless march of fintechs and the pressing need to modernise within a highly regulated environment is all ground that has been well covered. With the challenges well established, the debate needs to move on to concentrate how these barriers can be broken down.

Banks have an appetite for change, to become a truly digital organisation requires a number of aspects to be considered, from your operating model and governance through to culture and digital talent to name but a few. Using my experience of setting up digital practices in retail banks for the last decade, here are my top three tips on how banks can lay the foundations for digital success:

The importance of strategy
What the last five years has clearly proven is that banks in their current iteration will simply not exist in a decade’s time. Banks need to streamline their operating models and decide what they want to excel at. Clearly it’s not possible to invest in everything, given cost and budgetary pressures, so there is a real need to streamline and focus the digital agenda.

That’s why having a digital strategy in place is so important. It might seem like an obvious starting point, but in my experience that is easier said than done. The overwhelming factor driving digitisation within banks is that someone will see a “cool” application or an interesting new digital gadget and wants to replicate it. Through internal lobbying, and getting buy-in from key influencers within the organisation, these piece meal ideas start to gain traction because a way is found to make the proposition attractive to the business direction. It’s then piloted, but as everyone knows a pilot never fails, so budget is then secured and hey presto, you’ve replicated that “edgy” digital capability.

The issue here is obvious – if investment in digital projects is dominated by those that shout the loudest, you end up with a poorly coordinated approach to digital, with different departments marching to the beat of their own drum. Equally, there is a need to recognise that you – in all reality – can’t stop this from happening. What needs to be created is a co-ordinated view of these investments. This is not about command and control, but ensuring that the organisation is working collaboratively to ensure that all departments are working towards a common goal to help the bank realise its vision of a digital future. In order to facilitate this, banks need to ask themselves some key questions:

• What does the customer want?
• What is frustrating your customers?
• How simple is the user experience?
• What can you not afford to get wrong to avoid losing customers and decreasing loyalty to the brand?
• What really drives the bottom line?
• How far ahead or behind the curve are you?

Digital is ever evolving
Digital is not a box that can ever be considered “ticked”. Technology is constantly pioneering new frontiers and banks need to ensure that they’re in a position to react to changing engagement channels. Deploying a mobile app, social media channel and a web presence is not job done.

In 2016 we are seeing the “device mesh” gain much traction. According to Gartner’s Top 10 Strategic Technology Trends for 2016: At a glance, the device mesh encompasses the sheer number of devices, individuals, information and services that consumers happily jump between and are surrounded by that are dynamically connected from smart watches and mobiles to tablets and laptops. As we hurtle towards this converged age, banks need to think about how they can utilise this digital mesh to continually enhance the customer experience, products and services can help build a richer picture of individual customers.

Deriving insights from the sheer volume of data created via these varied and numerous channels, in order to understand customer preferences and create a digital experience that resonates, is imperative for charting a digital direction that ensures you’re future proofing your processes and technologies. You’ve got to ensure you’re agile enough to respond to the next “big thing”. If you’re constantly reinventing the wheel, not only is it costly but you’ll lose competitive ground.

Culture
Banks can attract the digital talent needed to evolve their offerings, but do they have the culture? Internal structures and processes can often prove to be restrictive, making it hard to innovate from within. Instead many banks are looking at how they can work in conjunction with external companies utilising lab type formats, empowering digital teams to develop, experiment and evolve propositions before integrating them back into the wider corporate structure in a manner that is aligned with the wider digital strategy of the business.

Rather than piloting for the sake of it, these risk free ‘playgrounds’ provide the opportunity to trial new technologies and only bring them back into the organisation once they’ve been able to establish if it is viable, thereby reducing risk and significantly increasing the chances of delivering a business benefit and outcome.

Technology is constantly pioneering new frontiers and these advancements impact and change consumer behaviour – banks need to be planning not just for the now, but also for the future. And much more than that the need to understand what these technologies actually means for them – and their customers – to ensure that they’re investing in the right channels to help them reinvent and reimagine their business for the digital future.

We are living a “momentum” where many more consumers engage digitally and innovation is continuously challenging the “rules-of-the-game”. So far organisations have been developing their strategies in order to become more focused on the way they serve customers. As a result, subjects like Multi-channels and Omni-channels experience have been predominant.

Nowadays, we do believe that they should refocus extensively on customer expectations, as a solid pillar to sustain further growth and profitability. However they should do it from a different angle. Indeed, the growing digital interactions do require organisations to compete and differentiate themselves by improving their offered customer experience.

In the most recent time, we have developed a strong experience in supporting organisations and their customers to fully unleash the value from the digital business and continuous innovation. How can this be done? The most critical aspect is to partner with clients to shape a unique and unprecedented business proposition that delivers a truly ultimate experience. We call it “Augmented Customer Experience (ACE)”.

The key pillars of ACE are:

• Smart (Customer) On-Boarding
• Lean Purchase
• Personalized Advice
• Ultra (Customer) Care

ACE is a business and operational framework tailored to each organisation’s needs (e.g. industry, customer base / targets, products and services). It can be implemented incrementally and then evolved dynamically. This allow to respond to the changing ecosystem that affects the way individuals and companies re-think about which expectations the customer experience should fulfil.

We live in a world that is more globalised than ever before. Making connections is now easy. Technology is to thank for this as we use it to support everyday activities from sending emails, calling friends, shopping at the supermarket, travelling on the tube and even buying coffee. Every one of these actions, and in fact everything we do, is generating data.

Many companies have begun to realise that they already have a lot of data at their disposal, if only they knew how to utilise it. This dataset is only going to increase with research reporting that 90% of data in the world was created in the last three years. The growth of social media has contributed to this with businesses now having to monitor and react in real time to what is being said on channels including Twitter, LinkedIn, Facebook, Instagram and Google+. Companies can become true social businesses, by driving growth and superior profitability through a better understanding of the customer through social. They can capture, analyse and utilise these new forms of communication and data to drive real and measureable strategic value.

Every industry from automotive to financial services and retail are sitting on masses of datasets relating to everything from machine data to customer behaviour. Data has significant potential as it provides an insight into human behaviour. Organisations are investing in business processes which depend on the accurate understanding of this data. They recognise that what was once regarded as ‘information overload’ can now provide valuable insights. When extracted correctly, data can help predict behaviours, classify profiles, decrease risk, identify opportunity, prevent fraud and can be used to discover meaningful patterns and trends. In fact, predictive analysis can help companies with customer service, compliance, financial management and making better informed business decisions.

Now that we understand that big data has value in it, how do you go about finding it? Using big data intelligently involves more than just creating a huge database of internal and external business information. It requires adopting a new paradigm for production and service delivery, using methods of computational intelligence, machine learning and evolutionary programming within artificial intelligence.

The global adoption of smart phones, tablets, wearables and the hype around the internet of things means that datasets that were once merely observed can now be combined with volunteered data (as we see on social media) and cross referenced against intelligent statistics. These datasets are then analysed further using artificial intelligence methodologies.

Digital transformation is unstoppable. Digital is persistent, ubiquitous and affects every industry and business. This means that all organisations need to understand the impact digital will have on their products, services, systems, infrastructure and, critically, their business model and organisational structures.

Today, despite the level of disruption, digital is only in its early days as mobility, analytics and agility fundamentally change the relationship between companies and their customers. The world of tomorrow is about connections. Individuals will find themselves interacting with hundreds of M2M devices as they go about their daily lives. Everything from security cameras, home appliances, traffic sensors, healthcare devices, navigation systems, ticketing systems, payment systems and even vending machines. Financial services organisations need to consider what a successful company will look like in the future and how digital disruption can be exploited.

Major companies mistakenly assume that they are being digitally disruptive when implementing new technology portfolios or using tools such as online platforms, social networking, predictive analytics and cloud. This is not enough. Using new technology does not automatically result in digital exploitation. First, you need to reimagine your business and meet the demands of customers living in a digital world. Then you need to predict behaviours.

Digital innovation has given birth to a new customer journey. It is transforming the way people interact, transact, learn and handle their finances. Companies increasingly find themselves in a situation where the customer is in control. So much so, that customers are directing and designing their own customised experiences. The digital customer cares about four things; convenience, simplicity, speed and insight. Customers want 24/7 access to services, response to any queries in real time and meaningful dialogues with the brands they interact with, across multiple channels and interfaces. They demand hyper customisation and are increasingly in control.

The Millennial population are a good example of individuals who from a young age have grown up using a smartphone and tablet. What started out a tool to make phone calls when out of the house or office, is now something much more as the millennial population intuitively make all their important decisions online. Mobility infrastructure has expanded and diffused to the point where almost everything is connected to a network. For Millennial customers, bank branches need to offer more than just financial advice for the visit to be worthwhile. Technology is also uncovering new un-banked and under-banked communities.

Banks are now finding themselves focusing their efforts on retaining customers and building brand loyalty whilst also competing with traditional institutions, challenger banks and non-traditional players from sectors as diverse as transport (e.g. Uber), retail (e.g. Amazon) and technology (e.g. Apple, Google, Facebook). Financial services companies must respond to customer needs quickly or risk losing to these smarter entrants.

Finance and risk functions within many financial firms have begun to build a closer partnership and a greater coordination, impelled by a combination of factors including cost and effectiveness pressures, regulatory demands, a desire to do more stress testing, reports on credit and market exposures with the goal to provide faster and more accurate figures to support the top management strategic and operational decision processes.

In this way finance and risk are different faces of the same coin and, though the two functions must remain separated, a closer collaboration is required to give different perspectives and vigorous debate to providing the CEO and Board with a balanced view.

Following areas should be the first testing ground to promote joint activities between finance and risk, while assuring their independence:

• Data quality: finance is, and should remain the ultimate custodian of data, however data quality should be a shared responsibility.
• Joint development of risk and capital models: risk models are developed by the risk function, but it must be done in close coordination with finance.
• A greater use of risk analytics: more and more organizations are using sophisticated risk analytics, not only to support credit and financial decision making, but to provide a stronger foundation for operational strategy. The risk function often provides analytics services to all functions, including finance, which can further foster integration (e.g.. stress testing).
• Regulatory reporting: new regulatory approaches now make compliance the common responsibility of the CFO and CRO (e.g.. Capital adequacy). Risk-adjusted capital models are at the heart of both the latest Basel regulatory initiatives in banking, and the latest Solvency initiatives in insurance. Implementing such models often involves extensive coordination by risk and finance on inputs, and possibly also on decision-making.
• M&A: it has been almost the sole domain of finance, but risk increasingly has a chair at the table, particularly during due diligence phases of an acquisition.

Some key issues should be addressed in order to reach an effective risk-finance collaboration:

• Establish integrated and shared data sources: solving data quality issues, including the development of shared data processes and systems, can be an effective way to reduce a common area of conflict and improve the risk-finance working relationship.
• Jointly develop risk and capital models: risk models development typically remains the responsibility of the risk function but data fed into models should come out of systems created by finance, and outputs from the models can in turn influence financial reporting (e.g. provisioning, ICAAP).
• Strike the right balance to promote interdependence and cross-leverage risk management and finance: independent CFO and CRO functions can actually provide a strong impetus for operational integration.
• Give risk input into strategy: even when working in close cooperation with other departments, allowing risk to retain its independent perspective can be essential.
• Increase the value-added provided by the risk function: risk should go beyond a compliance role to focus on adding value to the business.
• Rotate personnel between risk and finance: even if risk and finance personnel sometimes find themselves in opposition on an issue, speaking a common language and having common experiences can help enhance operational effectiveness.

Be Team has already started to support its Clients to be successful in this emerging trend. Quantitative skills in designing measures and reporting on the banking and trading book, culture in data quality  and knowledge of processes developed in the CFO area and data governance projects can be easily extended with few risk management skills to support an effective CFO CRO Convergence.

CFOs and CROs in the financial sector are facing a period of simultaneous and disruptive events consequent to the recent financial crisis. Markets and economic volatility together with regulatory and commercial pressures are producing a challenging environment never seen in the past.

Finance and risk functions within many financial firms have begun to build a closer partnership and a greater coordination, impelled by a combination of factors including cost and effectiveness pressures, regulatory demands, a desire to do more stress testing, reports on credit and market exposures with the goal to provide faster and more accurate figures to support the top management strategic and operational decision processes.

In this way finance and risk are different faces of the same coin and, though the two functions must remain separated, a closer collaboration is required to give different perspectives and vigorous debate to providing the CEO and Board with a balanced view.

Following areas should be the first testing ground to promote joint activities between finance and risk, while assuring their independence:

• Data quality –  finance is, and should remain the ultimate custodian of data, however data quality should be a shared responsibility.

• Joint development of risk and capital models – risk models are developed by the risk function, but it must be done in close coordination with finance.

• A greater use of risk analytics – more and more organizations are using sophisticated risk analytics, not only to support credit and financial decision making, but to provide a stronger foundation for operational strategy. The risk function often provides analytics services to all functions, including finance, which can further foster integration (e.g.. stress testing).

• Regulatory reporting – new regulatory approaches now make compliance the common responsibility of the CFO and CRO (e.g.. Capital adequacy). Risk-adjusted capital models are at the heart of both the latest Basel regulatory initiatives in banking, and the latest Solvency initiatives in insurance. Implementing such models often involves extensive coordination by risk and finance on inputs, and possibly also on decision-making.

• M&A – it has been almost the sole domain of finance, but risk increasingly has a chair at the table, particularly during due diligence phases of an acquisition.

Some key issues should be addressed in order to reach an effective risk-finance collaboration:

• Establish integrated and shared data sources – solving data quality issues, including the development of shared data processes and systems, can be an effective way to reduce a common area of conflict and improve the risk-finance working relationship.

• Jointly develop risk and capital models – risk models development typically remains the responsibility of the risk function but data fed into models should come out of systems created by finance, and outputs from the models can in turn influence financial reporting (e.g. provisioning, ICAAP).

• Strike the right balance to promote interdependence and cross-leverage risk management and finance – independent CFO and CRO functions can actually provide a strong impetus for operational integration.

• Give risk input into strategy – even when working in close cooperation with other departments, allowing risk to retain its independent perspective can be essential.

• Increase the value-added provided by the risk function – risk should go beyond a compliance role to focus on adding value to the business.

• Rotate personnel between risk and finance – even if risk and finance personnel sometimes find themselves in opposition on an issue, speaking a common language and having common experiences can help enhance operational effectiveness.

