With the hype surrounding the latest incarnation of wireless technology, 5G, reaching ever higher levels, Joy Macknight investigates how its rollout will impact financial services – and whether it has the potential to transform the industry in the same way as 4G before it.

5g image

The fifth generation of global wireless technology, or 5G, is a fundamental building block in the transition to a digital economy and core to initiatives such as Digital India, Made in China 2025 and the EU’s Digital Single Market. Its promise of greater data speeds (50 to 100 times faster than 4G); reduced power consumption; higher security and reliability; and very low latency – 1 millisecond (ms) compared with 4G’s 50ms – is expected to have a transformative effect on many industries, and to drive global growth.

For example, in a January 2017 economic impact study, IHS Markit estimated that 5G will enable $12,300bn in global economic output. “From 2020 to 2035, the total contribution of 5G to real global gross domestic product will be equivalent to an economy the size of India,” said the report.

In 2019 the rollout of 5G has been slowly ramping up, with many telecommunications providers running trials in major cities before deploying more widely. South Korea launched the first commercial service in April 2019 and by the end of June, more than 1.6 million people had switched to the new service, according to Groupe Speciale Mobile Association. The industry body expects commercial 5G services to be available in at least 50 countries across Asia, Europe, the Middle East and North America by the end of 2020.

Connecting it all

While much of the buzz has centred on the mobile broadband enhancements, such as super-fast download speeds, regius professor Rahim Tafazolli, director and founder of the Institute of Communication Systems and 5G Innovation Centre at the University of Surrey, says this represents just 20% of what 5G can do – the other 80% is connecting machines. He says: “5G is being designed and standardised to provide communication not only between people, as 4G does, but also connecting many machines together in the network, enabling wireless business-to-business models.”

That is the reason 5G is designed to be highly reliable, with low latency and a guaranteed delay, which is important when connecting machines. “Machines don’t understand a delay like humans, so we need to make sure that a message is sent as the robot expected to receive it. That delay needs to be guaranteed and must be deterministic for at least five nines – 99.999% – of the time, for example, 1ms, 4ms or 10 ms – whatever is needed for different applications,” says Mr Tafazolli.

As such, 5G is seen as a critical enabler of the Internet of Things (IoT) and “will open the door to the Fourth Industrial Revolution with mass automation, machine learning embedded within every network element and massive machine-to-machine communications, all with only light touch human oversight”, according to a December 2018 Goldman Sachs’ research paper entitled ‘5G: moving from the lab to the launchpad’.

This conjures up the image of a factory floor devoid of workers, with robots wirelessly communicating with each other and moving to where they are needed, such as if a breakdown or bottleneck occurs on the production line. But while it is easy to see 5G’s role in enabling the ‘smart’ factories of the future, how will it impact the financial services industry?

No more wires

The rollout of 5G technology could bring about a transformation in a bank’s IT infrastructure. For example, a bank could renovate the workplace by becoming a wireless environment, according to Dr Uwe Lambrette, a partner at Oliver Wyman. He says: “A bank wouldn’t need desktop computers any longer, as everyone can use a tablet or wireless device. This would transform the office environment, as well as areas such as trading floors.” He reports being involved in an initiative with a UK bank to make its offices completely wireless.

Similarly, Commonwealth Bank of Australia (CBA) is working with Australian telco Telstra to explore 5G coverage solutions, looking at how the technology could help to reduce the network infrastructure currently required at individual bank branches, providing more flexibility for bank operations and locations.

Speaking at the Telstra Vantage 2019 conference in September, Mark Vudrag, executive general manager of IT delivery and availability at CBA, talked about evolving the bank’s technology stack. “We [support customers and staff] through a mixture of legacy wired networks, wireless networks, 3G networks, but all those spaces are ripe for transformation,” he said. “[For example, for staff] we have great modern work spaces where people are free to move and sit where they like, but we haven’t quite got a network that supports [this mobility]. So, there are lots of opportunities for [5G’s] increased bandwidth and low latency to ramp up capabilities for our staff.”

In an interview with The Banker, Mr Vudrag says: “5G has significant potential to enhance the availability, stability and performance of our network infrastructure – which ultimately lets us better serve our customers. It will be most transformational when it is deployed alongside edge computing, which will require less physical infrastructure and bring computing power closer to the data source.” Edge computing is the practice of creating, collecting, analysing and processing data on the edge of the network, rather than at centralised locations such as data centres.

