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Finance

THWARTING FINANCIAL CRIME AT EVERY LEVEL WITH THE CLOUD

By: John Edison, Global Head of Financial Crime and Compliance Management Products, Oracle Financial Services

 

Financial crime has never been so rife nor so sophisticated. Case in point: the government’s pandemic support loans have been a high-profile victim of financial crime in recent months with over £1.1 billion of suspected fraud prevented[1] so far in the ‘Bounce Back’ scheme alone. Governments and large banks are contending with large-scale financial crime and have technology geared to fit their broad needs, but what about smaller institutions that are under the same pressures as their larger counterparts?

Money laundering is one area of financial crime that’s becoming particularly problematic for the industry with fines topping  £36 million[2] in the first six months of 2020. Mid-sized banks are especially at risk of suffering these kinds of breaches and with far fewer resources to work with compared to larger institutions, they need more support. Existing anti-money laundering applications are often incomplete and lack the flexibility for smaller financial institutions to maximise efficiency.

Already facing pressure from the pandemic, Brexit, and more regulation, it’s crucial smaller financial institutions arm themselves with technology to win the war against money laundering. The cloud can go a long way to help with new applications enabling mid-sized banks to streamline compliance activities and quickly identify abnormal customer behaviour to stop the illicit activity.

 

John Edison

The most vulnerable are the hardest hit

Smaller banks need to squeeze every penny in the best of times. Their business models are dependent on ambitious plans to grow through innovation and acquisitions. They need systems that can scale and improve as they do, and that will protect them as the risk of money laundering and other illegal activities increases during this unprecedented time. In short, they need access to the same world-class technology that big banks employ, but tailored for them in an easy to manage, cost-effective way.

Like larger financial institutions, smaller financial institutions find their anti-money laundering programmes plagued by low detection rates and high false positives. Larger financial institutions have a range of options for tackling this problem. These include building new scenarios and machine learning models in-house, working with niche vendors to tackle specific issues, or purchasing a best-in-class, end-to-end solution. In contrast, smaller financial institutions have fewer resources to build these capabilities in-house or patch together niche solutions. Consequently, their core anti-money laundering system needs to increase detection effectiveness and accuracy on its own.

 

A new generation of anti-money laundering technology

In light of these threats and the special needs of smaller banks, a new kind of protection is required. This new software needs to offer the same quality of protection enjoyed by larger banks without the time and expense required to implement and maintain an on-premise solution. The key to both of these issues lies in the cloud. Solutions based in the cloud and integrated end-to-end offer key advantages over traditional programmes.

For smaller banks, every hour is vital and cannot afford to be squandered on managing time-consuming deployments and upgrades. Out of the box, these solutions are largely self-sufficient, equipped with a strong base of industry-approved watchlists and sanctions lists, along with inbuilt tools for custom scenario design, analysis, threshold simulation, and tuning. This is all the fuel the software needs to detect and prevent money laundering attempts at accelerating speed and efficiency with less and less oversight. This reduced need for human intervention frees up crucial hours for already overstretched IT and anti-money laundering teams to deal with more complicated issues that require their experience and personal touch.

Another major advantage of cloud-based programming is how easy it is to scale and reconfigure to each bank’s specific needs. Banks can purchase the services relevant to their specific needs and vulnerabilities, rather than having to invest in systems that will rarely create value for the group. Subsequently, the banks can invest more in this infrastructure as they grow, adding new services or expanding their existing capabilities as they need them.

The cloud is also far more cost-effective than any traditional equivalent. Not only does this eliminate the need for additional hardware and middleware, but installation costs are also removed, and implementation costs are reduced. The cloud also eliminates the unpredictable costs of managing, patching, and updating software and hardware.

 

A new future for banking

Financial crime is not going to disappear any time soon. Mid-sized banks are particularly vulnerable, failing to enjoy the same modern crime detection afforded by bigger banks. But new tools designed to fit their unique needs can help them survive this environment, particularly when it comes to anti-money laundering applications. Cloud-based protection provides all the capabilities and flexibility that smaller financial institutions need in an easy to manage and cost-effective way. By focusing on effectiveness and efficiency at optimal cost, cloud solutions can help mid-sized financial institutions stay safe, compliant, and ready for business growth.

[1] https://www.ft.com/content/4d2a9837-c233-4d16-8ec4-5d7deaa403ab

[2] https://www.lawgazette.co.uk/practice/aml-fines-falling-global-survey-suggests/5105306.article#:~:text=UK%20fines%20for%20money%2Dlaundering,m%20(%C2%A398.2m).

