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Q4 Winter 2016 • Canada’s Independent Magazine

Financial S Payables | Receivables | Collections | Data | P-Cards | ECM | Technology

FinTech Friend, foe or the future?

Canada among leading digital payments markets worldwide

Achieve enterprise efficiency and effectiveness with every customer communication

Reduce risks, streamline processes and eliminate costs with location analytics PM40050803


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Contents

Q4 WINTER 2016 Volume 3 Number 4

4 News

6

8

21 Events FintEch 6 FinTechs: Friend, foe or the future?

8 FinTech right at home in York Region

10 Q&A with Dr. Scott Zoldi,

FICO’s chief analytics officer

12 Trends driving transformation

10

in global payments & regulation

14 The pulse of FinTech in Canada 16 Canada among leading digital

payments markets worldwide

Features 18 Achieve enterprise efficiency and effectiveness with every customer communication

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14

20 Reduce risks, streamline

processes and eliminate costs with location analytics Also Publishers of

Canadian Equipment Finance

Advertising Sales Mark Henry mark@financialoperations.ca Publisher and Editor-in-Chief Steve Lloyd steve@financialoperations.ca Managing Editor Sarah O’Connor sarah@financialoperations.ca Creative Direction / Production Jennifer O’Neill jennifer@financialoperations.ca Photographer Gary Tannyan

For subscription, circulation and change of address information, contact subscriptions@financialoperations.ca Subscriptions available for $40.00 year or $60.00 two years. ©2016 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada. Reprint permission requests to use materials published in Financial Operations should be directed to the publisher.

Publications Mail Agreement No. 40050803 Return undeliverable Canadian addresses to:

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Payments Business Circulation Department 302-137 Main Street North Markham ON L3P 1Y2 t: 905.201.6600 • f: 905.201.6601 info@financialoperations.ca www.financialoperations.ca Made possible with the support of the Ontario Media Development Corporation Ontario Interactive Digital Media Tax Credit

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Financial Operations | Winter 2016 | www.financialoperations.ca 

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NEWS Finance function needs renewed technology to speed up close, offer value to business: FEI Canada TORONTO, ON -- A recent survey of Canadian financial executives has revealed that about 40 per cent of respondents (the majority being CFOs) have made no investment in renewing technology to support the financial close process over the past two years. Approximately one-third of respondents do not plan to make this type of investment any time soon. This was especially true for respondents from companies with less than $25M in revenue (42 per cent do not plan to make this type of technology investment in the next two years). “Given the importance of finance leaders as strategic advisors in supporting future growth, it is surprising that so many organizations have not advocated for leading tools and best practices that would support this,” said Laura Pacheco, vice president, research at FEI Canada (Financial Executives International Canada). “Finance professionals have much to offer beyond the reporting function, but they need the right technology to speed up the financial close, and then derive insights from data to support business goals.” Technology and the Accounting Process is the latest research study published by CFERF, the research arm of FEI Canada, prepared in collaboration with PwC Canada. It is based on the results of a recent online survey and research forum with senior financial executives from across the country. Dig a little deeper, and it’s clear that size and maturity play key roles in how technology is viewed and used: • Respondents from companies with $1B or more in revenue were twice as likely (74 per cent) as their counterparts with revenue less than $25M (37 per cent) to have invested in technology that improves the financial close process. • Respondents from companies generating between $100M and $1B were more focused on efficiency (71 per cent) than quality of output (54 per cent) whereas respondents from Canada’s largest businesses were equally split on the two objectives (at 53 per cent each). • Participants from companies with a global presence were far more likely to have made the investment in technology to improve quality of output (level of detail) (71 per cent) than those with operations only in Canada (34 per cent) or North America (30 per cent). • When it comes to the types of technology they’ve chosen to invest in over the last two years for the financial close process, workflow for review and approval was the most cited (52 per cent of all respondents), especially amongst private companies and those with revenues of $25M or less (62 per cent and 78 per cent, respectively). New accounting systems was the second most cited at 36 per cent and collaboration/shared workspace technologies at 28 per cent.

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Financial Operations | Winter 2016 | www.financialoperations.ca

Credit unions lead the way in supporting the Canadian economy through community, job output and loans to SMEs TORONTO, ON -- Canadian credit unions are pleased to announce the release of their 2016 Credit Union Community & Economic Impact Report (Report) highlighting the fact that on average, credit unions’ contributions were equivalent to 5.7 per cent of pre-tax profits, well above the industry best standard of one per cent. The Report shows that in 2015, nearly 84 per cent of credit union and caisse populaires assets were dedicated to supporting the real economy through loans to consumers and Main Street businesses, compared to 70 per cent for chartered banks. How else are credit unions differentiating from banks? Dollar for dollar, credit unions create roughly twice as many jobs as Canada’s largest banks. For every million dollars of gross output, credit unions create a total of 14.5 jobs in Canada, compared to 8.4 for banks. In 2015, Canada’s credit unions: contributed more than $56 million to local communities across Canada; added $6.5 billion to Canada’s economic growth; retained $673 million in net income to support future growth and make community investments; paid $160 million in dividends and rewards to members for using credit union services (known as patronage); and paid $149 million in taxes to local, provincial and federal governments. “Credit unions are different from other financial institutions. Profits are invested back into the community and net income is also directed toward helping local communities through financial literacy initiatives and social finance innovation,” explains Martha Durdin, president and CEO, Canadian Credit Union Association. “This contribution helps communities and government invest in jobs and growth—and local communities prosper.” Since 2008, Canada’s credit unions have contributed more than $340 million to Canadian communities. In 2015 alone, credit unions gave: • $24.7 million in donations; • $16.5 million in sponsorships; • $8 million in financial services (in reduced or waived service charges) to 58,363 community organizations; • $2.8 million in donations in-kind; • $2 million through 1,951 credit union scholarships and bursaries; • $1.8 million to credit union charitable foundations; and • $440 thousand to endowment funds. The Report was released on International Credit Union Day, which acknowledges the authentic difference credit unions make to Canadians, their commitment to local communities, and their contributions on a national and international level. International Credit Union Day has been celebrated on the third Thursday of October since 1948.


NEWS Accounting professionals will play a more strategic role in business growth in 2017 MILFORD, Conn. -- Leap the Pond predicts that 2017 will usher in major changes as corporate management increasingly turns to accounting and finance professionals to help it anticipate business opportunities and challenges in the coming year. Technology developments, such as the growing role of cloud, analytics and artificial intelligence (AI), will empower these professionals with more strategic insight to help drive business improvement and growth. “Company management is demanding more insight from accounting professionals than ever before,” said David Furth, president, Leap the Pond. “As we head into the new year, business leaders will ask less about what has happened in the past and more about where the business is headed. This will pressure CFOs, at growing companies in particular, to get their accounting infrastructure in place so they can strategically support and advise other members of the management team.” Leap the Pond anticipates that the following key technology trends will drive the growing role of accounting and finance professionals and help them meet increasing business demands:

Cloud applications will be used to create “best-in-class” suites With open, best-in-class, cloud software, organizations are leveraging a wide range of applications to meet their needs across every function. By some estimates, small to medium-sized organizations use as many as 15 applications to run their business and, in many organizations, these applications are not integrated. In 2017, we expect to see more companies integrate these applications to create their own best-in-class suites in all areas of the business, as opposed to the one-size fits-all approach of a legacy-style, pre-integrated suite from a single vendor. These new, integrated best-in-class suites enable every part of the business to use solutions from any vendor that best fits its needs, while still streamlining processes across functions and consolidating data for better reporting and analysis.

