Jayakumar Venkataraman, Partner, Banking, Financial Services and Insurance, Infosys Consulting
1. 2020, the year of the Ecosystem Approach and the API Economy
“In 2020, we will see the rise of the ecosystem approach in creating new propositions and delivering banking and financial services to customers. Globally, open banking and PSD2 have enabled newer players to enter the market and gain access to customers’ data that was previously the sole preserve of the banks. This has given rise to many third-party providers (TPPs) that are developing more exciting product propositions for customers, particularly in personal financial management, using customers’ financial data from the banks.
“We will see this approach growing significantly in the world of Trade Finance. As well as this, banks will bring together multiple players such as shipping companies, local chambers of commerce and insurance companies to create richer product and service propositions for their customers. We will see blockchain-based solutions continue their pivotal role in helping bring a digital ecosystem’s players together.
“All of this will be underpinned by rapid growth of the ‘API economy’, where banks and the other players in the ecosystem are exposing APIs for all their key capabilities, using this to integrate and orchestrate new products and services for their customers.”
2. In 2020, data will drive more customer insights than ever
“In the last few years, we have seen a significant rise in digitalisation and the amount of data that is collected on customers and their preferences, transactions, and market and industry data.
“In 2020, we will see the emphasis shift to using this data to drive a much richer understanding of customers, predicting and responding to their needs and transactional patterns. This will generate much greater insight into their lifecycle stage, and help create personalised offers that address their needs. Equally critical will be the use of this good quality data in risk assessments, compliance and fraud monitoring, to deliver safe banking services to customers.
“For commercial customers, banks will bring together the vast amounts of transactional data across multiple product lines – such as lending, trade finance and payments – to create a much richer understanding of transactional patterns, business seasonality and the resultant impact on their financial needs. This means that they too can proactively engage their customer with tailored propositions.
“To make this intensive, customer-centric approach to data work, we will see more banks adopting AI and machine learning technologies across their businesses to make sense of all their data. These initiatives are currently constrained by the availability of good quality data, which does not help in building models that are robust and yield correct decisions. In 2020, we will see banks scale their investment in data initiatives that focus on improving the comprehensiveness, availability and the quality of data, so that AI and ML can be used effectively and reliably.”
3. Operational resilience needs the right technologies
“Operational resilience is emerging as one of the top agenda items for senior executives in banks – and also for the regulator, to avoid the threat to their individual and organisational brand. Certainty and continuity of service availability is very important for customers, so it is important for regulators too. Operational resilience relies on tightening controls and governance around business and IT operations, while continuing to invest in the infrastructure for the future.
“Modernisation and transformation of the IT infrastructure in banks – in particular the adoption of cloud and migrating the hosting and delivery of key capabilities in the cloud – is emerging as a major strategic direction. As well as eliminating the costs from maintaining their own data centre operations, migration to the cloud also offers resilience, agility and flexibility, advanced analytics, and innovative applications that are built on a cloud-first approach. All of this significantly improves integrated working and removes some serious challenges.”
4. Fintech acquisitions on the horizon for banks
“The trend of fintech firms disrupting the way banks and financial services players deliver products and services to their customers is here to stay. The way banks think about the fintech players has also undergone a significant shift. While they were once seen as fringe players, this year, banks will be looking at using fintechs to fill gaps in their own offerings, giving much richer propositions to their customers.
“Banks are acting as investors, incubators, collaborators and strategic partners. Banks have set aside formal bandwidth to engage with the fintech community to identify the upcoming stars, to understand how their capabilities can be integrated into their product propositions, and to ensure they don’t fall behind their competitors. In some cases, banks have also bought out the fintech firms outright, as a move to gain competitive advantage over their competitors. Santander’s acquisition of ebury is one such example, and we will see many more acquisitions of fintechs by banks in 2020.”
