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SPECIAL FEATURE: GLOBAL TRENDS
SEO: trends; global trends, future, technology; banking; 2016
- 2016 Ten trends to watch
- Analytics Trends 2016: The next evolution
- Global capital markets: Significant changes ahead
- The future of banking
2016 Ten trends to watch
Which trends are set to gain momentum in 2016? A new report from Fjord, a design and innovation consultancy owned by Accenture, highlights ten trends that have the potential to influence business and society in the year ahead. Donald Armbrecht reports
1 THE MICRO–MOMENT
You used to have two options available when buying something: put in the research, or go for the impulse buy. Technology is moving us in a new, third direction. ‘Listening technologies’ are following our every move and giving us feedback constantly. If you buy a book by one author, a similar one pops up on your shopping page. If you listen to a song, other artists in a similar genre appear alongside. This kind of feedback is being constantly expanded. Wearable technologies in particular are giving us data in real time, allowing us to make faster, more informed decisions. We know exactly how many calories we burned, how many kilometres we jogged, or even how many strokes we made with our toothbrush. All of this information is allowing us to make decisions in ‘micro-moments’, a trend which will have an impact on how and what we consume.
2 SERVICES WITH MANNERS
Three out of four consumers say they don’t mind some data being collected if it means their experience is more personalised. The tension between giving a company your personal data for a better experience and trusting what that company will do with the data will continue to be a major factor in the development of technologies.
The result is that companies in particular will have to emphasise digital etiquette and respect for privacy. Properly informing consumers about what they are locking into at each stage, rather than simply relying on terms and conditions, protects both them and the company from misunderstandings later on.
3 THE EMPLOYEE EXPERIENCE
The ‘corporate ladder’ is a thing of the past. Employees no longer follow a linear journey in their career but rather use new and often different jobs to establish their own path, often in many different companies. The fact that technology-based jobs are transferable across different industries has only made this easier. In order to keep talent in-house, companies will have to rethink their ‘employee experience’ and build cultures of purpose through empowerment, individuality and reward.
4 DISAPPEARING APPS
We are living on a ‘planet of the apps’, but technology is moving so quickly that this might soon be coming to an end. Once user-controlled, many apps are now proactively a part of the user’s life. A high amount of automation is prompting apps to merge together and break out of their traditional place on your smartphone or tablet. How about a car that is able to pay for groceries, takeaways and petrol for you? It’s already in the research stages.
5 THE FLATTENING OF PRIVILEGE
Many services that would have been considered high end are now readily available to everyone. Chauffeurs, dry-cleaning delivery or a meal in a five-star restaurant have now been brought to the general public through apps and discount services.
6 GOVERNMENT FOR THE PEOPLE
Technology has not only allowed citizens to be better informed about their governments, it has let them become players in global issues through citizen-led projects (such as Kickstarter) and social media campaigns. As Europe tries to cope with the housing of refugees, for example, numerous websites have popped up offering ‘refugee Airbnbs’ which connect displaced people with available homes.
7 HEALTH IN OUR OWN HANDS
Our health has never been so readily in our hands. Apps now exist to help us understand what we eat and how we exercise. Wearable technologies that track our health are on the rise. By 2019, the industry is expected to grow by 600%. Such technology is increasingly accessible: many applications can be downloaded for free, and sophisticated wearables are now available for less than $100.
All of this data is also contributing to better healthcare. Medical approaches that are tailored to an individual’s lifestyle and genetic profile are becoming more common.
8 VIRTUAL REALITY IS FINALLY A REALITY
In many ways, virtual reality (VR) is being positioned as the next step in video games. But its implications in education, tourism and health are not to be overlooked. Much improved technology and affordable pricing mean that VR has the real potential to be a part of our lives, from virtual tourism to immersive journalism and exposure therapy.
9 THE RETURN OF SIMPLICITY
As consumers, we now have more choices than ever before. In fact, it has been suggested that the average consumer makes more than 200 decisions a day on food alone. In a world of overwhelming possibilities, simplicity is making a comeback. By reducing one shampoo line from 26 options to 15, Proctor and Gamble saw a 10% increase in sales.
