Integrated Banking

(New Age Banking)

Module 6 - Technology & Customer Experience Enrichment / Management

Banking Technology

Banks today are literally synonymous

with the word ‘Technology’

Banks have leveraged Information

Technology (IT) virtually in all aspects –
from basic computing to risk
management to Customer experience
Technology in banking – all of managing risk, managing growth & managing profitability 2
 Technology
Banking – Before and After
Technology

After Technology
Before Technology POSITIVES
POSITIVES • Speed & Accuracy of operations
• Direct customer interaction was a necessity and • Efficient, productive & customer friendly
hence remained at high level • Ability to spend quality time with customers
• Customers were more loyal as human touch was • No mundane work & similar overheads on staff
high – change threshold bar was also high • Extended working hours feasible as need for
• Competition was not a real threat as all Banks closed-down processing is low
were running at same speed-change triggers • Much lower office & physical storage space
were minimum • Convenience & flexibility
• Much lower security risks- the operations world
was small and controllable NEGATIVES
• Security – always remain a concern
NEGATIVES • Lower customer loyalty
• Crowded premises + Long Q+ high waiting time • Extreme competitor pressure
• Need for large infrastructure to accommodate • Challenge to keep pace with changing
large crowd, large storage needs, … technology & customer expectations
• Reduced Business hours because of manual • Cost of compliance and risk management high
processing demanding more time & attention • Knowledge base of staff tends to go low
• Efficiency & Service – dismal levels • Unexpected and huge losses possible
• Turn around times – Exceptionally high

Technology in banking is a boon so long as it is at least one step below humans 3

 Technology
Banking in Banking – From where to where
Technology

Original Drivers Contemporary Drivers

Inward looking – What’s it in for the bank? Looking from Outside – What’s it in for customers?
• Superior transaction & engagement orientation
• Industry was highly people intensive with high staff / • Customers first – Rest Next philosophy / culture
personnel costs • Employee empowerment
• Inconsistency across multiple parameters due to high • Tellers to be Sellers
dependency on human power / talent • Differentiate computing power & Human power
• Very nature of business involves numerous • Re-align performance metrics for staff – from
calculations, accounting principles & processes, 360 quantity orientation to business orientation
degrees disclosure norms and complete transparency • Enrich and enlarge offerings
• High level of errors and omissions leading to huge • Usher in a healthy Governance, Risk & Compliance
operating losses for banks (GRC) culture within organization
• Focus was on dealing with process volumes and • Prepare organization to move to a ‘customer-
humans were employed to work like robots – obsession’ (on a positive tone) mission
customers became secondary • Risk based differential security / authentication
• Make the industry less people intensive and break • Enlarge eco-system partnerships to go beyond money
organized / unorganized powers that were detrimental and making banking incidental
to organization’s welfare front office • Let the Edge design and core adapt
Technology is not a mere back-office boy…Bring him to the front of the front office
Technology in banking commenced ‘inward looking’ – then moved to ‘looking from outside’ 4
 What’s Architecture?

➢ Historically been attributed to physical structures like buildings, monuments etc

➢ It’s both art and science – takes care of creativity as well as elementary requirements
around
✓ Design
✓ Structure
✓ Stability
✓ Thresholds
✓ Interact ability across dimensions e.g. civil, plumbing, electrical, etc
➢ Commences at drawing board level and maintained throughout the life cycle
➢ All subsequent developments bear heavily on the basic architecture
➢ IT architecture is the structural design of Information Technology and includes

Enterprise Architecture Governance Architecture IT Risk Architecture Security Architecture

Technology Architecture Business Architecture Systems Architecture Applications Architecture
Information Architecture Data Architecture Solutions Architecture Specialists
Courtesy: Simplicable

Architecture is all about detailed planning, designing & construction 5

 Technology Architecture – How Banks have gone about?

• Pressure form Business units lead to ad-hoc technology acquisition

• Accelerated acquisitions follow – leading to spaghetti creation
• Discrete systems – built around products / services – siloed environment
Technology • Leading to multiplicity and duplication
Acquisition • Mix of home grown, third party packages, hosted systems,…....
accelerated
• Data fragmentation and huge latency
Customers

• Non-standard interfaces
All these and more leading to
• Management nightmare
• Cost escalation
• Poor management information
Technology • Forced need for specialised staffing
acquisition
• Security inadequacy
• Long drawn and need for customised integration
• Edge unable to make core adapt – Dog still wags the tail scenario
Period (Years)

Short term technology solutions invariably landed banks into long term problems 6
Technology Deployment - Components of Banking Application Architecture

