Via discussions hosted on the Capco Institute Blog, members debate high profile issues, with frequent and provocative contributions from Capco thought leaders. For institutions around the world, how will the changing financial services landscape form the future of finance?
Published July 29, 2015
We know challenger banks have the potential to be powerful disruptors, compared with their more traditional competitors. But are any of them likely to become a real force on the UK high street any time soon? Sure, challengers boast speed, connectivity and convenience that traditional banks lack. But the lack of trust, which is now synonymous with the banking industry, affects new-comers just as much as the older hands – or so it seems.
Yes, established banks have a long way to go to regain our confidence in the post-crisis world, still full of regular misconduct, mis-selling and manipulation headlines. But at the same time, how many of us would trust a small, new institution we’ve not heard about to be a custodian of our assets? Well actually, more and more it would seem.
Let’s look at some facts. In recent years, we have seen new names enter the British banking market. Brands such as Metro Bank and Aldermore are just a couple that spring to mind, with some 26 banks in discussion with the Financial Conduct Authority in the pursuit of banking licences. Let’s also not forget brands such as Tesco and Sainsbury’s - both have successfully managed to leverage their brand and existing customer base to sell financial products that are tailored to their customers’ needs. A couple of salient examples that challengers need not come solely from the financial services industry!
Authors Matthew Berkowitz, Ashwin Gadre Published July 28, 2015
When the government of the United States starts asking questions about conflicts of interest in the nation’s $7.5 trillion retirement investment market, it’s not something you ignore. In a recent study commissioned by the White House, findings show that consumers could stand to lose over $17 billion due to ‘conflicted advice’. Or to look at it with human eyes, if a retiree receives conflicted advice when rolling over a 401(k) to an IRA at retirement, he or she will lose an estimated 12% of overall savings over 30 years1. Now that’s not right, and President Obama as well as the Department of Labor (DOL), vowed “to protect investors and also level the playing field for hard working and honest financial advisors2”. But what will new oversights and regulation mean for the wealth management industry? What amount of investment will wealth management businesses need to make to stay in the retirement advisory game?
Author Matthew Berkowitz Published July 23, 2015
It is no secret that since the credit crisis of 2008, a trust deficit continues to persist in the financial services industry. Recent studies have shown that consumers view financial services as the least trusted industry, with only 46% of the population having any trust at all1. Consumers’ confidence in financial institutions has plunged, nowhere more so than in wealth management. There, concerns are rising about unethical business practices and advisors placing profits ahead of clients.
At the same time, finance and financial decision-making is increasingly critical especially in today’s environment where the onus of saving and preparing for retirement is largely left to the individual saver. This is due to an evolution within the retirement world, a shift from traditional pensions that provide guaranteed payment for life, to defined contribution plans and Individual Retirement Accounts (IRAs). For financial services institutions and consumers both, rebuilding trust to help clients would be the best road forward. Could the Department of Labor (DOL), with its new ideas and guidelines for wealth managers, help usher in these much-needed, new relationships?
Published July 22, 2015
The rapid growth of sophisticated telco networks in Africa is one of the great communications success stories of our time. In many cases, countries and their populations go rapidly from a near ‘no-phone’ market to very sophisticated 4G networks.
Financial services firms operating there will need to achieve the same ‘leapfrog’ effect, building on the unstoppable growth in the mobile phone usage. But at the same time they can help accelerate the spread of so-called 4th generation banking and help achieve, financial inclusion, one of the world’s greatest economic challenges.
Author Rolf Enders Published July 17, 2015
Radical cost-cutting, branch-closing and job-axing are no longer enough. In the era of digitalization, low interest margins, strict regulations and brave new-entrant banks will need to find a new approach to regain profitability.
Most banks fail to earn their cost of capital. In Germany, for example, only 6% of banks earn their equity costs. Additionally, it is estimated that 40% of the costs incurred in banks are due to wasteful activities that add no value to the end consumer.
Authors Tommy Marshall , Christian Wuerth , Katie Hermann Published July 16, 2015
Over the past several months, your card issuer (usually a bank) may have sent you a new credit card (or debit card if your issuer is ahead of the game) equipped with a funky little chip on it. You probably received some marketing materials explaining that this chip enhances your card security, and instructions for using your new card at “EMV terminals” you have yet to actually see in the marketplace (unless you’re an experienced world traveler). Your card issuer may also now be asking you to use a PIN with your credit card (well that’s certainly annoying). So what’s the deal with the chip and PIN?
Author Isabel Naidoo Published July 14, 2015
Remember the days of the Chief Learning Officer - the person who told you what to study, when and where? This was usually in a classroom and then later - a virtual classroom. Surely in this era of choice you need to be your own CLO, your own learning and development architect, taking advantage of the best human and Artificial Intelligence available.
Authors Nitesh Kadakia, Kapin Vora , Kyle Kamka Published July 09, 2015
Global digital titans, like Apple, Google, and Amazon, are continuously innovating to improve and re-define customer experiences, sending customer expectations soaring, and leaving other industries scrambling to keep up. Look at Wealth Management. Disruptive digital innovators are on the rise in traditional Wealth Management services like advice, investing, financial literacy – and even lending! How will wealth managers react? In a recent study by the World Economic Forum (WEF)1 entitled, “The Future of Financial Services - How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed”, industry experts surmised that “incumbent players are most likely to be attacked where the greatest sources of customer friction meet the largest profit pools”. A perfect storm for wealth managers.