KEEP UP TO DATE AND INFORMED BY VISITING OUR WEBSITE DAILY. Financial Operations magazine posts news, insights, updates and breaking stories as they happen.

Analytics will democratize the data One of the top reasons many companies want to move to a new, cloud-based financial ERP is to improve both financial and operational reporting. In 2017, we believe that all the talk about big data will push accounting and finance executives at SMBs to leverage reporting and analytics capabilities for multiple stakeholders using analytics tools that are embedded in key financial and operational systems. With solutions in place, processes streamlined and integration underway, next year companies will focus their efforts on pushing information and insight out to each stakeholder to drive better, more strategic decisions on issues such as product investment, market focus and business direction.

Artificial intelligence will perform many traditional tasks The cost of systems that can “think and act” independently has decreased along with the cost of computing power. These systems are also becoming more accessible through software-as-a-service (SaaS) platforms. In 2017, we expect accounting and finance professionals to reassess their roles as applications begin to perform tasks they typically handled, such as ensuring compliance to policies and procedures and gleaning insights from troves of data. Forward-thinking professionals will embrace new roles, find ways to add more value, and in the words of Rob Reid, CEO of Intacct, serve as “growth advisors” to their businesses.

FOR INFORMATION CONTACT:

MARK HENRY Corporate Sales Manager 905-201-6600 x 223 mark@financialoperations.ca SARAH O’CONNOR Managing Editor 905-201-6600 x 227 sarah@financialoperations.ca

Visit us online at www.financialoperations.ca Financial Operations | Winter 2016 | www.financialoperations.ca 

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Fintech

FinTechs: Friend, foe or the future?

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Financial Operations | Winter 2016 | www.financialoperations.ca


FinTech By Michael Garrity

I

n recent years, there have been two main narratives on the FinTech industry. The first and most prominent is that FinTechs are “disruptors,” innovators shaking up the Canadian finance landscape. The second is that as these disruptors gain market traction, they are bound to be swallowed up by the established banks. I believe both of these narratives are short sighted. First off, the “us-versus-them” mentality isn’t in keeping with how the industry has evolved, and this is evidenced by recent developments involving FinTechs and Canada’s big banks. Many banks have already recognized that FinTechs shouldn’t be viewed strictly as rivals. They bring agility, ease-ofuse and speed of service that can, in many cases, complement what the banks offer. They also might answer a need from businesses or consumers that might not align with the banks’ core competencies or business priorities. Secondly, the idea that FinTechs are just innovating to get acquired has also been challenged in the reality of the way that the market has evolved. One has to look no further than the FinTechs already on or focused on the public markets, such as LendingClub, Ondeck and Element Financial. Financeit’s own example of this trend occurred this past September, when we unveiled our first-ever major acquisition and announced that we acquired TD Bank Group’s indirect home financing assets in partnership with Concentra Financial (a partnership of Canadian credit unions).

Why now? If you’re not familiar with Financeit, we’re a point-of-sale financing platform for businesses looking to offer their customers competitive and innovative financing options, anytime, anywhere they do business. While financing solutions involving installment payment plans have traditionally been associated with big-box stores, the simplified Financeit platform enables businesses of all sizes to take advantage of a fast, easy digital solution so they can offer customers an alternative to credit cards or traditional lines of credit. Financeit isn’t new on the alternative lending scene. We’ve been around since 2011 and we’ve processed more than $1.6 billion

in loans in Canada and the United States. So why was now the time for a significant acquisition?

Bolstering our industry focus Over the past year, the home improvement industry has become a key area of focus for us. This shift comes at a time when many Canadians are opting to renovate their homes for varying reasons, including aging Canadians who may be choosing to invest in their current home rather than move to a new one, or those who might be making upgrades to prepare a home for sale or rental. A recent report from the Canada Mortgage and Housing Corporation (CMHC) revealed that Ontarians spent an average of $25 billion on renovations last year. The same report predicted that renovation spending will continue to increase over the next few years. Financeit has a nationwide footprint in the home improvement industry and has increased lending activity in the market by 200 per cent since 2015. Among the largest adopters of Financeit are businesses focused in the areas of roofing, HVAC, pools and spas, windows and doors, decks and plumbing. Through this recent acquisition, more than 800 of TD’s home improvement merchant dealers were assigned to Financeit, with Concentra purchasing approximately 45,000 TD loans. Given the high demand for renovations across the country, this addition of new merchant dealers means that even more businesses across Canada have the option of increasing their revenue by offering Financeit’s unique program to their customers. We’re excited to help drive sales for home improvement professionals from across the country.

Fueling growth through investment Like many FinTechs, we’ve been hyperfocused on an accelerated growth strategy. In order for FinTechs to compete on a large scale, we turn to investors who see the potential that our unique approach brings to the market. In our case, the recent acquisition was made possible because of a US $17 million investment round led by The Pritzker Organization, DNS Capital and existing investors. This capital raise followed a minority equity financing round in October 2015, led by Goldman Sachs.

A recent report from Accenture found that the first half of 2016 saw U.S. $4.58 billion in FinTech investments, through to July 31. This represents more than 500 deals. There’s no doubt that FinTech companies have proven we’re here to stay, and investors have helped fuel this change.

There’s no doubt that FinTech companies have proven we’re here to stay, and investors have helped fuel this change. Looking ahead For Financeit, we’ve made an acquisition that perfectly complements our growth strategy by strengthening our position in the home improvement financing space. We’ll continue to place our focus on being an innovative financing partner for merchants in this industry and in our other core verticals. I anticipate that the Canadian FinTech industry will continue to evolve. FinTechs will benefit from new opportunities, as banks refocus their business or look for opportunities to strategically partner with FinTechs. Similarly, banks will benefit by collaborating with companies who offer cutting edge solutions for Canadian consumers and businesses. We are already seeing this happen regularly. CIBC recently partnered with both Thinking Capital for small business lending and with Borrowell for access to the company’s personal loan adjudication technology. Earlier this year, Scotiabank announced a partnership with U.S.-based Kabbage, enabling Scotiabank’s customers in Canada and Mexico to apply for small business loans. Just as there are opportunities for collaboration, there is always room for competition. FinTechs and banks will continue to challenge one another to bring modern, flexible and effective financing options to Canadians. Michael Garrity is president and CEO, Financeit.

Financial Operations | Winter 2016 | www.financialoperations.ca 

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Fintech

Tom Di Emanuele, partner, Ernst & Young, delivers the keynote address at the first annual York Region FinTech Summit.

FinTech right at home in York Region The audience listens to The Future of FinTech panel discussion at the York Region FinTech Summit.

