Volume 7 (2022-23)

Each volume of Journal of Digital Banking consists of four 100-page issues.

Volume 7 Number 4

Editorial
Simon Beckett, Publisher
Papers:
Web 2.5: The vision of the future needs a plan for the now
Avinash Agrawal, Chief Product Officer, Fiat Republic

For the internet of value (Web 3) to occur, systemic adoption thresholds must be met through reintermediation. In this paper reintermediation and the proceeding network of trust established by it are defined as Web 2.5. This definition is evaluated considering the current fiat access standard and on a conceptual basis within a Web 3 framework. Although there are other Web 2.5 use cases, it is argued here that fiat access is the most urgent. The reason is that users cannot plausibly adopt Web 3 through unreliable (or non-existent) mediums. Enter the banking sector. Banks have an apparent reason to be involved in the process. Secondly, in terms of market opportunity, banks can engage a ±US$1.19tn emerging market. Ultimately, the paper argues that viable Web 2.5 solutions are any solution that amplifies the adoption of blockchain technology towards the progression of a zero-knowledge economy (Web 3). Further, since zero-knowledge solutions will always be incomplete in a socio-economic society, it is demonstrated here that there will always be a need for a Web 2.5 network of trusted intermediaries to facilitate and maintain Web 3 long after its arrival. The paper concludes by recommending different areas of research and exploration.
Keywords: Web 2.5; fiat access Web 3; network of trust
Financial infrastructure in the FinTech era and implications for policymakers
Harish Natarajan, Lead, Payment and Market Infrastructures, The World Bank

This paper explores the emergence of new types of financial infrastructures that underpin several FinTech developments and argues that existing standards and approaches used for regulating financial infrastructures are relevant for the new ones as well.
Keywords: financial infrastructure; FinTech; EMDE
The rise of diaspora banking: Best banking practices on a global scale
Jane Loginova, SVP and Chief Strategy Officer, BPC

How will the future of diaspora banking be delivered? An answer to this question necessitates examining the current best banking practices on a global scale that are spearheading the rise of diaspora banking. Although there has been a rapid rise in digital banking innovations, diaspora communities have historically remained underserved by FinTech products, but that is changing. This paper begins by providing historical context around the obstacles faced and explains how advanced technological innovations in diaspora banking bring new opportunities. Through detailed case studies from multiple corners of the world — from the Philippines to the Caribbean to Europe — the author explains how new FinTech products and services are achieving new levels of financial inclusion. Helping to solve the availability of money as well as the security of international transfers, these new products and services represent a more dedicated proposition targeting the growing segment of people moving between countries. It concludes that the essential elements of next-generation payment services include transaction speed alongside top levels of online safety and security.
Keywords: diaspora banking; digital banking innovations; technological innovations; next-generation payment services
How financial services leaders are using enterprise intelligence to optimise efficiency ratios
Bill Waid, Chief Product & Technology Officer, FICO

Digital transformation needs to focus not just on automation but on smarter, faster, more profitable decisions throughout the customer life cycle. This involves creating a unified decision management infrastructure that enables people throughout the bank to access and use enterprise intelligence. This paper shares nine ways to measure success in digital transformation and how seven leading banks realised improvements along these measures by taking a platform approach to decision management.
Keywords: platform; analytics; digital transformation; cloud, technology
DeFi and banks: Towards a symbiotic relationship? Evidence of crypto and DLT-related activities of G-SIBs
Iota-Kaousar Nassr, Senior Policy Analyst and Caroline Roulet, Policy Advisor and Financial Research Economist, Capital Markets and Financial Institutions Division, OECD

