Blockchain: A Better Future For Banking

Kris Hansen

Distributed ledger technology (DLT) may make several parts of the post-transaction banking process redundant. That’s an exciting prospect in an industry that spends billions on post-trade processing each year. However, there are several steps that must be completed before the industry is ready to begin using DLT to its full capacity.

Based on blockchain (the DLT that underpins bitcoin transfer), distributed ledgers are databases of transactions shared between the parties conducting those transactions. Moving to a single consolidated view of the truth eliminates the need to keep separate ledgers and to be constantly reconciling different versions of the truth across these views.

By separating the topic of DLT from the bitcoin use case, the technology can be used to model the transfer of any asset or commodity. The cryptography used to encrypt a transaction is secure and can be relied on, a necessity when trading bitcoin due to the anonymity of counterparties. As a result, it removes the risk of fraud, error, or dispute over the details.

DLT’s transparency may improve anti-money-laundering techniques by properly assessing ownership of assets without compromising data security and data protection. By engaging with DLT at an early stage and incorporating its concepts, along with the Internet of Things and cloud technologies, into the process of digital transformation, we can holistically work toward a vision of the new digital enterprise.

It sounds great, but it needs a lot of work. So far firms including Nasdaq and BNP Paribas have been able to develop business-to-client but not business-to-business offerings. The reason is that a lack of standards between firms is preventing the technologies from being joined.

Several consortia are in play with considerable backing from the industry, and each of these has the potential to develop one or more parts of what eventually becomes an industry solution. There is a massive opportunity to redesign and simplify processing in the industry back office, which has seen little automation, without building one legacy platform onto another. Concentrating on the use cases where all firms can find real value is the starting point.

To do that requires a good understanding of the business processes, technology, and regulatory regimes that impact the back office. Banks must engage in this analysis in order to contribute. The cost of capital is rising, business margins are falling, and the risks of disintermediation are increasing.

When approaching a change as massive as DLT, the industry will need to ensure that security and data protection are tightly wound in. Where the boundary between shared services and shared data is a fine line, it is incumbent upon the industry not to cross it. These parameters need to be resolved. By working together, the industry can collectively pull back from the position it finds itself in right now and develop a better future for customers, shareholders, and the business of banking.

With the banking industry in a state of flux, The Banker, in collaboration with SAP, has developed a timely video series titled “Digital Trends Driving Bank Innovation,” which included a video with Ruth Wandhofer, Global Head of Regulatory and Market Strategy, Citi, on Blockchain, Separating Reality from Hype.

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Kris Hansen

About Kris Hansen

Kris Hansen is senior principal, Financial Services for SAP Canada. He is focused on understanding the financial services industry and identifying new and interesting digital opportunities that create disruptive business value.

Why Innovation Is A Blessing And A Curse For Legacy Banks

Judy Cubiss and Ginger Shimp

The financial services industry has typically moved at a glacial pace. The simple act of taking money out of an ATM or visiting a bank hasn’t changed in decades.

Yet even the most traditional industries aren’t immune to technology. Digital innovations in the banking field are coming at a furious rate. Blockchains, mobile payments and other newer technologies are creating tremendous opportunities in finance.

It’s no exaggeration to say that banking—once considered among the most staid and conventional of industries—is being roiled by innovation.

Recently, Brian Fanzo and Daniel Newman, co-hosts of the popular S.M.A.C. Talk (social, mobile, analytics, cloud) Technology Podcast, caught up with Falk Rieker, global vice president, Banking Industry Business Unit at SAP SE, on an episode of an extraordinary series entitled Digital Industries, which examines how digital transformation is affecting 16 different industries.

Rieker acknowledged the transformation that is taking place by noting that “innovation in banking is occurring at a rate that hasn’t been seen in decades.”

Banking is being transformed by digital technologies—but where they are coming from?

Like many industries, the impetus for change is not necessarily coming from within the industry. The innovations of financial technology firms and non-banks entering the market have put huge pressure on traditional banks to evolve.

Blockchain technology is one example. By creating a seamless series of tied transactions, banks can realize tremendous time and cost savings. Users, whether they are customers, bankers or auditors, can retrospectively peer into individual transactions without any holds. Thus the amount of tracking or reconciliation required is lowered significantly.

While it may sound counterintuitive, the development of this kind of digital technology often originates in emerging countries rather than developed nations, which just proves the old maxim that necessity is the mother of invention. Listen to a short clip of the podcast:

SMAC podcast

Have you all heard the stat that more people own a mobile device than own a toothbrush?1

Eek!

