Market Outlook

Mihir Kapadia, CEO and Founder of Sun Global Investments

When it comes to investment trends, every year appears to have a certain theme which dominates the markets and beyond throughout the course of those twelve months. 2017 was largely a stock market year, with global markets closing at record highs thanks to a booming global growth rate, loose tax and monetary policy, low volatility and ideal currency scenarios (for example, a weaker pound supporting inward investments). It was also a crazy year in the consumer segment with market momentum captivated with crypto assets, leading to established financial services firms to create special cryptocurrency desks to monitor and advise.  Today, things are looking very differently.

Markets have since moved from optimism (led by stock markets) to a cautious tone (with an eye out for safe haven assets). This is largely due to the concerns over slowing global growth rates (especially from powerhouse economies like Germany and China), volatile oil markets and Kratom Powder For Sale induces significant market threats with the likes of Brexit and the trade wars. The rising dollar has also not helped much, with Emerging Market and oil importing economies suffering with current account deficits.

At the World Economic Forum’s annual meeting in Davos last month, the International Monetary Fund (IMF) has warned of the slowdown, blaming the developed world for much of the downgrade and Germany and Italy in particular. While the IMF does not foresee a recession, the risk of a sharper decline in global growth is certainly on the rise.  However, this risk sentiment doesn’t factor in any of the global triggers – a no-deal Brexit leading to UK crashing out of the EU or a greater slowdown in China’s economic output.

While the IMF does not foresee a recession, the risk of a sharper decline in global growth is certainly on the rise.

Volatility expected

 We have lowered earnings expectations globally due to more subdued revenue and margin assumptions. We believe investors will be confronted by increased volatility amid slower global economic growth, trade tensions and changing Federal Reserve policy. Our base case relies on the view that the US may enter a recession in 2020. As the market dropped 9% in December, the worst market return in any 4th Quarter post World War II, many risks are starting to be discounted by the market. We have reduced industrials, basic materials and financials due to heightened risks.

There are a number of factors that are driving this view, but it is important to note that upsides to the risks do exist:

• The Fed: The Fed’s slow pace of hiking interest rates is meant to be just enough to keep wage inflation from accelerating, but not so much that it crushes business and consumer spending. It’s a difficult balancing act.
• Fiscal stimulus: The tightening of fiscal conditions has already created a slowdown that only time and lower rates will heal. The impact from the US Government’s lower tax rates and higher spend will end when 2019 does.
• Trade and China: The lack of clarity on trade has created an ‘uncertainty tax’, forcing companies to seek alternative means of procurement, adding to inefficiencies and holding back some investment decisions. China is trying to stimulate its consumer sector, but the country is already weighed down by high debt and defaults, and it has limited ability to create demand at present.
• European politics: Brexit negotiations and Italy’s budget situation have added to the political fog affecting investor confidence.

In uncertain markets like these, we should look to do three things: reduce risk, focus on high quality and stay alert for opportunities due to dislocations.

So what do you do?

We have dialled down risk in 2018 and will likely continue to do so in 2019 as we expect global growth to slow. However, the expected volatility could cause dislocations that are not fundamentally driven, resulting in tactical opportunities to consider.

The best piece of advice to be relayed is: “Don’t run for the hills”. In uncertain markets like these, we should look to do three things: reduce risk, focus on high quality and stay alert for opportunities due to dislocations.

It would be ideal to shift allocations from cyclical to secular exposures, especially away from industrials, basic materials, semiconductors and financials due to heightened risks. It would also be ideal to focus on high-quality companies with secular growth opportunities that can generate dividends as well as capital appreciation.

Two sectors stand out as both strategically and tactically attractive - aging demographics and rapidly improving technology are paving the way for robust growth potential in healthcare. Accelerating growth in data, and the need to transmit, protect, and analyse it ever more quickly, make certain areas in technology an attractive secular opportunity as well. Where possible, our advice to investors is to maintain a tactical portion of their risk assets, because volatility may give them the opportunity to find mispriced sectors, themes and individual securities.

Still, in this climate, the bottom line is that you should be increasingly mindful of risk in your portfolio so that you can reach your long-term investment goals. 

Eastern Economies vs. Western Economies: Countries, Sectors and Projects to Watch

Dr. Johnny Hon, Founder & Chairman, The Global Group

The global economic narrative in 2018 was characterised by growing tensions between the US and China, the world’s two largest economies. The US imposed 10% to 25% tariffs on Chinese goods, equivalent to more than $250bn, and China responded in kind.

This had a seismic effect on global economic growth which, according to the IMF, is expected to fall to 3.5% this year. It represents a decline from both the 3.7% rate in 2018 and the initial 3.7% rate forecast for 2019 back in October.

Although relationships between Eastern and Western economies are currently strained, suggestions that a global recession is on the horizon are exaggerated. China’s economy still experienced high growth in 2018.

However, it is clear that trade wars have no winners. The rise of protectionism in the West is creating more insular economies and we are at a time when increased efforts are needed for mutual understanding. There are still enormous opportunities across the globe: India is among several global economies showing sustained high growth, and innovations in emerging markets such as clean energy or payments systems continue to gather pace. Investors who are savvy and businesses with true entrepreneurial flare can triumph at a time when others may be stagnating.

The rise of protectionism in the West is creating more insular economies and we are at a time when increased efforts are needed for mutual understanding.

Here are the exciting countries, sectors and projects to look out for in 2019:

Countries

Recent trends in foreign direct investment (FDI) reveal a growing trend to support developing economies. In the first half of 2018, the share of global FDI to developing countries increased to a record 66%. In fact, half of the top 10 economies to receive FDI were developing countries.

This trend will accelerate in 2019 - the slow economic global growth, and subsequent currency depreciation means the potential yield on emerging market bonds is set to rise dramatically this year. More and more investors are realising the great potential of these developing economies, where the risk versus reward now looks much more attractive than it did in recent years. Asia in particular has benefited from a 2% rise in global FDI, making it the largest recipient region of FDI in the world.

