Innovation in Banking Technology Awards 2010

If 2009 was a time for sober reflection, 2010 has proved a time for vigorous action: this is the enduring message of The Banker's Innovation in Banking Technology Awards 2010, which this year enjoyed more than 200 submissions from a broad range of financial services organisations, including retail, commercial and investment banks, brokers, stock exchanges and clearing houses, scattered across the globe.

From Taiwan to South Africa, The Banker was afforded a privileged insight into technology deployments large and small throughout the global financial services industry.

Emergent Forces

The shifting regulatory landscape and ongoing industry concerns regarding market infrastructures and systemic risk mitigation was everywhere to be seen among this year's entries, suggesting that the industry is now responding to regulatory pressure and making major investments in improving systems, processes and operations. JPMorgan's Automated Regulatory Reporting Tool, for example, speaks to the ever-stringent nature of regulatory demands across the globe and the ongoing effort and expenditure necessary to meet them.

Eurex Clearing's win in the Innovation in Risk Management Technology category, meanwhile, testifies to the increasing pace, complexity and volatility of present-day markets, to say nothing of the now laser-like focus on cash and liquidity risk - a theme that was echoed elsewhere in this year's entries.

The winner of this year's Chair 's Choice, JPMorgan's Rehypothecation Program, for example, proved an especially prescient and important project this year, underlining the increasingly critical issue of dynamic and efficient collateral management. This theme was also highlighted by the runner-up in this year's Innovation in Clearing and Settlement Technology category, SIX x-clear's central clearing counterparty for securities lending, which should prove an important mechanism for improving risk management and liquidity in a broader marketplace that remains highly wary of counterparty risk. To this extent, there was a strong emphasis on the back office this year - and rightly so.

Retail Rally

As with previous years, however, the retail banking entries held their own and proved as plentiful and diverse as ever. Indeed, this year The Banker received a record number of entries in its highly popular Innovation in Delivery Channel Technology category, underlining the consistent hard work carried out on what is arguably the very front line of banking services.

An ongoing trend that continued in this year's category was the dominance of the emerging markets by quantity of entries, with Turkey, South Africa and Brazil impressing the judges. But it was Spain's BBVA Group - a repeat winner in The Banker's Innovation in Banking Technology Awards - which, assisted by NCR and Fujitsu, took this much-coveted prize with its revolutionary re-design of the ATM.

It was, in fact, something of a welcome surprise this year to see the humble ATM, that much-overlooked self-service channel long in need of a revamp, receiving so much attention, with two excellent projects underlining the channel's enduring importance despite the rise of online, Web 2.0 and mobile channels - all of which were also well represented.

In addition to BBVA Group's excellent re-conceptualisation of the ATM from a clunky, unattractive and user-unfriendly 'hole in the wall' to a slick, intuitive workspace, the Innovation in Eco-IT category also rewarded an ATM project. State Bank of India's remarkable roll-out of 10,000 ATMs not only directly addressed but indeed fully embraced the fundamental environmental challenges associated with expanding the banking network, rethinking every component of the self-service channel to minimise its overall carbon footprint.

Nor did the Innovation in Payments Technology Category - another keenly contested category - disappoint, with Citi's Virtual Card Account taking a new approach to the card payment, tailoring it to the demands of the corporate environment.

In these examples, new thinking was applied to existing technologies in order to drive out real business value, and it is such creative, lateral thinking and strong problem-solving skills that The Banker's Innovation in Banking Technology Awards are designed to celebrate, more so in many respects than the deployment of bleeding-edge technologies for their own sake.

Once again, The Banker would like to congratulate the winning entrants and those whose efforts have been highly rated, as well as all parties that took the time and effort to enter.

Judging panel

Michelle Price chaired the judging panel and is business editor of The Banker. In her role at The Banker, Ms Price covers a range of areas, including technology, trading and retail banking.

Damian Atkinson is the UK CIO for ING Wholesale Banking. Among other areas, he is responsible for equity and financial markets development as well as local infrastructure and market data.

PJ Di Giammarino is founder and CEO of industry IT think-tank JWG-IT Group, which provides analysis and insight on a range of market infrastructure and IT compliance issues.

Trevor LaFleche is a senior analyst for Financial Insights. Mr LaFleche's expertise ranges from capital markets messaging to core systems transformation, as well as treasury systems.

