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A bank’s ESG record depends on how its technology is built

Source: Finance Derivative

By Tony Coleman, CTO, Temenos

ESG (environmental, social, and corporate governance) has become mission-critical for banks, from meeting regulatory obligations to aligning with customer values to win market share. 

Many banks have turned to technology to manage their ESG position. But technology is not a panacea. It also presents a risk that banks fall short of their ESG targets. 

Technology that greens

Let’s look at the environmental pillar. Run on-premises or in a private datacentre, technology can be a big consumer of carbon. But deployed with the right infrastructure partners, it can enable banks to reduce their carbon footprint. Cloud is the best example of this. Banks that outsource their computing infrastructure to the public cloud hyperscalers can benefit from their economies of scale and energy efficient build principles. 

The geographical spread and scale of these datacentres allows for carbon-aware computing, which involves shifting compute to times and places where the carbon intensity of the grid results in lower carbon emissions. One study of Microsoft’s cloud infrastructure concluded its datacentres emit 98% less carbon than traditional enterprise IT sites. These hyperscalers have a focussed mindset and the deep pockets to match. The new Graviton3 processors that AWS is now installing in its public datacentres, which claims to use 60% less energy than the standard X86 models that have been in wide circulation, is an example of the progress that only a hyperscaler can achieve.

The green benefits ‘of the cloud’ are enhanced by software purposefully built to run ‘in the cloud’. Software vendors that are committed to decarbonising their solutions in the build phase pass those wins down the supply chain to banks. For example, the latest version of the Temenos Banking Cloud was built with a 12% improvement in carbon efficiency. How the software operates can have an even more profound benefit for banks. For example, banking software that runs ‘scale-to-zero’ protocols will automatically shut down or scale down availability according to demand for its service. This is one factor that has contributed to a 32% carbon efficiency improvement in the run time of the latest Temenos Banking Cloud release.

Collecting this evidence is not simply an internal tracking exercise. Regulations are reaching a point where publishing data against ESG targets will be legally mandated. In Europe the ECB and the Bank of England have launched climate risk stress tests to assess how prepared banks are for dealing with the shocks from climate risk. Meanwhile, initiatives like the UN-convened Net-Zero Banking Alliance (representing over 40% of global banking assets), the Glasgow Financial Alliance for Net Zero and ​​the Principles for Responsible Banking add to the clamour for banks to evidence their progress. Tracking ‘Scope 3 emissions’, which includes all indirect emissions that are not owned or controlled by the bank, is the next phase. Recognising this, Temenos has developed a carbon emissions calculator, which gives our customers deeper insight into carbon emissions data associated with their consumption of Temenos Banking Cloud services.

The same concept can be extended to a bank’s customers, with carbon calculators and automated offsetting schemes that help people build towards their personal environmental goals. Doing so brings a bank’s green credentials into the public sphere, turning environmental initiatives into commercial opportunity.

(Box-out)

Flowe, a cloud-enabled digital bank built on green principles, launched in June 2020. It is the first bank in Italy to be certified as a B-Corp and has been able to maintain its overall carbon footprint close to zero, saving 90.81% – 96.06% in MTCO2e emissions compared to the on-premise alternative. Within six months of launch, 600,000 mainly young Italians had become customers, at one point onboarding 19 new customers per second. This rapid launch and growth was only possible with the agility and scalability of cloud. Read more about this story.

Technology that reaches

Cloud also enables financial inclusion, a key tenet of ESG ambitions. Today, anyone with a mobile phone and internet connection can access banking services. With elastic scalability and software automation, banks have an almost limitless capacity to serve more customers. And they might not be where you think; 4.5% of US households (approximately 5.9 million) were “unbanked” in 2021. In the past, banks would have seen them as unprofitable targets. But as cloud and the associated automations cut go-to-market and operational costs, the commercial case for inclusion becomes stronger. 

Embedded finance gives banks another avenue of reach. Via simple APIs, banks can provide their solutions to non-financial businesses. This ready-made audience might otherwise take years to reach through a bank’s own marketing and sale channels. The embedded finance market is set to be worth $183 billion globally in 2027. That can be seen as a proxy of greater financial inclusion. 

