Ketan Parekh, Managing Director Financial Services, Fujitsu, UK and Ireland
Banking is changing. Last year’s news that Monzo had reached three million customers and was being valued at over £2bn marked a significant moment for the challengers; a high watermark that offered cause for celebration as the industry continues to move towards a digital-first future.
The same is true in the wider financial service industry. Payments start-up Klarna, for example, is now the world’s most valuable consumer-facing fintech, worth an eye-watering $5.5bn.
Yet despite the excitement around digitisation and the speed and convenience it offers, consumers remain loyal to the seemingly old-fashioned values of human interaction and security; a glimmer of hope for the future of brick-and-mortar banking.
The changing customer
Despite reservations, the popularity of digital-first banking services continues to increase. By the end of 2018, the number of consumers registered with a mobile payment service such as Apple and Google Pay rose to 8.5 million – an eightfold increase since 2016. Meanwhile, half of 25-34-year olds admit to being “excited” about mobile banking.
Interestingly, the demand for digital hasn’t dimmed the appeal of human interaction. Our own research found that consumers still prefer banks with high street branches – and an astonishing 40% say they simply don’t trust challenger banks.
It seems a strangely anachronistic attitude in the days when card spending is quickly overtaking cash transactions, and mobile app use is on the rise. But the customer, as they say, is always right: banks must find some way to blend the consumer’s digital expectations with their preference for human interaction.
Right now, customers expect the best of both worlds. And whether you’re a traditional bank or a challenger, it’s imperative to find the right balance between the two.
And while human trust has kept traditional banks attractive to consumers, how long will this continue?
How traditional banks can keep up
For the traditional banks, integrating new digital-first technologies into their offering will be essential in ensuring they can continue to compete with the upstarts. Crucially, it’s important they understand that investment in technology should not be made for technology’s sake but to answer the demands of the market. What do customers expect today? What will they expect tomorrow? And what do they want that they can’t get anywhere else?
Looking to innovative sectors such as the Internet of Things (IoT), Artificial Intelligence (AI), and robotic process automation (RPA) will provide a source of inspiration, with these technologies offering any number of new features, including improved biometrics, better identification services, and real-time transaction updates.
Natwest Group have done just this. The bank recently developed biometric payment fobs that use fingerprints to verify transactions. The stats support the move towards greater tech integration: the public is more likely to bank with a provider who is using 5G (42%) and near-field communication (44%), while the implementation of biometrics would make 46% of customers more likely to use a bank.
By digitalising the consumer experience internally and externally, traditional banks will increase their agility and better compete with younger start-ups.
Challengers must get the basics right
For challengers, the question is one of reputation.
Despite their efficient services, digital-first banks still need to work on building trust with customers. And without public trust, the convenience and speed of their services count for nothing.
If start-up banks are to really make a mark – and compete with the legacy and trust that traditional banks have established – they’ll need to ensure there’s solid IT infrastructure that can deliver the human and digital customer experience expected alongside full compliance and security.
This is where the lack of brick-and-mortar branches can pose issues. The challengers may be compliant with all the necessary regulations, but customers still want reassurance. And it’s easier to trust what you can see: human interactions in a physical setting.
Challengers need to find a digital solution that provide the same reassurance and service as a physical branch. This means considering questions such as what if a customer doesn’t have regular access to the internet? How can digital banks provide the kind of feedback that assures customers their banking request is being actioned, even if they can’t necessarily see or hear it? And how can customers feel listened to and reassured if something goes wrong?
Business leaders now need to take a step back and look at the bigger picture. There is much that each of the forces in banking can learn from one another – and in a race to provide speed and convenience, it is perhaps time for banks to lean on one another for best practice ideas and inspiration. Ultimately, in a world where consumer demands are so diffuse (and often conflicting), this is no longer a winner-takes-all race but a relay where everyone wins thanks to fine-tuned collaboration.
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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