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THE POTENTIAL OF PaaS IN FINANCIAL INSTITUTION INNOVATION

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By Barry Tarrant, Director, Product Solutions, Fiserv

 

Financial institutions continually balance competing demands for investment in technology maintenance, compliance, innovation and the delivery of value-added services. Delineation between the “need to have” and “nice to have” is difficult when everything feels like a “must have”. For many institutions, outsourcing strategic services such as payments can enable them to strike a better balance of their investment pool, by enabling more efficient operations that allow for more investment to be focused on rapid delivery of new capabilities and innovation that adds incremental value.

 

Shifting focus to innovation

Financial institutions are facing change on multiple fronts. Customers have quickly come to expect continual product innovation and a consistent experience across multiple channels. And the industry is experiencing structural changes, such as the convergence of payments.

We are witnessing challenger banks and fintechs fully embracing digital tools, such as the cloud, to optimise operations and create transformational customer experiences. Increasing choices available for customers to initiate payments across card and non-card payment rails are leading to further demand for innovation and change. As a result, many financial institutions are reviewing the costs and operational effort required to maintain payments technology in-house and considering how new innovations can be implemented.

Financial institutions have an opportunity to leverage shared innovation to stay ahead of this competition. This can come in the form of payments-as-a-service (PaaS). PaaS can also bring additional benefits such as savings in capital costs, opportunity costs, compliance costs, as well as reduction in one-off costs associated with infrastructure or technology upgrades.

 

The case for PaaS

Outsourcing payments to a PaaS provider can allow a financial institution to focus more time and effort on customer innovation and experience that drive incremental value. It could also lead to other financial benefits associated with reduced capital expenses, such as increased free cash flow. This is particularly important as financial institutions navigate the current environment and capital investment is being analysed under a microscope.

Another benefit to outsourcing to a PaaS provider is the ability to leverage its expertise. While investing in a robust platform is one of many areas for financial institutions to consider, it is the primary business for PaaS providers. Therefore, it is in the provider’s interest to continually invest in the platform and recruit qualified personnel to support and innovate the technology.

Geographical scale can also provide further opportunities to add value. A PaaS provider with clients around the world enables them to deliver innovation on a global scale, and this can be redeployed elsewhere quickly and at a lower cost than custom developments. Additionally, a global payment processing network enables providers to gather useful insights, such as new payment types, changes in consumer behaviour, and threats, which could then be used for further innovation.

As payments become more commoditised, and traditional payment revenue streams decrease, the case for retaining payment processing in-house may become narrower. By adopting PaaS, financial institutions can benefit from significant cost savings, maximise retained payment margins, and rebalance their resource and investment pool, which can be used to focus on more strategic and valuable activities.

 

Clearing misconceptions

While the business case for financial institutions to adopt PaaS is compelling, some remain reluctant to do so due to certain ‘industry myths’. For example, there are concerns that outsourcing data is inherently risky, however, the reality is quite the opposite. PaaS providers have the scale, resources, and practices to invest in key areas such as cybersecurity, whereas keeping operations in-house could in fact lead to greater risks around data security, especially if resources are limited.

Aside from costs, experience and expertise in delivering transformation of payment technology should also be considered as part of the decision to adopt PaaS. Most IT managers within financial institutions are likely to have delivered few major transition projects in their entire career. However, teams at a PaaS provider will collectively have likely overseen many. They also develop and update a range of specialised skillsets and toolkits to provide additional expertise and a seamless service. The ability to deliver transformation effectively is critical to benefits realisation and PaaS providers are likely to be better equipped to do so.

 

Innovate and differentiate

The current pandemic has shifted payments innovation into the spotlight. To fully understand how changes can be made and implemented that respond to this shift, a comprehensive assessment of existing technology, and how it will affect business in the long-term, will be needed. Adopting PaaS brings a wealth of financial and operational benefits, enabling a financial institution to be agile and strategic, so that it can devote more resources to innovation, provide services and experiences that customers want, and differentiate from the competition.

