FINTECH INSIGHT 2014

Financial Technology trends and innovations from leading industry influencers

CONTENT
Introduction Steve Ellis, Metia Core Banking Daniel Latimore, Celent Christine Barry, Aite Group Daniel Mayo, Ovum Capital Markets David Easthope, Celent Sang Lee, Aite Group Cryptocurrency David Birch, Consult Hyperion Scott Dueweke, Booz Allen Hamilton Zennon Kapron, KapronAsia Julie Conroy, Aite Group Gilles Ubaghs, Ovum Enterprise Data Management Virginie OShea, Aite Group Ben Keeler, Citisoft Bank Marketing Jaroslaw Knapik, Ovum Michael Araneta, IDC Insurance Craig Weber, Celent Donald Light, Celent Pat Speer, Aite Group 1 1 2 3 4 5 6 7 8 9 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Payments Gareth Lodge, Celent Gilles Ubaghs, Ovum Leo Lipis, Lipis & Lipis Thomas Zink, IDC Amy Hoke, Mercator Retail Banking Zilvinas Bareisis, Celent Stephen Greer, Celent Tim Walker, Deloitte UK Lucian Morris, Deloitte UK Richard Samuel, Deloitte UK Risk Management Peyman Mestchian, Chartis Research Medy Agami, Celent Trade Execution Kevin McPartland, Greenwich David B. Weiss, Aite Group Outsourcing Eike Bieber, PAC Peter Bendor-Samuel, Everest Jimit Arora, Everest How we chose our key influencers Sally Yates, Metia 26 27 28 29 30 31 32 33 33 34 34 34 36 37 38 39 40 41 42 43 44 45 46 46

 After 25 years in the sector, we are certain financial technology has never been more challenging, faster moving, more surprising, more exciting or, quite simply, more difficult to forecast.

Steve Ellis
Founder, Metia

INTRODUCTION

Can you count the implications of technology change and the evolution of financial services crashing together?
Increased burden of compliance Crushing pressure on the balance sheet Pervasive threat of organized crime  Emergence of new entrants Focus on customer experience  Growth of mobile  Disruption in the financial supply chain  Indifferent, fickle customers  Consumerization of technology  Unknown implications of cryptocurrencies Thats just some. The 34 expert analysts contributing to this the first Fintech Insight report examine these and many more. After 25 years in the sector, we are certain financial technology has never been more challenging, faster moving, more surprising, more exciting, or, quite simply, more difficult to forecast. If you want to know how we selected these influencers from among the many expert opinions in the world of fintech go to page 46. Lastly, a heartfelt thank you to all our contributing experts for sharing your insight and wisdom, Im already looking forward to see how the year ahead unfolds for fintech. We trust you find the report provides a valuable collection of expert viewpoints and a handy jumping off point to find out more from our expert contributors in their public blogs and tweets. Youll find all the right addresses alongside each expert contribution.

CORE BANKING
Out with Rip and Replace, in with componentization. Driven by the need for more flexible technology that can keep pace, banks are focusing ever closer on the customer experience, predictive analytics and mobile.

CORE BANKING

COMPONENTIZATION AND EXPANDING THE DEFINITION OF CORE

Innovation and core banking arent necessarily thought of together. After all, a core banking replacement is a once-ina-generation activity, so why innovate? Innovation, though, accretes. In 2013 we began to see momentum really start to gather behind an architectural approach. Celent calls it componentization. Simply put, its the notion that the core no longer has to be a monolith it can be composed of discrete parts that operate independently but coherently. APIs, a key enabler of componentization, will be critical to facilitating this move. The dog that didnt bark last year was a surge in American core replacements. But with new US activity at Zions with TCS and Discover with Infosys, 2014 may be the year that the dam of core replacement finally breaks. Much will depend on whether these two specific implementations are successful. If they are, then a host of fast followers will jump on the bandwagon. If not, the cause of core replacement will be set back another two to three years. The legacy barrier The challenges that aged cores present to banks high costs, lack of programmers, loss of agility, to name but a few have been well documented. Whats bringing the situation to a head now is the accretion of all these factors, exacerbated by the demands being placed on banks by mobile specifically and multi-channel more generally. End customers are demanding more of their banks, and legacy core systems are a serious barrier to banks being able to respond to these demands.

Daniel Latimore
Senior Vice President, Celent

The concept of Rip and Replace, if not dead, is in critical condition. Vendors who are open to interoperability will have a leg up in 2014.

Vendors continue to expand the definition of whats truly core, moving it beyond traditional deposit and lending functionality. Many are building components theyre happy to have interact with other vendors legacy cores theyre betting that once bank customers get even a small taste of new functionality, their appetite will be whetted and more business will follow. The concept of Rip and Replace, if not dead, is in critical condition. As more vendors seek to promote piecemeal transformation, rather than big bang, the alternatives for core replacement will look much more palatable. Vendors who are open to interoperability will have a leg up in 2014.

https://twitter.com/DanLatimore http://www.linkedin.com/pub/dan-latimore/0/4/190 http://bankingblog.celent.com/author/dlatimore/

CORE BANKING

THE NEED FOR FLEXIBLE TECHNOLOGY AND EMBEDDED ANALYTICS

Core banking replacements continue to take place slowly, it is very time-consuming and expensive, and things have moved slowly in the US and around the globe. Weve not really seen a lot of brand new innovation in this space, but two key things are componentized architectures and the concept of the app store. Moving away from rip and replace so that banks can conduct projects in phases is very attractive and were seeing more institutions moving in this direction. The overarching theme is the need to focus much more on the customer and the customer experience. This drives the move to componentization and the app store, allowing customers to respond quickly to customer needs and look at analytics. In 2014, we will see greater use of analytics. FIs are focusing on improving the customer experience and this will see them looking more at predictive analytics. While they have been using analytics technology already to some degree in areas such as risk management and fraud prevention, going forward we expect them to use analytics technology to predict the products customers will use and cross sell more effectively. Remaining headaches The risk, cost and lead time associated with core banking replacements will continue to cause headaches for banks in 2014. In addition, regulatory compliance and fraud prevention will continue to impact every decision. This has held some banks back in 2013. We expect to see FIs focusing more on growth in 2014 and that should feed into more core banking replacements. 2014 will witness a focus on hosting and SaaS, componentization, flexible technology and embedded analytics. There will be a demand for strong dashboards, both for bank users and customers. As already stated the move away from the rip and replace model will continue and the use of hardcoded, inflexible software will fade.

Christine Barry
Research Director, Aite Group

The overarching theme is the need to focus much more on the customer and the customer experience. This drives the move to componentization and the app store.

The app store concept is also taking off more. Using this technology, banks and credit unions can release enhancements faster, make these available for others to download from the app store and were also seeing institutions joining forces.

https://twitter.com/CBarry_aite http://www.linkedin.com/pub/christine-barry/1/235/285 http://aitegroup.com/blogs/christine-barry

CORE BANKING

MAINTAINING THE USER EXPERIENCE

Innovation in core banking is apparent in two key areas relating to user experience maintenance. Firstly, with the evolution of core banking systems, the focus is moving to optimizing business processes and how the employees use the systems within the bank. Productivity and usability are key to achieving cost savings. Were seeing lots of investment in user experience which hasnt previously been a key component within core banking. But as users experience the tablet approach in other areas, core banking systems need to keep pace. Secondly there is component modularization. Most packages have moved to a modular architecture. Most need to be deployed in an architectural framework but larger banks now want the ability to deploy components by themselves in a non-legacy environment. They want to take a phased approach. Big Data miss The big miss of 2013 was Big Data. People thought it would take off. Theres been a lot of hype, but its already moved to the trough of disillusionment phase. The feedback from banks is that they dont want to hear another Big Data story. Use cases are low and often less dramatic versus other issues which are more pressing. It will come, but it wont be as big as everyone predicted. As for innovations to watch for in 2014, in Europe we will see a strong focus on digital channels, particularly the online and mobile channels and gamification type concepts. In North America the trends are similar, but more of a focus on mobile rather than across

Daniel Mayo
Practice Leader, Ovum

Were seeing lots of investment in user experience which hasnt previously been a key component within core banking. As users experience the tablet approach in other areas, core banking systems need to keep pace.

digital channels. There will also be more advances in the area of personal financial management. Sentiment analysis, providing an insight into how customers are feeling, will also start to take off and banks will be able to customize the screen accordingly. Well continue to see a lot of start-up interest in the areas of mobile banking and mobile payments. In terms of analytics and digital marketing, there will be a lot of attention on how consumer data can be used in a way that doesnt violate privacy, but benefits both the bank and consumer, including the integration of data with online channels.

http://www.linkedin.com/pub/daniel-mayo/0/530/468 http://ovum.com/author/danielmayo/

CAPITAL MARKETS
The pace of technology-led innovation remains unabated. Market microstructures are being transformed. Markets are becoming ever more interconnected. This leads to opportunity, a need for efficiencies and a competitive landscape.

