Fintech's Role in 2022

KRISHNA DIXIT | January 27, 2022 | 9 views

In 2021, financial services had another moment: fintech fundraising eclipsed all previous years. It was a breakthrough year for fintech IPOs and fintech mega M&A activity was at an all-time high. Just before the end of the year, we saw one of the largest fintech IPOs, with Nubank raising $2.6 billion (as the largest digital bank), one of the largest fintech M&As with Square acquiring Afterpay for $29 billion. It was the first ever direct listing in the UK with Wise and the first fintech/crypto direct listing with Coinbase, and multiple fintech SPACs.

1. The arms race between fintech and bank consolidation continues

More fintech mergers and acquisitions occurred in 2021 than ever before, and this trend is expected to continue. According to a report, by the third quarter of 2021, 42 fintech startups will have been unicorns.
Through M&A, we anticipate that more cash-rich fintech firms will seek new methods to expand and drive growth. We may also see more of a seismic shift when banks partner with fintechs to provide new services to their consumers that they are unable to provide on their own.

2. The battle for the customer is heating up

Financial services and products do not come in a one-size-fits-all format. What works for one person may not work for another, and the good news is that financial institutions are now getting the message.

As the internet continues to lower the barrier between consumers and retail banking, similarly as it has in many other industries, there will be a greater emphasis on digital banking solutions that are specifically customized for specific customer segments.

3. Enhanced regulatory monitoring in various areas of fintech

With the growing relevance of fintech in the lives of ordinary Americans, there will be increasing regulatory scrutiny. This, we believe, is a positive development for the sector. Many of the authorities that examine financial services firms will have new representatives in the coming months. We anticipate that this will lead to further regulation of fintechs, particularly in the emerging sectors of BNPL and crypto.

4. Every business will become a fintech

This next prediction has been in the works for several years and will only pick up steam in 2022. More financial services will be integrated into non-financial organizations, such as Uber, allowing us to pay directly through the app or tipping for your pizza delivery on the app.
Financial institutions will strive to reduce the banking and payment barriers in order to provide a more seamless experience for customers.

As a result, my prediction for 2022 is that there will be a significant shift away from things people don't know and comprehend and toward things they do know and understand. It's known as the "Great Regression.” Back to banking and away from technology.

One factor stands in the way of this viewpoint. Cryptocurrencies.
I don't see people abandoning bitcoin and ETH. Why? Perhaps they are becoming more trustworthy than the dollar and the euro. As a result, the crypto ball will keep rolling while the FinTech ball will slow.  That would be my forecast for 2022. I could be incorrect, but the bottom line is that cryptocurrencies continue to climb while FinTech ventures fall.

The next few years will see a significant decline. It all started in China, with the cancellation of Ant Group's $300 billion IPO. It is certainly happening in Europe and America right now.

What exactly is the Great Regression? It's a reversal of technological development. People are not going to reject technology. Governments and regulations are to blame.

Indeed, the fallout from Big Tech is likely to have an impact on FinTech. As governments crack down on FATBAGs, they will also be scrutinizing FinTech unicorns and their ilk. They may enjoy parts of it, but the Big Regression will occur, particularly in FinTech, as authorities demolish some of the unregulated industries that they now wish to regulate.

We've already seen P2P lending stall and, in some areas, fail. For example, Zopa has recently discontinued peer-to-peer lending. Then we see it in crowdfunding, when Kickstarter is having difficulty kicking off or starting. And we may see governments tightening their grip on everything from BNPL to cryptocurrency exchanges and bitcoin mining.

Part of this is due to the actions of governments and regulators, while part is due to the perspective of customers and users. Consider the level of confidence in Facebook. It's no surprise they've changed their name to Meta.

What key ideas do you think fintech will tackle in 2022?

Cryptocurrency is permeating all financial services.

"Is it an internet company?" was a common question twenty years ago. Nowadays, (nearly) every business is an internet business. "Is it a mobile company?" was a typical but now archaic inquiry ten years ago. Similarly, we will soon stop asking, "Is it a crypto company?" because most organizations, beginning with the financial services industry as a whole, will include a crypto component.

As cryptocurrency gains traction in users' thoughts, banking apps are including crypto items in order to increase wallet share. For example, Robinhood began with stock trading and now offers some crypto trading; certain neobanks allow consumers to earn better rates through DeFi (decentralized finance); and larger banks are still experimenting with crypto products. In 2022, new crypto infrastructure will be constructed for transfers, wallets and yield as a service, custody, and other purposes, allowing users to continue to integrate and manage their digital assets in both their fiat and crypto financial lives. We'll also see a new wave of fintech firms powered by crypto infrastructure on the back end, as well as what some refer to as “DeFi mullets” (fintech in the front, DeFi in the back).

Every healthcare organization is a fintech organization.

As previously said, fintech products enable vertical SaaS organizations to diversify into other revenue streams. We see three areas where fintech capabilities can accelerate the sector in 2022 in healthcare — a system that accounts for 20% of our nation's GDP. These include consumer payments and loans, provider practice enablement, and insurance. Healthcare payments are particularly complicated because of our country's third-party payor structure, in which providers charge for services, payors compensate, and consumers receive the service.

As a result, a generalist solution, such as Stripe, is unlikely to deliver the full set of features required to comprehensively support a medical practice, such as regulatory compliance and health plan integration. This opens the door for vertical-specific payment gateways and financing products, such as "buy now, pay later" (BNPL), to assist consumers in financing their healthcare bills and reduce the risk of bankruptcy due to unanticipated medical expenses.

On the provider side, BNPL has the ability to increase collection rates, which can be as low as 20% in some places. Emerging fintech technologies are also being developed to assist provider practices in normalizing existing business models into "per member per month" (PMPM) agreements by bearing risk, as well as adding billing capabilities for additional service lines to diversify revenue and margin streams.

Finally, the unbundling and rebundling of traditional health insurance has resulted in the development of new fintech platforms that enable the emergence of unique insurance coverage products aimed at individuals and enterprises. These firms modularize the underwriting, claims processing, provider network management, and usage management technologies that enable enterprises to manage risk across their covered populations in more agile, cost-effective, and transparent ways.

We see the potential for fintech to rewire incentives and eliminate inefficiencies in healthcare services and software, paving the way for a more value-oriented healthcare system.

Fintech strives for carbon neutrality.