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Finance

FIVE TRENDS THAT WILL IMPACT THE FINANCIAL SERVICES INDUSTRY IN 2021

Ian Johnson, Managing Director Europe at Marqeta

 

Coronavirus has shaken things up across all industries, and financial services is no different. This year, we are likely to see a much more risk averse industry, as fintechs and banks alike move into survival mode. Yet, this will also spur innovation. The shift away from cash will give a shot in the arm to digital payments, while lenders in particular will have to get creative to balance their risk against the need to dispense funds.

It’s likely to be an interesting, albeit bumpy, year. Here are five core trends that I see having a major impact in 2021.

 

Lenders will seek improved visibility to combat delinquency

An economic downturn unfortunately means higher delinquency rates for lenders. But businesses – in particular, SMEs – need liquidity to survive, now more than ever. To balance risk with need, more lenders will focus on enabling visibility and control after a loan is dispensed. Instead of issuing funds to a bank account, loans will be dispensed to virtual cards or wallets, allowing lenders to track exactly how and where money is spent. This way, lenders only release funds as they are needed – rather than in one lump sum.

Ian Johnson

They also have the power to approve or reject payments in real-time, based on whether the request is aligned with the terms of the loan agreement. For instance, if a company has secured a loan for IT equipment, but attempts to spend it on office refreshments, the lender can make an instant decision to permit or deny the transaction based on geolocation and other transactional data. So, borrowers should ready themselves to be much more transparent if they want to secure loans in the future.

 

Embedded payments to become more commonplace

Embedded payments has been around a long time – just look at pioneers like Uber, where payments are so integral to the customer experience that it doesn’t even feel like you’re paying anymore. In the next year, we will see this expand, with a wider variety of organisations making payments a core element of their customer experience strategies. This trend will be coupled with a shift towards transparency and privacy, where people willingly exchange their data for an improved, personalised experience.

This is something consumers do readily in many areas of online life already – shopping, social media, and so on. In 2021, we will see more banking and payment services operating off the back of this same exchange. In return for data, customers will be given smoother, more tailored payment experiences.

 

Use of cash to drop below 15%, falling from 23% of all payments in 2019

The UK and Europe’s departure from cash will continue to evolve into next year. Physical cards will begin to give way to a rise in digital payment methods – virtual cards, digital wallets, and the likes of Apple Pay and Google Pay. Banks will need to prepare for this shift; hopefully learning their lesson from the early months of the pandemic, where 88% were overwhelmed by demand for online and mobile banking. This means modernising behind the scenes, using technology to improve and streamline payment processing. Time and money also need to be invested into educating and supporting businesses and individuals that going cashless could leave vulnerable, such as small merchants and elderly people. Until this has been addressed, going cashless risks leaving the most vulnerable in our society behind.

 

Back-end bank modernisation set to continue

Traditional banks recognise that they need to be able to innovate faster, particularly on the front-end, to compete with the new waves of digital banks and fintech entering the market. While we will see continued modernisation on the back-end, as they try to unpick the complex web of legacy systems they sit upon, I would not expect this issue to be fixed in a year. Instead of taking on the risk of full migration, many banks will ‘hollow out’ certain services – leaving core services in place that are too risky to move, whilst shifting newer services onto more modern platforms to avoid coding them into legacy systems.

This will create the building blocks to build a standalone digital bank within a bank, allowing them to modernise the entire stack and then incentivising customers to make the switch. An example of this approach is Goldman Sachs’ digital bank Marcus, which has debuted to strong demand – it’ll be interesting to see if others follow suit.

 

Alternative lenders will open up the market to support post-COVID-19 recovery

The process of securing a loan has always been quite painful – involving lots of self-reporting, paper statements and credit reports. And it could take days to find out if you were successful and then even longer to access the funds. Thankfully, it is looking like those days might be coming to an end with the emergence of a new breed of alternative lender focused on transforming specific niches of lending. Take SME lending, which has traditionally been regarded as high risk/low rewards and neglected by traditional lenders.

New alternative lenders, such as Capital on Tap, are changing the stakes. Using data and modern payment platforms, they are able to make loan decisions in minutes, not months. We are seeing the same in Point of Sale lending with companies like Klarna – now, you can apply for a POS loan and get approved in seconds. These companies will set the standard in terms of expectations around lending, forcing bigger lenders to follow suit and helping to transform the loan experience.

 

Fintechs to continue leading front-end innovation

Fintechs hold the monopoly on defining what ‘good’ looks like in terms of features. From money management tools, to saving incentives, fintechs have the agility to create new, attractive products with a speed and creativity that traditional banks simply cannot match. However, true success stories of fintechs paving the way to long term profitability are rare. Established, traditional banks still hold all the capital and most of the main checking accounts, making it harder for fintechs to really get ahead. This is likely to continue into 2021, but we are seeing signs of convergence, with fintechs acting as the front-end for customers while banks provide capital in the background.

