Crystal ball time
Written by Scott Thompson
So, farewell then 2015. And hello 2016. To kick things off, FStech brings you 10 FS technology-related predictions for the year ahead
"For the first time I can genuinely believe that mobile payments will become mainstream in 2016 and not be restricted to the early adopters or PR firms that have a vested interested in pushing their clients' products! Much of this is based around stronger marketing and a better value proposition for consumers. Apple, Android and Samsung have all been effective in getting products adopted and brought the ability to make mobile payments to most of the UK population. It's interesting that this marketing has not been led by the banks, particularly when they have successfully deployed some of the largest mass market mobile payments products in the world, such as Paym. The other major catalyst is the adoption of mobile payments on many of the major transport networks like the London Underground. Therefore my first prediction is that those with the strongest marketing strategies, and not necessarily the best technology, will be some of the winners in 2016.
My next prediction is that there will be more reality in the market about the speed of adoption of mobile payments. Yes, it's mainstream in 2016 but as a proportion of payments (rather than percentage growth rates) it will be tiny. This will grow over time but we know that consumer adoption of technology is measured in decades not months. My third prediction is that there will be an increased focus on targeting the under 30s rather than the wider population in general. This segment grew up in the mobile era, and looks towards the mobile as a way to manage their like as well as their money. The launch of mobile centric banks such as Starling and Atom will make the mobile and mobile payments become synonymous.
And what might hold mobile payments back? Rather than a poor consumer experience/proposition as it was in the last few years, the industry still needs to review how it educates customers around security issues. Apple has started to help the messaging by providing mass exposure to tokenization but I think this is an industry wide issue. For example, when we think back to the chip and PIN roll-out for credit cards a decade ago, there was an industry wide effort (with significant marketing funding) to educate consumers. Someone needs to take this role in 2016. Who will it be?" Matt Simester, director, PCL
“While phishing attacks, banking Trojans and large scale low value cash outs have characterised the last 10 years of cybercrime, new techniques are becoming part of the criminal arsenal while firms invest more and more in cyber threat intelligence in the hope of keeping up. In 2016 we predict that organised crime groups will become increasingly selective in targeting high net worth individuals, corporate treasuries and commercial bank accounts; as well as looking for new ways to profit. The recent US indictments of alleged market hackers show just how sophisticated manipulation of markets has become – whether through front running stocks using stolen market sensitive information, or pump and dump schemes using personal data acquired in bulk from unsuspecting banks, insurers and even governments.” David Ferbrache, technical director at KPMG’s cyber security practice
"Financial inclusion will mean big business. Making serious money and reaching the unbanked have not always gone hand-in-hand. We’re now witnessing a major shift in thinking as big name players in payments and other industries are talking openly about the huge opportunity in reaching unbanked customers – and not just as a corporate social responsibility gimmick. PayPal, Walmart and Coca Cola are just a few companies to pursue innovative financing for small businesses and products targeted towards underserved consumers, while a swathe of new payments startups have taken on financial inclusion as a goal. What’s more, digital payments are now being actively promoted by global policymakers as critical to economic stability and financial inclusion for the world’s poorest." Alix Murphy, senior mobile analyst, WorldRemit
“I have been tremendously excited to see how the FinTech sector as a whole has moved up to a whole new level in 2015. And what particularly excites me is the way two particular groups have seemed to really recognise the role of FinTechs in underpinning economic growth. First of all there’s Government. In the Summer, the UK government appointed its first Special Envoy for FinTech, signalling a real recognition that this sector has a fundamental role to play. Eileen Burbridge was appointed by George Osborne as the government’s special envoy for FinTech. And the UK government also signalled a commitment to FinTechs with an ambitious goal to make London the global centre for FinTechs. In setting out this ambition, George Osborne said that British regulators would provide ‘the space where innovation can happen’, backed up by Bank of England governor Mark Carney’s promise that reforms to the financial sector would be designed to make innovation easier. Bold promises that, if genuinely delivered, will truly shake up the marketplace.
The other group that, perhaps surprisingly, has embraced the change being empowered by FinTechs, is the very organisations being challenged by the disruptors. The traditional banks. In 2015 there was a growing groundswell amongst the traditional banks to get involved in the FinTech sector, with a genuine interest in extending their services to deliver better value for customers. Key investments have been made by several of the high street banks, including Barclays and Santander, as well as the appointment of FinTech specialists in a number of these organisations. I firmly believe this is great news for the sector as a whole.
There are a wealth of businesses – from startups to established brands - that are looking for ways to improve people’s lives and they need to be able to do things differently and better to achieve their goals. The payments process is a common thread through all of this. And whilst much of this year’s headlines have focused on the innovations occurring in the consumer payments sphere, 2015 has also seen considerable developments in the B2B payments sector which probably isn’t surprising when looking at the state of the global economy.
FinTechs are in the perfect position to bring innovation to the international B2B landscape and a number of brands have thrown down the gauntlet during 2015. With no legacy infrastructures, lower running costs versus incumbents and increased transparency, the new breed of disruptors can finally get B2B payments moving. And it isn’t just a question of charging less than traditional banks and cutting them out of the picture. FinTechs can collaborate with banks to help them successfully move into the digital payments market. In turn, banks can offer them the additional security through their regulation, offering added peace of mind to their customers, as well as dragging the payments process into the future.