Be has already started to support its Clients to be successful in this emerging trend. Quantitative skills in designing measures and reporting on the banking and trading book, culture in data quality  and knowledge of processes developed in the CFO area and data governance projects can be easily extended with few risk management skills to support an effective CFO CRO Convergence.

The FX market volume – the market where currencies are traded – exceeds 5tn dollars a day, making it the biggest and most liquid financial market globally. The FX catalogue include cash products (spot, forward, swap, ndf) and derivatives (options, structured products).

The FX market is the backbone of international trade and global investing: on the one hand, it allows the sustainability of import and export whereas, on the other,  forex is an asset class that allows to take benefit from international diversification both to buy and sell foreign assets and securities or currencies directly. Forex rates also form the basis for performance evaluation and risk management as they are used for hedging purposes against currency fluctuations to manage risk or used to speculate assuming risk betting on earning a return.

Currencies are traded electronically and bilaterally over the counter: a must for a dealer is to be always connected globally to identify “where the market is”. The lack of transparency and the massive  volumes of transactions that describe the FX markets entitled the development of specific mechanism to identify the rate to apply: a sort of benchmark called “fix” that is a single rate that reflects the value  of one currency relative to others at a particular point in time, typically created from a snapshot of actual trades (unlike Libor that relies on estimated rates).

A recent regulatory spotlight on alleged market rigging has accelerated a longstanding move to automated trading platforms: word wide regulators and organizations are working on proposals for changing financial benchmarks as well as data providers. Banks, fearing a move towards exchanges as it would further reduce margins and the value of costly investments into their own trading platforms, are stepping up to move away from traditional voice trading that are at the center of the probes. Those concerns are reinforced by the fact that the Regulatory bodies are aiming to introduce transparency mechanisms, timely confirmation of deals, pre/post trade disclosures to clients and clearing obligations with the scope of forcefully making over the market operations subject to control.

As for the fix income and commodities products in the late 1990s, the change from voice to electronic in FX will be driven from a buy side reform: the adoption of transparent algorithms and the access to different size order, simply show a better alternative to traditional channels. In addition the electronic platforms enable a real global dimension to the FX business (resolving simple barriers like time zone constraints) allowing players to grant access to all emergent markets and meeting retail investor’s appetite.

Across all products, electronic trading volume moved from single-digits in the early 2000s to 74 per cent last year (according to Greenwich Associates, a research company), but about 35 per cent of volume in the global $2tn a day spot fx market – where currencies directly change hands and traders take risks as market makers – is still done over the phone (according to Bank for International Settlements data): the rise of machine-driven fx business is open.

Our experience on FX programme at one of our largest clients. Since 2011, one of our largest clients launched a wide program including initiatives to develop capabilities and technological assets on FX, enabling itself to expand its positions in currency trading, including:

• adoption of an electronic trading service dedicated to financial institution and large corporate through Bloomberg, FX all and 360t multi dealers platforms;

• development of a pricing engine for cash products;

• strengthen pricing modelling to extend derivatives offer;

• development of a an integrated IT architecture to automate for instance sales to trader workflow, credit lines capacity controls, client data management.

Particular attention has been given to small/mid corporate and retail clients, developing a specific electronic platform integrated with the payment current services offered: the aim is to create synergies with all new potential FX transactions arising from products like structured export finance, trade export finance and cash pooling and to leverage its consolidated skills and competences on securities brokerage platforms (Market Hub).

This is the vision our client has on electronic assets:

• an investment to meet new customer and increase market share, with specific target on retail customers;

• a “must have” to serve financial institutions for which a multi dealer platform is considered as a baseline service;

• an advantage to concentrate all fx group needs;

• an opportunity to let desk sales concentrate on more profitable business (such as hedging or structured products).  As a continuous result, our client outstands most competitors in the 2013 poll launched by Risk Magazine: ranked third in four categories, placed in second position overall on currencies derivatives.

There is a clear picture described in the strategic business plan of our client: forex asset class has been recognized among the main profitable business for the next three years and the Group’s investment bank has been appointed as director to develop services and product to distribute a Group level.  Be Consulting has been confirmed as partner to support this new challenge.

Banks that are focused on service level and innovation have grasped that m-banking is the hint to manage all the aspects of their customers daily lives, providing access to financial services through mobile devices.

Mobile Payment represents a significant opportunity for Banks to create new revenue streams, being a centerpiece of a multi-channel strategy.

Different actors have shown interest to aggressively enter this new market, but there is still no evidence of the sharpest way to move forward. In order to maintain their competitive advantage against new Players,  Banks should leverage on their experience in dealing with security and data protection issues and exploit the value of mobility for customers (ubiquity, ease of use, convergence). Given Italian terrific penetration of cellular phones, m-Payment results in a great opportunity to attain the “War on Cash”, reducing cash related costs and enforcing Anti Money Laundering norms.

There is an already settled demand for different m-payment use cases:

• Person-to-Person Money Transfer: funds’ exchange through a brokered service provider;

• Purchase termination (C2B);

• Proximity Payment: transactions can be concluded at both attended and unattended POS locations. The consumer uses a mobile device, as a contactless card,  to interact with the POS system;

• Remote Payment: it brings e-commerce payment experience onto  mobile devices, accessing merchants’ mobile sites/applications.

Next step in the evolution path will be the introduction of M-Wallet, enabling a real convergence of multiple offers on a single device: loyalty cards, m-payments, couponing and geo-positioning offers.

The key market challenge is to redeem the conflict between Finance and TelCo’s players. Banks see in the m-payment an extremely valuable source of information on customers spending patterns and preferences, while MNO’s are starving for new data targeting and incremental advertising revenues.

The m-Payment market appears to be wide open to new entrants, with banks having a slight edge. To survive in this market Banks have to integrate mobile into existing offerings and rebuild loyalty engagement strategy,based on geosensitive and profiled push communications

At the same time Banks should truly address the market adoption of a NFC standard based on a micro-SD architecture, that’s allows them to counterbalance the overpowering strategy of new comers: Apple, Google, Paypal, TelCo’s and to catch new market opportunities deriving from:

• Customer Data and Ownership

• Marketing campaign

• Mobile advertising

A “wait and see” approach will let emerging providers peel consumers away from their banks. In this worst scenario Financial institutions will not only vanish m-payment new revenues opportunities, but will also suffer significant losses of current business.

Whilst the wealth management industry has been struggling with market volatility, low returns and increasingly risk averse clients, another phenomenon has been gradually gathering momentum. The incredible rise in ownership of smartphones such as Apple iPhone and Samsung Galaxy, plus plunging data tariffs and increasing broadband and Wi-Fi penetration has changed the way that people expect to be able to access and receive information.

Many wealth managers have the view that the more a person is worth, the more face to face time they require.

However, many of their clients priorities are different. They ask for more and better data, 24 x 7 access to portfolio positions, execution only trading with expert advice delivered not necessarily face to face, but at the clients desired time and place.

The role of the Relationship Manager is under pressure, they are a costly resource but their role is no longer absolutely clear. Many clients are increasingly mobile and time poor. Therefore, they have become unwilling or unable to conduct all of their business face to face with a Relationship Manager.

These evolving needs have resulted in an increased use of telephone and e-mail, neither of which however can deliver the richness of a person to person advice session. Some organisations have attempted to replace the face to face with video conferencing, but for anyone who has spent any time on Skype, the results can be very patchy. It may be fine for talking to relations, but not satisfactory for delivering complex investment advice!

One solution to this dilemma is starting to get traction, the use of co-browsing technology.

The concept is simple: a regular telephone call is made but both parties are also online looking at an internet browser. The advisor can “push” information to the clients’ browser, so that the client can see what the advisor is speaking about. All the client needs is a telephone, a laptop, tablet or PC and an internet connection.

Suddenly complex investment products can be illustrated and explained with diagrams, illustration or even video.

Documents can be securely and instantly delivered and agreement to compliance questions and statements can be remotely recorded.

On the client side, these sessions can be conducted at a time and place to suit their needs but, at the same time, they get a much richer discussion than a simple telephone call or e-mail could deliver.

This is certainly not a complete substitute for face to face, but where an existing relationship exists, or where time or geography are challenging, this type of meeting can have many advantages over a simple call or a complex video meeting.

So far, where this technology has been deployed the advisors have experienced significant uplift in conversion rates on product sales, shorter sales cycles and reported higher levels of customer satisfaction.

Because the entire conversation plus supporting documentation can be recorded in a visual audit, the numbers of complaints and miss-selling allegations has plummeted. In addition the advisors are able to deliver these sessions from their office and so save considerable time and cost on travel.

There is no doubt that in the longer term, video conferencing will replace much of the need for travel and face to face meeting, however in the short term, and in particular in parts of the world where local infrastructure and internet access is limited, co-browsing technology can deliver a cost effective and rich alternative to a face to face meeting.

With 25 million prepaid cards issued, Italy is the largest prepaid country in the world. It is seen by many as a case study of what can be achieved by prepaid cards and a laboratory for new successful products. Unlike in other regions, where prepaid cards are used by a small proportion of under banked consumers, in Italy these are truly mass-market payment tools.

Prepaid cards success in Italy is due to several reasons:

• Italy have a significant unbanked population (8 million people) and prepaid cards are the easiest way to convert cash into a digital mean;

• Many current account holders have only debit cards, which typically cannot be used online: prepaid cards are an easy tool for online purchases, providing also a safety net for security concerns;

• Italians have a history of mistrust in banks: prepaid cards pricing models are transparent, an initial purchase fee and flat fees for reloading and withdrawal;

• Italians are familiar to the prepaid concept: mobile phones top ups were an instant hit.

In Italy the majority of prepaid cards are issued by retail banks as general purpose cards, not targeted at specific consumer segments. Things are changing though: a growing number of non-banking institutions and service providers are looking towards the prepaid card market as a way to introduce innovative services and gain traction in the payments arena.

Reflecting country’s preference for cash, prepaid cards are used mainly occasionally, for online purchases or as travels pocket. Hence the total value of transactions still remains limited.

Given the record high penetration rate of prepaid cards, financial players face the challenge to increase cards’ utilization rate and move customers from plain vanilla prepaid cards to richer and more engaging products. Light accounts are a big step in the right direction: different pricing and additional services enabled by IBAN code allow for everyday usage and higher revenues. The market is already crowded, but new important products, such as Postepay Evolution from Poste Italiane, continue to emerge.

What is next? Innovative features will become a requirement for new successful products:

• Full card management through Mobile app: many prepaid cards are already paired with mobile apps but the functionalities offered are often not in line with customer expectations; a rich and well designed app can tilt the balance;

• Multi app functionalities through EMV chip: strategic deals between banks and service providers will allow for integration of new services (e.g. transport and event ticketing, identification);

• Engaging mobile marketing initiatives and loyalty solutions; Social Media integration and mobile marketing campaigns have been proved effective in a few new UK/US products.

We believe the prepaid space will stay as a profitable entry level for retail banks in the next years; increasing synergies between prepaid cards and smartphone applications will also ease the transition towards the approaching proximity mobile payments revolution.

Many European financial players are thinking of outsourcing large components of their operational and ICT services, as a consequence of a widespread trend to “focus on core business”.

This strategy needs the implementation of an “outsourcing supervision and monitoring system”.

This topic is subject to specific domestic and EU provisions which underline its growing importance in the broader context of the so-called “responsibility discipline” of financial players.

New regulations, combined with the increasing managerial need of supervision and monitoring for the performance of the “operating machine”, led Be Consulting to develop a flexible and scalable “holistic” approach to the Outsourcing Management topic. It is a six-step approach:

1. Definition of the project perimeter: in this step we clearly identify the outsorcing providers to be supervised, the services to be monitored and the “customers” of those services (who will then be responsible for controlling and monitoring the outsourcers);
2. Assessment of the current situation: as a second step, a quick analysis of the current situation of the outsourcing management framework is needed to identify and define the entire spectrum of project activities (see picture);
3. Organisation and internal regulation: in this phase we design the project organisational structure to carry out the relevant processes with particular focues on the so-called ‘Retained Organization’ (RTO) and  the relevant internal regulation/ policy;
4. Harmonisation/ integration of information baselines: we address and bridge the mismatch between how SLA/ KPI are measured and how the outsourcing costs are determined. Mismatches can also arise due to different suppliers covering  the same service;
5. Contract Management: in this step we define the optimal contractual architecture (e.g. protocol agreements vs individual contracts) and consequently update processes and repositories to keep  a clear reference to the outsourcing services contracts/ catalogues;
6. Monitoring and Reporting: we finally focus on creating a customised reporting system to periodically provide key indicators on the actual outsourcing cost and performance. Our support includes the design of the reporting template as well as the implementation of the  IT tool and the start-up of the distribution process.  As for the tool, we are in a position to market our own solution (developed by Be Solutions) which, according to the specific requirements, can also be integrated with market packages.

The financial crisis of the first years of the new millennium pushed national and international financial and monetary Authorities to re-think the payments and securities settlement context. With reference to the Eurozone, the ECB decided to evolve the security settlement landscape by adopting the same approach they had followed for wholesale payments with the introduction of “TARGET 2”. In other words, to build a single shared technical settlement platform managed at centralised level and offered to Central Securities Depositories (CSDs).

TARGET2-Securities (better known as T2S) is exactly that: a single shared platform, owned and operated by the Eurosystem, that has been offered to all CSDs interested to adopt it on a  voluntary basis. At the moment, 23 CSDs have already expressed their commitment to adopt the new platform by by February 2017. “Early birds” – including the Italian CSD Montetitoli (part of the London Stock Exchange Group) – will go live on T2S on 22 June 2015.

T2S is probably the largest project ever launched by the European Central Bank (ECB) in terms of resources and efforts. The rationale behind this tremendous effort relies on the fact that settlement is a critical process of systemic importance: it performs the closing of any securities deal as it allows the technical exchange of securities against cash, mainly in central bank money. For this reason, national securities settlement systems are (usually) considered as part of respective domestic payment systems.

T2S is part of a bigger picture aiming to build a single European payment system including retail payments (via SEPA), wholesale payments (via TARGET 2) and collateral management issues (via the Collateral Central Banking Model, also known as CCBM). Jean-Michel Godeffroy, chairman of the T2S Programme Board stated that “the ultimate objective of T2S can be summarised in just a few words: to make Europe a better place to invest” (T2S OnLine – Quarterly review – No 11, Winter 2012).

