Does your bank fit into a box!
The entire universe has moved in to a box model. Finding a date, meeting a friend, hosting a party for friends, visiting a place, shopping for your daily needs, doing financial transactions have all moved from a physical state to a virtual world. This virtual world is getting contained in a box. Yes! You guessed it right – we now live and breathe with our smart devices and smart phones.

The digital adoption phenomenon was seen as a trend mostly with the millennials in pre-pandemic era, but owing to the current pandemic situation adopting to digital lifestyle is no more a choice. Every individual, regardless of their age, gender, and profession are required to accommodate digital as lifestyle.

Businesses, on the other hand, are trying to get onto the digital transformation bandwagon to retain their existence.

Banking is no exception!

Though banking sector has been steadily evolving from a paper-based transaction at a banker’s desk to a digital experience at the comfort of your couch. The banks have been found to be the late adopters of latest technology and are seeing a step behind in offering exceptional experiences to customers when compared to other business sectors such as retail, ecommerce, travel, education etc.

The challenges the banks are facing:

In the current era, the challenges for the traditional banks are two-fold.

• The first challenge is to keep up pace with the growing Fintech community Challenger and neo-banks have been riding on with this Fintech revolution.
• The second challenge is from the other business sectors where more and more companies are embedding finance in their business models in the pursuit of creating an exceptional user experience and customer stickiness through breathtaking-apps.

While the challenge from the other sectors is important, in this article, let’s focus on the first challenge faced by traditional banks today from the Challenger Banks.

The Outlook and Business Model of Challenger Banks

The business model of the challenger banks is ‘Digital only’ and the approach is always mobile first. Another differentiating factor is that they are highly agile and have offered many ‘Firsts’ in the banking sector.

The Challenger banks are gaining more acceptance among customers, especially millennials and youngsters, and are the first choice for fulfilling any banking service, regardless of whether it is onboarding, loan originations, wealth management, insurance, or any other service.

The reason behind the success of these challenger banks has been the way they approach technology and product innovations. Most of these banks operate using the ‘First principles design’ – which means they disregard existing processes, systems, technology and develop innovative banking experiences.

A sample scenario of Challenger Banks in UK

Issues faced by the traditional banks

Most of the traditional banks still run on the legacy systems. The tech stack of these legacy systems is complex and outdated. No doubt that these banks are offering digital product and services through various channels, but if there is a need to offer a modern or a highly innovative product in the market. The Go-to-market (GTM) turnaround is much higher for the traditional banks owing to tons of customizations required for every upstream and downstream systems.

The below use cases are a few examples where the traditional banks are yet to cater to:

• Contextual credit:
  My customer is at the billing counter at the super-market and the card transaction is declined because the credit limit is exhausted. The customer gets a transaction declined message from the bank and my customer has no other alternative for payment. Ideally as a bank, at that moment if my customer is still eligible for further credit, I should be able to offer an alternate credit line to the customer so that she can complete the purchase at the store.
• Global money:

  As a bank, how do I cater to a customer who:

  • Engages in transactions in multiple currencies very frequently.
  • Prefers to shop around the world through online channels across many global shopping sites.
  • Loves to travel frequently to other countries.
  • Prefers to hold foreign currencies not in another country but in the same country.

  While the requirements of the above persona have been addressed by the challenger banks, especially in Europe/UK region by offering digital foreign currency accounts under the same umbrella of digital account, the traditional banks are yet to catch-up.

  The bottom-line here is that offering a multi-currency account depends on the capability of the underlying core banking system of the bank, but enabling some cool features and a superior user experience around this product will depend on the capability of the digital banking platform on the bank, for example:

• Virtual exchange of currencies:
  This can be required for completing a transaction in another currency or just to benefit from the rate movements. Under the traditional account model of the bank this requirement cannot be easily accommodated.
• Cryptocurrency:
  Another popular trend that has caught the attention of many alongside the digital banking adoption is the recognition and acceptance of crypto currencies as a new form of money. Example: Bitcoin, Ethereum etc.

  The popularity of these virtual currencies has forced many countries to legalize them as new form of payments and this trend is more prevalent in Europe/UK region.
  While the challenger banks are offering services like buying and selling of these currencies, most of the traditional banks are still working towards offering these services.

  There are many ways of offering these services to the customers. One of the fastest ways would be to partner with a service provider and integrate their services with the bank’s digital offering.

