December 20

Collaboration is key to a safer financial system for all: Through data pooling and anonymous benchmarking, banks can better manage their operational risk and controls.

Big banks are embracing a platform that promotes industry-wide standards for operational risk management. JPMorgan, Citi, BNP Paribas, Barclays, and Lloyds Banking Group all just contributed to a $24 million investment in operational risk data network Acin. 

Financial institutions can digitize and ingest their operational risk data into Acin’s network, allowing them to compare it to that of their (anonymized) peers. Sharing data into a standardized, collaborative library ultimately helps them discover and prioritize changes they can make to become safer or more efficient. 

Traditionally, banks have hired consultants to achieve these results by digging through their documentation “to complete lengthy and costly benchmarking programs,” Acin’s chief revenue officer, Kieron Sambrook-Smith, told Insights Distilled. But the firm’s system automatically “turns documents into data” to analyze how an institution’s risk controls (around cybersecurity, anti-money laundering, or ESG regulations, for example) stack up, more easily and at a lower cost.  

The idea is that by effectively crowd-sourcing risk management controls data, banks can tap into the wisdom of the crowd to fill their own gaps and improve their systems. The strategy of aggregated, anonymized data for wider industry insights also has uses in fighting fraud as well as advertising.   

JPMorgan realized that it could prevent its IT department from being a “bottleneck” to innovation by pairing rigorous technology standards with independence for product teams. 

Legacy financial institutions are under enormous pressure to keep up with innovative fintechs – and it requires them to rethink how they structure and run their businesses.  

For JPMorgan, that means relying on a spirit of “controlled autonomy” for its development, where teams are structured around products and given freedom to build, experiment, and launch features independently, so long as their technology adheres to a set of centralized standards, according to head of technology for Chase Digital Banking, Roman Eisenberg, who spoke at Tearsheet’s recent banking conference.  

With “controlled autonomy,” teams don’t have to “wait for my team in digital technology to do things for them,” Eisenberg said. “They can do that work themselves.” By eliminating its IT “bottleneck” in favor of technological standards that involve testing and compliance protocols, the bank tends to roll out new or updated features every two weeks, he added.  

As another technology exec at the bank recently put it: “There’s huge value in doing things incrementally.” JPMorgan has previously described its product leaders as “mini-CEOs” who operate their respective teams like startups within the bank.  

By helping businesses better manage their corporate cards, HSBC is targeting a key demographic that banks are currently underserving. Partnering with Extend allows it to majorly upgrade its SMB offering with less effort than through internal development.

HSBC just announced a partnership with fintech Extend that will give its US business clients access to virtual cards with payments tools like budgeting, spending limits, and automatic reconciliations that make it easier for them to control spending.  

HSBC’s new capabilities reflect the financial industry’s recent emphasis on competing with fintechs (and each other) by rolling out new tools for SMB clients.  

And Extend says that banks like HSBC choose to partner with it because it allows them to roll out in-demand features, fast: Our “platform is already integrated with major card networks and processors, so our bank partners can quickly innovate and deliver market-ready modern payment experiences to their business customers,” the firm’s cofounder and COO, Guillaume Bouvard, told Insights Distilled.  

Beyond HSBC, American Express, Silicon Valley Bank, BMO, Bank of the West, and Regions all partner with Extend as well. In the last several months, other business-focused bank launches include Wells Fargo unveiling a new digital banking platform, US Bank adding cash flow prediction tools, and Barclays announcing cash advances. 

Web3 has taken a hit thanks to turbulence in the crypto industry and some recent project flops, which creates potential for incumbents to take advantage of available talent, reasonable valuations, and regulatory energy.

Web3 – a new paradigm of decentralization that incorporates technology like blockchains, smart contracts, and digital currencies – promises to make financial services faster, less expensive, and more resilient and transparent.  

But let’s be real, the industry has had a wild year. The turbulence in the cryptocurrency market and some recently failed blockchain projects, like Australia’s blockchain exchange and Europe’s we.trade platform, have validated skeptics.  

But perhaps counter-intuitively, the slew of disappointments makes it a good time to consider your own Web3 plans, according to Bain’s Thomas Olsen. Web3 is well-suited to areas like wholesale cash management, custody and asset servicing, and private capital markets, according to Bain’s research and latest survey, and even though its timeline is uncertain, progress shouldn’t be halted by recent hiccups.  

“From an incumbent perspective, it’s not all negative – these large financial institutions are seeing a window of opportunity,” Olsen told Insights Distilled.  

It’s now more feasible for big banks to hire experts and develop partnerships (or plot acquisitions) with startups at better terms, while regulators have added motivation to move towards solutions. “Hopefully it will accelerate clarity around regulation, increase available talent, adjust valuations, and allow for more of a focus on real-world efficiency gains and improvements, versus speculation,” Olsen added. 

While the amount of emphasis any big financial institution should place on Web3 depends on the potential use cases that suit its business, Olsen said there are several “no regrets” moves that banks can make, like setting a common education foundation at the C-suite and board level and thinking through how to structure experiments.  

Read the rest of the Bain report here. 

Cloud computing has won converts for its promise of cutting down costs, but large financial institutions need to be pragmatic to avoid spiraling expenses, especially as budgets constrict into 2023. 

As purse strings continue to tighten heading into the new year, all major expenses should receive scrutiny, including the cloud. While cloud computing does help big financial institutions reduce costs over on-premise data centers, the pay-as-you-go subscription model for cloud services can also lead to unexpectedly high bills if technology executives aren’t careful.  

For example, IT executives told Gartner that cost control is one of the most frustrating challenges of the cloud, according to a recent Insider feature.  

Here are some of the ways that big financial firms are keeping public cloud expenses in check, according to tech execs that spoke to Insider: 

• Wells Fargo holds daily meetings to review a detailed dashboard that showcases expense trends and identifies anomalies, which helps the team determine if there are workloads that can be paused during off-hours.  
• Capital One uses a tool that automatically moves less-used data into cheaper tiers of storage. It has since decreased its AWS storage costs by 35%. 

For more techniques on minimizing cloud costs, read the rest of the report from Insider.