This paper investigates a possible future symbiotic relationship of decentralised finance (DeFi) with the traditional banking sector, with the banking system integrating compliant versions of DeFi in parts of its operations. In particular, the paper indicates empirical trends showing the increasing investment of major global banks in the wider DeFi space through the investment in distributed ledger technologies and the acquisition of cryptorelated entities. The development of compliant tokenisation will be a catalyst for the potential integration of compliant versions of DeFi with banks, and DeFi pools could constitute the currently lacking secondary market for regulated tokenised assets. Repos of tokenised assets in compliant versions of DeFi could also reduce the risk of DeFi as compared with the current use of non-compliant or unregulated crypto-assets as collateral. The integration of compliant DeFi applications by banks as part of their operations would — paradoxically — require a certain level of re-centralisation of DeFi in order to make it compliant and address the long list of important risks observed in current forms of DeFi activity.
Keywords: DeFi; decentralised finance; FinTech; blockchain; distributed ledger technologies; banking; G-SIBs; regulatory framework; crypto-assets
Payment facilitators’ effects on the digital economy
Halim Memiş, CEO, MOKA

Trade and commerce are the straightforward process of exchanging products, services and worth. While electronic trade or digital economy is identical in essence, the process of exchanging goods and services is made simpler as the medium changes. The digital economy is a platform where people, machines, algorithms and organisations (like corporations) continue to interact with one another in an infinite assortment of options to exchange goods, services, ideas, information and products via the internet, which provides communication options. Because of the increase in connection speed and the adoption of technology, many people were able to participate in the digital economy. The digital economy provides significant quantities of goods and services that people would not be capable of producing without machine and software support. To keep pace with the digital age, money and value transfers must also be digital. Payment systems, which are one of the first technologies to adopt new technologies, have always been very close to digital adoption. Therefore, technology is critical to its continuous development to provide better, safer and faster services ever since the emergence of the first payment cards. Payment facilitators (PayFacs) have played an important role in the inclusion of larger audiences, emerging from the technological infrastructure that had been created by banks and card schemes, the actors that have long invested in this field.
Keywords: digital economy; payment facilitators (PayFacs); E-commerce; payment service providers (PSP)
Central banks, cryptocurrencies and monetary stability: Same Game, same rules?
Christoph Impekoven, Founder and Managing Director, micobo and Jochen Werne, Managing Director, Prosegur Crypto

In this paper, the authors delineate the differences between stablecoins, in particular, and ‘fiat’ currencies, in general. When you have read this paper, you will know what a stablecoin is, what types there are, how it differs from the US dollar or the euro and why the most important currency in all worlds is ‘trust’.
Keywords: stablecoins; trust; cryptocurrency; crypto ecosystem; central bank; debt policy
The evolution of digital banking
Peter-Jan Van De Venn, VP Global Digital Banking, Mobiquity

Since the 1980s the banking industry has been through a process of digitalisation across the retail, small and medium-sized enterprise (SME), corporate and wealth management lines of business. Over the past decade, the process of digital transformation has accelerated as banks have responded to new competition from digital-first challenger banks and disruptive start-ups that offer a personalised customer experience. This paper provides an overview of some of the important periods of digital transformation within the banking sector, focusing on changes to banking channels, business lines, technologies, personalisation capabilities and product lines. In addition to charting some of the progress made to date, this paper also looks ahead at what may come next in the story of digital banking, including the introduction onboarding of new digital channels such as wearables, the transformation of core banking and the move by banks into adjacent sectors that leverage digital technologies.
Keywords: banking; digital; digitalisation; personalisation; transformation

Volume 7 Number 3

Editorial
Simon Beckett, Publisher
Papers:
Sustainable finance statistics: Progress, challenges and leveraging digital tools
Merve Artman, Deputy Executive Director at the Data Governance and Statistics Department, Central Bank of the Republic of, Türkiye, et al.