Clive Hawkins was recently appointed managing director for IT at Barclays Capital, prior to which he served as co-head of macro-IT for UBS Investment Bank and European head of equities technology at the Swiss bank.

Nick Masterson-Jones is director of IT at VocaLink, where he is in charge of all IT programmes. Previously, Mr Masterson-Jones served as deputy general manager at an investment bank in the City of London.

Michael Drexler is a senior advisor for the financial services industries at the World Economic Forum, and global head of strategy and planning, investment banking and wealth management at Barclays Capital.

Simon Barrows is the lead architect for consumer banking for Lloyds Banking Group, accountable for technology strategy and architectural governance across several of the bank's main UK retail banking businesses.

Winners at a glance

Chair's Choice and Innovation in Custody and Securities Services

Winner: JPMorgan (Worldwide Securities Services)

Project: Rehypothecation Program

Innovation in Payments Technology

Winner: Citi Global Transaction Services

Project: Virtual Card Account

Innovation in Information Security

Winner: Spanish Confederation of Savings Banks

Project: Firma Digitalizada

Highly rated: CIMB Group's Data Loss Prevention

Innovation in Cash and Treasury Technology

Winner: PrivatBank

Project: Liqpay Coin Management

Innovation in Eco-IT

Winner: State Bank of India

Project: Green ATM installation

Innovation in Delivery Channel Technology

Winner: BBVA Group

Project: ATM Transformation

Innovation in Customer Service and Marketing Technology

Winner: HSBC Merchant Services

Project: Continuous Portfolio

Highly rated: Absa Group's Mobile FICA

Innovation in Data Management Technology

Winner: JPMorgan

Project: Automated Regulatory Reporting Tool and Access Client Dashboard

Highly rated: RBS Global Banking & Markets' Operational Data Cache

Innovation in Risk Management Technology

Winner: Eurex Clearing

Project: Enhanced Risk Solution

Innovation in Clearing and Settlement Technology

Winner: Continuous Linked Settlement Group

Project: CLS Aggregation Service

Highly rated: SIX x-clear's CCP for Securities Lending

Chair's Choice and Innovation in Custody and Securities Services

Winner: JPMorgan (Worldwide Securities Services)

Project: Rehypothecation Program

Richard Anfang, chief information officer at JPMorgan Worldwide Securities Services

The process of rehypothecation allows institutions - in many cases hedge fund clients - to extract greater value from their collateral by reusing this collateral elsewhere in the market, increasing liquidity and reducing collateral costs. But the little-known practice gained a bad press in the aftermath of Lehman Brothers' collapse, as many hedge funds discovered their assets to be legally trapped within the bank's insolvent estate.

Against this backdrop, JPMorgan's forward-thinking Rehypothecation Program stood out, directly addressing market misgivings regarding the practice while simultaneously allowing the practice to be safely extended to the benefit of clients. Winner of both this year's Chair's Choice and Innovation in Custody and Securities Services, JPMorgan Rehypothecation Program supports the multi-asset class, unlimited re-use of collateral.

"We are pleased to be recognised by The Banker for our innovative client technology. It is a strategic imperative for JPMorgan and our clients that our technology has the capability to transform data into information. We invest heavily in developing our systems' technology in order to meet ever-changing business demands. This product, Rehypothecation, is an example of this strategy. On behalf of the entire Worldwide Securities Services technology organisation, we gratefully accept this award," says Richard Anfang, chief information officer at JPMorgan Worldwide Securities Services.

An allocation engine, built using IBM i-Series and Windows-based Intel platform, sits at the heart of the system, fully optimising the use of collateral by allocating that collateral according to a number of re-defined priorities and limits. A global synchronisation engine allows for pre-determined timing of allocation runs to enable global collateral re-use across time zones, allowing clients to take advantage of the full trading day. The bank's initial goal was to complete all rehypothecation runs within 30 minutes of market close, but the bank exceeded this ambition by 15 minutes. In order to minimise risk, the rehypothecation runs take place at regularly scheduled times throughout the day and during each allocation run a participant's entire portfolio is re-optimised against all their obligations, helping to maximise liquidity and ensure recalls are met.

