How Fintech Innovation Transforms the Banking Sector

Trusted banking relationships are important to both customers and financial services organizations. Traditionally, a banking relationship was a longstanding one, that could potentially last a customer’s lifetime. Today, that now seems like a bygone era.

The introduction of online and mobile banking solutions has fundamentally altered the traditional relationships in the banking area, enabling disruption to the legacy financial services business model.

Measures to increase competition and make switching accounts easier have reduced friction, while strong commoditization of services in the U.S. market has led to decreases in profit margins.

Digital Banking Market Development

The total number of digital banking users will exceed 3.6 billion by 2024 -- that's up from 2.4 billion in 2020 and a 54 percent increase, according to the latest worldwide market study by Juniper Research.

This growth will be driven by the rise of digital-only banks, fintech innovations, and the ongoing focus on digital transformation by established consumer and commercial bank brands.

The new research study found that digital-only banks have gained market share from traditional banks by offering superior user experiences and tightly focused unique selling propositions (USPs).

The research recommends that established banks must personalize the software app experience; using artificial intelligence (AI) based personal financial management tools to effectively compete against digital-only bank innovation.

Financial services firms invested heavily in digital transformation and new product offerings in 2019, although the extent of these market development activities varied considerably.

Juniper's 'Digital Transformation in Banking Readiness Index' analyzed leading Tier-1 banks to evaluate their digital transformation readiness and highlight their respective positioning in their digital innovation roadmaps.

Juniper analysts identified the top three leading group of banks for digital transformation, as follows: Bank of America, BBVA and JPMorgan Chase.

Bank of America offers extensive digital solutions, including the Erica chatbot, and has had noticeable adoption in digital usage and engagement.

BBVA has focused on capitalizing on APIs in banking, by offering the BBVA Open Platform, which is a Banking-as-a-Service platform.

JPMorgan Chase has experimented with blockchain technology and is rumored to be planning a digital-only service launch in the UK.

Outlook for Digital Banking Innovation Growth

"These banks have executed highly effective digital transitions; however digital transformation is never complete. These banks must now refocus on the new strategies required to retain their digital leadership," said Nick Maynard, lead analyst at Juniper Research.

The research also noted that traditional banks are launching digital-only brands, such as Bó from UK bank NatWest. However, Juniper analyst has cautioned that these product launches must be differentiated from existing offerings and digital-only competition -- providing a more personalized experience -- or they will fail to gain momentum.

COVID-19: Digital Transformation Creates Opportunity

How do business leaders react when there's a sudden disruption in the Global Networked Economy? While some leaders see only challenges, the bold and the brave envision an opportunity for the development of solutions that result in unique competitive advantages.

The outbreak of the COVID-19 epidemic has showcased the value of IT and Digital Transformation, and savvy leaders of forward-looking organizations will now accelerate the transition, according to the findings in two recent surveys of senior executives in China.

The first IDC survey canvassed the opinions of 32 CxOs in 10 industries and covered three qualitative aspects: the impact of the COVID-19 epidemic on corporate business; the value of IT and digital transformation in the fight against the outbreak; and new digital transformation measures after the epidemic.

The second, quantitative survey polled 121 CxOs of industry users, comprising 19 questions such as judgment on epidemic development and its impact on the economy, businesses and ICT spending, and new initiatives for the digital transformation of enterprises after the epidemic.

Mr. Wu Lianfeng, VP and chief analyst at IDC China, said "digital transformation has become a core strategy for enterprises. It is not something which can be done overnight but will rather take at least 10 years to complete. Realizing large-scale accelerated innovation has become the core of digital transformation today."

Judgment on Development of the Epidemic Situation

As for the development of the COVID-19 epidemic, survey respondents were generally cautiously optimistic about the development of the epidemic, but industrial users were more optimistic than ICT vendors as 70 percent of the respondents believe that the epidemic would last for 3 to 6 months.