10 DESIGN FROM WITHIN
Innovation has become the key to survival. A Standard & Poor’s company can expect to survive just 15 years. That’s down from 67 years in 1920. By 2027, 75% of the S&P 500 firms today will be replaced by new ones. Despite a $1,6 trillion investment in research and development in 2014, companies are still seeing more than 85% of consumer goods products fail. Design-led innovation has become a must, and the merging of departments in the conversation about those innovations is equally as important. Back in 1997, Steve Jobs pointed out: ‘You’ve got to start with the customer experience and work back toward the technology, not the other way around.’ That’s possibly more true today than it ever has been before.
Copyright: World Economic Forum
AUTHOR l Donald Armbrecht is a freelance writer and social media producer
Analytics Trends 2016: The next evolution
A look at the evolution of data analytics and its revolutionary potential to transform ordinary businesses, power new business models, enable innovation, and deliver greater value. Take a look below at the Deloitte 2016 Analytics Trends
As we enter our third year of identifying the analytics trends that are likely to influence the trajectory of the business world in coming years, it is clear that some trends are not going away. Instead, they are evolving at a rapid pace. In the world of science, such rapid evolution demands closer analysis – and the same is true with these analytics trends. They deserve a fresh look.
Meanwhile, others have a short half-life. They enter the conversation quickly and converge just as fast, and soon they are assimilated. By that time, they are not trends – they are reality. Take the topic of big data, for example. A few years ago, it was treated as an up-and-coming trend. Now it is just the air we breathe in analytics, influencing business strategy and commanding substantial investment every day. Perhaps that’s why Google Trend’s search analysis shows that the term, which had strong growth beginning in late 2010, is experiencing decline.
This year, we are taking stock of a mix of both new and familiar topics that are shaping an ‘everywhere analytics’ world where analytics, science, data, and reasoning are embedded into the decision-making process, every day, everywhere in the organisation.
SIGNIFICANT TRENDS
1 THE MAN-MACHINE DICHOTOMY BLURS
Are machines coming for us?
The newsstand rhetoric posits that smart machines will soon take over our jobs. Fear not – there’s still a place for us. Humans have always added value to machines as processes become automated, and this is likely to continue.
Still, the cognitive age is clearly upon us, as indicated by more than $1 billion in venture capital funding for cognitive technologies in 2014 and 2015.
Analysts at the International Data Corporation (IDC) project that overall market revenue for cognitive solutions will exceed $60 billion by 2025. As cognitive technology evolves, it is likely to become just another tool in the toolbox – very useful for the right application but not replacing traditional analytics capabilities that also complement the human thought process.
The man-machine dichotomy is not ‘either/or’: it is unequivocally ‘both/and’.
Complementing one another
There are likely to be a variety of ways in which smart people and smart machines will work alongside each other. Some humans will have to build and implement cognitive technologies, of course. Others will ensure that those technologies fit into a work process and monitor their performance. And some humans will complement computers in roles where machines can’t perform well, such as those involving high levels of creativity, caring or empathy.
Paving the way to a collaborative future
Of course, these combinations of technology and people won’t happen seamlessly or automatically. Organisations will need to examine knowledge-intensive processes and determine which tasks can best be performed by machines and which by humans. Some degree of retraining may be necessary. And let’s face it, there may be some job loss as well. Smart companies will think about these issues early in the game and help employees prepare for a collaborative future with smart machines.
2 ANALYTICS EXPANDS ACROSS THE ENTERPRISE
So soon?
As little as a year ago, you would be hard-pressed to find an organisation that was making enterprise-level analytics investments. Instead, most were just working to implement or improve targeted analytics capabilities in a few key areas – which seemed to be enough of a challenge.
How quickly things change
Today, building on analytics successes in discrete disciplines, leaders are beginning to take serious steps toward connecting these successes to create something bigger – something we call the insight-driven organisation (IDO).
