Markets alertLarge amounts ofcash zoomingaround the worldtempt hackersPage 2

Inside »

Web apps boostfinancial literacyLenders usegames to educatefuture borrowersPage 2

RegulationTough compliancerequirements pointto an expandedrole for technologyPage 2

BusinessinnovationMobile systemsface integrationdifficultiesPage 3

ManagementOld methodsof procurementmay be holdingback innovationPage 4

FT SPECIAL REPORT

The Connected BusinessWednesday September 18 2013 www.ft.com/reports | @ftreports

Banks and other financialinstitutions are facing up toa new reality. The costs ofmeeting an expanding ros-ter of regulatory require-

ments are rising at the same time asan increasingly competitive market isputting pressure on margins. Mean-while, the need to invest in technolo-gies to respond to changing customerdemands, reduce risks and battlecyber crime has never been greater.

Against this backdrop are to befound general IT trends, such as theshift to cloud computing and mobility,the growing influence of social mediachannels, and the opportunitiespresented by so-called “big data”analytics. Such topics are expected todominate discussions among bankersat the Swift International BankingOperations Seminar, SIBOS, in Dubaithis week.

“I expect much of the discussion tobe focused on the growing cost ofmeeting regulatory requirements,”says Werner Steinmueller, head ofglobal transaction banking at Deut-sche Bank. For some banks, he sug-gests, these costs could consume up to40 per cent or more of the annual ITbudget and make it harder for them toinvest in the innovation they need tokeep up with customer demands.

Paul Henninger, a director at DeticaNetReveal, a specialist financial soft-ware provider, says it is not only thecase that banks face more regulations,but that these are more detailed andtargeted at more critical parts of theirbusiness.

An example of this, he says, is theUS Foreign Account Tax Complianceact, designed for foreign banks toreport on potentially taxable accountsand transaction activities of US citi-zens. “The FATCA regulation . . . is farmore detailed in terms of what isrequired than previous money laun-dering regulations . . . the initial bur-den on banks is many times morecomplex than the initial release ofanti-money laundering regulationsover a decade ago.”

The implications of this go farbeyond tying up bank IT resources.“The focus on regulatory compliancecan challenge banks’ capacity toundertake customer-centric innova-tion,” says Jean Lassignardie of

Capgemini Global Financial Services.“For example, partly as a result of theeurozone debt crisis, European banksare complying faster than originallyexpected with the Basel III objectives[due to be implemented by 2018], butas a result they have less capacity tofocus on innovation.”

He says that, for the past few years,most financial services companieshave been focused on using technol-ogy to cut costs and improve efficien-cies. Now they realise that in order toincrease revenues they must move toa more customer-centric model andexplore the opportunities presentedby mobile and online channels.

“They’re doing this while simulta-neously responding to the trendsshaping the industry, such as ever-

changing market conditions, theincreasing customer demand for newservices and rising compliance costs,not to mention managing theexplosion of data at their disposal,”says Mr Lassignardie.

To put this in perspective, Technol-ogy Business Research (TBR), the US-based research firm, estimates thatlarge North American financial insti-tutions alone will spend $73.8bn on ITimprovements, including software,hardware and professional services,next year as they switch from ITinvestments designed to “run thebank” to investments focused on“changing the bank”.

“The overall 2014 IT budget growthrate hovers at 2 per cent,” notesTBR’s Banking and Financial Services

Source IT report. “Large bankingorganisations are increasing invest-ment in multi-channel banking anddata management to improve systemperformance [and] ultimately meetcustomer demand for improved serv-ice and an enhanced user experience.”

As part of this trend, banks andother financial services businesses arechanging their services delivery mod-els. For example, they are taking serv-ices to customers via mobile devicessuch as smartphones and tablets,rather than forcing them to come intobank branches.

“Business requirements will not bethe same as they were three or sixmonths ago so, culturally, technologyand businesses have to adapt to newmethods,” says Jon Warren of

Rule Financial, a London-basedconsultancy that serves the globalinvestment banking industry. “Thosefirms most able to implement internalchange are the ones most able tosurvive a post-regulatory world.”

In the meantime, financial servicescompanies must still find ways tostreamline their IT operations, cutcosts and improve efficiency. How-ever, many banks struggle with thisprocess. “On virtualisation, there isstill a fair way to go,” says LouRauchenberger, chief administrativeofficer of JPMorgan’s corporate andinvestment bank. “My view is thatparticipants in the industry are in avery difficult place . . . there is astrong pressure to have much moreintegrated back-office operations, butmany are still several years away.”

While he believes that banks have abreathing space following an intenseperiod of mergers and acquisitions, hesays they are still struggling to con-solidate applications and reduce thenumber of servers in their IT opera-tions. Many still rely on bridgesbetween different system architec-tures rather than achieving real inte-gration.

Cathy Bessant, Bank of America’schief information officer, agrees. Sheargues that IT simplification itself isimportant. “Simpler is always better,”she says. “It always offers more stabil-ity and higher performance quality.And simpler is always cheaper, so is aworthy objective unto its own.

“For us, we grew up as a companywith hundreds – literally – of acquisi-tions and so, while we always wereseamless in the front office, we rarelytook that all the way through thehierarchy of the infrastructure of thefirm. Simplification for us has meantcollapsing multiple systems that dothe same functions into one.”

Ten years ago, she says bankerstypically thought of technology as“the back office”, or the infrastruc-ture that kept the institution func-tioning.

“Today, no good firm thinks of itthat way. Technology and the frontoffice are one and the same, and oftentimes we deliver our product – money,capital or payment services – througha technology. The channel and whatwe are delivering have become oneand the same.”

She shares the feeling of manyother IT banking professionals thatthe pace of change that has been expe-rienced over the past decade will con-tinue unabated, but that predictingwhat the next popular trends remainsdifficult.

“I can only anticipate that the next10 years will see that same kind ofchange as the past 10,” she says.

Bank tech expenditure set to rise

If a New Yorker’s creditcard is used to buy jewel-lery in Bangkok, the bankmight suspect that it hasbeen stolen.