Impact of the Epidemic on Corporate Business

The top 3 negative impacts of the COVID-19 epidemic on enterprises are:

• Inability to visit customers.
• Significant decline in sales performance.
• Inability to resume production.

The top 3 positive impacts on enterprises are:

• Improved corporate ability of long-distance collaborative work.
• Wide recognition of the value of digital transformation and information technology among all employees.
• Gaining ability of online marketing and business development.

As for their 2020 corporate business growth plans, 52 percent of respondents are maintaining their original plans unchanged, while 14 percent downgraded their original plans by 5-10 percent.

As for the epidemic, 65 percent of industrial users have formulated plans for working from home, while 20 percent are planning to implement telecommuting.

The three major challenges of working at home are: companies have not formed a culture of long-distance collaborative work; there are concerns about the sharp decline in work efficiency; and lack of similar experiences to draw upon as reference.

Impact of the Epidemic on ICT Spending

As for the impact of the COVID-19 epidemic on ICT spending, 45 percent of the surveyed industrial users said that their spending would be delayed in the first quarter of 2020 and their annual spending is also expected to be reduced.

However, there was still 26 percent of industrial users believing that their annual ICT spending would be not unaffected much, while 21.5 percent said that their spending would increase by up to 10 percent. Overall, ICT vendors were more pessimistic than industrial users.

Among the negatively impacted ICT fields, hardware will be hit harder than software, while traditional technology will be more affected by new technology. Product-wise, front-end devices will be more impacted than back-end infrastructure products.

Among the positively impacted ICT segments, enterprise collaboration platforms will benefit most from the epidemic, with 76 percent of the surveyed industrial users choosing to adopt such platforms, followed by cloud computing, robotics, artificial intelligence (AI), big data and 5G.

New Measures for Digital Transformation of Enterprises

To cope with the challenges of the COVID-19 epidemic and the macroeconomy, industrial users will focus their digital transformation on the following Top 5 fields in 2020:

• Creating new telecommuting and enterprise collaboration systems.
• Exploring new business models and business growth points.
• Building up competitive digital cultures and organizations.
• Reducing costs by improving operational efficiency.
• Exploring industrial application scenarios of 5G and IoT.

IT and Digital Transformation Show Growing Value

According to the IDC assessment, the outbreak of the COVID-19 epidemic fully showcases the value of IT systems. Collaborative office, online marketing, video conferencing, customer management, remote support and service and other systems have played a tremendous role in coping with the challenges posed by the epidemic.

Enterprises leading in digital transformation are significantly less vulnerable to the epidemic, while enterprises leading in work resource transformation have a better ability of long-distance coordination and higher overall work efficiency.

The outbreak has boosted enterprises’ sense of response to force majeure, which will accelerate their all-round digital transformation.

Non-contact connected businesses and services will rise faster, with deepening integration of online and offline services. Cloud + AI + 5G or IoT will be the catalyst for this trend.

"The COVID-19 epidemic has fully showcased the value of IT and digital transformation. CxOs should take full advantage of this opportunity to turn crisis into a business opportunity, accelerate the implementation of new digital transformation strategies, support enterprises to look for points of business breakthroughs and innovation and achieve healthy and sustainable corporate development," concluded Mr. Lianfeng.

AI Automation Tools Enable Data Privacy Compliance

Enterprise data privacy compliance has created a significant operational burden for many organizations. Now CIOs and CTOs are adopting automation tools that can ease the task of ensuring that their employees follow the relevant domestic and international requirements.

Over 40 percent of privacy compliance technology will rely on artificial intelligence (AI) solutions by 2023 -- that's up from 5 percent today, according to the latest worldwide market study by Gartner.

"Privacy laws, such as General Data Protection Regulation (GDPR), presented a compelling business case for privacy compliance and inspired many other jurisdictions worldwide to follow," said Bart Willemsen, research vice president at Gartner.

