DURBAN - There’s no such thing as a perfect crystal ball for banking, so some of my predictions will undoubtedly be wrong nor is the industry perfectly homogeneous and global.
But if you’re a retail and commercial banking executive or even just an investor paying close attention to the industry, here are the issues that you should be paying attention to in 2019 according to Jigyasa Singh, Managing Director for Financial Services – Accenture Africa, and Alan McIntyre, Senior Managing Director and Head of Accenture’s global banking practice.
1. Banks will keep “unbundling” their services. Open Banking regulations from Europe to Hong Kong, Australia, Singapore, and — soon — Canada are fragmenting traditional retail asset and liability gathering in most markets. Open Banking – a term for common interfaces among banks and other third parties to facilitate more competition – creates new business opportunities.
In response to Open Banking, the UK already has 62 registered third-party providers, all of whom plan to take advantage of a fragmenting value chain. We will undoubtedly see more fragmentation in 2019 — along with, undoubtedly, efforts to re-bundle those components.
2. Banks will be keen to justify a “future premium.” Banks are taking a cue from tech firms, whether Amazon or some ‘A round’ startup, that have mastered the art of telling investors a compelling story about the future. Confidence in the business model evolution can command a ‘future premium’ of over 50 percent to current valuations.
In 2019, digital leaders among the traditional banks are going to need to show that the investment, creativity, and ambition that built their premium valuation has resulted in higher enterprise ROEs.
3. Banks will move to AI that won’t nag. Verbal AI banking capabilities have fast become table stakes. But what passes for advice often feels a bit like scolding. So banks are trying to offer more true financial wellness advice that doesn’t feel like nagging. Ideally, they’ll let you know if you’re unnecessarily paying more for utilities than your neighbor or if you’re burdened with an overly high mortgage payment.
4. The sun may begin setting on “community banking.” Instead, banks with a compelling digital customer experience are winning big everywhere. In deposits, the big three have only 24 percent of US branches, but took nearly 50 percent of new deposit-account openings last year. In contrast community banks have 50 percent of branches but have taken only 20 percent of deposit growth in the last 3 years.
5. The Chinese will keep going mobile — pulling the rest of us along, too. In a stunning transformation of retail financial services in China, Alipay and WeChat pay now have well over a billion regular users of mobile payments and conduct two-thirds of all global mobile payment transactions. Western bankers who dismiss what is happening as unique to China are making a mistake.
6. Fintechs are approaching a tipping point in the UK. Accenture research shows that the UK is the most disrupted traditional banking market in the world, with 15 percent of revenue and over a third of new revenue going to new entrants. The combination of eroded trust and a regulator keen to stimulate competition has as seen a plethora of new financial institutions appear.
While they have signed up millions of customers, the vast majority are secondary accounts. Less than 20 percent of their customers use these neo-banks for their primary checking. The reaction of the entrenched UK banks has been to launch their own digital challengers and upgrade their core digital services.
7. The prediction last year was that most big banks would stop short of ripping out their antiquated core legacy systems, looking instead to wrap them in digital services that enabled more speed and agility.
In 2019 we are going to see a lot of build activity on these new systems, with banks around the world experimenting with new technical architectures that are digital to the core. So far, these are mostly targeted at relatively simple retail and SME customers.
8. Banks keep pushing into the computing cloud. This past year the debate quickly moved from benefits of moving into the cloud to operating effectively within it. At the 2018 AWS re:Invent conference, while there was some bare iron pitches for migrating to the cloud, much more of the focus was on what you do with your data once it’s in the cloud and, specifically, the analytical tools available from cloud providers.
9. The boundaries between banking and the rest of the digital economy will continue to blur, and 2019 may be the year we see some of the big tech players make some definitive moves. There’s reason to think that Amazon and the rest of big tech will be forced to show their hands with respect to banking.
Major retailers, including Amazon, will need to decide whether they want to offer ‘account to account’ payments that bypass the card networks.
10. Banks will stop all the loose talk about “platforms.” The word “platform” has been stretched to the point where it has become meaningless, particularly in banking. A true digital platform business is an easily accessible two-sided marketplace that makes money by bringing buyers and sellers together and driving growth through network effects – think eBay, Airbnb and Uber. Amazon and Apple are only partly platform businesses.