India and China are both huge markets with a combined population of over 2.7 billion, and both feature in the world’s top 20 fastest growing economies. However, the sheer quantity of people doesn’t necessarily mean the countries are an easy target for investment. There are plenty of opportunities in both India and China, but it takes a shrewd investor with a good local business partner to beat the competition and find the right venture.

Other Asian economies to invest in can be found in Southeast Asia, including Vietnam, Singapore, Indonesia and Cambodia. In a recent survey by PwC, CEOs surveyed across the Asia-Pacific region and Greater China named Vietnam as the country most likely to produce the best investment returns – above China.

Investors who are savvy and businesses with true entrepreneurial flare can triumph at a time when others may be stagnating.

Sectors

One sector in particular which remained resilient to the trade wars throughout 2018 was technology. By mid-July, flows into tech funds had already exceeded $20bn, dwarfing the previous record amount of $18.3bn raised in 2017. This was a result of the increased accessibility and popularity of technologies in business.

In the area of Artificial Intelligence (AI) for example, a Deloitte survey of US executives found that 58% had implemented six or more strains of the technology—up from 32% in 2017. This trend is likely to continue in 2019, as more businesses realise AI’s potential to reduce costs, increase business agility and support innovation.

Another sector which saw significant investment last year was pharmaceuticals and BioTech. By October, these had already reached a record high of $14 billion of VC investment in the US alone. One particular area to watch carefully, is the rising demand for products containing Cannabidiol (CBD), a natural chemical component of cannabis and hemp. Considering CBD didn't exist as a product category five years ago, its growth is remarkable. The market is expected to reach $1.91 billion by 2022 as its uses extend across a wide variety of products including oils, lotions, soaps, and beauty goods.

Projects

At a time of rising trade tensions and increased uncertainty, cross-border initiatives are helping to restore and maintain partnerships and reassure global economies. China's Belt and Road Initiative is a great example of how international communities can be brought closer together. From Southeast Asia to Eastern Europe and Africa, the multi-billion dollar network of overland corridors and maritime shipping lanes will include 71 countries once completed, accounting for half the world’s population and a quarter of the world's GDP. It is widely considered to be one of the greatest investment opportunities in decades.

The Polar Silk Road is another international trade initiative currently being explored. The Arctic offers the possibility of a strategic commercial route between Northeast Asia and Northern Europe. This would allow a vast amount of goods to flow between East and West more speedily and more efficiently than ever before. This new route would increase trading options and would make considerable improvements on journey times – cutting 12 days off traditional routes via the Indian Ocean and Suez Canal. It could also save 300 tonnes of fuel, reducing retail costs for both continents.

Since founding The Global Group - a venture capital, angel investment and strategic consultancy firm - over two decades ago, I have seen the global economic landscape change immeasurably. The company is built around the motto ‘bridging the frontiers’, and now more than ever, I believe in the importance of strong cross-border relationships. Rather than continuing to promote notions of protectionism, we must instead explore new ways of achieving mutual benefit and foster a spirit of collaboration.

Brexit, Trade Wars and the Global Economy

Robert Vaudry, Chief Investment Officer at Wesleyan

If there’s one thing that financial markets do not like, it is uncertainty - which is something that we’ve faced in abundance over the last couple of years.

The UK’s decision to leave the European Union and President Trump’s 2016 election in the US, sent shockwaves through markets, and the two years that followed saw increased volatility across asset classes. This year looks set to be fairly unpredictable too, but in my view there are likely to be three main stabilising factors. Firstly, I expect that the UK will secure some form of a Brexit deal with the EU – whatever that may look like – which will give a confidence boost to investors looking to the UK. Secondly, the trade war between America and China should also come to an end with a mutually acceptable agreement that further removes widespread market uncertainty. Thirdly, the ambiguity surrounding the US interest rate policy will abate.

The Brexit bounce

A big question mark remains over whether or not the UK is able to agree a deal with the EU ahead of the 29th March exit deadline. However, with most MPs advocating some sort of deal, it’s highly unlikely that the UK will leave without a formal agreement in place. So, what does this mean? Well, at the moment, it looks more likely than ever that the 29^th March deadline will need to be extended, unless some quick cross-party progress is made in Parliament on amendments to Theresa May’s proposed deal. While an extension would require the agreement of all EU member states, this isn’t impossible, especially given that a deal is in the EU’s best interests as the country’s closest trading partner.

The ambiguity surrounding the US interest rate policy will abate.

The result of any form of deal will be a widespread relief that should be immediately visible in the global markets. It will bring greater certainty to investors, even if the specific details of a future trading relationship between the UK and EU still need to be resolved. Recently, it was estimated that Brexit uncertainty has so far resulted in up to $1trn of assets being shifted out of the UK, and I personally don’t see this as an exaggeration. Financial markets have been cautiously factoring Brexit in since the referendum vote in 2016 and, if we can begin to see a light at the end of the Brexit tunnel, it is likely that some of these vast outflows will be reinvested back into the UK. We can also expect to see a rise in confidence among UK-based businesses and consumers, at a time when the unemployment rate in the UK is the lowest it has been since the mid-1970s.

All of these outcomes would help lead to a more buoyant UK economy and the likelihood that UK equities could outperform other equities – and asset classes – in 2019.

Trade wars – a deal on the table?

Looking further afield, the trade tensions that were increasingly evident between the US and China last year could also be defused. The last time that China agreed to a trade deal, it was in a very different economic position – very much an emerging economy, with the developed world readily importing vast quantities of textiles, electronic and manufacturing goods. However, given China’s current position as one of the world’s largest economies, it has drawn criticism from many quarters regarding unfair restrictions placed on foreign companies and alleged transfers of intellectual property.

Either way, global financial markets are eager for Washington and Beijing to reach a mutually agreeable trade deal to help stimulate the growth rates of the world’s two largest economies.

It was estimated that Brexit uncertainty has so far resulted in up to $1trn of assets being shifted out of the UK.

