In an annual oversight hearing on Capitol Hill today, major Wall Street banks faced questions from U.S. senators on issues ranging from how banks can help Americans struggling to keep pace with their credit payments to how they’re tackling the growing menace of cybersecurity breaches. Citibank consistently invests in its cyber defense capabilities, Jane Fraser, […]
Financial institutions should expect data privacy laws like the California Consumer Privacy Act (CCPA) to spread to other states and countries, creating pressure on multinational banks. In this episode of “The Buzz,” Bank Automation News learns that even banks with customer service based in other countries will be challenged to comply with new regulations, according […]
KeyBank projects that 450 full-time equivalent (FTE) worker processes will be automated by January 2022, requiring the $176 billion bank to augment its automation team. The Ohio-based bank, which in 2017 began to roll out robotic process automation (RPA) in its frontline, middle and back-office operations, currently executes about 300 FTE worker processes daily. The bank’s bots are deployed in commercial credit, consumer lending, commercial lending, the contact center, ACH payments, human resources […]
The cost for a robotic processing automation (RPA) bot averages between $5,000 to $15,000, according to an oft-cited industry number. Bots can cost much more, however. In fact, when Wells Fargo started its automation program with unattended bots in 2018, the price tag for a bot was as much as $50,000, and Gartner told Bank […]
It’s Bring Your Own Benchmark time for financial markets.
Efforts to replace Libor — the interbank lending rate off which trillions of dollars worth of financial assets are famously priced — are still ongoing more than a decade after the financial crisis. And while SOFR (the Secured Overnight Funding Rate) has emerged as a frontrunner and the preferred option of the Alternative Reference Rates Committee — the battle for benchmark supremacy is far from over.
In fact, the number of alternative rates continues to multiply, with available options now including the Bloomberg Short Term Bank Yield Index (BSBY), the ICE Bank Yield Index (IBYI), the Across-the-Curve Funding Index (AXI), as well as Ameribor. There’s a huge irony in the race to create alternative rates. While regulators want to move on to something that avoids the weaknesses of the original rate, market participants have been doing their best to recreate Libor as closely as possible, with credit-sensitive rates like BSBY, BYI and Ameribor tracking bank funding costs.
There’s now a distinct possibility that the market will end up with a hodgepodge of benchmarks rather than a dominant Libor replacement. In fact, a recent survey by TD Securities suggests this is becoming the base case, with a sizable chunk of respondents now expecting a “multi-benchmark world.”
During COVID-19, the temporary shut-down of businesses devastated US small business. According to a survey in February 2021 from the Federal Reserve Bank, it’s projected that three out of every 10 small businesses in the U.S. say they likely won’t survive 2021 without additional government assistance during the pandemic. Considering there are roughly 30 million small businesses in the U.S., that means nine million small firms are at risk of closing for good or being deeply impacted financially.
Given that the country now seems to be coming out of the worst of the pandemic, the rebirth of small businesses presents an opportunity for banks who have also been impacted by the pandemic themselves. But banks that have historically used past-performance as an indicator of risk can no-longer rely on those models because of a black swan event. The new banking relationship for small business has to evolve.
CI&T, a global digital solutions provider, conducted a study in December 2020 targeting small and medium sized businesses. The characteristics of those businesses included:
Companies based in the U.S.
Respondents were in a management/decision-making role
Annual revenue less than $25M were included
1-500 employees (did not include sole proprietors)
Two key themes emerged from the findings.
REDEFINING VALUE The relationship between banks and small businesses are changing and the winners are those that can help the needs of these small businesses beyond that of the traditional deposit and credit model.
Over 84% reported having “very much” or some degree of trust in their bank. But the expectations are getting higher. With low interest rates, business owners who entrust large amounts of cash at the bank often feel like they are getting short-changed. Trust simply isn’t enough by itself but how does the bank fulfill all my needs.
The CI&T study concluded that small business owners are open to banks to provide non-traditional banking activities such as payroll services, expense management, tax advice, among other services. Although banks may not want to directly provide these as direct offerings, being a connector or part of the bank’s ecosystem creates a deeper relationship.
DIGITAL AS THE PRIMARY WAY OF DOING BUSINESS For many years, the prevailing attitude among financial service companies was that digital banking meant replacing in-person services with something automated. What was left out of that equation was the value of personal relationships particular for small business banking.
Although we see the move to more digital for customers, small businesses still want personal interaction due to the complexity of their work. The working model for banking also has shifted to be more virtual, moving away from just branches or mobile. How do we have bankers who may work in a remote context that provides personal consultation through online, mobile, phone and ATM.
