The investing landscape has changed significantly over the last decades. Historically, the large banks have been happy enough to manage investors’ money and keep hold of the information. For those wanting to become involved, it was too tough, or too expensive. Here Finance Monthly hears from Kerim Derhalli, CEO at Invstr, on the potential for fintech to succeed in a complex evolving landscape.
Now, with an unprecedented amount of tools at our fingertips to make the process of committing cash to the stock market – or indeed other assets such as bonds – much easier, you’d expect us to be experiencing a golden age for financial independence and empowerment.
Despite this, the data tells a very different story. A recent US study by Gallup, for example, found that the combined age of adults younger than 35 with money in the stock market in 2017 and 2018 stands at 37%, down from 52% in the two years leading up to the financial crash.
While it’s true that a lingering distrust of financial institutions is impacting millennial sentiment towards stock ownership there’s a bigger story here of a more fundamental failing across the fintech industry – which is still not even scratching the surface of its potential.
Let’s look at this in simple, real world terms. If I were to stand on a street corner and hand out £5 notes to anyone passing by, I'm sure I would have several million people taking up the offer of free cash. If I stood on a digital street corner, the uptake would be even higher.
However, fintech brokers who have deployed these same techniques have apparently failed to attract huge followings. What are they missing?
Well, what many of these platforms are failing to understand is that investing is a process, not an event. Understanding what is going on in the world or at an individual company level, reading the news, following the markets, looking at charts, reading research, talking to friends, peers or strangers to get investment ideas are all part of the process.
The last part, the buying and the selling, only represents 1% of the investment process, and is by far the least exciting part of it. Companies that make the transactional and comparatively dry element the focus of their product are missing the fundamental quality of what makes fintech such an exciting proposition – and doing wannabe investors a disservice in the process.
For me, fintech is the manifestation in the financial markets of the information revolution. Whether it’s about internet or social networks, the sharing economy and now cryptocurrencies – it’s all about empowering individuals.
With investing apps, this means giving users access to data that was formerly the reserve of the large financial institutions and teaching them to interpret how real world events can impact on the stock market.
This is excellent practice for investing, whether via a mobile app or otherwise, where those who truly profit chart a path by making their own investment decisions rather than relying on passive funds that track the major exchanges.
Ultimately, it’s about putting people in a position where they can manage their own money. The disruption we’ve seen in every other consumer sector, where the empowerment of individuals has done away with intermediaries is the real opportunity. If more companies in the fintech industry can capture that space then the impact on finance will be truly transformative.
Online research from Equifax, the consumer and business insights expert, reveals a lack of awareness of banking options among Brits. When presented with a list of digital banks 60% hadn’t heard of any of the brands and only 20% would opt for a challenger bank if opening a new account today.
The survey, conducted with Gorkana, showed 44% of Brits would choose a traditional bank, and when choosing which brand to bank with, they prioritise good customer service (41%), ease of managing money via a good app or online service (34%), and availability of a physical branch (32%). Media influence was least important; only 3% of people factor news stories about a bank into their decision.
Good customer service also topped the list of priorities for people who would choose a challenger bank (31%), followed by incentives such as a joining fee (28%) and a good app or online service (27%). Friends or family using the bank was the least important factor – just 5% of respondents would take this into consideration.
People who would opt for a challenger bank appear to be more value conscious; one fifth (20%) said better rates when using their card or withdrawing cash abroad would appeal to them, compared to 12% of people who would use a traditional bank. Over a quarter (27%) rate more competitive rates, for example on overdraft fees or loans services a contributory factor when choosing a challenger bank, versus 19% for traditional banks.
Jake Ranson, Banking and Financial Institution expert and CMO at Equifax Ltd, says: “Challenger and digital banks have been making their mark in the banking sector bringing attractive, consumer friendly services to market, yet many consumers are still unaware of these brands. The government has taken action to increase competition in the sector but there’s still a lot of work to do to encourage consumers to fully explore the options available to them and make informed decisions on selecting or retaining accounts.
“Open Banking is underway and is a huge advance for consumers. Services are coming to market that will help people get better value from banks, for example identifying sign-up incentives or better rates tailored to their needs. The next step is for the industry to work together to increase consumer awareness of the value Open Banking unlocks.”
(Source: Equifax)
Given how new technologies have been revolutionising customer experience across a variety of sectors, proclaiming the importance for banks to embrace digital transformation may sound like old news. Haven’t all banks already created compelling online banking services by now, to satisfy the tech-savvy consumer’s demand for anytime, anywhere banking?