Be kind to the FED

2018 saw an unprecedented spat between the US President and his Head of the Federal Reserve. What began as verbal rhetoric quickly escalated into a full-frontal assault on Jerome Powell, and the markets were unimpressed. With the added uncertainty about the impact of a Democrat-led US House of Representatives, we headed into a perfect storm, and equity markets in particular rolled over in December. Ironically, this reaction, coupled with a data showing that both the US and the global economy are generally slowing down – albeit from a relatively high level – has resulted in a downward revision of any US interest rate rises in 2019. The possibility of up to four US interest rate rises of 25bps each during 2019 is now unlikely – I expect that there will only be one or two rises of the same level.

 Transitioning away from uncertainty

So, in summary, 2019 is set to be another big year for investors.

The recent protracted period of uncertainty has hit the markets hard, but we’ll have a clearer idea of what lies ahead in the coming months, particularly regarding Brexit and hopefully on the US and China’s trade relations too. If so, this greater certainty should pay dividends for investors in the years to come. UK equities are expected to strongly bounce back in 2019, which is a view that goes against the current consensus call.

The study, conducted by independent survey company Censuswide asked 1,000 members of the UK public about their views on the economic outlook for 2019.

A total of 44% of respondents said they expected a financial crisis worse than 2008. Additionally, over a third of those polled (41%) said they are expecting to see a housing crash happen this year.

Only 14% of the population said they had forgiven the banks after the 2008 financial crash, according to a new poll from Spearvest, the wealth management firm.

As well as this, there is a significant distrust from consumers that banks have their best interests at heart. The survey found that over half (55%) did not believe this to be true, with only 13% believing they did.

The poll also found that consumers want banks to do more for good causes with 60% believing that banks should donate and fundraise for charities more.

Wael Al-Nahedh, CEO of Spearvest comments:“With widespread concern around the performance of the housing market and the wider economy, 2019 already looks set to be a challenging year for investors. It’s also clear that the financial services industry needs to do much more to win back trust of the public, supporting good causes and demonstrating a genuine commitment to charitable giving.”

(Source: Spearvest)

Below Russell Bennett, Chief Technology Officer at Fraedom, discusses the future prospects for AI in the banking sector, and what 2019 may hold.

AI is incredibly complex and doesn’t represent a single technology. Rather, it’s a multidimensional field encompassing a range of different technologies and methods, each supporting and supported by the others[1]. The technology’s pace of evolution has grown exponentially in recent years and if AI’s benefits and limitations are understood, it’s believed this technology will have a tremendous impact on the banking industry in 2019.

With so much potential ready to be unleashed, where exactly will we see AI’s influence in the banking sector in 2019?

Chatbots and Virtual Assistants

While chatbots have been used by financial institutions for several years, thanks to advances in AI their capabilities have continued to grow. Whereas they were once only used to answer generic FAQs, for example, most chatbots are now capable of initiating and performing tasks on their own. Thanks to these developments, Juniper estimates that the introduction of chatbots and virtual assistants will save companies $8 billion per year by 2022[2]. This is set to be only one of the benefits to banks with Gartner suggesting that by 2020 consumers will manage 85% of their total business interactions with banks through fintech chatbots[3].

Juniper estimates that the introduction of chatbots and virtual assistants will save companies $8 billion per year by 2022

While this could be a source of worry for the banking workforce, in reality, there should be little concern. Rather than acting as a replacement for employees, banks instead seem to be looking at AI as a tool to help release pressure points and empower the workforce with Accenture even predicting that banks that deploy AI wisely will see a 14% increase in jobs[4].

In 2016, Santander became the first UK bank to launch voice banking technology[5]. Of course, since then a large variety of global banks have adopted this technology in one way or another, suggesting that banks are looking at utilising AI beyond chatbots. In fact, with Mariano Belinsky, managing partner of Santander InnoVenture, discussing natural language processing[6], it seems to only be a matter of time before virtual assistants come into use.

Driving Customer Insights

Last year, we saw a clear disconnect between banks and their smaller customers. In these situations, intelligent automation could well be the answer to support businesses and provide a better service as well as working seamlessly with third parties and fintechs, rather than against them.

In our recent study of SMEs in the UK and US, we found that less than 20% of SME owners thought that banks they had dealt with over the past year fully understood their needs as a business, demonstrating a clear lack of engagement. In 2019, using automated data collection on an ongoing basis, behind the scenes, can ultimately ensure bank relationship managers are better equipped with in-depth knowledge about their customers; hence best positioned to support their business and provide a better service.

Less than 20% of SME owners thought that banks they had dealt with over the past year fully understood their needs as a business.

Security and Compliance

One of the key differences between AI applications and other, more traditional technological solutions, lies in AI’s ability to continuously learn from the data it is supplied with, hence refining its decision-making processes over time.

Cybersecurity is a current hot topic for the financial services sector and regulatory compliance is another. AI can add real value in both of these areas. Machine Learning platforms can be coded to identify user patterns and detect anomalous network behaviour, something that’s increasingly essential as cyber-attacks are often disguised with inconspicuous data or code.

In recent years, technology has been a disruptor and an innovator. Technology is increasingly helping shape customers’ wants, needs and expectations. With a raft of new regulation encouraging the use of technology in banking, there’s nowhere left for anyone to hide. The technology revolution is in full swing and for banks, it’s very much adapt or die.

In the very near future, it is likely that AI will completely revolutionise banking. It will redefine how banks operate, what innovative products and services they create and how they evolve the customer relationship. Banks must, therefore, embrace this new technology or risk of falling behind in an extremely competitive environment.

