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5 Ways FinTech’s are Transforming Banking

5 Ways FinTech’s are Transforming Banking

Banks have used technology to deliver financial services for decades – Credit cards in the ’50s, internet banking in the ’90s, and contactless payments in the ’00s. However, the stratospheric use of technology has only upped the ante. Some instances highlight this. Like the Neo banks (Brazil’s Nu Bank, Berlin’s N26, and the American Chime) operate their complex operations purely on tech without physical branches.

Innovations that FinTech’s represent are primarily focused on improving customer-facing facets. The three growth levers that drive Fintech growth rates are – superior CX driven by the high trust earned, new-age branding, and marketing approaches, including gamification and cost optimization possible because of deep venture capital and leaner virtual operations.

FinTech’s straddles a complex intersection of financial services and technology sectors that disrupt the traditional value chain.

 

5 Ways FinTech’s are Transforming Banking

 

1.  Disintermediation is the most decisive Fintech impact. 

Fintechs have primarily disrupted consumer banking, fund transfer & payments, and consumer & commercial lending by offering new customer-centric solutions, leveraging data and analytics to enhance interactions, build trust, and even powering business outcomes with sophisticated operational abilities. As the industry grapples with changing customer behavior, new technologies, and new distribution and business models, Fintechs’ product focus on millennials and Gen Z is characterized by enhanced accessibility, convenience, and tailored products.

2.  With Blockchain technology, Fintech’s game-changing prowess grows stronger.

As Blockchain tech pushes for a democratized financial landscape, Fintechs eye its unprecedented disruption potential. Be it through the use cases of borderless payments, altering KYC forever, bankless financial management, and revolutionary optimization, Blockchain’s digital ledger systems attract because of its un-hackable nature and by removing third-party intermediaries. Like ERP software allows functions and entities to optimize enterprise processes by sharing data and logic, Blockchain enables entire industries to optimize operations by sharing data between businesses with competing economic objectives. With infrastructure cost reduction as a key differentiator, the blockchain trend will likely throw up the highest Fintech winners in the next few years.

3.  Fintech’s infuse agility like never before

As mentioned earlier, Fintech innovations reimagine customer-facing digital experience blocks. With advanced self-service capabilities, Fintechs have revitalized the customer banking possibilities. Today opening new accounts, applying for loans, buying insurance, understanding financial positions, and making better financial decisions are seamless activities customers use and love because of Fintechs. These functions (also how mobile wallets ‘ talk’ to banks) are possible because of API development (Application Program Interfaces). In the same vein, POS terminals have revolutionized the way consumers spend and receive funds. Any discussion on agility is incomplete without acknowledging the growing influence of conversational banking (or voice bots) and the continual advancements in user authentication and security.

4.  Bank-as-a-service – The change agent of 2020s. 

BaaS is a type of developer platform designed to empower fintech companies. The Bancorp Bank, BBVA Open Platform, and Green Dot have launched their own BaaS platforms.

To access the payments system and store money, Fintechs form banking partnerships. These partnerships are becoming the product themselves. As several banks enable digital disruptors and neo-banks to gain access to inexpensive deposits, they earn valuable fee income. Treasury Prime sells BaaS enablement software to multiple banks while SynapseFi and Cambr build API platforms for neo-banks. Along with SaaS Fintechs that offer cost reductions to banks, the BaaS ecosystem is poised for hyper-growth.

5.  Technology Players turning Fintechs – The Maze Multiplies. 

Fundamentally, Banks sit at the sweet spot of data and technology. One disruptive business model gaining strength is high-technology companies (Amazon, Google, and the like) entering the Fintech space. The two domains, banking and software development, share similar concepts – record-keeping, tracking transactions, and predictive modeling. Digital-first companies turn their eyes to banking – Apple’s credit card, WhatsApp payments, Instagram shopping, Google Pay, and Facebook’s foray into financial services – are all developments that point to a more serious future. Expect the resources and investments to multiply, and the partnerships that aim to scale growth will transform banking in ways we don’t fathom.

In sum, leading Banks are learning from the Fintech story. The banking space is poised for exciting developments by encouraging and incubating internal innovation, creating an agile enterprise, aggressively digitizing the customer experience, adopting an entrepreneurial mindset, and overhauling brand positioning to attract purpose-driven demographics.

