The banking trends of 2019 will be dominated by innovation. It may sound glib, but it will be true as ever. Whether this comes from blockchain, IoT, Open Banking, or whatever does not matter; innovation will be at the heart of it. Patrick Brusnahan speaks to experts on the matter
Luke Ryder, Director – External Engagement for Open Banking, Barclays
2018 saw the UK’s financial digital revolution take a big step forward with the launch of Open Banking.
The initiative – part of the CMA’s retail banking remedies supported by the UK’s nine largest banks – gives consumers the ability to let third parties securely ‘plug into’ their bank and access their financial data, paving the way for a world of opportunities. Importantly, it allows this to be done safely and securely through the use of APIs, negating the need for ‘screen-scraping’ – or, in other words, handing over your username and password.
This year we are already seeing emergent use cases. In September, we enabled our customers to safely and securely bring their accounts from other banks into their Barclays Mobile Banking app.
I expect that 2019 will be the year when we will start to see real innovations emerging, providing customers with more control over their finances, and better-value and quality services and propositions.
But – and it is a big but – this will only happen if, alongside the technical innovations, all those participating in the Open Banking ecosystem ensure that they take consumers with them on the journey.
Sharing data is – although potentially very beneficial – also a big step for many. So we as an industry need to ensure we build consumers’ trust in this new approach to their data, and that they feel confident and in control of picking which opportunities they want to engage with.
It is all well and good unlocking the vault to this rich source of transformative information. But people need to know that they, and they alone, hold the key.
So we must focus on building our customers’ trust – offering them experiences that meet with their current appetite and putting them in control every step of the way. Then, and then alone, will Open Banking really take flight.
Oliver Hughes, CEO, Tinkoff Bank
Tinkoff has had an excellent 2018.
I believe powerful ecosystems are the way forward in banking, and you need scale, interface and data analytics to build one. This all requires IT, so if you cannot attract the right tech talent or cannot develop your own systems with rapid time to market, you will increasingly be in trouble.
In addition to its core financial services, Tinkoff has been growing its ecosystem by expanding the number of lifestyle services, which now encompass cinema, theatre and concert tickets, travel services, restaurant booking, taxi services and machine learning-driven content. And customers can do all of this without leaving our award-winning mobile app.
The target is 20 million customers
This in turn has driven our DAU/MAU [daily/monthly active users] – which are almost doubling each year – and we have seen that the average mobile app session time has risen to four minutes.
This means more engagement and loyalty from our 8 million customers. Our medium-term ambition is to grow our customer base to 20 million accounts. Tinkoff Black, our current account product, is the feeder for much of the cross-sell that is becoming an important driver of growth. The rising stars in terms of our non-credit operating income are Tinkoff Business, serving the needs of SMEs, and Tinkoff Investments, a brokerage platform, allowing users to invest in over 1,000 securities – sucxh as equities, bonds and ETFs – around the world. We are disrupting a whole range of financial segments.
With an eye towards the younger generation, we have also rolled out Tinkoff Junior to help kids and teenagers learn about personal finance, while giving their parents appropriate controls, like setting spending limits.
Most of our business lines are doing very well and we remain highly profitable – ROE grew to 72.9% in the first nine months of 2018, versus 48.8% for the same period in 2017. Coupled with a tighter cost regime and very good risk metrics, we are in great shape and have recently revised our net income guidance upwards for this year to at least RUB26bn.
We believe 2019 will be the year that sorts the wheat from the chaff, and reveals which financial services players are really able to implement AI solutions – as opposed to just talking about them at every opportunity. This powerful suite of technology, in the right hands, will drive user experience and efficiency. Watch this space.
Nick Kerigan, MD – Future Payments, Barclaycard
This year we saw two major milestones signalling a shift away from cash as the dominant payment method in favour of more digital technologies; in June we saw debit card transactions overtake cash for the first time, and then in October in-store contactless payments overtook chip and PIN.
