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REACHING THE NOT-SO DIGITAL NATIVES

DIGITAL

By Garry Hamilton, Group Business Development Director, Equator

 

It’s 2020. There’s no denying that banks and financial institutions have found themselves in a war against the tech giants in recent years. But can they win? Can consumers ever be truly satisfied? Or will institutions in this space stick with what they know regardless of how well it is working? In the digital-first now, FS companies have moved into an uneasy but rewarding landscape. Just as with consumer goods, they find themselves in a space where they no longer innovate ahead of consumer aspiration and demand, instead finding themselves increasingly under pressure to catch up.

 

The experiences consumers have with global giants such as Google, Amazon, Facebook and Apple (GAFA) define their expectations for all digital experiences. To stay up to speed, FS companies need to understand the shift in consumer demand as well as the multitude of threats to a business model that’s seen as traditional and staid. In short, they need to prepare.

 

DIGITAL

Garry Hamilton

The paltry, taped-together digital offerings from the incumbent financial service brands no longer stand. However, these brands still go to market with products and services defined by internal processes and limitations, giving little consideration to true service design principles or customer experience.

 

Thankfully this is changing, in part by credible (and incredible) upstart fintech companies, chipping away at the monoliths. At Equator, we work with several brands in this space, including Santander and Virgin Money, all of whom have realised the tides are changing. Major finance brands are no longer looking for the sharks in the water that come after all they do, instead realising that it’s a multitude of piranhas that pose the most significant threat.

 

Case in point: TransferWise has demonstrated that something as mundane as foreign exchange can be made fresh; Atom Bank has shown that a lean approach to savings and loans can drive solid business without being so reliant on rate, and Starling Bank has demonstrated that a serious focus on making the tech work can yield excellent results. Consumer choice for financial services has never been greater.

 

The hidden threats that GAFA may pose on traditional finance brands are, as yet, not fully realised. Apple has already demonstrated its ambition in the US with its digital credit card offering. Amazon has Amazon Pay and shown interest in the insurance market. Facebook is out there with its (stumbling) cryptocurrency effort, and Google’s feature-creep into aggregation (and payments) indicates a genuine and poorly understood threat from some of the wealthiest and most capitalised tech companies in the world. It’s hard to imagine a reality where consumers reject financial services from these brands.

 

But for incumbent brands in this space, the opportunity to maintain success lies in two key areas. Firstly, data. While it’s commonly understood that this is the currency that enriches the GAFA businesses, consumers’ financial behaviours are still broadly out of reach. Banks and financial institutions with historically loyal customers are sitting on a gold mine of data that can be turned into actionable insights. Insights that could deepen loyalty, increase relevance and make historically uninteresting and stuffy institutions appear modern and relevant.

 

Secondly, these organisations have significant human knowledge capital. These people know how the wheels turn, how to negotiate regulation and compliance, and how to manage risk. When you look to the most successful start-ups, their success is less borne of wealth, but more of knowledge and how financial systems operate. That cannot be underestimated. Banks and financial institutions need to strive to keep their staff loyal – not just the traders with their extreme bonuses. They’re not the ones that tech businesses would come after.

 

Getting a financial service off the ground isn’t cheap, but that’s not something GAFA worry about. Instead, it’s the complexity of negotiating the regulations and marketplace. What FS brands need to watch out for is that the fintech piranhas do not become sharks – not necessarily through growth but through acquisition and consolidation. Acquiring TransferWise, Monzo or Starling Bank is still pocket change to these organisations. And they DO have the technical wherewithal to bring autonomous platforms together and make a success of it, something high street banks and insurance companies have proven incapable to see through.

 

To survive and thrive, financial brands should take advantage of the one thing they’re historically good at – assessing and mitigating risk, with the critical difference being that keeping it the same as it’s always been is no longer the safe option. At Equator, we’ve already seen clients, such as AXA and Lloyds, acquire or partner with fintech start-ups. There’s a real effort from the high street banks to deliver a Monzo-esque functionality to their customer base. And we see real innovation in everything from insurance to loans and savings.