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Financial Operations | Winter 2016 | www.financialoperations.ca


FinTech

By Sarah O'Connor

O

n October 28th, York Region hosted the first annual York Region FinTech Summit in the Town of Richmond Hill. The Summit’s keynote was provided by Tom Di Emanuele, partner, Ernst & Young, who spoke about the state of FinTech in Canada. The Future of FinTech panel featured Alexander Peh, head of market development and mobile, PayPal Canada; Bianca Lopez, Bioconnect; Deepak Chopra, Clearbridge Mobile; and Eva Wong, Borrowell. Other topics addressed included the FinTech revolution and an investors’ perspective on FinTech. When asked whether he was excited about the potential for FinTech to take off in York Region, panelist Peh replied “Absolutely! The region already has a number of successful FinTech companies including Clearbridge Mobile and with the support of organizations like The Regional Municipality of York, I think it’s only a matter of when, not if.” Innovative FinTech companies are located throughout the Greater Toronto Area with a significant number in York Region. These firms employ thousands of highly skilled people who are developing new technologies, processes, products and business models to benefit global businesses and consumers. Representatives of many of these firms were present at the summit to network and share their insights. “Overall the feedback was extremely positive and York Region businesses appear to be excited about the opportunity FinTech provides them, not only locally, but internationally,” continued Peh. “As a global FinTech company, PayPal not only powers the payments for over 250,000 businesses in Canada, we are also passionate supporters and advocates of the Canadian FinTech industry. Unlike other industries, FinTech knows no boundaries, so we look forward to seeing success stories sprout up and flourish across Canada.” Doug Lindeblom, director of economic development for York Region, says the event was conceived in response to trends that his team had been observing for some time. “[York Region has] one of the largest information communications technology (ICT) clusters in Canada,” he notes. “What we were finding was that a lot of the technology companies we were running into, more and more were saying, ‘we’re in the FinTech business’ or ‘we’re heading into the FinTech business.’ There’s this growing area of activity that is starting to cross over between the ICT side and the financial services side.” Lindeblom says that the Region has identified about 60 local companies that are directly involved in the FinTech sector and he expects that number to grow. “York Region has a strong financial services base and its got a very strong ICT base, so we weren’t surprised [to see FinTech growth take off]. I think its been evolving over the last number of years as of course that business has grown up. We’re seeing research and we are hearing it from our businesses and so that’s really where [the Summit] came from—ground up, grassroots.”

Companies involved with the York Region FinTech Summit include: Paymate Software Corp. provides payroll, HR and time and attendance software solutions to organizations. Paymentus provides payment platform services, including paperless billing and payment solutions. Securter is developing a payment platform that enables making convenient and safe online payments. The company has patent pending payment platform adapting and extending conventional EMV payments of physical Point of Sales (POS) to secure for contactless EMV web payments. SmartworX capital provides foreign exchange trade services. The company researches and develops algorithmic models which are used to automate trading of futures. Its proprietary suite of models, Tempo, runs on the NinjaTrader trading platform and can be applied in most market environments. Tempo could automatically manage trades in multiple instruments simultaneously and takes both long and short positions. STJ Retail provides consulting services, software development and support services to retailers and payment clients using POS systems. Strategic Information Technology develops software for banking companies such as RBC, CIBC and Scotiabank and FinTech software to help its customers disrupt their markets. Its software, used to lend, collect and manage money, is also used by credit unions, automotive lenders, mortgage companies, trust companies, government lending programs and more. Terminal Management Concepts provides Point of Purchase terminal technology solutions, offering debit and credit application software for major terminal providers, host interfaces to major retail and hospitality systems and enabling integration with POS switches. For ISPs and banking institutions seeking secure payment technology, its secure hardware/software solutions integrate pinpad technology with Active-X controls for ease of integration to the PC application environment. XE provides online money quotes and easy online transfer options. The company serves over 22 million unique visitors monthly, using tools such as XE Currency Converter, forex market analysis, and XE Currency App, which has over 40 million downloads. Since 2002, XE Trade Money Transfers has processed more than $10 billion in global payments. XE Currency Data is used by thousands of businesses from SMEs to Fortune 500 companies. ZOMARON provides payment technology solutions, using Ingenico terminals.

Financial Operations | Winter 2016 | www.financialoperations.ca 

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Fintech

Q&A with Dr. Scott Zoldi, FICO’s chief analytics officer By Sarah O’Connor

D

rexel University’s LeBow College of Business and CIO.com have named Dr. Scott Zoldi, chief analytics officer at analytic software firm FICO, one of the winners of the first Analytics 50 Awards. The awards program honors 50 executives who are using analytics at their organizations to solve business challenges. Dr. Zoldi received the award for his leadership in developing new analytic technologies to reduce payment card fraud, by detecting rapidly changing criminal methods. Dr. Zoldi led the development of a patented adaptive analytics technology and multi-layered self-calibrating analytics, deployed in the company’s FICO Falcon Platform, which protects 2.6 billion payment cards worldwide. This solution can leverage a client’s fraud experience in near real-time to adjust model weights, without the need for time-consuming offline training. FICO

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also created a patented technology called behavior-sorted lists, which identifies an individual cardholder’s specific spending patterns at preferred merchants and individualized transaction patterns By adding adaptive analytics, one large U.S debit card issuer realized an 18 per cent improvement in real-time fraud dollars detected and a relative reduction of 11 per cent in account false positive ratio, saving millions of dollars per year and improving the customer experience for its cardholders. One international card issuer has experienced a 17 per cent reduction in false-positive cases with no negative impact on real-time fraud dollars detection rate. For transactions that occur at a cardholder’s favourite merchants, bank clients have seen a reduction in false-positive occurrences of

Financial Operations | Winter 2016 | www.financialoperations.ca

35-50 per cent, contributing to significant increases in customer satisfaction. “These pioneering analytics have enabled card issuers and payment processors around the globe to combat the evolving barrage

“Machine learning techniques enable the fraud detection models to continually keep or exceed pace of the fraudsters and their shifting tactics.” of payment card fraud attacks,” Dr. Zoldi said. “I am honored that Drexel University’s’ LeBow College of Business and CIO.com have recognized me, my team and FICO for our work to improve the security of the global payments infrastructure.”


FinTech

“With the ever-growing threat of data breaches and identify theft, predictive solutions such as FICO’s use of adaptive analytics are exactly the types of innovate safeguards needed to protect the consumer,” said Murugan Anandarajan, PhD, department head of decision sciences and MIS at Drexel University. Financial Operations spoke to Dr. Zoldi following news of his award.

Q: A:

I think there is little doubt that predictive analytics are an extremely hot topic. In your opinion, what market forces are highlighting the importance of this new technology? Fraud has been a problem that FICO has been combating since 1992 with predictive analytic models, and since that time we have continually seen the criminal element becoming increasing sophisticated and adjusting their tactics to circumvent fraud protections. The new advanced analytics associated with the Analytics 50 Award focus on self-learning analytics, a new breed of machine learning. These analytics continually adjust in real time, learning the ever-changing and sophisticated behavioral patterns behind fraudster attacks in the payments network. The payments industry relies on these adaptive behavioral analytic scores to make the best decisions on which transactions to block, whom to investigate and what to let through. Adaptive behavioral analytic technology is a key tool that protects consumers and minimizes fraud losses for issuers.