The involvement of the Eurosystem in building T2S and the sponsorship of all European Authorities, including the EU Commission, has generated large expectations around the project. Among others, it is expected that T2S will contribute to:

• reduce the current fragmentation of securities settlement infrastructure in Europe;

• harmonize settlement services in Central Bank Money (CeBM);

• reduce costs of cross-border securities settlement to domestic level;

• increase competition among providers of post-trading services and break up monopolies;

• support to EU Financial Services Action Plan and contribute to removal of Giovannini Barriers;

• reduce risks;

• promote lower overall collateral requirements, reduce collateral costs and improve liquidity management.

But expectations are never for free: if there were no doubts that the introduction of T2S mainly impacts on national CSDs that decided to join it, there is now a general consensus on the fact that T2S will affect the current market positioning of all intermediaries currently operating in the Eurozone, i.e. global custodians but also local agents, Central Counterparties (CCPs), trading venues and asset managers. In order to remain competitive they should all take critical decisions as if stay or not in the securities business and, if yes, how to comply with the new business framework. In brief, they should assess their current business model in relation to the new scenario and, if necessary, think about adopting a brand new one. Furthermore, the impact of T2S on the organization, the operations and the IT structures of all those securities industry actors will be significant.

It was said that T2S will break up the current CSD monopoly at domestic level by “separating the ‘infrastructure’ from the ‘service’” (Ben Weller, June 2012). This was often (mis)interpreted as a commoditisation of the settlement services that will lead CSD to find new sources of revenues with higher margins: those services generally offered by Global and Local Custodians. The extent to which CSDs will succeed in offering other services, eminently banking, depend not only on legislation that will be introduced with the CSD Regulation but primarily on the reaction of those players whose business will be attacked by CSDs. CSDs will have to find a trade-off  between:

• develop a wide range of services in favour of a wide range of clients – from broker-dealers to the local custodians and asset managers – and thus collide with Global Custodians

   or

• “refine” and expand existing services in favor of Global Custodians (and of larger Local Custodians, able to act as concentrators in relation to other domestic operators) and of  Central Counterparties (CCPs), giving up to serve smaller or less sophisticated clients.

Some of today’s most competitive CSDs at domestic level risk to get  a worse market positioning as T2S will lead to an increase in their operating unit and to a greater competitive pressure on securities settlement fees.

As for CSDs, T2S represents a mix of opportunities and threats for Global Custodians. The few large operators that can be considered as truly global (i.e. those that act directly in any, single, financial center with their own organization) will probably plan, in the long term, to rationalise the number of CSDs they work with. In the short term, they would probably decide not to change the current business model based on direct membership. As the majority of them work through local entities that offer them agency services, they will be geared to reduce the number of current local providers; this solution will imply that they have to plan additional costs to insource skills and know-how.

T2S could have significant implications also for the sub-custodians (ie. the smaller local operators which normally act as local agent for global custodians). Even for them it could be necessary to rethink / refine their business model in order to keep the current competitive position. This will imply  new investments and their operating costs will rise in the medium term. In addition, not all sub-custodians will be able to cope with the new challenge: they are fully aware about this issue that explains why an high percentage of sub-custodians expressed a negative opinion on T2S. The fragmentation of European markets was, in fact, the key to their success so far. Concerns also arise from the fact that there is a significant probability that the national CSDs in T2S may extend their operating scope to local custody services (in particular in the field of management of corporate actions, taxation, etc.). This event would hardly be counteracted by the local custodians, who would lose not only revenue but also their raison d’être. In fact, there would be space for only few operators who can aspire to the role of single point of access to a country involved by T2S and the ideal candidate is surely represented by the national CSD. The most likely consequence is, in the medium term, a consolidation of local operators or their conversion to the role of traditional commercial banks.

CCP will play a key role in the post-T2S. Indeed, there are many clues to substantiate this statement. The new rules on OTC derivatives, the giving up to CCBM2 project, the increasing centrality of the role of collateral and – last but not least – the need to balance any negative network externalities, will make CCPs to become the key players in the development of the securities industry, even more than in the past. As the eminently domestic character of CCPs will lose importance progressively, only those structures able to support the growing demand for more sophisticated services, characterized by an international footprint , will survive. The others would probably be subject to mergers or acquisitions. The increased international competitiveness, together with the improved interoperability induced by T2S, could “crowd out” also those very efficient structures which, in terms of size, number of non-domestic participants and range of served asset classes, would be perceived as less “appealing”.

Also companies who manage trading platforms will not remain indifferent to the advent of T2S. An easier access to standardised settlement services and harmonised custody services will blow traditional domestic boundaries, opening to greater contestability of the trading business and, ultimately, to an increase in competition. The use of a plurality of interoperable CCPs, the level of specialization on one or more asset classes, the range of products offered and the level of sophistication of the same, the ability to adapt to a more international context – characterized by a greater dynamics / responsiveness – are only some of the potential variables to be considered. T2S will probably not have a direct impact on trading platforms management companies in terms of operating costs or trading fees. More likely, it will push for an increase of competition between those companies.

In conclusion, if for someone T2S can pose a threat to its competitive position, for someone else it could represent a source of new opportunities: “At the moment, the buzzword in the market is “collateral”. We are seeing considerable growth in secured borrowing. Also the future legislation on CCPs and OTC derivatives (EMIR) will require more margining. All regulatory initiatives point to the greater demands for more high-quality collateralT2S will enable banks to make very significant savings in collateral when settling securities transactions. T2S will eliminate the need for banks to hold multiple buffers of collateral in depository systems across Europe. Banks will have the possibility to have a single buffer based on their entire European business. A single pool of assets and liquidity automatically nets the short and long positions between various countries. A single settlement engine, central bank auto-collateralisation, a harmonised schedule, and many other features of the T2S platform, will also enable banks to reduce the amount of collateral that is left idle.”(Gertrude Tumpel-Gugerell’s keynote speech at the ECB’s conference on “Securities settlement in 2020: T2S and beyond”, Frankfurt, 4 October 2011).

The recent financial crisis has exacerbated the relation between efficient management of collateral and its impact on capital adequacy needs of European banks. Following completion of a capital exercise, the European Banking Authority (EBA) determined in 2011 that the aggregated shortfall – corresponding to a minimum Core Tier 1 ratio at 9% – exceeds over  € 100 billion.

Under the pressure of the new market discipline agreed at G20 level to mitigate and – to a certain extent – prevent any new financial and monetary crises of systemic impact at global level, retail and wholesale payment systems will necessarily evolve and unsecured interbank deposit markets would be gradually replaced by guaranteed ones.

Collateral is more and more a precious resource as it is more and more scarce: the current way of managing collateral shows some inefficiencies both internal (i.e. related to the specific business model of each market actor) and external (i.e. determined by the fragmentation of markets and platforms). These inefficiencies are estimated at about € 4 billion per year, of which about 10% originating from processes of over-collateralisation.

Financial institutions aiming to keep their competitive positions in the new scenario will have to define strategies for integrating cash and securities in order to optimize risk and profitability management. Banks will look for more efficient collateral- and risk- management tools that, being integrated with payment and compliance processes, are able to work in a proactive way instead of simply reacting to  market inputs.

In the last few years, the ongoing Italian recession has had a significant impact on the Mid Corporate Market.

Based on the latest Cerved data (i.e. an official Italian repository for Companies Balance Sheets) published in a report by the Bank of Italy, only 50% of companies have recovered their pre-crisis turnover. Moreover, companies have experienced a significant reduction of margins and profit, impacted by higher cost of credit (financial charge at 23% of EBITDA, +3% vs. previous year) and less fixed costs reductions.

In this difficult economic scenario, there has also been a significant drop in investments. The request for financing has increased, mainly for short term products, driven by the increase in duration of commercial credit collection (avg. at 104 days, +10% vs. previous year).

Given this challenging context, “Monti’s Technical Government” drafted several proceedings (collected in the “Decreto Sviluppo” document) to support the Italian economy. Among these, with particular reference to Article 32, are the new financial instruments designed to support the Italian SME market (Companies with turnover <50€m).

These instruments, called “cambiali finanziarie” (finance bills) and “mini bond” can be issued by SME that are not listed if assisted by a financial sponsor (e.g. Banks, Investment Banks or Funds). These new financing products (or rather the evolution of the existing ones adapted for SMEs) can be issued by companies to raise short and mid-term financing (from 1 up to 36 months), creating new opportunities for both companies and Banks.

This can be considered an important innovation if compared to the traditional SME financing approach, where the issuance of bonds was only possible for companies rated by an official Credit Agent. The effect of this old rule was to exclude SMEs from this market by definition.

With the introduction of the sponsor role, the “Decreto Sviluppo”, opens the door for SMEs to a new and alternative form of financing.

In this new scenario, banks can capitalize on new business opportunities and are set to play a centric role, firstly as a sponsor for specific SMEs and secondly as an investor in the Italian industrial sector.

As a matter of fact, with this new regulation, banks will be obliged to keep within their portfolio part of the securities which will be issued and distributed primarily to other financial institutions.

Be believes that there is a considerable business opportunity for us in providing a broader support to banks as they approach this new market.

For example, in the Commercial area, Be can provide market analysis and sizing, revenue pool estimation as well as identify the risk of cannibalization for their existing product portfolio.

In the Product and Operations areas, Be can support product and process design. On the latter, we are already in discussions with the Italian arm of one of the largest European banking groups, to define the scope of our assistance to the launch of cambiali finanziarie and mini bonds, through an “end-to-end” support (e.g. compliance, legal, booking, accounting).

Be believes that helping Banks to provide these two new forms of financing is set to be a very important area of development for our Company, which also includes an element of “social responsibility” as it represents a concrete support to Italian Economy.

The financial crisis is bringing deep repercussions for the SME sector (small and medium enterprises) resulting in shrinking revenues with reduced strategic vision and low investment capability. This challenge is common across the EU region, but Italy, given the weight of its SME sector (>95% of total companies) is significantly under pressure.

The primary effect of the crisis is the weakening of the balance sheet for SME companies and the subsequent difficulty in accessing credit via traditional bank lending products. 

In this difficult scenario, new alternative financing forms are being developed which allow SME’s to evolve their relationship with banks and buyers, leveraging the whole supply chain to gain easier and cheaper access to credit. 

Be has been engaged by a leading European bank to support the strategy definition of a new Supply Chain Finance offer for Corporate Banking, which will put us in a favorable position should the offer be implemented.

Supply Chain Finance is a set of services (financial and non) that allows suppliers and buyers to manage the whole production and distribution chain, reducing financial costs and increasing the efficiency from origination to destination of goods exchanged.

The key competitive advantage deriving from the SCF (the aforementioned set of products) is that is enables SME’s which supply a Large Corporate to finance their own working capital at a significant discount as, they can benefit from the credit rating of the Buyer. At the same time, Buyers are able to negotiate a better price for goods with their suppliers.

The relationship between Buyer and Seller is strengthened by an SCF solution, encouraging both companies to prepare a common, mid-long term plan.

Banks are increasingly entering this market, which is growing 30% y-o-y.  Although they appear to lose revenues by providing loans at lower price, they grow overall revenues through new customer acquisition not otherwise achievable due to restrictions in terms of Risk Appetite. The Banks also grow margins by reducing the cost of risk (impairment) thanks to the better quality of their SME portfolio. 

SCF is therefore a win-win product, where Buyer, Seller and Banks all benefit from an innovative way to exchange new information (strategy, production plans, commercial targets) progressing from using only “old” balance sheet information to access finance.

Public funds attract an enormous number of organizations across Europe. Indeed, considering the overall amount of the funds and their relevance as tools for speeding economic growth and innovation, there is an increased attention from institutions and citizens to prevent this specific type of frauds. At EU level, OLAF (the European Anti-Fraud Office), has reported for 2012 and 2013 the opening of more investigations than in the preceding years (431 vs 253). However, also at national level, the fight against this type of frauds is progressing.  In Italy, for example, a very recent investigation ended in April 2014 and conducted by the Prosecutor’s Office and the Finance Police of Palermo, has led to 17 individuals being arrested for taking unlawful public grants worth more than 15 million Euros (financed by the European Social Fund, ESF).

An important Italian bank has engaged Be for an in-depth investigation of public funds fraud detection and prevention. Fraud against public funds actually may impact not only the public body itself but also other relevant organizations – mainly banks and other economic operators – who act as “outsourcers” of public funding provisioning services on behalf of Italian public bodies (e.g. the MISE, Ministry for Economic Development and the MIUR, Ministry for Research and Education). “Outsourcers” might appointed by the public bodies to oversee and/or coordinate a number of activities, e.g. the development and maintenance of the web portal to support the proposal submission and evaluation process, project evaluation, review and activity progress monitoring, the payment and monitoring of all economical aspects of the project (including on-site visits and audits).

Main objective of the project was the assessment of the bank’s processes, practices and tools (including IT systems) in terms of appropriateness for the detection and prevention of frauds events. The final output has been the identification of action items to improve the current processes, and specifically to develop tools enabling the early detection of frauds and reduce their potential impact. The overall project approach has been organized into two main phases:

1. during the first phase, risk factors within the bank have been identified, and related loss events and potential operational risks have been detailed;
2. during the second phase, the work has been focused onto the design and definition of actions in order to provide the Bank with an operational support for the discovery, early warning and prevention of fraud events.

Project phases, methodology and deliverables

In this project, Be carried out an in-depth analysis of the bank services and activities in the light of the potential happening of fraud and irregularities on public funds. The main goal of the project was to identify potential gaps in the bank’s processes and practices that could lead to frauds, and the design of appropriate detection tools in order to reduce fraud events and/or enable an early warning. To reach this goal Be has designed an ad hoc methodology for the definition of prevention tools and – whenever possible – of countermeasures that could strengthen the organizational and business structure against that occurrence of frauds. During the final phase of the project, we tailored an “ad hoc” tool (mainly in the form of KPI) to support the Risk Management in the discovery, early warning and prevention of fraud events.

Analysis model for risk factor, loss events and loss impact

The project started with an in depth assessment on a large sample of funding programs and the related “fraud prevention process” with a specific focus on the adequateness of internal controls and the presence of specific vulnerabilities that might favour frauds. Each risk factor was evaluated and associated with specific loss events, and related loss impact: loss events and related loss impact have been identified and characterized on the basis of the bank business activities, organizational framework, former fraud events, and other aspects which were considered as relevant.

The analysis was conducted through extensive evaluation of the available documentation on national funds provisioning. A number of follow-up interviews with the key stakeholders (e.g. responsible for overseeing grant beneficiaries and/or responsible for grant project administration) were conducted as well, in order to tune and contextualize the arriving from the documentation.