Sustainable finance has attracted increased attention in recent years, and, in turn, the availability of relevant data has become a primary concern. What is currently unclear is how to set up adequate statistical frameworks, to address the associated challenges while benefitting from emerging new opportunities. Given their dual role as both compilers and users of official statistics, central banks are particularly well placed to contribute to these topics. Their experience suggests that making further progress calls for, first, understanding the importance of environmental, social and governance (ESG) issues for the conduct of economic and financial public policies and, second, carefully taking stock of the important statistical compilation initiatives already in train. The third step is to identify sustainable finance information needs and address the related data gaps. Lastly, there is value in leveraging the various opportunities provided by alternative data sources and technology innovation, including through the offering of new digital tools. This paper analyses central ESG issues.
Keywords: sustainable development, financial statistics, policymaking, international statistical cooperation, innovation
US banks need a new approach to customer experience
Alex Jiménez, Managing Principal, EPAM

Increasingly, US consumers engage with brands in the digital sphere. Consumer expectations have increased as leading brands, such as Apple, Netflix and Nike, provide superb digital and digitally enabled customer experiences (CX). Banks and other financial services organisations are struggling to meet these expectations, despite their insistence that they differentiate through CX. This paper analyses the current state of US banking CX and describe the steps that organisations need to take to truly become customer-centric.
Keywords: customer experience, CX, banking, strategy, design thinking, digital banking, financial services
Two paradoxes of Open Banking
Max Geerling, Strategy & Board Advisor, Currence

The new services defined in the Second Payment Services Directive — account information and payment initiation — have been a trigger for banks to build new distribution channels that they now market under the term Open Banking. This paper reflects on possibly conflicting market expectations from the word ‘open’ in this respect. Being open might be counter-intuitive to the custodial nature and function of banks as well as to their long-lasting autonomous full-service provider role, which are both still enshrined in current legislation. Recent developments in Open Banking are described by a set of example use cases, which are analysed on regulatory, business and technology aspects. Based on the market expectations and the legislative context, two paradoxical expectations for Open Banking are identified and elaborated, one in the area of business models and the other in the regulatory domain.
Keywords: Open Banking, PSD2, data sharing, value chain, scheme
The invoice data exchange accelerates SME banking innovation: Trends and initiatives for e-invoicing in Japan
Eiichiro Yanagawa, Senior Analyst, Financial Services, Celent

Electronic invoice (e-invoicing) is a system that digitises qualified invoices that are mandatory for the deduction of purchase tax under the qualified invoice system. This invoice system is intended to provide an appropriate consumption tax credit for purchases in response to the multiple tax rates for a consumption tax in 2019 and is scheduled to be introduced in October 2023. When the invoice system begins, only invoices issued by qualified invoicing businesses will be eligible for the purchase tax credit calculation. Invoices issued by others (eg tax-exempt businesses) will not be eligible for the purchase tax credit. The handling of these qualified invoices is expected to create an unprecedented workload for both buyers and sellers and presents an opportunity for innovation. Government and private sector organisations involved in accounting systems have begun discussions to introduce e-invoicing — complete digitalisation of invoices exchanged between companies — in preparation for the upcoming launch of the qualified invoice system. This paper introduces the global trend of electronic invoicing, especially the successful cases in Europe, which is ahead of other countries; analyses the digitalisation of receipts, invoices, etc from the viewpoint of innovation opportunities, targets and execution; and proposes innovations in small and medium-sized enterprises (SMEs) banking.
Keywords: invoice system, e-invoice, consumption tax, Zengin, Zengin EDI system, ZEDI, digital, digitalisation, SME banking, invoice data exchange, innovation opportunities
Is algorithmic credit scoring a ‘high risk’?
Udo Milkau

