Regulation: A new era of global regulatory divergence

Last year, we predicted a stabilization on the regulatory front after years of intense scrutiny by regulators around the globe. Much has happened since then. Growing divergence in global regulatory standards remains a fact. As countries look for ways to spur economic growth, many are increasingly showing a willingness to take a fragmented approach, bucking the previous trend of post-crisis synchronization.

In the United States, the focus on refining or even replacing existing regulations remains. A new bill, Economic Growth, Regulatory Relief, and Consumer Protection Act, amending certain provisions in the Dodd-Frank Act was signed into law. Notably, the statutory systemically important financial institutions (SIFIs) asset thresholds for enhanced prudential regulations, such as stress tests and capital and liquidity ratios, were increased, giving the most relief to banks with assets between $50 billion and $100 billion.

As for the Volcker Rule, several changes are still pending. The proposal intends to modify the scope of applicability based on trading size, amend proprietary trading provisions, and simplify compliance reporting. It also offers some relief to foreign banking organizations (FBOs).¹¹

The Community Reinvestment Act (CRA), requiring banks to serve the credit needs of their communities, may also be revised. The Office of the Comptroller of the Currency (OCC) has begun seeking public comment on ways to amend this act.¹²

The Department of Labor’s (DOL’s) fiduciary rule, requiring financial institutions to act in the best interest of their clients, was overturned, but a new best-interest rule from the SEC is still a possibility. Meanwhile, enforcement actions by the Consumer Financial Protection Bureau (CFPB) have declined. As of September 2018, the CFPB had announced only five enforcement actions since February 2017.¹³

While the pace of new regulations has decelerated under the current US administration, the role of the states may grow in prominence. As an example, California passed the Consumer Privacy Act of 2018, which establishes new data protection rights for consumers. Other states are likely to follow suit.

In Europe, the General Data Protection Regulation (GDPR), the first of its kind to provide sweeping data protections to EU citizens, will continue to reshape privacy and data ownership policies. Meanwhile, even though the implementation of Markets in Financial Instruments Directive II (MiFID II) has hit some speed bumps, the drive toward fee transparency will only accelerate. On the other hand, Payment Services Directive II (PSD2) has had the intended effect of promoting innovation and competition in payments.

Additionally, the European Commission (EC) continues to work on completing a single, harmonized regulation rulebook and on finalizing the banking union. However, it has faced headwinds in establishing the banking union because the global trading book capital standards it seeks to incorporate from the Basel Committee’s Fundamental Review of the Trading Book are in flux.¹⁴

In the United Kingdom, as the March 2019 Brexit deadline rapidly approaches, much uncertainty remains. Many banks have already established contingency plans, possibly preparing for the worst—either a no-deal or hard Brexit. Depending on what ultimately happens, these plans could be put to the test.

In the APAC region, conduct and culture were high on the regulation agenda in 2018. China’s banking regulators issued extensive guidelines on employee conduct management, while Malaysia’s central bank proposed an accountability framework for senior officials in financial institutions.

In 2018, APAC regulators took a closer look at foreign investment and recovery and resolution planning. India’s central bank, for instance, introduced a new framework for the resolution of stressed assets, and Hong Kong updated its recovery planning legislation in accordance with international norms.¹⁵

Meanwhile, in China, the historic step to merge banking and insurance watchdogs might help Chinese regulators better tackle the mounting risk in its financial system.¹⁶

Despite growing global regulatory divergence, regulators in the United States and abroad seem to be encouraging experimentation by fintechs and welcoming them to the fold.

The OCC announced in July 2018 that it would begin accepting fintech bank charter applications.¹⁷ Meanwhile, the United Kingdom’s Financial Conduct Authority (FCA) announced plans for a network of global regulators—dubbed the Global Financial Innovation Network (GFIN—to establish a global regulatory “sandbox” that can foster innovation among technology companies.¹⁸

The Monetary Authority of Singapore is also taking a sandbox approach to fintech innovation. And, in Japan, the Financial Services Authority is considering a complete regulatory overhaul in response to the expanding influence of fintechs. These changes, if implemented, could have wide-ranging implications for traditional banks.¹⁹

With such a dynamic regulatory landscape, banks should buckle down and make compliance modernization a priority in 2019, focusing particularly on making regulatory systems already in place more efficient for business strategy. And, of course, throughout all compliance efforts, banks should prioritize soundness and safety.

Technology: Creating a symphonic enterprise

In our 2018 outlook, we highlighted the hodgepodge of systems, platforms, software, and tools—much of it legacy infrastructure—as a key challenge for bank CIOs. This remains relevant for 2019 as well. Banks’ success in digital transformation will ultimately depend on how strategy, technology, and operations work together across domains. We refer to this as a “symphonic enterprise,”²⁵ where different technologies and solutions are seamlessly meshed to create maximum value.

To achieve this, excelling at data management, modernizing core infrastructure, embracing AI, and migrating to the public cloud should take precedence in 2019 (see figure 4 on the following page).

But a key step in any of this digital transformation is getting a better handle on data to extract the greatest value from technology investments. No doubt many banks have established dedicated data management programs, but success up to this point seems modest at best.

The data challenge becomes more daunting as data integrity increases in importance. Regulatory expectations will further elevate the role of effective data management. PSD2 mandates that banks make customer data more accessible to third parties, while GDPR forces banks to ensure the privacy of their customer data. Not managing the conflicting priorities could raise operational risk for banks.

The challenge for many banks is that data, for the most part, is being managed in siloed, disparate systems, which complicates banks’ ability to know and serve their clients.

Of course, core system modernization is not a new goal for many, so what is different now? As banks accelerate their digital transformation efforts, relying on a patchwork of archaic systems can pose significant risk. And, as banks consider adopting technologies like machine learning—and eventually blockchain and quantum computing—how well suited are existing systems to run, grow, and secure a modern digital bank?

The good news is that more banks are taking the leap, but at their own pace. Some banks have completely replaced their legacy systems, while others, such as Nordea, are following their lead with multiyear modernization initiatives.²⁶ Others have eschewed the “rip and replace” method in favor of microservices and cloud applications, while gradually reducing reliance on the legacy systems.²⁷

Multiple core banking systems can present an additional challenge: Which systems should be modernized first, and how? Systems that process high volumes of transactions, like core deposits and credit card platforms, will likely take significant effort to transform versus some lending platforms that might be easier to migrate. Key Bank, for example, chose to modernize its consumer lending platform to provide a better customer experience.²⁸

In contrast, robotic process automation (RPA) and AI in banking are advancing rapidly, with RPA bringing productivity gains and AI enabling intelligent insights on customers, compliance, and operations.

We expect some banks and capital markets firms to begin monetizing their technology expertise as-a-service in 2019, turning cost centers into profit centers. For example, Nasdaq’s SMARTS Market Surveillance solution, used by exchanges and regulators in 65 markets, analyzes traders’ emails and instant messages along with transaction data to ensure market conduct.^29,30

We expect cloud will increasingly be viewed to deliver the following technology priorities: core modernization, data management with storing and processing, and AI-powered analytics for effective decisions. Increasingly sophisticated and diverse offerings from cloud providers seem to be making public cloud migration an attractive option for many, not just for efficiencies but also for agility and scale. Capital One plans to move its core business and customer applications to the public cloud by 2021.31 However, concentration risk of migrating systems to a single cloud provider and concerns about security are factors to keep in mind.

Risk: Strengthening the core with new-age defenses

The risk management function within banks appears to be entering a new stage in its evolution, as digitization, automation, and externalization gain ground. Banks in recent years have made notable advances in how they assess and mitigate risk across the enterprise.