Well, in these markets many people may not have a laptop but they do have a cell phone, and this becomes the impetus for mobile innovation. Mind-bogglingly, in places such as the U.S. or the U.K., the pace of innovation often lags places such as China, Brazil or Africa.

Part of this is cultural. The banking industry in developed markets tend toward conservatism. Innovation occurring at a breakneck rate may be viewed as something to avoid. Which may help to explain why Americans are still using ATM cards while Chinese consumers don’t even want to use credit cards, preferring to be mobile. Whole ecosystems, such as Alibaba and WeChat, have grown to support these preferences. These platforms aren’t arising from the traditional banking space, but rather technology firms.

Brian Fanzo, S.M.A.C. Talk host agrees:

Gen Z and millennials in China go through their entire day doing all of their payment, transport, food buying through mobile apps

Ultimately, however, technology and consumer preference will determine how banking services are delivered. So how do banks prepare for this exciting new digital world while still protecting themselves from the effects of disruption?

Why banking is needed—but banks are not

The structure of banks as we know it is a relic. Were we to devise a banking system from scratch today, it would no doubt look very different.

banking is needed banks are not it is that simple

Rieker goes on to point out that retail banking services, wealth management, and corporate banking can all be delivered outside the traditional banking system. It’s simply a matter of how long it takes the transformation to occur.

The finance industry has been insulated from innovative competition due in part to regulatory and legal compliance, an ongoing struggle for organizations in the industry.

The protective regulatory walls of the finance industry have been breached: technology firms that provide banking services are often not regulated to the same degree, allowing them the flexibility to innovate while forcing banks to keep pace.

This doesn’t mean that banks are doomed. They still have two very large advantages: market share and data. Data is absolutely critical in terms of targeting and retaining customers. Banks with the best data can derive the most actionable insights into what people need.

Banks have an enormous amount of financial and personal data that they can use to discern the best way to earn and retain the loyalty of consumers. They are making massive investments in leveraging this data in a vast array of means, though it should be noted that non-bank challengers aren’t at a total disadvantage. In the U.K., open banking laws require banks to share customer data with third parties, providing the customer agrees. Should this idea find global traction, it could have profound consequences.  “This will bring a totally different game,” Rieker opines. “And it will be on a level playing field, unlike in the past when banking was an industry nobody could enter.”

Market share, of course, is a critical advantage in any business. Armed with millions of customers and billions in resources, banks have the cachet and capital to take the best innovations from smaller competitors and tweak them to fit their own aims. With these kinds of inherent advantages, it would take more than innovative new services to topple the existing banking structure.

 share of digital banking interactions exceeds 85 percent for most advance countries and is heading to more than 95% in the near future Ultimately, banks that use digital tools to expand their offerings beyond what we consider the traditional purview of banking will be positioned to prosper. The possibility of integrating banking services with energy or telco accounts is an idea that consumers will find appealing, for example.

Banks of the future will also need to focus on improving the customer experience. Banking should be a pleasant experience. It should be integrated with other relevant industries. The digital end-user experience should be compelling.

Banks that get this right will win the future. Those that don’t are almost certain to struggle.

“Banks have no choice,” Rieker said. “Either they adapt or they die.”

The takeaway

Banks have long operated in a traditional, conservative industry that has been protected to some degree from innovation. Today, however, innovations from outside industries and the developing world are occurring at a furious rate due to digitalization. Banks can no longer rely on regulatory protection.

The banks of the future should focus on a few key areas. First, an improved customer experience augmented by stellar digital offerings and services, rooted in a strong digital core. Second, tighter integration with other industries and providers. Third, leveraging the use of data to generate key insights about consumers.

By employing these strategies and keeping pace with the speed of innovation, legacy banks can ensure continued relevance in the digital world.

To listen to this episode of Digital Industries for the banking industry, co-produced by SAP and S.M.A.C. Talk Technology Podcast, click here.

Transforming into a truly digital business is so much more than just implementing new technology to meet the demands of a digital age. It’s more than keeping up with the deluge of transformation happening all around us. Digital transformation is about understanding how to harness these changes and incorporate them into your business strategy. It’s about driving agility, connectivity, analytics, and collaboration to run a Live Business. A digital core empowers you with real-time visibility into all mission critical business processes inside your four walls, and in your interactions with customers, suppliers, workforce, Big Data and the Internet of Things.

