Digital Transformation_Issue 2
Find collaborative solutions to persisting challenges in payments, securities services and cybersecurity.
*BANKABLE INSIGHTS*Digital Transformation
<h2 style="font-size: 1.5em; color:#69BE28;">**Sibos edition**</h2>
We missed meeting you face-to-face at Sibos this year but are glad to have met so many of you virtually. In the spirit of digital collaboration, we would like to share a few articles with you that we hope you find of interest.
The importance of co-creation and industry collaboration to digitally innovate was our overriding theme.
That is why in late September we brought together a select group of industry participants in a series of virtual think tanks. These discussions aimed to find practical solutions to the continuing digitisation gaps in payments and securities services. Insights gained have been incorporated into articles in this Sibos edition of Bankable Insights.
Furthermore, and in line with 2020’s accelerated digitisation theme, cybersecurity has emerged as one of the key risks facing financial institutions (FIs), businesses and the wider communities to which we belong. SafetyTech is an emerging sector that focuses on protecting people from psychological risks and criminal dangers online.
Standard Chartered is the first bank to recognise the importance of SafetyTech from both an FCC perspective and as a means of building long-term resilience.
More on this topic in our article, Safer technology – Safer financial institutions.
Last but not least, we’d like to invite you to join Eric Robertsen, our Global Head of Research, in his upcoming Sibos panel on the future of global trade on 8 December 2020.
Please join the panel here.
Thank you for your continued engagement and support. We hope to see you in person in Singapore during Sibos 2021.
<BR><BR><BR><BR><BR>Unlocking the promise of digital payments – three focus areas
The world is moving towards a cashless future
The benefits for both consumers and businesses - convenience, cost and speed - are indisputable. So why is it that B2B digital payments are still lagging behind their B2C cousins and what concrete actions can we take to close that gap?
These very questions were addressed in September 2020, when Standard Chartered brought together practitioners from leading banking, fintech and infrastructure providers across the globe in a series of virtual industry think-tanks to propagate a multilateral effort with the end goal of driving concrete business outcomes.
The interest and engagement were evident from the depth and breadth of interactions among the participants. One reason being that rarely, if ever, participants across the entire B2B payments value chain have the opportunity to meet and look at the issues together and from different perspectives.
One of the benefits of work-from-home policies and practically inexistent business travel imposed by the pandemic.
The guiding principle of the discussion was to identify common pain points and commit to concrete actions to resolve them. Participants successfully pinpointed key areas that can be collaboratively addressed in both the near and long term.
To move the digital payments needle, we wanted to break through the noise of conflicting objectives and overabundance of opinions and focus on actionable outcomes that will benefit every part of the value chain. I am extremely pleased that we were able to bring together such a diverse and senior group of decision makers and get their commitment to push in the same direction.”
Global Head, Correspondent Banking, Standard Chartered
1. Lack of standardisation around digital cross-border transactions
Cross-border instant payments were highlighted as one of the most significant obstacles.
They are also among the most important, as they are central to everything from expanding digital commerce to the emergence of a real-time corporate treasury-management environment.
The value of cross-border payments is expected to rise more than 5 per cent a year to about USD30 trillion by 2022, according to an Accenture1 study. Cross-border shopping alone will account for an estimated 20 per cent of all e-commerce by 2022, with annual sales of USD625 billion2.
Explosive growth like this requires efficient payment rails, yet international payments remain intrinsically inefficient and often expensive, primarily because of the lack of a standardised global payments or messaging system (though the group agreed that the latter should be addressed with the implementation of ISO 20022). In many markets, the national banking infrastructure isn’t well set up to handle efficient cross-border transactions, a gap that has been filled by fintech companies who offer cheaper, faster, smoother systems.
As a concrete next step, think tank participants committed to identify corridors where all parties would agree to promote instant payments solutions for serial payments by lobbying relevant local authorities.
2. Non-uniform regulation across markets
The fact that regulations can significantly vary by jurisdiction does not help the case of improving efficiencies.
