I would like some 'intelligence' with my data

We all know that generally speaking, banks have done a pretty poor job of gleaning anything ‘intelligent’ from the vast reams of data they collate and store about their customers. There are various reasons for this. Despite the promise of customer relationship management technologies, they have fallen far short of user’s expectations, which has not been helped by the fact that in most major financial service firms, data resides in silos which are not well integrated.

But with certain parts of their business becoming commoditised, increased regulatory reporting requirements and banks looking to leverage information in a more meaningful ways in order to gain a competitive advantage, “business intelligence” has not only become the industry’s biggest bug bear, but also its most significant opportunity to deliver value added services that make it stand out from the crowd.

Recognising this opportunity, the data hardware vendors have tried to up their game and deliver that little something extra. Some like Sybase have bolted on complex event processing technologies on the front-end to support real-time analysis of trade, risk and reference data. Yet, while these solutions show significant promise, they are lacking in “real-life” implementations to ensure they do what they say on the tin.

HP is the latest data management vendor to make bold claims in the business intelligence and risk management space. Following its acquisition of Knightsbridge Solution Partners, a Chicago-based data management and large scale data warehousing solutions provider, Hewlett-Packard has beefed up its business intelligence division and developed a “data enablement” platform overlaid with a business intelligence application layer.

HP’s new data provisioning platform, Neoview provides a hardware and information management application layer to facilitate optimisation of business intelligence in “real-time” environments. Neoview is designed to be highly scalable (it is geared towards large data sets in the hundreds of terabytes) and to handle mixed workloads .

According to Geoffrey Burkholder, director, business intelligence solutions, HP Financial Services, its data provisioning creates a new approach to how data is sourced. Instead of sourcing data independently from the same place, it sources the data once and all the relevant pieces of data reside in the Neoview platform, to ensure that everyone is using the same data so that they can ensure high levels of data quality and governance, particularly for regulatory reporting.

These solutions are not for the faint hearted or light of pocket though. In a deal valued at $4.3 million HP announced today at Sibos in Boston that Dutch bank, Rabobank had selected HP Neoview to service its business intelligent needs

HP also announced the release of its new Enterprise Risk Management solution, which leverages the data provisioning capabilities of its Neoview platform. Its ERM solution is designed to addresses all three pillars of Basel II and compliance with regulations such as Sarbanes-Oxley, International Accounting Standards, anti-money laundering and Know Your Customer.

Given the transparency required by regulations such as SOX and IAS, Burkholder says HP’s ERM solution enables firms to ‘drill down’ into each piece of data so firms can more easily demonstrate to regulators what process the data went through to derive regulatory reports. For banks struggling with KYC requirements, which let’s face it is most firms, Burkholder says the data provisioning within Neoview means it is able to provide a “much better view of all data related to the customer.”

Well he would say that, but Burkholder is particularly confident about the capabilities enshrined within its new ERM solution as it draws not only on its own in-house expertise, including the Knightsbridge acquisition, but also includes input from a number of software collaborators including Quadrant’s data modelling capabilities, Informatica’s data integration tools and Microstrategy’s business intelligence and advanced dash board capabilities. Will be interesting to see if this makes HP a more serious contender in the business intelligence space

Innovation comes from within

Our first guest blogger for Sibos in Boston is Tim Lind, who during his time at TowerGroup did a 'Heidi Miller' on the securities industry with his aptly titled, "A Eulogy for STP and the Asset Manager," which blamed poor STP on custodians' inability to understand what fund managers really cared about, alpha.

Lind is now managing director, strategic planning, for post-trade pre-settlement solutions provider Omgeo, and ahead of his "intellectual battle" on Tuesday in the Sibos Fund & Investment Management Forum debate, Lind calls on the industry not to rely on regulation for innovation.

On Tuesday, I will be speaking on a SIBOS panel, against the need for more prescriptive regulation. Whilst I am sure it will be entertaining for the purposes of the debate to be on the side of good versus evil, we all know that it isn’t that clear cut. Whilst no one wants to be burdened by onerous rules and regulations, guidance from regulators plays an important role in shaping behaviour in the securities industry.

But it’s not just the role of the regulators to initiate transformation. The institutions that drive our industry must show leadership in putting the interests of the investor first and foremost. Just as doctors are bound by a ‘Hippocratic Oath’ to do no harm to their patients, shouldn’t we expect the leadership of our industry to uphold the interests of the investor with the same zealousness?

Current discussions around the pros and cons of principles- versus rules-based regulation are turning attention away from the industry‘s responsibilities. It may appear easy to criticise the SEC for implementing a regulatory overload, or to praise the FSA for its apparently more enlightened approach, but the responsibility for identifying pockets of risk and initiating ‘palatable’ change lies with securities firms and industry bodies as well as regulators.

In a 2004 speech addressing the mutual fund scandals in the US, William Donaldson, then chairman of the SEC, summarised the point beautifully. “Opportunity may only knock once, but temptation leans on the doorbell. As much as we may wish to, we will never be able to set and enforce rules that govern every situation in which an investment adviser’s employees might be tempted…”

The SEC has made it clear they expect the industry to follow the highest level of ethics, not because they should fear enforcement (which of course they should) but because it’s their responsibility as a fiduciary.

