By Frank Zhou, CEO & Founder of Zeux
Fintech, the world over, is rapidly expanding with the global value of fintech deals last year coming in at $53.3 billion. It’s no news that this continued growth can – at least, in part – be attributed to a shift in the financial industry’s mindset to allow and facilitate the integration of digital tools, such as online banking and mobile apps, to help improve the customer experience. But the rate of integration and adoption differs vastly, from continent to continent. So what makes a mindset towards innovation choose ‘caution’ over ‘audacity’ when it comes to the world of fintech, and how are these different approaches shaping the future of the financial landscape? Frank Zhou, CEO and founder of Zeux, shares his insight on the future of banking.
Asia is wearing the fintech crown
Financial innovation and the adoption of fintech in Europe has been slow compared to Asia who has been more open to moving away from traditional banking methods. China is the largest alternative lending market holding around 90% of market share, with the US coming in second place. Together, they dominate 95% of the market. Although the UK is ranked third, the market share is only expected to peak at a value of $4.8bn this year compared to China’s $265.7bn.
At the head of the pack, Chinese investors are similarly quick to put their weight behind fintech start-ups as they seek to improve the operations of their banks and financial institutions. This forward-thinking approach has brought about the adoption of new-gen technology such as AI and Machine Learning to solve serious finance-relevant issues such as assessing risk and identifying fraud.
The US has demonstrated strong commitment towards adopting new digital technology as well. According to Ryan Battles, EY’s Banking and Capital Markets Lead for the Americas, “banking is finally starting to catch the wave that began with Apple and Amazon raising consumer expectations”.
Europe is only catching up with the Silicon Valley mentality
Europe’s fragmented nature – shaped so by its multi-languages, laws and cultures – pushes boundaries in the way of large scale business decisions. And rather than tackle the international markets, an often go-to European approach is to concentrate on developing business within Europe itself.
The Silicon Valley approach of ‘blitzscaling’, a phrase coined by LinkedIn Co-Founder Reid Hoffman, involves scaling at all costs including “doing things that don’t scale” and making deliberate choices without having all of the information—sacrificing efficiency for speed. There are clear risks involved by adopting this method of favouring quick growth on a global scale, but the results can be ground-breaking: think PayPal.
Europe may not have the tech titans that the US or Asia boast, despite having a strong industrial base, but in a ‘hare and tortoise’ style setting, has the potential to become the global fintech frontrunner, because where Europe can truy flex its muscle is in its regulatory prowess when it comes to AI. As with the rollout of GDPR in 2018, Europe wants to be identified as not just a true regulatory superpower but also as a tech superpower. The latest European initiative is to regulate AI through an ‘ecosystem of excellence’ and an ‘ecosystem of trust’. This new legislation will focus on AI applications that are deemed as high risk. Because as we know, Europe is, on the whole, risk averse.
At the same time, the UK itself continues to attract by far the largest share of fintech investment in Europe, with 83% of all European 2019 fintech investment, states Augmentum Fintech.
Bright future for the UK: Embracing the power of crypto
With the latest figures predicting traditional British banks could lose a further £8bn of revenue in the next five years, it’s no wonder there’s been an – albeit slow – shift to adopt tech-powered solutions in order to compete against trailblazer challengers such as Monzo and Revolut. Among the line-up of traditional banks that are rolling out new products are Santander and RBS, both of which are evolving the way they facilitate payments and transfers of funds.
Aside from these relatively ‘standard’ innovation developments around payment technology – that are more evolutionary than revolutionary – what else could help the financial sector catch up to its industry counterparts and drive real change? Does crypto really have a place? And how safe is it?
The US is embracing cryptocurrency as a safe digital currency because it trusts the technology behind it. Blockchain technology is an advanced way of logging and protecting data, which is difficult to manipulate or hack. It has the potential to improve security, productivity and customer experience when adopted by businesses in the financial sector. In spite of the bad press it receives, blockchain technology has been recognised as an emerging technology that could transform the banking sector due to the ability to improve trust, provide transparency and potentially lower costs, reduce transaction times and improve cash flow.