However, current systems may be less equipped to manage emerging risks. Algorithms, for instance, enable smarter decisions, but their growing complexity and prevalence could be problematic.³⁴ Before such applications become the norm, risks from, and to, the algorithms, in addition to the ethics of AI, should be addressed at the design stage itself. Also, as more data is used in AI applications, concerns over data protection and privacy could escalate institutions’ risk profile. Increased connectivity with third-party providers and the potential for increased cyber risk is another growing concern.

What’s more, traditional risks will likely not subside anytime soon. Going forward, personal accountability is expected to be a key focus area in mitigating conduct risk, such as market abuse or leakage of consumers’ confidential data. And amid rising geopolitical risk, most banks are increasingly concerned that cyberattacks from state actors could be potentially disruptive to the industry.³⁵

To infuse a strategic mind-set into the risk management function, banks should reassess the roles and responsibilities of the first two lines of defense. The first line of defense (the businesses) should be willing to “own” risk management without too much “oversight” from the second line. Meanwhile, the second line (e.g., the compliance or risk function) should be a true “enabler” of business and be more strategic in its approach. In the United States, the Federal Reserve Board’s guidance to extend risk ownership to business leads emphasizes the need for the first line of defense to proactively manage risk.³⁶

“Smarter” risk management through the life cycle, especially in the early stages of risk identification and prevention, should be another focus area. This generally requires not only better technology and analytics to spot risks before they bubble up but also processes, preventive controls, and people to enable smart risk identification. ANZ has built a proof of concept that combines deep learning techniques with customer data to better assess risk—and do so on a more dynamic basis than the earlier static models.³⁷

This can be equally applicable to cyber risk. Recent cyberattacks have indicated a need for many banks to understand their ecosystem and the inherent vulnerabilities that exist within their networks.³⁸

While some banks have made good progress, the next generation of cyber risk management should consider a threefold approach: (1) Going back to basics by strengthening controls such as IT asset management, patch and vulnerability management to spot and control risks as boundaries expand with cloud and open architecture; (2) applying analytics and AI at scale, while recognizing these technologies can also be used by bad actors—think of smart encryption algorithms and self-morphing/intelligent malware that can spiral out of control; and (3) building a resilient infrastructure to withstand systemic disruption and long periods of stress.

How is retail banking changing?

The positive economic environment across all regions has boosted banks’ net interest margin (NIM) and loan growth in the first half of 2018. The total industry’s NIM, globally, stood at 3.59 percent at the end of the first half of 2018, its highest in four years,40 and customer loans grew by 7.84 percent.⁴¹

In the United States, most banks benefited from rising interest rates, loan growth, and tax cuts. Meanwhile, in other parts of the world, better cost controls and growth in loan demand boosted profitability.

The growing influence of fintechs and nonbanks seems an accepted fact now. Investment in online lending platforms by both startups and incumbents (e.g., Finn by JPMorgan Chase) is still significant. While it is unclear how many fintechs will apply for the OCC’s new banking charter, this seems a sign of maturity in the industry as fintechs become part of the mainstream banking system.

In Europe, PSD2 and the open banking standard are having the intended effects—spurring innovation and creating a more level playing field. But incumbents have not been caught flat-footed—they have responded well to the challenge. Encouragingly, open banking is catching on in other parts of the world, despite the lack of a regulatory mandate. And in the United States, banks are expected to test the waters in 2019.⁴²

But, across the globe, the retail banking industry is fast embracing a mobile-centric customer experience, as we highlighted in our 2018 outlook. Investments in mobile technologies have increased meaningfully with Asia Pacific leading the world in the rapid adoption of digital banking due to consumers’ constantly evolving demands.⁴³

Meanwhile, consumers’ experiences in other industries are upping the ante for most banks. Deloitte’s recent global digital banking survey across 17 countries showed that banking consumers have a stronger emotional connection to technology brands like Apple, Amazon, and Google than to their banks. Some of these companies’ ability to blend experiences from the physical and digital worlds⁴⁴ is considered a good model for banks.

In response, banks are deploying a mix of strategies to stay ahead in the game, including higher technology spending on channel improvement—branches, ATMs, call centers, and digital banking (figure 5). JPMorgan Chase (JPMC) has adopted “mobile first, digital everything,”⁴⁵ while Santander has four investments in the online lending space alone.⁴⁶

What can we expect in 2019?

Price competition in deposits is likely to increase due to higher rates, but a deterioration in credit quality is unlikely in 2019. A potential slowdown in 2020 or beyond could, however, alter the competitive dynamics.

Banks are expected to become more active in the fintech space, either by launching stand-alone digital banks or through partnerships. Online lenders’ growth in student loans, home equity, and personal loans can be expected as well. Fintechs now account for about 36 percent of personal loans originated in the United States by dollar volume.⁴⁷

Another trend likely to gain momentum is partnerships with nonbanks. And as digital transformation spreads across the value chain—from origination to post-sale servicing—some institutions could separate from the pack and leap forward. Such digitization initiatives can boost US banks’ return on total capital employed from the current levels of 12 percent in 2017 to 18 percent by 2022 and will likely improve efficiency ratios by 350 bps over time.⁴⁸

However, the importance of the branch in attracting and retaining customers, contrary to conventional wisdom, should remain. According to a recent Deloitte survey, branches will continue to have value, especially with greater digital enablement (figure 6).⁴⁹ The need to create a seamless omnichannel experience to improve customer experience (CX) has been around for some time. With the available technologies, retail banks are expected to make significant progress in operating in a fluid, post-channel world.

How is corporate banking changing?

Global corporate lending is on an upward trajectory, with the Americas region leading growth.⁵⁶ Revenue from corporate lending grew by 19.5 percent in the Americas from 2015 to 2017. In contrast, corporate lending in the EMEA region declined by 0.8 percent. With American firms increasing their market share, EMEA corporate lending has stagnated as the pace of economic recovery remains uneven. The APAC region, meanwhile, saw corporate lending increase by 5.8 percent in revenues. As Asian markets expand, the competitive dynamics and opportunities within APAC’s corporate banking landscape have significantly increased.

Corporate lending in the United States seems to be benefiting from currently relaxed credit standards. According to the July 2018 Senior Loan Officer Opinion Survey, US banks’ lending standards on C&I loans have relaxed since 2005.⁵⁷ Similarly, the OCC in its latest Semiannual Risk Perspective also highlighted the easing in commercial credit underwriting practices. The 24 percent increase in the number of outstanding matters requiring attention (MRAs) related to commercial credit underwriting from the first quarter of 2017 through the first quarter of 2018 suggests there could already be a problem with relaxed credit standards.⁵⁸

Similarly, terms for leveraged loans have also become more borrower friendly, causing the leveraged loan market to surpass $1 trillion, rivaling the size of the junk bond market.⁵⁹

What can we expect in 2019?

Competition for corporate loans is expected to intensify in 2019, along with further easing in credit underwriting standards in the first half of 2019. But given the higher likelihood of a downturn in the next several years, banks should adjust their risk appetite accordingly in 2019. To alleviate this risk, banks should strengthen their specialized lending expertise, which, if executed well, can result in a superior ability to screen, value collateral, structure loans to minimize potential losses, and manage the workout of problem loans. Smaller regional banks, especially, could stand to benefit from this focus.

On the modernization front, corporate banks in 2018 prioritized streamlining front-end operations, as anticipated. Looking ahead, the next big opportunity for innovation will likely be in the back office, such as servicing and default management. Also, corporate lending arms at banks could learn from fintechs’ use of AI and alternative data for faster underwriting decisions.

