2023

It would come as no surprise if internet retailer Amazon announced it was taking over the world tomorrow. There seems to be very little that it can’t offer customers, whether it’s conquering Christmas lists, watching boxsets through Prime or managing life admin through the intelligent personal assistant Alexa, almost everyone uses one or more Amazon service on a regular basis.

One common denominator that defines Amazon’s success across all of its platforms is customer experience – providing simple, convenient and engaging solutions that go that extra mile to ‘wow’ customers and retain their loyalty.

Banks, however traditional or modern, can take a leaf out of Amazon’s book when it comes to engaging with customers and harnessing innovation to continuously improve their offering.

Here are five important lessons banks can learn from Amazon.

1. The customer always comes first

Listening to what the customer wants has been the driving force behind many of Amazon’s products and developments. McKinsey’s CEO guide to customer experience advises that the strategy “begins with considering the customer – not the organisation – at the centre of the exercise”.

This can often be quite a challenging ethos for the banking sector to buy into, particularly for the more traditional bricks-and-mortar companies where the focus is often on the results of a new initiative, rather than the journey the company must take its customers on to get there.

It’s a case of convincing senior management that the initiative is a risk worth taking and just requires some patience. Amazon originally launched Prime as an experiment to gauge customers’ reactions of ‘Super Saver Shipping’ and it was predicted to flop. Nowadays it’s one of the world’s most popular membership programmes, generating $3.2bn (£2.3bn) in revenue in 2017, up 47 per cent from 2016.

2. Create trends rather than follow them

To stay ahead of the curve amidst the flurry of digital fintech start-ups, banks need to come up with their own innovative customer experience solutions, rather than allow newcomers to do so first and then follow suit.

From the customer’s perspective, a proactive approach will always go down better than a reactive one. Amazon CEO Jeff Bezos has previously spoken about tech companies obsessing over their competitors and waiting for them launch something new so that they can ‘one-up’ it. He once wrote: “Many companies describe themselves as customer-focused, but few walk the walk. Most big technology companies are competitor focused. They see what others are doing, and then work to fast follow.”

What sets Amazon apart is listening to what the customer wants and prioritising them over competitors.

A great example in the banking sector is mobile-only bank Starling, which recently announced partnerships with several financial service providers that customers can quickly access via its in-app ‘Marketplace’. The first to become available is PensionBee, a digital pension provider that aims to consolidate pension pots into one. Others, including a digital mortgage broker and a digital wealth management service, are soon to follow.

Ultimately, Starling listened to and understood its digitally-minded customer base who, like most people, see shopping around for financial providers complicated and admin-heavy. One central app where you can seamlessly select a trusted digital partner would no doubt go down as good customer experience.

3. Use customer data to form any new idea

It’s no secret that Amazon is one of the leaders that has paved the way for analytics. It’s through the company recognising the need for them which has led to customers becoming accustomed to personalisation and expecting it as soon as they have had their first interaction with a business.

Banks are no exception to this and, while it may seem like a scary commitment to more traditional firms, it doesn’t have to be complicated. A classic, simple example is Amazon storing customers’ shopping habits and sending them prompts for new products similar or related to those they have purchased in the past.

In the financial world, digital bank Monzo is leading the charge by monitoring customers’ spending habits to offer them financial advice to help them save money and budget responsibly. For example, its data once showed that 30,000 of its customers were using their debit cards to pay for transport in London – so Monzo can advise them they could save money if they invested in a year-long travel card, for instance.

There are endless things banks can do using customer data to provide the customer with an experience unique to them, rather than continuing to make them feel like just another cog in the wheel. At Affinion we believe in ‘hyper-personalisation’, in that these days it’s no longer good enough to just know a customer’s history of transactions with a company and when their birthday is.

Customers are getting more tech-savvy by the day and are expecting real-time responses with a deep insight into their interactional behaviour – they won’t remain engaged if follow up contact is irrelevant and untargeted. Customer engagement has moved on from companies communicating to the masses, it’s about creating tailored, intuitive relationships with them on an individual basis.

4. Widen the offering beyond traditional banking

The way we live as a society is forever changing and, as we get busier and busier, any small gesture to make life that little bit easier goes a long way. The consolidation of services such as banking, insurance, mobile phone networks, utilities and shopping is a great way to ensure customers remain loyal to a brand as it will – if done right – add value and reduce hassle to their lives.

