Are you underwhelmed by 5G?

On By mehranmuslimiblogIn 5GLeave a comment

5G has promised us speeds that would allow us to stream a 4K resolution video while on the move. We were promised that it would provide super fast downloads, and many of the biggest telecoms networks have made some variation on the claim of having the fastest, best, or most expansive 5G network available. Yet, in the USA, most 5G users have been underwhelmed, writes AJ Dellinger in Forbes.

Speedcheck research sheds light on how regulatory decisions, geo-political tensions, and suboptimal network configurations have resulted in 5G download speeds that were only 2.7 times faster than 4G speeds. This is rather less than the 100x faster as promised. Worse still, Speedcheck states “in 1 out of 8 US cities where 5G was available last year, 4G-connected users could browse the Internet faster than 5G-connected ones, leaving many 5G-phone owners puzzled.” It adds, “A more in-depth analysis of the same data reveals that 5G users experienced substantially faster connections in only 69% of the cities where the new technology was deployed in 2020, and in the other 31% of cities, “the new cellular technology was either slower or only moderately faster than 4G.” These results certainly don’t encourage anyone to buy a 5G- enabled phone just yet.

Why is 5G not delivering on its promises?

In the USA regulatory decisions about 5G came late to launching the necessary C-band frequencies (that is airwaves between 3.4GHz and 4.2GHz) which are key to the technology. So the US networks had to rely on lower frequencies, which work over long distances but deliver slow speeds.

Then there was the issue with Chinese-owned Huawei, which America deemed a national security risk. This meant the deployment of 5G was put on hold in many places, as networks had to find other suppliers, which delayed the commercial launch of 5G.

Lastly, there were sub-optimal network configurations. The majority of the initial 5G deployments in the US were Non-Stand-Alone (NSA), meaning that the new networks were aided by existing 4G infrastructures and this resulted in a 4G-like experience for consumers.

However, the US may experience a turning point in 2021 as the US Federal Commission Communications (FCC) completed a spectrum auction that will provide an injection of highly desired C-band spectrum (that is a mid-frequency) for 5G deployment in the country. These new frequencies should finally bring the dramatic shift in 5G performance – fingers crossed, phones at the ready!

Banks oblivious to clients’ app-led, shadow financial lives

On By mehranmuslimiblogIn apps, Banks, FintechLeave a comment

Information gleaned by Cornerstone Advisors in its recent study reveals “Much of consumers’ day-to-day financial lives take place “off the radar” of the traditional financial institutions that they work with.” Whilst the study carried out in October 2020 is American, it seems likely that the results are echoed in other countries and regions.

To start with, 76% of smartphone owners use fintech-created mobile apps to manage their finances, from companies such as Robinhood, PayPal, and Credit Karma.

The generational differences in use are predictable: “93% of Gen Zers and Millennials (21 to 40 years old) use mobile financial apps, 81% of Gen Xers (41 to 55 years old) are fintech users, and even 56% of Baby Boomers use at least one mobile app to help them manage their financial lives,” the study states.

Banks unaware of new customer behaviour

However, the research does throw up some surprises. It points out that although traditional banks are aware of the growth of consumer use of fintech products, they are much less aware of the ways in which this impacts them. Banks have lost some business to fintechs, but they also share customers with fintechs, and this appears to be something they are blissfully unaware of. Ron Shevlin in Forbes says, “ They think that because customers have an account with them that they’re the only bank their customers do business with.”

That is certainly not true. Consumers “don’t close out and switch accounts—they simply add another account,” the study says, and “Challenger banks – Chime, most prominently – are gaining market share among consumers and are rated extremely highly by consumers on the value they provide.” As a result, a quarter of a trillion dollars annually is flowing through payment mechanisms outside of those provided by traditional financial institutions.

Shevlin also cites the story of HNWI behaviour. One bank CEO urged a client to diversify his $5 million investment account. The client’s response was “you have my funny money—my play money. The majority of my holdings are with a different investment management firm.” This is called a ‘shadow financial life’ that is defined as “Financial behaviors and activities that evade observation from the other financial institutions they do business with.” Mobile apps play a major role in helping to create clients’ shadow financial lives.

For example, , 30% of Americans with an investment account (25 million) also have an account at a digital brokerage or robo-advisor, e.g. Robinhood, Acorns, or Stash. Furthermore, one-third of JPMorgan clients and 27% of Merrill Lynch clients have an account at a digital brokerage or robo-advisor – and the big guys don’t know anything about it.

Another factor in shadow financial lives is the adoption of digital bank accounts as a second string. About 1 in 6 Americans have second bank accounts with digital-only challenger banks, and amongst consumers with three checking accounts, 30% of the third account are at digital banks.

How does this impact on the traditional banks? First, Americans with more than one checking account keep a lot of their money in their additional accounts, as much as 35% of their total deposits. And those with three accounts, keep an even larger amount of money in their secondary accounts. The second and third accounts are also preferred for making payments by 1 in 4 consumers.

Digital banks are not completely immune from shadow banking. Among consumers who consider a digital bank their primary bank, 42% have more than one account—and half of them have that second account with a traditional bank.

