Technology in Banking and Finance

Views: Banking at the bottom of the pyramid: EKO Financial services

2010-04-24T22:34:00.000-07:00

When i wrote about the need for banking for a common man in poor Indian villages in February 2009 little did i know that just about the same time elsewhere a start-up was working on this idea. Yesterday this start-up was featured in the Times of India.

The company i am talking about is EKO financial services started by Abhishek sinha and Anubhav sinha. This start-up tied up with SBI to offer no frills account to the people representing the bottom of the pyramid. A common man can walk to a store, similar to buying a Sim card on furnishing identity documents can open an account within 10 minutes. And similar to recharging his mobile currency can deposit money into his account by handing over cash to the shop keeper who acts as a customer service point of EKO. Money transfers can be through the phone. I am immensely happy to see this innovation happening at the grass root levels and also very optimistic about the future of this goldmine. All the best to EKO team.

The following video shows the working of this concept.
http://www.youtube.com/watch?v=xUJnbtqG6Z0

Paper Series: Incrementally rewarding your customers based on profitability

2010-03-02T22:09:00.000-08:00

Publications: CFO,Rfpconnect
Volume based incremental or tiered pricing is not new to most of the banks. Banks use this technique to incrementally drive revenues from existing customers by giving him volume pricing or discounts. Depending on the capability of the product system, banks may decide to keep the competitive price definition inside or outside the system. The challenge is in building in tremendous flexibility by parametrization of the solution. A white paper co authored by me is published in CFO.COM and RFPCONNECT.COM

Views: Islamic Banking

2010-01-18T05:34:00.000-08:00

I wanted to write the first blog of the year about a banking practice that is based on ethics. About 8 years back I had first heard about Islamic banking from Mr. Srinivasan, then the vice president at i-flex. He described Islamic banking as 'Allah gives and Allah takes', an interest free banking practice. For a long time it stayed in my mind as a funny cultural and unsustainable practice that was funded by the crazy oil rich Middle Eastern states. But, since my interactions with banks in Saudi Arabia, UAE and Bahrain, etc I started to better understand the underlying principles of Islamic banking. According to the holy Koran, the Shariah is what is acceptable to Islam. There are a set of Islamic values that are in general applicable to all practices of trade and also applied to the banking practices. Shariah prohibits interest or a time value for money. Money as such is not a marketable commodity, but an instrument that can be only put into productive use based on the values of shared risks and benefits. Therefore most Islamic banking products are structured on the concepts of trade with profit sharing agreements. These ethical values make so much sense today after the global meltdown where billions of dollars were pumped into unproductive assets in the secondary markets. Traditionally Islamic products mostly were consumed by the government sectors and Islamic businesses houses. But today the popularity of these products has been growing not only in the Middle Eastern countries but also in parts of south East Asia and Europe. There also are non Muslim retail consumers increasingly signing on to these products.

Most banking products have an equivalent Islamic banking counterpart across retail, commercial banking, trade finance etc. The products are structured based on the trade concepts of Mudharabah(profit sharing), Musharakah(joint venture), Murabaha(cost plus), Ijarah(leasing), ujr(fee), Kafalah (guarantee), Takaful(Islamic insurance) etc, etc. Every islamic bank is mandated to have a Shariah board that overseas the product management, product development and operations. The Shariah Board periodically reviews, reports and vets on the various pricing, product structures, revenues, etc. Globally there are only a handful of dedicated solutions for Islamic banking practices. Most Islamic banking software solutions are adapted applications at best. I am writing a paper on the challenges existing in these banks today and how technology solutions could help to address those.

Research: Costing in transaction banking services and cost based pricing

2009-08-19T03:08:00.000-07:00

One of the casualties of a recessionary environment is the luxury of not changing the way businesses price their products and services. In order to keep up their top lines, most organization have started innovating their pricing strategies moving it closer to the transaction based model, factoring in the risk and cost. Knowing the cost at various levels is relevant for price optimization, capacity utilization and operational efficiency.