However, if half an hourbefore, their partner’s cardon the same account hasbeen used at a restaurant inthe same city, the bankcould surmise thecouple are on holiday.

Data analytics allowschecks such as this tohappen in seconds – thetime between the cardbeing inserted into an elec-tronic reader and itsauthorisation, says PaulEagles, vice-president ofproduct and future paymentrisk at Visa Europe.

It is a far cry from thesituation 20 years ago,when attempting to useyour credit card seventimes in a day, or spendingmore than £1,500 on a singletransaction, might wellhave led to your card beingblocked.

“Fraud detection needs tobe as unobtrusive as possi-ble,” says Mr Eagles. “Thechallenge is not to incon-venience customers.”

In addition to speedingup security checks, dataanalytics improves detec-tion rates by allowing manyfactors to be consideredsimultaneously. In the past,

financial institutions set“rules” that computerschecked to decide whetheror not to allow transactions.But this meant predictingwhat might constitutesuspicious behaviour.

Now, rule checking isused in combination withtechnologies such as anom-aly modelling, text mining,predictive modelling, datavalidation and socialnetwork analysis.

This helps banks to spotthe tell-tale signs theymight never have previ-ously thought of – the“unknown unknowns”, asMike Rhodes, senior fraudconsultant at SAS, the soft-ware company, calls them.

Data analytics can helpassess liquidity and creditrisk, and identify illegaltrading, rate rigging, mis-selling, and fraudulent loanapplications or insuranceclaims.

Such techniques canexamine anything from thefrequency, length and geo-graphic location of phonecalls, to the words andphrases used in emails andinstant messages.

Anomaly modelling, asthe name suggests, seeksout the unusual. In invest-ment banking, for example,a high number of calls to amobile phone registered inRussia could flag up awarning of insider trading.In retail banking, employeeemails containing bankaccount numbers mightsuggest criminal activity.

Text mining also helps touncover dubious corre-spondence. It can look forspecific giveaway words

and phrases such as “trad-ing illegally”, “illicit trade”and “keep it quiet”. Forexample, an alert might betriggered by an abnormallylarge number of congratula-tory remarks, such as“great”, “thank you” and“excellent work”.

Meanwhile, motor insur-ance companies are usingtext mining to identifyfraudulent claims. A genu-ine claimant who has beenin a car accident and isrecalling an event frommemory is likely to describe

the experience by relivingwhat actually happened, forexample: “I was walkingdown the road and a vehicledrove into me.”

A fraudster, on the otherhand, is more likely to say:“I walked down the roadand a car hit me.” Peopleusing the second form ofwords are 60 per cent morelikely to be fraudulent thanthe first.

“They are not describingwhat happened to them butwhat they imagine insidetheir heads,” says MrRhodes. “Anyone usingwords ending in ‘-ed’ shouldbe on top of the list forinvestigation.”

Scott Paton, a partner in

financial services practiceat PA Consulting, saysfinancial institutions areunder pressure from regula-tors to invest in social net-work analysis and otherreadily available data tounderstand what conversa-tions are taking place, and“where there is contactwith people known to bedodgy”.

Investigators can alsolook at share price fluctua-tions, Mr Paton says.“When these are outside thenorm, they can see who’sinvolved, who they’re con-nected to and what commu-nications are taking place.”

In future, the scope ofdata analytics will movebeyond numbers and wordsto include images, videoand voice recognition.

For example, thanks tothe increasing use of socialmedia such as YouTube andFacebook, fraudulent whip-lash claimants will find itharder to escape detection,especially if the photos orfootage they have postedonline show they werenowhere near the scene ofan alleged car accident.

However, some compli-ance officers are reluctantto use data analytics forfear of breaching privacylegislation.

“They are very concernedabout what they areallowed to do, even usingpublicly available data onsocial media,” says MrRhodes at SAS.

However, he says, theirfears are misguided,because this sort of analysisis allowed when it is beingused for fraud detection.

Growth of analytics tools helpslenders to spot criminal activityFraud prevention

Screening massesof data helps beatthe crooks, reportsJane Bird

‘Detection needs tobe unobtrusive,the challenge is notto inconveniencecustomers’

Analytic outlookSocially responsibleuses for big dataPage 4

The US financial servicesindustry alone is likely torun up an IT bill of atleast $74bn next year asregulatory and customerdemands impel change,writes Paul Taylor

While contactless paymentcards are widely used, theuptake of mobile devices asa means of payment isproving problematic. Here,we look at the pros andcons.

TechnologyRFID: A card with a radiofrequency identificationchip can be used to pay bytapping it on to a specialreader.

NFC: Near fieldcommunication is a type ofRFID used in mobilephones that enables securecontactless transactions. Itstwo-way informationexchange makes it possibleto interact with customersin a more personalised way.

DeploymentRFID “contactless”payment cards are foundin the US, UK, Poland andSpain to pay for publictransport and items costingless than £20. Transactionsare almost instantaneous.

Smartphones with NFCtechnology were launchedin 2007, and by 2012comprised 55 per cent ofsmartphone models on the

market, says London-basedmarket research companyOvum. But very few arebeing used for NFCpayment. NFC transactionsfor 2017 are forecast at$34.7bn, only about 5 percent of the total worldwidemobile payment market.

BenefitsRFID and NFC paymentsuse complex encryptionand are more secure thanconventional credit anddebit cards. Customerspaying with a RFID cardtypically have to enter thePIN every five transactions,so the most anyone couldsteal would be £100.

NFC-enabled phones aremore versatile. Theircameras and screens canbe used for identificationand to display quickresponse bar codes. Theycan also help peoplemonitor their spending bytracking and storingreceipts. “But the mainbenefit,” says GillesUbaghs, Ovum’s senioranalyst for financialservices technology, “isthat service providers cancapture and retaincustomer preferences, andpush out offers in the formof loyalty points, couponsand discounts.”