Well, no. The banking and financial services industries have traditionally been digital laggards, partly as a result of the highly regulated industry in which they operate and partly because senior decision makers have been slow to recognise the potential ROI. We are now entering a critical new phase in which intelligent machines are enabling – indeed, compelling – banks to fundamentally see and do everything differently. With the growing threat of FinTech firms increasingly gaining traction with consumers due to the accessibility, flexibility and availability of the financial products which they provide, banks now have a significant incentive to accelerate the move into the digital age.
Embracing the digital age
Digital transformation will affect all working practices and the way banking organisations are structured. New intelligent technologies for augmenting human performance will make it easy to achieve things that seemed impossible before.
Employees will become more speedy and productive – as well as happier and more fulfilled.
Banks will be able to reach incredible new levels of efficiency, accuracy, safety and security, and adopt radical new approaches to the way products and services are constructed.
Banks will soon be able to digitise every conversation they have with customers and then use algorithms to anticipate problems – for example, with contactless cards or credit card misuse. Based on these predictions, glitches can be prevented before they even arise.
Another way that intelligent technology can create a win-win for banks, staff and customers alike is with Robotics Process Automation. Machines can be programmed to do mundane, repetitive tasks, thousands of times faster and more accurately than humans. This frees up employees to do more fulfilling work that needs a personal touch – significantly improving customers’ experience all round.
Reaping the benefits of early adoption
Not all banks have been slow to embrace digital transformation. Here are some examples of how digital innovation is already benefiting organisations whose technology-embracing boldness is paying off:
JPMorgan Chase
The global financial services firm recently introduced a Contract Intelligence (COiN) platform to analyse legal documents and extract relevant insights and data. If their staff manually revised 12,000 annual sales contracts, it would take around 360,000 hours. With Machine Learning technologies, the same task can be done in minutes.
The Bank of America
Meet ERICA, who works for The Bank of America. You can’t shake hands (she doesn’t have any). This is the first time Artificial Intelligence has been used to help customers manage their savings. ERICA does this using AI, Predictive Analytics and Conversational Interfaces.
N26
N26 describes itself as ‘a bank account for your phone’. Using an International Bank Account Number, customers can do everything they could with a traditional bank, except faster and from anywhere. The app is integrated with Pulse26, an analytical virtual assistant that provides personal insights based on each individual consumer’s needs.
CapitalOne
CapitalOne was the first bank to offer a new way for customers to interact through a completely different channel. It integrates online banking with Amazon Echo so that customers can ask Alexa (the virtual assistant in the device) real-time information about their bank account, and perform transactions just by using their voices.
Citibank
Citibank has recently acquired Feedzai, a Data Science company that works in real time to identify and eliminate fraud. By constantly and rapidly evaluating vast amounts of data, Feedzai identifies suspect activity and alerts customers immediately.
Act now or be left behind
As the above examples show, this technology is already revealing some astonishing benefits for financial institutions. And yet, many established banking organisations are still a long way from embracing this next stage of digital transformation. According to a recent PwC study, two banks out of three in the US have not yet adopted any meaningful application of these powerful new tools.
There are various reasons for this, such as operational, regulatory, budgetary and resource constraints. But the fact is, we are at a once-in-a-decade, pivotal moment – similar to the dawning of the internet age, back in the nineties. Leaders must transform how they run their banking organisations and embed these new technologies in their business or risk being left behind by the competition.
For those banking organisations looking to press ahead with their digital transformation journey, here are some important considerations:
Recognise the importance of agility
With the maturing world of powerful intelligent technologies such as AI, organisational agility is more essential than ever before, and many established financial institutions still lack this key requirement to digitally transform their businesses.
Engage the entire organisation
It’s imperative to have engagement from all levels of the organisation, from board level downwards. This is a fundamental transformation programme that will touch every aspect of the business. To truly benefit from these innovations, an entire organisation will need to be engaged in the journey and adopt the mind-set necessary to embrace the new technologies.
Be measured about the potential results
The potential benefits of the new technology are enormous, but it’s safer to be conservative with estimates – they will still be impressive. Organisations should exercise some healthy caution, perhaps born out of previous investments in technology that only delivered marginal improvements.
Demystify the terminology
Machine Learning, Intelligent Machines, Cognitive Platforms, Deep Learning, Intelligent Technology, Artificial Intelligence, Robotics, Robotic Process Automation, Intelligent Products, Virtual Assistants, APIs…. the list goes on and on. These new capabilities are wrapped in a language that to many is impenetrable. Find ways to simplify it. Compile a glossary. Educate everyone so you’re all speaking the same language.
