Client

International Sector Foresight Scan

Ian Ivey & Gudrun Strohmeier

NEXT

April 2010

Finance Sector: International Sector

Foresight Scan & Small Nation

Scenarios

Ian Ivey & Gudrun Strohmeier

April 2010

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Contents

The Brief .......................................................................................................................... 4

Introduction ..................................................................................................................... 5

Executive summary .......................................................................................................... 6

The Foresight Context ....................................................................................................... 8

Major Trends Impacting on the Sector ............................................................................ 14

The Shackles of Tradition ..................................................................................................... 14

The Mobile Threat................................................................................................................ 15

New Models ......................................................................................................................... 15

Changing Customers ............................................................................................................ 17

Trust Trends ......................................................................................................................... 17

Future Shaping Trends ......................................................................................................... 18

10 Banking Trends for 2010 ................................................................................................. 18

Technology Trends ......................................................................................................... 20

Online Banking Trends ......................................................................................................... 20

E-commerce Trends ............................................................................................................. 22

M-Commerce & M-Banking Trends ..................................................................................... 26

Transaction Trends............................................................................................................... 30

‘Smart Systems’ .................................................................................................................... 34

Cashless Systems .................................................................................................................. 35

Service Trends ...................................................................................................................... 37

Wildcard Developments ...................................................................................................... 38

Consumer Trends ........................................................................................................... 40

Worlds 1 to 3 ........................................................................................................................ 40

Value Propositions - Changing Consumer ‘Wants’ and ‘Needs’ .......................................... 41

Consumer Megatrends ........................................................................................................ 45

Age Defiance ........................................................................................................................ 45

Fascination ........................................................................................................................... 48

Egoism .................................................................................................................................. 49

Global Living ......................................................................................................................... 51

Sustainability ........................................................................................................................ 53

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Health & Wellness ................................................................................................................ 55

Gifts of Time ......................................................................................................................... 58

Drivers of Change ................................................................................................................. 59

Social Networks and Communities of Interest .................................................................... 62

Bypassing Tradition .............................................................................................................. 63

Commercial and Institutional Response Trends .................................................................. 64

Four Scenarios for the Financial Sector in small island nations such as Jamaica................ 66

Setting the Context .............................................................................................................. 66

The Scenarios ....................................................................................................................... 66

Using the Scenarios .............................................................................................................. 75

Final Comment ............................................................................................................... 76

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The Brief

The Brief for this project required NEXT to undertake a global foresight scan for a financial institution based in a small island nation in the Caribbean and to develop alternative scenarios that would be used in a strategic planning project managed by a NEXT Associate Group

The foresight scan focused on identifying the major drivers shaping the future of the financial sector over the next 5 – 10 years at the time it was undertaken. The global scan included areas such as:

• Technology trends that are re-shaping the sector. • Demographic and consumer trends and potential impacts.

Following completion of the scan, four small island nation scenarios were developed to help frame the strategic thinking and planning process.

(This document was edited and partially revised in February, 2015).

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Introduction

Advances in technology coupled with changing consumer demographics and lifestyles are changing the face of many traditional sectors. The traditional travel agent has almost disappeared because of the advent of international online services that cater to almost every aspect of a traveller’s needs. The services are almost instantaneous, multifaceted and considered safe to use by the majority of travellers, particularly in the developed world.

Now the global fashion sector is coming under threat as increasing numbers of designers move from the traditional expensive face-to-face fashion show to online models that connect directly with discreet groups of specialist customers who they can supply with individually customised solutions. Styleshake.com and RentTheRunway.com are two particularly innovative examples of this rapidly growth trend. During March 2010 the closure of over 420 high street fashion outlets by major brands such as Abercrombie and Fitch and French Connection over the next several years was announced and part of the reason is the changing market dynamics in the sector (1).

These are just two examples that reflect the rapid change incumbent players in many sectors are facing today and which will change the space in which they are used to operating in ways that many have not thought could ever be possible. That change is being driven by innovative new technology driven business models and shifting consumer wants and needs.

The banking and finance sector still remains largely highly traditional and is based heavily upon traditional views of assets and customer focuses. Physical assets are considered to be an essential part of collateral in a world where their relative importance is diminishing and intellectual capital is becoming the most valuable asset. This has been illustrated by the phenomenal growth in value of knowledge-based companies such as Microsoft, SAP, Google, Facebook, and PayPal. Venture Capital groups such as Sequoia Capital that backed these ventures in recent years have done exceptionally well. This contrasts with those banks that invested heavily in the traditional mortgage market, particularly in the USA, and which lost vast amounts of money as those assets crashed in value in recent years.

The recent global recession has been like a giant tsunami that has reshaped the world as it recedes. Some things have disappeared for ever, others remain but have been changed in form, and others are being built from new.

Most change within a sector is driven by changes in other sectors. In strategic planning exercises this phenomenon needs to be taken into account.

1 http://www.risnews.com/ME2/dirmod.asp?sid=&nm=&type=MultiPublishing&mod=PublishingTitles&mid=2E3DABA5396D4649BABC55BEADF2F8FD&tier=4&id=C6AE8EAAFC4242409CD15DE14C7E1CBC

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Executive summary

This document is by no means an exhaustive compilation of factors that are reshaping the space in which traditional players in the banking and financial sector will need to operate in future years. It is a compilation of trend reports and leading edge developments that illustrate the way the sector is evolving and which provide a basis for developing alternative scenarios for the future, both for Jamaica within a global context and a financial services business. The major drivers shaping the future of the sector are summarised in Figure 1.

Figure 1: The main drivers of change reshaping the banking and finance sector

Based upon these drivers of change four alternative futures or scenarios for the future of s small island nation have been developed which provide a context for a financial sector client in that nation to develop their own preferred future scenario(s) and strategic responses.

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Figure 2: Overview of the differentiators between four small island nation future scenarios

The detail behind the contentions shown in Figures 1 and 2 is contained in the main body of this report.

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The Foresight Context

Foresight studies are a valuable tool in the strategic planning process. They provide a way of developing long-term views of how a sector or country might change over time.

As has been obvious to everyone in recent times, the state of the global banking and finance sector impacts upon just about every aspect of our lives and how the world we live in is evolving. It impacts across sectors, within sectors, in our private lives, in our business lives, upon governments – everywhere. In order to understand the widespread impacts that changes in the banking and finance sector are having on economies and societies, it is useful to view it within the context of seven major ‘Tsunamis of Change’ that are re-shaping the world.

Figure 3: The 7 Tsunamis of Change (2)

As mentioned in the introduction, in the wake of a tsunami some things have disappeared forever, other things have changed, and many things need to be built anew.

Within each of the ‘7 Tsunamis’ shown in Figure 3 there are numerous trends, discontinuities, and uncertainties (TDUs) evolving at any one point in time:

• Trends are things that are changing along a relatively predictable pathway – such as ageing populations.

• Discontinuities are things that are likely to change the shape of the future in a way that is quite different to how things have been in the past – such as the advent of the cell phone.

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The 7 ‘Tsunamis of Change’

Tomorrow’s World

Digital Convergence

Technology DNA

Brown World Green World

Knowledge as a Value

Paradox

Global Glocal

Tribes & Transitions

Politics Economy

Environment Technology

ScienceSociety

Crises

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• Uncertainties are areas where we can see that changes are likely to happen but we have no clear idea how and to what extent – such as the potential impacts of a hurricane.

In the context of this report, the banking and finance sector can be associated with each of the seven Tsunamis in the following way:

• Tsunami 1: Digital Convergence – Digitalisation is driving the convergence of almost everything around the world and is becoming a fundamental driver of changes in the shape of the future banking and finance sector.

• Tsunami 2: Technology DNA – The blurring of boundaries between technological and biological systems is opening up a whole new range of sector opportunity areas.

• Tsunami 3: Global Glocal – ICT is facilitating the connection of almost everyone almost everywhere and increasingly provides a platform for companies and individuals to access knowledge, products and, derivatives from almost any part of the world.

• Tsunami 4: Tribes & Transitions – New ‘tribes’ and personal relationships are complementing and sometimes substituting for traditional tribal, familial, and individual relationships. They are changing the way we do things and how we feel about what we want, need, and expect. Virtual communities are a huge growth area.

• Tsunami 5: Brown World Green World – A sustainable future depends upon a connection and interaction with the environment within which the sector operates. If the environment suffers, the banking and finance sector is also likely to suffer as a result of the impacts on many other sectors.

• Tsunami 6: Knowledge as a Value – Knowledge is now the world’s most valuable asset and people are increasingly focusing on how to extract greater value from traditional products and services by using knowledge-based approaches.

• Tsunami 7: Paradox – Humans often do things that don’t make sense – like eat (obesity) or starve (bulimia) themselves to death. Trying to understand such paradoxes is becoming an area that is of increasing in importance for the banking and finance sector as the future consequences of such paradoxes are likely favour some areas and penalise others.

This report is not intended to provide a view of everything that is happening or likely to happen in the global, regional, or local banking and finance sector. It has been compiled to stimulate thinking about how the global sector is likely to evolve over the next ten years or so and to help identify some of the associated threats and opportunities to a sector stakeholder in a country such as Jamaica within a long-term context.

The big challenge is to develop a consensus view of a long-term ‘destination’ that a country, sector, or organisation can use as the basis for long-term planning and resource allocation. NEXT has developed a foresight-based ‘thinking model’ that facilitates the development of such a consensus. An overview of that model is shown in Figure 4.

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Figure 4: The foresight model used to support the right sort of thinking approach towards future opportunities (3)

In essence the illustration in Figure 4 can be explained as follows:

• Forecast Model thinking is based on the use of historical patterns and data and developing forecasts for the future derived from both. The danger of such thinking is that it fails to identify key discontinuities that alter the shape of future markets. A good example is how electronic music downloads on the Internet led to a rapid decline in the sales of CDs and other hard copy delivery formats – and the established players in the global music industry failed to develop a strategy to cope with such rapid change.

• Foresight Model thinking is based upon developing a view of how future markets may appear 5-10 years from now and involves developing a well-researched view of the potential impacts that a range of trends, discontinuities, and uncertainties could have. Such views are often called scenarios. By ‘backcasting’ from these scenarios, it becomes possible to develop strategies that focus on developing solutions for a range of niche growth opportunities associated with such scenarios e.g. solutions for ageing populations which are now characterising virtually all developed countries and many developing countries.

By using such a model it becomes possible to avoid making decisions that have been developed in the wrong thinking context. A recent example of thinking in the wrong context was the way banks handled high risk mortgage derivatives in a way that defied logic. This resulted in a major global financial crisis. From a foresight perspective, the development of

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more sustainable solutions to deal with the longer term customer driven wants and needs would have been a wiser and more effective approach.

To develop such solutions it is important to have a ‘destination’ (a long-term view of up to 10 years is typical), developed through a mutual consensus building approach, as the basis for effectively identifying key priority focus areas that shape the shorter term strategic decisions which need to be made today. Figure 5 illustrates the need to align all the key stakeholders (represented by the green triangle) so they are all working towards reaching the same agreed ‘destination’ and achieving the associated outcomes necessary to promote national economic and social progress.

Figure 5: A context for relating a long-term ‘destination’ to stakeholder alignment and the achievement of outcomes (4)

To facilitate such a long-term strategic planning process, built around a foresight ‘thinking approach’ that moves a business or organisation towards a mutually agreed long term ‘destination’, NEXT has developed the 3 Horizons framework as shown in Figure 6.

This 3 Horizons framework provides a simple way of relating long-term preferred national or sector positioning to medium-term strategic planning and short-term operational planning approaches. The 3 Horizons can be described as follows:

• Horizon 3 – A long-term view of a preferred ‘destination’ for a business or organisation which is articulated in a Horizon 3 context of up to 10 years (maybe even longer in the case of infrastructure) into the future. It should be noted that developing the Horizon 3

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context is not a one-off exercise. It requires an on-going commitment towards its updating and revision as new information and knowledge comes to hand. It is a dynamic continuous long-term strategic planning process.

• Horizon 2 – At this level the focus is on the development of 3 – 5 year strategic plans that have defined goals and specified timeframes for implementation.

• Horizon 1 – At this level the focus is on annual operational and business plans that facilitate short-term implementation processes which are formulated within the medium and long-term strategic context.

Figure 6: The NEXT ‘3 Horizons’ strategic planning framework (5)

Compared to traditional strategic planning exercises, the key difference in this approach is that this model is not driven by historical patterns and perspectives but from a Horizon 3 perspective i.e. ‘backcasting’. This means that the outcomes achieved are more focussed on advancing a country, sector, or organisation towards a preferred future ‘destination’ rather than being held back by linkages that only have relevance in a historical context and which can actually work against achieving economic and social progress.

To use the 3 Horizons framework effectively, there is a need to develop scenarios that reflect various alternative futures for the sector within a global context and then to identify a set of scenarios for a business within a sector and country that best matches the emerging global niche opportunities associated with those global sector scenarios. An overview of a framework under which such an approach can be pursued is shown in Figure 7. It is within this overall foresight context that future opportunity areas for the Client need to be identified.

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Figure 7: The foresight framework for matching global sector scenarios with individual business opportunity scenarios (6)

The following review of the global banking and finance sector draws upon a wide range of sources and provides examples of key trends in the sector with a focus on those which are shaping the 10 year Horizon 3 space.

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Major Trends Impacting on the Sector

In this section, a brief overview of the major drivers shaping the future of the international banking and finance sector is presented. Greater detail will be added in the sections that follow in this report.

The Shackles of Tradition

• According to Dr Patrick Dixon, an internationally renowned Futurist, the boundary between banks and telecommunications companies is blurring. In future there will be no need for smart cards and credit cards or traditional counter banking and loans departments. Everything will be done through increasingly sophisticated mobile phones that will become more like personal mobile interfaces (7).

• One of the biggest challenges facing the traditional banking sector is that they have not becoming more efficient in the way they do things and much of the reason relates to a reluctance to embrace change.

• Banks are rapidly losing their monopoly when it comes to being centres for money transmission i.e. facilitating the transfer of funds from one party to another, and also for distributing retail products. In both areas smarter more efficient players using high technology systems are taking away increasing amounts of business (8). This trend is likely to accelerate in future years.

• The traditional banking model internationally has been associated with what one sector observer describes as four factors that often create irresponsible businesses (in the eyes of their customers), namely:

o Believing that you are being protected from the consequences – such as the belief that some US banks had that they are ‘too big to fail’. As a result the sector became overconfident and took unacceptable risks with consequences that reverberated around the world.

o Building a business model that depends upon customer ignorance - ‘Banks and insurance companies have made plenty of profit in recent decades on the principle that their customers don’t understand the complex details behind some of the products they buy.’ When customers discover they have been ‘sold a lemon’ and see executives receiving huge bonuses, they become angry and develop a negative attitude about the institution that treated them in this way and so search for alternatives.

o Becoming so absorbed in the micro-reality of your business so you fail to see the bigger picture – A real challenge for all larger corporate groups as the focus on micro-issues tends to become part of the corporate culture rather than progressing towards bold well-developed longer term visions.

7 http://www.frenzyphones.com/2010/04/02/mobile-phones-and-banks-banking-transactions-future-trends/ 8 http://www.thefinancialexpress-bd.com/search_index.php?news_id=38&page=detail_news

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o Believing the reality that is most comfortable to believe – Which almost destroyed the US car manufacturing industry because they just could not see that US consumers would prefer to buy more fuel efficient cars when global energy prices skyrocketed. They didn’t ask, just assumed!

• What many incumbents have considered as being ‘indisputable’ is now becoming ‘disputable’ in the wake of the financial crisis scenario and a new set of norms and values are coming into play.

• More aggressive and visionary competitors rapidly gain a competitive advantage over incumbents that continue to follow any or all of the four approaches described above (9).

• This is leading to the emergence of quite unique socially responsible business models in many sectors and many parts of the world. There are a number of highly successful new companies evolving in a space that many corporations have failed to embrace.

The Mobile Threat

• Everywhere in the world, particularly in developing countries, mobile banking and m-commerce is going to be a major threat to traditional banking groups if they don’t embrace the technology and take advantage of the associated opportunities. Many of the leading groups internationally, such as M-PESA (10) in Kenya and DOMOCO in Japan, are not banks but mobile telecommunications companies. Their forecast growth rates are dramatic.

• Major credit card companies such as American Express, Visa, Access, and Mastercard, are grappling with ways of coping with a shift to mobile financial services as it represents a fundamental threat to their business model. Even moves towards smart and contactless cards are only likely to be interim measures as they in turn are likely to become redundant as totally electronic mobile systems increasingly take over.

New Models

• There are numerous new business models emerging that are beginning to grow significantly and which will take an increasing share of business away from traditional banks and finance institutions, unless they can find a way to meet the challenge.

• The big shift is away from face-to-face banking to online. • Online and real world micro-financing businesses which are catering to a market

area that has been largely neglected by the traditional sector and that is business finance, in particular for small and medium sized businesses. In developed countries

9 http://www.environmentalmanagementnews.net/storyview.asp?storyid=1035470 10 http://www.mitpressjournals.org/doi/abs/10.1162/itgg.2009.4.2.77?cookieSet=1&journalCode=itgg

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these make up about 95% of all businesses. In less developed countries the level can be as low as 50% - but with a great potential to grow when governments adopt policies that favour strong economic and social advancement - such as has been the case in Botswana under its 2016 long-term National Strategic Plan.

• Traditional banks have shunned supporting innovative and entrepreneurial private sector development and tended to lend on assets (mortgages and consumer items such as cars) and well-established traditional conglomerates that are viewed as being low risk but, as in the case of Kodak, can also easily fail if they lose their relevance in the marketplace.

• Such a model is based on hindsight, not foresight, and can be a high risk way to do business because often traditional businesses fail to adapt fast enough to change, traditional assets fail to increase in value and, as happened during the recent global financial crisis, can actually decline in value.