ChallengesNFC payment systems areexpensive to roll out. Theyrequire hardware, softwareand an infrastructure ofparticipating telecoms

operators who control thehighly secure paymentdetails, as these are storedon the SIM card on thehandset. Banks arestruggling to work out howto form partnerships withintermediaries and how to

share out the profits.But the biggest hurdle is

persuading consumers tosign up, says Mr Ubaghs.“This is proving verydifficult, because mostpeople don’t see theadvantage.”

Customers slowto adopt mobilesas credit cards

Survival guide

Jane Bird looks athow two types ofcontactless paymentsystem work

Research: Jane Bird FT Graphic/Dreamstime

Contactless payment cards using radio frequencyidentification (RFID) system

Planned smartphones enabled with near-fieldcommunication (NFC) capabilities

Customer in coffee shop taps smartcard against point-of-sale reader to pay for coffee

Customer in coffee shop taps NFC-enabled smartphone against point-of-sale reader to pay for coffeeDetails passed via mobile wallet provider or company, such as PayPal, which sends funds to the coffee shop

The mobile wallet provider, with the mobile operator and an independent trusted service manager, send offers to the customer’s phone

Transaction details transferred directly to coffee shop’s bank

Customer’s bank authorises transaction and debits funds from customer’s account

Coffee shop’s bank requests payment from customer’s bank via interbank payment network such as Visa or MasterCard

Smartcard vs mobile payment How it works

1

2

1

2

3

3

4

Mobile walletprovider or

intermediary

Coffee shop’sbank

Coffee shop’sbank

Customer’sbank

Paymentnetwork

Point ofsale reader

Customer’sbank

Point ofsale reader

4

Future messages alert coffee shop to when customer will arrive and choice of coffee

Illus

trat

ion:

Oiv

ind

Hov

land

2 ★ FINANCIAL TIMES WEDNESDAY SEPTEMBER 18 2013

Wall Street was the settingfor its own blockbusterthriller this summer:Quantum Dawn 2. Inmid-July, banks and bro-

kers were forced to keep on top ofpositions as prices fluctuated wildly.

This was not a real attempt by out-side forces to manipulate the markets,but a widescale drill by regulators inconcert with market participants. Thetorrents of trades were fictional, sentby imaginary hackers. The aim was totest the industry’s readiness for apotential cyber attack.

“This issue has emerged as argua-bly the top systemic threat facing glo-bal financial markets and associatedinfrastructures,” says the DepositoryTrust and Clearing Corporation(DTCC), which processes large securi-ties transactions for US capitalmarkets. “That systemic risk is mani-fested in a possible massive financialand reputational impact and a loss ofconfidence in the integrity of themarket.”

With their frequent, sharp move-ments – often driven by raw humanemotions of greed and fear – financialmarkets have always attracted unsa-voury characters. The trading floors,

once populated by brokers and run-ners, have been largely replaced byunflappable, relentless computers thatare able to execute trades across thou-sands of miles at supersonic speeds.The vast sums of money shootingacross continents, and the high profilethey are given, means financial mar-kets remain a tempting target forcriminals.

Participants point to the complexityof today’s markets, which they say isenough to prevent casual attackers.Asset classes such as equities andderivatives are traded via privatelyowned networks that have their owncomputer language. Access to anexchange is available on a member-ship basis, usually via a broker who isresponsible for conducting credit andbackground checks on customers.

But this is not a complete deterrent.A report in July by the World Federa-tion of Exchanges found that morethan half of the 46 exchanges it sur-veyed had experienced a cyber attackin the past year. So far the main tar-gets have tended to be non-trading-related online services and websitesrather than trading platforms, it said.

As the cost of technology continuesto fall, it is relatively inexpensive for

a criminal to launch an attack on afinancial institution, while the cost ofdefending against them is far higher.

“The biggest one we see is a DDoS,or distributed denial of service [anattack that uses many computers andmany internet connections to flood atargeted server with requests]. It’slike digital vandalism,” says HughCumberland, solutions manager atColt Technology Services, which oper-ates telecom network and technologyfor markets.

In a DDoS attack, the networks offinancial institutions are significantlyslowed or paralysed by a bombard-ment of messages from a network ofcomputer servers. Recent attackshave flooded some websites with up to15 times the traffic they are built tohandle.

For some hackers, bringing down ahigh-profile website is “a badge ofhonour”, says Mr Cumberland.

Mark Clancy, corporate informationsecurity officer at DTCC, says thereare four main types of groups thattarget markets. Besides hacktivists,there are criminals seeking confiden-tial information, people conductingespionage and people conducting acyber war.

Those seeking financial gain lookfor vulnerabilities in systems in orderto compromise confidential data.Criminals seek to infect an entire sys-tem with hidden software that may lieundetected for many months. Onesuch attack, in 2011, focused on Nas-daq OMX’s Directors’ Desk, whichholds data normally only available totop corporate executives.

Finra, the US regulator, this yearsaid there had been a “proliferation”of complaints about security breachesat broker-dealers, raising concernsthat customer orders or even tradingstrategies could be compromised.

Combating those seeking illicitfinancial gain is further complicatedby the interaction of the market withthe web and social media. For exam-ple, Carl Icahn, the US investor, mademillions and moved the share price ofApple legally over the summer whenhe announced on Twitter he hadbought a large stake in the US compu-ter maker. “There’s a blurringbetween what’s real and what’s not,”says Mr Cumberland. “Data prove-nance is going to become an issuebased on the credibility and reliabilityof certain kinds of data we have.”

The hardest groups to defend

against are those involved in espio-nage, says Mr Clancy, as they are usu-ally government-backed. “They canput time and effort into getting itright,” he says. “In many ways secu-rity is about removing the lightlysophisticated people so you can con-centrate on sophisticated ones.”

For the present, the industry isfocusing on improving safeguards andcontingency plans, indicating littlefaith in the ability of authorities toprosecute suspects.

The WFE study found that only 59per cent of exchanges polled said theirjurisdictions had sanctions regimes inplace for cyber crime. Of that total,about half suggested that currentsanctions regimes are effective.