Corporate banks that modernize their operations could be better prepared to seize opportunities in the expanding middle market, where revenue is projected to grow by 6.7 percent in the next 12 months.⁶⁰ As banks continue optimizing their cost models, the middle market could become a more attractive source for fee income and loan growth.

Finally, corporate banks should consider the role of the “banker,” a position likely to evolve with automation and increased competition from banks and nonbanks alike. The most successful bankers might not be generalists; instead, they will likely specialize in specific industries, solutions, or client segments to add value and insights through unique hard and soft skills that AI cannot yet replicate. 

How is transaction banking changing?

The transaction banking industry continues to be a stable contributor to banks’ topline growth. Meanwhile, revenues in custody and asset services in the United States are expected to increase to $33 billion in 2018, a growth of 5.3 percent from 2017.⁶¹ But in trade finance, competition from local players continues to challenge revenues at the top banks, despite steady trade volumes and a huge trade finance gap.^62,63

However, despite the seeming stability in many of the transaction banking businesses, some fundamental forces appear at play.

First, the nature of client demand seems to be shifting rapidly. Clients are increasingly expecting bespoke, value-added services, such as seamless connectivity and proactive intelligence. Corporate treasurers, for instance, tend to be seeking more sophisticated risk management solutions to manage credit, operational, and cyber risks.

Technology infrastructure should also be modernized. Using reconciliation as an example, many banks are still performing manual, inefficient processes despite previous attempts to automate. To address this problem, BNP Paribas successfully completed a pilot for an end-to-end fund distribution transaction on blockchain⁶⁴ and automated security transfers in the custody business.⁶⁵

While many transaction banking businesses enjoy high barriers to entry, this has not prevented fintechs from entering these businesses: Consider London-based fintech firm Kantox growing in the foreign exchange market.⁶⁶

Lastly, geopolitical concerns, such as Brexit, trade wars, and global divergence in regulatory expectations, seem to remain top of mind for transaction banking executives.⁶⁷

What can we expect in 2019?

Although current protectionist policies and geopolitical frictions may not materially hurt global trade volumes, they could open new trade corridors within the Asia Pacific region in 2019.⁶⁸ If this were to happen, banks in Asia may be best positioned to pick up financing of the redirected trade volumes.

In cash management, developments such as SWIFT’s global payments innovation (gpi) standards will likely strengthen the business case for faster and more transparent cross-border payments. However, with faster payments, corporate treasurers, for instance, will want their banks to provide more dynamic reporting of liquidity positions and forex exposures in place of today’s end-of-day reporting practices.⁶⁹ Similarly in prime brokerage, hedge funds wanting to trade cryptocurrencies could be looking for clearing, settlement, and custody solutions from their prime brokers in the OTC market. Citigroup is in early stages of building a crypto custody solution for its institutional customers.⁷⁰

Catering to customer needs typically requires a multipronged client-centric approach. For example, Deutsche Bank brought together its clients and product developers in its North Carolina office to better understand clients’ pain points and technology solution requirements.⁷¹ Acknowledging the limitations of its legacy system, the bank collaborated with fintechs to address clients’ needs.⁷² The bank is also a participant in the SWIFT gpi initiative, where it plans to use cloud and open APIs for real-time payments and reporting.⁷³

As noted in a last year’s report, automating existing processes is not enough. Instead, banks should empower clients to serve themselves when and how they desire.⁷⁴ This message might bear repeating as banks ramp up modernization.

As with other banking products, incumbents are expected to expand the use of blockchain, RPA, and AI technologies and better data management in both the front and back offices in transaction banking. In July, State Street launched AI-based news feeds to help clients in its asset servicing business with their investment decisions.⁷⁵ 

How is investment banking changing?

The global investment banking industry has yet to find its footing after the financial crisis. However, the industry seems to be inching back to normalcy, in terms of capital adequacy and profitability. For the first time since 2012, revenues in both trading and advisory businesses will have increased in 2018.⁷⁶

Business is good on several fronts: Global M&A activity reached $2.1 trillion in the first half of 2018, a 36 percent year-over-year increase. Cross-border M&A deals also set a record.⁷⁷

The recovery in fortunes, however, has not been uniform—the global dominance of US banks continues. For instance, the top spots for M&A and equity and fixed-income underwriting were held by US banks. In fact, among the top global investment banks, US banks’ market share has increased from 49 percent in 2010 to 58 percent in 2017.⁷⁸

But geopolitical uncertainty from trade wars, the US midterm elections, and Brexit could weigh on the investment banking industry, even as the regulatory climate seems less ominous. In Europe, MiFID II’s impact appears to be marginal.^79,80 And, globally, investment banks are preparing for LIBOR’s replacement in 2021 (see sidebar).

Meanwhile, most investment banks are going full throttle on a variety of digital transformation efforts to contain costs and improve customer experience. However, many operational inefficiencies still remain, and the business models at most banks generally remain the same.⁸¹

Overall, a subtle yet fundamental change appears under way in investment banking. The balance of power seems to be shifting to the buy side, especially to the large institutions.82 Commoditization, price competition, and growth in market clout have bolstered clients’ negotiating power. Until recently, investment banks could count on their balance sheets, product breadth, global scale, market-making prowess, and reputation to attract clients and command price premiums. But the post-crisis economics and the rapid spread of digitization seem to have altered the competitive dynamics significantly—with many of the earlier differentiators becoming less potent.⁸³

The economic realities across the trading life cycle continue to put pressure on many institutions. While much has been done already in rationalizing business models and ramping up efficiencies, the vestiges of old operating models are still visible, even at the most mature institutions.^84,85 Unfortunately, the journey is not complete. There is still room to simplify the core.

What can we expect in 2019?

2019 could turn out be a pivotal year in investment banks’ transition to become simpler and leaner, yet stronger, franchises. Meaningful changes are expected on many fronts.

First, trading arms should get their FICC cost base under control (figure 7); although some progress has been made in rationalizing expenses, the job is not complete. For instance, in 2017, staff costs dropped sharply, partly as a result of continued cost-reduction efforts, but these savings have been offset by new technology investments. This trend is expected to continue for some time.

But, more strategically, a fundamental rethinking of the client engagement model should be considered: a pivot from product orientation to a client-centric, bespoke delivery of services, and orchestrating solutions from others in the ecosystem. This new engagement model would empower clients through seamless connectivity, self-discovery, and “intelligent” delivery of insights.

The simplification path will entail a sharper focus on who to serve, what to offer, and how—essentially the clients-products-solutions matrix. To execute on this new vision, investment banks should think more broadly about using third parties and utilities for noncore activities. This would require greater agility.

Banks have been at the forefront of digitization for a while now, and continue to spend billions of dollars in modernizing their technology infrastructure.⁸⁶ This trend is picking up even in areas that have been averse to automation in the past, like fixed-income trading. Examples include Goldman’s bond-pricing engine that can handle transactions of up to $2 million without a human touch;⁸⁷ Credit Suisse’s Clive, which automates small trades;⁸⁸ and AllianceBernstein’s latest Abbie algorithm, which handles about 35 percent of its bond trades.⁸⁹

Sell-side firms can use AI and machine learning for more sophisticated uses beyond efficiency improvement. Embedding increasingly intelligent systems into trading algorithms, pricing engines, and risk management systems should be a key focus area, particularly in FICC and derivatives trading.⁹⁰ And, as with other areas within banking and capital markets, public cloud adoption could boost digitization efforts across the board, particularly for noncore processes.⁹¹

Becoming a true client-centric operation cannot happen without excelling at using multiple sources of data and applying rigorous analytics to generate client insights across the life cycle. Competitive advantage will accrue not merely from having the most advanced trade execution technology but also predictive analytics to help solve clients’ problems.

