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The banking industry, among other industries, has witnessed a massive shift in customer behaviour with the growing use of digital channels, resulting in an increased volume of data banks manage. This data sits at the heart of the digital banking trend to provide superior, personalised, and highly secured service.

By Kalpesh Mistry, Senior Vice President – BFS, ITC Infotech

Cloud technology is becoming instrumental in reshaping digital banking services, making banking more seamless and convenient for customers. Over the last 5 years, banks have invested significant money in implementing omnichannel solutions powered by microservice-based architecture on a hybrid cloud environment with limited cloud adoption for their core banking and data solutions.

Many banks have embraced a lift and shift strategy to move some banking applications onto the cloud-virtualised platform to manage the regulatory expectation for their old data centre and reduce the Infra cost. But the establishment of full-scale cloud services like cloud-based data analytics and the transition of legacy core banking solutions to the cloud, is still in the early stage. On the other side, FinTechs have quickly identified the growing demand for digital banking and are the early adopters of establishing full digital banking on the cloud.

As most banks move towards Banking-as-a-Service on the cloud from their partially modernised banking solution implemented on an on-premise/hybrid cloud environment, it is essential to understand the possible challenges that could stand in the way of the bank modernisation journey.

Challenges Faced while Digitizing Banking on the Cloud

According to a study by Bain&Co, 80% of CEOs believe they deliver a superior customer experience, while only 8% of customers agree. This disagreement means that the banking impact on customers is heavily misunderstood.

• Customers’ expectations are rising quickly as transaction volumes, and associated revenues are shifting to challenger banks/FinTechs in the market. Banks must reinvent themselves with better digital banking tools to deliver a personalised experience. FinTech startups leverage AI/ML-based solutions to meet customers’ needs at a granular, tailored level. Their key focus is improving the delivery of financial services with a seamless user experience and simplifying the banking experience for customers.
• The security infrastructure and firewall are continuously upgraded to protect banks from cyber-attacks and various other security threats. However, we continue to see that security is compromised, which has resulted in penalties from regulators and impacted the customers’ trust in the banks. While a bank is moving its complete banking service and growing customer data to the cloud, it is important for the bank to redefine its IT security ecosystem and the resilience strategy along with the chosen cloud partners.
• Innovation and modernisation are imperative but require investment in people’s skill transformation. Lack of cloud technical expertise will affect cloud and product implementation. Creating a product or solution from scratch could drain time, money, and resources, along with siloed processes and slow decision cycles, which could delay time-to-market. Many banks lack the internal capabilities to innovate secured digital banking on the cloud.
• Cultural resistance – rigidity in the internal customers’ mindset must be transitioned to an agile one for a smoother transition to digital banking operations. The cultural resistance is linked to the bank’s investment in improving internal cloud competency.

Banks are adopting the strategy outlined below to accelerate digital banking on the cloud to maximise ROI

1. SaaS: a cloud-based Banking-as-a-Service solution

Build a tech stack of best-of-breed, Cloud-native technologies that allow the bank to swap components in and out as needed. A ‘”plug and play’ SaaS applications approach can help banks minimise time-to-value and time-to-market. SaaS Cloud solutions stand out from on-prem solutions due to their flexible pricing and subscription model, which delivers easy scalability while meeting the ongoing needs of an enterprise.

2. Open banking is considered at the heart of digital banking on the cloud strategy

According to a survey by Open Banking Org, 10–11% of digitally-enabled consumers are now estimated to be active users of at least one open banking service. This is expected to grow exponentially in the next 3 years. Open banking cloud architecture enables the data and services from various third-party sources, uses machine learning to generate granular insights, and then integrates data into banks’ channels in real time. Cloud has become one of the main allies in creating an open API secure open banking ecosystem to provide personalised digital banking solutions to improve the customer experience.

3. Collaborative engagement with a ‘Hyperscaler’ cloud provider

Proactive engagement with Hyperscaler cloud providers assesses the current technology ecosystem and defines the plan to develop the same. Hyperscalers provide various support, including technology assessment, future roadmap definition, POC, and training. Collaborative engagement with hyperscalers is crucial while the bank is in the early stage of development.