As an expert at disrupting industries, Amazon has taken note of this growing need for convenience over the years and has expanded its offering for customers, allowing them to carry out multiple day-to-day tasks with one account. In the last few months alone, Amazon has hinted that it may acquire a bank to break into the financial industry and potentially start its own healthcare company.

Regardless of size, banks should always be looking for new areas they could tap into to broaden their offering and show customers that their needs are at front of mind.

5. Engage with customers through goodwill

A rising factor in the way that customers align themselves to a brand is its stance on ethical issues and its contributions back into society. It’s a shift that seems to be most prominent with Generation Y, as the Chartered Institute of Marketing found that 81 per cent of millennials expect companies to make a public commitment to good corporate citizenship and nine in 10 would switch brands to one associated with a good cause.

Amazon has gone that one step further, with its AmazonSmile initiative that allows the customer to choose a charitable organisation that it will donate 0.5 per cent of eligible purchases to. Not only does this show Amazon’s commitment to charitable causes, it gives the customer control of where their money ends up.

This is an easy win for the banking sector, given that one of its sole purposes is to look after money and move it around. For firms that target younger generations in particular, looking at ways to involve customers in charitable donations in a fun, transparent and seamless way is a no-brainer for increasing loyalty and advocacy.

It’s time banks took customer engagement even more seriously

For many people, personal finance is perceived as a chore and often quite complicated. Improving the customer experience and building in programmes to engage them can help greatly with this and banks need to adopt the ‘customer first’ ethos that Amazon showcases so effortlessly. With new fintech disruptors creeping into view, keeping customers loyal and engaged has never been so important.

By Karen Wheeler, Vice President and Country Manager UK, Affinion

Data volumes are not just growing, they are exploding. Now measured in zettabytes – which could become yottabytes in the not too distant future – it’s not surprising they are causing more than a headache for today’s organisations. These vast pools of data are also putting traditional database architecture to the test.

Nowhere is this problem felt more acutely than in the banking industry, where the situation is exacerbated by a complex raft of issues. For example, many banks have had the same legacy systems in place for decades.

Often these are not fully-integrated with others in the organisation and, consequently, many applications still run in a siloed environment. In a recent study by analyst firm Enterprise Strategy Group (ESG), commissioned by InterSystems, 38% those polled reported that they had between 25 and 100 unique database instances, while another 20% had over 100. Although this was a general survey, not confined to the banking industry, it does give some idea of the scale of the problem.

So although many banks own these vast amounts of data, many of them are unable to do anything with it, especially analyse it in real-time. Which means that often they just don’t have the capability to provide the open banking demanded by new regulations such as PSD2.

Banks have been addressing new regulations in a piecemeal fashion for too long and this approach is now catching up with them. With each new ruling they have put a new siloed application in place to meet its specific needs and no more – but there’s a limit to how long this can continue. Today’s regulations are demanding an end to data siloes with integration enterprise-wide and the ability to analyse data in real-time.

These are broad-brush requirements. At a more granular level, banks must think through the step-by-step processes needed to meet compliance. Typically, they will need to bring information in from multiple applications, run reporting on this data on a real-time basis and generate that in a format that meets the regulator’s precise requirements.

As a result, banks must seek out a data platform that can ingest data from real-time activity, transactional activity and from document databases.  From here, the platform needs to take on data of different types, from different environments and of different ages to normalise it and make sense of it. The platform they select must be about to reach out to disparate databases and silos, bring the information back and then make sense of it in real-time.

This platform must also have the agility to separate out the data they need from the data they don’t need to access. It is also the case that, as businesses migrate systems and applications to the cloud, they are beginning to use software to ‘containerise’ their applications and modules. Once these containers have been set up in the cloud, they are then reusable by other applications.

It is crucial that a data platform enables data to be interrogated even if it is in large data sets and stored in different silos. This capability is important to enable the bank to comply with regulatory requirements such as answering unplanned, ad hoc questions from the industry regulators, for example.

The advantage of working this way is that it can take the bank far beyond compliance. It will now have a secure, panoramic view of disparate data which can be used for distributed big data processing, predictive and real-time analytics and machine learning. Real-time and batch data can be analysed simultaneously at scale allowing developers to embed analytic processing into business processes and transactional applications, enabling programmatic decisions based on real-time analysis.