Have you noticed that Google Maps' default option now steers you to the most fuel-efficient routes? Or how do billers open your account with the "paperless statements" box checked?
This form of environmentally conscious configurability is on its way to fintech. Consider a checkout experience in which switching between debit, credit, ACH, PayPal, BNPL, and all the other payment methods accessible in 2021 reveals which is the least destructive to the environment for that specific merchant. Or, even better, which includes the option for you to add $x to your purchase in order to offset the emissions of whichever route you choose.

Improvements in emissions data infrastructure and technology are making this increasingly achievable. With companies like Patch, Capture, and Wren making it easier for businesses and individuals to not just understand but also act on their carbon footprint, payment providers, neobanks, logistics organizations, and others will almost certainly embed and more will likely embed carbon offsetting optionality into their products.

However, it is yet to be seen what will inspire consumers to choose greener products or delivery systems over ones that may be more convenient. Today, green alternatives in commerce tend to be the most expensive, just as the eco-friendly route on Google Maps may be the slowest. Startups at the crossroads of climate and finance will need to devise unique incentive structures that make eco-friendly solutions not only more responsible, but also more accessible and rewarding than their legacy rivals. Consider greater APYs, lower APRs, higher returns, or fewer fees.

One of our favorite case studies in this field is Powerledger, a blockchain platform for peer-to-peer energy trading, and Carlton United Brewery, an Australian beer firm. When Carlton declared a goal of being completely powered by renewable energy by 2025, they collaborated with Powerledger to create an eco-friendly beer drinker's dream loyalty program: excess energy for kegs. Customers of Carlton's might sign up to exchange excess energy generated by their solar panels for beer delivered directly to their houses.

We've observed significant inflation in digital client acquisition channels (FB & GOOG) in recent years as competition has increased and modifications like Apple Ad Tracking have made attribution more difficult. To increase competition, the great majority of fintech firms have concentrated their efforts.

To increase competition, the great majority of fintech companies have concentrated on the same client profile (subprime), with the same product offering (e.g., banking, investing, lending), and a set of ever-increasing consumer subsidies to join (free money on the internet!). In the face of increasingly competitive and restrictive digital acquisition channels in 2022, how will a corporation differentiate itself?

We believe there are two options: the greatest companies will accomplish growth through products that lend themselves to product-led growth, or partnerships will represent non-inflationary distribution opportunities.

On the product side, today's products are becoming tomorrow's primitives; merely providing a bank or brokerage account is no longer enough to differentiate, as new APIs make it exceedingly simple to integrate the fundamental services of banking (e.g., saving, spending, lending, investing) into almost any app experience.

Instead, the products that grab the imagination of consumers will remix these primitives in new and creative ways that harness communities, crypto, and commerce. We anticipate seeing more multiplayer products driving product-led development in particular — money is inherently multi-player (means of exchange!), but financial products have primarily been single-player to date.

On the collaboration front, Credit Karma has already partnered with the Houston Rockets and Chime has partnered with the Dallas Mavericks, as well as the guideline distribution deal with Gusto and the Melio distribution deal with Intuit. Though these channels have price leverage and may raise costs over time, they represent the kind of stability and volume in both acquisition costs and acquisition supply that has been generally lacking in digital marketing channels as of late.

Companies that have historically been the best in class at direct-to-consumer marketing are increasingly looking to business development and partnerships for continuing growth, and we predict this trend to continue far into 2022.


Fintech will become more prevalent in emerging markets.

This year has seen a surge in startup activity, record funding, and notable exits in emerging markets. The Nubank IPO, in particular, was a watershed moment for Latin America and fintech globally, signifying a huge exit in Latin America and spawning a new generation of founders. The year 2022 will see increased investment and innovation in financial services throughout emerging nations.

Historically, there has been a lot of B2C fintech in emerging economies, but now we will see more B2B aiding small businesses and enterprise customers with digitizing and optimizing payments, more efficiently paying personnel, sourcing supplies, handling accounting, insuring themselves, and more.

Moreover, new modern APIs will enable businesses to make payments, access bank account information, issue cards, bridge crypto, and authenticate identification, among other things. Companies will be able to tap into contemporary infrastructure rather than manually building one-off integrations with existing banking systems, allowing them to launch new fintech products at a lower initial cost. There must be sufficient demand to warrant new infrastructure, and we are approaching the point in the ecosystem where this makes sense.

Nevertheless,  rather than looking to the United States and Europe for inspiration, developing business models will increasingly look to other emerging markets. There are a variety of business models and feature sets that are more suited to emerging markets based on existing user behavior, regulation, and level of digitization. For example, India and Latin America have seen a number of homegrown B2B marketplaces (with embedded fintech) that do not exist in the United States or Europe, in part because these marketplaces provide small businesses with access to things like credit and logistics, which are often prohibitively expensive and time-consuming to find elsewhere in emerging markets.

We've seen business models such as superapps (both consumer and enterprise-focused) and community buying platforms grow, as well as feature sets for investment apps, such as starting with funds rather than stock trading.

Entrepreneurs in these places are already interconnected, as we can see. We’ve encountered founders in Sao Paulo who are establishing small business accounting infrastructure and getting regular advise from peers in Jakarta over WhatsApp. Entrepreneurs in Lagos are looking for business model ideas for their B2B marketplaces in Karachi. COVID hastened numerous technological developments, but it has also significantly shrunk the world.

The first wave of insurance startups concentrated on bringing previously offline operations online, leaving the majority of the underwriting process intact.

With a prolonged low interest rate environment, carriers have been more willing to test new markets and strategies to find yield. That, combined with a lack of scale in the insurance start-up ecosystem compared to the rest of the market, had many capacity partners treating new entrants as test partners to learn and try to find new profitable strategies. As interest rates rise and markets harden, a renewed focus on underwriting differentiation and profitability will become a priority, potentially driving acquisitions in the gen1 insurtech world as well as new entrants focused on monetizing underwriting advantages.