 

Finance

Why financial services is stepping into a new era

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by James Mingard, Head of Retail & Finance at Maintel

 

When comparing industries, financial services has arguably fallen behind when it comes to digital transformation. The sector has found it especially challenging to move from more traditional, legacy ways of working. But, with challenger banks and changing customer expectations, the tables have turned. According to a  recent research report from Maintel, in partnership with RingCentral, the financial services sector is leading the way when it comes to implementing digitalisation plans. In fact, 35% of those surveyed within the sector claim to have fully implemented their digitisation plans, compared to just 26% in other industries.

 

Evolving Technology

As such, banking technology is innovating at a significant rate, with everything from start-ups offering online-only credit cards to TSB opening a 100-seat tech centre in Scotland. There is little doubt that the sector understands the need to be digital-first, but there is room for improvement. Over half of respondents said they have seen an increased demand for digital communication from customers because of the pandemic, but the channels on offer fall behind other industries.

Over half (55%) of other industries communicate with customers through Twitter, compared to just 30% in the financial services sector. We might not want to discuss our mortgage over Instagram or to tweet about how much money is in an ISA. However, there is a real opportunity for the financial sector to add to its offering and grow its digital communication channels. By giving customers more options, it will help improve customer experience and let the end-user reap the benefits of digital transformation strategies. Balancing the expectation for digital-first interactions while ensuring a high-quality customer experience is central to creating an efficient, yet personal service.

 

Collaboration is the future

The contact centre of the future should represent an integrated approach to unified communications. It should bring business experts and agents together, across every channel to deliver real-time customer experiences in a cloud-based, collaborative engagement model. For financial services, this once seemed a pipe dream but advancements in digital transformation mean that the sector can in fact set the standard for other industries.

From a productivity point of view, team collaboration can also be enhanced using innovative communication technology. This helps to improve an employee’s workplace experience by providing instant access to essential information and allows them to work effectively from any location. Flexibility has not always been associated with the financial sector, but by giving employees better technology and more autonomy, naturally, this has a knock-on impact on the experience that customers receive and helps to foster long term loyalty.

 

Customer comes first

Banks used to be built on life-long custom. Many people would be with the same bank from their first current account through to the day they passed away but the volume of competition, variety of offers and new customer deals mean that today’s consumers are fickler than ever.  To really stand out, financial services providers need to make sure that everything from communication strategies through to software has the customer at its heart. And technology is key.

Indeed, customer experience, customer  and technology insights were the top three benefits of digitisation within the sector, according to Maintel and RingCentral’s 2021 report, It’s therefore clear that a customer and user experienced focused approach is key to success in the financial sector.

 

Click here to read the research report in full – How to translate unified communications and digitalisation into better customer experience.  For further information find out more :- https://www.maintel.co.uk/industries/financial-services/driving-financial-services-digital-transformation/

 

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FINANCIAL MARKETS IN 2022: INFLATION, ENERGY PRICES, AND THE CONTRASTING PERFORMANCE OF STOCKS

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Bob Jenkins, Head of Research, Refinitiv Lipper

 

Anyone hoping for a reprieve from the chaos and uncertainty of the last couple of years is likely to be disappointed. The pandemic will continue to have an impact on global economies, both directly (such as ongoing lockdowns and restrictions to combat the disease) and the exhaust effects we’ve seen in areas such as the production of goods, supply chain challenges, labour shortages and rising energy prices.

At the same time, the digital disruption of the financial world continues apace, with assets once overhyped becoming increasingly mainstream.

To make specific predictions in such an environment might seem like a fool’s errand, yet it is possible to discern some themes that will shape the course of financial markets in the coming year.

 