The IDO goes beyond the selective use of insights to fuel decision-making in individual parts of the business. It deploys a tightly knitted combination of strategy, people, processes, and data – in addition to technology – to deliver insights at the point of action every day, everywhere in the organisation.
Laying the groundwork
What does this look like in practice? Some leaders are beginning to talk about ‘analytics transformation’ or ’industrialised analytics’. Short of that, many are already making decisions predicated on an IDO future – weighing the decision to build more data warehouses versus building on a big data infrastructure, for example. In both scenarios, what has changed is the scope of expectations. Notching small analytics victories in targeted parts of the business may not be enough for much longer. For leaders with their eyes on the prize, it’s all about connecting analytics capabilities across the enterprise.
3 CYBERSECURITY: A GOOD DEFENCE ISN’T ENOUGH
The plot thickens
Last year’s supertrend, still front and centre, continues to grow in importance as more and more organisations experience the losses in value and reputation that can result from a security gap. And we’re not just talking about protecting data. Product design and other IP are also vulnerable to theft and sabotage. The problem is likely to grow as cybercriminals become more skilled in infiltrating technology architectures and systems that weren’t designed from the ground up through a security lens. Ironically, concerns about cybersecurity could – and perhaps in some cases should – slow the adoption of other trends that drive innovation.
Organisations with a sophisticated approach to cybersecurity are no longer satisfied with locking the doors after the robbery has been committed. The IDC estimates that US federal government agencies alone have spent more than $14,5 billion on IT security in 2015. And the worldwide financial services industry will spend $27,4 billion on information security and fraud prevention.
Going on the offensive
Organisations such as these are beginning to employ more predictive approaches to threat intelligence and monitoring – in short, going on the offensive. This may mean automated scanning of Internet ‘chatter’ by far-flung groups and individuals who may intend cyber harm. It may involve analysing past hacks and breaches to create predictive models of which threats are likely to surface next. In many firms, it also means systematic and continuous probing of the organisation’s own defences to make sure that others don’t find a security hole first.
A moving target creates new demands
Companies adopting these types of offensive steps will no doubt find that they need new capabilities. Many cyber professionals don’t have the skills to do predictive threat intelligence or predictive analysis of past breaches. At the very least, extensive collaboration between analytics and cyber professionals may be required. And cybersecurity projects will need to rapidly move up the priority list for analytics groups.
4 THE INTERNET OF THINGS – AND PEOPLE, TOO
A new source of innovation
Innovation has always been a key force in transforming business and society. Increasingly, innovation is occurring as the result of aggregating and analysing data to create new products and services. The Internet of Things (IoT) is rapidly evolving from the realm of interesting gadgets to include tracking people as ‘things’ to form new business models – think Uber – and influence people’s behaviours.
Real investment
This innovation is taking place in both consumer-focused and business-to-business (B2B) industries. The IDC estimates that the worldwide IoT market will grow from $655,8 billion in 2014 to $1,7 trillion in 2020. Devices, connectivity, and IT services will likely make up two-thirds of the IoT market in 2020, with devices (modules/ sensors) alone representing more than 30% of the total.
Building on existing infrastructure
Many businesses are finding that much of the infrastructure they need for IoT applications is already in place. Auto insurance firms, for example, are now using customer smartphone data to power ‘pay-as-you-drive’ applications.
Some health insurance firms are monitoring – and giving discounts for – customer fitness activities as revealed by wearable tracking devices. In B2B industries like shipping, long-distance trucks and locomotives equipped with GPS and other sensor devices enable companies to offer services to optimise routes, analyse driving, and make recommendations on the cheapest places to fuel up.
IoT-based innovations are also likely to benefit the broader society. Transportation will likely become more energy- and time-efficient. Partnerships between cities and businesses could lead to more transparent and economical government services. Garbage trucks, for example, could be equipped with devices that recognise potholes in streets and alert cities about them. Parking apps could reduce the time and energy that drivers waste while looking for open spaces.
It’s difficult to think of an industry that can’t be transformed or improved by the IoT. While considerable effort remains to develop IoT standards and link up sensor-based data, there are already many possible applications that can provide value today – including helping people.