At the beginning of the year, even the Bank of England announced that it would consider adopting a bitcoin style digital currency as part of a global group of central banks. And that’s a big step.
Major financial markets around the world are still ahead of European and British banks when it comes to fintech innovation. AI and blockchain technologies are still in their relative infancies, and the pace of change and innovation is only going to gather even more momentum. Those who have made the smart decision to adopt, will reap the benefits that are to come. So, it’s more important than ever for the cautious approach that the British banking industry has demonstrated for so long to be replaced with a new, fresh hunger to harness digital technologies. Not only to guarantee growth, but also to remain competitive in a global market.
Innovation breeds innovation, it breaks through traditional models, and brings new opportunities to the table. The UK’s banks need to be smart with their next move and pull up a chair.
HOW IDENTITY IS SECURELY UNLOCKING THE SME BANKING MARKET
By Mike Kiser, senior identity strategist at SailPoint
Have an identification card in your wallet? With a selfie and a few short minutes, you could have access to a business bank account.
Small and medium enterprises (SMEs) have long been the fuel that drives the global economy, representing around 90% of businesses and more than 50% of employment worldwide. Over the last few years, a range of financial services and platforms have arisen over the last few years to support the banking needs of these organisations. They are often digital natives and are innovating to meet the needs of their clientele.
This innovation provides great ease-of-use and rapid access to credit but also demands a careful consideration of their assumed security approach. The aforementioned scanning of an identity and a quick photo to establish a bank account demonstrates the rising importance of identity in both the consumer and enterprise arenas.
The blurring of the lines between personal and corporate identities (in this case, an individual acting on behalf of a small business) is still in its infancy. Combined with the ubiquity of mobile devices, individuals will tire of maintaining different accounts, different personas, different lives for each activity. Usability will demand that identity be reusable, portable, and secure.
This has massive implications for enterprises and the financial institutions that serve them if they seek to prevent cyber-attacks; thankfully, the same element that presents the security challenge also offers the solution: identity.
A New Vantagepoint
Just as individuals desire a single identity to unify their interaction with disparate parts of the world, organisations can use identity to grant them a single, holistic view of an individual (attributes, access, and behaviour) rather than seeing only a fragment at a time. This is particularly important for these new financial institutions—much of their technology stack is cloud-based, which often leads to splintered security approaches. An identity-based approach must be cloud-aware, and able to distil these complex environments into simple and easily governed infrastructure.
This collectivisation also allows security to use identities in the aggregate: to see what groups of similar individuals exist, what access these groups have, and what their usage of this access typically is. All of this contributes to the establishment of what normal is, whether it’s attributes, access, or behaviour. Once the “normal” is established, then the outliers—the potential threats—may be quickly triaged.
Adaptability: The New Imperative
The recent wave of change has demonstrated that financial institutions and organisations must be ready to adapt quickly to shifts in the environment. Portions of IT staff and services have been furloughed, and adjustments to new realities are essential. An identity approach that learns from the evolution of changes in the previously established areas of normality can grant enterprises the ability to see what is coming next and invest appropriately. Much like a view from an elevated position grants the ability to see beyond the normal horizon, basing a security strategy on identity makes it inherently adaptable.
Identity: Innovation and Security Intertwined
Identity, then, is a foundational consideration for financial institutions seeking to provide services for the perennially important small and medium enterprise sector. By eradicating barriers to entry that have historically kept financial organisations and enterprises apart, it is driving rapid adoption and a growing market for innovative banking. At the same time, it shows the path forward to securing those new services in a pre-emptive, adaptable way.
Now if you’ll pardon me, I must go open a bank account for my next start-up—from my mobile.
OPEN BANKING: ARE CONSUMERS KEEPING AN OPEN MIND?