Compliance requirements relating to KYC, anti-fraud and anti-money laundering, for example, are far from uniform, often resulting in cumbersome and repetitive processes across the payments value chain. There is also a perceived unevenness that sees nimble fintechs subjected to lighter regulatory burdens than banks, despite the fact that fintech payment operators are reliant on banking infrastructure.
The lack of collaboration has led to a fragmentation of the payments landscape, with several consequences. The first has been a proliferation of technologies, leading to a wide diversity of options and solutions across different markets, geographies and languages. While this has delivered choice to customers, it has also complicated the task of creating a more unified global payments ecosystem.
Different payment hardware and software systems often lack a cooperative interface, resulting in processing delays, missing transactions and high fees.
The challenge is to develop real-time solutions that integrate systems, cut delays and maintain payment integrity. The solution identified to this problem was, once again, multi-lateral collaboration.
“The industry has to accelerate the engagement with regulators across the world, and it has to think more globally in a way that results in cooperative action. Together with other think tank participants, we plan to start approaching regulators as a group – potentially through the Bankers Association for Finance & Trade – and present solutions for such issues as cross-border instant payments and international settlement standards.”
Global Head, Cash Management, Standard Chartered
3. Lack of data integrity and optimisation
No digital payments discussion would have been complete without acknowledging the importance of data.
This remains a complex challenge. While financial institutions are almost drowning in data, most of them don’t have the infrastructure and processes to analyse and utilise it effectively. An industry-wide consensus on agreed data standardisation protocols could go a long way towards overcoming regulatory hurdles and improving payment efficiency. The industry must collaborate on collecting, storing, sharing and consuming data to unlock the payments process and make it faster.
The mushrooming of payments services has also raised the risk of expansion outpacing security, and a concurrent rise in cyber-attacks and fraud. The industry has to regain consumer trust in digital solutions.
While the think tank acknowledged that creating a seamless digital payments ecosystem will never be a monolithic, one-size-fits-all equation, participants committed to setting up a working group that will work across existing industry forums to address the agreed upon common challenges.
How do we bridge the gap between the promise and reality of B2B digital innovation?
- More action, less talk
- Focus on co-creation
- We're already there
Multi-lateral collaboration as the way forward
The discussion was spread over two half days and expertly moderated by Julia Streets, a leading industry expert and commentator on payments innovation and capital markets.
It was heartening to see such open collaboration among senior decision makers across the industry. Identifying what was in our gift to fix allowed participants to look beyond their organisational imperatives and focus on achieving a common goal.”
Leading industry expert and commentator on payments innovation and capital markets
The positive response to these think-tank sessions and ongoing commitment from participants showed that much can be achieved when everyone is willing to overcome group think.
Standard Chartered is committed to playing an active role in bringing the industry together to lead the next stage of the digital payment evolution.
<BR><BR><BR><BR>Why Straight Through Processing (STP) efforts in post-trade need to go multi-lateral
Only by aligning all players along the custody value chain in a multi-lateral effort, will we be able to make STP a reality.
The term Straight Through Processing (STP) – electronically processing a deal from execution to settlement without manual intervention – became an industry focus for securities trading back in the 1980s.
One could argue that it is either a sign of true perseverance or delusion that the financial services industry is still pursuing it thirty years later. In our opinion, it’s the former.
The fact that we are still tackling inefficiencies has more to do with complex, fragmented processes, lack of synchronised steps, lack of transparency across the securities services value chain, too many platforms and the creation of ‘digital islands’, than it has with delusion or chasing the Holy Grail.
So how does the way forward look like?
A multi-lateral effort to reduce risks and costs associated with trade processing
Standard Chartered feels strongly that only by aligning all players along the custody value chain in a multi-lateral effort, will we be able to make STP a reality.
That’s why in September 2020, leading up to Sibos, the Bank brought together practitioners from asset owners, asset managers, broker/dealers, market infrastructure providers, custodians and banks from across the globe in a series of virtual industry think-tanks. The goal of the discussion was clear: commitment to concrete multi-lateral actions that would address the intermediation lag in the custody chain once and for all.