The investigation also included the analysis of specific case studies (selected in agreement with the Internal Audit itself) in order to realize a comprehensive investigation of activities that are/will be crucial for the business in the future.

In parallel, best practices (from other similar Italian and/or EU institutions or programs) were selected in order to define recommendations, guidelines and practical countermeasures to proactively prevent fraud throughout the overall grants lifecycle. Common fraud schemes (by entity and program type) have been also identified and characterized using scenario/event based descriptions.

The analysis also contributed to the definition of “red flags” and alerts for decision makers/operators in the case of fraud occurrence and the development of action items (short and long term) also including  “quick wins” to improve fraud monitoring and detection, and start up the actual implementation of fraud prevention and detection techniques.

The fraudulent behaviors in the Telecommunications market are traditionally very complex to a point where they look turbulent in their continuous development and extremely high variability, which is due to the rapid technological evolution. All of this requires the Telecom companies to invest substantially in anti-fraud research and innovation processes, as well as to suffer high running costs for the maintenance of appropriate security standards.

The usual technologies which are currently utilized to address and prevent credit and fraud risks have significant limitations both in relation to costs and their vulnerability. For this reason, Be has developed new innovative technologies based on quantitative methods, which are able to continuously learn from the observed behavior and, consequently, to rapidly adapt to the evolution of the “attack patterns” . In addition, the variety of Be services also includes best-of-breed technologies which allow our clients to innovate their internal processes at a very competitive cost.

This month Be is finalizing a first pilot of “Artificial Adaptive Systems” for one of the leading Italian Telecom operators, which will lead to a second experimental project for next 6 months. The tactical goal of this project is to automate part of the manual work, based on the experience of experts in assessing the consistency of the information provided at the time of underwriting a new customer. The strategic goal is to fully exploit the potential of our tools in the preliminary assessment of “client risk”, through a joint analysis of  company data available from CRM and other systems, and information provided by the client himself in the underwriting phase.

The use of our technologies is meant to support analysts in developing highly specialized professional skills in anti-fraud detection, as it will allow them to focus on the most critical and valuable fraud instances. This will result in both an anti-fraud performance improvement (in terms of effectiveness of results) and a significant saving coming from more efficient organizational processes.

The craft of  “good banking” is a fine art that has evolved over the centuries. It has always been based on a balance between  profit, containment of credit risk and liquidity management.

Credit risk is usually defined as the risk that a counterparty will not settle an obligation for full value. It stems out from the extension of any form of unsecured credit (i.e. non-collateralized) or/and from a failure in synchronizing the various interrelated elements (or “legs”) of a transaction.

The above leads to an obvious – but not trivial – assumption: in finding the balance between pursuit of profit, containment of credit risk and liquidity management, collateral play a crucial role. They have been used for hundreds of years to provide securities against the possibility of payment default by the opposing party in a trade.

In the 1980s, Bankers Trust and Salomon Brothers moved from simply “take” collateral to “manage collateral”. Collateral management includes a continuous process aimed to control the correspondence between the effective market value of the relevant collateral and their required value. At the very beginning, there were no legal standards and most calculations were performed manually. Collateralization of derivatives exposures became a widespread market practice in the early 1990s while standardization began in 1994 under pressure of IMF and Banking Associations.

Collateral management has evolved rapidly in the last 15–20 years with increasing use of new technologies, competitive pressures in institutional finance, and heightened counterparty risk from the wide use of derivatives, securitization of asset pools, and leverage.  The failure of Lehman Brothers on 15 September 2008 and the market stress that followed provided valuable insights into how market infrastructures and markets perform in very stressful conditions. Normally liquid markets become severely strained.

The recent financial crisis has also exacerbated the relation between efficient management of collateral and its impact on capital adequacy needs of European banks. Under the pressure of the market discipline agreed by G20 to mitigate any new financial crises, retail and wholesale payment systems will evolve and unsecured interbank deposit markets will be gradually replaced by guaranteed ones.

As a consequence, the use of collateral as a means for a balance between profit, risk containment and optimal management of liquidity has returned to play a central role in the art of banking. However, as collateral becomes scarcer it will also become an increasingly precious resource:  on one hand, the level of collateral required for regulatory purposes will increase significantly; on the other, the current way of managing collateral shows significant inefficiencies estimated at about € 4 billion per year (source: Collateral Management – Unlocking the Potential in Collateral, Clearstream, 2011).

The “next gen” in collateral management practices is represented by optimized use of collateral (substitution, re-use, etc.), a very complex process with interrelated functions involving multiple parties within banking organizations.

We all know that, in response to the recent financial crisis, regulators across the globe are focusing on a more robust supervision of all players in the financial services industry. A key effect of this trend is not only the launch of an increasing number of regulatory initiatives but also the fact that the Compliance function will become increasingly important in the near future.

In February 2011, one of our major clients launched a project aimed at reinforcing, mapping and harmonising the so-called “second level controls” throughout the Group, on the key regulatory areas that fall under the Compliance function remit; as a result of this initiative, our client’s Global Compliance Framework went into effect in June 2011. In addition, in May 2012, their IT Department launched a project aimed at providing the whole Group with a new platform to be able to manage all three levels of controls (from Internal Controls to Internal Audit through Compliance) on a single system. This platform is based on a market standard solution widely used in the Governance Risk and Compliance space.

The Open Compliance and Ethics Group (OCEG) defines GRC as a “system of people, processes and technology that enable an organization to”:

• understand and prioritize stakeholder expectations;

• set business objectives that are congruent with values and risks;

• achieve objectives while optimizing risk profiles and protecting value;

• operate within legal, contractual, internal, social and ethical boundaries;

• provide relevant, reliable and timely information to appropriate stakeholders;

• enable the measurement of the performance and effectiveness of the system.

The basic building blocks of a GRC application include:

• integrated dashboards and dimensional reporting;

• enterprise-class workflow;

• document management;

• security and access control;

• import/export capabilities ;

• loss event database;

• key metrics (KPIs, KRIs, KCIs) ;

• issue remediation;

• audit trail.

Return on Investment

Although it is difficult to quantify the value added of a “global initiative”, fines and censure can highlight the potential cost of non-compliance;In any case some metrics have been developed to help calculate the potential value (see picture).

Interaction with the “baseline”

Regulatory risk assessment should be undertaken by each business line but responsibility ultimately lies with Compliance, which must perform the appropriate level of oversight and challenge. Under this framework, the business line would be able to apply its knowledge to assess the regulatory risks to which it is exposed. Compliance would then oversee this process in order to challenge the business on the identified risks.

People prefer to interact and learn visually. Our perception of what makes a good experience is influenced by the context of interactions and the interplay between our senses. This is particularly important as customers increasingly desire (and often do) control the time, place, channel and form in which they receive information. To date communication technology could not fully translate these communication types involved in face-to-face, therefore a targeted approach to the use of video is critical.

A study of large European and North American banks and insurance companies found that 80% provided some form of video, either on their own site or on syndicated platforms such as YouTube, but very few have already started to interact with customers for retail banking, commercial or business banking.

The recent developments in the field of digital video and communications technologies, such has interactive kiosks, have opened full breadth of opportunities to create valued experiences and improve productivity. This can be achieved using several technology experience concepts:

1. Expert Anywhere – Enable customers in a branch, at home, or on the road to access experts, advisers or specialists located at other branches, contact centers or centers of expertise.
2. My Banker On Demand – Deepen the relationship between your customers and staff by enabling customers to use their device of choice, environment of choice and moment of choice to access information or make contact with known staff.
3. My Trusted Advisor – Become a vital part of customers’ day-to-day lives, using advanced digital interactivity to create exciting new, augmented experiences that add genuine value.

Be IT specialists can provide full project skills and experience in order to define the appropriate interactive model and implement video collaboration capability services throughout the bank.

As most industry analysts have noted, the financial services industry is starting to embrace multiple aspects of a paperless transformation. The benefits stretch beyond mitigating risk, eliminating costs and improving operational efficiencies and move toward ultimately improving the customer and employee experience. A strong unrevealed amount of digital data will also be available to marketing/risk managers to improve bank’s understanding of costumers behavior.

Individual approaches on paperless vary tremendously though. Some banks are slightly along the path and have implemented first electronic solutions, while others are just beginning to develop their strategies. Most fall somewhere in the middle still facing a long journey before they can reap the full benefits of an electronic environment and establishing a clear paperless operations acting at the core inner heart of the bank: the back office and the operations departments. 

A full paperless workflow would need 6 key elements in place to really take off in the bank organization:

1. “user friendly” digital signature capture devices spread across the front-end;
2. appropriate electronic signature instruments in relation to the strength of authorization level needed;
3. scanners and full digitalization & indexing platforms for inbound external documents (e.g. ID, salary statements);
4. powerful workflow platforms to handle document dossier lifecycle;
5. a paperless authorization procedure among all internal employees;
6. secure and reliable digital storage for a long term electronic documents archiving.

Within this blueprint banks still need to do a lot. Be’s client teams at Unicredit and BNL-BNP Paribas are dedicated to help clients to manage this transformation. Be’s technology and operations are furthermore already in place to handle paperless back office processes as a service.

The long-lasting financial crisis has generated a range of effects: the increasing competitive pressure, the difficulty to keep stable revenues streams, the lack of a trusted relationship with the consumer and corporate customers. Overall, we can say that today’s strong appetite of both global and domestic banks to avoid new “financial disruptions” has caused a deep re-focus of the industry priorities.

Banks have now fully realized they need to redesign and reinforce the whole set of rules and tools devoted to control any form of risks. This is fairly easy to accept in relation to market and credit risks, as their potential impact is well known. But, and this is the real news, the “control framework” now needs to be extended to new risk areas, which had so far been considered as “lower priority”: the operational risk management.

What is an RTO?

In this context, banks are enriching their organizational structure with a new unit – the Retained Organization (RTO) – tasked to assure the appropriate level of control on those entities in charge of supporting the business: the outsourcers. The RTO remit is to guarantee that every service provider supporting the business operations, whether it is an external suppliers or an internal shared service center,  complies in full to banking authorities requirements.

How to structure an RTO?

Two years ago, Be has been engaged by  a leading European bank to manage a complex change program targeted at modeling and implementing the control framework for the main outsourcing providers.

Our proposed approach was to use an “holistic” RTO design and implementation methodology, which includes:

1. analysis of regulation and top management strategies;
2. organizational benchmarking;
3. RTO compliance requirements definition;
4. performance management framework design and implementation;
5. reporting implementation;
6. organizational set-up and sizing.

Based on this methodology, our target was to complete the RTO set-up (with the exclusion of change management and IT implementation activities) within 5 months from start.

Performance Management Model

A key aspect is to define a consistent performance management model,  to enable centralized monitoring of the providers’ business performance.

We used a 3-step approach:

1. define a performance measuring methodology, with coherent relationship between services (catalogue), costs (financials) and performances (KPI);
2. create a single reporting system, able to satisfy monitoring requirements from all users and allow comparison between internal and market data;
3. create a restricted list of KPIs, with a clear focus on those services who have significant “business relevance”.

The level of reliability and consistency of the performance management model has a big impact on the effectiveness of the RTO. In particular, a well-designed model is likely to provide a very significant contribution to the bank’s overall business performance in terms of improvement of the customer service quality and identification of potential areas for efficiency gain and cost reduction.

“End-2-End” is becoming a recurring definition to describe the new approaches utilised in the area of performance monitoring (and in banking, in general).

When this definition is not misused, an “End-2-End” approach implies that one activity (eg. a specific business process) is monitored from only two observation points: the input and the output. No matter what happens in the middle!

Applied to performance monitoring, “End-2-End” approaches produce the following implications:

Service model and monitoring model

Moving from a “service by nature” performance monitoring model to and “End-2-End” model implies a redefinition of final output accountability and forces a redefinition of KPIs, which evolve from being based on production factors (MIPS, FTEs, Function Points) to being based on business drivers (number of transactions);

Processes: Processes can be more easily coupled with the business they are supporting;

Market benchmarking: An “End-2-End” perspective allows an easier comparison of service quality and performance with external market players, without the constraints of considering the different infrastructure, applications and organisation utilized for service delivery;

Compliance: An “End-2-End” perspective can potentially be unsatisfying for a Regulator, who requires each Bank to control its operating environment with an approach that allows to detect and understand in detail any cause of potential issue.

This list of implications clearly provides an indication that any plan to switch to an “end-to-end” performance monitoring approach needs a preliminary “trade-off” evaluation between the expected value added and the “change” effort required.

The UK has suffered several mis-selling scandals including Payment Protection Insurance (with billions paid in compensation) through to interest rate hedging products which appear to have been unsuitable for small businesses in 90% of cases investigated to-date.  Little wonder the regulator is focused on improved customer outcomes. 

In the investment arena, we have just seen the first quarter since the implementation of the Retail Distribution Review and it seems that there have been two main changes:

All of the retail banks have stopped providing advice via branch networks with advisory services only for those with £100,000 or more in investible assets

Whilst independent adviser numbers are heading for a c15% reduction, this has been coupled to a move to restricted or tied advice – 8:10 biggest advice firms are now using the restricted model, marking a substantial swing from a pre-RDR independence ratio of 4:1

Fewer advisers and less choice are the unintended consequences of a drive for quality and a significant advice gap is now apparent.  Life and pension providers, fund managers and discretionary fund managers have started to look at new direct to consumer (D2C) operations, following on from the start-up firms from 2010 onwards that have looked to tap self-directed consumers.

All of the current solutions follow the same pattern, which is based on a stepped process to determine client suitability for a specific, but self-selected, product solution.  This begins with the consumer determining a goal; quantifying a target amount and a timeframe.  The user then tries to determine their risk appetite, typically via a questionnaire, followed by a check on risk capacity (the ability to sustain losses).  The profile is then matched to a model portfolio which may be made up of ETFs, pre-packed funds or a fund of funds solution.

The process is not really aimed at the novice investor and concepts of risk, return, volatility and even investment horizon do not speak to a client that is tentatively looking at better returns than they can get from cash deposits.  The mass affluent is looking for a greater certainty of outcome and capital protection – outcomes that currently tend to come from complex structured products with accompanying credit risk. 

The result is that unless simplified products are designed, with better underwritten outcomes for the mass of consumers, there will be no uplift in consumer investment even with improved technologies and online education.  Nor will the regulator be interested in dropping the bar on the regulation of the sales process until the consumer is better immunized against detriment from products and providers.  This situation is not peculiar to the UK and authorities elsewhere have looked for suitable solutions.  In the US, these have taken the form of “safe harbour” funds – protecting 401(k) plan sponsors from fiduciary liabilities and the UK tried once before with stakeholder products which were charge-capped.