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How C-Suite Executives Can Use AI to Increase ROI

Article | March 17, 2021

Marketing—even the best marketers can become victims of a faded ROI. It usually happens when you pick an incorrect marketing strategy or implement it into your marketing model. Due to this, it becomes evident that your business will witness a considerable ROI loss. What if there were efficient ways to evaluate the right marketing practices before implementing them into your business? The time has come to implement tech-based marketing practices and actions into the marketing space! In this aspect, AI in finance is integral. Banks, financial institutions, businesses, and service providers need to deploy AI at scale to remain relevant to their business module, automatically improving ROI generation. So, how can the C-suite use the power of AI in banking and finance marketing to increase or improve ROI? This article will help C-suite executives like you understand how AI can generate ROI by implementing it correctly. Why Banks Must Become AI-Enabled? McKinsey estimates that AI technologies can increase valuation by $1 trillion in global banking each year. According to a Business Insider survey, the potential cost savings and ROI for banks from AI applications will be $447 billion by 2023. AI Challenges that Coursed with Time Many banks have even struggled to scale AI across the entire marketing model beyond experimentation. This struggle was due to a lack of a strong AI strategy, fragmented data and uneven data management systems, obsolete operating models, and inflexible and investment-starved technological strategies. The Rising Scenario of AI in Banks Several digital engagement trends and technologies stood out during the pandemic. It would be wrong to disagree that businesses are now in the AI-driven digital era. This helps reduce data storage and operational costs, improved connectivity and accessibility of networks, and other rapid advances in AI for finance. Based on the benefits of artificial intelligence in business, the technology leads to better automation and risk mitigation, which can often outperform human decision-making in terms of rapidity and accuracy. This results in boosting ROI. Therefore, banks and financial businesses must become "AI-enablers” to compete and thrive. In addition, marketers should embrace AI technologies as the foundation for new and valuable plans to provide diverse customer experiences. How Can Banks Become AI-Enabled? Rethink Customer Engagement AI in banking and finance marketing will aid in the development of personalized, hyper-personalized, and intelligent products and services with new features. The marketing attributes will add more intuitive interactions and advisory capabilities. Make AI-Powered Decisions According to Accenture's Banking Technology Vision 2019 study, about 78% of bank marketers believe that AI will simplify user interfaces, letting banks provide a more personalized customer experience. This study paves the way for efficient AI-powered decisions for futuristic banks. When banks use machine-learning models to interact with each customer in real-time, they can add value in four ways: Stronger customer acquisition Reduced operating costs Reduced credit risks Higher customer retention and valuation Providing innovative financial services By enabling AI in marketing strategies, banks can reap benefits from organizing their efforts by redesigning and building highly flexible and fully automated layers of decisions around four elements: Scalable development and deployment of advanced analytics (AA) and machine learning (ML) models Augmenting AA and ML models with “edge” capabilities to reduce costs, enhance and streamline customers’ or clients’ overall experiences Leveraging AA and ML models for automation, mainly referring to personalized decisions across the customer life cycle and to target potential customers Strengthen the Integral Technology and Data Management This refers to the extraction of customer data based on their needs and requirements from various data streams to generate relevant and personalized services from a mass of unstructured data. The entire process necessitates data management, which AI excels at. Budding AI Opportunities for Increased ROI In 2019, a report by Deloitte titled “AI: Transforming the Future of Banks” highlights the massive opportunities for AI in banking and finance. It further elaborates on how AI can transform the financial services industry. The research further mentions: AI presents a plethora of opportunities for financial services organizations, who can better meet regulations, escalate their ROI, improve the customer experience by enabling personalization and leverage their growing data repositories." Jim Marous, Co-Publisher of The Financial Brand and CEO of The Digital Banking Report Let’s get some insights into the real-time budding opportunities for financial markets in terms of AI. Detection of Frauds AI systems are particularly good at evolving fraud detection methods. Marketers benefit by detecting irregularities in the whole business cycle, which improves ROI generation. Irregularities such as expenditure, pricing, investments, and others can now be detected instantly with the help of AI. Trading Decisions Traders worldwide are experiencing a new trading landscape where AI-based trading decisions have become even more accessible. AI's ability to detect the most recent trading trends and market status based on relevant data is becoming the benchmark. Using AI, traders can now create advanced portfolios and gain insights for various types of investors based on their risk tolerance, developing markets, and investment valuations. With the addition of AI, all of these lead to effective decision-making while trading, boosting ROI. Smooth Customer Identification Financial organizations such as Capital One and U.S. Bank are leveraging AI in their operations to identify their customers and provide their services worldwide. AI can facilitate customer identification and authentication. This will automatically strengthen customer relationships, and marketers can provide personalized services. But how? The answer is by using ML algorithms. ML algorithms in AI monitor user behavior and derive valuable insights based on customer search patterns. These insights would aid bank service providers in providing personalized recommendations to customers, which would boost engagement and reflect on the ROI. Lowering Costs and Increasing Revenue According to Infosys, the leading opportunity for AI is in automating the frontline. The benefits of artificial intelligence in business are automated engaging with customers and significant cost savings." Virtual assistants for customers and back-office robotics will become an integral part of the operational systems of future banking. AI in Banking: Organizing a Successful Future You can’t deny that every change or revolution brings challenges with it. While some businesses still strive to implement AI in banking and financial services, they must look beyond the hype and consider practical applications of AI to increase revenue and create a cohesive and productive business. The growing use of AI promises to impact the finance and banking industry long-term. AI in finance is making significant strides in implementation and adoption, which can accomplish more efficiently than legacy systems. Frequently Asked Questions What is the future of AI in banks? In the future, AI will enable banking operations through alternative interfaces such as voice, gestures, neuro, VR, and AR. Incorporating these banking solutions will bring a new change and a whole new service landscape for customers globally. Why do banks need AI? AI necessitates streamlining banking operations to keep up with the fast pace of other businesses, especially in the aftermath of a pandemic. The transformation is required to boost ROI, provide greater levels of business valuation, reduce risks and remain competitive. Is AI going to help the finance industry in the future? The benefits of AI in the finance industry are promising. In most cases, it has increased business profits through efficient customer targeting, automation of repetitive tasks and processes, and faster services to end-users.