Author Matt Ricketts Published July 07, 2015
MiFID is already enough of a challenge without making a sub-optimal choice of APA. Getting it wrong can mean your unwanted entry ticket to a whole world of unintended – and undesirable – consequences. In contrast, good selection will help make at least one segment of MiFID implementation easier to complete.
Author Dr. Dimitrios Geromichalos Published July 01, 2015
In finance, social media is generally perceived as a major source of reputation risk. Anyone can post an opinion, good or bad, that can spread all over the world in a matter of seconds.
Author Arunima Haque Published June 29, 2015
Pensions are back in the headlines and flavour of the month online. In March 2015, Google Trends in the UK saw a spike in the number of searches for ‘pensions’ and related terms, as the deadline for reform approached.
Authors Tommy Marshall , Tim White Published June 24, 2015
Fact. Being a professional, charged with shaping and building the future payments strategies for the world’s financial institutions, is one of the most challenging positions in the industry today. The trifecta of tension; regulation, customer demand and legacy systems, is helping to build pressure from within, as bold new entrants batter the door from without. Instantaneous, opaque and yes – even… free – are words being used to describe assumptions in payments, no longer asked for, as much as expected. Although the regulatory mandates come whipping past, a blinding blizzard pressing for speed, the real challenge for banks will be to take an informed, future, global view, and be able to translate that tactically. Here are some things to consider:
Authors Bernd Richter , Carsten Hahn Published June 22, 2015
Fines aren’t fine any more. That should be a message resonating loud and clear around financial institutions, as another year of the rolling regulatory tsunami gets fully underway. We’re braced for the ever-rising tide of compliance-related complexities and non-compliance penalties. We need more than ‘business as usual’. Why?
Author Geraldine Balaj Published June 10, 2015
Adapting blockchain technology to enhance legacy post trade processing and asset servicing is quickly becoming a reality on Wall Street. Banks and other financial services firms are investing time and money to determine the best adaptation of blockchain technology into their enterprise strategies. One example is what’s going-on over at Coinsetter. Coinsetter, a global Bitcoin exchange based in New York City, recently announced a new venture called “HighLine” that aims to improve how trades across Wall Street are cleared and settled through the application of Bitcoin’s blockchain technology*. Their new “On-Blockchain Settlement” system, attains a never before seen, level of stark transparency.
Author Samit Desai Published June 09, 2015
Now, we have a choice. Collateral. Damaged. Or … Collateral. Managed. With an estimated $1.2 trillion of additional collateral needed to meet new margin requirements, urgent action is now unavoidable to tackle the ‘Great Collateral Squeeze’ head-on.
Author Geraldine Balaj Published June 09, 2015
Think about this. When I started commodity derivatives trading in the 80’s on Wall Street, I booked trades by writing up tickets. Archaic I know, but it’s the honest truth. Each commodity had a code (AU for Gold), and each futures contract had a symbol for the month (X for August). When I wanted to sell August Gold, I would take out a ticket, circle ‘S’ for sell, write AUX and the volume, and then, get this, time stamp it, and throw it in a basket. At the end of the day, I would go threw the trades, rip off the top copy for my records, and take the carbon copies left, literally, to the back office, where, hopefully, they would be processed into the banks central system. Seems absolutely antiquated I know, but yet, what if blockchain technology is about to make us feel that way about how we process trades today? Could blockchain be about to change the way we trade?
Authors Nevil Nayak, Bryce Vandiver Published June 01, 2015
US payments history is being made, or re-made, right in front of our eyes. OK. OK. Maybe not as fast as some of our European and Latin American neighbors, but with the National Automated Clearing House Association’s (NACHA) May 19th announcement, the game irrevocably changed. The regulatory mandate approved changes to provide same day payments on the US ACH network, a computer-based clearing and settlement facility, which in 2014 handled over 23 Billion electronic payments, moving funds in excess of $40 trillion. It seems, in payments, the perfect storm is brewing. One in which regulatory push, and customer demand, face off against the manual operations, legacy systems and cumbersome cores of many US banks. Will current banking systems be able to uphold new regulatory requirements, and what will it take to get there?
Author David Rapsas Published May 30, 2015
I’m sure a lot of people just hoped it would go away. That the idea of holding the world’s financial institutions responsible for the risk management of their third party vendors, would stay just that – an idea. But when the OCC issued its directive declaring, “The board of directors and senior management are ultimately responsible for managing activities that control risk in third party relationships*”, things got personal. And very serious, fast. The fact is, that describing, monitoring and reporting third party vendor risk is a moving target in an ever-connecting world, and its challenging banks.
Authors Marc Mulford, Jason Malcolm Published May 29, 2015
Ok. Let’s just go through this one more time for any recent joiners to the Crypto-discussion. You must separate the concept of virtual currency and blockchain technology. Crypto-currency is virtual currency: a means of transferring value digitally, without a physical representation of the value exchanged (like a dollar). The technology that makes this possible is something called “blockchain”: a series of distributed databases that record and verify transactions between owners of a crypto-currency. The transaction information is masked, and made publically available, providing verification of transactions and transfers for future use. Think of Bitcoin and blockchain like e-mail and the Internet. Can you e-mail using the Internet? Yes. Is there a plethora of other things you can achieve using the Internet? Yes. As it goes with blockchain technology.