• New emerging models include online social lending groups such as Kiva and peer-to peer lending groups – almost like an online credit union but less formal. It was said they may have 10% of the retail lending and financial market by the end of 2010 (11).

• Social business models are being adopted by some major corporate groups. One excellent example is a 50/50 joint venture in India between Groupe Danone and the Grameen bank (famous for its micro-loan programme in India) which created a new social business model. TransForms Corporation in America is another emerging example of this type of model which operates as a ‘for benefit’ enterprise rather than being primarily profit driven. It is in the wall decoration manufacturing business. The John Lewis Partnership PLC in the UK is 100% owned by its 69,000 employees. It is the largest department store chain in the UK. Interface Inc. is a flooring company and had a turnover of US$ 1.1 billion in 2007. It aims to have zero waste and derive 100% of its energy from renewable sources by 2020 (12).

• This is a trend that is expected to grow rapidly in a post-recession world where long-term sustainability (in all its senses including the social aspect) is shaping the way companies do business.

• Other new models include highly efficient smart transaction processing businesses that can offer the service to anyone, not just banks.

• In addition there are numerous non-cash currencies that have become important outside the banking system including airpoints, points-based loyalty schemes, and virtual currencies such as the Linden on Second Life which has real world currency alignment through virtual forex systems as well as the now (in)famous Bitcoin.

• Giant retail group, Wal-Mart, has entered into the financial services market and has begun offering customer a range of services including cheque cashing for a flat rate

11 http://www.techandfinance.com/index.php?/site/gartner_on_threats_to_traditional_banking_and_wealth_management/ 12 http://www.strategy-business.com/article/enews022609

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fee. Traditional banking groups and credit unions are concerned at how further moves by Wal-Mart might impact on their business models (13).

• Wal-Mart is just one example amongst hundreds internationally that illustrate growing threats to the traditional sector players.

Changing Customers

• The commercial focus used to be ‘B2C’ (business to customer) but now it is ‘C2B’ (customer to business). In the developed world in particular, customers increasingly have the power to determine which businesses succeed or fail through the choices they make as they have many more today that has traditionally been the case.

• Increasingly, those choices come through electronic networks on a global scale and extend beyond national boundaries. An excellent example is the way PayPal is now being used by many small Caribbean businesses to facilitate credit card transaction processing as local banks have been slow to provide such services and when they do (such as Scotia Bank in Jamaica, Trinidad and Tobago and The Bahamas), the fee levels are extremely high by international standards.

• There are many factors that influence consumer decisions which are not based purely on monetary considerations and these are changing their expectations and loyalties.

• Value propositions are increasingly being shaped by customer perceptions of their ‘wants’ and ‘needs’ and understanding how these are shaped and evolve is becoming a critical part of commercial strategic planning.

• Sustainability is becoming a major issue with consumers – in its biggest sense. There are not only concerns about the future of the planet and its environment but also with regard to business relationships as customers want to be part of relationships that are for the long-term and do not expose them to the same risks that cost many of them a large part of their wealth during the recent global financial crisis.

• There is a new consumer pragmatism developing in many parts of the world which is focusing on less risk exposure and greater personal resiliency (14).

• Security is also becoming a major issue for customers and this is driving acceptance of a range of emerging electronic biometric technologies that prevent ‘phishing’ and other criminal activities associated with traditional and emerging bank transaction processing and management systems.

Trust Trends

• Sector commentator, Dinis Guardia, recently described seven trends shaping the future of the finance sector as follows (15):

13 http://www.creditcardnation.com/pdfs/180_Colloquium_RIT.pdf 14 http://www.strategy-business.com/article/00023?gko=bb11c 15 http://www.slideshare.net/dinisguarda/trust-7-trends-about-the-future-finance-dinis-guarda

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o Making trust the key asset – A challenge for the traditional banking and finance sector in the wake of the recent global financial crisis.

o A lot of space to grow – In the trading and investment area, especially online. o Web innovation and social banking – As consumers become ‘prosumers’

(see the consumer foresight section for more details). o Service and customer relationships are the key – A trend towards becoming

highly customer-centric. o Creating value and being able to justify it – Many customers are now making

decisions based upon information filtering through social networks. o Measuring data, behaviour targeting and acting quickly – All are becoming

increasingly important in the ‘post-tsunami’ environment. o Transparency – This is critical to secure that there is no ‘customer ignorance.

Future Shaping Trends

• Datamonitor recently released a report titled ‘10 Consumer Trends for Financial Services Providers in 2010 and Beyond’ (16). The ten trends primarily relate to the ‘post-tsunami’ financial sector landscape and are described as follows:

o Trend 1: 'Too big to fail' will drive consumers to the personal and the local (operators).

o Trend 2: Simplicity and certainty will drive the product selections of consumers in 2010.

o Trend 3: A renewed focus on ethics, sustainability and social responsibility will permeate both choice of product and choice of institution.

o Trend 4: Consumers in 2010 will rely on the actions and advice of their peers when making financial decisions.

o Trend 5: Customers will look beyond price to find value. o Trend 6: Trust and heritage will play an increasing role in brand choice. o Trend 7: Service must be innovative and flawless. o Trend 8: 2010 will see a return of the long-term perspective in consumers'

financial services choices. o Trend 9: Consumers will drop ‘vanilla’ products in their search for

individualism. o Trend 10: Consumers diverge in their desires: experiential banking for

bespoke issues and efficient pragmatism in their day-to-day banking.

10 Banking Trends for 2010

Whilst these are presented as short-term trends, there are some fundamental shifts occurring that are part of the post-recession tsunami reshaping process that is happening globally (17):

16 http://www.prnewswire.com/news-releases/reportlinker-adds-10-consumer-trends-for-financial-services-providers-in-2010-and-beyond-89700777.html

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• Lending begins again – But with more sophisticated technology-driven risk assessment systems and processes.

• Banks test mobile applications – Over 1 billion applications have been downloaded for the iPhone since it was launched and an increasing number are from (often non-traditional) financial institutions. Banks are likely to come under pressure from their customers to offer the same or better.

• Navigating the emerging markets – In China individuals save 30 – 40% of their earnings, about twice as high as in the USA.

• A regulatory voice – Steps will be taken to try and prevent the global financial melt-down from happening again.

• Fees under siege – Bank fees have become a major social issue in developed countries and banks that fail to address the issue are going to lose customers to alternative channels, such as Wal-Mart, which offer a better deal.

• Attention turns to P2P (peer to peer) payments – S1 and FIS announced that they have teamed with PayPal to offer banks mobile or online P2P solutions. Fiserv has started to offer a new P2P personal payments service to the 3,000-plus financial institutions in its online payment network.

• Outsourcing closer to home – Only 4% of bank CEOs are considering outsourcing overseas in the next few years.

• Managing finances gets social - Thanks to a combination of demographic trends, technology capabilities and uncertainty in the banking competitive arena, personal financial management (PFM) tools - online resources geared toward helping consumers and small businesses manage their finances - really took off in 2009 and are likely to present an even greater opportunity (or threat) to banks in 2010. PFM looks to be an ideal way for banks to improve customer experience and loyalty and to leverage their online banking platforms. Banks are in a prime position to help customers take more control over their finances. But PFM's growing popularity also raises the spectre of disintermediation. The leading PFM players, including Mint (acquired recently by Intuit), Geezeo and Yodlee, are simultaneously potential partners and competitors to banks.

• UnTARPed banks – US banks like Bank of America, Citigroup and Wells Fargo announced plans to repay tens of billions of dollars in federal bailout money. In part, the future state of the economy could depend on the outcomes of these moves.

• HR's moment in the spotlight - Human resources managers are playing a historic role in shaping the workforces that are going to lead the banking industry into 2010 and beyond.

17 http://www.banktech.com/management-strategies/showArticle.jhtml;jsessionid=UOZUTCVRLJC01QE1GHPCKHWATMY32JVN?articleID=222002892&pgno=1

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Technology Trends

• The greatest technological impact is in fact the convergence and integration of technologies.

• Devices that previously operated in isolation are rapidly becoming interconnected. There are many morphing processes happening at a rapid pace that are redefining what a technological-human interface is going to look like in future years. The Nokia ‘morph’ clip is worth viewing (18).

• This is leading to so called ‘ubiquitous connectivity’ that enables people to be connected and do things anytime anywhere.

• For example there are now home appliances that are linked into the Internet and can undertake a range of functions including linking into mobile phones (19).

• Cell phones are now incorporating a wide range of applications and Internet-linked functions and becoming more visual and multi-functional in every way. The pace of change is staggering.

Online Banking Trends

• Internet banking as an option is increasing rapidly around the world as consumers gain more confidence in the ‘trust’ factors associated with such technology-driven systems.

• For example, by the end of 2008 almost every Norwegian citizen had an Internet banking account which they used to pay accounts and manage their personal financial affairs. The average customer in that country paid 61 bills a year through their Internet accounts.

• The CEO of NCR in the USA says that online and mobile banking is now advancing beyond being mainstream and becoming mainstay for the banking and finance sector. This is happening in both developed and developing countries.

• The Internet has become ‘female’ globally as the number of women using the Internet recently exceeded the number of men. This is also the case in Jamaica where a recent survey found 51.2% of web surfers in that country were women (20). This is a trend that is continuing to strengthen around the world as it has become a ‘communication’ tool and aligns well with a key female characteristic – the need to communicate.

• Sector expert, Dinis Guardia, says that online banking has now become the number one way to do banking in the US and is not only the top choice for the young consumers but all those aged under 55 years.

• Social media and networks are becoming a major influence when it comes to what consumers accept and what they won’t from the banking sector. In other words,

18 Access at http://www.nokia.com/about-nokia/research/demos/the-morph-concept 19 http://www.gadgetfolder.com/samsung-zipel-e-diary-internet-refrigerator.html 20 http://www.jamaicaobserver.com/columns/Marcia-Forbes-March-25_7501866

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online banking success is being shaped more by consumers than the service providers.

• The big question here is whether it will be the computer or the mobile phone that will become the main vehicle for facilitating online banking and what will be needed to back either or both?

• There are some cheaper ‘netbook’ options evolving that enable, for example, 30 users to share one computer through hook-on terminals and this may provide a way of extending access in environments where investment capital is low. This costs 75% less than a computer and reduces energy use by 90%.

• Microsoft is focusing on the multiple use market with a new product called ‘Windows Multipoint Server’ (21).

• Renowned Futurist, Dr Patrick Dixon, believes that many countries are over-banked and that pressures to reduce costs, particularly as greater numbers of non-bank players such as Wal-Mart begin to exert a greater impact in the banking and financial services sector of the market, will drive a move towards less face-to-face and more online banking services (22).

• The use of online banking and financial services will depend heavily upon the level of consumer trust in the technology and the deployers of such technology and will depend upon satisfying all the parameters in the ‘trust equation’ shown in Figure 8. ‘Finance and banking is all about creating trust, managing and facilitating strong relationships with customers and providing economic and data analysis.’

Figure 8: The Trust Equation (23)

• A recent survey by Forrester Research found that customers have the following three concerns when it comes to online banking and financial services:

o Peer advice and interaction.

21 http://edutechdebate.org/2010-ict4e-trends/2010-trends-alternate-computing-emergence-and-convergence/ 22 http://www.globalchange.com/pdixon.htm 23 http://www.slideshare.net/dinisguarda/trust-7-trends-about-the-future-finance-dinis-guarda

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o Trust and credibility. o Useful and customised content.

• Online banking is increasingly being driven by social media sites such as Twitter and Facebook. Greater numbers of customers (and potential customers) are using such channels to talk about both positive and negative experiences they have had with commercial entities.

• In the USA, 75% of online service users said their choice of retailer was influenced by what they read on social media sites and 56% said they avoid a particular company after reading a bad view. 52% say they choose a particular company based on positive reviews.

• The types of things that the Internet is facilitating for the banking and finance sector include:

o Peer to peer banking. o Community banking. o Crowd-sourcing (using virtual crowds as a means to attract business and

attention). o Attitude. o Micro-banking – an area traditional banks have largely overlooked. o Freedom of back office costs. o Global scalability. o Open source systems. o The sustainability of a regulated bank.

• Two factor identification is becoming a major part of security protection for online banking and e-commerce systems. Up until recently the cost of systems that enable a second factor to be authenticated (e.g. a secret word, code, or fingerprint) have been high and this has precluded their use, especially by smaller stakeholders in the sector and merchants.

• Anakam has developed an inexpensive alternative which utilises the fact that the security features associated with an individual’s cell phone are becoming increasingly sophisticated e.g. voice identified PIN codes, electronic fingerprints, and text messages, and that these features can be used to provide a simple low cost way of developing NIST Level 3 security protection (24).

E-commerce Trends

• E-commerce is not new as ‘Dot.com’ has now been operating for 25 years. It is just that some countries are way ahead of others in adopting it as an integral part of economic development.

24 http://www.biometricgunsafestore.com/biometric-authentication/proving-your-identity-to-a-secure-website-with-a-cellphone-inexpensive-two-factor-authentication/

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• E-commerce and m-commerce are areas that are showing rapid growth and, as the Web transitions towards smarter and more intelligent capabilities in Web 2.0 and 3.0, it is expected that the growth of online business will continue to accelerate.

• More sophisticated technology-driven electronic payment systems are adding impetus to this trend, particularly in the developing countries. It is not only the Internet that is driving e-commerce. Rapid advances in mobile phone technologies plus innovative business developments are driving the rapid growth of m-commerce. Because technology is driving e-business and m-business growth, it is useful to look at some related trends that are reshaping its future.

• Online sales grew by 30% over the four years to September 2009 whilst traditional retail sales remained flat and call centre sales declined (25). In spite of the recession during 2008/09, online sales grew by 8% overall.

• E-commerce specialist, David Pityluk, believes that the future of e-commerce will be in smaller niche-specific sites. This is because people normally go online to find specific things, not to end up in some giant virtual market such as Amazon or e-Bay where it may be necessary to go through a number of layers to get to what a person wants (26).

• What defines a ‘niche’ is open to interpretation because ‘The Gap’ has combined four brands - Gap, Banana Republic, Old Navy and Piperlime - into a single online e-commerce portal so that customers have a wider choice and pay only a single shipping cost if a combination of brand products is ordered - something e-Bay and Amazon cannot offer because they represent 3rd parties on their portals (27).

• Pityluk believes the same trend will characterise blogs of the future. • E-commerce is not just a matter of having a website but also a capability to deliver

either electronically or physically to the place where the customer lives or works (28). • Some key trends shaping the future of e-commerce include (29):

o Social bookmarking and sharing of products - Where persons share experiences and ideas regarding products and services e.g. www.kaboodle.com.

o Virtual dressing rooms - Where persons can try apparel on using virtual models of themselves, e.g. www.zafu.com, and a virtual shoe fitting room developed by the Fraunhofer Institute and Adidas in Germany (30).

o User generated content - Customer e-commerce reviews of products and services. There are thousands of these online now e.g. tourism sites such as www.tripadvisor.com/.

o Getting the basics right - Multiple contact channels with customers (including e-mail, Skype, phone and live online chat), an easy-to-use site that also

25 http://www.epsilon.com/News-and-Events/Press-Releases-2009/091509-Annual-Multichannel-Trend-Report/p212-l3 26 http://www.davidpitlyuk.com/2007/05/30/prediction-the-future-of-ecommerce-is-smaller-niche-specific-sites/ 27 http://rksmythe.blogspot.com/2008/05/wave-of-future-in-ecommerce.html 28 http://ezinearticles.com/?Future-of-Ecommerce&id=1135880 29 http://blog.webtogs.co.uk/2007/10/08/the-future-of-ecommerce-where-next/ 30 http://www.gizmag.com/go/6933/

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provides personal enjoyment, and a smooth check-out process. One good example of a live chat online function can be seen at Direct Response (31).

o Better delivery options - Including a 30 minute time span from ordering to delivery option. Some online retailers already offer 1 - 2 hour delivery times within specific locations (32).

• Social shopping built around user generated content is becoming a big growth trend. Jupiter Research found that online social networkers are three times more likely to trust their peers’ opinions than traditional marketing messages (33).

• Some trends shaping the future of Internet marketing include (34): o A shift away from search engine optimisation as search engine algorithms

become smarter. o Searching will become more user-friendly and take users more directly to

where they want to go. o There will be a trend towards increasingly personalised and localised results

that more directly benefit end-users. o Sites will need to be more grammatically correct as algorithms become

smarter. o Duplication of themes will disappear. o ‘TrustRank’ will become stronger then ‘PageRank’ – getting rid of more spam. o Online social media will replace search engines as traffic generators e.g.

FaceBook users may be able to find all they need within the portal without having to visit the wider web through a major search engine such as Google.

o Handheld devices will be the big traffic generators in future. o E-mail will decline for personal communications. o Personal power will increasingly influence purchasers - peer-to-peer

recommendations. o Web clusters and widgets will enhance the prospects for small businesses. o The personal helper will be a key part of future Internet marketing - e.g. a

virtual reminder service for birthdays. • The commercial Internet has become ‘the economic force of our time’ and in March

2010 was estimated to be delivering US$ 1.5 trillion in annual economic benefits to businesses and consumers.

• There is still vast potential as only 1.7 billion of the world’s 6.7 billion people currently have access to the Internet. That means 75% of the world’s population is still untapped. Even in the USA less than 33% of Americans buy things online and only about 50% of small businesses have a website.

• E-commerce will re-shape the traditional business sector. • The Internet has already undermined the power of traditional media.

31 http://www.drltd.com/Is-social-shopping-the-future-for-e-commerce-438011279-18541067.aspx 32 http://www.springwise.com/retail/quick_delivery_ecommerce/= 33 http://www.drltd.com/Is-social-shopping-the-future-for-e-commerce-438011279-18541067.aspx 34 http://www.marketingpilgrim.com/2008/05/13-prophecies-of-internet-marketing.html

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• Stormhoek Wines is a small company in South Africa which used blogs frequented by people interested in wine to develop an innovative and successful approach to entering the UK market (35).

