By Benjamin Ross, Director, International Marketing.
The financial services industry is experiencing disruption at an unprecedented speed. Consumers are expressing a growing desire to access financial services through easy-to-use digital channels.
In response, a wave of new fintech start-ups have brought innovative products and alternatives to long-established banking services, resulting in a diverse ecosystem of traditional and non-traditional players.
The benefits of emerging technology has never been greater, yet large traditional banks are still struggling with the complexity of legacy systems and tools that prevent them from innovating at the speed and scale of challenger brands.
Roadblock to innovation
The move towards digital space means banks and financial institutions alike need to better handle their data in order to anticipate the needs of customers, make banking easier, and pursue the right partnerships to increase capabilities and scale.
Data growth is growing exponentially and traditional banks are struggling to keep up. IDC predicts that by 2025, global data will grow to be ten times that of today. Not only is it growing in size – driven by the worldwide explosion in mobile and new innovations like machine learning, VR and the Internet of Things – but also in complexity due to the proliferation of open source and cloud platforms becoming commonplace in fintech.
These vast volumes of data can be worthless, however, if not harnessed correctly or quickly.
Achieving the velocity of innovation demanded by the digital economy is no mean feat and traditional banks must redefine how they leverage data in order to thrive in today’s competitive landscape, or they risk falling behind.
So how can the incumbents grow their business in the years to come?
The potential of partnerships
Many banks have already entered into partnerships with fintech companies. The relatively low cost and fast access to cloud environments have allowed hundreds of challenger banks and non-financial companies to quickly bring banking solutions to market. Take for example FreeAgent, the fintech startup that partnered with RBS to provide online cloud software to its customers or Uber’s full-service banking app for drivers.
For heavily-regulated incumbent banks, collaborating across fintech ecosystems while complying with data privacy regulations can be a daunting task. The upcoming PSD2 compliance regulation brings significant change to the banking industry. It provides traditional banks the opportunity to modernise from the more open banking system and failure to adapt can leave these traditional banks to be seriously left behind.
Fintech start-ups focus on developing innovative, customer-oriented solutions that include a variety of services, including payments, peer-to-peer lending and trading and mobile banking among many others. They bring disruptive technology solutions to the ecosystem while established banks provide market expertise and a customer base. As a result, the collaboration can strengthen the competitive position of established banks by shortening the time it takes for new products and services to reach customers, while the start-ups benefit from greater access to market expertise.
Speed and security
In order for fintech and traditional banking to collaborate and build mutually beneficial partnerships, all members of the ecosystem need a way to share data for developing and testing innovative applications in a fast, secure manner.
Take, for instance, a commercial bank that wanted to better compete with technology-centric companies, including Apple. In order to gain a competitive edge, the bank needed to migrate application development and testing from a 15-year-old legacy system to a hybrid-cloud environment that included AWS. They needed to adopt a dynamic data platform that allows its software development teams to virtualise data and mask sensitive information, working in tandem with DevOps tools, to achieve cloud agility and easily share data for development and testing. They also needed to be able to share this information easily and securely with their partner ecosystem, including fintech software developers, credit providers, and payment processors.
But as enterprises strive to store and process greater volumes of data across multiple data platforms and multiple locations – both on-premises and in the cloud – the complexities of data management and data security increase.
Approaching data management
Most banks will need to aggressively adopt new technology paradigms of digitally native companies, and this is certainly true when it comes to data.
DataOps, which is the rapid, automated, and secure management of data, can enable banks and financial services organisations to collect, virtualise, manage, and provision terabytes of data on-demand. While DataOps was only introduced to the Gartner Hype Cycle last year, the trend is moving fast as more global enterprises look to significantly increase investment in DataOps technologies.
This modern approach reduces the complexity of data provisioning and empowers developers with self-service access to data, accelerating the development of data-driven applications and decision-making to meet the rapidly changing requirements of the business.
Because not only is the use of legacy technology and processes slowing banks down, but outdated IT systems can pose a significant security challenge, especially if the software is no longer supported by the vendor. The onus is on the bank to fix security holes, and this is a huge burden on the business as cyber threats advance faster than security teams’ ability to detect and resolve issues. Meeting regulatory requirements, such as the GDPR and CCPA, also require that the technology be supported or face fees and penalties if you experience a data breach and your software is out of compliance.
The new wave of the fintech ecosystem
In other words, as your business grows, you’ll need to evolve your technology stack because your software must be able to keep up without inhibiting business scalability, growth, and regulatory compliance.
Offering traditional financial services is no longer an option in this technologically advanced landscape. The customer expects digital capabilities so keeping up with industry trends and customer needs has become imperative for a successful business.
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
Oil extends losses as Texas prepares to ramp up output
By Devika Krishna Kumar
NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.
This week, both benchmarks had climbed to the highest in more than a year.
“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.
“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.
Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.
(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)
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