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The outlook for banking in 2014

Just before Christmas, I held discussions with many retail, commercial and investment bankers in London about their thoughts for the New Year.  Here are the headlines:

Economy

In the UK, 2014 is the year of the next general election which must be called on or before May 2015, and that factor will be a key part of the decision making process of government.  There is also the question of devolution in Scotland, with the referendum taking place on 18 September 2014. 

In Europe, the regulators and central banks think the issues in the banking system are stabilising, but unwinding their support will be the challenge. 

America is leading up to an election year in 2016, and the ability for the Obama administration to do more will slow down.

China has an issue with non-performing loans.  If their economy does not continue to grow, the question is how big is China’s fall?

Generally, the economic outlook is still uncertain, but it does look as though the macro-economy will improve and that 2014 should be better than the last five years. 

Regulations

The Banking Union, the Banking Reform Bill, the European Markets Infrastructure Regulation (EMIR), MiFID2, Basel III, SEPA end-dates and more are turning the industry upside down. 

In the UK, the Vickers reforms separating investment and retail banking will be the big topic for 2014.  Equally, some specific directives are in conflict, such as the Mortgage Market Review (MMR).  On the one hand, the regulator is restricting the advice banks can give mortgage applicants under MMR at the same time as trying to promote increased lending through Help-to-Buy

Innovation

A big focus in 2014 will be innovation with the introduction of real-time mobile payments form the Payments Council combined with Zapp from VocaLink in April, and an increase in the use of contactless payments as Transport for London (TFL) move from their proprietary contactless system (Oyster) to the acceptance of any contactless payment via a bank card or mobile app.

The government and industry are also discussing the infrastructure of payments in the UK.  Some of the infrastructure has not been renewed for years and so the Payments Council will release a review in Q2 2014 of the requirements for infrastructure renewal to improve the retail and commercial processing of payments.  Part of this review will include how people and businesses see payments developing, from mobile to NFC to QR codes to security.

Technology

The demands from customers are much greater, fuelled by digitisation and 2014 will see the digitisation of the customer relationship explode.  That will cut across everything from corporate to consumer, and covers everything from mobile and tablet computing to social media, crowdsourcing and social funding to Bitcoin. 

Technology is also disrupting commercial banking, and will be talking a lot more about 3D printing this year.  3D printing collapses the supply chain and, for some, destroys it.  That will be a huge learning curve for businesses, and will have a big impact on the corporate customer. 

As corporates are impacted in the supply chain or challenged by consumers, many are moving far further ahead in the drive to digital than their banks.  This has led to some corporate clients testing their banks in their ability to keep up. 

Bank response

It is clear that the way in which banks used to make money is not the way they will make money in the future.  2014 will be about restructuring bank product and service lines to find new ways to make money and comply with regulatory change and banks will focus upon cost reduction and  innovation to evolve their business model to manage in this new world.

Cloud and outsourcing will be focal points for efficiency in banks, and mobile and contactless will be the focus for innovation.  Banks cannot lead these changes, but will look for support from vendors. 

If that is the case, then 2014 is the year of the vendor. 

Good news for all you fintech firms reading this! 

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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One comment

  1. Interesting outlook for 2014 and certainly agree that a number of factors are starting to come together for banking to begin changing. It’s one of the last remaining strongholds that is very disconnected from the realities that the web transformation has brought over the last decade and continue to bring in on an ever accelerating pace. Fundamentally the banking process has too much friction in its service model and too rigid in its products for a world that expects everything to be fast, simple quick and realtime.
    I believe one driver on the technology side will be various new entrants providing banking services from organizations that aren’t traditionally ‘banks’. Wonga, Lenddo, Zopa, LendingClub and plenty of others starting up in 2014 are showing the pent up demand for better & simpler banking services in new delivery channels. It remains to be see whether they truly disrupt the existing banks (as they claim) or that they trigger a response from the banks themselves (via acquisitions or disrupting themselves) or just service previously unreachable market segments. In any case, some major change does seem inevitable.

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