• Suppliers of goods and services which do not have e-commerce and m-commerce capabilities are likely to find the future a real challenge.

• E-commerce is going to become even more enhanced by so-called ‘ubiquitous connectivity’ as the Internet becomes increasingly integrated into the world around us and can be accessed anywhere any time through a multiplicity of devices.

• Internet driven platforms that are likely to show strong growth in the foreseeable future include:

o Mobile payment platforms. o Health IT (36).

• The volume of online audio and video content is growing exponentially. An August 2009 survey found 70% of US Internet users surveyed had watched an online video in the past week and 50% had watched online TV.

• It is estimated that by 2015 there will be 12 billion devices internationally that will be capable of connecting to 500 billion hours of TV and video content.

• The biggest challenge is to develop a business model that effectively manages all of this and overcomes the problems of piracy and breach of copyright.

• Digital fingerprinting is a favoured option as it will enable monetisation of the services delivering such content, an area that is currently a challenge.

• This is device fingerprinting rather than human fingerprinting and aims to recognise connections to an ‘authorised device’ (37).

• Augmented reality is likely to be a common feature of everyday life in 2020 according to Fast Company. This technology alters the way people visualise objects and other people and adds a virtual layer to real life images. In the fashion sector it is being called ‘shimmer’ (38).

• The Caribbean is a region that would benefit tremendously from e-commerce and yet it has a poor level of infrastructural development to facilitate.

• The banking and finance sector, as well as the incumbent telecommunication companies, have been extremely slow to recognise the opportunities for new business that e-commerce potentially offers them and, as far as we can tell from desk top research, only Scotia Bank offers credit card transaction processing services for online businesses in Jamaica, Trinidad and Tobago and The Bahamas. And this is at a high cost.

• It seems that GFS may also offer an option but this is based offshore (39).

35 http://www.ttfi.net/article_view/59 36 http://www.businessweek.com/innovate/content/mar2010/id20100311_660441.htm 37 http://www.timesonline.co.uk/tol/money/consumer_affairs/article4083408.ece 38 http://www.fastcompany.com/1568276/augmented-fashion-reality 39 http://www.guardianfinance.com/offshore_merchant_account.htm

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• Many merchants in the region have to resort to setting up a Paypal account in the USA with a US address to facilitate credit card payments. In fact in Barbados,’ Invest Barbados’ set up a PayPal account in 2010 that a number of small local businesses could use to facilitate international e-commerce transaction processing.

M-Commerce & M-Banking Trends

• Apart from in Japan where m-commerce has been established for many years, it is a new area of electronic business that is now developing rapidly in other parts of the world.

• It is said to be ‘THE retail channel of the future’ (40). • M-commerce is growing at a rapid rate and was estimated to have reached US$ 544

million in 2009, up from US$ 346 million in 2008, in the USA, a market that has been slow to adopt the technology. It is expected to reach over US$ 1 billion in 2010 (41).

Figure 9: M-commerce trends in Japan

• Japan has unquestionably been the lead market in m-commerce internationally and it is now worth billions each year as shown in Figure 9 (42). Growth between 2008 and 2011 is expected to be over 90%.

• In Kenya a mobile phone payment and banking system called M-PESA was launched by Safaricom in 2007 and in 2009 had 6 million registered customers who have made US$ 1.6 billion in person-to-person money transfers since start up (43). Kenyans can

40 http://www.edgellcommunications.com/main/thankyou.php?_id=1105 41 http://www.businessweek.com/technology/content/oct2009/tc20091011_278825.htm 42 Diagram source Infinita: http://www.slideshare.net/cbillich/future-insight-mobile-commerce-in-japan 43 http://www.mitpressjournals.org/doi/abs/10.1162/itgg.2009.4.2.77?cookieSet=1&journalCode=itgg

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now pay their water bills using the service - it overcomes much of the corruption that was happening within the traditional payment system (44).

• China’s mobile phone providers are installing advanced m-commerce capabilities which are expected to drive the growth of sales through mobile phones in 2010 to USD 417 million compared to the estimated total of USD 288 million in 2009. E-commerce is also growing rapidly in that country and is expected to have grown from € 245 billion in 2009 to € 315 billion in 2010 (45). There are expected to be over 150 million mobile payment users in China in 2010 (46).

• In global mobile payments market could reach £365 billion by 2013 and there are 364 million ‘unbanked’ customers who can be reached by agent-networked mobile banking (47).

• Consumer interaction on the Internet is being enhanced by a number of tools and functions such as wikis (collaborative information sharing sites), podcasting (personalised video and audio opinion clips originally designed for the iPod), blogs (opinion sharing virtual communities), rss (customised information feeds), and widgets / dashboards (customised user tools - e.g. iGoogle http://www.google.com/ig - is an example of a personalised dashboard).

• Other trends that increase consumer and business use efficiency include: o Skype – Voice-over-IP communication that is virtually free. o WiFi hotspots - often providing free Internet access in an increasing number

of places. o Smartphones - increasingly becoming the ultimate handheld interfaces for

communications, web-browsing, and personal organisation. o Webex - an online pay-as-you-go interactive communications zone that

includes video-conferencing (http://www.webex.com/). o Green IT - the move towards more sustainable IT. o Facebook was estimated to have 50 million members in early 2008 and the

site was said to be worth about £ 7.5 billion. By January 2009 the membership had grown to 150 million and reached 400 million in February 2010 (48). In terms of population, if Facebook was a country it would be the world’s third largest after India and China.

• In 2009 eBay generated US$ 390 million of sales through m-commerce and this was from nothing two years previously.

• It is expected that the combined market for all types of mobile payments is expected to reach 600 billion by 2013. Europe and Japan are leaders internationally but China is growing rapidly (49).

• Currently there are four models for mobile payments:

44 http://www.fastcompany.com/blog/ariel-schwartz/sustainability/kenyas-m-pesa-system-lets-cell-phones-control-access-water 45 http://wirelessfederation.com/news/16701-china-m-commerce-spending-to-reach-cny-170mn-by-2011/ 46 http://www.tradingmarkets.com/news/stock-alert/chuff_mobile-payment-users-to-exceed-150-mln-in-2010-iresearch-807603.html 47 http://www.slideshare.net/skinnercm/luup-presentation-on-mobile-finance-trends 48 http://mashable.com/2010/02/04/facebook-400-million/ 49 http://en.wikipedia.org/wiki/Mobile_payments

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o Premium SMS based transactional payments. o Direct mobile billing. o Mobile web payments (WAP). o Contactless NFC (Near Field Communication).

• There is a growth trend to use mobile payment solutions for micropayments in developing countries.

• The major impact in the mobile market will be how the mobile phone evolves over the next 5 – 10 years. It is likely to be dramatic based upon technological developments that are shaping the future form of such devices.

• There is a growing view that the future mobile interface will replace both today’s mobile phone and PC concepts with something smarter, multi-functional and highly portable.

• Already today advanced smartphones such as the iPhone offer functions such as an electronic key for hotel rooms, advanced check-in functions, advanced social networking, personalised travel guides, an electronic car key, and possibly video projection before too long.

• In 2009 174.2 million smartphones were sold worldwide to Internet-connected customers, up 15.1% on a year previous.

• It is estimated that in 2008 and 2009, 4x as many mobile Internet devices were shipped internationally than personal computers (50).

• The majority of retailers in developed countries believe that m-commerce and smartphones are ‘gamechangers’ and not just hype. And the number of retailers adopting an m-commerce strategy is growing rapidly.

• Futurist, Dr Patrick Dixon, says that mobile technologies represent a very real threat to traditional retail banks and credit card companies and will facilitate everything from paying bills through to undertaking foreign currency transactions and completing loan agreements (51).

• Dixon comments further that m-commerce will make many traditional financial sector players redundant as smartphones will be able to facilitate payments, micropayments (an area that traditional financial systems have not been able to handle economically), virtual credit card transactions, and lending. It will also facilitate remittances from foreign workers and eliminate most, if not all, of the foreign exchange transaction costs. Large transactions will be enabled through digital biometric identification such as fingerprints (52).

• An extensive recent collaborative presentation tiled ‘Mobile trends for the next 10 (years)’ provides a fascinating collection of views of possible future impacts of

50 http://www.risnews.com/ME2/dirmod.asp?sid=&nm=&type=Blog&mod=BlogTopics&mid=67D6564029914AD3B204AD35D8F5F780&tier=7&id=09728EF5B1F34A5D8264D7D24F6D1068

51 http://www.youtube.com/watch?v=vpw9KcqgVvE 52 http://phones.4lujo.com/878/mobile-phones-and-banks-banking-transactions-future-trends/

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advancing mobile technologies. Following are a few that are particularly relevant to this project:

o Over the next ten years the mobile phone will become an integral part of development programmes and projects.

o Many makers of simple smart phones are likely to provide them free to users but take a small percentage of all transactions done over the phone such as banking transactions and services, small purchases, and on-demand content. Mobile phones become wallets, banks and ATMs.

o Quite a few mobile phones will run without SIM cards on free networks such as Skype and over WIMAX and WiFi. The business model will be built around commissions on services used.

o The convergence of technologies is leading to a blurring between online and offline ‘reality’.

o ‘The communications revolution accelerates destroying businesses that refuse to think the unthinkable.’

o The mobile will overtake the PC as the largest marketing channel. o The mobile phone completely replaces the credit card. o Half of total economy in many countries transits mobile phone payments.

The rapid growth of mobile banking and credit will change the payments systems of all countries. Combined with interactive ads, mobile money will shift the phone to become a mobile wallet with our keys and loyalty points and identity cards. In all countries it will become normal to have your pay cheque paid to your phone. In many leading m-banking countries, where traditional banking institutions are weak like in Africa, more than half of total economy will pass through mobile phones.

• Another technological development that is likely to drive a greater future impact from the mobile phone is the end of screen size and keyboard dimensions being limiting factors in handset design. New input and display technologies will change the whole mobile phone concept.

• One example is the new holographic capable phone being developed by Infosys in India and due for release in 2010 (53).

• Another is the shift towards head-mounted audio and visual accessories that remove the need to stare at a small screen on a mobile phone In future images may be received through special contact lenses or glasses or projected onto walls or objects.

• The Head of Nokia Research says that within 5 – 10 years mobile phones could include some form of haptic (sensory) and interactive functions and the majority of things will be done through cloud software systems (accessed through the Internet) rather than in-device software (54).

53 http://blog.3g.co.uk/2008/06/holographic-handsets-on-market-by-2010.html 54 http://mashable.com/2010/02/12/future-mobile-henry-tirri-interview/

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• The evolution of mobile technology is leading to the development of novel new businesses that help people to learn how to use and manage increasingly complex devices and mobile systems. One example is a New Zealand company called ‘Mobile Mentor’ which has now established a significant operation in Brazil (55).

• Major retailers are driving a shift to m-commerce. For example Starbucks and Target in the USA have developed a mobile phone application using NFC technology that enables customers to pay for goods and services with a mere ‘flash of their phone’ at all their outlets – a total of 1020 stores (56).

• The Rural Bankers Association in the Philippines is adopting a mobile banking service that will extend access to financial services throughout the country and also provide services to the currently ‘underbanked’ and ‘unbanked’ sectors. The mobile phone service will include Text-A-Payment for loan repayments, Text-A-Remittance, Text-A-Deposit, Text-A-Withdrawal and Text-A-Sweldo for salary services for local companies. It also includes a product for sending remittances locally or abroad with fees paid only by the remitter thus eliminating the irritating ‘double dipping’ that occurs through traditional banking channels when funds are remitted internationally (57).

• The level of mobile phone penetration in Jamaica is high at 112% (meaning a number of people have more than one mobile phone).

• The market is now mature in terms of ownership but aggressive competitive between the three main mobile phone companies (Digicel, Claro and LIME) is likely to promote strong growth in mobile phone applications between 2010 and 2015 as new 3G and 4G networks are rolled out (58).

• In July 2009 mobile phone users could participate in a national Jamaican lottery using their mobile phones (59) and later that year in the national lotto using a platform developed by parties associated with a local company, Digital Transtech Ltd.

Transaction Trends

• Smartphones, such as the iPhone, are driving mobile banking usage. For example 51% of iPhone users are mobile bankers compared to 17% of all other mobile phone owners (60).

• Mobile banking has overtaken telephone banking in the UK and USA with 25% of US mobile phone users and 37% of UK users adopting mobile banking services (61).

55 http://www.nzherald.co.nz/news/print.cfm?objectid=10625712 56 http://www.mobilecommercedaily.com/starbucks-rolls-out-largest-mobile-payments-effort-nationwide/ 57 http://www.lambslain.com/2010/03/cell-phones-and-cashless-society-big.html 58 http://www.marketresearch.com/product/print/default.asp?g=1&productid=2611016 59 http://www.fair-online-gambling.com/casino/fog-new-mobile-features-on-jamaica-lottery-07-20-09.html 60 http://www.mobilecommercedaily.com/mobile-commerce-evolving-from-early-innovation-to-mainstream-adoption-javelin/ 61 http://www.mobilemoneyexchange.org/Feeds/News/Read/mblox-survey-finds-mobile-banking-overtakes-telephone-banking-in-the-us-

and-uk.aspx

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• With greater volumes of transactions moving online, security is becoming a greater focus.

• Many consumers still do not feel confident about using their credit cards to purchase products and services online as they are worried about the risks of online fraud.

• One project is investigating ways that electronic biometric identification systems can be combined with credit cards to improve transaction verification and security processes. The model being examined is based around a Turkish e-ID scheme (62).

• A patent has been registered in the USA to use fingerprints as the sole method of identification to pay for goods and services (63).

• At the same time, ways on using such methods for online identification are evolving rapidly.

• One option is device profiling that recognises a specific device or a cookie within a device. However, it is not foolproof if an unauthorised user accesses the device (64).

• Fingerprint enabled phones and computers are now being offered from a number of different suppliers e.g. the LG eXpo. This eliminates the need for PINS and passwords and can be potentially used for a range of security authentication purposes (65). Motorola has also released a model that includes an integrated biometric authentication component (66).

• A number of German supermarkets are trialling fingerprint recognition technologies for biometrically linked transaction authentication systems as it takes just 7 seconds to complete the transaction compared to 12 seconds using a bankcard with a PIN and 20 seconds with cash. Customer acceptance has generally been positive (67).

• A company called Global Rainmakers has developed an iris recognition device that costs US$ 50 and which Deutsche Bank is investigating as a possible tool for authentication of mobile transactions by having them integrated into mobile phones. As yet Apple or Google have not picked up the technology (68).

• Siemens have developed a fingerprint scanner that can send electronic biometric scans online to verify a customer’s authenticity. It overcomes the need to remember numerous PIN numbers and passwords for different online purposes, a major limitation currently as consumers struggle to remember the details and fail to alter them regularly for security purposes because of the problem of remembering changes they have made (69).

• Non-bank PayPal is offering an innovative new money transfer application for iPhone owners. It is described as being a ‘bump’ feature where users simply have to put two iPhones together to facilitate a funds transfer.

62 http://www.computer.org/portal/web/csdl/doi/10.1109/ICDS.2010.12 63 http://www.freepatentsonline.com/7604166.html 64 http://blog.iovation.com/2009/06/04/device-fingerprinting-techniques-several-choices/ 65 http://www.thirdfactor.com/2010/01/06/fingerprint-enabled-smart-phone-available-in-u-s 66 http://www.motorola.com/Business/US-EN/Business+Product+and+Services/Accessories/Mobile+Computer+Accessories/Snap-

ons/Biometric+Identification/Mobile+Biometric+Identification+Solution_US-EN 67 http://www.thejakartaglobe.com/lifeandtimes/german-markets-test-handy-technology-to-pay-without-cash-card/367634 68 http://www.financialidnews.com/2010/03/25/experts-and-developers-pushing-for-biometric-atms#titleRead%20More 69 http://www.timesonline.co.uk/tol/money/consumer_affairs/article4083408.ece

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• It offers funds transfers between PayPal accounts, a ‘split check’ capability where friends can simply ‘bump’ their phones to share the cost of a meal or cab ride together. It also enables tax payments. The application is secure as it does not require the storage of any sensitive information such as credit card details (70).

• Another development is Square which enables mobile credit card payments anywhere through a ‘Square dongle’ which connects through the audio socket on a smartphone. All the customer has to do is swipe their credit card through the ‘dongle’ (71). Square provides a major benefit over PayPal because in order to transfer funds by text or using credit cards, both parties need to have a PayPal account. With Square the customer doesn’t have to register anywhere and just uses his or her credit card as per usual.

• One of the big trends associated with m-commerce is that move that Telcos are making into the transaction management business.

• One recent example is the announcement by Verizon Wireless in the USA to offer an e-commerce ‘Billtomobile’ payment service developed by the Korean Company, Danal. It can be used by customers to purchase digital goods online and charge the cost to their mobile phone accounts. With a limit of US$ 25 per purchase the focus seems to be towards exploiting the vast and rapidly growing micro-transaction market segment (72).

• Verizon has also recently partnered with ‘Charge Anywhere’ to provide customers with a billing option that allows them to accept and process credit and debit card payments from their phones It also includes a number of tools that assist merchants with a range of transaction-related functions and activities such as tax information and the integration of payments into back office systems (73).

• There are a number of non-bank financial services players emerging which are building their businesses around both Internet and mobile phone technologies. Wal-Mart, PayPal, Google, and Amazon are all becoming major players in selected global markets. WorldPay is another example.

• Global credit card group, Visa, is watching the evolution of mobile payments and endeavouring to position itself by investing in ‘proprietary new mobile phone payment technologies’ (74). The challenge they face is that their model is built around physical cards and the future will see these disappear so they will need to radically change the technology basis that drives their business model. They are also hoping to generate 50% of their revenue outside the USA by 2015.