Current proposals of European regulations — the EU Artificial Intelligence Act and the UK pro-innovation approach to regulating artificial intelligence (AI) — either define credit scoring as a ‘high-risk’ application or mention credit scoring in the context of issues of ‘fairness’. Therefore, the question of whether algorithmic credit scoring is a ‘high risk’ might be a rhetorical one. Banks and lenders, however, have to comply with these proposed (and probably upcoming) regulations and explain that the current (and future) algorithms are compliant. This paper will use the — existing and indisputable — ‘gender pay gap’ together with a toy model of credit scoring based on income alone to discuss the regulatory requirements and the potential statistical methods to prove compliance. Although these regulations are triggered by the developments of ‘artificial intelligence’, all such tolls are nothing more than ‘statistical classifier’ and can be discussed — in a nutshell and with many simplifications — using this toy model. A closer examination of the statistical concepts reveals that simple correlations alone (eg a test of whether any outcome is independent of a sensitive parameter ‘gender’) cannot provide any answer about any ‘perpetuation of historical patterns of discrimination’ or any ‘fairness’. It requires advanced statistical methods (based on the concepts of mitigation and causality) to show that credit scoring is fully gender agnostic and, consequently, poses no risk to fundamental rights, as long as similar economic situations generally result in similar outcomes (score value or credit approvals). This argument, however, requires an understanding of advanced statistical approaches, and common misunderstandings can expose lenders to reputational risk. While banks and lenders have to use such advanced approaches to prove compliance, they have, in parallel, to communicate the underlying causality to the stakeholders in an understandable manner.
Keywords: credit scoring, artificial intelligence, statistical classifiers, European Regulation, algorithmic fairness, mediation and causality
Human-centred artificial intelligence in the banking sector
Obuchettiar Krishnaraj Arul, Senior Instructor and Alan Megargel, Associate Professor of Information Systems (Practice), School of Information Systems, Singapore Management University

Changes in technology have shaped how corporate and retail businesses have evolved, alongside the customers’ preferences. The advent of smart digital devices and social media has shaped how consumers interact and transact with their financial institutions over the past two decades. With the rapid evolution of new technologies and customers’ growing preference for digital engagement with financial institutions, organisations need to adopt and align with emerging technologies that support speed, accuracy, efficiency and security in a user-friendly manner. Today, consumers want hyper-personalised interactions that are more frequent and proactive. Moreover, financial institutions have a growing need to cater to consumers’ new demands. Financial institutions, such as banks, continuously adapt to the latest technologies to keep pace with evolving customer behaviours, needs and experiences. One such emerging technology is artificial intelligence (AI). Many organisations realise the potential of AI. A human-centred AI system, however, must be capable of understanding human characteristics and making decisions like humans. This paper aims to help banks understand the importance of deriving and processing customer emotions from the unstructured data captured from various omnichannels to develop full-fledged human-centred AI-enabled products and services, with emphasis on practising a co-development mindset between the important stakeholders (banks, IT vendors and focus groups). In addition, the paper proposes a framework for banks to adopt and stay competent on the digital transformation journey.
Keywords: artificial intelligence, ethics, bias, transparency, customer experience, banking

Volume 7 Number 2

Editorial
Simon Beckett, Publisher
Papers:
How can new tools and technology such as artificial intelligence encourage new ways to communicate in the world of prudential regulation?
Helen Packard, Digital Transformation Lead, Sholthana Begum, Head of Innovation and RegTech and Melvin Lopez-Corleone, Senior RegTech Specialist, Bank of England

This paper sets out how emerging technologies, such as artificial intelligence (AI), can enhance the supervisory efficiency of a modern regulator. The growth and complexity of data present both an opportunity and challenge for global regulators within the data-driven financial services landscape. The need to communicate and use data presents a skills evolution and optimisation for regulation and society. This paper includes a case study on how introducing an AI search and analysis tool has provided the Prudential Regulation Authority (PRA) at the Bank of England with a vast array of new and exciting insights.
Keywords: artificial intelligence, digital skills, supervision, communication
Leveraging FinTech partnerships to develop niche markets for growth
Linda Hamilton, Executive Vice President and Chief Operating Officer, Iroquois Federal