That said, threats of regulation, rather than regulation itself, have proved effective in the past. Rather than issue an edict, the Federal Reserve threatened to intervene unless the world’s biggest banks reduced their credit derivative processing backlog by 30%. The banks responded to the threat, achieving this goal and even outlining their own new target of cutting the backlog of unconfirmed credit derivative trades by 70% in a letter to the Fed.

The European Commission took a similar approach when it decided against issuing regulation to increase transparency in European Clearing and Settlement. Instead it issued a Code of Conduct which seems to be working.

I admit that it doesn’t always happen this way. The Canadian regulator, the CCMA, having seen no evidence of self-transformation, decided to tackle one of the most risk-laden spaces in the trade life cycle. The regulation, known as National Instrument 24-101, mandates that institutional trade matching, or same day affirmation (SDA), be adopted by investment managers in the Canadian financial market by the summer of 2008, via STP. However, by having the option of a phased approach over a few years, firms have at least been given time to get their back-offices in order.

As a community, the securities industry is evolving at a faster rate than ever before. Technology is empowering the rate of innovation, and it is clear that the entire industry must constantly review ways to ensure that this change can continue safely, preventing systemic and market risk. It’s not just a question of rules vs. principles, it’s a question of responsibility.

A different perspective on Sibos

The last time SWIFT's annual user conference was in the US in Atlanta, Heidi Miller, executive vice president and head of JPMorgan Chase Treasury & Securities Services, lambasted the banking community for "being a long way from STP" and the "glacial pace" at which banks moved, weighed down by legacy investments, regulation and compliance.

Are banks at the epicentre of the transaction services industry as secure as banks think, Miller posed? Well it is three years since Miller made that speech and those that saw it have been dining out on it for some time. It struck a chord - bankers were surprised at someone in their own camp being so forthright about banks and SWIFT needing to raise their own game, when normally Sibos is as an opportunity for bankers to pat themselves on the back.

Will there be a lot of back patting at Sibos 2007 in Boston? Well this year the opening plenary features a new SWIFT CEO Lazaro Campos and Ken Lewis, chairman and CEO of Bank of America. Those of us that have attended more opening plenaries at Sibos than we care to remember would like to think that the industry has heeded Miller's message got their act together and moved swiftly to up their game.

But with an industry still overburdened by legacy systems, the unfulfilled promise of service-oriented architecture, dwindling payment volumes and even more regulation, as well as the global fallout from the recent credit crunch, is innovation and banking an oxymoron or has the industry really 'gained momentum,' to borrow SWIFT's theme?

In the coming week we will be covering of on the major themes of Sibos 2007 in Boston - corporate access on SWIFT, and the ongoing automation and regulatory challenges faced by the investment and fund landscape. A different guest blogger from TowerGroup will be joining us each day to share their thoughts on some of the main issues raised throughout the day's events. And I as usual will be wading through the mines of nonsensical press releases to try and provide you with a different perspective on Sibos.

Berlin's stock exchange looks to Equiduct

While Project Turquoise may still be looking for a CEO (well they were the last time we checked), the "pan-European exchange," Equiduct is looking to shore up market share by getting into bed with Börse Berlin.

Börse Berlin announced this week that it had taken a majority stake in Easdaq, which trades as Equiduct. Equiduct revived the old Easdaq trading platform in response to the removal of the 'concentration rule' under the Markets in Financial Instruments Directive (MiFID), which effectively means trading of equities on the Continent is no longer confined to national exchanges.

Under MiFID, exchanges like Börse Berlin are tipped to be part of a dying breed as supposedly faster and cheaper multilateral trading facilities, ECNs and alternative trading venues emerge post-MiFID to try and steal market share from 'dinosaur' exchanges. However, as we reported in the latest issue of Financial-i, few contenders other than Equiduct, Chi-X and Project Turquoise (which has yet to find a CEO) have thrown their hat into the ring.

According to the PR blurb the deal between Börse Berlin and Equiduct will provide their customers with "unrivalled access to trading in a broad category of European financial instruments." As to what this precisely means has yet to be revealed but Equiduct believes it has the "state-of-the-art" trading system and Börse Berlin has the "broadest range of securities" and experience in secondary exchange trading.

ME exchanges battle for dominance

The long suffering Nasdaq which was unsuccessful in its bid to court the London Stock Exchange (LSE) and looked like suffering a similar setback in its pursuit of OMX Group in the Nordic countries, appears to have reached an interesting comprise.

Bourse Dubai, the other suitor for OMX, has agreed to let Nasdaq have OMX, while the Dubai exchange has agreed to take on Nasdaq's stake in the LSE, as well as a 20% stake in Nasdaq itself. It is all starting to sound rather incestuous in the world of exchanges - everybody is hopping into bed with one another in their bid to go global.

As part of the deal Bourse Dubai has agreed to give Nasdaq a share in the fledgling Dubai International Financial Exchange, which will now carry the Nasdaq name and use both Nasdaq and OMX market technology. Is it a 'win-win' for all parties? Well the LSE and Middle Eastern sceptics in Washington may not be cracking open the champagne bottles just yet.

As some pundits suggest, a government-owned UAE exchange owning a stake in a US brand name like Nasdaq may rise the ire of those that are not in favour of any Middle Eastern company owning anything American. One only has to recall Dubai Ports World's decision to sell off its US operations to an American owner following pressure from Congress. Is the US Congress likely to have similar feelings of discomfort about Bourse Dubai owning a stake in Nasdaq?

