Mobile banking users to reach 2 billion by 2020

New research from analysts Juniper Research, finds that over 2bn mobile users will have used their devices for banking purposes by the end of 2021, compared to 1.2bn this year globally. Growth in mobile banking is being driven by consumer adoption of banking apps the changing way consumers manage their finances.

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The new research, Retail Banking: Digital Transformation & Disruptor Opportunities 2016-2021, found that the number of mobile banking logins are now exceeding that of internet banking logins in many markets. For example, the BBA (British Trade Association for Banking) announced that banking app logins in the UK reached a record 11m per day during 2015, compared to 4.3m internet banking logins during the same period.

Meanwhile, a recent Consumer Survey conducted by Juniper Research found that around 65% of mobile banking customers in the US and the UK uses an app to conduct banking services.Digital Disruption in Banking ~ What Next?

The report found that banks are becoming increasingly concerned that their market position is being undermined by tech-companies and pure-play vendors enabled by technology and regulations to enter the marketplace. For example, in the UK alone 5 new digital banks received licences or launched services so far in 2016, including Starling, Tandem, Atom, N26, and Monzo, with around 20 banks currently in talks with regulators to receive a licence.

Additionally, by 2017, banks in the EU will be compelled to open their APIs. This will result in many innovative new products that analyse (with permission) user data to create more attractive financial services for customers.

“Recent industry shifts highlight why traditional banks must respond rapidly to retain market share by cultivating new revenue channels and enhancing existing base through sustained innovation. However the challenge here for new players is to increase market share and maintain profitability in the long-run”, added research author Nitin Bhas.

The whitepaper, Futureproofing Digital Banking’ is available to download from the Juniper website together with further details of the full research.

Juniper Research is acknowledged as the leading analyst house in the digital commerce and Fintech sector, delivering pioneering research into payments, banking and financial services for more than a decade.

 

Banks Up The Ante On Access To Mobile Payment Wallets

Here is a joint statement on behalf of Bendigo and Adelaide Bank, the Commonwealth Bank of Australia, National Australia Bank, and Westpac regarding the current ACCC investigation relating to access to mobile payments via third party wallets.

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Australians should have the freedom to choose which mobile wallet they use for contactless payments, regardless of what mobile device they use.

This is why a group of Australian financial institutions lodged an application with the Australian Competition and Consumer Commission (ACCC) earlier this year, seeking authorisation to enter joint negotiations with providers of third-party mobile wallets.

The four banks – Bendigo and Adelaide Bank, Commonwealth Bank of Australia, National Australia Bank, and Westpac Bank – have now provided the ACCC with an extensive response to a range of incorrect and potentially misleading submissions made to the ACCC by opposed parties.

In the response, the Applicants make clear:

  • The application to enter joint negotiations is restricted to negotiations with Apple;
  • The focus of the negotiation will be over access to the NFC (Near Field Communication) function on iOS devices;
  • By locking out any independent access to the NFC function on iOS devices, Apple is seeking for itself the exclusive use of Australia’s existing NFC terminal infrastructure for the making of integrated mobile payments using iOS devices. Yet, this infrastructure was built and paid for by Australian banks and merchants for the benefit of all Australians;
  • Apple’s claim that providing the Applicant’s access to the NFC function would undermine security or customer experience is completely baseless.
    • Android, Windows and BlackBerry phones all provide access to their NFC in line with global standards of security for contactless payments set out by the card schemes. There is no evidence that Android Pay, Samsung Pay, or any of the mobile payment apps that have been developed for those platforms have affected security;
  • The concerns raised by the Applicants on competitive access are not unique to Australia, with similar issues raised in a number of jurisdictions across the world; and
  • The application also focuses on security standards and transparency in fees. Security claims and “benefits” offered to consumers with respect to Apple Pay are exaggerated.
    • Australia already has a significantly advanced, secure, convenient and world-leading contactless payments environment and the Applicants want to make sure these standards are maintained. Transparency in fees means that Australian consumers who do not want to use Apple Pay should not be burdened with costs that are imposed by Apple solely for its benefit.