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FINTECH

How CFOs Can Reduce Hefty Business Costs

Article | December 8, 2021

“Blockchain has remarkable potential for financial institutions, changing and releasing novel abilities to transform financial institutions and banks to interact and collaborate with customers.” - Max Di Gregorio, Financial Head of PwC, Middle East The potential of blockchain has piqued the interest of the financial sector in particular. Its distinct functionalities have enabled financial institutions to operate more promptly and inexpensively—reducing their error rate, lowering their capital requirements, and at the most, their vulnerability to cyber-attacks. A survey by Gartner of 251 CFOs and other finance leaders in November 2021 revealed that 47% of businesses were ready to assess blockchain technology in 2022. An interesting study by Santander FinTech reveals that distributed ledger technology (blockchain services) can reduce costs by approximately $15 billion to $20 billion per annum by 2022, primarily by reducing IT costs. Businesses looking for ways to cut costs must understand the core mechanisms of blockchain to encourage the next generation of financial innovations. Blockchain Driving Value in Financial Services The current enthusiasm for blockchain and the subsequent years of rapid development have provided the finance industry with opportunities to reflect on its successful operations worldwide. Moreover, blockchain has also provided banks with the ability to identify viable and valuable developments in the widespread and growing financial services landscape. Let’s identify some areas in which blockchain technology is revolutionizing banking services: Claim Management The benefits of blockchain technology are mostly reducing, not eliminating, fraud in claim management. Also, blockchain is highly recommended for storing historical claims data on the ledger technology. This enables insurers to detect suspicious activity and improve fraud detection easily. Claim management data controlled under blockchain technology is registered and administered by smart contacts in a particular network. The potential areas of claim management to benefit from blockchain services are: Interpreting incidents claimed in banks Soliciting excessive claims cover Uncovering the process of delayed pay-out Diminished profitability from excessive or lower pay-outs Due to these unfortunate instances in the claim management process, the FBI studies that over 700 insurance companies in the U.S. receive over $1 trillion annually in premiums. The estimate of the total cost of insurance falls under the heading of fraud, valued at more than $40 billion annually. This indicates how critical it is to promptly develop an intellectual capacity to recognize fraud in the banking system. Financial Institutions Blockchain in financial services eliminates untrusted parties in financial institutions and banks. Based on its efficient database, it has removed the status of a middleman. At the same time, blockchain facilitates the use of “smart contracts,” which are self-executing contact systems for automating manual processes. The technology covers everything from compiling claim data to providing relevant claims to customers. In this way, businesses can reduce the costs of manual processes that require multiple employees, assets, and infrastructural needs. Apart from this, blockchain in finance has massive opportunities by transforming some of the essential traditional services of banks, including: Legal Management and Regulatory Reporting With blockchain, data accumulation can be stored and protected simultaneously while removing asynchronous reporting cycles across regulatory, statutory, and management reporting. Fundraising A blockchain-based initial coin offering (ICO) has garnered popularity as a new financing model in fundraising. In this model, smart contacts are generated, which results in reduced costs that stay in demand and encourage non-stop trading globally. Trade Finance Blockchain technology has simplified trading by storing transaction-related documents in a database. As a result, it eliminates the need for multiple copies of documents, plummeting operational costs to a bare minimum. The technology consolidates all data into a single sizeable digital document that can be modernized in real-time and accessed by all network users. Ornua, an Irish dairy product manufacturer, partnered with Barclays to accomplish the world's first blockchain and banking trade transaction in 2019. Similarly, IBM and Maersk teamed up in 2020 to develop the first cross-border, blockchain-based supply chain system. Digitalized Assets Digital assets can be distributed more quickly than paper-based or physical assets. Their electronic format assists in streamlining the transaction process and reducing administrative and physical storage costs. Digitized assets such as stocks, shares, and funds can be managed end-to-end on a blockchain or existing systems through application programming interfaces (API). Keeping digital assets reduces substantial business costs and allows CFOs to invest in other costs to improve business ROI. Where does Blockchain Fit in Finance? According to a recent Deloitte 2020 Global Blockchain Survey, 84% of financial experts responded that blockchain will eventually reach mainstream adoption in the finance sector by 2023. However, other financial experts also mentioned that 29% of businesses are still skeptical of blockchain implementation. They are considering a “wait and see” strategy. According to them, blockchain services are not among the top five strategic priorities for their businesses. At the same time, 21% of businesses are clueless about where to begin with blockchain technology implementation in their businesses. Therefore, CFOs should consider implementing blockchain services that will provide a better understanding of the technology. They can then identify and prioritize the financial pain points that the technology can potentially address. To begin with, here are some ways to better understand blockchain usage. Radical Transformation Blockchain mainly benefits financial businesses in terms of crowdfunding projects and security generation. With built-in authentication keys and distributed networks, blockchain addresses some of the most critical vulnerabilities in the IT infrastructure of banks today. This mostly refers to the centralized systems that prevent hackers from hacking and controlling a bank's network. Facilitating Faster and More Affordable Transactions Internationally Ripple, a blockchain services company provider, is the most notable player operating in international transactions. Even so, the company is best known for its cryptocurrency platform because it uses blockchain-based global solutions for affordable money transactions. The centralized blockchain network enables the transaction process seamlessly, popularly using SWIFT mode. That means, instead of relying on a network of complicated services and correspondent banks, international transactions can be settled directly on a public blockchain. Again, this helps alleviate the high cost of maintaining a global network of correspondent banks. “SMBC lately initiated live transactions on the Marco Polo platform in Japan with major Japanese exporters. We hope to provide effective blockchain-based finance solutions to our customers globally by collaborating with Marco Polo Network.” - Mr. Kazuo Yoshimura, Managing Director & General Manager, Global Trade Finance Department In a nutshell, blockchain has the potential to revolutionize the finance function. It will provide CFOs with the tools and capabilities necessary to become key business partners in the strategic planning process while running a highly efficient and trustworthy operation. Frequently Asked Question Why is blockchain essential in finance? Blockchain technology provides better capital optimization by reducing high operational costs. When banks share a blockchain, the entire functionality of the banking system reduces the initial individual costs required for managing transactions at a bank. What is blockchain used for in banks? Blockchain in banks is used for both public and private networks. It can be implemented in the financial cores by adding new services, transactions, accounting, and other features. It allows customers to do faster, more secure, and cost-effective transactions. How does blockchain benefit banking and financial systems? Blockchain technology improves payment transparency, trust, efficiency, and security and reduces costs for financial services firms and users. Now, payments from one bank to another can be made instantly.