Many attackers are located in over-seas jurisdictions where extradition ofsuspected criminals is difficult, mak-ing the chances of prosecution low.Some of the five men charged withthe attempted Nasdaq hacking remainat large.

“You used to assume that if youbuilt the wall high enough, theycouldn’t get in,” says Mr Clancy.“It still deters many, but now youhave to assume that they’re in thebuilding.”

For leaders in the financialsector, one of the frequentreminders of the 2008 creditcrisis is the mountain ofnew rules they face in theirday-to-day operations.

Regulatory initiativessuch as the US Dodd-FrankAct are forcing banks andother institutions to keepmore data for longer –creating a pressing need tofind extra terabytes ofspace on computer servers.

Storage capacity is justthe beginning, asfinancial services arehaving to turn to increas-ingly sophisticated technol-ogy to satisfy the demandsof compliance.

“The role of IT hasbecome even more centralthan it was in the past, andchief technology officers areincreasingly working withchief financial officers andcompliance officers toimprove processes,” saysSaid Tabet, senior technolo-gist and industry standardsstrategist at EMC, a datastorage company.

He adds: “High levels ofautomation, for example,are being used to improvebusiness processes and todeal with problems such ashuman error.”

One of the biggest prob-lems is data quality. JamieWoodhouse, managingdirector of finance and riskservices at Accenture UKand Ireland, the IT servicesgroup, points out that theglobal nature of bankingoperations means a greatdeal of work has to be doneto ensure that all data arecompatible and meet thesame standards.

“In theory, the regulatoryreporting problem is verysimple, but in practice thecomplexity is bewildering,”Mr Woodhouse says. “Whenyou start looking at the

data sets, you recognisethat the source data are inmany different systems, inmany different regions andcountries, and is being man-aged by lots of differentgroups with slightly differ-ent reasons for wanting tolook at it.”

This point is echoed byFrench Caldwell, vice-presi-dent and Gartner fellow atGartner Research. “Bankshave been using IT to pulldata from multiple entitiesacross the bank, and tocleanse or normalise itbefore they can begin to useit for operational risk andcompliance calculations,”he says.

Another problem is thesheer weight of legislativechange.

“Even before the financialcrisis, banks had plenty todeal with, with regulationslike Basel II,” says Mr Cald-well, referring to the inter-national financial accordintroduced in 2004.

“Most senior executivesat banks think their compli-ance systems are OK – ifonly they knew what theyhad to comply with. Fiveyears after Lehman Broth-ers and the financial crisis,a lot of the regulationsunder Dodd-Frank stillhaven’t been finalised, andDodd-Frank is only one ofthe regulations around theworld.

“A big part of the use ofgovernance, risk manage-ment and compliance soft-ware is change manage-ment – tracking changes torules and regulations

throughout the world, andidentifying the people andoperations that need toreact to those changes.”

Mr Caldwell believessocial media will be a prob-lem that the industry willincreasingly have to dealwith. “Banking regulationshave not changed to reflectthe spread of social media,”he says.

“A post on Facebook or atweet by a financial adviserworking for a bank could beconstrued by regulators asadvertising, and there’s gotto be a process in place tomonitor this and check thatpeople are obeying therules.”

Regulators, too, faceconcerns about handlingdata, and are deployingsophisticated systems toanalyse the complianceinformation they receive.

“While each bank finds ita struggle to report to theregulator, the regulatorsare receiving multiplereports from all the banksto try to get a transparentview of the entire market,”says Accenture’s Mr Wood-house. “That’s a phenome-nal challenge.”

Could remote hosting of

information on the cloud,which is finding so manyuses in IT and business, bepart of the solution? Opin-ion seems divided, espe-cially given the need forsecurity. A survey byCapgemini, the consultinggroup, revealed that 63 percent of companies in finan-cial services trusted thecloud with their data. Butfear of a security breachwas also listed as the topreason preventing clouduptake.

“Some financial servicescompanies have alreadyadopted cloud solutions indifferent areas of their busi-ness,” Mr Woodhouse says.“Some are using them inter-nally. In other cases theyare using them externally,or using cloud-based soft-ware as well as data serv-ices outside of their firm.”The turning point will bewhen regulators turn to thecloud, he believes.

Mr Tabet at EMC thinkscloud systems have someway to go before they reachtheir potential. “If cloudcomputing is creating a lotof internal clouds, it doesn’tlead to the full potentialbeing realised,” he says.“I’m very optimistic thatcloud computing will beused, but we are not yet atfull adoption of these kindsof services.”

On the plus side, it maybe that technology chiefscould start to see regulationas a way of helping to makethe business case forupgrading IT systems.According to a survey byXanthus, a managementconsultancy, 86 per cent ofchief information officers inthe financial services sectorview regulation as anopportunity to innovate.

In the meantime, whatseems certain is that IT andcompliance will continue toconverge.

“The volume of new regu-lation and compliance initi-atives has significantly, notto say exponentially,increased,” says Jean Las-signardie, a vice-presidentat Capgemini Global Finan-cial Services. “IT’s majorrole in risk and complianceis the new normal.”

IT stands to play bigger roleas compliance rules tightenRegulation

Banks need todevelop increasinglysophisticatedresponses, reportsPaul Solman

An imaginary world filledwith fantasy creatures ishelping children learnabout the value of money.Using the app, Green$treets:Unleash the Loot!, they canearn virtual cash by plant-ing a garden or purchasedecorations for a tree housewhile learning basic finan-cial concepts such as earn-ing money, making spend-ing decisions, saving andbudgeting.

The app is an attempt toovercome the biggesthurdle facing those wantingto increase consumers’grasp of money manage-ment – the image manypeople have that personalfinance is stressful and dull.

“The fundamental prob-lem is that it’s just not veryinteresting,” says MarkGuinibert, a partner atKPMG, the consultancy.

It is a view shared byJason Alderman, who runsthe global financial educa-tion programmes at Visa,the credit card company.“One of the biggest chal-lenges of financial literacy,regardless of what technol-ogy you’re using, is that thecombination of fear, shameand boredom is a lethalcocktail,” he says.

