New benchmark study from ACI Worldwide and Ovum reveals both real-time payments and open banking as major competitive differentiators in the future of banking
The expansion of real-time schemes globally is driving a marked change in attitudes among financial institutions, with 85 percent of banks globally now viewing instant payments as the foundation for growth and new product enhancements, according to the “2018 Global Payments Insight Survey: Retail Banking,” from ACI Worldwide (NASDAQ: ACIW) and Ovum. The report reveals that 92 percent of European banks (and 88 percent globally) are delivering enhanced retail customer propositions because of real-time infrastructure. The majority of banks also expect improved customer service, new services for SMEs and long-term cost savings.
Alongside real-time payments, open banking is a top issue on the agenda of financial institutions. European banks are at the forefront when it comes to implementing an open banking strategy, with 92 percent saying they have defined one, followed by 86 percent in Asia, and 82 percent in the Americas.
“The dramatic change in attitudes toward both open banking and real-time payments in just one year is telling,” said Craig Ramsey, head of real-time payments at ACI Worldwide. “The big takeaway here is that real-time payments and open banking are set to reshape the competitive landscape, and banks should stay open to the potential new revenue streams and deepened relationships that will be brought to both consumers and merchants.”
“The results of the study highlight important steps that all retail banks should consider to ensure that they are prepared for current challenges and future opportunities,” said Kieran Hines, head of industries, Ovum. “Real-time payments and open banking initiatives have the potential to bring fundamental change to the retail banking value chain and must be viewed as true opportunities for service enhancement and transformation.”
Other findings from the study include:
- Over 70 percent of banks are willing to open up their APIs to third-party developers. With 79 percent, European banks had the most proactive mindset, followed by Asia at 74 percent, and the Americas at 66 percent
- As banks prepare for the new payments ecosystem, they’re looking to balance security and compliance alongside innovation
- Security is a chief area of concern around open banking, increasing in Europe by 29 percent, and Asia by 16 percent between 2017 and 2018. However, banks in the Americas with security concerns declined by 25 percent
Online payment capabilities
- Holding steady at 68 percent globally are banks that currently or recently invested in this area, with many enhancing support for third-party wallet offerings and tokenization
- Real-time is becoming a reality with nearly 80 percent (78) of banks and almost 70 percent (68) of merchants globally stating that the combination of immediate payments and open banking will drive a decline in the importance of payment cards
To read the full report visit: 2018 Global Payments Insight Survey: Retail Banking
For the 2018 Global Payment Information Survey, Ovum and ACI Worldwide partnered to run a 22-question survey across a global panel of executives, with a focus on retail banks, billing organizations and merchants. The main topics of focus for the survey include: IT investment plans around payment services, core business objectives and priorities, attitudes toward fraud and security, payment systems and architecture and plans and experiences around open banking and real-time payments. The survey was conducted between December 2017 and January 2018 and provides insight into current thinking in the industry across financial institutions, merchants and billing organizations such as higher education, consumer finance and insurance. Overall, it included a total of 1,032 executive respondents across 13 industry sub verticals in 10 countries, resulting in 225,000 separate data points on current perceptions and investment plans around payments technology on a global basis.
This paper focuses on the survey findings for banks and is one of a four-part series based on Ovum’s 2018 survey.
Allied Irish Banks expects to bounce back from loss with new lending
DUBLIN (Reuters) – Allied Irish Banks (AIB) expects to return to profit and resume normal dividends this year, it said on Friday, predicting a recovery in lending after reporting that pandemic-related bad loan provisions drove it to a 931 million euro ($1.11 billion) loss in 2020.
The Irish lender, which posted a 909 million euro first-half loss after front-loading most of the provisions, set aside 1.46 billion euros in total to cover potential loan defaults arising from the COVID-19 pandemic, in line with its guidance.
AIB’s new lending fell 25% year on year to 9.2 billion euros, against a forecast drop of 30%. Chief Financial Officer Donal Galvin told Reuters the bank expected to regain some of that in 2021 with more than 10 billion euros of new lending.
The company is in expansion mode after it struck a non-binding deal to buy 4 billion euros of Irish corporate and commercial loans from NatWest and acquired leading Irish financial services firm Goodbody Stockbrokers this week.
It said on Friday that it was in advanced discussions with Irish Life owner Great-West Lifeco to establish an AIB-branded life and pensions joint venture, which Galvin said it hopes to launch in the first half of next year.
He added that the deal with NatWest, which is winding down its Irish operations, would be accretive towards 2023 targets but AIB’s driving focus is increasing its corporate customer base.
“It’s one third of a normal year’s new lending, so it’s not transformative from a balance sheet (perspective), but in terms of a customer acquisition strategy, we do feel that it is very, very significant to acquire 5,000 customers in one go,” he said.