Data Privacy Compliance Market Development

More than 60 jurisdictions around the world have proposed or are drafting post-modern privacy and data protection laws. Canada, for example, is looking to modernize its Personal Information Protection and Electronic Documents Act (PIPEDA), in part to maintain the adequacy standing with the EU post-GDPR.

Privacy leaders are under pressure to ensure that all personal data processed is brought in scope and under control, which is difficult and expensive to manage without technology aid. This is where the use of AI-powered applications that reduce administrative burdens and manual workloads come in.

At the forefront of a positive privacy user experience (UX) is the ability of an organization to promptly handle subject rights requests (SRRs). SRRs cover a defined set of rights, where individuals have the power to make requests regarding their data and organizations must respond to them in a defined time frame.

According to the 2019 Gartner Security and Risk Survey, many organizations are not capable of delivering swift and precise answers to the SRRs they receive.

Two-thirds of survey respondents indicated it takes them two or more weeks to respond to a single SRR. Often done manually as well, the average costs of these workflows are roughly $1,400.

"The speed and consistency by which AI-powered tools can help address large volumes of SRRs not only saves an organization excessive spend, but also repairs customer trust," said Mr. Willemsen. "With the loss of customers serving as privacy leaders’ second-highest concern, such tools will ensure that their privacy demands are met."

According to the Gartner assessment, through 2022, privacy-driven spending on compliance tooling will rise to $8 billion worldwide.

Gartner expects privacy spending to impact connected stakeholders purchasing strategies, including those of CIOs, CDOs and CMOs. Today’s post-GDPR era demands a wide array of technological capabilities, well beyond the standard Excel spreadsheets of the past.

Outlook for Data Privacy Automation Applications

"The privacy-driven technology market is still emerging," said Mr. Willemsen. "What is certain is that privacy, as a conscious and deliberate discipline, will play a considerable role in how and why vendors develop their products."

Gartner analysts predict that as AI turbocharges privacy readiness, by assisting organizations in areas like SRR management and data discovery, we’ll start to see more AI capabilities offered by service providers.

Upside for IoT Data and Analytics Management Services

CIOs and CTOs are exploring new ways to extract insights from their enterprise data assets with analytics tools. While they continue to invest in on-premises solutions, they're also looking to public cloud service providers.

As cloud computing providers grow their footprint in the internet of things (IoT) value chain, their investments in data and analytics services are accelerating.

Based on the review of cloud service provider offerings, recent acquisitions, and the competitive outlook, ABI Research now forecasts that cloud suppliers will grow their share of IoT data and analytics management revenues from $6 billion in 2019 to $56 billion in 2026.

IoT Data and Analytics Market Development

While the growth is impressive, cloud vendor services today are focused on data management complemented by a generic analytics toolset. That said, cloud computing vendor revenues come primarily from streaming, storage, and the orchestration of data.

In contrast, most analytics service offerings across cloud vendors are less differentiated, as reflected in pre-built templates -- such as AWS Sagemaker and Microsoft Azure Notebooks -- which leverage the Project Jupyter open-source software, standards and services initiative.

Considering that many cloud vendors are in the early stages of their analytics investment, they are relying on their specialized channel partners for addressing more specific 'advanced analytics' and vertical market needs.

"The overall approach shown by cloud suppliers in their analytics services reflects the dilemma they face in the complex IoT partnership ecosystem," says Kateryna Dubrova, analyst at ABI Research. "Effectively, do they rely on partners for analytics services, or do they build analytics services that compete with them?"

Interestingly, streaming is the one analytics technology that all cloud vendors are building into their solution portfolios to blend data management with near-real-time analytics on streamed IoT data.

Companies such as AWS, Microsoft, Google, IBM, and Oracle, for example, are promoting their proprietary streaming solutions to differentiate, accelerate time-to-market, and win over customers.

According to the ABI assessment, companies including Cloudera, Teradata, and C3.ai are introducing streaming analytics services that are reliant upon open-source technology, such as Spark and Flink.

