financial service providers globally can expect 2017 to be an
uncharacteristically fast moving and turbulent year for the industry.
Among key factors and trends that will impact profitability are:
transformation in transaction banking; digitisation and innovation;
volatile markets caused by geo-political uncertainty; increased
dependence on cyber-security and risk management; and a shift in
payments receivables streams.
Today, retail banking customers have come to expect a 24/7
omni-channel digital experience. As night follows day, very soon so
too will business owners, CFOs and treasurers. That shift has led
banks to heavily invest in digital platforms – not only internally,
but also to establish partnerships with niche providers and third
parties. Business clients are also expecting their transaction bank to
provide additional value outside of their core product offerings –
including data driven market insights and analysis, peer benchmarking,
advisory or consultant services.
Businesses increasingly perceive their core banking relationships as
transaction-based, rather than lending-based, a trend not seen since
the global financial crisis almost a decade ago. Banks must embrace
the shift in customer interaction drivers by providing tailored
products to meet their transaction banking clients’ higher
expectations from a service, product and satisfaction perspective.
Although digital innovation is on all the banks’ lips, East’s research
demonstrates that industry knowledge and expertise remains a highly
valuable asset from the client perspective. Across business banking
products, the importance of industry knowledge is paramount to
businesses. The paramount importance of this service factor is
trending steadily higher and emerges as not only a key determinant in
awarding providers their business but higher share of wallet for
Of particular note in 2017 will be a distinct shift in the global
business foreign exchange (BFX) market. Last year, market volatility
dramatically impacted businesses – particularly those in the Micro and
SME segments, who had little to no form of currency risk mitigation in
place and continue to remain heavily exposed. In the UK, where small
businesses were hit with the record breaking devaluation of the
British Pound following the Brexit vote, only 19 percent engaged with
FX Options, while that figure increased to 24 percent for Forward FX.
That trend is also replicated in other markets including Australia,
where small business engagement with derivatives runs at a similar
rate (22 percent and 20 percent respectively).
Although Spot FX will remain a mainstay for cross-border payment
execution, businesses are encouraged to limit the market’s influence
on their bottom line. Banks, established non-banks and fintechs will
be jostling for BFX market share through digital innovation and
aggressive pricing however the question must be asked – how much
further can spreads and consequently margins be tightened? Although
non-bank providers are winning market share in select regions, they
are generally struggling to overcome the big banks’ dominance. As
such, East predicts that the year ahead will see a significant
acquisition or merger in the market.
Payment markets are being impacted by both regulatory changes, and the
introduction of new entrants. Open data sharing measures or
application programming interfaces (APIs) are being mandated in Europe
and Australia by 2018 and will undoubtedly see the payments market
open-up even further to disrupters such as Tyro, Mint, PayPal, Apple
Pay and Android Pay.
The industry is
ripe for its “Uber-isation”. Platforms such as Apple Pay and
point-of-sale merchant payment products are rapidly usurping more
traditional options customers and businesses have had access to. This
is further highlighted by East’s research which shows that more than
91 percent of Australian businesses choose contactless payments, while
69.7 percent choose mobile phone payments as a key technology priority
over the next two years.
East’s UK and Australian merchant payment reports provide fascinating
international comparisons of merchant acquirer dynamics and consumer
behavioural trends, linking both core sets of analysis.
The enriched merchant payments technology reporting provides new
insight into online payment gateway acceptance, digital wallets,
mobile payments, integrated payments systems (cloud based accounting)
and upgrade costs.
Having enjoyed three to four years of prosperity from venture
capitalists (VC) keen to get in early, the global fintech community
will discover an exceptionally more challenging operating environment
for attracting new investors and seed funding in the near future.
While VCs have thus far been responsible for the injection of money
into establishing and growing disruptors to the banking and finance
markets, East sees corporates playing a much larger role in 2017.
In leading markets such as the UK, Asia and Australia, where finance
start-ups have a relatively strong presence, around 60 percent of
corporates expected to increase investment in fintech firms by an
average of 11.3 percent.
Established industry players will pursue opportunities to scale their
business, while new entrants will adopt a “sink or swim” mentality.
The industry should expect to see consolidation via several mergers
and acquisitions, especially in the over-crowded small-business online
lending space, and within payment service providers.
Considering the 18 percent year-on-year growth of Apple’s services
division, which includes Apple Pay, and the technology giant’s cash on
hand, it would not be unexpected for it to tap into other areas of the
global payment market.
cyber-security and corporates
In 2016, nearly 1,100 data breaches were reported globally, with under
five percent of those in the banking and finance sector.
As cyber-criminals increase their levels of sophistication and rapidly
develop new ways to attack businesses – from mum and dad eCommerce
shops to multinational corporations, it is imperative for all
organisations to ensure they have cyber risk mitigation processes
firmly in place.
Financial service providers will also need to look inwardly as the
proliferation of cloud software, the internet of things (IoT), third
party apps, open data schemes and accessibility leave their systems
and processes vulnerable to attack.
Banks, technology companies and compliance firms will increasingly be
presented with lucrative growth opportunities as they seek to play a
much larger role alleviating clients’ concerns. Businesses are crying
out for more support for risk mitigation and reducing inherent
commercial threats associated with online security, fraud and
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