5 COMPANIES BRIDGE THE TALENT GAP
A deepening shortage
By now it’s obvious that universities and colleges can’t crank out data scientists fast enough to keep up with business demands. And they certainly can’t produce experienced analysts from a two- or four-year programme. Forty per cent of respondents to a 2015 MIT Sloan Management Review survey say they have difficulty hiring analytical talent. Only 17% of ‘analytically challenged’ firms say they have the talent they need. Among companies reported to be ‘analytics innovators’, 74% said they had the analytics talent needed.
Getting creative
The IDC predicts a need for 181 000 people with deep analytical skills in the US by 2018 and a requirement for five times that number of positions with data management and interpretation capabilities.
To complicate matters, there is no clear set of capabilities that define a ‘data scientist’, because different problems require different skill sets. Some organisations are taking a multipronged approach by supplementing campus recruiting with alternatives – from turning to managed analytics to cultivating in-house talent.
With a rising number of analytics and data science programmes at universities – more than one hundred in the US alone – recruitment efforts in analytics are red-hot today. Organisations recruiting at these campuses will likely find more success if they work closely with the programmes on internships and student projects. Once recruited, these graduates are more likely to stay and do productive work if they have meaningful career paths and have the ability to work with others with similar skills and backgrounds.
Tapping the talent ecosystem
Of course, analytics talent doesn’t have to be directly employed by the organisation. Some companies are consciously developing ecosystems of external providers. One, for example, has selected multiple services partners in the areas of business intelligence, predictive analytics, data science, and cognitive technology. The company continually monitors the efforts of these partners to recruit and develop qualified people and to keep up with new technologies and methods.
These are by no means extreme steps. Smart companies are realising that analytical talent is critical to their success and in short supply. They know they must get serious about preparing or partnering with this strategic workforce if they hope to successfully execute their strategies.
6 BUSINESS BORROWS FROM THE SCIENCES
Scientists were into analytics before it was cool
Any conversation about the new world of business analytics should come with a caveat: It’s not really new. Businesses have been engaging in analytics for years – decades, even.
It may be more accurate to say that analytics is experiencing a major renaissance, ushered in by big advances and investments in technological and data capabilities. As a result, business analytics has reached a next level of maturity.
Business isn’t the only field notable for major advances in analytics through the years. If anything, there may be a stronger case for the sciences leading the vanguard of analytics. Universities, research labs, and other science-focused organisations have been applying and refining analytics approaches to solve some incredibly complex problems through the years, in everything from molecular biology and astrophysics to the social sciences and beyond. In many cases, they don’t even use the word ‘analytics’. For them, it’s all science.
Cross-pollination between science and business
This environment – marked by a reinvigorated interest in business analytics combined with separate-but-related advances in analytics in the sciences – is one that is ripe for cross-pollination. Already we are beginning to see techniques borrowed from the world of science and applied to business challenges. In one example, an organisation leveraged tools used by DNA researchers as the keys to unlocking insights buried in tens of thousands of emails.
These developments are in their nascent stages now, but there are plenty of signs of a coming explosion in shared analytics tools, techniques, and processes between the sciences and the business world.
It’s already happening
Looking for evidence? Some signs of the inevitable merging of science and business capabilities have already been widely observed. In one high-profile example, a prominent private company lured dozens of scientists from a major research university – a coup for the company and a tough loss for the university. Look for more ripple effects, good and bad, as the worlds of business and science continue intermingling.
From major airlines and insurers to oil and gas and beyond, the business community is actively hunting for science-based approaches that can give them the edge.
Article by Deloitte. For more information contact Werner Swanepoel, Risk Advisory Africa Leader: Data Analytics
Global capital markets: Significant changes ahead
Capital markets in 2020 will look vastly different than they do today, according to PwC’s report Capital markets 2020: will it change for good. This publication explores the powerful forces changing the global banking industry landscape and what banks will need to do to stay competitive ‒ and win ‒ over the next five years. By Stefan Beyers
By 2020, a new equilibrium for global capital markets will emerge and the environment is expected to look different from that of today. While policymakers and regulators are leading the reform agenda and are forcing its pace, they are only the catalysts.