Q: A:

Are fraudsters also benefitting from these technological advances? In other words, are they also getting a lot better at what they do? Absolutely. The most sophisticated fraudsters make use of machine learning to determine how to stage their attacks. They gather information from the darkweb,

conduct experimental design and sometimes build models to determine how to circumvent the issuer’s countermeasures. They’ve been doing this since the early 90s, but now the stakes are higher as the barrier to entry has essentially disappeared due to the increase in computing power and use of new easily accessible analytic tools. This is why our adaptive and self-learning technologies which adjust the model continually, in conjunction with the issuer’s strategies using these model scores, make it difficult for fraudsters to game the system and minimizes their financial take.

Q: A:

Since the analytic technology you have developed can detect rapidly changing criminal tactics without human interference, is it accurate to characterize it as “machine learning”? Yes, technology behind selflearning analytics is a form of machine learning in which sophisticated analytic algorithms enable the computer to learn from fraud attempts and analyst feedback. The algorithm monitors subtle changes in features, distributions and recent attacks to retrain the model continually in response to the attacks. In today’s datadriven world, these types of technologies are key to solving problems in many different areas, such as cybersecurity threat detection, IoT security, risk management, compliance, model governance, operational optimization and many others. These machine learning techniques enable the fraud detection models to continually keep or exceed pace of the fraudsters and their shifting tactics.

Q:

One of the basic assumptions of predictive analytics is that the future will resemble the past, but of course that isn’t always the case. How does software you have developed at FICO use the past to accurately predict future behaviour?

A:

FICO has the world’s largest payment fraud data consortium: We currently monitor about two-thirds of the world’s

payment cards for fraud. This is an incredible data set for data scientists and it goes back more than 20 years. This payment card fraud consortium allows us to build models that incorporate a huge set of observed fraud attacks and normal cardholder behaviors from all over the world, to create the best feature detectors. The consortium is a vital research data resource for us; hence FICO’s 83 issued fraud detection patents and 47 patents still pending. The artificial intelligence models we deploy start with a base neural network model (or other deep learning model) trained on this consortium data. Then we employ the adaptive machine learning techniques that adjusts this base neural network score based on real-time shifts in behavioral feature distributions and recent attack attempts by fraudsters in the production environment. This allows for an optimal combination of the past and future fraud behaviors in tackling fraud.

Q:

As impressive as the patented adaptive analytics technology deployed in FICO’s Falcon Platform is, I can’t help but feel this is only the beginning. Are there other ways that you believe predictive analytics will impact the payments industry?

A:

Agreed—we will see continued analytic innovations in the payments industry. For example, one area that I am really excited about is the application of advanced analytic models to anti-money laundering techniques. Today this area is largely driven by Know-Your-Customer (KYC) strategies and transaction rules based on KYC. We’ve developed new predictive analytic models in this space, focusing on identifying real-time learning of behavioral archetypes, and changes in these behavioral archetypes that may indicate subtle money laundering activity. Coupled with a behavioral analytic model looking for similarities of account transaction profiles to past filed SARs, I expect that this new approach to AML will really revolutionize how AML is tackled in the years to come.

Financial Operations | Winter 2016 | www.financialoperations.ca 

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Fintech

Trends driving transformation in global payments & regulation By Stephanie Zee

P

eer-to-peer payments, faster payments, enhanced data, straight through processing and straight through reconciliation—the expectations and demands of today’s corporate clients simply can’t be met by the legacy infrastructure we are still using today. Consequently, we find ourselves witnessing extensive change across all aspects of the payments ecosystem. Four key trends are driving transformation in global payments and regulation: infrastructure modernization, cyber security, new entrants and technology and regulatory diversity.

Infrastructure modernization Infrastructure modernization is occurring across the value chain, not just within banks, and is all encompassing. It is truly end-toend, stemming from both push and pull market activity. Clients are actively updating internal enterprise resource planning (ERP) platforms, payment systems and processes; in many cases centralizing accounts payable and creating a payments hub that often includes several or all countries. Clients are insisting on enhanced data, transparency and ubiquity of process and file type across their payment providers, while new entrants are challenging banks to abandon legacy systems and undertake their own infrastructure transformation to keep up. At the same time, financial market infrastructures are adopting the new messaging standard (ISO 20022), enabling the transfer of richer data, launching faster payment schemes and opening access to non-bank organizations adding to the pressure on banks. As payment infrastructures are being

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modernized in the domestic landscape, these solutions are creating momentum for neighbouring jurisdictions to also change and impacting cross-border schemes. Infrastructure modernization and faster payment systems have proven to be an enabler of business growth in such countries as the United Kingdom, Singapore and Australia which have already gone live with these faster systems. Many other countries including Canada are in the planning/ exploring phase. Payments Canada (formerly known as Canadian Payments Association)

The risk of cyberattacks continues to increase, with the estimated global cost of cybercrime at $445 billion. is currently undertaking a multi-year initiative to modernize Canada’s payment infrastructure utilizing ISO20022 as the de facto standard. At the same time, the banks have come together to overhaul the cross-border payment experience. SWIFT’s Global Payments Innovation Initiative (GPII) is one of the ways that banks are collectively responding to improve cross border payments and address key client pain points. Launched in January 2016, the goal of GPII is to modernize the messaging system and improve

Financial Operations | Winter 2016 | www.financialoperations.ca

transparency and predictability of fees, endto-end payments tracking and transfer of rich payment information. More than 70 banks channeling payments into 227 countries have signed up. The results of a small pilot are expected in the coming months with a broader roll-out in 2017.

Cyber security The World Wide Web is now 25 years old and has transformed consumers’, businesses’ and governments’ approaches to shopping, procuring and paying. It has opened new markets and trade near and far, and has made a massive amount of information and data accessible to anybody and everybody. Global systems have been integrated and have enabled straight-through processing. At the same time, we have created the perfect environment for pseudo-anonymity and cyber-attacks. A cyber-attack is an attempt by criminals to access or damage a computer network/ system in order to cause disruption or for monetary gain. The risk of cyber-attacks continues to increase, with the estimated global cost of cybercrime at $445 billion, as of February 2015 according to Computer Weekly. In 2016 we have seen a marked rise in attacks targeting financial institutions, with the payoff in the millions of dollars for each attack. The rising financial impacts, the pace of change in the payments industry, and local and global system interdependencies have put cyber security high on the agenda of banks, financial market utilities and regulators. Implementing robust practices for system access such as multi-factor authentication, use of biometrics, and segregation of data and information are important elements of a security program.


FinTech But cyber security is not just about technology. Investment in and execution of an organization-wide strategy to understand and combat cyber-attacks is critical. Effective strategies include governance combined with a culture of prudent business control and risk management, including training, communications, documented business processes and being vigilant over different infiltration points such as email or access to company WiFi.

New entrants For several years FinTechs have been quietly and now loudly and explosively leading the charge to address the gaps identified by our clients to capture market share. New entrants and technology developments are driving business model disruptions where VBProfiles found that investments in FinTech reached more than $38 billion in 2015. The extensive scope of activities across the new entrants makes it difficult to know what to focus on and where the greatest threats or opportunities may be. Small but successful startups can pose legitimate threats to even the strongest companies by disintermediating the banks or relegating them to being the “dumb pipes.” Further, non-traditional financial services companies like PayPal, Google and Apple are leveraging cloud and mobile technologies as well as viral distribution to quickly start and scale business at low cost to address the friction clients experience. New technologies like distributed ledger or blockchain enable new paradigms for exchange of value and create new “rails” that sit outside of the traditional bank to Financial Market Utilities (FMU) payment infrastructure. Banks have stepped off the sidelines with many having set up innovation centres to experiment with new business models and technologies. Some banks have invested in a range of different startups, and are collaborating and partnering with FinTech players.