“Our application remains focussed on providing Australian consumers with real choice and better outcomes for mobile payments, mobile wallets, and a range of other potentially NFC-powered functions such as public transport, airlines, store loyalty and rewards programs, and many more applications yet to be developed,” payments specialist and spokesperson on behalf of the Applicants, Lance Blockley, said.

“This is about the future of mobile payments in Australia. Will it be ‘Apple’s way or no way’, or a genuine level playing field so all consumers can have the best digital services, no matter what device they own.”

The response also reiterates that the Applicants are not taking this action because they want to delay or prevent Apple Pay from coming to Australia.

The extensive response from the Applicants is available via the ACCC website here. Accompanying the response is a range of additional expert economic commentary and reports.

To date, the Applicants’ submission has received a number of supportive submissions including from a major retailer, fintech companies and card schemes. Coles, Australian Retailers Association (ARA), Australian Payments Clearing Association (APCA), Heritage Bank, Bluechain, Australia Settlements Limited and Tyro support the collective negotiations objective to gain access to the iPhone’s NFC. Also, APCA and MasterCard support ensuring Apple Pay meets minimum security standards – and collective negotiation on pass-through of fees is supported by the ARA, ASL, eftpos and Heritage Bank.

Executive’s short-term outlooks the real killer of Australian innovation

From The Conversation.

Malcolm Turnbull’s Innovation Agenda focused attention on startups and technology-driven innovation, but this is not enough to overcome the broader problems inhibiting innovation in Australia. Businesses may be looking to the government to ease red tape as a means to increase innovation but what’s really blocking innovation is the short-term view of senior executives, our research finds.

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We interviewed 12 board Chairs and nine CEOs of top ASX-listed companies, one-on-one in wide-ranging interviews to try and find out what the leaders of large Australian businesses are thinking and doing in the innovation space.

Our interviewees pointed out there is no real interest among senior executives in taking a risk that may pay off in the long-term because of current risk-reward practices that reward short-term outcomes. One CEO said:

“People try and blame shareholders, but it’s not. It’s management saying, ‘am I really going to be here in 10 years’ time when this actually kicks off’?”

And another board chairperson agreed:

“Does great innovation come out of Australasia? Not normally because the risk-reward perspective is skewed towards I must turn up with my number.”

As a result of this short-term thinking, the amount of money allocated to innovation projects is conservative and released through a stage gate process with the need to report on outcomes. We also found there were very few innovation strategies within these companies.

Executives were risk averse even when a company could afford to make significant investment in innovation. For example one CEO said:

“We are deliberately followers in pretty much everything we do whether it is financial structuring or application of technologies and it’s borne of a risk profile that is a consequence of our market position…we might distribute a couple of hundred million dollars, (and have) A$1 million to spend on something that’s risky.”

Who needs to lead innovation?

Executives and academics have argued that innovation often takes place in large, established businesses. Yet, there is evidence that big business mostly fails at innovation.

In Australia, the 2015 NAB report on business innovation showed that only 29% of very large firms (ASX 300) rated themselves as highly innovative. A recent study by the Centre for Workplace Leadership at the University of Melbourne revealed that just 18% of private sector organisations reported high levels of radical innovation.

The people we talked to as part of this study identified various challenges for innovation in Australia. They pointed out that the Australian market is too small and the Australian culture too laid-back, resulting in less motivation to innovate and disrupt.

Others blamed the large and complex system of government regulations, corporate tax levels, inflexible industrial relations, and the toll poppy syndrome.

However there was little evidence of global aspiration or ambition. Nor was there much discussion about companies’ positioning in a global marketplace.

Some CEOs and Chairs agreed that they are too risk averse to engage in radical innovation, but blamed the short-term orientation of the market and shareholders for their failure to innovate big.

As recognised by others, large organisations tend to frame innovation in terms of improving existing business models rather than disrupting them. As one chair described it:

“I don’t think innovation requires [betting] the business. Innovation now is much more about improving, constant change, constant improvement.”

