Mobile payments are poised to become the new standard over the next few years. Use of mobile payment platforms such as Android Pay, Samsung Pay and Apple Pay will triple this year, predicts eMarketer. The average amount spent per user will rise from $376 to $721.47 a year, and total spending will rise from $8.71 billion to $27.05 billion annually. By 2019, this will rise to $3,017.02 per user for a total of $210.45 billion annually. This will not only have a dramatic impact on the retail industry, but it will also mean repercussions for the financial system. Here’s a look at how mobile payment systems will affect the role of brick-and-mortar banks in the near future.
The Rise of Mobile Banking and Mobile Payments
Consumers are increasingly using mobile devices to perform tasks that formerly required traveling to a bank. A 2015 Federal Reserve survey found that 43 percent of cell phone owners had used their phone for mobile banking over the past 12 months, an increase from 39 percent in 2014 and 33 percent in 2013; among smartphone owners, this rose to 53 percent.
Mobile banking currently remains more popular than mobile payments among cell phone owners. Only 24 percent of mobile phone owners used their phone for mobile payments in 2015, a number that rose to 28 percent among smartphone owners. Newer smartphones such as the iPhone 7 Plus make mobile payments easy by providing built-in compatibility with payment platforms such as Apple Pay, which lets users make payments at contactless points of sale and in iOS apps while using dynamic security codes and Touch ID fingerprinting to prevent identity theft.
What Consumers Use Mobile Banking and Payments For
A survey conducted by the Federal Reserve found that 94 percent of mobile banking users have used their phones to check account balances or recent transactions over the past 12 months. 62 percent have used their phone to check their account balance; 58 percent of mobile banking users have used their devices to transfer funds between accounts; and 56 percent have used them to receive alerts from banks such as texts, push notifications or emails.
When it comes to mobile payments, the most common type of mobile payment activity among smartphone users is using a mobile phone app or browser to pay a bill, carried out by 65 percent of those surveyed over the past year; 42 percent have used a mobile phone to make a remote online purchase of digital content or a physical item; 33 percent have used their mobile phone to buy something in a store.
The Changing Role of Brick-and-mortar Banks
Currently, mobile banking and payment patterns indicate that mobile financial management is supplementing the role of physical banks rather than replacing them. Most consumers who own bank accounts use a mix of physical and mobile methods to interact with their bank. Among all consumers who own bank accounts, the number that have visited a bank teller, used an ATM or done online banking is higher than those doing mobile banking. Among smartphone owners who do mobile banking, the number who say their mobile device is one of the three most important ways they interact with their bank has risen to 54 percent, slightly higher than the 51 percent who cited bank tellers but below the 65 percent who cited online banking and the 62 percent who cited ATMs.
When consumers were asked why they use mobile banking, the most popular reason was convenience, followed by recently getting a smartphone or their bank recently offering mobile services. Among those who have mobile phones and bank accounts but don’t do mobile banking, approximately three quarters say their needs are being met without mobile banking, that they don’t see a need for mobile banking or that they have security concerns. Security remains a major concern deterring mobile banking adoption, with a MyBankTracker survey finding that only 6 percent of consumers trust mobile banking for financial transactions.
Indian financial provider Janalakshmi Financial Services, which services “unbanked” poor customers lacking bank accounts, indicates how mobile banking may change the way physical banking is done. Rather than using branches and ATMs, JFS sends field employees with handheld devices to customers, providing prepaid cards that can be refilled rather than checking accounts or debit cards. Banks may move in this direction, with fewer on-site staff and more mobile services, while still providing on-location services for other financial services.
By Peter Veash, CEO at The BIO Agency
With start-ups, retail and even government embracing disruptive finance technologies, Peter Veash, CEO at The BIO Agency discusses how high-street banks must adapt for the digital age.
Disruption across sectors from retail to travel has given people more control over how they choose to interact with brands. Pioneers from Amazon to Uber have set the pace while legacy players have all had to innovate and improve their offering in order to remain competitive.
Today, the retail banking sector faces similar digital disruption from challenger brands using technology and mobile-first strategies to create financial services and tools that are more attractive to the ‘connected consumer’. Even the Government has recently announced it’s experimenting with using blockchain, the underlying technology that Bitcoin is built upon, as a possible means to manage and track welfare finance.