 

But there is still a long way to go. Regulation in the UK has been reasonably balanced between control and competition since 2007. However, technology continues to outpace the law, and we need to keep the pressure on the regulators to allow for new customer engagement models, new ownership models and new ways to deliver financial products and services.

 

In the last few years at Equator, we’ve assisted many major financial institutions take on tomorrow by helping them innovate and bring new products and services to life. We’ve helped Virgin Money bring their innovative B banking service to life, pioneered original service design in the most mundane of places for Tesco Bank and a lot more besides. We know that there are many enthusiastic brands out there looking to take on tomorrow and bring digitally-enabled services to life. But the sector still has some growing up to do. Crucially, it needs to accept that the disruption that came after the 2007 financial crash has nothing on what is around the corner

 

We’re still only really getting off the ground with the second payment services directive. Open banking is creeping in. We’ve yet to see the promised liberation of the payments sector (which should be huge), and it’s fair to say we should expect more niche disruptors to emerge, as money continues to pour into the sector. And that’s not even covering off the effect that machine learning and automation will continue to have in the industry over the coming years. If you ever dared to think finance was dull, get ready for a disruptive and exciting time.

 

Top 10

WHY INDONESIA IS THE WORLD’S NEXT DIGITAL PAYMENTS BATTLEGROUND

Kelvin Phua, Global Head of Payment Networks at PPRO

 

The COVID-19 outbreak has seen the e-commerce sector surge. Despite economic uncertainty, consumers around the world are turning to the internet for the goods and services that they previously would have looked for in-store. In APAC, this has meant that some emerging markets have accelerated their adoption of digital services; the growth that was projected to take years has only taken months.

One notable example of this is Indonesia. According to a recent survey, Indonesia’s e-commerce sector is expecting 50% year-on-year growth with its value set to reach US$35 billion in 2020, up from $23 billion in 2019. What’s more, 30% of the country’s growing e-commerce market is new to online marketplaces and 40% intend to keep using e-commerce after the effects of the pandemic lessen.

With this upward trend has come a reliance on digital payments, and both public and private sectors have responded accordingly. Recently, the Indonesian central bank announced that all mobile payment providers were to replace QR codes with the standardised QRIS (Indonesian Standard QR code), providing a single integrated platform for all transactions made using QR codes across multiple e-wallet providers. On the private sector front, LinkAja has launched an online shopping solution to overhaul traditional marketplaces throughout Jakarta by enabling users to pay for goods using an app with the products delivered straight to their door.

For e-commerce and digital payment providers, these examples are good indicators that the time is right to go after a share of this market.

 

Understanding the playing field

Indonesia possesses many of the key characteristics that are critical to a market’s adoption of digital payments. With a smartphone penetration rate of 60%, well above the region’s average of 51%[1], and having witnessed its middle class grow from 7% to 20% of the population over the last 15 years, it comes as no surprise that Indonesia’s internet economy has more than quadrupled in size since 2015.

Currently, there are 37 local payment methods (LPMs)[2] in Indonesia, with GoPay, Doku, OVO, Dana, and LinkAja some of the frontrunners in the battle to claim a slice of the payments pie. This number is expected to grow as Alipay formalises its entry into Indonesia in partnership with Bank Mandiri and Bank Rakyat Indonesia, joining WeChat Pay which was officially granted a licence to operate in the country this January in collaboration with CIMB Niaga.

The growing number of players jumping on board with digital transactions bodes well for the Government’s National Non-Cash Movement launched in 2014. Go-Jek’s recent funding round and Facebook’s plans to build an e-commerce ecosystem around WhatsApp will help accelerate the adoption of digital payments for millions of SMEs in Indonesia, with businesses already using the popular messaging service to interact with their customers. Similarly, PayPal’s arrangement with Go-Jek will see the latter’s users use GoPay at PayPal merchants globally.

With the influx of foreign payment services and investment catering to higher consumer demand while creating the digital infrastructure needed to facilitate higher payment volumes, Indonesia is shaping up to be Southeast Asia’s next digital payments battleground. But what does this actually mean for businesses and consumers there?

