Ben Robinson, Chief Strategy & Marketing Officer of Temenos
As the New Year beckons, it’s time to speculate about what 2016 holds. Here are eight predictions.
1. Talent management will be a much bigger issue. In Temenos’ annual banking survey, double the number of bankers compared to last year told us that attracting and retaining the right talent was their biggest priority. And it is in technology that the issue is most acute. Banking has become a relatively less attractive place to work at the same time as facing increased competition with all industries for the same kinds of scarce profiles, such as the best data scientists. The technology talent deficit runs across the whole organisation, with Accenture recently highlighting that banks’ boards have very few executives with professional technology experience.
2. From roboadvisor to bionic advisor. We believe that in 2016 the industry will pivot to talking more about the bionic advisor than the roboadvisor. In 2015, the industry became very excited about roboadvisors: automated, algorithm-based portfolio management services. As a means to reduce fees and democratise asset management, roboadvisors represent a major structural shift. However, combining roboadvisors with professional asset managers represents an opportunity to do the same, but with better performance – the algorithm makes the selections but is guided by an asset manager’s informed convictions.
3. Still not the year for the cloud… We stick by our prediction that, by 2020, all new core banking replacements will be in the cloud. Banks won’t have any choice. Firstly, the economics of banking is changing and this will force banks to share infrastructure costs. Secondly, if banks are to keep data secure, they will need to cede this responsibility to datacentre providers like Microsoft which have the resources and scale to invest in staying ahead of cybercriminals. Lastly, to cope with the massive rise in interactions resulting from the move to mobile and the Internet of Things, banks will need the scale provided by the cloud. That said, our data suggests that in 2016 at least we are unlikely to see a step change in the number of banks running core processing in the cloud.
4. …or the Blockchain. Blockchain technology is one of the best examples of Bill Gates’ maxim that we overestimate the change that will occur in the next 2 years, but underestimate the change that will occur in the next 10 years. There is no doubt blockchain will have profound effects on financial services, but it will take time for the benefits to crystallise. Right now, there are millions of people experimenting with the technology, but only gradually will they determine the right use cases to apply the technology to, establish standards and protocols, and form the consortia needed to generate massive efficiency gains.
5. From competition to collaboration. The benefits of collaboration between banks and fintechs will become increasingly clear for both sides. On the one hand, fintechs are small, nimble and innovative. On the other, banks have customer trust, large distribution networks and large balance sheets. Collaboration between banks and fintechs is therefore a win-win, improving the former’s capacity for innovation and giving the latter scale, credibility and route to market. In 2016 we expect to see many more of these types of partnerships, like the recent one between JP Morgan and OnDeck, with banks integrating fintech products and services into their customer offering.
6. Open banking will become mainstream. We expect to see more of a move to open banking, where banks use APIs to open up data and resources to third-parties. On one level, this is etechnical integration, or "fintegration", of fintech services, the latter interfacing directly to bank customers (rather than through, say, referrals). But, it is a broader phenomenon which will speed up the separation between the distribution and manufacturing of banking products. Banks will need to make a call about where they sit in the banking value chain: distribution platforms or resource platforms. Unlike fintechs, they don’t have the cost structure to be single product manufacturers. As our banking survey highlighted, the majority of banks see open banking as essential to competing against technology players like Google. But few see it a major priority today. We think that will change in 2016 as competition hots up, and with advance of regulations like PSDII.
7. The battle for the customer. In 2016, the fight to control banking product distribution will intensify. This will happen as more progressive banks transform themselves into sales platforms offering own labelled and white labelled products, as comparison sites and aggregators originate sales directly on bank platforms, and as the full extent of GAFA’s ambitions to go beyond payments and into distributing financial services becomes apparent.
8. Big rises in IT spending – and changes in how it is measured. The metrics we track all point to significantly higher IT spend in 2016, especially in areas like core banking, analytics and channels, which will be needed if banks are to offer customer intimacy at scale. We also think that banks will look at IT spend differently, moving away from measures like IT spend costs, which become increasingly redundant in a world of higher automation and fewer branches. Instead, we believe focus will shift to different measures such as the share of IT directed to innovation compared to maintenance, and the split of front vs. back office spending.
Matthew Key- Head of Customer Engagement at BT Global Banking and Financial Markets
Big data: Banks are just beginning in this journey. We can already see some examples where it has been done on a global basis but not many. However, going to next year, we’ll start to see banks using their customer data in better ways through various techniques, we’ll see greater profiling of their customers and it will enable them as banks to make decisions about things like credit more in real time. We’re also just beginning to see things around contextualisation, and that means via SMS or apps on smartphones. Now, instead of bulking out emails or SMS’ or app notifications, contextualisation will communicate whether you are in the right time zone, whether it is during the working week, whether your smartphone is on or are you driving. There will be a number of these different parameters that detect whether you’re going to be receptive to that message.
