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Why banks are right now at that ‘Change or Die’ crossroads

Source: Finance Derivative

Change is often difficult, time-consuming and expensive. But ignore it at your peril. For years, business change of course has centred around digital transformation, what else? Here, the banking sector is not the first thing that springs to mind, nor is it the definition of cutting edge. The truth is that banks have reached a crossroads and need to seriously adapt their businesses now or, over the next few years, some brands may disappear altogether. As the old cliche says: change or die.

It’s time for action

A report from The Financial Times Focus (FT Focus) illustrates the urgency for banks to modernise their offering. Not only do two in three banks expect to lose market share unless they embrace digitisation, but 58% of respondents predict they will cease to exist completely in the next five to ten years, if they fail to change their business models. Wow, that’s a frightening prediction and one that I don’t believe exists in any other sector, making it the ultimate driver for change.

The report goes on to say that with 74% of respondents predicting that technology giants such as Amazon and Google will hold the largest market share of the banking industry within just five years, now is the time for action. I do wonder which brands will fail to achieve enough change and be lost to history.

Making change actually stick

One major obstacle as banks transform digitally is the fact that they cannot let go of their outdated legacy systems. They look even further behind when you consider the likes of Apple, Airbnb, Amazon, Google, Netflix and Uber and how they are actually transforming modern life for all of us. And that customer viewpoint is an important consideration for banks as they have many neo-banks and fintech apps snapping at their heels ready to hoover up their customers if they are perceived to have made the slightest slip.

What is still holding banks back? With constantly shifting goalposts due to changing markets and expectations, reaching that ‘digitally transformed state’ is in reality unachievable. Rather, it becomes a process of continuous evolution as new systems/projects are introduced over the short, medium and long term.

Some banks are grabbing the headlines, for example JP Morgan Chase is moving as much as 50% of its applications and data to the cloud in 2022. Given increasing customer demands and market pressures, as well as the need to respond to world events, it makes sense that banks need to start thinking like technology companies, that’s why the same bank invests $12 billion per year on technology.

Covid sped up the digital transformation process in banking ‘a great deal’ (60% according to Statista) but it is still lagging way behind other sectors with Technology (78%), perhaps predictably topping the list, but also Healthcare (74%), Retail & Ecommerce (70%), and Manufacturing (65%).

Not only do banks appear slow to react to such a crisis, but they are still just dipping their toes in the digital water, with only 27% launching a digital transformation strategy last year.

Furthermore, according to Cornerstone Advisors, seven in 10 banks don’t plan to replace their core systems as part of their digital transformation. In addition, few have deployed—or plan to deploy—core integration/middleware platforms or payment hubs. Without these platforms and without replacing the legacy systems, the promise of real digital transformation will be difficult to attain.

It paints an even bleaker picture when we consider that 70% of transformation projects within financial institutions fail altogether and deliver no meaningful return on investment. Clearly it’s time for them to up their game and use the technology shifts in the market to their advantage.

What does Digital Transformation mean for banks?

When done right, the billions being invested in digital initiatives makes good business sense and delivers a win-win for both customers and banks. Customers enjoy better experiences and the convenience of accessing services across multiple devices; while banks see improved process efficiency through automation.

With customers able to do more online safely and securely, trust in the brand grows, and they can enjoy a more personalised offering with better customer engagement.

Banks benefit in a number of ways too. Not least, increased revenue and client satisfaction due to 24/7 always-on services. Acquisition of new customers becomes cheaper and easier. Better customer engagement stems from leveraging client data. Account management and support become easier via digitised paperwork. Digital transformation enables organisations to build an environment of ongoing innovation and adaptability vital for future growth.

Ultimately, what this means operationally is a huge number of efficiencies, not least: elimination of paperwork; less time spent servicing clients; increased productivity; organisational transparency; effective teamwork; lower operational costs; and risk reduction in core activities.

The challenges facing banks

Bank CIOs and Digital Transformation Leaders clearly do not have an easy job. But with massive budgets on the table surely they can buy their way out of this?

Arguably banks are simply playing catch-up, making investments and changes that should have been made five (or more) years ago.

Not helping the matter is the significant developer skills shortage, which makes it difficult for firms to hire the right technical resources to support projects, and the fact that some projects can take up to 18 months to complete with a traditional development approach.

Furthermore, by the time one area has been tackled, the market has often moved on once again, and the ‘new’ solution is no longer quite as new.

