The rise digital transformation (a necessity for everyone seeking to exceed customer expectations) requires organisations to augment their offerings with best-of-breed third-party services.

Crucial to success is the ability to experiment and “fail fast” by composing and integrating business applications using APIs. Yet often legacy back-end systems are unable to change at the pace front-end/channel layers need. APIs and MicroServices can provide the answer. These technologies can reduce the cost of integration by some 40%.

This allows incumbents to incorporate fintech solutions into their core offerings that can be easily swapped for other services. This webinar will review key takeaways on what good design looks like and lessons learnt from delivering such ‘digital’ layers in financial institutions.

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we.trade: Confounding Sceptics?

The we.trade platform is among the real world examples of blockchain being put to work in a pioneering commercial way. It has attracted industry heavyweights from across the financial services sector, with its ability to smooth out pan-European trade.

Initially conceived in January 2017 and then known as the Digital Trade Chain, the platform uses smart contracts to launch and administer agreements between banks and clients; a consensus-based, encrypted digital ledger lets both sides verify a transaction and ensure that terms of the contract have been adhered to before payment.

(The nine founding members of the platform, which allows users to manage, track and protect open account trade transactions between SMEs, are Deutsche Bank, HSBC, KBC, Natixis, Nordea, Rabobank, Santander, Société Générale and UniCredit.)

More Announcements Pending…

Just weeks after we.trade’s June 2018 launch, ten companies used four banks on the platform to conduct the first commercially viable open account trades based on blockchain technology, and interest in participation is growing fast.

As the we.trade platform’s IT vendor, IBM has been central to driving and delivering the project – one of many real world arenas in which IBM is putting blockchain to use; the company proving surprisingly nimble in pioneering applications for the technology, having already engaged with clients in over 400 blockchain projects across supply chain, financial services, government, healthcare, travel and transportation, insurance, chemicals and petroleum and more.

See also: IBM Brings Blockchain to “Antiquated” Insurance Compliance

Now, three months after its launch, IBM is gearing up to announce some significant complementary offerings to we.trade at the annual Sibos banking and finance conference, which kicks off on October 22 in Sydney in front of more than 8,000 industry watchers.

While the company was reluctant to disclose details ahead of the event, Parm S. SanghaExecutive Partner GBS Blockchain Leader told Computer Business Review that one thing is abundantly clear: “The business proposition for increased cross-border trade with lower process friction, risk and cost is being quickly understood by the financial services industry as a means by which to generate new fee income. Together with further collaboration across the value chain and connecting other network service providers, the opportunity to create new eco-systems for greater trade services is making this space even more compelling. Blockchain and Fabric are just the means by which this is delivered.”

He added: “We have had a lot of interest from European banks in joining the first trade finance blockchain network in production, and in collaboration with we.trade, hope to announce new banks joining the network in the very near future.”

What is the Business Proposition Exactly?

As Jerry Cuomo, IBM’s Vice President for Blockchain Technologies recently put it in testimony to the US House Committee on Science, Space and Technology. “There are three main [benefits to blockchain]: 1) Time is saved because multi-party transactions can settle immediately, avoiding exhaustive reconciliation that often takes days or even months. 2) Cost is reduced because business-to-business processing eliminates overhead caused by “middle-men”. 3) Risk is mitigated because the ledger acts as an immutable audit trail greatly reducing the chances for tampering and collusion. “

When launching we.trade, the consortium evaluated multiple combinations of technologies and delivery organisations as part of their RFP process. IBM bid a combination of Hyperledger Fabric, Hyperledger Composer and IBM Blockchain Platform, which was ultimately selected by the banks as not only the most mature, complete and cost effective – but also owing to the fact that IBM has a heritage of deploying global projects in industries requiring alignment to complex regulations.

IBM Blockchain Platform

Under a simple “starter plan” to its IBM Blockchain Platform, the company now offers one-click setup that allows for rolling migrations to blockchain with no network outages, all Hyperledger Fabric features and capabilities, the ability to deploy and run apps created w/Hyperledger Composer, industry code samples and more.

At Sibos, it looks likely that more than a few financial services industry players will be rolling their fingers over the “purchase now” button; with the case studies beginning to role in and business proposition increasingly clear, nobody, after all, wants to get left behind.