2015 has been a year where the FinTech sector has moved on significantly – not least through the growing consumer appetite for better and quicker ways to pay – think tap and pay. 2016 has to be the year that the business marketplace gets in on the act." Anders la Cour, CEO, Saxo Payments
"Though financial trading was one of the first business disciplines to embrace real-time data and digital technology back in the 1980s, those systems have evolved in a closed, proprietary way. It’s a state of affairs that is remarkably similar to the world of mobile telecoms in about 2006 – they called it the ‘walled garden’. When Apple, Google and other smartphone vendors opened up mobile devices to ecosystems of developers, consumers felt the benefits almost immediately. In 2016 we will start to see a growing ecosystem of in-house developers, software providers and institutional digitisation leaders emerge." Albert Lojko, global head of platform, Thomson Reuters
"A recent report from Ovum (predicting blockchain and mobile will send payment tech spend soaring in 2016) demonstrates the growing business importance of blockchain technology. To harness the innovative potential that the blockchain technology has, it is essential that the industry moves away from regarding it as merely the backbone of currencies such as Bitcoin, towards recognising and actively developing its many other innovative applications.
Distributed ledger technologies such as the blockchain can be a vital new tool to increase data sharing across the economy. We will see increased efficiency, transparency and trust in government services, particularly with personal and sensitive data, and as the report discusses we’ll see business disruption driven by both FinTech startups and fast-moving corporate innovators. Collaboration across the private sector, public sector and universities is critical. Equally, issues of scalability and sustainability of blockchains must also be addressed, so that we can move towards a collaborative, immutable data store supported by a decentralised network that is open to anyone.” Marko Balabanovic, chief technology officer, Digital Catapult
"While T2S went live in the middle of last year, only a handful of CSDs, including ourselves and Italy’s Monte Titoli have actually joined. The project has been subject to repeated delays, and some have even speculated that it risks being compromised by fast evolving disruptive technologies in 2016, such as blockchain. Blockchain has been identified as a potential threat to T2S as it could revolutionise clearing and settlement.
In recent weeks, discussions have taken place between the London Stock Exchange, LCH.Clearnet, Societe Generale, CME Group, UBS and Euroclear under the name Post Trade Distributed Ledger Working Group to explore how blockchain could be used to run post-trade processes. Whilst there are big expectations for blockchain in 2016, there are still many unanswered questions when it comes to the technology’s applicability to T2S. In moving to T+instant, we would be replacing a small operational risk with a very large credit risk because if a trade settles instantly, a counterparty needs to come up with the money instantly. As it stands, it’s not entirely clear that distributed ledger processing is the best solution to achieve that." Avi Ghosh, head of marketing & communications, SIX Securities Services
"Payment has been a significant area of investment for retailers over the past few years on the basis of keeping up with the ever changing PCI standards. More recently the potential to outsource this challenge to Payment Service Providers at a reasonable cost has become more attractive. Retailers that only have a UK presence often have a different payment providers for web sales from their provision in-store. Those that have driven into other territories often have separate payment providers for each of their channels in those other territories. Incursions into new territories often do not have integrated payment. Different standards across the regions; chip and PIN in the UK versus chip and Signature (or swipe and PIN) in the USA doesn’t help the situation. The introduction of new payment methods such as Apple Pay, contactless, etc, serves to complicate things further.
My key prediction for 2016 is that retailers will properly address the ability to pay (and refund) via a common platform across all channels and regions of operation. Today’s mismatch of payment providers across the channels and regions inhibits the basic process of returns across different channels and is a big driver of customer dissatisfaction with a retailer. Resolving this situation will go a long way towards enabling omnichannel retailing." Huw Thomas, managing director, PMC
“Technology continues to evolve at break-neck speed and service providers across the e/m-commerce industry are deploying ever more innovative and personalised experiences. This evolution holds true in the payments space where new and innovative solutions continue to proliferate. In 2016 we’re likely to see continued deployment and mainstream adoption of payment methods and experiences that are considered ‘new’ today. Mobile will continue to grow as a channel through continued growth in tablet/smartphone devices . Consumers will be exposed to new technologies designed to streamline the payment experience and reduce friction in the payment flow. This will be key to the success of new payment methods, convenience and security are king, and consumers need to feel comfortable with both the physical process of making a purchase and the sense that their payment and personal data are secure. Biometrics are already mainstream and it is likely that new forms of authentication that further speed the end customers experience will start to be trialled. Many merchants are pushing ahead with contactless payments and promoting mobile payment services that build on the familiarity and provide opportunities for additional value added services. The real forward-thinkers will be putting the building blocks in place for future innovations. 2016 is really just going to be the beginning.” Rob Fish, strategic architect, The Logic Group
"The cap on interchange charges for processing card transactions has helped to protect merchants and consumers in the short-term, but has translated to ever-shrinking margins for the banks. It is only a matter of time until banks find new ways of profiting from payment schemes and that they will likely start charging consumers a fee for card, and even e-wallet services, as a result. We may see a rise in cash payments as this balance is redressed, but I have no doubt we’ll see big players in the e-wallet industry rising to the occasion to develop a solution – especially the ones that already specialise in direct to bank transactions." Peter Moore, CEO, Consolis