Here it is a once-in-a-lifetime opportunity for banks to redefine their relationships with small business clients.
Is your bank ready for the rebirth of business?
To learn more about the critical relationship between small businesses and banks, check out the full report (RE) OPEN FOR BUSINESS for further details.
Among the most important recent trends in banking has been an increased tendency to outsource services previously handled internally. While this practice has its merits, a vendor’s operational weaknesses, financial instability or inappropriate conduct can create significant third-party risk that threaten a bank’s institutional standing and market fundamentals.
In the aftermath of the 2008 financial crisis, regulators began pressing banks to create more robust approaches to identifying, evaluating and monitoring third-party risk. The Federal Reserve further accelerated these efforts with its 2013 SR13-19 letter, “Guidance on Managing Outsourcing Risk.”
Banks responded in kind, building out comprehensive third-party risk management (TPRM) programs that subject vendors to extensive initial due diligence and quarterly or annual reviews. This approach worked well under then-normal circumstances.
However, “normal circumstances” now are out the window. Cyber events such as the COVID-19 impact on supply chains and vendor networks; the Target data breach launched by fourth-party perpetrators via an unwitting third-party HVAC vendor; and the SolarWinds attacks have dramatically reshaped views of the pace and scale of third-party risk. The pandemic, in particular, raised questions that hadn’t previously been imagined. Do banks’ third-party vendors have adequate information-security protocols in place for work-from-home employees? Can those vendorsactually survive a monthslong shutdown with zero revenue?
For risk managers, the new norm has revealed an urgent need for the following stronger TPRM requirements:
Frequent monitoring of individual vendors
No sane investor would monitor the market risk of a liquid securities portfolio on a quarterly basis — they’d miss far too much. Risk managers are now taking a similar view of third-party vendors. Pre-COVID approaches such as quarterly financial reviews, periodic surveys to vendors and occasional relationship calls are no longer enough. The pandemic demonstrated that vendors’ financial stability and operational capacity to meet bank demands can change significantly, and often with relatively little warning. Consequently, TPRM programs should provide for more frequent vendor monitoring and review.
Integration of near real-time information and analytics
Increased monitoring will require more timely information about vendors. Banks can address this need by enlarging their vendor-management teams — and by adopting more sophisticated data-analytics systems. Such systems can retrieve signals from financial, news and social media sources, and tip off a bank to any potentially dangerous developments among its vendors. The timeliness of third-party risk metrics and analytics needs to look more like market risk data feeds, implying a complete transformation in how third-party risk is conceived, measured and managed.
Risk transparency for fourth parties and beyond
Tightly integrated, interconnected networks of commercial relationships are capable of transmitting data — and vulnerabilities — rapidly and stealthily. Every third-party vendor is only as safe as their safest vendor or commercial relationship, and every fourth party is likewise only as safe as the weakest link in their own extended network. Banks need the ability to scan for risk “over the horizon” by understanding fourth-party relationships and vulnerabilities, including the identification of common fourth-party exposures impacting their vendor and commercial networks.
Stronger links between third- and fourth-party risk evaluations and action plans
For companies in all sectors, COVID-19 demonstrated that they won’t have the luxury of developing crisis plans when they are actually in a crisis; they need predefined action plans, triggered as soon as qualifying conditions arise. Banks should apply this lesson to TPRM. We advocate for the development of specific playbooks, with activation thresholds defined in advance, so that crisis-response planning takes place before a crisis, rather than after it is already underway.
Expansion of the range of possible TPRM actions
Historically, changes in vendor-risk profiles might have triggered a limited number of exposure-reduction efforts, such as the insourcing of affected services or the identification of alternative providers. We are now seeing banks consider a much broader and more creative range of responses to vendor distress and limitations. These include such options as prepaying on long-term contracts; making equity investments in the vendors; providing debt financing; or developing new capacity through a joint venture. Previously transactional commercial deals are now increasingly framed as partnerships, with a broad range of operational and financial structures.
While economies in North America, Europe and parts of Asia are emerging from the pandemic, it seems foolhardy to discount the possibility of future “unprecedented” shocks to our economic systems. Banks can, and should, prepare themselves by reviewing and strengthening their TPRM plans. Even without an epochal crisis such as COVID, these precautions will equip banks to realize the benefits of third-party relationships while guarding them against the potential hazards.
