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Kodak moment for banks?

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People and businesses will always need banking, but, asks PETER ALKEMA, FNB Business CIO, will they always need banks?

People and businesses will always need banking, but will they always need banks? This question is driving a wave of disruption and new thinking in the industry. Discovery has recently announced plans to enter the local retail banking market; telco and tech companies are making similar moves. Fintech is offering completely new ways of doing business and customers are embracing exponential start-ups who offer frictionless, mobile services. Banks are responding with increased digitisation, new lines of business and highly innovative channels. What’s really happening, how will the banking landscape change and when will it take place?

The reason that non-traditional players are getting into main account banking is because of the customer intimacy and insight that comes with a transactional bank account. It’s the one place that all the money goes into and comes out of; businesses put their main account on all their invoices and many married couples don’t even share one! A home loan or insurance policy is important but still just a monthly debit order that doesn’t generate any behavioural insight about a customer. The relationship is also typically low key; you will only hear from your insurance broker on your birthday and only home loans collections department if you miss a payment.

Some banks have taken advantage of this and created additional stickiness through rewards programmes, improved channels and ecosystems of value-adds. Core transactional platforms are at the heart of a bank’s operations. Regulation and banking license approval ensures that banking platforms are robust and well managed. In addition, financial aspects such as capital adequacy and risk controls such as anti money-laundering mean the requirements for running a bank are significant barriers to entry.

The local banking industry is consistently rated very highly and its world class resilience and regulatory oversight provided a shock absorber for South Africa during the global financial crisis of 2008. Internationally, large banks have relied on these barriers to entry to block new entrants but the rise of fintech and trust-disintermediating technologies such as Blockchain is changing this mindset. Looser regulation in the UK is seeing a wave of banking license applications from start-ups and in the US, firms such as Google, Facebook and Amazon are actively launching financial services products.

Arguably much of this activity is still peripheral and the core business of running a large scale bank relies on well established processes. This was true for Kodak in the mid nineties when it employed 140,000 people, sold 85% of the world’s photo paper and was the fourth most valuable brand in the United States. In 2012 it filed for bankruptcy; it got left behind in an industry that was turned upside down by technology and its impact on their customers’ lives and the market. Kodak invented digital photography but they failed to embrace the disruption to their own business model that it caused to the industry. Similarly, the Walkman was the first portable device for listening to recorded music; Sony could have digitised it but Apple’s iPod eventually obliterated it.

In 2000, Blockbuster was the biggest video rental chain in America, and at the time internet startup Netflix offered to run its fledgling online business. Blockbuster turned this down and went bankrupt 10 years later, having failed to move its business from bricks to clicks while Netflix has become a global leader in streaming movies.

South African banks have been very successful at moving processes off of paper, out of physical locations and onto digital channels. FirstRand’s 2016 results indicate that overall electronic volumes increased 13%, while manual volumes grew only 2%. New ways of working are also extending beyond channels to back office operations.

The next decade is likely to be pivotal for the banking industry and it will be driven by the race for the customer and not by the fintech on its own. Digital is just the enabler of new business models built around improved customer centricity that according to Dimension Data’s Digital Advisory is something that banks should avoid just doing, they have to become digital in their thinking, operating models and execution.

Customers expect frictionless processes that are available where they are and not only where the bank is, the transport and accommodation industries have already delivered this with Uber and Airbnb. According to Google, the tipping point to mobile in South Africa happened in 2014 when internet searches from mobile devices exceeded desktops. Millennials don’t stand in queues or fill in forms, they build trust through convenience and they reward customer delight with loyalty and peer group recognition. By 2020 there will be 500 million people in Sub Saharan Africa with connected smartphones; these people will still need banking but it will probably look very different from today.

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SA consumers buy 3.2m smartphones in Q1

Smartphone sales in South Africa grew by 12.4% year-on-year in the first quarter of 2018, reaching around 3.2 million units for the period.

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However, the value of the smartphone segment increased by 22.8% as sales of entry-level devices to low- and mid-income consumers continued to drive the market, according to point of sale data from market research firm, GfK South Africa.

GfK South Africa’s data reveals that telecommunications retail enjoyed a strong start to the year, with revenue growing 22.4% year-on-year. The growing popularity of phablets and higher unit prices (as a result of a weaker rand) helped to drive this increase in revenue, against a backdrop of low or negative growth in many segments of the consumer technology market.

“The mobile device market showed good growth in the quarter, despite rising prices during the period under review,” says Norman Muzhona, Solutions Specialist for Telecommunications at GfK South Africa. “In addition to the exchange rate, the introduction of popular, new mid-tier devices by several leading vendors helped to drive higher retail revenues in the telecoms market.”

Information technology retail revenues for the quarter contracted 4.8% compared to 2017, largely because of decreasing monitor prices and a 38.9% decline in tablet revenues. However, desktop computer revenues grew 39% and mobile computing revenues grew 6.5% year-on-year, thanks to higher prices and increased sales of higher-end products.

Says Berno Mare, Solutions Specialist for IT, Office Equipment and Value Added Services: “Retailers introduced new computing devices priced in the R3000 band during the quarter and enjoyed surprisingly strong demand for these entry-level units.

