By Jigyasa Singh, Managing Director for Financial Services – Accenture Africa; and Alan McIntyre, Senior Managing Director and Head of Accenture’s global banking practice
A decade after the global banking crisis 2019 looks like it could be a year of tipping points in the evolution of the industry globally.
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. Some markets will evolve more slowly, while others are already over the top of the digital disruption roller coaster and picking up speed on the down-slope.
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.
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 amongbanks and other third parties to facilitate more competition – creates new business opportunities.
For decades, banks have sought to become more “vertical,” offering services from top to bottom. Now many new entrants want to be “horizontal,” dominating a lucrative specialty. They’re going after things like account aggregation (like Yolt in the UK) or back-office enablement (Cross River in the US and Clear Bank in the UK). Some are seizing upon esoterica — ‘The Narrow Bank’ arbitrages the US Federal Reserve deposit rate for corporate depositors.
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. Stripe, a 7-year-old specialist payments, now commands a valuation within touching distance of Deutsche Bank – a sign that horizontal can be very attractive. 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% to current valuations.
We are beginning to see a similar phenomenon emerge among traditional banks. Effective storytelling by BBVA and JP Morgan Chase have resulted in a ‘future premium’ of around 25%, while the rest of the industry struggles to get their current business priced at book value. For now, compelling stories of digital transformation are just that — stories. We haven’t seen profits leap ahead noticeably from the rest of the industry.
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. If they can’t, the conclusion of investors may be that for the foreseeable future, the “new” will be no more profitable than executing well on the old. Then we’ll see the digital bubbles burst.
3. Banks will move to AI that won’t nag. Verbal AI banking capabilities, like Bank of America’s Erica, have fast become table stakes. But what passes for advice often feels a bit like scolding. “Did you know you spent $50 on Starbucks last week!?” or “Don’t buy those new sneakers or you’ll go overdrawn.” 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. But for the moment, most banks are still struggling with the table stakes of digital advice and will let us enjoy our overpriced venti macchiato without their disapproval.
4. The sun may begin setting on “community banking.” These should be golden days for small US banks. The economy is booming, interest rate spreads have widened, credit losses are minimal, and compliance costs are at last coming down. But being a small local player has lost its competitive edge.
Instead, banks with a compelling digital customer experience are winning big everywhere. In deposits, the big three of Bank of America, J.P. Morgan Chase, and Wells Fargo have only 24% of US branches, but took nearly 50% of new deposit-account openings last year. In contrast community banks have 50% of branches but have taken only 20% of deposit growth in the last 3 years.
Outside of the top 25 banks, the credit-loan assets of US banks shrunk by over $30 billion in 2017, while digital-only originators like Kabbage and On Deck and direct credit investors like Apollo and Blackstone boomed. If smaller banks can’t find a way to start offering better digital services without spending billions of dollars, we’ll begin to see the twilight of the American community banking era.
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. Consider how this Chinese trend has spread to, say, Finland. In 2015 500,000 Chinese tourists visited Finland.
That number is likely to balloon to 5 million this year, and the Chinese tourists are staying twice as long and spending three times as much. Thousands of Finnish merchants now accept QR code-based mobile payments. Elsewhere, look at how Chinese influence is changing mobile pay in Singapore (which is adopting QR for low-value payments) and shaping India’s through Ant Financial’s stake in market leader PayTm.
With Ant Financial now worth $150 billion and scaling its transaction processing system to handle 100 billion transactions per day, it’s only a matter of time before the Chinese also reshape western banking. Will the Chinese change come from direct interventions (like Ant’s aborted attempt to buy MoneyGram) to working in partnership with Western institutions (like Alipay’s partnership with Standard Chartered for remittances)? We’ll probably find out this year.
6. Fintechs are approaching a tipping point in the UK. Accenture research shows that the UK is the most disrupted traditional bankingmarket in the world, with 15% 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, including Monzo, Starling, N29, Revolut and Marcus from Goldman.
While they have signed up millions of customers, the vast majority are secondary accounts. Less than 20% 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 (RBS claims to have six in development) and upgrade their core digital services. Market share data in 2019 will start to give us an indication of whether the new entrants have enough momentum to win long-term, or if the counterattack of the traditional banking industry will be strong enough to fight off this incursion from the digital newcomers.
7. Banks will keep leaving legacy core systems behind. 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. While this trend will continue we have also seen plenty of interest in core alternatives like Mambu, Thought Machine, Leveris and Finxact.
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. Will we see a traditionalbank take the leap and move from a parallel digital build to a full migration of their legacy core systems to one of these new solutions? 2019 won’t be a year of rip and replace but it might be a year of build and migrate.