As a result, the apps andgames that Visa is nowdesigning as part of itsfinancial literacy pro-grammes include one thattaps into the popularity ofsport. Financial Soccer(called Financial Football insome markets) is a freeonline video game that testsplayers’ financial manage-ment skills.

Mr Alderman argues thattechnology can encouragepeople who might otherwiseshy away from the subjectto start thinking about howto manage their money.“There is no app that can

make you financially liter-ate,” he says. “But it can bea gateway to realising thatthe subject doesn’t need tobe terrifying.”

Mobile and game technol-ogies can add an element offun to help consumersimprove their money man-agement skills.

In the US, for example,PNC Bank has created amobile phone app to makesaving money more enter-taining. The Punch the Pigapp allows customers totransfer money from theircurrent to their savingsaccount automaticallywhenever they punch (byshaking their phone) thepiggy bank on the screen.

“ ‘Gamification’ is a wayof getting people to saveand put money away,” saysMr Guinibert. “There’ssomething in our brainsthat responds to that kindof addictive behaviour.”

Familiarity plays a role,too, a factor that theGreen$treets app taps into,since its creatures are thecreations of Tom Hester,character designer forShrek, the computer-animated film franchise.

Even in very different set-tings, similar principlesapply. When OpportunityInternational – which pro-vides poor communities indeveloping countries withfinancial services – designsits education programmes,it taps into popular culture.

In Uganda, where soapoperas are widely watched,it creates dramas with simi-lar plot lines that includemessages about things suchas the importance of havingsavings accounts. Theorganisation is starting to

equip its loan officers withtablets, and it sees thepotential of taking thesemessages to a largernumber of people.

“It’s about not trying tointroduce something newbut using what is alreadyworking well,” says RosaWang, director of mobilemoney at OpportunityInternational.

Mobile devices offer otheradvantages when it comesto financial literacy – inti-macy. “Money managementconcerns some of the mostprivate information wehave,” says Mr Alderman.“And a phone is a screenjust for you.”

For microfinance institu-tions, the mobile phoneis a way of helpingclients keep on track withloan repayments. Opportu-nity International is amongthose using text messagenotifications to borrowers’as reminders that theirpayments are due.

If mobile technology is achannel for deliveringfinancial information thatpeople can access in pri-vate, social media is ahighly public technology.

For this reason, MarkGuinibert believes bankswill have to tread carefullywhen using social media asa money management tool.“People find it hard enoughto talk to their friendsabout this stuff,” he says.

Nevertheless, some banksare experimenting withsocial media as a means of

increasing financial liter-acy. For Visa, the technol-ogy provides a way of usingshared concerns to raiseawareness of the impor-tance of budgeting.

In the US, the company’sTooth Fairy app and Face-book calculator helpparents – who often worryabout how much money toleave for children after theylose a tooth – decide on theappropriate amount by let-ting them see what otherfamilies have left undertheir child’s pillow.

Meanwhile, in India,ICICI Bank is using Face-book to encourage savingsamong younger customers.With an iWish account, cus-tomers can choose whenand how much to deposit.They can post their savingsgoals on a Facebook page sothat their friends and fam-ily can track the saver’sprogress and make contri-butions from their ownaccounts.

It is perhaps no surprisethat ICICI Bank has tar-geted younger customerswith its iWish account. Asthe younger generation ofdigital natives become bankclients, they are likely to beless reluctant than olderpeople to use social mediato discuss their personalfinances.

“With a younger, moreonline, more confident userbase, it is viable,” says MrGuinibert. “It might nothappen today, but it isgoing to happen.”

Gaming aims totake the fearout of financeEducation

Applications canboost financial skills,says Sarah Murray

‘A post onFacebook or atweet by an advisercould be construedas advertising’

Money talks: the ‘Green$treets’ application allows childrento learn real­life skills in a cartoon­like fantasy world

Markets onthe alert ashacking dangerlevels mount

Security The vast amount of money shootingacross continents makes financial services atempting target for crooks, says Philip Stafford

‘Apps can be agateway to realisingthat the subjectdoesn’t need to beterrifying’

On FT.com »

Surfing intothe futureCould Cornwallbecome theUK’s nexttechnology hub?ft.com/podcast

Web warning: for some hackers,bringing down a high­profilewebsite is seen as a ‘badge ofhonour’ Dreamstime

Criminals often attemptto infect systems withsoftware that can lieundetected for months

The Connected Business

FINANCIAL TIMES WEDNESDAY SEPTEMBER 18 2013 ★ 3

The Connected Business

The problems and opportuni-ties that mobile banking andpayment systems, and elec-tronic wallets, present forbanks, card issuers, network

operators and equipment makers arelikely to vary from market to marketand country to country.

For example, in emerging marketssuch as Kenya and Tanzania, M-Pesa,the mobile phone-based money trans-fer and micro payment systems pio-neered by Safaricom and Vodacom,has been popular with those who havenot previously used banking services.M-Pesa allows users with a national

ID card or passport to deposit, with-draw, and transfer money easily witha mobile device.

In more developed countries, bankshave offered basic mobile bankingservices for years. These are growingin sophistication, for example byallowing clients to use smartphonecameras to make cheque deposits, orby providing stock market investorswith equity research and portfolioanalysis tools on tablet devices.

But the real opportunities for bankslie beyond basic banking services. AsAccenture, the consultancy, noted ina report on the sector, “rapid

advances in technology are creatingmajor opportunities for banks to buildbetter and more loyal relationshipswith their customers, enhance serviceand drive additional revenue”.

Accenture also said banks are rais-ing expectations about how customersinteract with them, including “devel-oping new services and addressingnew points of customer interaction –for example through social mediasuch as Facebook and Twitter”.

But the authors point out that,while such innovation in specificchannels is necessary for growth, itwill not, on its own, be sufficient.

“Introducing new channels or enhanc-ing existing ones has to take placealongside the creation of architecturethat brings those channels togetherand integrates customer data mean-ingfully across them all.

“Without that integration it will notbe possible to deliver the type of serv-ice experience that customers expect.And all of this has to deliver sustaina-ble cost savings.”