CAPITAL MARKETS

ANALYTICS GAPS STILL EXIST: PRIVATE CAPITAL MARKETS TO ACCELERATE

2013 was the year of advancements in capital markets analytics as well as wealth management. In capital markets, analytics and unique data sets are helping traders find liquidity in markets like fixed income. While analytics have been present in traditionally liquid products which trade frequently, less liquid products are being better supported by analytics. The analytics tools are also typically enhanced by workflow capabilities, allowing traders to do more. For example, in fixed income trading analytics are powering search, inquire, match and substitution functions across products. Post-trade analytics On the post-trade side, the analytics revolution has only just begun. In wealth management, combining analytics and aggregated data will help wealth managers improve customer and advisor retention, discover investment opportunities and monitor operational and reputational risks. In capital markets, as we had mostly predicted, the SEF explosion has yet to fully materialize in terms of trading volumes. While these platforms offer new and interesting protocols, so far it has been the usual faces. It also appears that consolidation around asset classes is occurring. I expect to see private capital markets services accelerate in 2014. There is a wide array of new technologies recently launched

David Easthope
Senior Vice President, Celent

The SEF explosion has yet to fully materialize. While these platforms offer new and interesting protocols, so far it has been the usual faces.

or being launched which enable investors to search, inquire, match and trade across the private capital markets sphere. Products supported include fixed income, structured products, hedge funds and other institutional investments, private placements and other less liquid securities in the marketplace. Much of this private capital markets industry is supported by less advanced technology than you might suspect. But rather these firms are leveraging innovative data and analytics and basic Web 2.0 technologies to support their emerging business models.

https://twitter.com/deasthope http://www.linkedin.com/in/davideasthopecfa http://wealthandcapitalmarketsblog.celent.com/author/deasthope/

CAPITAL MARKETS

MARKET STRUCTURE CHANGES AND THE SEARCH FOR A SUCCESSFUL RECIPE

Sang Lee
Managing Partner, Aite Group At the global level, market consolidation has been the major trend as large exchanges have scrambled to further expand their presence regionally as well as broaden their support for different asset classes. While there are many different reasons for this trend, one of the key drivers is increased competition in domestic markets. Impact of ECNs The initial impact of the emergence of ECNs seemed, at the time, fairly innocuous at best. With names like Island, Strike and BRUT, it was pretty difficult for the established Wall Street veterans to take these new market entrants seriously. Nevertheless, the launch of ECNs ultimately signaled the end of the old way of trading and triggered what has amounted to a complete transformation of market microstructure, not only in the US market but also in other major financial centers globally. In extreme cases in the US market, the market share of incumbent exchanges declined from more than 90 percent of the market to less than 25 percent. Increased competition led to a dramatic decline in explicit execution costs but have also generated less than appealing consequences and in some cases raised fundamental questions about the fairness and stability of the capital markets.

One of the most fascinating changes over the last decade has been the transformation of the exchange competitive landscape.

Global capital markets have seen significant changes over the last 15 years. The advent and adoption of innovative technologies has made exchange-traded markets more transparent than ever before and substantially lowered the barrier to market entry. Along the way, electronic trading has become a competitive requirement and marketplace automation has created high levels of efficiency while eliminating many jobs. One of the most fascinating changes over the last decade has been the transformation of the exchange competitive landscape. The process of demutualization essentially altered exchange DNA, transforming them from member-owned to profit-maximizing entities increasingly coming into conflict with their former members.

https://twitter.com/AiteSang http://www.linkedin.com/pub/sang-lee/0/31/382

http://www.aitegroup.com/blogs/sang-lee

CRYPTOCURRENCY
A signal for change or a currency for the dark net? Surely an opportunity to decentralize payments control. Trust, transparency and security will need to evolve but there are ways to do this without necessarily sacrificing anonymity.

CRYPTOCURRENCY

THE MAN ON THE STREETS GUIDE TO CRYPTOCURRENCY

How do you explain Bitcoin to the man on the street? My favourite narrative is that of the stone currency of the nation of Yap, a group of four islands in the South Pacific. The islands have nothing that could serve the function of money that we are used to. Consequently the inhabitants of Yap used stones. A few centuries ago, they discovered a particular kind of limestone on another group of islands about 250 miles away. Now, suppose that chief engages in some form of trade. These large stones are too big to move. Since the stones were too big to move, they didnt bother. The tribes just agreed that the particular stone no longer belonged to Chief A and now belonged to Chief B instead. Everyone was happy. Invisible currencies The system worked even when the stones were invisible. Heres what I mean. Suppose the expedition quarried some stones but on the return journey, as would happen from time to time, their raft got caught in a storm and to survive they had to chuck one of the stones off of the raft. When they got back to the chief they told him about the stone which is now five miles down at the bottom of the Pacific. Everyone agreed that the stone still belonged to the chief and when he used that stone in a trade all of the tribes agreed that the stone belonged to the payee. Not only does the stone not go anywhere, none of the participants in the trade have ever even seen it. In a way, it doesnt matter whether the stone actually existed or not. Everyone agreed it did, and therefore it was money. In Bitcoin, instead of expending manual labour to find a kind of stone that is rare, we expend computing power to find sets of numbers that are rare. These sets of numbers, the bitcoins, have a particular mathematical property that makes them difficult to find but once you have found them it is easy to check that they have that property.

David Birch
Global Ambassador, Consult Hyperion

The media interest is about the appearance of an alternative to the state-issued, interestbearing fiat currency money system. Is Bitcoin really the currency of the future, then, or a signal for change?

Since this limestone was not available on Yap, the supply was limited. From time to time, the tribal chiefs would organize expeditions to these distant islands to quarry and bring back new stones carved into disks. The disks were of various sizes, some only a few inches across and weighing a pound or two, while others could be 12 feet across and weigh thousands of pounds.

10

CRYPTOCURRENCY

As in the case of the stones, if I send you my Bitcoin, the coin isnt really going anywhere. After all, all Im doing is sending you a copy of the numbers that I found and what we are really doing is just telling everybody else that the coin now belongs to you and not to me. Mining Bitcoins In Bitcoin, the record of ownership is a distributed transaction ledger known as the block chain. In essence, when I give you a Bitcoin the record of that transaction is copied out to all of the other users so that everyone now knows that the coin belongs to you. Because of the particular mathematical properties of the numbers used in the Bitcoin system there is a finite supply (21 million) of these numbers and once they are all discovered no more can ever be minted. So why the media interest? I think it points to something more interesting than Bitcoin itself, which is recognition that there is a latent demand for change. The media interest is about the appearance of an alternative to the state-issued, interest-bearing fiat currency money system. Is Bitcoin really the currency of the future, then, or a signal for change?

Im sure its the latter, because the interesting thing about Bitcoin is in my opinion, and for that matter in other peoples opinion, the technology of maintaining the open and distributed ledger and the use of cryptographic proof of work. But this is technical and complicated and as a consequence, its boring to journalists and no one understands it.

 The media interest is about the appearance of an alternative to the state-issued, interest-bearing fiat currency money system.

The only interesting thing about Bitcoin, if you dont understand the technology, is the currency which has a wonderful creation myth and a devoted following who display a fervour that is extraordinary. Hence the tremendous media focus on the wrong thing.

https://twitter.com/dgwbirch http://www.linkedin.com/pub/david-birch/0/254/15 http://tomorrowstransactions.com/author/dave-birch/

11

CRYPTOCURRENCY

THE TRUST AND OPPORTUNITY OF CRYPTOCURRENCIES

Scott Dueweke
Senior Associate, Booz Allen Hamilton due to high fees, inconvenience and lack of flexibility. Cryptocurrencies and mobile payment systems, having begun to merge their functions, are proving to be a significant threat to established companies such as Western Union and MoneyGram. Criminal element Criminal use of cryptocurrencies cannot be ignored and is indicative of the central dilemma systems like Bitcoin face: anonymity as both an enabler to its current growth and a constraint on widespread adoption. Opportunity lies here as well. The lack of identity, while not inherently complete without effort, is still significant in the use of these systems by those who want to buy and sell drugs, rhino horn, and all sorts of contraband. If cryptocurrencies are to go mainstream, then the option for identity assertion must evolve. A trusted third party, who could verify the legitimacy of a cryptocurrency holder without identifying them, might do this identity assertion. Other systems, such as Ripple, will broaden the scope of digital payments, including cryptocurrencies, and begin to create completely new global financial networks that could threaten and replace existing networks and processors. These systems will need to evolve their trust and security frameworks beyond the libertarian laissez-faire approach that they currently embrace. They are not beyond the reach of global law enforcement and regulatory agencies and it will serve them well to focus not only on customer acquisition, but on building trust and security if they truly plan on revolutionizing global payments.

The global remittance market is vulnerable to disruption due to high fees, inconvenience and lack of flexibility. Cryptocurrencies and mobile payment systems, having begun to merge their functions, are proving to be a significant threat.

