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What is Digital First in Banking?

This is the age when digital technology transformed our society in arguably the same way as the industrial revolution and electricity defined progress in previous centuries, which remarkably makes this 21st century to be remembered forever. There is a great revolution in how organizations operate and deliver services to consumers with the advent of smart phones, cheap cloud computing and majorly through the advances made in telecommunications. The traditional industries like retail, media, mobility, hospitality are transformed by the digital first model and created commercial success by leveraging technology to create superior customer value. This can be easily demonstrated by the likes of the people towards the Amazon, Netflix, Airbnb and Uber etc.,

What does a digital first future look like for banks? Are banks ready to make the transition or will there be emergence of leader from new Fintechs?

A recent study provides us with some useful insight based on responses from over 1000 banking executives globally. It explains in detail about how the industry assesses its digital transformation journey. The ability of the banks to create better customer experiences and higher operational efficiencies using technology is the simple definition for the digital maturity. However, the different levels of maturity that banks need to achieve to be leaders in this digital centric world has to be defined in order to visualize a digital future.

Banks need to provide access to their services via mobile/web in an efficient manner. This serves as the most basic level. Apart from basic services like making payments and checking balances, more complex transactions like mortgages and lending should be made available through digital channels without manual intervention. This is majorly implied in retail banking. Innovation on products and services using digital would be the next level of maturity. The services like proactively taking action to help a customer in financial distress and leverage in house and 3rd party data with consent to personalized products or offering a loan during the purchasing journey are all some obvious examples for this. The other level of innovation could be offering more attractive services in partnership with others like we have seen the likes of Klarna, PayPal and Laybuy do successfully in the Buy Now, Pay Later model. Firms also need to create the ability to continuously drive such innovations at speed to meet the evolving nature of the consumer and competitive landscape in order to achieve digital leadership. Thus, the fundamental requirement for digital leadership is agility.

So, how are banks faring in their quest to achieve this high level of maturity? In meeting their Digital Transformation Goals only 40% have made their significant progress. This is known by a survey and this is in stark contrast to start-ups like Monzo, Starling and Revolut. As they have demonstrated their ability to achieve a high level of Digital maturity by creating digital only propositions at speed and innovate on the product cycle in their area of specialization. There is no legacy that makes a digital led model easy and these fintechs have arguably much smaller portfolios. The advantages that incumbent banks can use to reclaim a leadership position with their customers is that the large geo footprints and diverse product portfolios. Some areas have shown great progress. To access basic banking services most banks have now invested in a robust mobile platform. HSBC’s global money account and Citibank’s global wallet are some innovative products. These take advantage of their global liquidity positions to offer a competitive multi-current account to their expat and in this very lucrative market more global customers – directly competing with the various Fintechs. In order to achieve this digital first model across the entirety of their business, there are more needs to be done. The high-cost income ratios of most incumbent banks especially in Europe has evidenced that complex transactions like getting a mortgage or taking out a secured loan are still not digital enabled and the degree of automation for back-end processes is still high. So, what’s holding these larger incumbents back?

In order to overcome some barriers like lack of investment in skills, the pandemic and the change in culture said by a study to make a progress, the underlying issues creating this organizational inertia against change must be looked after by the banks. This inertia can be overcome is the highly important good news. As these Incumbent banks can move incredibly fast as most did to support customers with no access to branches.  The opportunities to create new areas of growth in areas like retail and transaction banking using a digital first model while still maintaining their traditional trading revenue have been demonstrated by Companies like Goldman Sachs. Banks have huge opportunity to leverage the full power of technology to create unmatched customer value and win the race against FinTechs.

A bright future benefiting both customers and share holders can be created by the banks by defining a clear strategy and a will to overcome this organization inertia via the right incentives and operating model changes.

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Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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