However, by choosing to focus on data management and streaming technologies, cloud vendors are ceding the advanced analytics market to other suppliers. That emerging market is an example of the 'coopetition' in the IoT ecosystem, where cloud vendors partner with advanced analytics experts.

This vendor coopetition enables them to promote an end-to-end IoT technology stack. For example, Azure and AWS have partnered with Seeq to leverage its advance analytics capabilities. Other vendors, such as Oracle, Cisco, and Huawei, are pushing intelligence and analytics closer to the devices, expanding their edge computing portfolio.

Outlook for Cloud-based Analytics Applications Growth

Such divergent analytics strategies represent the reality and challenges for serving a very diverse IoT ecosystem with IoT analytics services.

"Ultimately, businesses are moving to an analytics-driven business model which will require both infrastructure and services for continuous intelligence. Cloud vendor strategies need to align with this reality to take advantage of analytics value and revenues that will transition to predictive and prescriptive solutions," Dubrova concludes.

There is a significant upside opportunity for vendors that are exploring the numerous applications for IoT analytics services. Solutions will include both on-premises IT infrastructure and cloud offerings.

Global 5G Network Connections will Reach 1.5B by 2025

While 2019 was the year that fifth-generation (5G) wireless services were deployed across the globe, this is just the beginning of the new trend. So far, launches in North America, West Europe and the Middle East created a small base of 5G customers, however, the technology gained significant traction within the Far East and China markets.

As a result of strategic foresight by the government, the early launch and fast customer adoption in South Korea clearly drove their 5G deployment leadership. By the end of the year, there were an estimated 4.5 million 5G users in the Far East market, roughly 80 percent of the global total, nearly all of them in South Korea.

5G Network Infrastructure Market Development

North America had the second-highest number of connections, reaching an estimated 800,000 users. West Europe is taking a more tentative approach, waiting to see how the technology develops and evolves, while some parts of the world lack the infrastructure to start on 5G for at least two years.

According to the latest market study by Juniper Research, the total number of 5G connections will reach 1.5 billion globally by 2025 -- that's rising from only 5 million connections in 2019. This trend represents an annual average growth rate of 150 percent over the next 6 years.

The research findings uncovered that growth from these 5G connections is a highly sought-after new revenue stream for telecom network operators. Juniper forecasts that 5G internet of things (IoT) connections must be considered as new connections that will not cannibalize existing network operator connectivity revenue from current 4G IoT technologies.

Juniper analysts urge mobile network operators to develop comprehensive value-added services to enable the IoT service users to manage their 5G connections. They now forecast that tools, such as network slicing and multi-access edge computing solutions, will be essential to attract the highest spending commercial IoT service users to use their 5G networks.

Juniper also forecasts that valued-added services will become crucial in the automotive and smart cities sectors. They have forecast that these sectors would account for approximately 70 percent of all 5G IoT connections by 2025, with higher than anticipated levels of device support for 5G radios accelerating the uptake of 5G connectivity.

The analyst research findings claimed that the initial high pricing of 5G connectivity in the IoT sector would likely dissuade all but the high-value IoT users. They have urged network operators to roll out holistic network management tools that complement the enhanced capabilities of 5G networks for IoT capabilities.

Outlook for 5G Infrastructure Return on Investment

"Management tools for the newly-enabled services are key for users managing large scale deployments. We believe that only 5 percent of 5G connections will be attributable to the IoT, but as these are newly enabled connections, operators must view them as essential to securing a return on their 5G investment," said Andrew Knighton, Associate Analyst at Juniper Research.

When deployed, 5G networks will need to be scalable and intelligently efficient to support billions of IoT devices. A sizeable number of sensing devices are already in place and several uses for the IoT have emerged from these.

That said, due to the significant cost associated with providing adequate coverage for 5G network applications, telecom service providers must fully explore all viable sources of high-margin service revenue.

