The financial landscape is rapidly changing due to new technology, new players and customer expectations, and financial services players need to be working on ways to enhance the customer experience. Globally, different regions are advancing faster than others and countries such as China are changing their banking models and encouraging disruption.
According to RBS and Capgemini’s World Payments Report 2015, non-cash transactions continue to grow. In 2013 there were 357 billion non-cash transactions, which Teresa Connors, Head of Client Engagement, Market Engagement, Payments says they expect to grow to 389 billion in 2014. These figures highlight that the acceleration from physical to digital payments is strong, however, Connors does not believe that physical cash will be wiped out in all economies in the next 10 years, because some economies still like to use physical cash. According to Connors, global non-cash transactions grew the most in China, at a volume of 37.7 percent which is largely down to the penetration of smartphones in small towns and government initiatives to provide more point-of-sale terminals to merchants. According to the report, China is growing so strongly that RBS anticipate that the country will be the fourth largest region, after the US, EU and Brazil, in the next few years.
“China is changing their banking models in a way that could be done globally,” Zennon Kapron, Founder of Kapronsia said during his keynote session on Chinese disruption. According to Peter Wong, Founding Chairman, IACCT and Director at PwC (China), China currently has issues with currency conversion, which Chinese banks are hoping to change. “Chinese banks are working on creating an infrastructure which will enable local currencies to be invested into other countries and converted back into local currency.”
Wong says that treasury management practices in Asia are also changing and in 2016 the Hong Kong Government is implementing rules which force existing companies to include risk management as part of their functions, which includes mandatory risk reporting and risk disclosures with shareholders.
According to Wong, due to rising issues with labour and tax, businesses will be outsourcing to other countries in the future. “In the next five to ten years China will have to come up with a strategy to handle rising labour issues, labour safety standards and tax. I expect to see more re-location of factories to Pakistan, India, Bangladesh and Africa.”
In recent years the amount of cash as total assets has risen significantly in Asia but Wong says this amount is not needed for day to day working capital. “If this large amount is put into bank accounts it gives a very low return, so the challenge for cash is how to invest it on a short term basis.”
On the risk side, Wong says that companies that borrow a lot of money often lose a lot of money during market-to-market valuation, which is why they need to understand what the treasury best practice is in managing FX risk. “They should understand their risk budget, look at market risk and volatility, and try to find which how much risk has to be kept.”
Kappron says that on the technology side, Chinese tech firms are seeing the opportunity in financial services and companies such as Baidu, Alibaba and Tencent are part of people’s everyday lives. Alibaba is able to process 80,000 transactions in 1 second and according to Haydn Shaughenessy, Co-founder of The Disruption House, have created scale that we have never seen before and are using common open-source technologies on a unique way. The business and IT culture is also different in China, with the business being “king”, compared to the developer given precedence in the EU, which also affects how decisions are made.
Other countries such as Switzerland are also developing innovative products and are facing a shift in their current landscape. Swiss Fintech is a newly established association, which is actively involved in the Swiss fintech scene and aims to create a network of fintech companies and stakeholders. According to John Hucker, President and Founder of Swiss Fintech, there are some interesting new products developed by Swiss companies around Peer-to-Peer (P2P) payments and near field communication technology. Hucker also says that he is interested in seeing what happens when Apple Pay and Google Wallet come into the country and start disrupting current payment systems.
Technology has been called an enabler by several industry expects at Sibos 2015, and it is technology that has the ability to change banks core platforms. Once again the emphasis on the customer was evident at Sibos this year and according to David Blair, MD, Articulate Consulting and moderator of ‘The future of corporate banking’ session on Day 3, the industry has yet to feel the benefit of the internet the way the consumer has.
In a plenary session dedicated to Internet of Things (IoT) Patrick Maes, CIO and general manager of Strategy and Planning at Global ANZ said that IoT for banking is “connecting better with our customers” and that IoT has the potential to help banks define context for customers. Banks also want to be able to provide real-time banking globally, which Michael Gorriz, CIO of Group Technology and Operations at Standard Chartered believes IoT could facilitate because IoT devices do not sleep. The concept of knowing your customer better could also be achieved using IoT because this technology enables more integrated end-to-end customer experiences, according to Oliver Bussman, Group CIO – Group MD, UBS.
The banking industry prides itself on being a trusted custodian of customer’s finances, however, societies concept of trust and what people want from a bank has changed. “Trust today is the fulfilment of expectations,” said Gorriz. Millennials are a generation that expect a different banking experience, and although only a small percentage of Sibos delegates can be considered millennials, Innotribe in particular have been encouraging banks to look at what this generation want from them and in a hands on workshop, banks were given the opportunity to generate ideas amongst themselves with scenario worksheets labelled engagement and trust etc.
When it comes to corporate treasury, Damien Glendinning, Treasurer at Lenova said that the current treasury process is user un-friendly and that unclear regulations are causing banks to go overboard. He also said that treasurers are fed up of paying banking fines and he believes that if banks are not careful disruption could come from new players and treasurers could decide working with them would be easier.
Overall, there is a sense that something needs to be done, but many industry players do not know exactly what to do with new technologies. This is where collaboration comes into play and vendors such as Broadridge are help organisations to implement innovative technology. According to Vijay Mayadas, Senior Vice President, Corporate Strategy and M&A, Broadridge, they have been seeing a lot of uncertainty in the industry around what sort of technology and operating models banks should adopt. A lot of this is driven by struggles with economics with their business models since the financial crisis. “Previously the idea of more transformative technologies and operations model was perceived to be risky, over the past 6-8 months our clients are more willing to take a risk.” In light of this, Broadridge have produced a white paper ‘Charting a Path to a Post-Trade Utility’ outlining how mutualised trade processing can reduce costs, help rebuild global bank return on investment and ensure that banks remain competitive in current changing landscapes.
Wong believes that banks are currently getting closer to regulators than customers and need to focus on investing in three things; people, technology and the future. Closing the IoT plenary session, Cathy Bessant, CIO and Technology Officer at BofAML gave delegates something to think about moving forward…“Every single decision has to count,” she said.