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Finance

WILL BLOCKCHAIN REVOLUTIONIZE FINANCE?

By Ken Timsit, ConsenSys

 

Over the last 10 years, researchers, software developers, start-ups, and large companies have been conducting experiments aimed at determining whether networks based on blockchain technology can ultimately – in whole or in part – replace the infrastructure on which financial institutions and capital markets are built.

 

In today’s electronic databases, any information can theoretically be replicated at will. This is why most governments allow only regulated actors to keep records of digitized assets (banks, depositories), to avoid pitfalls such as the execution of misleading transactions or the creation of artificial assets. With blockchain, these pitfalls can be avoided at the source code of the technology, which is available to all members of the network. The creation of Ethereum enabled a more robust blockchain network capable of “smart contracts”, which once programmed, can run automatically without the results being modified or manipulated.

 

Contrary to what some critics argue, the potential of the blockchain is not the creation of a free and unregulated space in which everyone can invent new financial instruments. Rather, the potential lies in creating a much more efficient and globalized commercial and financial infrastructure, in which many layers of control and intermediation are no longer needed as they are replaced by transparent and immutable IT rules that ensure the same risk management functions.

 

For example, bonds are essential financial instruments on which a large part of our economy and savings are based. The issue and exchange of a bond requires the intervention of several dozen financial institutions (issuers, intermediaries and investors). Some regulated players in this intermediary chain exist mainly to ensure that it is possible to know, at any time, who holds each bond, in order to guarantee their rights to its bearers.

 

It is theoretically possible to simplify these stacks of operators by linking them to a global blockchain network, open to all stakeholders in the industry. The blockchain network can thus ensure at any time that the number of outstanding bonds corresponds exactly to the number of bonds issued, and that each exchange transaction is carried out without the risk of default.

 

The blockchain revolution is first and foremost the reduction of costs and delays caused by the current financial infrastructure. The blockchain revolution also creates innovation opportunities for consumers, savers, and investors.

 

 

The Web3 revolution, often used to refer to the blockchain revolution, will be driven by the reduction in transaction costs, allowing the emergence of new peer-to-peer business models that we are not yet able to accurately predict, but which will probably participate in a rebalancing of the relationships between financial institutions and their clients. Some international peer-to-peer payment and loan-to-peer savings investment models are already attracting increasing interest from the most sophisticated consumers.

 

Where are we in 2020?

Today, the blockchain revolution is still in its infancy. Transaction volumes through blockchain networks, public and private, are low compared to those of existing systems. The fixed costs of the technology are still relatively high, and the user experience leaves something to be desired.

 

However, innovations abound. It is already possible for me, from my smartphone, to buy digital assets whose value is equal to about one US dollar, and to lend them in three clicks to other users who will pay me between 1% and 10% per year for this service, depending on the type of platform.

 

The number of large operational business projects is still small, but very promising. Numerous international commodity trading players have joined forces to create Vakt and komgo, two platforms that contribute to a significant simplification of trade and oil financing. Similar and competing projects, Voltron and Marco Polo, are being launched. On the corporate side, the Capbridge 1x platform (Singapore) already allows shares to be traded on an Ethereum blockchain network. Other important projects such as LiquidShare (France), SIX Digital Exchange (Switzerland), Daura (with Deutsche Borse and Swisscom in Switzerland), Synapse (Hong Kong Stock Exchange) are in preparation. The World Bank, Société Générale and Santander have issued bonds on an Ethereum blockchain network. These initiatives are still experimental but have attracted significant interest from financial institutions around the world.

 

And of course, many projects aim to revolutionize global payments by creating digital assets on blockchain networks that are fixed in Euros, U.S. Dollars or other currencies, such as those of the Monetary Authority of Singapore, the South African Reserve Bank, and Union Bank of the Philippines. Since the announcement of the Facebook-initiated Libra project, many governments have expressed concern about the possibility of private companies controlling global payment flows, and have asked their domestic financial institutions to redouble their efforts to explore competing initiatives.

 

All of this is to say that adoption is happening, albeit gradually. The middlemen and intermediaries of the financial world will not be replaced overnight. Moreover, the exact formation or architecture of the new financial system is impossible to predict with accuracy. However, it’s safe to say that blockchain will enable a financial system that is more efficient and yields more value-add to consumers, users, and investors.