 

Navigating a fragmented payments landscape

With all this consolidation and market movement, payment providers are innovating quickly to strengthen and enrich their offerings by partnering with others to develop their own unique payment ecosystems. Initially, these new partnerships will result in greater efficiencies when it comes to connecting consumers and businesses through one platform. But the fundamental pain point remains; the development of multiple payment ecosystems will continue to create the dilemma of choice. Consolidation in the truest sense of the word is yet to be achieved, and the payments landscape in Indonesia remains highly fragmented.

Since Indonesia loosened investment rules in 2016, foreign e-commerce players such as Amazon and Alibaba have entered the domestic market, competing against homegrown firms such as Tokopedia and Bukalapak. This has provided consumers with access to a wider variety of goods at more competitive prices.

To keep up with consumer preferences in Southeast Asia’s largest economy, merchants and payment service providers would need to evolve – by delivering a customer-centric experience where consumers are able to pay with the local payment method they prefer and trust.

In the long term, businesses should refrain from the drawing of battle lines in Indonesia’s fragmented payments landscape and create a payment ecosystem that takes into account payment preferences of the local consumers. Those who seek to enter multiple markets through one payments platform-as-a-service will be the ones most likely to succeed in capturing the lion’s share of the e-commerce market.

 

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Technology

ARTIFICIAL INTELLIGENCE AND FUTURE OF TECHNOLOGY

Ashish Jain, CEO, Future FX

 

Artificial Intelligence refers to machine intelligence that is programmed to think like humans and mimic their actions. For example while writing this article, I am not actually typing it but dictating it out using the microphone and the text is being typed by Microsoft Word itself.

The ideal characteristic of artificial intelligence is to rationalize and take actions to achieve a specified goal.

As technology advances the previous methods of artificial intelligence are taken for granted as new necessities are conjured. For example the computer was one of the most iconic invention of artificial intelligence but now it is considered as mandatory.

Artificial intelligence is continuously evolving and has to evolve. Machines are made in a way that they understand mathematics, linguistic, psychology and many more other terms that are related to human mind.

Artificial intelligence is used in many sectors for example the medical sector. It is used to test drugs and medicines.

We have applications and games which includes chess where the computer plays against us this is also a feature of artificial intelligence. Similarly self driving cars are also an invention of artificial intelligence. These have to be designed very intelligently.

This can also be used in the financial industry to trace and flag activities in banking and finance such as unusual debit card activity or usage and large deposits.

This also helps to estimate the demand supply and prices of the estimates and that makes trading easier.

Earlier, we had to pay a visit to bank on order to deposit a cheque. Then we updated to ATM/Debit Cards and now you can be identified by your retina. Many different sectors have also adapted this method to make actions it more convenient and safe.

Some more examples of artificial intelligence are iPhone’s Siri, Google’s Smart Assistant, Amazon’s Alexa, Google Maps, Ride- sharing apps like Uber and Ola, diseases mapping, Automated investing, virtual travel booking, social media monitoring, inter team chat tool, NLP tools, etc.

Artificial intelligence is all around us and playing an active role in our daily lives. Every time we open our Facebook newsfeed, do a Google search, get a product recommendation from Amazon or book a trip online, we are using it immensely.

In the coming years, computers might match or even exceed human intelligence and capabilities on tasks such as decision- making, reasoning and learning, analytics and pattern recognition, visual acuity, speech recognition and language translation.

Smart systems in commodities, vehicles, day to day use objects will save time and effort offering us a more customized and comfortable future.

It will help the medical sector hugely in upgrading the medicines and treatments, inventing new ones which haven’t been found yet and making everyone’s lives more safer and healthier. A large number of data can be collected from person to person about their health and nutrition and thus changes can be made in the lifestyle.

Artificial intelligence will bring changes in the educational system making it more revolutionary and advanced.

Overall, every factor has advantages and disadvantages and artificial intelligence has it’s lot too. Considering all the advantages artificial intelligence will also affect the human decision making power, analyzing and rational thinking, lifestyle etc. It will make people lazier and will affect their creativity. It can also lead to unemployment due to increase in usage of machines.

Like everything has a balance, artificial intelligence needs to be balanced too so that we can enjoy it’s benefits without suffering the negatives.

 

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