Today’s consumers are looking for fast, simple and – above all – convenient ways to pay, and the latest technology to ride that wave is invisible payments, which are increasingly becoming part of our everyday lives. The way forward for this technology was paved by popular transport apps like Uber and Lyft, allowing customers to pay for journeys simply by getting out the taxi and walking away, with payment taken seamlessly in the background via an app.
Invisible payments accelerate
While these early examples emanated from the transport industry, in 2018 invisible payments were increasingly adopted by other sectors, especially retail and catering.
This year, for example, Barclaycard trialled Dine & Dash in partnership with high street restaurant chain Prezzo, allowing diners to pay simply by walking out of the restaurant at the end of the meal, avoiding the sometimes painful process of waiting and paying for the bill.
Supermarkets and retail stores also adopted invisible payments. Take the widely publicised Amazon Go stores, where customers simply walk into the store – and out with their shopping, with payment taken invisibly by passing through sensor-equipped turnstiles. Barclaycard previously trialled a similar innovation, Grab+Go, at our staff canteen in London.
Welcoming new technologies
In many ways, 2018 was the year invisible payments went mainstream. In 2019, we expect to see several other technologies come to the fore of payments experimentation and innovation.
With IoT and smart appliances becoming more mainstream, retailers are marketing everything from connected fridges to smartwatches – opening up opportunities for many different payment touchpoints. In 2019, we expect to see more companies explore how they can combine payment capabilities with IoT devices.
However, given that consumers typically replace their white goods gradually over time, it will be a while before we are living in a world where IoT is embedded into every device in our home. Having said that, it is vital that IoT hardware providers are already placing data security and privacy at the heart of every product, otherwise these devices could become the weakest link in the chain for fraudsters.
The other trend we expect to see take off in 2019 is wider use and availability of AI by all businesses. The rapid growth in the volume of data available, coupled with the fact that the tools required to analyse that data are becoming cheaper and easier to use, mean 2019 will be the year more businesses use AI to inform business decisions, create innovative payment experiences, and power new digital finance products.
Lee Rubin, Senior Associate, Pillsbury Winthrop Shaw Pittman
2018 has brought a massive change in the banking and financial sector, due to the ever-increasing consumer expectations driven by technology and nimble fintechs. Together with an uncertain geopolitical environment and ongoing historically low interest rates, this new context has brought new challenges to the sector, but also brings new opportunities for transformation.
Transformation technologies are more readily accessible, economical and powerful than they have ever been before. While cost reduction will remain an imperative for the sector as always, 2019 will see financial services operators seek out partners to deliver continuous innovation in order to attain new sources of profitability, reinvent the ways in which they service their clients, and strengthen their competitive positions in the market.
The growth in demand for continuous innovation in 2019 will paint a fairly optimistic outlook for banking and financial services firms in particular, as they look to increase outsourcing of back-end functions. We will see financial services firms overhaul back-end processes in an effort to reduce costs in servicing customers. New operating models will be sought to improve end-user experience and efficiency, ultimately focusing on replacing legacy operations.
Firms will look to the digitisation of operations using the latest technological developments, with AI and machine learning becoming mainstream as firms seek increased efficiencies and more personalised services. While 2018 saw fintech development effect extensive advancement in the banking and financial sector, 2019 looks to consolidate and extend these changes into a new frontier.
Flavia Alzetta, CEO, Contis
Fintech innovation is showing no signs of decelerating; 2018 has been an exciting and fast-paced year, and we expect no less from 2019. One of the trends that is likely to explode is the use of artificial intelligence for financial services, especially when applied to help organisations across the world fight fraud.
McAfee predicts that fraud is costing the global economy $600bn, and companies across the globe are doing their utmost to try and combat this ever-increasing and complex tech-enabled threat.
Advances in AI technology have led to the prevention of fraud in real time, as it is now capable of tracking patterns and behaviour imperceptible by humans. AI can even analyse photos, videos and audio files to aid in the fight against fraud detection, drawing in information from myriad sources to make much more accurate predictions and support customers in their fight for security and access to finance.