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.
The allure of an intelligent brain indicates that the winners in digital banking will be defined by offering creativity and data quality, not the quality of algorithms. We are moving to a world where every banking carpenter will have the same toolbox and be able to access many of the same raw materials, but some will be capable of building beautiful furniture that customers’ will pay a premium for, while others will turn out shoddy mass-produced items that lack differentiation. Knowing how to create something of value rather than just having the right tools is what will matter in 2019.
9. Tech companies may finally show their banking hand. 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. In Europe, PSD2 will start to have an impact on the payments market.
Major retailers, including Amazon, will need to decide whether they want to offer ‘account to account’ payments that bypass the card networks. In the US we are seeing Uber, Amazon, and Walmart follow Starbucks’ focus on prepay accounts that internalize payments by offering incentives to use proprietary apps. The most fascinating market to watch in 2019? India, where almost all the big tech players compete. Walmart and Amazon will battle for digital commerce supremacy, while Ant Financial continues to fund mobile wallet Paytm, and Facebook launches WhatsApp payments.
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. So, the last prediction for 2019 is that the word will get banned in at least one bank. 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.
And Facebook and Google are almost pure aggregation businesses that focus on capturing your attention and then selling it to advertisers. In 2019, any bank that wants to talk about being a platform business needs to be very specific about the business model it is trying to pursue and stop just throwing the word around to claim some of tech’s shine for itself. A pure platform business would be economic suicide for most banksas it would involve giving up their balance sheet. So, if someone in your bank starts to talk about ‘platform banking’, demand that they explain themselves until you get an acceptable and clear answer. Still, as we are seeing in the UK, hybrid models like Bo or Starling, which offer corebanking services while leveraging open banking to create a wider services platform, could be viable.
Cape Town not so calm – if you’re a driver
Cape Town drivers lose on average 162 hours a year to traffic jams, so will need some tech and a few tips to stay calm
Cape Town drivers lose, on average, 162 hours a year stuck in traffic jams, and the city is ranked 95th out of around 200 cities, across 38 countries surveyed globally, in terms of congestion issues.
That’s according to the latest INRIX 2018 Global Traffic Scorecard, which is an annual analysis of mobility and congestion trends. The study provides a data-rich evaluation of information collected during peak (slowest) travel times, and inter peak (fastest point between morning and afternoon commutes) travel times. Together they provide a holistic account of congestion throughout the day, delivering in-depth insights for vehicle drivers and policy-makers to make better decisions regarding urban travel and traffic health.
Of the further five South African cities surveyed:
- Pretoria drivers lose, on average, 143 hours a year stuck in traffic jams, ranking as the 64thmost congested city
- Johannesburg drivers lose an average of 119 hours annually, ranking 61st
- Durban drivers lose 72 hours, ranking 141st
- Port Elizabeth drivers lose 71 hours, ranking 75th
- And Bloemfontein drivers lose 62 hours, ranking 165th
If these hours sound horrific, spare a thought for the poor drivers in Colombia’s capital city of Bogotá who lose, on average, a whopping 272 hours a year stuck in traffic jams!
On average, drivers’ commutes increase by roughly 30% during peak versus inter-peak hours. And the reality is that congestion issues aren’t going away anytime soon. Not here in SA, or anywhere else in the world. So what can we, as drivers, do to make the situation easier to cope with on our daily commute?
Change of mindset
Stressing about the unavoidable, the inevitable, and all the things that are out of our control – like congestion caused by accidents, faulty street lights, or bad weather – is a waste of energy. We should try finding ways of using that time in our cars more productively, to create a less tense, more positive experience. Learning to change our perspective about this challenging time, and associating it with something enjoyable, can drastically alter our reaction to and engagement with it. Rather than expending all our energy on futile anger and frustration, we can channel our focus on things that relax or energise us instead.
Just one more chapter
Being stuck in traffic usually aggravates us because it feels like a huge waste of valuable time. But like a wise man once said, time you enjoy wasting is not wasted time. Listening to a podcast or audiobook can not only be entertaining, but also educational, which is a brilliant use of your time. Ifyou think of your car as a ‘learning lab’, a mobile university of sorts, and your time spent inside as away to exercise your brain and grow intellectually, you may even find yourself wishing for bad traffic so you have an excuse to carry on listening to your podcast or audiobook.
Tame your inner Hulk
Pulling up a playlist of your favourite, feel-good songs can do wonders to combat stress levels. Downbeat music has been proven to have a mellowing effect on drivers. Making a quick switch to downbeat music shows measurable physiological improvements, with drivers calming down much sooner, and making fewer driving mistakes. So the next time you feel your inner Hulk emerging, crank up the volume on your favourite tunes.
