This is why the force in modern banking will seriously make you want to choose Scotland to grow your fintech. By Alan McIntyre, Head of Accenture’s Global Banking Practice and a GlobalScot.
"And here comes the parade.” Poe Dameron’s words in The Last Jedi in December are light-years ahead for the seemingly Jedi-like invincibility of modern banking. After all, like his colleague, Rey, it’s a force to be reckoned with in an exciting new rebellious era.
Now the dust has settled on 2017 (like the red salt on the planet Crait), it’s perhaps time to star gaze and catch up on the top 10 banking trends for 2018. Just as in the Star Wars movie, I may be proved wrong about what will matter this year, (after all I thought Snoke was going to be the big villain in this trilogy), but the following is my best guess:
1. Open banking goes mainstream in the UK, with Scotland no exception
The launch of Open Banking in the UK, and Scotland, saw guests a little late to the party, as some financial institutions struggled to hit the January compliance deadline. The rest of the year will see unprecedented opportunities for non-banks to play a more prominent role in UK financial services.
We will see some UK banks try and differentiate themselves by being good trading partners, while others will hunker down and try to harvest diminishing profits from old business models.
2. The cloud can be as secure as any private data centre
In 1993, banks were debating whether it was safe to execute electronic transactions over the internet. 25 years from now, the current debate about the public cloud will seem similarly quaint. There is already plenty of evidence that the cloud can be as secure as any private data centre. And current predictions are that by 2020, more computing power will be deployed in the cloud than in all private data centres combined.
3. Freeze, wrap, rattle and roll
Old reliable mainframe banking applications are not well suited to the digital economy. Overnight batch processing sits uncomfortably with customers’ real-time expectations. But ripping out and replacing decades-old technology is expensive and risky. Instead, look for banks to “freeze and wrap” — keeping existing core systems running, while moving customer engagement and analytics to the cloud in the hope that, over time, blockchain will give them a better option for their books and records.
4. Digital challenger banks in Scotland incorporate advanced authentication
The Aadhar digital ID system in India makes it just as easy to open a bank account in New Delhi as Edinburgh. Digital challenger banks in the UK, including Scotland, now incorporate advanced authentication into their digital apps. In 2018, a failure to provide true digital origination will start to move from a disappointment to an existential threat, as more and more market share leaks to digital natives.
5. Step forward the real Luke Skywalker, not the hologram
2018 will be the year of synthetic identity fraud, in which the perpetrator creates a new identity rather than stealing an existing one. Online account opening allows these fake people to create digital accounts that pass all the usual security checks and then use them for illegal purposes. In 2018, banks will need to get much better at sorting the real customers from the fake, without undermining the benefits of a great digital customer experience.
6. Digital first will mean fewer bank branches
The rise of mobile and digital banking will continue to shrink the number of global bank branches by 4 to 5% per year. Despite the press noise around the need to serve local Scottish communities, the trend is inexorable, with Scandinavia closing half of its bank branches in the last five years.
7. Scottish fintechs are our friends, not meteors
Despite the tens of billions of dollars of VC money piling into the fintech sector over the last five years, the meteor strike that was going to wipe out the banking dinosaurs hasn’t happened. Instead, it’s lit an innovation flame under the incumbent banks and accelerated their evolution, particularly the Scottish fintech community. 2018 will likely see more fintech acquisitions by large players and bank innovation will have more of a business-as-usual feel, as fintechs find more ways to play well with established players.
Alan McIntyre is part of the GlobalScot network, a worldwide group of business contacts who are experts in their field, and driven to help Scottish companies develop, expand and thrive in a competitive international market.
8. US banks to flex their investment and competitive muscles
The pre-tax profitability of the European banking industry is still 50% of what it was in 2006, and in the UK, above cost-of capital returns are still an aspiration. In 2018, look for big US banks to start flexing their investment and competitive muscles in a way that we haven’t seen for a decade. We will also see Chinese players like Ant Financial and Tencent become more prominent in the West.
9. C3PO was fluent in over 6 million languages
Banking is not quite that multilingual yet – but watch this space. In 2018, artificial intelligence will start to reverse the depersonalisation of banking by providing contextual, holistic advice that is truly in the customers’ best interest. That will require a level of radical transparency unfamiliar to most banks. In 2018, look for banks starting to use AI to do what’s right by their customers, regardless of the short-term Profit and Loss (P&L) impact.
10. Is Bitcoin the next tulip craze?
Between 1634 and 1637, the price of a tulip bulb in Holland skyrocketed to the point where a single flower cost 10 times the annual wages of a skilled worker. In 2017, bitcoin functioned as a purely speculative asset with huge volatility in value. At some point – but not in 2018 – the underlying technology will be used as the basis for cryptocurrencies that can simultaneously function as a store of value, a medium of exchange, and a unit of account. Until then, bankers shouldn’t worry too much about making Bitcoin denominated mortgages.
How can we help your firm grow in 2018?
We can support Scottish fintechs, financial firms and those considering open banking, both in Scotland and overseas. And, with firms benefiting from £800,00 Research and Development (R&D) in loans, we can offer significant financial incentives, and other assistance to help establish and grow your business in Scotland and worldwide.
From identifying and securing the skills and talent you need, to providing finance capital investment, SDI can provide long-term support for your company through our account managers to help your business expand and grow.
Over 2,000 overseas companies, with a combined turnover of £100 billion are already located here, including those involved with fintech such as Blackrock, JP Morgan, RBS and Morgan Stanley. Scotland is now firmly on the global fintech map. Edinburgh alone was recently reported (Raconteur.net) as one of the world's top five fintech centres.
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