The real drivers – the expectations of a wider set of stakeholders and the realities of a new economic and commercial landscape – will fundamentally and permanently reshape the capital markets landscape. We predict a new equilibrium for global capital markets, the landscape, composition and dynamics of which, come 2020, will look very different to that of today. The new landscape will emerge in terms of innovation, technology, industry structure, business models, financial structures, products and remuneration.
To succeed in the world of 2020, industry players will need to prioritise and respond now to the aftermath of the financial crisis, meet new client demands, adapt to technological advances and adjust to the industry reform agenda – if they are to remain relevant in five years’ time.
Conclusions in PwC’s Capital markets 2020 report are supported by responses to a global survey of 250 capital market executives and industry leaders made up of capital market executives (private equity firms, pension funds, hedge funds, corporate, and other non-bank financial intermediaries) and participants (investment banks, broker-dealers, financial market utilities, etc).
In addition, the current trends, challenges and opportunities that the evolving marketplace is creating for financial market participants and how they plan to respond were assessed. Using PwC’s proprietary Project Blue Framework, a point of view was then developed on how four global megatrends will impact the future of the global financial system over the next five years. These are fundamental trends that will impact not only financial institutions, but also corporations from other industries. Within capital markets, we believe these macro-trends will force capital market players to rethink their strategies, business models, and operations.
Four of the most important megatrends that are likely to reshape capital markets were identified: global instability, the rise of state-directed capitalism, technology, and the war for resources.
1 GLOBAL INSTABILITY
Over two-thirds of surveyed respondents agree that there will be increased inability in the capital markets over the next five years. Much of this is due to the aftermath of the financial crisis of 2008–2009 and more recently, the significant drop in oil prices.
We believe that four structural factors will be particularly important in driving global instability through 2020 – continued geopolitical tensions, the evolution of balkanised regulation, fiscal pressures, as well as political and social unrest.
2 RISE OF STATE-DIRECTED CAPITALISM
Countries are seeking to better control their financial systems and the institutions within their borders, focusing on stability and greater influence over the financial system to help advance various policy objectives. The following is expected to take place by 2020. Regulation is likely to result in an unforeseen concentration of certain types of risks – the playing field will shift from global to local; national and regional institutions will dominate; access to local financial markets will become more restricted to cross-border institutions; the size of a country’s banking sector will be more correlated with GDP; state-backed banks will peak in terms of importance, with governments influencing more thorough policy than direct ownership; and leading institutions will be in a position to practise more proactive regulatory management.
3 TECHNOLOGY AS A TOOL
In the last few years, technology has rapidly evolved as big data, cloud computing, and smartphones are now all commonplace. Technology will be needed to innovate new products and services, to lower industry costs, and to help restructure operations. The report considers a handful of scenarios for 2020. Some of these are: operations and technology will form the basis of the next generation of core versus non-core capabilities, giving rise to the ‘utilisation’ of these functions; multi-asset platforms will change the client experience; and harnessing big data will be paramount to remain competitive in capital markets.
4 WAR FOR RESOURCES
Scarcity of resources is of paramount importance for the next half a century, contributing to future geopolitical tensions. Capital markets will help reallocate resources where they are most needed. The growth in global population and rapid urbanisation will put unsustainable pressure on global resources. The ‘war for resources’ (such as water, food, minerals and capital) will increase market volatility, generate new regulation and re-enforce protectionist behaviours in many countries and regions.
The opportunities for the financial sector to support this transition will be significant and lead to both new markets and clients. These trends are expected to play out and will impact the nature of the industry in 2020.
According to the survey findings, increasing client profitability, adapting to new technologies, and attracting and retaining talented employees emerged as the top three challenges for global capital market executives. Looking more closely, capital markets users seem focused on maintaining their foothold and positioning with clients while participants view attracting and retaining employees and the threat of new market entrants as their top concerns. Participants also recognise the need to enhance their client offering, more than half citing this as their top investment. At the same time, improving client relationships is a more fundamental challenge than it has been in the past.