4. Internal team onboarding

Employees and internal audiences can individually benefit from Banking-as-a-Service on the cloud. The bank’s management must leverage effective communication media to onboard employees on the cloud journey through newsletters, web pages, and regular town hall meetings to ensure awareness of a cloud strategy is present across the bank thus ensuring a smooth, uniform transition with fewer bottlenecks.

5. Internal resource competency

Getting on the cloud is a journey, not a one-time exercise. While the IT team focuses on the technology roadmap and implementation, the HR and Training team must be empowered to define a roadmap for the upskilling of resources. The organisation also needs to leverage the training investment of the Hyperscalers and IT partners effectively. The bank must define the training goals jointly with its partners before beginning the cloud journey, and progress must be measured and governed by the executive steering committee.

Cloud technologies provide a best-in-the-class secured environment for a bank to fast-track its digital bank cloud strategy to deliver the increasing demands of digitisation. The cloud strategy has been utilised so far for its scalability and cost optimisation. But the way forward for a successful bank is to leverage hyperscaler nextgen investment in various cloud components such as data analytics and insight, Blockchain and more, to deliver higher value to its customers.

The first release of the API specifications for Open Banking was five years ago. At the time, I recall that many people in the banking sector didn’t see much value in it. In fact, many saw it as a potential impediment to their job.

by Martin Gaffney, Vice President EMEA, Yugabyte

Five years on, it is clear that those fears were unfounded. In May 2022 alone, UK businesses and consumers made five million open banking-driven payments. The UK open banking community made a record 1 billion API calls in the same month.

So, Open Banking ended up being a pleasant surprise rather than a restrictive move by the regulators. It opened up opportunities and showed that having to work with APIs is not a constraint but in fact, quite the opposite.

It’s taken the market a while to see that. 20 years ago, every management consultant in the sector was recommending disintermediation—the idea that you needed to own and run your own supply chain to reduce complexity.

That was still the driver when big banks started to go online: they built their own websites, their own banking applications, their own mobile solutions—all with the aim of owning everything from cell phone banking to the back end.

In practice, this actually added complexity. It meant that when a bank decided to write a web page, it had to be set to talk to an application server, which talked to its internal database, which was deployed on its on-prem server farm. It was all the bank’s responsibility, from start to finish. As a result, the organisation may have needed multiple developers with various overlapping skill sets working on this full tech stack.

But now, thanks to Open Banking and APIs, to be a serious player in banking, you must be adept at exposing and consuming APIs. To do this, you need to have the right architectures, skills, and tools in place to support this modern approach to software development.

I’d go so far as to say that we are now entering the era of ‘de-disintermediation’—as what Open Banking really means is that the bank is no longer permitted to lock anybody out, and we all need to work in a different and ‘more open’ way.

Welcome to the new de-disintermediated financial services IT world

Consumers see this on their mobile banking app, which is now full of friendly questions about whether you want to hook in another of your accounts and bring them all together in one place. Personally, I love this: it makes sense to me as a digital citizen, as a capitalist, and as a shopper.

I also like all the new businesses that Open Banking and de-disintermediation have allowed to flourish. Embedded banking is why Klarna can exist, where Buy Now, Pay Later comes in; it’s how many new payment brands work and has contributed to the major upsurge in innovative FinTech companies.

I am also seeing extremely positive moves at the tech and architecture end of the ecosystem. To do Open Banking, you must build your app in a way that allows somebody else to come in at the application server layer. You must also allow that other party’s application server to talk to other application servers, all of which have databases at the back end.

This is where the API has come into its own. IT people in progressive financial services companies welcome the fact that application programming interfaces (a technology in search of a business case for too long) make it so easy for two pieces of software to talk to each other by a contract.

Even better, the contract obliges everyone in the chain to play fair. For example, if I’m building an application that allows someone to access their bank account and returns their statements or their latest transactions, I have to publish what the API call is to get them. You must give me live session credentials, you must give me what I need, and this all happens in one agreed format–(typically) JSON, JavaScript Object Notation.

App modernisation + liberalisation = good times ahead

The reality is that the people who will succeed in an Open Banking/de-disintermediated/API-centric world are the people who build their processes, skill sets, tools, and architectures in a way that embraces this way of working. Delivering on this new approach will unlock business value.

This also means the end of huge monolithic banking applications. Now, developers can break the front off and replace the proprietary apps with APIs. This means you can more effectively outsource the value that your back end supplies, even if that’s still some monolithic mainframe app in your data centre. APIs allow you to expose it to the web and give chosen partners access to it, adding value for you.