Global Smart City Tech Spending to Reach $124 Billion

When governments invest in new infrastructure, information technology (IT) is now a key component of their development plan. Very large municipal governments, in particular, are spending more on Smart City projects that provide their citizens with many unique advantages.

Furthermore, the IT infrastructure advancement trend is gaining momentum across the globe, as established and emerging technology applications are adopted by the forward-thinking leaders.

Global spending on smart cities initiatives are forecast to total nearly $124 billion this year -- that's an increase of 18.9 percent over 2019, according to the latest worldwide market study by International Data Corporation (IDC).

Smart City Initiative Market Development

The top 100 cities investing in smart initiatives in 2019 represented around 29 percent of global spending, and while growth will be sustained among the top spenders in the short term, the market is quite dispersed across midsize and small cities investing in relatively small projects.

In 2019, use cases related to resilient energy aIDCnd infrastructure represented over one-third of the opportunity, driven mainly by smart grids. Data-driven public safety and intelligent transportation represented around 18 percent and 14 percent of overall spending respectively.

Looking at the largest use cases, smart grids (electricity and gas combined) still attract the largest share of investments, although their relative importance will decrease over time as the market matures and other use cases become mainstream.

Fixed visual surveillance, advanced public transportation, intelligent traffic management, and connected back-office follow, and these five use cases together currently represent over half of the opportunity.

According to the IDC assessment, the use cases that will see the fastest spending growth over the five-year forecast are vehicle-to-everything (V2X) connectivity, digital twin, and officer wearables.

Singapore will remain the top investor in smart city initiatives. Tokyo will be the second-largest spender in 2020, driven by investments for the Summer Olympics, followed by New York City and London. These four cities will each see smart city spending of more than $1 billion in 2020.

On a regional basis, the United States, Western Europe, and China will account for more than 70 percent of global smart cities spending throughout the forecast. Latin America and Japan will experience the fastest growth in smart cities spending in 2020.

Outlook for Smart City Applications Growth

"Regional and municipal governments are working hard to keep pace with technology advances and take advantage of new opportunities in the context of risk management, public expectations, and funding needs to scale initiatives," said Ruthbea Yesner, vice president at IDC.

IDC analysts now believe that many government leaders are moving to incorporate Smart City use cases into budgets, or financing efforts through more traditional means. This is helping to grow further investments.

Looking to the future, more IT infrastructure investment will likely focus on new technology applications such as artificial intelligence (AI) combined with the internet of things (IoT) and 5G wireless communications.

Government Leaders Fail to Fund New IT Infrastructure

Given the typical complexity of planning and achieving a digital transformation, Chief Information Officers (CIOs) within federal, state or local governments have many challenges. As an example, they must rely upon the financial approval of elected or appointed leaders that are incapable of understanding the current business technology landscape.

Government CIOs struggle to obtain funding for qualified independent consultants that can help them to validate their requirements for modern IT infrastructure. Some IT vendors provide professional services that offer transformation guidance, but it's often inconclusive. A survey has uncovered the key issues.

Government IT Market Development

Fifty-eight percent of government CIOs faced organizational disruption during the past four years, according to the latest worldwide market study by Gartner. Fifty-two percent of respondents said they had also faced a funding shortfall in that same timeframe.

Note, these figures are higher than those for all other industries.

"Governments are struggling in many areas, following disruptions including changes in leadership, reorganizations and funding shortfalls. For many government CIOs, disruption will affect their IT budget growth, and the funding and launch of new business initiatives will suffer," said Alia Mendonsa, senior research director at Gartner. "Inflexible funding models exacerbate this issue, due to budgetary processes and cycles within government."

Many CIOs of government organizations are still developing their digital transformation leadership skills. Moreover, the government sector is often deficient in all aspects of strategy -- particularly in its ability to communicate a clear agenda that articulates how the organization will achieve its vision.