As there is a growing importance to measure the productivity and profitability of service delivery channels like ATM, Internet payment gateways, branches, etc Banks need to implement costing practices at various departments. Today costing is generally a grey area in banks. This is because most banks do not know what exactly the cost of an individual transaction level is. Unlike manufacturing industries where cost at an individual unit can be arrived easily, banks product cost cannot be fully arrived at until it is consumed, and the costs are distributed across multiple departments which vary from customer to customer depending on the service needs. So the cost that is computed may be always be far from the right figure.

Popular among the costing methods are full absorption costing, capacity based costing and activity based costing. In practice full absorption and capacity based costing are most common. These are traditional methods that are simpler to implement and answers most of the profitability related questions. But, where they find inadequate is to answer detailed questions on process efficiencies, indirect cost allocations, etc which banks would like to investigate to bring in operational efficiencies. Activity based costing (ABC) methodology can help this cause. Many banks have tried to implement ABC as a strategic initiative at organization level. Since ABC is relatively more complex to implement and highly dependent on the quality and level of details the bank is willing to incorporate into, it has found low levels of success. It is difficult to say any one costing method is an ideal one since the application varies from bank to bank. I have researched on this subject with an interest to know more from other industry veterans. I hope to put my research on this blog soon after its publication.

Views: Believing in what you have done, Patience and just sitting back

2009-07-01T05:17:00.000-07:00

I cannot help but think how things go awfully wrong many a times because you as an individual or organization has not believed on what he/it has done through the long time it takes to take the tree to bear fruits.I have seen so many instances both professionally and personally now, how things have gone off track just when you do not know how close you are to where you wanted to go. One of the primary reasons for things to go amuck i see is interference, taking actions for too many things too many times.

My travel to Africa couple of weeks back was a challenge on my patience. I got a seat next to a lady with a fussy kid. The kid cried, slept, cried, slept, cried slept.... and the cycle continued till we reached Dubai. I did not know what went through the kid and why it was crying. The kid did not let it self be put on the seat belt and was rolling all over creating a mess. I was loosing patience and had a deep urge to scare the child so much that it kept quite for the rest of the journey. But I did not, I saw the mother, all she had was a peaceful, wise look on her face. The gentleman next to me said ‘that’s a mother’s patience and passion’. She has it in her to take the tree to bear fruits.

The current market situation that has had its toll on IT spending, salaries, jobs, growth etc makes me think many times Are things going the way I wanted? Should I move out to a newer organization for money or growth? Should I switch domains? I joined the current organization about four years back with a vision for my future growth. Should i start tinkering with the plans in order to react to the current scenario? May be i should just keep watering my plant in the hope that it would bear fruits.

Recently we saw the Indian markets crash to ridiculously low levels and again ridiculously double within a short period of time. Speculators lost a bundle. Warren Buffet said "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell". While most investors invested in them, most of them reacted when the market crashed. Many people did not hold out to see their trees bear fruit.

MJ did too many things too many times to himself. It was sad to see this creative legend go down.

The question is whether firms should continue investing in their IT investments? Projects that are budgeted are put on hold. I am sure banks have a vision and a business case with which the projects are budgeted. Should the banks doubt its investment reason and stop watering their plants till the markets improve?

Opinion: Banks and Google wave: whats in it for a common user ?

2009-05-30T08:09:00.000-07:00

I watched the google wave developers demo on friday since i was curious about its potential. It has already created waves on the internet and is currently being talked about as the next big thing coming from google. Google wave is a communication protocol built on the principles and architecture of operational transformation. It is a client and server based solution that google aspires to release as an open source so that organization can implement their own wave servers and clients into which their users could login and communicate. So what is a wave and whats in it for an organization like banks and users like me and you that would make our life simpler and more powerful ?

Google wave is a new way of communication that integrates real time messaging, emails and other powerful features into a convergent platform. Waves could be created and sent across multiple users just like email. The waves enable users to concurrently communicate with other users in real time where changes made by other users could is seen online character by character. Unlike traditional emails and documents which is a block of text, a wavelet document is an XML content tree on which Operational Transformation is applied. The wavelet could be edited, embedded with links, comments, rich media, etc all concurrently by multiple users. In the traditional methods a Document is managed with versions where users make changes serially. But in a wave system users dont have to wait till the other person is finished since concurrent changes are made online. The changes to a wave at different timelines can be viewed online using the playback option with a wave.