Innovators continue to build, connecting AI and machine learning technology to advanced APIs to improve automated reaction to fraudulent activity. What we believe is to come from this technology is a wide roll-out across the financial services industry as it becomes accessible to the mass market.
One aspect holding organisations back from AI has been difficulty of implementation. However as more providers add this fraud-detection technology, more financial institutions can benefit from real-time fraud detection in a safer financial ecosystem.
Chad West, Head – marketing and communications, Revolut
In true Revolut fashion, we do not just focus on one thing: we always strive to do several things – and do them really well.
One of the biggest highlights has been customer acquisition. At the end of last year Revolut had about 1.5 million customers and already we are 3 million strong. The growth has been way beyond our expectations to the extent that we grew from 3,500 users per day to 8,000 users per day.
Customer acquisition in Europe has been a key focus, and we have continued to grow rapidly. There are a lot of fintechs who, three years on, are still not generating much revenue. What was encouraging for us last year is we increased our revenue five-fold. We are on track this year to also increase it another five times. This means that as we are growing we are making money, and it shows that our model is viable.
Our most difficult year to date
Next year will probably be our most difficult. Expansion is a huge challenge: it is upscaling everything. We have already secured all the licences, so now we are just waiting on technical stuff and making sure we are upscaling all our team. We are covering a lot of countries in 2019, so it is about finding talent – and finding it fast. We already have big waiting lists in the markets where we are set to launch.
Looking to 2019 I want to see Revolut successfully launch in all these markets, and make sure that when we do launch there is a lot of noise. It is not only about getting media coverage, but running our local community events, adapting our marketing strategies to be more local and central to those markets and, of course, hitting numbers – making sure the targets we have set ourselves for the first six months are being met, and that we are always growing.
The other thing that I think will be huge next year will be demonstrating that Revolut is living up to its ideals of giving you everything finance in one app. We will also be launching our commission-free stock trading; basically, what Robinhood is doing in the US, we will be launching that in Europe. That will equally bring more growth, and it is a whole new proposition because it is not standardised banking: it is a completely different industry that has not been disrupted in this part of the world. It aims towards our goal, and that is getting more people to use Revolut every day.
User numbers skyrocket
This is getting much better, and we are seeing weekly active users skyrocketing. Obviously there are people out there who are using their Revolut account exclusively for travel; we want to encourage them to use it every day, and it is working. My job is to make sure it works even more.
We recent ran a really up-front campaign asking our customers to refer friends and family. Those who signed up got their card for free and delivered in a few days. It worked: we signed up 17,000 customers in one day – one every five seconds until 8pm that day.
Next year is going to be pivotal – between the banking licence, commission-free trading and international expansion we have a lot of work on our hands. One of the best things about Revolut is that it always reinvests profit back into the product.
Jim Tomaney, COO, Renovite Technologies
2018 has been a bumpy ride in the financial services sector, perhaps no more so than in banking specifically. Plagued by the ills of legacy technology, both banks and those service providers attached to them – including the likes of Visa and the UKFPS – have been dealt major high-profile blows by IT failures, resulting in extensive service outages and some less-than-pleased customers.
Reports about major banks, including the likes of RBS, TSB, Lloyds, Nationwide and Barclays, as well as newer players like Monzo, are practically updated weekly, if not daily. The Telegraph recently reported that between July and September alone, there were over 100 failures in the sector.
2018: the year of the IT meltdown
While these IT meltdowns are all somewhat different in their own rights, they are not mutually exclusive. Loitering behind many of these unfortunate blunders sits a consistent theme: old technology trying to operate in a new world.
Core banking systems implemented using modern technologies and often deployed in a public or private cloud find it very hard to connect with legacy systems embedded in outdated systems and protocols, and vice-versa.
The reputational damage of these failures is immense and long-lasting. There is the obvious and immediate impact of the negative media reports. There is the social media unrest the organisation will have to absorb and manage. Lastly, there is the fact it is now easier than ever before for consumers to change where and how they bank.