AI offers another opportunity to improve financial inclusion. Armed with AI, banks can deliver highly personalised products and experiences for customers. People can be directed to the most appropriate investments, including funds that promote sustainability and loans made with a better understanding of the applicant’s ability to pay it back. ZestAI (previously Zest Finance), a leading provider of AI-powered credit underwriting, claims that banks using its software see a 20%- 30% increase in credit approval rates and a 30-40% reduction in defaults. 

But mismanaged, AI can have a dark side. If the data used to train them has bias, systems will perpetuate these discriminations. This can lead to unequal access to financial services and unjust or irresponsible credit decisions. In a study conducted by UC Berkeley, Latin and African-American borrowers were found to pay 7.9 and 3.6 basis points more in interest for home-purchase and refinance mortgages respectively, representing $765 million in extra interest per year. What’s more, AI algorithms are often complex and difficult to understand, so it is hard for customers to challenge decisions and for regulators to enforce compliance.

ESG by design

So how do banks reconcile the ESG benefits of technology with the risks? The answer is in how the technology is built; or more specifically, in the principle of ESG by design.  

ESG by design is the concept of incorporating environmental, social, and governance factors into new technology and software features from the outset. The desired outcome is that the solution’s architecture, functions and UX enable ESG optimisation. But it is enabled with a commitment that all decisions taken through the design and build phase are judged through the lens of ESG criteria and targets. 

At Temenos, ESG by design is a core principle to how we build technology. Let’s unpick what that means in practice, with some examples.

  • Shift-left is how we systematically embed ESG into our banking software services. It means estimating the potential carbon footprint of a new project from the start, and then working back to mitigate it at every stage. The same goes for usability, compliance, and other factors that impact ESG. Detecting and addressing issues earlier in the development process is more effective than taking remedial actions after the event, which risks both compromising the efficacy of the solution and increasing the cost and time of the development lifecycle. 
  • If there’s a choice to be made, banks should make it. Though ESG goals align with most bank’s commercial aspirations (i.e less carbon equals less cost, more choice and better experiences equals more customers) it is not binary. Banks will have varying appetites of commitment to ESG. Take scale-to-zero, which I referred to earlier. Limiting service availability and adding latency impacts the customer experience and regulatory SLAs, such as payment processing speeds. 

The optimum balance is not a call for us, as the technology vendor, to make. Instead we give banks the parameters and configurabilities to make the choice themself. This higher degree of control encourages banks to (a) use carbon-aware computing solutions, and (b) engage with the technology with more purpose.

  • Use technology to improve technology. Humans are fallible. AI is only as good as the people that program it. Their biases become the system’s biases. But the black box nature of many AI systems means that these biases go unnoticed. At Temenos we embed an explainable component to our AI tools (XAI). It allows us and our banking clients to understand how AI decisions have been made, and in doing so surfaces flaws that can be fixed. We extend this capability to a bank’s customers, allowing them to interrogate and challenge decisions.
  • The complex supply chains in technology makes ESG a collaborative effort. The work we do at Temenos to support banks with their ESG goals would be undermined if our partners didn’t share our same commitment. That means working with hyperscalers and partners in our ecosystem, and opening ourself up to third party validation. We did just that, using an independent carbon calculation platform (GoCodeGreen) to assess our carbon efficiency. I shared the evidence earlier; a 32% carbon efficiency improvement in the run time of the latest Temenos Cloud release, and a 12% improvement in build time. These are the sort of independently verified data points that banks should be asking their technological providers to submit. 

Collaboration also means being honest about what others can do better, and enabling their innovations. The Temenos Exchange has almost 120 vendors that are continually extending and improving our core solutions. These include Bud, an AI capability that drives highly personalised experiences for lending and money management; and Greenomy, that makes it easier for banks to capture sustainability data and report on it.