As a society, we are happy to adopt disruptive change so long as it makes our lives easier – whether that’s booking overnight accommodation via Airbnb or ordering our groceries from Ocado.
Finance providers who remove complexity and offer the ability to shift money around in real-time, or compare bank rates with ease will therefore grow ever-more appealing.
These ‘challenger’ brands include digital-only, technology-led banks called names like Atom and Starling. They also include hybrids pursuing successful omni-channel strategies such as Metro and Virgin Money, plus supermarket and retail brands such as Tesco Bank and M&S.
They’re winning because they’re prepared to give people the same level of control, real-time interaction and transparency they find in other sectors.
Soon they’ll also be empowered by legislative reform, designed to give people better banking experiences by increasing competition among financial services brands.
Recent recommendations by the Competition and Markets Authority (CMA) include, as part of a wider package of banking reform, that technology should be used to empower those customers looking to compare and switch accounts.
The CMA says banks should move swiftly to introduce an Open API banking standard. This would enable personal and SME customers to safely and securely share their unique transaction history with other banks and trusted third parties.
This would enable bank customers to click on an app, for instance, and get comparisons tailored to their individual circumstances, directing them to the bank account which offers them the best deal.
The CMAs package of banking reforms will help new challenger brands get a stronger foothold in a market, which is of vital importance to the whole economy. So how should the legacy banking brands respond?
In a fiercely competitive banking sector, customers are looking for a seamless, consistent experience across all platforms and devices. They also expect real-time information at their fingertips.
For traditional banks, this means providing up-to-the-minute data on customer account balances, visual ‘how to’ guides for opening accounts and basic details like branch opening hours and 24-hour customer support.
Tools and services now have to be mobile-first and best-in-class to meet customer expectations. A single customer view of interactions across all touch-points will provide valuable data to guide decisions on where to focus innovation.
Banks must also invest in the right technology and work with the right tech partners to gather data and mine useful insights. Well-designed digital interfaces and simple-to-execute online interactions need to become the norm.
The challenge of how to make the best use of physical space is a tricky one, but the in-branch experience is already evolving – Barclays has been trialling the use of its network of physical branches as click & collect points to increase footfall and make visiting their local bank branch a more useful experience for the customer.
Banks need to improve functions such as user identification, inputting of account details and setting-up of regular payments.
By using digital capabilities to put the focus not just on efficiencies but on personalised customer experiences, it’s not too late for legacy banks – they can still differentiate their brand.
But they need to act now. Disruption and reform are calling and it’s time to go big on change or risk not going forward at all.
By Giovanni Daprá, CEO of MoneyFarm
The rise of all things digital is widely documented and it has altered the way all individuals live their lives. From entertainment to shopping to keeping in touch with friends, the way consumers behave and what they expect from the companies they engage with has changed. They expect their lives to be simple and hassle-free, if it can be done online at a convenient time then even better.
Yet many individuals still have the bank account they have had for decades and put up with a service designed for profit making rather than for individual financial needs.
The financial crisis gave way to the rise of fintechs. In the wake of the mis-selling scandals and global financial market crash, trust in financial services and the banks in particular was at an all-time low. Fintech emerged and worked to democratise finance, lowering costs, introducing new ways of managing money and putting the power back into the hands of consumers.
These agile digital organisations are focussed on making financial services stronger, better and more suited to the digital ages. The fintechs started by disrupting payments, loans and currency exchange. They are changing asset management, banking and insurance, altering the way the regulators view services and reshaping the industry from the outside in.
In 2016 financial services is all about the individual again. How can they get the most out of their money, their insurance, how can they save time and money so they can focus on living? These are the questions that fintechs are answering.
At the touch of a button individuals can transfer money across the world, their bank sends them notifications on their spending habits and they can have a fully diversified investment portfolio in just five minutes. All these services exist and are removing hidden costs.
Fintech is not just about providing a better service in a digital way, it is about creating a financial services industry that individuals understand. Investing was once the preserve of the wealthy few but with the introduction of fintech providers it is far more accessible, the veil can be lifted and more and more people can and should access the market.