In addition, complying with growing and changing regulations remains a significant challenge as respondents are still struggling to get ahead of regulation and to develop a proactive stance with their regulators.
While executives are divided over who will be the primary beneficiaries of overcoming the challenges ahead, we outline six priorities that players in global capital markets need to confront and tailor their strategic response to now in order to emerge as winners in the next five years:
- Proactively manage regulation, risk and capital:
Regulatory response must be proactively and increasingly integrated into business as usual practices. Risk and capital should be managed holistically throughout the enterprise and with an end-to-end analytical right to succeed in a complex and dynamic ecosystem.
- Establish stronger culture and conduct:
Participants must ‘change for good’ and embrace cultural transformation that fosters transparency and high professional standards, which will increasingly become key value drivers and differentiators.
- Redefine the business model:
Shifts in business models, enabled by technology, are occurring. Financial institutions will look to rationalise their offerings, country footprints and the clients they serve on the way to building simpler business models.
- Strategically renew the operating model:
Automation, consolidation and utilisation of middle office and back office activities will simplify operating models and improve profitability.
- Enable innovation and the capabilities to foster it:
Innovation will need to come to the forefront to drive excellence and fill profitability gaps. Much of this innovation will come in the area of risk, capital and collateral management versus at the product level which has been the historical source of innovation in capital markets.
- Obtain an information advantage:
By harnessing the power of big data, leaders will be able to create competitive advantage in client experience, operational design, risk management and profitability.
To succeed in the world of 2020, participants will need to have a clear sense of the posture they wish to adapt – whether to shape the industry or to follow rapidly behind the leaders. Industry leaders will need to have a clear strategy to deal with many of these challenges and to address these priorities. Each institution must evaluate their current position, aspirations for the future, desired client focus, organisational capabilities, capital constraints and brand value. Status quo is no longer an option.
AUTHOR l Stefan Beyers CA(SA), CTA, Registered Auditor, is PwC Partner, Banking & Capital Markets
The future of banking
Will traditional banks soon be replaced by the financial equivalents of Uber or AirBnB? Dozens of start-ups are using information technology to offer niche financial services. But banks themselves are investigating technological solutions to improve their strategic advantages. By Nicole Leith and Jaco Jordaan
In the aftermath of the 2008 global financial crisis, ‘financial innovation” quickly became a frowned-upon term. The former governor of the US Federal Reserve Bank, Paul Volcker, was quoted as saying: ‘The most important financial innovation that I have seen the past 20 years is the automatic teller machine.’ Complex financial engineering, which created instruments such as credit default swaps and collateralised debt obligations, was seen to have contributed to destabilising the global financial system without any apparent benefit to the real economy.
The regulators’ response to the global financial crisis was to impose more regulations on banks to keep them in check and restore stability to economies. The regulators were dichotomous in their approach. First they instituted a number of regulations that would in theory make banks less likely to fail. These include significant increases in capital and liquidity requirements. Their second response was to make it less disruptive to markets if a bank does fail by requiring banks to draw up ‘living wills’ to ensure an orderly resolution of transactions in the event of default or bankruptcy.
In addition to these requirements, governments have imposed extensive regulations on all financial institutions in order to prevent, detect and report money laundering and terrorism financing.
These regulations have increased the cost of compliance significantly and have made certain activities unprofitable, for example trading in equities for a bank’s own account rather than on behalf of clients. In part because of tightened regulations on banks, there has been a worldwide increase in ‘shadow banking’ – an unnecessarily sinister-sounding term for lending activities by non-banks, such as hedge funds or pension funds. Banks often participate in this process by facilitating transactions between investors and borrowers rather than taking on the credit risk themselves.
But the business of banking is changing in more fundamental ways than shifting transactions off of banks’ balance sheets. Financial innovation is back at the forefront, but this time it is not about designing esoteric financial instruments – the aim is to revamp the entire landscape of financial services. In the same way that Uber and AirBnB have challenged the taxi and hospitality industries, a multitude of financial technology (or FinTech) firms hope to revolutionise the business of banking.