AIB announced plans in December to cut staff numbers by 15% and withdraw from the British market for small and medium-sized business lending as it seeks to meet capital and profitability targets.
($1 = 0.8365 euros)
(Reporting by Padraic Halpin; Editing by David Goodman)
BOJ’s Kuroda brushes aside chance of widening yield band at March review
By Leika Kihara
TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said he saw no need to widen an implicit band set for its long-term interest rate target at a policy review in March, stressing the need to keep borrowing costs low to support a pandemic-ravaged economy.
The BOJ caps the 10-year bond yield around zero under a policy dubbed yield curve control (YCC), and currently allows the benchmark yield to move 40 basis points around its 0% target.
Markets have been rife with speculation the BOJ would widen that band and allow yields to move higher, but Kuroda played down that possibility on Friday.
“It’s something we will discuss at the (March) review. But I don’t think it’s necessary or appropriate to sharply widen the band,” Kuroda told parliament.
“We need to keep the yield curve stably low” as the economy still suffers the blow from the COVID-19 pandemic, he said. “I don’t think we need to widen the band.”
Expectations of a strong post-pandemic recovery have pushed up global yields including those for Japan, where the 10-year yield has crept near the BOJ’s implicit 0.2% ceiling.
Allowing yields to move more flexibly around the BOJ’s target would make YCC more flexible, one of the key goals of a review of its policy framework scheduled on March 18-19.
But it could also lead to higher borrowing costs for companies already struggling with the pandemic and a weak economy.
“The roll-out of vaccines is encouraging but there’s still very high uncertainty over the pandemic and its impact on the economy,” Kuroda said, stressing that risks to the outlook were skewed to the downside.
Kuroda said the BOJ’s March review will also look at ways to make its purchases of exchange-traded funds (ETF) more flexible.
“We have been and must continue to buy ETFs flexibly. We’ll discuss at the March review how specifically we could make our purchases more nimble,” Kuroda said.
The key would be to make the BOJ’s ETF-buying programme nimble so that the bank would step in only when markets become volatile and lead to a sharp rise in risk premia, he added.
(Reporting by Leika Kihara; Editing by Chris Gallagher, Sam Holmes and Ana Nicolaci da Costa)
Take on more risk or taper? BOJ faces tough choice with REIT buying
By Kentaro Sugiyama and Leika Kihara
TOKYO (Reuters) – The Bank of Japan (BOJ) is under pressure to relax rules for its purchases of real-estate investment trusts (REITs) so that it can keep buying the asset at the current pace, highlighting the challenges of sustaining its massive stimulus programme.
The fate of the rules, which limit the central bank’s ownership of individual REITs to a maximum of 10%, could be discussed at the BOJ’s review of policy tools at its March 18-19 meeting, with an industry estimate putting nearly a third of its REIT holdings at close to the permissible threshold.
Given Japan’s fairly small REIT market, the BOJ may struggle to keep buying the asset unless it relaxes the ownership rule or accepts REITs with lower credit ratings, analysts say. The BOJ currently buys REITs with ratings of AA or higher.
“There’s a good chance the BOJ could tweak the rules for its REIT buying at the March review,” said Koji Ishizaki, senior credit analyst at Mizuho Securities.
The issue underscores the tricky balance the BOJ faces at the March review, where it hopes to slow risky asset purchases without stoking fears of a full-fledged withdrawal of stimulus aimed at weathering the prolonged battle with COVID-19.
As part of its stimulus programme, the BOJ buys huge amounts of assets such as exchange-traded funds and J-REITs.
It ramped up buying last March to calm markets jolted by the pandemic, and now pledges to buy at an annual pace of up to 180 billion yen ($1.68 billion).
The BOJ last year bought 114.5 billion yen worth of J-REITs, double the amount in 2019, bringing the total balance of holdings at 669.6 billion yen as of December, BOJ data showed.
The surge of its portfolio has led to the BOJ owning more than 9% for some REITs. An estimate by Mizuho Securities showed the BOJ owned more than 9% for seven out of the 23 REITs it held as of January, including Japan Excellent and Fukuoka REIT.
The BOJ did not immediately respond to a request for comment. The central bank normally does not comment on policy, besides public speeches and briefings by its board members.
BOJ Governor Haruhiko Kuroda has said the review won’t lead to a tightening of monetary policy.
But many BOJ officials are wary of relaxing rules for an unorthodox programme like J-REIT purchases, which critics say distorts prices and exposes the bank’s balance sheet to risk.
“Unless markets are under huge stress, it’s hard to relax the rules,” said an official familiar with the BOJ’s thinking.
($1 = 107.0200 yen)
(Reporting by Kentaro Sugiyama and Leika Kihara; Editing by Muralikumar Anantharaman)