For more on how SAP can help you drive your own digital transformation in the banking industry, visit us online.

1Are there Really More Mobile Phone Owners than Toothbrush Owners? https://www.linkedin.com/pulse/really-more-mobile-phone-owners-than-toothbrush-jamie-turner

2Bain Retail Bank of the Future Benchmarking 2013 http://www.bain.com/publications/articles/building-the-retail-bank-of-the-future.aspx

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Judy Cubiss

About Judy Cubiss

Judy is director of content marketing for Finance at SAP. She has worked in the software industry for over 20 years in a variety of roles, including consulting, product management, solution management, and content marketing in both Europe and the United States.

About Ginger Shimp

With more than 20 years’ experience in marketing, Ginger Shimp has been with SAP since 2004. She has won numerous awards and honors at SAP, including being designated “Top Talent” for two consecutive years. Not only is she a Professional Certified Marketer with the American Marketing Association, but she's also earned her Connoisseur's Certificate in California Reds from the Chicago Wine School. She holds a bachelor's degree in journalism from the University of San Francisco, and an MBA in marketing and managerial economics from the Kellogg Graduate School of Management at Northwestern University. Personally, Ginger is the proud mother of a precocious son and happy wife of one of YouTube's 10 EDU Gurus, Ed Shimp.

Improve User Experience With Internet Of Things, Blockchain, And Platforms

Akash Kumar

User experience (UX) has finally come into its own as a key factor shaping how companies do business. Companies are investing a huge amount of money on streamlining business processes, improving customer service processes, and providing personalized engagement and quick resolution to customer problems. UX plays a critical role in customer acquisition, satisfaction, and retention.

While customers always look for an end-to-end UX, sometimes this is not possible, for example if the product or service is not solely delivered by one organization. Even if it is delivered by a single organization, system complexity, complex business processes, or gaps between systems can make end-to-end UX impossible.

Technology has always been a potent agent of business change, however it has advanced at such a rapid pace in the last few years that it’s changed prevailing business models and even the technology industry itself. For example, Airbnb’s founders found that platform technology made it possible to craft an entirely new business model that challenged the traditional economics of the hotel business.

Recent technology trends such as blockchain, the Internet of Things (IoT), and platforms can play major roles in automation, UX, decentralized help, transaction processing, and support coordination among multiple organizations and interacting devices.

Blockchain is already driving transformation across the finance and the insurance industry, and it is being further extended to address business needs in multiparty transactions, such as:

  • Increasing transparency and trust
  • Reducing fraud
  • Reducing cost and increasing efficiency
  • Facilitating secure, decentralized transaction via IoT technologies
  • Automating actions when predefined conditions are met

The IoT is a vast network of Internet-connected, data-sharing devices. The shared data is used to make smarter decisions. For example, connected devices can communicate directly with distributed ledgers. Data from those devices could then be used by smart contracts to update and validate the shared data and subsequently deliver it to all interested participants in the business network. This reduces the need for human monitoring and actions, and promotes trust in the data generated by the devices.

A real-world example

Let’s take a simple example from the automotive industry. Say a car has a manufacturing defect that ultimately results in a part being replaced. The typical communication chain could follow this pattern:

  • The car owner brings the car to the dealer to diagnose a problem
  • Car dealer inspects the car and notifies the manufacturer about the faulty part
  • Manufacturer works with the part supplier to determine where the fault lies
  • Part supplier and manufacturer agree that the part is faulty, then notify the dealer
  • Car dealer notifies the customer
  • Car owner brings the car back to the car dealer for part replacement

In this scenario, communication among the customer, car dealer, manufacturer, and part supplier is impeded by incomplete information, so full and accurate responses along the chain are impossible. Second, all communication must go through email, telephone, or postal mail, and the customer has to visit the car dealership multiple times to have the part replaced, possibly being unable to use the vehicle until the car is repaired. This is a very shabby customer experience.