Regulatory diversity As if infrastructure transformation, cybersecurity challenges and FinTech disruption were not enough, the industry continues to experience an amplification of regulatory oversight with increasing requirements aimed to protect the payment ecosystem, build resiliency of payment providers and utilities, and encourage

innovation and competition. Multiple layers of governance over the ecosystem are in place from global oversight bodies such as the Bank of International Settlement, the Basel Committee on Banking Supervision, and the Financial Stability Board, to regional and local oversight such as Office of the Superintendent of Financial Institutions (OSFI), The Bank of Canada, The Department of Finance, The Canada Deposit Insurance Corporation and the Office of the Privacy Commissioner of Canada. The regulatory environment is complex with new requirements emanating from the different bodies to revitalize and address outdated legislation and regulation, and to address the payment market conditions. Heightened capital and liquidity requirements through BASEL III, operational resiliency and “living

like Blockchain or virtual currencies like Bitcoin who do you regulate (FinTechs, exchanges, programmers, originators, beneficiaries)? How should they be regulated (legislation, acts, common law, civil law, codes of conduct, and what jurisdiction)? Many of these questions have yet to be answered. Regulations on FinTechs are nascent and vary greatly creating uncertainty for financial institutions that bank these firms and this uncertainty may constrain innovation among FinTechs. Various jurisdictions have introduced “regulatory sandboxes,” relaxing some of the regulatory requirements to encourage exploration and innovation in a flexible environment in which FinTechs can test technology and business models. Once the application has reached defined thresholds, commercialization generally requires full adherence to regulatory obligations. In some cases new regulations may be needed to ensure safety and security that reflect the unique characteristics of the new technology or business model. Examples of regulatory sandboxes include the United Kingdom’s Financial Conduct Authority, the Monetary Authority of Singapore, and the Australian Securities and Investments Commission. Systemic infrastructure change, new risks, new entrants and heightened regulatory pressure… it’s a frenzied pace but payments is the most exciting business to be in. Opportunities are everywhere to innovate, to deliver greater value to our clients, to enhance the client experience, create efficiency, effectiveness and transparency, reduce costs, drive new revenue, and enable a stronger, safer and more secure operating environment. Partnership and collaboration between the banks, FinTechs and regulators are the best way forward through these unprecedented times of change.

Small but successful startups can pose legitimate threats to even the strongest companies by disintermediating the banks or relegating them to being the “dumb pipes.” will” requirements, ongoing anti-money laundering and terrorist financing efforts, and cyber risk management controls are just a few of the topics impacting the payment world. To address the rise of cybercrime in particular, in 2016 The European Union adopted the Network and Information Security (NIS) Directive and General Data Protection Regulation; and in the U.S. the Cybersecurity Information Sharing Act was signed into law December 2015. In Canada the Government has articulated a cyber-security strategy and has created the Canadian Cyber Incident Response Centre (CCIRC) and is also considering legislation. For regulators and banks a conundrum exists with respect to FinTechs: Is a FinTech a technology company or is it a payment provider that should be governed similar to a bank? If so, which regulations apply and which ones do not and what falls under the regulations? In the case of new technologies

As TTS payments regulatory head, Stephanie Zee leads a team responsible for creating and driving Citi’s strategy to meet regulator expectations and is responsible for the management of emerging risks across global payments.

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Fintech

The pulse of FinTech in Canada By Lian Zerafa

T

hese are transformative days for the world of financial technology. With echoes of the dotcom era, the FinTech market is filling quickly with innovative players intent on changing the industry or helping the industry change itself. Canada is emerging as an important player in the space, but it is not alone. This last year saw venture capital (VC) investments remain steady in FinTech companies in markets across the globe; most notably in Asia, where FinTech startups saw funding totals of $1.2 billion in Q3, up from $800 million in Q2. This total represented nearly half of global FinTech investments and has positioned the region as a leader in the FinTech space. Closer to home, FinTech investments in the U.S. and the UK have remained equally promising, albeit tempered in the latter half of 2016 by reservations over the latest U.S. election and UK Brexit vote. Nevertheless, these markets are expected to remain FinTech

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powerhouses as doubts subside and the competition for VC dollars intensifies with more smaller sized deals in play. Canada is also making its mark. In KPMG and H2 Venture’s 2016 FinTech 100, two Canadian companies were listed among the top 50 established FinTechs from around the world and four were listed as emerging stars. This is an improvement over 2015’s results, which found Canadian companies listed only twice each among the top 50 and the up-and-coming startups. It’s an impressive standing, to be sure—especially considering our relatively small market size, heavily regulated environment and the competition our startups face worldwide. For the record, Chinese FinTech ventures represented four of the top five companies, once more signaling a clear leader in the FinTech industry. Driving Canada’s momentum in this space are the “herbivores” of the FinTech community. These are the players who are not as much interested in carving off a piece of the market for themselves (aka

Financial Operations | Winter 2016 | www.financialoperations.ca

the “carnivores”), but eager to have their technologies become part of a financial institution’s ecosystem. Granted, it’s the carnivores who typically dominate the headlines, but it’s the herbivores working in quieter partnerships with financial institutions that continue to fuel the FinTech sector’s momentum, perhaps more so in Canada than elsewhere. We’ve already seen a number of collaborations between FinTech companies and the big banks. High-profile examples include the partnerships between CIBC and Thinking Capital, RBC and League, or TD for Me and Flybits—partnerships that have succeeded in giving banks instant access to greater efficiencies and modern solutions, while exposing their FinTech collaborators to an established customer base. These partnerships are also proof that banks are not only noticing the FinTech industry, but actively supporting it and working with its innovators. This May, for example, TD Bank entered a collaboration


FinTech with Plug and Play Tech Center, a Californiabased FinTech accelerator, to provide mentorship and development support to 23 FinTech startups. Elsewhere, a number of Canadian banks have created highly speculative investment funds for FinTech, patterned largely off the risk return profile of the dotcoms. The appetite for new and innovative financial technology is no doubt strong; and one need only look to the FinTech clusters forming in hotspots like the Greater Toronto Area, Waterloo, Vancouver and Montreal to see that there is no lack of players. Yet as promising as Canada’s FinTech market may be, there are challenges ahead. Working within one of the more regulatory