So, what is the future state of investment banking? While the exact state might differ by institution, one thing that seems quite certain is that in five or 10 years, the investment bank of the future will likely be simpler, leaner, and more agile: simple in the sense that it will simplify business processes across the value chain and chop off any layers of complexity that do not directly support the core mission of being client-centric.

How is payments changing?

Payments continues to be one of the most disruptive and dynamic banking businesses. Innovations spanning the spectrum from incumbents to fintechs alike are reshaping the payments landscape, boosting customer expectations, and intensifying competition globally.

With friction endemic in almost every legacy payment system, the search for frictionless digital payment experiences continues. PayPal, for instance, crossed 250 million active users worldwide.⁹² Apple Pay and Amazon Go⁹³ are bringing in new users rapidly. Similarly, in China, Tencent and Alipay are setting new records for digital payment transactions.⁹⁴ In fact, contactless in-store payments are expected to total $2 trillion globally by 2020.⁹⁵

Meanwhile, payment modernization efforts in the form of new rails to process faster/real-time payments (RTP) continue to gather steam in many countries, including Australia, Canada, and the United States. Also, regulations encouraging competition and innovation, like PSD2, are fostering new account-to-account payments solutions⁹⁶ and challenging existing payment rails.

Payments is also attracting more capital and M&A globally (figure 8). Adyen’s $1 billion initial public offering in Europe,⁹⁷ and PayPal’s acquisition of iZettle to expand its in-store payments⁹⁸ are two such examples.

These disruptive innovations are forcing incumbents to respond to a fundamental business reality: how to maintain revenue growth and profitability and withstand product commoditization.

What can we expect in 2019?

Driving volume-based fee growth in payments is expected to become increasingly challenging for card issuers in 2019. Cheaper digital solutions from nontraditional players and expensive reward programs may make it difficult for card issuers to increase fee income.⁹⁹ However, focusing on growing the card portfolio for its predictable interest income is still paramount.

Furthermore, incumbents are expected to differentiate customer experience in areas fraught with friction—cross-border payments and B2B payments being prime examples. For example, Visa recently acquired Fraedom, a software-as-a-service solution,¹⁰⁰ to expand in the growing B2B payments space.

Ancillary services should be another focus area. Data-driven insights to help merchants and consumers in their decisions should be valued, such as Mastercard’s tool to analyze retailers’ purchase data to determine new store locations.¹⁰¹

Growth of faster payments is likely to be sluggish in the United States due to the absence of a regulatory mandate and a burning consumer need in the retail market. However, in business payments, demand for low-cost RTP solutions is likely to be stronger, given current inefficiencies and the size of the float volume. Therefore, US payment providers, both large and small, should refine their value proposition and go-to-market strategy in RTP solutions in 2019.

Faster payments could also amplify the need to balance convenience and speed with security. Account takeover fraud (prevalent in digital payments) has replaced counterfeit card fraud (common in physical payments) as the top fraud type.¹⁰² Also, more merchants could begin accepting new payment forms, including cryptocurrencies and tokens, in which incumbents currently have limited risk management experience. Behavioral biometrics and AI should be used alongside physical biometrics to step up dynamic authentication. Royal Bank of Scotland began collecting behavioral biometrics data for its wealthy clients two years ago and has now expanded the scope to include all retail and commercial customers.¹⁰³

Unlocking the full value of data in designing new services or strengthening security may be difficult unless there is a concerted effort to bring together disparate data across different business lines and systems, however. Therefore, incumbents should consider restructuring their organizations around customer solutions rather than products. This could improve organizational agility and enhance customer experience. 

How is wealth management changing?

Wealth management remains one of the best-performing businesses for banks globally. Fueled by positive macroeconomic trends, robust stock market performance, continued movement toward fee-based vs. transaction-based relationships, and favorable demographic shifts, wealth management businesses have achieved impressive top- and bottom-line performance.

Demographic trends are adding to this optimism. Maturing populations in advanced economies are contributing to a greater desire for wealth preservation and intergenerational wealth transfer. In Asia, the burgeoning entrepreneur class is expanding the ranks of the wealthy at a rapid clip. Although growth may vary by region, the ultra-high net worth (UHNW) client segment is expected to expand meaningfully—9 percent by total assets over the next decade.¹⁰⁴

While digital advice platforms are capturing a greater share of assets, the existential threat from robo-advisers and other fintech players is slowly vanishing as attention has shifted to how banks can embed digital advice more seamlessly into their current offerings.

On the regulatory front, in the United States, even though the DOL fiduciary rule has been overturned, the SEC is floating a best-interest standard for comment. Globally, regulators continue the march toward a fiduciary advice model.

In the product area, the shift toward zero-/low-cost products and the push for greater fee transparency are changing market dynamics significantly. Responding to new entrants that offer a feeless trading service, such as Robinhood and eToro, incumbents are getting into the act. JPMorgan recently launched a digital investing service You Invest that includes 100 free trades in the first year.¹⁰⁵

What can we expect in 2019?

Wealth management business at banks is expected to continue to drive growth in 2019, given secular demand, brand equity, and scale. Revenue for the largest global wealth managers is estimated to grow at four percent CAGR for the next two years.¹⁰⁶ While much of the profitability might still come from the high net worth (HNW) segment, asset growth from digital platforms and low-cost service offerings should add to the revenue mix.

However, the prospect of a market slowdown, growth of digital advice platforms, regulatory uncertainty, the drive toward low-cost options, and the push for greater price transparency would create a challenging environment for banks’ wealth management units. As a result, businesses cannot be complacent and should leverage these good times to fund internal investments and drive the transformation of their business.

Robo-advice will continue to bring new customers into the advice market, even mass-market customers with limited assets. JPMC’s new offering, which combines You Invest with Acorns and robo-advice,¹⁰⁷ is likely the future model of digital advice for the mass market. This could be an important shift in how different solutions are bundled (low-cost trading platform, savings tools, and advice engine). This could be revolutionary in the sense that advice would become the core of all consumer financial relationships, even with mass-market customers. It might no longer be checking or current accounts.

Wealth franchises should invest in improving customer experience and expanding the product suite to include goal-based advice, tax strategies, and estate planning. This could be just as important as investment performance to sustain growth.

The move to fee-based relationships brings steady and predictable revenue along with more scale and simplicity. However, it raises the risk of operating a fiduciary business along with the transaction business. On the product side, to fight fee compression, focusing on a larger share of “discretionary mandates” (with wealth managers having more discretion to manage assets) with higher margins could be important.

In response to customer demands and regulatory expectations, wealth managers could be forced to rationalize their product portfolios and boost price transparency. Startups such as Bloom, ForUsAll, and Guideline are intensifying the competition through clear fee structures.¹⁰⁸

Banks are expected to make significant investment in data management, analytics, and AI to improve both the customer and adviser experience. Also, real-time forms, identity verification, and video chat/recording compatibility that improve onboarding should become a standard in wealth management. REACH, a fintech that enables organizations to close transactions remotely by verifying clients’ identities and getting their signatures on documents in real time, while video recording the whole session, is an example of this.

We also expect wealth units to invest heavily in enterprise governance, risk, and compliance (eGRC) platforms. Modernizing core processes such as fee and expense calculations, account reviews, investment guideline management, supervision, and surveillance should be another priority.

While the needs of the different wealth segments—UHNW, HNW, and mass affluent—are expected to continue to vary, there is one commonality in how automation/digitization is impacting them all: Blending of high-touch/personalized services with low-touch/automated interactions could be key to improving CX and also maintaining profitability.