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FINTECH

Operational Risks in Banks: Effective Strategies to Create a Secure Framework

Article | May 16, 2022

Risk events in the banking sector and financial institutions can trigger huge losses. Risk events can be managerial, technological, security, and operational. With these operational hazards, the need for protection rises in banks simultaneously. Banks need to function seamlessly, faster, and more accurately in such circumstances. According to a report by Barclays, prominent banks worldwide have suffered nearly $210 billion in losses from operational risk from 2011 to 2019. Most of these losses were caused by unavoidable errors made by employees and systems when interacting with clients, transactional flaws, and fraud. Since the global financial crisis, including the pandemic, banks and other financial institutions have become highly observant of their efficient risk management needs. As a result, banks can use techniques to anticipate and fix risk events before or at the right time. However, some strategic risks or challenges still prevail. Let’s understand what those are first! Strategic Challenges in ORM Risk management in banks and financial institutions has always been a complex function. Out of which strategic risks are mostly recorded. What are the most prominent strategic risks that banks usually suffer from? Large & Complex Data Processing The processing of large and complex data risks puts banks under pressure to monitor exponentially. Most banks still face the challenge of collating extensive customer data, data inputs, processing, and unreliable and dysfunctional tools, which results in the loss of potential clients and fees. Inefficient Risk Identification Parameters Most banks do not have risk management tools like KRIs, KCIs, and KPIs. As a result, they are inefficient and do not have a holistic view of the data, which leads to inappropriate risk identification. Further, most banks also do not have consistent risk management protocols across their business, which poses a significant risk to the operational infrastructure of those banks. Loss of Data Management Loss of data is also an essential risk that banks face several times. Data management is an integral part of the banking operation, which means it needs core risk management strategies to keep it secure. Data management includes several functions, but the most essential is maintaining data records securely. This is one of the prime risks that banks, even today, keep a close eye on. The Current State While banks have been aware of operational risks, they need to be prompt in adapting risk management capabilities and tools to eradicate the complexities and introduce smoothness in the workflow. Currently, banks have developed taxonomies on risk-identification and risk-assessment processes, extensive controls through cloud support, and cyber and control-testing procedures. While the banking industry practically succeeded in reducing the industry-wide regulatory system, there are now fewer losses from operational risks in banks. "In financial services, if you want to be the best in the industry, you first have to be the best in risk management. It's the foundation for every other measure of success. There's almost no room for error." John Stumpf, chairman and CEO of Wells Fargo Integration of ORM Strategies Evaluate Risk Profile Every financial institution and bank should assess their risk profile to reduce operational risks and improve information security. It should also evaluate the resilience of its business processes, map them to associated risks and controls, and build a database of potential operational risk events. To facilitate this under operational risk management, deploy analytics into the process and evaluate potential threats at a particular time. In this way, banks can minimize risk factors in the future. Introduce Risk Indicators Most banks examine their sales-operating models meticulously because of regulatory concerns about sales practices, such as product features, incentives, sales procedures, frontline-management routines, and customer-complaint processes. Risk management in the banking sector can now be possible as banks can enhance their operational risk coverage with the help of the ‘three lines of defense” model. This model is widely used to define and manage operational risks. It is a solution framework that functions at a granular level to help identify and control risks. The target framework should include sources of risk that most banks lack, such as: A clear definition of accountability at each level of the risk plan Established levels of communication and feedback from various levels of management Uniform monitoring of all potential risk exposure sources, such as portfolio management, employee tracking, or even disaster management The key objective for banks is to move beyond legal risks and focus on all business processes to ensure they are covered fully for the future. Initiate Training for Employees Employees play an integral role in managing operations in banks and financial institutions. Therefore, to ensure the effectiveness of the same, employees can be given training on operational risk management programs and functions of management programs to make them aware of the potential risks and ways to overcome them. This is extremely important for those banks and financial institutions looking to launch a new customer interface, roll out new products or services, or adapt new business processes with technology implementation. Asset Management Asset management is one of the essential parts of operational risk management in banks and financial institutions. So, for asset management, bank managers should be concerned about two major things—the role of asset management and how to develop a good plan for managing assets. Asset management identifies and manages risks that arise when certain assets are used. To exclude risks in bank operations, a fundamental strategic asset management plan will include the following six phases: Acquisitions (including leases or rentals) Operations Maintenance Funding Risk assessment and management After these phases have been covered, banks must count their assets. Here is the following inventory of assets that need to be included. They are: Total count of assets Allocated assets The value of each asset Details of acquired assets The expected life cycles of the assets Banks can easily implement a robust risk management plan for future safety by accessing all of them. A Comprehensive Approach to ORM Banks taking a comprehensive approach toward building an ORM (operational risk management) framework can bolster business growth rapidly. The first step to creating a productive ORM capability is to access the existing risk potential in banks. This would help banks create a base out of all internal and external risk events. Then, to deal with the different types of risks, the development of key risk indicators (KRI) will serve as early warning signals to potential risks. Once the banks successfully identify it, they can decide on mitigation options. Next, the question arises, how can financial businesses and institutions establish a robust ORM for risk management in the banking sector? The key to establishing an effective ORM is training employees to anticipate future risks, especially during the launch of products, changes in customer interface, outsourcing services, or shifting the core of a business module. As banks and other financial institutions have embraced agile work modes, ORM experts have become an integral part of the operation. Like, JPMorgan Chase, ORM lies at the heart of all its processes. It is where the bank develops and tests new business offerings and practices to check the potential risks in the following. In addition, other U.S. banks have built a dedicated cyber-risk team that simulates attacks and takes action to prevent potential operational risks. However, identifying and alleviating operational risk is a significant and crucial task that needs to be left only to the ORM experts. A Move Forward with the Operational Risk Management Framework The components of risk management in banks examined above have proved beneficial for the operational risk management function. Operational risk management in the banking sector should ensure that an institution's operational risk framework is reliably implemented and performs well. The institution should ensure that the framework provides thorough coverage across the various operational risk event types and conduct ongoing support for individual components and the overall operational risk framework. Businesses and financial institutions should leverage the operational risk management framework as part of a broader effort to improve sustainability, including estimation of forecasting efforts. Therefore, the operational-risk discipline can create a more secure and profitable institution in the future. "The art of banking is always to balance the risk to run with the reward of a profit” Jamie Dimon, chairman and CEO of JPMorgan Chase Frequently Asked Question What are the most prominent operational risks in banks? Process risk, systems risk, external event risk, and legal and compliance risks are the significant operational risks in banks. What is the primary function of operational risk management? The primary function of operational risk management is to reduce risks through risk identification, measurement and mitigation, risk assessment, monitoring and reporting. How to identify operational risks in banks? Banks must assess and manage operational risk using various tools and strategies. Banks identify potential operational risks in the following ways: Business disruptions and systems failures Accounting or data entry errors Inaccurate client records

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How Can Banks Use Hyper-Personalization as a Strategy to Drive Growth?