How low-code can help

Business Process Automation is of course vital for banks to achieve any sort of digital transformation. One solution that will help banks meet current, and future, challenges is using low-code in their automation. In fact, Gartner analyst Milind Govekar predicts that 70% of new applications will be developed using low-code or no-code techniques by 2025.

A low-code platform enables organisations to achieve a rapid rate of change with minimal effort, coupled with fast delivery. This is because low-code enables the building and updating of process applications with reduced coding. The traditional hand-coding approach is replaced with an intuitive visual development style. Here, drag and drop user interfaces are used to add different types of elements, such as connection to databases, other software applications or logic elements, and even blockchain implementations.

This reduction in code requirements drastically accelerates development timelines, both for new application builds and change requirements to existing processes. The organisation becomes more agile as a result, and is able to achieve significant gains in operational efficiency without any breaks in governance. In other words, low-code makes complex automation easy and accessible, in a highly streamlined and comprehensive workflow.

CEC Bank, one of the largest financial institutions in Romania, used the Aurachain low-code platform to accelerate digital transformation in three critical areas: an integrated system for monitoring and maintenance of the bank’s ATM and POS fleet, a fully digital onboarding process for new SME customers, and the digitalization of online trade finance solutions for SMEs. Key benefits include an automated platform that achieves high reliability, availability and maintainability of key business services for ATM/POS. In addition, the new onboarding process automates complex workflows, incorporating business rules and actions; implements a single user interface across systems and processes; can be quickly tailored to incorporate internal or regulatory governance processes.

Customer-First Priority Areas

How should banks focus their considerable budgets now to ensure digital transformation success?

The first step is vital to get right: the strategy must focus first and foremost on the customer. Here, automating processes to create a seamless CX plays a major role. In addition, customer data must be used to create more personalised services and products.

Delivering an omnichannel offering is not only important, but expected by customers. Significant technology investments are required to compete with new fintech companies, online banks and challenger banks – as well as meet ever-climbing customer expectations. Not surprisingly, finding specialised business transformation talent to develop such solutions is critical.

The Future

Within financial institutions that think they’re three-quarters of the way through their digital transformation strategy (or more), just 39% implement Robotic Process Automation; and way less are using chatbots or machine learning (according to Cornerstone Advisors). Given the fact that low code is so critical to intelligent business automation, how can they seriously be moving towards a digital future without using these technologies? There seem to be some major discrepancies, implying institutions are in fact further away from their goals than they believe.

One thing is clear. With the alternative being possible death, banks need to change now.
Those that step up and put the tech and cultural foundations in place today, including using low-code to achieve process automation, will find themselves well-positioned in the future.

As opportunities arise with more emerging technologies, these organizations will be ready to forge ahead while many others will be falling further behind in the catch-up game.

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Business

Empowering banks to protect consumers: The impact of the APP Fraud mandate

Source: Finance Derivative

Thara Brooks, Market Specialist, Fraud, Financial Crime & Compliance at FIS

On the 7th October last year, the APP (Authorised Push Payment) fraud reimbursement mandate came into effect in the UK. The mandate aims to protect consumers, but it has already come under immense scrutiny, receiving both support and criticism from all market sectors. But what does it mean for banks and their customers?

Fraud has become a growing concern for the UK banking system and its consumers. According to the ICAEW, the total value of UK fraud stood at £2.3bn in 2023, a 104% increase since 2022, with estimates that the evolution of AI will lead to even bigger challenges. As the IMF points out, greater digitalisation brings greater vulnerabilities, at a time when half of UK consumers are already “obsessed” with checking their banking apps and balances.

These concerns have contributed to the implementation of the PSR’s (Payment Systems Regulator) APP fraud mandate, which was implemented to reimburse the victims of APP fraud. APP fraud occurs when somebody is tricked into authorising a payment from their own bank account. Unlike more traditional fraud, such as payments made from a stolen bank card, APP fraud previously fell outside the scope of conventional fraud protection, as the transaction is technically “authorised” by the victim.

The £85,000 Debate: A controversial adjustment

The regulatory framework for the APP fraud mandate was initially introduced in May 2022. The maximum level of mandatory reimbursement was originally set at £415,000 per claim. The PSR significantly reduced the maximum reimbursement value to £85,000 when the mandate came into effect, however, causing widespread controversy.

