Global Finance with E-Banking PDF

Global Finance with E-Banking 8-28-24 Introduction to Global Finance and agility, while comprehensive business planning Electronic Banking emerges as vital amid global inflation and supply...

Global Finance with E-Banking 8-28-24 Introduction to Global Finance and agility, while comprehensive business planning Electronic Banking emerges as vital amid global inflation and supply chain disturbances What is Global Finance? Global Financial System Reform – there’s a push for global financial system reform, targeting climate - Is the intricate framework that binds together change, biodiversity, and sustainable development. international financial institutions, economies, and the aim is to modernize the system to tackle these regulatory systems, orchestrating their interactions interconnected issues - Its essential functions include facilitating AI and Financial Planning – AI boosts finance, international trade and investment, managing enhancing accuracy to frequent business planning financial risks, and establishing mechanisms for amid geopolitical tensions and global economic resource collaboration shifts, fostering adaptability and accuracy - Global finance encompasses a comprehensive Global Financial Safety Net – consensus exists for system of financial institutions, economies, and crucial financial sector reforms to support growth, regulations designed to facilitate international allocated resources efficiently and mitigate future trade failures - Identified trends in global finance include cryptocurrency, open banking, ESG concerns, ISSUES IN GLOBAL FINANCE global financial system reform, AI, financial planning etc. With globalization, global finance has become more - Global finance faces challenges such as interconnected and complex for global finance unbanked population, low financial literacy, high companies and governments. Hence, some of the intermediary costs, and centralization and main issues faces are the ff: inequality - It covers exchange rates, trading, financial Unbanked population – billions of individuals regulations and investments, analyzing investment worldwide do not have access to financial services patterns, production, consumption, and trade and institutions, leaving them unbanked dynamics shaping the global economy Low Financial Literacy – global financial literacy - These activities are influenced by factors such levels remain inadequate, creating difficulties for as international trade, FDI, exchange rates, and individuals and businesses engaging in global financial markets and are impacted by international financial endeavors technological advancements, economic conditions, High Intermediary Costs and Slow Transactions – geopolitical events, and regulatory frameworks challenges like high intermediary costs and slow - Financial organizations are crucial in providing transactions impact the efficiency of global global services, facilitating capital flow, risk financial transactions management, and cross-border resource allocation through international financial markets, Climate and sustainable development challenges currency markets, stock exchanges, and bond – reforming the global financial system to tackle markets. Moreover, this has implications for the climate change, biodiversity, and sustainable balance of payments, exposing nations to risks like development entails modernizing it to address political unrest, regulatory shifts, controls over these issues foreign currencies, and uncertainty about property Centralization and inequality – the concentrated rights and investments. nature of the global financial system has led to issues like increased inequality and limited financial services access Regulation and supervision – revamping financial TRENDS USED IN GLOBAL FINANCE regulations and supervision is crucial to enable the sector to allocate resources efficiently Nowadays, emerging markets and economies are driving global finance trends; the major trends are the IMPORTANCE OF GLOBAL FINANCE following: Global Finance serves as the vital link that intertwines Open Banking and Digitization – the evolution of global economies, fostering seamless trade and financial services via open banking and investment interactions among them. Consequently, its digitalization molds global finance, enabling significance becomes evident, as outlined: streamlines, customer-centric financial engagements for the future ESG and Inflation Concerns – environmental, - Interconnectedness social, and governance (ESG) criteria and inflation - International Trade and Investment worries dominate global finance, shaping the - Complex and Dynamic Field agendas of CFOs and finance leaders and - Shaping the global economy steering their focus and strategic priorities - Financial literacy and access - Reform and resilience Geopolitical Tensions and Integrated Business Planning – increasing geopolitical tensions prompt swift economic shifts, demanding organizational Global Finance with E-Banking INTRODUCTION TO ELECTRONIC BANKING AND WHAT IS THE DIGITAL TRANSFORMATION DIGITAL TRANSFORMATION IN FINANCE PROCESS? What is digital transformation in banking and financial Establish Business Objectives – Action Item : Create a services? list of priority objectives to start and then tailor that list as the bank or financial institution leaders see fit. - Digital transformation in