Similarly those that nurse nationalistic sentiments about the LSE may be equally miffed by the deal. This was borne out by the LSE's response to Qatar making an offer for Nasdaq's 31% stake in the LSE. According to a report in The Times, the LSE welcomed the Qatari investment as a "long-term" play. No such sentiments were ascribed to Dubai's stake in the LSE.

Now it appears the battle lines have been drawn between Dubai and Qatar with the latter making an overnight raid to acquire an almost 10% stake in OMX. Few could have predicted that the fate of the LSE and Nasdaq would lie in the hands of Middle Eastern exchanges.

Banks should talk to procurement

We have all heard about the benefits of electronic invoicing - replacing manually intensive paper-based invoicing with electronic machine-readable invoices could save the industry EUR 100 billion a year. Yet, the reality is that only 2% of total invoices are transmitted electronically.

So why despite the overwhelming business case for e-invoicing are companies dragging their feet when it comes to actual implementation. At the 16th Eurofinance International Cash & Treasury Management Conference in Vienna, Kjell Gunnar Gustafasson, chief purchasing officer, E.ON Sverige AB in Sweden said that what was missing was a total end-to-end e-invoicing solution that was well integrated with companies' back-end systems.

When it comes to e-invoicing, companies like E.ON do not want to see a myriad of proprietary e-invoicing solutions. "We want to see a solution similar to roaming," said Gustafasson, drawing parallels between pan-European e-invoicing solutions and pan-European roaming in the mobile telephone market.

Gustafasson challenged the e-invoicing industry to abandon its proprietary mentality and support standardisation. He also called on the banks to play an enlarged role by developing "inter-banking" arrangements which he said had a better chance of encouraging supplier adoption of e-invoicing rather than single bank solutions.

"I would like to see the banks and bankers learn more about the purchasing process and engage in their customers' every day processes," he said.

"Banks only talk to treasurers," said Patricia Pittomvils, vice president, payments, cash management and cards, TietoEnator UK. "They should also talk to procurement people."

But it appears it is not all bad news for companies trying to establish a business case for e-invoicing. After a slow start, Pittomvils said "The good news is that banks are becoming more interested in e-invoicing." An example of this she said was the European Banking Association's Stakeholder Forum, which is looking at e-invoicing as part of SEPA. Vendors such as TietoEnator are also members of an e-invoicing Interoperability Club.

But it appears vendors and companies are waiting for the banks to fully grasp the enlarged role they can play in e-invoicing by re-using existing banking channels and leveraging banks' "credibility". I posed this question to Marilyn Spearing, global head, trade finance and corporate cash management, Deutsche Bank, who said that while it had invested in its electronic bill presentment and payment solution, it had yet to see significant traction by corporate customers. "The fact that corporates need to change their whole processing has meant slower adoption of e-invoicing," she said.

Surely then it is up to the banks working with vendors to simplify that process.

Making 'bold' SEPA predictions

Just as the banks like to make 'bold' statements about how they are using regulatory imperatives such as SEPA (Single Euro Payments Area) to transform their payments offerings, you can always rely on a consultant to come and put a spanner in the works as it were.

While the major global cash management banks have not been shy about advertising their SEPA-readiness, interestingly not everyone believes they are going to win the lion's share of SEPA payment volumes. Wouter de Ploey, senior partner at McKinsey & Co., Belgium, boldly predicted at Eurofinance's 16th International Cash and Treasury Management Conference in Vienna that smaller regional banks were the most likely to benefit from SEPA.

"I don't think the global banks will be the big winners as they are more sensitive to loss of revenues in their cross-border flows." De Ploey maintains that regional European banks are likely to "move more aggressively" into the corporate banking space as the move to standardised credit transfers and direct debits under SEPA will lower the barriers to entry for these banks to develop pan-European instruments for corporate customers.

Meanwhile, the larger global payment providers' mantra is 'volume, volume, volume' - those that can process the most payment volumes are more likely to deliver the greatest cost savings and efficiencies.

Whether SEPA will force banks to converge towards a single pricing model is uncertain, says de Ploey as banks in different regions derived their payments revenues from different sources. For example, he said some banks generated the bulk of their revenues from the retail banking side and therefore may be less inclined to offer reduced pricing under SEPA to corporates.

De Ploey said the focus on Additional Optional Services (AOSs) by banks looking to make up the billions in revenue that will be lost by standardising payments under SEPA, could result in "non-standardisation" meaning banks could charge more for value-added services as a means of recouping some of their lost revenue.

Anne Boden, head, transaction banking, Europe, ABN AMRO, said that AOSs that meant additional functionality for certain customer or corporate groups with specialist requirements was a good thing. "However, AOSs which are country specific are not in accordance with the objectives of SEPA," she said.

When it comes to migrating to SEPA, de Ploey outlined a number of options including a slow and gradual approach to SEPA adoption, the 'domino effect' and the 'Big Bang' approach. A slow and gradual approach was the least likely, he says, while banks tended to favour a regulatory-mandated 'Big Bang' transition to SEPA, which he said meant they could standardise as little as possible and provide more AOSs at a higher cost.