Mobile apps and flashy websites are not enough for banks to retain relevance in an age of increasing personalisation of the digital customer experience. To build the innovations required for ongoing growth, banks should look beyond their local market to opportunities presented by a boundless digital age. In 2020, Iroquois Federal set out to grow its customer base and revenues by targeting a very specific audience — individuals who have recently married, will soon marry or who are in a committed relationship. Although the landscape is rife with digital tools for niche markets, Iroquois Federal identified a unique opportunity to tailor services and benefits to this underdeveloped audience segment. The largest group of consumers soon to wed are young, and many lack financial education. Studies show that 92 per cent of Millennials want to improve their money management skills and newly-weds whose financial literacy lags are at a vastly higher risk of divorce. To support and engage these customers while expanding its revenues, Iroquois Federal partnered with a FinTech service provider to launch Hitched, a financial planning app. With thousands of customers already signed up, Hitched is proving that niche digital markets can provide valuable outcomes for consumers and for banks willing to innovate in order to reach new heights.
Keywords: FinTech, FinTech banking, FinTech solutions, digital banking, niche banking examples, digital niche banking, digital banking apps, digital banking services, digital banking trends
How hyper-personalisation is fuelling digital banking’s second wave
John Waupsh, Co-founder and CEO, Nerve

Financial services organisations will live and die by audience connection. In a world where one’s customers (and even prospective customers) double as brand ambassadors, digging into the details and understanding their mindset is important. With a wide-open playing field unencumbered by geographical boundaries, market entrants cannot afford to be niche averse. This paper dives into the need for neobanks and traditional banks alike to embrace personalisation and market niches to build trust and grow their business. The paper provides examples and suggestions for financial service leaders looking to build stronger experiences with their customer base through hyper-personalisation.
Keywords: digital banking, niche banking, neobanks, customer experience
Establishing a strong digital foundation for a 150-year-old building society with business process re-engineering and RPA
Jay Venkateswaran, Business Unit Head, Banking & Financial Services, Hi-Tech & Professional Services, WNS

Banking and financial services organisations have been at the forefront of digital transformation. The success rate, however, has been uneven. Digital transformation discussions are often hijacked by conversations around the latest technologies and ignore the building blocks on which these technologies must rest. Moreover, initiatives that are not rooted in the organisational vision and that lack a well-thought-out framework are likely to miss their goals. Yorkshire Building Society (YBS), a 150-year-old organisation based in the UK, took measured steps to embrace digital as a way to reaffirm its commitment to its core businesses of mortgage and savings. The challenging market conditions, largely owing to disruptions caused by FinTechs, led YBS on this path. High dependence on paper-based processes made the business slow, adding unnecessary layers of complexity. YBS wanted to inject agility and efficiency into its operations with digitisation and process automation and lay the groundwork for transformation. The YBS story shows how a deep understanding of business challenges must influence the choice of technology and the approach to transformation. A successful framework must be structured around the critical building blocks and leverage the interplay of technology with process, people and culture to create cumulative outcomes. Here are a few takeaways from the case study: • Customer, and not technology, should be placed at the heart of digital transformation. • Business process re-engineering and robotic process automation (RPA) must go hand in hand for greater outcomes. • Small step changes can become a force multiplier as processes are automated and the foundation for speed and agility is established.
Keywords: digital transformation, mortgage industry, automation, robotic process automation, process re-engineering
Closing the experience gap in banking: Humanising customer experience in four dimensions
AnnMarie M. Bridges, Associate Director of Strategy and Brian Elkins, Executive Director, Monigle, Kerry Gross, Director of Research Intelligence, Arizent and Brendha da Silva, Analyst, Behavioral Insights Group, Monigle