Government-backed simplified product design thinking is so far only extending to general insurance, income protection and savings products – with investments deemed too difficult, or inappropriate for the mass of consumers.  But between below-inflation returns on savings and corporate pension schemes where members are bearing all the risk, the need for product-based solutions are clear and the firms that recognize this could capture a significant prize.

European insurers seem to be trapped in a pincer movement between regulatory change and the potential impact from sovereign debt defaults and recession-driven declines on the asset values supporting insurers’ liabilities on the equity market.  Low interest rates continue to impact financial resilience as life companies struggle to maintain margins and limit the impact on capital and reserves.   We have already seen some insurers trying to increase product prices, some of it under the cover of changes in distribution regulation, but limited by weak consumer demand.

In this tough environment, we can see some of the key responses from the main players:

• Focusing on customer growth opportunities in a low-growth region and trying to adapt to the increased regulatory focus on consumer outcomes;

• Developing new propositions and channels, especially in the digital space, re-engineering the business model for both revenue growth and cost reduction;

• Cautiously allocating capital and maintaining adequacy levels;

• Finalizing the testing and integration of Solvency II systems and looking to tax changes that are ahead.

In 2013, European insurers will increasingly focus on improving business retention and growth. Regulatory changes aimed at improving customer transparency about products and costs will sharpen this focus, guiding insurers to re-evaluate their business models and selling propositions. This is already seeing many insurers to alter their distribution, products and services — for example, shifting away from offering investment-linked options and emphasizing protection and customer service. 

In the UK, the implementation of the Retail Distribution Review has already been felt – leaving a significant regulated advice gap but a wave of new execution-only investment platforms. At the same time, Solvency II will pressure insurers to develop and market more products that shift risk to the insured and away from themselves and regulators have started to fear some consumer outcomes.

For self-directed consumers, the internet has furthered their ability to compare products and prices and obtain independent opinions before purchasing, even if they use an advisor to complete the purchase. But time-poor and cash-poor consumers see the life insurance industry as lagging other sectors, especially with regard to service delivery and rewarding loyalty. Most life firms have been slow to react to social-media challenges and to harness consumer analytics as consumer data often resides in disparate product administration systems and formats or is constrained by intermediary relationships.

So in 2013, European regulations will continue to have an important strategic and operational impact on insurers -MIFID II, PRIPs  and the IMD proposals will all be on the agenda of the European Parliament this year. Although many details remain to be finalised and the necessary operational changes will vary by country, they will challenge existing distribution methods while creating opportunities to develop new models. In the meantime, firms look to cash flow control and product margin to get through the troubled times.

Since the 2008, amid the financial market turmoil, numerous countries imposed short selling bans to limit market bets on EU listed shares or bonds that caused falling in prizes, thus affecting market stability.

From November, the new EU short selling regulation (236/2012) has come into force harmonizing provisions throughout the EU and soughting to regulate transactions outside its borders. It does not matter where a person entering into a short sale is located because this Regulation applies, broadly speaking, in respect of shares admitted to trading on EU trading venues, sovereign debt issued by EU sovereign issuers and related credit default swaps.

In a nutshell, the key requirement are transparency in relation to short positions in shares or sovereign debt, restrictions on uncovered short sales in shares or sovereign debt or uncovered short positions in sovereign credit default swaps, buy-in procedures and strict monitoring on exemption for market making activities. In this contest, one the major Italian Bank Institution has launched in 2012 an extensive programme aimed to ensure both detective controls to ensure monitoring and compliance adherence to the Regulation, and in 2013 preventive controls to address and monitor trader´s activities as well.

The nature of bank business involving large trading volumes, the coverage of 54 different countries and the gold plating role of local and EU regulators entails a significant level of complexity.

Be, enhancing compliance expertise and capital markets practices, has been asked to provide continuous guidance among the different stakeholders, facing the scale of the international business model and risk mitigation needs, extending contribution from PMO to SME contributions.

A Central Counterparty Clearing (CCP) interposes itself as legal counterparty to both sides of transactions in a market. Contracts are entered into bilaterally and then transferred by novation to the clearing house, which becomes the buyer to every seller and the seller to every buyer.

CCPs have long been used by derivatives exchanges and a few securities exchanges and trading systems.

In recent years CCPs have been introduced by many more security exchanges and have begun to provide their services to over-the-counter markets. A CCP has the potential to reduce significant risks to market participants, by imposing more robust risk control on all participants, by achieving multilateral netting of trades.

A Central counterparty does not remove credit risk by itself from a market. If a market participant becomes insolvent its loss will still be borne by some or all its creditors in some manner.  Instead a Central Counterparty redistributes counterparty risk replacing a firm’s exposure to bilateral credit risk (of variable quality) with the standard credit risk on the Central Counterparty.

In order to reduce risk the CCPs adopts collateral policies and monitors the robustness of their clearing members and risks from the business that they are bringing to the CCP.

This means collecting and analyzing information, from clearing members on large positions taken by their customers.

A CCP also tends to enhance the liquidity of the markets that it serves, not only because it tends to reduce risks to participants but also because it facilitates anonymous trading. This can be attractive to firms that, for example, may not want to reveal that they are large buyers or sellers because they fear a market impact.

The role of CCP is very important as a risk management failure has the potential to disrupt the markets that it serves. A Central Counterparty by definition concentrates and re-allocates risk. As such, it has the potential either to reduce or to increase the systemic risk in a market.

As a consequence security regulators and central banks have a strong interest in CCP risk management.

The CCP are de facto regulators and supervisors and impose financial discipline on the clearing members.

In this scenario we are working with our client to  support  and help them to improve their operational processes and the interests of Front Office trading system implementing the rules concerning regulation of Over-the-Counter (OTC) derivatives markets as follows:

1. Standardized highly liquid OTC derivatives are to be cleared via Central Counterparties (CCPs);
2. Standardized OTC derivatives are to be traded via electronic trading platforms;
3. Trades in all OTC derivatives are to be reported to central data repositories.

Tesco, British Airways, Amex Membership Rewards, Millemiglia, Bonus Garanti, Sconti Banco-Posta, Nectar. We all know those loyalty programmes first as consumers and then as advisors of many of these market players.

Since early 70’s, when manufacturers launched initiatives to stimulate their goods purchases (independent points collection), the loyalty initiatives have become the core of marketing planning for Retailers, Airlines, Fuel company (which launched the multiplayers collections and catalogues). By the end of 90’s Loyalty Programmes extended their application in the Utility and Banking industries.

Loyalty became the crucial marketing tool (the 5th P of the Marketing Mix) when the mass market scenario changed in a “hypercompetitive” arena: consumers have been offered multiple choice, with an always growing number of players, higher penetration of products and a decreasing pricing curve. Brand loyalty has definitely lost its strength in keeping the relation with customers and the strategic marketing focus moved from customer acquisition to fight to maintain their monthly budget share. Different Loyalty initiatives offered all possible ways to drive profitable behaviors among customers, using any means possible: points, miles, rewards, incentives, enhancements, cashback.

At Be we partner with some of the best-known global brands, helping them attract and retain customers by offering rewards for using their products. We develop loyalty solutions that are adaptable and flexible – tailored to the Partners’ specific needs. An effective Loyalty Programme can only be a customized one, based on:

• Competive positioning

• Integrated offer with Retailers

• Deep knowledge of customers

• Clear definition of the programme Targets – Increase share of wallet, via shifting spend from the competitors and increasing spend via crosssell and up-sell initiatives; Increase market share in environments of competitive parity; Improve lifetime customer value by identifying and overcoming sources of attrition; Enhance the customer experience in order to create loyalty and brand advocacy.

As a Business Consultants firm we support our partner to identify the Best Option Loyalty Plan, independently of the technical solution. Paramount is to talk to each customer in the proper way and to avoid standardized rewards to all clients. Needless to say, we put all efforts driving innovation in the emerging digital and mobile spaces, the new innovative solution, with higher chance of success.

Our aim is to align the loyalty to the business strategy ensuring a positive ROI. The virtuous circle we advocate to our Partner is based on:

1. Business intelligence: aiming to segment customer base and understand a likely migration path to exploit maximum value from customers and avoid their attrition
2. Marketing and Communication: to customize offer to different cluster stimulating up selling and cross-selling and to maintain the customer lifecycle
3. Campaign management activities: aimed to define rules of contacts, execute marketing campaign offering each cluster the right value proposition via the appropriate channel
4. CRM data enrichment: to improve segmentation, leverage on previous experience and track marketing results at single customers level

Increasing competitiveness in financial markets and the (“expected”) growth of both volume and complexity of financial instruments are bringing banks to enhance their technology platforms to ensure greater flexibility and be able to face challenges with an efficient time-to-market.

More than two years ago, one of our clients, the Investment bank of a leading Italian banking Group, launched a challenging program in Italy to change their IT “skin” by implementing standardisation and better competitiveness in the investment banking business.

The “New Architecture” program represented one of the most ambitious, challenging and large engagements ever launched in the IT Capital Markets environment to date in Italy, and definitely the biggest in the last few years, with over 70€ML budget in a 2-year timeline.

The scope of the program was the complete IT architecture review, through the development of a new approach involving decoupling integration layers at all application levels, the adoption of the latest releases for core software suites (Golden Source, Mx3, Calypso) and the consequent changes to the operating models. With the main strategic objective of reducing the bank’s time-to-market through the improvement of the IT&OP Service Model,  this immediately became the most important project for the bank itself and their large IT division. Project representatives were selected from all areas of the bank (IT, Operations, Business, Organization, Risk Management…), which created the need for a significant coordination effort delegated to our Be Consulting team.

To give an idea of the complexity of such a wide program, one of the first challenges addressed was the definition of the program organizational workforce, with about 15-20 different Consulting and Integration companies and also 250 FTE on the field. Even logistics was an issue to address at that point! In addition, the bank found it very difficult to identify the Program Head, given the extensive mix of managerial and technical backgrounds involved in the project.

On this engagement, today Be still covers the Program and Project Management role with activities distributed across four levels of the client’s organization structure: Program Head, Stream Leaders, critical sub-streams and support to functional teams on specific areas.

Setting up a Be team (on average 15 FTE, with a peak of 22) with the appropriate level of expertise in both project management and investment banking products, as well as with significant vertical IT system knowledge, was key to satisfying the client’s high expectations.

During August, while our office was closed for summer holiday, we were forced to ask our team for an additional effort, as an important project milestone had been postponed from July to mid-August. Internal and external resource availability became a critical problem for the Program Head, particularly if we consider the size of the impacted release. The whole project team worked incessantly for four weeks (including weekends!). We gave a fantastic example of client commitment, as we were the only consulting firm who was able to immediately guarantee the requested support during the holiday season, and provided a clear contribution to achieving the project goals.

Thanks to this performance and trusted cooperation, Be has been able enlarge its presence at this client, by securing new contracts both in terms of project follow-ups and new engagements with this leading Italian bank.

Due to the evolving landscape, banks are currently facing more challenges than ever before. With sub-10% ROEs and external factors such as low interest rates, banks are constantly having to rethink their business models in order to survive in this persistently subdued economy.

One of the biggest problems facing the UK retail banking market is the inability to stand out in an increasingly commoditised and competitive marketplace. It is therefore vital that banks keep up with environmental changes and trends in order to maintain a competitive edge.   Most banks will need to focus on launching major repositioning strategies and in order to do this, senior management must look towards the future and not allow themselves to be dragged down by legacy issues.

With the recent events in the banking industry over the past 6 years, many people have lost trust in the banking industry. New regulation has been implemented in the industry in order to enhance efficiency and avoid repetition of these events in the future. Banks need to undergo fundamental changes in their culture and behaviour in order to win back the trust and loyalty of their customers and remain consistent with industry changes.  Customers are now more likely to switch banks regularly or have multiple bank accounts with multiple banks. Globally, nearly 10% of customers say they are likely to switch banks in the next six months, while more than 40% are not sure if they will stay with their bank in the next six months. The quality of overall service is the primary factor that drives customers to leave their bank. Understanding behavioural changes, banks must be attuned to their customers’ needs and ensure they are providing the best service across all channels in order to gain customer loyalty from existing and new customers.

Banks must ensure that they continuously respond to the changes in the environment, whether they are technological, cultural, behavioural, legal, and so on. They need to accept these changes and adapt in response to them or face the possibility that they will not be able to survive.

The major retail banking operating models are changing, a brief overview of the different facets of banks operating models are outlined under a number of core areas:

• Multichannel approach – Retail banks have relied on branches as their key banking channel. Although they still do remain one of the main banking channels that command the highest share of sales volume, there has been an increase in banks taking a multichannel approach.  They need to focus on building capabilities to deliver the right products, through the right channels, at the right time and to deliver a consistent multi-channel experience to customers.

• Mobile – Banks must first focus on improving their existing channels, especially mobile. Mobile banking has been continuously increasing in popularity over recent years. It is convenient for customers and reduces overall operational costs for banks. It is therefore a great area for banks to invest in and improve on. Customers are evaluating the quality of mobile services in their decision to choose a bank or leave it. Developing advanced mobility capabilities is emerging as a strategic imperative for banks today.

• Social Media – There are now also newer direct channels such as social media that have recently emerged and banks need to take full opportunity of this. Banks have been quite late in embracing these platforms as they have had an aversion to the operational, compliance and reputational risks previously associated with them. Banks are now investing more and more in Web 2.0 tools such as blogs, wikis, and social networks to communicate with customers, to better understand their behaviours and expectations, to create awareness and expand their reach.

• Big data – Big data refers to datasets whose size is beyond the ability of typical database software tools to capture, store, manage, and analyse. Banks have started working with big data gained from their customers. By implementing analytical tools banks can convert this data into actionable insights which will enable them to deliver enhanced customer value and increase market share.

• Reorganisation – Banks have previously illustrated an unhealthy focus on profit at the expense of the customer’s needs. One aspect institutions must bear in mind as they restructure their sales and service models is, whether the proposed reorganisations correspond with developing needs of customers. Ensuring interaction with customers is enhanced will be a step towards becoming a more efficient service provider.

• Regulation – The current landscape of the financial sector has attracted widespread scrutiny. Post- financial crisis, the financial sector has weakened its reputation following a series of revelations regarding poor standards and professional failings, specifically challenges around miss-selling, LIBOR and anti-money laundering. Regulators have made clear their desire to see banks in a position where they are able to identify potential issues and implement an intervention programme by undertaking a root cause analysis which repairs the problem. Transformation of the banking industry is not just a regulatory-driven issue, press commentary and social sentiment highlight a downward turn in the public’s assessment of the sector.