Article | April 29, 2022

Digitalization is a high-priority initiative that has uplifted the banking industry by exploring new profitable areas. However, the strategies for becoming digital must rely on efforts to focus on making a bank’s administration and internal operations more efficient. Digitalization refers to a wide range of tools that can create personalized and hyper-personalized experiences for people. How Banks Have Evolved with Technology Implementation The banking industry has been consistently embracing technological advancements. Since 2020, banks globally are making heavy investments in digitalization and are focusing on efficient banking operations. With the help of digitalization, the banking and financial sectors are going through a paradigm shift and are progressively offering personal touches to their operations, services, and products. Most banks now offer digital features that allow customers to conduct basic banking activities remotely using a browser or a mobile app. This development has resulted in less traffic at bank branches and has assisted banks in optimizing costs and capital expenditures fairly. Hyper-personalization in banking is becoming increasingly important. As a result, the use of technology in banks has equally surged, mainly in operations and customer services. Hyper-personalization has become an essential part of banks and other financial services providers. With this, banks are now focusing on core customer experiences to provide unique services to their customers. Today, new-age customers need hyper-personalization in banking. In 2020 ‘The Future of Retail Banking,’ A Deloitte report has stressed that hyper-personalization is crucial for banks and enables them to respond to customers’ basic needs. While this approach is widely accepted in the banking system, let’s understand a brief difference between hyper-personalization and personalization and which method is more enticing to customers. Personalization vs. Hyper-Personalization Personalization focuses on promoting a customer’s name, location, purchase history, buying behavior, and others. The most common example is including the first name of a customer in an email or promotion asset. The hyper-personalization approach uses a customer’s browsing habits and then reveals real-time behavioral data to determine customer needs. The entire activity builds contextualized communication and encourages more incredible conversions driven by AI and aligned data. For example, they send push notifications to customers, adding high-engagement sections on the website—chatbots. Therefore, it is evident that personalization banking will be further enhanced and become more personal with hyper-personalization. According to a study by Deloitte, banks are ready to embrace digital opportunities, which would be advantageous for over a trillion dollars. The movement will continue until 2025 and beyond. Growing Expectations from Customers Since 2020, banks worldwide have been striving to improve their customer experience and business operations. The digital transformation of the banking sector has changed consumer banking trends. This gives rise to one of the main concerns — what are the top priorities for customers regarding banking services? According to a survey by Wipro, 80% of customers expect their banks to provide upgraded services with improved products and easily accessible apps and websites. At the same time, 20% of customers hope banks have valuable services to benefit them. In addition, 5% of them expect improved communication channels for distributing products and services. On the other hand, according to a recent Salesforce survey, two-thirds of today's customers expect their banks to understand their unique needs and expectations. Moreover, up until 2021, 52% of customers found hyper-personalized offerings from their banks. Therefore, banks must extensively use customer data to anticipate customers’ banking needs. Gartner estimated that approximately 48% of customers want value-added services, making hyper-personalization engagements of strategic relevance. This was followed by personalization in banking with products and services. When it comes to using hyper-personalization in banking, Capital One, a U.S.-based company, stands out. It is one of the finest examples of digital marketing. It usually sends notifications to clients, assists them with simple tasks, sends new offers, and efficiently manages personal finances. In addition, they are currently using geolocation technology by partnering with several retailers. With this, they can reach customers and provide them with purchasing offers. The Marketers’ Complications What were the practical problems or challenges for marketers approaching their customers right away? Markets face several roadblocks to achieving the desired level of personalized customer engagement. Some of these challenges include: Profile: Marketers usually face challenges in categorizing, compiling, and saving online and offline customers’ data. Identity: Marketers must deal with the fragmentation of customers' identities and how they see them across devices and channels. Relevant Communication: Marketers often fail to reach people at scale across different channels with relevant information. Measurement: Marketers often complicate the accuracy of measuring customer behavior, buying habits, and needs. Therefore, marketers need to sort out these parameters and then proceed strategically to deliver hyper-personalized engagement to customers. Now let’s find out how to do it. Solutions Emerging technologies, mainly AI, data analysis, automation, and blockchain, give an insight into customers’ needs, behavior, and activities like transactions, money transfers, deposits, availing insurance, and other banking activities. Marketers can leverage these technologies, crack code, use hyper-personalization in strategies, and work to meet customers’ needs. There are a series of interconnected strategies following technology in banking that will enhance the use of hyper-personalization in banking in the future. It will enable customers' digital requirements according to products and services and identify intent-based customers in the banking system. Series of Interconnected Strategies Customer Segmentation Having an accurate identification of customer profiles and details determines how to proceed with hyper-personalization. First, you must build a digital identity solution that links customer data across devices and locations. After this, study and get profound customer insights with the help of a third-party customer database to obtain accurate customer information such as: Demographics Online and offline purchases Digital consumption Online interactions Cross-device information according to the usage of personal devices By identifying these parameters, marketers can effortlessly create a community for their highly engaged customers. In this way, marketers can include value-proof hyper-personalization methods to reach out to customers and fulfil their expectations in banking. Lead Generation & Nurturing For lead generation and nurturing, marketers should activate paid search, paid/owned social media, and affiliate sites using intelligent and real-time customer data. This will help understand the effectiveness of the platforms in generating potential leads and nurturing them in the best ways. A Data-Driven Path Banks using customer data can monetize it by differentiating between actionable and non-actionable customers. Even so, they can conduct data-driven optimization (DDO), a measurable approach when banks interact with their customers. This approach includes monetizing and identifying customers’ behavior patterns and optimizing their decision-making processes faster and more accurately. In addition, data-driven optimizations range in different types and sizes—for example, new features, CTAs, pricing, page flow, navigation, and templates. With the help of these, marketers can get a lot of data and use hyper-personalization strategies accordingly. A Hybrid Environment Given the current situation, banks should prioritize intelligence by implementing a security-rich hybrid cloud for their hyper-personalization in their banking processes. With this in place, banks can efficiently, inexpensively, and rapidly deliver hyper-personalized services to customers under a hybrid setup. For this, banks should have a robust data analytic infrastructure that can filter the most operational customer data. Prominent Examples of Hyper-Personalization in Banking American Express Sends Videos to Increase Engagement American Express’s business model includes hyper-personalization of its customers globally. We’re delegating much deeper hyper-personalization at a company level.” Harry Mole, Director of Marketing at American Express American Express demonstrates its commitment to hyper-personalization by creating videos for its customers. For example, it makes videos accompanying a customer's monthly credit card statements. The video helps customers explore and learn new ways of managing their credit shares. It also helps them learn about account creation for new customers, share financial tips and tricks, and introduce new rewards. These activities further help consumers maximize the benefits of their American Express account. Since using a hyper-personalization strategy, American Express has seen a threefold increase in marketing conversations and a considerable decrease in the cost of acquiring new customers. Edward Jones Uses Personalization to Increase App Downloads Edward Jones, a financial services firm, offers a mobile app that allows customers to easily access their accounts and investment options. The app effectively conveys the benefits of security and convenience and is equally friendly. Edward Jones initiated an email campaign to encourage customers to download and engage with the entire app. It added a messaging section for app users and highlighted services such as tracking investments, depositing checks, transferring funds, and more without visiting a branch. Frequently Asked Question What do customers expect from their bank? Customers need assistance and want their needs to be understood by their banks. They do not prefer a generic approach to services. They prefer a more customized and solution-driven approach. How is the hyper-personalization approach implemented in banks? Hyper-personalization in banks can be implemented in the following ways: Compile essential customer data and utilize it to create strategies Create hyper-personalized content according to the customer base Distribute the content across channels to reach customers Why is personalization important in banking? According to a study by Gartner, 67% of customers are unaware of the services and products their banks offer. So, with the help of personalization, they can easily connect to banks’ offers, benefits, and services. This is where personalization comes into play.

