A N A LYS IS // T R E N DS
A gradual and regular re-architecting of data will also be a key priority for banks. As re-architecting proceeds, bank marketers know that they cannot wait and will work on whatever data they have as they venture into advanced analytical tools to gain insights into customers’ activity. Past and current trends can be analysed in an attempt to predict future behaviour. Advanced analytics will be used to provide institutions with the most relevant solution in a multitude of business areas, particularly cross-selling and behavioural modification – the clear focus of the emerging discipline of precision marketing.
The payments threat
In the next five years, financial services will witness a spectacular rise and fall of players in retail payments, in combination with a deceleration of payments revenue growth among Asia Pacific banks. For some Tier 1 institutions, the impact may be dire and result in a decrease of up to 15 per cent in payment revenues. While some of the new entrants are merely changing some of the dynamics of the existing payment ecosystems, others will continue to disrupt today’s existing bank-led system. The entry of the technology giants Apple, Acer, and Samsung into the payments space will change the nature of banking. The way that these players are imposing their conditions on financial institutions will have a major impact on the already narrow margins. In Apple’s case, for example, issuers will cede to the company 0.15 per cent of the transaction amount for credit cards on top various other fees paid to Visa and MasterCard to tokenise their cards. Moreover, the obligation that 95 per cent of an issuer’s cards have to be made available for ApplePay potentially cannibalises the bank’s card business. Whether the promise of driving payment volumes will make ApplePay a serious threat to the banks remains to be seen. However, the bigger threat and disruptive potential for the banking sector is derived from the myriad of new players that seek to bypass the existing payment systems and increasingly expand their value proposition beyond
30
WHO ’S WHO O F FS I
payments by entering other areas such as investments, deposits, and insurance. Companies born in the 3rd Platform such as Alibaba, Tencent, LINE, and Baidu are expanding their remote payment offerings, integrating with other platforms, and increasingly expanding into proximity payments. We expect more partnerships between non-bank players to open their ecosystems, such as Paytm with Uber in India, Weibo Wallet connecting with Alipay, and WeChat partnering with taxi operator Didi Dache. There is another advantage that disruptors might have over banks. From a technology perspective, the disruptors have taken open innovation as their mantra, allowing them to surpass proprietary-based innovation more common in traditional enterprises. Banks will have to look at how they can learn from these disruptors that continue to pursue new ways of IT. An example of this is how disruptors have typically configured their own data centres using open source software to help run their servers or how they have grown the dev-ops discipline for greater productivity in application delivery.
Lifestyle banking is the future
The industry continues to see the emergence of what we call “lifestyle banking,” with banks moving away from offering products toward offering value-added services that complement the lifestyle of their customers. This products-plus-service proposition is driven by two key objectives: the banks’ intent to stand out amid a sea of sameness – given commoditised products, services, and channels – and the banks’ objective to offer hyper-personalised products and services that simplify the decision-making process of customers as a myriad of choices are foisted upon them. In order to sell a product, having it in a portfolio is no longer enough; banks need to offer it to the consumer at a time when it is relevant, at a place where it is needed, and in a way that is easy and readily consumable. In the same way that internet providers are pushing into financial services, banks need to consider whether to push back and help consumers filter through the avalanche of
offers, brand messages, opinions, products and spam. Lifestyle banking is a trend developing in areas that are still closely related to financial services. Over time we expect services enabled by 3rd Platform technologies to move further away from the core of banking. A great example is in aggregation services for mortgage offerings, allowing consumers to take a picture of a property to get more information about its availability, price, and features, as well as data on similar postings. Applications of this type will also be able to indicate loan offers for targeted customers. Moreover, banks have already started to work on facilitation services, driving traffic to their partner merchants. Taking this thought further, banks can offer travel planning following a ticket purchase with a credit card and also package promotions for hotels, merchants, and other offers that might be of interest in the planned destination. Additionally, advisory services are expected to move beyond high-end wealth management towards the mass market and are likely to expand from a pure financial planning perspective to include other areas such as card payments, education, health and insurance and tax optimisation. Banks have internalised the meaning of these technologies and must develop a cohesive IT strategy for effective implementation. One key argument that can be made is that the key technology disruptors – cloud, big data, social business, and mobile – will continue to become significant in the agenda of discussions between IT and business executives alike. However, these institutions will only explore their greater disruptive power when they are integrated or brought together in. The extent to which the industry will be hampered by several customer data privacy legislations in the region remains to be seen, but banks cannot ignore its implications. Banks must act swiftly and decisively to implement change and disruptive innovation as this will greatly shape the contours of their IT strategies over the next five years.
*
By Michael Araneta, Research Director, IDC Financial Insights