In another important feature that directly addresses market concerns regarding the extent of collateral re-use, the system restricts the percentage of client assets that may be rehypothecated. Potential client defaults are managed by freezing all assets of the defaulting party, while clients can recall their securities that are protected in the event of a default - a critical mechanism in a time of ongoing market uncertainty. Equally as important, the system allows for comprehensive reporting, including providing data to lenders and borrowers regarding which assets have been allocated.

In this innovative and forward-thinking project, which outpaces the bank's rivals, JPMorgan has responded quickly to changing market conditions, developing a system that addresses clients' changing needs and improves client service in several different respects. "JPMorgan has developed a fully automated, unlimited re-use product that allows multiple asset types across the globe to be optimally utilised," says John Rivett, managing director for clearance and collateral management at JPMorgan. "For the first time, clients now have the right tool to fully maximise usage of their collateral inventory - especially important given today's focus on liquidity - whilst preserving the ability to move quickly and efficiently in volatile markets."

Innovation in Payments Technology

Winner: Citi Global Transaction Services

Project: Virtual Card Account

As more and more corporate purchases are made on corporate payment cards due to the low-cost, convenience and efficiency of the card payment process, a new challenge has emerged: how to leverage card solutions for larger corporate spend while maintaining high levels of security and control. In addition, however, corporate customers require robust data and reporting on such transactions to ensure ease of reconciliation, as well as the ability to integrate payment card purchases with enterprise resource planning systems and to customise transaction controls.

In 2009, Citi Global Transaction Services launched its Citi Virtual Card Account (VCA) solution to directly address these issues. The global, multi-currency virtual card solution moves the existing convenience, low-cost and efficiency of the card-based payment paradigm to a dynamic account number model. VCA generates a unique virtual card number for each transaction which is issued with real-time, customisable authorisation controls set by the user organisation regarding, for example, the value, validity, date, time, or number of transactions. When the number is used to make a purchase, the transaction flows through the authorisation and control process. Since a unique number is generated for each transaction, the reconciliation process - a common problem within corporate treasuries - is fast and easy. The VCA solution is available with local currency issuance and settlement in 25 countries.

The judges were impressed by the VCA solution, which takes the best of the corporate card model but dramatically enhances it to create the flexibility, security and control that will significantly improve the corporate procurement process. "Our global platform is continuing to help customers achieve new levels of efficiency and control while simultaneously expanding their programmes to include new, non-traditional spend categories," says Paul Horn, the global brand manager for Citi Commercial Cards with Citi Global Transaction Services. "We are honoured to receive this award. Citi's Virtual Card Account represents the collective hard work of many within the Citi Commercial Card organisation."

Innovation in Information Security

Winner: Spanish Confederation of Savings Banks

Project: Firma Digitalizada

Like most financial services organisations, Spanish savings banks have worked hard to automate the vast majority of business processes. However, some documents continue to defy automation due to the requirement for a handwritten customer signature: such documents number up to 1 billion annually across the Spanish savings banks market and must be stored, moved, and manually reviewed throughout the life of the contract.

In a bid to automate this last remaining paper-intensive process, the Spanish Confederation of Savings Banks (CECA) led an ambitious industry-wide project to digitally replace the handwritten signature through the use of dynamic signature recognition. Working in collaboration with 25 Spanish savings banks, CECA developed a solution using sign pads, provided by German supplier Softpro, which captures the image, pressure, time and location of the client signature, and creates a unique customer signature profile which is then linked with signed document content.

The striking use of authentication controls as a business enabler marked Firma Digitalizada out for this year's award: not only has it allowed the participating banks to dispense with paper but it has facilitated the transformation of front- and back-office processes and the customer experience. In addition to the far-reaching process and environmental benefits, the project has reduced the costs associated with paper handling for the Spanish savings banks by €26m annually, as well as minimising execution times and manual errors.

"The project offers an innovative hybrid approach for client authentication purposes which uniquely combines the benefits of cryptography and public key infrastructure," says Santiago Uriel Arias, CIO of CECA, who led the project. "Scanning is dead, true digital documents will dramatically transform back-office processes with huge savings."

Highly Rated: CIMB Group

Project: Data Loss Prevention

The judges were also pleased to see a growing focus on preventing data loss this year, with Malaysia's CIMB Group's excellent Data Loss Prevention project taking an unusually comprehensive approach to this ever-increasing problem, allowing the bank to detect, control and block the movement of sensitive data across its internal network in real time.