Create powerful practical examples
It’s important to communicate effectively at board level, in a way that demystifies the potential of the technology. The best way to do this is by creating powerful examples that show this intelligent technology in action. Take a look at how IBM is demonstrating what these technologies can do: https://www.ibm.com/thought-leadership/you/uk-en/.
Bring in business areas early
Reinforce the idea that digital transformation is much more than a big IT initiative. Bring in other business areas early to work on proof of concepts.
For the first time, the technologies now exist to radically transform all aspects of a banking organisation. The potential of digital transformation is yet to be fully realised but the warning signs for banks are clear – those that don’t act now to embrace the future will rapidly be left behind.
More than two fifths (41%) of finance back-office processes could be automated in the next five years, a new study from global customer services provider Arvato CRM Solutions and management consulting firm A.T Kearney has found.
According to the new report, 41% of finance back-office processes are set to be performed by robots by 2023, with this figure rising to 53% within the next 10 years.
Implementation of Robotic Process Automation (RPA) is set to significantly boost firms’ productivity and efficiency, as bots are 20 times faster than humans with a 10% lower error rate. Subsequently, companies that adopt this technology, could potentially receive an ROI of between 300 and 1,000% over a three-year period.
It’s also predicted that the widespread roll-out of RPA solutions will result in an annual compound market growth of 50%, with the global market set to be worth $5billion by 2020.
New developments
The research also predicts that by 2023, RPA, with the help of cognitive capabilities, will be able to make automated decisions, and by 2028 robots will be able to carry out most back-office processes independently with minimal human intervention.
The new report, named ‘Robotic Process Automation: The impact of RPA on finance back-office processes’, interviewed more than 20 technology partners and players in the field of RPA, gathering together their view on the trends and developments within the sector.
Ben Warren, vice president of Digital Transformation at Arvato CRM, Global BPS, said: “RPA will revolutionize the finance back-office, as the new technology is more accurate, efficient and can work for longer hours, depending on demand.
“This can consequently help drive revenue for a business, streamlining processes and allowing employees to spend more time on higher value tasks.
“But although the benefits of automation can be great, it’s important that firms understand that to successfully utilize the technology they will need to invest.
“A full analysis of end-to-end systems and redesign of existing processes will be initially required, and companies will need to regularly review their processes as technology continues to evolve and develop over the coming decade.”
Dr. Florian Dickgreber, partner at A.T Kearney and co-author of the study, said: “Having transformed manufacturing, bots are now set to change processes in the service sector.
“We expect RPA, the automation of structured business processes, to take over more than half of all back-office processes over the next five to 10 years.”
(Source: Arvato CRM Solutions)
What’s that saying? You’re more like to get divorced than you are to switch your bank account. Below Matt Shaw, Strategist at RAPP UK, explores why high-street banks need to re-connect with young customers or face losing the next generation to digital first challengers.
For ten years now consumers have been used to getting less from their banks. Lower interest rates, fewer high-street banks and little reward for their “loyalty”.
Against this backdrop a quiet revolution has begun. New digital first challenger banks like Monzo, Atom and Starling are offering something genuinely different and are hoover-ing up younger audiences in the process. What’s more, Open Banking is set to explode consumer choice and making comparing and switching banks easier.
While these challengers pose a threat, established retail banks have a limited window of opportunity. At the moment young consumers are using these challenger bank accounts as “play money”, a supplementary account, allowing them to budget better, rather than a direct rival to the Big Four. However, this “play money” perception is likely to change as customers become more engaged challenger banks’ products and their brands become more established and more trusted.
Traditional retail banks need to sit up and take note if they want to capture the next generation of customers.
Driving preference
Whilst loyalty may be dead, retail banks still have an opportunity to deliver value to their customer base and protect against digital first challengers. Rather than aiming for (and missing) loyalty, retail banks should look to consistently drive preference across the customer lifecycle.
At RAPP we use three key elements to drive preference: Value Perception, Customer Experience, and Generosity.
Good customer data is central to all three of these elements. While new digital first challenger banks have no issues with this, it’s safe to safe that many retail banks will need to get their legacy data and systems in order if they want to deliver these elements.
Value Perception
One of the easiest ways retail banks can drive preference is by reflecting and reminding customers of the value they receive and the relationship they have.