“Potential applications include pop-up branches that can be set up within minutes, as well as an improved ability to connect customers with experts through video-conferencing,” adds Mr Vudrag.

Remote engagement

As Mr Vudrag indicates, 5G provides an improved ability to connect customers with experts through video conferencing, as well as augmented and virtual reality (AR/VR) technology. “With branches closing, many banks are exploring AR/VR customer engagement, so that their experts can engage remotely. Although this is possible today with 4G, the quality is poor,” says Dan Bieler, principal analyst at research firm Forrester.

In June 2019, Banco Santander and Spanish telco Telefónica announced a joint innovation project on 5G technology to explore such use cases, one of which revolves around virtual visits to co-working spaces using VR, 360-degree video and edge computing technologies. This ‘immersive reality’ service allows customers to remotely visit co-working spaces, such as the Santander Work Café branch.

The bank says: “Solutions like these will bring new services to the financial sector such as the mobile office allowing banks to provide, on a temporary basis, the same services they offer in their traditional offices equipped with fixed communications. Mobile offices can be deployed at big events (sports, festivals, fairs...) or for emergencies.”

Dr Pernilla Jonsson, head of the consumer and industry lab at Swedish telco Ericsson, also talks about a new era of “immersive experience” using mixed reality, or XR. “If 4G built a smartphone and screen interface, 5G is expected by consumers to herald a revolution in interfaces and a new era of immersive experience. 5G is multi-device such as wristband, glasses and earbuds and will enable a 3D user experience through AR and VR using bodies, voice or gaze,” she says. For example, she envisions a future usage of AR to project a screen onto the person’s arm and adding a touch function.

In financial services, Ms Jonsson says banks will be able to use 5G to create a customer experience not currently possible. For example, a customer could meet with a bank avatar using XR glasses or even contact lenses, and the interaction could be fully customised for the customer. “Financial services firms need to unlock digital immersive engagement opportunities,” she says.

Mr Lambrette focuses on how 5G will change customers’ behaviour, especially the demand for real-time interactions. “If they can download movies in [a few] seconds, then they will want to complete a mortgage application in less than five minutes,” he says. “Customers will want everything from a bank in real time, on their device and supported by video interaction with an agent.”

Sara Castelhano, managing director in wholesale payments, JPMorgan, says: “VR meetings can enable clients to engage with their banks at a much faster rate, with increased information sharing. Plus, as Generation Z begins to enter the workforce, leveraging new technologies becomes even more relevant.”

She points to a December 2017 study by WP Engine, which reports that 75% of Generation Z-ers surveyed believe VR will become a normal part of digital experiences within the next four years. “This demonstrates that the new tech-savvy generation believe personable relationships are as achievable via VR as they are in person,” says Ms Castelhano.

An IoT world

While many would not naturally link 5G-enabled IoT with financial services, Gulru Atak, global head of innovation, treasury and trade solutions at Citi, looks at its transformative potential from the point of view of the client, convinced this combination will be a game-changer in multiple industries. “If IoT, together with 5G, transforms the business models of our clients, then it will have a huge impact on banking, especially in transaction services,” she says.

In the logistics industry, for example, small sensors will be able to track goods shipped across the world. “We can use the real-time information enabled by 5G and IoT for sanctions checking and monitoring trade flows, such as which ports those goods went through. This might influence how we finance trade transactions in future,” adds Ms Atak.

Citi is also looking at how 5G and IoT will enable new business models, such as collaboration between multiple parties from different industries to build different ecosystems. Ms Atak uses the example of BMW and Daimler’s joint venture for car sharing. Another example is sharing capital expenditure (capex) between corporates. “In the future, we believe that companies will increasingly share capex so they can invest together in heavy equipment or infrastructure, and then share the repayments,” she says. “The sharing of resources will be based on actual utilisation – and we can monitor usage through IoT and 5G to split the payments correctly between the companies.”

Ms Castelhano also expects to see additional opportunities to enable payments and the exchange of information. “For example, in a car accident scenario, the combination of the IoT and 5G could enable a car to send data (impact, photos of before and after the accident) to insurers at high speeds, improving the time it takes to complete claims,” she says. “The data around individuals’ driving behaviour can be sent to insurance companies, they can personalise the quote appropriately and immediately send payment. This makes a process, which today is very paper-based and lengthy, become near instant.”

