Pub. 8 2018 Issue 2

25 ISSUE 2. 2018 global card purchase volumes increased by 5.8 percent to $20.6 trillion in 2016, according to The Nilson Report. 48 Part of this growth is due to incumbents astutely adapting to “invisible” digital channels, such as online, mobile, and even AI (e.g., machines ordering and paying for their own fuel or supplies). Retail and corporate customers today also have an increasing number of choices of non-payment-card digital payment solutions, offered through agile e-commerce players and fintechs. Investment firms have poured in $5.2 billion in payment fintechs alone in 2017, representing almost 40 percent of the total fintech investment in the banking industry. 49 Increasingly, active collaboration with alternative digital players, in the form of partnerships or acquisitions, may be necessary, instead of colliding with them as threats. As part of this approach, incumbents should also prepare for the inevitability of open architecture, such as open APIs. Banks have taken several approaches to the evolving eco- system. Take peer-to-peer (P2P) payments, for example, where banks are creating their own solutions, partnering with other banks (e.g., Zelle), and participating in third-party platforms such as Venmo. Mastercard’s acquisition of Vocalink is another example of an incum - bent expanding outside its core business. 50 Vantiv is going for scale, acquiring Worldpay to combine in-store transactions’ complementary capabilities with online payments processing and expanding into the European market. 51 Merchants are also getting fairly active in the payment space. They are now expanding payment options to drive customer engagement. Some are eliminating intermediaries altogether with a horizontal digital payment solution (e.g., Amazon Pay). Of course, rapidly growing e-commerce is a catalyst for all of this pay- ment innovation. But at the same time, brick-and-mortar is still relevant and an astute customer-experience-enhancing strategy should include omni-channel. Banks could also focus on data monetization, as traditional revenue streams could dry up. They should also invest in big data and ana- lytics that mesh with their own unique data to yield richer insights to, and about, their customers for further innovation and better business decisions. The survivors in this rapidly evolving payment landscape will likely be those who are nimble and well-informed; or they may need to be fast followers who are able to leverage the intelligence they gather from the ecosystem to execute strategies that get quickly into the market. 52 Wealth management: Robo platforms expanding beyond invest- ment advice Banks’ wealth management units should keep the focus on the customer, as the migration to fee-based accounts accelerates and robo-advice becomes pivotal to both distribution and the brand. Access to high-quality advice is being democratized like never be- fore—mass-market and mass-affluent customers are now able to avail themselves of services that were previously affordable only to high-net- worth clients. For instance, UBS wealth management’s SmartWealth digital platform in the United Kingdom provides real-time advice to clients at a minimum investment level of £15,000. 53 Higher standards of client service were already taking hold as a point of differentiation in the wealth management business, but the Department of Labor Fiduciary Rule seems to have further accelerated and codified this trend in the United States. 54 In the United Kingdom, the Financial Conduct Authority’s annuity provider rules, encouraging more compet - itive shopping by consumers, similarly aimed to raise the bar on client care. 55 The changes these rules have set in motion in terms of the shift to fee-based models and rationalization of product portfolios are only likely to accelerate in 2018. 56 The homogenization of products and the secular shift toward pas- sive investing could accelerate fee and margin pressure even as absolute revenues continue to grow. As a result, commission-based accounts may get cheaper to attract assets and compete with fee- based accounts. These pressures will likely require wealth management units at banks to balance several factors: pricing, product portfolio, and distribution. Importantly, these shifts are occurring as wealth management becomes pivotal to banks’ revenues, and becomes more tightly integrated with 2018 Banking Industry Outlook w Continued on page 26 INCUMBENT PAYMENT PROVIDERS HAVE TO MAKE TOUGH CHOICES ON WHETHER TO BE ONE-STOP PROVIDERS OF TRADITIONAL AND DIGITAL, FRICTIONLESS SOLUTIONS, OR TO LEAVE SOME OF THE PAYMENTS PIE TO THE EXCLUSIVE DOMAIN OF FINTECHS AND OTHER EMERGING PLAYERS.