However, banks need to take advan-tage of such opportunities soonerrather than later, or they run the riskof being outflanked by mobile net-work operators and companies such

as PayPal, that are also zeroing in onmobile banking and payments. Forexample, Berg Insight, a businessintelligence company, estimates in-store mobile wallet payments willreach a combined total of €78bn inNorth America and Europe alone by2017, up from just €600m in 2012.

Berg suggests commercial mobilewallet services will be operating innearly half of the 27 EU members,plus Switzerland and Norway, by theend of this year. Many of Europe’slargest mobile operators, banks andretailers including T-Mobile, Orange,Telefónica, BNP Paribas, Barclays andAuchan, were identified by Berg asimportant mobile wallet players.

In North America, where mobilewallets have been slow to take off,their use in in-store payments totalledjust $500m in 2012, and the vast major-ity of payments used Starbucks’smartphone application. Mobile wal-lets that can be used at multiple mer-chants “have yet to gain traction”,according to Berg.

But this could be about to change.Isis, the mobile commerce joint ven-ture created by AT&T Mobility, T-Mobile US and Verizon Wireless,announced plans at the end of July toroll out its Isis Mobile Wallet nation-wide this year, followingsuccessful trials in Austin, Texas andSalt Lake City, Utah.

Michael Abbott, Isis’s chief execu-tive says: “Over the past nine months,we have proven the power of an openplatform, creating an ecosystem ofhundreds of partners dedicated tomaking mobile commerce a reality.”

In another indication that the IsisMobile Wallet, which uses near-fieldcommunication technology to allow

consumers to make purchases,redeem coupons and present loyaltycards with a tap of their smartphone,could win wider acceptance, Chase,the US banking arm of JPMorganChase, plans to offer its credit cardservices in the package.

In the longer term, universal mobilewallets are expected to drive themajority of mobile in-store purchasesin North America, which Bergestimates will reach $44bn by 2017.

However, some believe that it willbe the value-added services thataccompany mobile wallet shoppingthat will truly distinguish mobile wal-lets from the traditional paymentinstruments.

Jennifer Miles, president of Veri-Fone Americas, an Isis partner, says:

”The value in mobility is not in howyou pay, it’s about creating a moremeaningful and rewarding interactionbetween a brand and itscustomer, and mobile wallets are animportant part of that.”

Analysts think the next few yearswill be a crucial time for banks andothers planning to offer mobile pay-ment and wallet services.

The Berg report said: “Gaining anearly lead in the market can be cru-cial, as in the long term only a limitednumber of mobile wallet services willsurvive in each market due to net-work effects.”

Mobile systemsface integrationdifficulties

Business innovation Banks need to lookbeyond basic services, writes Paul Taylor Jennifer Miles: mobile’s value lies in the interaction between brand and client

‘Gaining an early lead canbe crucial, only a limitednumber will survive’

Paul TaylorEditor, TheConnected Business

Maija PalmerSocial mediacorrespondent

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A consortium of mobilephone operators in the UKhas ambitions to sell banksa high­tech way of keepingcustomers loyal.

Launched in 2012 byVodafone, EE and O2, Weveoffers payment technologyvia a new generation ofmobile phone chips.

These work in the sameway as contactlesspayments tap and pay debitcards, by employing short­range radio waves known asnear­field communications(NFC).

Banks feel that theymissed a trick in allowingonline commerce companiessuch as PayPal to dominateinternet shopping. They seemobile phone technologiesas a way to reinvigoratetheir relationship with ayounger generation ofcustomers.

The big question iswhether NFC will live up toits hype before some otheremerging technology takesthe mobile payments prize.

Tony Moretta, a veteranof NatWest bank and creditcard giant Visa, is marketingdirector at Weve. He saysthe UK has 30m credit anddebit cards that areequipped with contactlesspayment chips, soconsumers are accustomedto making payments bywaving a chipped device at acard reader in a shop orrestaurant.

Mr Moretta anticipatesNFC capacity will beenhanced by Weve’s mobileoperator backers in thesame way as a bankupdates plastic cards.

New mobile devices willsport an NFC­compatiblechip and, when enough arein circulation, banks canalert their customers to theoptions they have for usingthese services.

The company says it willcarry out the technicalintegration between bankaccounts and theNFC chips, givingeach bank asingle point ofcontact thatwill provideaccess to themultitude ofphones thatare availablefrom thegroup’sbackers.

The theory isthat consumerswill leap atthe

speed and convenience ofcontactless payments asbanks load the ability to usedebit cards on to mobilephones.

Banks will control thebranding of the service,adding extra promotionssuch as discount deals withretailers. The resultingavalanche of informationabout spending habits couldput banks on a par withsupermarkets in terms oftheir future ability to mineand exploit data fromcustomer transactions.

Mr Moretta anticipatesWeve’s banking clientsshould be able to launchservices by the end of 2014.He thinks the frantic pace ofchange in mobile commerceis a powerful incentive forthem to sign up. “Banks arebehind the consumer interms of using mobilepayments technology,” MrMoretta says.

“If the banks don’t do thissoon, someone else will,” headds.

Market observers say thisrapid rate of change mayalso trip up Weve. NeilBurton, director of productstrategy at cross­borderpayments group Earthport,warns that “the rate atwhich mobile technologychanges is very quick,possibly faster than thebanks can match”.

Apple has held out fromincluding NFC compatibilityon the iPhone, and it is clearthat Weve can only be oneelement in a wider mobilestrategy for banks.

Paul Berney, Europeanmanaging director at theMobile MarketingAssociation, thinks Weve ispointing banks in the rightdirection, although hebelieves Apple’s eventualembrace of NFC will provecrucial.

“Weve is preparing themfor the future, it is just a

question of time,” he says.

MichaelDempsey

UK scene Convenience is the keyfactor likely to win over customers

Mobile ambitions:Weve’s TonyMoretta

4 ★ FINANCIAL TIMES WEDNESDAY SEPTEMBER 18 2013

importantly, “security and privacy[is] a fundamental issue because [a]device contains a mixture of personaland corporate data”.