• Operations Landscape – Due to constant mergers and acquisitions the structure of many banking institutions has evolved dramatically over time. Operating models have inevitable developed alongside these structural changes for many reasons, such as unsuitability to the bank’s structure or old-fashioned models. As discussions continue, it is expected that more and more institutions will incorporate restructuring strategies to better reflect new technologies and customer needs.

• Productivity – Training staff and ensuring their knowledge and advice is up-to-date is a key factor when driving efficiency. A clear educational structure which focuses on the training of frontline staff across all branches, sales force and telephone banking will oversee service expectations. Increasing opportunities will also emerge for banks to learn from other sectors and advance their productiveness throughout the institution.

• Back Office – The sharing of back-office infrastructure will rise as banks aim to fully utilise products and equipment whilst keeping costs low. An additional operational function which has become a tactical tool within productivity is the management of seamless multi -channel integration. Developing a structure to address and effectively manage channel networking will promote an efficient service globally.

• Behaviour – In order to successfully implement new operating models, it is vital that they are matched by a behavioural shift within the institution. There needs to be a universal goal of ensuring that the bank’s new strategy is reflected through the behaviour and conduct of its staff. One area which often needs addressing is that of communication and conflict. It is important that senior management highlight the necessity to report issues and where any differing cultures have been fostered by different sectors of the bank, there needs to be a united approach.

Our response.

In the UK Be is building a Retail Banking team with transformation professionals who have the knowledge, skills and experience to lead, advise and support large scale, complex transformational change. Within Retail Banking there are significant pressures to deliver benefits within tight time and cost constraints whilst minimising risk. Our team draws upon skills, techniques and expertise acquired through experience to provide our clients with valuable advice and support.

Our team provides solutions which address the range of challenges facing organisations as they adapt to changing regulation, customer requirements, channel and digital journeys, technological developments and enhanced operations, as well as changes brought about by restructuring, mergers and acquisitions, performance improvement and stakeholder pressure to increase profitability. The ability to shape, deliver and assure transformation is crucial in minimising the risk of delivering the change whilst maximising the benefits.

Our approach focuses on achieving key strategic imperatives and benefits to deliver a sustainable and successful transformation programme rather than the traditional project approach focusing only on time, cost and quality.

We are actively assessing the market from a recruitment viewpoint and cherry picking consultants at multiple level and grades to develop a truly unique team in the UK market. Consultants are from big four and industry backgrounds, alongside a more junior consulting team, allowing us to build multi hierarchical teams to win and deliver larger transformation engagements.

Traction across the UK market is strong with sold work the Co-operative Financial Services, Barclays and Barclaycard, and upcoming sales in Nationwide, American Express and Bankia and an increased footprint with multi location teams from  Italy and UK actively working together in an end to end client solution.

“End-2-End” is becoming a recurring definition to describe the new approaches utilised in the area of performance monitoring (and in banking, in general).

When this definition is not misused, an “End-2-End” approach implies that one activity (eg. a specific business process) is monitored from only two observation points: the input and the output. No matter what happens in the middle!

Applied to performance monitoring, “End-2-End” approaches produce the following implications:

• Processes –  Processes can be more easily coupled with the business they are supporting;

• Service model and monitoring model – Moving from a “service by nature” performance monitoring model to and “End-2-End” model implies a redefinition of final output accountability and forces a redefinition of KPIs, which evolve from being based on production factors (MIPS, FTEs, Function Points) to being based on business drivers (number of transactions);

• Market benchmarking –  An “End-2-End” perspective allows an easier comparison of service quality and performance with external market players, without the constraints of considering the different infrastructure, applications and organisation utilized for service delivery;

• Compliance An “End-2-End” perspective can potentially be unsatisfying for a Regulator, who requires each Bank to control its operating environment with an approach that allows to detect and understand in detail any cause of potential issue.

This list of implications clearly provides an indication that any plan to switch to an “end-to-end” performance monitoring approach needs a preliminary “trade-off” evaluation between the expected value added and the “change” effort required.

Recent disruptions in finance and overall market scenarios have imposed to European Regulators to build up significant barriers to limit the risks associated to banking and financial activities.

These barriers are developing Financial transactions, Payment services , Credit and generally avoiding dangerous events happening again at system level, by asking Institutes to be traceable in transactions (e.g. FATCA, PSD), compliant with directives, standardised in instruments and processes (e.g. SEPA, Target 2 Payments and Securities) and reliable to customers (BAS III).

Significant investments are in place and forecasted to build up these barriers, representing more than 40% of Institutes yearly budget, in particular on ICT. To strengthen ICT infrastructures and to learn operational and governance processes, investors need to improve quality on the internal and customer side of the business and to create an interconnected framework of controls. Banks immediately realised the opportunity to”leverage on compliance to gain effectiveness”, to enable a natural convergence between compliance and efficiency objectives, empowered by a main strategy of reducing costs.

What is not so clear is that this opportunity might be intended, in some cases, as an enabler for business revamping, as following cases demonstrate:

• To work on Lean processes and Operations, effectiveness can drive a renewal of the Service Model to the Customer (from Customer segment driven to Customer business driven), or a Network agencies model restructuring (from attended to unattended, from generalised to specialised);

• To increase transparency and control on internal costs, can lead to a redefinition of Pricing Strategies, moving from a simple “revenue driven” to a more sophisticated “value driven” approach;

• To align to European transactional framework, eliminating specific domestic services, can be a great opportunity of restructuring transactional offering to the Customers, being more competitive on the market in terms of pricing and consolidating Customer fidelity through providing of VAS services embedded in the offering (on direct channels, on linking payments and invoices, on monitoring liquidity trend, on creating tailored bundles);

• To adhere to a new settlement system on Securities is a big chance, in particular for the big Institutes, to set-up a B2B no captive offering within the financial industry, enabling fresh revenues.

At Be, we strongly believe that now is the crucial moment where we must be able to create this connection, by “smartly merging” within a single and harmonised “action framework” Compliance and Performance improvement, both on the internal side and on the market perspective.

The open-source cryptocurrency protocol (i.e. Bitcoin) was published in 2009 by Satoshi Nakamoto, an anonymous developer (or group of bitcoin developers) hiding behind this alias. The true identity of Satoshi Nakamoto has not been revealed yet, although the concept traces its roots back to the cypher-punk movement; and there’s no shortage of speculative theories across the web regarding Satoshi’s identity.

Bitcoin spent the next few years languishing, viewed as nothing more than another internet curiosity reserved for geeks and crypto-enthusiasts. Bitcoin started has one of the new era currency before backed by a heterogeneous amount of groups. Through the years, the virtual currency has gained credibility to reach today the spotlight. As an example, several tech giants have started to adopt bitcoins.

While it is usually described as a “cryptocurrency,” “digital currency,” or “virtual currency” with no intrinsic value, Bitcoin is more than that.

However, the technology on which Bitcoin is leveraging is the real “Big Deal”. Indeed, the BlockChain is the system used by the cryptocurrencies to record the transactions. In the last years has gained an incredible popularity and is seen as something achievable and not just visionary as Bitcoin.

Looking Beyond The Hype – Into The BlockChain

So what is BlockChain? BlockChain is the technology backbone of the BitCoin network and provides a tamper-proof data structure, providing a shared public ledger open to all. The mathematics involved is impressive, and thanks to the adoption of specialized hardware to construct this vast chain of cryptographic data makes it impossible to replicate.

All confirmed transactions are embedded in the BlockChain. Use of SHA-256 cryptography ensures the integrity of the BlockChain applications – all operations must be signed using a private key or seed, which prevents third parties from tampering it. The network confirms transactions and this process is handled by miners that are the nodes of the BlockChain. Mining is used to confirm transactions through a shared consensus system, and usually requires several independent confirmations for the transaction to go through. This process guarantees random distribution and makes data alteration hardly achievable.

However, it is theoretically possible to compromise or hijack the network through a so-called 51% attack, which means that a unique source is controlling the major part of the network. By the sheer size of the network and resources needed to pull off such an attack make it practically unfeasible. Unlike many bitcoin-based businesses, the BlockChain network has proven to be very resilient when under threat.

Cryptographic BlockChain could be used to digitally sign sensitive information, and decentralize trust. Other applications are in the areas of smart contracts, escrow services, tokenization, authentication, and much more. BlockChain technology has countless potential applications. However, the potential has not been yet realized due to a fragmented market that is seeking for a platform rather than for ad-hoc application. Hence, the revolution is just around the corner.

So what about that potential? Is anyone taking BlockChain technology seriously?

Potential Uses And Implications Of BlockChain Technology

There are already thousands of developers and dozens of companies experimenting with BlockChain applications. For example BoE is investing 10 £ million in this technology. However, we have not yet seen large scale projects build around BlockChain technology that are not bitcoin or “altcoin” related. IoT could bring BlockChain technology to the masses. Research firms expect the user base to grow at a compound annual growth rate of 17.5% this decade, with up to 28.1 billion IoT devices in the wild by 2020, and revenue passing the $7 trillion mark the same year. The role of BlockChain will be to bring IoT to the next level. For example can you imagine to rent a house and in few minutes sign the contract, settle the payment and have the key available in your mobile?

The potential of this technology is comparable to a previous technology called “internet” in the 90’s. Decentralizing trust is a “big thing”, allowing the creation of vast and secure networks without a single point of failure. You can think of them as an additional layer of the internet, a layer that can be used for authentication, signage, secure communications and content distribution, financial transactions and further applications.

BlockChain technology could allow developers to outsourcing security and privacy issue at a reasonable cost by releasing the potential of all the applications that are lacking cryptography system or facing high cost to protect their customer’s data

The elusive goal for all BlockChain developers is to make the technology just as seamless and not intrusive as internet protocols. For example, how many people realize they are using TCP/IP every time they start browsing the net? This is the ultimate goal – to make the use of BlockChain technology invisible to the end user. BlockChain technology can really be the basis to build up secure and solid solutions with innovative functionalities and reducing the cost of developing alternative solutions to protect the end user.

BlockChain Technology to revolutionize Financial Services

The interesting aspect of the BlockChain technology for Banks is not (clearly) the decentralisation of collecting and storing the information that may imply a looser connection with their data. Rather, they are interested in finding a more efficient and secure way to do it by cutting the intermediate actors involved in every transaction and dramatically reducing the reconciliation processes needed when using decentralised or private databases. To give an example, using BlockChain could allow to immediately check and verify if the information / asset / ownership declared by the counterpart is real and verified simply by checking the relative block in the chain. In banking transactions, it could mean making the clearinghouse and most of their processes redundant, quite a big saving.

The use of BlockChain based technology is becoming popular also in non-financial related industries, such as ride sharing companies (La’Zooz), home automation using IoT (Chimera), digital archive (UK Gov), but for sure the Financial Services industry looks more likely to benefit from its wide spread adoption.

The main reason is probably that being a relatively new technology it requires massive investments under high uncertainty, given that the outcome is still not determined, and only big players can afford it. Indeed, if we look at the capital market spending over the last years, it is increasing at impressive rates (+50% YtY in 2015) and it is expected to reach $400m by 2019.

The greatest push in this sense comes from the creation of the R3 Distributed Ledger Group, a consortium of over 40 global banks with the objective to study the BlockChain technology, set utilization standards and shared solutions at a global level. Currently, it is known that each bank is working on a specific topic with the aim to continuously share the results to arrive as soon as possible to conclusive ideas and practical application of the shared ledger infrastructure.

If we look at real application of BlockChain solutions in the financial services, virtually all departments and areas in the Financial Services industry could benefit from it. In B2C payments, BlockChain could help reducing the existing latency gap between the approval of the payment and the receipt of the money. For reporting, it would be easier to retrieve information on past transaction. In Operations could help in improving organization and storage of transaction and asset specific data. In the area of IT cards system can reduce drastically the cost and time of migrating from one software to the other one.

However, due to its natural “digital attitude”, it is evident that CIB (Corporate Investment Banking) and specifically Capital Markets, in the Bank Division with the potentially greater gaining, such as:

• Increase efficiency in capital markets: today transactions rely on the reconciliation performed by intermediaries to ensure that both parties actually have the underlying transaction asset. This process is quite inefficient and time consuming in such a fast moving industry as it requires the involvement of multiple parties (e.g. clearing houses, custodians). Using a shared ledger it would be possible to (virtually) immediately verify the claiming of the other party without having to rely on an external check, thanks to the possibility to show the entire chains of transaction done for a given asset. This would imply a relevant operational cost saving for banks, also considering the increasing regulatory attention in this sector and how it impacts the banks account (in 2015 the agglomerate cost of fines hit the 215$bn)
• Increase transparency: linked to the above point is the potential full visibility over the entire chain, making possible instant check and verification both, as already seen, for the parties and for the institutions. This aspect offers also important linkage to the possibility to collect and easy verify information about a given asset. For example to ensure it responds to all the money laundry prerequisites and can clear all doubts related to the ownership.
  Moreover, being able to immediate verify the holding of the counterpart could help reducing the credit exposure by limiting the amount of assets to use as collateral and reducing the related margin and coverage requirements.
• Reduce fraud: Trade finance still operates in much the same way as it has for hundreds of years. There are often at least 5 or 6 parties involved in the buying or selling of a particular item (e.g. the buyer, the buyer’s bank, the shipping company, the courier, the seller and the seller’s bank). There have been attempts to both standardize and create central utilities in trade finance. Shared ledgers offer some unique advantages.
  A ‘partially permissioned’ system using smart contracts could enable the secure signing of a digital document, easily recognized and legally bounding by all parties. In addition, rather than simply storing the documents, as is done today, a shared ledger system would record immutable proof of the state of those documents.

Use Cases

What we have seen so far is still very theoretical so it may be worth analysing real use cases, which are solutions already under investigation by the relevant actors and have the greatest potential and scalability to see those apply to the daily activities.

1.     Client Relationship Utility

Existing service providers are under intense scrutiny by global regulators and banking laws to disclose ever more details about fees, charges, conflicts of interests, personal data protection and privacy, etc. In order to better safeguard against reputational and regulatory risks, firms could utilize BlockChain technology when engaging and on boarding clients to deliver critical information about fees, charges, privacy, etc. in a more structured and transparent manner. The solution can involve a private ledger overlay with an enhanced mobile application that reflects the client’s accounts and monitors related accounts and transactions to ensure the contractual rules are being followed and applied appropriately. In this way, ensuring the proper level of privacy and reading right, the same structure could be also used to respond to the upcoming requirements of the PSD II regulation, requiring a greater among of customer information to be shared among different actors (banks or institution in general). If for example, different banks adopt a shared BlockChain solution, it would be easier and cheaper to share and collect the same information without the need to replicate the same record for the same customer in the databases of the parties involved.