70 http://inventorspot.com/articles/paypal_vs_squares_digital_wallets_are_bumping_beaming_money_ipho_38941 71 http://squareup.com/ 72 http://www.prnewswire.com/news-releases/verizon-wireless-plans-ecommerce-mobile-payment-service-88812502.html 73 http://www.mobilecommercedaily.com/charge-anywhere-partners-with-verizon-to-leverage-financial-reach/ 74 http://www.paymentssource.com/news/visa-execs-mobile-payments-global-markets-drive-growth-3000990-1.html

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• In El Salvador, RegaloCard is providing a service which enables mobile phone users to send micro-money transfers as small as $10 at no cost to buy groceries at Super Selectos Supermarkets – the largest chain in the country (75).

• Alcatel-Lucent has developed a new global hosting service for mobile operators wanting to launch person-to person payments, remote ticketing and m-commerce services. It is based on NFC technology and aims to bridge many of the gaps created by a fragmented non-integrated approach to m-commerce systems development internationally (76).

• As mentioned earlier, M-PESA is a mobile banking service offered by mobile network operator, Safaricom, to its customers in Kenya and more recently in offshore markets such as the UK.

• It has been a huge success because it has provided a way of enabling Kenyans to do simple transactions and fund transfers easily cheaply, and securely in a country where in 2007 only 19% of the population had access to formally regulated financial institutions such as banks.

• M-PESA’s growth has been phenomenal staring with a subscriber base of 900,000 in 2007 and transactions of US$ 57 million to over 4 million by November 2008 with monthly transaction levels exceeding USD 300 million. By 2013 subscriber numbers had grown to 15.2 million (77). However, more traditional lenders such as Equity Bank in Kenya are now playing a catch up game and plan to compete vigorously with mPesa in what has become a highly profitable and consumer connected market space (78.

• Twitpay is a new business that links users’ Twitter accounts to their PayPal accounts and enables funds to be transferred instantly and cheaply between parties, something banks have been notoriously slow at doing with funds transfers and check clearances often taking days.

• Another company called Obopay has developed a platform that allows phone owners to transfer money to one another completely bypassing banks and credit card companies. Nokia helped fund the company’s platform development (79).

• Mapswitch is a company in Uganda which uses biometric identification to assist millions of Ugandans to access low cost banking and money transfer services over mobile phones ( 80).

• In Ghana an m-commerce provider, Afric Express, has launched TxtNPay, a mobile payment and money transfer service which is ‘telecom and bank neutral’ (81).

• Whilst simple electronic transaction facilitation services are growing rapidly in Africa, the contrast in the Caribbean is stark. To open a bank account is often an onerous

75 http://www.mobile-financial.com/node/6146 76 http://www.mobile-financial.com/node/6208/Alcatel-Lucent-Pushes-Mobile-Wallets 77 https://www.cisco.com/c/en/us/solutions/collateral/service-provider/vni-service-adoption-forecast/Cisco_Safaricom_CS.pdf 78 http://fortune.com/2014/06/27/m-pesa-kenya-mobile-payments-competition/ 79 http://www.wired.com/magazine/2010/02/ff_futureofmoney/ 80 http://appfrica.net/blog/de/2009/11/30/roscoe-nsumbuga-banking-the-unbanked-using-biometrics/ 81 http://www.mobile-financial.com/node/6315

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task requiring multiples sources of proof. This means many Caribbean citizens are ‘unbanked’ as the services now on offer in many parts of Africa are just not available in the region.

• One writer suggests this is leading to ‘economic apartheid. The reality is that there is a significant opportunity for an innovative sector stakeholder to connect with the ‘unbanked’ population and use smart efficient electronic systems to manage large numbers of micro-transactions and make money in the process (82).

‘Smart Systems’

• Green Goose is a ‘green egg’ with an Ethernet connection that can sense how many kilometres a person has ridden on a bicycle rather than in a car. Some businesses are linking this into staff reward schemes and there is also a suggestion that the money saved on gas can be transferred automatically from a cheque account to a savings account as a form of incentive savings programme (83).

• Another big emerging trend that is technology-driven is helping consumers save money. In this regard the emergence of smart grids for water and energy and smart Internet based monitoring systems are rapid growth markets. For example, the large Italian energy group, Enel, is saving customers about 50% of their energy costs through the use of smart meters and has also reduced their own operating costs by US$ 750 million annually. This is an energy company providing a substantial financial benefit as a service to its millions of customers (84).

• E-zwitch is a common platform for all banking services that has been developed in Ghana and provides a single platform for all users with all banks in the country and which includes biometric fingerprint authentication as part of the process. It can also be used for online purchases and activities through Net1’s proprietary Universal Electronic Payment System (UEPS) technology (85). The UEPS technology is built around a virtual credit card that can be validated with a fingerprint.

• One of the biggest challenges in biometric recognition is to move towards ‘unconstrained’ biometrics where the user doesn’t have to stand still for a face or iris scan to take place or press their finger on a device.

• Unconstrained biometrics enables scanning ‘on the move’ and speeds up the whole process. A research consortium called the Centre for Advanced Studies in Identity Sciences (CASES) in the USA is in the process of developing such systems so that they can be deployed in the near future (86).

82 http://caribbeanbookblog.wordpress.com/2009/10/31/ecnomic-apratheid/ 83 http://www.readwriteweb.com/archives/6_ways_to_live_better_inside_an_internet_of_things_homes.php 84 http://www.businessweek.com/globalbiz/content/nov2009/gb20091116_319929.htm 85 http://www.233tech.com/2010/01/real-tech/e-zwich-internet-payments/ 86 http://www.computer.org/portal/web/computingnow/0210/theme/computer4

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• The Major League Soccer Red Bull Team in New York is issuing season tickets and a discount transaction service to fans using contactless smart card technology. The cards facilitate a number of transaction services outside the banking system (87).

• Smart cards are also becoming multi-functional. For example the student smart ID card issued by DePaul university in the USA provides access to residence halls, the issuing and return of library books, access to meal plans and, through a link with PNC Bank, a student and faculty money management and financial accountability function. The co-branded initiative will be available to 139,000 people (88).

• Non-bank contactless smart cards, such as Easy Card in Taiwan and sQuidcard in the USA, are being used for an increasing range of transactions such a payment for public transport and small purchases from shops and restaurants (89). However, this may prove to be a transitional technology as the next example illustrates.

• CardKing is a US company that supplies and manages discount card programmes for students through major retail chains. They have introduced an iPhone application that removes the need for students to carry the physical cards any more. The student ID and discount bars normally on the cards are electronically stored in the iPhone and can be scanned directly from the phone at merchant terminals (90).

• One source says that between 2010 and 2014 the annual growth rate for contactless payment systems in the US is likely to be 19% per annum (91).

• Augusta has introduced a smart card platform developed in Africa to US credit unions. The platform provides credit union customers with access to all their services through local retail outlets, a rewards programme for shopping at particular retailers and allow them to use community services such as libraries, concessionary travel, discounted leisure facilities and the payment of benefits (92).

Cashless Systems

• Several Australian commentators believe the cashless society is not that far away, particularly now that small cash transactions can be done cost effectively through smart technology-driven systems such as smart cards and mobile phone payments.

• In just five years the acceptance of such technologies and non-bank electronic transaction services providers such as Paypal has grown rapidly.

• One observer believes the cashless society could become the norm in Australia by 2015 whilst another believes that it may take 30 – 50 years to happen internationally as some societies do not have the infrastructure in place to facilitate a cashless future (93).

87 http://www.contactlessnews.com/2010/03/16/red-bulls-deploy-contactless-ticketing-in-new-york 88 http://www.cr80news.com/2010/03/12/depaul-university-pnc-bank-partners-for-student-money-management 89 http://www.squidcard.com/corporate/emoneynews/international/contactless-smart-card-use-to-expand-in-taiwan340.html 90 http://www.cr80news.com/2010/02/24/leave-your-student-discount-cards-at-home-with-cardking 91 http://www.contactlessnews.com/2010/03/12/report-contactless-payment-market-to-grow-through-2014 92 http://contactlessnews.com/2010/03/24/augusta-launches-branch-in-a-box-smart-card-system 93 http://money.ninemsn.com.au/article.aspx?id=570507

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• In an interesting online video, Douglas Rushkoff makes some interesting observations regarding the evolution of currencies and how history may be repeating itself in the Internet age as we are seeing a shift away from a traditional view of what a currency is towards multiple concepts (94).

• These include barter concepts which have been resurging in the past decade as a cashless transaction alternative. An example is Bartercard which has 75,000 members in 9 countries (95).

• Green Goose is a ‘green egg’ with an Ethernet connection that can sense how many kilometres a person has ridden on a bicycle rather than in a car. Some businesses are linking this into staff reward schemes and there is also a suggestion that the money saved on gas can be transferred automatically from a cheque account to a savings account as a form of incentive savings programme (96).

• There are numerous e-currency systems evolving in many parts of the world that support virtual currencies and online payments systems. They include:

o Liberty Reserve (Costa Rica). o Yandex Money (Russia). o Ukash (Ukraine). o Webmoney (Russia). o RBK Money (Russia). o Roboexchange (a virtual currency exchange system). o Perfect Money (Panama). o E-Gold (Nevis, West Indies). o M-Pesa (Kenya).

• xChanger.org is an e-currency exchanger that provides an online service (97). • Wikipedia provides an excellent overview of the evolution of electronic money (also

known as e-currency, e-money, electronic cash, electronic currency, digital money, digital cash, or digital currency).

• Whilst use is still generally low internationally there are several examples of highly successful electronic cash systems operating including the Octopus card system in Hong Kong, the EziCard in Singpaore, and ChipKnip in Holland.

• Many systems sell their electronic cash directly to the end user e.g. Gogopay, Paypal, Webmoney and Wirex. Others use third party digital currency exchanges e.g. Liberty Reserve.

• Such systems bypass the need for banks and offer convenience, privacy, more efficient transactions, lower transaction fees, and new business opportunities on the Internet.

• However there are questions about regulatory issues such as money laundering, exchange rate instability, and how to levy local taxes (98).

94 http://countingoncurrency.com/wp/2010/01/20/is-cash-becoming-obsolete/ 95 http://www.bartercard.com/ 96 http://www.readwriteweb.com/archives/6_ways_to_live_better_inside_an_internet_of_things_homes.php 97 http://blog.alertpay.com/2010/03/new-e-currency-exchanger-allowed-by.html

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• eCache and Ripple networks are additional examples of emerging non-bank electronic currency service operators.

Service Trends

• Technology is opening up a whole new way of developing and delivering banking and finance services.

• For example, in Kenya a unique micro-insurance scheme for poor farmers has been developed which is delivered using mobile phones with inbuilt camera technology. The insurance is to cover the cost of purchases of inputs such as a bag of fertiliser or seeds if the crop fails at a future date. A barcode on each bag is scanned at the time of purchase to verify the purchase.

• Farmers are registered at their nearest weather station which transmits data over the mobile network. Experts determine when a crop is no longer viable and payouts are made directly to the mobile phone accounts of affected farmers through Safaricom’s M-PESA system (99).

• There are a number of collaborative lending models evolving online and through mobile phone systems that are challenging traditional banks. These include: o Person-to-person social lending sites that bypass traditional lending institutions.

Examples include Fosik (http://www.fosik.com.au/), Zopa (http://www.zopa.com/), Fynanz (http://www.fynanz.com/) and Prosper (http://www.prosper.com/). In 2009 ZOPA had 260,000 members in the UK and was also operating in Italy and investigating setting up business in Japan (100).

o M-PESA was initially launched in Kenya by a mobile phone company, Safaricom, and enables the transfer of funds between individuals, not only within the country but also offshore, through their mobile phone accounts. It also facilitates the payment of various accounts including water bills. The mobile accounts are linked into a pooled account at a regulated bank for consumer protection purposes. This model is posing a real challenge to traditional banks, but competitors are entering the market, including one or two traditional players.

o Portals that enable users of products and services to rate their quality and report back their personal experiences online so that other potential users have real-life customer feedback and are better informed when they make decisions e.g. for banking and financial service providers through my3cents.com (101) and resellerratings.com (102).

• The migrant worker remittance market is being seen as an area that is highly suited to mobile banking. For example, there are 15 million migrant workers in Kuwait, Saudi Arabia and the UAE and 80% do not have a bank account.

98 http://en.wikipedia.org/wiki/Electronic_money 99 http://www.economist.com/business-finance/displaystory.cfm?story_id=15663856 100 http://www.guardian.co.uk/money/2009/apr/04/zopa-savings-account-borrowing 101 http://www.my3cents.com/companyList.cgi?industry=BANK 102 http://www.resellerratings.com/

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• Migrants remit 50% of their salaries back home and that equates to £2.373 billion a month globally (103).

• The challenge to banks will be to counter the trend for mobile network operators to ‘muscle in’ on their territory and the ultimate is for both to form alliances in the way LUUP has with Deutsche Bank.

• Green Dot has developed a niche business in the pre-paid card market which is based upon a ‘completely different economic model from current retail banks’, but with some of the positive attributes (trust, security etc.) that consumers associate with banks. It removes ‘customer invisible’ or ‘consumer antagonistic’ bank charges by being totally transparent (104).

• Private currencies are another non-bank development and are issued by private organisations. Today there are over 4000 privately issued currencies in 35 different countries which include computerised systems based around debits and credits and electronic currencies (105).

Wildcard Developments

• These are things that may come out of ‘left-field’ in the coming years and which could disrupt traditional business models in the sector.

• One of the challenges for the banking sector is to create win-win outcomes for both themselves and customers. The financial crisis saw many executives and stakeholders in the banks win but millions of customers lose.

• There are new business models emerging in other sectors where there is a fairer sharing of benefits and risks and which may move into the banking and finance sector in one form or other.

• One excellent example is the Berlin Energy Partnership approach in Germany where contractors supply the labour and technology for building upgrades at their cost and share the savings achieved with the client for 15 plus years. Thus the reward is shared on an outcomes achieved basis (106).

• Sometimes technological developments create unexpected outcomes. For example global money laundering is estimated at between 2 -5% of the world’s GDP. Pre-paid gift cards and reloadable debit cards are estimated to be a US$ 300 billion business and criminals are finding them to be an easy way of transferring funds derived from illicit businesses across borders.

• This is leading to law enforcement agencies to demand regulation of this unregulated sector to clamp down on their use for illicit purposes.

• Technology is going visual and young people think in pictures, not words. Within ten years it is expected that we will be watching most of the visual media we have

103 http://www.slideshare.net/skinnercm/luup-presentation-on-mobile-finance-trends 104 http://paymentsviews.com/2010/03/01/a-new-model-for-retail-banking/ 105 http://en.wikipedia.org/wiki/Private_currency 106 http://www.c40cities.org/bestpractices/buildings/berlin_efficiency.jsp

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traditionally seen on TV on advanced versions of personal portable devices. Technology will facilitate big screen views through small devices (107).

• Such a development will mean many of today’s text-based systems will become less relevant and may become largely redundant.

• Credit cards and smart cards will become redundant as mobile devices and the associated applications become more sophisticated and biometric identification provides more effective user and provider security.

• Non-cash and alternative currencies may replace traditional currencies in a substantial way as the traditional view of a currency becomes irrelevant in future markets based more around personal relationships and mutual trust.

107 http://blog.cleveland.com/tv_blog/print.html?entry=/2010/01/the_future_of_tv_bigger_and_better_screens_at_home_smaller_on-demand_screens_in_your_pocket.html

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Consumer Trends

Worlds 1 to 3

• In terms of the three worlds, World 1 includes the developed economies, World 2 the rapidly developing economies, and World 3 the least developed economies.

• Historically by far the majority of global innovation, entrepreneurship, and consumerism arose in World 1. However that is changing fast and a far greater proportion of all three is arising in Worlds 2 & 3. A recent book titled ‘The 86% Solution’ describes this trend extremely well (108).

• Many companies, including banks, have ignored a vast section of the market, particularly in Worlds 2 & 3. They represent a huge potential opportunity area and smarter newer players, often from outside traditional sectors, have recognised this fact and are developing highly efficient technology-driven ways of servicing the 86% of consumers in the world who have been ‘written off’ as ‘unbankable’ or ‘unshoppable’ by traditional incumbent banking and financial sector players.

• Companies such as Unilever have developed clever micro-product ranges that enable the less well-off to enjoy branded high profile products within their limited budgets.

• Financial sector innovation is becoming a major feature in Worlds 2 and 3 where there are perhaps fewer regulatory constraints and opportunities to explore quite different business models.

• Reaching the ‘unbankable’ is becoming a primary focus in all three worlds as it is seen as being a real opportunity area.

• For example in Egypt only 10% of the population own a formal bank account and there are 14 million living below the poverty line who traditional financial institutions considered as being ‘unbankable’.

• Moves are underway to use mobile banking as a means of facilitating financial transactions and micro-lending to this large group of potential customers as cell phone penetration in Egypt is at high levels (109)

• Micro-lenders are distributing cash more rapidly in post-earthquake Haiti than traditional banks. Fonkoze is one example of such a group and doing just this. It has 200,000 depositors and 50,000 borrowers throughout the country.

• This is another innovative development in the global micro-lending sector which started off on a different premise to the Grameem Bank, the world’s best known example of a successful micro-lending institution that was set up in Bangladesh to lend small amounts of credit to people the banks would not lend to.

• It is estimated today that there are 75 million micro-borrowers worldwide who hold US$ 39 billion in loans ( 110).

108 http://satya.sulekha.com/blog/post/2005/11/the-86-solution-a-book-review.htm 109 http://www.thedailynewsegypt.com/article.aspx?ArticleID=28161 110 http://www.newsweek.com/id/233334

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• Social business models are evolving in all three Worlds. Many leading edge examples are evolving in World 2 and 3 countries such as the Grameen Bank, which started in Bangladesh, and being introduced into World 1 countries. The Grameen Bank now operates in many countries and today even provides micro-loan services to the ‘unbanked’ in the USA (111).

Value Propositions - Changing Consumer ‘Wants’ and ‘Needs’

• A value proposition is simply a reflection of the price a customer is prepared to pay for a particular product or service. The reason why any particular customer makes a purchase decision is based upon a number of variables and may include both real and perceived benefit considerations. The balance between the two is not constant and changes over time as people age, technology impacts, fads come and go, personal priorities alter, politics impact, and life-phases change.