Mr Nicol identifies the mainquestion executives have as ‘‘How doI get started?” and the rest of hisbook is mostly a practical guide toanswering that question against thebackdrop of trends such as theconsumerisation of IT – or bringyour own device, to work – though Iwould have liked a more detailedexamination of the use of tabletdevices in enterprises and by clients.

The author argues that the firststep to developing a successfulmobile strategy is to define whathaving one can add to the value ofyour business and says, “in the end,mobile technologies can transformbusiness in untold ways. However,the potential value can be lost if youdo not execute correctly.”

For example, the smartphone, hesays, has three important capabilitiesthat, when brought together, canbecome transformational: contextualinteracting (enabling a user tointeract with other people, theirenvironment and data); mobileintelligence (having powerfulcomputational resources when youneed them); and engagement(delivering an easy, helpful userexperience).

The author explains theimplications of these attributes inchapters that consider aspects suchas frameworks, development, securityand the management needed to bringabout mobile businesstransformation, as well as one oninternational considerations.

Each chapter follows a similarsimple structure: an introduction;key considerations for a mobilestrategy; and a conclusionsummarising the main concepts. It isa structure that guides the readerthrough what otherwise could beconfusing territory.

My favourite section comes almostat the end, where Mr Nicol brieflyoutlines specific case studiesincluding Air Canada, Visa andTesco’s Home Plus service in SouthKorea, although these would havebenefited from being longer.

But, overall, this is an easy bookto read, and it manages to addresscomplex issues of developing amobile strategy without being overlytechnical.

Paul Taylor

The Connected Business

In June 2012, Orange, themobile telecoms operator,threw down a challenge tothe scientific community. Itprovided access to ano-nymised records of mobilephone traffic in Ivory Coastand asked whether researchteams could suggest produc-tive ways in which theinformation could be used tohelp developing countries.

More than 260 proposalscame in, ranging fromimproving the public trans-port network to monitoringcarbon dioxide levels.

First prize in this Data forDevelopment challengewent to a team from theUniversity of Birminghamin the UK. It proposed usingthe data to monitor howdiseases spread throughoutthe country, leading tobetter ways to containepidemics.

The number of proposalsindicates the huge varietyof ways in which companiescould be harnessing bigdata. But if you speak to bigdata experts, they all com-plain about the same thing:although 82 per cent oflarge companies are plan-ning or running big-dataprojects, most of these aresimilar and are often simplyabout how better to targetcustomers to increase sales.

Viktor Mayer-Schön-berger, professor of internetgovernance and regulationat Oxford university in theUK, says: “Most of the com-panies I talk to think abouthow to use data for bettertargeted marketing. Theydon’t understand they havea much bigger opportu-nity.”

Theo Priestley, vice-president at Software, theGerman IT company,agrees: “People are stillthinking very small. Wehave lots of data, but don’tknow what to do with it. Wedon’t even know what ques-tions to ask.”

Prof Mayer-Schönberger

says companies struggle touse big data well, becausethe information that isbeing generated requires avery different mentalityfrom previous forms of dataanalytics.

Consider, for example,one of the most famous bigdata projects: Google’s FluTrends. This involved usingthe terms people search foron the internet to see whereinfluenza was breaking out,and recording epidemics afull two weeks ahead of theCenters for Disease Controland Prevention in the US.

The idea that peoplemight search more for cer-tain terms, such as medicalexpressions, when they fallill is not a new one, saysProf Mayer-Schönberger.

Other scientists werealready looking for correla-tions before Google’s FluTrends site was launched,he says, but because Googletook a different approach, itgot more useful results.

Where other researchershad tried to guess likelysearch terms that wouldcorrelate with flu and thentested them, Google rantens of millions of possiblesearch terms through itssystems, in hundreds ofmillions of combinations,until a handful of termsemerged that correlated

with the most flu incidents.Frank Buytendijk, an

analyst at Gartner, thetechnology research com-pany, says this is the differ-ence between deductive rea-soning – the top-downapproach of starting with ahypothesis and testing it –and inductive reasoning,where conclusions emergefrom the data themselves.

Second, the term “bigdata” is an unhelpful mis-nomer, as it is not alwaysbig and is often not really

about data. The trouble isthat “contextualised induc-tive analytics” – a betterdescription for what is hap-pening – is not as catchy,says Mr Buytendijk.

Volume is only one of theso-called “three Vs” of bigdata, he says, and the othertwo, variety and velocity,are possibly even moreimportant.

Big data technologyallows companies to com-bine information sources ina way they could not dobefore – analysing photos,text and videos together, forexample.

One European railwayoperator is testing whetherthis could be used to get thesecurity cameras on traincarriages to count thenumber of passengersinside, says Mr Buytendijk.The system would be ableto tell people waiting onplatforms how full each car-riage was and whether itwould be better to board,say, the emptier carriagesat the back rather than thebusier ones at the front.

The same technologymight count people going inand out of a supermarketand alert staff to open moretills when footfall was high.

Similarly, about 350 air-craft operated by Lufthansa,the German airline, havebeen equipped with softwarethat collects meteorologicaldata during flights. Evenwith this small number ofplanes reporting, the airlinesays it has improved itsweather forecasting accu-racy by 5-7 per cent.

“Big data does not haveto be just about retail orsales, or about socialmedia,” says Mr Buytend-ijk. “It could be about proc-ess improvement.”

For example, in 2009 aMassachusetts Institute ofTechnology study attachedsensors to pieces of rubbishdiscarded in Seattle andtracked where they went.

It discovered that somerecycling was travelling tothe other side of the US fordisposal. In one case, aprinter cartridge travelled6,152km, revealing that thecarbon footprint created bytransporting much of thewaste negated the economicbenefits of recycling it.