So although many banks and other financial services organisations may feel they are being swallowed up by data, the need for compliance will ensure this doesn’t happen. The more they are storing on legacy systems, the more they are going to need an updated data platform. If they think carefully about selecting the right one, the move could result in improvements across data management, interoperability, transaction processing and analytics, as well as the means to address today’s and tomorrow’s regulatory demands.

By Jeff Fried, Director, Product Management – Data Platforms, InterSystems

 

I began this three-part series on 871(m) by quoting one of America’s most famed political characters and Founding Father, Benjamin Franklin. In order to round this series off in the same fashion, I’ll turn to another American political figure, this time: Abraham Lincoln. He was once quoted as saying “you cannot escape the responsibility of tomorrow by evading it today”, which I think quite accurately summarises the mantra that banks should be taking when it comes to 871(m), Transaction Tax processing and looking to the future.

So where do we stand currently with 871(m)? Banks must comply with the first part in the here and now and although the second part may still be under review, there’s absolutely no indication that the rule will be dropped in totality. I stand by what I said in the first blog – if banks are to wait until the full outcome of the review, they will only open themselves up to a plethora of problems later on. Banks do not want a repeat of five years ago, when they decided to implement tactical solutions for the French and Italian Transaction Taxes.

Of paramount importance for preparing for a post-871(m) world is that banks have software in place that can assist in facilitating a flexible ‘rules-based’ workflow solution which can easily adapt to changing legislation. From our extensive investigation of the intricacies of this, and other regulations which are on the increase, we found that due to the complexities of all, it makes little sense for firms to have multiple interfaces with the same derivatives and trading systems going to siloed tax solutions e.g. an FTT system in one place and an “871m machine” or system in another place.

It, therefore, makes much sense to feed it all into one solution and processing engine, rather than having a whole host of separate systems and trying to interface them all, which leads ultimately to more static, more cost and more fails (i.e. transactions). By taking a centralised or utility approach, banks are also in a good position to deal with even more potential incoming Transaction Taxes which is key in preparing for the future.

A resourcing and knowledge challenge

Alongside the need to assess which systems will be best placed or built to cope with 871(m), there are significant amounts of data that need to be pulled together, including dividends and trades across many different instrument types, potentially creating large integration projects for in-house teams. Place these needs against the backdrop of other current in-house IT initiatives that banks are aiming to achieve regulatory compliance with, and it becomes an even more complex resourcing and knowledge challenge.

Unfortunately, 871(m) is just one of many tax headaches facing banks, and more are certain to crop up further down the track. This is why taking a ‘future-proofing’ mentality is key here. Platforms and technology need to be fit to cope with other incoming regulations, so banks need to look at who can help them overcome these compliance headaches and who can demonstrate that they truly understand the needs and will provide “safety in numbers” when the regulator “comes knocking”.

871(m) won’t simply disappear by not thinking about it now. It’s the banks’ responsibility to prepare for the tax world of tomorrow, today.

By Daniel Carpenter, head of regulation at Meritsoft

Having positive cash flow is a must for any business. Get it wrong and you put the existence of the entire organisation in jeopardy. Get it right, however and you open up a wealth of new opportunities for your company from unlocking new business deals to driving incremental revenue streams and fuelling investment.

Often, the blame for poor cash flow is laid firmly at the foot of traditional banks for not agreeing to extra lending rapidly enough. That can be a contributory factor, of course, but the real scourge is not keeping a tight rein on spending and not developing, or sticking to, accurate forecasts.

To ensure their cash flow remains healthy, businesses need a single point of visibility over all the money going in and out of their accounts. Without this, it will be difficult for them to make informed financial decisions or to plan ahead efficiently and effectively. However, enhanced cash flow visibility is not always easy to achieve.

Organisations typically make use of multiple different payment types from credit cards to cheques to bank transfers – and often have no clear overall picture, either at a snapshot level or historically, of all the transactions they are making. Often, they are using outdated methods of dealing with payments, expenses, invoicing and reporting, or, worse still, have no planned approach. All this slows down the ability for the business to react, to access revenues and redistribute in the event of unforeseen circumstances. It also offers little in terms of up-to-date analysis.

This is why integrated payment management or consolidation is critical to businesses that want real time visibility of their expenditure and the kind of insight into cash flow that drives long-term business success.

