By Laura Crozier, Global Senior Director, Industry Solutions, Financial Services at Software AG
Fear and uncertainty in markets, plus giant leaps in technological advances, mean that 2020 will look very different indeed for banking and insurance companies. By the end of the year, the survivors will have progressed so far down the digital transformation road that, starting soon, they will be unrecognisable compared with the past. And the losers will fade into the background – either acquired, or as financial services plumbing.
Here are my 2020 predictions:
1. Clouds on the Horizon & Lipstick on a Pig
Banks have always over-hired and then overfired as the economy rolled through its cycles. Every day we read of layoffs taking place in all corners of the world – but this time it will be different. The majority of the positions that are being cut will not come back.
A potent combination of flattening yield curves and negative interest rates, trade wars, the election year in the US, Brexit, and fear of economic slowdown, will propel integration and automation projects across the mid- and back-office to reduce costs and increase accuracy permanently. Companies of all sizes have come to the realization that a good CX needs end-to-end digitalisation, otherwise it’s just “lipstick on a pig.”
2. Be Afraid, Be Very Afraid
Banks will accelerate moving to the cloud and taking on value-add partnerships in response to the Asian titans Alibaba and Tencent. The world’s largest retailer Alibaba, owns Ant Financial and Alipay with one billion clients, and Tencent, the world’s largest gaming companies, owns WeChat. They, are leading the world in financial services and payments products and have discovered the secret sauce for creating value out of data: Cloud for scalability and AI for perishable insights.
Separately, neither big tech nor banks have this capability. But together, they do – and the West is taking note. Witness the recent announcement of the Citi /Google partnership. And Facebook’s faceplant with virtual currency Libra, saw big tech get a painful lesson in jumping through banking regulatory hoops.
3. Your Bank Account will have a Brain
With the firehose speed of 5g data transmission, and the ever-increasing sophistication and effectiveness of AI, banks will cease to interact with their retail or commercial clients in a reactive fashion. By analysing cash flows, behaviours and trends, banks will step forward as partners in financial management. They will proactively assess if, for example, your utility bill that will be automatically paid is appropriate given your historical consumption and the weather patterns, and either pay it or flag it accordingly. For commercial clients, banks will proactively offer up credit lines given an analysis of their working capital history versus current requirements.
Banks will also have to sacrifice overdraft fees (£2.4 billion in revenue in 2017 in the UK alone) because this act will promote stickiness, and because technology will never allow overdrafts to happen.
4. Better to Prevent an Accident than pay for one
Rather than shell out for risk events after the fact, insurers will double down as partners in risk prevention and control, particularly with business clients. Commercial customers are much more willing than retail clients to share data, knowing that it can help improve risk control and prevention.
For instance, while an individual might be reluctant to use a wearable to share biometric information with a health insurer, companies will have less qualms insisting that their fishery, construction, or steel workers wear wearables to prevent injuries in high-risk situations.
WHAT DOES 2020 LOOK LIKE FOR P2P LENDING?
By Roberts Lasovskis, Investment Platform Lead, TWINO
It’s a new year; time for resolutions and forward planning, positivity and drive. But the peer-to-peer industry would do well to engage in a bit of introspection as well; a look back to the year gone by, which serves as a more than useful reminder of what can happen in less propitious times, even for the well-intentioned.
2019 saw two major failures in the European peer-to-peer market, with both Lendy’s collapse in May and FundingSecure in October putting investor capital at risk. Between the two, a combined £240m of savers’ money was put at risk, leading to the inevitable questions of regulators. On top of the two lenders failing, the well-established Funding Circle came into difficulties with its new withdrawal processes raising investor concern. But in all three stories from last year is a sign of how peer-to-peer can succeed in 2020, providing last year’s lessons are learnt.
There is one aspect of the two peer-to-peer collapses last year that stood out for much of the criticism from both media and investors. Both Lendy and FundingSecure came advertised as ‘approved by the FCA’, yet in collapse, both displayed structural faults and warning signs that should perhaps have been noticed earlier. Managing credit risk is an expensive learning process, but should be taken very seriously, and using as many data sources and as much testing as possible. Inevitably, these high-profile failures will cause a tightening of regulation across the industry, which should be welcomed.
The industry should embrace the ongoing development of its regulation – it is not something to just be tolerated and survived. Higher levels of scrutiny from administrators lead to better industry structures and more robust business models that generate greater trust from consumers. This is an inevitable step for a maturing industry, and now is the time for peer-to-peer to ensure its regulations are fit for purpose, and that investor money is not put at unnecessary risk.
But regulation is about more than just stopping the high-profile failures and helping to build consumer trust in the sector. When implemented properly, regulation encourages the development of better products; companies are forced to innovate and adapt to meet the new challenges, eliminating the number of shortcuts or ‘easy options’ that are taken when developing a product for consumers. Ultimately, this creates safer and more sustainable returns for investors.
Transparency is key
One of the major lessons the past year has taught us is the importance of transparency, particularly when communicating with investors. But whether it’s investors, borrowers or other industry partners, transparency and clear communication are key to rebuilding trust in the P2P sector, and even as specifically as in individual products or companies. Take Funding Circle as an example. It is undoubtedly one of the most successful businesses in the sector, and yet has been suffering a recent crisis in trust, which has been largely caused by customers not fully understanding what procedural changes are going to mean for their money.