 

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Finance

2021 IS THE YEAR FOR DIGITAL WORKFORCE MANAGEMENT IN FINANCIAL SERVICES

By Tyler Suss, Product Marketing Director at Kofax

 

Even before the pandemic, the UK financial services sector viewed digital transformation as a high priority. Though adoption of robotic process automation (RPA) technologies was already underway, the pandemic truly upended operations.

When health mandates closed offices, the ability to manage operations became more challenging and complex. Many processes still aren’t fully integrated or automated, leaving remote workers with the challenge of having to bridge the gaps in fragmented and often labour-intensive processes. More than ever, they need a digital environment in which back-office processes are automated end-to-end to be productive.

Consumers, too, are learning new ways to manage financial transactions in a COVID-19 world. They’re becoming more comfortable with mobile banking and cashless payments, behaviours likely to stick once the pandemic ends. As KPMG notes, improving productivity and meeting new customer expectations for engagement are the sector’s top priorities for the coming year.

That means firms will need to move even more quickly to digitally transform their operations if they want to remain competitive. In 2021, intelligent automation and digital workflow transformation will become the main vehicles for driving employee productivity and customer experience.

 

Tyler Suss

The Next Priority: Digital Workforce Management

There are many reasons why an intelligent automation program combined with digital workforce management will accelerate digital transformation, but the four that follow build a strong case for adopting this approach in 2021.

 

  1. Workforce Orchestration

RPA caught on like wildfire because it made automating routine, mundane tasks simple and fast. Motivation-killing work like monotonous, cut-and-paste data entry is now a drudgery of the past. What’s next? For savvy financial firms, 2021 will be all about harnessing their RPA automation expertise—and leveraging it with complementary technologies like process orchestration and document intelligence to automate their mission-critical business and create high-value workflows.

With an open intelligent automation platform, financial firms will be able to orchestrate work across people, in-house technologies, and third-party RPA bots. They can assign the right worker, whether it’s a human or digital worker, to the right task at the right time, while maintaining total control over the complexity and cost associated with a given task or project. Additionally, they can take advantage of more advanced AI technologies as they emerge.

 

  1. Risk Management and Security

In financial services especially, it’s crucial that automated processes meet audit and compliance requirements. Security is also of paramount importance, with risk mitigation being a high priority. Yet many firms don’t properly consider the security risks associated with RPA, such as the access software robots have to sensitive data. As human and digital workforces merge, a single governance environment is vital.

Central control allows managers to synchronise software robot releases with broader IT system updates, minimising disruptions and failures among the digital workforce. Robust digital workforce management software lets companies secure and monitor how information is used by all resources. The integration of identity management with financial security solutions supports unified governance over the access human and digital workers have to sensitive systems and applications.

Financial firms also need a way to address potential misuse of digital worker credentials. A sophisticated solution supports the segregation of duties, in which functions are spread out across people and departments. Managers can ensure a particular individual doesn’t have access to too much sensitive information based on the combination of digital workers they oversee.

It’s also important to remember that a digital workforce management solution should enable the organisation to manage and enforce policy controls throughout the entire lifecycle of the digital worker, from creation all the way through decommissioning. Control over the entire lifespan of digital workers enhances security, compliance and auditability.

 

  1. Total visibility into operations across the firm

In order to drive continuous improvement, achieving—and maintaining—total visibility into all resources performing tasks within a process is essential. Financial services firms need to be able to answer such questions as:

What tasks are being worked on?

What’s in the pipeline?

How does process performance compare with KPIs?

An intelligent automation platform including process discovery and visualisation provides insight into business processes across the enterprise. Executives and managers get a holistic view overcoming the boundaries between departmental silos, making it easier to identify opportunities for digital workforce automation that can have a greater impact across the entire firm.

 

  1. Scalability

 The requirement to keep pace with changes in consumer behaviour and agile competitors has only intensified during the pandemic. Scalability will be more urgent in 2021, and yet the majority of organisations have struggled to expand their automation initiatives. The biggest barrier is process fragmentation, in which resources performing the work, including automation and digital resources, exist in silos.

Fragmented operations increase overhead costs and eat into the ROI on digital transformation investments. An open, integrated platform enables common governance and permits financial firms to scale rapidly.

As the pandemic wanes, firms need to reimagine customer journeys and rethink operations to improve customer and employee experiences. The successful ones will build upon their RPA capabilities and rely on intelligent automation digital workforce management to foster more agile and competitive ways of working and thinking so they can work like tomorrow—today.

 

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