The issue we now face is changing habits, not just of individuals but of generations. Earlier this year we conducted some research with Explain the Market and found that 11 million Brits will be looking for some sort of financial advice this year. But when you look into this you find that almost 50% of young adults look for that advice from their parents who have grown up in a world of rising interest rates where cash really is king. The challenge for fintechs is getting individuals to change the habits of the generations before them.
Peer to peer lending and crowd funding has managed to work its way into British rhetoric. These businesses have grown rapidly and have given individuals an alternative when bank lending has been low. The challenge for fintechs now is to move individuals away from their bank for the day to day services into something more flexible and at a lower cost.
The benefit of fintech on the consumer is huge; lower rates, increased flexibility, 24 hour access and the technology platforms designed to suit the modern consumer. MoneyFarm have just published the Fintech Bible to help consumers navigate the new world and take control of their finances. In 2016 you do not need to rely on your bank for everything.
By Dr Richard Theo, CEO at Wealthify
Robo-investing and robo-advice are on the verge of a major breakthrough in the UK. Consulting firm A. T. Kearney estimates the rapidly-expanding sector is set to grow 68 per cent annually, and could be worth $2.2 trillion globally by 2020. Around half of this is expected to come from assets already invested with traditional managers, which is why big brands are looking to get in on the act – InvestTec Wealth, Brewin Dolphin, Hargreaves Lansdown and Barclays are all believed to be launching robo services in the UK this year. And they are not likely to be the only ones.
‘Robo’ has been adopted as a loose, catch-all term for removing humans from various parts of the investment process and replacing them with automation, algorithms and slick digital platforms. It covers a spectrum of different models, from robo-advice, which recommends investment based on information about lifestyle, goals, risk levels and savings, to robo-investing, which usually refers to cases where algorithms select and potentially trade a portfolio on someone’s behalf.
There is every reason to welcome this concept, not as a fad, but as a viable, mainstream investing channel for everyone. Why? Because the vast majority of ordinary savers are priced-out of traditional wealth management services, their cash rotting away in high street accounts earning record low interest rates averaging 0.25 per cent a year.
In short, there’s a desperate need to make investing easy and convenient, to help the typical saver to grow their money and shore up their financial future. And with a quarter of Britons having less than £3,000 saved (according to data from Wealthify) the solution must also be low cost and affordable for the mass market who aren’t willing to pay £150* per hour for financial advice. Robo-investing, with its far cheaper operating model holds great promise as a way to achieve this overdue democratisation of savings and investments.
But it’s not just cost that is driving accessibility. Robo changes how people access investment services. Anyone, anywhere with an internet connection can sign up and start investing in minutes, check their investments and withdraw them any time they like. It’s exactly this kind of instant, agile service that appeals to the younger generation, and it’s leaving many banks and traditional providers scratching their heads as they try to work out how to compete. Robo appeals to the iPhone generation – those accustomed to polished online services – and crucially, to those who aren’t wedded to the big, and in some cases damaged, financial brands.
So robo ticks a number of boxes, and certainly machines are a lot better than humans at some tasks. But even so, the question is will people be comfortable handing over their money to a machine?
Being successful in today’s complex financial markets is a matter of processing and analysing tremendous amounts of data as quickly as possible – a task to which computers, with their superior precision and computational power are perfectly suited. Successful investing also requires discipline and consistency; humans are prone to bias, panic and emotional decision-making, all of which can spell disaster for a portfolio. Many of today’s top institutional investors know this and are increasingly adopting algorithms and automation to avoid losing competitive edge. Across financial services technology is taking centre-stage, driving huge improvements in customer experience, security, risk management and operational efficiency.
But, when it comes to money, savers will need reassurance that their life savings aren’t totally at the mercy of an equation and the success of robo may ultimately depend on there being the right balance of human and machine. Technology may take the starring role, but there’s a comfort in knowing humans are there in the background, designing, building, and tweaking the algorithms, and ultimately keeping a watchful, reassuringly human eye on the money.
So, in short, the future of robo looks bright, as long as it’s a blend of artificial and human intelligence. And if the industry meets its phenomenal growth potential, robots could become the servants of human-kind, financially at least, a lot sooner than we think.
*According to research carried out by Unbiased.co.uk
Harald Helnwein, CEO of Novofina
If you crash your car into a tree, it only takes 20ms for the airbag to save your life! The blink of an eye takes 5 times longer and still is nothing, try it out yourself.
