In the Fintech Fast Five, we ask industry insiders five of the pressing questions facing the sector. In the firing line today is Ian McKenna, Director of the Financial Technology Research Centre…
What fintech will have the biggest impact in 2019, and why?
2019 will be the year when Fintech touches the vast majority of British consumers, even if they don’t
realise it. The Office of National Statistics report that online banking is the fastest growing use of the
internet in the UK. Sixty nine percent of us now choose to bank this way, up from thirty five percent
just 10 years ago.
Although a requirement under PSD2 since January ‘18 it will be in the coming year that we see the
mass roll out of Open Banking. Banks are now beginning to actively communicate these services and
we can expect to see widespread advertising about these next year.
How can you encourage the mass adoption of Fintech?
As banks are forced to open up consumers data to third party services there is huge potential for independent fintechs to provide consumers with better information than they get from their own banks. In doing so we can deliver real benefits that help them take more control of their financial lives, waste less money on unnecessary and avoidable bank charges and help them save for their short and long term goals.
The popularity of Monzo and Revolut provide an early indication of the extent to which consumers will move to new suppliers who offer them a better experience and better value by removing the quasi monopoly charges such as foreign exchange commissions that banks have been able to enforce because there were not sufficient viable alternatives.
Are legacy institutions agile enough to keep pace with changing demands/innovations?
Legacy financial institutions really struggle with change because they invariably want to protect their legacy businesses as well as having too many key decisions taken by senior executives who struggle to understand new consumer behaviour. All too often actions which would enable institutions to work in new ways are constrained because they would disturb legacy income streams. This leaves the path open for disturbing businesses, who do not suffer such constraints to attract organisations most profitable customers and find new ways to operate relationships that have historically been uneconomic.
Established institutions should set up independent subsidiaries with the mission of cannibalising their own businesses. Better it is done by a business they own than a new competitor. Equally diversity must be more than just a fashion statement or a sop to political pressure. If the thinking and attitudes of emerging generations of consumers are not represented in boardrooms how can you properly understand changing customer demand?
Is personal finance going to be 100% digitised and, if so, when?
The digitisation of personal finance has been growing quietly for some time now. An increasing number of financial advisers are supporting the #PaperFreeBy2020 campaign, seeking to remove all paper from their firms by the end of the decade. Wealthy people are early adopters of technology and are increasingly expecting a digital experience, albeit in the Ultra High Net Worth area with an expectation of a continuing highly personalised hybrid/digital experience.
In the UK the FCA through its Smarter Communications work has removed the vast majority of the regulatory barriers to digital customer engagement. The true digitisation of personal finance is likely to emerge as a series of related initiatives, Open Banking, Pensions Dashboards, the Protection Calculator income insurance, the STAR initiative from TISA designed to improve asset transfers between asset managers and platforms and others, start to converge. By 2021 we should see significant change in the ways these various services interact.
How can companies and institutions encourage financial inclusion and education?
Financial regulation designed to protect consumers has in practice made it increasingly more difficult for people to save. Equally institutions structure their savings products in ways that are designed to support the remuneration of and justify bonuses to their sales teams and management rather than focusing on what will make it easy to save.
Consumers are frequently reluctant to commit to a significant monthly outgoing which they will have to find money for every month. It can increasingly be demonstrated however that if we give people the ability to save small amounts on a regular basis and give them the control to skip individual contributions if they feel under financial pressure, they can actually save significant amounts over a year.
Highly paid executives in financial services companies will have little understanding of the financial realities of consumers living on limited, stretched incomes. Institutions need to better understand their customers financial lives and build services that can align with the day to day challenges and competing priorities their customers have to manage.