In the rush to translate analogue interactions into the digital space, many financial institutions (FIs) skipped a step. They failed to define the holistic customer experience (CX) — the subjective thoughts, feelings, sensations and actions — that they want their tools to generate. This is a significant oversight, because a decade of developments in the behavioral and social sciences have demonstrated that business returns accrue from ensuring that brands engage not only the intellectual but also the emotional, sensorial and behavioral dimensions of human experience. In this paper, we present the first model designed to assess multidimensional experience in the banking sector. The humanising customer experience (HCX) model, developed by brand experience agency Monigle in partnership with American Banker, predicts 78 per cent of bank customer satisfaction and net promoter score (NPS). It measures more than 60 variables, crafted for their relevance to the financial sector, which together create the four dimensions of experience that are proven to drive important customer outcomes. By revealing the dimensions and attributes where FIs are currently lagging, the HCX framework offers newfound precision in directing future CX investments. The inaugural year of data, from 2021, shows that FIs are strongest in delivering on behavioral and intellectual experiences, while trailing in sensorial and emotional dimensions. After outlining the social sciences backdrop of this model and explaining its predictive power, we discuss several areas of industry focus where lopsided investments have led to less than fully humanised CX. We conclude that banks need to design experiences that yield emotional benefits, move from providing self-service tools to supporting customers’ financial self-actualisation, and approach services from a fully interactional rather than transactional perspective.
Keywords: customer experience, digital experience, brand experience, trust, frictionless, self-service, consumer insights, experience economy
Artificial humanity: Smart tooling to implement the human touch in digital investing
Jürgen Vandenbroucke, Director, everyoneINVESTED

In recent years, the accessibility of investment services and the business impact of digital distribution channels have drastically improved. The rapid growth in financial technology is one explanation. But this is insufficient. Performing digital investment processes grow beyond cold automation. Equally important, therefore, is the content-driven innovation in methodologies that help understand and anticipate human behaviour. This makes digitisation more successful in the absence of adviser assistance. Government agencies and regulators show a growing interest in this field. Accessibility of investment services is welcomed as it promotes financial inclusion, but it could equally add to systemic risks. Content-driven innovation that delivers technology in support of conscious decision making aligns financial inclusion with digital literacy and investor protection. This paper equips financial professionals and decision makers to spearhead this evolution.
Keywords: digital investing, behavioural finance, risk aversion, loss aversion, portfolio management
Central bank digital currencies: From design to issuance and distribution — A case study of China’s sovereign digital currency
Hui Gong, Lecturer, Harry Thapar, Head of School of Finance and Accounting and Ann Thapar, Principal Lecturer, School of Finance and Accounting, University of Westminster

There has been an increasing volume of research and discussion on central bank digital currencies (CBDCs) over the last four to five years, but no central bank of a sovereign country has been able to launch its national digital currency on a large scale. This paper uses China’s national digital currency (digital currency electronic payment, DCEP) as a case study to explore the growing pains of launching a new digital currency. Our findings reveal that central banks need to design CBDCs with an eye to not only technological innovations but also business values and priorities that underpin monetary policies and operations of their country, together with effective circulation of money flows in the economy. This paper proposes three innovations: first, it shows the difference between digital wallets and bank accounts and sets different real-name authentication requirements for the respective users. Second, it suggests replacing the existing ‘know your customer’ with a ‘know your coin’, thus protecting user privacy and commercial viability while satisfying the Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) requirements. Third, a 1+M+N operating mechanism is recommended to substitute DCEP’s existing two-tier operating mechanism, and the justification is provided.
Keywords: central bank digital currency (CBDC), digital currency electronic payment (DCEP), Blockchain

Volume 7 Number 1

Editorial
Simon Beckett, Publisher
Papers:
How does the decision to build, buy or partner fit into a winning innovation strategy?
Malin Lignell, Vice President, Digitalisation and Innovation, Svenska Handelsbanken

