There have been various technology trends that have impacted the financial service industry in 2014, including trends that have the potential to be even bigger during 2015. Investment in fintech has grown considerably over the past year and has affected traditional financial institutions in several ways including: creating competition for consumers’ and attracting talent away from banks. The eruption of digital banking and the complexities it entails, has forced banks to find ways of becoming more agile in order to compete with software-based start-ups. At the beginning of the year industry experts made predictions about what the biggest technology trends of 2014 would be, these included continued cloud migration, new payment and credit options and better integration to name a few. bobsguide delves deeper into the predicted trends this year and provides insights into 2015 from industry experts.
New Payment Options
Back in 2013, Forbes predicted that Bitcoin and other cryptocurrencies could gain further momentum in 2014. Bitcoin hit the headlines (both positively and negatively) several times this year and although the UK government are considering the benefits of using digital currencies, other governments such as China, are not as positive about Bitcoin. In the retail space, many retailers are currently accepting Bitcoins and other alternative payment types and technology experts believe that the block chain technology behind Bitcoin could lead to innovative new services in the future, including the ability to transfer ownership of contracts, cars and even houses. Zennon Kapron, Founder, Kapronasia said: “Although Bitcoin has been around for a number of years, 2014 is really the first year that Bitcoin itself and digital currencies gained mainstream awareness. Through the incredible run up in bitcoin's price towards the end of the year, to the multitude of both bitcoin and bitcoin-technology based business models, 2014 was packed with news, regulations and rumors about how digital currency would change our lives. We didn't quite see digital currency hit mainstream usage in 2014, but it is clear that the concepts and technology will upend financial services as we know it in the future.”
2015 predictions: There are five key challenges which must be overcome in 2015 for cryptocurrencies to flourish:
1.Trust in service providers as several Bitcoin exchanges were subject to security breaches in 2014.
2.Price stability as the value of cryptocurrencies can vary and fluctuate greatly, leading to a potentially negative impact on customers.
3.Technology performance is another area to highlight, as currently Bitcoin processes slower than current alternatives and is seen to be less reliable and lacks sufficient customer support capabilities.
4.Another is clear regulation, as there are diverse regulatory frameworks related to cryptocurrencies in place which are evolving fast.
5.Finally, in order for customers to move away from traditional payment methods, cryptocurrencies must live up to their promise of being faster, cheaper and more convenient.
- Wim Raymaekers, Head of Banking and Treasury Markets at SWIFT
Mobile payments have been one of the most talked about topics this year. Not only do mobile payments enable consumers to pay on the go but this way of paying is predicted to become the ‘norm’ in the future. With more new entrants moving into the payments space than ever before, offering mobile payment solutions that are faster and cheaper than competitors is on every bank’s agenda. Labelled ‘disruptors’ due to the disruptive impact they are having on businesses within the financial service industry (in particular banks), many of these new entrants are either large non-financial brands with a big customer-base or start-up companies with fresh new solutions to existing issues.
One of the biggest non-financial companies to enter the payments sector in 2014 was Apple. Some experts believe that Apple Pay has the power to disrupt the entire sector. Since October 2014, US residents with an iPhone 6 have been able to pay for retailers and restaurants via their fingerprint or by holding their iPhone over an enabled Point of Sale (POS) system. Although Apple Pay has 500 banks signed up and there is competition from card issuers to get their card as the default card option under Apple devices, some banks are still worried that Apple Pay and other similar service will make their branches less important. The necessity for bank branches has been another conversation stirred up in 2014 since the digitalisation of banking services. Some industry experts believe that although banking is necessary, banks are not and that banks need to find a way of staying relevant today, and in the future.
2015 predictions: 2015 promises to be a year in which the world of payments will change dramatically. The industry is at the beginning of a period of intense structural change but it is far too early to pick winners and losers in this changing market. At one end of the spectrum, the banks appear to have the most to lose, given the threat to their traditional position that alternative providers of cheap, secure and timely payments can provide. But they have long records of resilience, have strength in their existing customer relationships and reach and should not, therefore, be under-estimated. At the other end of the spectrum, who would bet against Amazon, Apple or Google, given their rapid growth and success in other sectors? And, in between, there are a multitude of offerings that must find a way to carve out a unique, lucrative and sustainable position in an increasingly competitive field.
- Anthony Duffy, Management Consultant in Financial Services in UK & Ireland at Fujitsu
In 2014 financial firms have been further exploring ways to deal with their big data. From front to back-office, risk management, regulatory controls and trade operations, firms have been searching for new infrastructures to help them cope with the velocity, volume and variety of big data. The banking sector has gained a whole new set of challenges due to digital disruptors who are already using social media data and other data sources to connect and engage with technically savvy consumers and millennials. Because of disruption from new entrants and the threat to their customer-base that they bring, now more than ever, banks are realising that they have to understand their customers better and by looking at both structured (statements and purchase history etc) and unstructured data (social media) they may be able to offer specific deals to their customers. Some banks have started to work with retailers to offer targeted ads on customer bank statements; however the outcome of using such methods is yet to be reported.