• Temporary virtual cards:
  I am an avid online shopper, I buy a lot of merchandise from global online marketplaces which offer cheap products. I also want to subscribe to Netflix only for a month, but I do not want to use my regular debit card online because of the fear of data theft or any unwanted deductions on my subscriptions.

  What solution does my bank have?

  As the name suggests the answer is temporary/disposable virtual cards. The unique feature of these temporary cards is that it can be created by the customer on the digital app instantly and can be used only for a limited timeframe as defined by the customer of the bank. Post this defined timeframe the card ceases to exist. Imagine the time-taken if a customer had to apply for this type of card at a branch and then wait for the bank to process the card and mail it to him. The whole purpose of offering such a feature would be defeated

• Explainable AI:
  My customer applies for a loan through an automated loan origination journey. But his application is rejected by the automated credit decisioning system. As a bank, it’s my responsibility to provide customers with a humane explanation for the loan rejection.

  How do I solve this problem?

  There are many AI based credit-decisioning tools available in the market and many banks are employing these tools worldwide, but one of the key challenges banks are facing is that these systems operate as ‘black-boxes’ offering very little insights on how they arrive at these decisions.

  There is an increasing mandate from regulators that banks should be able to explain to their customers the results of automated decisions that affect them, especially in cases where the results are negative or not in favor of the customer. If the banks are able to come-up with a solution which can explain the results to the customer in a simple plain language, then they will have a competitive edge in the market.

  All the use cases discussed above are time-critical and require a faster Go-to-market(GTM) to challenge the Challenger banks. The traditional banks will require high agility, flexible yet robust digital platforms to beat the competition.

The Options and way forward for the banks:

To offer solutions to these kind of advanced use cases, the traditional banks have three choices:

• Take the long and tedious route of customizing the legacy systems at various levels.
• Invest a huge corpus on R&D, design and develop new in-house solutions.
• Opt for a digital overhaul and invest in a trusted, robust end-to-end ready to deploy omni-channel system

The first two-options mentioned above are good possibilities, but the success rate and the time taken to Go-to-market are unclear and uncertain.

Beat the Challenge with Temenos Infinity

Banks can go with the tried and tested option of implementing a whole new digital banking suite like Temenos Infinity from the most trusted banking tech company in the world – Temenos. This way the traditional banks will be equipped not only to provide an awesome user experience, better products and also be future ready to beat the challenge posed by the so-called challenger banks.

About Temenos Infinity Digital banking suite:

Temenos Infinity drives awe inspiring customer experience journeys right from the stages of customer acquisition, servicing, and retention. The new age omni channel platform offers breathtaking propositions as mentioned below

The Maveric Edge

As a certified Temenos partner, Maveric systems re-energizes your connected core by extracting maximum value through full lifecycle implementation of Temenos Infinity. Our close alignment with Temenos as a certified partner, help banking customers to get rapid and easy access of Temenos Infinity’s application features. With our certified Temenos specialists, we orchestrate and articulate unmatched Temenos product stack mastery to lay the success path for your future.

Over the years, the cloud has emerged as a mainstream technology for the banking sector. Despite its uptake, banks have taken a measured approach to cloud adoption. Citing security and regulatory concerns, most banks are in the early stages of cloud maturity.

The COVID-19 pandemic created a new urgency for cloud solutions. With continued banking disruption, the traditional core architecture is no longer enough to deliver new products and services at the required pace. Most banks are aware of the importance of core banking systems but have no defined strategy.

The question that most bank leaders have to address is can next-gen cloud-based core banking systems replace traditional core banking systems?

Banking innovation roadblocks

Legacy technology is a major stumbling block for banking innovation. The monoliths are cumbersome and running on obsolete technology with little to no updates. Legacy systems form the core of banking operations and have stood their ground through the technological storm. But these systems weren’t designed for the fast-moving digital age.

The rigid organizational structure and siloed nature of working is also a barrier to innovation in banking. While we see a rise in cloud adoption, the shift means more than just migrating the IT assets. The complete adoption of cloud calls for an agile, forward-thinking mindset. The culture of innovation requires a change in attitude and adopting a customer-centric approach. Banks are typically risk-averse, especially when it comes to core replacement. The process is expensive, time-consuming, and even a tiny misstep could lead to service disruption and attract regulatory scrutiny.

Adopting innovation accelerants

Next-gen cloud-based core banking systems address evolving needs of the banking market. According to Mckinsey, the technology could significantly reduce time to deliver new functionality such as address change from a mobile application or peer-to-peer payments. Cost reduction, scalability, and efficiency are driving the cloud market.

