James Buckley, VP and Europe Director, Infosys Finacle
The last few years have seen several non-banking companies such as technology majors, digital upstarts and FinTechs steadily expand their foothold in the financial services space. A 1recent study revealed that FinTechs now constitute about 33% of the financial services revenue globally. The recent Infosys Efma study found that non-banking players are perceived as drivers of innovation in the industry.
How will these developments evolve in 2019? In this article, we explore six business trends that will shape and influence banking over the next 12 months and beyond.
1. Open banking and business model innovation pick up steam
The 2018 EFMA Infosys Finacle Innovation in Retail Banking report offered a preview of the near future by predicting that the full-stack bank would give way to the distributor and marketplace models in the open economy. Business model innovation and open banking figure among the top trends in banking in 2019. Pushed on to this path by open banking legislation in 2018, banks will refine their vision and strategy this year, and also evolve their roles as product manufacturers, marketplace operators, distributors or a combination of the three.
Those choosing to build banking products will take the API route to co-innovate along with their ecosystem partners. In the role of marketplace operator, banks will expand their partnerships to bring the best products and services available on board. They will hope to emulate the likes of Amazon – which gets 40 percent of its business through recommendations – by using extensive analytics to improve their understanding of customer expectations and fulfill them with contextual and personalized offerings. The distributor model will get banks and non-banks to collaborate to create new value, especially through innovative use of channels. Banks will sell products through their own channels and those of third parties, including partners, Fintech companies, and even other banks.
2. Customer journeys move ahead
In 2019, banks will find a clear correlation between their quality of customer experience and business performance metrics. In July last year, the Institute of Customer Service published that banks with a higher UKCSI (United Kingdom Customer Satisfaction Index) score than the norm for the sector gained 8,675 current accounts on average compared to the rest, who lost an average 3,457 accounts. With customer journey mapping deemed a crucial customer experience skill, the customer journey will join the evergreen customer experience as a key trend for this year. In 2019, we expect customer journeys to transform for the digital age.
The customer journey will start earlier, at the point of intent or primary need, well before the customer starts looking for a banking product or service. So, from a bank’s point of view, the journey of a mortgage customer will begin when he goes house hunting, not when he approaches them for a loan. Teams in charge of the customer journey will become more diverse, drawing experts from domains ranging from user experience to consumer psychology who will be responsible for devising journeys for different personas. Banks will embed AI and harness analytics insights throughout to craft and design customer journeys that are highly customer-specific.
3. APIs begin to mature
In 2018, regulations such as PSD2 and the opening of banking, in general, allowed qualified third parties to transact on behalf of retail and corporate banking customers. As the primary lever of open banking, the API will mature further this year. With customers expecting greater value propositions from banks, the API will be key to customer-centric innovation and enhanced offerings. Findings of the EFMA Infosys Finacle 2018 research confirm this view. Respondents named open banking APIs as the top technology for the future of innovation, ahead of artificial intelligence, chatbots and machine learning.
Banks will also use APIs to integrate data from different external sources into various products and services on their menu.
The proliferation of APIs will create a challenge in the form of multiple API standards, creating a need for API brokers to help banks adjust to the situation.
4. Security faces new threats
Security will remain in focus in 2019.
Cyber threat will continue to intensify in 2019, as hackers target AI-based solutions with AI-based attacks in a reminder of the 2016 offensive on the Microsoft chatbot Tay that led to it sending out objectionable Tweets.
Hence we expect banks to up their investment in security tools significantly, with large institutions acquiring cybersecurity solutions to counter both deterministic and probabilistic hacking methods. 2A Deloitte survey predicts cyber monitoring and operations to account for the largest investments, followed by endpoint and network security. Apart from security technology, banks will need to invest in talent to combat the serious security skills shortage that will prevail in 2019.
This year, banks should be prepared to face unprecedented threats, such as malicious exploitation of their blockchain network’s hashing power. They must also strengthen governance to secure their and their customers’ interests in an increasingly open banking world.
5. Workforce changes culture
2019 will bring several changes in the banking workforce and culture as GenZ joins the ranks. Digitization will create demand for skills in cyber security, data science, and automation. Since universities rarely produce market-ready graduates, banks will need to bridge the gap with training and collaboration with academia to align curriculums with market needs, and expose students to real-world challenges through live projects. In 2019, we expect more action in the latter.