• However, there is one fundamental differentiating factor that helps make it easier to determine where a consumer is prepared to allocate personal spending. It is the difference between ‘What I want’ and ‘What I need’.

• In Figure 10 (112) the consumer who makes the decision to purchase something based upon ‘What I want’ really desires a particular product or services and is far less concerned about the price. A simple example is the queue of people who waited outside retail outlets to buy the Apple iPhone when it was launched during 2009. Another example is those who pay US$ 8,000 for a custom-designed and manufactured men’s suit in Savile Row, London.

• By contrast, the ‘What I need’ decision is totally price-driven and generally relates to the fundamental necessities of life such as food, fuel, clothing, appliances, housing basic banking services and transport. Consumers making this decision are highly price-conscious and will tend to favour the place that offers the cheapest price or best deal for a particular product or service.

• From a consumer foresight perspective the ‘What I want’ decision-making factors are the ones which are more likely to alter over time as consumer characteristics change. It tends to be an area that is highly influenced by innovation, trends, and perceptions and so does not necessarily remain constant or easily predictable. One classic example is the high-end fashion industry where change is constant. Another example

111 http://www.grameenamerica.com/ 112 NEXT Archives, 2009

Figure 10: The consumer purchase decision

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is the launch of a new innovative technology, such as the iPhone and iPad, which has a short lead-time over competitors and achieves a substantial price differential during that time. The value propositions in the ‘What I want’ area are often many times higher than in the ‘What I need’ area and tend to be more unique and less vulnerable to competitive pressures during the timeframe where such value propositions are able to maintain their position in the market. The ‘What I need’ area tends to be more constant and predictable and is generally characterised by intense competitive pressures as a particular supplier tries to retain a position in the market relative to other suppliers. A simple illustration of the difference between the two customer propositions is shown in Table 1.

Table 1: An illustration of the difference between ‘What I want’ and ‘What I need’ in terms of value propositions

What I want What I need Product Purchase focus Retail Value Product Purchase focus Retail Value Manuka Honey Health & wellness US$ 125.00/kg Honey Food product US$ 5/kg Sea Island Cotton shirt Unique quality US$ 500 each Cotton business shirt Essential clothing US$ 20-40 each iPhone Elite communications US$ 599* Nokia cell phone Basic communications US$ 70 Coppeneur Elite Chocolate

Health & Wellness US$ 105/kg Edeka (supermarket brand) chocolate

Food product US$ 12 / kg

* Price at the time of launching the iPhone onto the market.

• The examples shown in Table 1 illustrate the magnitude of difference in value that can occur when a customer’s decision moves betwen ‘What I want’ and ‘What I need’. The authors have studied this phenomenon in different parts of the world and estimate that there is generally a shift in value of about 400% or more between ‘needs’ and ‘wants’ with the latter commanding higher premiums. The more unique the product or service on offer is, the higher the differential is likely to become if it is in tune with the right trend or trends. In simple terms, the changing value proposition from a customer perspective can be illustrated in terms of a value triangle as shown in Figure 11 (113).

• The ‘Unique’ area of the triangle represents products and services that are customised, ‘one-off’, generally made by only one supplier, are elite and can be compared with the special treatment and attention associated with being a first-class passenger in an airliner.

113 NEXT Archives 2009

Figure 11: The value chain triangle

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• An excellent example is the highly unusual Masai Barefoot Technology ‘anti-shoe’ designed and manufactured by a US company (114) or custom-designed software developed for a major bauxite mining company by InfoGroup Ltd in Jamaica (115) that adds considerable value for the client. The value differential is often 1000% plus over basic ‘off-the-shelf’ commodity products and the associated innovation factor is generally high.

• The ‘World-class’ area of the triangle represents products and services which are of a high quality and at the upper end of the market but for which there are a limited number of quite specialised suppliers. One example in this category is in the area of up-market perfumes associated with major brand names such as Chanel and Calvin Klein. Another is in the area of high cocoa (70%+) chocolate products where there are now a number of specialist manufacturers and suppliers in developed markets who often use a differentiating factor (e.g. the use of Trinitario or Criollo cocoa which is specified on the package) to create a more specific connection with discrete groups of potential consumers. The value differential associated with products and services in this area of the triangle is often 400% or more compared to basic commodity products. The level of innovation is generally quite significant.

• The ‘Commodity’ area of the value triangle represents by far the greatest proportion of the total market and is characterised by numerous suppliers of basic products competing aggressively to attract customers to buy their particular products. It is an area of the market characterised by aggressive discounting and highly visible advertising and promotional campaigns. Suppliers are under intense pressure to cut costs and provide an ever better deal in order to attract and retain customer interest on an ongoing basis. Excellent examples include the international mainstream automotive manufacturing sector, home appliances, basic food products, and clothing such as jeans and t-shirts. This area is also characterised by relatively low levels of innovation in almost every area.

• An understanding of the difference between ‘What I want’ and ‘What I need’ is of great importance to product and service providers in small countries as, even though the global market niches are much smaller in relative terms, the opportunities in the ‘Unique’ and ‘World-class’ areas associated with ‘What I want’ are the ones which are generally more likely to lead to a higher degree of commercial success than those associated with the ‘What I need’ area as they are linked to much higher value propositions, something which is of real importance because of the generally higher cost structures and distances to markets associated with businesses in many smaller countries.

114 http://us.mbt.com 115 http://www.infogroup.com

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• In order to be able to exploit opportunities in the ‘What I want’ area in the value triangle, it is essential to undertand the foresight trends that may be shaping future customer expectations as these provide valuable clues to those areas which are likely to favour high value propositions in future years and the identification of potential niche opportunity areas that might provide the foundation for commercial success. However, the sustainability of such success will only be realised if a process of continuous innovation is adopted because, once someone creates a unique space, ‘copycats’ soon develop similar alternative products and services that eventually diminish the value of the market space which the original ‘Unique’ or ‘World-class’ supplier identified and commercialised. There is a constant need to be one step ahead - just as large commodity suppliers always need to be one step ahead in the race to reduce costs or to provide an extra benefit relative to competitors if they wish to survive in a cut throat marketplace. By always having something unique and fresh on offer helps generate that ‘What I want’ connection with increasingly ‘choosey’ customers.

• Understanding the customer value proposition, whether already apparent or one that has great potential, is the true start point for looking at any value chain because the purchase decisions customers make determine which products and services are likey to be a commercial success in future years.

• For example, increasing numbers of utility customers are prepared to pay for devices and services that will actually lead to them saving money. A recent survey undertaken in Texas found that 80% of the households surveyed would be prepared to pay US$100 for cost saving equipment that would cut their monthly electricity bills by at least 10%. (116). This is an example that reflects the ‘What I want’ type of decision

• The global remittance market is huge. In Jamaica some US$ 2 billion of remittances were sent to family in the home country in 2008 from Jamaicans working in countries such as Canada, the USA and the UK (117). Because most workers sending remittances home from foreign countries are ‘unbanked’, they often have to pay high charges to transfer funds. They are searching for ways in which the costs can be reduced e.g. through mobile phones. This is more a ‘What I need’ example.

116 http://www.economist.com/science-technology/displaystory.cfm?story_id=15585504 117 http://ezinearticles.com/?Do-Some-Research-on-the-History-of-Remittances-to-the-Area-Before-You-Send-Money-to-

Jamaica&id=3559567

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Consumer Megatrends

• Because consumers are playing a far greater role in determining which value propositions fit the ‘What I want’ and ‘What I need’ market categories, it is important to understand the underlying trends that are likely to play a role in shaping their future wants and needs. NEXT has identified seven megatrends, shown in Figure 12 (118), that are likely to be of particular significance over the next decade or so.

• These seven megatrends have been derived from a wide range of sources that NEXT has monitored on a continuous basis over many years. The factors driving each megatrend are many and varied and help explain why the ‘mass-market’ concept is now becoming relegated to history. The days of ‘one-size-fits-all’ solutions are rapidly disappearing because customers are becoming far more individualistic and demanding greater personal attention with regard to their wants and needs which are, in turn, shaped by their own personal characteristics - genetic, behavioural, life-phase related and perception-based.

Age Defiance

• This is a strong global growth megatrend and revolves around consumers searching for products and services that will help them stay and feel young - whether the basis is real or perceived. One of the big drivers behind this trend is the rapid ageing of populations in many parts of the world, not only in developed countries but also a number of rapidly developing countries such as India and China (119). The ageing trend for

118 NEXT Archives 2009 119 ‘A slow burning fuse’, The Economist, June 25, 2009 http://www.economist.com/specialreports/displaystory.cfm?story_id=E1_TPRRRDQV

Figure 12: Seven key trends driving consumer wants and

needs

Figure 13: Projected population pyramids for Japan and

Jamaica for the years 2010, 2025, and 2050

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populations in Japan is quite dramatic as illustrated in Figure 13 (120).

• In Jamaica the trend is expected to be less strong in the next several decades and ageing is not expected to have a major impact until the 2040s or later.

• The upper diagram in the sequence of three for each country shows the age distribution in 2010 with the youngest group of persons at the base and the oldest at the top of each pyramid. The middle diagram in each sequence is for the year 2025 and the lower for 2050 - all based upon projections of current patterns of births, deaths and migration.

• Of particular significance in many countries is the ageing of the Baby-Boomer cohort born between 1946 and 1964 (121), one of the largest population cohorts seen in the world’s history. The youngest members in these cohorts are now 45 years of age and the oldest in their early sixties. This is creating a whole new market opportunity as the over-50’s own about 70% of the wealth in developed economies (122).

• This is leading to a focus on developing new and innovative products and services that cater to their specific wants and needs. This is a generation of people that includes many who are determined to try and stay young for as long as possible. Every indication is that the majority will live longer than previous generational groups of the same age (123) therefore their demands and expectations are likely to play a significant part in shaping both value propositions and value chains over the next several decades.

• A number of innovative companies are already developing unique and innovative solutions to suit older consumers. Some examples include: o The Jitterbug phone - designed for simplicity and ease of use. It also has large

digits to help those with failing eyesight communicate easily (124). o ‘Brain gyms’ such as those developed by the US company Vibrant Brains (125)

- their services include the provision of mental exercises and education to help older generations retain and improve their mental faculties and to be able to contribute more effectively as employees as they may have to work later in life, even into their seventies if current trends related to the viability of many pension funds continue.

o Shops for the elderly that cater to their specific needs - one example is a whole range of specialist shops in the main street Jizo-dori in the Tokyo suburb of Sugamo, Japan (126) and another example the Internet shop, “Senioren Online” (127), in Germany.

120 http://www.census.gov/ipc/www/idb/ 121 As defined by the United States Census Bureau - www.census.gov 122 http://www.internationalistmagazine.com/Marketing_Strategy/HSBC-tests-50+demographic.pdf 123 A world of Methuselahs, The Economist, 25/06/09 http://www.economist.com/specialreports/displaystory.cfm?story_id=E1_TPRRRTDN 124 Jitterbug cellphone http://www.info4cellphones.com/jitterbug-cell-phone-for-seniors.html 125 http://www.springwise.com/lifestyle_leisure/brain_gyms_for_baby_boomers/ 126 http://www.economist.com/specialreports/displaystory.cfm?story_id=E1_TPRRRTTD 127 http://www.senioren-onlineshop.de/

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• However, the ‘Age Defiance’ megatrend is not associated only with older generations. It is also reflected in the development of a range of activities and products that helps people of all ages, who are increasingly being driven by a personal need to look and feel young, to stay that way ‘forever’! Following are a few additional examples of ‘Age Defiance’ related trends: o Longevity will be the next big wellness trend (128). o ‘Consumers are obsessed with maintaining a youthful appearance and ageing

gracefully and, as the global population’s median age increases, that market will progressively increase’ (129).

o Even young persons aged between 25 - 30 years, particularly young women, are becoming a major driver behind the ‘Age Defiance’ trend.

o Manufacturers are deliberately promoting a ‘mother and daughter’ trend to create an inter-generational demand for anti-ageing products (130).

o The market for anti-ageing products (topical, dietary, and pharmaceutical) is expected to reach US$ 115.5 billion internationally in 2010 (131).

o So called ‘beauty foods’ - supplements and food products that target the skin from the inside - are seen as being a major growth area.

o The USA and Europe are currently dominating the anti-ageing products market and accounted for a 62.8% share of global sales in 2007.

o In the anti-ageing product area the range includes (132): Anti-ageing drugs and pharmaceuticals. Anti-ageing vitamins, supplements and minerals. Anti-ageing cosmeceuticals – skin care, face care, body care, and sun

protection cosmeceuticals. Hair-care cosmeceuticals. Hair growth cosmeceuticals.

o Big future growth areas are seen as being: The cosmeceuticals market (cosmetics combined with

nutraceuticals). ‘Dr Brands’ - products marketed with references to dermatology,

surgery and botox-like treatments. ‘Collaborative skin care’ lines - targeted to complement non-surgical

cosmetic procedures. Pharmaceutical company, Allergan, and Estee Lauder have combined forces to develop the ‘Clinique’ range of products.

128 http://nutraingredients.com/news/printNewsBis.asp?id=79397 129 http://www.gcimagazine.com/articles/17221979.html 130 http://www.consultingroom.com/News/Print.asp?News_ID=2338&Title=World%20Anti-

Ageing%20Products%20Market%20to%20Reach%20U.S.%20$115.5%20Billion%20by%202010 131 http://www.cosmeticsdesign.com/news/printNewsBis.asp?id=83850 132 http://www.consultingroom.com/News/Print.asp?News_ID=2338&Title=World%20Anti-

Ageing%20Products%20Market%20to%20Reach%20U.S.%20$115.5%20Billion%20by%202010

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o High-end retailers say that there appears to be no price resistance associated with ‘Age Defiance’ types of products and customers were prepared to go on waiting lists for expensive products such as Dior’s US$ 380 for a 15 ml bottle of ‘L’Or de Vie’ skin serum (133) when first released in 2007. Orlane Paris’s “Global Anti-Ageing System” costs US$ 750 for a 30 ml bottle.

• It is clear that ‘Age Defiance’ is going to remain a part of consumer psyche and their discretionary spending in the foreseeable future and that many of the high value proposition opportunity areas are associated with the ‘What I want’ area. It is a consumer-driven megatrend that is likely to continue to strengthen for quite some years.

Fascination

• Over the past decade or so a number of trend watchers have observed that each new generation appears to have a greater need for experiences that provide them with stimulation and fascination. One of the first was German Futurist, Eberhard Denzel (134), who described the emergence of this trend in 1998. For example, great grandparents may have gone out for dinner at a restaurant as an extra special treat perhaps once a year or less often and it was something that they talked about many times over as they remembered the ‘specialness’ of the occasion. People today eat out regularly and so the impact of each fascination experience is far less. The young generations of today have very short attention spans and many say they require ‘constant fascination’. The intensity of each fascination experience is also said to be decreasing as greater numbers of people search for a greater ‘thrill’. These factors are leading to some interesting developments such as:

o The 5 second commercial (135) to try and prevent people from skipping advertisements when they are recording and viewing TV programmes - i.e. to reduce the intrusion.

o The evolution of short videos on YouTube, such as ‘World Builder’, which tell a whole story in 1 – 10 minutes (136).

o The evolution of new high technology classrooms to create a 24/7/365 community of interest for primary school students. The concept includes iPods and cell phones as part of an integrated network with school computers and IT systems (137).

o The growth of extreme sports into areas that have become increasingly dangerous and bizarre (138).

133 http://www.mybeautymatch.com/lor-de-vie-diors-most-potent-anti-ageing-line/ 134 http://www.denzel.de/ 135 http://www.commercialalert.org/news/featured-in/2006/07/five-second-ads-try-to-counter-tivo 136 http://www.youtube.com/watch?v=VzFpg271sm8 137 http://www.bcps.org.uk/index2.htm 138 http://jazarah.net/blog/top-20-extreme-sports-from-trend-hunter/

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o The growth of tourism to places as extreme as Iraq and Afghanistan is an area which is predicted to be a trend in the near future (139). Increasing numbers of tourists are seeking places that few others have dared to visit - one component of the ‘Egoism’ megatrend.

o The growth in use of legal and illegal recreational drugs around the world. The herbal party pill market has shown strong growth in recent years (140).

o People who have pre-booked trips into outer space with Richard Branson’s Virgin Galactic, which is likely to offer the first seats at around US$ 200,000 each (141,142).

• However, there are counter-trends emerging which, for example, are leading some people to search for a ‘simple life’ (143) that offers an escape from the need for so much fascination! Based upon the characteristics associated with today’s younger generations, there seems to be no doubt that the demand for fascination is going to continue to increase and intensify but this megatrend area will also offer some counter-trend related ‘escape’ opportunities for those who want to live a less frenetic and demanding lifestyle.

Egoism

• People are becoming far more individualistic and self-indulgent. This is also a trend that has been in progress for several decades and seems likely to continue as it has become an inherent characteristic of the Baby-Boomer generation and the generations that have followed. One area that reflects this is the rapid decline in female fertility which first appeared in the developed countries and is now becoming a strong trend in the majority of less developed and developing countries. The fertility rate trends in selected developed economies are shown in Figure 14 (144).

• The Economist recently commented that postponing marriage and childbirth has been favoured by many women who want to pursue a career and retain their independence. There is also an economic consideration as it has been estimated that a family household with one child needs 30% more income than a childless couple to maintain an equivalent standard of living. In addition males and females now have

139 http://www.travelweekly.co.uk/Articles/2009/11/05/32295/industry-leaders-predict-future-tourism-hotspots.html 140 http://www.free-press-release.com/news/200807/1215739311.html 141 http://www.techmagnews.com/branson-cheap-space-tours-in-my-lifetime.html 142 http://www.thetechherald.com/article.php/200918/3539/Fashion-retailer-first-Aussie-on-Branson-s-commercial-space-travel-project 143 http://www.aarpmagazine.org/lifestyle/the_simple_life.html 144 http://www.economist.com/specialreports/displaystory.cfm?story_id=E1_TPRRRTTR

Figure 14: Birth rate trends in selected

countries

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an increasing range of lifestyle choices they can make and this is resulting in greater numbers of individuals choosing to live on their own. In the UK it is estimated that 38% of all households will have just one occupant by 2026. The figure was just 18% in 1971. In large cities such as Berlin and San Francisco, 45% of inner city households had just one occupant around the turn of the millennium.