[1] https://www.accenture.com/t00010101T000000Z__w__/gb-en/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Local/en-gb/PDF_3/Accenture-Redefining-Capital-Markets-with-Artificial-Intelligence-UKI.pdf

[2] https://www.juniperresearch.com/press/press-releases/chatbots-a-game-changer-for-banking-healthcare

[3] https://www.gartner.com/imagesrv/summits/docs/na/customer-360/C360_2011_brochure_FINAL.pdf

[4] https://www.accenture.com/gb-en/insights/banking/future-workforce-banking-survey

[5] https://www.santander.co.uk/uk/infodetail?p_p_id=W000_hidden_WAR_W000_hiddenportlet&p_p_lifecycle=1&p_p_state=normal&p_p_mode=view&p_p_col_id=column-2&p_p_col_pos=1&p_p_col_count=3&_W000_hidden_WAR_W000_hiddenportlet_javax.portlet.action=hiddenAction&_W000_hidden_WAR_W000_hiddenportlet_base.portlet.view=ILBDInitialView&_W000_hidden_WAR_W000_hiddenportlet_cid=1324582275873&_W000_hidden_WAR_W000_hiddenportlet_tipo=SANContent

[6] https://www.americanbanker.com/news/what-santanders-latest-bets-say-about-the-future-of-fintech

Fortunately, Viktoria Ruubel, Chief Product Officer at IPF Digital, is here to help you stay ahead of the curve, looking forward to 2019 and the top trends that will dominate the industry over the coming year.

1. Banking in your back pocket

Mobile banking has been around for barely five years, but now it is ubiquitous. In the next five years, 72% of the UK population is expected to be banking via their phones. Paper money is dated – new transactional experiences define our daily spending, with contactless cards sharing a crowded market with mobile tech like tap-and-pay.

2018 saw millennials flocking to digital wallet providers like Monzo and Revolut. In 2019, this sort of tech will go mainstream, with a wider range of providers and services, all targeting improved customer experience, financial inclusion, and digital service.

2. The global fintech opportunity

The global payments industry processed over $1bn per day in 2017. In Latin America, and Sub-Saharan Africa, where traditional institutions shied away from investing, fintech firms have plugged the gap in the market.

The restrictions enforced by old-fashioned lenders have catalyzed the development of mobile banking. Mobile payments enabled by technology grant financial inclusion to users who wouldn’t meet the criteria for traditional banks

Smartphone adoption lies behind the accessibility of mobile banking – with a smartphone and internet access you can be part of the financial system without a bank account. More people than ever can contribute to the movement of money around the world, resulting in more opportunities for individuals to improve their financial situations, and for business to leverage credit for growth.

In 2019, fintech companies will recognize the massive markets that await outside of the traditional financial ecosystem.

3. Open Banking matures

Open Banking has won over its early sceptics and now has a strong place in the market, driven by the adoption of PSD2 regulation, new strategic partnerships, and increased customer expectations. 2019 will see open API reach maturity, with new products, customer experiences, business models, and opportunities created along the way.

Stripe, Mint, N26 – these are just some of the players using open API to offer products to both banked and unbanked segments. Meanwhile companies like Alipay and WeChat are building exciting new infrastructure which could drive the financial services revolution globally.

4. Applying artificial intelligence

The rapid advances in AI-enabled customer intelligence will drive the great leap forward in the 2019 financial industry, notably consumer lending. Chatbots and virtual assistants grew in popularity over the last two years, and consumers are increasingly comfortable using them to request information. Advances in voice tech mean that virtual assistants could soon submit loan applications on your behalf with a vocal signature.

Meanwhile, digital devices and pay for each other, to each other. Lending will become ‘real-time’ and AI learning will allow credit products to be personalized to each customer’s behavior.

For example, AI technology could analyse customer spending, and then suggest saving plans, helping consumers budget and borrow more sustainably. AI would then remind customers when they might need to borrow, how much to borrow and the schedule they should follow for repayments.

5. Securing data with biometrics

In developed global markets with high levels of smartphone use, biometrics are the next big step for financial services, in 2019 and the medium term as well. Biometrics will soon be integral to verification processes and payments - mobile banking apps already allow users to log in and pay with facial recognition, voice recognition and fingerprints.

The more financial institutions rely on digital, the more data security becomes a concern. Biometric technology one solution, maintaining the transactional security crucial to any sound financial environment.

This is the bold forecast by the CEO of the deVere Group, Nigel Green.

Over the last 48 hours, the three biggest digital currencies Bitcoin, Ethereum and XRP have climbed 4%, 12%, and 3%, respectively.

Mr Green comments: “The bearish sentiment of the last quarter of 2018 is now, I believe, behind us.

“We can expect the current upswing to continue, albeit with peaks and troughs as in any financial market.”

He continues: “In 2019, the cryptocurrency market is set to radically evolve. We can expect considerable expansion of the sector largely due to inflows of institutional investors.

“Major corporations, financial institutions, governments and their agencies, prestigious universities, and household-name investing legends are all going to bring their institutional capital and institutional expertise to the crypto market.

“The direction of travel has already been on this path, but there is a growing sense that institutional investors are preparing to move off the sidelines in 2019.”

Mr Green goes on to add: “The acceleration of institutional investment is likely to be driven by greater regulatory clarity.

“More and more global jurisdictions can be expected to join the likes of Malta, Hong Kong, Japan and Switzerland in becoming crypto-friendly from a regulatory and pro-business viewpoint.”

Whilst Bitcoin, the world’s largest cryptocurrency by market capitalisation, will remain dominant this year, Ethereum and XRP, due to their unique characteristics and problem-solving traits, can be expected to significantly fuel the 2019 upswing, affirms the deVere CEO.

He notes: “The smart contract abilities of Ethereum are already unrivalled. More and more institutional investors will be making use of these capabilities this year. Also, once Ethereum can accept outside data in its smart contract protocols, its price will rocket further.

“When it comes to XRP, hundreds of financial institutions across the world are already working with it and this is a trend that is set to continue and grow in 2019.

“In addition, XRP has been positioning itself to become a leading international facilitator of global remittances and inflows. This is a massive market in the expanding emerging economies.”

Nigel Green concludes: “2019 will be a year of accelerated maturation for the crypto sector due to institutional investment.”

(Source: deVere Group)

Here Stan Swearingen, CEO of IDEX Biometrics, discusses the potential trends for 2019’s biometrics sector.

Following a number of successful trials using fingerprint sensor technology within smart cards across multiple markets, (including Bulgaria, the US, Mexico, Cyprus, Japan, the Middle East and South Africa) the biometric smart card is reaching its inflection point. Key players within the banking industry, including Visa and Mastercard, are already heavily invested in this new payment technology and anticipate that biometrics will play a key role in the revolution of the payments industry.