Customers have become an even bigger priority for banks in 2014 and there has been a move towards knowing customers on a one-on-one basis rather than profiling people into categories. Demands for digitalisation and enabling customers to send money on the go is a task that every bank is now undertaking, whether this is through the implementation of a mobile banking app, or providing omni-channel banking over a variety of different devices. Major banks such as Bank of America Merrill Lynch have implemented various new strategies to help make their customers’ lives easier and provide omni-channel banking services. Hari Gopalkrishnan (eCommerce, Architecture & Segments Technology executive, BofAML) said: “People don't wake up every day to bank. We are always looking at ways to start with digital identity as an entry point into another channel.” Bill Pappas (CIO of Global Wholesale Banking Technology & Operations at BofAML) belives that improving client-centricity can help to strengthen bank and client relationships. "Embedding client-centricity into a company’s culture is a key differentiator. This is about every employee owning the client experience and using every interaction as an opportunity to delight and strengthen relationships."
Cloud computing has become far more accepted during 2014. Many firms have found that marketing, collaboration and productivity are more easily managed in the cloud. Another major factor for cloud adoption is the reduction of costs and research shows that companies that have not already moved to the cloud, plan to do so within the next two years. However, in terms of security cloud still poses some risks. Willy Leichter, senior director of product marketing at CipherCloud said: “In 2014, businesses moved record amounts of infrastructure and data to the cloud to lower costs and increase agility and competitiveness. This is leading hackers to look beyond attacking relatively well defending banking sites, to attacking secondary public cloud applications that may contain valuable financial and personal data. For example, the recent Dyre and Zeus malware strains focused on stealing account credentials for public cloud applications used by banks.”
2015 predictions: Cloud is a great place to collaborate and I believe in 2015 we will see an increase in the use of self-service in the Cloud. It means companies do not need to run their own 24/7 server solutions. They can work in the Cloud that can integrate with back office systems.
- Stuart Evans, Chief Technology Officer, Invu
In 2015 we expect to see a dramatic increase in malware threats aimed at compromising public cloud applications, and sensitive data that is inevitably showing up in the cloud.
- Willy Leichter, senior director of product marketing at CipherCloud
Integration and collaboration
Large company and start-up company collaboration
Start-ups have majorly disrupted the financial technology (fintech) sector during 2014. It has been said that fintech is coming of age and large companies and start-ups have collaborated much more this year. The growth in fintech investment has also encouraged several major financial institutions to open innovation labs, buy or partner with a start-up.
Fintech accelerator programmes have sprung up all over London this year with Startupbootcamp, Level 39 and Innotribe hitting the headlines. Industry experts believe that attitudes from banks are changing towards innovation and working with start-ups is now a viable option because of the threat that new entrants bring to the table. Experts suggest that another way to beat disruption from new entrants is for banks to disrupt themselves by launching a separate arm of their business that focuses on new market segments.
DevOps is a buzz word that became hot in 2014. DevOps is the fusion of development and operations teams which usually work in sync around a common set of tools. The aim is for developers and operations professionals to work closer together to benefit the business and the result of this union is tighter integration that allows applications to be developed more quickly with better quality results.
Developers and Operations are not the only teams working more closely, many departments within financial organisations have started to collaborate for the benefit of the business, including product development working with IT and financial services with sales. There has been a major shift in work responsibility in 2014 and many departments are working together to achieve business goals. Many companies are also creating new positions that didn’t previously exist, such as chief digital officer, data officer and technology officer to supervise innovation, technology and big data projects. Companies are also realising that in order for these projects to be successful, they require the right team of staff, which include people with varying levels of technical experience and ability.
New regulatory initiatives
In 2013, Forbes predicted that there would be more regulation in 2014, particularly around short-term lending. This year, financial institutions have dealt with stress tests, a number of relegations, whilst modernising and running their core business functions. Regulatory compliance was a big theme at Sibos 2014 and complying with ISO 20022 was at the top of the delegates agenda. The Financial Conduct Authority (FCA) has faced criticism this year for imposing stricter rules and giving out £1.4bn in penalties since April 2014. The Forex investigation uncovered five banks trying to manipulate the FX market and will be undertaking a remediation programme with these banks in 2015. The FCA also fined a number of banks for failing to deal with mortgage customers and for setting up schemes which did not comply with current regulation. The financial body also introduced a cap on the fees charged by payday lenders during 2014 in a move which could cost the industry £420m a year in revenue. Banks are still under pressure to comply with regulation such a BCBS 239 which has 14 principles intended to address the banks “ability to aggregate risk exposures and identify concentrations quickly and accurately at the bank group level, across business lines and between legal entities.” Financial services firms could not escape the impact of regulation this year, and stricter regulation is set to continue in the future.
2015 predictions: 2015 stress tests and Basel III – Legacy system transformation will be critical for banks to gain the insights into asset quality needed to satisfy regulators. The need for more transparency in data and ability of banks to trace and audit data at a customer and account level will be crucial. Financial transformation will help banks restructure their general ledgers and keep them clean and at a granular level of detail. Most banks in Europe didn’t pass the 2014 stress tests and are gearing up for the upcoming stress tests for 2015. At the same time, banks are looking ahead to the new Basel III requirements for them to show all assets on their balance sheet and have 8.5 percent capital. Unless banks start preparing now, they won’t hit the 2017 target.
- Jean Lassignardie, Chief Sales and Marketing Officer, Capgemini
There are many more trends which have impacted the financial services industry this year and more to look out for in 2015, but what organisations should be paying close attention to is the fast pace at which these trends are growing. It has been reported that 38% of four year olds currently use an iPad or tablet, a percentage which highlights exactly what the next generation are going to expect from financial services in the future. There is no hiding from the fact that emerging technology trends in the financial services industry are impacting businesses and that these implementing these trends are presenting challenges, however, they also seem to be presenting opportunities for financial institutions to increase business performance, innovate, modernise and even gain a completive advantage.
By Nicole Miskelly, bobsguide Lead Journalist