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Spotlight

Dalmia Securities Private Limited

With four decades of expertise in the Indian Capital Markets, Dalmia Group is today a significant player in the financial services industry, encompassing equities, derivatives, commodities, currency, insurance, merchant banking, portfolio management, wealth management, financial planning, real estate and private equity investments.

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Fintech Firm Sila Chosen as Preferred Partner for ACH Enablement and Payments by Nacha

Nacha | June 08, 2022

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Security Bank Accelerates Modernization of Core System’s APIs with OpenLegacy

Security Bank | July 05, 2022

OpenLegacy, provider of the industry’s most advanced legacy integration solution, today announced the results of its digital modernization project with Security Bank, a leading domestic universal bank in the Philippines. The modernization program, which began in late 2020, reduced time to deployment by one third, with OpenLegacy’s team averaging a complete integration every three days. A traditional modernization route can take up to one month per API, taxing internal developers and raising costs. With OpenLegacy, Security Bank can offer digital services to market quickly and affordably, driving customer satisfaction, cutting costs, and realizing greater value of its existing mainframe investment. “We needed to accelerate the digital transformation of our services to stay competitive. OpenLegacy modernized integration points of various mission-critical internal systems quickly to ensure our customers get the modern, digital-first experience they’ve come to expect, Our partnership with leading technology providers such as OpenLegacy, brings us closer to achieving our vision to be the most customer-centric bank in the Philippines.” -Ric Torres, Chief Technology Officer at Security Bank Corporation. OpenLegacy empowered Security Bank to efficiently build new digital services and generate business-level APIs with the ease of cloud, said Joseph Wong, General Manager, APAC and Japan at OpenLegacy. We are excited to continue to help them unlock core system data in a streamlined fashion. About OpenLegacy- OpenLegacy offers a cloud-first legacy modernization platform. OpenLegacy Hub delivers high ROI with a simple, disruption-free, method to generate, extend and manage digital services from legacy systems to the cloud. Jumpstart and optimize your modernization journey and follow it through, no matter the chosen strategy: modernizing in place (hybrid), rehosting/replatforming or even replacing and rewriting the entire application. Each can be simplified and automated to perfect the process drastically eliminating complexity, time, cost, and risk. OpenLegacy’s robust modernization platform is designed to address the painful challenges of complexity, unique skills, and mission-critical stability that core legacy systems (such as mainframe) present in the cloud journey. OpenLegacy is used by many of the world’s leading enterprises, including Citi, Scotiabank, Liberty Mutual, DBS, and Standard Chartered, to name a few. Visit openlegacy.com. About Security Bank- Security Bank is a private domestic universal bank in the Philippines with total assets of PHP700 billion as of December 31, 2021. Established in 1951, Security Bank currently has a total of 316 branches and 663 ATMs. Security Bank’s major citations in 2021 include: Philippines’ Best Bank by Euromoney; Best for High Net Worth Clients (HNW) in the Philippines by Asiamoney; Best Retail Bank in the Philippines by Alpha Southeast Asia; and Best Culture of Learning and Diversity Champion by LinkedIn Talent Awards.

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Future Family Announces 0% Interest Rate Financing For Fertility Treatments

Future Family, CCRM Fertility | July 06, 2022

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Fintech Firm Sila Chosen as Preferred Partner for ACH Enablement and Payments by Nacha

Nacha | June 08, 2022

U.S.’s premier ACH network, Nacha, has announced the selection of Sila, an emerging fintech firm, as its preferred ACH Enablement and Payments partner. Following the announcement, Sila will be part of an elite network of innovation experts recognized by Nacha for delivering solutions that promote the ACH Network and meet Nacha’s core strategies. Nacha's Preferred Partners play a role in advancing the ACH Network to continue to deliver payments safely and quickly. Today, we welcome Sila as our newest Preferred Partner for ACH Enablement and Payments and are looking forward to working with them and other Nacha Preferred Partners to strengthen and grow the ACH Network." Jane Larimer, Nacha President and CEO Sila offers a set of application programming interface or APIs, that enable a seamless exchange of money between banking institutions and digital wallets. It helps accelerate the go-to-market duration for customers. Silla also offers an integration for blockchain wallets on request. The platform wass designed keeping in mind organizations and companies that require integration with the banking system of the United States, blockchain, and payment rails. Sila is honored to be a Nacha Preferred Partner. We have helped many customers leverage the ACH Network as they build their business. Their feedback has led us to build innovative products on top of ACH, such as our instant ACH product that combines risk management and fraud detection with instant funds availability." Shamir Karkal, CEO of Sila Inc.