We also anticipate that banks will aspire to a well-rounded workforce that combines knowledge of business, industry, customer and organizational issues. Banks will need to adapt their culture to accommodate a multigenerational workforce of GenZ, millennial, and older representatives. Designing practices to enable employees to work on short-term projects is a key element here. So is embracing diversity, and banks will hire talent from different industries and disciplines. The new culture will value continuous learning and customer-centricity more than ever. Training programs will become more accessible on mobile devices. The trend will be to use real-time feedback to align banking practices with organizational objectives and increase customer-centricity.
6. Privacy is priority
With nearly 1.5 billion records getting compromised in the first quarter of 2018, protecting data and privacy will be a top priority in 2019. Conflicting mandates – to share customer data under open banking and to protect it under GDPR – will pose a serious challenge that will get compounded as transactions migrate from bank-owned channels to third-party modes.
Banks will have no choice but to take responsibility for securing data as it passes from their hands to third-party users, and also for meeting compliance requirements. This year, some banks will distinguish themselves in data and privacy protection by implementing the following: strong controls and governance, robust systems to capture customer consent, encryption and security standards, third-party authentication processes, real-time transaction processing, and security-by-design.
Euro zone business activity shrank in January as lockdowns hit services
By Jonathan Cable
LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry hard, a survey showed.
With hospitality and entertainment venues forced to remain closed across much of the continent the survey highlighted a sharp contraction in the services industry but also showed manufacturing remained strong as factories largely remained open.
IHS Markit’s flash composite PMI, seen as a good guide to economic health, fell further below the 50 mark separating growth from contraction to 47.5 in January from December’s 49.1. A Reuters poll had predicted a fall to 47.6.
“A double-dip recession for the euro zone economy is looking increasingly inevitable as tighter COVID-19 restrictions took a further toll on businesses in January,” said Chris Williamson, chief business economist at IHS Markit.
“Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.”
The bloc’s economy was expected to grow 0.6% this quarter, a Reuters poll showed earlier this week, and will return to its pre-COVID-19 level within two years on hopes the rollout of vaccines will allow a return to some form of normality. [ECILT/EU]
A PMI covering the bloc’s dominant service industry dropped to 45.0 from 46.4, exceeding expectations in a Reuters poll that had predicted a steeper fall to 44.5 and still a long way from historic lows at the start of the pandemic.
With activity still in decline and restrictions likely to be in place for some time yet, services firms were forced to chop their charges. The output price index fell to 46.9 from 48.4, its lowest reading since June.
That will be disappointing for policymakers at the European Central Bank – who on Thursday left policy unchanged – as uncomfortably low inflation has been a thorn in the ECB’s side for years.
Factory activity remained strong and the manufacturing PMI held well above breakeven at 54.7, albeit weaker than December’s 55.2. The Reuters poll had predicted a drop to 54.5.
An index measuring output which feeds into the composite PMI fell to 54.5 from 56.3.
But despite strong demand factories again cut headcount, as they have every month since May 2019. The employment index fell to 48.9 from 49.2.
As immunisation programmes are being ramped up after a slow start in Europe optimism about the coming year remained strong. The composite future output index dipped to 63.6 from December’s near three-year high of 64.5.
“The roll out of vaccines has meanwhile helped sustain a strong degree of confidence about prospects for the year ahead, though the recent rise in virus case numbers has caused some pull-back in optimism,” Williamson said.
(Reporting by Jonathan Cable; Editing by Toby Chopra)
Volkswagen’s profit halves, but deliveries recovering
BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car deliveries had recovered strongly in the fourth quarter, lifting its shares.
The world’s largest carmaker said full-year operating profit, excluding costs related to its diesel emissions scandal, came in at 10 billion euros ($12.2 billion), compared with 19.3 billion in 2019.
Net cash flow at its automotive division was around 6 billion euros and car deliveries picked up towards the end of the year, the German group said in a statement.
“The deliveries to customers of the Volkswagen Group continued to recover strongly in the fourth quarter and even exceeded the deliveries of the third quarter 2020,” it said.
Volkswagen’s shares, which had been down as much as 2%, turned positive and were up 1.5% at 164.32 euros by 1158 GMT.
Sales at the automaker rose 1.7% in December, at a time when new car registrations in Europe dropped nearly 4%, data from the European Automobile Manufacturers’ Association showed.
Like its rivals, Volkswagen is facing several challenges due to the coronavirus pandemic as well as a global shortage of chips needed for production.
It also sees tough competition in developing electrified and self-driving cars. The merger of Fiat Chrysler and Peugeot-owner PSA to create the world’s fourth-biggest automaker Stellantis adds to the pressure.
