Sibos 2013 Day One Blog: Banks, Big Data Challenges and New Opportunities
At the opening session, Shah said that at SWIFT his focus is on governance, management and oversight. At the same time, the financial messaging provider is getting into new areas. One of these is compliance, where SWIFT has assisted with sanctions screening and member banks are now asking for shared services for other needs such as anti-money laundering (AML) and know your customer (KYC) compliance. Another new area is going local, a key example being a joint venture formed with major Indian banks last October. The three areas SWIFT is most worried about, according to Shah, are cyber-security, the risk of becoming too complacent, and how to manage geo-political issues around SWIFT data and data access.
Next up was the keynote speaker, HSBC group managing director Samir Assaf, who focused on how to approach the challenges and opportunities within the banking industry.
Starting with a macro view of the world’s major economies, he noted that the US is showing improvement, Europe has snapped out of recession, and there has been more integration over the past three years in Europe than during the past 30. While there has been talk about slower growth in emerging markets, long term growth trends remain intact.
Bringing the focus down to the banking industry, he observed that “people have questioned our integrity and culture.” One of the most powerful forces for improving the culture, Assaf said, is to remember that banking is important for growth and expanding trade. “Our industry at its best provides the pillars on which the global economy stands.” Regulators are right to set the highest standards of conduct, he added, although this changes the way banks operate.
While much has been achieved in the evolving regulatory environment, with new rules on capital, liquidity and market infrastructure, Assaf suggested that three key challenges remain. The first is the leverage ratio, the second is counterparty risk, and the third is the arrival of non-bank players which creates huge competition.
He added that he sees several transformational changes ahead in banking. One is adapting from having one dominant international currency to using multiple currencies, in particular to the Chinese renminbi (RMB). Another is technology, where banks must protect security as well as provide greater information and insight. And third, as the role of the treasurer has changed to become more strategic, banks can use their access to information and marketplace data to help treasurers add more value.
In closing, he said banks should make a fundamental change and move towards collaboration. Banks do the same things for no advantage, he said, and they can gain scale by looking at shared services such as a KYC utility or sourcing and cleaning of market data. “It’s our collective responsibility to work to this end. We will achieve more together than apart,” Assaf concluded.
SWIFT chief executive (CEO) Gottfried Lybrand rounded out the opening plenary by looking at three global trends. The first is the transfer of economic power from west to east, with the west’s share of global gross domestic product (GDP) expected to shrink from 70% to 40% in the coming years. A second is the next industrial revolution via technology, which means everybody is glued to the screen. And the third is the role of governments, which has resulted in a wave of regulation. SWIFT, he said, is taking these trends into account by investing in technology, shifting from west to east with more Asian offices and board members, and developing new products such as sanctions screening and a KYC repository to address regulatory requirements.
Big Data, Big Deal
Initiating a session on ‘big data’, Bank of American Merrill Lynch (BofA Merrill) head of global transaction services for Europe, the Middle East and Africa (EMEA) Jennifer Boussuge said the promise of big data is grounded in the idea that information breeds insight. It is essential for banks to interpret data and feed it back to corporates in a way that is meaningful, so they can make informed decisions.
Royal Bank of Canada’s (RBC) senior vice president (SVP) for retail applications, David Cyr, sees big data not as something new, but as an evolution. As he noted: “When we looked at structured data over the last 20 years we saw a lot, but we didn’t see why they did things.” Over the past 18-24 months, RBC has used new analytics to see patterns and better understand the ‘why’.
In a quick floor poll, participants’ votes for the most promising uses for big data went to product development (29%), fraud detection (23%) and customer segmentation (15%). Noting the results, Boussage observed that “we are at a new age of analytics” which can help clients and also enable the bank to make more informed decisions about how it develops products.” Citibank global head of treasury and trade solutions technology Thomas Statnick added that he was surprised compliance did not rank higher, since banks need big data to meet regulatory requirements.
The biggest challenge for using big data is in technology (31%), according to participants in another quick poll, followed by finding the right people (21%) and governance (20%). Boussuge said she would focus more on finding people with the right skills, since they are critical to what banks do with data and to finding the meaning. The challenge is that the required skill sets have evolved over time, from information reporting to people with analytical skills, and there are not enough people with the needed skills.
What is most important around big data, Cyr suggested, is to have a strategy for what to do, think about it from the beginning, and establish a point of view on what you are trying to accomplish. In his own case, RBC started with marketing question and wanted to know more about its customers to create a pipeline of opportunities. Statnick concurred, saying that it is critical to start with the business strategy and the problem you are trying to solve rather than with technology or software products.
