Wednesday, October 5, 2016

World debt at record $152tn; Banks employ virtual staff; FinTechs and the payments revolution

1 World debt at record $152tn (Larry Elliott in The Guardian) The International Monetary Fund has urged governments to take action to tackle a record $152tn debt mountain before it triggers a fresh global financial and economic crisis.

Warning that debt levels were not just high but rising, the IMF said it was vital to intervene early in order to mitigate the risks of a repeat of the damaging events that began with the collapse of the US sub-prime housing bubble almost a decade ago.

It said that new research in its half-yearly fiscal monitor covering 113 countries had shown that debt was currently 225% of global GDP, with the private sector responsible for two-thirds of the total.
The IMF says fiscal policy, the power governments have over tax and spending, could help. It suggests government-led programmes to restructure debt and tax breaks to persuade creditors to lengthen repayment periods.

Central banks have borne the brunt of attempts to boost growth for the past eight years, but the IMF said more active use of fiscal policy would provide a better mix. Excessive private debt was making global recovery more difficult and had increased the risk of financial instability.

The IMF’s report shows that the overall debt level has not fallen since the financial crisis and recession of 2007-09, despite the fact that the most severe downturn of the post-war era was the consequence of too much reckless borrowing. Debt levels were high at the end of the second world war, but decades of strong growth and moderate inflation led to a steady decline in debt to GDP ratios.

2 Banks employ virtual staff (BBC) Customers at Royal Bank of Scotland and NatWest may soon be sorting out issues with help from a virtual chatbot.Web-based Luvo will be able to answer simple queries such as how to order a replacement card.

Designed using IBM Watson technology, the virtual agent is able to understand and learn from human interactions. In future, Luvo may be able to understand if a customer was feeling frustrated or unhappy and change its tone and actions accordingly, IBM said.

The service will initially be rolled out to RBS and NatWest customers, starting in December with about 10% of RBS customers in Scotland. Previously, Luvo had been piloted among 1,200 RBS and NatWest staff.

"Luvo frees advisers from spending time on simple, easily-addressed queries so they can help customers with more complex issues," said Jane Howard, head of personal banking. It will start off with about 10 questions it is equipped to answer but as the cognitive system learns over time, IBM is confident it can be expanded to "more complex areas".

IBM is not the only company using artificial intelligence in banking. This week, rival IPsoft, which already employs its chatbot Amelia in a range of industries, announced a similar deal. Amelia will provide customer service in one of Sweden's largest banks, SEB.

3 FinTechs and the payments revolution (Ihab Khalil in Khaleej Times) The FinTech revolution has turned conventional approaches to financial technology on their heads. In recent years, FinTech companies, which are mostly start-ups, have increased dramatically in number - from about 1,000 in 2005 to over 8,000 in 2016 - and have harnessed new cutting-edge technologies to provide financial services while sidestepping the legacy cost structures and regulatory constraints of traditional banks.

Collectively, FinTech firms now offer services covering many of the traditional business lines of retail and other banks, from credit cards and loans to payments, cross-border transfers and digital currencies. Today, globally, FinTech funding is increasing at an accelerating rate: the $5.5 billion in total funding of 11 years ago has skyrocketed to a cumulative $78.6 billion, according to the Boston Consulting Group's FinTech database.

The vast appeal of FinTechs lies in their ability to offer a differentiated business model, deliver an enhanced, personalised customer experience and tap into the power of digital to ensure end-to-end business value. And that is precisely why payment FinTechs - which include digital wallets, integrated Point of Sale (PoS) systems, person-to-person (P2P) payments and cross-border transfers - are disrupting the industry to varying degrees.

With this in mind, an immediate question arises as to how exactly FinTechs are impacting banks. The answer? It varies depending on the type of disruption.

To determine whether the FinTech eco-system poses a threat or presents an opportunity, banks need to adopt a multi-phased assessment framework that begins with three questions: Does it scale? Does it provide real value to consumers? Does it provide real value to merchants?

If the answer to all three questions is "yes", then the next obvious question is: 'What is the impact on your economics?' If it is likely negative, then it is most probably a threat. By contrast, if it is potentially positive, then it may bring forth an opportunity.

In spite of the rise of the FinTech tsunami, banks remain well protected by regulations particularly with regards to deposit holding. As a result, while FinTechs can pose a threat for part of the core business of banks, they also open up avenues for innovation for other divisions of the organisation.  In short, adequately assessing the risk is what it all boils down to.

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