Bank Branches: Bank branches are absolutely going to stay. They are going to change their role and become much more service orientated and there are lots of examples of that out there. European banks are doing exactly this right now: they will become much more service orientated, have much more WiFi around, much more tablet enablement and have a much more retail shop form.
Cloud-based: The big thing that has changed this year and is going to change next year is the regulators’ stance on cloud based solutions. There is a much more enlightened attitude towards using the cloud because it can give you better agility, more cost efficiency, and it means for instance that you could enter new markets quicker. The issue around security of data has also become easier to understand. Not all applications are going to be cloud based but some applications that are more suited to cloud based activity will.
Security: There is so much innovation in security at the moment, and we see new examples every week. There are new approaches to security, making the overheads perhaps less burdensome at the same time. That is only going to continue into 2016.
Blockchain: It’s really interesting technology. In theory you can distribute things of value through blockchain architecture much quicker, and a good example of that is if you are trying to distribute aid to various parts of the world, humanitarian aid in the form of money. Through blockchain technology you could potentially distribute that more expediently to the people that really need it. So it has got some potentially huge advantages but at the moment it’s unproven. There is a big issue around security, that’s well known about; there’s a big issue about how it can sit outside the banking system and regulation. However, a number of banks that I speak to are looking at it seriously in a proof of concept and our regulators like the Bank of England are encouraging people to look at it. 2016 will be the year of development around it but I don’t think it’s going to become mainstream.
The Regulator: It’s improving. Clearly there is regulation that needs to ensure that the financial system is viable and that is all for the good: identifying risks. Some of those are stringent conditions but that’s good from an economic point of view. However, the regulators are trying to encourage innovation and competition. If this can be done, it will mean that the financial system is almost by definition more sustainable because you have fewer big players that are risks. So certainly the regulator will be encouraging innovation.
Tamer El-Emary, SVP & Group Head, Issuing, UK & Ireland, MasterCard
2015 was a seminal year in the way we pay for things. Every year has its milestones but this one is marked by large scale behaviour change among consumers and retailers.
This was the year that electronic payments overtook cash payments for the first time in the UK. We saw 560% year-on-year growth in contactless payments across our network but we experienced growth in many other European markets.
We’re embracing contactless payments like never before. Just look at Transport for London passenger use – and the effect that has in onward use of cards to tap and pay for everyday items – and it represents a seismic shift in confidence and adoption.
This opened the door for the increased £30 payment limit later in the summer and the recent news that London taxis will soon accept contactless. But it has also paved the way for all kinds of digital payment forms and applications.
Most notably, contactless is the solution-of-choice for the big mobile payment schemes. Apple Pay landed in July, and we’re seeing increased retailer acceptance of the payment option for transactions above £30 and most card issuers are now on board. As the new entrants arrive next year in the form of Samsung Pay and Android Pay, I expect this to have a multiplier effect on adoption and use of all of the mobile payment schemes, and further use of biometrics in the marketplace.
Fingerprint is already well established as an authenticator but 2016 will be a huge year with more applications and biometric types gaining traction – including our Identity Check product which uses facial recognition, and the Nymi wristband which works off the users’ electro-cardiogram or unique hearth rhythm.
Pay-at-table solutions took off this year, with Wagamama, MasterCard’s lead partner allowing customers to pay from their phones whenever they chose. More and more restaurants have seen the business benefits this has and are starting to adopt the Qkr! app, but this also has use in cinema and stadia environments.
This year’s Rugby World Cup was the first to see all of the stadia fully equipped for contactless, but I expect 2016 to see the reduction of queues and payment forms changing in social and cultural scenarios, and not just big retailers, but small businesses too.
And for the owners of SMEs, banks will next year develop more attractive and relevant card products targeting this group that squarely meet their needs, as opposed to the consumer propositions they tend to leverage today.
Lastly, looking ahead at 2016 we can expect banks to make a more aggressive play in the mobile banking space and offer customer much more.
Consumers are being surrounded by new payment choices every day but even in this digital age they continue to trust their banks the most for their financial needs. So while we are working closely with digital giants such as Apple, Samsung and Google to roll out their payment services, we’re also working with the banks to create their own payment functionality embedded within their existing hugely popular banking apps.
It’s going to be another very exciting year.