Based on the interviews we conducted, the current outlook for innovation being fostered by Australia’s established companies is bleak, as summarised by this interviewee:

“Talking about business in Australia, I have a lot of concerns, because I don’t think that there’s enough people in the bigger companies in Australia saying, ‘OK, let’s develop a strategy, let’s develop a business plan, let’s engage with the market and tell them what we are doing, in a very open way, and let them take the rise and fall with us, as to if we get there we get there, if we miss it by a little bit, [let’s] explain to them why we missed it. That doesn’t happen.’ ”

A lot has to change for Australian big business to become more innovative. As a start, companies need to introduce long-term incentives for executives, change attitudes to support taking risks and thinking big, and focus on developing innovation strategies.

Authors: Linda Leung, Honorary Associate, University of Technology Sydney; Jochen Schweitzer, Director MBA Entrepreneurship and Senior Lecturer Strategy and Innovation, University of Technology Sydney; Natalia Nikolova, Senior Lecturer in Management, University of Technology Sydney

Data surveillance is all around us, and it’s going to change our behaviour

From The Conversation.

Enabled by exponential technological advancements in data storage, transmission and analysis, the drive to “datify” our lives is creating an ultra-transparent world where we are never free from being under surveillance.

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Increasing aspects of our lives are now recorded as digital data that are systematically stored, aggregated, analysed, and sold. Despite the promise of big data to improve our lives, all encompassing data surveillance constitutes a new form of power that poses a risk not only to our privacy, but to our free will.

Data surveillance started out with online behaviour tracking designed to help marketers customise their messages and offerings. Driven by companies aiming to provide personalised product, service and content recommendations, data were utilised to generate value for customers.

But data surveillance has become increasingly invasive and its scope has broadened with the proliferation of the internet-of-things and embedded computing. The former expands surveillance to our homes, cars, and daily activities by harvesting data from smart and mobile devices. The latter extends surveillance and places it inside our bodies where biometric data can be collected.

Two characteristics of data surveillance enable its expansion.

It’s multifaceted

Data are used to track and circumscribe people’s behaviour across space and time dimensions. An example of space-based tracking is geo-marketing. With access to real-time physical location data, marketers can send tailored ads to consumers’ mobile devices to prompt them to visit stores in their vicinity. To maximise their effectiveness, marketers can tailor the content and timing of ads based on consumers’ past and current location behaviours, sometimes without consumers’ consent.

Location data from GPS or street maps can only approximate a person’s location. But with recent technology, marketers can accurately determine whether a consumer has been inside a store or merely passed by it. This way they can check whether serving ads has resulted in a store visit, and refine subsequent ads.

Health applications track and structure people’s time. They allow users to plan daily activities, schedule workouts, and monitor their progress. Some applications enable users to plan their caloric intake over time. Other applications let users track their sleep pattern.

While users can set their initial health goals, many applications rely on the initial information to structure a progress plan that includes recommended rest times, workout load, caloric intake, and sleep. Applications can send users notifications to ensure compliance with the plan: a reminder that a workout is overdue; a warning that a caloric limit is reached; or a positive reinforcement when a goal has been reached. Despite the sensitive nature of these data, it is not uncommon that they are sold to third parties.

It’s opaque and distributed

Our digital traces are collected by multiple governmental and business entities which engage in data exchange through markets whose structure is mostly hidden from people.

Data are typically classified into three categories: first-party, which companies gather directly from their customers through their website, app, or customer-relationship-management system; second-party, which is another company’s first-party data and is acquired directly from it, and; third-party, which is collected, aggregated, and sold by specialised data vendors.

Despite the size of this market, how data are exchanged through it remains unknown to most people (how many of us know who can see our Facebook likes, Google searches, or Uber rides, and what they use these data for?).

Some data surveillance applications go beyond recording to predicting behavioural trends.

Predictive analytics are used in healthcare, public policy, and management to render organisations and people more productive. Growing in popularity, these practices have raised serious ethical concerns around social inequality, social discrimination, and privacy. They have also sparked a debate about what predictive big data can be used for.

It’s nudging us

A more worrying trend is the use of big data to manipulate human behaviour at scale by incentivising “appropriate” activities, and penalising “inappropriate” activities. In recent years, governments in the UK, US, and Australia have been experimenting with attempts to “correct” the behaviour of their citizens through “nudge units”.