2013 was the year of surveillance and evasion, identity and anonymity. Companies are moving quickly to disrupt long established financial systems. Crytocurrencies are the most unique of these new systems, with Bitcoin the standard bearing pioneer. Not based upon anything more than faith and a unique cryptographic approach, Bitcoins are enabling new relationships and conduits for global payments and financial transfers both criminal and legitimate. Silk Road is the most well-known of the criminal markets on the Shadow Internet of Tor, but is far from the only one. It is a mistake to write off Bitcoin as being for criminals only. The global remittance market, worth more than $500 billion globally, is vulnerable to disruption

https://twitter.com/Scott_Dueweke http://www.linkedin.com/pub/scott-dueweke/1/8b3/a30

12

CRYPTOCURRENCY

CHINA LOOKING BACK AT 2013

2013 was an incredibly dynamic year for Chinas financial services industry. From the increasing number of hedge funds in the market to the emergence and regulation of Bitcoin, everyone had their work cut out for them keeping up with the market. The year started with the prospect of a new government reforming what had been a highly regulated financial services industry. We werent disappointed. Regulators unveiled a reform agenda that has, and will have, a significant impact on interest rate reform, capital market investment in and out of China and the financial industry as a whole. Although some of the measures are still somewhat vague, some of the implementations including the removal of the floor on lending rates have already had a significant impact on banking profitability it will be a new market in 2014. 2013 also brought an increased focus on development zones and centers. Opened to much fanfare, but little detail, the Shanghai Pilot Free Trade Zone (FTZ) was formally established in late September. Although it is still early days, the FTZ promises to be a new test-bed of reform for value-add services; arguably, one of the most important developments in Chinas economic history. Chinese investors and tech enthusiasts were truly chomping at the bit in 2013 as Bitcoin went from a little known US$13 cryptocurrency, to a US$1,000 potential economic destabilizer. China topped the world in Bitcoin wallets twice in 2013. With the worlds biggest Bitcoin exchange and increasing popularity, China had little choice but to weigh in on the matter and in early December announced that Bitcoin was not a currency, banks could not deal in it, yet it could continue to be used in China.

Zennon Kapron
Founder, KapronAsia

With the worlds biggest Bitcoin exchange and increasing popularity, China had little choice but to weigh in on the matter and in early December announced that Bitcoin was not a currency.

Will the sequel to 2013 be as exciting? Will Xi Jingping continue to push reforms? Can the Peoples Bank of China accept Bitcoin as a legitimate currency? Whatever happens, 2014 will be another dynamic year for Chinese markets and well be here every step of the way to help you understand whats happening.

https://twitter.com/chinafintech @Gert_Raeves_TG http://cn.linkedin.com/in/kapronasia http://www.linkedin.com/in/gertraeves http://www.kapronasia.com/insight.html http://www.executiveboard.com/towergroup-blog/author/graeves/

13

CRYPTOCURRENCY

IS BITCOIN A ROLLER COASTER WITH A SILVER LINING?

Establishing a new, non-sovereign digital currency is not for the faint of heart. Bitcoin, the poster child for cryptocurrencies, has weathered a barrage of ups and downs as financial and regulatory entities struggle to understand the currency and its role in commerce as well as the broader macroeconomic environment. It showed that even when anonymity prevails, cryptocurrencies such as Bitcoin leave an electronic transaction stream that can be used to trace transactions. In addition, a number of legitimate use cases are taking hold. Thanks to its universal, standardized structure and low transaction costs, Bitcoin lends itself well to cross-border remittance, microtransactions and even e-commerce. Regulatory uncertainty Regulatory uncertainty remains an obstacle regulators just dont yet know what to do with Bitcoin. Thailand has banned digital currency exchanges outright; Germany has acknowledged the currency as a legitimate transaction unit and even collects sales tax on the transactions; and US federal regulators have imposed daunting requirements that Bitcoin exchanges get licensed as money transmitters and comply with AML regulations. Amid these ups and downs, Bitcoins value has fluctuated substantially but recouped lost value quickly, a sign of resilience. It is too early to know whether Bitcoin and its brethren will weather the storms necessary to make it to mainstream. To do so, the currencies will need to sacrifice some of their outsider standing and work within sovereign regulatory structures in order to remove the uncertainty swirling around them. The question is whether this can be accomplished while the currency retains the efficiency that drives value in legitimate use cases.

Julie Conroy
Research Director, Aite Group

The Silk Road bust could have a silver lining for proponents of bringing Bitcoin mainstream: it showed that even when anonymity prevails, cryptocurrencies leave a traceable electronic transaction stream.

The anonymity that the currencies facilitate and their position outside of sovereign oversight have made the erstwhile Liberty Reserve, WebMoney and Bitcoin the currencies of choice in the cybercriminal underground. The early October FBI bust of Silk Road netted more than US$3 million in confiscated Bitcoins. The bust, while serving to reinforce the negative reputation of digital currencies, could have a silver lining for proponents of bringing Bitcoin mainstream.

https://twitter.com/JulieConroyAite www.linkedin.com/pub/julie-conroy/0/7/699

14

http://www.aitegroup.com/blogs/julie-conroy

CRYPTOCURRENCY

THE RISE OF SMALLER INNOVATORS IN PAYMENTS

The biggest story in payments this year has undoubtedly been Bitcoin. A year ago, Bitcoin was just a very nerdy, very niche payment platform that most watchers simply laughed at and expected to die a quick miserable death. Instead 2013 will go down as the year that Bitcoin suddenly came to everyones attention. Bitcoin is also starting to slowly creep into more visible usage, with more sites accepting Bitcoin as a means of payment largely for online services. Even telecoms giant China Telecoms has begun accepting Bitcoin as a means of payment for purchasing handsets. Chinas interest in Bitcoin is that it gets around capital controls and can provide a true free movement of capital instantly. Payment tool Now the thing is, Bitcoin isnt really a payment tool at this stage. The price is far too volatile to make pricing in Bitcoins realistic and at the moment its more a form of digital gold with buyers hoarding it based on its value. But what it does highlight is the potent for totally new methods and forms of payment. Digital connectivity creates a lot of new opportunity to exchange value in whatever form and while various fiddly platforms exist, theres still scope for new systems to emerge almost out of nowhere. With Bitcoin and other cryptographic peer-to-peer currencies, part of the appeal and the true innovation is in the lack of centralized control and the ability of users to use the currency more creatively. Expect to see considerable development in 2014 on more user friendly systems to buy and trade in Bitcoins. This bottom-up rather than top-down approach is something that I think payments in general will see a lot more of in the near term. Centrally developed innovations from big major payment providers are just too slow to keep pace, and smaller innovators are the ones bubbling up now with the potential to decentralize payments control and open up the market considerably. Keep in mind as well, even if Bitcoin fails, the principle behind Bitcoin still stands and a more price stable system could easily arrive in its place.

Gilles Ubaghs
Senior Analyst, Ovum

Smaller innovators are the ones bubbling up now with the potential to decentralize payments control and open up the market considerably.

https://twitter.com/GillesU_OVUM http://www.linkedin.com/in/gillesu http://ovum.com/author/gillesubaghs/

15

ENTERPRISE DATA MANAGEMENT

The importance of data as a lever to profit and success means 2014 will be the year of analytics. Big Data and EDM will remain separate. While data provenance, data reconciliation and managed services will come to the fore.

16

ENTERPRISE DATA MANAGEMENT

2014 THE YEAR OF DATA LINEAGE AND DATA PROVENANCE

Virginie OShea
Senior Analyst, Aite Group In 2013, much like 2012, spending on legal entity data didnt really happen. Outside of top-tier sell-side and fund admin clients, the market hasnt properly tackled the issue of legal entity data quality improvement. LEI was a bit of a flop and it hasnt made as much impact as everyone thought it would in terms of acting as a central point for internal data improvement. Big Data is another area that was very hyped up. I havent really seen too many firms using it in an EDM context. Data reconciliation In 2014, reconciling data will continue to be a big issue and a high cost to FIs. Data aggregation and integration is an area that requires robust reconciliation across internal systems. There will also be demands directly tied to regulatory reporting and the need for greater cross-referencing of data items due to the introduction of new classifications and standards. One area which is going to be hot in 2014 is data lineage and data provenance. It comes back to the need for an audit trail and pushing ownership of data and responsibility back on the business. Even the buy-side is waking up to the need to improve data governance and will continue working on developing best practices over the next 12 months.

Spending on legal entity data didnt really happen. It was a bit of a flop and it hasnt made as much impact as everyone thought it would.