5. Regulatory compliance and the growth of Regtech
“Regulatory compliance will continue to be a top spend area for banks, as the need to comply with existing and emergent regulatory and industry initiatives continue. There are plenty on the agenda: FRTB, EU Anti-Money Laundering Directives and other industry initiatives such as ISO20022 adoption and IBOR Transition, as well as a slew of other national and regional requirements. With all of this, banks will have their hands full in 2020. Banks will be looking to be efficient about how they approach these initiatives, to then structure their programmes of work so as to minimise duplication and rework in their efforts.
“The emergence of RegTech firms is a key development that can aid the banks in their compliance initiatives. Estimates on the size and the growth of the RegTech industry vary significantly, but we know that this sector is set for rapid growth. Regtech firms are focused on developing solutions in data collection and reporting, decisioning, predictive analytics and risk identification and management. Like with fintechs, we expect banks will co-opt these firms to aid their compliance initiatives.”
6. New ways to reduce costs
Given the recent trend of results posted by the banks, cost reduction and rationalisation will be an important focus for 2020. As opposed to outsourcing and offshoring of work to lower cost locations, and the adoption of automation and RPA to drive costs down, in 2020, cost rationalisation will focus on a more fundamental operational transformation.
“This will involve a radical rethink of the way banking processes are designed and delivered, and the adoption of an automation-first approach. This approach will be supported by a much smaller team of multi-skilled expert operations teams that oversee business processes, and can jump in to manage any exceptions or incidents with expertise.
“As well as a radical redesign of operations, we will also see banks drive operational costs down through the monetisation of assets and mutualisation of costs. Banks will carve out operations and technology capabilities to a strategic partner that also offers such services to other banking clients. We have already seen some of these deals executed, and we will see these conversations picking up scale in the coming year.”
DIGITAL FINANCE: UNLOCKING NEW CAPITAL IN DISRUPTED MARKETS
Krishnan Raghunathan, Head of Finance & Accounting Services at WNS, explores how a digitally transformed finance department can give enterprises the ability they need to improve cash flow and revenue through better use of data and improved analytics-driven visibility.
Businesses everywhere are scrambling to recover lost revenues and protect cash flow. But as countries globally grapple with a dreaded second wave of the pandemic, imposing far more stringent localised lockdowns and new restrictions, it is set to be the hardest winter in living memory for many sectors.
The likelihood of winter peaks, so often the saviour of sectors such as travel and hospitality, benefitting businesses is diminishing rapidly. While many have pivoted to a greater or lesser degree, few have been able to offset the impact of falling revenues on cash flow. Even retail, riding an e-commerce boom in many regions, is finding itself in choppy waters, with 17 percent of consumers switching brands due to the economic pressures and changing priorities caused by the pandemic.
As one McKinsey article notes, “With some companies losing up to 75 percent of their revenues in a single quarter, cash isn’t just king – it’s now critical for survival”. Where then do businesses find new sources of cash to sustain their operations through the coming months?
Tapping Overlooked Cash Opportunities
For many, the answer could depend on whether they have digitally transformed their finance department. Why? Because many organisations are sitting on unidentified opportunities, funds that could be vital in shoring up businesses over the next few months or plugging the gap between operating costs and government bailouts. Yet those that have been slow to start their digital transformation journey are at a disadvantage;. At the same time, it is possible to identify these hidden seams in an analogue organisation, the process is time-consuming, manually intensive and, without the right digital tools, prone to human error.
Where deploying digital tools helps is by bringing speed, automation and reliable data to the fore. Connecting them with digital finance and accounting systems can give businesses clear insights into how money is being spent, where wastage is occurring, and where opportunities for optimisation exist.
It might be something as simple as automating the accuracy checking, issuing and chasing of invoices and late payments. This could reduce errors and invoice disputes and ultimately lead to faster payments. Accuracy and organisation are also important in billing – better records enable faster billing for work completed, and in turn, should deliver quicker payments.