The power of ‘caromatherapy’
There are numerous studies on aromas and their impact on human emotion, behaviour, and performance. Researchers have found that peppermint can enhance mental and athletic performance and cognitive functioning, while cinnamon may improve tasks related to attentional processes and visual-motor response speed. A study from Kyoto University in Japan revealed that participants reported significantly lower hostility and depression scores, and felt more relaxed after awalk through a pine forest. It makes sense then, to incorporate some ‘caromatherapy’ into our lives. There are plenty of off-the-shelf car diffusers available, or you could add a few drops of essential oil to DIY felt air fresheners. Citrus scents like orange or lemon can provide a boost of energy, while rosemary can relieve stress and anxiety. Take care not to hang anything that might obstruct your field of vision though, and always make sure to test out essential oils at home first, in case a scent makes you dizzy or overly relaxed, which could affect driving focus.
Contemplate your navel
The mind is a powerful thing, and simply willing yourself to relax might be the most effective method of all. While we don’t recommend meditating while driving due to safety reasons, breathing exercises can help you stay focused and feeling calm. One useful practice is the one-to-one technique – breathing in and out for the same count with the same intensity. Deep, measured breaths facilitate full oxygen exchange, helping to slow down the rate of your heartbeat and stabilise blood pressure, as opposed to shallow breathing, which doesn’t send enough air to the lowest part of your lungs, causing you to feel anxious and short of breath. Just always keep your eyes on the road, and take care to ensure you’re not so busy counting breaths that your concentration is compromised.
Not all those who wander are lost
Some of our best ideas come in those moments where we’re alone with our own thoughts, able to really reflect on the ideas we have without having something immediate that needs our attention. Allow your mind to wander, and do a little brainstorming. Alternatively, use the time to simply day dream. Remember, downtime is not dead time. It is both necessary, and important for your mental health. Use this time as an opportunity to take care of yourself.
In-built vehicle tech
“As we spend more and more time commuting, cars are being designed to accommodate longer periods behind the wheel,” says Kuda Takura, smart mobility specialist at Ford Motor Company of Southern Africa. “Ford uses human-centric design to deliver vehicles that are inviting, accommodating, and intuitive. For example, our SYNCT infotainment system offers nifty, hands-free functions, like allowing drivers to listen to their texts, change music or climate settings, and make phone calls easily with voice control. Our range of driver-assist technologies, like Adaptive Cruise Control, Pre-Collision Assist with Pedestrian Detection and Semi-Auto Active Park Assist, are also designed to take some of the stress off city driving. If our lifestyle means that we might be spending more time in our cars than we do on holiday, then we should make sure we make the most of that time.”
Vodacom exits Africa biz services
Vodacom Group has sold Vodacom Business Africa’s operations in Nigeria, Zambia and Cote d’Ivoire to Andile Ngcaba’s Synergy Communications. The two entities are in the process of concluding the acquisitions, which are subject to the approval of the regulatory authorities within these markets.
Vodacom says the transaction supports the Group’s enterprise strategy in Africa, which has been refocused to grow and strengthen its core business. It will no longer directly service global enterprise customers in these three markets but will rather continue to operate as a pan African telecommunications networks provider through local relationships, like the one with Synergy Communications.
This acquisition represents a significant milestone in Synergy Communication’s quest to be a leading provider of cloud and digitally based services in key markets across sub-Saharan Africa and provides key additional assets in its build out of a regional footprint. Synergy Communications currently has operations in Botswana, Malawi and Mozambique.
Andile Ngcaba, Chairman of Synergy Communications said: “This is an exciting landmark transaction for Synergy Communications, providing us with additional momentum in the delivery of our strategy as a pan-African enterprise digital Services Provider. Synergy Communications will partner with major global cloud providers and deliver platform-based services to both multi-nationals and local enterprises.”
Shameel Joosub, CEO of Vodacom Group, said: “Vodacom has a clear vision for strengthening our position as a leading pan-African business and will work with local service providers like Synergy Communications to grow in these markets. Crucially, Vodacom is not exiting any of the territories related to this transaction and remains focused on continuing to deliver exceptional service to our global and multinational clients in these markets through long-term commercial agreements.
“To support the sustainable growth of pan African digital economies and building connected societies, Vodacom will, via local service providers, continue to service clients in each market. We seek to leverage the collective strengths of Vodacom and Synergy Communications to meet the changing requirements of clients across each of these markets.”