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A RISK NOT WORTH TAKING: HOW BANKS CAN AVOID MILLIONS IN REGULATORY FINES

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By Barry Cashman, Regional Vice President UK&I, Veritas Technologies

 

Banks are increasingly under the regulatory microscope. The criminal case brought against NatWest for allegedly failing to comply with money laundering rules is case in point of this. If found guilty, the high street bank could face ‘unlimited’ fines.

Another area where banks can expect to continue facing severe scrutiny is in the area of data management and protection. The rise of online and mobile banking services has seen banks being entrusted with an increasing amount of highly sensitive personal customer data and, with the more recent accelerated shift to remote working during the height of the COVID-19 pandemic, this data has become more dispersed than ever before. As a result, banks have had to rapidly extend their IT infrastructures with complex combinations of cloud, virtual and on-premises infrastructures that can become increasingly fragmented and harder to manage. Veritas research found that most banks are currently struggling with this – 63% are suffering from a transformation gap where their security measures lag behind their complex IT infrastructures, meaning they have less visibility and control of their data than ever before.

If banks continue on this trajectory, they risk leaving themselves exposed to a triple-threat of becoming victim to cybercrime, facing hefty fines for regulatory non-compliance and eroding consumer trust. The truth is, cybercriminals have already been taking advantage of this ‘gap’ – in the first half of 2020 alone, SonicWall reported a 20% hike in ransomware attacks.

 

A game of trust

When customers choose a bank to do business with, they hand over vast amounts highly sensitive personal information which they expect to be treated with the utmost care and protection. If this data falls into the wrong hands, it could damage livelihoods beyond repair. Ultimately, this whittles down to one word: trust. It’s a concept that the industry relies upon to attract and retain customers.

But building an industry on collecting and using highly sensitive customer data is a double-edged sword – while banks can take advantage of a vast pool of valuable customer data to offer personalised services and explore new revenue streams, it also makes them a very attractive target for cybercriminals. In fact, research conducted by the Ponemon Institute reported that an incredible 70% of financial services companies in the UK suffered cyberattacks in 2020 alone. In addition, the Financial Conduct Authority’s requirement for more transparency into operational and security incidents revealed that major banks have suffered at least one out a month in recent years.  With a recent history plagued by cyber threats and outages, trust between customers and banks is fragile at the best of times. Just one more data breach or outage could bring the proverbial stack of cards tumbling to the ground.

 

Confronting some harsh truths

The honest truth is that many banks are not managing their data as well as they could be and are at huge risk of failing compliance checks.

Given the rising threat of ransomware, now is the most crucial time to be testing and perfecting recovery plans. Yet, Veritas research found that an enormous 46% of banks have either never tested their disaster recovery plans in the event of a ransomware attack or have not tested it in over 90 days. And despite nearly two-thirds (63%) of banks admitting to falling victim to a ransomware attack at some point in their history, more than one in 10 (14%) banks believe it would take them over a month to recover, if they are able to recover at all.

These figures demonstrate that banks are failing to prepare for when the inevitable ransomware attack strikes and could be doing much more to protect their most valuable digital assets. In fact, half (50%) of the banks surveyed have admitted to paying a ransom to recover customer data.

 

Taking away the risk factor

In a world where banks have had to rapidly accelerate their digital transformation plans and fundamentally shift the way in which they operate in the height of a global pandemic, how can they ensure their data protection strategies measure up?

The answer cannot be to just simplify their IT infrastructure: as the volume of data banks store continues to rise, banks have to accept that there is always going to be complexity in the IT environment. But there is a way to use tools to abstract much of the complexity away. By standardising the systems that manage data across their enterprise, banks can to start extracting value from their data.

Before simply jumping into any course of action though, it’s essential to understand what data they have, its value, where it needs to sit, who should access it and how long it needs to be held for. This data visibility doesn’t need to just be a defence measure though; gaining a better understanding of the data they hold can help banks identify trends and insights that can enable them to offer better customer experiences or open doors to new revenue streams. Without a full view this data, businesses are blind to their own potential.

Once they have visibility into their business-critical data, they need to ensure that business continuity and disaster recovery processes are optimised to protect it. In the event of a ransomware attack, an encrypted backup is the only line of defence. But it’s important to remember that there is no backup plan in place until it’s been tried and tested.

Testing disaster recovery plans help reveal cracks and vulnerabilities businesses otherwise would never have discovered. Are backups sufficiently isolated to avoid infection from spreading, are there enough copies of valuable data and are those copies being retained for long enough? Only regular fire drills and tests can answer these questions conclusively. Testing could be something as simple as staff checking to ensure a backup site will go live should the main application fail or performing a single file recovery and checking the recovered copy matches the original. What’s important is that these tests are regular, repeatable and a crucial part of a business’ backup strategy.

