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How shadow IT remains a threat to Europe’s biggest businesses

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By Andréa Jacquemin, founder and CEO of Beamy

 

SaaS is creating underground (or shadow) IT in companies, dramatically increasing their exposure to cyberattacks.

 Seemingly unknown to many IT departments and senior management teams, the use of SaaS applications among employees is booming. It is creating an underground digital world with little regard for security, data protection, or digital sovereignty issues.

 As a result, in the top firms traded on the world’s major exchanges – the LSE, NYSE, and the NASDAQ, for example – and across large companies as a whole, SaaS is now a key factor in digitalising their business.

 The SaaS ecosystem generally relies on the widespread use of tools made available online, which are usually designed for extremely specific tasks and operate on a subscription basis. However, these tools are deployed without the oversight of corporate governance procedures, and mostly pass under companies’ radars, even if they represent millions in cumulative annual costs. This phenomenon is known as ‘shadow IT’. Using cloud software from external vendors regularly results in customer data being stored in non-compliant ways or being hosted outside its originating geography (more than 40% of SaaS used is American) This has the potential to generate a multitude of future security vulnerabilities and compliance issues

 

Only 14% of SaaS tools being used in large enterprises are properly managed

 These are without a doubt “underground” digital systems, with an average of 200+ different cloud providers being used in companies with more than 1000 employees. Out of these 190 providers, only 60 are managed by an IT department, 44 by the data protection officer, and 36 by information security teams.

 If the cloud continues to grow at the rate predicted by KPMG, then more than a thousand different SaaS providers could be used by a single company in 2030. Establishing a clear governance framework for cloud-based SaaS will therefore be vital for the future, since it brings the topics of data sovereignty, cyber defence, and digital performance of our companies to the forefront of issues.

 

 Allowing business teams to manage their own digital transformation

 Since digital transformation involves all departments of a company, and especially business teams themselves, it’s only natural for them to want to tackle it hands-on. The latest generation are more accustomed to quick actions via quicker clicks. This generation is also more likely to expect companies to provide the very best that technology has to offer, whether in terms of processing speed, user-friendly interfaces, or the use of tools to make the working day more productive. It raises alarm bells that this is not yet part of the tech procurement approach in place at major companies.

 The technology required is available on the global market, which consists of almost 100,000 SaaS. with venture capital investments in the hundreds of billions of pounds. These solutions rank among the fastest, most powerful, and best suited to ensuring the digitisation of processes. But there are also those that store and use the most personal data abroad, which could pose a huge and invisible compliance risk to businesses.

 What is needed is the creation of an app store for each company, to give business teams the ability to choose the best software for themselves, while carefully guiding them to select, use and de-risk these tools in the long term.

  

Coordinating business teams and IT teams for effective digital governance

 The CIO holds a strategic position when it comes to providing the company with a framework for decentralising the digitalisation process. The key is to ensure that, despite the technological progress pursued by operational teams, a regulatory framework is respected, personal data processed by these tools is properly protected, and that the risk of external security breaches is minimised. In this context, the CIO acts as the orchestrator of the digital ecosystem, giving freedom to business units while making sure that the application landscape is optimised and safe.

 The focus on a “sovereign cloud” will remain an unproductive endeavour if SaaS, which accounts for half of cloud computing, is still placed in the background. Within companies, it is up to senior management teams to initiate the construction of a decentralised approach to digital governance. This is the only thing capable of successfully bringing structure to this fast-evolving part of the cloud. It is a strategy that requires the involvement not only of the CIO, but of the entire executive committee, and all departments affected by the challenges of digital transformation.

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How can businesses boost employee experience for finance professionals?

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By Martin Schirmer, President, Enterprise Service Management, IFS

Over the course of the last year, The Great Resignation has seriously impacted organisations across the globe. Staff are quitting in huge numbers, leaving companies unprepared and struggling to fulfil their workloads. In fact, mass departures are happening at all levels of the labour market, as employees attempt to adapt to the hybrid working model and growing socio-economic uncertainty.

In light of this, optimising the employee experience (EX) to attract and retain talent has become a top priority for employers. Organisations have come to understand the necessity of taking immediate steps to drive employee engagement and reshape workplace culture.

The financial services (FS) industry is no exception to this trend. From increasing employee burnout to growing career dissatisfaction, the pandemic has exacerbated the need for transformation across finance teams. This is exemplified by recent data from Spendesk, which found that approximately 40% of finance professionals are willing to leave their roles or already have concrete plans to do so.

Organisations looking to get ahead of the competition must put in extra efforts to retain their existing workforce. The fact is that employee expectations and requirements have irreversibly changed, with more workforces becoming increasingly distributed. Today’s hyper-connected workforce values flexibility and simplicity, and it is organisations which offer these experiences that will succeed in the long term.

As part of this process, finance companies must look towards the power of technology to create seamless user experiences across devices. From automating workflows to improving overall efficiencies, Enterprise Service Management (ESM) can help organisations to boost user satisfaction and go that extra mile for their employees.

How poor EXs are driving finance teams to quit

With over 40% of employees spending a significant proportion of their time carrying out mundane, manual tasks, it is not surprising that poor EXs are having a detrimental impact on job satisfaction. Finance teams in particular have been slower to digitise core processes, leading to a heavy reliance on manual tasks. This not only increases the amount of time spent on each task, but also impacts the engagement levels of finance professionals who cannot focus on more strategic aspects of their roles.

As a result of the pandemic, flexibility has also moved to the forefront of finance teams’ desires. Given the fast-paced nature of this industry, the conversation surrounding work-life balance has increased rapidly. Failure to offer flexible working policies, coupled with a lack of technology to facilitate this flexibility, has led to poor EXs across the board.