 

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Top 5 Core Banking Software Companies in 2022

Top 5 Core Banking Software Companies in 2022

As neo-banks win market share and serve customers at around one-third of the cost of traditional. Then, there are threats posed by big tech players eyeing lucrative niches in the value chain. Post-pandemic customer is more digital, and less loyal. Also, today’s banking regulations are equally about innovation (PSD2 for instance) as they are about reporting and compliance.

That being the landscape for core banking software, what are the incumbent banks to do?

The answer, more than ever, is to exploit disruptive technologies like cloud, mobile, big data, microservices, open API’s and AI.  But these technologies rely on a robust banking core.

Before we look at the top 10, let’s see the top 4 parameters that distinguish the great core banking software from the good.

  1. IT cost reduced: Removing technical debt, pushing for higher efficiencies by leveraging cloud-based services, not to mention higher developer productivity (via automation tools DevSecOps) – are all factors that add to reduce costs.
  2. Quicker time to market: Employing both hyper parametrized configuration and higher standardization levels, banks leverage automated testing – all of which helps them to speedily develop new products and services.
  3. Customer-centric proposition: Data differentiates. Modern-day core banking software support integrated data sets and operate on a single source of truth. This capability in turn helps create real-time personalized experiences and brings into play, advanced analytics. Ergo. Precise decision making and a happier customer.
  4. Mastering scale through ecosystem partnerships: Modular architecture and API communication enables rapid scaling. This becomes critical especially in a development environment where core and ancillary services are relatively cheaper.

Little wonder that a McKinsey report, highlights 65% of banks surveyed exploring next-gen core banking platforms.

How were the top 5 arrived at? Simply, by applying these five comparisons.

  • Faster access to support digitization
  • Flexibility in pricing
  • Facilitating faster time to market
  • Supporting agile and remote working
  • Allows new capabilities like open banking

Top 5 Core Banking Software in 2022

  1. Temenos Transact: 25 years of industry-defining banking software, Temenos supports retail, corporate, wealth, and treasury lines of business. 41 of the top 50 banks use Temenos Transact. It has been ranked #1 for 16 years by IBS intelligence. Cloud-native, Cloud-agnostic, API-first, and AI-enabled, Transact (it was called T24), allows banks to launch products in cycles that are 10X faster.
  2. Mambu: Riding on a composable approach (traditional providers lock functions like decisioning, reporting, analytics into dedicated applications), Mambu offers low-code, born-in-the-cloud functionalities that lets banks scale on their terms. With deployment across 65 countries, 200 + global customers, and a 4X higher NPS score than others, Mambu’s USP is to deliver great modern financial experiences.
  3. SDK Finance: With 15 years in FinTech, SDK’s use-cases target neo banks, E-wallets, currency exchanges, and online payments. The core banking software allows creation of digital banking solutions so financial institution can deliver reliable products and services. Secure authentication, next-gen integration offers ease in handling traffic; SDK finance’ includes best-in-class personalization.
  4. Oracle Flexcube: Packed with features that modernizes a bank’s core system for today’s digital and agile demands, Oracle Flexcube places significant value on enhanced customer engagement, increased insight generation, and rapid integration approaches via open architecture. The USP of Oracle’s product is the flexibility banks get in choosing transformation models, and the associated support across deployment models.
  5. Infosys Finacle: Finacle helps both traditional and emerging financial organizations in their digital transformations, focussed on frictionless customer experiences. Relying on Finacle, banks across 100 countries service 1B customers and $1.3 B accounts. Bringing a proposition of – ‘truly digital’ – Finacle’s core banking software offers flexible product factories, extensive parametrization, product building and reusable business components – all of which accelerates innovation-led growth.

In 2022, what is the consensus on core banking software – final words

Most incumbent banks are limited with legacy platforms. Approaching inflection points puts distance between the leaders and laggards, each passing day. The post-pandemic altered customer behavior and accelerated digitalization trends, makes it necessary to act without delay. Once an assessment of the current core banking platform is done, banks should choose solutions and software that greatly increase their odds of success.

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Regulatory Reporting in Banking

Regulatory Reporting in Banking

Regulatory reporting and compliance is an unavoidable subject in Banking. It is a critical activity for banks and financial institutions, which requires, sustained effort from risk, finance, and IT teams. Many banking and financial organizations struggle with the high level of redundancy, dependence on manual processes, and opacity of their regulatory reporting processes.