With an increasingly fragmented market for financial services and customers’ expectations influenced by their experience in other industries as well, innovation is also crucial in the financial sector. Polishing user interfaces and making existing services available in digital channels will not suffice. This paper focuses on different aspects and perspectives for a winning innovation strategy and cultural and contextual preconditions that will affect your decision to build, buy or partner as part of that strategy. Based on ISO Standards for Innovation Management and a chosen theoretical framework, you will learn how the culture, values and context of a 150-year-old bank affect our innovation process, what is on our Trend Radar for emerging technologies, and how we use this as a tool to choose what to do — and what not to do. Our Digitalisation & Innovation team are ‘pioneers and settlers’, and our success depends on how well we collaborate with our brilliant ‘town planners’. An example of radical innovation activities is an ongoing initiative regarding central bank digital currencies. This is a good example of a joint venture between different parts of the organisation as well as with external partners. There tends to be a perception, sometimes, that partnering for innovation is equivalent to partnering with or investing in FinTechs, including start-ups. It needs to be viewed much more broadly than this. The factors that will ultimately decide whether you have a winning strategy or not depend on the context in which, and reasons why, these decisions are made. And in the end, it will be customers who decide whether your innovation strategy is a winner or not.
Keywords: innovation, innovation management, innovation strategy, build, buy, partner, value, culture, ISO 56000
Leveraging conversation AI to better enable the customer journey: A practical guide to deploying chatbots at financial institutions
Benjamin Maxim, Vice President of Digital Strategy and Innovation, MSU Federal Credit Union

The global conversational AI market size is projected to grow from US$6.8bn in 2021 to US$18.4bn by 2026, at a compound annual growth rate (CAGR) of 21.8 per cent during the forecast period. The major factors driving the growth of the conversational AI market are the increasing demand for AI-powered customer support services, omnichannel deployment and reduced chatbot development costs. This paper explores the practical application of leveraging the conversational AI market to advance customer service initiatives and enhance the customer journey.
Keywords: conversational AI, artificial intelligence, virtual assistants, chatbots, customer experience, digital experience
The need for customer due diligence to adapt to the digital era
Ben Matthews, Partner, Baringa

Effective ‘know your customer’ (KYC) processes are the foundation of any successful compliance and risk management programme, and the demand of meeting KYC requirements is increasing. Most firms’ KYC and customer due diligence (CDD) processes, however, are inefficient and ineffective. Most financial institutions require customers to provide personal information as part of the KYC process for onboarding. Customers, however, are being made to jump through hoops, damaging their experiences and perception of the bank’s brand. On the other hand, banks are being criticised for collecting too much information about their customers, while, at the same time, being cautioned for poor data maintenance and utilisation. So, what can banks do to tackle these challenges and implement robust, future-proof CDD processes across the full client life cycle that meet customer expectations, satisfy the regulators and empower internal teams? The answer is not more control, more steps, more people. It is about ensuring that your approach is much more tailored, data driven and risk based. Let us see what that looks like in practice. Effective KYC and due diligence processes are essential in understanding customers’ operations and establishing whether business relationships are in the best interest of the bank. As discussed, they are also important in understanding the financial crime risk each customer presents. Regulators expect ‘enhanced scrutiny’ of higher-risk customers. They do not specify what this should look like, but it is generally accepted that this means heightened monitoring of customer activity in the form of financial transactions. This paper explores how today’s CDD processes work, why the current approaches are not working well, how to make CDD more targeted and more effective, optimising transaction monitoring using KYC information, the challenges of using digital technologies for CDD and recommendations for banks.
Keywords: due diligence, KYC, financial crime, transaction monitoring, watch list, customer screening
Defining the digital banking innovation maturity model: A comprehensive maturity assessment for the digital banking innovation framework
Shripad Ramakant Vaidya, Fellow Chartered Accountant, ICAI

