According to Sopra Banking’s Amanda Hartshorne, a single, open, secure and innovative European market in payment services will have many positive implications for banks – but will also force many of them to adapt or reinvent in order to be sure of a place in the coming new environment
Like many other business sectors, the banking industry is undergoing far-reaching change. And just like so many other transformations, our sector’s also driven by a combination of new technologies, shifts in consumer behaviour, regulatory changes – and the need to never slack for a second when it comes to searching for process efficiencies.
A reminder on the context: by adapting the legal framework governing payments, successive European regulatory provisions (specifically, Payment Services Directives and related regulations) have, without question, had a huge impact on the business models of banks. Despite the fact that payments are critical for both direct and indirect income, banks are seeing margins cut –while the arrival on the market of new specialised entrants from non-banking backgrounds (e-commerce firms especially) is also posing a clear threat.
For example, the latter are challenging the established players in payments of mainstream banks, with a clear agenda of seizing significant market share by taking advantage of those regulatory and technological changes. And as many of these new entrants are able to draw on huge resources, plus can bring into play their expertise acquired in their core business, this is absolutely no time for complacency on the part of anyincumbents in the payment arena.
Should banks, though, give up and resign themselves to losing their current payment world ‘pole position’? Or is it, instead, actually an ideal time for banks to respond and adapt/reinvent in order to protect their place? The reality is that new European regulatory provisions, like the new Payment Services Directive (PSD2) (see http://ec.europa.eu/finance/payments/framework/index_en.htm), mean they will soon no longer have any choice – as Third Party Providers (TPP) will soon have access to bank accounts for their payment initiation services.
All in all, new developments on the payment market are disrupting established positions, plus have a clear impact on the income of banks and enlarging their competitive environment by encouraging new non-banking competitors to enter the market with different business models. But such a context is conducive to innovative initiatives and potentially multiple attractive market offerings in terms of content, price or user-friendliness, all vying to become market benchmarks.
However, the proliferation of value propositions is creating some confusion. This gives banks as much of a window of opportunity as TPPs, to be frank – and it’s a window that you should try and make use of, if you are an established player, without a doubt.
An action plan for a time of market disruption
To protect their income and create ever more added value for their customers, banks must look at devising new offerings and new services for their customers and partners by positioning themselves in a support role throughout the purchase journey.
They should also be looking to build a proposition around their own payment information services to their customers, almost certainly through collaborative, community initiatives between banks in order to create innovative payment frameworks (which they can then market to Third Party Providers, incidentally).
This will be achieved only when banks enter a new era – one of opening up their systems to external players, not just tolerating but actively tolerating ‘co-opetition’ between participants and putting in place viable business ecosystems that are end-customer-oriented. Such a living ‘environment,’ open to the outside world and constantly evolving, will enable banks to interact with the various stakeholders to create the conditions to boost agility and creativity.
Banks will also have to devise ways of cooperating with non-banking players in order to ensure equitable value sharing, plus look to make progress while learning from their experiences and piping front-line feedback with regard to technical feasibility and customer adoption in order to maximise their chances of success.
The following aphorism sums up this new style well: “We cannot afford to wait to know the truth before committing ourselves.” However, it is never easy to break with old (proven) models. However, even when faced with all the new entrants to the payments market, banks will be able to rely on their many advantages in the area of payments: strong market share, legitimacy, expertise in the area, a high level of trust, and so on.
However, to compete more effectively, they must also learn from the methods used by the latter: understanding what drives customers and makes them happy so as to anticipate their future needs; constant adaptation to remain in step (hopefully, even one step ahead) of market expectations, stimulating creativity and innovation, developing agility and reactivity and always 100% focusing on superior customer experience.
We contend that instead of acting in isolation or in a scattershot manner in reaction to this period of dynamic payments market changes, the implementation of that co-opetition culture I just spoke about enables banks to better confront the challenges that lie ahead by:
- completing the value chain and enhance their own value proposition
- benefitting from the industrial experience and/or agility of a partner
- relying on the experience of a given market, competences or specific know-how
- achieving savings on investment and economies of scale
- Encouraging wide adoption by consumers and merchants of their proven techniques.
They must be part of genuine innovation networks, possibly composed of very diverse participants:other banks facing the same challenges with a view to building critical mass more rapidly; new hungry start-ups, contributing not only their dynamism in the innovation process but also highly relevant responses to the challenges banks face; players from other industries, too, who can bring both a fresh perspective and successful innovations in their core business. Reassuringly, both the recent and more distant past is full of examples that illustrate the benefits of co-opetition in the area of payments with other players, as well the diverse forms that it can take; examples range from the development of the bank card or services such as Sepamail or wallets such as Paylib in France, as well as Paym in the United Kingdom or the pan-European MyBank initiative.