• One of the concerns about the ‘Egoism’ megatrend is the negative impacts it is having upon society as people focus more on themselves and less on others (145). At the same time it does open up a whole range of new business opportunities which Eberhard Denzel says are driven by a desire to be different to everyone else, to have done something or bought something that no-one else has and make them feel jealous, to have travelled to a place that few have been to and tell others of the experience, to own a car no-one else can afford, and so the list goes on. Following are a few examples of this trend:

o The online virtual world, ‘Second Life’, is a place where egoism is alive and well and people can play roles that they can not necessarily play in real-life. It is the place where a woman, Ailin Graef, became the world’s first virtual millionaire by doing virtual business in a virtual world. It is also the place that has led to several murders in the real world as a result of online relationships that developed.

o Affluent consumers are becoming sated with product and are looking for unique products, services and experiences that differentiate them from ‘the rest’ (146).

o A recent survey of 25,000 Australians aged 11 - 24 years of age found that their greatest concern was their personal body image (147).

o The egoism trend is starting at a younger age. For example, 9 - 14 year-olds are being targeted by a website called ‘Miss Bimbo’ - an online game where visitors are encouraged to dress their character up as beautifully as possible and maintain a target weight using pills so they can win beauty contests. They can also choose cosmetic breast surgery to enhance their characters. In France there are 1.2 million users of this site and in the UK 200,000 - trend increasing (148). This site demonstrates some of the forces that are shaping the minds of young people.

145 http://www.onlineoriginals.com/showitem.asp?itemID=135 146 http://www.hotelmarketing.com/index.php/content/article/071204_top_ten_luxury_travel_and_lifestyle_trends_for_2008/ 147 http://www.missionaustralia.com.au/news/media-releases/215-body-image-main-concern-for-young-australians 148 http://www.missbimbo.com/

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Figure 15: The ‘Miss Bimbo’ website aiming at ‘tweens’ (9-14 year-olds)

• Anything that panders to the self-interest of the individual is driving this growth megatrend. However, there are several counter-trends that are also emerging such as the sustainability movement and numerous online self-supporting communities of interest where people share ideas and help each other to make decisions or cope with challenges in life. There are also some indications that increasing numbers of young people may have more of a social conscience than their parents and that this may provide some degree of a counter-balance to the path the ‘Egoism’ megatrend might follow in future years (149).

Global Living

• This is also a strong trend which has a number of facets to it associated with both the real and virtual worlds. Far more people, including Jamaicans, are working in a global environment, even if they are living in a specific location through virtual channels. Others live a life that involves extensive travel and relatively brief stays any one location to perform specific tasks as a contractor or global player. A good example in the latter case is Anthony Paul, Managing-Director and Principal Consultant with the Association of Caribbean Energy Specialists Limited based in Trinidad and Tobago, who is involved in projects in many parts of the world including Tanzania, Ghana, Nigeria, Senegal, Togo, Iraq, Timor Leste, and Peru.

• Many online communities of interest and networks such as LinkedIn, Plaxo, Facebook, Bebo and MySpace are global and their participants interact with each other, even if vast distances apart, on an instant real-time basis. Increasingly these interactions are becoming more visual and online real-time video links such as Skype, as well as video capable mobile phones, are the first taste of things that will become a standard part of personal, household, and business communications in the near future.

• The ‘Global Living’ megatrend includes a number of associated trends such as:

149 Generation Y Project, NIHERST, Trinidad and Tobago, 2007 – 2009.

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o The nostalgia trend where expatriates seek the ‘good old things’ from home or people yearn for things that they had experienced or enjoyed in the past. The retail group, Manufactum, in the UK and Germany is an excellent example of a business that is connecting with consumer nostalgia needs both online and through real world retail outlets (150).

o A trend that favours ethnic and cultural products and services that back up people’s experiences overseas or provide something unique that is not associated with a person’s traditional ethnicity or cultural heritage.

o Technology that enables people to move from place to place in the world and stay in touch 24/7/365, such as the Blackberry and iPhone mobile interfaces.

o Another piece of technology that has recently come onto the market and provides a solution for those who have to travel frequently is a wireless battery charger for a wide range of devices that removes the need for transporting numerous device-specific chargers around the world (151).

o It may not be too long before an individual person may be able to have a virtual presence in other parts of the world as holographic technologies continue to evolve. Richard Branson recently already launched Virgin Digital to an audience as a virtual presence (152). However, this was a primitive version of what might happen before too long as true 3-D holographic technologies evolve further. Mobile handsets that are capable of projecting, capturing, and sending holographic 3D images have been developed by Infosys in India and are expected to come onto the market during 2010 (153).

o Another associated trend is the evolution of digital profiles alongside real-life profiles that is enabling individuals to develop a global presence.

150 http://www.manufactum.com/home.html Photo NEXT Archives, Manufactum retail store in Berlin, August 2009. 151 http://www.pcworld.com/article/156526/powermat_joins_the_wireless_charger_fray.html 152 http://www.eyeliner3d.com/virgin_digital_launch.html 153 http://news.cnet.com/2102-1041_3-6242143.html

Figure 16: For those who yearn for the better

things in life

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o A trend associated with the development of virtual digital profiles is a move towards more visual interactive technologies that are likely to shift from the corporate world where they are already becoming leading-edge tools (154) into smaller businesses and households.

o One interesting new trend is an indication that the ‘golden age of flying may be over’. This could mean that the shape of global living in the future may be different to the past (155). Some interesting scenarios for 2023 have been developed by the Forum for the Future and depict a set of alternative futures that might evolve (156) between now and then. It seems highly likely that the virtual global part of people’s lives might become more important relative to the physical travel component.

• There is no question that the ‘Global Living’ megatrend is going to continue to evolve and shape the future wants and needs of many customers and clients. However, a significant part of that global lifestyle future may well become technology driven as finite global resources come under greater pressure and increasingly become a limiting factor in the ‘real world’ sphere.

Sustainability

• As shown in Figure 18, the world’s resources are currently being used up at 150% of the rate that they are being replaced and, if nothing changes, the rate of use might reach 200% of the replacement rate by 2030 and 300% by 2050 (157,158). In addition, the issue of climate-change caused by human activities has become a major international focus. There are also concerns about future global food supplies and the availability of limited resources such as water, energy, and rare earth metals - which play a critical role in many emerging technological developments.

• There is no question that the whole issue of sustainability is becoming a concern for increasing numbers of customers and citizens. A number of surveys undertaken in the past year illustrate this trend and one outcome of particular interest is the fact that the citizens in developing countries such as Mexico, China and India have much higher levels of concern than those living in fully developed economies (e.g. 159). As a result there is a significant customer-driven trend evolving that is driving the development of niche markets which have strong links with a sustainable future.

154 http://www.informationweek.com/news/mobility/messageing/showArticle.jhtml?articleID=205917459 155 http://www.breakingtravelnews.com/news/article/golden-age-of-air-travel-at-an-end/ 156 http://www.forumforthefuture.org/projects/tourism-2023 157 http://www.panda.org/about_our_earth/all_publications/living_planet_report/ 158 http://www.environmentalmanagementnews.net/StoryView.asp?StoryID=1035206 159 http://wwdmag.com/International_Survey_Finds-Water-Top-Environmental-Concern-newsPiece19004

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Figure 18: The greatest challenge the world faces over the next 20 years – restoring a balance between resource availability, replenishment and consumption (160)

• Some excellent examples include: o The development of a “sustainable fisheries” authentication system and

branding e.g. for the New Zealand hoki fishing industry (161). o The development of a sustainable forestry authentication system and

branding for timber (162). o The growing demand for organic

products in all areas of the market, not just food, as shown in Figure 19 (163).

o Growth in the focus on ‘close to home’ grown food products with low ‘food miles’ which are purported to have lower carbon emission levels associated with them (164), but this is not always the case.

o The emergence of sustainable community built and managed energy production and supply systems in various

160 http://www.panda.org/about_our_earth/all_publications/living_planet_report/ 161 http://www.fish.govt.nz/en-nz/Press/Press+Releases+2009/June2009/Hoki+fishery+recovering+well.htm 162 http://www.sfiprogram.org 163 NEXT Archives, Oeko Laden, Thun, Switzerland, September 2008. 164 http://www.bbc.co.uk/food/food_matters/foodmiles.shtml

Figure 19: Recyclable “bio”

plates and cups

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countries including Nepal, Germany, and Austria (165).

o ‘Green’ electricity which increasing numbers of consumers choose to purchase at a higher cost, especially in European countries (166,167).

o The growing demand for ‘Fair Trade’ products. Global sales grew by 47% in 2007 compared with the previous year to reach over US$ 4 billion (168). Sales in the US increased by a further 10% in 2008, in spite of the economic crisis (169).

o The increasing number of ‘green’ housing, zero energy, and sustainable building developments that are now happening in many parts of the world including the UK, USA, Abu Dhabi (170), the Palestinian territories and Dominica.

o The growth of green and ethical investment funds. • Growing consumer concerns about sustainability and climate-change will continue to

drive change in markets and so the ‘Sustainability’ megatrend is likely to strengthen over the next decade as increasing amounts of evidence about the impact that the human race is having upon the world heightens individual concerns about the future for both themselves and their offspring. More young people are becoming involved in environmental and climate-change initiatives around the world in both developed and developing countries (171).

• There is also a counter-trend driven by traditional attitudes and egoism that denies that such concerns are “my problem” and so there are some individuals who will continue doing what they have always done ‘come hell or high water’. Several surveys suggest around 25% of people might have such an attitude (e.g. 172).

Health & Wellness

• This is one of the strongest developing megatrends internationally and is being driven by numerous factors including:

o Ageing populations. o ‘Age defiance’. o A rapid increase in chronic disease problems (largely self-inflicted). o The global obesity epidemic. o The declining health of young people in many parts of the world, especially in

the highly developed countries where some predict that the young people of today may live shorter lives than their parents.

165 http://www.finfacts.com/irelandbusinessnews/publish/article_10008702.shtml 166 http://www.the-infoshop.com/report/dc101278-b2c-green-energy-toc.html 167 http://www.steckdose.de/oekostrom.html 168 http://www.confectionerynews.com/The-Big-Picture/Worldwide-Fairtrade-sales-up-47-per-cent 169 http://www.naturalhomemagazine.com/Natural-Home-Living/Top-Consumer-Trends-for-2009.aspx 170 http://www.swissinfo.ch/eng/science_technology/Abu_Dhabi_s_eco_city_gets_Swiss_touch.html?siteSect=511&sid=110401 171 http://www.un.org/apps/news/story.asp?NewsID=31774 172 http://www.foodnavigator-usa.com/news/printNewsBis.asp?id=84052

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o Concerns about the environment and a disconnection from the global biosphere which is leading to increases in sales of natural products (e.g.173).

o The soaring costs of healthcare and inequities in delivery, particularly in the USA. If nothing changes the costs of healthcare in the USA could reach 25% of gross domestic product by 2025, 37% in 2050 and 49% in 2082, up from 16% in 2007.

o ‘Consumers are trying to eliminate anything toxic from their lives’ (174). • This is driving a number of trends at the personal level which are reflected by the

following findings: o A recent survey of almost ten thousand people in Brazil, Bulgaria, Canada,

Germany, India, Malaysia, Serbia, Slovakia, Russia, the Netherlands, Turkey and the USA examined where people sourced their healthcare information, how often they visited the doctor, how well they followed the doctor’s advice, their use of non-pharmaceutical products and a number of other areas (175). The following came out of this particular survey: 62% of people in India, 56% in Malaysia, and 52% in Slovakia come to

the doctor ‘prepared with a diagnosis’. 59% of Canadians say that doctors are just one source amongst

several that they use to make personal healthcare decisions. 82% of Malaysians seek a second opinion other than their doctor

when it comes to choosing a healthcare solution. 10% of Americans now use the Internet to help make personal

healthcare decisions. 66% of Russians say they would prefer to take natural medicines

rather than drugs. More than 50% of all those surveyed had a similar preference.

The majority of Germans also favour alternative medicines over pharmaceutical based medicines. They see them as being less aggressive and offering more holistic and long-term healing. An increasing number of doctors have an extra degree in natural medicine so that they can offer a range of solutions to their clients.

US residents are divided 50/50 when it comes to choosing between pharmaceutical and natural solutions.

Almost three times as many Brazilians use acupuncture compared to the average for all countries surveyed.

• There is a rapidly growing consumer group that supports the development of sustainable businesses and societies. They are described as being a group of

173 http://www.advertiser.ie/athlone/article/15555 174 http://stanford.wellsphere.com/healthy-living-article/food-buying-and-healthy-living-trends-2009/640080 175 http://www.synovate.com/news/article/2008/06/global-healthcare-survey-reveals-rise-of-patient-power.html

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influential and leading-edge thinkers representing ‘Lifestyles of Health and Sustainability’ (LOHAS). They are also known as ‘Cultural Creatives’ (176).

• It is estimated that 40 million such persons exist in the USA alone and they support a marketplace of US$ 200 billion plus which is growing fast and expected to reach US$ 425 billion in 2011 and US$ 845 billion in 2015.

• The LOHAS group will impact on tourism destinations because they expect to be able to maintain their ‘green’ and healthy lifestyles when travelling. They want to stay at environmentally friendly facilities and ones that recognise the connection between ‘green’ and health. They will choose destinations that offer healthier eating options, serve organic and/or local cuisine, use environmentally friendly cleaning products, and talk about what they are doing to conserve natural resources.

• Consumers are becoming increasingly better informed about their personal health and are making their own decisions about value for money. Most are looking for a better quality service at a lower cost. ICTs are ‘flattening the world’ and making healthcare into a more globally functional business (177).

• The ten top health and wellness consumer trends reported by the National Marketing Institute in North America are (178,179): o The Dual Society - 25% of the population are in a group that focuses strongly

on personal health and wellness. 23% “eat, drink and are merry” without caring about the possible consequences.

o Generation Zzzzz - the rise of sleeping disorders and over-stimulated burned out consumers in the 25 – 45 age group. 80% of consumers say they don’t have enough energy to do what they want to do.

o Stop, I Want Off - a move towards more quality of life and less quantity. o Giving is the New Taking - more interest in activism, volunteerism, and

participation in the non-profit sector. o Dr Me - increasing interest in consumers taking care of their own health. o A Culture of Sustainability – ‘which is likely to become the most significant

social movement of our time’. o The New Immunity - to reverse a weakening of human immune systems which

many believe has been caused by toxic environments and manipulated food products.

o Golden Opportunities - associated with ageing populations that will be characterised by a greater level of autonomy, choice and lifestyle participation.

• These are just a few examples of an area that offers a vast number of consumer-driven high value proposition opportunity areas. Many of the examples referred to demonstrate how the ‘Health and Wellness’ megatrend is intimately interlinked with

176 http://www.4hoteliers.com/4hots_fshw.php?mwi=3126 177 http://www.wfs.org/2008health.htm 178 http://www.nutraingredients-usa.com/news/printNewsBis.asp?id=84085 179 http://www.foodnavigator-usa.com/news/printNewsBis.asp?id=84052

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the other six consumer megatrends described in this report. All the evidence is pointing to a considerable strengthening of this trend over the coming years.

Gifts of Time

• A feature of a numerous consumer studies is how many of those surveyed say that they never have enough time to do all the things they want to do, whether perceived or real. This megatrend is growing in strength and becoming a key shaper of many consumer decisions. The ‘time crunch’ factor is being reflected in the following ways:

o People are sleeping fewer hours and trying to cram more activities into their day. In the USA the number of people sleeping less than 6 hours a night rose from 13% of the population in 2001 to 20% in 2009 (180).

o In Australia 82% of couples with children under 15 years of age where both parents are working ‘always or often felt rushed or pressed for time’. 67% of couples without children under 15 years of age felt the same pressures (181).

o Parents are also prioritising activities to suit their lifestyle needs as best as possible and this often has a cost. For example, 75% of parents in the UK say they don’t have enough time to play with their children (182).

o The top ten luxury travel and lifestyle trends for 2008 (183) included a strengthening trend which focuses on providing solutions which help save people time.

• At the turn of the millennium German Futurist, Eberhard Denzel, predicted that any business or organisation that provided consumers with a ‘gift of time’ would benefit at the expense of those that did not. Since making that observation, the consumer desire for ‘gifts of time’ has grown and been driving a number of market niches including:

o Mobile communications so that people can remain connected 24/7/365 and make decisions on the move.

o Online banking and e-commerce channels which remove the need for standing in queues or travelling to physical ‘bricks and mortar’ banking and retail outlets to make transactions or purchases.

o Door-to-door delivery services. o Online portals such as Ask.com which enable people to find out more about

products and services before they make a purchase without having to leave home (184).

o Household help services such as ‘Hire-a-Hubby’ to get odd-jobs done around the house as there is never enough time to do them (185).

o Robots designed and programmed to help the elderly as the so-called ‘sandwich generation’ (186) tries to cope with pressures from both their

180 http://news.thomasnet.com/IMT/archives/2009/04/americans-losing-sleep-over-economy-performing-poorly-at-work.html 181 http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features50Sep+2009 182 http://www.guardian.co.uk/society/2009/aug/03/play-time-limited-parents 183 http://www.hotelmarketing.com/index.php/content/article/071204_top_ten_luxury_travel_and_lifestyle_trends_for_2008/ 184 http://www.ask.com/web?q=cameras&search=&qrsc=0&o=)&l=dir 185 http://www.hireahubby.com.au

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ageing parents and their own offspring. The Japanese are leading developments in this field (187).

o Sales of take-out ready-to-eat and pre-prepared meals are increasing strongly (188).

o The megatrend is also driving a return to central city living in some parts of the world as people seek to reduce the need for long commutes.