banking is the act of integrating digital technologies and strategies to Evaluate your current technology – Action Item : be optimize operations and enhance personalized clear about your processes. List out which processes experiences are necessary for your transformation, while also - Traditional banks are undergoing major digital considering constraints including cost and timeline. transformations in order to meet the needs of new customers and existing customers seeking a more Align scope and customer needs – Action Item : Make tailored and individualized banking experience a plan so that you are targeting consumers more likely through digital channels to use digital services. Ensure that your data is - Banks and financial institutions must take on a working for your business needs. Marketing teams can digital transformation strategy that puts customer have a much more targeted approach once these experience first by analyzing, interacting and consumers are identified and understood understanding customer needs Assess priorities – Action Item : write out your Why is digital transformation in Banking important? objectives; list out ways in which you can enable your institution to make incremental changes at first. Early - With the more recent shift toward automation, wins, even small ones, help with transformation buy-in banks, and financial service providers need to and momentum. modernize their banking strategies. The growing demand for artificial intelligence (AI), Internet of Present Business case – Action Item : prepare your Things (IoT), and blockchain are among the other presentation for key stakeholders. Be prepared to technologies banks must consider when creating a defend the transformation needs you have found and digital transformation strategy laid out. - Customers are seeking digital approaches to managing their accounts and seek personalized BENEFITS OF DIGITAL TRANSFORMATION IN product experiences, transparency, and security, BANKING all in real – time. Key drivers of the digital transformation trend stem from the use of mobile devices and the increased need for customer More customer-focused investment banking needs is through a digital transformation journey. Access new clients This journey takes customer data and uses it to Easier compliance analyze customer behavior so that more relevant Enhanced security products and services can be aligned to their More personalized banking needs KEY PLAYERS IN GLOBAL FINANCE AND KEY FACTORS DRIVING DIGITAL ELECTRONIC BANKING TRANSFORMATION Commerzbank’s Strategic Initiative for Cross- Customer Journey Border Payments Data analytics - Commerzbank aspires to process all payment Modernized infrastructure messages in Germany in this universal financial Security measures language, encompassing high-value payments Digitization and correspondent bank payments. Visa’s AI powered Fraud Prevention Solutions TECHNOLOGY USED IN FINANCIAL INSTITUTIONS Modern Treasury’s Professional Services for Payment Infrastructure For a successful digital transformation to take place, Technological Innovations Impacting Payment banks must take advantage of the latest digital Systems technology available. Application programming interfaces (APIs) Cloud computing AI and Machine Learning (ML) Internet of Things (IoT) Blockchain Global Finance with E-Banking 9-4-24 INTERNATIONAL FINANCIAL MARKETS FOREIGN EXCHANGE MARKETS AND CURRENCY DYNAMICS Systems of institutions, instruments, and practices that facilitate the transfer of capital between - The foreign exchange market (forex or FX) is a nations global decentralized market for the trading of The markets enable companies, governments, and currencies. It is the largest financial market in the other organizations to obtain financing and world, with a daily trading volume exceeding $6 manage financial risks across borders trillion STRUCTURE OF INTERNATIONAL FINANCIAL CURRENCY DYNAMICS MARKETS EXCHANGE RATES – the price of one currency in CAPITAL MARKETS - these markets involve the terms of another, which fluctuates due to various trading of long-term debt and equity securities. factors including interest rates, inflation, political They include stock markets (e.g., NYSE, London stability, and economic performance. Stock Exchange) and bond markets CURRENCY PAIRS – currencies are traded in MONEY MARKETS – Short–term debt pairs (e.g., EUR/USD), with the first currency being instruments such as treasury bills and commercial the base and the second being the quote paper, are traded in money markets. These SPOT MARKET – where currencies are traded for markets are crucial for managing short-term immediate delivery. Most forex transactions occur liquidity needs in the spot market FOREIGN EXCHANGE MARKETS – these FORWARD AND FUTURE MARKETS – these markets facilitate the exchange of currencies, markets allow participants to buy or sell currencies allowing for international trade and investment. at a set price for future delivery, helping manage Major FOREX centers include London, New York the risk of currency fluctuations and Tokyo. DERIVATIVES MARKETS – Financial derivatives FUNCTIONS such as futures, options, and swaps are traded in these markets. They are used for hedging risk or Companies engaged in international trade use speculation. forex markets to convert currencies and manage COMMODITY MARKETS – these involve the exchange