Lastly, the importance of trust and security, irrespective of the segment, is expected to continue, especially as automation, cloud, and open banking take hold.

How is market infrastructure changing?

Consolidation in the last few years has resulted in a few institutions dominating the market infrastructure industry, especially the exchanges. With declining revenues from transactional services, exchanges in the United States, Europe, and Asia Pacific have been diversifying revenues, especially in the market data space, the highest-growing revenue driver in 2017.¹⁰⁹ Similarly, clearing firms are expanding their data offerings.

Meanwhile, product innovations continue at a steady pace, with crypto trading entering the mainstream. Intercontinental Exchange (ICE) launched BAKKT, a platform for digital assets,¹¹⁰ while the Boston Options Exchange (BOX) has a joint venture with tZERO to launch a blockchain-based trading platform for security tokens.¹¹¹

On the technology side, adoption of RPA, cloud, and AI is on the rise among market infrastructure firms, not just to streamline operations but also for regulatory compliance like the Consolidated Audit Trail (CAT). Blockchain use is in a nascent stage, with pilots in trading and clearing operations in small pockets.¹¹²

What can we expect in 2019?

Exchanges with multiple technology platforms should strive to integrate these disparate systems. While this could be a multiyear process, traction in 2019 is expected because the need has reached critical mass.

The next wave of modernization, after equities, may be in fixed income for the most part. The electronification of the rates market, particularly US treasuries, is already a reality, and corporate bonds are expected to move along the same trajectory in 2019.¹¹³ In Europe, the regulatory push from MiFID II should accelerate the migration of fixed-income trading on to regulated markets, further improving transparency.¹¹⁴

In the growing crypto world, newly-established exchanges will likely seek ecosystem partners in traditional custodians and transfer agents. However, most incumbents will seek regulatory clarity, especially on asset custody and investor protection, before jumping in.

Other developments—like swaps deregulation,¹¹⁵ standardization of trade data reporting with distributed ledgers,¹¹⁶ and central banks’ unwinding of the balance sheet¹¹⁷—should boost exchange volumes. Unparalleled challenges from Brexit—like the bulk transfer of existing portfolios from UK central counterparties (CCPs) to EU27 CCPs—could test the industry’s technology resilience and could heighten market, operational, and liquidity risks.

As in other areas of capital markets, the use of AI and machine learning are expected to expand at a rapid pace, creating new solutions such as Nasdaq’s “Analytics Hub.”¹¹⁸ The platform uses natural language processing to analyze company filings and earnings calls for more targeted investment insights.¹¹⁹ More broadly, AI can help transform market infrastructure players in multiple ways—from predictive market surveillance models and prevention of predatory trading strategies to intelligent reconciliation systems to improve operational efficiencies.¹²⁰

That said, technology alone is not a panacea. As technology transforms the nature of work, incumbents should not lose sight of upskilling their talent. Training employees to work with and, more importantly, supervise advanced technology platforms could become critical in a world marked by an accelerated speed of computing, trades electronification, and growing sophistication of cyberattacks. 