Conclusion

ESG by design is an holistic approach to all tenets of ESG: energy efficiency, financial inclusion, transparency and accountable governance. By working with technology partners that elevate ESG to a core design principle, banks can recognise a wide range of commercial opportunities and ensure compliance with evolving regulations. That should make ESG a core selection criteria of software vendors. Banks will want to find the evidence that their technology partners are as serious about ESG as they are; and that they have the design and build practices that bring these to life.

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Business

What can the West learn from the Arabian Gulf’s payments revolution?

Hassan Zebdeh, Financial Crime Advisor at Eastnets

A decade ago, paying for coffee at a small café in Riyadh meant fumbling with cash – or, at best, handing over a plastic card. Today, locals casually wave smartphones over terminals, instantly settling the bill, splitting it among friends, and even transferring money abroad before their drink cools.

This seemingly trivial scene illustrates a profound truth: while the West debates incremental upgrades to ageing payment systems, the Arabian Gulf has leapfrogged straight into the future. As of late 2024, Saudi Arabia achieved a remarkable 98% adoption rate for contactless payments in face-to-face transactions, a significant leap from just 4% in 2017.

Align financial transformation with a bold national vision

One milestone that exemplifies the Gulf’s approach is Saudi Arabia’s launch of its first Swift Service Bureau. While not the first SSB worldwide, its presence in the Kingdom underscores a broader theme: rather than rely on piecemeal upgrades to older infrastructure, Saudi Arabia chose a proven yet modern route, aligned to Vision 2030, to unify international payment standards, enhance security, and reduce operational overhead.

And it matters, because in a region heavily reliant on expatriate workers whose steady stream of remittances powers whole economies. The stakes for frictionless cross-border transactions are unusually high. Rather than tinkering around the edges of an ageing system, Saudi Arabia opted for a bold and coherent solution, deliberately aligning national pride and purpose with practical financial innovation. It’s a reminder that infrastructure, at its best, doesn’t merely enable transactions; it reshapes how people imagine the future.

Make regulation a launchpad, not a bottleneck

Regulation often carries the reputation of an overprotective parent – necessary, perhaps, but tiresome, cautious to a fault, and prone to slowing progress rather than enabling it. It’s the bureaucratic equivalent of wrapping every new idea in bubble wrap and paperwork. Yet Bahrain has managed something rare: flipping the narrative entirely. Instead of acting solely as gatekeepers, Bahraini regulators decided to become collaborators. Their fintech sandbox isn’t merely a regulatory innovation; it’s psychological brilliance, transforming a potentially adversarial relationship into a partnership

Within this curated environment, fintech firms have launched practical experiments with striking results. Take Tarabut Gateway, which pioneered open banking APIs, reshaping how banks and customers interact. Rain, a cryptocurrency exchange, tested compliance frameworks safely, quickly becoming one of the Gulf’s trusted crypto players. Elsewhere, startups trialled AI-driven identity verification and seamless cross-border payments, all under the watchful yet adaptive guidance of Bahraini regulators. Successes were rapidly scaled; failures offered immediate lessons, free from damaging legal fallout. Bahrain proves regulation, thoughtfully applied, can genuinely empower innovation rather than restrict it.

Prioritise cross-border interoperability and unified standards

Cross-border payments have long been a maddening puzzle – expensive, sluggish, and unpredictably complicated. Most Western banks seem resigned to this reality, treating the spaghetti-like mess of correspondent banking relationships as a necessary evil. Yet Gulf states looked at this same complexity and saw not just inconvenience, but opportunity. Instead of battling against the tide, they cleverly redirected it, embracing standards like ISO 20022, which neatly streamline data exchange and slash friction from global transactions.

Examples abound: Saudi Arabia’s adoption of ISO 20022 through its Swift Service Bureau will notably accelerated cross-border transactions and improve transparency. The UAE and Saudi Arabia also jointly piloted Project Aber, a digital currency initiative that significantly reduced settlement times for interbank payments. Similarly, Bahrain’s collaboration with fintechs has simplified previously burdensome remittance processes, reducing both cost and complexity.