Operating in the cloud offers banks the key differentiating factor in a competitive landscape. Some of the key benefits include:

• Reduce time to market new products – Cloud environment provides agile and DevOps environments that support the rapid development of products, services, or feature enhancements being brought to the market fast.
• Agility to innovate – Capitalize on market opportunities by leveraging emerging technologies such as artificial intelligence, machine learning, blockchain, etc.
• Reduce overall operating costs – Banks can reduce their overheads by not owning every IT-related asset. Rather these can be purchased as services from various cloud providers and eliminate the need for on-premise servers.
• Enterprise synchronization – Cloud core banking unifies banking functions, standardize applications and processes. The synchronized systems allow for easy alignment of technology and business operations. Several service providers help banks bring together their operations and functions with an integrated platform. For instance, Temenos has been the number one core banking solution in the world, supporting more than 3000+ customers. They are providing cloud based platforms with cloud-native microservices architecture approach and tools. The integrated platform-led core banking solution is cloud-agnostic, API-led, and artificial intelligence-enabled. Temenos cloud based solutions are highly secured and compliant, designed with robust practices, policies and procedures for assuring comprehensive customer protection.

The conventional thinking for moving Core banking on cloud

While legacy core banking systems are known to be non-agile, rigid, scale-constrained, and working in siloes. Most banks still rely on it due to challenges  and conventional thinking in adopting cloud-led core banking such as:

• Moving too fast – The banking application landscape is one of the most complex software. Thus, upgrading legacy systems is difficult and expensive. Moving to the cloud too fast also slows down the pace of IT modernization.
• Complete reliance on the cloud – Traditional banks are still hesitant to abandon a functioning system and rely heavily on the cloud. With stringent regulatory and compliance norms, the interaction and dependency on third-party is cause for data security concerns. Moreover, handing over control of critical business applications to a third-party service provider is a risk that most banks do not wish to take.
• Evolving relationship between data, regulation, and innovation – Over the years, the regulations have increased focus around consumer data safety. From GDPR to open banking regulations, banks’ overheads have increased due to changing regulations and restricted their ability to innovate. Balancing regulations and innovation is an uphill task. But banks can work with regulators and cloud providers to provide a transparent process that would placate the involved parties.

The COVID-19 pandemic highlighted the need for more user-centric digital solutions for employees and consumers. As the world came to a halt, cloud-based services were the need of the hour for businesses to sustain themselves. With cloud-led core banking systems banks can accelerate and scale their next technology transformation, future-proof the foundation against further crises.

While core banking system is not a priority for most banks, this is the right time for banks to shift from a reactive phase to a proactive phase. Temenos cloud based core banking solution is the right choice for banks to #AccelerateNext. Maveric as a certified Temenos partner, offers end-to-end analysis, implementation, upgrade and support services. With our proven product mastery, our solution specialists guide banks to extract maximum value from their Temenos investments. Get your bank future ready with cloud based core banking solutions.

The concept of open banking is one big catalyst for the banking business to achieve the the digital transformation. The Banks which can implement the open banking system, allows the third-party providers to access the financial information data of the banking customers through the application programming interfaces (APIs). It is a collaboration between banks and other players within the banking ecosystem. For any consumer, API is an information to be shared between applications with their prior knowledge. Primarily the data collected and shared with third party financial institutions are for better services, lifestyle amenities and managing finances.

The various kinds of data that can be shared are like

• Product data (info about rates, fees, etc.)
• Customer data (info about phone number, email and home address, etc.)
• Account data (info about account details, balances, transactions, etc.)
• Payment transaction data (info about payment initiation, cancel payment, payment status, etc.)

How Banks facilitate Open Banking?

As banks attempt to broaden and improve their digital offerings, countries and regions have approached open banking in different ways. Europe (EU) have legislated, obliging all banks to open their data and payments—with customers’ consent—to third-party providers. The concept of open banking has accelerated with the  introduction of European-led Payments Services Directive (PSD2), which enables regulated Third Party Providers (TPPs) to access customer’s bank accounts via secure APIs.