Companies urged to take note ofbig data’s wider social benefitsAnalytics

There are plenty ofnon­commercialuses for information,says Maija Palmer

Disease monitoring: data from mobile operator Orange isbeing used to help suffering communities in Ivory Coast Getty

Chief information officersmust feel they live in aworld in which the groundis constantly shifting undertheir feet. Their traditional

focus was on picking the technologiesthat were most likely to result inimproved internal operations. Com-pany executives bought software ifthey thought it could deliver a returnon investment – or they waited for thenext development.

So-called digital disruption – whentechnology changes so quickly itinterrupts existing business models –was something information technol-ogy suppliers inflicted on their com-petitors, not their customers.

But, in today’s frenzied environ-ment, IT leaders must not only dealwith internal transformation but alsoidentify which, if any, technologies –such as mobile, social, cloud and ana-lytic capabilities – they should beturning to.

James McQuivey, an analyst withForrester Research and author of Dig-ital Disruption: Unleashing the NextWave of Innovation, says the use ofsuch technologies will allow compa-nies to develop products and servicesthat will help them “undercut rivals,get closer to customers and disruptthe usual ways of doing business”.

Corporate information chiefs shouldplay an active – if not leading – role intheir companies’ strategies for creat-ing opportunities out of digital disrup-tion, he says.

“When I talk to a chief informationofficer, I find a clear sense that theirbusiness won’t survive the externalthreats from other disruptive busi-nesses if someone doesn’t enable it totake advantage of data and digitaltools,” he says.

“Since they are often the people intheir company who best understandthe data it holds and how it can usenew tools, there is a clear role forthem there.”

Many technology executives areheld back by old ways of thinkingabout procurement, Mr McQuiveysays. “Their job has always been tospend money in the smartest wayspossible, so they are wrapped up inthoughts of vendor management,procurement best practice andapproval processes,” he says. Thatmakes it difficult to support fast,

short, low-cost experiments in newways of doing business.

Also, many of the tools that mightunderpin the most disruptive prod-ucts and services – or at least enablecompanies to explore their possibili-ties – are now available in ways thatdo not fit traditional IT procurementmethods. Simon Orebi Gann, a formerchief information officer at BP andother companies during his 30-yearcareer, says: “Sometimes wholesaleshifts take place that so completelychange the ground rules that compa-

nies can take advantage of technolo-gies they would never have hadaccess to before.”

The proliferation of third-party datacentres, which allow companies to tapinto sophisticated IT resources with-out having to own or manage theequipment themselves, is one suchshift. “The technology and the timinghave come together in ways that rep-resent a step-change in opportunityfor businesses,” Mr Orebi Gann says.

Beyond that, hardware and softwareresources are now made available by

Time to embrace digital disruption

Management Old procurement models can delay modernisation, writes Jessica Twentyman

some suppliers on remotely hostedservers – the cloud – on a totally on-demand basis, making experimentalprototypes of services easier to modeland test at low cost.

Customers, meanwhile, are moreaccessible to companies, thanks tosmartphones and tablet computers,and are comfortable giving feedbackvia social networking sites, creatingrich sources of “big data”.

Information coming from connectedcustomers and devices increasinglycan be analysed using open-sourcesoftware running on cloud-based hard-ware, rather than costly on-site infor-mation storage and analysis systems.

But access to such tools is only partof the picture, says James Woud-huysen, professor of forecasting andinnovation at De Montfort Universityin the UK.

“There is a real danger that in allthis talk of disruption, what getsneglected is the research and develop-ment work necessary to deliver any-thing that might truly be considerednew and that really meets customers’so-called ‘needs’,” he says. “There is aprocess of searching and sieving andjudgment that needs to be conducted.”

Researchers at McKinsey, the con-sultancy, echo his view. In a studyreleased in August 2013, they foundthat while business leaders are “bull-ish on digital”, with 65 per cent of the850 senior executives surveyed sayingdigital technologies would increasetheir companies’ operating incomeover the next three years, technologi-cal challenges were considered aminor factor in the success or failureof these deployments.

Factors thought to be more impor-tant were senior management interestand attention, programme manage-ment and the compatibility of anorganisation’s structure and goals.

Such findings underscore the shiftin the responsibilities of IT leaders, asa report this year from IT researchcompany Gartner noted. “Digital tech-nologies provide a platform to achieveresults, but only if chief informationofficers adopt new roles and behav-iours to find digital value,” wrote ana-lyst Mark McDonald.

“Without change, chief informationofficers and IT consign themselves totending a garden of legacy assets andresponsibilities.”

It is unusual to come across a bookabout developing a company mobilestrategy and not be disappointed byit. Such efforts often stray eitherinto technobabble or are pepperedwith the generalities and jargon ofmanagement consultancy.

Dirk Nicol avoids both andprovides a genuinely useful manualfor executives pondering thecomplexities of enterprise mobility.This no doubt reflects his experienceas a programme director for IBM’smobile strategy and productmanagement.

The forward by Bob Suitor, a vice-president of business analytical andmathematical sciences at IBM, pointsout that a successful corporatemobile strategy is about more thanhanding out the latest smartphonesor tablets to staff, something manycompanies have yet to realise.

He also notes that, “mobile is notjust about the latest smartphone ortablet, or 3G vs 4G vs WiFi, or evenhow big your device’s app store iscompared to mine. The societalchanges being driven by thesignificant use of highlyprogrammable and interactive mobiledevices with fast connectivity areaffecting healthcare, banking, retail,mining and almost all industrieswith which we engage.”

As the author says, mobile’sopportunities are enormous – he goesso far as to say its development is amilestone in computing, of the samemagnitude as the mainframe, the PCor the internet’s commercialisation.

Mr Nicol underlines the fact thatmany companies consideringharnessing mobile’s power faceconsiderable challenges, not least theconstant flux the technology seemsto be in, while customer – andemployee – expectations are oftensky-high.

Also, and perhaps most

A handy guide torocky terrain ahead

On FT.com »Love onlineMaija Palmerassesses howmatchmakingcompanies useour informationft.com/bigdating

MOBILESTRATEGY

How YourCompany CanWin byEmbracingMobileTechnologiesby Dirk Nicol

Published byIBM Press£18.99/$29.99

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