  1. Global inflation gets stubborn: Inflation is not transitory, and we are seeing a foundation for higher prices being put in place thanks to the supply chain and labour issues previously mentioned. In major developed markets, I think we’ll see stubborn inflation regardless of whether Covid remains a pandemic or begins to enter an endemic phase. The situation is slightly more positive in the US; while inflation will remain at a 3.5-4.5% range, a reduction in supply chain bottlenecks, increasing labour force and improved unemployment rates will serve to reduce the impact of primary inflation forces. We should bear in mind that households are estimated to have around $2 trillion in savings, which will maintain consumption levels and keep up the pressure on labour and supply chains.
  2. Rates will rise: Rates are likely to rise, with discussions in several major economies indicating a tapered end to the period of low rates we’ve seen since the 2008 financial crisis. This will probably be achieved in fits and starts as central banks navigate virus outbreaks and any resulting economic shocks. For instance, both the Fed and the Bank of England have indicated there will be hikes, but it is likely that they will rely on tapering at first to slow stimulus while also trying to navigate sentiment swings and volatility arising from waves of infections and/or new variants.
  3. China to lead economic growth, but not by much: China’s growth is likely to be around the 4-5% mark, with the US just slightly behind at 3.5-4%, off its 6% pace from the first part of 2021. The European Union and United Kingdom will likely trail the US, even if they have been exhibiting similar economic issues, while emerging markets could be hit by a combination of the Fed tightening up and challenges dealing with Omicron and other COVID waves.
  4. Higher energy prices are here to stay: Multiple forces will provide support to higher energy prices: supply chain issues, political posturing, demand for heating/cooling due to climate change, but Covid will occasionally step in to disrupt and counteract these forces. Even carbon neutral efforts could cause overall energy prices to rise in the near term as energy producers shift to renewables, with many of these alternative sources remaining expensive. Oil will stay in the $70-$80 range, with the occasional dip towards $60 as intermittent Covid concerns influence energy consumption in the travel sector.
  5. Underperforming stocks with a positive finish: In general, slower growth and lower rates help Growth and Tech stocks while faster growth and higher rates benefit Value and Cyclicals and I believe the economy will tend to lean towards the latter scenario. That said, growth and value leadership will change hands throughout the course of the year as the economy reacts to Covid waves and switches between lockdown and reopening. I suspect Value and Cyclicals will outperform Growth and Tech at the margin, but the dominate capitalization size of the latter two will pull down overall stock market returns. Of course, as with consumers, there is a lot of money being held back at the moment. Businesses have significant cash reserves and self-directed traders continue to shovel money into markets, which, when combined, can help buoy stocks.
  6. Flattening the bond yield curve: I think we will see some retrenchment as a result of rising rate programs by central banks that will largely result in negative to flat returns across core fixed income. Any selling in longer term bonds in reaction to either economic or central bank activity will be mostly offset by buying due to the global desire for yield, thus keeping a lid on longer term rates. Rising short term rates in this environment will serve to flatten the yield curve. High yield bonds could provide for pockets of opportunity as they are potentially tied to cyclical areas of the economy that could show leadership.
  7. The contrasting futures of ESG and digital assets: In the coming year I think we’ll see digital and tokenized assets become almost as popular as Environmental, Social and Governance (ESG). However, whereas ESG is a permanent shift that will eventually encompass the evaluation of all mutual funds, digital currencies still look a little more niche. We could well see them proliferate over the next few years, potentially even becoming a new quasi-asset class, but they will remain a satellite allocation in risk tolerant portfolio strategies. They are unlikely to achieve the status of being included in mainstream portfolios such as defined contribution retirement plans where assets can flow in large, consistent amounts – unlike ESGs, which could well reach that point in the coming years.
  8. A more defined ESG: It is looking increasingly likely that ESG funds will begin to splinter into more thematic offerings as investors eschew the combined “ESG” mandates in favour of more targeted strategies that enable them to better assess stocks aligned with fund objectives. This will also help avoid those securities jumping on the ESG bandwagon.
  9. The continued rise of the Big Five: Of course, in an era of unpredictability, there are always going to be trends or themes that run counter to accepted wisdom. Despite the aforementioned attempts of central banks to raise rates, the Big Five stocks (Microsoft, Alphabet, Apple, Amazon and Nvidia) will continue to show leaderships. While technically falling into the camp of richly valued Growth, these stocks have begun to also acquire a status as a safe haven, with generally strong earnings demonstrating a consistency and dependability that attracts investors. They also populate immense amounts of passive and retirement plan assets under management, equating to steady flows into them in almost any economic environment.

 

All this plays out against a backdrop of our changing stance on COVID. While there are some commonalities in how different regions tackle the pandemic, the continued uneven nature of our global responses makes it hard to determine what state we will be in this time next year. If most major economies can move to an endemic setting, then we should have the tools in place to make ‘living with Covid’ a reality. However, the continued emergence of other variants will cause volatility, and with it a predictable jostling of market leadership. Perhaps the only predictions anyone can truly make is that life will continue to be unpredictable for some time to come.

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