On the stock markets nowadays, fortunes are made or lost in 20 ms. Millions of orders are sent, cancelled and executed in an instant, over and over again. Not by shouting floor brokers or floor traders but by super-fast, super-smart machines. The days of shooting from the hip at a stock exchange, those days are over.
Real wealth management is done fact driven and it is executed precisely. Trading algorithms, like ours at Novofina, can analyze the single best stock out of 5000 to buy with your money in less than 20ms. And it can do it in the next 20ms again, and again, and again, 24/7, 365 days a year. It never gets greedy, it never panics, it never comes late to work, it never goes on vacation, it never suffers from burn out, it never gets divorced, it never guesses wildly with your hard earned money. Can your human financial advisor, your fund manager do the same?
P.S.: See you on Tuesday, June 19th, when I speak at “Meet the Innovators”.
By Krzysztof Trojan, FinTech specialist at SMT Software
1. placed above or over: eg. superscript
Collins English Dictionary
With a mixture of hope and concern, the FinTech world awaits the introduction of open banking APIs. The PSD2 and The Open Banking Standard promise that exposition of the API will no longer be just an unfulfilled vision, or futuristic solution for banking industry, but a must.
The impact of the APIs will surely be different depending on the scope the industry settles on – smaller, if we just stick to plain access to account (XS2A) and payments; much larger, if product information and origination is also exposed.
One of the results expected is the golden era of intermediaries and aggregators – services such as Mint.com which cannot wait for the APIs being exposed universally. It would be a convenient thing to manage all accounts from a single app.
But the true potential to be unlocked is different, possibly understood by most, but somehow hardly explored. The true benefit is the dawn of composite, multi-provider products. The banking superproducts.
Imagine you are on holidays in sunny Italy, and want to buy a family boat trip. You could have bought some Euros back at home, at a decent exchange rate, but, of course, you have spent all of it already on pizza and gelati. So you take your MasterCard out of the wallet, and pay with a loud sigh – you already know you will be charged an extra 10 per cent for this type of transaction. After returning home you may find out it was actually 20 per cent, as your salary was a day late and you entered overdraft.
Think about the same scenario in an API enabled banking super-product heaven: you have never bought any currency, you took your multi-currency virtual MasterCard with instead. Actually, there is five euro left on it, and no pounds altogether. So, you do pay with it for the boat trip, the payment request hits the card just to discover there is nothing left there. No worries, you have a euro account connected by API … but it’s empty as well! OK, let’s buy some euros for pounds! Who offers best price for 162.45 Euro? Hmm, TransferWise’s rate is looking good, let’s get it for GBP 135.37! Oh, but there is just 120.25 pounds left there on the current account. Any ideas? 2000 pounds limit left on the credit card, and the billing period just started, let’s get some limit from there. Paid!
Sounds impossible? Yes, but, if all those banking products were API enabled – and some already are –it is perfectly feasible!
Opening access to accounts is perceived as a threat by many banks. Definitely there are challenges such as security or fraud potential. Companies regulated by less stringent regimes become competitors. But from the business perspective, the benefits outweigh the risks. Banks do spend a lot of effort and money on developing their channels, playing catch-up games with the competition, and actually having difficulties producing applications as good as the best web and mobile apps out in the market. APIs allow extending the number of channels to reach the customers without the hassle of developing and maintaining them.
Looking beyond the risks and challenges connected to open banking it is plain to see that there is a huge business opportunity. Super-products are going to favour specialized offerings – great current accounts, cheap mortgages, good savings rates. If done well, opening access to accounts can increase cross-selling and actually make customers use less popular products they would normally not bother with, as part of their portfolio. The banks have the scale and credibility needed so much in financial domain. Partnering with innovative start-ups, already visible trend, have the potential of benefiting both worlds. And banks can be providers of super products, too – it’s not too late to build strategy based on the assumption the bank does not need to offer best products in every category – it’s enough to offer best product in one, and ability to build a super-product on top of it.
Come and meet SMT Software @FinTech Week, or mail firstname.lastname@example.org, and we shall have a chat about the impact of APIs, and the ways SMT Software is helping organisations to address it.