 

Business

A CATALYST FOR CUSTOMER SATISFACTION AND GROWTH IN THE FINANCIAL SERVICES SECTOR

Peter Walker, EMEA CTO, Blue Prism

 

The financial services sector has undergone a period of rapid innovation over the past decade, with the rise of fintechs and digital banking solutions, which are much more agile than traditional banking options. On top of this, the sector is now also experiencing unprecedented effects due to the Covid-19 pandemic. Institutions must transform their core operations to address these industry disruptions, not only to meet the needs of today’s increasingly interconnected society, but also to help weather the impact of the virus.

In order to maintain a competitive advantage within the industry, satisfy the changing demands of their customers and meet intensifying regulations, Robotic Process Automation (RPA) technology can offer a way forward by providing a platform that runs Digital Workers – intelligent software robots that complete activities in the same way as humans, by mimicking and learning business processes like people do.

With the unprecedented surge in demand of business operations, work isn’t being delivered at its full potential, and at the pace required. People are increasingly unable to support businesses’ needs of extracting and formatting data into a number of different systems, as well as performing a number of tasks which are better suited to technology. This work can lead to stressful environments and errors in a highly regulated process.

 

Addressing the changes in the financial services landscape

Digital banking apps like Monzo and Starling have in the past few years transformed the way people handle their personal finances, and the banking solutions now available to customers means that they have become accustomed to seamless service.

Speed is everything in financial services, and against a backdrop of economic and political uncertainty, traditional banking institutions need to consider changing the way they operate. They must heed the example of digital natives and become more agile, so that they can quickly adapt to unforeseen circumstances in the market.

As the demand for the sector’s services increases in response to the government’s mandated initiatives, such as the Coronavirus Business Interruption Loan Scheme (CIBLS), companies will have to pivot their operations to keep pace with the changing landscape. We always hear about how sectors can digitally transform, and RPA-based Digital Workers can help companies to begin their digital transformation journey and accelerate that innovation.

Implementing Digital Workers

In this challenging climate, where traditional business models have changed overnight, organisations need to fulfil the demands of enterprise operations at the pace required to remain competitive. Increasingly, people won’t be able to support this demand on their own, and technology will plug the gap that humans cannot fill.

A lot of customer-facing activity in financial services is process-heavy by nature. It involves dealing with large amounts of sensitive information and adhering to strict processes, which creates a lot of admin. Strategically deploying Digital Workers and intelligent automation can help businesses to streamline a number of these admin tasks, such as processing loans and mortgage repayments. Automating this process frees up employees’ time so they can improve other areas of the business that automation alone can’t deal with.

Covid-19 has renewed the pressure on financial services organisations – not just simply by increasing the sheer volume of customer service calls, but also by introducing new operational stresses through remote working. Implementing automation technologies in a strategic way can help financial institutions get in better shape to cope, not just during this time of uncertainty, but in the long run. In a recent survey looking at how organisations around the globe are using Digital Workers to stay resilient, positive and competitive in this new economic reality, 95% of business decision makers in financial services revealed that they already have plans in place to extend their use of automation across their business.

 

Support during Covid-19

In response to the pandemic, Blue Prism has set up the Covid-19 Response Programme, donating Digital Workers and services to assist across a number of sectors, including on the front lines of the health emergency, transportation and financial services. These deployments illustrate how RPA can help – as by using Digital Workers, business will be able to maintain business continuity and provide the necessary services to citizens during this difficult time.

During the Covid-19 pandemic, Leeds Building Society has turned to Blue Prism’s RPA technology to rapidly increase its deployment of Digital Workers, helping it to cope with the high demand for mortgage holidays. Mortgage payment holiday requests now exceed 2,000 a day and this is all now being handled by the RPA solution, reducing calls to the contact centre by 75% and providing answers to most of these requests within 21 seconds. This allows front-line colleagues to focus on delivering better customer experiences, and back-office processing teams to work on other priorities for the business. Most importantly, at a time of profound uncertainty when many people are under financial pressure, it helps to quickly resolve their issues.

For a long time, the financial services sector has been slow to adopt new technologies which could speed up internal processes, primarily due to the need to comply with regulatory requirements. Yet automation can help these organisations to adjust to rapid regulatory changes. For example, by helping them to audit their data and processes. Without automation technology, businesses might have to recruit and train temporary staff or hire support from a business process outsourcing provider, which could come at a significant cost.

 

The future of automation in the sector

Financial services perform a vital role in our economy. But the pandemic also provides an impetus for organisations in the sector to transform their operations, and automation has huge potential when it comes to this transformation. By 2024, Gartner predicts that automation technologies will replace almost 69% of the managers’ workloads. The Covid-19 crisis could be a catalyst to hasten the migration of routine and rote business processes and help the sector to keep pace with the changing economic environment, as well as rising consumer demands.