De Ploey believes the most likely SEPA migration scenario is the 'domino effect' where migration to SEPA starts off slowly and then increases rapidly. Either way he says banks in particular are going to find the transition to SEPA painful because of the "cross-subsidisation" of the payments business within Europe.

Boden of ABN AMRO said the SEPA migration for corporates and banks was complicated and could last well beyond 2011 with no clear end in sight for the switching off of existing national payment systems. Describing the SEPA migration process she said it was "like people deciding to change which side of the road they drove on at different times."

With such uncertainty and complexity surrounding migratinv to SEPA, Boden said it was important all parties kept the end game in sight. "SEPA is a good end game as we will be using the same set of standards across Europe. But getting there is going to be quite complex." Boden said she had every confidence that in the next two to three years the majority of ABN AMRO's clients would convert to SEPA.

WSS to support corporate demands for more streamlined digital identity management

I have been ranting a lot recently about digital signatures and certificates and the demand amongst major corporations such as Merck for a single non-proprietary digital identity managment solution that is interoperable between banks.

Well it now seems that treasury management system vendors are also starting to support their major corporate customers in this area with Wall Street Systems (WSS) announcing at Eurofinance's International Treasury & Cash Management Conference in Vienna that it is looking at incorporating digital signature functionality within its treasury management applications to address a wide range of corporate needs.

While corporates such as Merck have opted for the bank-issued digital identity credentials of IdenTrust, Terry Beadle, executive vice president, WSS said that its approach was not to align itself with a particular vendor. "We will find a generic point of integration and work with multiple vendors," he said. "When you look at it [digital identity] from a technology point of view, our customers are asking for different ways of doing things. We need to develop a [digital identity] solution that fits everybody."

Beadle said this was something it planned to deliver soon, and that it may also need to consider any identity management solution SWIFT devised as more corporates joined SWIFT MA-CUGs and SCORE to communicate with multiple banking providers.

WSS will also more heavily promote existing SWIFT connectivity embedded within its treasury management suite so that corporates can directly connect from their TMS to SWIFT without the need for any middleware.

The treasury management systems vendor also continues to invest heavily in ASP-enabling its applications, with its cross-asset investment and debt management solution, Wallstreet Suite, becoming the latest application to be ASP enabled. "Twenty percent of our customer base is now on ASP," said Beadle adding that its multiple instance ASP model is now the fastest growing part of its business with both top tier corporates such as Adidas and mid-tier corporates opting to have their treasury management functionality hosted by WSS, which provides the hosting in conjunction with network connectivity provider SAVVIS.

WSS maintains that corporate treasurers can save between 25% to 30% of the costs of hosting an application inhouse by outsourcing hosting to an ASP, which it says is a more attractive alternative, particularly for smaller treasury teams without a dedicated in-house IT department. WSS hopes to achieve an even 50/50 split between its ASP and traditional software licensing model.

Unlike 'pure-play' ASPs that provide a single instance of treasury management applications which multiple users connect to, Beadle said its multiple-instance ASP approach provided customers with more flexibility, enabling them to customise the application to suit their individual needs. He said it also lessened the "theoretical risk" of customer data being shared by maintaining separate databases.

Pulling SEPA out of the 'doldrums'

With migration to the Single Euro Payments Area (SEPA) compromising banks' traditional payments revenue (the World Payments Report 2006 estimates banks' direct revenues will be cut by approximately 38% to 62%), Deutsche Bank made the bold move of announcing that it would apply the same pricing to all payment transfers within the eurozone regardless of payment size.

SEPA applies to low value payments within the eurozone below the EUR50,000 threshold. However, at Eurofinance's International Treasury & Cash Management conference at the Austria Centre in Vienna today, Marilyn Spearing, global head, trade finance and cash management, corporates, Deutsche Bank Global Transaction Banking, said they would offer a "common price" for any payment transfer within the eurozone, effectively treating all payments the same and removing the distinction between high value and low value payments.

With the World Payments Report 2007 indicating that public sector organisations and corporates may need regulatory incentives in order for migration to the new SEPA payment instruments to achieve critical mass, Spearing said Deutsche Bank was dangling a 'carrot' in front of corporates and financial institutions in order to drive SEPA adoption.

This is quite a bold move given that other payment processors within Europe have not widely publicised their pricing models post-SEPA. Spearing said the announcement was part of the bank's strategy to establish itself as the dominant SEPA payment provider and to shore up payment volumes from both banks and corporates. "We want to get the maximum benefit from any changes we have invested in," Spearing explained, pointing to Deutsche's investment in its new single payments engine for processing all currencies.

Given that there will be no 'Big Bang' migration to SEPA from January 2008, Spearing said SEPA needed to be dragged out of the "doldrums," and corporates needed to act now in order to realise the gradual payment efficiencies that will come from SEPA.

In an effort to incentivise corporates to support SEPA, Deutsche also announced that it would continue to support existing international payment formats such as iDOC, CSV and EDIFACT, and will convert these formats to SEPA compliant XML formats without companies having to invest in and adopt XML themselves.

Deutsche will also accept SEPA payment transfers from any Deutsche account within the eurozone and the UK eliminating the need for customers to open new accounts to process SEPA payments. It will also "re-convert" BICs and IBANs back to national account numbers to aid reconciliation. "Corporates don't need to change their technology or their account structures," Spearing explains. "We want to make SEPA as simple as possible."