Alarming Facts for Regulatory Non-Compliance in Banking

Current Outlook: Why it Needs Attention?

Many regulatory reporting processes are internal to the organization, but there is a regulatory body that oversees compliance. These regulatory bodies are dependent on the industry that the organization is part of. For the BFSI vertical, it is the Fellow Chartered Accountant (FCA), the energy industry is Office of Gas and Electricity Markets (Ofgem), advertising is ITC and the communications industry is “The Office of Communications” (Ofcom).

Like most regulatory bodies, FCA and others engage in periodic reviews. During these checks, they not only check what your organization is doing at that moment but also a back story to that point. Some of the most common forms of regulatory reporting in practice today include:

  • Complaint Handling Process: The complaint handling process checks how the business handles complaints and the official procedures in place to make sure it is productive and fair. Once the business has established a fair and process-driven system, the business should adhere to it and also make sure it conforms to regulation.
  • Training: This has to do with the processes the business puts in place for performance reviews, appraisals, CPD, and on-the-job training. Regulatory reporting ensures all of these processes are fair and above board to the parties involved.
  • Procedures and Processes: These check all the processes and procedures for operation in an organization regardless of how complex or diverse they may be. These processes are as intricate as the method of signing paperwork, explaining terms and conditions to customers, and others like that. All of these are examples of regulatory reporting as it is mandated and regulated.
  • Record Keeping: This is the basic form of regulatory reporting that most organizations do in some form or the other. It is the process of keeping and maintaining accurate, detailed, and accessible records of all the transactions carried out as regulatory bodies check it. These records also include the organization’s adherence to process in whatever form that may take. It should also cover penalties for whenever anyone deviates from the specified protocol.

Challenges Banks and Other Financial Organizations Face with Regulatory Reporting

Banks find it difficult to keep up with the fast-changing and increasing regulatory requirements.

The fast pace increased complexity, and granularity in the regulatory reporting requirements are putting banks under more pressure even with stretched budgets and resources. This challenge is more apparent for banks that cut across several regulatory jurisdictions and many of these organizations are constantly looking for ways to standardize reporting and stretch data models.

Reporting timeframe
of regulatory reporting reduced from months to weeks for improvement and a timely view of the financial risks.
Data integrity and quality
with less than effective data quality frameworks. Studies show that 31% of institutions view data quality as a major challenge to effectively meet all the compliance requirements. Also, analysts spend a lot of their time in data collection and organization duties making them spend less time on data analysis.
Effective Tracking
Maintaining an end-to-end data lineage to make it easier to track the final numbers back to the origin for quicker validation during onsite inspection.
Legacy Systems and processes
Core systems are dependent on many manual processes and multiple independent systems to meet up several complex requirements. It puts immense pressure on time, accuracy, resourcing, and efficiencies. This inflexibility affects adaptability to the constantly evolving regulatory requirements.

Emerging Trends in Regulatory Reporting

Technology is at the center of developing a culture of a comprehensive and proactive approach to help regulatory reporting. Compliance has gone beyond adding new resources for better effectiveness as it has shown that a gradual and planned adoption of new gen technologies such as AI, Cloud and Big data technologies etc, can help handle the challenge banks and other financial institutions are facing

Regtech is the management of regulatory processes in the financial industry through technology. It can greatly help combat the challenges listed above and make regulatory reporting processes more efficient.

Effect of COVID on the Regulatory Landscape Today

The pandemic led several governments to shut down their economies in a bid to contain the spread. This had a direct effect on regulatory reporting as the operational and economic resilience of the global financial system is now the topmost priority of many regulators.

Banks have the pressure to continue lending regardless of the shrinking revenues, increasing cost reduction measures, increasing liquidity risk, and unstable workforce productivity because of remote working. Regulators are trying to establish a balance between putting adequate measures for risk assessment and mitigation to prevent a financial crisis by relaxing the following activities:

  • Deferring the submission deadlines for regulatory reports
  • Relaxing several reserve ratio requirements and buffers
  • Loosening the implementation deadlines of new regulations
  • Suspending non-critical supervisory examination activities
  • Allowing early adoption of exposure/risk calculation methodologies

How RegTech Can Solve the Puzzle?