2.     KYC / AML & Suitability / Appropriateness

Big challenges facing existing service providers today involves the on boarding and ongoing maintenance of customer accounts and relationships as it relates to Know-Your-Customer, Anti-Money Laundering and combating the financing of terrorism (CFT). This process results in both significant costs and risks to all existing players that is duplicated  across competitors across the global industry. Additionally, the risks associated with “soliciting” clients have become so great that the majority of industry participants avoid solicitation at all costs to avoid regulatory risks causing in reduced fees and a much less interactive client relationship leaving clients feeling dissatisfied. BlockChain allows for the delivery of a market utility based on a “write-once / read-many” model where client backgrounds and investment profiles can be vetted by a single source and shared with parties of interest. This allows financial firms to recognize operational efficiencies, significant cost savings and risk-reductions while allowing them to focus on the overall customer relationship and experience. This also allows the client to “mobilize” their profiles thus allowing them to transition seamlessly across various service providers with very limited personal disruption caused by repetitive processes. If a consortium quasi-private ledger is less than optimal, existing firms could maintain private ledgers that allow profiles to be inter or ex-changed between other private ledgers as/when a client requests to ensure mobility for clients and cost-savings to the industry.

3.     Client, Regulator and Intra-Industry Disclosures, Contracts and Reporting

Periodic reporting and ongoing monitoring of contractual obligations between clients, service providers, regulatory bodies and between other peer institutions (professional and eligible counterparties) is a major effort to implement, maintain and monitor. Private ledger that allow the issuance and monitoring of contracts allows for a more streamlined / lower risk process to minimize risks and costs in what is largely a “paper-based” system with disparate rules and methods. Such a system could involve legal documents from Terms of Business, Privacy, Prospectus, Risk Disclosures, Inducements, Client Order Handling, Client Assets and Client Money, Passports, Transaction Reporting, Trade Execution Policies, etc.

4.     Peer-to-Peer payment solution

There are currently multiple solutions trying to define a valid P-2-P solution for banks not requiring the creation of a cryptocurrency and thus compliant with the current regulation. The most promising solutions currently under analysis enable almost real-time transaction (<5 seconds) in any currency and market allowing the automated selection of the best Market Maker (MM) based on the preferred conditions. In order to guarantee both parties and minimize the trust barrier for the counterparties and the Market Maker, the underlying escrow system takes the funds for the MM from the sender only after receiving a proof that the receiver has been paid eliminating the risk of illegal fund appropriation. Another great advantage of such system is the ability for the MM to link separated ledgers also using different protocols, thus virtually overcoming drawbacks deriving from different standard utilisation.

Such and more other solutions are under investigations by the main players in the Financial Sector, collaborating and leveraging each other on their own capabilities, sharing solutions to make BlockChain become reality. Some pioneers are also adopting internal BlockChain solutions in order to evaluate concretely the possibility of this technology and its potential implementation

There are still topics to be investigated and defined to ensure a sector-wise adoption of the technology (e.g. Regulations, Storage requirements, Latency limitations) but the solution is concrete and the potentialities are so disruptive that being part of the game is a must.

Technology has been the driver of change in recent years. New arrivals in the tech landscape including mobile payments and business diversifications like M&S or Tesco cards have made innovation critical for differentiation. At the moment, Apple and Samsung payments coexist with cards, but the future may be different. The smartphone has already become the central hub for how we manage our lives. With fast changing trends and the increase of ferocious competition within cards, loyalty and engagement programmes have become a norm to compete for market share and build brand advocacy.

Credit and debit cards companies, issuers, banks and even networks have their own loyalty schemes, offering points that can be redeemed for rewards. This is typically extended to hotel chains, airlines and football clubs. It started as a successful way of differentiation, but are these programmes really doing a good job of engaging customers with the brand and transforming clients into advocates? Furthermore, even if the overall membership numbers of loyalty schemes increase, it does not mean that the numbers of loyal customers are increasing. After all, taking out a membership does not mean you actively use it. So how do you build affinity?

Customers want to have a full range of products and loyalty schemes to choose from. Taking it one step further, they want to be able to choose which brands to get loyalty points from and how to redeem them. Cardholders have become rewards bargain hunters, addicted to earning more and more points (especially when it comes to collecting air miles). Companies, on the other hand, are trying to increase profitability. Card schemes are already losing revenue due to interchange fee regulations. We are therefore seeing an uptake in companies offering redemption offers such as allowing customers to pay with existing points, converting points to cashback etc. This is not only convenient for customers, but also helps companies reduce the value of points, resulting in savings.

Relying on loyalty points to drive engagement is a big risk; however, whenever companies reduce the value of points, disappointed clients can often move to cards with a better loyalty scheme value. Companies need to do more to stand out and create real “fans” of a product. Creating cobranded products, thinking beyond usual rewards offerings and considering how customer pools can be shared between brands will help companies secure a larger share of the pie.

Big companies are already clawing back from points, relying on other projects and programmes to drive additional engagement. American Express, for example, has created Amex Offers and Amex Invites as additional benefits, maybe preparing the path to move away from pure rewards schemes. The MasterCard Priceless Cities programme offers issuers and MasterCard cardholders a huge range of offers and experiences within retail, fashion, art, cinema, music or sports. On top of the common rewards, customers can access raffles to win exclusive experiences that are impossible to buy.

The future of loyalty and engagement will come through experiential and emotional marketing and making customers feel involved, relevant and excited. There is a lot to be learnt from lifestyle brands and banks, payment and card schemes will benefit from putting the customer at the heart of the journey.

Finance start-ups and traditional banks are now living the honeymoon period; finally convinced that alliances are better than direct competition. There is no question of absorbing a promising start-up to stifle a potential competitor but rather to guarantee the same level of autonomy and conditions specific to these young businesses.

The big bank players have understood that in order to be sustainable, they will need FinTech DNA combined with a focus on consumer needs which have, until now, been poorly served in the eyes of customers.

The process of digitization that the banks have been engaged in for years, is not enough to meet the challenges of the digital revolution in progress – the latter brings in its awakening a deep upheaval of uses. The main challenge resides in the capacity to invent bank 2.0.

Unlike mature organisations such as universal banks, which offer a wide range of products, FinTech companies focus on very specific niche markets with the goal of providing the best value proposition in their segment. These start-ups have no risk of conflict of interest nor the risk of possible impact of a new service over another – they do no need to wait for a series of green lights to launch an app.

The least powerful financial institutions have quickly understood the value in creating alliances with these actors, seeing an opportunity to expand their offering at a lower cost (as well as their income…) The FinTech firms also have the advantage of sharing the same ecosystem and relying on the existing banking infrastructure despite how innovative their services can be. A good illustrative example is Citigroup who recently teamed up with Lending Club, an online lender, to set up a separate unit called Citi FinTech.

The biggest players are no less concerned – FinTech activism, combined with new digital capabilities has considerably modified our relationship to time. It is therefore also due to increasing agility and responsiveness that they have multiplied contacts with these small players, through acquisitions as well as incubators or partnerships. They can learn from their operations, including their own innovation clusters, breaking silos for use by projects bringing together all the necessary expertise. This comprehensive remedial process is probably just a start to what is about to happen – similar to what happened in the 2000s, we will still experience a few years of turmoil with an inevitable movement towards consolidation.

In this process, some FinTechs could also aggregate multiple players to become robust financial services platforms to compete with banks, or even add a second “F” to the acronym GAFA, Google, Amazon, and Facebook Apple… For it is these technology giants that banks must especially fear.  Managing consumer digital identity is the key to customer experience. If the integration of financial services is required to achieve this, GAFA will have no qualms. In this big fight for creating the strongest customer relationships, the ability to be one with the FinTech world will be the decisive factor.

Efficient and secure payment systems are the foundation of stable financial systems. The German Central Bank secures and monitors cashless payment transactions in the financial markets in Germany, provides processing and clearing services, and participates in the further development of a standardized payment transaction system in Europe. To fulfil these requirements, a payment landscape has been provided and will continue to be provided by the German Central Bank, which will secure national, Europe-wide and international payment transactions for single as well as bulk payments.

A continuous development of such a payment landscape took place over the last 15 years. The best-known developments are surely the development of TARGET2 and the on going development of T2S. In collaboration with the different TARGET systems, and in part also independently, clearing and payment transaction functions were developed and put into operation that work together with these systems or use liquid assets from these systems.

R&L, part of the Be Group, has actively participated in these activities throughout the last 15 years and made significant contributions to the design of business processes, system designs and their technical implementation.

During the course of these developments, the entire existing master data management system proved to be out of date and risky (different key terms, distribution and redundancies, inconsistencies that resulted in reputational damages, etc.). To reduce the risks and set the base for a state of the art information management, R&L continues to support the Deutsche Bundesbank, to set up and develop a new master data management system that:

• provides all of the required master data to individual users for payment processing (at the basic level, > 20 applications).
• allows at any time comprehensive information about user or systems and the usage of the payment systems within the German Central Bank (in the basic level approx. 500 user/systems, distributed all over Germany).
• defines the key requirements, for reorganizing various company divisions to concentrate the administration of master data management in one company unit (5 company divisions at 2 locations).

Our team has been involved in and has shaped all of these developments from the first step until today. This includes tasks such as technical and methodological coaching of the staff, participating in data and process modeling, technical specifications and migration as well as drafting test methods and test scenarios.

Innovation in loyalty models combined with Big Data and analytics opportunities can create huge opportunities for many brands, especially in those industries that mostly engage customers on their passion and interests.

Sport, Entertainment, Travel & Leisure are high potential sectors in this perspective, even if each of them implies different business models and engagement processes.

In the football industry, some leading brands have already achieved relevant results in this field, leveraging on their large fan base and strong brand positioning in domestic and foreign markets.

The value of their fan base data can be very attractive for sponsors and commercial partners, who are interested in developing sales and increasing their customer base. Those football clubs who launched structured programs aiming at increasing the value of their fan base, are now succeeding in commercial revenue growth, thanks to sponsor agreements, partners loyalty agreements and co-marketing initiatives.

The key steps to build and enhance the value of a fan base are the following:

One of the most recent best practice for all this is certainly Real Madrid, an excellent example of synergies between brand strength, fan base passion, loyalty strategy and technology.

Real Madrid launched a new “app” to engaging fans in a wide range of actions and challenges, boosting the size and the value of database. The rewarding offering is quite attractive and includes a wide choice of videos about Real matches and footage on their most popular champions. Fans can reach different levels in the gaming framework, which allows them to achieve more and more appealing rewards. Moreover, for those fans who want to enjoy specific benefits on match-day as well as non-match day experiences at the club and its facilities, Real Madrid offers the “Madridista Program” that allows priorities, discounts and exclusive experiences to members.

In this way, Real Madrid developed a strong knowledge of their fan base profile, with the support of Microsoft, and achieved a relevant upgrade in their sponsor and partnership business model. As a result, the agreement with Adidas – that allows the leading German brand to target the Real Madrid fan base – has been uplifted to € 130 million per year.

There are of course other significant case histories in the market. Manchester United also stand as a best practice in this field, together with other leading English football clubs. But there is still a lot to be done. Markets like Italy or Germany, for example, show big opportunity, if we consider the value of their football brands and the significant size of their worldwide-spread fan base. Innovation is starting to spread across Europe and we expect to see the first effects in the short term.

Digital disruption has made its mark, changing how consumers interact with and consume banking services. For banks there is no way back from digital. A new landscape has been forged and they must find their place within this new operating environment.

Ever evolving consumer needs, the curse of legacy systems, the relentless march of fintechs and the pressing need to modernise within a highly regulated environment is all ground that has been well covered. With the challenges well established, the debate needs to move on to concentrate how these barriers can be broken down.

Banks have an appetite for change, to become a truly digital organisation requires a number of aspects to be considered, from your operating model and governance through to culture and digital talent to name but a few. Using my experience of setting up digital practices in retail banks for the last decade, here are my top three tips on how banks can lay the foundations for digital success:

The importance of strategy
What the last five years has clearly proven is that banks in their current iteration will simply not exist in a decade’s time. Banks need to streamline their operating models and decide what they want to excel at. Clearly it’s not possible to invest in everything, given cost and budgetary pressures, so there is a real need to streamline and focus the digital agenda.

That’s why having a digital strategy in place is so important. It might seem like an obvious starting point, but in my experience that is easier said than done. The overwhelming factor driving digitisation within banks is that someone will see a “cool” application or an interesting new digital gadget and wants to replicate it. Through internal lobbying, and getting buy-in from key influencers within the organisation, these piece meal ideas start to gain traction because a way is found to make the proposition attractive to the business direction. It’s then piloted, but as everyone knows a pilot never fails, so budget is then secured and hey presto, you’ve replicated that “edgy” digital capability.

The issue here is obvious – if investment in digital projects is dominated by those that shout the loudest, you end up with a poorly coordinated approach to digital, with different departments marching to the beat of their own drum. Equally, there is a need to recognise that you – in all reality – can’t stop this from happening. What needs to be created is a co-ordinated view of these investments. This is not about command and control, but ensuring that the organisation is working collaboratively to ensure that all departments are working towards a common goal to help the bank realise its vision of a digital future. In order to facilitate this, banks need to ask themselves some key questions:

• What does the customer want?
• What is frustrating your customers?
• How simple is the user experience?
• What can you not afford to get wrong to avoid losing customers and decreasing loyalty to the brand?
• What really drives the bottom line?
• How far ahead or behind the curve are you?

Digital is ever evolving
Digital is not a box that can ever be considered “ticked”. Technology is constantly pioneering new frontiers and banks need to ensure that they’re in a position to react to changing engagement channels. Deploying a mobile app, social media channel and a web presence is not job done.

In 2016 we are seeing the “device mesh” gain much traction. According to Gartner’s Top 10 Strategic Technology Trends for 2016: At a glance, the device mesh encompasses the sheer number of devices, individuals, information and services that consumers happily jump between and are surrounded by that are dynamically connected from smart watches and mobiles to tablets and laptops. As we hurtle towards this converged age, banks need to think about how they can utilise this digital mesh to continually enhance the customer experience, products and services can help build a richer picture of individual customers.