Throughout 2013 there have been a number of basic improvements to the way many FIs are managing data. This relates more to the manner in which firms approach data management rather than underlying technology improvements. Overall, there has been an increased emphasis on data governance with a focus on better supporting the business user. Firms have realized they should be more realistic in setting targets by identifying key data assets to the business and for regulatory reporting purposes. There has been an increasing amount of hype around managed services and utilities. Its still early days: firms may be on board with the idea of industrializing some of their own processes within a private cloud, but the concept of multi-tenant utilities is still a little far out there for many.

https://twitter.com/virginieoshea @Gert_Raeves_TG http://www.linkedin.com/pub/virginie-o-shea/3/893/352 http://www.linkedin.com/in/gertraeves http://aitegroup.com/blogs/virginie-oshea http://www.executiveboard.com/towergroup-blog/author/graeves/

17

ENTERPRISE DATA MANAGEMENT

2014: ALL ABOUT ANALYTICS

We have reached an inflection point with data. Investment management industry leaders are recognizing that data is a key lever to profit and business success, as opposed to simply a fluid that allows organizations to keep the lights on. Data, data technology and developing business models for data are officially competitive differentiators. evaluating these technologies in 2014 and their findings will likely 1) crystalize what the next generation data warehouse will look like for the buy-side and 2) drive investment in next generation portfolio & security analytics tools. New data challenge 2014 will be the year of analytics. Multi-asset growth and an appetite to leverage alternative asset classes has led to a proliferation of analytics products within buy-side firms and a new data challenge. These tools are largely cloud-based, asset type-specific solutions and require significant data aggregation and integration support. The data management challenge of providing analytical data, across asset classes, in a transparent and controlled environment, will be a significant area of focus for many managers in 2014. With new, innovative analytics tools coming to market and managers desire for intraday performance, strong and precise management of analytical data will be a 2014 imperative. With sufficient investment in data and visible data leadership, a new breed of data warehouses and analytics tools will offer investment managers the value from data theyve so often been promised.

Ben Keeler
Director of Practice Development, Citisoft

We dont see 2014 as the year Big Data arrives on the buyside but we do see managers leveraging tools born out of the Big Data movement.
Big Data receives a lot of media attention outside of our industry, but has yet to receive broad adoption within it. We dont see 2014 as the year big data arrives on the buy-side but we do see managers leveraging tools born out of the big data movement. Technologies like Hadoop were created to support big data concepts and allow for better handling of large, structured and unstructured data sets. Investment managers will actively be

https://twitter.com/BKeeler22 @Gert_Raeves_TG http://www.linkedin.com/in/bdkeeler http://www.linkedin.com/in/gertraeves

18

http://www.citisoft.com/blog/ http://www.executiveboard.com/towergroup-blog/author/graeves/

BANK MARKETING
Understanding the opportunity is crucial. Mobile marketing has yet to fully deliver. Poised in the wings is analytics, giving marketers a better understanding of customers. But how can firms truly combine analytics and Big Data?

19

BANK MARKETING

BIG DATA PROJECTS AND MOBILE STILL CHALLENGING

Jaroslaw Knapik
Senior Industry Analyst, Banking Technology, Ovum Big Data projects A key challenge will be getting Big Data projects completed. It needs a skill set which isnt easy to get on the market and banks need to hire people with relevant expertise. Big Data isnt one tool but a set of different tools and its still challenging to combine these and execute Big Data projects. Citibank carried out a Big Data project in 2012-13, combining data sources in one place where they can run analysis on top. The analytical platform will be used as a shared resource by marketing and other groups. It can drive better understanding of customer behavior, provide more detailed segmentation and more efficient target marketing. Probably the most underdeveloped technology is mobile marketing. The challenge is to make it non-intrusive and more engagement marketing. People will not use an app if its pushing a lot of marketing material. The expectation was and still is, very high. More intelligence needs to be put on how this can be executed to make this more relevant. It ties back to Big Data technology and segmentation. Banks will get there but time is needed. Gamification, the use of game-like tools, is also in play. Ideas such as introducing game-like mechanics to online or mobile interfaces, point systems or award programs are taking shape.

Probably the most under developed technology is mobile marketing. The challenge is to make it non-intrusive, make it innovative and make it more engagement marketing.
There is a clear shift in bank marketing from the physical to digital world. 2014 will see a focus on the allocation of IT dollars. Banks arent getting access to certain information and theres been an explosion towards Big Data technologies. Zion Bank in the US is one to watch they are using Big Data tools for fraud prevention, leveraging this analytics for marketing. Banks are reaching a certain stage on the technology level and enhancing marketing analytics is next. Marketing people either have access to data they didnt have before or can get it easily with new tools that understand customer behavior better. One of the biggest innovations is combining data from different silos and leveraging Big Data analytics to get insights that were hard to achieve before. This analytical infrastructure is not simple to build.

https://twitter.com/jarekknapik http://www.linkedin.com/in/jarekknapik

20

http://ovum.com/author/jaroslawknapik/

BANK MARKETING

BIG DATA IN ASIA PACIFIC BANKS

The emergence of high performance analytics is a crucial element of the Big Data phenomenon. Financial institutions can now do more than they could ever before with their data. But is the industry really ready for such sophisticated, Big Data capabilities? in 2013 were in areas that touched on the customer and expect this clear customer focus to continue in 2014. Several banks have focused on specific segments, basing their selection on many factors such as where the highest need for such deep insights is, or on segments that are the most profitable, or where data is most complete. Big Data analytics Crucially, Big Data analytics presents the opportunity for organizations to come up with a fuller, more actionable view of their customers. Big Data tools and predictive analytics technologies offer the potential to analyze vast quantities of customer data and to drive the value of those customer insights to improve the relevancy of customer interactions. We believe that by 2020, most of the 250 largest banking institutions in Asia will have this capability. Big Data tools elevate existing single customer view programs by incorporating much bigger data sets, from different sources and deploying insights in real-time to more accurately predict the needs and requirements of each customer. Another great potential exists in integrating all these capabilities to the other big project of the moment the omnichannel. The omnichannel requires banks to bring together customer analytics, predictive analytics and locational intelligence along with data across different channels.

Michael Araneta
Consulting and Research Director, IDC Financial Insights

We believe that by 2020 most of the largest banking institutions in Asia will have Big Data analytics capabilities.

Some organizations still have unresolved challenges in their traditional data infrastructures and the industry now realizes they need to take a measured, pragmatic approach to Big Data. The best approach might be to take a step back and first address fundamental data challenges. Indeed, projects that touch on traditional datasets and fit neatly into traditional relational database architectures could give banks benefits that are just as compelling. Leading financial institutions are decisively bringing Big Data tools into their innovation sandbox, finding use cases in pricing, fraud, AML and payments analytics. We found that more than half of the use cases for Big Data

https://twitter.com/mcaraneta http://www.linkedin.com/pub/michael-araneta/1/100/3a4

21 21

INSURANCE
Barriers such as risk-averse leadership and limited IT talent are hampering the technology mojo of the insurance sector. Interesting opportunities are about though: usage-based insurance, wearable devices and gamification to name a few.

22

INSURANCE

LEADERSHIP LACKS RISK APPETITE AND PASSION FOR CHANGE

Craig Weber
CEO, Celent jobs, despite the massive societal change that has taken place in the meantime. There are similar Rumpelstiltskin vignettes taking place in every part of the insurance value chain, from new business and underwriting to claims. Distraction techniques Pointing at impediments to change is clever because it depersonalizes the problem. A more fundamental reason we are stuck as an industry is that our leadership teams are riskaverse and lack the passion for change. They opt for the status quo or settle for incremental improvements. They continue to play the long game that insurers are known for, despite clear evidence that change cycles are getting shorter and the risks of obsolescence have risen. When firms outside financial services wake up to the potential and find clever ways to bring consumer-focused approaches into our insular world, insurers that havent built a modern toolset and workforce will be in trouble. My hope is that insurers give serious thought to the fundamentals of their businesses. Theres nothing wrong with developing a business case for clever uses of Big Data, or with building mobility tools that reflect how agents and customers now think and act. But other tasks like rethinking organizational and compensation structures to resonate with the level of change desired are essential if we expect meaningful change to occur.

My sincere hope is that insurers give serious thought to the fundamentals of their businesses. This is essential if we expect meaningful change to occur.

There are several clear consensus picks for 2014. Mobility, Big Data, cloud computing and core systems renewal still top out most lists, and I agree they have tons of unrealized potential. But werent we talking about these same themes one or two years ago? Leadership teams tend to blame the lack of progress on the immaturity of available tools. On the complexities of technology environments. On regulatory and budget constraints. Or on the perception that the maturity is somehow (perpetually?) right around the corner and so a wait-and-see posture is a smart choice. But something always gets in the way of that fast follower strategy. Incredibly, the sea of cubes that was the insurance office in 1994 has not changed all that much in the past 20 years. In some cases, the same people are sitting in the same desks, doing the same

http://twitter.com/@weber_craig @Gert_Raeves_TG http://www.linkedin.com/pub/craig-weber/0/887/32b http://www.linkedin.com/in/gertraeves http://insuranceblog.celent.com/author/cwebercelentcom/ http://www.executiveboard.com/towergroup-blog/author/graeves/

23

INSURANCE

THE HOLISTIC EMBRACE OF DIGITAL TRANSFORMATION

The most innovative use of technology in the insurance space last year has centered on the more holistic embrace of digital transformation. In 2013, savvy airline carriers worked to take advantage of the 28 states that authorized electronic proof of insurance mechanisms. This is not innovative in terms of the raw application of an emerged technology but it does show the nascent drive towards a more complete utilization or immersion into the realities of a digital world. This simple mechanism also provided a needed boost to the technology mojo of participating insurers while providing much sought after convenience for policyholders. Usage-based insurance Further steps in 2013 were seen in the strong growth of usage-based insurance (UBI) by an increasing number of carriers and the switch from using UBI to meter use towards measuring behavior. While not new, we are reaching a critical mass of leading insurers promoting UBI and the maturation of its requisite technology telematics. When combined with vehicle-to-vehicle (V2V) communication and coordination and onboard collision avoidance technology Celents 2012 report: A Scenario: The End of Auto Insurance is coming closer and closer to reality. The V2V devices and tools allow equipped truck and automobiles the ability to share data and information that might provide benefit to both vehicles in terms of safety and traffic efficiency. When vehicles can share information on a variety of ambient risks and act in a coordinated way, traffic safety will improve, reducing claims and ultimately leading through to lower premiums. Startups will have their hands full and find the most interesting encounters as they work to crack the challenges of supporting new models of healthcare and the emerging wealth management and retirement issues that face millions in North America. Finding ways to engage an emotional response that is tied to repetitive and rational behaviors in consumers may provide such businesses with a prolonged and positive revenue stream. Not to mention integrating the knowledge learned about an individual through wearable devices and the ever increasing mass of data being accumulated about their lifestyle that the industry can now tap into, ethically sourced of course!