Liam Lannon, Payments Transformation Consultant, Sopra Steria
It’s the season when people look back over the year just passed – the good and the bad – and also start thinking ahead to what next year holds for them: their hopes, expectations and fears. The retail payments industry in the UK has similarly seen a year of highs and lows and the industry can look forward with hope and high expectations – if not a little fear – to 2016.
Firstly, the highs of 2015 – it was all about xPay: after a year or so of hype, Apple Pay finally launched in the UK on 14 July, to a mixed response. While Apple "fanboys" and "fangirls" were eager to embrace this "new way to pay", some of the UK’s leading issuers – HSBC, Lloyds Bank, Halifax, Bank of Scotland and TSB – didn’t queue to join up on Day One. Nonetheless, HSBC and First Direct were only a little late, announcing the launch of their support for the mobile payment product on 28 July, with Lloyds and HBOS joining on 28 September, and TSB on 17 November. The stand-out omission is Barclays who have announced their intention to join but who so far have been focused on promoting their bPay wearables product instead.
And the verdict? Statistics are hard to come by but feedback so far has been broadly positive, with 51% of Apple Pay users who were surveyed saying they are extremely satisfied with the service and 40% of those who have an Apple device confirming that they have used Apple Pay to pay for goods and services. Contrast this, however, with the 75% who have yet to see Apple Pay pay points or symbols and it is clear that overall customer awareness of the product still has a long way to go . Generally, the news is good for Apple with Apple Pay performing well in most environments, the London Underground being a notable exception, where commuters are sometimes frustrated by having to wait while an "Apple Payer" tries to use his iPhone or Apple Watch to negotiate his entry to the Tube system.
What? I hear you say. Apple Watch? Yes, the Apple Watch debuted on 10 April with limited stock available soon after. When Apple Pay was launched in July, watch-based payments became a reality for Apple Watch owners, and independent research published in August by Wristly revealed that 80% of Apple Watch owners had used Apple Pay to pay for goods and services .
While these statistics are impressive, it must be noted that even a large percentage of Apple Watch and iPhone 6 "Apple Payers" still only represents a very small number of consumers. The payment system may never reach the same level of ubiquity as contactless cards, even if over time the majority of iPhones in the UK market eventually become Apple Pay-compatible, so should we be making such a fuss about it all? Well, yes and no.
On the one hand, it’s only another way to pay, competing with the aforementioned contactless cards as well as chip and PIN cards, Oyster cards and good old-fashioned cash. However, it does promise a future where all you need to take with you when you leave home is your smartphone, certainly if your day will involve a retail payment or two – and perhaps even a Tube ride.
Overall, the arrival of Apple Pay heralds a new dawn for mobile contactless payments and allows users to load their own (participating) bank cards directly into the iPhone Wallet via a very straightforward registration process: as such, it can be seen as a user-friendly success.
Of course, 2015 wasn’t all about Apple Pay: other newcomers have thrown their hats into the mobile payments ring in 2015, notably Samsung Pay and Android Pay. While Samsung Pay has already launched in South Korea to some success (and confirmed a US launch in October 2015) and Android Pay is live across the US, neither of these two solutions has so far confirmed a UK launch date, even for 2016. At this stage, therefore, it is difficult to make any comparisons between these two planned implementations and the live Apple Pay product.
So what about the lows of 2015? EE have decided to close Cash on Tap to any new subscribers, suggesting that it may be the end for one of the more successful mobile contactless payment solutions to hit the streets in the UK. That it took Apple a number of months to launch in the UK after its successful debut in the US in 2014 was also a disappointment, although much of that could be down to the UK issuers negotiating with Apple over the distribution of interchange fees for Apple Pay transactions at point of sale. Perhaps the greatest disappointment of 2015 is that, despite the fairly extensive coverage of contactless terminals across the UK, there has not been the level of mobile contactless payment solutions (either NFC-based or HCE-based) which the analysts have been forecasting for a number of years.
With the likely arrival of Samsung Pay and Android Pay to the UK next year, perhaps 2016 will see a burgeoning demand for mobile payments and a significant spike in activity, encouraged by the increase in the contactless payment limit to £30 and a significantly larger pool of compatible smartphones – Apple, Samsung, LG and others. LG have even announced the launch of their own mobile payment system for the South Korean market, but there’s no news on when (or if) that system will be rolled out across Europe or the US. Dare I mention that the UK market is still waiting for the arrival of Zapp mobile payments? This payment solution, supported by VocaLink and based on the Faster Payments Service as opposed to the card-based solution which the "xPay" solutions have adopted, has seen launch dates come and go.
Maybe 2016 will be the year where everything falls into place and the market will be flooded with mobile payment products. We can only hope….