Using RegTech involves technology-driven improvements to the operating model of banks so that their regulatory reporting effort and spend are more efficient and creates value for all parties involved.
Global Tech Investment

There are two main options by which RegTech implementation can greatly improve regulatory reporting:

Delivering Actionable Insights

RegTech can give organizations actionable insights into new and emerging regulatory requirements so they can improve efficiency in their compliance process. This removes any confusion about the constantly updated regulatory reporting methods so the organizations can save costs. These insights also include new technologies like advanced analytics, robotic process automation (RPA), cognitive computing, and distributed ledger technologies.

These technologies help organizations implement strategic end-to-end reporting solutions. The processes include extracting input data, checking the regulatory calculations and mappings, generating regulatory returns, and producing management information for analysis. Organizations can always stay up to date with any new changes in the regulatory and compliance methods of the appropriate bodies that guide them.

Cloud based Solutions

Banks can easily build robust platforms for automating financial compliance using cloud based RegTech solutions. These solutions can embrace the powers of AI and ML for offering greater agility to banks and regulators. Potential risks, threats and cases of non-compliance can be identified faster to take necessary actions. Cloud solutions also allow banks to easily exchange data. This streamlines the entire effort towards data reporting.

Point to Ponder

A research study conducted by Bank of England revealed the UK’s 30 largest banks have adopted nearly 2,000 cloud-based applications between them.

Conclusion

Financial institutions that implement or adopt Regulatory Technology will be adaptable to any fundamental shifts in the future. Apart from the technology used to run these processes, developing a granular and centralized data model to maintain, govern and document is important in delivering a an efficient and reliable solution to relevant stakeholders.

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Core banking on cloud

Core banking on cloud

Over the years, the cloud has emerged as a mainstream technology for the banking sector. Despite its uptake, banks have taken a measured approach to cloud adoption. Citing security and regulatory concerns, most banks are in the early stages of cloud maturity.

The COVID-19 pandemic created a new urgency for cloud solutions. With continued banking disruption, the traditional core architecture is no longer enough to deliver new products and services at the required pace. Most banks are aware of the importance of core banking systems but have no defined strategy.

The question that most bank leaders have to address is can next-gen cloud-based core banking systems replace traditional core banking systems?

Banking innovation roadblocks

Legacy technology is a major stumbling block for banking innovation. The monoliths are cumbersome and running on obsolete technology with little to no updates. Legacy systems form the core of banking operations and have stood their ground through the technological storm. But these systems weren’t designed for the fast-moving digital age.

The rigid organizational structure and siloed nature of working is also a barrier to innovation in banking. While we see a rise in cloud adoption, the shift means more than just migrating the IT assets. The complete adoption of cloud calls for an agile, forward-thinking mindset. The culture of innovation requires a change in attitude and adopting a customer-centric approach. Banks are typically risk-averse, especially when it comes to core replacement. The process is expensive, time-consuming, and even a tiny misstep could lead to service disruption and attract regulatory scrutiny.

Adopting innovation accelerants

Next-gen cloud-based core banking systems address evolving needs of the banking market. According to Mckinsey, the technology could significantly reduce time to deliver new functionality such as address change from a mobile application or peer-to-peer payments. Cost reduction, scalability, and efficiency are driving the cloud market.

Operating in the cloud offers banks the key differentiating factor in a competitive landscape. Some of the key benefits include:

  • Reduce time to market new products – Cloud environment provides agile and DevOps environments that support the rapid development of products, services, or feature enhancements being brought to the market fast.
  • Agility to innovate – Capitalize on market opportunities by leveraging emerging technologies such as artificial intelligence, machine learning, blockchain, etc.
  • Reduce overall operating costs – Banks can reduce their overheads by not owning every IT-related asset. Rather these can be purchased as services from various cloud providers and eliminate the need for on-premise servers.
  • Enterprise synchronization – Cloud core banking unifies banking functions, standardize applications and processes. The synchronized systems allow for easy alignment of technology and business operations. Several service providers help banks bring together their operations and functions with an integrated platform. For instance, Temenos has been the number one core banking solution in the world, supporting more than 3000+ customers. They are providing cloud based platforms with cloud-native microservices architecture approach and tools. The integrated platform-led core banking solution is cloud-agnostic, API-led, and artificial intelligence-enabled. Temenos cloud based solutions are highly secured and compliant, designed with robust practices, policies and procedures for assuring comprehensive customer protection.