Empowered to Spend

The concept of integration is a familiar one, of course. Enterprise Resource Planning (ERP) systems have been around for decades now. ERP, and variations on the theme, is now a ubiquitous technology across large corporate enterprises and increasingly across SMBs also.

Yet at the same time as this enhanced level of control was being exerted on back-end processes, we also witnessed a counter trend where employees were armed with credit cards and cheque books and empowered to make significant business purchases.

This has clearly helped drive operational flexibility and business agility. But more important still, it has driven cash flow which remains key for any business today. So, more businesses will be looking to leverage lines of credit and tap into free funds for a period to help with cash management. This will make it even more vital that businesses have real time insight into all this activity.

The best way to achieve this is through a digital expenses platform and integrated payments tools, both of which should almost by default improve a business’s approach to how it manages cash flow. By having an immediate oversight through live reporting of all spending from business cards and invoice payments, as well as balances and credit limits across departments and individuals, organisations can foresee potential problems more quickly and react accordingly. At Fraedom, we provide this kind of technology to many of our customers across banking and financial services sectors.

Digital trail for reporting

This kind of approach also allows management to categorise spending and quickly see where costs are getting out of control or where they need to put in place cash flow targets to help ensure solvency. Cards can be cancelled or at least suspended quickly and easily, negating the need of having to go through to the issuing bank, while invoices can also be automated to streamline business payments. This enables business to keep hold of money longer and pay creditors faster.

Moreover, digitally transforming business expenses and payments, encompassing everything from receipt capture through to automated payments and invoicing, means there will always be a digital trail that can be collated and reported on quickly and easily. This also means that at any moment in time, management can use fresh data to accurately forecast cash flow, which in turn helps eliminate nasty surprises and should also lead to fewer business failures.

The ongoing digitisation of systems is also likely to result over the long term in greater take-up of emerging trends in artificial intelligence and analytics-driven technologies. In turn, this will help organisations more accurately predict their future spend, thereby giving them early insight into potential upcoming cash flow issues and enabling them to look ahead into what may be happening in the market moving forwards.

It’s another example of how technology can play an important role in helping businesses gain more insight into their cash flow and better manage their cash in general. If they get that right, they are likely to access new investment opportunities; drive competitive edge and survive and thrive both today and long into the future.

by Russell Bennett, chief technology officer, Fraedom

For many years Jeff Bezos’ online shop has had almost every conceivable item in its range.  Now apparently, Amazon wants to expand and offer some kind of current account or bank to its customers.

The offering will be aimed at young people and other consumers who do not currently have their own account. However, according to a report in the Wall Street Journal, the project is still at an early stage.

If true, does the move really have the potential to change the payment area in much the same way as they have in the literary market? What does the project mean for retailers and the payments industry, and where can the growth of Amazon lead to?

Will Amazon now become a bank?

Amazon does not want to become a financial institution in its own right; instead, the project is likely to be undertaken in partnership with established financial service providers. It is understood that US financial giant JPMorgan is currently in discussions with Amazon.

The reason for this approach is likely to be that if Amazon built its own banking division and applied for a banking license, the company would face much stricter regulations that could slow its aggressive growth in other markets. In any case, it is clear that retailers understand the benefits of having a strong payment service provider at their side who brings the necessary expertise and can quickly and easily integrate new payment methods into existing processes and systems.

Is this E-commerce expansion without limits?In the beginning, Amazon mainly sold books; it then offered CDs and DVDs to its customers.   Today, through Prime, customers are able to stream music, video and much more across smart devices.  Thanks to Alexa, its huge selection of online shops can be accessed by voice command and Amazon even wants to take control of the delivery of its packages.  This announcement hit the stock values of UPS and FedEx.  With Amazon Pay, the company has had its own payment service for a while but gained only moderate traction with other online stores. Here, it seems, the giant had reached its limits.  The company recently opened another lucrative online business with its cloud service, Amazon Web Services. The plan to offer bank accounts is just another link in a long chain of new business ideas. The direction of Amazon’s journey is not yet clear but it is likely that CEO Jeff Bezos is intent on continuing growth. Industry experts assume that in the long term, only one in ten online retailers will remain competitive with this current strategy.