Now let’s look at the customer experience when blockchain, IoT, and platform technology are combined. In the same scenario, the communication chain will be as follows:

  • The IoT sensor automatically notifies the manufacturer, car dealer, and car owner about the defect
  • Car dealer contacts the car owner and sets a service appointment for an inspection
  • Car owner brings car to the dealer for inspection, which confirms the faulty part
  • Information about the faulty part is put on blockchain, which notifies all the parties – manufacturer, insurer, part supplier, car dealer, and owner
  • Manufacturer, dealer, and part supplier collaborate to analyze the car’s IoT sensors and dealer inspection report to identify where the fault lies
  • Manufacturer agrees on blockchain about the part replacement, which automatically notifies all parties
  • Car dealer replaces the part and delivers the car back to the owner

Impressively, all of this happens on the same day, during the original service appointment, and the customer is continually kept informed as the vehicle proceeds through the diagnosis and repair process. This is the UX expected by the customer.

As you can see, there is a tremendous potential for developing applications that use blockchain in IoT solutions. This combination can not only solve many of the key problems in today’s UX, but also enhance it by automating many customer service processes along the way.

Learn more about How Sensors Will Redefine Business and Our World.

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Akash Kumar

About Akash Kumar

Akash Kumar is a solution architect at HCL. He has extensive experience providing niche technology such as SAP S/4HANA, SAP Cloud Platform, and SAP IoT and blockchain solutions. Akash is the author of multiple books on SAP HANA published by SAP Press and SAP Insider. He is certified on SAP HANA, SAP S/4HANA, and SAP Cloud Platform. In addition, he is an active speaker at numerous conferences and has organized multiple BarCamps in Delhi, India.

Diving Deep Into Digital Experiences

Kai Goerlich

 

Google Cardboard VR goggles cost US$8
By 2019, immersive solutions
will be adopted in 20% of enterprise businesses
By 2025, the market for immersive hardware and software technology could be $182 billion
In 2017, Lowe’s launched
Holoroom How To VR DIY clinics

From Dipping a Toe to Fully Immersed

The first wave of virtual reality (VR) and augmented reality (AR) is here,

using smartphones, glasses, and goggles to place us in the middle of 360-degree digital environments or overlay digital artifacts on the physical world. Prototypes, pilot projects, and first movers have already emerged:

  • Guiding warehouse pickers, cargo loaders, and truck drivers with AR
  • Overlaying constantly updated blueprints, measurements, and other construction data on building sites in real time with AR
  • Building 3D machine prototypes in VR for virtual testing and maintenance planning
  • Exhibiting new appliances and fixtures in a VR mockup of the customer’s home
  • Teaching medicine with AR tools that overlay diagnostics and instructions on patients’ bodies

A Vast Sea of Possibilities

Immersive technologies leapt forward in spring 2017 with the introduction of three new products:

  • Nvidia’s Project Holodeck, which generates shared photorealistic VR environments
  • A cloud-based platform for industrial AR from Lenovo New Vision AR and Wikitude
  • A workspace and headset from Meta that lets users use their hands to interact with AR artifacts

The Truly Digital Workplace

New immersive experiences won’t simply be new tools for existing tasks. They promise to create entirely new ways of working.

VR avatars that look and sound like their owners will soon be able to meet in realistic virtual meeting spaces without requiring users to leave their desks or even their homes. With enough computing power and a smart-enough AI, we could soon let VR avatars act as our proxies while we’re doing other things—and (theoretically) do it well enough that no one can tell the difference.

We’ll need a way to signal when an avatar is being human driven in real time, when it’s on autopilot, and when it’s owned by a bot.


What Is Immersion?

A completely immersive experience that’s indistinguishable from real life is impossible given the current constraints on power, throughput, and battery life.

To make current digital experiences more convincing, we’ll need interactive sensors in objects and materials, more powerful infrastructure to create realistic images, and smarter interfaces to interpret and interact with data.

When everything around us is intelligent and interactive, every environment could have an AR overlay or VR presence, with use cases ranging from gaming to firefighting.

We could see a backlash touting the superiority of the unmediated physical world—but multisensory immersive experiences that we can navigate in 360-degree space will change what we consider “real.”


Download the executive brief Diving Deep Into Digital Experiences.


Read the full article Swimming in the Immersive Digital Experience.

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Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation. Share your thoughts with Kai on Twitter @KaiGoe.heif Futu

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Jenny Dearborn: Soft Skills Will Be Essential for Future Careers

Jenny Dearborn

The Japanese culture has always shown a special reverence for its elderly. That’s why, in 1963, the government began a tradition of giving a silver dish, called a sakazuki, to each citizen who reached the age of 100 by Keiro no Hi (Respect for the Elders Day), which is celebrated on the third Monday of each September.