Volkswagen said on Thursday it missed EU targets on carbon dioxide (CO2) emissions from its passenger car fleet last year and faces a fine of more than 100 million euros.
The group is expected to release detailed 2020 figures on March 16.
($1 = 0.8215 euros)
(Reporting by Kirsti Knolle; Editing by Maria Sheahan and Mark Potter)
Global chip shortage hits China’s bitcoin mining sector
By Samuel Shen and Alun John
SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines used to “mine” bitcoin, a sector dominated by China, sending prices of the computer equipment soaring as a surge in the cryptocurrency drives demand.
The scramble is pricing out smaller miners and accelerating an industry consolidation that could see deep-pocketed players, many outside China, profit from the bitcoin bull run.
Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency, as the amount of bitcoin they make and sell into the market affects its supply and price.
Trading around $32,000 on Friday, bitcoin is down 20% from the record highs it struck two weeks ago but still up some 700% from its March low of $3,850.
“There are not enough chips to support the production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and major provider of mining equipment.
Bitcoin miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify bitcoin transactions in a process which produces newly minted bitcoins.
Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of specially designed chips used in mining rigs, would also prioritise supplies to sectors such as consumer electronics, whose chip demand is seen as more stable, Ao said.
The global chip shortage is disrupting production across a global array of products, including automobiles, laptops and mobile phones. [L1N2JP2MY]
Mining’s profitability depends on bitcoin’s price, the cost of the electricity used to power the rig, the rig’s efficiency, and how much computing power is needed to mine a bitcoin.
Demand for rigs has boomed as bitcoin prices soared, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.
“When gold prices jump, you need more shovels. When milk prices rise, you want more cows.”
Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said that “almost all major miners are scouring the market for rigs, and they are willing to pay high prices for second-hand machines.”
“Purchase volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners are placing orders for products that can only be delivered in August and September.
Most of the products of Bitmain, one of the biggest rig makers in China, are sold out, according the company’s website.
A sales manager at Jiangsu Haifanxin Technology, a rig merchant, said prices on the second-hand market have jumped 50% to 60% over the past year, while prices of new equipment more than doubled. High-end, second-hand mining machines were quoted around $5,000.
“It’s natural if you look at how much bitcoin has risen,” said the manager, who identified himself on by his surname Li.
The cryptocurrency surge is affecting who is able to mine.
The increasing cost of investment is eliminating smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s biggest mining business.
“Institutional investors benefit from both large scale and proficiency in management whereas retail investors who couldn’t keep up will be weeded out,” said Yuan, whose company has invested over $500 million in cryptocurrency mining and plans to keep investing heavily.
Many of the larger players growing their mining operations are based outside of China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto research company TokenInsight.
“China used to have low electricity costs as one core advantage, but as the bitcoin price rises now, that has gone,” he said.
Zhao said that while previously bitcoin mining in China used to account for as much as 80% of the world’s total, it now accounted for around 50%.
(Reporting by Samuel Shen and Alun John; Editing by Vidya Ranganathan and William Mallard)
The Beaconsoft story and introducing its one-of-a-kind digital campaign intelligence platform
By Nigel Bridges, founding CEO of Beaconsoft Limited What were you doing prior to setting up Beaconsoft? Before setting up...
Top 8 Tax Scams to Watch Out For
It is tax time and that means finding the best way to file your taxes and to get a refund...
Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards®
Global Banking & Finance Review has awarded Hisham Itani the Chairman and CEO of Resource Group, Technology CEO of the...
Euro zone business activity shrank in January as lockdowns hit services
By Jonathan Cable LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to...
Volkswagen’s profit halves, but deliveries recovering
BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car...
Global chip shortage hits China’s bitcoin mining sector
By Samuel Shen and Alun John SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines...
Iran’s oil exports rise ‘significantly’ despite sanctions, minister says
DUBAI/LONDON (Reuters) – Iran’s oil exports have climbed in recent months and its sales of petroleum products to foreign buyers...
Nissan to source more UK batteries as part of Brexit deal ‘opportunity’
By Costas Pitas LONDON (Reuters) – Nissan will source more batteries from Britain to avoid tariffs on electric cars after...
Muted recovery for UK retailers in December ends worst year on record
By David Milliken and Andy Bruce LONDON (Reuters) – British retailers struggled to recover in December from a partial coronavirus...
Chinese phone maker Honor partners with key chip suppliers after Huawei split
By David Kirton SHENZHEN, China (Reuters) – Chinese budget phone maker Honor said on Friday it had signed partnerships with...