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Country reportsJuly 1 2014

The challenges of keeping pace with technology

The speed at which technology advances is almost impossible for regulation-laden banks to keep up with. This makes judging which technological innovations created by more nimble, pure tech companies to adopt all the more important.
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The challenges of keeping pace with technology

While banks can be thought of as technology companies to a certain extent, the main difference between them and pure tech companies is that banks are heavily regulated. Regulatory compliance is a drain on a bank’s technology investment budget, as is the maintenance of existing systems, and it leaves little capital for developing truly transformational technologies. This goes a long way to explaining why banking does not have a reputation for being the most innovative of industries. 

The transaction banking and cash management industry is becoming increasingly reliant on technology, and huge investments are needed for banks to remain competitive. New technologies can be used to cut costs, create efficiencies or to provide a seamless user experience at the point where the client interacts with the bank. However, the challenge for lenders – given the burden of regulatory compliance – is keeping up, given the pace of change and the time it takes for innovations to be approved and implemented.

While nimble technology start-ups can outperform banks in this regard, banks can draw on their considerable resources and scale, which means that when they introduce a new technology it can have an immediate and far-reaching impact because of the size of their existing customer base. 

Game changers

The broad technology themes – such as cloud, mobility, social media and big data – apply across all industries and not just to cash management and banking.

The challenge is for banks to anticipate how the technologies that are available today will be used in the future. There are glimpses of innovative ideas across many industries, but it can be difficult to make the connection between the conception of a new idea and how it will become mainstream. And if a new technology does become widely adopted, it is even more difficult to predict what its ramifications will be and how it can provide a platform for further innovation. 

Take Apple's iPhone as an example. When it was released in 2007, it was introduced as a combination of an iPod, a phone and a device that connected to the internet. In the years since, it has become obvious that it is so much more than that; smartphones are computers that people carry with them all the time. Not only have smartphones unleashed new ways of interacting and transacting, they have also dramatically changed consumer expectations.

Apple’s introduction of the iPad in 2010 changed expectations even further. No longer are discussions framed in terms of mobile – or mobile banking or mobile payments – and the mobile device, they now centre around the concept of mobility. New tablet devices, combined with cloud technology, allow people to access anything on the move, and the possibilities of how this technology can be applied are endless.

At a simple level, for corporate treasurers, the smartphone allows the approval of payments on the move. The tablet means, for example, that they can have a dashboard view of their cash positions in the various markets where their company operates. And, for relationship managers visiting corporates, the tablet can function as a sales tool and an alternative to slideshow presentations.

Expand and evolve

More broadly, new technologies are changing the way in which businesses operate. Geo-location technology is emerging as a major area of development, enabling the smartphone or tablet – with GPS technology – to locate the user. At a basic level, this can help the user to navigate around a new city, find a nearby match on the latest dating app or receive offers from a local coffee shop. For businesses, geo-location can be used as a means of making additional sales or gaining revenue, and it can also be used as a security feature, helping to prevent fraud. Indeed, the smartphone is increasingly being used to add another layer of security by, for instance, sending verification codes via text or asking customers to speak into their phone to verify their biometric voice print. 

These possibilities may not have been conceived when the iPhone was first introduced seven years ago. Likewise, when Facebook was first launched as a social network at a few universities, most users purely saw it as a way to send messages, share photos and create party invitations. But now, the wider implications of social media are beginning to emerge.

As a service that facilitates millions of connections across the globe, it has been speculated that Facebook may leverage this network to enable payments. In February, Facebook announced that it would be buying the mobile messaging service WhatsApp for $19bn, a figure that indicates the potential Facebook sees for the service, or perhaps the importance of preventing a competitor from buying it.

In April 2014, it was reported that Facebook was seeking approval for an e-money licence, and more recently, in June, it was announced that PayPal president David Marcus will be leaving his position to join the social media giant. In his new role he will lead Facebook’s messaging products business, and given his expertise in payments, this high-profile move has been interpreted as sign that Facebook is about to get serious about payments. 

Changing expectations

Such developments are changing the expectations of consumers. Likewise, corporate treasurers are also consumers who use these technologies in their personal time and are increasingly expecting their bank to provide a similar experience in the workplace. The pressure to deliver a simple user experience will only increase as the next generation, which has been using tablets since childhood, will emerge as the future generation of corporate treasurers, and will have no patience for laborious paper-based processes. 

The possibilities of mobility and social media are being explored by various industries and a new concept that is starting to emerge – but is not yet mainstream – is wearable technology. Banks need to consider how this will impact how their customers do business and transact, but also what the wider implications of this technology will be. Wearable technology, such as Google Glass or smartwatches, can be viewed as an extension of mobile technologies, which have made information even more accessible. Google Glass, for example, can tell a user where their bank’s closest ATM is, while smartwatches can tell a user when to sleep, how long to exercise for and how many calories they have burned.

The ways in which these devices interact is part of a wider trend known as the ‘internet of things’, which sees devices connected via the internet and communicating with each other. This means, for example, that a heart monitor can send information to a doctor without the patient visiting the hospital, a washing machine can be controlled by a mobile device – such as a smartwatch – or a fridge can re-order supplies from the online supermarket when stocks are running low.

When it comes to broader economic activity, the supply chain can become more efficient if goods are ordered as soon as supplies run low. And with radio frequency identification tags, goods can communicate when they are in transit. The tags can monitor where the goods are in the shipment process, and with this information the payment for the goods can be released earlier, thus making the supply chain more efficient and increasing the pace of economic activity. 

Forward thinking

Wearable technology means that even more devices can connect to the internet, which will create even more data for organisations to handle. What to do with big data continues to be a challenge for banks and corporates alike. The more data there is, the more accurate big data correlations become. But big data only finds correlations – it does not explain them – and so it is important that the right questions are being asked. Big data is increasingly becoming about smart data and making the right connections so that the data is used in an intelligent way. 

While topics such as this continue to attract a lot of attention in the industry, it is likely that once the hype has subsided the core issues – such as using technology to solve problems – will remain. There is also hype around emerging technologies – such as wearable tech – and predictions of how widely these devices will be adopted and how they will be used.

While the adoption of the technologies may be overestimated, their wider impact may be underestimated. The current stage of development of wearable technology and the internet of things provide glimpses of the future, but it is difficult to anticipate their wider impact as these technologies will create a new platform for further innovation. 

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