Rise of the robots

BY Richard Summerfield

Robotic process automation (RPA) and artificial intelligence (AI) are being increasing harnessed by organisations across a number of different sectors, according to a new report from PEX Network.

The report, which was produced following a survey of over 150 banking, financial services and insurance executives, sets out the key challenges, priorities and strategies for AI and RPA utilisation in 2017.

For the financial services, banking and insurance industries in particular, AI and RPA could have a truly transformative effect over the coming decade. Accordingly, it is imperative that companies embrace automation and robotics as quickly as possible.

Some companies have begun their implementation process with respect to RPA. Thirty-five percent of respondents have set about integrating RPA and are looking to expand their usage of automation where possible.

However, the firms that have invested thus far have typically only dipped their toe in the water. Around 80 percent of firms have invested less than $1m into RPA thus far. AI investment also remains on the low end of the spectrum, with 60 percent of respondents investing less than £100,000. Just 11 percent of firms have invested £1m and above.

The relative immaturity of RPA may have served as a roadblock to implementation to date. Twenty-six percent of survey respondents cited a lack of process standardisaton before RPA implementation as the main obstacle in implementing an RPA solution, 16 percent of executives cited a lack of resources to allocate to RPA implementation and 13 percent cited a lack of available budget as primary reasons that their firm had not yet implemented an RPA solution.

For those firms looking to automate their services in the future, they must begin by considering which of their processes would be suitable. Also, they must evaluate the forms of AI and FinTech technologies available to them. Fifty-seven percent of firms are considering cognitive RPA, while 53 percent are evaluating machine learning and 50 percent are exploring Big Data.

In the coming decade, technology solutions, including RPA, AI, Big Data and the blockchain, will have a transformative effect on the financial services, banking and insurance sectors. Companies would be wise to embrace these technologies early, when the price points are low and the potential returns are much higher.

Report: 2017 Benchmarking Report: The future of robotic process automation and artificial intelligence

The ‘Brexodus’ begins

BY Richard Summerfield

To date, the UK economy has been surprisingly resistant to Brexit. While in the run up to the referendum some prognosticators forecast that the economy would collapse, and others that the vote would usher in a new era of economic prosperity, with the exception of the fall in the value of sterling, and a recent decline in consumer confidence, nearly a year on from the vote the UK’s economic outlook has remained relatively calm.

One post-Brexit forecast from the pre-election days, however, is coming to pass, with the announcement this week that US financial services mega-power JP Morgan Chase is to move 1000 jobs out of the City of London, relocating them to Dublin, Frankfurt and Luxembourg as part of the firm’s Brexit contingency plans. The UK’s decision to recant from the European Union (EU) was always like to have an impact on the City, given that is the heart of the continent’s financial services sector. By withdrawing from the EU and potentially losing the all-important passporting rights, triggering Article 50 was always going to be transformative. It seems as if several different European cities will now benefit.

“We are going to use the three banks we already have in Europe as the anchors for our operations,” Daniel Pinto, JP Morgan’s head of investment banking, told Bloomberg on Wednesday. “We will have to move hundreds of people in the short term to be ready for day one, when negotiations finish, and then we will look at the longer-term numbers.”

Though JP Morgan is the first firm to solidify its plans, it will not be the only financial services firm fleeing the City. Last week, Richard Gnodde, head of European operations at Goldman Sachs, said his firm would need more people in Madrid, Milan, Paris and other EU centres. Equally, José Viñals, Standard Chartered’s new chairman, told his bank’s AGM that it would be pursuing expansion opportunities in the German city of Frankfurt. “We are looking at setting up a subsidiary in the EU to ensure we’re prepared.”

Deutsche Bank, too, has suggested it could move up to 4000 jobs out of the UK – nearly half its workforce in the country – despite previously maintaining its commitment to the City.

While there is still a great deal of confusion over the Brexit process and the UK’s future relationship with the EU, one thing is becoming very clear – financial services in a post-EU UK will never quite be the same again.

News: J.P. Morgan to Shift Up to 1,000 Jobs Out of London Ahead of Brexit

AI is now the focus for UK FinTech startups, reveals new report

BY Fraser Tennant

FinTech startups in the UK are increasingly focusing on building smarter and faster machines as well as gaining a better understanding of the potential for artificial intelligence (AI) to solve customer problems, according to a new report by PwC and Startupbootcamp.

In ‘Start-up view: a year in FinTech’, based on data from Startupbootcamp’s FinTech accelerator programme and UK FinTech deals in 2016, the report’s authors reveal a major cultural shift over the past 12 months and cite Enterprise Bot – virtual assistants that can be used by banks to improve customer service – as a good example of how AI and machine learning is being used to solve real-life customer issues.

Among its key findings, the report notes that: (i) UK-based FinTech startups made up 34 percent of all applications to Startupbootcamp in 2016 (up from 22 percent from 2015), demonstrating the constant growth of innovation and wealth of talent in the UK; (ii) nine of top 20 UK FinTech deals were completed post-EU referendum, with investment totalling $368m; and (iii) the UK’s FinTech sector has continued to progress following the EU referendum, with FinTech ‘bridges’ being built between London and China, South Korea, Singapore, India and Australia.