The Gartner survey found that only 48 percent of government CIOs said their organization had a clear and consistent overall business strategy.

"In the absence of a formal business strategy, government CIOs need to incorporate strategic business outcomes into their digital government strategy. Business outcomes will be validated by the business as part of the strategy approval process," said Ms. Mendonsa.

However, on a more positive note, the survey results showed that government CIOs are ahead of other industries in enhancing citizen-centricity by developing and delivering digital services, however they remain slightly behind other industries in most IT process domains.

According to the Gartner assessment, in order to resolve this deficiency, government CIOs should assess the maturity of their IT processes to identify areas of strength and weakness, then prioritize implementation of improved processes and workflows according to the results.

The survey found that data and analytics, artificial intelligence (AI) and cloud technologies remain game-changers for government CIOs in 2020. Survey results showed that within the next 12 months the majority of the respondents had already deployed or are focused on deploying cybersecurity (84 percent), AI (37 percent) and robotic process automation (33 percent).

Outlook for Government IT Digital Transformation

"Government CIOs need to prioritize investment in emerging technologies according to potential value for their institution," said Ms. Mendonsa. "More mature technologies such as cloud and data and analytics offer immediate benefits in terms of capability and scalability for delivering digital government services, and therefore may be prioritized."

Furthermore, experiments with AI and robotic process automation may start small initially, and once their value can be demonstrated, initiatives involving these emerging technologies may be scaled up over time.

Online Payment Fraud will Reach $202 Billion by 2024

The digital payment era is here. Record numbers of online payments are being processed. And, nearly half the world will be using digital wallets by 2024, with transaction values to increase by almost 60 percent reaching over $9 trillion, according to the latest worldwide market study by Juniper Research.

Moreover, the greater financial services sector is in the midst of a payments revolution. The increased convenience of digital solutions is driving more eCommerce engagement. However, it has also created an environment for cybercriminals that are intent on circumventing IT security measures.

Payment Fraud Prevention Market Development

Understanding the current digital payment threat landscape is crucial to the development of reinforced protections while keeping fintech innovation clear of exploitation by organized criminals.

Organizations with commercial transactions that are dependent on eCommerce -- such as airline ticketing, money transfer and banking services -- will cumulatively lose over $200 billion to online payment fraud between 2020 and 2024. The ongoing losses will be driven by the increased sophistication of international criminals and the rising number of potential attack vectors.

Juniper Research found the increasing ubiquity of digital payments provides a virtual haven for fraudsters. Their analysts recommend that payments industry stakeholders focus on an omnichannel fraud approach to mitigate these security challenges.

This approach must encompass both strict cybersecurity at access points, as well as intelligent analytics such as artificial intelligence and machine learning, to identify fraudulent behavioral patterns.

The worldwide market study found that machine learning has become a crucial tool in the fraud detection and prevention arsenal, as it enables CIOs and CTOs in the payments industry to analyze transaction flows in a holistic way, unlocking hidden insights on fraudulent behaviors.

The incorporation of machine learning into fraud detection and prevention software will drive spending forward, reaching $10 billion in 2024 -- that's a 15 percent increase on 2020.

"The rapidly evolving nature of payment fraud and increased sophistication in attack methods requires machine learning adoption at scale, in order to minimize risk. Constant innovation in analytics and data models is increasingly essential to constraining fraudulent behaviors in payments," said Nick Maynard, lead analyst at Juniper Research.

Outlook for Ongoing Payment Fraud Growth

The research also found that digital money transfer is a growing area for payment fraud, with losses growing by approximately 130 percent from 2020 to 2024. Digital money transfer fraud is prevalent in emerging markets, with payments vulnerable to SIM swapping fraud and synthetic identities.

These markets typically have less robust security measures in place. According to the Juniper assessment, that's why ongoing Know Your Customer (KYC) verification, including events-based re-verification following onboarding, are elements that are essential to secure the rising levels of digital transactions.