Donald Light
Director, Americas Property/ Casualty Practice, Celent

Simple mechanisms deliver a needed boost to the technology mojo of participating insurers while providing much sought after convenience.

https://twitter.com/Donald_Light @Gert_Raeves_TG http://www.linkedin.com/pub/donald-light/0/90/148 http://www.linkedin.com/in/gertraeves

24

http://insuranceblog.celent.com/author/dlightcelentcom/ http://www.executiveboard.com/towergroup-blog/author/graeves/

INSURANCE

INSURANCE AND IT TALENT BIGGEST 2014 HEADACHE

In 2014, insurers across all lines of business will use more gamification, chiefly via mobile devices, as a customer facing tool to engage and retain customers. Insurers will also employ the use of social collaboration programs that will promote brand-building, education and business development. Startup opportunities Startups have an exciting opportunity using technology associated with usage-based insurance, such as telematics and predictive modeling of telematics data. To that end, Aite Group has identified more than 200 active solution providers currently honing their offerings. We do not see 2014 as the year of The Data Scientist at least in the insurance industry. Although a few insurers have employed data scientists, we find its a misnomer of title. Defined as a high-ranking professional with the training and curiosity to make discoveries in the world of big data, data scientists are more accurately involved with business analytics, predictive analytics, business intelligence, informatics, data mining, applied statistics and knowledge management. The biggest headaches for FIs in 2014 will firstly be attracting and retaining top IT talent. Many insurers of all sizes and across all lines of business have chosen to modernize their legacy systems, but the infrastructure of these systems remains. However, the technology professionals charged with erecting that infrastructure are now at retirement age. According to Aite Groups Insurance IT Executive Survey, close to 85 percent of IT executives believe the best source of IT

Pat Speer
Property and Casualty Insurance, Aite Group

More than 200 active solution providers of usagebased insurance technologies are currently honing their offerings. Adoption in the US is on the rise.
talent will comprise existing IT company professionals, yet 48 percent of the entire insurance workforce will retire in the next 15 years, according to the Bureau of Labor statistics. Secondly the Federal Insurance Offices longawaited report has been published, calling for uniformity in regulatory oversight for the industry. This call to action sends a message to the industry that further and more stringent regulatory attention will be paid to insurers. It also sends a message to the National Association of Insurance Commissioners, which argues that the states have ultimate responsibility for implementing regulatory changes. This heated debate will continue, with insurers forced to prepare for changes at both the Federal and state levels.

https://twitter.com/Pspeer @Gert_Raeves_TG http://www.linkedin.com/pub/pat-speer/4/311/819 http://www.linkedin.com/in/gertraeves http://www.aitegroup.com/blogs/pat-speer http://www.executiveboard.com/towergroup-blog/author/graeves/

25

PAYMENTS
Real-time payments will still be hot in 2014 and regulatory burdens will not wane. Joining the melee will be analytics, biometrics and product integration. Mobile payments and NFC still have to live up to the hype.

26

PAYMENTS

REAL-TIME PAYMENTS ADOPTION CYCLE ACCELERATING

Real-time payments was a frequent topic in 2013, though it lacked understanding and definition. Real-time payments refer to low value retail payments that move between accounts at different organizations (therefore precluding closed-loop systems) and where the recipient receives and can use the value instantly and the sender has confirmation of the status of the transaction. Such a simple concept but with many nuances and challenges. This puts real-time in a rather different place on the adoption cycle model. Celent estimates that there are around 115 countries that are likely to adopt at some stage. This paints a very different picture. Rather than being placed as Innovators or even Early Adopters, 35 countries would suggest were somewhere between late early and early late adoption. For many, the question around real-time has moved from an if to when to adopt, with the recent consultation in the US being just one example. Knock-on implications Real-time payments is more than just speeding up clearing cycles though and has profound implications for banks. For example, real-time systems typically operate on single messages, 24/7, yet most banks in non real-time countries operate batch systems and rely on off-peak hours for maintenance. Early systems typically utilized the 8583 card standard, but there are challenges in using that format, particularly in Europe where the new IBAN numbers that are required often exceed the 16 characters allowed. As a result, ISO 20022 is becoming the default format. For countries that are still using heritage message formats, this requires significant changes across the value chain. Opportunities exist as well - Zapp (UK) and Swish (Sweden) are building offerings on top of real-time payments systems. I may have spent a lot of time on real-time in 2013. 2014 is only going to be busier.

Gareth Lodge
Senior Analyst, Celent

For many, the question around real-time has moved from an if to when to adopt, with the recent consultation in the US being just one example.

There are also many myths surrounding the topic. A key one being that there are only a handful of systems globally. The reality is that there are many countries that already have such systems or are committed to building such solutions. Using our criteria, we found over 35 systems without much trouble.

https://twitter.com/Gareth_Lodge http://www.linkedin.com/in/garethlodge http://bankingblog.celent.com/author/glodgecelentcom/

27

PAYMENTS

ANALYTICS AND BIOMETRICS TO BE KEY FEATURES OF 2014

2013 is very much the year when the operatorcentric model of NFC payments in developed markets basically collapsed as consumer indifference prevailed. For payment providers and retailers as well, there remains the fact that the payment ecosystem is already hugely complicated and crowded and adding in another player with an unclear benefit to them was never going to get much traction. In 2014 analytics is an area where payments really has the potential to blossom. Banks and payment providers are sitting on reams of data that could be put to good use but it remains in an unstructured state. With most FIs now having at least some sort of mobile payments roadmap in place we expect to see a much greater emphasis on using analytics and tying that into loyalty and other offers. Biometrics comeback Biometrics is also making a big comeback and will make more of an appearance in 2014. The touchID functionality of the iPhone 5s and greater use in developing markets means biometrics as an authentication method is gaining a lot more attention and development resources than it did previously. Regulatory issues also arent going away and are, in most instances, only getting worse. Trying to juggle AML and KYC while also providing for cross border instant payments is no easy feat. The heavy pressure on interchange rates and margins in multiple markets will only add to the challenges of many FIs in continuing to develop their payment platforms and still maintain an innovative, increasingly omnichannel environment.

Gilles Ubaghs
Senior Analyst, Ovum

In 2014 analytics is an area where payments really has the potential to blossom.

2013 was also a good year for Google Wallet, as it seems to have come back from the brink largely by shifting to a more remote payment, cloud based focus rather than on a purely NFC based model. It was also a very good year for the newer online payment gateways, notably Stripe and Braintree. Although not front and centre of the payments experience these companies help to enable payments on apps and online in a seamless and great experience sort of way. The brand connection is non-existent, but so what? If they can really grow overall transaction volumes and values, there are lessons there for the big players.

https://twitter.com/GillesU_OVUM http://www.linkedin.com/in/gillesu

28

http://ovum.com/author/gillesubaghs/

PAYMENTS

BANKS TO HIT EXTENDED SEPA DEADLINE

Real-time payments has made astonishing progress and 2013 was a watershed year. Many of the innovators now sit in the developing world e.g. Nigeria, India, Chile, Brazil places you might not expect. Two of the largest markets have also not made much progress Europe with SEPA and the US who voted against same day payments at NACHA last year. The Fed Reserve has initiated a public consultation on how to speed up payments in the US but it is early days there. As for 2014, SEPA will progress and the extended deadline of August 1st will be met by banks, although getting customers to migrate to SEPA and the consequent operational challenges will be big headaches and will drag on for some time to come. Real-time payments We are also seeing a lot of migration on direct debits in the countries with high direct debit volumes. We will continue to see developments in real-time payments and mobile solutions will mature. However, we dont foresee anything thats ground breaking this year and expect downward pressure on revenue from payments. Digital currencies, such as Bitcoin or copycat currencies, will also be a feature of 2014. The big miss of 2013 was mobile payments; it hasnt lived up to the hype in Europe and North America. There have been lots of announcements but nothing has really been