Here's an overview of the common pain points identified, as well as actions outlined.
1. Agreement on common sets of data, leading to a single book of records and distributed ledger technology
The ability to leverage and analyse data in real-time and make the most of insights gained to better manage operations, continues to be a major issue for all participants. Since there are so many parties involved in processing a trade, all maintaining their individual books of record and performing their individual trade reconciliations, what is most blatantly missing is ‘one version of the truth’ which would make reconciliation efforts much more efficient.
Fragmented data conversations, too many intermediaries, all moving data around in unstandardised ways, continues to be a huge issue and increases risks and costs in trade processing. We need to tap into new technologies that, unlike traditional data bases, can provide a single source of agreed truth which is available in real time and with a focus on being value accretive to all market participants.”
Managing Director of Product Management, Securities Services, Standard Chartered
The think tank group agreed that leveraging distributed ledger technology would reduce duplication across layers and allow the industry to move one giant step closer to the creation of a single book of records. The pressing question that still needs to be answered is whether the industry – and regulators in different jurisdictions – will be comfortable with the idea of creating a consensus validated and maintained book of records.
Think tank participants agreed that this topic represented the perfect opportunity to kick off a multi-lateral exploration levering new technologies, focused on improving the efficiency of trade flows.
Technologies such as artificial intelligence (AI) and machine learning are enabling many organisations to leverage vast amounts of data already, allowing operations professionals to identify potential trade errors earlier in the process and address them. The challenge remains uniform adoption and interoperability of systems.
Just as with digital payment infrastructure, the rapid proliferation of different fintech solutions has been both a blessing and a curse. Adopters face the dilemma of either building something new and risking integration problems with existing APIs and blockchain nodes or assimilating and improving existing technologies.
To achieve this, we need to join forces and unify the ‘digital islands’ that that are currently fragmenting our industry, and focus on interoperability.”
Managing Director of Securities Services, Standard Chartered
2. Increasing resilience by eliminating manual processes and connecting ‘digital islands’
The think tank participants unanimously agreed that there are still too many manual steps in post trade operations ― and these are both time consuming and carry risk. Due diligence, KYC and client onboarding/servicing frequently require repetitive processes, reconciliation occurs at multiple stages of the custody lifecycle, and the administrative tasks related to reporting are not unified across the industry.
This became especially apparent amid the pandemic. In many jurisdictions, wet signatures are still the norm and when offices closed and work-from-home measures were imposed, there was no immediate fall back mechanism.
The group agreed that to improve resilience in trade processing, the unified adoption of digital technologies and the standardisation of data sets across the industry will go a long way.
Multi-lateral collaboration as the way forward, with an eye on ‘quick wins’
In the near-term, digitising customer onboarding and KYC, and eliminating manual paperwork and wet signatures, was deemed by think tank participants as a very achievable first step.
This might label me as an ‘industry nerd’, but in my many years of working in the industry, I have never tired of discussing ways of improving trade flows and increasing efficiency. The agreement by all think tank participants to align and create a collective commitment on concrete actions is an important step in the right direction.”
Leading industry expert and commentator on payments innovation and capital markets
In addition, a shared ledger system enabling multiple players in the chain to view the same information at the same time instead of waiting for responses, or the arrival of envelopes and faxes, was agreed on as the next opportunity for process improvement.
The think tank discussion was spread over two half days, moderated by Julia Streets, a leading industry expert and commentator on post-trade issues, payments innovation and capital markets.
Standard Chartered is committed to continue playing an active role in bringing the industry together and driving concrete business outcomes to the persisting challenges around automating and streamlining post-trade operations.
<BR><BR><BR><BR>Building diversity in leadership: Meet Standard Chartered’s Sibos 2020 STAR scholar and mentor
Both at Sibos and beyond, Standard Chartered remains commited to building a diverse pool of future ready leadership talent.