The City watchdog has said banks have a maximum of two days following a technology failure to sort things out, and must officially report any and all service issues. Put simply, it is an issue the banking sector is being asked to address from above and below.
Doubtless, 2019 will bring more issues, but perhaps it will be the year attitudes to technology change. Things do not have to be this way. The monopoly that mainstream banks once had is diminishing. Fintech has democratised financial services in a very short space of time, and the window for complacency is shrinking. And when the house is full, it is up to the decision makers to decide if they want to remain on the front benches or watch from somewhere near the door on their way out.
Tony Hammond, Managing Director, FreedomPay Europe
Payment card data is deemed to be personal data, and the introduction of the new GDPR regulations and potentially associated fines in the event of a data compromise has spawned unprecedented demand for PCI P2PE-compliant solutions to help reduce associated business risks and operating costs.
Contactless payment acceptance continued to see exponential growth across many sectors in 2018, spurred on by the benefits of faster, convenient service and the opportunity to pay using a variety of payment instruments.
In the hospitality sector in particular there is a noticeable trend in self-service, with demand for either semi-attended and unattended payment solutions. Consistent with the wider expansion in e-commerce generally, there is also a corresponding growth in internet payment acceptance, as well as in technologies that facilitate payment through consumer-owned devices.
Intelligent payment solutions
I predict significant growth in demand for intelligent payment solutions that drive consumer loyalty while incorporating revenue-generating services for merchants. Technology is getting smarter, and merchants and consumers are more savvy when it comes to payment experience.
Also, many payment terminals that fail to comply with modern data-security standards will reach end of life in 2019. Card brand mandates will also come into effect, demanding upgrade or replacement of non-contactless enabled legacy devices.
I expect to see sustained demand for validated PCI P2PE, giving merchants the opportunity to upgrade to higher-security and functionally rich terminals that meet industry mandates. Strong Customer Authentication – an integral requirement of Europe’s PSD2 regulation – also comes into force in 2019, and will change the way in which internet transactions must be performed.
Cristina Astore, International Division Director, SIA
2018 saw a number of significant developments in the financial services industry, which are likely to bring very attractive – and sometimes ground-breaking – new ways to consider how we make payments and manage our accounts.
Firstly, the deployment of Instant Payments by an increasing number of banks in the SEPA area proved to be a success, passing the 5 million transactions mark in October. In 2019, we foresee an acceleration of the move towards them, with more financial institutions joining EBA Clearing’s instant payment system, RT1, and also the European Central Bank’s TIPS platform.
With more account holders able to send and receive Instant Payments, we are likely to see this new method of payment increasingly adopted alongside the more traditional cards.
However, Instant Payments have to be integrated in the retail environment to be more successful. To adopt it, consumers should be able to pay seamlessly and securely with their smartphone in shops or on the internet. Many fintechs are experimenting with solutions in that direction, but they will have to co-operate with banks to make them interoperable and reach critical mass. Service providers that cover the whole value chain, from the point of sale to the current account, will be in the best position to benefit from this move.
Secondly, the most disruptive change introduced by the revised Payment Service Directives, the ability for third-party payment service providers to access any bank account, will also boost adoption of Instant Payments for retail when PSD2 really goes into force in 2019. Furthermore, the convergence between cards and digital payment actors – which started in Italy in 2018 with the agreement between Italian domestic card scheme Bancomat and SIA to use its mobile real-time payment service Jiffy, to be branded Bancomat Pay – will not remain isolated, with other domestic schemes teaming up with electronic payment initiatives.
Finally, the multiplication of blockchain implementations, such as the SIAChain private infrastructure, promises to provide innovative applications in many areas of the industry and beyond.
Sankar Krishnan, Executive Vice-President – Banking and Capital Markets, Capgemini
The banking sector and financial markets are in the midst of a major turning point, and 2018 has represented a setting of foundations. Fintechs and tech firms are flipping the dynamics, both intentionally and as a result of other industries evolving, which has led to increased competition in both.
Fast-paced innovation and pioneering products and services introduced to customers by fintechs and bigtech firms have increased expectations. Customers now demand a similar digital experience from their banks.