Call Mobile
Channels ATM POS Internet Mobile Branch
Center
Kiosks
Branch

Finastra – TBS
Branch Teller Trade Finance
ICS Banks – TFS

Governance, Risk & Compliance

KYC & AML CREDOC - TFS
Credit Cards China Systems – EximBills
Customer Information & Analytics Surecomp – TFS
Misys- Trade Innovation
Core Deposits Loans Remittances
Cash Management
Banking Account Account
Opening Clearing
Opening
System Account Account Investment Banking
Servicing Payments
TCS Bancs,Servicing
Temenos T24, Infosys Finacle – Leaders
LOS / Paysys -Cardpac
Transaction Transaction
Processing Appraisal Processing First Data: Vision Plus
FIS Profile, FIS Systematics, Fiserv Signature, Oracle Securities
Flexcube, SAP Txn Banking, Sopra Amplitude – Major Players
Recovery

Transaction
Eri Bancaire, Olympic Banking sys - Contender Insurance
Processing

Mutual Funds
General Ledger
MIS / Financial ......
ALM Treasury
Reporting Statements

7
The Typical Banking Functional Architecture

Customer Interface Product Lines

Call Self help Partner B2B Assets
CRM Branches Internet Social ATM Franchise Mobile
Center
PoS
Kiosk Channel (eg. EDI) -Retail
Prospect - Commercial
Management
- Trade Finance
Relationship ALM – Asset Liability Management
Management Assets Liabilities Extended Business Cards Liabilities
AML – Anti money Laundering
Application Appraisal & Application -Retail
Application Account Appraisal
Campaign
Processing Sanction Processing Maintenance Wealth Mgmt Investment Banking Processing - Commercial ATM – Automatic Teller Machine
Management - Trade Finance
Account Collateral Application Investment Project Private Billing & B2B- Business to Business
Analytics FOREX Processing Management Appraisal Placement Card Issue
Maintenance Management Statement Remittances CRM – Customer Relations Management
Business Process Management

Hedge Buy / Sell

Collection & Suit Corp. Action Portfolio Public Offer Fraud POS -Inward DPM-Discretionary Portfolio Management
Deals FC Broking
Customer Recovery Management Mgmt Management Management Management Management - Outward
Bills ECS- Electronic Clearing System
Info. Mgmt TC
Negotiation Research
Portfolio Val.
Underwriting Syndication Merchant - Payment Serv.
& Reporting Services
Collection EDI – Electronic Data Interchange
Customer Wealth Mgmt
Reporting Remittances Govt. Business FC – Foreign Currency
- DPM
Application Collection Remittance FOREX – Foreign Exchange
Sales Processing
Execution Other Business - NDPM
- Advisory Serv. GL – General Ledger
Collection Insurance Mutual Funds
Customer Reconciliation Disbursement Reimbursemt.
Invest. Banking KYC – Know Your Customer
& Clearing Application Account Application Subscription/
Service
Account Processing Maintenance Processing Redemption - Securities MIS- Management Information System
Corresp. A/C Cash
Cross Sell /
Maintenance Management Maintenance Policy Underwriting/
- Derivatives NDPM- Non-discretionary Portfolio Mgmt
Up sell Fund Account
Issue Reinsurance Administration Maintenance
- Services NEFT – National Electronics Funds Tfr.
Product Charges & Fees Administration FOREX PDO – Public Debt office
Claim Asset
Management Research
Management Management - FOREX PoS – Point of Sale
Core Business - Derivatives
Marketing RTGS – Real Time Gross Settlement
- ..
Attrition Front Office Back Office SWIFT-Society for Worldwide Interbank
Management Mutual Funds . Financial Telecommunication
- Funds TC – Travellers’ cheques
-..
Risk Management Treasury Compliance Buss. Intelligence HR & Admin
Risk Capital Resource Customer Product Insurance
External Estimation Calculation
ALM
Management
KYC AML
Analytics Perf. Mgmt Recruitment Perf. Mgmt
- Life
Interfaces Corporate Finance Investment Trading Audit
Regulatory Customer Buss. Unit
Training Separation
- Property
Reporting Profitability Perf. Mgmt. - Others
Accounting Financial
SWIFT ECS Asset
& GL Statements MIS Payroll
Management
RTGS/ PDO /
Finance MIS Corporate Functions
NEFT NDS 8
 Front Office,
Banking Back Office and Mid Office in Banks
Technology