Shadow finances change banking scene

One consequence of the emergence of consumers’ shadow financial lives, largely enabled by financial mobile apps, is that the function of a current/checking account has dramatically changed. It also means that the banks with  ‘primary’ account status no longer have the same opportunity to deepen customer relationships, as the customer is now more interested in “best-of-breed features, not accounts,” Shevlin says. Consumers now want the new savings apps, because they don’t want a savings account – the want to save more money, a service the apps supply. Laslty, banks still believe that marketing accounts, savings and other types of accounts are the most important focus, whereas the truth is that for everything they offer, the consumer replies, “There’s an app for that.”

European banks have shown strength during Covid-19

On By mehranmuslimiblogIn BanksLeave a comment

It could have been another 2008 banking crisis, but as it turns out, European banks have weathered the challenges of Covid-19 with great resilience. Despite this, they still face other challenges that could upset their future outlook, especially consumer debt and interest rates.

This time around, banks have ended up in a much stronger capital position than back in 2008, due to the regulations introduced in the wake of the financial crisis. Some are in such a buoyant position that they are ready to resume dividend payouts this year, Silvia Amaro writes at CNBC. 

Arnaud Journois, vice president at DBRS Morningstar told Amaro, “The most important takeaway is that we have not seen a deterioration in asset quality yet since the onset of the crisis.” This view of ‘strength’ is backed up by Fahed Kunwar, head of European banks equity research at Redburn, who said its latest quarterly results have been ‘Strong”.

The big lenders have benefited from government stimulus measures introduced across EU countries, and business failures have been contained due to steps taken by the European Central Bank and the Bank of England. However, there are fears that this situation may not continue into 2022 as “fiscal and monetary interventions are potentially scaled back.”

Nick Andrews, Europe analyst at investment research firm Gavekal told CNBC, “Bad loans will start to appear over the next year or so. That’s when we will get a clearer picture of how bad the situation is in the corporate sector.” A view that is echoed by Elisabeth Rudman, head of European financial institutions at DBRS Morningstar, who also said, “the full level of non-performing loans is still to materialize.”

While governments haven’t made concrete announcements about their withdrawal of financial support, this is bound to happen as the health crisis slows down and economies reopen. When it happens, some businesses will be too stretched to meet their loan repayments and may have to file for insolvency.

The interest rate challenge

Jes Staley, CEO of Barclays, commented on interest rates, saying, “One risk given the level of government spending is if interest rates do start to move up markedly, that will increase the cost of trying to respond to the pandemic.”

As we know, interest rates are at a record low level after being cut as part of the economists’ response to the pandemic. However, central banks could raise the rates if prices rise significantly. There may be less risk attached to this in the Eurozone, where recent increases in inflation were associated with one-off events, such as Germany’s new consumer tax rules.

But in the UK, economists are predicting that prices “could overshoot the Bank of England’s inflation target later this year,” and that would likely result in an interest rate rise. If this happens, it will be bad news for the UK economy in general.

The big hope for the banks is consumer spending once restrictions are eased and restaurants and shops re-open. Andrews from Gavekal said, “We could see a stronger rebound on the back of pent-up demand,” which would ultimately support the banks’ balance sheets and draw in more business investment.

Can XAI in banking help small businesses?

On By mehranmuslimiblogIn AI, BanksLeave a comment

Small businesses (SMEs) are no longer as well served by traditional banks, yet this is one niche sector where they have an opportunity to shine.

To date, banks have provided SMEs with a mix of retail and corporate services, however, as a Finextra blog explains, “this no longer fits the evolving needs of small businesses.”

Services for this business sector need to think about more holistic solutions. These may include more collaboration with a range of digital service providers if they are to retain the confidence of SME clients by addressing their pressing needs.

Temenos, a firm specialising in enterprise software for banks and financial services has been reimagining how banks could better serve SMEs using the available technology. For example, “banks can implement innovative design-centric and data-driven products, as well as services that can transform the SME customer experience.”

The customer’s digital experience is now critical, as is the use of data, because these will be the driving force in future SME banking services. And this is where artificial intelligence (AI) can be of enormous help. It can enable banks to leverage data from multiple sources “to make faster, and more accurate decisions and provide individualised, frictionless customer experiences.”

Utilising AI, or XAI (explainable AI) would be another major step, primarily because “one of the key issues for banks using AI applications that there is little if any discernible insight into how they reach their decisions.” Transparency is required for customer confidence, especially concerning lending.

If banks looked at more than an SME’s credit score, and took a more holistic approach by viewing a range of attributes, they would be able to make more “nuanced and fully explainable decisions that lead to 20% more positive credit decisions and fewer false positives.” Furthermore,  this can be done in real-time using APIs to connect to third-party data sources.

Banks using XAI can show how the decision was made and then suggest alternative products or provide advice about how to improve the chances of getting a loan. In this particular period of time, with the Covid-19 pandemic having negatively affected so many small businesses, there has been an increased need for SME loans. As a result, banks need to support this with more digitisation and smarter decision-making. Using XAI seems like a good place to start.