Digital first financial services are currently leading the way in this space. Savings app Chip uses AI to analyze customer data and recommend opportunities for them to squirrel away money into their account in real time. Whilst this is a great new customer experience, the app is also amazing at replaying value back to customers. When money is transferred from your account, their friendly chat bot notifies you with an encouraging message and a humorous gif telling you that you’re #winning. When you ask for your savings balance they not only replay your balance, but your savings to date, your interest rate, the value of this interest and when this interest is due.
Customer Experience
The customer experience gap between digital first challenger banks and established retail banks couldn't be much greater at the moment. Whilst new challenger banks have no high-street stores, they’re beating established banks where it counts, through digital and mobile apps.
Monzo, Starling and Atom offer a stark contrast to the mobile apps of established banks. Their platforms offer spending analytics, integration with third parties and enhanced functionality like bill splitting and money pots; in comparison established banks can offer only the most basic functionality (balance enquiries, payments). Moreover these new challenger banks are constantly evolving their offering, while established banks can only give their apps a UX facelift with no new functionality.
New challenger banks are raising expectations of what a bank should offer consumers, particularly among urban millennials – something established banks should be concerned about as they are the most likely audience to switch provider (32% say they are “very likely” to switch in the next year[1]).
Generosity
Generosity is all about recognizing and rewarding customer engagement through regular value-adds that make customers feel valued.
Retail banks need to get out of the habit of using the transactional rewards based on cash back and increased interest rates. Instead, retail banks should looks to create value through customer data and collaboration with third parties. Both Starling and Monzo have added “marketplace” functionality to their apps allowing third parties to offer customers their services. Starling have two “loyalty” schemes (Flux and Tail) offering customers instant cash back when they make a purchase at restaurants and shops. However, this functionality has the ability to grow exponentially, and into non-financial generosity, with Open Banking making it simple for banks and third parties to interact.
Established retail banks can no longer sit back and let inertia reign supreme. Not only are new banks challenging the status quo and winning younger audiences, their nimble user interfaces and pristine databases mean they are also the most likely to profit from the future innovations of Open Banking. Established retail banks need to wake up to the challenge and rediscover how to drive preference. They can do this by innovating their customer experience to match new heightened expectations, using customer data to replay value and by smattering their base with product and non-product generosity.
Four out of five businesses will use chatbots by 2020, 85% of all customer interactions will be handled by them and they will generate $600bn in revenue in the same year, according to a recent Oracle survey. This week Chris Crombie, Product Manager at Engage Hub, believes now may well be the best time to start investing in chatbots.
In just under two years’ time, chatbots – conversation-mimicking computer programmes that provide your customers with an instant, personalised response – will be ubiquitous. Driven by innovation in artificial intelligence (AI) and the insatiable desire to enhance and personalise the customer experience.
Simply put, chatbots are one of the clearest concrete examples of how the “AI revolution” is impacting on the business landscape and on the day-to-day lives of millions of consumers worldwide.
Consumers happy to chat to bots
Consumer familiarity with chatbots has increased over the last decade, a result of our familiarity with things such as self-service machines in supermarkets and interactive IVR.
With the latest advances in AI technology pushing new boundaries, it’s easy to see why many are claiming that 2018 is set to be “the year of the chatbot”.
That’s because, for any company that has an interest in offering a great customer experience, the potential benefits of enhancing customer satisfaction and responding to customer’s needs in a faster and more efficient manner by using chatbots are immense.
Plus, new messaging applications such as Facebook Messenger, WhatsApp, WeChat and traditional SMS are proliferating, which means millions of new opportunities to reach customers and communicate with them using the communications channels they utilise and like the most.
Understanding innovation in AI, Machine Learning and NLP
To understand the latest chatbot innovations, it’s necessary to have an understanding of Artificial Intelligence (AI), Machine Learning and Natural Language Processing (NLP).
Artificial intelligence is the theory and development of computing technologies that can perform tasks that previously required human intelligence. Mainly relating to speech recognition, visual perception, decision-making or language translation.
As an extension of this, Machine Learning is the application of AI technologies in ways that use data to learn and improve automatically, without being given explicit instructions. While NLP is the branch of AI that helps computers understand human language as it’s spoken and written to be able to understand intent.
The computer chatbot uses AI and NLP to imitate human conversation, through voice and/or text. So, in addition to the above-mentioned text-based instant messaging systems, voice-controlled chatbots are becoming increasingly popular, both in the home and in business contexts.
Amazon Alexa, for example, has proven to be an immensely useful consumer technology over the last two years in terms of its educational benefits, teaching consumers about the ease-of-use of voice controlled tech and helping them to feel comfortable and happy using it.