Front Office Back Office

• Involves direct customer interaction
• Does not involve direct customer
• Capabilities & skillsets of Front office
interaction
staff revolve around functional
• Capabilities & skillsets of back office
knowledge and customer handling
Mid Office staff revolve around functional
abilities
knowledge, operational and processing
• Customers of Front Office are
• Primarily for Investment Banking abilities
customers of the Bank and often
• Verification of contract rates, audit • Customers of Back office are staff of
referred to as end customer or
etc Front office and are referred as
external customer
• Risk Management & Compliance internal customers
• The Front office staff are governed to
personnel • The Back office staff are governed to
serve their customers to meet Bank’s
serve their internal customers to meet
published Product Delivery & Service
internal Service Level Agreements
Level Standards ( PD&SLSs) – also
(SLAs) derived from customer PD &
referred as TaT(Turn around Time)
SLSs and organization level TaT
• Focus remains on quick TaT and
• Focus remains on perfection of task
minimum F2F time- Need to be
and SLAs
present basis
The segregation of responsibilities across FO, MO & BO brings in efficiency & superior customer experience 9
A video revision on the Front. Mid and Back office in Investment Banking

Wall Street Mojo – Front Office – mid office – Back office

Investment Banking - Front Office vs Middle Office vs Back Office - YouTube

10
 Financial Technology – FinTech

‘I want ING to be seen as a tech company with a banking license.

Even further, I think we should be the largest bank without a
balance sheet if you really take it into the future,’
– Ralph Hamers, CEO, ING
Financial Institutions are gradually moving from ‘Institutions
that use Technology to run their business’
to
‘Technology organizations that run the business of Finance’

In this major transformation model, it is imperative that FinTech

organizations maintain a perfectly balanced mix of financial &
technology skills, domain knowledge and competency enrichment

FinTech companies - a new breed of disruptors who displaced traditional e-com providers with more efficient services 11
 Innovation vs Disruption

Incremental

Breakthrough

Disruptive

Game Changer
FinTech Companies started as Innovators but gradually become Disruptors & Game Changers 12
Fin Tech in action – 1/2
• FinTech - Using technology to make financial services more efficient
• Innovation in financial services for broader application of technology to
• Front-end customer products
• New entrants competing with existing players
• New paradigms such as Bitcoin
• Finance is seen as one of the industries most adapted for disruption
• Business Processes
• Payments ( e. g. Mobile payments solution, Digital Wallet, Peer to Peer payment)
• Investments ( e. g. Equity Crowd funding, Peer to Peer lending)
• Financing ( e. g. Crowd funding, micro loans)
• Insurance (e. g. Risk Management)
• Advisory
• FinTech companies are those that essentially use customer convenience technology to
offer financial services / products
FinTech is an emerging industry that competes with traditional financial methods 13
Fin Tech in action – 2/2

• Interaction form could be:

• C2C
• B2C
• B2B
• C2C2B and more…
• Positioning could be across
• Bank / Insurer
• Non-Bank / Insurer – Bank / Insurer – Collaboration
• Non-Bank / Insurer – Bank / Insurer – Collaboration
• Customer segments (targeted customer segment)
• Retail Banking
• Corporate Banking
• Private Banking
• Life Insurance
• Non-Life insurance
FinTech is no longer a back end player but actually an end2end player now 14
 Fin Tech evolution

• Financial Technology has virtually been around as long as Financial Services industry itself
• Post 2008 Global Financial crisis, this new breed of innovators, disruptors and game changers
have started displacing and even replacing traditional financial products & service providers
• You are using Fin Tech..
• When you use Paypal, PayTM, Google wallet, Ola Money or even a credit card to make an online purchase,
you, the e-com retailer and the Bank behind the money transfers / exchange
• When you place order for purchase of a security like shares or mutual fund and also paying for same
• When you compare interest rates and / or prices before you take a call
• When you book a car through Uber / OLA
• When you buy an air ticket or book a hotel through an aggregator
• When you buy a travel insurance through an aggregator

(Now let us a see a video on whether you are already a part of this industry – courtesy CNN International)

FinTech companies today exist as stand-alone entities as well as links in the financial value chain 15
What is FinTech – video ( courtesy CNN international)

About FinTech – CNN video

What is fintech? | CNBC Explains - YouTube

16
Impact of FinTech companies on Traditional Banks

• The threat is real and is only enhancing every passing day

• What’s happening in Cabs, Hotels, Airline bookings, Music will happen in Banking
• 67% of BFSI organizations rate “pressure on margins from FinTech” as a major threat
• Over 4,000 FinTech firms are active, trying to disrupt / change/ improving Banking model
• 54% of Bankers believe their banks are ignoring the threat from FinTech
• New entrants to the banking market — including challenger banks, non-bank payments
institutions and big tech companies — have captured around one-third of new revenue –
Accenture
• Over 10 years after the financial crisis, the banking industry is experiencing a level of competitive
intensity and disruption that’s much greater than what's been seen before - Julian Skan, Accenture
• With challenger banks and platform players reducing traditional banks’ competitiveness and the
threat of a power shift looming, incumbent players can no longer rest on their laurels – Accenture
• FinTech has paved the way for win-win partnerships