With mass market rollout on the horizon, here are five key predictions for the biometric payment industry in 2019.

2019: The year of dual interface

The first half of 2017 reported 937,518 cases of financial fraud, resulting in losses of an astonishing £366.4 million^[1], a clear demonstration that the PIN is no longer fit for purpose. Recent research from IDEX Biometrics supports this claim and found that 29% of consumers surveyed felt concerned about the use of PINs to keep their money secure, and as many as 70% believed that contactless payment cards left them exposed to theft and fraud. As consumer concerns continue to grow around the security of payments, so too does the need for a personalised, secure and convenient payment solution.

Enter the biometric dual interface payment card. 2019 will see biometric fingerprint sensors integrated into cards with both a micro-processor and contactless interface, removing the need for PINs. This will provide consumers with the reassurance that their money is safe as any transactions will require their finger print to authenticate it. 2019 will be the year of the dual interface where biometric authentication will be available for both contact and contactless payments!

These advances in technology and those within the payments market have meant that the concept of biometric authenticated payments is no longer a novelty. In fact, according to forecasts by Goode Intelligence, nearly 579 million biometric payment cards will be used globally by 2023^[2]. The integration of the biometric sensors in the payment card will be one of the next-generation transformative innovations to breathe new life into the payment industry next year and assist in the fight against payment fraud.

The integration of the biometric sensors in the payment card will be one of the next-generation transformative innovations to breathe new life into the payment industry next year and assist in the fight against payment fraud.

Remote enrolment will be the key to mass market adoption

For mass market deployment of biometric smart payment cards to be possible in 2019, banking infrastructures must look at the implementation of biometric technology and ensure that this method of enrolment is accessible and convenient to all. The elderly or those with physical health limitations may struggle leaving the house to enrol within bank branches and even those who work a 9-5 day can often find making it to the bank within opening hours a challenge.

The latest advancements in remote enrolment of biometric payment cards will mean that enrolment for biometric payment cards can take place in the comfort of your own home. Card users will be able to enrol straight onto the card by simply placing their finger on the sensor (with the aid of a small device that comes with the card) to upload their print to the card’s highly secure EMV chip. There is no need for an external computer, smartphone or internet connection. Once loaded, the fingerprint never leaves the card, thus eliminating multiple attack points.

Biometric payments will bridge the gap to financial inclusion

In 2019 advances in biometric fingerprint authentication will be a vital ingredient when bridging the gap to financial inclusion. Currently, 1.7 billion adults remain unbanked across the globe today^[3]. This is for many reasons, from immigration issues, to illiteracy as well as mental health. Those living with dementia are also at risk of losing their financial independence as their short-term memories decline. A fingerprint sensor on the card can take the place of a PIN or even signature, meaning sufferers are able to stay financially independent for longer.

Currently those who lack access to financial services are missing out on the many benefits financial inclusion has to offer. Fingerprint authentication will remove the barriers that face those with literacy challenges, or face difficulty with memory, as card payments will no longer be about what you know, or what you can remember, but who you are.

Currently those who lack access to financial services are missing out on the many benefits financial inclusion has to offer.

Biometric authentication will be a simple, secure and convenient solution eradicating the need for passwords and PINs as a form of authentication. For this to work as a solution to financial inclusion, banking infrastructures and card manufacturers must work together to reach a price point that enables this technology to be available to all.

The possibilities for biometrics are endless…

While biometric authentication technology is already being used with smartphones and passport identification in the UK, 2019 and beyond will see endless possibilities for the use of biometric smart cards into payments and beyond. We can even expect to see biometrics branch into the Government issued identification and IoT enabled devices arenas.

In fact, a whole host of public services is set to benefit from this secure means of authentication. The use of biometric smart cards within the NHS, for example, could see access to sensitive patient records limited only to the patient themselves. Biometric social benefits cards could control how the money is spent and that it is spent by the right person. According to IDEX research, 38% of consumers surveyed would like to see biometric methods of authentication introduced to wider government identification including driving licenses, National Insurance numbers and even passports.

The future of the biometrics – 2019 and beyond!

In 2019, authentication will get even smarter, and further technological advances such as multi-modal or multi-factor authentication will further enhance security within the payments landscape. This refers to technology that combines a variety of different types of biometrics in order to add an additional layer of security, including persistent authentication. For example, instead of having one single authentication, smartphones could continuously scan features to ensure the correct person is using the device.

Whilst the biometric dual interface smart payment card is set to hit the mass market next year – this is just the beginning. The payment card of tomorrow will go beyond just transactions. Biometric smart cards will serve multiple purposes – a payment card, a form of ID for restricted goods and even a loyalty card!

The early days of biometrics where it was felt to be invasive and a privacy concern are long gone. In fact, according to recent research from IDEX, 56% of consumers surveyed state they would trust the use of their fingerprint to authenticate payments more than the traditional PIN. Further to this, 52% would feel more confident if their fingerprint biometric data was stored on their payment card, rather than a bank’s central database.

Consumers are ready for the use of biometric fingerprint methods of authentication for card payments and 66% expect their roll out to authenticate in-store transactions in 2019. We predict that by 2019 biometric smart payment card adoption will go into many millions!

[1] https://www.financialfraudaction.org.uk/news/2017/09/28/latest-industry-data-shows-fall-in-financial-fraud/

[3] https://globalfindex.worldbank.org/

In fact, according to a Capgemini report, digital laggards in the financial services industry are in danger of losing up to 35% of their total market share to digital pure-plays. So, from upgrading ATMs to give them iPad-esq interfaces, to making mortgage applications possible from a smartphone, we have seen a mass of new innovations from the traditional banks this year.  

But this hasn’t been an easy process. While some financial institutions have been slow to adapt, others have attempted such a myriad of new innovations that they’ve been at risk of trying to achieve too much change at once. Below Matt Phillips, VP, Head of Financial Services, Diebold Nixdorf UK/I, provides several reasons 2019 is set to be the year financial institutions focus on what really matters.