Why Temenos Transact is best for Retail Banking?

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The conventional thinking for moving Core banking on cloud

While legacy core banking systems are known to be non-agile, rigid, scale-constrained, and working in siloes. Most banks still rely on it due to challenges  and conventional thinking in adopting cloud-led core banking such as:

  • Moving too fast – The banking application landscape is one of the most complex software. Thus, upgrading legacy systems is difficult and expensive. Moving to the cloud too fast also slows down the pace of IT modernization.
  • Complete reliance on the cloud – Traditional banks are still hesitant to abandon a functioning system and rely heavily on the cloud. With stringent regulatory and compliance norms, the interaction and dependency on third-party is cause for data security concerns. Moreover, handing over control of critical business applications to a third-party service provider is a risk that most banks do not wish to take.
  • Evolving relationship between data, regulation, and innovation – Over the years, the regulations have increased focus around consumer data safety. From GDPR to open banking regulations, banks’ overheads have increased due to changing regulations and restricted their ability to innovate. Balancing regulations and innovation is an uphill task. But banks can work with regulators and cloud providers to provide a transparent process that would placate the involved parties.

Looking for Core Banking Cloud Migration?

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The COVID-19 pandemic highlighted the need for more user-centric digital solutions for employees and consumers. As the world came to a halt, cloud-based services were the need of the hour for businesses to sustain themselves. With cloud-led core banking systems banks can accelerate and scale their next technology transformation, future-proof the foundation against further crises.

While core banking system is not a priority for most banks, this is the right time for banks to shift from a reactive phase to a proactive phase. Temenos cloud based core banking solution is the right choice for banks to #AccelerateNext. Maveric as a certified Temenos partner, offers end-to-end analysis, implementation, upgrade and support services. With our proven product mastery, our solution specialists guide banks to extract maximum value from their Temenos investments. Get your bank future ready with cloud based core banking solutions.

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Temenos Solution for PSD2 and Open Banking Payments

Temenos Solution for PSD2 and Open Banking Payments

The concept of open banking is one big catalyst for the banking business to achieve the the digital transformation. The Banks which can implement the open banking system, allows the third-party providers to access the financial information data of the banking customers through the application programming interfaces (APIs). It is a collaboration between banks and other players within the banking ecosystem. For any consumer, API is an information to be shared between applications with their prior knowledge. Primarily the data collected and shared with third party financial institutions are for better services, lifestyle amenities and managing finances.

The various kinds of data that can be shared are like

  • Product data (info about rates, fees, etc.)
  • Customer data (info about phone number, email and home address, etc.)
  • Account data (info about account details, balances, transactions, etc.)
  • Payment transaction data (info about payment initiation, cancel payment, payment status, etc.)

How Banks facilitate Open Banking?

As banks attempt to broaden and improve their digital offerings, countries and regions have approached open banking in different ways. Europe (EU) have legislated, obliging all banks to open their data and payments—with customers’ consent—to third-party providers. The concept of open banking has accelerated with the  introduction of European-led Payments Services Directive (PSD2), which enables regulated Third Party Providers (TPPs) to access customer’s bank accounts via secure APIs.

Key provisions of the Revised Payments Directive:

  • Regulatory requirement for Open API (Sharing the banking data without sharing login credentials) and access to account data (Xs2A)
  • Strong (2-factor) authentication mandatory across all channels. OAuth 2.0*4 is a standard likely to be used by both banks and third parties.
  • Transparency of detailed information to the payer before the transaction execution like Charges, FX, dates, and execution times.
  • One leg in and out transactions– A broader geographical reach where one party is outside the EU/EEA and any currency within the EU/EEA where there is no FX involved must be supported.
  • Higher consumer protection– limiting payer’s liability.PSD2 also contains guidelines on complaints handling.