How much influence does Amazon have in daily online commerce?Like Apple and Google, Amazon has been accused of being a “data octopus”. Since the introduction of language command assistants, the accusation is more topical than ever.   There is growing scepticism surrounding the opaqueness of what exactly Alexa stores and what happens to the recordings. Connected to a fully networked smart home, the digital ‘roommate’ could know a lot more and potentially share it: What time people get home? When do they turn off the lights? When do they go to bed? Are they looking into the fridge during the night? Worrying about the potential for very personal information being shared is likely to outweigh the positives of Alexa & co for most consumers.

With the new bank account function, Amazon would also have access to the financial data of its customers. Using this new data it would eventually prove very easy to determine a customer’s individual willingness to pay a certain price for a particular product and then offer it at exactly that price. However, we must bear in mind that nobody is forced to shop at Amazon and invite Alexa into their home. In addition, awareness of data protection is increasing amongst both individuals and Governments. In the future, customers will be increasingly concerned about whether they really want to give their personal data in such a concentrated way to a single provider. Payment service providers form an attractive way out, as they, for example, handle the credit card data on behalf of the merchants, sparing them compliance effort.

Final thoughts In the near future we will still buy our bread from the local bakery and it will not get delivered by an Amazon drone. Nevertheless, one thing is certain: retailers are faced with a harsh reality and online shops may soon cease to exist in their current form. Amazon and a comprehensive portfolio of payment methods will be the challenges for today’s online store owners, but with the right technology and consulting partners on their side, nobody has to worry about the future.  SIX has recognized the potential of Amazon and the dangers that can arise for the retail sector, and we are working on a wide range of solutions that should enable the merchant to keep up with Amazon.  Omni-channel, Conversational Commerce and Internet of Things are all geared to the new customer journey consisting of numerous touchpoints and the changing needs and expectations of consumers.

By Roger Niederer, Head Merchant Services at SIX Payment Services

In the midst of complex mergers and acquisitions negotiations, deals more often than not face unexpected developments that can cause significant delays.

Even the most common hurdles – such as misplaced documentation – can have a significant material impact on a business’ speed-to-market and share valuation. This is a key reason why it is time that those involved in M&A negotiations must embrace virtual deal room technologies.

Whether they are buy-side or sell-side, dealmakers need to take a holistic view of every single step of the process, from networking and idea generation, sourcing and marketing, to due diligence and integration planning.

Speed and efficiency through the deal lifecycle

Each of these processes takes up considerable man hours, pressuring M&A professionals amidst a challenging industry backdrop to adopt better, faster tools to ensure speed, efficiency and continuity throughout a deal’s entire lifecycle.

The financial services industry has been rapidly transformed by digitisation in recent years, with the British fintech boom a clear example of how this has impacted the sector. However, while trading floors are now almost entirely driven by algorithms, investment banking has remained wary of adopting these new streamlined, automated digital processes.

The truth is that many people within the investment banking industry simply feel as though it does not lend itself to automation, viewing success as reliant on the strength of personal relationships. The reality, however, is a fear that new processes could end up reducing the number of jobs available.

New tech means better deals and more jobs

Selecting the right technology has the ability to enhance investment bankers’ knowledge and capabilities, allowing them to become more efficient, competitive and therefore attract greater amounts of business.

Virtual deal room technology, to use one prime example, can change the way in which investment bankers go about the M&A process, through provisioning a safe space for parties to manage and store their critical information during negotiations.

Being able to provide this unique tool allows investment bankers to close deals faster rapidly, accelerating speed-to-market and maximising the transaction value for both buyers and sellers, all the while minimising security that can compromise a deal – i.e. information leaks and data hacks.

Easy online networking & speedier information flows

The old world perception of a well-connected investment banker, doing face-to-face deals with his personal network on the golf course or in the private members club is rapidly becoming an outdated myth when it comes to the reality of how the industry works in practice.

Clearly, it is impossible for an M&A professional to know every buyer in the market, which is why fast and efficient online networking is a key way in which they can transform the ways they identify potential buyers out there.

Additionally, there is still far too much of the investment banking workflow that takes place through cumbersome tools like Excel, PowerPoint and email. Such tools slow the deal-making process and, more worryingly, put sensitive data at high risk of unwanted disclosure.

