Even as 2016 draws to a close, the daily news reminds us that we live in a time of disruption. There is no doubt that this has been a remarkable year, that the cocktail of volatile markets, unexpected political events, terrorism and social unrest has created many challenges for society.
We came into 2016 talking about some of the game-changing factors that had gathered pace over the previous year – big data, fintechs, a changing regulatory landscape, cybersecurity and distributed ledger technology (DLT)/blockchain. Although we are still discussing these issues, the dialogue has definitely moved on, in some cases at considerable speed.
Big data were the two words on everyone’s lips a year or two ago – it was going to change our lives but its arrival has been belated. There were many reasons why financial services were slow off the mark but now that the world is better equipped to extract true value from big data its time may have finally come.
One of the underlying themes of 2016 was the banks versus fintech debate. The narrative of the previous couple of years was the supposed battle between one sector representing the past and one that was a standard-bearer for the future. But as we identified at a number of conferences and events across the year, there has been a sea-change – today, there’s a sense of optimism and a mood of “we need you, you need us”, which is not only encouraging but also very productive. As we look ahead to 2017, it is not inconceivable that banks will take the partnership concept a stage further and start to acquire fintechs, as the two sides of the equation strive for a better tomorrow.
As testament to the power of collaboration, in April Santander became the first bank globally to process a live transaction over DLT, enabled by Earthport’s network and Ripple’s technology. A significant industry milestone that epitomised the collaboration between banks and fintechs. It was also a great example of how DLT is coming to the fore, at the same time silencing the sceptics that had been expressing their impatience about this new technology.
While DLT has gained momentum and is being used in real-world situations, as we have pointed out, it is important to keep things in perspective. DLT isn’t a panacea for all our technology challenges. But it will be a useful addition to our toolkit and will complement more established technologies.
One thing remains for sure: awareness of the need for a solution to help transform a cross-border payments sector that has been characterised by vast inefficiency.
As correspondent banking limps on, with increasing regulatory demands, the future of this one-time staple architecture of the industry is in doubt. Indeed, as some banks rethink the future of their correspondent banking model, they are retracting from certain markets and geographies that are no longer financially viable.
An additional – and significant – concern is cybersecurity, which is increasingly worrying customers and their banks, as evidenced by the KPMG/CIO survey that revealed some 28% of CEOs have had to respond to cybersecurity issues. This is a particularly thought-provoking statistic and we can only assume that cybersecurity will become ever more important, as artificial intelligence and the ‘internet of things’ looms on the horizon.
Regulation, too, presents both a challenge and opportunity, adding to the pressure on the ecosystem to evolve while also driving opportunity for new innovation. PSD2 is such a dichotomy, there remains much angst about its impact and how it will trigger a new theatre of competition.
On the other hand, there can be no question that the unbundling of bank services and APIs will enable an entirely new ecosystem of innovation with the customer’s interest at the core. They will allow financial products to be integrated with one another more easily and permit banks to seamlessly adapt major components of their infrastructure, enabling change and reducing speed to market. There’s plenty of opportunity amid the challenges.
As we enter another year, I feel confident the dialogue on these themes as core factors of change will continue and their proof-point evolve.
As the pace of change and transformation continues unabated, predicting the future is nigh on impossible. All we can do it to remain vigilant, maintain sharp foresight and keep delivering solutions to our clients that enable them to capitalise on the opportunities presented by an ever-changing world.
I look forward to continuing the conversation in 2017.
Earthport wishes all its customers, partners and readers of the Insights blog a happy holiday season and a prosperous 2017.