Amazon (which is itself large enough to be a bank) are reshaping established systems and consumer expectations. The result is a movement toward real-time payments and a strong desire to reduce existing friction which impedes participating parties’ ability to execute payments efficiently. That movement, however, is being hindered by current legacy platforms that were never designed to handle real-time demands. Herein, countries are undertaking modernizations of their payment systems with help from innovators in the FinTech space. This includes Payments Canada, which recently began a modernization journey to rethink the fabric of payments in Canada to accommodate a mix of faster, more agile and real-time payment schemes that not only work together but with the world. For payment modernization to occur, we must all be on the same page. That’s why moving forward, it will be solutions like the emerging ISO 20022 standard that will help establish a common ground between the current and incoming wave of different payment models. For its part, Payments Canada announced it will be adopting ISO 20022 as part of its modernization; and while it will require significant re-platforming in the years ahead, those efforts will open up a wealth of new possibilities in terms of how differing transaction parties will be able to interact. On a related note, it would be unwise to underestimate blockchain technology. With the potential to bypass central monitoring and control mechanisms, blockchain has the potential of circumventing current financial systems and changing the relationship between the consumer and bank. For this reason, payment authorities are now working to create a supportive ecosystem which will allow for alternative payment technologies such as blockchain into the mainstream environment. No one has the answer yet, but it won’t be a one-size-fits-all solution. It will, however, allow for multiple payment schemes to coexist in a controlled way. With the FinTech industry growing and new innovations entering the market at faster speeds, the question moving forward will be how to balance the need to innovate against

It's an instant, mobile, cashless world and FinTech companies are its architects. controlled regimes in the world means Canada’s startups face more restrictions than their international peers. For example, requirements laid out in Investment Industry Regulatory Organization of Canada (IIROC)’s CRM2 regulations set a regulatory bar that impedes our industry’s ability to enter the wealth management services space as opposed to players in the U.S. who are not beholden to the same rules in their market. Even with these restrictions, Canada’s FinTech players are holding their own. This is despite an overall drop in VC funding across the globe owed to a mix of political shifts and the natural ebb and flow of the FinTech hype cycle. Certainly, while there was once a day when the pool of VC investments was big enough for every FinTech startup willing to take the plunge, the rising tide of market entrants is creating a new era of intense competition. That said, while the volume of available deals may be down, opportunities still exist for herbivores and carnivores alike.

Evolving the standards It’s an instant, mobile, cashless world and FinTech companies are its architects. Nowhere is this more apparent than in the realm of payments, where the likes of PayPal, Apple Pay, Stripe, Square and

the very real risks of cybercrime and online vulnerabilities. Do we wait until one FinTech solution causes an incident, or do we tighten down the industry now and risk suffocating the next big idea? These are the questions regulators are asking as solutions like blockchain present great potential, and corresponding risk, to deal with some of the crime elements from a payment ecosystem, but can also facilitate crime in cases, as in the case of using bitcoin to make illegal and untraceable purchases on the now dismantled Silk Road. It’s a double-edged sword and one that will challenge stakeholders to balance the need for protection against that of innovation. Regulatory apprehensions notwithstanding, it’s a good forecast for the FinTech market. The appetite for innovation among banks, insurance, and wealth management players is high; as is the appetite to engage differently with customers directly and provide services and products that offer an alternative from the norm. It may be crowded, and there may be speed bumps, but if 2016 is any indication both Canada and the world are on track to bring the FinTech industry into the fore. Lian Zerafa is the national consulting financial services industry leader at KPMG in Canada. He is a senior advisory leader in banking and securities with three decades of experience helping over 30 global financial institutions navigate through complex technology, strategy and regulatory issues.

2016 FinTech milestones • Global investment in FinTech reached US$17.8B billion in funding by Q3 2016 • North American FinTech companies raised more but smaller late-stage deals: median late-stage FinTech deal size in North America dropped to $21.9M, the second lowest quarter in the five-quarter trend, and a 73 per cent drop compared to the same quarter last year • FinTech funding fell below $1 billion in North America in Q3 • Corporates participate in more than half of all deals to VC-backed FinTech startups in Q3 2016

Financial Operations | Winter 2016 | www.financialoperations.ca 

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Fintech

Canada among leading digital payments markets worldwide By Sanjay Tugnait

T

he World Payments Report (WPR) is the leading source for data, trends and insights on global and regional non-cash payments and the key regulatory and industry initiatives (KRIIs) that govern them. Co-developed by Capgemini and BNP Paribas, the WPR 2016 explores how digital innovation is infusing the corporate world and its implication for banks and corporates. In this article, we focus on the data provided by Canadian participants in the global survey on which this primary market research is based and its significance for financial institutions in this market.

Digital payment transactions on the rise Global digital payment volumes continue to increase, with annual growth projected to be more than 10 per cent for the first time since the report was first published to reach 426 billion transactions in 2015, up from 8.9 per cent growth in 2014 (387.3 billion transactions). Overall, North America recorded a decelerated, but positive, yearon-year growth rate of 4.4 per cent in 2014 for the total digital payments volume for the region. Cards continue to remain the fastest growing digital payments instrument since 2010, while cheque usage continues to decline. In Canada, digital payments volume grew by a CAGR of 5.2 per cent from 2010 to 2014. This growth was driven primarily by the increase in card transactions. Technological enhancements related to

16 

security and infrastructure—and also innovations in consumer convenience such as tap-and-go credit cards—supported this growth. Consequently, Canada also is now among the top 10 markets in digital payments growth (Figure 1). The number of non-cash transactions per inhabitant for Canada also grew significantly at the rate of 5.5 per cent as compared to the CAGR of 3.7 per cent during 2010-13. While growth in digital payments occurred across all regions, developing markets experienced the highest rates of 16.7 per cent with mature markets growing at six per cent, although mature markets—including Canada—still account for 70.9 per cent of total global volumes. Immediate payments, enabled by wireless mobile payments networks in geographically remote/isolated regions, have the potential to drive growth in digital transactions as an alternative to cash and cheques, but efforts are needed to educate stakeholders, provide more value-added services and upgrade infrastructure at merchants and corporates.

Banks everywhere need to ‘think digital’ to compete for market share The core theme for World Payments Report 2016 is the challenges and opportunities that exist in transaction banking. Amidst multiple internal and external challenges, including those from FinTech players, banks face increasing demand for seamless, secure digital transaction services for digital products and services (such as support processes of account management, compliance tracking and fraud detection and prevention) from

Financial Operations | Winter 2016 | www.financialoperations.ca

corporate treasurers. This will require banks to accelerate investments and adopt a collaborative mindset with FinTechs to thrive in the increasingly digitized transaction banking environment. Adding to this context is the fact that transaction-banking revenue is under pressure from a multitude of internal and external challenges such as lower fee income, lower interest income, pressure on foreign exchange service fees and corporate demand for digital payment services. Finally, FinTechs have raised the standard for retail-payment services and therefore corporate treasuries now expect similar digital products and services for their transaction-banking operations. Banks have multiple levers they can use to close the ‘digital capabilities gap’ that FinTechs have created. These include the development of application program interfaces (APIs) that open up their ecosystem in order to take advantage of the innovation of FinTechs, which builds their credibility as customer-focused businesses as it supports their market continuity. A number of banks have started to adopt this ‘digital-first’ mindset, leveraging the requirements of the Payment Services Directive II (PSD II) in Europe with a view to improving and enlarging their value proposition. PSD II also provides focus for the development of the technology infrastructure needed to make immediate payments a reality.