Spearing said by taking a more aggressive stance in driving SEPA adoption it hoped to avoid the need for further regulatory intervention in low value European payments.

Just say no to SEPA

Just when you thought there was nothing left to say about the Single Euro Payments Area (SEPA), there appears to be plenty. All this talk of SEPA and pan-European payment intrustments over the last few years anyone would have thought there would be an instant market for the instruments.

But as the January 2008 deadline for banks to start offering SEPA Credit Transfers approaches, it appears neither corporates or public sector organisations have much of an appetite for the new SEPA payment instruments. Corporates maintain that the new SEPA instruments are not a significant improvement on existing national instruments, so why should they adopt them?

This is borne out by the World Payments Report 2007 which after analysing SEPA migration plans and preparations in 13 of the eurozone contries, concluded that it is unlikely a critical mass of SEPA payment instruments will be achieved by 2011. The European Financial Management & Marketing Association (EFMA), one of the co-publishers of the report alongside Capgemini and ABN AMRO, has called for regulators to provide incentives in order to mobilise public sector companies and corporates.

But with the new SEPA payment instruments symbolising bank-to-bank standards, corporates have not been engaged enough by the banking community to fully participate in SEPA, and for them SEPA is not SEPA without add ons such as pan-European e-invoicing standards and banks dispensing with their support of proprietary standards and applications so corporates can more easily communicate with multiple banking providers.

So much for full transition to SEPA by 2010 it seems (most banks probably realised that the transition period would extend beyond 2010, however there appears to be no end in sight as to when banks will stop supporting the existing national payments infrastructure and move wholly to the new SEPA payment instruments).

The World Payments report indicates that some countries want to retain national payment systems as long as demand exists, but doesn't this defeat the original intent and purpose of SEPA, and how long can banks bear the brunt of the cost for running two systems in parallel?

Blogging Sibos

It is that time of year again when the spam filters on journalists' inboxes go into overdrive as invites to meet with companies at SWIFT's annual user conference, Sibos reaches fever pitch.

Following our launch at Sibos 2006 in Sydney Australia, FinancialTech Insider will be providing daily commentary, opinion and analysis of the goings on at the Sibos conference and exhibition. This year for the first time, Rob Hegarty, managing director, securities & investments, TowerGroup and Gareth Lodge, analyst, European Payments, TowerGroup, will be joining FinancialTech Insider to blog on the latest news from Sibos.

Join us for a different perspective on how far the industry has move on since Sibos in Sydney.

Reuters at Sibos

In the run-up to SWIFT's annual customer conference, Sibos, it is not unusual for us hacks to receive invitations from banks and financial software vendors to attend press briefings with their key executives.

So when I received in my email inbox an invitation from Reuters to participate in "a limited number of face-to-face consultations, examining key business challenges faced by our customers," my curiosity was aroused.

The invitation mentioned that Reuters is bringing a team of "top-level experts" and showcasing a "new, no-compromise approach" to business automation for capital markets, which it has assigned the rather intriguing name, of "The Power of &."

It appears the "The Power of &." has something to do with "simplifying" front-to-back office trade and risk processes with more seamless integration of "standardised high quality data."

My interest was certainly twigged until I saw the name on the Reuters' invitation, which said, 'Dear Antonio'. At first I thought it was a mis-type (Anita, Antonio) but when I clicked on the RSVP button and the details of an Antonio at a bank in Brazil came up, I realised it was a customer invitation I had mistakenly received. No doubt the press invite for a limited face-to-face with Reuters is in the post.

Where is Egg.com?

Having lambasted 'bricks and mortar' banks for their "second-rate" online customer service based on research findings from Transversal, it appears some online only banks are finding it difficult to keep their sites fully operational.

Tried logging onto Egg recently? Martin Stern, head of the authority on Internet and mobile performance,Keynote UK, issued an edict saying that, Egg.com seemed to have disappeared from existence with customers unable to find the website anywhere.

So I decided to type Egg's domain name into a web browser, which resulted in a message from Firefox that it cannot find the web server at Egg. Having said that I logged onto Egg.com again this afternoon and voila, the web site appeared.

Egg.com, formerly owned by the Prudential, was one of the first wholly online banking sites to launch at the height of the Internet Gold Rush. Citi bought Egg from Prudential for more than $1 billion earlier this year. Citi has a wealth of online experience with its CitiDirect Online platform, but in this era of 24-hour round-the-clock online banking, any site down time can cause consternation amongst customers.

Stern had this to say about the need for online only banks to ensure round-the-clock availability:

"It is imperative that a company whose total business model is based on online presence manages to maintain consistent website performance. Online-only banks need to ensure their infrastructure performs above-and-beyond their multi-channel competitors and, given the much-lower operating costs of a branch-free model, their margins should be able to fund the building of a world-class online infrastructure."

Banks 'second rate' at online service

Banks bang on a lot about customer service but with multiple channels to support for communicating with their customers, it appears banks may be neglecting the most powerful channel of all, the internet.

Multi-channel customer service research from eService provider Transversal suggests that while response times at customer call centres have improved dramatically with 60% of calls answered within three minutes, and the shortest wait times being just a few seconds, the banks still have not get their heads around customer service on the internet.

According to Transversal's findings, 30% of bank websites struggled to answer more than two out of 10 product and service questions - only one bank scored top marks. Approximately a third of banks still do not offer the facility to email questions, and of those that did, the average response time was 30 hours - and it gets worse, only three out of 10 banks managed to answer email questions satisfactorily.