For more on how IBM is revolutionising Financial services with Blockchain, click here

From small fintechs, to multinational tech giants that are increasingly muscling into the payments space, competition is also rife – a challenge compounded for incumbents by regulatory headwinds. Yet the end is far from nigh: emerging technology offering huge opportunities to personalise services, improve efficiency and reduce friction in an era of shrinking margins; a win-win for banks and consumers.

Emerging actors appear at first glance to have a headstart: tech is in their DNA and they don’t sit on any legacy infrastructure. Yet retail banks with decades, sometimes centuries of experience in the sector can and must adapt. To do so, they could draw on the experience of retail, where “segment of one” marketing powered by big data means consumers are increasingly targeted with highly personalised offers; even website landing pages.

Banking is shifting to a similar data-driven, open banking marketplace, which requires a much elastic, robust approach to how applications are incorporated into a broader stack. Delivering on promises, many argue, means making greater use of Artificial Intelligence (AI).

Automatic for the People

IBM’s Eddie Keal is among AI’s advocates. He told Computer Business Review: “In many banks, far too many processes that could easily be automated are still manual, and require a branch visit (think queues) and reams of paperwork. I know this from regular personal experience. Outside of work I am one of the directors of my local rugby club, which regularly gives me fresh – and sometimes painful – insight into life as a business customer.”

He added: “It is time that banks started putting AI to work much more widely; both in apps and in branch: most hurdles to better banking involve branch-based knowledge of rules and skills that can be encoded in AI. They can then be made available to customers as self-service functions, helping guide and reassure customers, improve security and reduce friction. Better yet, AI learns through experience, so it improves with every interaction.”

Generating Better Products

It’s not just customer services processes though that can be improved. What banks can also do is use AI to create products that match lenders with borrowers. Credit risk management in real time is complex, but it is possible and banks have huge scope to harness AI to deliver real insight. The opportunities are significant: global business value derived from AI is projected to total $1.2 trillion (£ in 2018, an increase of 70 percent from 2017, according to Gartner. And online investment platforms like Nutmeg and equity crowdfunding site Seedrs have shown what an appetite there is for retail investment platforms.

Keal adds: “AI could radically change how retail banks match up investors or savers with investment opportunities. You can see the beginning of this with some of the peer-to-peer lenders. These allow customers to choose a risk profile or a return profile before they invest. You can even specify that your money is not to be lent to firms doing animal testing, or rely on fossil fuels. Intelligent systems can help deal with the difficult maths and risk analysis of this sort of saving and investing.”

AI can use correlations and covariance matrices across large data sets and can begin to derive deep understanding from data (as long as it is clean – garbage in, garbage out, after all) for example; determining that a customer has excess cash available and using an AI-generated risk profile to present personalised options to help the customer generate higher income via savings or investments. The emergence of a more open banking infrastructure makes this eminently possible. Why is it not more widely available? An Infrastructure “Shanty Town”?

As Hans Tesselaar, the Executive Director of the Banking Industry Architecture Network (BIAN) puts it: “Too often banks are stitching applications together with little forward planning: the result is like a shanty town, with poorly planned infrastructure, enterprise hygiene – and bad roads, not the gleaming city of the future!”

He added: “This is not a shock: after all, ever application has its own specific scope and boundary and every point-to point connection is unique. When a retail bank’s application portfolio grows, it often ends up with several hundred overlapping systems; adding to or enhancing them becomes an exercise in tracing complex interdependencies, which often become more brittle as they sprawl across a system.”

It is a point echoed by IBM’s Eddie Keal. He said: “Launching new functions into financial services needs more attention than almost any other industry. If an airline has a minor booking issue, they can put an understandably aggrieved customer onto the next flight. For a bank, a minor issue can mean someone else’s money being inaccessible; a real pain point for the customer and a real reputation risk for the bank.”

“Modernisation of core systems has to be progressive — you have to treat it as a journey. The destination is componentised architecture that separates key constructs and their assets from their core transaction engines, but this has to be carefully considered and professionally done. Security, resilience, scale, all demand exceptionally high levels of testing and reassurance. Once that is in place and your house is on solid new foundations, it is a lot easier and less risky for banks to acquire the necessary capabilities they need to support new business models and new functions; from cloud-economics and to sophisticated analytics in the customers’ interest.”