It could also be around having the ability to review the supply chain and procurement data and identify where a supplier is subsidising a larger customer’s product line through drawn-out payment terms, or where a variety of vendors are on different terms across the business. Using that data and overall knowledge of the business to negotiate better terms that work for both supplier and customer can create new opportunities. It could even be to identify late-paying customers, determine the reason for late payments, and use that intelligence to develop products or financing solutions that continue to support those customers (and improve loyalty) without increasing the burden on the balance sheet.
Generating Reliable Insights for Faster Decision-making
To do any of these manually would take months, generating data slowly that would quickly go out of date. But digital finance departments have evidence they can trust to inform business decision-making. That’s because old, manual processes built around Order-to-Cash lack the flexibility and agility that businesses require in today’s markets. The fact is that even before the global pandemic crisis, the pace of digitisation across all sectors was demanding new approaches to finance and book balance.
The opportunities are significant – from cognitive credit and improved forecasting accuracy to enhanced customer analytics. All use similar tools, based on artificial intelligence and quality, trusted data. Cognitive credit can be deployed to quickly make decisions on whether to advance or restrict credit, based on individual company positions and available data. Doing so enables businesses to either capitalise on opportunities (for instance, agreeing credit for a supplier that has run out but is a supportive and integral partner) or avoid risk (in the cases where a business might be in administration).
With more accurate forecasts, businesses can better manage their currency purchases and deposits, selling currency that is not required or buying more where predictions identify an upcoming demand.
It is the same with customer analytics – with a greater understanding of customer needs, businesses can make decisions based on the right mix of the product (and how it meets demand) and supply chain suitability (such as production costs and location in relation to customers).
In many ways, the events of the past year have accelerated the process. In doing so, the problem is the pandemic has also accelerated the speed at which failure to act can lead to obsolescence. Therefore, it is vital that businesses, and more particularly their finance and accounting departments, kick start their digital transformation. This will enable them to deploy the tools and analytics that is needed to capture data, generate insights and drive fast, accurate decision-making to uncover previously untapped sources of cash and reverse revenue degradation.
The Importance of Digitally Enabled Finance Teams
Forward-thinking CFOs have already begun the process of digitising their departments, but for those that have been slow to start, now is the time to push forward. It is only through digital tools and analytics that finance leaders can identify both the internal and external opportunities to recover revenue and improve cash flow. Whether that’s releasing working capital, minimising revenue loss and accelerating revenue recovery, reducing total cost of ownership or enhancing customer retention – only digitally enabled finance teams will be in a position to capitalise and, ultimately, bolster business performance during what will be a trading period like no other.
About the author: Krishnan Raghunathan
Krishnan Raghunathan is the head of Finance & Accounting (F&A) practice and operations at WNS. He also leads the international delivery locations in China, Costa Rica, Spain, Sri Lanka, Romania, The Philippines, Poland and USA.
Prior to this, Krishnan was Chief Capability Officer for WNS, in that role he headed Horizontal practices across Finance & Accounting, Customer Interaction Services and Research & Analytics, Transformation & Process Excellence, Program Management (Transitions) and Solutions development.
He has more than 27 years of experience across Finance & Accounting, Business Process Management, Sales Solutions and Capability functions including 7 years in Accounting practice.
Before joining WNS in 2013, Krishnan led several challenging roles at Genpact, supporting strategic deals and consultative selling. In addition, Krishnan was also the business leader for a number of industry verticals at Genpact, including hospitality, transportation, logistics, media and professional services
Krishnan is a Chartered Accountant, a Certified Six Sigma Green Belt and a trained Six Sigma Black Belt
NAVIGATING SUDDEN DIGITAL ACCELERATION – HOW MERCHANTS CAN KEEP UP IN A NEW AGE OF PAYMENT INNOVATION
James Booth, VP Head of Partnerships, EMEA at PPRO
Recent months have brought momentous change for businesses across the globe. Needless to say, the pandemic has had a colossal impact on the retail sector in particular. For certain industries, the crisis has catapulted society further into the digital world; technology that was predicted to be adopted over the coming years is now on track to be embraced in mere months.