Target digital ecosystems for financial inclusion

One of the most intriguing elements of the Gulf’s payments transformation is the speed and enthusiasm with which consumers embraced new technologies. In Bahrain, mobile wallet payments surged by 196% in 2021, contributing to a nearly 50% year-over-year increase in digital payment volumes. Similarly, Saudi Arabia experienced a near tripling of mobile payment volumes in the same year, with mobile transactions accounting for 35% of all payments. 

The West, by contrast, still struggles with financial inclusion. In the U.S., millions remain unbanked or underbanked, held back by distrust, geographic isolation, and high fees. Digital solutions exist, but widespread adoption has lagged, partly because major institutions view inclusion as a long-term aspiration rather than an immediate priority. The Gulf shows that when digital tools are made integral to daily life, rather than optional extras, the barriers to financial inclusion quickly dissolve.

The road ahead

As the Gulf region continues to refine its payment systems experimenting with digital currencies, advanced data protection laws, and AI-driven compliance the ripple effects will be felt far beyond the GCC. Western players can treat these developments as an external threat or as a chance to rejuvenate their own approaches.

Ultimately, if you want a glimpse of where financial services may be headed towards integrated platforms, real-time international transactions, and widespread digital inclusion – the Gulf experience is a prime example of what’s possible. The question is whether other markets will step up, follow suit, and even surpass these achievements. With global financial landscapes evolving at record speed, hesitation carries its own risks. The Arabian Gulf has shown that bold bets can pay off; perhaps that’s the most enduring lesson for the West.

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Business

Unlocking business growth with efficient finance operations

Rob Israch, President at Tipalti

The UK economy has faced a turbulent couple of years, meaning now more than ever, businesses need to stay agile. With Reeves’s national insurance hikes now fully in play and global trade tensions casting a shadow over the landscape, the coming months will present a crucial opportunity for businesses to decide how to best move forward. 

That said, it’s not all doom and gloom. The latest official figures show that the UK’s economy unexpectedly grew at a rate of 0.5% in February – a welcome sign of resilience. But turning this momentum into sustainable growth will hinge on effective financial management – essential for long term success.

Although many are currently prioritising stability, sustainable growth is still within reach with the right approach. By making use of data and insights from the finance team, companies can pinpoint efficient paths to expansion. However, this relies on having real-time information at their fingertips to support agile, well-timed decisions.

While achieving growth may be tough to come by this year, businesses can stay on track by adopting a few essential strategies. 

Improving efficiency by eliminating finance bottlenecks

Growth is the ultimate goal for any business, but it must be managed carefully to ensure long-term sustainability. Uncertain times present an opportunity to eliminate inefficiencies and build a strong foundation for future success.

A significant bottleneck for many businesses is the finance function’s reliance on manual processes for invoice processing, reporting and reconciliation. These tasks are not only time-consuming but also introduce errors, delays and inefficiencies. As a result, finance teams become stretched thin. Our recent survey found that, on average, over half (51%) of accounts payable time is spent on manual tasks – severely limiting finance leaders’ ability to drive strategic growth.

Repetitive tasks such as data entry, reconciliation, and approvals require considerable time and effort, slowing down decision-making and increasing the risk of inaccuracies. Given the critical role that finance plays in guiding business strategy, these inefficiencies and errors create significant roadblocks to growth.  

The pressure on finance leaders is therefore immense and while 71% of UK business leaders believe CFOs should take a central role in corporate growth initiatives, they are simply lost in a sea of manual processes and number crunching. In fact, 82% of finance leaders admit that excessive manual finance processes are hindering their organisation’s growth plans for the year ahead. To remedy this, businesses must embrace automation.

Achieving sustainable growth with automation

By replacing manual spreadsheets with automated solutions, finance teams can eliminate administrative burdens and focus on strategic initiatives. Automation simplifies critical finance tasks like bank feeds, coding bookkeeping transactions and invoice matching. Beyond this, it can also help alleviate the strain of more complex and time-intensive responsibilities, including tax filings, invoices and payroll.