Test chatbots properly, to boost business
So that’s a brief overview of the key technologies and the commonly-used acronyms behind chatbots. Yet the key thing you need to know if this: when implemented correctly, chatbots are a demonstrably fantastic way to increase engagement with your customers.
So, what’s the secret of rolling out chatbots in a way that resonates well with your customers and doesn’t risk you losing sales?
As with any new technology, rigorously test it out internally before you let your customers start to use it. This is particularly critical with chatbot applications, as the bot will start to learn from your team, which helps to ensure that it knows how to deal with a wide range of the most common customer questions, complaints and enquiries.
Thorough testing will ensure your chatbots work as efficiently as possible, giving the correct information to customers as rapidly as they demand it.
All of which means that you will gain a clear competitive advantage, future-proofing your business by improving the customer experience whilst also delivering operational excellence.
Connecting you to your customers 24/7
Businesses in all verticals, particularly finance, retail and logistics, and businesses of all sizes – from small start-ups through to global enterprise – need to be investing in the latest chatbot technologies in 2018 to stay ahead of the curve.
And in today’s market, enhancing the customer experience is all about providing a high quality ‘always on’ service to deliver the information that they need, on demand, 24/7.
Few will disagree that the current banking industry is facing a turbulent future, as the incumbents continue to struggle to keep up with the seemingly endless growth of FinTech “disrupters.” Consumers are now inundated with a vast array of choice in the form of new products and services beyond the boundaries of our imagination. The challenge for big banks is to marry the needs of the current generation with new technologies, ensuring that services can still be provided to millions of active customers while new products are both practical and implemented at speed. This is far from trivial, due to current products being nestled in inflexible legacy technologies making it complex and costly for them to be changed. The incumbents’ difficulties in tackling this are highlighted by the rapid rise of FinTechs disrupting such an institutionalised and previously untouchable industry. This FinTech revolution has put big banks in an even more precarious position, as their role as the go to financial mediators is put into question.
Risks for the traditional banks have emerged in many forms, ranging from app-like services, which offer very specific products such as Trussle, to more integrated platforms that offer a wider range of services, many of which have carved out a new niche in the industry as “online banks”. The more specialist FinTechs, while often the most disruptive, may be too radical for their own good and over-engineer solutions to manufactured problems that don’t affect everyday consumers. This puts the longevity of many of these services, which could follow Icarian trajectories, at risk. Alongside the uncertainty of the products available, the vast majority of these FinTechs are young start-ups, with little to no brand recognition or trust, something incredibly important for customers whose money is on the line. Consumers are therefore left in a difficult position, to choose the big banks with frustratingly old fashioned but trusted services, or to go for start-ups with attractive products but the lack of a track record and reputation.
While some FinTechs may be flying too close to the sun, the new generation of online banks may offer the solution to the challenges faced by the consumer banking industry. They often boast the same features consumers love at traditional banks, including easily accessible funds in a current account alongside integrated saving and investment accounts, after all they are able to offer Government-backed deposit protection for up to £85.000. Some, for example Revolut, although currently not a bank and hence unable to provide FSCS guarantee, which started out from a modest background in foreign exchange for holiday money, are now allowing customers to access products traditionally offered by mainstream banks from the comfort of your smartphone. These are posing the biggest risks to the big banks, as while it was a FinTechnologically literate minority of consumers that greeted the more obscure FinTechs, online banks threaten to undermine incumbents’ hold on the mainstream market.
While traditional banks are facing threats from the FinTechs, we are still in Wild West territory. The lack of coordination between banks and FinTechs, which is only recently being addressed, means that consumers who want new products and services offered by the FinTechs, with the trust and security associated with traditional banks, are left with few options. In my view, the future of banking will see the rise of new technologies becoming integrated with traditional systems to heal the wounds left by big banks which today’s FinTechs have tried to mask over rather than address the underlying causes. This square peg in round hole approach will cause the incumbents to struggle to hold on to their customers, even when collaborating with FinTechs. Instead they should look to the seamlessly integrated online banks for guidance and co-operation.
