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.
Hearables are the new wearables
Earworn devices were among the fastest growing categories of wearable in the last quarter, capturing almost half of the market
Global wearable device shipments grew 85.2% in the second quarter of 2019 (2Q19) as shipments totaled 67.7 million units according to new data from the International Data Corporation (IDC) Worldwide Quarterly Wearable Device Tracker. Earworn devices (hearables) were among the fastest growing categories, capturing 46.9% of the overall wearables market during the quarter, up from 24.8% a year ago. Driving that growth was a slew of new products and consumers who purchased their second wearable, a hearable, to use in parallel with existing watches or wrist bands.
“The growing popularity of the hearables segment is forcing existing brands to reconsider past designs when launching new products, as evident in Samsung’s popular Galaxy Buds, while also attracting new brands to market,” said Jitesh Ubrani research manager for IDC Mobile Device Trackers. “And though it’s still early days, the market is showing signs of emerging subsegments such as hearables dedicated to sports from the likes of Jabra, premium hearables from companies such as Bose, and ones dedicated to hearing loss such as those from Nuheara.”
“What has been driving the hearables market is the experience,” says Ramon T. Llamas, research director, Wearables. “Quality audio is still the hallmark of hearables, but additional features – ranging from adjusting audio to smart assistants and health and fitness – increase their value and utility. As prices come down and more features come on board, this next generation of hearables will become the new normal for earphones.”
Hearable Company Highlights
Apple led the market for hearables by capturing 50.2% share during the quarter. New products such as the refreshed AirPods and the latest from the Beats lineup helped the company grow 218.2% compared to last year. With the iPhone business facing challenges, Apple’s wearables business, particularly the popularity of the AirPods, is helping the company once again become the de facto standard though this time it’s for hearables.
Samsung, thanks to its self-branded devices and the JBL brand, captured the second position during the quarter. The highly publicized Galaxy Buds were one of the company’s most popular pair of hearables as the pair was bundled with the purchase of Samsung’s latest smartphone. Additionally, the JBL Tune 500BT managed to capture a large share as the low price and wide availability helped move a lot of volume.
Xiaomi’s AirDots (amongst other models) helped the company capture the third position. Though the company primarily sells its hearables in China, Xiaomi has already started to make inroads in other markets such as Europe and the Middle East with its smartphones and wrist bands. IDC expects Xiaomi to follow suit with its hearables.
Bose, a company with a long history of headphones and other audio products, ranked fourth in this market. The company’s long lineage in audio and premium offering has helped set the company apart from the remainder of the pack. The QC35ii and the SoundSport Free were two of its most popular products during the quarter. The latest Headphones 700 and upcoming Earbuds 500 should help the company maintain momentum in the upcoming quarters.
ReSound, the parent company of Jabra, rounded out the top 5 with 5.1% share and 132.9% growth. Jabra’s Elite Active 65t have been extremely popular as an alternative to Apple’s AirPods and have also been promoted heavily on Amazon’s store, allowing the company to pitch itself as a strong consumer brand in addition to its preexisting headset business that is targeted at office workers. At IFA 2019, Jabra announced the next version of the Elite Active series, which helps modernize the hearables and should provide healthy competition for others on the list.
Top 5 Wearable Companies, Hearable Devices only, by Shipment Volume, Market Share, and Year-Over-Year Growth, Q2 2019 (shipments in millions)
|2Q19 Market |
|2Q18 Market |
|Source: IDC Worldwide Quarterly Wearables Tracker, September 9, 2019|
Note: IDC defines Earwear/Hearables as the wearables that hang on or plug into the ear. The device must operate wirelessly and provide stereo sound while also including at least one of the following features:
- Track health/fitness (e.g., Samsung Gear IconX).
- Modify audio, and not just noise reduction (e.g., Nuheara IQbuds).
- Provide language translation on the device (e.g., Waverly Labs).