As Sibos goes virtual this year, and the financial industry navigates a new normal, we remain committed to nurturing a diverse pool of future-ready leadership talent.
Meet Mona Tan, our nominee for the Sibos STAR (Sibos Talent Accelerator Route) scholarship this year. A trade product manager in Standard Chartered’s corporate and institutional banking division, Mona has risen rapidly in her five years in the industry.
In that time, she says, trade has evolved significantly, with technology having emerged as a key enabler. Key shifts include the growing number of platform services, digital enablers and disruptors emerging to challenge traditional transaction banks. Yet complexities remain, and while much has been done to transform payments and trade, for example, “I’d challenge as to whether all of them have made the impact sought for – they focus on a specific element of the client process and not the end-to-end client journey.”
We’re still seeing clients having to work across multiple networks and platforms to maximise connectivity within their own supply chains. While these are starting to converge, I think conversely it’s also still very difficult to get consensus across the whole organisation as to how to adopt these solutions effectively while working within the risk appetites of various divisions.”
Trade Product Manager CCIB, Standard Chartered
Mona’s STAR mentor is Shirish Wadivkar, Standard Chartered’s Global Head of Correspondent Banking Products.
He says identifying and nurturing young talent is crucial in keeping Standard Chartered relevant, resilient, and sustainable. It also helps to address gender and diversity gaps.
As a senior manager and a male mentor, Shirish views it as his role to help close those gaps by “finding, nurturing and growing this talent that we need so very much.”
Promoting diversity is not a matter of altruism, adds Shirish – who was struck by Mona’s engagement and readiness to collaborate with others – but “an absolute necessity” for sustainability. Financial institutions are losing talent because the industry is “no longer attracting the best minds in the industry – they’re going to new industries or creating their own businesses.”
And the generation coming into the workforce has a very different idea of what it expects from a bank, and that also means our ideas about what customers need should also change. We will become irrelevant. The expectations of the world have shifted.”
Global Head of Correspondent Banking Products, Standard Chartered
Promoting diversity consciously
Sibos launched its STAR programme in 2019, to boost diversification in finance by providing women in junior and middle management the chance to grow their professional networks and expertise, and to progress in their careers1. Standard Chartered Bank had taken part last year as well.
Ibiyemi Okuneye, Standard Chartered’s Managing Director and Head of Trade Products and Transaction Banking for Nigeria and West Africa, attended Sibos as a 2019 STAR Mentee. Ibiyemi says the event offered unrivalled insights into innovations and advancements in financial technology, informed by visionary thinking.
It was particularly interesting to see the players emphasise the common realisation that the future of work would require a new type of skillset, and that institutions need to ensure that upskilling their workforce is at the centre of their strategy.”
Managing Director and Head of Trade Products and Transaction Banking for Nigeria and West Africa, Standard Chartered
Ibiyemi says much has changed in the industry in the past two decades, with significant progress made in increasing the number of women in senior roles.
“That was not the case before,” she says. “But to see more female leaders, institutions have to deliberately drive this agenda as part of our business strategy.”
Mentoring in a digital world
This year has brought an additional challenge: how to mentor in the digital environment that the COVID-19 pandemic has imposed. Shirish says there are inevitable downsides in terms of the loss of the human connection, because “mentoring is very human – it’s not transactional.”
On the other hand, having to mentor remotely, like any challenge, brings opportunities via new collaborative technologies, so that “mentoring can become more structured – you can exchange and work on documents together, you can whiteboard in real-time, and because there is no travel, you can contribute more [time] to mentoring.”
Mona agrees that, while the personal connection typically isn’t as strong in a digital setting, it is offset by providing more chances to connect.
“For example, earlier this month I had the chance to attend another industry trade event which was held entirely virtually. That was much better I expected – how the content was delivered and how people were able to interact,” she says. “In the end, it’s up to the individual to reach out.”
“Taking stock of your actions and giving people reasons to advocate for you also helps,” says Mona, who acknowledges the strong support she has received from line managers past and present. “When it comes to improving diversity, which comes in
different forms, it would be helpful for all to engage equally so that each person has an equal opportunity to contribute.”