“Telcos enjoyed robust growth in mobile computing retail sales, thanks to credit deals, subsidised contracts and attractive data offers. However, South African consumers are heavily indebted, which may dampen growth for the rest of the year.”

With consumers rapidly migrating to smartphones, sales of traditional mobile phones continued to decline, down 1.6% year-on-year to around 2 million for the quarter. However, the exchange rate and the introduction of higher-priced brands helped to drive a 8.9% year-on-year revenue increase in mobile phone revenues during the period under review.

This follows the 21% drop in mobile phone unit sales in the first quarter of 2016 compared to the same period in 2015. “Operators continue to lead the transition from feature phones to smartphones as they pursue higher data revenues,” says Muzhona. “The entry-level market for smartphones is fiercely competitive, and the minimum specs of lower cost smartphones is improving all the time.”

GfK South Africa expects the migration from mobile phones to smartphones to accelerate in 2018. However, it remains to be seen if the introduction of 4G-enabled, Voice-over-LTE-ready feature phones will have any impact on the South African mobile phone market.

Sectors of the consumer electronic market that showed strong growth for the first quarter of 2018 include loudspeakers—revenues up 21.6% year-on-year, thanks to demand of Bluetooth-enabled product—and ultrahigh definition (UHD) panel TVs—where revenues grew 33%, thanks to the growing affordability of the technology. UHD unit shipments were up 76%, while the average selling price of the products fell 24%.

Other market highlights for the first quarter of 2018 include:

  • Photo category revenues were up 8.1% year-on-year.
  • Small domestic appliance revenues grew 8%, following a 10.3% decline in Q1 2016 over Q1 2015. Hot air fryers sold well, as did kettles and toasters.
  • Major domestic appliances showed small year-on-year growth over Q1 2016, despite a decline in average selling price in many sub-categories of this market. Cooling products continued to make the highest contribution to growth in this segment.
  • Office Equipment revenues declined 18% year-on-year, led downwards by lower printer and cartridge sales volumes.
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What kids want online

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Kaspersky Lab’s latest report on the online activities of children – based on statistics received from its solutions and modules with child protection features – highlights children’s online activities and the importance of protecting them when online. For example, video content globally, comprised 17% of searches over the last months. Although many videos watched as a result of these searches may be harmless, it is still possible for children to accidentally end up watching videos that contain inappropriate content.

The report shows anonymised statistics from Kaspersky Lab’s flagship consumer solutions for Windows PCs and Macs that have the Parental Control module switched on and from Kaspersky Safe Kids, a standalone service for Windows, Mac, iOS and Android devices.

In South Africa, communication sites (such as social media, messengers, or emails) were the most popular pages visited by computers with parental controls switched on – with users in South Africa visiting these sites in 69% of cases over the previous 12 months. Software, audio, and video accounted for 17% of searches. Websites with this content have become significantly more popular since last year, when it was only the fifth most popular category globally at 6%. The top four is rounded off with electronic commerce (4.2%) and alcohol, tobacco, and websites about narcotics (3.9%), which is a new addition compared to this time last year.

The report presents search results on the ten most-popular languages* for the last 6 months. The data shows that the video & audio category – including requests related to any video content, streaming services, video bloggers, series and movies – are the most regularly ‘googled’ by children (17% of the total requests). The second and third places go to translation (14%) and communication (10%) websites respectively. Interestingly, games websites sit in fourth place, generating only 9% of the total search requests.

We can also see a clear language difference for search requests: for example, video and music websites are typically searched for in English, which can be explained by the fact that the majority of movies, TV series and musical groups have English names. Spanish-speaking kids carry out more requests for translation sites, while communication services are mostly searched for in Russian.

More than any other nationality, Chinese-speaking children look for education services, while French-speaking kids are more interested in sport and games websites. In turn, German-speaking requests dominate in the “shopping” category. The leading number of search requests for porn are in Arabic, and for anime are in Japanese.

“Kids in different countries have different interests and online behaviors, but what links them all is their need to be protected online from potentially harmful content. Children looking for animated content could accidentally open a porn video. Or they could start searching for innocent videos and unintentionally end up on websites containing violent content, both of which could have a long-term impact on their impressionable and vulnerable minds,” says Anna Larkina, Web-content Analysis Expert at Kaspersky Lab.

As well as analysing searches, the report also looks into which websites children visit or attempt to visit that contain potentially harmful content which falls under one of the 14 preset categories** for the last 12 months.

The mobile trend is again highlighted in the figures for computer games, which are now in fifth place locally on the list at 3%. As kids continue to show a preference for mobile games rather than computer games, this category will only continue to decrease in popularity on computers over the coming months and years.cleardot.gif

“No matter what they are doing online, it is important for parents not to leave their children’s digital activities unattended, because there’s a big difference between care and obtrusiveness. While it is important to trust your children and educate them about how to behave safely online, even your good advice cannot protect them from something unexpectedly showing up on the screen. That’s why advanced security solutions are key to ensuring children have positive online experiences, rather than harmful ones,” adds Anna Larkina.

The Kaspersky Total Security and Kaspersky Internet Security consumer solutions include a Parental Control module to help adults protect their children against online threats and block sites or apps containing inappropriate content. In turn, the Kaspersky Safe Kids solution allows parents to monitor what their children do, see or search for online across all devices, including mobile devices, and offers useful advice on how to help children behave safely online.

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