“Despite political, economic and financial uncertainty causing people to believe FinTech might be derailed, we have yet to see any real impact," said Francisco Lorca, managing director of Startupbootcamp FinTech London. “This year, we have seen the sector’s entrepreneurs, including the Startupbootcamp FinTech 2016 cohort, consistently proving that they have genuinely transformative ideas to offer – and that these ideas are commercially viable.”

However, despite all the entrepreneurial spirit and transformative ideas, the report does make clear that investors are less keen to focus on this area, with many saying that ‘it remains too soon to invest in smarter, faster machines'.

 “While questions remain on how big players can measure their success in FinTech, the reality is investment in innovation is now necessary for financial services companies to keep pace with competitors both within and outside their own industry," said Steve Davies, EMEA FinTech leader at PwC. “As the UK’s position in Europe post Brexit becomes clearer, startups from across the world will continue to travel here to work with international investors, partner with leading financial firms and develop under a forward thinking regulator.”

Noting that the UK is likely to remain a global FinTech centre despite Brexit, Mr Lorca concluded: “One can only imagine what will come next, but both incumbents and startups should be prepared to embrace change.”

Report: ‘The start-up view: a year in FinTech’

Reckitt Benckiser to acquire Mead Johnson for $16.6bn

BY Richard Summerfield

The world’s leading consumer health and hygiene firm, Reckitt Benckiser Group plc, has announced that it is to acquire Mead Johnson Nutrition Company for around $16.6bn, though the total value of the deal, including the target's existing debt, will be around $17.9bn.

Mead's shareholders will receive $90 cash per share held, a premium of 9 percent to the company's closing price of $69.50 on 1 February 2017, the day before speculation of a possible deal first emerged, and 24 percent up on its 30-day volume-weighted average price of $72.37.

In a statement announcing the deal Rakesh Kapoor, Reckitt's chief executive, said: “The acquisition of Mead Johnson is a significant step forward in RB’s journey as a leader in consumer health. With the Enfa family of brands, the world’s leading franchise in infant and children’s nutrition, we will provide families with vital nutritional support. This is a natural extension to RB’s consumer health portfolio of Powerbrands which are already trusted by millions of mothers, reinforcing the importance of health and hygiene for their families.”

According to the firms, the newly combined company will generate around 40 percent of its sales in developing markets. China will be the firm’s second-largest market after the US. The takeover will add to Reckitt's earnings within a year of the deal completing and the deal will generate $250m of cost savings after three years.

James Cornelius, chairman of Mead's board of directors, said: “The agreement being announced today is about value creation. First and foremost, this transaction provides tremendous value to Mead Johnson Nutrition stockholders. Additionally, relative to the future growth and development of the Mead Johnson business, Reckitt Benckiser – with its strong financial base, broad global footprint, consumer branding expertise and dynamic business model – is an ideal partner.”

Reckitt has confirmed that the deal will be funded through a combination of cash and new debt. To complete the deal, the company will take out a bridging loan of $8bn to cover the cash consideration and issue $9bn of new debt in the form of three- to five-year-term loans.

The two companies have also noted that the deal will include a $480m break-fee if either company walks away, subject to certain conditions.

News: Reckitt Benckiser to buy Mead Johnson

Automotive industry faces crunch as production set to nosedive in Western Europe, survey reveals

BY James Williams

Automotive production in Western Europe will be less than 5 percent by 2030, according to KPMG’s ‘Global Automotive Executive Survey 2017’ – its annual state of play analysis of the industry.

Following the UK’s decision to leave the European Union (EU), 65 percent of automotive executives believe that the EU as it is today “will be history in 2025”. This scenario would not only jeopardise the free trade zone within the EU, but also “disruptively affect the automotive industry worldwide”.

Now in its 18th year, the study assesses the current state and future prospects of the worldwide automotive industry, gathering the opinions of almost 1000 executives from 42 different companies.

Respondents believe that the end of the EU would trigger an automotive production shortage in Western European countries by 2030 – in addition to the globalisation and development of China’s sales market – which would see car production fall from 13.1 million to 5.4 million within 13 years.

The survey states: “Not only will macroeconomic risks and geopolitical turmoil have a significant impact on the automotive sector in Western Europe, the emergence of China as the most important automotive sales market will also lead to dramatic dependencies for some auto manufacturers in the region”.

Furthermore, 76 percent of executives agree that China will dominate more than 40 percent of its global share of vehicle sales by 2030, and will continue to keep its “pole position as world leader for sales in the automotive industry”.

It is also estimated that China would need to sell a total of 43 million vehicles to reach its predicted figure. Over 56 percent of global executives believe that the country is a “high growth market for traditional and mass volume manufacturers”.

The survey notes that “China is absolutely seen by executives as a high growth market primarily for mass and volume manufacturers as well as for premium manufacturers. This leads to the conclusion that innovations will be developed for China but not necessarily by Chinese players”.

Overall, the effect of Brexit could prove to be more damaging to Western Europe than first thought. The threat of a depleted EU could see British automotive trade diminish.

Report: ‘Global Automotive Executive Survey 2017’