Innovation in Cash and Treasury Technology

Winner: PrivatBank

Project: Liqpay Coin Management

For years, pundits and market-watchers have hailed the death of cash as electronic payments in all their guises take over for good, but the long-awaited transition to a cashless society is still to take hold. Ukraine's PrivatBank, however, has devoted its efforts not on eliminating cash but on reducing the often expensive and risky burden of managing large volumes of coins by targeting one of the most coin-intensive parts of the payment process - providing change in a cash transaction.

The system allows PrivatBank or a merchant using PrivatBank's system at their point of sale to return the amount of change owed to the customer into an electronic transaction, with the amount due credited to the customer via their mobile phone. In this transaction, the customer's phone number acts as their bank account details meaning the customer does not need to hold an account with PrivatBank to receive the funds. Instead of providing the customer with change in coins, the cashier or shop attendant types the customer's mobile phone number and the change due into the point-of-sale system, and the customer receives a credit to their mobile number. The addition of Visa Money Transfer technology allows the customer to transfer the money received by their mobile phone onto a Visa card they hold with any bank. Users may also send the change to someone else's mobile phone number.

Liqpay Coin Management provides a much-needed bridge between the electronic and the cash-based payment. The simplicity of the solution marked out the Liqpay Coin Management project as the clear winner, providing not only a valuable service to the customer, but reducing the volume of coins managed by merchants that remains an ongoing cost of commerce.

"Every banker very well knows how hard and costly it is to work with coins. The technology of coin digitalisation not only radically reduces micro-payment fees, but it also makes working with coin change in banks and merchants cost-effective," says Alexander Dubilet, chairman of the board at PrivatBank.

Innovation in Eco-IT

Winner: State Bank of India

Project: Green ATM installation

Boasting more than 11,400 ATMs, Mumbai-headquartered State Bank of India (SBI) already had one of the largest delivery channel networks in the world at the end of 2008. But in 2009, the bank embarked upon an ambitious project to install more than 10,000 ATMs throughout India's urban, semi-urban, and vast underbanked rural hinterland in a single year.

Acutely conscious, however, of the adverse environmental impact associated with a large-scale roll-out of ATMs operating on a 24-hour basis, SBI implemented a number of sustainable measures to reduce the network's overall carbon footprint. This included reducing the carbon emissions resulting not only from the ongoing maintenance of the ATMs, many of which must be sustained by diesel-operated generator sets, but it also involved shrinking the carbon footprint associated with site preparation and construction of the ATMs too.

By replacing traditional cathode ray tube monitors with LCD screens, the bank will save 4.9 million kilowatt hours (KwH) a year, while all lighting and signage at the ATM sites use LEDs instead of compact fluorescent lamps, resulting in an annual energy saving of 14.89 million KwH. Working with ATM providers, the bank has also developed biometric operated ATMs using low-power processors, as well as machines that can be powered by solar energy. These, among other measures, have resulted in a total saving of some 48.5 million KwH a year, with added cost-savings of $5.27m.

The judges were impressed by the fundamental commitment to environmentally sustainable IT demonstrated by this project, and the comprehensive way in which the bank addressed the energy demands of the ATM network. Equally as important, however, the project was able to simultaneously satisfy business requirements to expand the bank's network and customer base, as well as promoting social inclusion. Krishna Kumar, deputy managing director of IT at SBI, says: "The bank has successfully demonstrated that innovative, sustainable solutions using green technology can lead to the realisation of twin benefits: the substantial reduction in carbon footprint with significant cost containment."

Innovation in Delivery Channel Technology

Winner: BBVA Group

Project: ABIL: ATM Transformation

For decades, self-service banking has been dominated by the ubiquitous and less than glamorous ATM. Though banking needs and ATM functions have since progressed beyond simple cash withdrawals, the fundamental design of the ATM has changed little in 40 years. Spain's BBVA Group identified an opportunity to revolutionise the ATM by creating a new design focusing on the needs of the user, rather than on the needs of the bank. Following extensive research which revealed that users require ease of use, reassurance, feedback, safety and efficiency when using the ATM, BBVA set about creating a radical new design deploying state-of-the-art, custom-developed technologies supplied by self-service specialist NCR and IT provider Fujitsu.