International regulatory environment pressuring all banks The multiple new and existing regulatory initiatives have added considerable operating


FinTech Figure 1: Number of non-cash transactions in the top 10 markets (billions) 2013-2014

complexity for banks and there are two key themes emerging in regulatory compliance around payments. First, the increased use of technology to ensure compliance and second, a facilitation approach that is being adopted by some regulators to enable businesses to accelerate their time-to-innovate within a ‘safe’ environment. The use of technology in support of regulatory compliance is being advanced by a niche set of FinTechs (aka “RegTechs”). They are making use of emerging, advanced technologies by providing services to automate more tactical compliance tasks and to help reduce operational risks associated with regulatory compliance. At the same time, the innovation environment is being developed through initiatives such as that of the UK Financial Conduct Authority’s Project Innovate. This initiative introduced the concept of a Regulatory Sandbox where the businesses can test their products and services in real-world scenarios without being subject to the usual regulatory consequences. In response, banks are taking steps toward holistic compliance; however, to date the implementation of these applications remains tactical rather than strategic and progress is often slow. In the U.S., several banks are adding “open APIs” to their existing systems for payment processors and RegTechs. They

are also working with the Open Financial Exchange (OFX) standard. A transformative approach to holistic compliance will help banks to implement best practices, mitigate the threat of heavy sanctions-related fines and provide the value-added services demanded by corporate treasurers.

The way forward: Collaboration and innovation Canada is on the verge of ‘catching up’ in terms of payment infrastructure in the move to instant payments (initiated by Payments Canada). As a result, banks need to upgrade their payment rails, which will allow innovative payment solutions provided by banks or in partnership with FinTechs. According to the first World FinTech Report (WFTR), published by Capgemini and LinkedIn in collaboration with Efma, half of banking customers across the globe are using the products or services of at least one FinTech firm. The WFTR found that traditional firms are increasingly pursuing a wide range of strategies in response to FinTechs. A majority of financial institutions (60 per cent) now view FinTechs as potential partners, but nearly the same percentage (59.2 per cent) are also actively developing their own inhouse capabilities. To help traditional firms

accelerate innovation and address current and future market disruptions, the WFTR has defined a four-step framework to assess and respond to a growing number of prospective threats to the financial services business. Traditional FS firms can unlock innovation by: discovering new technologies, devising ideas and insights into business models, deploying aligned executives to support innovation, and sustaining innovation by improving efficiency and implementing best practices. The primary market research published in the annual WPR and this new WFTR speaks to the ongoing Capgemini commitment to serve the business-information and technology needs of the financial services industry and its constituencies. Leveraging its network of Applied Innovation Exchange locations, Capgemini is also working with traditional firms and FinTechs to support individual company initiatives, advancing digital payments capabilities to help them better serve their customers in Canada, North America and around the world. Sanjay Tugnait is the CEO for Capgemini Canada and the Chairman for the Canada Country Board. Sanjay has 24 years of experience in global leadership roles in strategically transforming leading corporations and is recognized as an industry leader for his professional contributions.

Financial Operations | Winter 2016 | www.financialoperations.ca 

17


Feature

By Nick Romano

N

Achieve enterprise efficiency and effectiveness with every customer communication 18 

Financial Operations | Winter 2016 | www.financialoperations.ca

o matter what industry your organization is in, documents drive the fundamental functions that make your business run. In particular, customer communications of all kinds—from invoices and statements, to forms, disclosures, direct mail, marketing collateral and more—are created with the sole purpose of accelerating and facilitating the work of your organization. While customer-facing documents have great influence on company performance as a whole, the management and control of their creation and distribution too often can be fragmented and isolated. Document strategies and investments in one area, such as customer statements, may be planned for and implemented independently of efforts to produce documents intended for other purposes, such as marketing, disclosure or support. It is very common for organizations to have multiple departments, multiple vendors and multiple systems in place for different document-related activities; each with its own unique workflow, decisionmaking processes and financial impact on the organization.

Do the document management processes at your organization deserve closer examination? Despite the critical role customer-facing documents play in the success of any business, they rarely receive the same strategic attention as other fundamental activities within an enterprise. The following four questions can help identify whether your organization could benefit by taking a closer look at your document management processes: • Do the various stakeholders and business units involved in the communications process work in isolation from each other?


FEature • How well do your organization’s current document systems contain costs? Are they part of the problem, instead of part of the solution? • Does your organization have difficulty managing and optimizing the many legacy applications and systems that create your documents? Does a simple change take weeks or months to implement? • Is it difficult to respond to demands for timely communications based on regulatory requirements, customer needs and market competition? If the answer to one or more of these questions is “yes,” your organization might want to consider implementing a more strategic and holistic approach to customer communication management.

Establishing a document centre of excellence Most critical functions within an enterprise typically have a centre of excellence or a similar concept of central governance; legal, IT, marketing, research and development and human resources are common examples. However, despite the critical importance of customer experience to business success, enterprises often overlook the potential for a document centre of excellence (DCOE) to achieve better results with customer communications. Creating a DCOE requires bringing the right stakeholders, resources and process owners together in a forum that allows for greater control and governance over the organization’s documents and communications. A DCOE is tasked with enabling the organization to develop and efficiently implement specific communications projects with high ROI, balancing longer-term strategic considerations with the realities of day-to-day document management operations. The goal of the DCOE is to ensure efficiency and cost savings in document systems, while fostering advanced strategies and techniques in customer communications that will result in a superior, revenue-generating customer experience.

Who should participate in a DCOE? The DCOE should have cross-functional members so it has the right knowledge,

skills, abilities and responsibilities necessary to address the many technical, process and business issues that often arise with producing customer communications. It is advantageous if the members include both in-house resources and third-party providers. A highly skilled, cross-functional DCOE team can promote the kind of innovation that results in competitive advantage through a creative collaboration process grounded in the realities of maintaining efficient and effective operations. As with any centre of excellence, to succeed a DCOE needs to have executive buy-in and ongoing support. One way to ensure this high level sponsorship is to establish a DCOE steering committee that includes executive membership from all involved stakeholder departments. This cross-functional membership helps ensure that the perspective, objectives and activities of the DCOE align closely with the broad demands of daily operations and the critical technologies that make them work.

An integrated approach enhances every communication One of the primary benefits of establishing a DCOE is that it can promote an integrated approach that can improve customer communications. The integration should marry both design and development. Document design is concerned with the aesthetic appearance of each document, the content it contains and the colour and graphic elements that propel the message. Carefully considering these design elements is essential in order to realize the full communication potential of an organization’s documents. Development is concerned with bringing those designs to life in the operational world. Mindful of both the design and delivery elements of customer communications, a DCOE can help the organization ensure documents are readable, understandable, delivered in a timely manner and elicit the desired response to a call to action. Harmonizing the needs of both document design and delivery in this way has great potential to enhance the customer experience.

Overcoming technology barriers In many organizations, existing technologies and systems present a fundamental barrier to optimizing customer communications

and achieving strategic results. A governing DCOE can help overcome these barriers by leading the difficult task of ushering in changes to processes and systems. Instead of planning strategies and investing in technology in isolation, a DCOE can ensure a more holistic approach to customer experience management and investments that lead to improved communications throughout the organization. Moreover, without a DCOE, making changes to document content or design could take weeks or more to schedule, program test and implement. This lack of agility is an obstacle to improving customer experience, especially when multiplied across large volumes of communications with numerous versions and variations. By virtue of its structure, composition and governance role, the DCOE can work to reduce or remove common document workflow barriers while enabling business stakeholders to take a more proactive role in integrating documents into broader operational marketing programs and campaign strategies.