While traditional banks are not always perceived to be particularly innovative or agile when compared to incumbents, digital transformation is a huge business priority for banks across the sector.
Faced by the threat of tech firms with the scale and resources, as well as digital-only challenger banks homing in on a few key offers, the traditional banks are having to broaden their plans and consider partnerships and collaborations. With overreaching – and overcrowding – not all will survive, but this process will ultimately lead to better options for customers in 2019.
Another driving force for collaboration across the industry is emerging technology. Advanced expectations for AI, blockchain and machine-learning technology are still years away. These technologies did not change the world in 2018, and will not in the next year. However, we are starting to see greater use and reliance on them as they continue to develop. In 2019 we should expect to see use cases of people using blockchain for payments in a regular capacity. Consequentially, data storage across all technology media will become a key issue as more people have affordable access.
As banks adopt emerging technology to transform themselves, we can expect investment in data security and compliance to go up. In 2018, cybersecurity remained the top strategic priority for banks. With increased adoption of cloud, API-led Open Banking and new business models, this trend is likely to continue.
With new technology and more collaboration, 2019 will test the finance industry’s ability to adapt and evolve. The priority for firms of all shapes and sizes will be to accelerate developments to create impact and invigorate new customers.
Mark Gazit, CEO, ThetaRay
The complexity of attacks will continue to grow as criminals increasingly use AI to conduct their schemes. Banks will receive more fines for money laundering because they will have a decreased ability to protect themselves.
Rogue regimes will also use AI to achieve their cybercrime goals, including election fraud, social media manipulation, money laundering and more. Perhaps worst of all, AI-enabled money laundering will create a greater flow of money to criminal organisations to finance narcotrafficking, human trafficking and terror attacks.
On the bright side, new advances and AI technologies will help financial organisations, critical infrastructure and enterprises.
Hartej Sawhney, Blockchain, CyberSecurity Entrepreneur and Co-Founder, Hosho
Despite the recent negativity around initial coin offerings (ICOs), it is still a massive highlight of 2018 for the global economy. The world witnessed nearly 1,000 companies raise $22bn in 2018 by leveraging the ICO fundraising mechanism, according to CoinSchedule.com. ICOs raised more in the first quarter 2018 than all of 2017.
At the same time, in 2018 around 10% of all of the money within the ICO ecosystem was either lost or stolen. For example, $500m worth of cryptocurrency was stolen from CoinCheck in Tokyo.
2019 is the year of tokenised assets via security token offerings (STOs). Most ICOs will convert into STOs, as they were never utilities to begin with. The world will see its first securities token exchanges go live in 2019. Liquidity is the name of the game; companies raising STOs will use the help of licensed broker dealers in multiple jurisdictions that also have the ability to market make.
A lack of legal framework for securities tokenisation in jurisdictions around the world has largely hampered the ability of companies to tokenise assets. Nevertheless, jurisdictions such as Gibraltar, Malta and Bermuda are leading the way in providing regulatory clarity for security tokens.
Looking ahead to 2019, we will continue to see large-scale data breaches such as the recent hack at Marriott Hotels/Starwood Properties. Companies need to make sure that they are getting regular penetration testing and hosting bug bounties. Cryptographic techniques such as zero-knowledge proofs will enable customers to truly own their own data – once the asset is tokenised.
Rahul Singh, President – Financial Services, HCL technologies
Looking back at what 2018 has brought to financial services, you do not need to search for long to see examples of fintechs offering more to consumers and businesses alike.
Cryptocurrencies and blockchain in particular have taken off this year: take Robinhood’s offer of crypto trading without charging a commission, and we.trade launching its digital blockchain platform to connect every party in trade transactions.
In its relatively short lifespan, cryptocurrency has really shaken up how we think about banking, and from the looks of 2018, it is here to stay. Going into 2019, banks must seriously consider how they can harness this new form of currency. Put simply, if they do not capitalise on this digital opportunity, traditional banks will lose out to the emerging breed of fintechs dominating the banking space.
