We live in interesting times – at least that’s what political and economic commentators keep telling us – However, you could easily say we are experiencing very uncertain and, some might suggest, disconcerting times.
Certainly, in terms of the financial environment, we are in the midst of a period of great change, perhaps a time where the old order becomes a thing of the past with new ideas, innovations, technology, customer demands and geopolitical agitation shaping the future. We may be at the start of something seismic, something that reimagines business and indeed, society. It’s a thought-provoking phase in recent history, for sure, and if you adapt to change, it can also be exciting. If you don’t, you could get left behind.
The payments industry, for example, is on the brink of huge, transformational change. We’ve gone past the stage where we know the status quo has to be challenged – it has already been confronted, largely inspired by the B2C community and now we’re moving on to the B2B sector. People are looking outside the banking community for answers. There is an element of natural evolution about this for many banks are retrenching, de-risking and withdrawing from certain peripheral markets.
“Banks have recognised that they are behind the curve in bringing new technologies to their clients. This creates opportunities for other providers to fill the gap”
Furthermore, banks have recognised that they are behind the curve in bringing new technologies to their clients. This creates opportunities for other providers to fill the gap and dynamic and nimble fintechs, among others, are rising to this significant challenge. Many of them cannot do it alone, though, and they’re forming partnerships with the banking community to bring a new generation of client-oriented solutions to the market.
We’re only just seeing the fruit of this wave of collaboration but it represents a shift in the bank-fintech story. We can expect to see this new, mutually-beneficial mood gather momentum in 2018.
That’s assuming that the geopolitical situation does not derail market progress. There’s little doubt that the political landscape has been very volatile over the past year and this, naturally, impacts the broader economy and market conditions. Risk levels have been higher than they have been for some time. Furthermore, some of the rhetoric we have heard from world leaders has the potential to seriously upset the global economy.
What happens in politics ultimately affects things like monetary policy and this, in turn, impacts corporate treasurers, who will surely have more than one eye on what happens in places like Washington, Moscow, Beijing and Westminster in the year ahead. It is difficult to legislate for political turmoil, especially in places where you do not expect to see or hear of it!
On top of this, Brexit is still casting a shadow over the economy in Britain, and needless to say, Europe. We will endure this for some time to come and if by chance the UK goes into election mode again, we can expect more anxiety and possible disconnect.
“Along with geopolitical risk, treasurers are most worried about regulations, especially in globally-operating companies that have an interest in expanding into emerging markets and regions that are lacking in harmonisation”
Treasurers are still uncertain where to place their cash and retain optimal visibility, in an environment characterised by low-interest rates and regulatory pressure. Along with geopolitical risk, treasurers are most worried about regulations, especially in globally-operating companies that have an interest in expanding into emerging markets and regions that are lacking in harmonisation. The regulatory landscape will continue to put pressure on banks and market practices in 2018 and there will be some major initiatives and directives coming to the fore, such as PSD2.
It is little wonder that compliance is one of the genuine growth areas in financial services, with banks now allocating around 10% of headcount to that discipline – although it’s not unusual for businesses to devote even greater numbers to compliance and regulatory activity.
Of course, technology is playing an increasingly more influential role in industry developments and we hear a lot about Artificial Intelligence and data, and how we might be able to leverage this to move the sector into a new, almost science-fiction world. But many corporate treasuries are still using labour-intensive manual processes rather than fully-automated treasury management systems.
There are many reasons for this, not least the complexity of existing systems and simple budgetary restrictions. Treasurers may find that their plea for more automation might not be as enthusiastically received by executive teams as they might have hoped. That said, with the march of the digital age, it will be difficult to resist over the medium term but the question is if corporate treasurers are currently truly ready for high-end innovation given current practices? Certainly, nobody has come up with the all-encompassing new technology holistic solution that could seduce corporate treasurers.
“We learnt during the financial crisis that you cannot take system security or integrity for granted, or indeed that banks are rock-solid”
Looking ahead to 2018, it is difficult to foresee how the global economy will look in 12 months’ time, particularly if geopolitics become more challenging. We learnt during the financial crisis that you cannot take system security or integrity for granted, or indeed that banks are rock-solid. In the past year, we have seen political unrest of a kind not witnessed for many years – we can no longer assume that every government acts in the best interest of the overall market.
Whatever happens, we must also remember that we are on the threshold of a new “open banking” paradigm thanks to PSD2, something which will provide greater choice for the end user. It will be important for market players and their clients to remain agile and able to react to major events quickly and without too much disruption.
The key will be for banks and other providers to ensure they can bring greater stability and reliability to their customers, because that’s exactly what they want, from their banks and from new market entrants. The security and robustness of the ecosystem is of critical importance to everyone that operates within it, be they banks, payment providers or clients at the end of the chain.
In addition, fintechs will continue to challenge the old order and show that there really is an alternative. How quickly people embrace that idea remains to be seen but 2018 should see further evidence that customers want change – even if this is played out against a backdrop of the kind of uncertainty we have seen in 2017.