- Enable smart assistants at the touch of a button or through hotword detection even if the assistant is running on another device such as a smartphone (e.g., Apple’s AirPods and Google’s Pixel Buds).
Phishing attacks hook into iOS
The number of phishing attacks targeting users of Mac computers, iOS-based mobile devices, and the associated web services ecosystem to lure them into fraudulent schemes has reached 1.6 million in the first half of 2019 (H1-19) – proving that the growing number of users of popular digital devices is clearly attracting more and more cybercriminals!
While the volume of malicious software threatening users of macOS and the iOS mobile platform is much lower than those threating users of Windows and Android platforms, when it comes to phishing – a platform agnostic cyberthreat – things are quite different.
Phishing attacks rely on social engineering, which means most have nothing to do with software. In fact, Kaspersky’s recent Threats to Mac Users research highlighted that the number of cases where users faced fraudulent web pages utilising the Apple brand, as a decoy, has increased significantly in the first six-months of the year, reaching 1.6 million. This figure is around 9% greater than attacks experienced during the whole of 2018, when Kaspersky security solutions prevented more than 1.49 million attempts to access Apple-themed phishing pages.
What’s more, some regions had more macOS users hit by phishing than others, for instance, Brazil leads this list with 30.9% of users attacked, followed by India with 22.1% – and while not as prominent as other regions (and in proportion to the number of Apple device users), South Africa still sits at 17.5%.
The research is based on threat statistics voluntarily shared by users of Kaspersky Security Network – a global cloud infrastructure designed for immediate response to emerging cyberthreats.
Among the most frequent fraud schemes are those designed to resemble the iCloud service interface, aimed at stealing credentials to Apple ID accounts. Links to such services usually come from spam emails posed as emails from technical support. They often threaten to block user accounts should they not click the link.
Another widespread scheme is the use of scaremongering pages that try to convince the user that their computer is under serious security threat and it will only take a couple of clicks and a few dollars to solve those issues.
“While technically these fraud schemes are nothing new, we believe they pose an even greater danger to Apple users than similar schemes against users of other platforms – such as Windows or Android. This is because the ecosystem around Macs and other Apple devices is generally considered a far safer environment. Therefore, users might be less cautious when they encounter fake websites. Meanwhile the successful theft of iCloud account credentials could lead to serious consequences – an iPhone or iPad could be remotely blocked or wiped by a malicious user, for example. We urge users of Apple devices to pay more attention to any emails they receive, especially those claiming to be from technical support and requesting the user’s details or asking the user to visit a link,” said Tatyana Sidorina, security researcher at Kaspersky.
In addition to a rise in phishing, thereport also revealed other types of threats to users of macOS-based devices. The results have demonstrated some relatively positive tendencies: the most common threats for Mac users proved not to be critically dangerous malware, like banking Trojans, but instead AdWare threats, which are not-necessarily fatal and defined as ‘potentially unwanted programs’. Most are threatening users by overloading their devices with unrequested advertisements, yet some of these programs might, in fact, turn out to be a disguise for more serious threats.
Other findings of the report include:
- The total number of phishing attacks detected in the first half of 2019 (H1-19) on Mac computers protected by Kaspersky solutions was almost 6 million. The whole of 2018 saw 7.3 million hits.
- 39.95% of the detected attacks were aimed at stealing users’ financial data. That is 10%more than in the first half of 2018 (H1-18).
- Some regions had more macOS users hit by phishing than others: Brazil leads this list with 30.9% of users attacked, followed by India with 22.1% and South Africa with 17.5%.
- The most active malware to hit macOS users were variations of the Shlayer family, that succeeded in distribution by disguising itself as Adobe Flash Player updates.
To keep your devices safe, Kaspersky recommends:
- Keeping macOS and all your apps and programs up to date
- Using only legitimate software, downloaded from official webpages or installed from the Mac App Store
- Starting to use a reliable security solution like Kaspersky Internet Security that delivers advanced protection on Mac, as well as on PC and mobile devices.