By Nick White, Senior VP Group Product and Marketing at Monitise
According to PwC, 95 per cent of traditional banks are in a transitional phase and believe that they could lose part of their business to fintech companies. Yet, 25 per cent of the banks questioned said that they don’t engage with this section of the market at all. The financial services industry is one that is built on legacy technology systems and constrained by compliance and regulation. These factors can make it difficult for banks and fintechs to enter into collaborative partnerships – but it needn’t be impossible.
Banks and fintechs have much to gain from working together. Traditional retail banks get access to the latest technology and have the opportunity to digitally innovate, while fintechs get access to their biggest potential customers and a valuable distribution network. Our work connecting fintechs and retail banks through our FINkit platform, and our experience working in this sector over the last decade, has certainly given us some insight into the potential hurdles on the journey towards collaboration – and the routes around them.
Fintechs need to think in terms of long-term value for banks
From their conception, fintechs need to think about the commercial case for integration – how does their business model help banks open up new revenue streams and reduce operating costs? Banks will value flexibility in a commercial model: SaaS and PaaS ‘consume on an as-needed basis’ propositions resonate well, for example. As early stage businesses, fintechs often prioritise their next funding round, and are driving towards this or an exit rather than actually selling a long-term proposition to help banks get ahead of the curve.
Fintechs must also keep in mind that what concerns them is very different to what keeps a bank’s CEO up at night. For banks, Net Promoter Scores (NPS) are of upmost importance. Regardless of how an app or service looks, if it doesn’t instantly do what it needs to do, customer satisfaction will be affected. When adopting new technology, there is a huge amount of risk for a bank: if it fails in any way, the penalties are huge. Customers will expect the latest features, but even more so they expect their banks to keep their money safe and secure. Anyone developing new services must keep this relationship between bank and customer at the forefront of their mind.
Innovating to solve consumers’ small daily challenges will be the real differentiator. Customers are demanding ‘life-enabling’ tech functionality from all the brands they interact with, and banks too should look to deliver services that mirror consumer behaviour change. Most customers don’t tend to care about data privacy as much as regulators do, so fintechs can show banks how to use the vast amount of consumer information they have access to.
Our experience tells us that bank boardrooms are united in their mandate to innovate, yet practicalities are still a challenge. Fintechs need to demonstrate a use case – developed on the edge of the legacy system, brought to market quickly, and showing ROI and customer engagement.
Banks should aim for a cultural shift and empower tech talent
Startups are used to this agile approach to development. They create something that works and get it to market for testing quickly. Culturally this is very different to banks, who will go through a lengthy testing procedure that can put years between an idea and the product in the customer’s hands. One option for banks to consider is a ‘separate but together’ approach that would allow them to fulfil their regulatory demands and compliance requirements on the one hand, while on the other enabling smaller teams to innovate, create, make, and break interesting digital ideas. At a personnel level, banks can empower each employee to fix small problems immediately rather than always pushing them up or down the chain of command. Like startups that empower employees across the board, banks can encourage agility throughout the organisation and make sure the right people are in the right places to leverage skills effectively.
And tech talent within retail banks isn’t a rarity. Even the oldest of financial institutions now put a heavy focus on their technology teams: the workforce at Goldman Sachs is roughly one-third IT engineers. A bank’s in-house team knows better than anyone how customers use the technology, its potential, issues, and solutions, and can combine their insight with the customer data that they are continuously collecting to deliver valuable services.
It’s time for change
Consumers now expect a 24/7 on-demand, personalised service in every aspect of life – which compared to developments in other industries the banks have somewhat struggled to provide. This is understandable due to regulatory restrictions but if fintechs can approach banks with understanding and consideration and banks can embrace the best parts of fintech culture, all parties should be able to benefit from much needed innovation and consumer behavioural change.
By Pavel Matveev, co-founder of Wirexapp.com
Fintech is big, no doubt about it. As a Bitcoin startup co-founder who have been in the scene for a couple of years, I have attended plenty of Fintech events and conferences. One of the latest events I attended, Phoenix 2016, was an ‘exclusive platform for innovators in Financial Services across the CEE Region’. Representing Wirex, we entered the Quick Pitch Competition against 20 other startups, pitched our business model and successfully claimed second place for our hybrid bitcoin-fiat online banking platform.