With the application of big data, the scope of such efforts can be greatly extended. For instance, based on data acquired (directly or indirectly) from your favourite health app, your insurance company could raise your rates if it determined your lifestyle to be unhealthy. Based on the same data, your bank could classify you as a “high-risk customer” and charge you a higher interest on your loan.

Using data from your smart car, your car insurance company could decrease your premium if it deemed your driving to be safe.

By signalling “appropriate behaviours” companies and governments aim to shape our behaviour. As the scope of data surveillance increases, more of our behaviours will be evaluated and “corrected” and this disciplinary drive will become increasingly inescapable.

With this disciplinary drive becoming routine, there is a danger we will start to accept it as the norm, and pattern our own behaviour to comply with external expectations, to the detriment of our free will.

The “datafication” of our lives is an undeniable trend which is impacting all of us. However, its societal consequences are not predetermined. We need to have an open discussion about its nature and implications, and about the kind of society we want to live in.

Author: Uri Gal, Associate Professor in Business Information Systems, University of Sydney

NAB System Down, Strike 3!

NAB just reported a third system problem in the last week. At Tuesday 11:45am 11 October 2016 NAB spokesperson – on behalf of NAB said:

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“NAB is experiencing outages to some of our services.

“This is affecting Internet Banking and the processing of some customer payments.

“Our ATMs are available and customers can use their cards to make purchases in stores.

“We’re doing our best and we’ll work with you through our branches and our contact centre.

“Our teams are working hard to resolve this and we’re sorry for the impact this is causing.

“We’ll continue to provide customers with regular updates.”

NAB Systems Down – Again!

NAB is having systems issues again. As a result, NAB customers cannot use their NAB cards in ATMs or the EFTPOS terminals.

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Monday Midday 10 October 2016, Andrew Hagger Chief Customer Officer,  Consumer Banking and Wealth – on behalf of NAB:

“We’re currently experiencing an outage, which means NAB customers cannot use their NAB cards in ATMs or the EFTPOS terminals.

“This is also affecting NAB merchant terminals and HICAPS.

“It’s important for customers to know that our branches are open and you can get assistance here.

“We’re working hard to fix this problem and we’re very sorry for the trouble this is causing.

“Our people in our branches will do their best to help you today.

“We will continue to provide customers with regular updates.”

Signs of Hope For Fintech?

According to Finder.com.au, during last weeks parliamentary inquiry into banks, there was significant discussion which spells increased opportunities for fintech.

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While the line of questioning taken by House of Representative economics committee did not directly relate to fintech, the answers and defences at the four inquiries reveal several interesting points that relate to the fintech sector, for both banks and fintech companies.

Data sharing

Westpac and NAB were questioned over the sharing of customer data in order to increase competition. This is a key issue for the fintech sector and, if introduced, would help increase competition and better inform fintech innovations.

Brian Hartzer, CEO of Westpac said he supports data sharing, but the process needs to be “well-governed”.

“Data is a really important part of what we do and at Westpac we embrace that,” he said. “We’re very supportive, but don’t underplay how important it is to put that control around.”

Hartzer ended by saying that Westpac would comply with any change in the law.

Andrew Thorburn, CEO of NAB, went further, saying he would support any move that required banks to share customer data. He also directly related the issue to fintech.

“We welcome competition,” he said. “That’s how this bank has survived and competed for 150 years…And now we’ve got new competition, fintechs that are coming at us and we welcome that too. You have to lift and get better and that’s good for customers.”

However, neither were ready to commit to the proposal of bringing the UK’s open data regime to Australia. Hartzer said what was happening in the UK was interesting, but Australia needs to make sure privacy controls are in place. When questioned, NAB’s Thorburn also agreed to take notice on what incentives he will provide to executives to ensure data sharing happens.

Business loan interest rates

While not dwelled on for long in any of the four inquiries, the high rates charged on business loans was brought to the attention of each CEO. The small business lending market has been booming, and it’s overrun with fintech companies. Lenders have been offering faster funding and opening out the eligibility criteria for a loan, but the main difference is that the loans are usually unsecured. Approval is based on business revenue and performance, which is analysed using various algorithms. This has resulted in several banks partnering with smaller business lenders to help them service customers.