How 5G Fixed Wireless Access will Liberate Americans

Fixed wireless broadband communication services based on Long Term Evolution (LTE) technology have been deployed globally, focused on areas with a poor wireline network infrastructure. Now, 5G wireless technology could open more opportunities for the fixed wireless broadband segment.

As mobile network operators continue to deploy 5G network infrastructure, the commercial launch of 5G fixed wireless broadband services will accelerate in the next few years. This will ultimately drive the 5G fixed wireless Consumer Premise Equipment (CPE) market.

ABI Research forecasts that shipments of 5G fixed wireless broadband CPE will reach more than 2 million units in 2020.

5G Broadband Market Development

5G fixed wireless access (FWA) delivers several benefits to both telecom network operators and consumers. The deployment of 5G fixed wireless broadband networks in place of last-mile fiber connectivity will save costs and time to install fiber-optic lines while providing Gigabit capacity broadband access.

"Interestingly, except for China and a few other developed markets, fiber-to-the-home penetration is still limited to less than 20 percent of total households worldwide. This creates a huge opportunity for the whole 5G fixed wireless broadband market," said Khin Sandi Lynn, an analyst at ABI Research.

After the initial launch in four U.S. cities in 2019, Verizon is now planning to expand its 5G Home broadband service in areas with a 5G mobile network footprint. T-Mobile is also planning to commercially roll out a 5G broadband service to home users with its nationwide 5G network launch.

Vodafone, Three UK, EE in Europe, and Rain in South Africa are some of the operators that have rolled out a 5G FWA service. Several service providers worldwide are also working toward the commercial launch of 5G fixed wireless broadband services.

Chipsets and device makers are also actively playing their roles in the 5G FWA space. Qualcomm has announced it has partnered with more than 30 OEMs to develop 5G FWA CPE. At the same time, device makers such as Huawei, NetComm, Nokia, and Samsung have already introduced 5G FWA CPE.

As the 5G FWA ecosystem evolves, there will be additional commercial launches of 5G FWA services and CPE. The 5G FWA CPE market will increase at CAGR 71 percent to reach just under 7 million units in 2024.

Depending on the deployment scenario, 5G FWA services will need different forms of CPE, the selection of indoor or outdoor, mmWave, or Sub-6GHz, etc. Device makers should make sure to support various form factors and specifications to meet service provider requirements.

The integration of advanced Wi-Fi features, the ability to connect to smart home devices, and in-home Wi-Fi management solutions can add value for end-users as well as create differentiating factors for service providers.

Outlook for 5G Wireless Broadband Growth

"5G technology offers high bandwidth and ultra-low latency to attract xDSL broadband users, however, well-designed CPE with value-added features is essential to winning the highly competitive broadband game," Lynn concludes.

In the U.S. market, where wireline broadband service is expensive -- relative to more progressive nations -- and the telco and cable duopoly have no incentive to compete, the introduction of 5G fixed broadband offerings could liberate these captive markets and thereby create meaningful progress.

More Upside for Private Cloud Infrastructure Spending

Hyperscale cloud providers are experiencing some market saturation. Vendor revenue from IT infrastructure products (server, enterprise storage, and Ethernet switch) for cloud environments, including public and private cloud, declined in the third quarter of 2019 (3Q19) as the overall IT infrastructure market continues to experience weakening sales following strong growth in 2018.

The decline of 1.8 percent year-over-year was much softer than in 2Q19 as the overall spend on IT infrastructure for cloud environments reached $16.8 billion, according to the latest market study by International Data Corporation (IDC).

As a result, IDC chose to slightly increase its forecast for total spending on cloud IT infrastructure in 2019 to $65.4 billion -- that represents a flat performance compared to 2018.

Cloud IT Infrastructure Market Development 

The decline in cloud IT infrastructure spending was driven by the public cloud segment, which was down 3.7 percent year over year, reaching $11.9 billion; sequentially from 2Q19, this represents a 24.4 percent increase.