rate risk trading of physical goods like oil, gold, and Traders use forex markets to speculate on agricultural products often linked to international currency movements to profit from changes in trade and investment exchange rates Traders exploit price differences in different FUNCTIONS OF INTERNATIONAL FINANCIAL markets or forms of a currency to make a profit MARKETS without risk Companies and investors use forex markets to CAPITAL ALLOCATION – international financial hedge against potential losses from adverse markets help allocate capital across borders, currency movements ensuring that resources flow to where they are most needed A European company importing goods from the United RISK MANAGEMENT – these markets offer States might use the forex market to purchase US instruments to hedge against currency risk, Dollars (USD) by selling euros (EUR) to pay its interest rate risk, and other financial risks suppliers. To protect against future currency PRICE DISCOVERY – international financial fluctuations, the company might enter into a forward markets play a key role in determining the prices contract to lock in the exchange rate. of financial instruments and commodities through the interaction of supply and demand INTERNATIONAL FINANCIAL INSTITUTIONS LIQUIDITY PROVISION – they provide liquidity by allowing investors to buy and sell financial Financial organizations that provide financial instruments, thereby facilitating investment and financial support and advice for economic consumption development activities in developing countries FACILITATION OF TRADE AND INVESTMENT – like : these markets enable international trade and - International Monetary Fund (IMF) investment by providing the necessary financing - World Bank and risk management tools - Regional Development Banks – Asian - A multinational corporation like Apple Inc. uses Development Bank international financial markets to issue bonds in different currencies to finance its global operations. It may also use derivatives markets to hedge against currency risk associated with its revenues in multiple countries Global Finance with E-Banking ROLE OF IMF Interconnectedness of Money and Financial Markets: The relationship between money and The IMF monitors the global economy and financial markets is crucial for understanding member countries’ economies to identify risks and economic dynamics. When one shifts, the other is provide policy advice often affected, highlighting their mutual influence. Provides short-term financial assistance to Impact on Inflation and Interest countries facing balance of payments problems Rates: Fluctuations in the financial markets can Offers technical assistance and training to help lead to changes in inflation and interest rates, countries build effective economic institutions which in turn affects consumer spending and investment decisions, showcasing a ripple effect ROLE OR WORLD BANK throughout the economy. Role of Financial Institutions: Banks serve Provides long-term funding for development as intermediaries, assessing borrower risk and projects in areas like infrastructure, education, and providing liquidity. This function supports health economic stability by enabling lending and saving, ultimately benefiting the economy as a whole. Focuses on reducing poverty by providing low- interest loans and grants to developing countries Investment Risk Management: By Conducts research and provides data on global diversifying their loans, banks manage risk economic issues effectively. This strategy protects depositors from losses, making banks safer than direct investment in volatile financial markets. ROLE OF ASIAN DEVELOPMENT BANK Liquidity and Asset Conversion: The concept of liquidity is vital; assets like cash and Provides loans, grants and technical assistance to savings accounts can be quickly converted to cash, promote economic development in Asia while assets like houses require time and expense Focuses on infrastructure development to support to sell, impacting financial planning. economic growth and reduce poverty in Asia Global Financial Market Variations: The Promotes environmentally sustainable growth and definition of money varies internationally, with supports projects that address climate change developing countries relying more on cash, while advanced economies incorporate various liquid In 2020, the IMF provided emergency financial assets, reflecting differing financial systems. assistance to over 80 countries to help them cope with Informed Decision-Making: A better the economic impact of the covid-19 pandemic. The understanding of financial markets and money world bank also launched a fast-track facility to provide supply empowers consumers, investors, and $160 billion in financing over 15 months to help policymakers to make informed economic countries respond to the health, social, and economic decisions, underscoring the importance of financial impacts of the pandemic. literacy. YOUTUBE VIDEO TRANSCRIPT SUMMARY: Money and the financial system are interconnected, influencing the economy, interest rates, and decision- making for various stakeholders. Highlights Financial markets connect buyers and sellers of securities. Banks link savers and borrowers, facilitating loans. Interest rates impact consumer and business decisions. Liquidity defines how easily assets can be converted to cash. Real estate is