Clearly, the agility and reactivity these new partners can contribute are key to developing creativity and accelerating time-to-market. Some banks have chosen to welcome them into their ecosystem, sometimes by financing them (acquiring a stake or providing them with resources), sometimes by integrating their offerings via white-labelling.
However you choose to do it, embrace external expertise and perspective – as open, collaborative and participatory innovation is what will make it possible to progress more quickly and cost-effectively than you might have done otherwise.
Open and collaborative is the way ahead here
We are convinced banks are equipped to meet the payment revolution challenges. They may well have to adapt their offering to find growth drivers in this world, for example by relying on digital wallets and new services, as well as inaugurating a major mind-shift change by opening up their systems to external players, fostering new styles of relationship with other participants in the payment services sector and putting in place genuine customer-focused ways of working.
We believe that banks will seize all opportunities in this market to reinvent their model and create ever more added value.
The author is Principal Business Consultant, Compliance, at Sopra Banking Software (http://www.soprabanking.com)
Foxconn chairman says expects “limited impact” from chip shortage on clients
TAIPEI (Reuters) – The chairman of Apple Inc supplier Foxconn said on Saturday he expects his company and its clients will face only “limited impact” from a chip shortage that has rattled the global automotive and semiconductor industries.
“Since most of the customers we serve are large customers, they all have proper precautionary planning,” said Liu Young-way, chairman of the manufacturing conglomerate formally known as Hon Hai Precision Industry Co Ltd
“Therefore, the impact on these large customers is there, but limited,” he told reporters.
Liu said he expected the company to do well in the first half of 2021, “especially as the pandemic is easing and demand is still being sustained.”
The global spread of COVID-19 has increased demand for laptops, gaming consoles, and other electronics. This caused chip manufacturers to reallocate capacity away from the automotive sector, which was expecting a steep downturn.
Now, car manufacturers such as Volkswagen AG, General Motors Co and Ford Motor Co have cut output as chip capacity has shrunk.
Counterpoint Research says the shortage has extended to the smartphone sector, with application processors, display driver chips, and power management chips all facing a crunch.
However, the research firm predicts Apple will face a minimal impact, due to its large size and its suppliers’ tendency to prioritise it. Apple is Foxconn’s largest customer.
Foxconn is looking at other areas for growth, including in electric vehicles (EVs), and Liu said their EV development platform MIH now had 736 partner companies participating.
He expected it would have two or three models to show by the fourth quarter, though did not expect EVs to make an obvious contribution to company earnings until 2023.
Liu also said the company was still looking for semiconductor fab purchase opportunities in Southeast Asia after not winning a bid to take over a stake in Malaysia-based 8-inch foundry house Silterra.
(Reporting by Ben Blanchard and Jeanny Kao; Writing by Josh Horwitz; Editing by William Mallard and Ana Nicolaci da Costa)
EU seeks alliance with U.S. on climate change, tech rules
By Sabine Siebold and Kate Abnett
BERLIN (Reuters) – Europe and the United States should join forces in the fight against climate change and agree on a new framework for the digital market, limiting the power of big tech companies, European Union chief executive Ursula von der Leyen said.
“I am sure: A shared transatlantic commitment to a net-zero emissions pathway by 2050 would make climate neutrality a new global benchmark,” the president of the European Commission said in a speech at the virtual Munich Security Conference on Friday.
“Together, we could create a digital economy rulebook that is valid worldwide: a set of rules based on our values, human rights and pluralism, inclusion and the protection of privacy.”
The EU has pledged to cut its net greenhouse gas emissions to zero by 2050, while President Joe Biden has committed the United States to become a “net zero economy” by 2050.
Scientists say the world must reach net zero emissions by 2050 to limit global temperature increases to 1.5 degrees above pre-industrial times and avert the most catastrophic impacts of climate change.
The hope is that a transatlantic alliance could help persuade large emitters who have yet to commit to this timeline – including China, which is aiming for carbon neutrality by 2060, and India.
“The United States is our natural partner for global leadership on climate change,” von der Leyen said.
She called the Jan. 6 storming of the U.S. Capitol a turning point for the discussion on the impact social media has on democracies.
“Of course, imposing democratic limits on the uncontrolled power of big tech companies alone will not stop political violence,” von der Leyen said. “But it is an important step.”
She was referring to a draft set of rules unveiled in December which aims to rein in tech companies that control troves of data and online platforms relied on by thousands of companies and millions of Europeans for work and social interactions.
They show the European Commission’s frustration with its antitrust cases against the tech giants, notably Alphabet Inc’s Google, which critics say have not addressed the problem.