The benefits of automation extend far beyond time saving, to accuracy, improving business visibility and enabling real-time financial insights. With fewer errors and faster-data processing, finance leaders can shift their focus to high-value tasks like driving strategy, identifying risks and opportunities and determining the optimal timing for growth investments.

Attracting investors with operational efficiency 

Once businesses have minimised time spent on administrative tasks, they can focus on the bigger picture: growth and securing investment. With access to cheap capital becoming increasingly difficult, businesses must position themselves wisely to attract funding.  

Investors favour lean, efficient companies, so demonstrating that a business can achieve more with fewer resources signals a commitment to financial prudence and sustainability. By embracing automation, companies can showcase their ability to manage operations efficiently, instilling confidence that any new investment will be spent and used wisely.

Economic uncertainty provides an opportunity to reassess business foundations and create more agile operations. Refining workflows and eliminating bottlenecks not only improves performance but also strengthens investor confidence by demonstrating a long-term commitment to financial health.

Additionally, strong financial reporting and effective cash flow management are crucial to standing out to investors. Clear, real-time insights into financial health demonstrate resilience and highlight a business’ resilience and readiness for growth.

The growth journey ahead

Though the landscape remains tough for UK businesses, sustainable growth is still achievable with a clear and focused strategy. By empowering finance leaders to step into more strategic and high-level decision making roles, organisations can stay resilient and agile amid ongoing economic headwinds.

UK businesses have fought to stay afloat, so now is the time to rebuild strength. By embracing more strategic financial management to build resilience, they can set the stage for long-term, sustainable growth, whatever the economic climate brings.

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Business

The Consortium Conundrum: Debunking Modern Fraud Prevention Myths

By Husnain Bajwa, SVP of Product, Risk Solutions, SEON


As digital threats escalate, businesses are desperately seeking comprehensive solutions to counteract the growing complexity and sophistication of evolving fraud vectors. The latest industry trend – consortium data sharing – promises a revolutionary approach to fraud prevention, where organisations combine their data to strengthen fraud defences.

It’s understandable how the consortium data model presents an appealing narrative of collective intelligence: by pooling fraud insights across multiple organisations, businesses hope to create an omniscient network capable of instantaneously detecting and preventing fraudulent activities.

And this approach seems intuitive – more data should translate to better protection. However, the reality of data sharing is far more complex and fundamentally flawed. Overlooked hurdles reveal significant structural limitations that undermine the effectiveness of consortium strategies, preventing this approach from fulfilling its potential to safeguard against fraud. Here are several key misconceptions about how consortium approaches fail to deliver promised benefits.


Fallacy of Scale Without Quality


One of the most persistent myths in fraud prevention mirrors the trope of enhancing a low-resolution image to reveal more explicit details. There’s a pervasive belief that massive volumes of consortium data can reveal insights not present in any of the original signals. However, this represents a fundamental misunderstanding of information theory and data analysis.

To protect participant privacy, consortium approaches strip away critical information elements relevant to fraud detection. This includes precise identifiers, nuanced temporal sequences and essential contextual metadata. Through the loss of granular signal fidelity required to anonymise information to make data sharing viable, said processes skew data while eroding its quality and reliability. The result is a sanitised dataset that bears little resemblance to the rich, complex information needed for effective fraud prevention. Further, embedded reporting biases from different entities can likewise exacerbate quality issues. Knowing where data comes from is imperative, and consortium data frequently lacks freshness and provenance.

Competitive Distortion is a Problem


Competitive dynamics can impact the efficacy of shared data strategies. Businesses today operate in competitive environments marked by inherent conflicts, where companies have strategic reasons to restrict their information sharing. The selective reporting of fraud cases, intentional delays in sharing emerging fraud patterns and strategic obfuscation of crucial insights can lead to a “tragedy of the commons” situation, where individual organisational interests systematically degrade the potential of consortium information sharing for the collective benefit.

Moreover, when direct competitors share data, organisations often limit their contributions to non-sensitive fraud cases or withhold high-value signals that reduce the effectiveness of the consortium dynamics.