Commonwealth Bank’s chief Ian Narev was the first that was forced to defend its rates, which are 5.75% above the cash rate.

“There is a view generally because a business loan is secured by a mortgage over someone’s home that therefore interest rates should be the same as the home loan, that’s just not true,” he said.

Questioning turned to the GFC, because current business loan rates were higher than during 2008-09.

“When the global banking system went through the experience of the global financial crisis, what we all looked at was the fact that appropriately pricing or risk has ceased to occur,” he said.

Also forced to defend Westpac’s rates, Hartzer said it would be “fair to say” the bank had underestimated the loss rate for small business loans.

“Small business loans go bad about five times more often than a home loan. And the loss rate is around 10 times. The combination of all those things has fed into that difference.”

Shayne Elliot pointed to ANZ’s increasing amount of small business lending – 13-15% each year – but admits growth is needed.

“It’s not huge but I want it to be bigger. There is a transition happening in the economy … and we want to be part of that and help those businesses set up,” he said.

“What people want is a really competitive rate, and then they want the right service proposition.”

As banks struggle to continue to offer business loan rates in line with the cash rate, this presents a real opportunity for fintechs to continue along the small business lending road.

Investments

The banks were also forced to defend their investment advice, which has been the subject of much speculation over the past year. Also coming to the stage is robo-advice, which may prove to be a real competitor to traditional investment advice channels.

Commonwealth Bank’s Ian Narev, in particular, was questioned for his bank’s financial advice errors, admitting he did not act with “requisite speed” to fix errors. He also told the committee that an independent review found that 10% of customers were given the wrong advice by Commonwealth Bank. However, he argued that this 10% of the 8,000 reviews were a small representativee of the whole.

Westpac’s Hartzer said that the nature of investing is “taking a risk,” but admits that there needs to be consequences when customers are poorly advised.

Blockchain: Implications for Payments, Clearing, and Settlement

A speech by Fed Governor Lael Brainard “Distributed Ledger Technology: Implications for Payments, Clearing, and Settlement” contains a number of interesting use cases, discussed in their blockchain working party.

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Let me briefly mention a few of the use cases that we have explored in our discussions with industry stakeholders in order to illustrate the potential of distributed ledger technologies to improve payments, clearing, and settlement, as well as the considerations that are important to us in our assessment of benefits and risks.

In cross-border payments and trade finance, significantly faster processing and reduced costs relative to the long and opaque intermediation chains associated with current methods of correspondent banking are promising potential benefits of the technology. Reducing intermediation steps in cross-border payments may help decrease time, costs, and counterparty risks and may materially diminish opacity, for instance by enabling small businesses or households remitting payments across borders to see the associated transfer costs and processing times up front.

In trade finance, where document-intensive processes are not fully automated, distributed ledger technology may be able to reduce significant costs and speed up processing associated with issuing and tracking letters of credit and associated documents. To see the full potential of this technology realized for cross-border payments, it will be important to identify and track identities associated with the transactions, which in itself may be facilitated by the use of distributed ledgers, depending on their design.

In securities markets, the industry is exploring activities ranging from the issuance of securities on a distributed ledger, to the clearing and settlement of trades, to tracking and administering corporate actions.

For securities clearing and settlement in particular, the potential shift to one master record shared “simultaneously” among users of a distributed ledger-based system could be compelling. Sharing one immutable record may have the potential to reduce or even eliminate the need for the reconciliation of multiple records linked to a single trade among and between dealers and other organizations.

In concept, such technology could lead to greater transparency, reduced costs, and faster settlement. Likewise, distributed ledgers may improve collateral management by improving the tracking of ownership and transactions. Nonetheless, as is frequently true in the complex arena of payments, clearing, and settlement, we can also expect that practical details covering a host of technical, business, and market issues will have an important role in determining how new technologies ultimately perform.