But they also risk inflaming tensions with Washington, already irked by Brussels’ attempts to tax U.S. tech firms more.
Von der Leyen said Facebook’s decision on a news blackout on Thursday in response to a forthcoming Australian law requiring it and Google to share revenue from news underscored the importance of a global approach to dealing with tech giants.
(Additional reporting by Foo Yun Chee; editing by Robin Emmott and Nick Macfie; editing by Jonathan Oatis)
Packaged food giants push direct online sales to gauge consumer tastes
By Siddharth Cavale and Nivedita Balu
(Reuters) – Packaged food giants including Kraft Heinz, General Mills and Kellogg are pushing sales of their products to consumers directly via their own online channels, in a quest to gather more data about shoppers’ purchasing habits.
Velveeta-cheese maker Kraft Heinz saw its e-commerce sales double in 2020, now representing more than 5% of its global sales, Chief Executive Miguel Patricio said at the virtual Consumer Analyst Group of New York (CAGNY) conference this week.
The company sells Heinz baked beans and tomato soup by subscription or in bundles directly to consumers on a “Heinz To Home” website in the United Kingdom, Australia and Europe.
Sales on the site are “giving us valuable insights into consumer behavior, enabling us to quickly test and learn from innovations,” Kraft’s head of international business, Rafael de Oliveira, said at the conference.
Kraft would continue to use the site as a channel to generate strong sales in developed markets, he said.
The company also counts sales of its products through marketplaces such as on Amazon.com and Walmart.com as part of its e-commerce sales.
U.S. shoppers spent on average $1,271 buying groceries online last year, 45% more than they did in 2019 as the pandemic spurred shopping online, according to market research firm Earnest Research. In contrast, the average dollars spent in stores rose only about 7% to $3,849.
PepsiCo sells products including Doritos, Quaker oats and Gatorade directly to consumers through two websites, pantryshop.com and snacks.com, both launched in 2020.
Chief Financial Officer Hugh Johnston said that more than 45% of the company’s capital investments over the next few years would be dedicated toward manufacturing capacity, automation, and a “ramping up of investments in our e-commerce channel.”
As major online retailers including Amazon.com and Walmart.com continue to gather valuable data on shoppers, many packaged food manufacturers are keen to gather their own data on shoppers, too.
“COVID (has) simply accelerated our digital growth and has provided us with yet another source of data and insight,” Monica McGurk, chief growth officer at breakfast cereal maker Kellogg Co., told the conference.
Kellogg, producer of Corn Flakes as well as Pringles chips, said on Wednesday it had launched a direct-to-consumer website focused on digestive wellness. The group plans to sell its new Mwell Microbiome Powder for gut health via the site to gather data on customer interest before it launches the product more widely.
E-commerce sales have doubled in the past year and now represent about 8.5% of the group’s $13.77 billion in annual sales, Kellogg said.
Pillsbury dough-maker General Mills also sees the benefits of tracking consumer habits more closely.
“We’re aggressively investing in data and analytics. We are gathering unparalleled insights from the first-party data we collect through our brand websites,” General Mills’ Chief Executive Jeffrey Harmening said at the conference.
On its Bettycrocker.com website, General Mills provides hundreds of recipes using Betty Crocker cake mixes and frosting. The site leads people to the closest store or an online retailer where they can purchase the products, thereby generating data for General Mills on what a particular customer from a certain zip code is buying. The company does not sell the food products directly on its website.
Consumers, however, may have to shell out more if they shop directly from brand websites.
Prices on the two PepsiCo sites, for example, were generally higher than those on Walmart.com or Amazon.com, Reuters checks show. On Walmart.com, for example, a 10 oz pack of Doritos Nacho Cheese was on sale for $2.50 compared to $4.29 on Pepsico’s website.
Kraft Heinz offers tins of soup, beans, pasta and baby food bundled into packs ranging from six to 25 items and costing between 10 and 20 pounds ($14.01-$28.03) on its UK website. It told Reuters the relatively higher prices of items and bundling of packs than on some other online marketplaces was to be able to eke out a margin after including delivery costs.
“Longer term, we see real value in this channel to be an insight and data channel for us,” Jean-Philippe Nier, head of e-commerce for Kraft Heinz’s business in the UK and Ireland, told Reuters. People are more prepared to order directly from manufacturers than they were before. The time is now.”
Graphic: Direct online sales to cross $20 billion in 2021 – https://graphics.reuters.com/PACKAGEDFOODS-ECOMMERCE/rlgpdexngvo/chart.png
($1 = 0.7137 pounds)
(Reporting by Siddharth Cavale and Nivedita Balu in Bengaluru; Editing by Vanessa O’Connell and Susan Fenton)
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