BBVA Group's ABIL project has repositioned the ATM, putting it at 90 degrees to the wall in order to increase the user's peripheral awareness and sense of security. The new orientation of the machine was made possible by the creation of a bespoke robotic delivery system which transports all media from the back-end safe to the front-end interface. A large touch portrait screen simulates the orientation of most banking documents and statements in paper form, and allows for large letters, numbers and buttons to improve readability.

Other features include a single slot for all transactions, and an animated rich user interface designed to improve the intuitiveness of the self-service experience. "We introduced beauty and simplicity in a category that is dominated by features and functions," says Beatriz Lara, BBVA Group's director of innovation. A close contender for the Chair's Choice Award, this brave project was strongly commended by the judges, who were deeply impressed by the way in which BBVA Group has reconceptualised and radically improved this ever-important channel.

Highly Rated: PNC Financial Services Group

Project: Virtual Wallet Student

US-based financial services group PNC determined to attract and retain a greater share of the cost-effective college student segment by creating a student-centric banking environment. PNC's Virtual Wallet Student exploits progressive internet and mobile technologies to simplify and improve the financial lives of college-aged students while teaching them critical money management skills.

Innovation in Customer Service and Marketing Technology

Winner: HSBC Merchant Services

Project: Continuous Portfolio

For merchants today, accepting card payments has become easier but in some respects more complex: electronic terminals and card acceptance devices have dramatically improved in recent years making transaction processing effortless. But the rise in card usage has also given rise to processing errors and fraudulent transactions, leading to increased requests for information from the customer's bank and in some instances chargebacks - a sale refund credited to the customer account by the merchant in question. Chargebacks are a costly, disruptive and increasingly prevalent feature of everyday commerce.

In response to requests from customers seeking assistance on chargebacks, HSBC Merchant Services implemented a new integrated chargeback system that uses a criteria-based decision process, aligned to the Card Scheme Rules regulations. The system has not only enabled the automation of between 70% and 80% of all incoming chargebacks, but can be immediately adjusted to incorporate new scheme rules and regulations. As a result of the increased automation and data processing, HSBC Merchant Services has been able to reduce the cost associated with the chargeback process.

HSBC listened to its customer base and implemented a solution that not only addressed their concerns and improved customer service, but which should serve to ensure the longevity of customer relationships.

Highly Rated: Absa Group

Project: Mobile FICA

In South Africa, Absa Group's mobile sales agents are frequently required to acquire new banking and insurance customers in rural areas devoid of bank branches - a logistical challenge that makes satisfying traditional in-branch processes lengthy and inefficient. Absa's mobile solution for the Financial Centre Intelligence Act - the country's equivalent of Know Your Customer regulation - enables the bank's sales agents to digitally capture relevant account application information at the first point of contact with clients using digital paper, a digital pen and a mobile phone. The information is transmitted via the mobile device to the central processing hub, dramatically improving the application turnaround time, boosting cross-sell rates and reducing errors.

Innovation in Data Management Technology

Winner: JPMorgan

Project: Automated Regulatory Reporting Tool and Access Client Dashboard

Regulatory reporting requirements throughout the world are growing in their rigour and complexity, and Asia's ever-stringent market supervisors are no exception. For institutions such as JPMorgan, meeting the various demands of local regulators presents a vast, resource-intensive data challenge.

In response, JPMorgan has built the Automated Regulatory Reporting Tool (ARRT) which deploys a generic and comprehensive data feeding model for the sourcing of data from front- and back-office investment bank systems. The tool, which provides reports in any language and in a range of file formats, allows the slicing and dicing of raw information received from source systems. "This platform signals a step change in our ability to satisfy regulatory reporting requirements around the globe," says Simon Cooper, head of core processing for JPMorgan Investment Bank. "With the increasing pressure to provide more transparency and more sophistication of reporting, this innovative platform could not have been delivered at a better time for us."

JPMorgan's Access Client Dashboard also caught the eye of the judges. Deploying service-oriented architecture, Access Client Dashboard aggregates snapshots of real-time data from a range of business categories, including securities lending, custody holdings, and many others, into a single delivery channel, thereby dramatically simplifying the array of data that the bank offers to its custody clients.