Given that banks have invested heavily in a web shopfront window, there appears to be no good reason for the lack of responsiveness to web enquiries other than the fact that banks don't quite get it.

Some banks still appear to be stuck in the mindset that putting information on the internet means you do not have to provide the same or similar levels of customer service that you would provide if someone walked into a branch.

Although 80% of banks surveyed had a Frequently Asked Question (FAQ) section (up from 50% in 2006) Transversal's findings indicate that many of these were "extremely large" and difficult to navigate to find tailored information. The irony is that despite all the increases in bandwidth and the speed of the internet, customers still found it easier to get a response via the phone than online.

Pushing its own barrow, Transversal said only 30% of banks had implemented natural language eService solutions that use neural network technology to analyse email questions in order to find the best response.

But it is not just about the software becoming more intelligent in order for web sites to more satisfactorily respond to customers emailed questions. Banks need to fully embrace the interactive capabilities of the Internet to encourage more meaningful and fruitful interactions with their customers. Do I hear shrieks of Web 2.0 in the background - quite frankly shouldn't basic levels of online customer service been part of Web 1.0?

Politicians up the ante about online fraud

UK politicians it seems are getting all hot and bothered about online fraud, particularly in the banking sector, with the release this week of a UK parliamentary report entitled, "Personal Internet Security", which describes the internet as a “playground for criminals”.

No new revelations there, then. The internet has been used by criminals pretty much since its inception, so why are the politicians suddenly getting hot under the collar about it? Well it seems that the report's authors, the House of Lords Science and Technology Committee, has gone and given themselves a major dose of the 'spooks' by compiling damning statistics and evidence that suggest online fraud is an epidemic.

Not only is online fraud being perpetrated by organized crime gangs (nothing new there either) instead of the teenage-hacker-in-his-bedroom with nothing better to do, the report states, but they have also succeeded in remaining largely "invisible".

The report reels off a damning array of statistics including VeriSign's predictions that the level of “bad traffic” (Denial of Service attacks, email spam, phishing) was peaking at 170 times the basic level of Internet traffic; by 2010 it is predicted to be 500 times the basic level.

The report highlighted the vulnerability of online banking to fraudulent activity, citing figures published by the UK bank payments association, APACS, which recorded more than 1,500 “unique” phishing attacks directed at UK banks in September 2006, up from just 18 in January 2005. US banks are the most targeted by phishing, with their losses totalling approximately $2 billion.

The UK parliamentary report recommends the establishment of a framework for collecting and classifying data on e-crime, and “more rigorous and co-ordinated analysis” of the incidence and costs of such crime. It also talked about deployment of security software at ISP level (not that old chestnut), the need for a dedicated regulator for the online world (Hmmm!) and for Government to increase banks' fraud liability.

It did not take long for the security software industry to leap on the parliamentary band wagon, coming out and touting the latest and greatest authentication technologies including two factor authentication (which uses two different methods for authenticating someone's identity), and the most amazing suggestion I have heard so far, a "pattern-based" approach based on peoples' ability to remember patterns to offer a more secure, yet more simple (surely not?) means of authentication, other than the much maligned Chip and PIN.

No one is disputing the need for stronger more robust means of authenticating someone's identity. However, some of the newer technologies being touted are expensive to deploy and complex to implement. Furthermore, a lot of these technologies only provide authentication up to a point. With pin and password for example, it may authenticate a user to an online site or banking application, but it does not provide an iron-clad guarantee that person is who they say they are.

What is even more alarming is that multinational corporations sending high volume payments via their banking partners, have desk drawers full of security tokens and fobs which only provide authentication at the corporate level, but do not identify the individual sending a payment and whether they are authorized to do so.



It seems the banks have been caught napping and have been too busy trying to push their proprietary identity management and information security technologies on customers in an effort to lock them in.

Well no one wants to be locked in, they want to be able to bank online or send payments electronically without the risk of someone intervening in that transaction and altering payment details for fraudulent purposes.

What is even more surprising is that banks have been sitting on a solution for the last eight years. It is called IdenTrust, which uses PKI encrypted digital certificates to verify someone is who they say they are.

The advantage of IdenTrust is that the banks behind it have already invested $170 million in ensuring IdenTrust digital certificates are binding in more than 175 countries and interoperable cross-border between banks.

So with a solution to stronger means of authentication staring them in the face and the chance to deliver a single identity management solution instead of a multitude of different ones, why on earth does the industry continue to perpetuate their own proprietary versions of digital certificates and other security technologies that do not actually vouch for someone's identity?

Mind you if we have entrusted banks with our money, can we entrust them with our identities? The argument in banks favour is that they already hold a lot of theinformation necessary to authenticate someone is who they say they are, although admittedly some of this documentation may be fraudulent.

The security software services industry also has to ask itself does it want to continue to perpetuate solutions that sound like a prop from a James Bond film but are difficult and expensive to implement for widespread use.

MiFID highlights lack of good practice in outsourcing

Some time back I remember hearing PJ DiGiammarino of the JWG-IT Working Group mention that outsourcing contracts were likely to be impacted by the Markets in Financial Instruments Directive (MiFID).