One example that illustrates this issue is the unarranged overdraft problem. Overdrafts were first introduced by the Royal Bank of Scotland in 18th Century, and have changed little since. They are of great benefit to both consumers and banks, and hugely convenient. That is, until your agreed limit with the bank is exceeded. For half of the population the agreed limit is nil, hence going overdrawn means immediately paying unarranged overdraft fees. Last year nearly 25 million personal current accounts went overdrawn. The majority of these consumers often have no choice but to knowingly go overdrawn to unarranged levels as they have been offered no alternatives by the big banks. As a result, some also turn to alternative non-bank lenders, such as consumer credit and payday loans which not only put a black mark on a customer’s credit file for six years but also reduce people’s credit scores by an average of 10% within 12 months. This results in more expensive financial products such as mobile contracts or utility bills. This is a real paradox.
Fiinu is launching next year with an elegant solution to this dilemma. Its current account with overdraft extension prevents consumers from paying unarranged overdraft or failed item fees. This is monitored through Open Banking, and allows users’ other current accounts to pre-emptively subsidise the account low on funds to avoid fees. It also allows access to an outsourced overdraft at a fraction of the unarranged overdraft cost. In doing so, Fiinu also improves customers’ credit scores and allows consumers to access to better deals through improved credit files. These things, while possible for ground-up neobanks, are far more challenging for the established players with outdated protocols entrenched through their use by millions of customers.
The future of banking is both exciting and uncertain, however it is clear that the approach of the incumbents, who now see the use in working with FinTechs to suit the needs of a new generation, must try and rectify the structural issues within banks themselves, rather than try to patch them over with what will ultimately become stop-gap measures. The biggest threats to the banking status quo are the rising online banks, which offer both realistic and evolutionary alternatives for the everyday consumer. Their recent successes and growth in the market suggests it is not unreasonable to imagine that in as little as five years, the brick and mortar bank may well be confined to the financial graveyard.
Website: https://fiinu.com/
By as early as next year more consumers will use apps on their smartphone than a computer to do their banking, according to forecasts.
It has also been predicted that 35 million people - or 72% of the UK adult population - will bank via a phone app by 2023.
Ian Bradbury, CTO Financial Services at Fujitsu comments: “This is a tipping point for the industry. Mobile is rapidly becoming the channel of choice, and it’s no surprise – it’s easy to use, with an emphasis on customer experience and convenience, and it’s with consumers wherever they go.
“However, the migration of banking onto mobile phones will certainly put more pressure on banks to up their security - more frequent mobile banking use, with devices which can be easily lost or stolen, means criminals can potentially do more damage to more people. This is where we will increasingly see banks use higher-grade biometric based solutions to secure banking apps and transactions, which phones are now beginning to incorporate.
“The experience customers have with their mobile banking app will also be crucial in retaining and attracting customers. With many organisations outside Banking setting a high standard of what good customer experience for mobile apps looks like, banks will have to bear in mind that a smooth customer journey for their app can be the next ‘make or break’ element.
“Looking forward, we can expect to see more and more use of voice to control Banking Apps, enabled by the use of AI enabled robotic assistants. Once again, it will be the customer experience that will be key in supporting the uptake of this channel.”
(Source: Fujitsu)
Worldwide spending on blockchain is set to top $2 billion in 2018, according to the International Data Corporation.
Stacey Soohoo, research manager, customer insights and analysis at IDC, said: “The year 2018 will be a crucial stage for enterprises as they make a huge leap from proof-of-concept projects to full blockchain deployments.”
There is, clearly, a lot of time, money and effort being spent in tapping into the potential of this technology. But, how can we expect to see the benefit of all of this? How far will blockchain go in terms of changing the way we do business?
Finance
Having originally been met with some scepticism in the banking sector – probably due to its disruptive nature and the presence of scams targeted at early adopters – blockchain is increasingly being harnessed by financial institutions to change the way they do business.
Perhaps most obviously, this can help to add speed and security to the process of transferring money, something that everyone from a holiday-bound consumer to a novice investor dabbling with a forex demo account through to a FTSE100 CEO can appreciate.
Yet, as the FT notes, the process of clearing and settlement, the verification of a customer’s identity and the raising of syndicated loans can all be made more efficient with blockchain.
Traceability
Yet, to focus solely on banking and payments would be to ignore the broader scope of the benefits of blockchain.
In industries where ‘traceability’ is crucial, this provides a clear, immutable record of a financial transaction. Examples of where this is necessary include the charity sector – where organisations need to prove that donations ended up at the intended target and, perhaps most pertinently in a business context, for diamonds.
For diamond companies, being able to create and manage a record for customers and clients will enable them to be clear that their product in genuine and sourced responsibly – two things that will help reputable firms to stand out from companies engaged in practices that have threatened to tarnish the sector.
Privacy
While speed, security and a transparency are clearly important, so too is privacy, especially in sectors such as healthcare where it’s vital to protect patients’ data and, typically, there are issues with out of date security software and records systems.