There are a number of ways in which innovative technology can help improve this necessary flow of investment information – I have outlined three of them below:

1. Buyer Identification – Bankers typically spend years building relationships with potential buyers, both financial and strategic. Barring perhaps a handful of industries, it’s impossible for an M&A banker to really know every buyer in the market – especially when the market is now global. Online networking – the world’s biggest Rolodex – can bring the right people together at the right time to expand everyone’s opportunities.
2. Information flow– Much of the investment banking workflow still takes place through Excel, PowerPoint and email. Not only do these tools slow the deal-making process, but they can also put sensitive information at risk of unwanted disclosure. Sending, sharing and storing NDA files or the due diligence Q&A process on a secure electronic platform can massively improve efficiency and security.
3. Artificial Intelligence (AI) – Some banks are beginning to explore whether tasks like modelling can be more effectively handled by AI. Such tools can read, review and analyze vast amounts of information in mere minutes, thereby expediting knowledge-based activities to improve efficiency, accuracy and performance.

The three points above offers a snapshot of the key areas in which the investment banking industry is clearly ripe for technological process improvement.

Adopting these new technologies – particularly for the old-guard who have done the job ‘their own way’ for generations – is certainly going to take the initiative of a few early adopters to show success before the rest of the community crosses the chasm.

The bottom line is this: it’s no longer a matter of if these changes are necessary. It’s merely a matter of how long this digital transformation of the investment banking industry will take, and who will be leading the charge.

By Philip Whitchelo, VP for strategic business development, Intralinks

 

The beginning of the year is so often the time of fresh starts, new initiatives and renewed hope. But given the seismic challenge global banks face to accurately calculate how much capital is needed to shield themselves from sharp price falls, some could be forgiven for abstaining from any New Year vigour.

From January, banks have been given less than two years to iron out all the operational wrinkles (of which there are many) involved in implementing the market risk and regulatory capital rules known as the Fundamental Review of the Trading Book (FRTB). While this may seem like a way off, and while delays might occur, as they often do with regulatory timetables, one look at the scale of the work ahead shortens the timeframe somewhat. From fundamentally reorganising their trading operations to upgrading their technology capabilities and improving procedures – that’s a lot to get done.

No bank wants to start the New Year in 2020 feeling completely overwhelmed, which is why when it comes to FRTB, decisions need to be made on whether to adopt a Standardised Sensitivity-Based Approach (SBA) or Internal Model Approach (IMA). Historically, all firms with trading operations have been required to use their own internal models, due to the fact that the standard approach relied on notional instead of risk sensitivities. The problem is that under FRTB, current internal models won’t be up to scratch when it comes to enforcing the right level of capital to cope with times of stress. And let’s face it, with the geopolitical climate the way it is, trading desks may be in for more than a few bouts of stress throughout 2018.

New management structures

In order to reduce this reliance on internal models, SBA provides a credible alternative for trading desks to operate under a capital regime that is conservative, but not punitive. But those taking the IMA route will need to get approval for individual trading desks, as outlined by the European Banking Authority (EBA) recently. This presents a significant challenge as it places additional responsibility with each desk head for the capital-output, and increases the complexity of bulge bracket institutions running hundreds of trading desks. Each desk will need to put in place a management structure which controls the information driving its internal model, not to mention understand how the output can be used for risk management.

Regardless of the model banks adopt, the standard vs. IMA approach underpinning FRTB brings specific data challenges, both in terms of the volume and granularity of underlying data sets required to run risk and capital calculations, including the model ability of risk factors for IMA. This is why, regardless of the selected approach, the banks that have identified how to get the most out of their internal and external data sets will be best positioned to get their FRTB preparations off to the best possible start.

By Neil Vanlint, Goldensource

 

 

 

 

 

 

 

 

 

 

 

 

It may be hard to believe, but the 20^th January this year marked one year since Donald Trump’s inauguration. Away from all the media furore surrounding his Presidency to date, one of his less well-publicised reforms to the US tax code is perhaps best summed up by one of his political predecessors.

“You may delay but time will not” – the words of none other than Benjamin Franklin perfectly explain the situation surrounding one particular tax reform currently under review – 871(m). This very specific, not to mention very complicated rule, is a tax on the value of dividends a financial institution receives on a U.S. equity derivatives position.

There is a need for banks to comply with the first part of 871(m) in the here and now, particularly given that there is absolutely no indication that the 871(m) legislation will be dropped. While many banks may be inclined to wait until the outcome of the review, this mentality will only open up a whole world of problems further down the line and is preventing operational teams strategically addressing pressing tax and compliance issues today.

