From a broader economic outlook perspective, we will see heightened political influence as the country gears up for another round of elections. The uncertainty in the political environment potentially translates into economic movements that may impact interest rates, the exchange rate, and other factors. The country’s politics have a proven history of impacting the macro economy and this, in turn, will impact the micro economy and may result in lower consumer spend and a decrease in business confidence.
The South African housing market is already seeing very low growth in the mid and high sections, which means consumers are already more cautious when it comes to investment. Inflation is relatively stable now but could go up, which will result in higher interest rates.
From a regulatory perspective, the banking sector is under increased pressure. There are many more international compliance requirements, as well as from the Reserve Bank and SARS, which increases administrative pressures at a time when they don’t want to spend more money on non-revenue generating activities.
Access to financial services will be key in 2017 as financial institutions attempt to further remove obstacles between the bank and the customer, not only from a compliance point of view but also in terms of services offered. Banks want to make it easier for the individual to access the bank, hence the continued focus on online and mobile banking, as well as making services available to the previously unbanked through these platforms and social media channels.
The second focus area is understanding and exploiting customer data, so big data analytics and use of artificial intelligence and algorithms are coming to the fore. The objective is to use the data about their clients to understand their credit worthiness, propensity to earn and spend, and then to pre-empt their requirements to provide the right products to that specific customer at the right time in their lives. Multichannel delivery will also be a focus area, but that is more about using all social, mobile and online channels to make it easier to reach the client. We will also see an increase in the use of integrated applications to make payment mechanisms simpler and more accessible.
The financial services environment is very harsh and banks are finding it difficult to maintain profits. They will continue to evaluate automating more processes to increase the use of self-service banking. In some countries, entire processes, such as loan generation, have already been automated from a customer, product and regulatory point of view and we foresee the South African institutions following suit.
Security is another big focus area. With the Internet of Things or IoT, more devices are being connected to the internet, creating more vulnerabilities. As more devices are connected and being used for banking purposes, security becomes a major concern. December 2016 was already a bumper month in ransomware activity and as more devices are connected this is set to increase.
We do foresee 2017 deliver a couple of innovations in FinTech, with innovative companies applying technology to create ways to do banking in a virtual environment. Financial institutions are also waking up the opportunity that this brings as it is a way for them to retain customers and profitability, while at the same time cutting costs.
Telecommunications companies could plausibly use FinTech to get into the banking sector. The biggest challenges they face are in obtaining banking licenses, existing competition and monopolies, and being able to comply with the regulations associated with having a banking license. That said, these company will make forays into the banking environment on a partnership or shared risk type model. They will partner with the smaller, already licensed financial institutions, and will then introduce FinTech using technology. Both the banks and telecommunications companies are under pressure from a growth and performance perspective and they both have access to customer data that they can utilise to offer new and innovative products and services. Already we know that the telecommunications providers are looking for ways to increase their market share and profitability, and this approach creates an opportunity for them to do so. That said, it’s very much a ‘wait and see” scenario at this stage. We will also continue to see emerging currencies such as blockchain and bitcoin, but suspect that the regulator environment must catch up before it becomes mainstream.
We will also start seeing far more use of social media platforms to help complete or compliment banking transactions. These platforms will be used both for internal communications as well as to communicate more effectively with their customers. We will also see an increase in automated CRM to solve customer queries. Here the only challenge will be the need to record all communications as part of their compliance requirements.
So, to recap, while virtual reality and augmented reality are starting to come into play, it will still be a while before they become mainstream in the financial services environment. Cognitive computing will also increase to some degree. The big bets, however, for financial services will be next generation security and IoT, with mobile also remaining a key priority in the South African market.
* Mark Walker, Associate Vice President for Sub-Saharan Africa at International Data Corporation