For commodities and derivatives, there are projects to streamline some of the more antiquated corners of the markets. In markets that are heavily paper-based and lack any central means for coordination, distributed ledger technology could potentially be leveraged to provide coordination that facilitates exchange, clearing, and settlement of obligations.

A related development is the potential coupling of distributed ledger protocols with self-execution and possibly self-enforcement of contractual clauses, using so-called “smart contracts.” To take a familiar example, for a corporate bond with a specified par value, tenor, and coupon payment stream, a smart contract would automatically execute payments on the specified schedule to the assigned owner over the life of the bond. Although the idea of automating certain aspects of contracts is not new, and banks do some of this today, the potential introduction of smart contracts does raise several issues for consideration. For example, what is the legal status of a smart contract, which is written in code? Would consumers and businesses rely on smart contracts to perform certain services traditionally done by their banks or other intermediaries? Could the widespread automated interaction of multiple counterparties lead to any unwanted dynamics for financial markets? These and other considerations will be important factors in determining the extent of the application of smart contracts.

Regardless of the application, much of the industry is at a “proof of concept” stage of development. These proofs of concept are often simple, experimental uses of the technology on a small scale that help stakeholders understand the potential and limitations of the technology for a specific purpose, which in turn typically lead to refinements and more developed proofs of concept. As such, many potential applications are in their infancy, and the industry may still be several years away from an application that is ready to be fully implemented. Even so, the industry seems to be making announcements daily on new proofs of concept and progress that may lead to pilots, so that timeline could accelerate. In some cases, there have been announcements the technology will be used within the next year or two in actual production environments. The initial relatively simple proofs of concept must be followed by much more complex demonstrations in real-world situations before these technologies can be safely deployed in today’s highly interconnected, synchronized, and far-reaching financial markets.

Although many private and inward-facing projects are being explored, the industry has also recognized the need to collaborate at early stages of development. An important positive development is that industry participants are actively engaging with each other to look for common approaches. Some groups are creating standards that facilitate common platforms to enable greater interoperability of often proprietary applications that are built on them and interoperate through application program interfaces, or APIs.

In coming months and years, innovators, investors, and financial practitioners will no doubt make important strides in addressing key challenges such as adopting common standards, achieving interoperability between and among legacy systems and evolving distributed ledgers, improving scalability and computational throughput, and improving cryptographic security. These are positive developments that we will monitor closely.

Suncorp closes eight Perth branches

From The West Australian.

Suncorp is all but quitting over-the-counter banking in WA, closing eight of its nine Perth branches.

The Queensland financial services group says the decision reflects the declining use of branches by customers, who are increasingly going online to do their everyday banking.

Suncorp closes eight Perth branches

“The decision to close a branch is never taken lightly, but we’re finding that fewer customers do their banking at the branch,” Suncorp said in a statement.

“Since 2010, national over-the-counter transactions have declined by 30 per cent, from 685,000 to 478,000 in August 2015, while mobile transactions have grown from 312,000 transactions to more than 5 million in July 2015,” it said.

Banks, however, are also intent on cutting expenses in what is a low-growth environment, with Suncorp chief executive Michael Cameron telling shareholders just last month that “recalibrating” the group’s costs was a priority.

WA accounts for about 7 per cent of Suncorp’s $54.3 billion loan book.

Perth customers who prefer face-to-face banking will have to rely on the one branch not slated for closure, in St Georges Terrace.

The group was unable to say how many staff were affected by the closures, adding that it was trying to redeploy them elsewhere within Suncorp.

NAB Systems Are Down

According to Andrew Hagger Chief Customer Officer,  Consumer Banking and Wealth, NAB has been experiencing outages to some services overnight.

“This has been affecting a number of our systems, including our customer call centres, Mobile Internet Banking and the processing of some customer payments.

“It’s important for customers to know that our ATMs are running as usual and that payment by all NAB cards is available.

“There has been a delay in processing some transactions. If customers need help accessing their money our branches and business banking centres will be open.

“We’re sorry that we’ve let our customers down and we’ll do our best today to work with you through our branches.

“We recognise the impact that this outage is causing and we can assure you we’re working hard to make things right.

“We continue to provide customers with regular updates.”