Deriving insights from the sheer volume of data created via these varied and numerous channels, in order to understand customer preferences and create a digital experience that resonates, is imperative for charting a digital direction that ensures you’re future proofing your processes and technologies. You’ve got to ensure you’re agile enough to respond to the next “big thing”. If you’re constantly reinventing the wheel, not only is it costly but you’ll lose competitive ground.

Culture
Banks can attract the digital talent needed to evolve their offerings, but do they have the culture? Internal structures and processes can often prove to be restrictive, making it hard to innovate from within. Instead many banks are looking at how they can work in conjunction with external companies utilising lab type formats, empowering digital teams to develop, experiment and evolve propositions before integrating them back into the wider corporate structure in a manner that is aligned with the wider digital strategy of the business.

Rather than piloting for the sake of it, these risk free ‘playgrounds’ provide the opportunity to trial new technologies and only bring them back into the organisation once they’ve been able to establish if it is viable, thereby reducing risk and significantly increasing the chances of delivering a business benefit and outcome.

Technology is constantly pioneering new frontiers and these advancements impact and change consumer behaviour – banks need to be planning not just for the now, but also for the future. And much more than that the need to understand what these technologies actually means for them – and their customers – to ensure that they’re investing in the right channels to help them reinvent and reimagine their business for the digital future.

We are living a “momentum” where many more consumers engage digitally and innovation is continuously challenging the “rules-of-the-game”. So far organisations have been developing their strategies in order to become more focused on the way they serve customers. As a result, subjects like Multi-channels and Omni-channels experience have been predominant.

Nowadays, we do believe that they should refocus extensively on customer expectations, as a solid pillar to sustain further growth and profitability. However they should do it from a different angle. Indeed, the growing digital interactions do require organisations to compete and differentiate themselves by improving their offered customer experience.

In the most recent time, we have developed a strong experience in supporting organisations and their customers to fully unleash the value from the digital business and continuous innovation. How can this be done? The most critical aspect is to partner with clients to shape a unique and unprecedented business proposition that delivers a truly ultimate experience. We call it “Augmented Customer Experience (ACE)”.

The key pillars of ACE are:

• Smart (Customer) On-Boarding
• Lean Purchase
• Personalized Advice
• Ultra (Customer) Care

ACE is a business and operational framework tailored to each organisation’s needs (e.g. industry, customer base / targets, products and services). It can be implemented incrementally and then evolved dynamically. This allow to respond to the changing ecosystem that affects the way individuals and companies re-think about which expectations the customer experience should fulfil.

Panoramica

Il cliente è una primaria istituzione finanziaria italiana che sta affrontando la sfida della trasformazione digitale in termini di attività, processi organizzativi e modelli di business.

Gli sforzi e le strategie applicate per vincere la sfida necessitano di cambiamenti nel breve e nel lungo termine, a cominciare dalle opportunità messe a disposizione dalle nuove tecnologie per migliorare l’interazione con il cliente finale anche per soluzioni in ambito assicurativo.

La sfida

L’obiettivo del cliente era quello di creare un sistema di gestione e vendita delle polizze tramite canale diretto (app e web), che allo stesso tempo fosse integrato con la gestione tradizionale dei prodotti assicurativi sottostanti. La grande esperienza di Be DigiTech Solutions nel mercato delle soluzioni assicurative e le dimostrate capacità sia sulle componenti di Front End che di Back End sono state determinanti nella scelta di affidare a Be la progettazione e la realizzazione della nuova piattaforma di Direct Insurance.

Il progetto ha presentato numerose sfide, sia da un punto di vista funzionale che tecnico. La prima sfida affrontata è stata il disegno di processi e User Experience “Lean & Clean” in un contesto fortemente regolamentato e integrato con l’operatività tradizionale delle compagnie assicurative. Ma la sfida più grande è stata quella di integrare una modalità di pensare e gestire l’IT tradizionale con una modalità dinamica e flessibile adatta alla realizzazione di un sistema esposto direttamente alla clientela.

Il progetto

Per affrontare la sfida si è scelto di adottare una realizzazione Cloud-Native containerizzata per avere una scalabilità della soluzione molto elevata, unita alla portabilità su infrastrutture diverse al variare delle condizioni del mercato e delle scelte infrastrutturali del cliente.

• Il core

Il core della soluzione è stato realizzato con una architettura a microservizi con una doppia base dati, relazionale per la componente transazionale e non-relazionale per le funzioni di supporto. Per ottimizzare la capacità di risposta delle funzionalità più critiche si è adottata una componente di in-memory DB.

• L’architettura

Gli aspetti di architettura di integrazione con i sistemi esistenti hanno rappresentato una ulteriore sfida legata al raccordo tra logiche realtime e logiche prevalentemente batch, nonché piattaforme tecnologiche diverse. La componente di presentazione è basata su Micro Front End javascript/typescript che consumano le API rese disponibili dal sistema core.

• La metodologia

La natura “esplorativa” della soluzione ha portato all’adozione di una metodologia Scrum Agile che ha permesso la realizzazione molto veloce del Minimum Viable Product e una sua evoluzione rapida supportata grazie alla continuous delivery abilita dalle pipeline DevOps con cui è gestito il software. La verifica della qualità del codice e della copertura dei test integrata nelle pipeline ha contribuito a mantenere un elevato standard di qualità in un ambiente altamente dinamico.

Risultati e prossimi passi

La soluzione realizzata è stata molto apprezzata e pertanto è in corso la sua evoluzione continua per arricchirne funzionalità e favorire un’adozione sempre più spinta.

L’architettura implementata abilita inoltre molteplici feature aggiuntive quali:

• apertura verso la potenziale evoluzione del modello di business (partnership, campagne dirette e indirette);
• supporto a modelli di vendita differenti (flessibilità nella gestione di preventivi, emissioni e incassi e relativi profili commissionali);
• gestione integrata dei prodotti a catalogo (vendita e post vendita) e soluzioni “bundle” per i diversi segmenti di clientela;
• flessibilità di integrazione con backend di compagnie diverse;
• semplificazione dei modelli di monitoraggio e rendicontazione.

Panoramica

Il cliente è uno dei principali gruppi bancari che sta affrontando la sfida della trasformazione in ambito dati sia dal punto di vista tecnologico che metodologico.

In questo contesto, si innestano una serie di iniziative mirate a soddisfare sempre in maniera più accurata, efficace e efficiente le esigenze di business in termini di reattività e di disponibilità di dati, nonché la garanzia di tutte le politiche di Data Governance e Data Management.

Naturalmente sono necessari cambiamenti nel breve e medio/lungo termine, a cominciare dalle opportunità messe a disposizione dalle nuove tecnologie per migliorare la qualità della relazione con il cliente finale e soddisfare al meglio le esigenze in rapida evoluzione del Business.

La sfida

Nel corso degli ultimi anni erano stati sviluppati applicativi IT con l’obiettivo di migliorare e semplificare il lavoro quotidiano della rete Corporate, ma allo stesso tempo il Business aveva messo in piedi in autonomia un intero sistema riguardante l’analisi commerciale dei propri clienti.

Gli obiettivi del cliente erano molteplici, ma i due principali potevano riassumersi in:

• Modellare e creare un nuovo Data Layer, come unico punto di accesso ai dati, altamente razionalizzato che garantisse l’univocità e la correttezza dei dati esposti dai diversi applicativi esistenti e futuri;
• Riportare sotto il controllo dell’IT tutto ciò che viene comunemente definito “Shadow IT”.

L’esperienza di Be DigiTech Solutions e del Competence Center Data & Analytics nella gestione di questa tipologia di progetti, nonché le dimostrate conoscenze nel contesto specifico sia dal punto di vista funzionale che tecnologico sulla realizzazione di sistemi di gestione dati, sono state determinanti nella scelta di affidare la realizzazione del progetto a Be.

Quest’ultimo si è articolato in diverse fasi, sia da un punto di vista funzionale che tecnico.

La prima è stata quella di ricostruire insieme al Business e all’IT la situazione as-is e metterla insieme a tutte le esigenze future già note e raccolte nella fase di Assessment iniziale del progetto. Il progetto, inoltre, richiedeva una soluzione che permettesse una evoluzione progressiva di tale ecosistema, in modo da ridurre inizialmente al minimo gli impatti sulle altre applicazioni preesistenti.

La sfida forse più grande e sicuramente nuova è stata quella di affrontare l’intera vita del progetto da remoto, iniziando nonostante la metodologia adottata fosse stata l’Agile Scrum e fossimo in concomitanza con l’inizio del lockdown dovuto al Covid-19.

Il progetto

Si è partiti da una fase di Assessment iniziale che ha permesso di costruire una mappa concettuale dei dati in perimetro per arrivare a disegnare la nuova architettura, con scenari progressivi di evoluzione, procedendo poi con la fase di realizzazione del Data Layer focalizzata su un nuovo applicativo prioritario per il Business.

• Il core/Architettura

È stata disegnata un’architettura che fosse in grado di soddisfare tutte le interazioni necessarie tra i diversi sistemi esistenti e futuri. Per questo motivo sono state adottate due basi dati:

• Relazionale, per la gestione, lavorazione ed esposizione dei dati provenienti dal Datawarehouse centrale già esistente;
• Non-Relazionale, per la gestione, lavorazione ed esposizione dei dati non strutturati.

Due le modalità di accesso ai dati da parte degli applicativi:

• Replica del dato finale sul DB Applicativo esistente, pensato principalmente per una prima fase di migrazione che minimizzi l’impatto verso le applicazioni esistenti utilizzatrici dei dati;
• Strato di Microservizi, pensato in ottica target come ultimo step della migrazione di tutto l’ecosistema esistente e come interfaccia di accesso ai dati alle nuove applicazioni.

Infine è stata descritta ed implementata l’interazione tra il nuovo Data Layer ed il Datalab. Il Datalab è un ambiente pensato come laboratorio per i Data Scientist dotato di tutti gli strumenti tecnologici e che permette di progettare e realizzare algoritmi avanzati di analisi dati. Il nuovo Data Layer ha il compito di accentrare, eliminando le ridondanze, e garantire la qualità di tutti i dati necessari alle analisi di Business. Le lavorazioni dei dati e le interazioni con gli altri sistemi sono state implementate a seconda delle esigenze tramite tool di ETL (IBM Datastage e/o Sql Server Integration Services) e tramite script realizzati in Python e/o C#.

• La metodologia

La complessità di tale progetto e la mancanza di requisiti iniziali ben definiti ha portato all’adozione della metodologia Scrum Agile che ha permesso di mettere a terra in poco tempo il primo applicativo basato interamente sulla nuova architettura.

Allo stesso tempo grazie a tale approccio è stato possibile valutare costantemente, ed eventualmente raffinare, la soluzione proposta in modo tale da massimizzarne l’efficacia rispetto alle continue esigenze esposte dal Business.

Risultati e prossimi passi

La soluzione realizzata per il primo applicativo sviluppato sulla nuova architettura si è rivelata valida e per questo motivo è in corso una seconda fase progettuale per ampliare il Data Layer e aggiungere nuove funzionalità per le interazioni con gli altri sistemi, contestualmente alla migrazione dello strato dati sottostante agli applicativi esistenti.

I prossimi step evolutivi dell’architettura e della sua implementazione saranno:

• Ampliamento del perimetro dati per soddisfare le nuove esigenze di business e applicative;
• Abilitazione e Automazione del Reporting utente;
• Implementazione della Continuous Integration e Delivery in ottica DevOps con l’introduzione di Gitlab;
• Esposizione dei dati tramite strato di Microservizi, pensato in ottica target per permettere l’accesso al dato senza doverlo replicare su altre basi dati;
• Realizzazione di un Monitoraggio Applicativo con sistema di alerting parametrico.

Panoramica

Il cliente è una banca di nuova generazione totalmente digitale, fondata per rispondere ai cambiamenti veloci e profondi del settore bancario, il quale sta creando lo spazio per enti specializzati e capaci di soddisfare in maniera innovativa, e attraverso il digital, i bisogni di imprese e famiglie.

Il progetto

In partnership con Be DigiTech Solutions è stato avviato il cantiere relativo al disegno e allo sviluppo della piattaforma digitale per SME e Corporate. L’accordo con il cliente è stato quello di supportare in maniera end to end la banca nella definizione e nello sviluppo del canale digitale per le imprese (SME e Corporate).

Il modello operativo pensato per le imprese coniuga la naturale esigenza di human touch (accesso a competenze specialistiche attraverso i Gestori e gli Assistenti e ad una struttura di assistenza denominata “Filiale Digitale SME”) con la forte connotazione digital che caratterizza il posizionamento del cliente.

La piattaforma SME/Corporate, a supporto del modello operativo definito, è stata disegnata con l’obiettivo di diventare uno strumento semplice da utilizzare e utile quotidianamente all’impresa attraverso servizi dispositivi classici (incassi/pagamenti, anticipo fatture, altro) ma anche informativi ad alto valore aggiunto (liquidity dashboard, etc).

Il disegno tecnico scelto evidenzia l’interazione tra diverse strutture di Be DigiTech Solutions, dagli architetti per l’implementazione dell’architettura a microservizi fino alla parte di Data&Analytics per il disegno ed implementazione delle logiche big data e Artificial intelligence per la gestione in real time dei dati.

A queste capabilities si sono aggiunti i team di sviluppo della parte Front End sia per la web application che per la App. La piattaforma, implementata su infrastruttura cloud, prevede uno strato di microservizi che implementano le logiche di business ed orchestrano l’integrazione con i servizi interni ed esterni ed espongono funzionalità attraverso REST API verso i diversi touchpoint.

Il ciclo di vista del software prevede l’utilizzo di metodologie e strumenti DevOps per le pipeline di Continuous Delivery e Continuous Integration e per il monitoraggio e auditing dei sistemi e servizi. La soluzione per i portali web e le app mobile prevede una architettura micro frontend a moduli con uno strato condiviso tra il mondo mobile e web per le logiche di integrazione e state management.

Risultati

È stata realizzata una piattaforma web di ultima generazione di una banca completamente digitale ed in cloud con una User Experience all’avanguardia e l’utilizzo degli stack tecnologici più innovativi.

La forte collaborazione ha permesso di lavorare e raggiungere obiettivi sfidanti in un contesto molto complesso sia dal punto di vista tecnico che organizzativo. Inoltre il continuo confronto ha permesso di avere una vision unica che ha facilitato l’orientamento delle scelte tecniche garantendo la qualità e lo standard richiesto.