Whatever the next year holds, banks are going to need to be ready to adapt again and again to keep pace. This means having the tools in place to abstract complexity from their IT environments, with robust disaster recovery plans in place to protect their most valuable digital assets. Despite their best efforts, most companies will fail to stop at least one cyberattack over the course of their lifetime. What distinguishes one victim from another is their ability to resist and bounce back. Data responsibility is the foundation of any organisation’s ransomware defence, while backups are its secret weapon.

 

Banking

BANKS OF THE FUTURE WILL BE ASSEMBLED, NOT BUILT: HOW BANKS CAN EXPAND AND INNOVATE BY RETHINKING THEIR PARTNERSHIPS

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Author: Kelly Switt, Senior Director, Financial Services Strategy, Ecosystem and Strategic Partnerships, Red Hat

 

The financial services business ecosystem has been radically reshaped in recent years and is arguably more dynamic and ripe for innovation than it has ever been. Banks that take bolder steps to build strategic partnerships have the potential to dramatically transform themselves and the industry. While open banking reforms have encouraged organizations to open up their architectures to each other, there is much potential still to be unlocked: beyond the minimum of meeting regulations by the deadline and exposing the APIs required for aggregation services, there is a vast untapped opportunity for creativity in joint business models. The kind of opportunity that has long since been grasped by web-scale companies and fintech startups.

 

Deutsche Bank, BBVA, and neobank bunq are examples of banks that have understood the value of creating open finance communities. However, the majority of financial organisations are yet to embrace deeper collaborations that truly take advantage of external parties’ ready-built solutions, which would save time and resources and enable inhouse teams to focus on differentiating their business where it really counts. So how can an organisation break free of legacy structures and attitudes to better integrate and engage with partners?

 

Step 1: Adopting a growth mindset

Establishing deeper strategic relationships with partners requires a mindset shift for much of the industry. Traditionally, banks have tended to see third parties as vendors, treating the relationship as a transactional exchange, in the context of legal agreements that set forth the provisions and conditions of the services to be provided. Instead, banks need to adopt a growth mindset that encourages organisations to look beyond their own four walls, and embraces participation in a wider community. By engaging with an ecosystem of partners and treating them as a valuable additional set of experts, banks can accelerate problem-solving and reach their business goals faster.

 

Step 2: Aligning internally as an organisation

Before bringing in a partner to tackle a business problem, an organisation needs to conduct an internal assessment. It’s important for all departments within an organisation (IT, sales, marketing, etc.) to contribute their perspective on unpacking why a problem exists across the organisation: what are compliance and risk issues? What are the technical challenges? In what ways is the business impacted? Once everyone is grounded on why the problem needs fixing, it is a much clearer path to identify both the business and technology capabilities needed to solve the problem – i.e. the tools as well as the people skills. If different departments aren’t set up to engage with each other, it’s time to dismantle barriers and build bridges to ensure everyone is included in this discovery phase.

 

Step 3: Be open with partners

When the business has galvanised around its key objectives and the capabilities it needs to move forward, the organisation can look at engaging partners that have experience and expertise in the right areas. The more information that is shared with a partner about the company’s challenges, opportunities and goals, the more empowered and committed the partner will be to help meet the desired outcomes. Armed with insights, partners can help connect the dots and invite further parties to a project, leading to a network effect that benefits both the organisation and the wider ecosystem. To ensure that everyone continues moving in the same direction every step of the way, it is crucial to have transparent discussions in which ideas can be exchanged freely, and to make decisions in an open and collaborative way. Disagreement and constructive feedback must be encouraged – partners should be empowered to speak up with concerns – as this is an important part of mitigating risk.

 

Step 4: Humanise business relationships

Business relationships are personal relationships. The most successful ones are built on mutual understanding of what makes each other tick, what motivates someone to behave the way they do and what drives their performance. Getting to know people on a more personal level can create deep-seated relationships where everyone feels fully invested in driving the project forward. The banking sector may not be known for encouraging vulnerability, but revealing a bit more of the human in us is a key ingredient for building trusted relationships. The pandemic has added urgency to the need for greater empathy to lead people through difficulties, and has shown how people can come together through shared emotional experiences to better manage adversity.

 

Step 5: Build on a consistent technology platform

The technical foundation for engaging in any new partnership is a strong integration strategy. An organization may need to rethink its system architectures and shift towards open platform models. In the case of using containers to take advantage of cloud scale, establishing a common platform at the base of the technology stack that runs consistently across an organisation can provide more control, security and stability. A common application management layer that is agnostic to the underlying technology and based on open APIs gives internal teams together with partners greater freedom to collaborate, accelerating innovation. It helps avert the risk of ending up with many custom integrations, which can lead to cost overruns, outages or services-related issues for customers.