As the overall segment is generally trending up, it tends to be more volatile quarterly as a significant part of the public cloud IT segment is represented by a few hyperscale service providers. This softness of the public cloud IT segment is aligned with IDC's expectation of a slowdown in this segment in 2019 after a strong performance in 2018.

It is expected to reach $44 billion in sales for the full year 2019, a decline of 3.3 percent from 2018. Despite softness, public cloud continues to account for most of the spending on cloud IT environments.

However, as demand for private cloud IT infrastructure is increasing, the share of public cloud IT infrastructure continued to decline in 2019 and will be declining slightly throughout the forecast period.

Spending on private cloud IT infrastructure has shown more stable growth since IDC started tracking sales of IT infrastructure products in various deployment environments. In 3Q19, vendor revenues from private cloud environments increased 3.2 percent year-over-year, reaching nearly $5 billion. IDC expects spending in this segment to grow 7.2 percent year over year in 2019 to $21.4 billion.

As investments in cloud IT infrastructure continue to increase, with some swings up and down in the quarterly intervals, the IT infrastructure industry is approaching the point where spending on cloud IT infrastructure consistently surpasses spending on non-cloud IT infrastructure.

Until 3Q19, it happened only once, in 3Q18, and in 3Q19 it crossed the 50 percent mark for the second time since IDC started tracking IT infrastructure deployments. In 3Q19, cloud IT environments accounted for 53.4 percent of vendor revenues.

However, for the full year 2019, spending on cloud IT infrastructure is expected to stay just below the 50 percent mark at 49.8 percent. This year (2020) is expected to become the tipping point with spending on cloud IT infrastructure staying in the 50+ percent range.

Across the three IT infrastructure domains, Ethernet switches is the only segment expected to deliver visible year-over-year growth in 2019, up 11.2 percent, while spending on compute platforms will decline 3.1 percent and spending on storage will grow just 0.8 percent. Compute will remain the largest category of cloud IT infrastructure spending at $34.1 billion.

Sales of IT infrastructure products into traditional (non-cloud) IT environments declined 7.7 percent from a year ago in 3Q19. For the full year 2019, worldwide spending on traditional non-cloud IT infrastructure is expected to decline by 5.3 percent.

By 2023, IDC expects that traditional non-cloud IT infrastructure will only represent 41.9 percent of total worldwide IT infrastructure spending (down from 51.6 percent in 2018). This share loss and the growing share of cloud environments in overall spending on IT infrastructure is common across all regions.

According to the IDC assessment, while the industry overall is moving toward greater use of cloud, there are certain types of workloads and business practices, and sometimes end user inertia, which keep demand for traditional dedicated IT infrastructure afloat.

Outlook for Cloud Infrastructure Investment Growth

Geographically, the cloud IT Infrastructure segment had a mixed performance in 3Q19. Declines in the U.S. market, Western Europe, and Latin America were driven by overall market weakness; in these and some other regions 3Q19 softness in cloud IT infrastructure spending was also affected by comparisons to a strong 3Q18.

In Asia-Pacific (excluding Japan), the second-largest geography after the U.S. market, spending on cloud IT infrastructure increased 1.2 percent year-over-year, which is low for this region. However, it is in comparison with strong double-digit growth in 2018. Other growing regions in 3Q19 included Canada (4.9 percent), Central & Eastern Europe (4.6 percent), and Middle East & Africa (18.1 percent).

Long-term, IDC expects spending on cloud IT infrastructure to grow at a five-year compound annual growth rate (CAGR) of 7 percent, reaching $92 billion in 2023 and accounting for 58.1 percent of total IT infrastructure spend. Public cloud datacenters will account for 66.3 percent of this amount, growing at a 6 percent CAGR. Spending on private cloud infrastructure will grow at a CAGR of 9.2 percent.