Leo Lipis
Managing Director, Lipis & Lipis

The big miss of 2013 was mobile payments; it hasnt lived up to the hype in Europe and North America. There have been lots of announcements but nothing has really been achieved.
achieved. There are targeted solutions but these are not scalable. Also no-one has solved the problem of ubiquity. Using different phones, paying any person, is not as readily available as the choices we have. Its about unifying the competing products so you can be sure that the solution you choose to use is a solution that others are willing to accept. We will continue to witness innovation from startups in mobile payments in 2014 its a bit like fruit flies, they multiply quickly.

https://twitter.com/llipis http://www.linkedin.com/pub/leo-lipis/0/678/6a0

Forthcoming at www.lipis.net

29

PAYMENTS

MOBILE NFC: DEAD IN THE WATER, BUT FLOATING

More than ten years after its inception, NFC has created a lot of buzz, but little action. Supporters talk of endless possibilities, while opponents highlight the technologys inability to add real value over a perfectly fine and proven card-based payments system. Most commercial NFC rollouts have reached a state of ongoing paralysis after the first wave of early adopters. Even in Japan and Korea, where NFC saw a much larger uptake than elsewhere, it remains a niche product for transit payments and students. Those who have invested in mobile NFC are stuck having spent too much money and effort to let go. The hope is that consumers eventually will change their minds and embrace the technology. Proximity payments What would be an alternative anyway? Any other proximity technology, such as NFC, audiosonic waves, or low frequency Bluetooth, will end up between a rock and hard place. The problem is not the technology, or the consumer, but the ecosystem. Perhaps the more relevant question is: Why do we need proximity payments in a digital world? After all, new wearable technologies, such as chip implants, glasses, or biometrics may replace the mobile phone, before mobile NFC reaches mass adoption. As for 2014, I dont think mobile NFC or wearables will change the way we pay. Expanding the forecast to 2020, I have doubts whether there will be a need for proximity payments in the first place. While consumers will still pay at shops and restaurants, commerce will have virtualized. Whether the price is displayed as a barcode, an NFC tag, or in another way wont matter. Payment technologies will have converged to provide the consumer with the simplest and most convenient solution. And as for 2030, cash will still be king.

Thomas Zink
Research Manager, IDC Financial Insights

Expanding the forecast to 2020, I have doubts whether there will be a need for proximity payments in the first place.

Under pressure to offer a richer value proposition than cards, new functionalities such as coupon management, ticketing, event and location based marketing have emerged. But a wallet application that can deliver all these with a simple, uncluttered and fast user experience is a long way off. To really succeed, mobile NFC not only needs to beat cards, but to develop a value proposition thats more convenient and simpler than cash.

www.linkedin.com/pub/thomas-zink/28/348/43

30

PAYMENTS

2014: THE YEAR OF INTEGRATION

An impressive example of innovation we noted in 2013 came from CSI who created an app for a commercial card. We were impressed with the technology and it also provides a mobile app around this. It works off a single use account and you can generate a card number off this that can be used once for a certain amount over a certain period at a certain merchant. For other vendors today, the process is more convoluted as, in order to create the accounts, you have to go to a web-based tool. In simple terms CSI has created a mobile app that generates card numbers. The technology that missed 2013 was electronic invoicing in the US, this has been overlooked. Every year everyone expects to see movement in that market and dynamic discounting. A lot of companies just havent engaged and this needs to happen. More value We expect 2014 to be the year of integration. There are already a lot of products that are feature rich. Companies are looking for more value so we will see more partnerships that will enable firms to demonstrate the worth they are delivering. Regulatory issues will of course continue to be a burden in 2014. Firms will also face innovation challenges, the ability to innovate fast enough. Clients will be looking for business applications to be as business rich

Amy Hoke
Director, Commercial and Enterprise Payments Advisory Service, Mercator Advisory Group

Firms will also face innovation challenges, the ability to innovate fast enough.
as consumer applications. We also expect to see partnerships coming into play as this makes innovation cheaper to buy. We are also hoping to see more customer relevancy in cash management products. Weve witnessed more industry vertical solutions throughout 2013 and expect to see more. The big thing for everyone is EMV in the US and meeting the 2015 deadline, this will have a huge impact in terms of cost.

https://twitter.com/amy_hoke http://www.linkedin.com/pub/amy-hoke/74/930/528 http://www.mercatoradvisorygroup.com/News/Blog/

31

RETAIL BANKING
The end of the road for NFC and Big Data is still to take off: yet retail banking remains an innovation hotbed. Tokenization, mobile location awareness, intelligent ATMs, social credit models and what about apps for Google glasses?

32

RETAIL BANKING

TOKENIZATION AND LOCATION AWARENESS HOT FOR 2014

One innovation that turned heads this year was US Banks launch of Miteks photo bill capture. It also recently launched a photo credit card transfer service using the camera. This is an intentional effort on the part of the bank to capture some mobile only users. According to the bank, they have three times as many 25-35 year-olds that use bill pay via mobile versus online banking. NFC miss A big miss in 2013 has been NFC, at least in the US market. Big Data has also yet to really take off. The big issue for Big Data is the capture and use of the vast amounts of highvelocity data from a broad range of sources. Innovations to watch for in 2014 include tokenization. On October 1, VISA, MasterCard and American Express released a proposed framework for a new global standard to enhance the security of digital payments and simplify the purchasing experience when shopping on a mobile phone, tablet, personal computer or other smart device. In this instance, a card number would be replaced by a token for shopping online or with a mobile device. With the onset of EMV cards, much of the fraud is moving to CNP transactions, and tokenization might be a way to offer some relief. Another innovative area will be location awareness. With wallets like PayPal, Isis and Google gradually making more headway, location awareness will become more of a factor in mobile banking. We will also see more retailer apps, either individual or as part of the consortium such as MCX, seeking to deliver the enhanced overall shopping experience for customers rather than just payments.

Zilvinas Bareisis
Senior Analyst, Celent

Stephen Greer
Analyst, Celent

With the onset of EMV cards, much of the fraud is moving to CNP transactions, and tokenization might be a way to offer some relief.

Social cold Social media will remain cold in 2014. It is one of the most talked about subjects but still very immature. Banks are having a hard enough time managing basic social media interactions and security threats and many have expressed concern that angry customers are more likely to post comments than satisfied customers. Just #AskJPMC. The list of companies that have had their Twitter accounts hacked is almost endless, and the aftermath may put into question doing more than simple customer support and PR.

https://twitter.com/Zil_Bareisis http://www.linkedin.com/pub/zilvinas-bareisis/0/318/5b8 http://bankingblog.celent.com/author/zbareisiscelentcom/ http://www.linkedin.com/pub/stephen-greer/14/558/b38

33

RETAIL BANKING

WEALTH OF TECHNOLOGY INNOVATION OPPORTUNITIES IN RETAIL BANKING

2013 witnessed an uptick in peer-to-peer lending. The concept of peer-to-peer lending models has drastically changed and innovations have branched out to other areas such as FX and working capital. Peer-to-peer models still only represent a small share of the market but there will be growth here while bank saving rates remain low. Transferwise or CurrencyFair are examples of interesting players in the FX market. Personalization Weve also seen an increase in the deployment of intelligent ATMs and Virtual Teller Machines (VTMs). Intelligent ATMs offer a greater level of personalization. These machines now have the ability to predict what youre going to do based on previous interactions, complete with customized workflows. Were seeing this across a number of markets most notably the US and Australia. Its not confined to the US, but its been mainly driven by US vendors. VTMs offer the ability for customers to connect and interact via video banking. As a result we might start to see smaller branch footprints. Weve seen uptake here by US banks again

 Account scraping technology enables a site to see all of the bank accounts, utilities, bills etc that someone has all in one place. This is the sort of thing that risks intermediating the banks.
as well as European banks. Were also seeing increased use of tablets for banking. Everyone has a smartphone app but there is little tailoring of online servicing for tablets. Consumers use tablets in different ways to a smartphone and often have longer sessions of usage with a tablet. Banks have yet to take advantage of this. Tablet take-off In the retail banking space tablets will take off. Some banks view this as just another channel and another cost. Where banks have worked on a tablet app with responsive design, you get an uptick in activity through cross selling. Part of the issue is to understand how customers are interacting. For example if an application is started online and completed in the branch, credit for the sale typically goes to the branch and isnt given to the originating channel. Another trend we saw this year is that banks are releasing data sets via APIs to external providers. External technology vendors and start-ups are able to build apps on top of this to provide new services to meet consumer demands.