less liquid compared to cash and bank deposits. Understanding money supply aids in better economic decisions. Financial systems vary across countries, affecting definitions of money. Key Insights Global Finance with E-Banking MODULE 3 Example: BPI’s AI-powered chatbot, Bobby, assists customers with various banking tasks, enhancing Digital Banking Innovations service speed and accessibility. SDG 9: INDUSTRY, INNOVATION, 4. Biometric Authentication - With the INFRASTRUCTURE increasing need for enhanced security, biometric SDG 10: Reduced Inequality authentication—such as fingerprint scanning, facial recognition, and voice verification—has become a Digital Banking Innovations (2019-2024) critical innovation. These technologies provide a more Digital banking has undergone transformative changes secure and convenient way of accessing banking in recent years, driven by advances in technology and services compared to traditional password-based evolving customer expectations for greater methods (Wang & Liu, 2021). As part of their mobile convenience, speed, and security. Several key banking platforms, many financial institutions now innovations have reshaped the landscape of financial incorporate biometric features for seamless login services, enhancing customer experiences and experiences. operational efficiency. Below are some of the most significant developments. 5. Open Banking - Open banking allows third- 1. Mobile Banking and Apps - Mobile banking party developers to build applications and services apps have become a cornerstone of digital banking, around the financial institution, facilitating easier providing customers with 24/7 access to a wide range sharing of banking data through APIs (European of services such as balance checks, fund transfers, bill Banking Authority, 2020). This has increased payments, and loan applications. The global adoption competition and spurred innovation, allowing of mobile banking has increased significantly due to customers to manage their financial data across the convenience and accessibility it offers compared to different banks on a single platform. traditional banking methods (León & Ron, 2021). Many banking apps now offer features such as real-time Example: UnionBank of the Philippines’ API notifications, expense tracking, and integration with Marketplace allows fintech developers to integrate digital wallets, making the user experience more banking services like payments and account engaging and intuitive. management into their applications, supporting innovation in the banking ecosystem. Example: Maya Bank, formerly known as PayMaya, 6. Advanced Self-Service Capabilities During provides an extensive mobile banking app offering the COVID-19 pandemic, self-service capabilities services like money transfers, bill payments, and surged as customers sought more remote banking online shopping. It ensures a consistent and integrated solutions. Features such as remote account opening, experience across its platform, enhancing customer loan applications, and insurance purchases were satisfaction. facilitated by advanced technologies like real-time ID 2. Blockchain Technology - Blockchain verification and biometric security measures (Software technology has introduced enhanced transparency Group, 2021). and security to financial transactions. It enables decentralized, immutable transaction records, which Example: GCash, a mobile wallet service by Globe can significantly reduce fraud risks and ensure data Telecom, enables users to open accounts, transfer integrity. Blockchain is also used for cross-border money, pay bills, and invest, all within a secure and payments and smart contracts, allowing for quicker, user-friendly environment. cheaper, and more secure transactions (De Meijer, 7. Digital Transformation Strategies - Banks 2020). have increasingly focused on digital transformation to meet the evolving needs of their customers. These Example: The Philippine Digital Asset Exchange strategies include adopting cloud computing, (PDAX) is a blockchain-based platform that enables enhancing cybersecurity, and modernizing IT secure cryptocurrency trading in the Philippines, using infrastructures (IBM, 2024). blockchain to ensure transparent and safe transactions. 3. Artificial Intelligence (AI) and Machine Example: Rizal Commercial Banking Corporation Learning (ML) AI and ML have revolutionized (RCBC) modernized its operations through its banking by improving customer service, fraud DiskarTech app, which provides banking services to detection, and personalized financial the unbanked and underbanked populations, recommendations. AIpowered chatbots, such as the contributing to financial inclusion in the Philippines. Bank of the Philippine Islands' (BPI) Online Buddy (Bobby), provide 24/7 support, addressing customer queries instantly (Petrasic et al., 2019). Meanwhile, The period between 2019 and 2024 has witnessed ML algorithms analyze transaction data to identify rapid advancements in digital banking innovations, potential fraud or predict customer needs (Thomas et driven by consumer demand for convenience and al., 2023). enhanced security. Mobile banking, blockchain, AI, biometric authentication, and open banking have been transformative, improving customer experiences and Global Finance with E-Banking helping financial institutions stay competitive in a Traditional