This way of working is possibly better known to you as microservices architectures on the Cloud. Two separate tech and business development threads mesh here: one is app modernisation and the other is the general acceptance that microservices architectures are good for exploiting cloud architecture. A drive to allow more competition in the market in the shape of Open Banking has shown the API to be the best way to both comply with the regulations and to embrace that great new architecture.

There is also a database aspect here because as soon as you start the road to de-disintermediation by breaking your big banking systems up, you’re also breaking your data up. You can’t just stick with your tried and true (if rather expensive) monolithic database on the back end. Even if you did, you’d still have the ongoing problem that on-prem monolithic proprietary databases never match well with cloud-based microservices, which aim to bring everything data processing as close to the customer as possible around the world.

Given this, you can’t really have all your data sitting in a great data barn somewhere outside London. You’ll need to move to the modern data layer, an intrinsic part of this microservices architecture.

How about ending the banking IT ‘technical debt’ issue

It’s time, then, to thank the inventors of Open Banking, who weren’t (as feared) awkward people who wanted to stop you from doing stuff. You should see them instead as benefactors who’ve unlocked the door for you as a banking CIO to access a massive amount of innovation and business value in a supply chain you no longer need to 100% own.

If you embrace this, much of your day-to-day work, which is really just technical debt and patching up the work your predecessor did when John Major was PM, can go away. You can rip it up and rewrite it, turn it into an API, and let somebody else put a front end on it.

To me, the benefit of Open Banking is very clear. However, if you don’t see this as an opportunity, and consider it just another IT burden, maybe you need to ask how much of a contribution to the business you’re really making.

Industry players are on a mission to differentiate themselves, while merchants and consumers are demanding innovative ways to pay for what they buy.  A seamless payment experience is becoming more and more important to consumers and therefore merchants as eCommerce continues to be as competitive as ever.

by Ed Whitehead, Managing Director EMEA for Signifyd

Guided by the industry leaders that participated in Signifyd’s FLOW Summit 2022, featuring nearly 300 eCommerce leaders discussing the current state and future vision, we delve into what the innovation in online payments has in store for all industry players.

Industry analysts are seeing the potential of payments for revenue optimisation and seizing on the opportunity. The innovation and excitement of online payments fit just right in the new eCommerce landscape. With customers demanding increased flexibility, user-friendly payment innovation is now an important influencer in eCommerce consumer behaviours.

According to research by S&P Global Market Intelligence, merchants are missing out on $16.3 billion in revenue annually due to false declines and $20.1 billion due to customers’ preferred payment methods not being accepted on retailers’ sites.

Merchants can benefit from a best-in-class fraud solution to help them optimise payments and capitalise on their revenue. The opportunity lies in the middle of the shopping journey. While customer acquisition costs are increasing, fulfillment costs will continue rising, with customers demanding faster and more personalised delivery. The opportunity for value improvement lies in improving user experience while optimising checkout and payments.

Ending the payments’ path to commoditisation

The heart of the shopping journey is essentially the shopping cart. This is a ‘make or break moment for merchants. Whether a customer continues to the final stage of their shopping journey or not will determine the merchant’s revenue.

Samsung Chief Digital Officer Kal Raman and his team adopted a “return on shopping cart” metric. Incorporating big data, it tracks what happens to orders after buyers hit the buy button and place items in carts. It aims to gather insight into how many of them convert, and what happens to those that don’t, and spot opportunities to save those customers for a lifetime.

For a bigger advantage in retaining customers, PSPs need to provide competitive packages of products that offer merchants value extending to their customers.

Nicole Jass, FIS senior vice president of growth solutions product, commented: “The biggest thing in payments is that payments are getting commoditized. The payments piece is like the utility company. We’re the electricity that you just accept comes to your house.”

What FIS, which includes payments provider Worldpay, is doing to break out of the mold is launching its Guaranteed Payments. In partnership with Signifyd which provides a very robust payment fraud solution, Guaranteed Payments will be integrated into the payment stack to provide merchants with higher and guaranteed approvals – a huge challenge and pain point for merchants.