¹ Danielle Myles, “Top 1000 world banks 2018,” The Banker, July 2, 2018, https://www.thebanker.com/Top-1000-World-Banks/Top-1000-World-Banks-2018.
² FDIC, Quarterly Banking Profile (QBP) - Second Quarter 2018, https://www.fdic.gov/bank/analytical/qbp/2018jun/qbp.pdf, accessed October 15, 2018.
³ Ibid.
⁴ Martin Arnold, “How US banks took over the financial world,” Financial Times, September 16, 2018, https://www.ft.com/content/6d9ba066-9eee-11e8-85da-eeb7a9ce36e4.
⁵ Danielle Myles, “Top 1000 world banks 2018.”
⁶ Yalman Onaran, “China’s giant banks top this ranking. And that’s a cause for concern,” Bloomberg.com, August 12, 2018, https://www.bloomberg.com/ news/articles/2018-08-12/china-s-giant-banks-top-this-ranking-a-cause-for-concern.
⁷ Danielle Myles, “Top 1000 world banks 2018.”
⁸ Yen Nee Lee, “China’s mega banks are boasting higher profits, but investors still aren’t buying their stocks,” CNBC, September 3, 2018, https://www.cnbc. com/2018/09/03/china-banks-improvement-in-net-profits-margins-not-helping-shares.html.
⁹ “Japanese banks’ foreign exposure may threaten financial stability,” Economist, July 26, 2018, https://www.economist.com/finance-and-economics/2018/07/26/japanese-banks-foreign-exposure-may-threaten-financial-stability.
¹⁰ Dr. Daniel Bachman and Dr. Rumki Majumdar, “United States economic forecast: 3rd quarter 2018,” Deloitte Insights, September 14, 2018, https://www2. deloitte.com/insights/us/en/economy/us-economic-forecast/united-states-outlook-analysis.html.
¹¹ Deloitte Center for Regulatory Strategy, “Key highlights of the Volcker Rule proposal,” Reg Pulse blog, June 6, 2018, https://www2.deloitte.com/us/en/pages/regulatory/articles/key-highlights-of-the-volcker-rule-proposal.html.
¹² Office of the Comptroller of the Currency, US Department of the Treasury, “OCC Seeks Comments on Modernizing Community Reinvestment Act Regulations,” news release 2018-87, August 28, 2018, https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-87.html.
¹³ Zach Fox and Carolyn Duren, “CFPB has fined Wells Fargo more than all other companies, combined,” S&P Global Market Intelligence, Data Dispatch, September 6, 2018.
¹⁴ Huw Jones, “EU sees step-by-step approach to bank trading capital rules,” Reuters, April 11, 2018, https://www.reuters.com/article/us-eu-banks-regulation/ eu-sees-step-by-step-approach-to-bank-trading-capital-rules-idUSKBN1HI2QF.
¹⁵ Asia Pacific Regulatory Update 2018, Deloitte Centre for Regulatory Strategies Asia Pacific, February, 2018, https://www2.deloitte.com/content/dam/ Deloitte/au/Documents/financial-services/deloitte-au-fs-asia-pacific-financial-services-regulatory-update-feb-18-150318.pdf.
¹⁶ Sara Hsu, “China’s new financial regulatory system may overlook some risks,” Forbes, March 19, 2018, https://www.forbes.com/sites/sarahsu/2018/03/19/ chinas-new-financial-regulatory-system-may-overlook-some-risks/#487422fbb975.
¹⁷ OCC, US Dept of the Treasury, “OCC Begins Accepting National Bank Charter Applications from Financial Technology Companies,” news release 2018-74, July 31, 2018, https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-74.html.
¹⁸ Wolfie Zhao, “Regulators plan ‘global sandbox’ for fintech including blockchain,” CoinDesk, August 8, 2018, https://www.coindesk.com/regulators-plan-global-sandbox-for-fintech-including-blockchain/.
¹⁹ Gareth Allan and Yuki Hagiwara, “Japan’s financial regulation shake-up seen as a game changer for banks,” Japan Times, February 27, 2018, https://www. japantimes.co.jp/news/2018/02/27/business/financial-markets/japans-financial-regulation-shake-seen-game-changer-banks/#.W61N62hKg2w.
²⁰ FDIC, QBP.
²¹ Reshaping the code: Understanding the new tax reform law, Deloitte Tax LLP, 2018, https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/ us-tax-reform-report.pdf.
²² Francesco Guarascio, “EU aims at deal on digital tax by year end: Document,” Reuters, September 4, 2018, https://www.reuters.com/article/us-eu-tax-digital/eu-aims-at-deal-on-digital-tax-by-year-end-document-idUSKCN1LK1MA.
²³ Don Quijones, “Banks squeal as Spain’s new government threatens to do unthinkable: Raise taxes on their profits,” Wolf Street, July 7, 2018, https:// wolfstreet.com/2018/07/07/spanish-banks-squeal-as-government-threatens-to-do-unthinkable-raise-taxes-on-their-profits/.
²⁴ Simon Poh, “Will Trump’s corporate tax cuts send ripples through Asia?,” NUS Business School for Forbes, December 12, 2017, https://www.forbes.com/ sites/nusbusinessschool/2017/12/12/will-trumps-corporate-tax-cuts-send-ripples-through-asia/#206b79b55ce1.
²⁵ Deloitte Consulting LLP, Tech Trends 2018: The symphonic enterprise, Deloitte Insights, December 6, 2017, https://www2.deloitte.com/content/dam/Deloitte/ tr/Documents/technology-media-telecommunications/TechTrends-2018.pdf.
²⁶ Citi GPS, Bank of the future: The ABCs of digital disruption in finance, March 2018, https://www.citi.com/commercialbank/insights/assets/docs/2018/The-Bank-of-the-Future/.
²⁷ Ibid.
²⁸ Bryan Yurcan, “Key’s call: To modernize consumer lending, it had to strip systems to the core,” American Banker, April 11, 2018, https://www.americanbanker. com/news/why-key-is-investing-in-a-new-core-lending-platform?tag=00000157-7785-dd12-a75f-7fa7b9060001.
²⁹ Tony Sio, “Changing the game: Artificial intelligence in market surveillance,” Nasdaq, April 5, 2017, https://business.nasdaq.com/marketinsite/2017/ Changing-The-Game-Artificial-Intelligence-In-Market-Surveillance.html.
³⁰ “Nasdaq SMARTS surveillance wins ‘Best Market Surveillance Provider’ for fifth consecutive year,” Nasdaq, July 26, 2017, https://business.nasdaq.com/ marketinsite/2017/Nasdaq-SMARTS-Surveillance-Wins-Best-Market-Surveillance-Provider-for-Fifth-Consecutive-Year.html.
³¹ Citi GPS, Bank of the future: The ABCs of digital disruption in finance.
³² Jim Eckenrode, Talent, technology, and transformation: Global executives’ expectations for the future of financial services, Deloitte Insights, August 1, 2017, https:// www2.deloitte.com/de/de/pages/financial-services/articles/talent-technology-and-transformation.html.
³³ John Hagel III and John Seely Brown, “Great businesses scale their learning, not just their operations,” Harvard Business Review, June 7, 2018, https://hbr. org/2017/06/great-businesses-scale-their-learning-not-just-their-operations.
³⁴ R. Jesse McWaters and Rob Galaski, The new physics of financial services: Understanding how artificial intelligence is transforming the financial ecosystem, World Economic Forum and Deloitte, August 2018, http://www3.weforum.org/docs/WEF_New_Physics_of_Financial_Services.pdf.
³⁵ Ryan Browne, “Jamie Dimon says cyber warfare is the biggest risk to the financial system,” CNBC, September 20, 2018, https://www.cnbc.com/2018/09/20/ jp-morgan-jamie-dimon-says-cyber-is-biggest-risk-to-the-financial-system.html.
³⁶ “Reimagining the first line of defense’s role in bank regulatory compliance: Digitizing processes and controls to drive profitability and efficiency,” Deloitte Center for Regulatory Strategy Americas, January 2018, https://www2.deloitte.com/content/dam/Deloitte/us/Documents/regulatory/us-regulatory-reimagining-the-first-line-of-defenses-role-in-bank-regulatory-complaince.pdf.
³⁷ Rohan Pearce, “ANZ eyes deep learning to help make better decisions about risk,” Computerworld, September 4, 2018, https://www.computerworld.com. au/article/646163/anz-eyes-deep-learning-make-better-decisions-about-risk/.
³⁸ Howard Altman, BAI Banking Strategies, “Cybercrime 2.0: New ills, no pill for banking’s $600 billion headache,” November 16, 2018, https://www.bai.org/banking-strategies/article-detail/new-ills-no-pill-for-bankings-600-billion-headache.