But what excites me is not the real time document editing, but the powerful feature of collaborating the users with a number of web services inside the same wave. You can drag and drop robots(web services) into a wave that lets you perform activities and workflow related to the wave content from inside the same wave interface. Example: A blog robot what google calls bloggy can be included in the wave that would automatically publish the wave content into the blog with a click of a button. whats remarkable is you can also track the blog inside the same wave where comments posted by others is reflected and you can post your replies all from a single place in real time.

Application of Waves in Banks

1. A wave can help integrate the front office, middle office and backoffice operations workflow through online colloboration of the three functions and a workflow robot. This would help reduce the lead time in transaction processing and decision making immensely affecting the SLA's and improving the customer experience in the bank.

2. Waves can be used for customer communication by making the interaction more open ended than the usual close ended communications through mails and online banking. Waves could be sent to the customers of the bank into which the customers can participate with their views and opinions. This would enhance the customer experience, by making the bank more responsive to the customer needs.

3. Online dashboards could be established with data, graphs and reporting data that could help the various operations, business users in the bank in discussions and decision making.

4. In a requirement gathering session for a new solution, online collaboration among business analysts ans stake holders can work very well through the wave. Requirements could be brainstormed, worked on simultaneously in real time and then on a click of a button the robot could log and track requirements or issues on the requirement management system all inside the same wave.

It is this integration capability that could give organization the flexibility and powerful features of communication, workflow, service intiation all inside a single place. Any one on more ideas of making use of waves through applications while i wait for the wave to be available ?

Views: Does your bank have Customer data pollution ?

2009-05-22T05:00:00.000-07:00

Over the last three years, any bank i met up with irrespective of the region, size, how tech savvy the bank is, or if the bank had a data warehouse or an enterprise CRM; all had a common concern 'The challenge is clean customer data'. Essentially, since most banks operate on a silo mode, the customer information gets defined in different places to varying levels of data quality, leading to a 'Polluted customer data' from an enterprise point of view.
This is a concern for all banks going in for any new enterprise solution since interfacing and data quality is an issue. The question is 'how do you identify and link up the related customers defined at various business silos'? This answer is in the quality of customer data and the available parameters. In some countries regulations have played their part in the solution by implementing KYC (countries like India now lay a lot of emphasis on KYC) norms. With KYC, linking up customers is possible using parameters like Social security number, Passport, PAN numbers, etc. However, the challenge is the KYC implementation is not complete. Larger banks capable of investing in Master Data management systems (MDM) have gone for ambitious projects creating a centralized warehouse for the customer information. Whereas mid sized and smaller banks are left grappling with the challenge. One of the possible solutions to this problem is having a mediation capability that could deliver the required customer information. Mediation from BFS perspective is an ETL tool working along with a business rules engine. Customer information from various locations could be collated, cleaned and transformed (using Meta data) based on the rules defined in the rules engine. The transformed customer information can then be delivered to the newer solutions with the mediation system acting as a data bus. Later, however if there is a change in the eco system or a new implementation of CRM, the rules could be changed so as to continue to deliver the required information.

Views: Nigerian Banks, F1 and IPL !!

2009-04-25T15:28:00.000-07:00

Its been a week of Nigeria, F1 and IPL2 for me. I am almost ready to leave back to Bangalore and it was a week of witnessing the new emerging players, tremendous competition and good performance exhibition under unfavorable circumstances.

Firstly the F1 race at Shanghai, it is the first ever win (first and second place) for the Red bull team and Vettel's performance was excellent given the competition and toughest of the wet weather conditions. Red bull has not been the favorites of the teams but now its definitely something to watch out for, way to go!!