As a first in the industry, this type of innovative collaboration will stop payments from being commoditized. It changes the eCommerce game rules from fighting fraud to approving good orders. That opens doors for customers to try new payment plans without the fear of fraud.

One of FIS’ customers already saw great results from this innovation in online payments. Its approval rate increased by 7%, which turned into $8 million. These are topline results. The hope is that this process will also affect other players, such as issuers, who will authorise more orders when they see they are receiving better quality orders.

With the realisation of how online payments can be optimised, PSPs, merchants, and customers are seizing the opportunity to maximise revenue and provide a seamless customer journey. Online payments are a gold mine for up-levelling the eCommerce game and stepping into the new era of eCommerce innovation.

For a long time recruitment in the FinTech sector was relatively straightforward. Businesses could draw on talent already living and working in the UK, as well as nationals from any of the 27 EU countries, Norway, Iceland, Liechtenstein (the 3 EEA countries) and Switzerland. These potential employees did not require any specific permission to start living and working in the UK – no entry visa or work permit was necessary.

by Denise Osterwald, Senior Solicitor, Gherson Solicitors LLP

This all changed on 1 January 2021, the day the UK’s exit from the EU took effect. In addition, the UK authorities used Brexit as a catalyst to overhaul large parts of the immigration system that had been in place, in one way or another, since 2008. The changes were significant and meant that businesses now had to contend with a much smaller candidate pool as EU, EEA and Swiss nationals no longer had the ability to take up work immediately. At the same time, they had to get to grips with a new immigration system that applied to all candidates who were not British citizens or had already settled in the UK.

FinTech businesses are known to be flexible, nimble and quick to exploit gaps in the market. They are well placed to think ‘outside the box’ when it comes to attracting talent in the new immigration landscape. This can be, for example, by establishing direct relationships with colleges and universities in the UK and overseas, so they can recruit directly from the graduate pool without running the risk of losing talent on the open market. It can also include offering more or new apprenticeships in order to invest in growing talent in-house, for example. Whatever happens, they will need to get used to exploiting new avenues when it comes to finding talent.

FinTech firms also tend to be lean in terms of organisational structure, which has traditionally allowed them to be faster than their more cumbersome long-established counterparts when it comes to recruiting talent. Yet they are now forced to factor significant immigration costs as well as much longer timelines into their talent recruitment processes. They will also now need someone in the business who can administer the additional bureaucracy that comes with the new immigration system. Getting it wrong can have significant repercussions for the business.

UK immigration tends to be more complex and costly than many other jurisdictions. Work visas can cost several thousand pounds, depending on how many people apply (does your preferred candidate have family who will also need to relocate?) and for how long (anything up to five years).

Therefore, offering support to new recruits with this process has become a unique selling point for businesses vying for a comparatively small number of tech talent worldwide. The better the support, from a process as well as a financial perspective, the more likely they are to attract those who have the skills but not necessarily the means or knowledge to obtain UK work visas.

This means, of course, that the business will have to be able to sponsor work visas for their new employees. Some candidates may qualify for personal visas (such as visas based on having a British partner or having British ancestors), but it is likely that the vast majority of recruits will need sponsored work visas.

Most businesses will not have needed to engage with the UK’s points-based immigration system (PBS) before, or obtain a UK sponsor licence from the authorities, because they were able to fill their vacancies with candidates who did not require a visa. As this is no longer the case, it is advisable to obtain this licence as soon as possible so that the business is not caught on the back foot if it finds a person they would like to recruit but who needs a visa.

The process of getting a sponsor licence is not entirely straightforward. It takes time to compile the necessary documents, and then time for the UK authorities (the Home Office) to process the application. Overall, the minimum timeframe is in the region of 10-12 weeks. However, it can be significantly longer if the Home Office decides to visit the business’ premises to understand how they will comply with their sponsor duties were a licence to be granted. The duties are strict and affect the administration of the licence as well as the processes and procedures in place to ensure migrants on visas are monitored whilst employed. Small businesses will need to pay £536 for a licence, and large business £1,476. There is a way to speed up the process for an additional fee of £500, but it is not easy to obtain such a priority processing spot. If successful, the licence could be approved in around 10 working days.