According to the PSR, the updated cap will see over 99% of claims (by volume) being covered, with an October review highlighting just 18 instances of people being scammed for more than £415,000, and 411 instances of more than £85,000, from a total of over 250,000 cases throughout 2023. “Almost all high value scams are made up of multiple smaller transactions,” the PSR explains, “reducing the effectiveness of transaction limits as a tool to manage exposure.”

The reduced cap makes a big difference on multiple levels. For financial institutions and payment service providers (PSPs), the lower limit means they’re less exposed to high-value claims. The reduced exposure to unlimited high-value claims has the potential to lower compliance and operational costs, while the £85,000 cap aligns with the Financial Services Compensation Scheme (FSCS) threshold, creating broader consistency across financial redress schemes.

There are naturally downsides to the lower limit, with critics highlighting significant financial shortfalls for victims of high-value fraud. The lower cap may reduce public confidence in the financial system’s ability to protect against fraud, particularly for those handling large sums of money, while small businesses, many of which often deal with large transaction amounts, may find the cap insufficient to cover losses.

The impact on PSPs and their customers

With PSPs responsible for APP fraud reimbursement, institutions need to take the next step when it comes to fraud detection and prevention to minimise exposure to claims within the £85,000 cap. Customers of all types are likely to benefit from more robust security as a result.

The Financial Conduct Authority’s (FCA’s) recommendations include strengthening controls during onboarding, improving transaction monitoring to detect suspicious activity, and optimising reporting mechanisms to enable swift action. Such controls are largely in line with the PSR’s own recommendations, with the institution setting out a number of steps in its final policy statement in December 2023 to mitigate APP scam risks.

These include setting appropriate transaction limits, improving ‘know your customer’ controls, strengthening transaction-monitoring systems and stopping or freezing payments that PSPs consider to be suspicious for further investigation.

All these measures will invariably improve consumer experience, increasing customers’ confidence to transact online safely, as well as giving them peace of mind with quicker reimbursement in case things go awry.

Going beyond the APP fraud mandate

If the PSR’s mandate can steer financial institutions towards implementing more robust security practices, it can only be a good thing. It’s not the only tool that’s shaping the financial security landscape, however.

In October 2024, the UK government introduced new legislation granting banks enhanced powers to combat fraud. An optional £100 excess on fraud claims has been introduced to encourage customer caution and combat moral hazards, while the Treasury has strengthened prevention measures by handing out new powers to high street banks to delay and investigate payments suspected of being fraudulent by 3 days. The extended processing time for suspicious payments may lead to delays in legitimate transactions, making transparent communication and robust safeguards essential to maintain consumer trust.

Further collaborative efforts, such as Meta’s partnership with UK banks through the Fraud Intelligence Reciprocal Exchange (FIRE) program, can also aid the fight against fraud. Thanks to direct intelligence sharing between financial institutions and the world’s biggest social media platform, FIRE enhances the detection and removal of fraudulent accounts across platforms such as Facebook and Instagram, not only disrupting scam operations, but also fostering a safer digital environment for users. The early stages of the pilot have led to action against thousands of scammer-operated accounts, with approximately 20,000 accounts removed based on shared data.

Additionally, education and awareness are crucial measures to protect consumers against APP fraud. Several high street banks have upgraded their banking channels to share timely content about the signs of potential scams, with increased public awareness helping consumers identify and avoid fraudulent schemes.

Improvements in policing strategies are also significantly contributing to the mitigation of APP fraud. Specialized fraud units within police forces have enhanced the precision and efficiency of investigations. The City of London Police and the National Fraud Intelligence Bureau are upgrading the technology for Action Fraud, providing victims with a more accessible and customer-friendly service. Collaborative efforts among police, banks, and telecommunications firms, exemplified by the work of the Dedicated Card and Payment Crime Unit (DCPCU), have enabled the swift exchange of information, facilitating the prompt apprehension of scammers.

How AI is expected to change the landscape

The coming months will be critical in assessing these changes, as institutions, businesses and the UK government work together to shape security against fraud in the ever-changing world of finance.

While fraud is a terrifyingly big business, it’s only likely to increase with the evolution of AI, making it even more critical that such changes are effective. According to PwC, “There is a real risk that hard-fought improvements in fraud defences could be undone if the right measures are not put in place to defend against fraud in an AI-enabled world.”

Chatbots can be used as part of phishing scams, for example, and AI systems can already read text and reproduce sampled voices, making it possible to send messages from “relatives” whose voices have been spoofed in a similar manner to deepfakes.