³⁹ TrustArc, GDPR compliance status: A comparison of US, UK and EU companies, July 2018, https://info.trustarc.com/Web-Resource-2018-07-12-GDPR-ResearchReport_LP.html.
⁴⁰ Data from S&P Global Market Intelligence, accessed October 26, 2018.
⁴¹ Ibid.
⁴² Steve Boms, “US way behind the curve in open banking,” American Banker, September 21, 2018, https://www.americanbanker.com/opinion/us-way-behind-the-curve-on-open-banking.
⁴³ Temenos Group, “Customer demand leads the way to digitalized banking in Asia-Pacific,” press release, July 17, 2018, https://www.temenos.com/en/news-and-events/news/2018/july/customer-demand-leads-the-way-to-digitalized-banking-in-asia-pacific/.
⁴⁴ Angus Ross and Val Srinivas, Accelerating digital transformation in banking: Findings from the global consumer survey on digital banking, Deloitte Insights, September 28, 2018, https://www2.deloitte.com/insights/us/en/industry/financial-services/digital-transformation-in-banking-global-customer-survey. html.
⁴⁵ How JPMorgan is preparing for the next generation of consumer banking, CB Insights, August 23, 2018, https://www.cbinsights.com/research/jpmorgan-chase-consumer-banking/.
⁴⁶ Global Fintech Report Q2 2018, CB Insights, July 19, 2018, https://www.cbinsights.com/reports/CB-Insights_Fintech-Report-Q2-2018. pdf?utm_campaign=fintech-q2_2018-07&utm_medium=email&_hsenc=p2ANqtz-8OwH7VPEAakBqI-ou_6NA7vyj_aNW6GvNRYB417BWe-rqv0kOqHX13TbjYdn7u0age-w_Jw1N_m3qltlqGY6eGfYvDQTEomqjht_ipOPZzDpZ-Ztk&_hsmi=64556313&utm_content=64556313&utm_source=hs_ automation&hsCtaTracking=0ee392f4-0184-4c54-806b-93faf621621d%7C1e0377d6-5954-4779-a555-2f7adab5d2e9.
⁴⁷ John Detrixhe, “Americans are splurging on personal loans thanks to fintech startups,” Quartz, July 24, 2018, https://qz.com/1334899/personal-loans-are-surging-in-the-us-fueled-by-fintech-startups/.
⁴⁸ Kinsey Grant, “Big banks’ shift to digital could bring these significant shareholder benefits,” TheStreet, May 22, 2018, https://www.thestreet.com/investing/ stocks/big-banks-shift-to-digital-could-bring-these-significant-shareholder-benefits-14597432.
⁴⁹ Angus Ross and Val Srinivas, Accelerating digital transformation in banking: Findings from the global consumer survey on digital banking.
⁵⁰ 2Q 2018 Middle Market Indicator: Strong performance; mounting concerns, National Center for the Middle Market, July 18, 2018, https://www. middlemarketcenter.org/Media/Documents/MiddleMarketIndicators/2018-Q2/FullReport/NCMM_MMI_Q2_2018_FINAL.pdf.
⁵¹ Louise Bowman, “US regional banks gear up for M&A bonanza,” Euromoney, July 23, 2018, https://www.euromoney.com/article/b1965794qm479g/us-regional-banks-gear-up-for-mampa-bonanza.
⁵² David Reid, “Europe’s bank bosses all want the same thing—fewer banks,” CNBC, August 30, 2018, https://www.cnbc.com/2018/08/30/europes-bankers-want-fewer-banks-and-forecast-ma-for-sector.html.
⁵³ Martin Arnold, Patrick Jenkins, and Laura Noonan, “Banking M&A: The quest to create a European champion,” Financial Times, July 10, 2018, https://www. ft.com/content/cd640614-78a1-11e8-8e67-1e1a0846c475.
⁵⁴ Ibid.
⁵⁵ Walter Yao, “Asian banks search for yield overseas,” Federal Reserve Bank of San Francisco, Pacific Exchange blog, February 22, 2018, https://www.frbsf. org/banking/asia-program/pacific-exchange-blog/asian-banks-search-for-yield-overseas/.
⁵⁶ MUFG Report 2018, Mitsubishi UFJ Financial Group, July 2018, https://www.mufg.jp/english/ir2018/pdf/all.pdf.
⁵⁷ Tricumen data set.
⁵⁸ “The July 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices,” Federal Reserve, July 2018, https://www.federalreserve.gov/data/sloos/ sloos-201807.htm.
⁵⁹ OCC, Semiannual Risk Perspective, National Risk Committee, spring 2018. https://www.occ.gov/publications/publications-by-type/other-publications-reports/semiannual-risk-perspective/semiannual-risk-perspective-spring-2018.pdf.
⁶⁰ “It’s official: US leveraged loans are a $1 trillion market,” LeveragedLoan.com, April 30, 2018, http://www.leveragedloan.com/official-us-leveraged-loans-1- trillion-market/.
⁶¹ Anthony Gambardella, Custody, Asset & Securities Services industry in the US, IBISWorld Industry Report 52399, August 2018.
⁶² Finbarr Bermingham, “2017 was the decade’s worst year for trade finance,” Global Trade Review, July 3, 2018, https://www.gtreview.com/news/global/2017- was-the-decades-worst-year-for-trade-finance/.
⁶³ Alisa DiCaprio, Steven Beck, and Kijin Kim, “Trade finance gaps continue despite fintech breakthroughs,” BRINK Asia, December 20, 2017, https://www. brinknews.com/asia/trade-finance-gaps-continue-despite-fintech-breakthroughs/.
⁶⁴ Hayley McDowell, “BNP Paribas completes fund transaction using blockchain,” Global Custodian, January 10, 2018, https://www.globalcustodian.com/bnp-paribas-completes-fund-transaction-using-blockchain/.
⁶⁵ Joe Parsons, “BNP Paribas Securities Services revenues boosted by custody mandates,” Global Custodian, August 1, 2018, https://www.globalcustodian. com/bnp-paribas-securities-services-revenues-boosted-custody-mandates/.
⁶⁶ Alison Coleman, “The banks wanted to sink this forex fintech: Now they’re vying for its technology,” Forbes, October 12, 2017, https://www.forbes.com/sites/ alisoncoleman/2017/10/12/the-banks-wanted-to-sink-this-forex-fintech-now-theyre-vying-for-its-technology/#1f8510fc563d.
⁶⁷ Alfred Liu and Emily Cadman, “Banks are facing a squeeze from Trump’s trade war,” Bloomberg, July 15, 2018, https://www.bloomberg.com/news/ articles/2018-07-15/banks-funding-9-trillion-face-squeeze-from-trump-s-trade-war.
⁶⁸ Finbarr Bermingham, “Despite tensions, trade finance demand in Asia soars,” Global Trade Review, June 6, 2018, https://www.gtreview.com/news/asia/ despite-tensions-trade-finance-demand-in-asia-soars/.
⁶⁹ Deutsche Bank, The road to real-time treasury, white paper, August 14, 2018, http://cib.db.com/docs_new/Realtimetreasurywhitepaper.pdf.
⁷⁰ “Citigroup is the latest bank to offer crypto custody: Here’s how it will affect the market,” CCN.com, September 10, 2018, https://www.ccn.com/citigroup-is-the-latest-bank-to-offer-crypto-custody-heres-how-it-will-affect-the-market/.
⁷¹ “Deutsche Bank’s approach to digital: Value your data, feed the fintechs and reach for the cloud,” IBS Intelligence, February 9, 2018, https://ibsintelligence. com/ibs-journal/deutsche-banks-approach-digital-value-data-feed-fintechs-reach-cloud/.
⁷² Ibid.
⁷³ Ibid.
⁷⁴ Val Srinivas and Richa Wadhwani, Modernizing transaction banking: Service externalization and the right technology portfolio, Deloitte Center for Financial Services, October 10, 2017, https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/financial-services/sea-fsi-modernizing-transaction-banking.pdf.
⁷⁵ Ryan W. Neal, “State Street uses AI to provide a newsfeed relevant to portfolio holdings,” Investment News, July 19, 2018, https://www.investmentnews.com/ article/20180719/FREE/180719901/state-street-uses-ai-to-provide-a-newsfeed-relevant-to-portfolio.
⁷⁶ Jason Goldberg et al., U.S. Large-Cap Banks: U.S.-Based Investment Banks 2Q18 Summary and Outlook, Barclays Equity Research, July 23, 2018.
⁷⁷ Atilla Muze, “Cross-border M&A soars to new record,” Dealogic, September 10, 2018, https://www.dealogic.com/insight/cross-border-ma/.
⁷⁸ Alevizos Alevizakos et al., Investment Banking Monitor Quarterly, Q2 2018, HSBC Global Research, July 11, 2018.
⁷⁹ Attracta Mooney, “MiFID II rules prompt ‘huge change’ in research marketplace,” Financial Times, September 16, 2018, https://www.ft.com/content/6ff7f30e-ea59-3e57-bfee-1e136ede6c53.
⁸⁰ Laura Noonan, “MiFID II impact on investment banking ‘exaggerated’,” Financial Times, December 6, 2017, https://www.ft.com/content/713fb392-da7c-11e7- a039-c64b1c09b482.