Once the licence has been granted, the business can apply for a work visa. There are a number of different visas available, the most common being the Skilled Worker visa. The advantage of this visa compared to other work permits is that it can be applied for five years and can lead to indefinite leave to remain in the UK at the end of the five years (and then to British citizenship if desired). As already noted, UK visa applications tend to be more expensive than those in other countries, and the costs of a Skilled Worker application can range from £5,500 for a single applicant to around £10,000 for the main applicant, spouse and child. If an immigration adviser is engaged to assist with the sponsor licence and visa applications, their professional fees will need to be added to the above government fees.

What is clear about the new UK immigration landscape is that nearly every business now needs to engage with it and figure out how to make the support they offer to candidates a USP. They should also consider obtaining a sponsor licence because, eventually, they will want to recruit a candidate who will need a work visa. Given the complexity and potential pitfalls of navigating the UK’s immigration system, it is also advisable to think about engaging an immigration services provider who can support the organisation in obtaining and administering the sponsor licence and in guiding the business and its new employees through the visa application process.

The financial services industry is facing a time of considerable change. During the pandemic, financial services organisations were forced to become digital entities virtually overnight. The acceleration of initiatives has led to significant questions about how best to encourage innovation within the industry while protecting consumers and promoting financial inclusion.

by Hans Tesselaar, Executive Director at BIAN

Enter the proposed Financial Services and Markets Bill, introduced by the UK government to drive innovation across the financial services industry, focused on supporting consumers through digital change. The bill is to replace existing EU regulations following Brexit, aiming to support the UK government’s vision for an “open, green and technologically advanced sector that is globally competitive”.

While introducing the bill is a significant step forward for bringing financial services front-and-centre in the UK, how does regulation support innovation in practice?

A balancing act

The Financial Services and Markets Bill aims to harness the opportunities of innovative technologies in financial services while bolstering the competitiveness of UK markets and promoting the effective use of capital. Banks need to remember, however, that when looking to adopt new technology and innovate, the needs of all consumers must be considered.

As banks accelerate digital transformation initiatives, consumers who prefer more traditional and manual banking methods, such as banking at branches and cash payments, can easily be forgotten. A recent ruling from the FCA means that banks and building societies need to assess the impact of changes to their services. This comes after the FCA warned that the industry is “not currently doing enough to properly understand the impact of these changes”. The regulator can now issue fines to banks that don’t consider access to cash and branches.

The introduction of new legislation and guidance from the regulator is promising but the industry must strike a balancing act to transform for the future while also ensuring it is catering to all consumers, no matter their preferences.

Risk and reward

There is also a commercial motivation for introducing the Bill. The government wants to make the UK the financial, technological and crypto hub of the world, following in the footsteps of the US and moving away from the EU.

One way it plans to achieve this is to implement the outcomes of the Future Regulatory Framework (FRF) Review created to reflect the UK’s new position outside the EU. The risk is that the UK could isolate itself from its close neighbours. There is a wealth of industry surrounding the UK, and independent regulations could cause leading European Banks to look for business elsewhere due to the proposed red tape, stunting innovation.

On the other hand, countries such as Canada and Australia look to the UK as an example and becoming more connected with them could open new possibilities. Instead of concentrating solely on the UK, the value of the Bill to the industry would increase if the government looked to connect and encourage more business with different markets – and then the UK will start to reap the rewards.

The value of collaboration

As a result of this opportunity, collaboration should be a focus to encourage innovation across the globe. To achieve this, banks need to overcome issues surrounding interoperability and a lack of industry standards. FS organisations must be equipped with the technology that allows them to introduce innovative solutions at speed.

A coreless banking approach, for example, empowers banks to select software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability. Banks will also not be constrained to those service providers who operate within their technical language or messaging model because they will use one standard message model.

This ensures that each solution can seamlessly connect and exchange data, from FinTech’s to traditional banks to technology providers. It also means that organisations can communicate effectively on a global scale, removing barriers to growth and supporting international and national regulations, such as the Financial Services and Markets Bill.

An opportunity for growth

As digital adoption becomes more widespread, having access to the latest technologies that support consumers and banks alike is essential to the future of the industry. A more connected and seamless industry will undoubtedly deliver value, and although regulation is the foundation of the industry, collaboration and a consistent focus on the needs of every customer are the keys to unlocking the future.

