Going forward

Scott Thompson has been busying himself asking leading industry players for their take on key 2013 FS tech trends. Here, then, are 13 stand out predictions for the year ahead, taking in the likes of Big Data, the cloud, DDoS, BYOD, social media and m-payments

2012 was a year of negative headlines, budgets under pressure, job losses, trigger happy regulators, hefty fines, stagnant economies and creaking legacy systems hampering business and creating deeply unhappy customers. Does 2013 threaten more of the same and what will be the key technology trends within the FS sector?

2013 heralds the ‘app-ification’ of financial services
“The financial services market is in a state of upheaval driven by changing consumer behaviour fuelled by technology innovation. In 2013, these forces will be manifested in the ‘app-ification’ of financial services as nimble and disruptive players exploit the channels offered by mobile and internet technologies to challenge traditional industry behemoths. Consumers behaviour will change as they are presented with an array of competing financial services that are easy to access using new technology. App-ification will create more scope for innovation and open up new opportunities, but will also give rise to a generation of ruthless, mobile-oriented, tech-savvy consumers who will expect services to work first time or they will move to a competitor. At a macro-level, the app-ification trend will also play a major role in driving increased consolidation. Smaller, innovative start-ups and single capability companies will be acquired by bigger players looking to accelerate geographic expansion, drive innovation and extend their service portfolio. However, it is my belief that the majority of this consolidation is aimed at boosting business value rather than meeting end-consumer needs. The market is littered with numerous ideas and technologies that have been forgotten after acquisitions. Any application developer will testify to the fact that if you don’t focus on consumer needs and get it right first time then the service will struggle to succeed.” Ed Chandler, CEO, CQR Payment Group

The rise of mobile and Apple in the financial sector – IT departments not prepared for the demand in BYOD
“Apple’s traction in the financial sector rapidly expanded during 2012 and it continues to accelerate. During 2012 it became clear that social end users now want access from any device to the corporate network – iPhone/iPad or
Android. Social users found their own solutions, such as Google Drive and Dropbox for sharing corporate files, putting IT departments at risk of losing control and losing relevance by not responding to the demands of their end users.” Alan Laing, VP EMEA, Acronis

Customers will evaluate cloud/hosting providers more ruthlessly as Big Data increases pressures to be compliant
“The financial sector has always been subject to data retention and compliance regulations. However in 2013 these increasing pressures to be compliant with data retention, data management legislation and best practice will see customers evaluate cloud/hosting providers more ruthlessly. Cloud and hosting providers must be able to securely and efficiently store and manage data
to the level that the financial sector requires.” Alistair Mills, CEO, Six Degrees

The old order changeth?
“2013 is shaping up to be the year where the banks may lose their prized possession of being the primary processor of payments. Many other organisations are jumping on the bandwagon; retailers, internet companies and mobile telecomms operators all producing different mobile wallet technology. NFC will continue to be a great technology for data sharing but will not be a key player in the payments space due to the inherent security risks. 2013 will be the year where mobile payment gets some real traction. I predict big increases in the prevalence of mobile PED’s for small/mobile business secure card payments as the cost and ease of use of these devices/applications makes them acceptable for the millions of small businesses that today rely on cash and cheque payments.” Huw Thomas, managing director, PMC

Mobile/contactless payments: challenges and opportunities
“Smart devices have called for more attention to mobile payments, but it’s worth noting that the “hype” needs to be taken at face value. Yes, mobile payments will shape the future of the industry, but market entrants and technology brands will not have enough in their arsenal without partnering with established players. We have already seen this from the likes of Samsung and Visa collaborating on mobile contactless payments during the Olympics, and we expect to see more activity like this in 2013 to drive further innovations. Another critical development set for 2013 is the production of NFC-enabled cards and terminals. Despite initial interest a few years ago, not many consumers realise they have cards with in-built NFC functionalities, which has halted the progression of contactless technologies overall. Nevertheless, this knowledge deficit will fall during 2013 as more companies lean towards contactless payment systems, the most recent being the London bus network which is kick-starting UK adoption.” Philippe Eschenmoser, head of business consulting, SIX Payment Services