FinTech is completely re-shaping the way banking business is being done today 17
Fin Tech Companies – few examples (1/2)

• Falls under Payments category

• It’s a digital payment platform
• Cash is moved into it from Banks, CC, DC, cash etc and held in the Paytm wallet of the consumer
• At the time of purchase (physical or digital mode) money is instantly moved to the seller of the
product / service
• Revenue model - Predominantly a volume game played on technology platform
• Falls under Personal Finance Management (PFM) category
• It’s a digital payment platform that connects multiple financial institutions
• More than 25 M customers
• Almost all Personal Finance products handled thro’ multiple Financial Institutions
• Paperless environment
• Customer convenience remains the key

Today’s world has number of FinTech start-up companies emerging every day 18
Fin Tech Companies – few examples (2/2)

• Falls under Lending category

• Offers innovative, smart flexible loans - understands life stage financial gaps
• Wired to rating organizations for credit worthiness score etc

• Falls under Crypto currency category – India’s Bitcoin company

• Enables Indians to buy, sell, store, use & accept bitcoin
• OTC (over The Counter) trading – for bulk trading

• Falls under Insurance category

• Considered as one of the best one-stop on-line Insurance products / services
• Recognised as World’s leading FinTech innovator for the third time
• Constantly upgrading customer experience in after sales services as well

FinTech companies help consumers deal with ease even with monolithic organizations 19
The Card industry was the early FinTech absorbed by Banks (1/2)

• Issuing Bank - The bank which issues card to the customer after appropriate due-
diligence and applicable processes identity /creditworthiness

• Acquiring Bank - The bank which ties up with the merchant, provides necessary
hardware & support and makes the payment to the merchants

• Corporate sponsor / Co-Branding – Business partners with issuing bank cards viz.,
airline companies, gasoline companies etc

• Merchant - delivers goods / services to customer by accepting cards on

approval/authorization

• Processor - Processes payments for the acquiring bank / issuing banks

Credit cards business is one of the early candidates for partnering with FinTech companies 20
Peer2Peer Lending

• Refers to lending to individuals or businesses through online

services (P2P Companies)
• Match lenders directly with borrowers
• Does away with intermediaries
• Lenders earn higher returns
• Borrowers able to borrow at lower rates
• Many loans are unsecured personal loans
• Secured loans for businesses could be against some collaterals
• P2P companies must act as intermediaries between borrower and
lender.
• However, they cannot take on functions of a bank
• Must be registered as companies.
• Funds should directly move from lender’s account to borrower’s account
to prevent money laundering
• No assurance on returns to lenders (by P2P platform)

P2P is one of early products seen from the perspective of dis-intermediation 21

Bitcoin

• Innovative payment network

• New kind of money – Crypto currency
• Decentralized Digital currency
• No Central Bank or Administrator
• Created and held electronically – its electronic cash
• Created and operated using mathematical formula
• Uses peer to peer network to operate
• No intermediaries
• Transactions recorded in blocks
• Blocks are linked to each other
• Hence called block chain
• Shared, Trusted, Tamper proof Public Ledger visible to all

Just for your information…. 1 Bitcoin = Rs 2,70,673.54 22

 CROWDFUNDING

Popular FinTech outfits in Crowdsourcing

• A process by which like-minded people / people who

share common interest come to a common platform
• It is a way / method by which a project or a venture
is funded
• It is a form of crowdsourcing and considered as an
alternative finance
• Various sponsors use the platform to attract funding
• Crowdfunding campaigns – need to be specific and
carry clear outcomes

Crowdfunding is one of the most useful FinTech innovation as it facilitates tremendous reach with purpose 23
 Fin Tech What’s losing shine? …What’s gaining shine?

What’s losing shine What’s gaining Shine

Internet Banking Aggregate, Compare, Customize
-Policy Bazaar, MakeMyTrip, etc

On line Payments Peer 2 Peer

- Lending Club, UpStart, Perform, Prosper, ..
Mobile Banking Crypto Currencies
- Bitcoin
Funds Transfer Robo Advisors
- Betterment, Wealthfront, CharlesSchwab
Vanilla Payment Wallets Purely Digital Bank
- Paytm, MobiKwik, Freecharge -Ally, B, Digibank, firstdirect, …

(Now let us a see a video on how FinTech is shaping the Future of Banking – courtesy Henri Arsalian / TedX)
Financial Services industry will have numerous FinTech partners who will put Banks’ traditional offerings to shame ! 24
How FinTech is Shaping the Future of Banking | Henri Arslanian | TEDxWanChai
How FinTech is Shaping the Future of Banking | Henri Arslanian | TEDxWanChai - YouTube

25
 Integrated Banking
(New Age Banking)

Module 6 - Technology & Customer Experience Enrichment / Management