Last September, the European Union’s regulatory requirement for banks to open up their payment accounts via application programming interfaces (APIs) came into effect. Since then, open banking has taken centre stage within European retail banking and payments. In this blog, Elina Mattila, Executive Director at Mobey Forum, shares insight into how emerging consumer attitudes may impact open banking services in the coming months.
It has been over six months since the revised Payment Services Directive (PSD2) came into full effect and with it, required banks to allow third party providers to access payment initiation and account information. While the regulation was designed to facilitate open banking, the market demand was uncertain. Would we, as consumers, choose to embrace the new services enabled by open banking? And if so, under which conditions?
To understand consumer attitudes, Mobey Forum and Aite Group partnered on a pan-European study to determine the appetite for open banking services amongst 1000 consumers in Finland, France, Germany, Spain, and the United Kingdom. The study, launched in November 2019, revealed many important consumer trends and attitudes, including key priorities and potential barriers for adoption.
Consumer appetite for change
The consumer benefits of open banking are largely perceived to be compelling, yet this counts for little if the providers of those services are not deemed trustworthy. This is an observation reflected in the study, which highlighted consumer confidence in service providers as critical to open banking adoption. People want clear visibility of who is managing their finances, and the overwhelming majority (88%) would prefer their primary source of open banking services to be their main bank, as opposed to other banks or third-party providers (TPPs).
Consumers also indicated high levels of trust in their current bank of choice, reflected by 77% preferring to use a financial product comparison service offered by their main bank. By enabling customers to compare the pricing and conditions of a range of financial products on the market, they feel more comfortable that banks have their best interests at heart. This is a welcome trend, and one which should be celebrated in the aftermath of the 2008 financial crisis. For the banking industry to have rebuilt trust levels in this way bodes well for consumer adoption of future innovations.
With a trusted provider, one third of consumers were then either ‘very interested’ or ‘extremely interested’ in integrating open banking services into their financial routine. This applied to specific use cases: account information services (32%), pay by bank (33%), purchase financing (25%), product comparison (35%) and identity check services (35%). Unsurprisingly, consumer willingness to adopt these services relies heavily on providers continuing to prove that they can be trustworthy stewards of personal data.
For those unwilling to adopt open banking, concerns largely focused on reservations around security and privacy. As open banking becomes more sophisticated, it will be interesting to analyse the nuances around how consumers engage with third parties. Established brands are perhaps more likely to be trusted by consumers than lesser-known online retailers. For this reason, consumers may hesitate to engage newer companies than brands they are already familiar with. In an industry as varied as finance, this creates additional intrigue in the ongoing battle for market share between the newer ‘challenger’ banks and the older, more established European banks.
Consumers might, however, be willing to deprioritise trust and, instead, favour convenience and usability. When questioned over their willingness to adopt a new payment method, for example, 91% of respondents indicated that they could be tempted to switch either by financial incentives or the promise of greater convenience.
The path forward
While open banking is still in the relatively early stages of development, it has made significant progress in a very short period of time. Not only is it allowing consumers to share financial data with authorised providers as they wish, but it is set to spark more competition and innovation within the market.
From a business perspective, open banking is expected to create lucrative new revenue streams, particularly for companies which are able to innovate quickly and react to consumer demand. It is prompting consumers to reconsider how they manage their finances and – most excitingly – it’s not even close to reaching its full potential. It should bring a whole new era of service partnerships between banks and TPPs, which will enable a new generation of innovative financial services.
For the industry to truly fulfil its potential, it is vital that stakeholders are able to explore new business models, innovations and changing customer expectations for open banking in a commercially neutral environment. Mobey Forum’s open banking expert group provides exactly this, and we look forward to supporting our members as they shape the future of digital financial services.
Where to find out more
The opportunity for open banking is explored in more detail in a report by Mobey Forum and Aite Group, entitled Open Banking: Open Minds? Consumer Appetites for New Banking Services. It provides banks and other financial services stakeholders with a market view on consumer appetites toward new open banking services and explores the possible roadblocks to consumer adoption. It is also discussed in a podcast featuring key representatives from Interac, Erste Group Bank and Strands Finance.
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