• There are many businesses and organisations ‘stealing’ people’s time by making them wait in queues, by failing to deliver at the promised time, by running out of stock, by installing voice menus at the customer interface and making it difficult to speak to a real person, and being inflexible in their approach towards delivering on individual needs. There is no doubt that the ‘Gift of Time’ megatrend will play a significant part in shaping customer demands and business and organisational responses over the next several decades.

Drivers of Change

• In this section more specific trend linkages to the banking and finance sector are discussed.

• People live increasingly mobile lifestyles and many don’t want to disconnect when underway. e-Bay allows mobile phone users to monitor times sensitive auctions that they have an interest in while underway. Fandango and Moviefone are driving transactions that are convenience driven (189).

• Internet banking provides customers with a ‘gift of time’ and so is aligned strongly with a major consumer driven growth trend – choosing services that save them precious time as they never have enough to do all the things they want to.

• In this context Internet banking satisfies this need by being (190): o Fast (no waiting in queues). o Convenient (a range of financial transactions can be done from the comfort

of home).

186 http://en.wikipedia.org/wiki/Sandwich_generation 187 http://www.usatoday.com/tech/news/robotics/2009-11-04-japan-robots_N.htm 188 http://www.naturalhomemagazine.com/Natural-Home-Living/Top-Consumer-Trends-for-2009.aspx 189 http://www.mobilecommercedaily.com/mobile-commerce-payments-growing-mpayy-exec/ 190 http://current-trends-now.com/2010/01/internet-banking-is-becoming-%E2%80%9Cneed-to-have%E2%80%9D-service/

Figure 20: Waiting for a “gift of time”

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o Cost-effective (especially for the banks but also for customers who receive a ‘gift of time’ that can be used for other more productive purposes compared to the time waiting standing in a queue to receive branch service).

o All time accessibility (24/7/365 – 24 hours a day 7 days a week 365 days a year).

o Flexibility (by being able to access and process a range of products and services without having to go to a bank e.g. loan approvals, creating and closing accounts, trading stocks, shares and securities).

• One of the biggest shifts occurring is the shift from ‘consumer’ to ‘prosumer’ – which essentially means that customers are rapidly becoming ‘king’ or ‘queen’ and manage networks of product and service providers to suit their own particular needs (191). It is a trend to ‘markets of one’ where each consumer becomes the centre of his or her own value network.

• In this context social networks and peer influences are playing an increasingly important role as ‘prosumers’ seek trust, transparency, value creation, web pro-activity, and stability. Following the global financial crisis the biggest hurdle the banking and finance sector faces is restoring and maintaining customer trust levels.

• Understanding future consumer trends is an integral part of scenario building. Futurist Don Abraham says there are eight consumer trends (in developed countries in particular) that are likely to reshape markets between now and 2018 (192). They are:

o In search of ‘enoughness’ – Consumers rethink their life goals and what they work for.

o New Americanism – America reconsiders its place in the world (as the BRIC countries in particular - Brazil, India, China and Russia - become more dominant).

o Sensing consumers – Technology exposes hidden aspects of daily life. o The transparent self – Biological and other advances reveal the body and

mind’s inner workings. o Just in time life – Ubiquitous information flows reshape how people socialise,

work and shop. o Women in charge – Women overtake men educationally, leaving them better

prepared for the 21st century workforce (this is particularly the case in the Caribbean – 70% of the students at UWI are female. Males are dropping out of the educational system at a frightening rate and few are thinking about the highly negative future consequences of this trend).

o Virtual made real – Boundaries between virtual and real worlds become more porous.

o Education revolution – Traditional institutions go virtual and modular.

191 http://www.slideshare.net/dinisguarda/trust-7-trends-about-the-future-finance-dinis-guarda 192 http://haoodnla.com/article/lxy09217655y9j01/194249

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• The differences between generations are also becoming stark and that will impact upon the shape of future markets (see Figure 21). In 2020 Gen Y (aged 15 – 28) will be playing a major part in how the future plays out in many parts of the world. How they are being empowered today will have a very significant influence on the future impact that they have economically and socially (193).

• Gen Y in particular is not a 9 to 5 generation when it comes to employment. They prefer to have multiple employment roles and to be able to determine their hours of work and play within a results-only working environment (ROWE). It is a model that provides the ultimate in working hour flexibility and a ‘work anywhere’ environment for the majority of employees. 3% of US businesses have already adopted this model (194).

Figure 21: Growing differences between the generations

• Many Gen Y and Gen Z (under 15 years of age) have a totally different way of doing things when it comes to communicating. They do far less live talking (face-to-face or on the phone) and the majority of their communication through texting, iMing, Facebook, Skype and numerous other channels. Electronic technology is just part of life for these generations (195).

• In an interesting ‘thinkpiece’, the idea of four cycles (or ‘turnings) in demographic change over longer periods of time is put forward (196) and described as follows:

o The first turning is post-crisis ‘high’ where societal institutions tend to be strong and individualism weak e.g. Post World War II.

o The second turning is a period described as an ‘awakening’ characterised by progress and prosperity but which also leads to the first signs of rebellion against conformity and a desire for greater individualism.

193 http://www.strategy-business.com/article/00022?gko=2c2d5 194 http://www.npr.org/templates/story/story.php?storyId=124705801 195 http://edition.cnn.com/2010/OPINION/02/08/rosen.texting.communication.teens/index.html 196 http://thebankwatch.com/2009/06/30/the-fourth-turning-demographics-and-predictable-change/

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o The third turning is described as the ‘unravelling’, which is the opposite to the first turning ‘high’. It is characterised by individualism dominating whilst institutions are increasingly weak and discredited. This is said to have started in the 1980’s in the developed world.

o The fourth turning is the ‘crisis’ and is a time of great turmoil where society’s basic institutions ‘are torn down and rebuilt’ and seemingly insurmountable problems are addressed. It is also a time where wars are a feature.

• The fourth turning idea of basic institutions being torn down and rebuilt is a theme many scenario developers are using currently to develop views of how things might change over the next several decades. The general view is that many things are changing in a way that has never been seen before and one of the main drivers is the issue of sustainability in its broadest sense, not just environmental, that is going to re-shape everything.

Social Networks and Communities of Interest

• A whole new way of doing things in the field of banking and finance is emerging internationally and leading to the development of self-help non-profit or social enterprise financial groups that are threatening some traditional banking and finance sector models. This includes what are essentially ‘online credit unions’ as well as virtual worlds such as Second Life which have their own currencies and transaction processes.

• Because banks have a history of being conservative in their approach towards satisfying customer needs and treating many people as ‘unbankable’, this is leading to the formation of numerous peer to peer (P2P) social lending networks.

• There are increasing numbers of people who are concerned at the massive profits banks have been making in ways they view are detrimental to society. This is leading to some banking customers seeking to earn a better return through social lending networks rather than through traditional banks where they receive meagre interest rates whilst they perceive the banks make huge profits.

• Two leading US P2P lenders are Lending Club and Prosper which offer loans with fixed rates as low as 7.89% and 7.5% respectively for borrowers at a time lowly rated credit card customers are paying close to 30% interest on their debts. These groups have taken out the corporation as the middleman (197).

• The concept of P2P lending is spreading rapidly around the world. Pioneers were Zopa in the UK, Prosper in the USA, Smava in Germany, and Boober in Holland. More recently it has developed in China under the name PPDai. Because credit risk assessments are not available for most Chinese this social lending group is focusing largely on standardising and facilitating loans between family members and friends,

197 http://www.mybanktracker.com/bank-news/2010/02/02/peer-to-peer-loans-the-next-best-alternative-to-banks/

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a market area that is much larger that personal loans from banks in that country (198).

• Fynanz is technology provider of ‘turn-key private student lending networks’ that basically enables private lenders to lend to students. One such network is www.cuStdentLoans.org (199).

• State-backed non-profit lending groups are also appearing in the US. For example, the Metropolitan Economic Development Association in Minneapolis is helping small businesses access loans after they have been refused by traditional banks, even when they have solid credit ratings (200).

• P2P lender Ripple says that the trustworthiness of traditional banks is open to question given the recent global financial crash. They use a model which allows ‘anyone to act as a bank’ and ‘grant credit within the Ripple system to anyone they know’. There is no need for the involvement of a traditional bank in any way (201).

• Kiva is another social lending network that began focusing on making small loans (US$ 25 – 75) to entrepreneurs in poor countries but is now also lending to ‘unbankable’ clients in the USA. By March 2010 more than 500,000 investors had lent USD 130 million to borrowers through Kiva. It was incorporated as a non-profit in November 2005 (202).

Bypassing Tradition

• The move by Wal-Mart into banking services is because there are around 40 million customers who shop at their retail outlets who are ‘unbanked’ or ‘underbanked’. Wal-Mart feel that they can apply their high volume low margin approach to supplying banking services and capture that market - an opportunity area the banks have overlooked largely because of their traditional high cost business models.

• They already supply a number of services including the Discovery card and in store credit and debit cards, cheque cashing, money orders, bill paying and money transfers.

• They are also well positioned in the Mexican market and could capture a large part of the cross-border remittances market worth around US$ 250 billion annually (203).

• The Wal-Mart move is towards the formation of what is described under US law as an ‘industrial loan company’ which can be owned by a commercial entity that is not a financial institution and has less stringent regulatory requirements. And yet it can offer fairly much all the same services as a traditional bank.

• Sites such as Bankrate.com allow customers to check out which financial institutions offer the best deals on a range of financial products and services in the USA (204).

198 http://springwise.com/financial_services/peertopeer_lending_for_13_bill/ 199 http://www.fynanz.com/company 200 http://www.pressherald.com/business/nontraditional-lending-fills-gap-for-small-businesses_2010-03-06.html 201 http://www.masternewmedia.org/news/2005/06/27/p2p_can_cut_banks_out.htm 202 http://www.kiva.org 203 http://www.creditcardnation.com/pdfs/180_Colloquium_RIT.pdf

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• The Idaho Power Company is actually now paying customers to stop using electricity at certain peak loading times as a way of developing a more efficient business operating model. This is a quite different approach to the ‘charge for everything’ model that has typified the way many traditional businesses, including banks, operate (205).

• Social media is now becoming a powerful tool that can make or break a company or organisation. Consumers are increasingly using such channels as valuable sources of information about how good or bad a company, product or service is as seen through the eyes of their peers. This is a trend that is going to be of critical importance in the future business world (206).

• People are talking about banks on social networks such as Twitter. The question is are banks monitoring what people are saying about them and responding accordingly? The answer so far seems to be not many (207).

Commercial and Institutional Response Trends

• A recent commentary from the CEO of NCR says that the financial services environment is being shaped by a number of consumer demands including:

o An expectation for ‘ubiquity of touch points’ so that they can access services 24/7/365.

o An ability to engage with their financial institution. o An offer of software as a service to help better understand customer wants

and needs. o Online and mobile banking are becoming mainstay services rather than

mainstream. The always on convenience of mobile devices and advances in capabilities and applications ‘represent the biggest opportunity to reach a permanently altered mobile and global consumer’.

o Environmental responsibilities will need to be addressed as these are concerning greater numbers of consumers.

• Every business sector has to rise to the challenge of serving customers when, where and how they want to be served (208).

• It is not just a matter of supplying alternative channels but integrating channels so that everything functions in a seamless big picture way. This represents a major challenge as little in the banking and finance sector operates in such a way nationally or internationally. This is not just a developing country problem but also one that plagues customers in highly developed countries such as the USA.

204 http://money.cnn.com/magazines/moneymag/money101/lesson3/ 205 http://www.nytimes.com/2010/01/24/business/energy-environment/24idaho.html 206 http://www.activ8inc.com/b2evolution/index.php?p=30&more=1&c=1&tb=1&pb=1 207 http://thebankwatch.com/2008/04/07/innovation-happens-at-the-edges-banks-are-you-watching/ 208 http://www.ncr.com/documents/ATMmarketplace_2009FutureTrendsReport.pdf

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• ‘The upside for financial institutions that do respond to more integrated approaches is enormous. The downside to those who do not is a future of reduced loyalty and a declining customer base’ – Bill Nuti, CEO of NCR.

• Banks are struggling to come up with a design of the future bank branch. In the US futuristic bricks and mortar experiments with new branch concepts have been a failure. This is mainly because they were designed with a preconceived idea that customers actually want to come to branches to do many things.

• In contrast ING Direct developed a branch concept that offers no transaction services. It is purely to support customer relationship building. The branches are known as ING Cafes and are more like Starbucks than a traditional bank branch (209).

• IKEA is known for its highly innovative approaches towards retailing which are largely shaped by their in-depth understanding of changing consumer expectations and demands. They have a global initiative called ‘The Never Ending List’ which aims to reduce the company’s operational impacts on the environment and society as they see these as being growing consumer concerns.

• They are focusing on improving energy and water use efficiency, moving towards 80% waste recycling and reuse, and reducing the customer need to use private vehicles to do their shopping (210).

209 http://www.americanbanker.com/btn_issues/22_7/-1000368-1.html 210 http://www.environmentalmanagementnews.net/storyview.asp?storyid=1035590

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Four Scenarios for the Financial Sector in small island nations such as Jamaica

Setting the Context

• In this section four possible alternative futures for a country such as Jamaica with a ten year + horizon focus are presented. They are intended to be used as a tool to provide a big picture context within which a local financial services business can develop a series of alternative scenarios within which to shape their own future.

• The four scenarios developed by the authors to provide an overview of a range of alternative futures for the country of Jamaica and the environment within which a financial services business might have to operate are simply depicted in Figure 22.

Figure 22: Four different future scenarios within which the Jamaican banking and finance sector may need to operate

• The scenarios have been developed using a matrix which is based upon two axes that reflect the impacts of varying degrees of sustainability and economic value creation upon the future shape of Jamaica economically and socially.

The Scenarios

In the following sections a more detailed description of each of the four scenarios in a Jamaican context has been developed using a PESTE framework (Political, Economic, Social, Technology, Environment) to provide a consistency in the way they are presented.

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‘Global Niche’

This scenario describes a highly positive future for Jamaica 10 years + from now. The economy is strong and based on leveraging the country’s unique attributes, strengths and exploiting high value niche market opportunities regionally and internationally. There has been substantial social progress made and everyone is better off than back in 2010. The standard of technology and infrastructure is now close to the leading edge internationally as the country has been able to leapfrog from old to new without the encumbrance of transitions. It is a country that is attracting people to live because of its vibrancy, expanding opportunities, and a high quality of life.

Table 2: The main descriptors of the ‘Global Niche’ scenario from a PESTE perspective

Parameter Description Political • The country has strong leadership and alignment of all key stakeholders, right down to

community level, towards a common long-term vision which, since 2010, has aimed to quadruple GDP per capita by 2030 and improve the living standards of its citizens to first world status through the nations Vision 2030 project.

• The public service is customer friendly, efficient and key executives are accountable for delivering outcomes that advance the country economically and socially. If they don’t, their 2 year employment contracts are not renewed.

• Accountability and transparency are now strong features of the national political and public sector scene.

• The country is now ranked as one of the least corrupt internationally by ranking agencies.

Economic • GDP/capita is 200% greater than in 2010 and the increase has benefitted citizens right throughout society upon an equitable ‘reward for effort’ basis.

• 50% of the country’s businesses are now involved in high value niche businesses and export 75% of their products and services to wealthy niche markets in Asia, the Middle East, Central and South America, and a few selected large population centres in North America and Europe.

• The country has a strong ICT sector that is developing high value specialised customised products for international customers, largely in World 2 and 3 markets.

• The creative sector now accounts for 20% of the country’s GDP and enjoys considerable international success. It is Bob Marley x 1000!

• E-commerce and m-commerce now account for more than 70% of commercial revenues generated in the country and operate seamlessly internationally.

Social • Communities and individuals have come together and participated in a number of initiatives to improve the well-being of their communities and fellow citizens as part of the Vision 2030 project.

• Young people are regarded as a valuable future asset and every effort is being made to empower them through world class educational systems that teach them to think rather than rote learn and inspire them to be creative and excited about the future.

• These systems are hi-tech and link them to international centres of excellence and collaborative ‘communities of interest’ that enable them to explore ideas and develop solutions with their peers in many parts of the world.

• Every child has his or her own personal Vision 2030 life plan complete with goals and support systems to assist them achieve their aspirations.

• Everyone is living healthier lifestyles and the challenges of obesity, HIV Aids and diabetes

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type 2 are now being dealt with more effectively through a strong focus on prevention. • Crime levels have dropped dramatically and the number of murders has dropped to just

85 in 2020. Technology • The country now has Internet speeds that rank among the top 20 fastest in the world

thanks to the entry of new smarter ISPs who have challenged incumbents such as Cable & Wireless who steadfastly resisted change in the early part of the millennium and are now no longer in business.

• Most persons now have mobile devices that combine phone, computer, video, holographic and biometric technologies and use these almost every purpose during the day.

• The country is now close to becoming a 100% cashless society and traditional bank branches no longer exist because technology has made them redundant in a world that operates 24/7/365.

• Virtual and physical cafes provide a place for developing relationships with customers in almost every business sector.

• Schools are all hi-tech and students can link into the best educational communities and forums internationally to collaborate in developing new concepts and solutions.

Environment • The environment is now regarded as an asset that needs to be preserved ‘forever’ if there is to be a future for upcoming generations.

• Fisheries are now managed in a sustainable way so that annual catches can now be maintained and even improved long-term.

• Agriculture has moved towards a modern permaculture model that ensures continued productivity in perpetuity.

• The natural flora and fauna is now viewed as a valuable and unique asset that few if any other countries have and strenuous efforts have been made to preserve both as sources of biological diversity and are being used as a basis for developing unique high value products and services for world markets.