In 2019 we’ll see a new approach. This will be the year when financial institutions hone their technological direction. Many will pick one key area to focus on, and they’ll do it really well. Here’s a look at why, and what else is in store for the industry in 2019…

1. Moving on from pilot schemes. From Natwest’s Cora to the National Bank of Canada’s experiments with blockchain, we have already seen banks implement many different forms of new technology in pilot schemes. In 2019 however, the onus will be put on getting a return on investment, which is likely to involve taking a focused approach to new innovations.
2. Honing homegrown talent. With the political climate having the potential to impact the free movement of tech skills across borders, some businesses are predicted to go into ‘supply shock’. They must therefore nurture and develop their own talented employees.
3. Getting the pace right. While millennial and Gen Z customers might leap towards the latest technology, some baby boomers would rather crawl before they can walk. One of the key challenges for banks in 2019 will therefore be to develop their technology strategy at a rate that suits the multiple demographics within their customer base.
4. The end of gimmicks. We’ve all got excited by next generation apps and banking assistant robots that have been announced this year. In 2019 banks will concentrate on making their new innovations count from a customer journey point of view.
5. Open banking opportunities. PSD2 was set to be the game-changer for 2018, with many in the industry seeing the legislation as a threat, as well as an opportunity. In 2019 we can expect the legislation to start to impact consumer trends.
6. New branch formats. Branch formats have been refined over the last few years, with many banks adjusting their portfolios to include flagship stores in high footfall areas, and a consolidated number of smaller stores, supported by transaction-heavy pop up or mobile branches in convenient locations. It has been a time of change and 2019 will see these new branch portfolios mature and get results.
7. Comfortable consumers. In 2014, 19% of consumers had biometrics on their smartphones. By 2018, this had risen to 7-in-10. The consumerisation of technology like this makes it much more comfortable for banking customers to use, so we can expect to see a growing amount of technology such as biometrics in banking.
8. Adding value with analytics. As a globe we are creating a mind-blowing 2.5 quintillion bytes of data each day. For banks, the challenge is to put data to work. In 2019, we will start to see banks use data more intelligent across different platforms to improve the customer journey, personalise the experience and predict how the customer will need to interact next.
9. ‘As a service’ on the rise. The ‘as-a-service’ economy is well underway in the UK, with analysts expecting the XaaS market to grow 38% by 2020. Banks looking to make a better use of their internal teams in a competitive environment can be expected to jump on this trend to boost their internal agility.

Below Finance Monthly hears from Ronnie D’Arienzo, Chief Sales Officer at PPRO Group, on his top tech predictions in payments for 2019.

1. The Mobile Take Over 

Generation Z (those born between 1996 and 2010) are arguably having the biggest influence on societal trends today. For instance, most of those classed as Generation Y can remember the days of dial-up internet and landlines, as the World Wide Web wasn’t invented until 1990. This generation was born and lived at least a few years of their lives outside of the always-on, constantly connected, mobile-driven world that we know today. However, Generation Z has been born into the era of the internet and mobile devices, and don’t know life any other way.

The oldest of this generation has now begun to enter employment and has the spending power which means their demands have quickly driven societal expectations with regards to how mobile technology should be recognised at virtually every consumer touch point – particularly within the retail and banking sectors. In fact, within the next four years, Gen Z will account for 40 percent of all consumers, and their expectations for fast, seamless and secure retail and banking experiences will be higher than ever.

Without a doubt, having a mobile first solution will be even more critical in 2019 should both the physical and online retailers and banking institutions want to survive on the torturous British highstreets. WompMobile, in collaboration with Google, analysed their eCommerce clients and found that those which used Accelerated Mobile Pages (AMP) increased conversion rates by 105%, decreased bounce rates by 31% and increased click-through rate from search engines by 29%[1].

2. Rise of Alternative Payment Methods (APMs)

Visa and Mastercard account for only 23% of global eCommerce today; by 2021 that number will be as low as 15%[2]. This is driven by merchants realising that in order to reach a broader global consumer market, they need to offer the payment method of their customers’ choice. Unlike the US and the UK, for example, where a strong and established card acquiring model exists, many markets prefer ‘alternative methods of payment’ (often this is culturally driven).

Card centric cultures, such as the UK, that heavily depends on debit and credit payment cards, seeing alternative payment methods enter the market, such as PaybyBank app, Venom and Klarna etc. It is also worth noting that in China UnionPay (local credit card) recently overtook Visa as the world’s largest form of card payments by transaction value and number of users. Even ApplePay is entering into the non-debt, cash based German market.

The list is almost endless as there are approximately 350 relevant APMs worldwide, but it is key that the merchant chooses only what is needed for them and ensures checkout pages are relevant and not cluttered. 2018 has seen many Payment Service Providers (PSPs) and Acquiring Banks recognise this and begin to add APMs to their portfolio for merchants. However, if merchants don’t address cultural payment differences with the help of their PSPs, 2019 will see them miss out more than ever. Consumers don’t take any hostages and if you can’t give them what they want, they will quickly go to a competitor who can.

3. Trend towards omni-channel shopping

There is much hype over brick-and-mortar stores becoming a thing of the past. However, with consumers craving something tangible, I predict that in 2019 we will see the online shopping phenomenon begin to penetrate physical stores.

For some consumers, nothing e-commerce has to offer can quite measure up to the physical in-store experience. High street outlets are also recognising that creating a social and omni-channel experience is key to bringing footfall back.

In fact, leading global retailers like Amazon and Alibaba are now experimenting with the newly revived power of hands-on shopping. For example, Amazon recently opened a store in New York offering a range of bestselling items and additional items that were chosen to directly reflect consumer buying behaviours in the region. The concept store is set to turn traditional shopping on its head by replicating the virtual within the physical. Copying the structure of the Amazon website, the store has products organised by headings already known to online shoppers such as "Trending Around NYC", "Frequently Bought Together" and "Amazon Exclusives."

Alibaba Group also seems to believe in the renaissance of physical stores, as it recently debuted its first ‘Fashion AI’ concept boutique in Hong Kong. The store displays a selection of Guess apparel with the help of a "smart mirror" that shows product information on a special screen while shoppers are examining the items. The smart mirror points to where the garments in question can be found, utilising another way to bring the digital shopping experience inside physical stores using digital signage.