Key provisions of the Revised Payments Directive:

• Regulatory requirement for Open API (Sharing the banking data without sharing login credentials) and access to account data (Xs2A)
• Strong (2-factor) authentication mandatory across all channels. OAuth 2.0*4 is a standard likely to be used by both banks and third parties.
• Transparency of detailed information to the payer before the transaction execution like Charges, FX, dates, and execution times.
• One leg in and out transactions– A broader geographical reach where one party is outside the EU/EEA and any currency within the EU/EEA where there is no FX involved must be supported.
• Higher consumer protection– limiting payer’s liability.PSD2 also contains guidelines on complaints handling.

Who’s who in the new PSD2 world:

Temenos Solution:

Temenos provides a fully integrated front-to-back API-based solution architecture which fully corresponds to the commonly accepted industry definition of an API-based technology platform for open banking

Banks acting as Payment Service Providers:

Transparency of Payment Services – All payment service providers (AS PSPs, PISPs) must provide complete information (charges, FX, dates, and execution times) to the payer before execution of the payment and should execute on payor consent. After execution, it should provide the confirmation of the payment with these details. Similarly, the payment application user for execution should provide the details of payment with a break-up to the payee.

Temenos Payment Solutions (Temenos Payment Order and Temenos Payment Suite) provides front office payment initiation and mid/back office payment execution solutions, enhanced with additional payment information before and after execution of the payment, as mandated in the PSD2.

Payments Coverage – PSD2 has widened the scope of its applicability to include “one leg-out” (OLO) payments, in any currency. They apply to payments initiated and ending in all the EU/EEA countries.

Fig: One Leg Out (OLO) Foreign Currency Payment under PSD2

Payments between PSPs in member states involving any currency other than a Member state currency, should follow the value dating rules. Payer and Payee shall pay for the charges levied by his payment service provider

Fig: Payment within EU/EEA –Other than Member State Currency under PSD2

Temenos Payment solutions will be enhanced to allow execution of payments as per the new rules, through configuration.

Payment Initiation Services – Banks can offer payment initiation services using the Temenos Payment Order solution. Temenos Payment Order deployed in Temenos frameworks, can request access to external (not within the processing Bank, TPP) account information via APIs and execute the payment orders. A payment can be simulated multiple times from the Temenos Payment Order.

Bank acting as Account Servicing Institutions:

Access to Accounts (XS2A) – Under PSD2, Banks servicing customer accounts should have the ability to provide access to account information required by PISPs and AISPs via APIs. As a mandate, information transfer happens securely through market standard APIs with 2-factor authentication for Account Servicing institutions. Temenos frameworks provide reliable, secure, and efficient access to data that can be exposed through APIs, once the standard validation checks are successful.

Customer Authentication and Security – Banks should implement 2-factor authentication for communication with TPPs. Temenos use OAuth 2.0 for authentication and authorisation.

Account/ Payment Information Services – PSD2 defines “Account information service’ as an online service to provide consolidated information (balance, transaction history) on one or more payment accounts held by the Payment Service User (PSU) with either another payment service provider or with more than one payment service provider. Banks can act as online account aggregators, on providing access to TPPs to account information via APIs. Temenos uses Temenos Interaction Framework which will offer the requested APIs under PSD2.

Temenos support for PSD2 and Open Banking Initiatives

Temenos solution is designed to meet the new requirements of open banking market. The PSD2 features embedded in Temenos Transact and Infinity assist financial institutions on their journey to PSD2 compliance.

Temenos Transact supports financial institutions across the world with open banking compliance, which assists with API requests from regulated TPPs. Temenos utilizes PSD2 specific workflows to ensure sufficient authorizations are met, enabling secure communication with regulated entities. Temenos open banking functionality covers the following such as

• Account Information Request.
• Payment Initiation Request.
• Funds confirmation
• Berlin Group (API used widely across the EU) , Uk Open Banking Standard , etc.

 Temenos Infinity offers digital banking solutions with the ability to aggregate accounts, balance, and transactions from third party banks using standard open banking APIs from connection providers. The open banking aggregation with API requests to third party banks are on the following

• Consent Management
• Data Storage in Microservices
• Digital apps to guide a user through the processes and viewing aggregated data
• Utilize open banking connection providers for bank to bank API connections.

The benefits,

• An integrated PSD2 solution within the core banking system
• Fully integrated digital channels to support open banking aggregation
• Temenos Fabric middleware layer for easily configure and integrate any PSD2 3rd party APIs
• Visually map the PSD2 APIs and develop highly secure front-end channel applications with Temenos Quantum Visualizer

Conclusion:

Open banking is highly driven by regulations such as PSD2 and embraced with modern technology. Temenos provides an integrated and real-time open architecture that allow banks to seamlessly collaborate with their ecosystem partners. This is a flexibility built in Temenos, which allows seamless information access through open APIs. Maveric’s promise of connected core facilitates future ready solutions endowed with encyclopaedic Temenos proficiency to aid digital banking ecosystem.