Where it starts to get tricky

The current rule establishes up to a 30% withholding tax on foreign investors on dividend-equivalent payments under equity derivatives, covering a number of product types including swaps, options, futures, MLPs, Structured Notes and convertible debt. And this is where things start to get tricky. A firm’s equity-linked derivative instruments will face a tax withholding if the ratio of change to the fair market value is .08, as of Jan 2019, currently, this is Delta 1, or greater to the corresponding change in the price of its derivative. Banks have no choice but to enhance their systems and processes in order to monitor which equity derivatives underlying constituents fall under 871(m) and know exactly when to calculate and enforce withholding on dividend equivalents.

In order to do this, a careful assessment of intricate calculations based on a set of highly convoluted rules and scenarios needs to be carried out, for example, required Combination Rule logic. In order to do this, firms need to pull together vast amounts of data, ranging from relevant trades (positions alone are insufficient for combination rule tracking), as well as Deltas and Dividends across many instrument types. This would not be so problematic if it was the only issue banks had to contend with. However, with so many other IT initiatives for other Tax and Regulatory mandatory projects also in the works, 871(m) is by no means the only significant compliance requirement on a financial institution’s plate right now.

Ever-changing global tax reforms

Different, albeit similar, challenges also arise from other transaction tax legislation. With this in mind, firms should ensure they minimise multiple interface creation and support costs that result from linking to separate systems managing individual tax rules. Instead, firms should look to feed into a single Transaction Tax system that it is flexible enough to support ever-changing global tax reforms down the line.

It is important to address the 871(m) conundrum now to get ahead of the game. It is not the first, and certainly won’t be the last, transaction tax headache banks are having to overcome under this particular presidential regime. After all, we are in the midst of perhaps the biggest ever shake-up of the US tax code, so who knows what is in store for financial institutions at the end of Trump’s first term.

By Daniel Carpenter, head of regulation at Meritsoft

This is the first in a series of articles on this topic. This article first appeared in the IBSi FinTech Journal February 2018.

Visa has announced that Revolut is issuing Visa cards to all new customers signing up to its standard prepaid offering. Visa and Revolut have provided contactless Revolut Visa prepaid cards to all 59 Team-GB athletes travelling to PyeongChang as well as the wider Team GB delegation accompanying them.

The card will allow the athletes and staff to complete seamless and secure payments with a simple tap at any contactless-enabled terminal in South Korea and across all the Games venues free of foreign exchange fees.

Suzy Brown, Marketing Director UK & Ireland at Visa, said: “Our exciting relationship with Revolut comes at a time when Visa is making great strides in delivering the next wave of payments innovations for consumers and businesses. It is appropriate then that we have been able to use this partnership to put a Revolut Visa card in the hands of every Team GB athlete and staff member. Visa is accepted in over 46 million merchant locations* worldwide, so the team’s Revolut Visa cards will allow them to make purchases both conveniently and securely when they are in PyeongChang, giving them one less thing to worry about as they aim to do the country proud.”

Launched in July 2015, Revolut now has over one million customers in 30 European countries.

A common goal

“We’re extremely proud to partner with Visa, not least because we share a common goal to use our innovation and technology capabilities to provide a seamless experience for our customers and clients,” said Nikolay Storonsky, Founder and CEO of Revolut. What’s more, with over a million people already signed up to Revolut, we’re very excited that more cardholders will benefit from the control and flexibility we provide.”

Team Visa athletes Elise Christie was among those from Team GB who received the contactless Revolut Visa prepaid cards ahead of travelling to South Korea.

Short-track speed-skater and Team Visa athlete Elise Christie said: “As a professional athlete, I am constantly travelling around the world and it’s easy to take for granted some of the things I have at home. At least while I am in South Korea I can rest assured that I’ll be able to tap to pay with confidence with my Revolut Visa prepaid card, just as I would do when I’m in the UK.”

In addition to providing contactless Revolut Visa prepaid cards to Team GB and as the exclusive payment partner of the Olympic Games, Visa is facilitating and managing the entire payment system infrastructure and network throughout all venues within the Games. This includes more than 1,000 contactless point-of-sale terminals capable of accepting mobile and wearable payments.

* Data provided to Visa by acquiring financial institutions and other third parties.