Tim Walker
Partner, Deloitte
 ww.linkedin.com/pub w /tim-walker/2/966/94b

Lucian Morris
Director, Deloitte
 ww.linkedin.com/pub/ w lucian-morris/1/855/278

Richard Samuel
Engagement Manager, Deloitte
 ww.linkedin.com/in/ w richardsamuel

34

RETAIL BANKING

Theres also been noise around social credit models with firms such as Kreditech, Neo Finance and Lenddo that are generating credit scores using social data. The advancement of computer processing capability, improvements in analytical software, reduction in the cost of storage combined with the widespread adoption of social media have facilitated this. People can get their credit score very quickly. Kreditech uses up to 8,000 data points to map social networks and transactional data to determine someones credit score. One area we hoped would be big last year was digital loyalty schemes. We still have hopes for it this year as there is a wealth of data held by banks and credit cards. What we anticipate here is the creation of a Nectar-type scheme in banking extending beyond financial services products. Account scraping In the past, weve seen one of the price comparison websites investing in account scraping technology. This concept would enable the site to see all of the bank accounts, utilities, bills etc that someone has all in one place. It would be interesting to see how they would be able to mine the data and offer you a better product based on your history. This is the sort of thing that risks intermediating the banks and were surprised no one has actually done this yet. This would put the customer at the center of which suppliers they want to deal with, which ones they want to avoid. It enables more control over the relationship and establishes a trusted point of presence on the internet.

 Social credit models are generating credit scores using social data. The advancement of computer processing capability and improvements in analytical software means people can get their credit score very quickly.

Data visualization with the next generation of Personal Finance Management (PFM) on tablets is also an area to watch. We could see a better use of payment utility calendars to understand when payments are due. It could give customers a predictive view of spending in the next three months. Online appointments Were also surprised that online appointment booking has yet to take off in the UK as its been quite popular in other countries. This is one area where wed like to see improvements. The first Google Glass will be rolled out next year. Banks globally have talked about bringing out an app. It will be interesting to see if this is something to watch and whether or not it will gain wider adoption.

http://blogs.deloitte.co.uk/

35

RISK MANAGEMENT
The regulatory environment remains an opportunity for innovation, particularly around data silos and Big Data technologies. Other interesting areas still waiting in the wings are real-time technology, CaaS and complete analytical tools.

36

RISK MANAGEMENT

TECHNOLOGIES FOR MANAGING RISKS STILL NEED IMPLEMENTATION

In 2013 we have seen a shift in demand towards cloud-based risk and compliance solutions. The increasing levels of regulatory complexity and change are driving financial institutions to look more and more at softwareas-a-service (SaaS) solutions for risk and compliance some observers are referring to this as compliance-as-a-service (Caas). Other important areas of innovation include the application of Big Data technologies to risk management e.g. large scale risk data aggregation and analytics and risk visualization technologies. Companies that triumphed and those who faced the most challenges can be seen in our RiskTech100 rankings [http://risktech-forum.com/research/chartisrisktech100-2014]. Real-time risk In terms of technologies that are still in the wings, real-time risk technology has not penetrated the market with the speed that was expected. Although there has been some progress in this area, overall most FIs are still very much grappling with the basics of risk data integration, risk data quality/governance and defining the basic workflows and reporting requirements. Innovations to watch for in 2014 include the increasing use of artificial intelligence (AI) techniques and technologies for managing risks particularly relating to financial crime, reputation risk and operational risk. Also hot will be enterprise-level stress testing, conduct risk, model risk management and cyber security. Exciting areas for startups include next generation operational risk and governance solutions to address multiple risk types and facilitating the convergence of quantitative and qualitative risk metrics. Regulatory change management using dynamic modelling and rules mapping will also be a key area of development.

Peyman Mestchian
Managing Partner, Chartis Research

Most FIs are still very much grappling with the basics of risk data integration, risk data quality/governance and defining the basic workflows and reporting requirements.

Regulation, regulation The biggest headaches for FIs in 2014 are of no surprise. Regulation, regulation and regulation and data, data and data! We also anticipate it as the year of the beginning of the end for traditional silo-based risk management, now more than ever, everything needs to become enterprise-wide i.e. connecting the dots.

https://twitter.com/risktechforum http://www.linkedin.com/in/peymanmestchian http://risktech-forum.com/

37

RISK MANAGEMENT

TIME HAS COME TO CAPITALIZE ON REGULATORY INITIATIVES

Medy Agami
Analyst, Celent navigate changes toward a new market environment from regulations are increasing, with capital charges from Basel III consuming and, in a sense, trapping what is productive capital. Exploiting profitability Now is the time for software vendors, consultancies and outsourcing firms to capitalize on regulatory initiatives and financial institutions needs, by introducing innovative and optimal ways to balance compliance with regulations whilst exploiting profitability. This is especially true when it comes to the realm of risk management. So where are firms focused in the near term? In the front office, the top two priorities are: having more complete analytical tools for risk measurement/simulation, what if scenario analysis and stress testing and improving automation of risk and limits management processes as part of the trading workflow. At an enterprise level, two focus areas stand out: firstly, to align processes between front office trading, risk and control activities more tightly and secondly, to streamline and improve management of golden sources of data for risk. Calculating risk management efficiency is very complex. The sheer number of variables makes it difficult to achieve accurate optimization on a real time basis. Technology can help overcome some gaps in risk management optimization but fundamentally risk management requires a change in strategy, cultural shifts, and a way to connect siloed departments.

Calculating risk management efficiency is very complex. The sheer number of variables makes it difficult to achieve accurate optimization on a real time basis.
Financial services regulation is becoming ever so burdensome. The mass of regulation is at an all-time high. Faith in the financial industry is at an all-time low. Overall, the effect of economic deterioration, reputational issues and regulation related to liquidity, funding and capital are continuing to cause a reduction in risk-taking in the regulated banking sector. Additionally, the balance sheet is shrinking. We expect the changing dynamics within the sector will have knock on effects, with new entrants (such as insurers, hedge funds and asset managers) stepping into areas where banks are retreating e.g. structured finance, structured investments and other specialized lending activities. Elaborating a bit on capital constraints, cheap funding is not as readily available as before. Central clearing will also require more collateral and capital to be posted. Expenditures to

38

TRADE EXECUTION
Electronification of the swaps market has created a technology innovation opportunity like never before and a blank canvas waits. Additionally, InfoSec now goes beyond internal considerations and US firms need to play catch up with their global brethren.

39

TRADE EXECUTION

THE YEAR OF THE SEF

In spite of these great successes, liquidity in the fixed income market is a bit of a mess. Dealers arent committing capital in the corporate bond market. Bond market trading platforms keep popping up to compensate for the dealer pull back. The US Treasury market is hugely distorted by the Feds constant bond buying. And last but certainly not least, the interest rate and credit default swap markets are in a major state of transition with the forthcoming 2014 implementation of mandatory SEF trading. Opportunity of a lifetime This has all proven quite a pain for investors and dealers. However, such market upheaval creates a once in a lifetime opportunity for technology innovation. To that end, the innovation in 2014 will come from SEFs. While SEF trading was expected as far back as 2011 three years later the time has finally arrived. The delay means weve gone from more than a dozen startups to three. And established platforms have had to transform themselves. Whats left is a group of liquidity venues that will create for the first time ever an active electronic swaps market. If we consider the complexity of the products, annual turnover in the hundreds of trillions and regulatory complexity like no one has ever seen the SEFs that will be there on day one are nothing short of technology marvels. The result is a blank canvas for traders and technologists to devise business models, trading strategies and new analytics to benefit from the electronification of the swaps market.

Kevin McPartland
Head of Market Structure Research, Greenwich Associates

Consider the complexity of the products, annual turnover in the hundreds of trillions and regulatory complexity the SEFs that will be there on day one are nothing short of technology marvels.
2013 will forever be known as the year of mandatory clearing. Once ignored as boring back-office stuff, all things clearing were front and center as swaps went from a ten day to a ten second clearing cycle literally. Buy side, sell side, affirmation platforms, clearing houses and swap data repositories all played a part in making this huge transformation happen. Not only was an entire market infrastructure built from scratch, but the technologists at the wheel faced immeasurable scope creep created by constant regulator driven changes. Despite these challenges, all of the hard work paid off with swaps clearing quickly approaching business as usual status.

https://twitter.com/kmcpartland http://www.linkedin.com/in/kevinmcpartland

40

http://kevinonthestreet.com/

TRADE EXECUTION

INFOSEC: BEYOND THE PHYSICAL ENTERPRISE

What are the costs to information security (InfoSec) when private corporate applications and data are not housed exclusively in private corporate datacenters? Over the last ten years ISVs hosted trading applications have made tremendous headway into capital markets, more recently full ASP has followed suit and today many firms are adopting cloud offerings. Similarly, many who still choose to maintain their own are now doing so in thirdparty datacenters.
Snowden disclosures Much has been made of the economies of scale of these approaches and theyre real, as are connectivity benefits of running applications near trading and IT partners. Unfortunately, commensurate consideration often hasnt been given to the resulting effects on InfoSec. However, that all changed on June 5, 2013 when disclosures by Edward Snowden were first published in the press.

use of and tout encryption, but most also retain the keys. Some providers are now explicitly requiring customers to hold and be responsible for their own keys. Even if a provider is subpoenaed or issued a warrant for their customers data, without holding the encryption keys theyll be unable to respond and the customer itself will have to be served. Another solution for US third-party datacenters is restoring real property rights to customers via condominium space rather than leased.