While the US’ private healthcare system has already embraced blockchain, the NHS could benefit too. As Tech UK notes, tracking medical test results in real time, sharing data between medical teams in different locations for research purposes, speeding up compliance paperwork processes and handling documentation for short-term staff could all be done quickly and – crucially – with the required level of privacy. This doesn’t just benefit the NHS but also a number of science and healthcare companies that rely on the NHS for work as third parties.
In some respects, blockchain’s real power is not necessarily that it changes what can be done as a business. Rather, it enhances the way in which companies operate in the digital age, allowing to carry out the processes and practices that they have developed in recent years and allows them to be done quicker, safer and cheaper.
The automation of work, including the use of robotics and artificial intelligence (AI), is expected to rapidly increase. In fact, recent research by think tank ‘Centre for Cities’ found that one in five jobs in Britain will fall victim to automation by 2030. These findings are further echoed by auditing firm ‘PricewaterhouseCoopers (PWC)’, who estimate more than 10 million UK workers will be at high risk of being displaced by robots within the next 15 years.
As the prevalence of automation becomes more common in our day-to-day routines (supermarket self-service tills, air travel self-check in etc.), it’s threat towards human jobs only becomes more apparent.
Interested in this phenomenon, Reboot Digital Marketing analysed findings from Mindshare, who surveyed more than 6,000 individuals from across the UK to see whether they would prefer robots or humans in eight different occupations/scenarios.
Reboot Digital Marketing found that when making car comparisons with the intention to eventually purchase, a significant percentage of Brits would want robots (60%) aiding them instead of humans (40%). Thereafter, Brits would be most inclined to accept music/film recommendations from robots at 49% - though 51% would still opt to do so from other people (family, friends etc.).
Fascinatingly, even though most Brits (75%) would still prefer humans to be MP’s, 25% would elect robots to be in this position of power.
Moreover, despite the negative perceptions associated with bankers as a direct result from the fallout of the 2008 financial crisis, Brits would still select humans (71%) over robots (29%) to be in their respective role.
On the other end of the scale, 11% of Brits would be least willing to take medical advice from robots. Similarly, only 14% of Brits would not feel apprehensive about receiving legal advice from robots. Information for immediate release RebootOnline.com
Shai Aharony, Managing Director of Reboot Digital Marketing commented: “Automation is undoubtedly on the rise. As the technologies which underpin its development become more sophisticated and efficient, certain industries will certainly face the real prospect of robotics and artificial intelligence disrupting their traditional flow of human labour. Whilst the assumption tends to be that it will either be people or robots, I believe they will complement each other in different tasks and facilitate new types of jobs. What this research certainly demonstrates is that Brits currently favour humans as opposed to robots in a handful of occupations/situations. Although, as automation becomes more prominent and Brits understanding of it drastically improves, this may potentially change.”
(Source: Reboot Digital Marketing)
Below Finance Monthly hears from David Jones, Chief Market Strategist at Capital.com, on why Bitcoin's infamous reputation for extreme volatility may be coming to an end.
With the benefit of hindsight, there can be no doubt that the moves seen in Bitcoin, and other crypto-currencies, from the summer of 2017 through to February 2018 has all the hallmarks of a classic bubble - and corresponding bust. No doubt it will become a popular part of market history - just like the technology shares boom and bust of the late 1990s. Somewhat ironically, weekly volatility in Bitcoin recently hit a one year low below 3% - at pretty much the same time as the NASDAQ, that barometer of technology stocks, moved out to fresh all-time highs.
So why has volatility evaporated? There are a few reasons we could point to, but first let's set the scene. From the middle of November to the middle of December the price of Bitcoin increased threefold. After spending years just being something of a niche IT interest, Bitcoin went mainstream and dragged plenty of other crypto-currencies along for the rise. The mainstream media picked up on the story with almost daily coverage on TV programmes and in newspapers that would never have even heard of crypto-currencies just a few months before. The gains in cryptos seemed to represent easy money and individuals, who would never dream of speculating in more traditional markets, were keen to find out how to get involved. Facebook and Google were full of adverts on how to profit. The prices moved ever higher.
It's a classic rule of market psychology - whenever the general public gets involved in a market in large numbers, expecting further rises, then a top could well be near. This of course proved to be the case - at the time of writing Bitcoin is around 60% below its December all-time high.
Why the lack of volatility?