IPL season 2 going on at South Africa is nothing short of spectacular, especially since what Lalit modi managed to achieve in a short notice of 3 weeks. Between all the internal politics (interesting blog by the fake IPL player!!), pressures among the teams to stay on the league tables and weather challenges I think IPL has managed to be a great success with a decent media coverage everywhere (even in a not so cricket crazy country like Nigeria it is shown throughout the day live with all the usual highlights and tamashas), way to go !! I am hooked on.

Nigeria, a recent democracy is somewhere in the list developing nations having its bag full of problems like a large population of un employed and wasted youth, stressed infrastructure(power cuts, traffic problems, etc), poor health care (average life expectancy of 47 years), high level of corruption and a devalued currency (The Nigerian Naira virtually has no value and nobody wants this currency outside Nigeria ; even inside Nigerians prefer dollars much more). Among these challenges Nigeria is emerging as a leading country in Africa culturally and economically currently growing at the rate of around 9% annually. I find the people fun loving, cheerful and having a lot of promises for their future (they have lot in common with Indians like food habits, attitude and a legacy of ex British empire).

Coming to the Nigerian banks, due to the central bank regulations banks there are currently going through a major consolidation with most banks either getting merged into or acquired by a larger bank. A senior industry veteran told me that the competition among banks is building up severely and now the banks are slowly starting to see themselves as bigger banks in the market which so far had a myopic vision for their departments and organization. My interactions with these banks gave me an impression that they are not as organized and robust as their American and European counterparts, but they have adopted technology early and have an increasing appetite for something new. While speaking to the Head of technology at one of the leading banks, we discussed about the current problems due to the liquidity crunch like shortage of liquid dollars in Nigeria which prevents these banks from making timely vendor payments, general lack of interest in the market and how the management is pushing back on newer technology spends. Through this, he was very enthusiastic to know what new his bank could do today and put us through to the next steps. Like anywhere else the Nigerian banks now want to outrun each other in capturing market share through customer acquisition and newer products and increasing the profitability with existing customer by attracting more deposits and product usage. I think Nigeria and the other countries in this region would be the new must target markets for the Indian IT companies in the coming years!

Opinion: Banks and Revenue Leakages!

2009-03-12T07:54:00.000-07:00

What do you and me as individuals do when the going gets tough economically? Double check our telephone bills? See if we used them more than we should have; check if there is a better plan out there with better rates which was not so important before? Weigh whether to use your car or public transport now depending on the need to use. Make sure that you bought groceries and vegetables at the best rates that were never so important since you loved the place you shopped more than the value. Double check all the rebate coupons that you never cared to check on before. There are two keys things that I am talking about, one is controlling the overhead costs or expenditures and the second is plugging the leakages that existed before but you cared less. I believe similar to this, banks in today's environment will have to closely consider performance metrics like costs, profitability of product and revenue leakages. Measurement of costs and product profitability are in practice today, but is there systematic way of identifying revenue leakages and fixing the same? Revenue leakages could be of various types like a lost opportunity to price right, not able to monitor the customer SLA’s, losing transactions due to system in efficiencies or unable to recover from customers due to in adequate processes. Sudhir talks about revenue leakages in banks today at various stages of a relationship life cycle in his published paper 'Revenue leakage an opportunity calling' (Published link 1, Published link2) . I agree !

Views: Banking for the unbanked - contd...

2009-03-09T04:56:00.000-07:00

To continue on product innovations, to reach newer segments of the banking market i was thinking about telecom. Why there is such an explosive growth(in terms of reach to common man) in telecom industry versus a hindu rate of growth when it comes to traditional banking.