That first year, there were 153 recipients, according to The Japan Times. By 2016, the number had swelled to more than 65,000, and the dishes cost the already cash-strapped government more than US$2 million, Business Insider reports. Despite the country’s continued devotion to its seniors, the article continues, the government felt obliged to downgrade the finish of the dishes to silver plating to save money.

What tends to get lost in discussions about automation taking over jobs and Millennials taking over the workplace is the impact of increased longevity. In the future, people will need to be in the workforce much longer than they are today. Half of the people born in Japan today, for example, are predicted to live to 107, making their ancestors seem fragile, according to Lynda Gratton and Andrew Scott, professors at the London Business School and authors of The 100-Year Life: Living and Working in an Age of Longevity.

The End of the Three-Stage Career

Assuming that advances in healthcare continue, future generations in wealthier societies could be looking at careers lasting 65 or more years, rather than at the roughly 40 years for today’s 70-year-olds, write Gratton and Scott. The three-stage model of employment that dominates the global economy today—education, work, and retirement—will be blown out of the water.

It will be replaced by a new model in which people continually learn new skills and shed old ones. Consider that today’s most in-demand occupations and specialties did not exist 10 years ago, according to The Future of Jobs, a report from the World Economic Forum.

And the pace of change is only going to accelerate. Sixty-five percent of children entering primary school today will ultimately end up working in jobs that don’t yet exist, the report notes.

Our current educational systems are not equipped to cope with this degree of change. For example, roughly half of the subject knowledge acquired during the first year of a four-year technical degree, such as computer science, is outdated by the time students graduate, the report continues.

Skills That Transcend the Job Market

Instead of treating post-secondary education as a jumping-off point for a specific career path, we may see a switch to a shorter school career that focuses more on skills that transcend a constantly shifting job market. Today, some of these skills, such as complex problem solving and critical thinking, are taught mostly in the context of broader disciplines, such as math or the humanities.

Other competencies that will become critically important in the future are currently treated as if they come naturally or over time with maturity or experience. We receive little, if any, formal training, for example, in creativity and innovation, empathy, emotional intelligence, cross-cultural awareness, persuasion, active listening, and acceptance of change. (No wonder the self-help marketplace continues to thrive!)

The three-stage model of employment that dominates the global economy today—education, work, and retirement—will be blown out of the water.

These skills, which today are heaped together under the dismissive “soft” rubric, are going to harden up to become indispensable. They will become more important, thanks to artificial intelligence and machine learning, which will usher in an era of infinite information, rendering the concept of an expert in most of today’s job disciplines a quaint relic. As our ability to know more than those around us decreases, our need to be able to collaborate well (with both humans and machines) will help define our success in the future.

Individuals and organizations alike will have to learn how to become more flexible and ready to give up set-in-stone ideas about how businesses and careers are supposed to operate. Given the rapid advances in knowledge and attendant skills that the future will bring, we must be willing to say, repeatedly, that whatever we’ve learned to that point doesn’t apply anymore.

Careers will become more like life itself: a series of unpredictable, fluid experiences rather than a tightly scripted narrative. We need to think about the way forward and be more willing to accept change at the individual and organizational levels.

Rethink Employee Training

One way that organizations can help employees manage this shift is by rethinking training. Today, overworked and overwhelmed employees devote just 1% of their workweek to learning, according to a study by consultancy Bersin by Deloitte. Meanwhile, top business leaders such as Bill Gates and Nike founder Phil Knight spend about five hours a week reading, thinking, and experimenting, according to an article in Inc. magazine.

If organizations are to avoid high turnover costs in a world where the need for new skills is shifting constantly, they must give employees more time for learning and make training courses more relevant to the future needs of organizations and individuals, not just to their current needs.

The amount of learning required will vary by role. That’s why at SAP we’re creating learning personas for specific roles in the company and determining how many hours will be required for each. We’re also dividing up training hours into distinct topics:

  • Law: 10%. This is training required by law, such as training to prevent sexual harassment in the workplace.

  • Company: 20%. Company training includes internal policies and systems.

  • Business: 30%. Employees learn skills required for their current roles in their business units.

  • Future: 40%. This is internal, external, and employee-driven training to close critical skill gaps for jobs of the future.

In the future, we will always need to learn, grow, read, seek out knowledge and truth, and better ourselves with new skills. With the support of employers and educators, we will transform our hardwired fear of change into excitement for change.

We must be able to say to ourselves, “I’m excited to learn something new that I never thought I could do or that never seemed possible before.” D!

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