Then we never heard another whisper about it in a lot of the high level debates about MiFID which tended to focus on best execution, pre- and post-trade reporting and client classification. All worthy subjects, but it appears now that outsourcing and MiFID are finally in the spotlight with a survey by law firm, Field Fisher Waterhouse, revealing that most financial services organisations’ outsourcing agreements still fail to comply with MiFID.

How can that be so? Well Field Fisher Waterhouse says that the main points of failure are that 40% of firms do not have an up-to-date exit management plan in place with their service provider; 36% do not have their regulatory team review its contracts; 33% do not have a service level agreement in place with every service provider; 32% do not regularly test service provider’s disaster recovery; if an outsourcing provider fails to meet regulatory standards, 31% do not have the right to terminate the agreement; and more than 30% of outsourcing agreements do not require the provider to regularly test back up facilities.


These are some pretty glaring oversights, when you consider that irrespective of MiFID and with the buy-side outsourcing more than just non-core back office processes to providers, they do not even bother to question or test whether that provider is able to keep the show on the road if and when a disaster strikes.

Field Fisher Waterhouse technology partner Simon Briskman had this to say to firms nervously scratching their heads wondering how to put this right before the 1 November MiFID deadline:

“In order to achieve the deadline, firms need to engage their suppliers in negotiations now. Many companies have assumed that the outsourcing rules under MiFID are no more than an extension of the current rules and reflect good practice. To some extent this is true and our survey suggests that good practice is often not met in financial services outsourcing.”

IdenTrust adoption at inflection point

A couple of years ago in financial-i magazine we did an article aptly titled,'Whatever Happened To', which alluded to the spate of bank-led initiatives, Identrus (now IdenTrust), Bolero, SWIFT's ePaymentsPlus, CFOWeb.com, that emerged at the height of the dot.com boom only to find that user adoption was not forthcoming.

Some of these solutions, particularly CFOWeb.com and ePaymentsPlus have since gone to the technological graveyard in the sky, and even those that have survived have had to re-invent themselves to establish a more compelling business case for user adoption.

One of those companies of course is IdenTrust, which with a new name, a new focus and a new CEO,Karen Wendel, formerly of Gemini Consulting, has gone from being a bank-centric organisation to one that is now focused on helping banks deliver more robust identity management solutions to their corporate customers.

Formed in 1999 by leading global cash management banks such as Citi, Bank of America and Deutsche, IdenTrust (then known as Identrus) positioned banks as trusted third parties in B2B e-commerce by establishing policies, rules and guidelines for banks to issue PKI-encrypted digital certificates for authenticating an individual's identity.

IdenTrust's founding bank's invested $170 million in developing a policies, legal framework, trusted operations and technology (P.L.O.T.) to create a comprehensive environment for issuing trusted identities based on customer agreements which are enforceable in more than 175 countries.

IdenTrust is the only bank-developed identity authentication platform and unlike other digital ID solutions, it emphasizes the interoperability of its digital certificates and their ability to function cross-border. However, since its formation in 1999 it has suffered from an image problem. Wendel says at the time of its inception, PKI was largely driven by 'techies' more focused on encryption than business applications of PKI.

Early implementations of PKI were also costly and cumbersome to implement, and by the onset of the millennium it had been superseded by cheaper means of authentication such as pin and password. But as the incidence of identity fraud has increased in recent years, with attacks becoming more sophisticated, Wendel says PKI and IdenTrust are back in favour.

According to Wendel, IdenTrust's digital certificate volume is doubling every year and instead of having to spend $7 million to $10 million just to get started, banks can deploy PKI digital certificates for less than $500,000.

But the real inflection point when it comes to adoption of IdenTrust's identity credentials has to be pressure from major multinationals such as Shell and Merck, weighed down with hundreds of different security tokens and signature cards for logging onto proprietary banking applications.

These companies are asking banks to implement a single ID management solution that is interoperable across multiple banks. As part of a multi-year overhaul of its treasury management operations, Merck is implementing an innovative identity management solution using IdenTrust digital ID credentials and the concept of an "e-vault," to provide an extra layer of security.

Wendel says Shell will also be one of the first corporates to implement a bank account mandate application which has IdenTrust credentials embedded in it. The challenge now for IdenTrust is to encourage banks and software vendors to develop more applications with its digital credentials embedded in it and to get banks to abandon their proprietary PKI technologies.

As more and more corporates communicate with their banking providers via SWIFT, IdenTrust believes it also well positioned to provide authentication at the individual level for bulk payment transfers via the SWIFT network. Currently SWIFT’s PKI security protocol only provides authentication at the corporate level, so the bank knows for example, that Company A is sending a payment file, but not the individual within that company that has authorized the payment.

SmartStream expands its global footprint

With a number of financial software vendors being bought by private equity outfits, the expectation more or less is that once they are pumped full of venture capital, they will embark on an acquisitions spree.

SunGard has certainly been busy acquiring companies following its acquisition by a consortium of private equity investors led by Silver Lake Partners. Others, however, prefer the more organic approach rather than having to integrate multiple acquisitions.

Following TA Associates' acquisition of 3i's majority stake in UK financial software vendor,SmartStream, acquisitions are not high on newly-appointed CEO Ken Archer's agenda at the moment.