The changes in question are not necessarily the full problem. The model is no less safe, and the business is no less high-profile. Nor do investors automatically object to the idea of a delay before they can access their money (look at fixed-term savings accounts for example). As with all peer to peer lending platforms, it is simply a question of understanding risk – customers misinterpreted the changes as a sign that their money was under threat and understandably rushed to protect it.
The customer is king
Fintech exploded as a sector in the wake of the 2008 financial crash, as a reaction to bad practices in the financial services industry. The industry was created with a promise of ‘customer-first’ products; solutions to fix the shortcomings in finance and financial services, and to pivot them back to a consumer-focus. From product development to marketing and communications, peer-to-peer must remember where it came from and ensure that the customer always comes first.
This is particularly important should another economic downturn materialise, as many are predicting within the next couple of years. Fintech businesses emerged as the success stories from the last downturn by creating solutions that focused on their customers. They should do so again.
For all the perceived problems in the P2P sector, the fundamental market for the products have not changed; investors who want to generate good returns still need to be connected with those seeking convenient loans. By remembering where it came from, and the problems it set out to solve, the sector can still thrive in 2020, even if the predicted economic downturn does transpire. To avoid the pitfalls other providers have fallen into, peer-to-peer must embrace regulation, communicate with transparency and focus on leveraging their expertise to provide trustworthy customer-centric solutions.
WHAT ARE THE PAYMENTS TRENDS FOR 2020?
By Sunil Dixit, VP of Product, Adyen
There are some big changes in store in 2020, some obvious, some less so. In the payments landscape, it’s all about user convenience and customer experience, whether that’s through increased security for card users, or new ways to pay. Fragmented payments systems and services, from online to in-store, will move towards a unified centralised payment stack. We think there are a few trends to watch in 2020.
Ecommerce is continuing to expand and it’s supporting the rise of the subscription economy and innovative platform business models. With more sensitive card data than ever being shared to complete payment at the checkout, protective steps must be taken to secure this information by all parties. To combat the rise in fraud, tokenisation will become an increasingly common way to protect payment details. In the first half of the year 140,344 fraud attacks were recorded by RSA’s Fraud and Risk Intelligence (FRI) team. That represents 32 attacks every hour and is an increase from 86,344 in the last six months of 2018. So, what is tokenisation, and how can it help?
Tokenisation is used to safeguard a card’s payment card number (PAN) by replacing it with a worthless, unique string of numbers – a token. Payment tokens are generated per card, per merchant. This means that the customer’s sensitive PAN is substituted by a token and not transmitted during the transaction, making the payment more secure. The beauty of network tokenisation is that it helps protect businesses and customers from the financial hits of data theft. Even if hackers manage to steal tokenised data, they cannot use the stolen tokens to pay online since they are unable to link the token to payment information stored securely by the payment partner. Furthermore, network tokens are always up-to-date. If your payment card changes after a loss or theft, the token can still be used to pay, ensuring you can continue to enjoy streaming services without disruption.
Strong Customer Authentication (SCA)
The implementation of the second Payment Services Directive (PSD2) will continue to roll out across Europe in the new year, with certain transactions requiring authentication for purchase. 3DS 2.0 uses the full capabilities of mobile devices to create a more secure way to identify the customer, without adding friction to their checkout experience.
Some banks are expected to launch SCA in a gradual fashion over the course of 2020, with others not going live until the end of this year. This is due to the European Banking Authority announcing a delay in the deadline of PSD2 enforcement to 31st Dec 2020. There is still a lot of ambiguity for merchants looking to ensure they are able to support the new directive. With the possibility of EU regulators enforcing PSD2 at different times, businesses will need technology that can dynamically apply SCA to ensure payments aren’t declined due to SCA not being active.
Biometrics take centre stage
2019 saw the first biometric fingerprint credit card issued by a UK bank – expect 2020 to see more of this kind of payment innovation. With smartphones unlocking themselves through facial recognition and fingerprint scanning, biometric security is already ingrained into most of our lives. As payment providers look to increase security, both in response to PSD2 regulations and the increasing sophistication of fraud tactics, biometrics data is going to become an incredibly important tool for purchases. Beyond the UK and Europe, Australian and Brazilian banks are getting on board with 3DS 2.0, ahead of the decommissioning of 3DS 1.0 over the coming years.
Transactions through 3D Secure 2 already incorporate biometric authentication such as fingerprint and voice recognition or facial scans into the process. Even better, 3DS 2.0 can use data collected in checkout to authenticate a transaction without intervention from the customer. This creates an improved customer experience for mobile transactions that require strong authentication.
Expect to see your personal features becoming a more secure way to pay as banks and merchants look to step up their fight against fraudsters.
The payments landscape moves fast to support on-the-go customers carrying smart mobile devices. Self-service kiosks in quick service restaurants, endless aisle inventory in retail, apps that can be a hotel key card as well as a mode of booking and paying for an overnight stay. All these experiences offer exciting possibilities for improving customers’ lives and provide unprecedented levels of data and insights for businesses. Make sure your payments stack is ready for 2020 to deliver the experiences your customers deserve.
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