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CORE BANKING

Security Bank Accelerates Modernization of Core System’s APIs with OpenLegacy

Security Bank | July 05, 2022

OpenLegacy, provider of the industry’s most advanced legacy integration solution, today announced the results of its digital modernization project with Security Bank, a leading domestic universal bank in the Philippines. The modernization program, which began in late 2020, reduced time to deployment by one third, with OpenLegacy’s team averaging a complete integration every three days. A traditional modernization route can take up to one month per API, taxing internal developers and raising costs. With OpenLegacy, Security Bank can offer digital services to market quickly and affordably, driving customer satisfaction, cutting costs, and realizing greater value of its existing mainframe investment. “We needed to accelerate the digital transformation of our services to stay competitive. OpenLegacy modernized integration points of various mission-critical internal systems quickly to ensure our customers get the modern, digital-first experience they’ve come to expect, Our partnership with leading technology providers such as OpenLegacy, brings us closer to achieving our vision to be the most customer-centric bank in the Philippines.” -Ric Torres, Chief Technology Officer at Security Bank Corporation. OpenLegacy empowered Security Bank to efficiently build new digital services and generate business-level APIs with the ease of cloud, said Joseph Wong, General Manager, APAC and Japan at OpenLegacy. We are excited to continue to help them unlock core system data in a streamlined fashion. About OpenLegacy- OpenLegacy offers a cloud-first legacy modernization platform. OpenLegacy Hub delivers high ROI with a simple, disruption-free, method to generate, extend and manage digital services from legacy systems to the cloud. Jumpstart and optimize your modernization journey and follow it through, no matter the chosen strategy: modernizing in place (hybrid), rehosting/replatforming or even replacing and rewriting the entire application. Each can be simplified and automated to perfect the process drastically eliminating complexity, time, cost, and risk. OpenLegacy’s robust modernization platform is designed to address the painful challenges of complexity, unique skills, and mission-critical stability that core legacy systems (such as mainframe) present in the cloud journey. OpenLegacy is used by many of the world’s leading enterprises, including Citi, Scotiabank, Liberty Mutual, DBS, and Standard Chartered, to name a few. Visit openlegacy.com. About Security Bank- Security Bank is a private domestic universal bank in the Philippines with total assets of PHP700 billion as of December 31, 2021. Established in 1951, Security Bank currently has a total of 316 branches and 663 ATMs. Security Bank’s major citations in 2021 include: Philippines’ Best Bank by Euromoney; Best for High Net Worth Clients (HNW) in the Philippines by Asiamoney; Best Retail Bank in the Philippines by Alpha Southeast Asia; and Best Culture of Learning and Diversity Champion by LinkedIn Talent Awards.

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Future Family Announces 0% Interest Rate Financing For Fertility Treatments

Future Family, CCRM Fertility | July 06, 2022

Today, Future Family, the only fertility finance platform to pair a modern fintech experience with client care and wellness support, announced that it will add a 0% interest rate fertility financing program to its offerings. This first-of-its-kind plan enables prospective parents to pay for high-cost fertility treatments with no additional interest for up to 12 months. This is a game-changing alternative to large upfront payments or high-interest rate credit cards. Future Family is kicking off the program in partnership with CCRM Fertility, the global pioneer in fertility science, research, and treatment. Financing is the smartest way to pay for fertility treatment and Future Family’s 0% interest plan allows eligible patients to pay the same amount as a cash purchase, but with the flexibility of spreading payments out over time. Future Family is the best fertility partner for prospective parents, especially when compared to credit cards, which are used by just over 85% of patients, have average interest rates over 15%, and credit limits that are frequently lower than the cost of treatment. Future Family’s plans offer an alternative to carrying a credit card balance, which can negatively impact credit scores and become burdensome in the future. “Before this program, no fertility financing company offered a 0% interest financing plan without huge application fees costing thousands of dollars, so this truly is a breakthrough that will give even more prospective parents the opportunity to grow their families,” said Claire Tomkins, CEO and Founder of Future Family. “Before this program, no fertility financing company offered a 0% interest financing plan without huge application fees costing thousands of dollars, so this truly is a breakthrough that will give even more prospective parents the opportunity to grow their families,” said Claire Tomkins, CEO and Founder of Future Family. “We’re very proud to announce this partnership with CCRM Fertility and to launch a unique financing option that will meet the needs of even more patients. Future Family believes that building a family is one of the most significant milestones in life, and financing coupled with care and wellness is the safest and smartest solution for prospective parents.” Today, nearly 50% of people who visit a fertility clinic in pursuit of care and support do not move forward with treatment due to the high cost and complexity. Future Family is transforming the typically difficult and confusing experience with its platform, which combines payments to multiple providers into a streamlined and predictable experience bolstered by autopay and support from personal fertility coaches. “Future Family opens the door for even more people interested in growing their families with fertility treatments by changing how to approach paying for treatment and expanding access to care,” said Jon Pardew, President and CEO of CCRM Fertility. “Both Future Family and CCRM Fertility offer best-in-class patient care and support with a focus on innovative solutions. We are thrilled to offer this much-needed financing option to our patients at most U.S. CCRM Fertility locations.” To learn more about Future Family, please visit www.futurefamily.com. About Future Family Future Family is where people start their fertility journey. The company’s mission is to make fertility care accessible and affordable to all. Future Family combines advances in fintech, fertility, and concierge care to empower prospective parents throughout their fertility journey. Future Family was founded by former SolarCity exec Claire Tomkins, whose own fertility struggles inspired her to improve the experience for other women. About CCRM Fertility CCRM Fertility is a global pioneer in fertility treatment, research, and science. Founded by Dr. William Schoolcraft 35 years ago, CCRM Fertility specializes in the most advanced fertility treatments, with deep expertise in IVF, fertility testing, egg freezing, preimplantation genetic testing, third party reproduction, and egg donation. CCRM Fertility leverages its own data and a dedicated team of in-house reproductive endocrinologists, embryologists, and geneticists to deliver industry-leading outcomes. CCRM Fertility has 26 locations in North America serving patients in 11 major metropolitan areas, including Atlanta, Boston, Dallas-Fort Worth, Denver, Houston, New York, Northern Virginia, Minneapolis, Orange County, San Francisco Bay Area, and Toronto. For more information, visit www.ccrmivf.com.

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