Written by Dylan Roberts, partner within the financial institutions group at Kearney
U.S. banks are looking to automation to aid in the yearend phaseout of the London Interbank Offer Rate (Libor) and to comply with a not-so-friendly push from the Federal Reserve to do so by Dec. 31. Libor is the most widely used benchmark by which financial institutions determine their currency swaps, loans, mortgages and credit […]
Two companies with valuations in the billions attracted investor interest this week. The latest Bank Automation News funding wrap includes one buy now pay later (BNPL) tech firm that has a unique partnership with Barclays US and another fintech that is breaking ground as a trading platform for recurring revenues. Here’s a look at the highlights: Amount: The latest fintech unicorn On Monday, BNPL technology firm Amount closed a Series D capital raise bringing in close to $100 million of additional primary […]
This week, Bank Automation News drilled down on key performance indicators (KPIs) for bots, and process discovery, or the pre-automation analysis of processes. While it’s common practice to use purely operational KPIs, such as measuring bots deployed, experts say a better practice is to align bot KPIs with business goals. One key step to determining […]
The U.S. is seven months out from testing the FedNow Service, the Federal Reserve’s real-time payments rail, and now is the time for banks to prepare. The question is: How? The FedNow pilot project launched in January of this year. Pilot participants, which include big banks like Citi, JPMorgan Chase and Wells Fargo & Co., […]
Federal Reserve Chair Jerome Powell turned up the volume in the U.S. digital dollar debate, announcing the central bank will publish a research paper and seek public comment as it weighs issuing one in the future.
“We are committed at the Federal Reserve to hearing a wide range of voices on this important issue before making any decision on whether and how to move forward with a U.S. CBDC,” he said in a statement on Thursday, referring to central bank digital currencies. “To help stimulate broad conversation, the Federal Reserve board will issue a discussion paper this summer outlining our current thinking on digital payments, with a particular focus on the benefits and risks associated with CBDC in the U.S. context.”
The announcement, during a week of intense volatility in cryptocurrencies, launches a Powell-style consensus-building exercise on the topic of a U.S. digital dollar, which until now has mostly been a technological project based at its regional branch in Boston. The approach of canvassing outside voices has been a hallmark of Powell’s leadership.
Powell said he wants the Fed to play “a leading role” in the development of international standards. Central banks around the world — most notably the People’s Bank of China — are moving ahead with digital currencies which could give them a head-start in how standards develop partly because they have actual experience.
“It is hard not to view today’s statement in the context of China and what is happening in the private crypto markets,” said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics in Washington. “There is a little bit of complacency at the Fed saying, ‘We are the reserve currency.’ That is shifting now.”
Tang said China’s digital currency is aimed at exerting more control over the domestic financial system but also for projecting soft power into the global trading system with yuan digital payments. “Those efforts have been accelerating perhaps more quickly than the U.S. was expecting,” he said.
A key issue for Powell and other Fed officials is how such technology would fit into the current U.S. banking system, which already provides electronic payments in a variety of ways.
Critics of the current system say it locks out many low-income people and charges them fees for basic services that people with high account balances don’t suffer. Digital currency accounts held by individuals could serve as a form of competition. Still, the banking system offers high protection for depositors, including insurance, that a less regulated system may not offer.
‘Fix the system’
“The problem is that we are over-reliant on the central bank’s payment system, which fails to deliver,” said Aaron Klein, a senior fellow at the Brookings Institution in Washington. Long check-cashing settlement times can lead people in under-banked communities to use so-called pay-day lenders who charge high fees for money advances. “The answer is to fix the Fed’s system and move society to a better payment system,” he said.
That may not mean digital currency, but something more like FedNow, a separate project the Fed is building that will compete with banks on same-day settlement, Klein said.
U.S. central bankers want to be clear about what problem they are fixing as they assess a digital dollar.
“Our key focus is on whether and how a CBDC could improve on an already safe, effective, dynamic, and efficient U.S. domestic payments system,” Powell said. “We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks.”
Powell said that “to date, cryptocurrencies have not served as a convenient way to make payments, given, among other factors, their swings in value.” He also said stable-coins, or digital currencies tied to the dollar, will attract more scrutiny from regulators.
He said he hoped the paper would represent a thoughtful process.
“Irrespective of the conclusion we ultimately reach, we expect to play a leading role in developing international standards for CBDCs, engaging actively with central banks in other jurisdictions as well as regulators and supervisors here in the United States throughout that process.”
Google unfurled an expansive range of consumer products and gee-whiz research at the kickoff of its marquee annual conference, with announcements spanning quantum computing, garrulous bots, automated photo animations and dermatology screenings.
The technology giant bookended the presentation with tools made for workplaces, underscoring the company’s desire to position itself as a leader in the less splashy business of enterprise software.
