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.
TikTok looks for SA talent
The fast-rising short-video platform has launched a #PickMe campaign to discover local stars.
TikTok, which claims to be the world’s leading destination for short-form videos, launches its first PickMe campaign, an effort to discover creative talents and provide a stage to express themselves in South Africa. Starting March 1, TikTok kicked off a month-long search through participants’ 15-second videos under hashtag #PickMe.
TikTok says it is committed to investing in South Africa and discovering the local talents. The PickMe campaign is supported by its local partners like Huawei, MTV Base and Digify Africa.
Local stars, including comedian and singer Lasizwe and singer Nadia Jaftha, have joined the campaign and called for users to show their talents on TikTok.
There are 5 categories of video shooting in the campaign, namely dance, acting, comedy, singing and cosmetics. Participants need to shoot a 15-second video using TikTok using #PickMe and tag @tiktok_africa to participate in the challenge. The finalists will be selected based on their video performance. The most popular and talented participants will have the chance to win prizes like Huawei Mate 20 Pro smartphones, a day at MTV Base, and a once-off-presenter opportunity and attendance at an intensive video production workshop delivered by Digify Africa.
“TikTok has definitely evolved into something that everyone loves and uses. It’s given creators a space to create more unique content and also help the creator gain a whole new kind of fan base, ” says Preven Reddy, Imbewu The Seed TV-star and Megazone radio host who is also a TikTok user.
Says TikTok video creator Mihlali Nxanga: “As a young South African working towards being in the entertainment industry, TikTok has given me the platform to grow my following tremendously. Within 6 months, my fan base has grown by a whopping 90 000, and not only from South Africa, but the whole world. For me, TikTok is not just a content platform, it is a global community.”
The campaign will wrap up on March 31. The list of the finalist will be announced in the app and on official Instagram @tiktok_southafrica. For more information, please visit the TikTok app.
Rugby fan experience transformed by digital platform
The South African Rugby Federation has embraced digitalisation as a key enabler of its strategic aspirations. It has worked with Accenture to transform fan engagement for Springbok supporters with the launch of a digital fan platform.
“Digital technology and social media have transformed how modern fans watch, support and engage with their favourite teams,” says SA Rugby CEO Jurie Roux. “To maintain our relevance amid this new market dynamic, and grow our fan base, we’ve acknowledged the vital need to digitally transform our organisation.”
Wayne Hull, managing director for Accenture Digital in Africa, says: “SA Rugby’s ambition to pivot to a more fan-centric strategy requires digital design, content, platforms and insights because modern consumers, including loyal Springbok supporters, engage predominantly via mobile digital channels and expect hyper-personalised experiences.”
Accenture Digital’s development process started with quantitative and qualitative research, which informed the user experience (UX) design guidelines and content strategy for the digital fan engagement platform.
“To know what fans want, we needed to understand the fans themselves,” says Hull. “The Accenture Digital team mined the research data and identified multiple fan ‘personas’, which all have different content consumption, platform functionality and engagement preferences.”
The platform development team focused on three critical elements to meet these requirements – the customer experience (CX), the engagement engine and cloud-based deployment.
“To deliver a memorable and engaging CX, Accenture Digital leveraged leading digital experience software,” says Hull. “The result is a fully integrated and responsive platform that creates seamless, personalised digital fan experiences across SA Rugby’s content, commerce and digital marketing initiatives in a manner that makes fans feel recognised and connected to the players and the game.”
The new platform will serve as the first point of call for any rugby fan who wants to get their data fix with exclusive statistics, analytics and insights. The platform’s content style will include more visual elements – videos and images – with more concise articles that are easier to digest, in accordance with evolving content consumption preferences on mobile screens. This will complement long-form thought leadership and insight pieces.
In addition, fans will enjoy exclusive access to player-related content, such as behind-the-scenes footage and game and training performance stats. SA Rugby will also benefit from the ability to track comments and mentions via the Sitecore analytics platform Accenture Digital implemented, to respond and engage in the conversations Springbok fans are having on social media about the game, the teams or the players.
To do this, SA Rugby required a consolidated view of the customer. However, data resided in disparate sites across ticketing providers and SA Rugby’s e-commerce and online magazine databases. This information will be consolidated into the CRM system, with multiple integration points available to leverage this data.
The CRM system’s functionality will help to reveal insights such as fan communication preferences and their likes and dislikes, which will place hyper-relevance at the core of SA Rugby’s fan experience and engagement strategy.
The final element in the platform development was cloud deployment, which allows fans to access the platform from any device that has an internet connection. The platform is hosted within the Microsoft Azure environment, which is stable, secure and fully redundant. It gives SA Rugby the flexibility to manage the platform themselves, with the option to integrate or scale additional functionality down the line.
Based on the outcome, Hull believes that Accenture Digital has successfully reimagined, built and delivered a world-class, modern and mobile-friendly digital fan platform that creates a fun, immersive and engaging experience for fans.
“It’s a major step towards helping SA Rugby realise its ambition to become a fan-centric, forward-looking and nimble organisation, and we look forward to building and developing the platform further with the team as their digital fan engagement requirements evolve,” says Hull