The obvious reason is that the hype has gone from this market. Plenty of latecomers to the crypto currency rally have had their fingers burnt, have taken their losses (or are still sitting on them) and have vowed never to return. Activity amongst the wider public has slowed.
There are not as many new entrants buying and selling as the price has burst - the story of it being a somewhat boring market in recent months, is not going to make people excited about the potential for "easy money". Wider media coverage has dried up, reducing awareness amongst the public.
Facebook and Google have banned crypto currency adverts - so an incredibly important section of the digital media world is not increasing awareness of this market. You can see this in internet searches - Google searches for Bitcoin for example are down by 75% for the year so far, again pointing to a significant shift in interest by the casual investor.
Arguably, the introduction of a listed futures contract for Bitcoin has also calmed the wilder market moves. The additional media coverage resulted in widespread speculation prior to the listing. The unregulated crypto exchanges experienced extremely high numbers of new signups and in some cases stopped on boarding new customers. The futures contract was launched in the first week of December last year and, less than three weeks later, Bitcoin started falling. Now, institutions and more professional investors have a regulated way of gaining exposure to Bitcoin without having to worry about online wallets and the worries over lack of security. The futures contract also gave the ability to "sell short" - so to profit from Bitcoin falling. This has no doubt gone some way to initiate a more orderly two-way market in Bitcoin - making it more like most other markets. But even the official futures market has suffered as volatility has dropped off - current volumes are best described as modest.
The lack of volatility is seen as a positive sign by those who see more adoption of blockchain technology. It's hard to claim that cryptos are a store of value when the price is moving 10% and more in a very short period of time. More price stability and less volatility certainly helps this value arguement. Significant new money continues to move into blockchain, with billion dollar VC investment funds being raised to new blockchain startups. The world’s leading financial regulators and institutions continue to engage and determine how to regulate and participate in what has become a disruptive new area of investment. Although the boom and bust is over (for now, at least), it could end up being one of the best things to happen for the future of crypto currencies.
The impact of blockchain within the financial services industry could be significantly delayed by the damaging PR currently associated with cryptocurrencies, new research suggests.
Insight gathered in a report by international law firm Gowling WLG reveals that financial services experts are fearful that if the negative headlines surrounding the likes of Bitcoin impacts industry opinion about blockchain software, it will perpetuate the common confusion between the two.
The report, entitled 'The ultimate disruptor – how blockchain is transforming financial services', states that an estimated US$2.1 billion will be spent on blockchain solutions[1] during 2018 and, by 2021, levels are expected to reach US$9.2 billion. In order for the system to reach these levels of growth and its benefits to be realised, it's essential for businesses to understand the capabilities of blockchain and other distributed ledger technology (DLT) beyond Bitcoin.
Dean Elwood, CEO of blockchain company Umony and contributor to the report, said: “Bitcoin is creating so much noise, much of it negative, that the genuinely useful and practical side of blockchain is getting buried. I think there is a real pressure on the industry and people like me, to make sure that everyone really understands the difference between blockchain and cryptocurrencies like Bitcoin."
The report features insight from specialists including NEX Exchange, Blockchain Hub, BTL Group and AgriLedger.
Many of the contributors believe that the development of blockchain technology will happen much faster if the industry collaborates and regulators are involved in the development process. This is because the very nature of DLT revolves around sharing information, not only internally, but also with customers and, in many cases, with competitors.
David Brennan, partner and co-chair of Gowling WLG's global tech team, said: "The business community has been quick to grasp the numerous opportunities blockchain solutions afford, but the key challenge will be communicating its significance to both the public and policymakers. Collaboration between governments and the private sector is key in order to facilitate widespread acceptance and adoption of the technology."
The firm's research also suggests that the appropriate industry regulators need to catch-up with the technological developments within blockchain and DLT, yet the majority of those interviewed do not believe that the technology itself requires regulation.
Andrew Gardiner, founder and CEO of Property Moose, said: "Cryptocurrencies need regulating, absolutely, 100%. But you can't regulate blockchain itself. It's just a piece of tech. For example, do you regulate Microsoft Word or Google for emails? They all have to be ISO compliant, so you’ll have industry standards, but these are not regulation.”
For a full overview of the research conducted with financial services experts, including insight on who will be affected by blockchain, the opportunities and threats facing the technology and the level of investment now going into blockchain development, see Gowling WLG's white paper 'The ultimate disruptor – how blockchain is transforming financial services'.
(Source: Gowling WLG)
[1] 1 Worldwide Semiannual Blockchain Spending Guide, International Data Corporation, 2018.