DDoS will become more visible as a business risk
“Distributed Denial of Service (DDoS) has become a familiar term to many more of us over the past year. The mainstream press coverage of the attacks from Anonymous; our increased appreciation of the broader spread of motivations behind attacks; and the simple fact that many organisations have now experienced attacks have seen to that. Ideologically motivated attacks are often in the press, but many other attacks are motivated by extortion, the need for a distraction (from other criminal activity e.g. data theft) and revenge; DDoS is even being used now as a competitive ‘weapon’ in some markets. There can be no doubt that DDoS attacks pose a significant threat to the availability of our internet services, and as we have become more reliant on these services for our business continuity the risk of an attack having a major business impact has increased. An increasing number of organisations now rely on the internet to sell their products, offer their services, process transactions or to access cloud-based data and applications. An attack can be very costly if we are not prepared. In light of this, DDoS is starting to be considered alongside other threats to our business continuity (such as power failure, physical security etc.) and the awareness within organisations is broadening. The tools our finance teams use to model risk are starting to incorporate cyber threats, and CISOs are being asked to quantify risk and plan accordingly. The availability of our internet services is becoming as important as the confidentiality and integrity of our data.” Darren Anstee, solutions architect team lead, Arbor Networks

‘Digitally Native’ banks on the rise
“2013 will see a host of ‘Digitally Native’ banks start to take market share from traditional retail banking institutions. Unlike vertically-integrated ‘Old Finance’ institutions with high fixed costs, these ‘Digitally Native’ challenger banks are built from the ground combining the philosophies of bank 2.0 and social 2.0.
Banks such as Fidor Bank, Movenbank and Simple are designed for the digital consumer: they focus on design led user experience, transparency and simplicity. Simple, for instance, offers sophisticated mobile applications giving customers access to a full range of banking services on their iPhones, enabling users to easily track their expenditure, disposable income and saving goals on a single screen. Fidor Bank provides banking services for the social generation; interest rates are dictated by its number of Facebook likes and a single interface shows all your holdings from precious metals to virtual currencies like World of Warcraft Gold. Movenbank is the first bank designed to be used on your mobile phone with sophisticated analytics which will allow customers to track their spending against their usual patterns as well as allowing them to modify behaviour based on instant feedback.

Digitally Native banks have extremely streamlined business models. They have very low fixed costs, are not lumbered with legacy IT systems, have few employees and usually no physical branches. Some firms like Movenbank and Simple do not even have risk capital: they use other institutions’ banking licences. They are not real banks as such but offer a banking experience for what is becoming the only part of the consumer banking process that matters: customer interaction. Some of these Digitally Native banks are already successful. Simple only recently launched but has on-boarded 50,000 customers and has another 250,000 on its waiting list. Fidor Bank has 250,000 live customers but operates on just over 30 employees. This spectacular growth is set only to continue in 2013 and traditional institutions will need to keep a continuous look over their shoulder, if they are to keep pace. In particular, the ability of these new institutions to acquire customers at the fraction of the cost of their larger competitors is likely to be a seriously disruptive force in the industry.” Udayan Goyal, co-founder, Anthemis

Know your customers 2.0
“From the perspective of customer management, the two main systems and data challenges facing retail financial services companies is a new version of that old requirement of knowing your customers. The next big thing for banks is to ensure that they collect the data needed to tell them whether the product that they would like to sell to their customers is really needed by them. The sales of packaged bank accounts to customers who were not proven to need every element of the package does not conform with what the regulator sees as best practice. Data must be collected on what other insurance and related products the customer has, and on whether they qualify for insurance under the terms of policies. This data and conclusions drawn from it must be made available at the point of sale or purchase.

For life and pensions companies, a related but different challenge is that posed by the Retail Distribution Review. Over the next decade or so, millions of customers will orphan themselves by deciding that they no longer wish to pay a financial advisor for advice, often because the amount they have invested is not that large and does not justify serious expenditure on advice. They will either turn to a web/call centre-based company that has cracked the problem of offering cheap, high quality advice based upon customer-entered data, or buy direct. In either case, the onus for data entry will fall upon the customer, so life and pensions companies will need systems which ensure that the data is of the right coverage and quality. Otherwise there will be a long tail of problems associated with claims and/or realisation of investment. An increasing tendency to outsource pensions and investment administration may be observable as providers realise that their job is to produce good products under good brands, but administration can be left to the experts.” Professor Merlin Stone, research director, The Customer Framework