While digital kiosks aren't unknown to brick-and-mortar retail, in 2019 digital signage, will begin to offer additional interactivity, increased engagement, and a seamless omnichannel experience for consumers. For example, just one of the many benefits will mean customers will be able to use the interactive screens to order goods in-store to be delivered direct to their front door. Shoppers will be able to enjoy product visualisation that was once perhaps only available online via digital installations in physical environments, where experience will become a central point to the store of the future. Besides offering improved product visualisation, digital signage will also allow customers to browse goods that are not available in stores and select direct home delivery. All of this will be made possible with the introduction of omni-channel payment methods, such as Alipay and increasingly PayPal, that can be used online and instore with the same account, also acting as loyalty cards, to make payments easier than ever.  Just about any shopping scenario will be possible.

4. Mergers & Acquisitions

The digital payment and transaction processing segment accounts for 40% of the fintech sector’s top deals in 2018. For example, PayPal’s $2.2 billion all-cash acquisition of Stockholm-based payments provider iZettle and Worldline, agreed to buy the payments unit of Swiss stock market operator, SIX Group, for $2.75 billion.

As for online and electronic payments processing, whilst the transactions were predominantly focused in the U.S market, the largest of these deals was the $442 million sale of First Data’s card processing business in seven European countries to its Italian rival SIA. Other prominent acquirers in 1H2018 include payments processing company, Paysafe Group, which was itself taken over by buyout firms, Blackstone and CVC capital Partners in 2017.

The implementation of Europe’s PSD2, is likely to be a major game changer for the M&A landscape as it will force banks to collaborate and innovate with Fintech providers, as well as encourage pan-European competition and participation in the payments industry, including non-banks. As a result, it is likely to encourage a high-volume of bank and Fintech M&As early next year. Those new to the market will therefore find a more level playing field with harmonised consumer protection and rights, which will encourage new entrants to the financial services market and fuel further M&A deal growth and valuations.

[1] https://www.ampproject.org/case-studies/wompmobile/

[2] 2018 PPRO Group Payment Almanac, Source: Edgar, Dunn and Company

Jumping straight into the top predictions for the security industry in 2019, below Reuven Harrison, CTO at Tufin, provides his thoughts on hacking, cybersecurity, and new technologies this year.

1. The changing face of the firewall

In 2019, we will see new cloud solutions providing security for public cloud coming from the traditional firewall vendors, following up on recent acquisitions of public cloud security companies. This trend is twofold. First, it is a response to the increasing shift of enterprises towards the cloud and their need for security in these environments. Second, the firewall vendors are also realizing the potential of the cloud as a superior platform for software development and big-data analytics.

In 2019, we’ll see the ongoing evolution of next-gen firewalls as they continue to absorb the functionalities of traditional network security solutions to include capabilities such as URL filtering
and other advanced security capabilities.

2. Data Breaches - Don’t speak too soon…or at all

We will see an increase in breaches that use virtual assistants for privilege escalation or distribution of sensitive information. These attacks will manipulate people into inadvertently giving voice commands or playing audio on their computer, prompting a sequence of events that leads to information on company performance or to further gather network information to ease an attack.

3. Kubernetes will become the new data centre operating system

The main factor behind the success of Kubernetes is how it simplifies and speeds up software development and deployment. For example, it enables "immutable infrastructure" which means that instead of deploying incremental changes to update your applications, you create a new version for every change – whether it’s in the application code or in the infrastructure. This concept brings tremendous benefits to the way we develop, deploy and operate applications (and how we secure them).

Another advantage of the microservices architecture is its ability to parallelise development. By decoupling application functions using microservices, large complex development projects can be broken up into smaller, independent teams, speeding up overall development.

In all respects, Kubernetes is driving an IT revolution.

4. The new year brings nothing new

2019 will be the Year of Lessons Not Learned: we’ll see the same security issues and the maturity of technologies that already exist.

In 2018, many organisations undertook their first steps to container security – which translated to vulnerability scanning – getting more data and false positives than they know what to do with and rendering security as a checkbox process. Vulnerable containers will still exist and remain accessible, and organisations can’t take action because they’re inundated with so much data.

Regarding security in the cloud, history is likely to repeat itself, and as the move to the cloud continues, we’ll inevitably see organisations spin up openly accessible servers and data in the cloud. This risk cannot be remediated with traditional security processes that are incompatible with DevOps CI/CD processes.

5. “Automation first” must happen

In 2019, we’ll see more emphasis on security in cloud-native organisations. Many are talking about it; this will be the year that they take action.

To do this, there will be an emphasis on automation. There’s no way that DevOps teams can get security into their environments without automation. To secure cloud-native environments, you must approach it from an automation-first perspective.

6. Hacking the hacker

In 2019, we’ll see cyber turf wars in which hacking groups attack each other to reap the bounty of their adversaries’ resources. Previously established botnets mining cryptocurrency will be targeted over companies with financial data as the ease of exchange and redemption of this decentralised currency is much more readily accomplished.

7. A look back at 2018

Last year, we predicted that automation will reach the tipping point. This came true in the sense that organisations now understand they must adopt automation. What has slowed the process of full adoption is the cultural challenges. In 2019, we’ll see an acceleration of automation across the industry.

As an enabler for increased competition and customer choice, open banking is transforming the banking sector for consumers, challenger banks, FinTechs and traditional players alike. The UK’s version of the second Payment Services Directive (PSD2), open banking is forcing UK banks to open their data sets via secure application programming interfaces (APIs), resulting in them re-positioning their services away from being one-stop shops for financial products, to open platforms, where consumers can embrace a more modular approach to banking by allowing third parties to access their financial data directly.

As we enter the second full year of an open banking environment, Kevin Day, CEO of HPD Software, the asset based lending and factoring software platform, discusses the opportunities and challenges that the sector is likely to face in 2019. 