Striving for continuous improvement One important task of the DCOE is to ensure results are centrally monitored. Lines of accountability should be established for measuring and tracking results and reporting back to the governing DCOE. For customer communications, key performance indicators may include time-to-market, customer satisfaction, response rate for calls to action and cost of delivery. With the goal to “measure and improve” and acting on behalf of the organization, the DCOE is driven to make decisions based on facts and to design and select communication strategies grounded in real world measurement data. This continual pursuit will lead to additional activities that save money, strengthen every outbound customer communication—and achieve a higher return on investment. Nick Romano is co-founder and CEO of Prinova. He is an expert in the customer communication management space and on the design, successful implementation and management of high-volume, enterprise-class customer touchpoint messaging strategies. Over the years, Nick has helped many Fortune 1000 companies transform the way they communicate with their customers. Contact him at nickr@prinova.com. Follow Prinova on LinkedIn and Twitter.

Financial Operations | Winter 2016 | www.financialoperations.ca 

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Feature

Reduce risks, streamline processes and eliminate costs with location analytics By Robert Szyngiel

F

or financial organizations engaging in transactions involving assets with physical locations, using the power of location analytics can provide significant business advantages. By integrating geospatial location and highly accurate addressing information in business decision processes and systems, new location intelligence technology is allowing businesses today to better analyze and visualize data in efficient and cost-effective ways. In mortgage decision processes, for example, location analytics take into account

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Financial Operations | Winter 2016 | www.financialoperations.ca

accurate physical information about the property, including the address and property type as well as the surrounding neighborhood and environment, enabling that information to influence automated and manual decision making. The more detailed and exacting the location information, the more consumable and actionable the information becomes, leading to faster and better business decisions. Moreover, adding visualization to locationbased data can be extremely valuable for identifying risks, trends and opportunities that aren’t obvious when dealing with data in tabular or raw formats such as identifying adjacent addresses in a flood plain versus a


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EVENTS 2017 January

February

January 15-17 National Retail Federation Retail’s Big Show 2017 New York, NY nrfbigshow.nrf.com January 29 – February 1 Retail Solutions Providers Association INSPIRE 2017 St. Kitts, West Indies gorspa.org/event/inspire January 30-31 American Conference Institute 17th National Forum on Prepaid Card Compliance Washington, DC AmericanConference.com/ PrepaidCard

February 8-9 InfoTech Canadian Financing Forum 2017 Vancouver, BC financingforum.com February 14-16 ATMIA ATMIA US Conference 2017 Orlando, FL atmia.com February 22 – March 2 WB Research eTail West 2017 Palm Springs, CA etailwest.wbresearch.com February 22 – March 2 GSMA

Mobile World Congress Barcelona, Spain mobileworldcongress.com

March March 27-30 ICMA 2017 Card Manufacturing & Personalization EXPO Orlando, FL icma.com March 27-30 Smart Card Alliance Payments Summit Orlando, FL scapayments.com March 27-28 U.S. Payments Forum All Member Meeting Orlando, FL

uspaymentsforum.org

April April TBD Payments eXchange Payments Awards 2017 Toronto, ON www.paymentseXchange.ca April 10-13 NAPCP Commercial Card and Payment Conference Houston, TX napcp.org April 13-14 Conference Board of Canada Canadian Privacy Summit 2017 Toronto, ON conferenceboard.ca

Visit us online www.financialoperations.ca/events.html Financial Operations | Winter 2016 | www.financialoperations.ca 

21


Feature table highlighting addresses and postal codes. In fact, 2013 research by Aberdeen group found that managers in organizations using visual data discovery tools are 28 per cent more likely to find timely information than those who only used managed reporting and dashboards. Additionally, the research found that 48 per cent of business intelligence users in organizations employing visual data discovery tools were able to find the information they needed without the help of IT staff all or most of the time.

Managers in organizations using visual data discovery tools are 28 per cent more likely to find timely information. Improving risk understanding with improved accuracy One important potential benefit of location analytics is reduced risk. Location analytics solutions typically use address scrubbing to try to eliminate confusion that can arise when a location can be identified in a number of different ways, as when the street a property is on can be referred to by different names (such as Highway 48 or Main Street). However, new location analytics solutions are going beyond address scrubbing or validation and employing geo-coding to identify precise locations through geographic coordinates (latitude/longitude) with rooftop-level precision. The location is then assigned a unique identifier that eliminates the risks of misidentifying the property. This approach, for example, enhances the effectiveness of collaboration among disparate parties in a property-based lending system by giving them a common denominator in the form of a unique address ID to refer to a property. There is no possibility of an address mismatch, enhancing the decision-making process. In addition to improving accuracy, historical information can be tied to a unique

22 

geo-coded ID to enable better-informed decision making. The ID helps to mitigate many risk factors, including: • Accumulation risk (e.g. the percentage of multi-dwelling buildings that a company has insured); • Environmental perils (was the property ever exposed to hazardous wastes?); and • Catastrophic loss (is the property at risk for a natural disaster, such as a wildfire?).

Streamlining decision making and reducing expenses When standard address information is used, due diligence requires consulting multiple data sources to ensure that property information is not inconsistent, outdated or incompatible with other databases. Even within a single organization, disparate databases and administrative policies create silos that slow down communications and introduce the potential for human error, miscommunication and oversights. These potential barriers to quick decision making are dramatically reduced when location analytics is used to provide geo-coded unique IDs for properties under examination. In a home mortgage environment, for example, that speed trickles down to the home buyer, who receives their mortgage approval faster, resulting in an enhanced customer experience and loyalty. When data-driven location insights reduce a financial institution’s risk and increase efficiency, the end result is significant cost savings for that financial organization and its customers. Location analytics help streamline processes and reduce complexities that add time, expense and frustration in completing financial transactions involving property.

What to look for in a location analytics solution There are a number of solutions on the market that offer intelligence about specific properties. However, true location analytics consists of two unique elements: • A business ecosystem in which all vendors participate. This allows for streamlined and automated communications, which greatly helps improve service level agreements while reducing the need for manual intervention. It also allows for the most comprehensive assembly of data about physical assets, providing improved levels

Financial Operations | Winter 2016 | www.financialoperations.ca

of risk analysis and mitigation, sales and marketing intelligence and financial decision making. • A property identification method that is unique and driven by precise geospatial data. This resolves issues that may arise when different parties involved in a transaction use different property identification methods and creates one consistent property ID that significantly improves accuracy.

Location analytics help streamline processes and reduce complexities that add time, expense and frustration in completing financial transactions involving property. The bottom line Location analytics hold the potential to unlock the full value of data that financial companies engaged in propertybased transactions have. It can enhance collaboration among partners, such as mortgage lending, from loan origination through managing the portfolio of business and attendant risks. With the sheer number of sources of data that banks and other financial institutions must rely on in today’s environment, using location analytics to reduce risk, streamline decision making and eliminate costs will continue to gain the attention of more and more organizations looking for an edge over the competition. Robert Szyngiel is the director of product management at DMTI Spatial. Szyngiel has 15 years of experience in the architecture, design and development of enterprise datasets for Canada. For more information, visit www.dmtispatial.com.


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