Most notably, the overarching move to omnichannel, digital-first approaches has dramatically reset both customer and employee needs. Finance is the third-slowest running corporate function behind legal and IT. Operating in a competitive environment, 73% of finance operations are facing pressures to speed up, improve efficiency, and prioritise automation.

Mitigating the problem using technology

ESM, an offshoot of IT Service management (ITSM), is the cornerstone of smart digital transformation for organisations. It can help finance teams to streamline and automate routine processes, such as monitoring the status of service requests, approving expenses, sending invoices, and tracking payments. In turn, this will free up employees’ time, reducing the burden of manual tasks and enabling them to focus on the more strategic tasks.

Another advantage ESM can offer finance teams is the ability to adapt to each department’s minimum requirements for data privacy. Accounting, for example, needs additional layers of compliance built into the system.

ESM can also facilitate cross-departmental collaboration, helping finance professionals to communicate with the wider business and perform tasks more effectively.  Organisations can use ESM to incorporate all internal services into a single platform, offering employees a well-rounded view of the business and promoting a sense of community across all levels of an organisation. This will boost productivity, whilst enhancing visibility and control.

Ultimately, the current job landscape has brought with it a new set of challenges. Organisations in the FS industry looking to navigate the storm and retain top talent must refocus their efforts on bolstering the EX. Embracing a new era of technological innovation that empowers employees and boosts engagement is a critical step in this process.

 

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CBDCs: the key to transform cross-border payments

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Dr. Ruth Wandhöfer, Board Director at RTGS.global

 

If you work in finance, you’ll have been hearing a lot about central bank digital currencies (CBDCs) and the moves different markets are making towards using, regulating and evaluating the viability of moving to an economy based on digital currency.

We are already seeing progress in the research, piloting and introduction of CBDCs into the financial system. The Banque de France for example, recently launched its second phase of CBDC experiments in line with the “triple digital revolution” unfolding in the financial sector. The infrastructures of financial markets and fintechs, however, are not prepared to accommodate their security, stability, and viability.

This could be an issue in the not too distant future. Each year, global corporates move nearly $23.5 trillion between countries, equivalent to about 25% of global GDP. This requires them to use wholesale cross-border payment processes, which remain suboptimal from a cost, speed, and transparency perspective. In fact, the G20 cross-border payments programme considers improving access to domestic payment systems that settle in central bank money, as one of the key components in facilitating increased speed and reducing the costs of cross-border payments.

The current state of cross-border payments

International transactions based on fiat are currently slow, expensive, and highly risky due to today’s disconnected financial infrastructure, messaging, and liquidity. Wholesale cross-border payment settlement can take 48 hours or longer, which is not practical in today’s digital world. Even if not every market moves to CBDCs, in an increasingly digital era, cross-border settlements between central banks will unavoidably involve dealing with CBDCs. So, not only will we have different currencies, we’ll have different technical forms of currency being exchanged – digital and fiat – as markets adopt CBDCs at different rates, adding another layer of complexity to cross-border settlements.

While there is much anticipation about the opportunities CBDCs can bring, the adoption of this technology will only be widespread if payment and settlement capabilities are overhauled to allow for new innovations in currencies.  This need for transformation represents an opportunity to redesign existing infrastructure to support cross-border CBDC transactions.

The current cross-border payments system involves correspondent banks in different jurisdictions using commercial bank money. Uncommitted credit lines used in cross-border transactions are a potential risk for any bank that relies on credit provided by a foreign correspondent bank. Interestingly, there is no single global payment and settlement system, only a complicated network of interbank relationships operating on mutual trust. While trust has allowed financial systems to function smoothly, when it begins to fail, as it did during the 2008 financial crisis, the result can be catastrophic.

Following the crisis, the Bank for International Settlements (BIS) implemented the Basel III agreement, which required banks to maintain additional capital against correspondent banking account exposures. These risk-weighted assets impose a costly capital charge on positions held by banks at other banks under correspondent arrangements. While this framework helps combat risk, it neglects to address the inherent problems in traditional correspondent banking that contribute to these risks.

Making the case for CBDCs

CBDCs can offer an improvement in settlement risks and are certainly thought to have potential benefits by the BIS. If implemented correctly, wholesale CBDCs can indeed accelerate interbank transactions while eliminating settlement risk. They can also encourage a more efficient and straightforward method of executing cross-border payments by reducing the number of intermediaries.

It is likely the evolution towards CBDCs will initially see the financial market supplement rather than replace existing payment instruments with new types of digital currency. CBDCs will coexist with current forms of money in a wholesale context, and their payment rails will also work alongside the existing payment systems. In simple terms, CBDCs will need to be linked to the broader capital markets ecosystem and applications such as securities settlement, funding, and liquidity.

If built with an innovation-first mindset, the future of banking infrastructure should provide full interoperability and convertibility between fiat, CBDCs, and any other type of digital money used in wholesale payments.

The future of CBDCs

To unlock the full potential of CBDCs, a ‘corridor network’ will need to be formed. This involves combining multiple wholesale CDBCs into a single, interoperable network under common governance agreed upon by all central banks involved. The legal framework of this platform would then allow for payment versus payment (PvP) or, where applicable, delivery versus payment settlement.

Practical wholesale CBDCs appear to be on the horizon, either as a supplement to existing financial systems or as part of a transition to a digital, cashless world. Looking ahead, central banks would benefit from collaborating with fintechs that provide innovative cloud native technology to enable seamless wholesale cross-border payments without interfering with the flow of funds. If wholesale CBDCs are to become a reality, fintechs must be prepared to accommodate them.

 

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