Along with other innovations, tools and collaborations, however, the APP fraud mandate, UK legislation and FIRE can all contribute towards redressing such technological advances. Together, this can give financial institutions a much-needed boost in the fight against fraud, providing a more secure future for customers.

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Business

After the tax deadline: Next steps for accountancy firms

Source: Finance Derivative

By Cameron Ford, UK General Manager of Silverfin

For many accountancy firms, tax season has ended. Now, leaders have a chance to reflect on their firm’s performance, how their people are feeling after the busiest period of the year, and consider how they might optimise people, processes and technology for the future.

As a former CFO with experience in senior accountancy roles across multiple firms, I know first-hand the challenges the year-end crunch presents. The intense weeks and months leading up to HMRC deadlines put immense pressure on infrastructure, exposing the limitations of legacy systems and the bottlenecks caused by manual workflows.

The post-busy-season presents a valuable opportunity to reassess and prepare for the next one. It’s also a time for firms to reflect on evolving client needs and proactively take action to deliver improved future outcomes. Firms should also evaluate whether their current technology is alleviating pressure during peak periods – or adding to the strain.

The risk of inaction

We are living in an era of profound technological change and fast-paced innovation. Firms that fail to evolve with the times will be left behind as more flexible and adaptive competitors race forward. The risk for slow movers is not just reduced competitiveness – its industry consolidation locking them out altogether.

For today’s leaders, the choice is no longer whether to transform – but which technologies to adopt. Accountancy firms now have access to an extensive array of powerful solutions. Data analytics tools are delivering insights to power better decision-making. Automation is streamlining workflows, reducing errors and freeing up valuable time to focus on strategic tasks. And the demand for fast, secure access to accurate and timely data is only growing.

Yet, as accountancy technology matures, new challenges are emerging that extend beyond traditional tech solutions as regulators become increasingly zealous. In the UK alone, two-thirds of current business taxes were introduced in the past decade, according to Thomson Reuters. That’s 13 out of 19 business taxes. The sheer pace of regulatory innovation demonstrates the need for accountancy firms to be agile and capable of transforming at speed, as their clients face an ever evolving and intricate tax landscape.

Future success depends on equipping firms with the ability to meet the demands of both customers and regulators, striking a balance that not only satisfies current expectations but also lays the groundwork for evolving future requirements.

Growing complexity

Corporate tax management illustrates the complex nature of today’s accounting landscape. Changing regulations, new post-Brexit tax requirements and global initiatives – such as the Organisation for Economic Cooperation and Development’s (OECD) Pillar Two, which introduces a global minimum corporate tax rate of 15% – are placing unprecedented demands on tax and accounting professionals.

The most effective response is to adopt specialised software that is designed to manage compliance and evolving regulatory requirements. While adopting new technology can seem daunting, it should be seen as an opportunity, not an obstacle. Yes, there may be initial friction and deployment challenges during the early stages of transformation, but these are temporary. As firms adapt to new tools and workflows, they unlock significant benefits – including streamlined processes, improved accuracy, and the ability to stay ahead of future changes in an increasingly dynamic tax environment.

AI transformation 

AI is rapidly emerging as a game-changing technology for many industries, including accountancy. It’s true value lies in acting as a partner and collaborator, taking on the heavy lifting of repetitive manual tasks, freeing up valuable hours so accountants have more time to focus on building stronger client relationships.

To be effective, AI relies on accurate real-time financial data that is easily accessed and stored in a standardised format. But before even considering training a model, firms must solve their lingering data issues. With multiple bookkeeping and large volumes of inconsistent and duplicated data, firms often struggle to extract meaningful insights.

Resolving these issues requires integrating data from various bookkeeping systems using techniques such as cloud syncs and AI enrichment tools. Data must also be stored in a unified format, properly catalogued and free from duplication to maximise its value.

By deploying AI on a foundation of clean, reliable and up-to-date data, accountancy firms can enhance their performance during peak seasons and better manage the pressures of increased demand. Plus, digital transformation and the deployment of advanced accountancy and compliance software also put firms in a stronger position to respond to new complexities and challenges that will inevitably emerge in this dynamic marketplace.

Peak season may be over, but now it’s time to plan for the next one, anticipating customer needs and proactively adapting to shifting demands.

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Business

Future-proofing financial services investment

Source: Finance Derivative

Adrian Ah-Chin-Kow, Global Commercial Director at leading software escrow company, Escode, discusses how the financial services sector can prepare for the increasing investment ahead of the government’s industrial growth strategy, Invest 2035, ensuring resilience against technological risks.