Design Thinking: Customer Driven Integrated Design
In its inimitable fashion, SWIFT’s Innotribe initiative is providing unique insights into key issues. In looking at how to come up with new solutions to meet customer needs, James Moed, client director for innovation and design firm Ideo and Dolby Marketing Studio’s executive creative director Vince Voron offered insights on how to use design thinking. They then challenged participants to develop a solution to solve pain points in corporate payments.
Moed started the session by explaining that design thinking is an approach to innovation that exists at the intersection of viable, feasible, and desirable. Four steps are important: observe real life behaviour, explore beyond your industry, collaborate across skill sets and build to learn. Observing means watching people and understanding the difference between what they say and what they do. Exploring involves looking at situations elsewhere that have lessons for your own industry, with one example being how emergency room doctors learned from a Nascar racing team pit crew. Collaborating involves bringing technologists, business people, writers and others onto teams to design a solution. Finally, building to learn means testing an idea, by building a version of it and testing it with customers as well as with staff.
Voron then gave a personal example from Coca Cola, which he joined in 2006 after 15 years at Apple and before joining Dolby. He was given the task of coming up with a new vending machine. Instead of starting to sketch a design, he ran internal usability and focus groups. From these he eventually figured out that more than just selling a product, vending machines were about building ‘brand love’ at an early age, since interviewees identified the machines with their first purchase as a teenager. The team used that insight to focus on building vending machines differently.
Connecting their insights with transaction banking, Moed and Voron showed a video of a day in the life of a corporate treasurers. Their research showed that the average company uses about 111 man-days to process 25,000 payments per year. They then asked participants to design a solution for corporate payments pain points on the spot using a cornucopia of materials ranging from paper plates to string. A lively breakout session resulted in a wide range of prototypes and ideas.
In closing, Moed and Voron said that the keys to success are to bring people together, construct prototypes and develop practices that solve real needs.
Creating New Markets at the Base of the Pyramid
Rounding out Day One at Sibos, United Nations Capital Development Fund managing director Ruth Goodwin-Groen led a panel discussion focused on new market opportunities at ‘the base of the pyramid’. While it might seem likely that the session’s focus would be on retail banking – and the panelists from Diamond Bank and the Bill & Melinda Gates Foundation concentrated on that area – Citi’s global head of channel and enterprise services, Hubert Jolly, looked at opportunities for large corporates.
He said the treasury and trade solutions group at Citi targets about 3,000 top multinational corporations (MNCs). The pain point for these corporates is cash, he said, because it creates cost. Along with aiming to turn transactions from cash to electronic, Citi works with these clients to develop solutions that enable them to gain additional revenue when they can do business with the under-banked at ‘the bottom of the pyramid’, namely the world’s poorest socio-economic group.
As one example, he said, clients in Poland in the 1990s that needed cash for payroll led to Citi launching a payroll card. It increased safety for corporates, since a number had previously been robbed, and it created a new revenue source for the bank.
What Jolly is now seeing is a slow rollout of mobile ecosystems. Citi often starts with payroll and then moves towards working with large corporates on other solutions such as mobile payments, with one example being an initiative that enables truck drivers at large distributors to do collections via mobile phones. The solutions, he said, overcome barriers by changing behaviour across the ecosystem.
Bill & Melinda Gates Foundation deputy director Jason Lamb said that the world’s largest private foundation has looked at how to overcome five main barriers for corporates to operate at the bottom of the pyramid. First, corporates need to gain a better understanding of what customers need and how to market to them. The second is how to reduce cost. Third is to develop new business models with new partners and new sources of revenue. Fourth is clarity around the regulatory environment – for example by devising a risk-based approach to know-your-customer (KYC) so that people without identification can get an account while banks still meet regulatory requirements. And the fifth is knowing how to get started. Overcoming these barriers, Lamb said, can enable corporates to enter new markets at the bottom of the pyramid profitably.
First Day Conclusion
The buzz on day one was around a combination of engagement and solutions. Financial institutions and service providers at SIBOS said they had full schedules of meetings with clients as well as plenty of engagement with participants stopping by their booths. The conference sessions offered a variety of innovative solutions, both for banks looking to gain an edge and for corporates looking for new markets or for solutions to existing challenges.
In Days Two and Three, we’ll turn the focus very much to corporates as gtnews spends virtually the entire time in the two-day Corporate Forum.