David B. Weiss
Senior Analyst, Aite Group

As much as any financial firm is institutionally opposed to disclosing their private information, far worse for it to occur without their knowledge, let alone control. This scenario is not only possible but inevitable when private enterprise access and data is available beyond the real property of the enterprise. Non-US financial firms now have trust issues with US partners as a result of US government surveillance becoming public. Whats a CIO, CTO, or provider to do? One immediate solution is better and more thorough use of encryption, particularly with customers exclusively holding the encryption keys. Many providers make

As much as any financial firm is institutionally opposed to disclosing their private information, far worse for it to occur without their knowledge, let alone control.
2014 will mark the year when US financial firms InfoSec concerns catch up with their global brethren. CIOs, CTOs and General Counsels will start to pay more attention to the preservation of not just traditional InfoSec inside their own walls but their right to InfoSec control beyond.

http://www.linkedin.com/in/dbweiss http://www.aitegroup.com/blogs/david-b-weiss

41

OUTSOURCING
Cloud remains big in outsourcing while the old concerns over control may tempt banks to pull services back in-house. Selling in analytics is a big growth area as is PaaS (Platform as a Service) and service provider portfolio optimization.

42

OUTSOURCING

CLOUD COMPUTING AT THE HEART OF BANK TRANSFORMATION

In 2013 we feel that there were a number of successful providers. The high flyers have been those that started to build up early relationships into the lines of business at the C-level and know how to bridge business with technology expertise. Accenture, IBM and Capgemini certainly belong to this group. IBM additionally triumphed in the area of infrastructure outsourcing in 2013. , The provider won a multi-billion dollar deal with UniCredit in 2013. It won another mega deal with Grupo Financiero Banorte, a deal worth US$1 billion (according to PACs estimates) only a few months earlier in 2013. From my perspective, one of the most innovative technologies came from a small start-up company located in Munich called Clueda AG. The company has developed solutions for real-time news analytics for bank traders. The technology is based on semantic knowledge analysis that allows securities traders to make rapid and information-based decisions giving them a competitive advantage. Combining Big Data The tools combine state-of-the-art Big Data technology systems such as Akka and Hbase (Bigtable) with advanced machine learning and text mining solutions. The solution was first implemented at Baader Bank and will soon be available in Bloombergs App Store. In September, Clueda and its client and shareholder Baader Bank even received the Best Big Data Project award from the specialist computer magazine Computerwoche. A true hidden champion. For 2014 key topics basically remain unchanged: cloud computing will be at the heart of the banks transformation, for both infrastructure and applications. We expect advancements with regard to cloudbased fraud management, liquidity and risk management for banks, for instance.

Eike Bieber
Senior Consultant Financial Services, Marketing Consulting, Pierre Audoin Consultants

Cloud computing is at the heart of innovative IT since it provides the required agility and speed to implement new applications and business models.

Cloud computing is also at the heart of innovative IT since it provides the required agility and speed to implement new applications and business models, mainly linked with the increasing digitization of the economy. We should also watch out for innovations in the digital space. Today, digital is quite often associated with customer-facing processes e.g. in Marketing/CRM. However, digital generates many more opportunities e.g. M2M for ATM management.

https://twitter.com/EikeBieber http://blog.pac-online.com/author/eike-bieber/

43

OUTSOURCING

ANALYTICS HOT AREA FOR GROWTH

Customers are trying to buy outcomes by bundle technology components. Big banks are trying to reduce costs because the margin spread is no longer there. Banks dont have large development teams to try and do this themselves so theyre looking to vendors. Theyre also looking at technology to increase security and provide a holistic set of compliance offerings. This is being bundled into an as a service package so that banks can buy the pure functionality. This has been picking up steam because it gives them the ability to have the functionality without having to go back and budget processes. ServiceNow is one provider thats doing very well in this space through its SaaS-based customer vehicle. Virtusa is another firm which is also doing well. One big change weve seen this year is companies selling in analytics to the banks. This is a nice growth platform for the providers. It takes data and turns it into knowledge. A lot of vendors are doing well in this space including Wipro, TCS, Fintell and Virtusa. The global multinational companies such as HP and IBM have made huge investments in an attempt to capture market share in cloud. Unfortunately they targeted the CIO/CTO organization which has not yet fully embraced these disruptive technologies instead of the business buyers which have been driving the vast portion of this market and consequently they found themselves selling to the wrong stakeholder groups. Eventually the enterprise buyer will come back but being too early is just as bad as being late. One trend for 2014 is the temptation for big banks to start pulling back work because of a discomfort over control. The Fed recently came out with comments to discourage them to redistribute spend. Theres also a lot of talk around immigration reform which means Indian heritage firms will struggle with their economic models. There are also opportunities for mid-sized banking looking to core banking as a service.

Peter Bendor-Samuel
Founder and CEO, Everest Group

One trend for 2014 is the temptation for big banks to start pulling back work because of a discomfort over control.
The biggest headache for financial institutions over the next year will be moving work into their own facilities from outsourcing.

https://twitter.com/EverestGroup http://www.linkedin.com/pub/peter-bendor-samuel/5/a41/288

44

http://www.everestgrp.com/author/peter-bendorsamuel

OUTSOURCING

SPOTLIGHT ON OUTSOURCING TRENDS

As we enter 2014, FIs are looking to navigate the headwinds of regulatory pressures, a relatively weak economic environment, competition and a changing consumer profile. In the current environment, technology is not just an enabler for financial institutions but is a source for competitive differentiation. Consequently, IT investments in SMAC Social Media, Mobility, Analytics and Big Data and Cloud will dominate. In general, given pressures with IT budgets, Change the Bank will be funded through better efficiencies and savings from Run the Bank. Priority Change the Bank initiatives where SMAC will play a role include omnichannel management, payments transformation, core banking modernization, risk management and security, and regulatory compliance. From an outsourcing and offshoring perspective, there are three big themes shaping the industry: Platform-as-a-Service (PaaS) and private cloud for Dev/Ops is a huge opportunity area for banks especially as the focus on productivity and application modernization increases. Firms are looking to optimize the large factories of outsourced developers that often run with high inefficiencies. Addressing the problem at the underlying infrastructure level can not only deliver meaningful dollar savings but also significantly reduce time to market for applications. FIs will undertake the next wave of service provider portfolio optimization. While portfolio rationalization will continue we are seeing interest in selectively adding strategic partners. Its about strengthening the core to rationalize the tail. We anticipate that 2014 will witness some portfolio shake-ups as FIs select providers that are not only focused on costeffectiveness and efficiencies, but can also assist with the transformation mandate.

Jimit Arora
Vice President - IT Services, Everest Group

We appear to be entering the start of another five year cycle where GICs come back in favor.

From a sourcing model perspective we are witnessing a marginal shift in preference towards selective rebalancing of portfolios across third-party providers and Global In-house Centers (GIC) for large FIs. In the aftermath of the economic crisis, we saw some GIC divestitures. We are entering the start of another five-year cycle where GICs come back in favor. The focus is not on taking outsourced operations back in-house but reexamining where the expertise resides. With technology being seen as a source of differentiation, the desire is to have greater control over the resources, and hence the resurgence of GICs.

https://twitter.com/EverestGroup http://www.linkedin.com/in/jimitarora

45

Sally Yates
Head of Influence, Metia

HOW WE CHOSE OUR KEY INFLUENCERS

There are lots of influencers in the world of fintech. Many diverse constituents help to lead opinions or exert pressure on fintech purchasing decisions or user adoption cycles. Analyst firms are significant players but are not alone in influencing opinions. Metias team of media, analyst relations and social media experts operates a number of different methodologies for identifying, monitoring and engaging the most influential voices across a variety of fintech sub-sectors. Inevitably there are more influencers beyond the traditional analyst firms consultants of many different varieties, trade organizations, self-proclaimed gurus and recognized industry bloggers but in this first year of the Fintech Insight report 2014, we sought to keep our contributors to a tightly defined group. The key challenge is to defend the criteria that any contributor to the report, genuinely influences or informs the fintech marketplace through their insight and activities, and is independent of vested interest to any particular vendor, solution or service. Sadly the policies of some first rate analyst firms excluded them from participation. So if there are obvious suspects missing, thats why. We hope they might change their stance in 2015, when they see how non-threatening and helpful the report is. Looking ahead to 2015 we already have ideas on how to make the report more comprehensive, more global and more diverse. If you have ideas to help us make next years report better, or if you think you could contribute, please get in touch.
https://twitter.com/MetiaInfluence http://metia.com/london/sally-yates/ http://www.metia.com

46

About Metia Group Metia has served the financial technology marketplace for 25 years. We are experts in fintech. We understand the dynamics of influence within fintech. We know the financial sector: the players; the dynamics; the market pressures and the interplay. We know the technology sector: the innovators; the trends; their applications; the use cases; their business and cultural implications. Metia delivers programs that influence key decision makers, deliver fantastic user experiences, develop deep customer relationships and build vocal communities of advocates. With over 150 expert professionals located in London, Seattle, Austin and Singapore, we provide global programs for clients worldwide. To deliver these, we have experts in media relations, analyst relations, social media, customer references, community building, user experience, CRM, web and mobile app development.