Banks are seen as prime targets for digital disruption because of their regulatory burdens, administrative complexity and ancient (by modern standards) IT infrastructure. A study by McKinsey has found that front office staff spent on average only 36% of their time with clients, with 21% of their time devoted to trade processing and another 17% on other administrative tasks.
Two 2015 reports by the World Economic Forum, The Future of FinTech and The Future of Financial Services, highlight dozens of new business models that could change the face of the industry. Some technology companies are using their informational advantages to compete with banks in extending credit. Amazon and Alibaba have started offering vendor finance to companies selling products on their websites. They can manage the collection process more efficiently than banks, since they control payments from customers to vendors and can also use past transaction data to make better lending decisions.
Many FinTech firms provide platforms to connect investors and borrowers, just as AirBnB brings together people with a spare room to rent out and travellers looking for budget accommodation. Crowdfunding is no longer only a means to support struggling artists. Companies can raise capital directly from the public without going through the expensive process of issuing exchange-traded shares or bonds. Chilango, a fast-food company from the UK, raised GBP2,16 million on the platform Crowdcube, offering investors a return of 8% on its unlisted bonds together with a free burrito every week. Peer-to-peer lending platforms connect risk tolerant savers with borrowers who struggle to get loans from traditional banks.
These new platforms are of course not immune to the risks facing banks, especially liquidity risk – the risk of not being able to roll over short-term funding of longer-term assets. These companies also do not have the advantage of stable, low-cost funding in the form of retail deposits that is available to most traditional banks.
In order to grow, the best option for many FinTech start-ups is to partner with the banks rather than compete with them. The FinTech firms benefit from the strategic position of banks as part of the global payment system, as well as from banks’ existing client base, knowledge networks and pricing ability. In return, banks benefit from the information-processing power of FinTech firms. The ability to collect and effectively analyse customer and market data is becoming increasingly important for financial and non-financial firms to be able compete in a digital market place. FinTech can help banks obtain valuable information about potential borrowers from unconventional sources such as using satellite data to assess the level of wealth in a certain area.
On the other hand, some FinTech offerings may make it more difficult to collect useful information on clients in order to make sound lending decisions. If customers use e-wallets to transact using accounts from multiple financial institutions and borrow money from several different service providers (which won’t necessarily all be registered with a credit bureau), banks will find it difficult to form a complete picture of a borrower’s financial position and spending habits in order to perform a proper credit assessment.
By ignoring the threats and opportunities offered by FinTech and other global developments, banks risk having their market share reduced and margins eroded. In a world of negative interest rates in the most advanced economies and crypto-currencies such as Bitcoin, banks which focus only on attracting deposits in order to lend out cash might soon be becoming redundant.
South African banks are no strangers to using technology to improve operational efficiencies and customer experience. FNB won a BAI Global Banking Innovation Award for Most Innovative Bank in 2012 ‘to honour its culture of innovation and advancement of retail banking’ and Standard Bank won the Innovation in Societal and Community Impact Award in 2013. Although customers might initially be sceptical about new digital offerings, experience shows that most quickly come around. Mobile banking technology has enabled financial services to leapfrog several stages of technological development in developing countries, such as the famous example of M-Pesa in Kenya.
Competition among banks is likely to intensify as technology platforms make it easier for customers to compare different service offerings. Technology should enable banks to tailor financial solutions not only for big corporate clients and high net worth individuals, but also for small businesses and retail customers – similar to how Netflix develops new shows based on users’ viewing behaviour.
It seems in the eight years since the global financial crisis we have come full circle to where financial innovation will again be focused on the technology and platforms used to deliver banking products rather than on over-complicating the products themselves.
AUTHORS l Nicole Leith (CA)SA, Head of Advisory Services, FirstRand Group Finance and Jaco Jordaan (CA)SA, Advisory Accountant, also at FirstRand Group Finance