“In the pandemic, with conversations happening virtually, that’s even more crucial.”
<BR><BR><BR><BR>Safer technology – Safer financial institutions?
And how does it help financial institutions (FIs) to fight financial crime and promote financial inclusion?
The financial services sector has been experiencing widespread digitisation for several years, but the pandemic has suddenly forced financial institutions all over the world to step up their digital pivot in order to continue offering seamless services to their clients.
In turn, this has widened the scope for cyber risks and financial crime. When it comes to cybercrime, humans are more vulnerable to exploitation than machines.
Together with leading cyberpsychologist, Professor Mary Aiken, Standard Chartered has recognised the importance of SafetyTech, to protect people online and to create cyber situational awareness within the financial ecosystem, positioning the sector for longer-term sustainability.
The emergence of SafetyTech
Cybersecurity at FIs is about more than just protecting computers.
Protecting data, networks and systems is vital, but it is equally important to protect the people who use the systems from online harm. People are arguably one of the most vulnerable parts of the security equation. Protecting people in cyber contexts requires understanding not only those who are attacking the institution, but also the people financial institutions serve and employ.
What is the difference between cybersecurity and cyber safety – according to Professor Aiken "its binary, cybersecurity focuses on protecting data, cyber safety or 'SafetyTech' focuses on protecting people."
A new sector, the online safety technologies or 'SafetyTech,' which complements the existing cybersecurity industry is gaining prominence.
Cybersecurity traditionally focuses on protecting data and information from cyberattacks, SafetyTech focuses on protecting people from psychological risks, harms and criminal dangers online – from misinformation to online harassment. It is critical that networks and systems are robust, resilient and secure however, it is equally important that people are psychologically robust, resilient, secure and safe in cyber contexts.”
Professor Mary Aiken
Leading Forensic Cyberpsychologist
SafetyTech describes the emerging online safety technologies sector which delivers solutions to facilitate safer online experiences, and to protect users from harmful content, contact or conduct, protecting users from everything from misinformation to online harassment.
To take one example, Standard Chartered uses safety technology to block access to certain websites and dark net platforms.
The COVID-19 pandemic has changed how we live, accelerating FIs’ digital pivot and multiplying associated risks. According to INTERPOL, the pandemic has seen criminals shift to targeting major corporations and governments and propagating fake COVID-related news. In one month, one country reported 290 postings of such fake news, with the majority containing concealed malware1. In this context, "SafetyTech is not an invention; it's a catch-up,” explained Professor Mary Aiken, a world leading expert in Cyberpsychology who has done extensive pioneering work in this new field, and a guest speaker at the Standard Chartered Correspondent Banking Academy Masterclass on 10 November. “Online safety technologies or SafetyTech ensures that the levels of assurance we expect in the real world are matched in cyber-contexts.”
By working with safety tech, we can now better understand the criminality of the networks that we're dealing with, and how we can get under their skin and put up defences to prevent abuse of our systems and our clients. By understanding SafetyTech, you can better protect and or respond to ransomware attacks and offer more digital banking and ensure that it’s safe and that your communities can trust that they can use it.”
Managing Director and Global Co-Head for Financial Crime Compliance, Standard Chartered
SafetyTech for institutional resilience
SafetyTech aims to ensure that humans are resilient and secure when interfacing with technology.
To this end, Professor Aiken said that financial workers should be trained to have increased cyber-situational awareness and trained to become more aware of their “digital exhaust,” that is, the identifiable traces people leave on the Internet, for instance on social media. Professor Aiken recommended that in order to develop cyber-situational awareness and to check out your digital footprint, you should search yourself often, and when you do this, use a private window or incognito mode option. Personal information attained online facilitates a range of cybercrimes from socially engineered attacks, to identity theft and cyber fraud.
“Basically you need to think like a profiler, be cognizant of your digital exhaust and develop cyber situational awareness,” said Professor Aiken.
