Al Carpetto, EVP Americas Business Head for iGTB, the world’s first complete global transaction banking platform, gives his personal view on challenges and trends in the financial services market, and what they mean moving forward
I am sure I am not alone in saying that the biggest challenge at present for the financial services industry is regulatory pressure. Despite innovations and improvements within the sector, many are struggling to comply, with a number of banks still showing significant gaps in their solutions.
The problem is, regulatory requirements have become much more granular, and the consequences of noncompliance have become more severe. Even more worryingly, there are some that believe they've solved all their problems - a sign that there is still a long way to go.
Alongside this, there are too many banks that are still using multiple legacy platforms, which, in the majority of cases, just don't work. If they inherit systems that are standalone and don't communicate with each other, they end up having to make them interact and interlink. In the long term, this can be extremely complicated, as well as being very inefficient for the business.
Incidentally, there are a number of non-bank competitors, outside of the regulatory circle, that are using this as an opportunity to offer payment or financial solutions to corporations and individuals. This has presented a unique challenge whereby banks now have to compete against the world's leading companies. It is important to remember, however, that in commerce somebody is always either your partner, competitor or customer - all banks can do is assess the situation day-to-day and come up with a potential solution.
Running to keep up
In terms of current trends in the market, there is huge discussion right now around the pros and cons of omnichannel solutions and what they mean for a bank's bottom line. Traditionally, banks have operated commercial and retail aspects of the business separately. Having developed my skills in the commercial sector, I have seen firsthand the gaps this creates.
Now, more and more banks are trying to link both together by using technology that can be employed across the bank on both the commercial and retail sides. At iGTB, we have invested heavily in digital financial technology to provide comprehensive solutions across all channels for all products, so that banks can operate effectively and efficiently without the need for manual processes. Ultimately, finding a solution to the omnichannel way of working is a must for banks moving forward. After all, expectations are getting increasingly higher, so companies must find a suitable way of working that eradicates any glitches in the system.
While innovation in the banking sector has been comparatively slow compared to non-banking competitors entering the market, this is no surprise if you consider the recent challenges that banks have needed to overcome. Regulatory changes have resulted in many banks' budgets being spent on necessary updates rather than customer-friendly digital solutions. With other products being introduced into the global market, such as faster payments and real-time payment systems, unless you're a large bankwith a significantly bigger budget, it can be difficult to figure out which area to prioritise - considering everything is important right now.
Regulatory requirements aside, I have noticed that banks are also allocating a lot of their budget to improving the client experience. Although this is a great way to demonstrate to customers that their service is keeping up with the times, it is crucial that they consider other areas of importance.
A legacy of challenges
If banks have lots of legacy patchwork systems in place and they're looking to upgrade, there are several factors to give thought to. For instance, are they going to replace it all, or choose a new system that can run alongside existing programmes? The other question to ask themselves, if primary funds aren't an issue, should they start now or should they wait? For tier two banks and below, there will be a little bit of a waiting game, but as 'fast followers' I believe the correct solution will be discovered and filtered down eventually.
As for processes within trade finance, there is still a long way to go before best practice is implemented within the majority of banks. As it stands, trade finance is dominated by paper and, although many are trying to automate their systems where possible, gaining consensus and implementing the change is proving to be a bit of a challenge. That said, the trade business will continue to evolve and there's a lot going on in the market, so I wouldn't be surprised if we see huge developments in the coming months. To assist with this, we have developed a platform that automates and fully integrates workflow and imaging systems. We also offer products like document scan, as well as repository services to assist banks with bottom line savings, especially on the business' operational side.
Innovations in blockchain technology - a distributed database that maintains a continuously growing list of records, secured from tampering and revision - is also set to make waves in the coming months. With huge potential to save a number of banks a lot of money, not to mention helping to streamline processes and take that step into the digital era, we have already initiated a number of payments with blockchain technology and have successfully executed some transactions on the payment side.
There is a plethora of other trends starting to emerge, too, many of which will no doubt come to the fore at this year's Sibos conference exhibition and networking event in Geneva. We will be highlighting the importance of contextual banking, as well as products that focus on risk management, digital payment solutions, liquidity, supply chain finance and digital transaction banking - a package that we are currently offering to medium-sized banks.
No one wants to make a payment - rather, it's only done in the context of a specific need, whether to keep staff (by paying wages), to receive vital goods (by paying suppliers) or to avoid fines (by paying the tax man). This crucial context surrounding a transaction - the reason for it, its background and its consequences - constitutes customers' real business requirements that banks must satisfy. Elsewhere, we can expect to see a growing focus on mobile phone apps for both the retail and corporate sectors.
As the millennial workforce moves into management positions, there is going to be a real demand for more sophisticated digital solutions and applications that can be used to streamline business practices. Plus, if non-bank players continue to develop products, it will be interesting to see how they exist outside of the regulatory framework - indeed, surely it is only a matter of time before they are subjected to the same kind of scrutiny?
Ultimately, our aim as a technology vendor and software provider, is to advise and create solutions that help to solve these problems.