• The mining industry has all but disappeared as the level of resource use efficiency has increased dramatically globally and closed cycle ‘cradle to cradle’ production systems have become commonplace reducing the needs for vast streams on new materials, particularly now that the world’s population appears to be close to peaking and heading towards a slow future decline.

• 35% of the country’s energy is now generated from renewable energy sources and by 2030 the target is to generate 70% from such sources. Community biomass energy production systems, wind and solar have been the major contributor to this transition since 2010.

• Energy use efficiency levels have improved by over 50% since 2010 making Jamaican businesses highly competitive internationally.

• Water use efficiency has improved by nearly 40% due to large increases in costs, concerns about supplies and the introduction of new high efficiency and recycling/reuse technologies.

• The country is 65% towards its long-term goal (2050) of zero waste – where everything is recycled or re-used and waste prevention is a primary focus.

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‘Gated Precincts’

In this scenario the country has increased its economic wealth significantly and there are a number of successful large businesses operating but most are exploitative and have no real long-term sustainable future as they are built upon the use of finite resources that are not being replenished at the rate that they are being used. The wealth generated by these businesses tends to remain in the hands of a wealthy elite group in the political and commercial spheres as well as ex-pat employees and speculators. The gap between rich and poor has widened between 2010 and today and many of the wealthy live in housing estates that are protected by high fences topped with razor wire and with guards controlling entry. There is a great deal of resentment in society towards the wealthy elite and crime levels have risen significantly since 2010. There is little social equity and no social dividend associated with this scenario.

Table 3: The main descriptors of the ‘Gated Precincts’ scenario from a PESTE perspective

Parameter Description Political • The country has strong-arm leadership and many politicians have suspect links with big

commercial groups and speculators. • The public service is focused mainly towards delivering towards the needs of the elite

and has few resources to deliver programmes to help the poor. • Many high level public servants have jobs on the side with ‘favoured parties’ that add

significantly to their annual earnings and perks. • There is little accountability and transparency at the political and public sector levels. • The country is ranked as one of the more corrupt internationally by ranking agencies.

Economic • GDP/capita is 50% more than what it was in 2010 – but unevenly distributed and most of the increase has gone to the wealthy elite who represent less than 10% of the population.

• 75% of the country’s export revenues are generated by 10 major corporations which are essentially stripping the country of its natural assets and making huge profits in the process.

• There has been little investment in developing businesses that have a long-term sustainable future.

• The value of the countries uniqueness is not recognised as being an asset that can provide substantial revenue generation, exciting job prospects and a reversal of the exodus of the country’s top young talent to better opportunities overseas

• The creative sector accounts for only 4% of the country’s GDP and has achieved only limited international success. It is Bob Marley x 1.5

• E-commerce and m-commerce account for about 50% of transactions generated in the country but many are at the micro-level and the systems do not operate in an integrated way nationally or seamlessly internationally.

Social • The country’s elite and major businesses are located in gated precincts that separate them from the poor through the erection of ‘defences’ and the employment of security guards.

• Communities and individuals are divided and there is a great deal of disillusionment about the huge gap between the wealthy and the poor.

• The level of poverty has barely changed since 2010. • Young people are still not being viewed as valuable future asset and few efforts have

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been made to empower them through the educational system. Young males in particular have failed to perform and at the university level 80% of students are female.

• The education system is still relatively low-tech, based on rote learning, and poorly connected internationally.

• No one has a personal long-term plan to which they can aspire. • Because many of the less-advantaged feel life has little to offer them, there has been

little incentive to adopt healthier lifestyles and deal with the challenges of obesity, HIV Aids and diabetes type 2. Rates of all three have continued to climb since 2010.

• Crime levels have increased by 20% over 2010 levels and the number of murders is remains stubbornly high at close to 1,500 annually. There are too many young men who feel they have nothing to lose by adopting a lifestyle revolving around drugs and crime.

Technology • The country now has Internet speeds that rank among the top 50 fastest in the world but the service is expensive and tailored to meet the needs of the elite.

• Most persons now have mobile devices that combine phone, computer, video, holographic and biometric technologies and use these almost every purpose during the day.

• The country is progressing towards becoming a cashless society for the high proportion of ‘unbanked’ people and only a few traditional bank branches exist to service the country’s elite customers (10% of the population) in a highly personal way.

• The rest of the people living in the country are being serviced by smart non-bank virtual businesses that have focused on connecting with the country’s large ‘unbanked’ population.

• Technology and smart new non-bank business models are enabling the 90% ‘unbanked’ population segment to undertake low cost financial transactions and do a limited amount of cashless shopping, at the micro-transaction level.

• Telcos and non-bank groups now control 85% of the transactions market. Environment • The environment is not regarded highly as an asset that needs to be preserved for

upcoming generations. • The focus is strongly on short-term exploitation with little consideration of the long-term

consequences and impacts. • Most of the island’s fisheries are close to collapse through over-exploitation. • Agriculture has expanded but is based on exploitative models that are leading to land

degradation, a loss of productivity, and over-exploitation of the country’s limited water resources.

• The natural flora and fauna are not viewed as being a valuable and unique asset that few if any other countries have and few efforts have been made to preserve both as sources of biological diversity that can be used as a basis for developing unique high value products and services for world markets.

• The mining industry has grown larger but continues to be highly cyclical with shorter ‘booms’ and longer ‘busts’ as other countries increase their levels of resource use efficiency and move towards closed cycle ‘cradle to cradle’ production systems that are more resource use efficient.

• 10% of the country’s energy is now generated from renewable energy sources. The country still has a high dependency on fossil fuel resources and this has had a negative impact upon the general population as prices for oil rose above US$ 200 a barrel in 2014 when the world reached peak oil – the point where global demand exceeded production capabilities. However, the big companies have been cushioned from the impact by government provided subsidies.

• Energy use efficiency levels have improved by only 10% making Jamaican businesses less competitive internationally.

• Water costs have risen by 200% since 2010 due to increased demand and diminishing

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low cost sources. • Recycling and the reuse of resources are only at around the 30% level, low by

international standards. Jamaica is a ‘wasteful society’ by international standards.

‘People First’

In 2020 Jamaica has achieved a high degree of social equity through pursuing policies that have aimed to ensure that everyone in the country has access to all their fundamental needs. Healthcare is available to everyone free as is education. The country has enough food to feed everyone and does not have to rely on imports. Everyone has a place to live. The state controls the entire commercial spectrum with a few minor exceptions. There is a very small privileged political elite in the country. Everything is sustainable from many perspectives. However, the country is impoverished by international standards and the sustainability of its people is a question that looks increasingly difficult to answer. A recent survey found that if people living in Jamaica had the choice, at least 60% of the population would move to a country that offers more prospects immediately.

Table 4: The main descriptors of the ‘People First’ scenario from a PESTE perspective

Parameter Description Political • The country has strong-arm highly socialist leadership that believes in a dogma of

equality for all at any cost. • The public service is focused on delivering programmes that improve the health and

educational status of the population but has poor capabilities and policies when it comes to economic development. Creating economic wealth is low on the agenda as it is viewed as being ‘bourgeois’.

• The country is ranked relatively highly on global indicators relating to health and education but low in terms of economic and social development.

Economic • GDP/capita has remained static since 2010. • 75% of the country’s export revenues are generated by basic agricultural commodities

and tourism. However the country has a low level of exports as a proportion of its GDP because the commercial sector is state owned and developed.

• There has been little investment in developing businesses that have a long-term sustainable future and which focus on high levels of value adding and the employment of intellectual capital.

• The value of the country’s uniqueness is recognised as being an asset but creating value propositions around that asset has been limited and largely relates to the cultural and creative sector.

• Even so, these sectors account for only 5% of the country’s GDP and have achieved limited international success. It is Bob Marley x 4.

• E-commerce and m-commerce only account for about 5% of commercial revenues generated in the country and do not operate seamlessly internationally.

Social • The quality of life is generally good but people have few assets and little disposable income.

• Communities and individuals are generally relatively united and there is little evidence of a rich/poor divide as there is only a tiny political elite. However local people do feel somewhat envious of the wealthy tourists who come and visit the country.

• The level of poverty has barely changed since 2010.

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• Young people are viewed as valuable future asset and efforts have been made to empower them through the educational system. However the dearth of modern challenging and exciting employment roles is a challenge that has become a real issue as they are becoming disillusioned when they see what it happening in other parts of the world over the Internet and through their mobile phone networks.

• The education system is still relatively low-tech, based on rote learning, and poorly connected internationally.

• There are national five year plans which the population is encouraged to engage with but they are fairly traditional in their focus and scope.

• The health of the general population is excellent by international standards and the country does not suffer lifestyle diseases to the same extent as many other countries.

• Crime levels are at low levels because of the greater role communities and individuals play in shaping society. There are around 70 murders a year.

Technology • The country has Internet access but few have computers to be able to access and use it. It is very much ‘shareware’.

• Most persons now have mobile devices that combine phone, computer, video, holographic and biometric technologies and use these for many purposes during the day.

• The country is still largely serviced by traditional state banks in the financial services area.

• However, many of the people living in the country are being serviced by complementary mobile phone delivered services that are run jointly by the state banking and telecommunications agencies.

• Technology is enabling people to undertake low cost financial transactions, particularly at the micro-transaction level as this is the predominant part of the market.

• The transactions market is 100% state controlled. Environment • The environment is regarded as an asset that needs to be preserved for upcoming

generations and its preservation is a national priority. The focus is on long-term strategies and policies that help preserve the environment long-term.

• The island’s fisheries are now fully sustainable with catches based on quotas determined through long-term scientifically-based population studies.

• Agriculture continues to be a mainstay of the economy and is based largely on organic and permaculture principles.

• The natural flora and fauna as a valuable and unique asset that few if any other countries have. However, little has been done to use the country’s biological diversity as the basis for developing unique high value products and services for world markets.

• The mining and resources sectors have grown a little but continue to be highly cyclical with shorter ‘booms’ and longer ‘busts’ as other countries increase their levels of resource use efficiency and move towards closed cycle ‘cradle to cradle’ production systems that are more resource use efficient.

• 40% of the country’s energy is now generated from renewable energy sources, in particular through the adoption of simple biomass and biological waste energy generation systems. The country has been trying to reduce its dependency on fossil fuel resources, in particular after the price of oil rose above US$ 200 a barrel in 2014 when the world reached peak oil – the point where global demand exceeded production capabilities.

• Energy use efficiency levels have improved by about 20% but have little impact economically because of the relatively undeveloped commercial sector in the country.

• Water remains free to everyone. • Recycling and the reuse of resources is at around the 60% level – more out of necessity

due the country’s lack of funds to purchase resources internationally.

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‘Risky Country’

This is a negative scenario for Jamaica in 2020. The country has gone backwards economically and socially since 2010, a time when things were already in a serious state. The commercial sector has shrunk, there is poor political leadership, the country’s infrastructure has deteriorated and the future looks bleak. There is no plan. The highly educated and innovative people have been leaving in droves for overseas and the country’s population is shrinking. For those who have little choice but to remain behind, they are now living in a country that is predominated by gang warfare, drugs, crime and a ‘dog eat dog’ environment.

Table 5: The main descriptors of the Risky Country Scenario from a PESTE perspective

Parameter Description Political • The country has poor leadership and there is no future plan that aims to address the

challenges facing the country. Everything is just happening at random in an uncoordinated and unfocused way.

• The public service is plagued by incompetence, corruption and a lack of inter-Ministry and agency cooperation. It is difficult to do anything without having to pay a bribe or suffer from interminable delays.

• Corruption is rife in every aspect of public life. • The country is ranked in the bottom ten internationally as a place to live and do

business. Economic • GDP/capita has declined by 33% since 2010.

• 75% of the country’s export revenues are generated by basic commodities. The tourism sector has declined dramatically because of the advisories issued internationally warning travellers of the crime situation that prevails.

• As a result, export and tourism revenues have declined by 33% since 2010. • Local and offshore investors have little confidence in developing businesses and

investing in projects in the country because of the lack of direction, crumbling infrastructure, and the high risk situation prevailing.

• The value of the country’s uniqueness is not recognised as being an asset and not being used to create value propositions. The only part of that asset that has developed at all predominantly relates to the cultural and creative sector.

• These sectors account for only 4% of the country’s smaller GDP and have achieved limited international success. It is Bob Marley x 1.1.

• E-commerce and m-commerce on a micro-scale account for about 80% of the transactions generated in the country but do not operate seamlessly internationally.

Social • The quality of life is poor and people have few assets and little disposable income. • Communities and individuals are living in an environment predominated by fear and

suspicion, even of their neighbours. • The level of poverty has risen by 100% since 2010. • Young people have been neglected as future asset and literacy levels amongst the young

have declined to around 55%, particularly amongst young males. There are real concerns about how the lack or empowerment of young people will impact on the outcomes of the country in 2030. The future situation looks even bleaker for the country than the already bleak situation that exists today.

• The education system is still relatively low-tech, based on rote learning, and poorly connected internationally.

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• There is no national engagement in any long-term plan to turn things around as no such

plan exists. • The health of the general population has declined and the country has been seeing an

worrying increase in the prevalence of third world diseases over the past ten years which looks set to continue.

• Crime levels are at high levels because of the ‘dog-eat-dog’ attitudes that are shaping society. There are now over 3000 murders a year.

Technology • The country has limited Internet access and only a few persons have computers to be able to access and use it.

• Most persons now have mobile devices that combine phone, computer, video, holographic and biometric technologies and use these as a tool for many purposes each day.

• The country’s traditional banking sector has shrunk as the commercial sector has shrunk and is now only servicing 7% of the country’s shrinking population.

• Many of the people living in the country are being serviced by mobile phone delivered services that are provided by non-bank entities which are poorly regulated and some of which are a law unto themselves. Some are involved in international money laundering activities.

• Technology is enabling people to undertake low cost financial transactions, particularly at the micro-transaction level as this is the predominant part of the market. However, there have been several ‘rip-off’ operators who have stolen people’s money, even from the poorest of the poor.

• 90% of the country’s transactions are now managed by smart hi-tech non-bank entities which have embraced the country’s huge ‘unbanked’ population segment.

Environment • The environment is not a national priority and illegal dumps and deforestation are major problems.

• The national focus is on short-term expediencies that take little account of long-term environmental consequences.

• The island’s fisheries are now close to a state of collapse and the country’s fishermen face a bleak future as they have to search for alternative ways to earn a living.

• Agriculture has declined due to a lack of investment and inefficient high cost production methods. This has seen a lot of agricultural land become abandoned and revert to a more natural state.

• The natural flora and fauna is a valuable and unique asset that few if any other countries have However, little has been done to protect and use the country’s biological diversity as the basis for developing unique high value products and services for world markets.

• The mining and resources sector has shrunk by half since 2010 because the global demand for such commodities has been subject to more ‘busts’ than ‘boom’s and the economics of running such businesses in a country with deteriorating infrastructure and increasing criminal activity have become less attractive.

• 60% of the country’s energy is now generated from burning wood from the county’s forests, as a consequence of the price of oil rising above US$ 200 a barrel in 2014 when the world reached peak oil – the point where global demand exceeded production capabilities.

• This is leading to environmental degradation on the country’s hillsides as the forest cover is being stripped and a Haiti-like deforestation situation is developing.

• Energy use efficiency levels have changed little. • Water remains free to everyone but you have to find your own sources because the

national water delivery infrastructure has fallen into disrepair and has largely ceased to function.

• Recycling and the reuse of resources is at around the 70% level – more out of necessity

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as scavengers struggle to make a few dollars in order to survive. • Jamaica has become the dumping ground for toxic e-waste internationally in an attempt

by the government to earn overseas funds. This waste has contaminated natural waterways and underground sources and is beginning to impact upon people’s health.

Using the Scenarios

Each of the four scenarios is already in play to some extent in Jamaica. Depending upon which policy levers are pulled and which approaches are taken to long-term strategic planning and national development, the direction could shift more towards one or more of these scenarios at any time over the coming years.

There are opportunities and threats associated with all four. The challenge for a financial services business in that country is to develop a preferred business scenario and associated strategy that enables them to be best positioned to take advantage of the opportunities that evolve no matter which scenario predominantly shapes Jamaica in the future.

Obviously the preference for the majority would surely be the positive ‘Global Niche’ scenario. However, to move in that direction would require a radical shift in the way things are being done politically, commercially and in society in the country today. Based on current trends, aspects of the ‘Gated Precincts’ and ‘Risky Country’ scenarios could become more predominant in the near future if there is no resolve to develop and implement a long-term plan that will shift the country towards a more positive future.

The challenge is for any financial services business to develop a preferred scenario that underpins their go-forward strategy that will secure them the best future position in the market. It is likely to be in quite different space to that in which financial services businesses in that country have been traditionally been used to operating.

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Final Comment

The global banking and finance sector has been characterised by its conservative and often inflexible approach to business. In the developing countries in particular, banks have tended to service only a small elite group of customers and ignored the large ‘unbanked’ population segment.

Technology, in particular, mobile technologies and applications, has moved into a smarter multi-functional phase that is just a few years old and threatens to radically change the whole financial sector.

The future is going to be more than just Internet and online banking. It is going to be about the convergence of technologies, the moves non-traditional players make to exploit opportunities in the sector that banks have ignored for decades, the disappearance of credit and transaction cards, and the emergence of multi-functional biometrically-secure personal interfaces that enable consumers to personally dictate and control their own destinies 24/7/365.

This is not a World 1 phenomenon. It is in fact a global phenomenon and a great deal of the innovation and entrepreneurship associated with changing the shape of the global banking and financial sector is now coming out of Worlds 2 & 3 and, in some cases, even being applied back into World 1.

Social networks and sustainability are becoming powerful drivers of change. But the biggest change is that customers (even the ‘unbanked’) are becoming kings and queens and dictating the terms when it comes to satisfying their needs and wants. Companies and organisations that fail to grasp this fundamental shift will struggle to survive in future years.

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