Anonymisation’s Hidden Costs


Consortiums are compelled to aggressively anonymise data to sidestep the legal and ethical concerns of operating akin to de facto credit reporting agencies. This anonymisation process encompasses removing precise identifiers, truncating temporal sequences, coarsening behavioural patterns, eliminating cross-entity relationships and reducing contextual signals. Such extensive modifications limit the data’s utility for fraud detection by obscuring the details necessary for identifying and analysing nuanced fraudulent activities.

These anonymisation efforts, needed to preserve privacy, also mean that vital contextual information is lost, significantly hampering the ability to detect fraud trends over time and diluting the effectiveness of such data. This overall reduction in data utility illustrates the profound trade-offs required to balance privacy concerns with effective fraud detection.

The Problem of Lost Provenance


In the critical frameworks of DIKA (Data, Information, Knowledge, Action) and OODA (Observe, Orient, Decide, Act), data provenance is essential for validating information quality, understanding contextual relevance, assessing temporal applicability, determining confidence levels and guiding action selection. However, once data provenance is lost through consortium sharing, it is irrecoverable, leading to a permanent degradation in decision quality.

This loss of provenance becomes even more critical at the moment of decision-making. Without the ability to verify the freshness of data, assess the reliability of its sources or understand the context in which it was collected, decision-makers are left with limited visibility into preprocessing steps and a reduced confidence in their signal interpretation. These constraints hinder the effectiveness of fraud detection efforts, as the underlying data lacks the necessary clarity for precise and timely decision-making.

The Realities of Fraud Detection Techniques


Modern fraud prevention hinges on well-established analytical techniques such as rule-based pattern matching, supervised classification, anomaly detection, network analysis and temporal sequence modelling. These methods underscore a critical principle in fraud detection: the signal quality far outweighs the data volume. High-quality, context-rich data enhances the effectiveness of these techniques, enabling more accurate and dynamic responses to potential fraud.

Despite the rapid advancements in machine learning (ML) and data science, the fundamental constraints of fraud detection remain unchanged. The effectiveness of advanced ML models is still heavily dependent on the quality of data, the intricacy of feature engineering, the interpretability of models and adherence to regulatory compliance and operational constraints. No degree of algorithmic sophistication can compensate for fundamental data limitations.

As a result, the core of effective fraud detection continues to rely more on the precision and context of data rather than sheer quantity. This reality shapes the strategic focus of fraud prevention efforts, prioritising data integrity and actionable insights over expansive but less actionable data sets.

Evolving Into Trust & Safety: The Imperative for High-Quality Data


As the scope of fraud prevention broadens into the more encompassing field of trust and safety, the requirements for effective management become more complex. New demands, such as end-to-end activity tracking, cross-domain risk assessment, behavioural pattern analysis, intent determination and impact evaluation, all rely heavily on the quality and provenance of data.

In trust and safety operations, maintaining clear audit trails, ensuring source verification, preserving data context, assessing actions’ impact, and justifying decisions become paramount.

However, the nature of consortium data, which is anonymised and decontextualised to protect privacy and meet regulatory standards, cannot fundamentally support clear audit trails, ensure source verification, preserve data context, and readily assess the impact of actions to justify decisions. These limitations showcase the critical need for organisations to develop their own rich, contextually detailed datasets that retain provenance and can be directly applied to operational needs to ensure that trust and safety measures are comprehensive, effectively targeted, and relevant.

Rethinking Data Strategies


While consortium data sharing offers a compelling vision, its execution is fraught with challenges that diminish its practical utility. Fundamental limitations such as data quality concerns, competitive dynamics, privacy requirements and the critical need for provenance preservation undermine the effectiveness of such collaborative efforts. Instead of relying on massive, shared datasets of uncertain quality, organisations should pivot toward cultivating their own high-quality internal datasets.

The future of effective fraud prevention lies not in the quantity of shared data but in the quality of proprietary, context-rich data with clear provenance and direct operational relevance. By building and maintaining high-quality datasets, organisations can create a more resilient and effective fraud prevention framework tailored to their specific operational needs and challenges.

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