Here are 3 things I observed from my last Fintech conference.
Observation #1 – We attract the attention of banks and the traditional financial sector
Not surprising, but definitely worth mentioning. If you attend banking conferences, the number one topic for all bankers is disruptors and Fintech. Amid that, blockchain and bitcoin startups (like us) attracts a lot of attention. Blockchain and bitcoin are so trendy right now, even the International Monetary Fund published an article examining how bitcoin’s blockchain can benefit the banking and trading sectors.
Because of this, financial conference organisers all over the world are inviting more and more blockchain startups to attend, to keep themselves up to date. There are so many innovations in this field that even I have to actively keep track of the news. Many banks are conducting their own internal POCs to try and monitor the industry. Some banks are already collaborating with blockchain and bitcoin startups, but most are still observing the development. From what I know, in the UK, Barclays is ahead of other banks in terms of collaborating with blockchain and bitcoin startups.
Observation #2 – We need to improve on blockchain/bitcoin regulations if we were to flourish
So if blockchain and bitcoin startups are all the rage right now, why are some big players not playing this game yet? Simply speaking, risk management. In a world where black and white have been clearly defined for years, the lack of regulations and standards that came with the Fintech industry (especially in regards to blockchain and bitcoin/cryptocurrencies) is a major deterrent for the traditional financial sector. At the moment there are no standard procedures on how to do AML/KYC for blockchain transactions. Minimising criminal activities on the blockchain is something all of us are concerned with.
Alas, the nature of regulations is usually a slow one. It will probably take years before we have a working framework. However, that doesn’t mean the progress is halted – some startups such as Elliptic, the blockchain intelligence firm are already providing forensic services to detect illicit activities on the blockchain.
Observation #3 – We need to emphasise how Fintech startups and traditional financial sector can work together, not against each other
From my experience, VCs still invest in traditional Fintech startups rather than blockchain startups. One reason is perhaps lack of understanding on the blockchain technology – it is, after all, a very young technology. However, it cannot be denied that the blockchain’s reputation as the disruptor makes the traditional financial sector naturally cautious. It doesn’t help that some cryptocurrency evangelists are staunch and vocal anti-bank advocates, and the media likes to position Fintech and traditional financial sector on opposite sides. This is, at best, an inaccurate view of the whole financial services ecosystem. Fintech and traditional financial sector do not work separately – it works in parallel.
There are plenty of opportunities for both sides, and there are so many applications from the blockchain and bitcoin technology that have not been fully explored. The benefits it can bring to the traditional financial sector is endless. For example, the rise of smartphone ownership makes mobile payments more accessible – social money transfer platforms such as weChat and Circle shows how it can be done via blockchain and bitcoin in a cost-effective way. For Wirex, we work very closely with partner banks to help bring financial services to many, including the unbanked. It’s a symbiotic relationship that we’d like to continue for many, many years to come.
By Yvonne Dunn, Partner at Pinsent Masons
Financial Conduct Authority chairman John Griffith-Jones has recommended that firms set out their vision for the best way forward for UK financial services and the economy more generally in an industry strategy following the referendum result.
It is an opportunity for UK-based fintechs to lobby the government and regulators to maintain regulations in line with EU rules in the short term to allow for a period of practical equivalence between the two legal and regulatory frameworks that will exist when the UK formally exits the EU.
Such an approach would establish a stable regulatory environment to continue business as usual, as far as is possible, and avoid double regulation of firms. It would help retain the attractiveness of London as a base for European and international financial services operations.
In the longer term Brexit offers the UK the freedom to adopt business-friendly approaches to regulation to support innovative new products, services and business models, and build on existing initiatives the FCA has already developed to facilitate the rise of fintech.
The UK could also position itself as a leader, working alongside countries such as Singapore, Australia and the US to influence the EU’s strategic direction in relation to financial regulatory matters. This could include, for example, taking the lead on developing a global system of ‘passporting’ that makes it easier for fintechs to expand into international markets from their base in the UK.
The FCA has already developed strong ties with sister regulators in non-EU markets, such as Singapore and Australia, on fintech authorisations as it expands its Project Innovate initiative in both its scope and ambition.