 

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Finance

2020: THE YEAR OPERATIONAL RESILIENCE AND CYBER-RISK TAKE CENTRE STAGE IN FINANCIAL SERVICES

Miles Tappin, VP of EMEA for ThreatConnect, explores how financial providers can build a cyber security strategy that enables operational resilience

 

Financial institutions are operating in a new digital landscape. New disruptive technologies – from Artificial intelligence (AI) to crypto-currencies and big data – have driven change and innovation. In retail banking, new fintech providers have seized the opportunity to offer personalised services and challenge existing providers. For example, Klarna, has successfully disrupted the payments sector and is now established as Europe’s biggest fintech firm. It has quickly emerged as an alternative to credit cards since bursting onto scene, allowing consumers to shop now and pay later with retailers, such as H&M, Ikea and Zara.

To compete with the rising number of fintech providers and fulfil growing consumer expectations, traditional financial institutions are developing robust digital ecosystems that can deliver omnichannel service models. However, it’s becoming clear that the pace of technological change is a double-edged sword. It enables innovation and change but it is also one of the most destructive forces in the financial services ecosystem today.

 

Financial services emerge as a hotbed for cybercriminals

2020 has emerged as a defining year for cybersecurity in the financial services industry. It started with an unprecedented attack against Travelex where hackers successfully took some of the currency providers offline for nearly a month. Then came Coronavirus which sparked a new wave of malware and phishing threats. Research from VMware Carbon Black Cloud revealed that threats against financial institutions have surged by 238% since the start of the pandemic.

The renewed interest from cyber criminals comes at a time when regulators are paying close attention to the resilience of the sector. After a string of IT failures and breaches, financial organisations in the UK have been given a mandate from regulators to improve operational resilience. This means ensuring business models can withstand disruptive events from hackers or adversaries and quickly recover to protect the stability of financial systems.

In December 2019, the UK’s financial regulators published a series of consultation papers outlining their proposed approach to achieving greater operational resilience. The proposals suggested that financial institutions will be required to map out the systems and processes that support business services in order to identify any potential vulnerabilities that would pose a risk to the stability of the UK financial system or the firm’s standing.

 

A mandate for change

Where cybersecurity used to be a classic back-office concern, it’s now a central part of digital strategies and a key pillar of both reputation and customer retention – financial legislation leaves no room for failure. All financial institutions need to ensure they have full visibility of their systems and can detect any potential threats.

The challenge for financial institutions is making the security tools they have purchased separately work together in tandem. Security teams buy a firewall, an email filter, threat intelligence feeds, antivirus software or enhanced endpoint protection, and whatever else they need individually. Each of them does a good job but they don’t talk to each other and valuable time is lost tending to individual systems that become a burden to run. At the same time, running multiple security systems is expensive. The more systems you have, the more highly skilled staff you need to manage them, and they’re few and far between.

 

Improving intelligence sharing across borders and communities

To reduce complexity and simplify decision making, financial organisations need to unify processes and technology to harness the security intelligence that comes from across their own security programmes and external sources to drive down risk. However, no financial institution can tackle the problem alone. Experienced threat actors using advanced techniques are constantly targeting the financial sector. The industry needs to come together as a whole to foster a sense of collaboration and data sharing.

In the same way that financial institutions have introduced open banking to deliver a fairer service to customers, the same needs to apply to security – all parts of the financial ecosystem need to unite and share information to learn from one another and succeed in the fight against adversaries that operate across borders.

By sharing alerts on cyber hazards and risk across financial institutions and with law enforcement, government agencies and other relevant authorities, it’s possible to build industry specific insights into cyber security threats and quickly pivot to gain more information on those specific threats and threat actors. By working together, a picture can be painted on threats coming from all manner of malicious activity, from malware to ransomware, to phishing and software vulnerabilities.

 

Breaking down barriers

Having the right intelligence is not enough to ensure that intelligence is turned into action. Breaking down information and process silos across security teams allows financial organisation to analyse and act on the most pertinent information. Everyone has access to the risk and threats that matter most, and orchestration and automation of response helps overwhelmed security teams prioritise response plans and improve efficiencies in their security programme.

Integrating internal security tools and technologies, while also connecting to external sources of intelligence, creates a single source of intelligence that feeds operations and enables organisations to direct action against the threats that matter most. The outcomes of those actions further feed intelligence, providing the ability to further refine the efficacy of the entire security lifecycle.

This approach provides a continuous feedback loop for the people, processes and technologies that make up the security programme. It allows financial institutions to keep up with threat actors that have consistently adapted their methods to profit at the expense of the financial industry. Something that won’t stop anytime soon.

 

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