⁸¹ Hugh Son and Dakin Campbell, “Wall Street’s big banks are waging an all-out technological arms race,” Bloomberg, April 5, 2018, https://www.bloomberg. com/news/features/2018-04-05/wall-street-s-big-banks-are-waging-an-all-out-technological-arms.
⁸² Liz Hoffman, “How banks lost the battle for power on Wall Street,” Wall Street Journal, September 7, 2018, https://www.wsj.com/articles/how-banks-lost-the-battle-for-power-on-wall-street-1536312634.
⁸³ Paul J. Davies, “The new winners and loser in investment banking,” Wall Street Journal, April 15, 2018, https://www.wsj.com/articles/the-new-winners-and-losers-in-investment-banking-1523716381.
⁸⁴ Ibid.
⁸⁵ John Carney, “Radical changes are on the way for investment banks,” Wall Street Journal, June 2, 2016, https://www.wsj.com/articles/radical-changes-are-on-the-way-for-investment-banks-1464904490.
⁸⁶ Adrian D. Garcia, “JPM, big banks spend billions on tech but innovation lags,” Bankrate, July 27, 2018, https://www.bankrate.com/banking/jpm-big-banks-spend-billions-on-tech-but-theyre-still-laggards/.
⁸⁷ Robin Wigglesworth and Joe Rennison, “Bond trading: Technology finally disrupts a $50tn market,” Financial Times, May 8, 2018, https://www.ft.com/ content/67e48ae4-4fab-11e8-9471-a083af05aea7.
⁸⁸ Telis Demos, “Machines took over the stock market. Next up, bonds,” Wall Street Journal, October 18, 2017, https://www.wsj.com/articles/traders-vs-bots-moves-to-the-corporate-bond-market-1508327100.
⁸⁹ Robing Wigglesworth and Joe Rennison, “Bond trading: Technology finally disrupts a $50tn market.”
⁹⁰ Terry Flanagan, “AI in fixed income,” Markets Media, June 7, 2018. https://www.marketsmedia.com/ai-in-fixed-income/.
⁹¹ GFT Technologies, “Investment banks welcome public cloud adoption for innovation first, not cost reduction,” press release, July 11, 2018, https://www.gft. com/int/en/index/company/newsroom/press-r eleases/2018/investment-banks-welcome-public-cloud-adoption-for-innovation-first-not-cost-reduction/.
⁹² “PayPal blows past 250M active accounts,” N: PYMNTS.com, September 6, 2018, https://www.pymnts.com/mobile-applications/2018/paypal-users-active-accounts-money-transfers/.
⁹³ Elizabeth Weise, “Amazon opens its grocery store without a checkout line to the public,” USA Today, updated January 22, 2018, https://www.usatoday.com/ story/tech/news/2018/01/21/amazon-set-open-its-grocery-store-without-checkout-line-public/1048492001/.
⁹⁴ Maggie Zhang, “China moves further towards cashless society as payment giants Alipay, WeChat Pay gain ground,” South China Morning Post, updated January 25, 2018, https://www.scmp.com/business/companies/article/2130400/china-moves-further-towards-cashless-society-payment-giants.
⁹⁵ Juniper Research, “Contactless payments to represent 1 in 3 in-store transactions globally by 2020,” press release, July 30, 2018, https://www. juniperresearch.com/press/press-releases/contactless-payments-to-represent-1-in-3-in-store.
⁹⁶ Olaf Storbeck, “Airlines to launch payments system to rival credit card groups,” Financial Times, May 6, 2018, https://www.ft.com/content/ba33859a-4f1d- 11e8-a7a9-37318e776bab.
⁹⁷ Ingrid Lunden, “Adyen aims for a $1B IPO, valuing the payments startup at up to $8.3B when it lists on June 13,” TechCrunch, June 13, 2018, https://tcrn. ch/2J9GmAY.
⁹⁸ Rishi Iyengar, “PayPal buys Swedish startup iZettle for $2.2 billion,” CNN, May 18, 2018, https://money.cnn.com/2018/05/18/technology/paypal-izettle-deal/ index.html.
⁹⁹ Bill Hardekopf, “This week in credit card news: Consumers love credit card rewards; are we running up too much debt?” Forbes, July 27, 2018, https:// www.forbes.com/sites/billhardekopf/2018/07/27/this-week-in-credit-card-news-consumers-love-credit-card-rewards-are-we-running-up-too-much-debt/#794579bb26a4.
¹⁰⁰ Visa, “Visa Acquires Fraedom to Expand Its Global Commercial Offerings,” press release, February 9, 2018, https://usa.visa.com/about-visa/newsroom/ press-releases.releaseId.15451.html.
¹⁰¹ Emily Bary, “Visa and Mastercard earnings: More than just payments at play,” MarketWatch, July 25, 2018, https://www.marketwatch.com/story/visa-and-mastercard-earnings-more-than-just-payments-at-play-2018-07-23.
¹⁰² Federal Reserve, The Federal Reserve Payments Study: 2017 Annual Supplement, January 25, 2018, https://www.federalreserve.gov/paymentsystems/2017- December-The-Federal-Reserve-Payments-Study.htm.
¹⁰³ Stacy Cowley, “Banks and retailers are tracking how you type, swipe and tap,” New York Times, August 13, 2018, https://www.nytimes.com/2018/08/13/business/ behavioral-biometrics-banks-security.html.
¹⁰⁴ JPMorgan Cazenove, Global Wealth Management: Best banking business – undervalued by the market, May 2018.
¹⁰⁵ Hugh Son, “JP Morgan to unveil new investing app with an eye-catching, disruptive price: Free,” CNBC, updated August 23, 2018, https://www.cnbc. com/2018/08/21/jp-morgan-to-unveil-new-investing-app-with-an-eye-catching-disruptive-price-free.html.
¹⁰⁶ JPMorgan Cazenove, Global Wealth Management: Best banking business – undervalued by the market.
¹⁰⁷ Samuel Steinberger and Davis Janowski, “In pursuit of new customers, JPMorgan offers free trades,” Wealthmanagement.com, August 21, 2018, https://www. wealthmanagement.com/technology/pursuit-new-customers-jpmorgan-offers-free-trades.
¹⁰⁸ 2018 Wealth Tech Trends to Watch, CB Insights, June 2018.
¹⁰⁹ “Resurgent trading helped global exchanges’ revenues hit record in 2017: report,” Reuters, June 12, 2018, https://www.reuters.com/article/us-global-markets-exchanges/resurgent-trading-helped-global-exchanges-revenues-hit-record-in-2017-report-idUSKBN1J80PB.
¹¹⁰ Intercontinental Exchange, “Intercontinental Exchange Announces Bakkt, a Global Platform and Ecosystem for Digital Assets,” press release, Business Wire, August 3, 2018, https://www.businesswire.com/news/home/20180803005236/en/Intercontinental-Exchange-Announces-Bakkt-Global-Platform-Ecosystem.
¹¹¹ tZERO and BOX, “tZERO and BOX Digital Markets Sign Deal to Create Joint Venture,” Business Wire, June 19, 2018, https://www.businesswire.com/news/ home/20180619005897/en/tZERO-BOX-Digital-Markets-Sign-Deal-Create.
¹¹² Jamie Smyth, “ASX chooses blockchain for equities clearing,” Financial Times, December 7, 2017, https://www.ft.com/content/c9b86e8e-dae4-11e7-a039- c64b1c09b482.
¹¹³ Robin Wigglesworth and Joe Rennison, “Bond trading: Technology finally disrupts a $50tn market.”
¹¹⁴ Greenwich Associates, “MiFID II Poised to Increase Electronic Trading, Tighten Spreads in European Fixed-Income Market,” press release, March 15, 2018, https://www.greenwich.com/press-release/mifid-ii-poised-increase-electronic-trading-tighten-spreads-european-fixed-income.
¹¹⁵ Michelle Price, “U.S. derivatives regulator proposes more flexible swaps trading rules,” Reuters, April 26, 2018, https://www.reuters.com/article/us-usa-cftc-derivatives/u-s-derivatives-regulator-proposes-more-flexible-swaps-trading-rules-idUSKBN1HX0D8.
¹¹⁶ J. Christopher Giancarlo and Bruce Tuckman, Swaps regulation version 2.0: An assessment of the current implementation of reform and proposals for next steps (white paper), Commodity Futures Trading Commission, April 26, 2018, https://www.cftc.gov/sites/default/files/2018-04/oce_chairman_ swapregversion2whitepaper_042618.pdf.
¹¹⁷ Tommy Wilkes, “Forex trading up sharply in 2018 as volatility returns,” Reuters, February 15, 2018, https://www.reuters.com/article/uk-forex-volumes/forex-trading-up-sharply-in-2018-as-volatility-returns-idUSKCN1FZ1DL.
¹¹⁸ “Inside Nasdaq: Bill Dague, Head of Alternative Data,” Nasdaq, June 11, 2018, https://business.nasdaq.com/marketinsite/2018/Corp/Inside-Nasdaq-Bill-Dague- Head-of-Alternative-Data.html.
¹¹⁹ Ibid.
¹²⁰ R. Jesse McWaters and Rob Galaski, The new physics of financial services: Understanding how artificial intelligence is transforming the financial ecosystem.