banks, accustomed to in-person digital-first world. services or call centers, are integrating AI to improve customer experiences and streamline operations. AI also supports better financial Fintech and Its Impact on Traditional Banking - decision-making through predictive analytics, Introduction Financial technology, commonly known as helping banks offer personalized services, such as fintech, has transformed the financial services industry, tailored financial products based on customer data. disrupting traditional banking systems. Fintech refers Example: Many banks now use AI-driven chatbots to to the integration of advanced technologies such as handle common customer inquiries, freeing human blockchain, artificial intelligence (AI), and mobile staff to focus on more complex tasks. Bank of applications in delivering financial services. It has America’s virtual assistant, Erica, provides insights into revolutionized how people access banking services, spending patterns and account balances, improving perform transactions, manage investments, and even customer engagement. get loans. Traditional banks, which have long relied on brick-and mortar establishments and legacy systems, Blockchain and Decentralized Finance are now compelled to adapt to the rapid pace of Blockchain technology is changing the way technological advancement to stay competitive. traditional banks handle payments, cross-border transfers, and data security. Blockchain’s decentralized nature eliminates the need for Key Areas of Fintech Impact on Traditional intermediaries like banks in financial transactions, Banking offering faster and more transparent processes. Cryptocurrencies, built on blockchain technology, Digital Payments and Mobile Banking One of have emerged as competitors to traditional the most visible impacts of fintech on traditional currencies and payment systems. Banks are now banking is the shift toward digital payments and exploring blockchain solutions to improve mobile banking services. Fintech companies offer operational efficiency and reduce fraud risk. mobile apps that allow users to make payments, Example: Some traditional banks, including JPMorgan transfer funds, and monitor their accounts from Chase, have adopted blockchain technology to anywhere at any time. Services like PayPal, improve cross-border payments and enhance security. GCash, and Venmo have streamlined financial Cryptocurrencies such as Bitcoin and Ethereum also transactions, reducing the need for physical pose challenges to traditional banking systems by branches. This trend has forced traditional banks offering decentralized alternatives for transactions. to enhance their digital offerings, leading to increased investment in mobile banking apps and Open Banking and APIs Open banking allows online banking platforms. third-party developers to access banking data and build innovative financial products and services. Example: Traditional banks such as Bank of the Through Application Programming Interfaces Philippine Islands (BPI) and Banco de Oro (BDO) have (APIs), fintech companies can securely integrate invested heavily in mobile banking apps to compete with bank systems, providing consumers with with fintech solutions by offering real-time fund better financial management tools. Open banking transfers, bill payments, and account monitoring promotes transparency and encourages capabilities. competition, enabling fintech firms to offer services that may be more user-friendly or cost-effective Peer-to-Peer (P2P) Lending and Crowdfunding than traditional banking options. Fintech platforms have also impacted traditional Example: In Europe, regulations like the Payment banks by offering alternative lending models like Services Directive 2 (PSD2) mandate open banking, peer-to-peer (P2P) lending and crowdfunding. encouraging competition and innovation. As a result, These platforms allow individuals or small banks such as HSBC have adopted open banking businesses to secure loans directly from investors strategies, offering APIs for fintech developers to without the need for a traditional banking create new services for consumers. intermediary. This disrupts the conventional loan process and enables borrowers to access funds The Challenges and Responses of Traditional faster and often at more competitive interest rates. Banks Example: Lending platforms like Funding Circle and While fintech presents numerous opportunities for Kickstarter have given individuals and small innovation, it also poses significant challenges to businesses access to funding without relying on traditional banks. Many legacy banks are burdened traditional banks, which often have more stringent with outdated infrastructure, making it difficult to adopt requirements for loan approval. new technologies swiftly. Regulatory compliance is another concern, as fintech companies often operate Artificial Intelligence (AI) and Customer with more regulatory freedom, allowing them to Service AI-powered tools such as chatbots and innovate faster than traditional banks, which are virtual assistants have enhanced customer service subject to stringent regulations. In response, traditional within fintech, allowing instant, 24/7 interaction banks are forming partnerships with fintech companies between consumers and service providers. to leverage their technology and expand their service Global Finance with