Cloud migration has become a regular habit in many industries. In the banking world, the first wave of cloud migration saw its wider acceptance in their internal business functions such as human resources, sales and marketing. This wave is now transitioning towards core applications and processes. Payments is one of those processes where banks are making their biggest bets for cloud migration.

The basic requirement for a bank to have a SaaS model is to have an architecture, in which all users and applications share a single and common infrastructure.  Frequent upgrades and updates induced by the SaaS providers also offers bank with a piece of mind to lower risks and implementation costs. This way, Banks can consume more services rather than worrying about managing and maintaining their own core applications. Additionally, it also allows them to free-up their IT staff to focus more on strategic business priorities.

Banks are now needed to focus on dynamic customer requirements to cater on real time payment/instant payments. However, to establish the infrastructure to have seamless operation and reduce significant effort and time, cloud based SaaS platform for payments is the way to go.

The outlook of digital payments

In the next four years, it is estimated that the global digital payments market will grow by USD 23.4 billion. Furthermore, our economy under the shadow of COVID-19, has already witnessed the booming growth in contactless payments. New disruptive technologies, fintech revolution, and evolving customer expectations are transforming the payments landscape to newer heights. Banking fraternities need to re-assess their payment ecosystems and adopt contextual solutions which offer frictionless experience across all channels and market segments. Banks who cannot support their customers with 24/7 payment service availability may soon extinct.

New fintech entrants are evolving with new age payment models and they are offering new age payment propositions by collaborating with existing banks. Innovative payment capabilities and methods can be introduced by financial institutions to build and grow their future digital ecosystem. Additionally, these initiatives often bring enormous business opportunities to the bank from eco-system partners.

Many small and mid-sized banks are still working on developing Open Banking APIs and have either just reached the compliance stage or are in the process of getting there. While the road to compliance is a milestone, banks that aim for more than compliance are set to benefit from the opportunities that Open Banking presents.

Temenos Payments in Cloud:

Temenos Payments supports banks across all sectors with a cloud-native and cloud-agnostic platform. This allows their customers to take advantage of agile scalability and security while reducing operational costs. The solution has in-built facilities to help them manage and monitor instant payment flows, ensuring high levels of automation on a platform built to support round-the-clock payment processing.

The Temenos Payments HUB (TPH) solutions can address the challenges by consolidating multiple payments processing systems into a single highly configurable payment solution. This way, banks can provide a single unified view by consolidating all the payment data, across all customer segments. Utilizing the latest technologies and APIs, TPH enhances the customer experience by providing a unified processing model across multiple channels and core banking environments.

Redefining payment efficiency with TPH

TPH is designed to help financial institutions of every size improve customer service, simplify payment operations, and reduce operating expenses by consolidating all domestic, international payment processing (ACH, Wire, SWIFT/ cross-border, Real-time) and payment data in a single centralized and parameterizable payment solution. API enabled TPH platform easily allows banks to seamlessly connect with new payment schemes.

Temenos payments can address any limitations whenever they occur, using the SaaS-based service, running on the same technology platform, supported by the same operational infrastructure and service provision. Temenos payments is capable of broad functional service coverage, given the limitations of the breadth of their offering and the restricted real-world experience. Thus, TPH has capability to provide a SaaS-based payments processing ecosystem. In my previous blog, I have put my views on the evolution of payments and how TPH can be an answer for meeting the ever-rising demands in digital payments.

Where TPH is recommended?

TPH is apt for banks having payments as one of the key business growth drivers and who are ready to host their solutions in the cloud. For example, since Temenos is cloud-native, the synergy between challenger banks and the payments software is close.

There is a very keen and growing interest in Software as a Service (SaaS) payments. Temenos is the best payment solution, which can deliver efficient SaaS being a complete cloud-native and cloud-agnostic solution. By choosing to strategic partner with a knowledge on SaaS solutions, banks can wisely invest in SaaS payments model.

Final Thoughts

Digital payments will roost the charts in the years to come. Banks would seek for new-age payment solutions which are highly efficient, cost-effective and profitable in today’s world of digital progression. Thus, SaaS based model will see