The UK’s proposed Invest 2035 strategy sets a bold vision: to elevate the UK as a global leader in high-growth sectors. Financial services are at the heart of this roadmap, tasked with driving innovation, sustainability, and competitiveness. But as we look towards the future, it’s critical that the sector strikes a careful balance between embracing strategic investments and maintaining operational resilience in the face of an increasingly complex technological risk landscape.

The digital transformation currently underway in financial services is set to accelerate even further as organisations adopt new technologies like artificial intelligence, blockchain, and cloud computing. These innovations hold immense potential for growth and efficiency, but they also introduce new layers of vulnerability. For financial services to thrive in this environment, firms need to ensure their technology infrastructure is resilient, reliable, and capable of withstanding disruption.

Growing risks in a digital-first world
As government and industry push forward with initiatives to digitise the financial services ecosystem, the sector is becoming more dependent on technology than ever before. With this reliance comes the inevitable rise of new risks—risks that can threaten operations, customer trust, and even the stability of markets.

We’ve seen first-hand the consequences of technology disruptions in this space. When key software providers experience outages or security breaches, the ripple effect can be significant, disrupting not just the companies involved but entire networks of financial institutions that depend on those systems. The impacts of such disruptions, particularly in a sector where reliability is paramount, can extend beyond the immediate downtime, eroding investor confidence and creating long-term reputational damage.

In a world that is becoming more interconnected by the day, it’s crucial that financial services organisations are prepared for these challenges. Protecting against technology failures and ensuring business continuity must be top priorities for any firm that wants to remain competitive in the years to come.

Operational resilience: The foundation of future growth
The ability to withstand and recover from disruption is at the core of what will define successful financial services firms in the future. Operational resilience is no longer just a regulatory requirement—it’s a business imperative that builds trust with investors, customers, and stakeholders. The strategies needed to build this resilience are varied, but there are a few critical components every organisation should consider.

  • Software Escrow: As financial institutions increasingly depend on digital tools, software escrow becomes a fundamental safeguard. We know how crucial escrow agreements are for protecting access to essential tools. If a provider fails or encounters insolvency, escrow ensures that critical software and intellectual property (IP) are held securely by a third party, ready to be released to the firm. In a sector where continuous access to technology is crucial, this arrangement offers peace of mind, ensuring core operations are protected from unexpected interruptions.
  • Stress-testing and Business Continuity: Regular stress-testing and comprehensive business continuity plans are essential components of any resilience strategy. By simulating disruptions, firms can identify weaknesses in their operations and put in place measures to address them. Continuity planning ensures that businesses can continue to operate, even under extreme circumstances, helping to mitigate the impacts of unanticipated events and minimise disruption to clients and markets.
  • Collaborative Resilience Standards: The interconnectivity of today’s financial ecosystem demands industry-wide standards. We’ve seen collaboration across both the private sector and with government initiatives become increasingly important. The UK’s Invest 2035 strategy offers an excellent foundation for fostering these partnerships, helping to establish resilience as a shared priority across the sector. We’re already seeing frameworks like the EU’s Digital Operational Resilience Act (DORA) lead the way in embedding resilience into the financial services supply chain. This kind of regulatory guidance helps institutions understand how to manage risks effectively, reducing overreliance on third-party providers and ensuring that firms can respond quickly to disruptions.

Collectively, these strategies reinforce the importance of being proactive rather than reactive when it comes to risk management. Operational resilience isn’t just about surviving the next crisis—it’s about building a foundation for long-term stability and growth in a rapidly changing environment.

Resilience as the key to securing Invest 2035
As we move towards Invest 2035, operational resilience will be the cornerstone of success. The financial services sector plays a pivotal role in driving economic growth and innovation, and its ability to adapt and respond to disruption will be key to maintaining the UK’s competitiveness on the global stage.

Embracing proactive resilience measures is the key to future success. By incorporating solutions like software escrow, stress-testing, and government-backed collaboration into their operational strategies, financial institutions can secure the UK’s position as a competitive, reliable investment hub.

Looking to the future, the ability to navigate these risks while maintaining operational integrity will determine whether financial services can continue to be the engine of economic growth in the UK. With the right safeguards in place, the sector can not only meet the goals of Invest 2035 but also build a reputation as a safe and dependable destination for global investment.

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