I am not talking about the 20% growth in revenues the banks are making by doling out home loans and credit cards to the consuming public at various interest rates. I am talking about parallel's to pre paid cards, small recharge tickets available at the beedi shops, life time free incoming facilities, bundled products like land line + internet + IPTV, etc that is making telecom companies add 3-4 million subscribers month on month. Is it that the need for a common man to have banking facility is minimal when compared to his need to communicate? I think the answer to this is the way we understand customer segmentation. Unlike the uniformity in need to communicate, the need to have banking services varies widely across the customer segments. i.e. the needs of student, economically backward person, middle class, high net worth individual, NRI all are extremely different. For a middle class or economically backward individual, availing these facilities is still an inhibition. An individual wanting to buy something online for a better deal has very limited options today unless he has a credit card. He either has to pay through cheque, or make a DD, pay when he receives the item in a few cases etc which are not very convenient options when compared to paying through a credit card. I think a parallel to innovation in telecom in this case would be pre paid currencies available across small shops. If an individual wants to buy something he could top up his account with any bank with a pre paid card available in shops and use it to buy online or through mobile shopping. The balance left could be credited to his account in the bank. Even a small pan walla would use those cards to do cash deposits in bank using his mobile without having to walk into the bank or waiting for a cash collection agent!

Views: Banking for un-banked?

2009-02-19T22:46:00.000-08:00

I have been thinking quite a bit lately on what innovation could mean to the mass market at the bottom of the pyramid. A lot has been written about the bottom of the pyramid in recent years, that the next level of growth will come from this market. I think this is evident from the emergence of Indian economy.

Take for example my self; I come from that strata of society that had seen so much less banking facilities, all by virtue of the economic levels I came from. Today after ten years I am in a good job and now there is a whole set of banks chasing business from me because I have shifted my economic orbit. I think there is a whole generation of Indians today who are very frequently shifting their economic orbits because of the sustainable growth in the economy. And this, is further fueling the growth that has already set in. But, if you think from the bank's perspective, has this change come because of any innovation from bank’s side to reach to those different levels in the society ? I do not think so, this has come more because of the change in levels individuals have seen personally. Even today there is whole section of society that sees so little banking facilities offered to them. Well, Its well known that innovation in banking services is least when compared to other areas like mobile telephony, may be more because of the economic risks involved resulting in a conservative approach to innovation. So what can these innovations mean for the mass ?. One example I can think of is micro finance. How the class, who need tiny capital on a daily basis to sustain their daily trade? If I can get a quick funding of Rs.4000.00 ($80) to take delivery of vegetables or my supply of raw materials for a few days, just there at the market where I am going to close the deal, it would be a great service. If I can find someone just there whom I know can fund me in minutes through a mobile payment. Or I make a call to that person who knows me personally and he sends a sms for completing the transaction. This market I feel has a potential to generate a whole new generation of banking products and services. Any comments ideas are highly appreciated !

Paper series: European payments scenario – becoming a level playing field

2009-01-28T03:44:00.000-08:00

Introduction

The evolution path the Banking industry has witnessed in the last few years with Consolidations, Expansions, Electronic Banking in Retail, Developments in Risk management, the evolution of the Euro single currency and subsequently the innovations in payments has made the European banking scene more active than ever.

At different points in time the Banks have faced challenges in achieving the above, powered by organizational growth aspirations in serving the customer base and driven by regulatory changes affecting the banking industry.

The most recent regulatory changes are the efforts of creating a level playing field in payment instruments in Europe by creating a faster, transparent, standard and cost effective payment infrastructure. OFT (Office of fair trading) in UK and SEPA in European union. This change in direction offers immense challenges for Banks in terms of scaling its IT capabilities and increased competition in the market... read on

Paper series - Value propositions of a core banking solution vs pricing and billing solution

2009-01-28T03:24:00.000-08:00

Publications : finextra, bankingcrossing, financial

Introduction

Banks have started realizing the importance of pricing as a banking enterprise entity. Core banking solution such as Flexcube, Temenos or Finacle fits well as a technology solution for a banks’ day to day business. However a core banking solution itself cannot cater to all the needs for fee based income of a bank. This is attributable to the complex nature of banks operations across its business areas. The banks are often unintentionally grown into a complex structure with its independent departments often referred to as silos having their own systems tied together to a centralized core banking system. Each of these silos has its own product bundles and offerings and a technology component to capture the fee income for the bank. So what comes out over a period of time is a severe disability to visualize the fee income or pricing of such charges at the level of an enterprise. In this article we will discuss, how core banking solution and the associated systems fit in a bank and what value does a pricing and a billing solution bring to the table that a core banking system cannot fulfill. read on