However, local lockdowns for example in the UK continue to force shoppers away from brick-and-mortar stores and onto online platforms to purchase a range of goods. As a result, we are seeing new user groups embracing e-commerce and digital payment methods at a much faster rate than anyone ever thought possible. These new consumer habits are taking root and are likely to become preferences that persist long after the pandemic.
As we continue to hurtle into a new digital era, there’s an unprecedented urgency for merchants to be proactive – offering a range of new payment offerings. As digital payments increase, offering preferred payment methods can unlock a whole new world of opportunities. The retailers seeing exponential growth are the ones who have tailored and localised their payments offering to a global audience.
The pandemic has propelled demand for Local Payment Methods
Today, consumers have an even greater desire and need for frictionless shopping experiences. Social distancing is facilitating the surge in e-commerce, increasing demand for digital payment methods over traditional cash and card payments.
Before the pandemic, the world was already on route to becoming a digital-first society. Some regions were ahead of others; for instance, from the PPRO Payment Almanac, 56% of online transactions in China were already conducted via e-wallets, compared to 25% in the UK. However, now we are seeing increased demand for these types of payments across the globe.
Catering for a new online customer
Whilst typically the global digital payment revolution had been led by Gen Z and Millennials, elderly consumers are set to drive the e-commerce market post-crisis. In fact, a recent study by Mintel revealed that 43% of those aged 65 and older have shopped more online since the start of the crisis. This is a stark contrast from back in May 2019 when just 16% of the same age group shopped online at least once a week.
Ongoing consumer needs for increased convenience and safety during the pandemic, have sparked a shift towards online shopping and away from brick-and-mortar. For example, groceries have seen a meteoric rise in online ordering; according to PPRO’s cross-border engine, online purchases of food and beverages are up 285% since the start of the pandemic.
With new curbside and buy online pick-up in store (BOPIS) programs, the typical cash and card payment methods will be harder to maintain. Now, merchants must offer e-commerce, and implement digital payment options at checkout. Recent data shows up to 80% of shoppers across Europe’s three largest markets (UK, Germany and France) will now make at least half of their purchases online.
We are also seeing the rise and popularity of pay-later apps like Klarna and Afterpay (Branded ClearPay in the UK) to help offer relief from the economic impacts of the virus. Just last month, Klarna was crowned one of Europe’s biggest private owned financial technology providers – with nine million consumers in Britain having used the service, and 90 million users worldwide.
Shoppers need flexible payment options. For merchants, extending many different payment options that cater to different consumer groups can provide diversification and enable growth.
Get ahead, or get left behind
This sudden digital acceleration puts merchants at a crucial crossroads. Embracing new innovations in payment methods has the power to open brands up to a wealth of new customers, whilst satisfying the changing needs of their existing customer pool. On the other hand, failure to offer a variety of digital payment methods can severely limit brands – therefore impacting future growth and success.
As businesses continue to navigate the ongoing ramifications of the pandemic, merchants will eventually face a digital arms race to create the best possible online experience. Those who understand this and make the checkout experience a top priority will succeed, and those who stick to their guns will be left behind. The failure to meet customer preferences during the payment process means many customers will abandon baskets at the very last hurdle. In fact, a study by PPRO 44% of UK shoppers abandon a purchase if their favorite payment method isn’t available.
While recent events have put huge strain on both global economies and consumers, it has also birthed a new age of payment innovation. New offerings such as the rise of Facebook owned, WhatsApp payment features or PayPal and Venmo enabled QR code checkout are showcasing the acceleration of this trend. Financial technology is helping to keep humans connected and provide access to the goods and services they need. Digital adoption will only proliferate, so merchants must act now to get ahead of the curve.
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