Having been convinced to give up his job as president of European business development for Computer Sciences Corporation, a $4 billion operation, to go and run a smaller UK software outfit, Archer's strategy for the leading reconciliations and STP vendor so far has been to ramp up staffing and to expand the company's global footprint.

Over lunch at the Royal Exchange in London yesterday, Archer said SmartStream would expand its Asian and emerging market presence by establishing a presence in Beijing, China, where it recently signed a major deal with one of the top four banks. It is also increasing its sales strength in Singapore to address the Northern Asian market and there is also potentially going to be an office in Miami to expand sales in South America. SmartStream has also completed a feasibility study for setting up an office in Dubai.

Not many CEO's of financial software companies can boast that they don't really need more customers, but with more than 1000 customers, including 75 of the world's top 100 banks, Archer says it is not so much about acquiring more customers, but about being able to sell more to its existing customer base, and eliminating some of the barriers to straight-through processing via its STP Control Architecture.

Approximately 70% of SmartStream's customers use its Corona platform to address reconciliations challenges. TLM Corona which offers the reconciliations functionality of Corona coupled with its thin client web portal, WebConnect. SmartStream boats that its solutions are able to scale much more efficiently than its competitors, with the ability to process millions of reconciliations an hour in real time.

SmartStream subscribes to the belief that reconciliations are "instrument agnostic" so its solutions tend to span multiple asset classes (cash, securities, FX, derivatives). Utility computing is also an area of increasing focus for the UK software vendor in terms of providing a cost effective increasingly scalable solution for the processing intensive nature of reconciliations.

Abbey and 0B10 in e-invoicing supply chain financing partnership

First JPMorgan bought Xign, the global settlement network it had worked with since 2003 as part of its Order-to-Pay solution, enabling customers to automate purchase order delivery, invoicing and payments.

Xign's network boasts more than 40,000 suppliers and it would be fair to say that JPMorgan has made some interesting acquisitions (including its purchase of logistics company Vastera) in its efforts to integrate itself deeper into company's supply chains.

Now Abbey UK Corporate Banking, part of the Banco Santander group, has teamed up with e-invoicing network OB10,which enables buyers and suppliers to send and receive invoices electronically without having to implement hardware or software, as part of its "payer-centric" Supplier Payments solution, aimed at large and mid-tier UK corporates.

Supplier Payments builds on an existing supply chain financing solution within the Santander Group which uses reverse factoring to pay suppliers earlier based on the fact that the bank has received instructions from the payer to settle invoices on maturity.

Teaming up with OB10 allows Abbey to provide a more complete end-to-end solution that not only provides financing but also automates the invoicing component for faster receipt and approval of invoices and the associated cash flow benefits.

OB10 counts Hewlett-Packard and Sara Lee as customers and it has done the hard work in terms of ensuring VAT and e-invoicing compliance in the regions in which its operates; Europe, North America and Asia. It also takes care of the data formatting so firms do not need to worry about data conversion or supporting different invoice data formats.

OB10's network addresses both the Accounts Payable and Accounts Receivable side, but historically accounts payable functionality has not been top of its agenda as it has with other e-invoicing vendors such as BasWare, Ariba and Xign. Up until now, OB10 had largely focused on automating paper invoices and invoice delivery rather than the actual payment or cash flow benefits of enabling suppliers to get paid earlier.

For more information on Abbey's supply chain financing solution read the full transcript of an interview with David Goucher, managing director, Abbey UK Corporate Banking, in the latest issue of financial-i.

Firms criticise regulators for lack of guidance

As the November deadline for the Markets in Financial Instruments Directive (MiFID) looms ever closer, sell-side firms are praying for a miracle: that national regulators will provide them with more guidance and support.

I remember some weeks back citing PJ DiGiammarino, CEO of the MiFID think tank, JWG-IT, who told firms at one of its many workshops that as MiFID is a "principles-based" regulation, firms should not rely on the regulators to provide them with much guidance when it comes to implementing MiFID.

Yet, MiFID Readiness findings from a year-long survey of 300 buy and sell-side firms conducted by SunGard and TradeTech, indicate that more than half of respondents felt national regulators were either “bad” (32%) or “very bad” (19%) in helping them prepare for MiFID.

In the UK, the Financial Services Authority (FSA) prides itself on its principles-based approach to regulation, and has tried to move away from a prescriptive approach, which has caused consternation in other markets, namely the US, where regulators were lambasted for taking a too prescriptive approach to regulations such as Sarbanes-Oxley.

But according to the survey findings, only 54% of firms believed that a principles-based approach was the best approach when it comes to MiFID, with the remaining respondents stating that it “makes it difficult to understand exactly what requirements the FSA desires, adding to the compliance task”.

Yet, despite their dissatisfaction with the lack of guidance from regulators, it does not appear to have prevented 53% of firms from declaring their preparations for MiFID to be “ahead” or “right-on-track”, compared with only 34% of firms surveyed in September 2006.

The survey findings appear to highlight some anomalies in the market. Firms would be quick to criticize regulators for taking a too prescriptive approach to regulations like MiFID, yet on the other hand they seem to desire some hand-holding. It appears that the regulators are damned if they do and damned if they don't and those firms that require hand holding or guidance are unlikely to recognise the opportunities MiFID presents to launch new initiatives and "strategic reforms".

It is worth noting that if all sell-side firms required guidance on MiFID from the regulators, then Project Turquoise and Boat may never have existed.