Rapid and significant innovation in financial services to grow the market considerably

Open banking’s data sharing rules are aimed at developing new technologies and innovation, which have been advancing at a rapid pace, and which is expected to continue, resulting in increased competition between banking providers and FinTechs. The open API data, which includes account aggregation, improved financial management, credit scoring thin-file customers and integrated lending and accounting platforms allows companies to create bespoke products and target potential customers in a completely new way.

Through such innovation, customers will be able to quickly compare accounts, helping them to understand where to find the most suitable products. Financial management meanwhile could now be offered by an array of financial service providers, from established banks to charities, in a move that encourages customers to shift from traditional ‘under one roof’ banking services to specific, individualised services that are suitable for their personal financial situation. The potential revenue opportunity across a range of SME and retail customer propositions is estimated by PwC to be £2.3bn at the end of 2018, of which £1.8bn could be cannibalised by existing or new players in the market, with the remaining £0.5bn representing new revenue opportunities. Based on forecasts for adoption across the same markets over the next four years, PwC expects incremental revenue will total £1.3bn, where £5.9bn is ‘revenue at risk’.

A lack of homogenous technical standards may make operating processes susceptible to corruption and companies need to be clear on how they will safeguard their data against fraudulent activity.

Enhanced industry collaboration

Another considerable advantage of open banking is the enhanced industry collaboration that will result from data sharing as providers, traditional banks and FinTech companies will between them be able to offer something that the other cannot. With so many players in the financial services industry, the formation of partnerships between banks and their FinTech competitors will result in increased choice for customers, and will help both players to survive and expand their services in a rapidly evolving industry. Any new products formed through such forward-thinking partnerships will likely see the benefits at both ends of the spectrum.

Traditional customer platforms are going to change

Open banking will enable a new league of consumer profiling that will require minimum effort to find the most relevant information on products and services across the industry that are tailored to their individual needs and history. From personalised investment solutions to retail overdraft decoupling, the shift in data optimisation will become the new normal, altering the way traditional price comparison platforms operate. This movement won’t stop there: bank account and transaction data can provide an opportunity to collaborate across different sectors where retailers, utility providers and tech companies can function together on aggregated data platforms.

Access to consumer data increases responsibility around security

The opportunities created by initiatives such as open banking, which have the potential to transform the industry, of course come with responsibilities, and one of the major challenges will be around managing risks related to security. A lack of homogenous technical standards may make operating processes susceptible to corruption and companies need to be clear on how they will safeguard their data against fraudulent activity. Any major data breach is likely to negatively impact retail customer uptake – many consumers consider their financial data more personal than their medical information. With complex chains of data access, both banks and FinTechs must also consider the obstacles associated with responsibility for any security breaches, and ensure that their software is able to identify, predict and react to risks or breaches in good time.

By bringing third-party providers into the banking system, there is a considerably increased risk of scammers gaining access to customer information.

Liability becomes an issue

By bringing third-party providers into the banking system, there is a considerably increased risk of scammers gaining access to customer information and the finance provider will be liable, unless there is evidence of fraud or negligence. With both banks and FinTechs alike facing increased security threats, without proper legal clarification, it’s inevitable that finance providers will do what is necessary to push liability on third parties.

Open banking is still a relatively new initiative

A lack of awareness and education around the capabilities of open banking will be its greatest challenge in the short term. Finance providers will need to convince customers of the benefits of sharing their data in the first instance, and as yet, banks are not marketing open banking, which directly impacts the ability for it to innovate and provide new propositions.

While the corporate sector and SMEs in particular seem far more willing to embrace open banking, consumer review body Which?, has found that 92% of consumers had never even heard of the initiative. As such, banks and FinTechs need to embark on a considerable education programme for consumers to better understand the benefits of open banking and how it can help them take control of, and better manage their finances, from monitoring spending to making better savings and investment decisions.

For finance providers in the Asset Based Finance space, there are opportunities to leverage efficiencies from open banking, in particular in the area of cash processing with the potential for virtual bank accounts to streamline cash reconciliation. There are also value added services that can be offered to SMEs to assist them with other aspects of running their businesses. Finance providers will need to have an open mind and be prepared to collaborate with FinTechs and other technology providers.

Once banks have stronger propositions to offer their customers, they will become more vocal and the lack of awareness will gradually cease to be an issue. For the financial services industry and new entrants alike, it is important that all parties embark upon this education programme with the proper systems in place for proper levels of monitoring, security and scalability to ensure a success of the industry.

Website: https://www.hpdlendscape.com/

A decade after the global recession, the world’s economy is vulnerable again. Ryan Avent, our economics columnist, considers how the next recession might happen—and what governments can do about it.

Thousands of tax refund claims have been made within the first few weeks of the new tax year, according to research conducted by Rift Tax Refunds.

The tax refunds specialist has analysed their own company data to discover thousands of Brits are claiming back what the tax man owes them.

With the rising cost of food bills, travel costs and other essential expenses, it is becoming more expensive to get to work each year, yet HMRC finds itself sitting on millions of pounds in unpaid tax refunds for expenses year on year.

However, the latest research by Rift Tax Refunds’ shows that Brit’s are becoming tax savvy to ensure they claim back what they are owed.

Despite only a few weeks into the new financial year, Rift Tax Refund’s company data revealed that over 5,000 claims have been filed already, with the value of tax claims totalling over a staggering £3.5 million.

Due to the rise in living and travel costs, Rift Tax Refunds have seen the value of an average 4-year claim rise 20% to £3,023.56 over the past few years. Similarly, the HMRC have noted a 25% increase in expenses claims since the 2014/15 tax year.

Bradley Post, Managing Director at Rift Tax Refunds comments: “‘We’re delighted that thousands of people have already come to RIFT for help with their tax refunds this year.

“While the number of claims made this year is based on Rift Tax Refund data, due to the rise in living and travel expenses we can assume that our statistics are reflected industry-wide.

“As the HMRC sit on millions of pounds in unpaid tax refunds, it is important for those who are eligible to claim to keep their receipts well documented to ensure they are able to claim back everything they are owed.”

(Source: Rift Tax Refunds)