Total Data
“While “buzzword” themes and technologies such as Big Data, cloud, mobile/NFC etc will undoubtedly lurch forward during 2013 and generate more columns inches than the size of the next large bank Libor/AML/ fine, my key theme for the year is something far less new or trendy. It has been around since, well, forever; forms the very fabric of every bank and financial services organisation, whether they realise it or not; and I’ve even mentioned it once already. Yes…data. Not just Big Data, but good old common-or-garden business data. In Reply we talk about Total Data. To state that data is important (note the capital “D”!) is in some ways a truism. But how many banks really treat their data like the key corporate asset it is? Yes, you will of course have strict access controls and a beautifully-crafted set of policies in place. But do you really know what you have? Where it all is? What it all means? Who does what with it? How good it is? Or what value you could get from it? In parts, maybe. But on a scale of 1-10? Banks who genuinely at senior level “get” the importance and potential of their data and are effective in driving forward both the business and IT changes required to not only improve data quality (assessing, improving and maintaining), governance (successfully implementing across business and IT, not just having a shelf-ware framework) and architecture (joined-up, across organisation and channel boundaries, and real-time (ish) where it needs to be) will without question reap the rewards. Who knows, they may even start to give customers the service they crave, turn a decent profit and as for the next requirement for an XYZ regulatory report: sorted!” Simon Barrows, director of financial services, Glue Reply

More and more rules
“The year ahead will see increasing and unpredictable regulatory reform, creating pressures for agility in aged IT landscapes. Take living wills for the protection of client money and assets as an example. To meet the demands for living wills, the systems used for storage and retrieval of client documents are insufficient and those terms of business are often not reflected accurately in downstream systems due to manual entry. What follows is a large strategic programme to address legal document storage, increased automation in client on-boarding systems, and building interfaces to feed client data downstream into disparate operations systems, many of which are legacy prompting application decommissioning and migration to reduced number of newer, more flexible systems. This is but one example of the size and breadth of change programmes underway in financial institutions that are striving to protect their regulatory risk exposure.” Lucinda Szebrat, managing principal, Capco

Mobile and cloud challenges
“With worldwide mobile tablet sales reaching 120 million last year, it is inevitable that a growing number of people will use their mobile devices, smartphones and tablets to access their bank accounts ‘on the move’ and mobile banking will become the ‘norm’ for customers to manage their money. Retail banks will be more focussed than ever on making life as easy as possible for their customers, giving them different options and apps to manage their accounts. With this changing landscape, comes a commitment to ensuring that online security is as watertight as possible, especially in light of the increasing number of cyberattacks experienced by banks. Customers may step away from online banking if they doubt a bank’s security and news of an IT mishap can have horrendous applications for an institution’s reputation. Although cloud computing is well-established in other industries, it is relatively new to financial services and we predict that this will be a growth area in 2013. However, at ADD we believe there is a still a big distrust in the cloud, and banks will need to approach this development very cautiously. They will be looking for safe and secure ways to back up their data and to ensure that they find the best solutions for them and their companies.” Julie Pickersgill, operations director, Advanced Digital Dynamics (ADD)

Big Data heating up
“Banks are increasingly shifting towards real-time and predictive analytics to help them analyse vast amounts of data. This could unearth regulatory compliance and security-related issues, enhance customer experience and improve the processing of trade and banking transactions. Companies that strive to deliver excellent customer experiences won’t just sit on Big Data. The successful banks will be able to integrate complex data mining and predictive algorithms into internal and external process workflows across multiple channels, and make Big Data personalised. What’s more, an increasing number of banks will be empowering their customers with on-demand, visually-rich and easy-to-use reporting tools. We will hopefully see other Big Data IPO candidates similar to software provider Splunk emerging in the next 12 months. However, competition from Oracle, Google, Microsoft, IBM, VMware and other large corporates to acquire niche Big Data players remains fierce.” Aksana Pekun, managing director and UK head of technology, Altium

Spotlight on Microsoft in 2013
“The technology giant is preparing a host of promising new systems for release in 2013 including Exchange 2013, SharePoint 2013 and Lync 2013. Coupled with the industry’s high expectations for the new Surface platform, the year should be Microsoft’s.” Robert Rutherford, MD, QuoStar Solutions

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