Alphabet Inc.’s Google opened its I/O conference on Tuesday, held virtually, by unveiling a series of upgrades to Workspace, its collaboration software suite. Traditionally, Google has devoted the conference to mobile software. Instead, it led off with a presentation from Javier Soltero, a vice president hired from Microsoft Corp. to manage Workspace. Soltero introduced a new ability to insert Google Meet video calls directly inside other tools like Docs and Sheets, a direct challenge to Microsoft’s Teams product and offerings from Zoom Video Communications Inc.
Google also touted Smart Canvas, a project-management feature. This means Google is plowing forward in a market full of much smaller players, such as Atlassian Corp., Asana Inc., and Salesforce.com Inc., which is undergoing a blockbuster acquisition of workplace-chat service Slack.
Even Google’s most far-out release of the day was framed as an assist to its cloud business. At the end of the keynote, Chief Executive Officer Sundar Pichai teased a new project called Starline. Using compression technology, Google showed off a way to hold video calls with people as 3D holograms. “It’s as close as we can get to the feeling of sitting across from someone,” Pichai said.
“We have spent thousands of hours testing it in our own offices, and the results are promising,” he added. “There’s also excitement from our lead enterprise partners.” He mentioned media and health-care companies, but didn’t offer further details.
Revenue in Google’s cloud division grew 46% to $4.05 billion during the first quarter. The company doesn’t share Workspace sales.
Here are some other key highlights from Google I/O on Tuesday:
Next generation AI: Pichai demonstrated LaMDA, the latest version of Google’s system for understanding language, with a bot speaking as a paper airplane. It’s in the research phase for now, but will presumably come to Google’s search and voice assistant.
Android privacy controls: Android didn’t have a major face-lift beyond new controls to let users know when apps were using their data, and a feature called “app hibernation.”
Computing advances: Google announced new plans around a quantum computing center; advances in AI-enhanced screening for skin cancer and radiology; and a new version of its TPU chip, which it said will be available to cloud customers later this year.
Less racist photos: Google said it has added features to its phone camera and software to better capture people of color following several embarrassing incidents over the years.
Search controls: Google added a slew of new privacy controls on Android and search, including a new way to zap your most recent searches.
Shopify integration: An announcement of a new way for Shopify Inc. merchants to get in front of shoppers on Google services boosted shares of the Canadian software company, which gained 3.4% for the day.
Samsung partnership: Google is teaming up with Samsung on Wear, Google’s software platform to convince more people to buy Android smartwatches. Samsung previously had its own software. The latest offering includes more integrations with the software and Fitbit, which Google owns, to compete with Apple Watch.
— Mark Grant with assistance from Nico Grant (Bloomberg Mercury)
With the recent rollout of its FactorSoft Web Portal in mid-April, Jack Henry Lending, the lending division of core technology provider Jack Henry & Associates, is looking to gain traction in a sector of secured finance where customers can be resistant to new technology. Factoring is a specialty finance model in which a lender advances […]
U.S. Bank will partner with data integrator Plaid to provide customers with easier access to third-party apps, a move that extends the bank’s strategic use of application programming interfaces (APIs). The deal is an indicator of the times as banks begin to signal more fintech partnerships in the coming year. U.S. Bank customers will be […]
Citi Ventures, the $2 trillion venture investment firm and incubator within Citibank, is setting its sights on investment in process discovery and API security in 2021. Citi Ventures Managing Director Matt Carbonara recently sat down with Bank Automation News to discuss his group’s investment appetite and the perils of implementing robotic process automation (RPA). The […]
U.S. banks could cut as many as 200,000 jobs in the next decade as they try to boost efficiency to compete with fintech and other upstarts encroaching on their territory, according to Wells Fargo & Co. The eliminations are likely to accelerate as the economy reopens following the Covid-19 pandemic and conditions normalize, Wells Fargo […]
When it comes to measuring a bot’s success, the most common key performance indicator (KPI) is the total time savings it provides a full-time employee. Calculating that is relatively simple, said Karen Reichle, the vice president of customer success engagement at Nintex, a workflow management and RPA software company based near Seattle. Reichle gave the […]
In this week’s episode of “The Buzz,” Bank Automation News explores the threat of randsomware attacks on financial institutions. Banks are facing the growing cybersecurity threat that shut down the Colonial Pipeline last week and the BAN team discusses how banks can avoid falling victim to similar attacks by ransomware hackers. In other news, emergent […]
RealKey launched its automated lending platform on Wednesday, entering a crowded market of fintechs that digitize and automate mortgage lending. The San Francisco-based company competes against Blend, Roostify, Floify, Better and other mortgage digitalization solutions, Leslie Parrish, a retail banking analyst with the Aite Group, told Bank Automation News. Better announced plans to go public […]