 

Unleashing future possibilities

Progress is able to happen much faster when people and teams work together. As more and more businesses in banking and adjacent industries wake up to the opportunities inherent in a move towards greater openness, we will start to see unprecedented innovation in financial services, and myriad other areas of our lives, creating better and more inclusive customer experiences for societies globally. Banks of the future will be assembled, not built.

 

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Banking

SHIFTING EXPECTATIONS AND THE RISE OF FLEXIBLE BANKING

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Rajasekar Sukumar, Vice President Europe, Persistent Systems

 

In virtually every aspect of connected life, consumers are demanding personalisation — and banks are under pressure.

While financial services led many sectors in recognising the potential of technology decades ago, rapid advances more recently in areas like retail have put banks under increasing pressure to deliver services that are tailored to the individual.

The general view is that banks are just too slow to transform, but it’s an assumption I readily challenge. Over the last few years, banks of all sizes have developed and launched new digital services and mobile apps at a pace I’ve not see in the financial services sector before.

The perception of slow and steady persists, however, and it’s because banks are missing the focus on personalisation. With consumers so used to the personalised services of brands like Amazon and Netflix, this gap is widening even further — and it’s what’s giving challenger brands their advantage.

Created and developed to offer everything to every consumer, large banks are being challenged to deliver the rapid pace of change that is needed to put personalisation at the heart of their offerings.

Conversely, smaller challenger banks have no legacy strategy or proposition to adapt. They are entering the financial services market with clear and focused propositions, designed to appeal to a niche demographic for maximum differentiation and appeal.

So, what does this mean for the banking landscape of the future?

 

Shifting expectations

Taking a ‘one-size-fits-all’ approach to banking has been relied upon for decades, with the assumption that appeal is maximised if everything is offered to everyone. Yet this standardised approach is not connecting with customers.

As I mentioned, banks aren’t being reluctant to change this situation through digital transformation — it’s just that it’s not easy.

The challenge here is two-fold. Firstly, in how larger banks were built, with a one-size-fits-all architecture to deliver every product or service a bank could ever want to offer to any customer. Adding new systems through integration brings some flexibility, but under the hood this core banking infrastructure is restrictive.

The other issue is that larger banks are the victims of previous success. They have worked hard to appeal to every type of consumer, and they’ve got them on their books. But personalising and segmenting such a broad group is a huge, unwieldy undertaking.

In contrast, newer banks don’t have to shake off legacy perceptions or rework legacy systems. A digital-first approach brings agility and flexibility from the outset, with the ability to rapidly create a banking proposition that is designed for a very particular type of customer.

A great example is UK-based Monument. Launched this year, this digital bank has purposefully hand-picked a focused segment: the mass affluent with between £250,000 and £5 million in liquid assets.

Every Monument message and product has been developed with its niche audience in mind, pushing aside the myriad banking services they could offer to focus only the ones that really resonate and matter to those with high incomes.

 

A digital mosaic architecture

Instead of being shackled with a ‘one-size-fits-all’ infrastructure, challenger banks have the opportunity to develop what we at Persistent Systems call a digital mosaic architecture.

Instead of building in everything from the outset, a digital mosaic provides a flexible structure to add and integrate the right services, applications and data platforms to meet the needs of a particular customer group.

It’s easily composable, and that brings new levels of efficiency, flexibility and agility — and a step change in the personalisation of the customer experience.

With this clear advantage, digital banks can take a truly tailored approach from the start, selecting only the products and services they need, whether that’s debit cards, loans or cross-border payments. With each component acting like a Lego brick, they have the opportunity to select only the best technologies for each product or service they want to offer.

For larger banks, this becomes more complex, as “under the hood” their technology infrastructure lack the flexibility they need to adopt a mosaic architecture quickly. Furthermore, the workflows within this infrastructure were originally created with the bank’s processes in mind, rather than the customer’s priorities, demands and expectations.

With a more composable, mosaic architecture, everything starts with the customer experience — and the technology becomes the enabler, not the blocker, of personalisation.

 

A customer-first approach with the cloud

To even the playing field and gain more competitive advantage, established players in the financial services sector are increasingly looking to the cloud to remove their dependency on complex, legacy IT infrastructure.

I’m seeing previous trust issues with cloud delivery dissipating, as banks recognise the cloud is now both highly trusted and critical to digital transformation projects. Flexibility and security is created in core components such as a credit decisioning system, KYC solutions and anti-money laundering technologies, and banks benefit from the ability to deploy and scale at speed.

The cloud brings the opportunity to break free from a single technology, to compose and integrate a unique and powerful combination of cloud-based services and applications for the optimum customer experience.

Partnering with a trusted systems integrator means this doesn’t have to be an insurmountable challenge either. Use experts to create and implement a best-in-class cloud infrastructure while you focus on what’s really core to the business: running the bank for your customers.

In today’s fast-moving banking landscape, the power and flexibility of a digital mosaic has never been more critical — and the opportunity is now.

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