COVID-19 has driven a paradigm shift, where banks have started digitising their entire life cycle operations, including front, middle and back office, either by modernising the legacy or by integrating with the new-age Technology wrappers and involving various innovations such as artificial intelligence (AI)–machine learning (ML), robotic process automation (RPA), data analytics, internet of things (IOT), augmented reality (AR)–virtual reality (VR), Blockchain, open banking and many more such tech themes. This paper suggests the way maturity can be assessed for a comprehensive digital transformation and innovation adoption programme. As the entire global banking world lacks a universal model of defining maturity, this newly defined ‘digital banking innovation maturity’ acts as a guide to a ‘comprehensive maturity assessment’. This assessment methodology is a blend of multiple perspectives such as (a) unique innovative themes created by the bank, (b) level of adoption of the best innovations and transformation suiting the business needs of banks, (c) The business value achieved from such adoptions based on any existing structured process of tracking the efforts. Four major parameters of this assessment include 1. digital banking innovation capabilities, 2. digital banking proliferation, 3. efforts to create a digital roadmap and 4. level of tracking the business value derived from investments in terms of their return on investment (ROI). This ‘digital banking innovation maturity model’ helps to introspect on such efforts and investment. The model can also help to define a process within the organisation for smooth functioning of such large transformation programmes. In addition, it gives an assurance to top management to research, adopt, experiment and proliferate to achieve the best value or outcome from each such investment. This assessment can help banks and financial institutions to create a good brand perception across the globe while striving for the highest maturity.
Keywords: digital banking innovation, comprehensive maturity assessment, banking industry benchmark, digital banking innovation roadmap, digital banking innovation assessment, innovation ROI, 5-level maturity assessment for digital banking assessment
Choosing a wealthtech ecosystem: Where decisions are not simple
Nicholas Kwok, Endava

With the ongoing democratisation of investment and wealth services, there is a proliferation of wealth management technology (wealthtech) platforms that are providing professionals like financial advisers with advanced tooling, regular individuals like self-directed retail investors with approachable systems or both. It is difficult enough to try and pick the right platform or platforms to use regardless of what kind of investor you are, let alone deciding on what combination of them works best for you or your firm. The interoperability and strategic relationships of the wealthtech platforms are equally important when deciding whom to commit to — the ecosystem. As such, a wealthtech ecosystem is the complex network that connects a broad range of applications, services and partners — from enabling financial advisers to empowering self-directed investors and streamlining front-to-back operations to network connecting marketplaces. Both professionals and individual investors leverage a litany of platforms and service providers to manage their clients’ or their own wealth. This paper — leveraging content from a recent report from CB Insights (https://www.cbinsights.com/research/wealth-tech-financial-services-incumbentspartnerships/) — provides an overview of why it is important to look beyond the individual capabilities provided by a wealthtech platform and at the broader ecosystem that you will be participating in. This ultimately begins with an introspection of your own platform, capabilities and tools to determine how best to proceed.
Keywords: wealthtech, wealth management, broker-dealer technology, ecosystem
The adoption of waves of digital technology as antecedents of digital transformation by financial services institutions
Paul Pal, CTO, Banking and Capital Markets, DXC Technology

As academia and practitioners achieve a better understanding of the digital transformation phenomenon, companies across industries gain digital maturity and exploit digital transformation tenets in conjunction with digital technologies to build competitive advantage. While industry experts made some attempts to build uniform models, patterns and practices around digital transformation, scholastic literature paid scant attention toward unraveling digital transformation in financial services sector, particularly, how the overarching digital technology ecosystem acts as enabler, allowing incumbent financial institutions to innovate, industrialise and accomplish digital transformation. In order to surmount this dereliction of our responsibilities, we study macro-level digital technology trends, namely Big Data, hybrid cloud and automation, among others that acted as primary levers in the previous phase of modernisation endeavour undertaken by major financial organisations, notably in the western hemisphere. Additionally, drawing on the extant academic literature and techno-business journals, this paper investigates how emerging technologies, specifically, AI, API, metaverse and Web 3.0 underpinned by Blockchain technology will enable go-to-market strategy in future and impact value proposition of the incumbents, eventually changing the banking game. Therefore, this study will help practitioners grasp the evolution of digital technology ecosystem within financial sector, and steer them through disruptive market forces.
Keywords: digital transformation, digital technology, digital banking, cloud, AI, API, blockchain