Markets have been stunned recently by regulators hitting high-profile organizations, including tier one investment banks and trading platforms, with significant fines for cases involving ‘spoofing’.

by Steve Wilcockson, Product Marketing, Data Science, KX

Spoofing is a form of market manipulation where a trader places a large series of orders to buy or sell a financial asset, such as a stock, bond, or futures contract, with no intention of executing them. With increasing varieties of interconnected asset classes being traded, organizations must be more alert across all of their markets or risk severe sanctions.

For example, in one case, a trader took advantage of the close correlation between U.S. Treasury securities and U.S. Treasury futures contracts and engaged in cross-market manipulation by placing spoof orders in the futures market to profit in the cash market. This resulted in a $35million fine! Or take the case of precious-metals traders who consistently manipulated the gold and silver market over seven years and lied about their conduct to regulators who investigated them. Penalties are in the order of a billion USD.

A revolution in detection

Such cases represent a clear failure to prevent instances of market abuse, and we might ask how that is possible given recent investments in detection systems designed to help protect organizations from such activity.

Technology on its own is not a solution. Personal ethics are, and always will be, an issue. However, technical evolution in how spoofing is conducted must be countered with a revolution in spoof detection. Traditional spoofing operates where false, but manipulative, orders are placed on the same asset where the unlawful profits may get realized. Traditional systems may capture such instances well. However, systems can and have failed in cases of more furtive manipulation, such as realizing the profit on a derivative by placing the spoofing orders on an underlying asset, not the derivative contract itself.

Successful future-proofed technologies must look for correlations across assets, business units, and markets. But more monitoring means more data and compute overhead, as well as team and workflow challenges.

When monitoring so many more data combinations, static detection systems face challenges. They need to be sufficiently agile and dynamic to handle greater data dimensionality. Robust statistics, machine learning, and behavioural analytics can help quickly synthesize data, provide early indicators of suspicious activities, and quickly eliminate false positives, but more is needed. Delivering rigorous historical event analysis and real-time insights, detection systems and their owners need dimension-busting algorithms that can work with ever-increasing volumes and complexities of data at speed.

Scalable analytics

Detection technologies must adapt to evolving market needs: new data types, the sheer volume of data, and constant updates over time. Time-series data – collections of data, often from different sources and types, organized through time – is the most efficient base unit, enabling ready processing to seek correlations, anomalies, and patterns. For example, when looking for spoofing and “layering” specifically, internal order/quote actions and trades are compared to market quotes, not just top of the book but also in their depth and consolidated trades. This helps determine if deceptive orders and cancellations that formed part of the strategy were marketable (i.e., likely to execute) at the time of the transaction. This can consist of hundreds of millions of records or more. The North American futures industry, for instance, generates over 100 billion order messages each day, and the securities markets billions more!

Choosing the right haystack

Another challenge is finding meaning in the masses of data. In plain terms, when looking for a needle in a haystack, select the right haystack to start with, and then minimize the disruption to finding the needle. In such cases, machine learning can deliver more efficacy over such high-dimensional data than rules-based solutions. Yet rightly or wrongly, and for reasons of regulatory compliance and governance around explainability and reproducibility, machine learning models tend to augment easier-to-validate rules-based processes.

However, machine learning techniques can compute over as many axes as there are useful features, easily. One popular method deployed across many industries and applications – from police surveillance to cybersecurity, from search engine recommendations to predictive healthcare and financial surveillance – is a Support Vector Machine (SVM). This is a great algorithm to identify and score features – measurable pieces of data – such as colours and distances on an image, or, in the financial world, trade characteristics and trading patterns including fraudulent features across different data sets.

Many other algorithms and tests apply in addition to SVMs. Whatever the model approach – clustering or regression, linear or nonlinear, machine or deep learning algorithms – their parameterization is invaluable in financial surveillance. For spoofing, they can navigate well the frontiers and layers of normal and abnormal market activities, and assess balanced and unbalanced markets, where liquidity might be illusory or volume artificial.

Conclusion

Spoofing is hard to detect. Its very existence relies on trades likely not being executed, increasingly across different markets and assets. As the examples have shown, regulators have the teeth to find and punish such market-abusing spoofers, so regulated entities need to ensure they have the tools to find them too. Personal ethics will forever challenge financial organizations and regulators, but dynamic, flexible, fast technologies navigating highly complex data sets can future-proof organizations, adding agility and scalability to their fraud detection, crime, and AML stacks.