"Our clients rely on a vast volume of intra-day data to achieve their business goals and the JPMorgan Access Client Dashboard was created to provide easy access to consolidated information which allows our clients to track performance and optimise their decision making," says Stephanie Skolnik, client access product executive at JPMorgan Worldwide Securities Services.

Highly Rated: RBS Global Banking & Markets

Project: Operational Data Cache

Following a review of RBS GBM's application architecture, the bank determined to build a global trade warehouse to ensure comprehensive management information across GBM's varied portfolio of assets and businesses. Operational Data Cache maintains consistency of data across all business processes, reduces cost arising from redundant storage, application code and operational processes, and reduces the need for data reconciliation.

Innovation in Risk Management Technology

Winner: Eurex Clearing

Project: Enhanced Risk Solution

In today's fast-paced, increasingly complex and volatile markets, the risk management function is under more stress than ever before. Increasingly, risk managers require up-to-the-second information on trading positions and cash and collateral requirements, a capability that is still very much lacking in many financial institutions.

Eurex Clearing's Enhanced Risk Solution addresses these demands, providing a real-time risk data distribution service that allows clients to monitor changes to their risk profile when they occur, therefore optimising their intra-day risk monitoring and treasury management.

Following the migration of its internal risk monitoring to a real-time system that continuously recalculates risk data based on price changes and positions, Eurex Clearing has developed a high-frequency risk interface that offers risk management and margining data in real time across all asset classes and products where Eurex Clearing offers clearing services.

Critically, the platform also enhances clients' cash, liquidity and collateral management by providing real-time information on possible margin shortfalls and margin surpluses. As such, the system addresses the major challenge of the complex margining process head on, making the project particularly prescient at a time when collateralised trading and central multi-lateral clearing are growing increasingly relevant as critical means of risk mitigation. In this respect, the system meets the growing regulatory demand to improve market-wide system risk management more broadly, making it this year's winning entry.

"Our Enhanced Risk Solution significantly contributes to the regulators' and supervisors' goal of improving market safety and integrity by increasing transparency," says Thomas Book, a member of the Eurex Executive Board who is responsible for clearing. "Our customers will directly benefit from increased control over their own risk management and greater efficiency in their collateral management, contributing to policy-makers' goal of a safe and sound financial market structure."

Innovation in Clearing and Settlement Technology

Winner: Continuous Linked Settlement Group

Project: CLS Aggregation Service

During the past decade, the foreign exchange (FX) markets have seen a tremendous surge in activity, as hedge funds, algorithmic traders, and retail and institutional investors have entered the market and become active traders of FX as an asset class. Ticket volumes in the FX markets have increased dramatically in recent years as a result, leading to operational and capacity challenges for many banks' back offices. In particular, there has been an explosion in FX tickets with relatively small notional amounts, with such trades accounting for 80% of all trades submitted for settlement to Continuous Linked Settlement (CLS).

CLS Aggregation Service (CLSAS) has been developed as part of a joint venture with Traiana, a platform for the electronic processing of over-the-counter foreign exchange, equities, equity derivatives and futures trade, owned by inter-dealer broker ICAP.

CLSAS compresses smaller trades into single bigger tickets, before passing them to CLS for settlement. Achieving a compression ratio of more than 90%, the service has dramatically reduced participating banks' processing burdens and capacity constraints, thereby reducing post-trade processing costs. By monitoring trade flows in real time, the system also mitigates operational risk, further strengthening market infrastructure.

"This award acknowledges the commitment across CLS to constantly innovate and collaborate with the wider FX industry to deliver solutions that benefit all market participants," says Rob Close, CEO of CLS Group.

Highly Rated: SIX x-clear

Project: CCP for Securities Lending

The other close contender in this category tackles the ever-sensitive area of securities lending - a market that has been badly damaged by the collapse of Lehman Brothers, experiencing a rise in general reduction in liquidity and a consequential rise in costs. SIX x-clear, the central counterparty provider owned by financial services market infrastructure provider SIX Group, has launched the first central counterparty for the securities lending market. The judges commended the long-awaited move, which will serve to enhance securities borrowing and lending, improving market efficiency, transparency, as well as boosting market activity and wider market liquidity.