E-Banking offerings. Additionally, many banks are embracing of digital transactions. By 2022, UnionBank digital transformation by modernizing their core reported that 95% of its transactions were systems and enhancing digital channels. digital, reflecting a massive shift from Fintech is driving unprecedented changes in the traditional banking. Additionally, the API banking sector, pushing traditional banks to innovate Marketplace attracted developers, resulting in and evolve. From digital payments and P2P lending to innovative banking services that further AI-driven customer service and blockchain technology, cemented UnionBank’s position as a leader in fintech has revolutionized how financial services are digital banking. delivered. To remain competitive, traditional banks must embrace digital transformation and adapt to the vi. Key Takeaway: UnionBank’s open banking fintech landscape, leveraging technology to offer more model and integration of fintech innovations convenient, secure, and personalized services. allowed it to stay ahead of competitors, Case Study 1: UnionBank of the Philippines – improve customer experience, and expand its Leading the Digital Transformation service offerings. The bank’s approach to digital transformation is a prime example of i. Background how traditional banks can innovate while UnionBank of the Philippines has been at the forefront maintaining regulatory compliance and of digital banking transformation in the country. security. Recognizing the rapid shift toward digitalization and CASE 2: Development Bank of Singapore (DBS), the need to remain competitive, UnionBank embarked based in Singapore on a comprehensive digital transformation strategy. i. Background: Development Bank of This involved modernizing its IT infrastructure, Singapore (DBS), based in Singapore, launching innovative digital products, and creating a embarked on a digital transformation in the seamless digital banking experience for its customers. mid-2010s. The goal was to fully digitize its ii. Digital Innovation services, enhance customer experiences, UnionBank's primary innovation was its API reduce operational costs, and increase (Application Programming Interface) Marketplace, efficiency. DBS invested in data analytics, which enabled the bank to collaborate with fintech artificial intelligence (AI), and cloud computing companies and other third-party developers. This open to revolutionize its operations. banking approach allowed developers to integrate ii. Innovation: DBS developed a multi-channel UnionBank's services into their apps, expanding the digital platform, integrating mobile, web, and bank’s reach and offering new financial products and ATM (Automated Teller Machine) services. AI- services to customers. Another key innovation was the powered chatbots handled customer queries, launch of UnionBank’s UBX platform, which supports and predictive analytics anticipated customer financial inclusion by connecting businesses with needs. The bank also prioritized security by financial services through digital means. incorporating biometric authentication (e.g., fingerprint and facial recognition) for secure Additionally, UnionBank invested heavily in blockchain access. Furthermore, DBS adopted open technology and was the first bank in the Philippines to banking initiatives by allowing third-party implement blockchain for internal and external integration through application programming operations. Blockchain was utilized to enhance interfaces (APIs). security, streamline processes, and offer real-time iii. Results: By 2018, DBS was named the transaction capabilities. “World’s Best Digital Bank” by Euromoney. Its Challenges and Solutions mobile app became the primary tool for over Challenge: Integrating traditional banking with cutting- 90% of transactions, reducing the need for edge technology while maintaining security and physical branches by more than 20%. This regulatory compliance. digital transformation significantly improved iii. Solution: UnionBank formed partnerships customer satisfaction and operational with fintech firms and leveraged its API efficiency. Marketplace to build a secure, flexible, and iv. Lessons Learned: Customer-Centric Design: scalable platform. The bank ensured that all Focus on ease of use and intuitive tools to third-party integrations adhered to strict improve the customer experience. security protocols and complied with the v. Agility and Innovation: Continuous system Bangko Sentral ng Pilipinas (BSP) regulations. updates and fast rollout of new features iv. Challenge: Transitioning customers from enabled DBS to stay ahead. traditional to digital banking platforms. vi. Security: Implementing biometric Solution: The bank launched a series of digital literacy authentication built customer trust while campaigns aimed at educating customers about the offering a secure and seamless banking benefits and ease of use of digital banking. The experience. introduction of the UnionBank Online app allowed vii. Solution/Takeaway: DBS’s digital customers to access their accounts, transfer funds, transformation demonstrated that traditional and pay bills from their smartphones. banks can thrive in a fintech-dominated world by focusing on innovation, customer v. Impact: UnionBank’s digital transformation experience, and security. resulted in a significant increase in the number