Rapid micro-payments made by machines should also be an area of interest for banks. An Institute for Development and Research in Banking Technology white paper on 5G applications for the banking and financial sector in India, published in April 2019, says: “An established 5G network will enhance the possibility of micro-payments – a notion of paying exactly according to what is used, rather than the inelegant way we pay now with discrete plans. With the massive deployments of sensors and devices in the 5G era, coupled with its real-time connection to the cloud, a real-time micropayment could become very big business.”

As such, in a 5G world banks could be confronted with robotic customers, adds Mr Lambrette. “I could authorise my home agent to pay my utility bill; it selects which supplier to use and pays the supplier every month. Parts of the supply chain could also initiate transactions within a certain policy framework,” he explains. “This is a bigger leap forward, but I think that payment streams will be much more embedded into the digital ecosystem.”

Real-time data flows

For Martin Wildberger, executive vice-president, innovation and technology, at Royal Bank of Canada, two key attributes of 5G – the massive increase in data and the ability to access data in real time – hold great potential for financial services. “It is going to be the combination of the real time and the interconnectedness of that data that presents multiple opportunities,” he says. “In an IoT world, a smart device will be able to relay information and we will be able to automatically process it, which means our clients will benefit from added convenience.

“By putting additional sensor technology inside our data centres, we can monitor the health of our environment much more effectively, thereby delivering better experiences and greater value to our clients.” 

Paul de Leusse, deputy CEO of Orange for mobile financial services and CEO of Orange Bank, says: “The ability to transfer much more data in real time with 5G is likely to have a more immediate impact on some niche markets; for example, affluent and private banking, in areas such as online brokerage where faster connectivity and more data capability will enable brokers to access more stock market information in real time on mobile devices.”

Fighting fraud, for example, can also be greatly enhanced by using 5G technology, according to Mr Wildberger. “We will be able to access much more biometric data and IoT devices data, which will allow us to be more informed and make better decisions around fraud and malicious activity. Critically, not only will we be smarter, but we will be able to be faster and make decisions in real time,” he says.

“We are approaching the day when we will have unlimited access to data and compute capacity, and we are only gated by our own imagination. 5G will be another significant step towards making that vision a reality where we will be able to leverage much more new data – data that our clients will have the opportunity to share if they want but can also decide not to share.”

Future strategy

While it is early in the 5G journey for most banks, Citi has already begun research on specific areas; for example, connected mobility. “We thought this was a good place to start because there are many conversations around autonomous vehicles and in-car payments. People’s habits are changing from ownership to sharing, so we began looking at mobility of goods and people. We want to further understand the business model changes that our customers are expecting and then we are brainstorming around how it will impact transaction services,” says Ms Atak.

“With the rapid progress that we are seeing in the development of smart industries, smart cities, IoT and autonomous cars, I also see opportunities for banks to become more innovative – there is great potential for developing new financial products and services designed around the new ways that people live,” adds Mr de Leusse.

Returning to both Ms Atak and Mr Vudrag’s points on combining 5G with other technologies, Mr Lambrette says that 5G must be seen in the context of wider technology transformation. “Grouped together under the buzzword of 5G are other technologies, such as cloud, artificial intelligence/machine learning, as well as the ability to build small devices with long battery life, such as wearables. All this together is what is driving disruption,” he says.

Mr Lambrette believes that banks should have a technology radar and look at 5G among other emerging technologies, such as quantum. He adds: “The outcome of the technology radar will not be a 5G initiative per se but an initiative looking at how the bank’s customer interaction, workplace, cyber security and business model will transform within the evolving technology ecosystem.”

RBC, for one, is taking such an approach – 5G is not seen as a standalone technology, but as part of the bank’s holistic innovation agenda, according to Mr Wildberger. “We firmly believe that innovation and technology can be a competitive differentiator and add great value to our clients. It also helps us run the bank more securely and drive operational efficiency,” he adds.

While Mr Tafazolli believes that 5G has the potential to be more transformative than 4G, to date a win-win business model is missing between network operators and banks, for example. “However, business models are evolving all the time because different businesses are talking to each other and establishing levels of common trust. When that is in place, we will see the game-changing aspect of 5G, which is beyond mobile broadband and connecting people,” he says.

Yet for Forrester’s Mr Bieler, 5G is “not an earthquake, but an ongoing tremor” in the financial services world that is rocked by other forces. “However, banks need to rethink the potential to engage with the customer, as well as how they are going to manage the millions of micro-payments triggered by machines,” he says.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter