Were Skinner’s 2012 predictions correct?

At the start of the year, I always make a few predictions about what will happen in the following year.  Watch this blog in January for 2013’s predictions.  But what were the predictions for 2012?

Well Economically, I made the following forecasts:

1. Asia’s light continues to shine, but not quite as bright
2. American equities is the place to invest
3. There will be a major European bank failure
4. A country will leave the Eurozone

Pretty much spot on with the first two if you read the blog this week about the hot money being in America, but a major European bank failure and a country leaving the Eurozone? 

Well, the RBS glitch could have been a major European bank failure but what I really meant was a bank collapsing.

Oh yes, there was one.  Actually more than one.  A whole ton of banks in Spain collapsed in 2012, and I would claim that Bankia was a major European banking failure.

There have been similar issues in other countries, although there is nowhere where Europe reports their bank failures, unlike America where the FDIC records each one and note that there have been 417 banks shut down since 2008).

Nevertheless, if you’re interested, here’s a link to a useful report on EU banking stats and figures.

Meanwhile, leaving the Eurozone?

Well, many would have done if Germany and France had not kept the Union together.  Germany has been particularly keen to maintain the Union, although most economists still see it as unviable.

It is probably best summed up by these bullets from Graeme Leach, Chief Economist at the UK’s Institute of Directors:

• The Eurozone remains highly vulnerable to a break-up between the core and peripheral economies. The centrifugal forces pulling the euro apart remain stronger than the centripetal forces holding it together.
• The survival of the euro in its current form depends on huge purchases of peripheral country bonds by the ECB – the ‘Draghi Plan’ – to drive down yields. But even this only provides a temporary solution, buying time.
• The competitive losses in the peripheral economies are so large that external devaluation (euro exit) will probably prove more attractive than internal devaluation (decade-long austerity, sharp falls in wages and massive unemployment).
• The Draghi Plan is conditional on peripheral economies accepting further austerity measures and an erosion of fiscal sovereignty. There is no certainty that countries such as Spain will sign such a memorandum with the ‘Troika’ – the ECB, EU and IMF.
• If the monetary option fails (monetisation of debt), the fiscal option (mutualisation of debt) is even less likely to succeed. Hybrid solutions, such as issuing a banking licence to the European Stability Mechanism (ESM) rescue facility, are not likely to gain traction.

Pretty much what I said recently on the Banking Union.

So what predictions did we make for banking in general in 2012? 

1. Regulatory change will still be high on the agenda
2. Investment banking will get a radical overhaul
3. Clearing and settlement will become a much bigger focus
4. Reconstructing distribution will be a big challenge
5. Contactless mobile will reach a tipping point in retail payments

Some of these were obvious – the first three – and has been a regular source of discussion here, particularly within our newly formed Clearing & Settlement Working Group who made it clear that EMIR, Dodd-Frank and more is a challenge.

It was also high on the agenda at SIBOS where David Wright admitted the challenge of two-stream world meant that the regulators were as confused as the practitioners about what to do.

I haven’t even mentioned other regulatory discussions, such as the release in October of the Liikanen report that will determine the structure of European banking for the long –term.

The report made many recommendations, with the five key ones summarised best as:

1. If a bank’s trading assets exceeds certain limits against its assets, then it has to spin-off its trading into a separate division (ring-fenced)
2. Banks need to have living wills in place, so that if they fail they won’t bring down the rest of the financial market with them
3. Management, shareholders and creditors will all become more liable for losses if a bank fails to ensure that taxholders are not on the line for future bailouts
4. Basel capital ratios need to be implemented, potentially with more rigour than the Basel Committee itself would propose
5. Bank management and traders should be paid in a different way, with bonuses linked to bank debt and long-term returns rather than short-term gains

All well and good, although France has just announced a slightly different approach, so regulatory arbitrage here we come.

That leaves my last two points:

• Reconstructing distribution will be a big challenge
• Contactless mobile will reach a tipping point in retail payments

Well the point about reconstructing distribution is true, and will continue to be true for some time.  For example, I spoke at Next Bank Europe earlier this year and it made me realise that the most common question I am being asked by banks is: “It’s all well and good talking about the Next Bank, but our challenge is how to get This Bank to migrate to the Next Bank”.

This is the core essence of the challenge for everyone: how do you make the elephant dance? 

How do you get the current organisation, which will have years of legacy operations along with many mergers and acquisitions that are still running in pre-integration state, to all become harmonised into a lovely and clean, fit for the future, digital customer, Bank 3.0 state?

And even if you can spring clean the company to be ready for tomorrow, how do you get the people and particularly the management team to buy into it?

I had this discussion for the umpteenth time the other day, when I challenged a retail banker over the fact that their online, mobile services appeared to missing a trick in not leveraging my mortgagee information as part of my balancing.  He said to me: “ah, that’s because we look after the digital operations for the deposit side of the bank”.

Bleedin’ silos.

Anyways, the final one leads into my tech predictions:

1. Contactless mobile will reach a tipping point in retail payments
2. Social media will become a core communications tool
3. PFM, combined with social media, is going to enjoy a boom year
4. Tablet PCs with financial apps will be pervasive and ubiquitous
5. Risk management will be a key area of software development
6. FPGAs and GUIs will be deployed across investment markets
7. “Data as an asset” will be the most common phrase used

I was going to admit I was wrong on the first one, as contactless?  Doesn’t that mean NFC?

Then I re-read my note where I said: “Everyone assumes contactless = NFC chips.  It doesn’t have to be.  Contactless in my world, is any payment that is simple, automatic and wireless.”

I wasn’t quite as adamant as I became during 2012 that NFC is a still-born technology with No Flippin’ Chance of success.

Why did I become so anti-NFC?

Because it involves a physical movement that adds nothing to the retail payments process.  This means, from a consumer viewpoint, a card is just as easy to use as a contactless card.  Conversely, a proximity payment is frictionless and simple.  That is where we are heading fast and means that NFC is superseded by proximity mobile payments faster than you think.

If you don’t believe me, PayPal President David Marcus blogged this week the same thing.

One of his four 2013 predictions is that NFC will fail to gain mass adoption: “The NFC payments debate will slowly die in 2013. Is tapping a phone on a terminal any easier than swiping a credit card? I don’t think so – it’s not solving a real consumer problem and it’s not providing additional value to encourage me (or anyone else for that matter) to change my behavior.”

Totally agree.

I’m not going to tick off the rights and wrongs of the other six predictions – you can make your own mind up about them – except to pick up on the prediction that Tablet PCs with financial apps will be pervasive and ubiquitous.

They are.

We now have Windows Phone 8, Android and iOS competing on mobiles, mini tablets and tablets.

Ubiquitous touch computing is the order of the day and what better endorsement than Barclays Bank rolling out iPads to all of their front office staff?

According to Forbes, this makes it the seventh largest commercial rollout iPad in the world:

The Ten Largest Commercial iPad Deployments

1. Korea Telecom          32,000
2. SAP AG                     17,000
3. Roche                       13,070
4. Cisco                        12,500
5. United Airlines           11,000
6. IBM                           10,000
7. Barclays Bank              8,500
8. Royal Caribbean          6,000
9. KLA-Tencor                 5,400
10. Condé Nast                 5,000

… and other banks will follow.

Anyways, it’s time to get ready for the holiday season so that’s it from me for now. 

2013’s predictions on the way in early January and have a happy hols.