Banks will learn to cut dependency on legacy systems
When it comes to banking products, looking forward into 2019 reveals a serious need for banks to address their dependency on legacy applications. They are one of the biggest barriers to agility and innovation, and restrict the adoption of newer, more efficient technologies. Recently founded fintechs, by contrast, do not depend so heavily on these outdated systems, so are better positioned to maximise the potential of emerging technological advancements.
Take, for example, Cobol, the 60-year-old computer language that still powers 95% of ATMs and 80% of in-person transactions. One recent estimate suggests that there are 220 billion lines of Cobol code running across banks today. Worryingly, however, young programmers in the next generation are attracted by the prospect of using systems like Python, Java, Erlang and Scala.
Failing to implement such applications means traditional firms not only fall behind their newer competitors financially, but risk missing out on attracting the best new talent.
As 2019 looms, the need for banks to innovate their use of technology is more pressing than ever. A common issue that all banks face is the constraint placed on their agility and nimbleness by legacy platforms. In such a scenario, banks will need to evaluate the value of their assets and the investments for up to date platforms.
The options are threefold: leaving things as they are without spending; ripping and replacing them; or, best of all, integrating new technology. While platform modernisation is a priority, the target is to increase efficiency or have more agile business processes; that is why banks need to consider the trifecta of applications, business processes and infrastructure services for effective and enduring change.
Banks will realise PSD2 is not a threat
It will not all be doom and gloom for banks in 2019, however. The EU’s introduction of the PSD2 and the UK’s implementation of the Open Banking initiative are regulations that were initially viewed as threats to traditional firms.
Over the next year it will become increasingly apparent that this is not the case, however. In fact, such initiatives are actually opening doors for banks to forge creative partnerships and adopt platforms that deliver a wealth of new digital solutions.
As the scope of new products and services widens, banks will be given the opportunity to innovate and experiment with new technologies, allowing for greater collaboration and partnerships with smaller firms.
Among the many challenges of the new digital era lie some exciting opportunities to break traditional siloes and take advantage of emerging technologies. Only by taking these opportunities can banks succeed in the mission to enhance customer experience, promote stickiness and keep up with competition from fintechs in 2019.
James Mawhinney, md, Mayfair 101
It comes as no surprise that the value of the cryptocurrency market has declined sharply. This is due to a large proportion of companies offering digital currencies having flawed business models coupled with minimal or non-existent underlying assets and inexperienced, technology-focused management teams.
That said, the impetus the cryptocurrency market has provided for blockchain as a technology platform to create efficiency, security and transparency is evidenced by the large number of companies now dedicating resources to implementing it. The investment world is also waking up to the fact that blockchain is providing a platform for securities to be issued on a more specific or ‘fractional’ basis, which further devalues the utility-based coin offerings which in reality offered little or no utility to their token holders.
Banking trends of 2019 forecasts
Blockchain technology is here to stay, and may be likened to the advent of the internet and the corresponding bubble in the late 1990s. The blockchain industry will develop a level of sophistication and, rather than being supported by cryptocurrencies, it will be supported by security tokens, which offer investors the ability to participate in asset-backed investments, which may include tangible or intangible assets and income streams.
The term ‘cryptocurrency’ is likely to be redefined to focus on those currencies that are being formulated as true mediums of exchange or ‘legal tender’. Companies such as Mynt are developing data-backed currencies that have the potential to create a real competitive threat to other fiat currencies as, unlike Bitcoin, they are asset-backed with a corporate structure driving their mass-adoption for offline and online merchants at scale. Security tokens are already being touted as a more sensible investment option, as they provide true ownership of an underlying asset in a company rather than a speculative investment in future utility.
Perhaps one of the most exciting developments will be the launch of security exchanges on which security tokens can be traded, just like shares can be bought and sold on stock exchanges around the world. Over time, this will lead to consolidation among the exchanges until only a couple of large ones remain, much like the search engine industry consolidated with Google, Yahoo and Bing accounting for over 90% of worldwide searches (excluding China).