One longer term opportunity might be for UK legislators and regulators to cherry-pick which EU regulation to apply in the UK and to develop different interpretations and approaches to issues from EU counterparts that might help support greater digitisation and innovation in financial services.
For example, cloud computing: at the moment EU laws require financial firms to ensure effective access to data for auditing purposes, including physical access to premises, when outsourcing services. This serves as a barrier to the adoption of cloud services by financial firms as data hosted by cloud providers is often stored on servers based overseas in multiple locations.
The FCA published draft guidance on the use of cloud computing by financial firms last autumn. It said at the time that cloud customers must ensure that they, their auditor and the FCA have “effective access” to its data as well as the cloud provider’s “business premises”, although it explained physical access rights may not be necessary for all business premises and that a regulator’s visit to cloud providers’ premises “can be qualified so that it only takes place if the regulator deems it necessary and required”.
The FCA has still to issue its final guidance. In future, with UK acting independently from the EU, it could support remote access audit rights for cloud use, cutting the cost and complexities involved in adopting cloud services.
The future for fintech in post-Brexit UK
The UK, with London as its financial capital, will remain an attractive place for fintechs to develop their business in future.
KPMG and CB Insights reported earlier this year that fintech companies in the UK raised $962 million in venture capital (VC) funding deals in 2015, up from $409m in 2014. The UK market for VC fintech investments dwarfed Germany’s, where VC deals raised $193m for fintech companies last year. The research represented increasing global confidence in the UK as a fintech hub with opportunities for innovators and investors.
Brexit has created short-term uncertainty but, whilst it may not be the result the fintech community wanted from the referendum, the UK remains well-placed to serve the interests of fintech companies and investors.
London will continue to be a major business hub for global trade and boast expertise in financial services unrivalled elsewhere in Europe and perhaps the world.
The UK also already has a deserved reputation as a financial centre with a regulator that supports innovation and the digitisation of financial services by both incumbents and new entrants to the market.
The FCA is at the forefront of fintech initiatives, including supporting the development of automated advice tools, the use of technologies that help firms meet regulatory obligations, and the testing of innovative products, services and business models in a lighter-touch regulatory ‘sandbox’ environment. The UK government is also backing the development of open APIs in banking in an initiative that goes beyond the ambitions of the EU’s new Payment Services Directive (PSD2) in opening up the payments market to increased competition and innovation.
These are solid foundations for a post-Brexit UK to build on. Together with the opportunities for global passporting and smarter regulation, there should continue to be fertile ground in the UK for fintechs to establish themselves and expand.
By Max Yevdokimov, VP of Mobile at Tinkoff Bank
Fintech has become quite a buzzword today: fintech, bioengineering, and near and deep space exploration are the most exciting tech trends at the moment. Unlike the last two which require expert scientific knowledge, fintech is a field that affects everyone who uses online banking or any kind of payments. As young people across the globe continue to move away from brick-and-mortar banking and finance, more and more start-ups, mobile apps and innovative financial solutions are popping up. However, these are mainly about altering or improving user experience and we haven’t seen any real breakthrough in fintech besides bitcoin and the blockchain.
When banks first set up their branch networks, they were focused on optimising and designing their layout. Then cash machines appeared, and they then rushed to streamline the user interface for those. Now that online and mobile platforms have become mainstream, banks are obsessed with improving the interface of online and mobile banking. But the problem is that most banks approach this from within and don’t properly consider users’ needs. This is exactly why fintech start-ups have emerged because they view the personal finance universe from the perspective of the user. So, it has become obvious that what traditional banks are offering is driven either by their inside understanding of their own processes (no matter how user-friendly those are, if at all), or by their IT infrastructure capabilities. Most initiatives deal with product interface upgrades or new form factors of connected devices.
The winners are those market players who can look at their product from the user’s perspective and anticipate the service they need and the form the user wants to receive this service in. And that’s where we come in! We started off back in 2006 as the first online-only bank and are developing this model to showcase the bank’s role as a fintech disruptor. We develop web services and mobile apps to be used not just within our customer base, but also in the broader market. A good example is our Traffic Fines app, where people can sign up for notifications and pay any fines they receive directly through the app. Traffic Fines has hit more than 3.5 million downloads to date.