Who’s who in the new PSD2 world:

PSD Roles

Temenos Solution:

Temenos provides a fully integrated front-to-back API-based solution architecture which fully corresponds to the commonly accepted industry definition of an API-based technology platform for open banking

Banks acting as Payment Service Providers:

Transparency of Payment Services – All payment service providers (AS PSPs, PISPs) must provide complete information (charges, FX, dates, and execution times) to the payer before execution of the payment and should execute on payor consent. After execution, it should provide the confirmation of the payment with these details. Similarly, the payment application user for execution should provide the details of payment with a break-up to the payee.

Temenos Payment Solutions (Temenos Payment Order and Temenos Payment Suite) provides front office payment initiation and mid/back office payment execution solutions, enhanced with additional payment information before and after execution of the payment, as mandated in the PSD2.

Payments Coverage PSD2 has widened the scope of its applicability to include “one leg-out” (OLO) payments, in any currency. They apply to payments initiated and ending in all the EU/EEA countries.

PSD Applies

Fig: One Leg Out (OLO) Foreign Currency Payment under PSD2

Payments between PSPs in member states involving any currency other than a Member state currency, should follow the value dating rules. Payer and Payee shall pay for the charges levied by his payment service provider

PSD Applies

Fig: Payment within EU/EEA –Other than Member State Currency under PSD2

Temenos Payment solutions will be enhanced to allow execution of payments as per the new rules, through configuration.

Payment Initiation Services – Banks can offer payment initiation services using the Temenos Payment Order solution. Temenos Payment Order deployed in Temenos frameworks, can request access to external (not within the processing Bank, TPP) account information via APIs and execute the payment orders. A payment can be simulated multiple times from the Temenos Payment Order.

Bank acting as Account Servicing Institutions:

Access to Accounts (XS2A) – Under PSD2, Banks servicing customer accounts should have the ability to provide access to account information required by PISPs and AISPs via APIs. As a mandate, information transfer happens securely through market standard APIs with 2-factor authentication for Account Servicing institutions. Temenos frameworks provide reliable, secure, and efficient access to data that can be exposed through APIs, once the standard validation checks are successful.

Access Accounts

Customer Authentication and Security – Banks should implement 2-factor authentication for communication with TPPs. Temenos use OAuth 2.0 for authentication and authorisation.

Account/ Payment Information Services – PSD2 defines “Account information service’ as an online service to provide consolidated information (balance, transaction history) on one or more payment accounts held by the Payment Service User (PSU) with either another payment service provider or with more than one payment service provider. Banks can act as online account aggregators, on providing access to TPPs to account information via APIs. Temenos uses Temenos Interaction Framework which will offer the requested APIs under PSD2.

Temenos support for PSD2 and Open Banking Initiatives

Temenos solution is designed to meet the new requirements of open banking market. The PSD2 features embedded in Temenos Transact and Infinity assist financial institutions on their journey to PSD2 compliance.

Temenos Transact supports financial institutions across the world with open banking compliance, which assists with API requests from regulated TPPs. Temenos utilizes PSD2 specific workflows to ensure sufficient authorizations are met, enabling secure communication with regulated entities. Temenos open banking functionality covers the following such as

  • Account Information Request.
  • Payment Initiation Request.
  • Funds confirmation
  • Berlin Group (API used widely across the EU) , Uk Open Banking Standard , etc.

 Temenos Infinity offers digital banking solutions with the ability to aggregate accounts, balance, and transactions from third party banks using standard open banking APIs from connection providers. The open banking aggregation with API requests to third party banks are on the following

  • Consent Management
  • Data Storage in Microservices
  • Digital apps to guide a user through the processes and viewing aggregated data
  • Utilize open banking connection providers for bank to bank API connections.

The benefits,

  • An integrated PSD2 solution within the core banking system
  • Fully integrated digital channels to support open banking aggregation
  • Temenos Fabric middleware layer for easily configure and integrate any PSD2 3rd party APIs
  • Visually map the PSD2 APIs and develop highly secure front-end channel applications with Temenos Quantum Visualizer

Conclusion:

Open banking is highly driven by regulations such as PSD2 and embraced with modern technology. Temenos provides an integrated and real-time open architecture that allow banks to seamlessly collaborate with their ecosystem partners. This is a flexibility built in Temenos, which allows seamless information access through open APIs. Maveric’s promise of connected core facilitates future ready solutions endowed with encyclopaedic Temenos proficiency to aid digital banking ecosystem.

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