Professor Aiken suggested multiple levels informed by the online safety technologies taxonomy2 whereby FIs can implement SafetyTech:
- At the system level: Removing illegal content such as that linked to child sexual exploitation, terrorism and other serious crimes.
- At the platform level: Tackling potentially illegal content or conduct, such as hate crime, or harassment, coercive behaviour and intimidation.
- At the device or endpoint level: In the form of user-initiated protection, applications and products that can be installed on devices to help protect the user from harm. Network filtering can actively filter content, black-listing or blocking harmful content. SafetyTech methodologies that are particularly important given pandemic induced surge in remote working.
In the information environment: Flagging content with false, misleading and harmful narratives, through fact-checking and disrupting disinformation (e.g. by tagging trusted sources and building confidence in them).
Via online professional safety services: Through training for increasing psychological resilience, cyber situational awareness and cyber safety practices, along with research frameworks and methodologies for auditing, evaluating or mitigating potential harms. In addition, advisory support for implementing technical solutions, enabling the development of safer online communities by embedding safety-by-default.
Human behaviour can change in cyber-contexts, Professor Aiken noted, due to powerful psychological drivers such as the Online Disinhibition Effect, compounded by anonymity afforded by the Internet.
Behavioural evolutions, coupled with the 24/7 'always on' nature of digital services, along with the profusion of communication channels, has increased the risk of vulnerability to cybercriminality, and has expanded the potential attack surface. Professor Aiken is working on the development of a SafetyTech service in the form of 'cyber-psychometric' testing, that would be of particular relevance in terms of tackling Insider threats, bottom line she says, "you need to know who your employees are in the real world, and you need to know who they are online."
Professor Aiken points out that on the dark web (i.e. that part of the internet which is invisible to search engines and can only be accessed with dedicated browsers), insiders can sell access to their employers’ confidential systems, they can also be recruited by sophisticated threat actors.
Understanding the motivation of insiders who have the potential to cause damage – whether disgruntlement, revenge or outside influence – is crucial to identifying and preventing it.
SafetyTech for financial inclusion and sustainable development
The impact of implementing SafetyTech goes beyond protecting institutions and businesses and has broader societal implications.
One key to achieving the UN’s Sustainable Development Goals is extending financial services to unbanked people3.
SafetyTech can help to build the trust of the unbanked in digital banking, while preventing them being exploited by unscrupulous third parties, for instance those that overcharge migrant workers for remitting money to their families.
To date, much of the cyber-safety discussion on the societal level has focused on protecting children and teenagers.
"We don't really see the same focus when it comes to vulnerable adult populations," Sullivan noted. But in many cases, it is urgently needed. "At our bank we have a strategy to provide microfinance to women in need in vulnerable populations, as well as certain countries where additional economic support is needed, for instance to combat corruption,” Sullivan explained.
“In those populations there's a lack of feeling of safety when on the internet. Women most definitely tend to be more targeted when using the internet. Some countries also lack the same protections around freedom of communication. SafetyTech can come to the rescue and really shore-up the digital products we're offering. We want our clients to feel that they are not going to be victimised when accessing our digital banking platform."
To date, Standard Chartered is the first, and to the best of our knowledge, the only financial institution to recognise the importance of SafetyTech from both a financial crime compliance (FCC) perspective and as a means of building long-term resilience.
SafetyTech speaks to the bank’s three Sustainable Agenda Pillars: Sustainable Finance, Responsible Company, and Inclusive Communities.
SafetyTech supports sustainability goals concerning health and wellbeing, quality of education, gender equality, economic growth, and our ability to build partnerships to support these goals.”
Global Head for Financial Institutions, Corporate & Institutional Banking, Standard Chartered
By ensuring that people are just as well protected from cyber-threats as are machines and data, FIs can promote the sustainable financial inclusion of those who need it most, while at the same time shielding their employees from harm.
Essentially SafetyTech ensures a focus on People risk and vulnerabilities and is another dimension to cyber leadership that is critical in the fight against cyber risk and cybercrime, concluded Sullivan.