On one hand there are the established, incumbent banks, including the UK’s four financial heavyweights – Lloyds, Barclays, HSBC, and RBS. On the other hand, there are the younger, more agile challenger banks: Monzo, Starling, Revolut and others. Needless to say, competition is fierce. Below Barney Taylor, Europe MD at Ensono, digs deeper.
Challengers have arrived quickly on the scene, specialising in areas not well-served by bigger banks at the time. Boasting speed, convenience, and excellent levels of customer satisfaction, challengers have seen particular success in the mobile banking market, with data from Fintech company Crealogix showing that 14% of UK bank customers now use at least one mobile-only challenger app.
How the incumbents are challenging the challengers
IT has been the linchpin of the challenger bank success story. Customers increasingly expect a seamless and ‘always on’ relationship with their banks, and challengers, built almost exclusively on digital foundations, have been able to deliver. Unsurprisingly, it is these digital foundations which traditional banks need to improve if they are to keep up with the shifting market.
Retail banks are generally attempting this by putting greater investment and development into mobile and online banking capabilities. HSBC, for example, recently launched its Connected Money app, allowing customers to easily access their account information from multiple providers within one central hub. RBS is even set to release its own digital lender called Bo in the near future.
This is a strategy that’s likely to pay off for many. However, retail banks have a larger asset right under their noses that’s typically overlooked and underestimated. It’s an asset that banks have been sitting on for decades: mainframe computers.
Mainframe: the trick up retail banks’ sleeves
Mainframe has been around since the late 1950s, when systems only had rudimentary interactive interfaces, punch cards, and paper to transfer data. Usage in the financial sector rapidly picked up in the 1960s, with Barclays among the first banks in the UK to adopt it, initially for account and card processing. In a world in which, arguably, the only constant is change, 50 years on the mainframe has adapted and thrived to become the most powerful computing power on the market, handling over 30 billion transactions per day (even more than Google).
In fact, IDC reports spending on mainframes reached $3.57 billion in 2017, with expectations that the market will still command $2.8 billion in spending annually by 2022. In particular, financial sector businesses have been noteworthy champions of the technology, with 92 of the world’s top 100 banks relying on mainframes today. And for good reason.
Firstly, mainframes, if properly modernised and maintained, provide the same fast and reliable banking experiences that have made challenger banks so successful.
Unlike server farms, mainframes can process thousands of transactions per second, and can support thousands of users and application programs concurrently accessing numerous resources. Today’s mainframes process a colossal 90% of the world’s credit card payments, with credit card giant Visa running 145,000 transactions every second on its mainframe infrastructure.
In the financial industry, where trust is everything, mainframe technology also reigns supreme with its air-tight data security. Mainframes have always been considered a secure form of storage, but new models of mainframe have gone one step further, introducing something call ‘pervasive encryption’. This allow users to encrypt data at the database, data set or disk level. If they so choose, users can encrypt all of their data.
While challenger banks have benefited from an inherently component-based technology infrastructure, which makes them agile, flexible, and fundamentally able to connect to mobile apps and other external ecosystems – new open source frameworks mean that the mainframe can achieve much the same, and can easily interact with cloud, mobile apps, and Internet of Things (IoT) devices.
Final thoughts
Challenger banks have benefited from simple, cloud-first infrastructures that provide speed and convenience, which has won them millions of customers as a result. However, traditional banks shouldn’t fall into the trap of simply mimicking the industry newcomers. Cloud has a lot to offer, but traditional banks shouldn’t disregard the mainframe computing power that they have at their disposal.
A modernised mainframe is a cost-effective workhorse and, far from dying out, it allows incumbent banks to compete toe to toe in areas that have thus far made challenger banks so successful. Modernisation allows workloads to be centralised and and streamlined, enabling even more agility.
The mainframe has a long history, but for enterprise, and for retail banks most of all, it’s still a technology of the here and now.
In this light, following increased pressure from digital banks, legacy banks have yet to follow Muhammad Ali, Joe Frazier III and Danny O’Sullivan’s example. Here David Murphy, EMEA & APAC Banking & Insurance Lead at Publicis Sapient, explains that while newly created fintech companies have stepped into the ring and landed a few punches on traditional banks by being quick and nimble, they are by no means facing a knock-out.
Legacy banks shouldn’t underestimate the challenge of newly created digital banks. By relying on their tech, rather than reputation, digital banks have shaken up the financial sector in the last five years. Exploiting poor customer service and lack of innovation in many parts of the industry, tech-driven fintech startups such as Monzo and Starling Bank have won over customers with simple, low-fee, mobile-first products and services.
The market share for current accounts of the big four legacy banks (Barclays, Royal Bank of Scotland/NatWest, HSBC and Lloyds) has lost ground, from 92% of all bank customers a decade ago to around 70% today.
Challenger banks have proven themselves to be more flexible, quicker to adapt to user needs and more friendly and personal than traditional banks. In fact, according to a recent survey from Which?, challenger bank Monzo was ranked as the best bank in the UK with a customer rating of 86% (banks were rated out of a series of categories by real customers out of 10). Their ability to match up to some of the biggest and most established names in the business is a concern for many in the traditional banking sector.
With digital banks winning over consumers and raising a significant amount of funding in order to grow their services - Monzo raised £20m in two days last year and Tandem is expected to raise over £80m in its funding round this month this concern is being amplified – the fightback from legacy banks, which began long ago, is gearing up.
However, this is no easy fight. Compared to younger, more agile fintech companies building new services and platforms from scratch, banks have to work around their legacy systems to make any technological leap. They also have to deal with the issues of siloed workplaces and cultural backlashes in order to improve their services and products.
For example, the boards of major banks today are dominated by people with experience in finance, accounting, law and regulation. Given the enormous changes in regulation since the financial crisis, it is not surprising banks have sought out board members with skills relevant to the sector’s strategic agenda for the post-crisis years: regulation, risk management and compliance.
But the post-crisis environment is shaped by another set of strategic issues that grow steadily more pressing: digitalisation, mobile, automation and the emergence of big data analytics.
To overcome structural issues, legacy banks need to fight smarter against digital banks. While older boxers have to learn how to be strategic and take a punch when competing against younger more nimble fighters, banks need to also adapt their tactics against younger, digitally-enabled competitors.
The contrast between banks and leading technology businesses is clear: tech companies’ boards have large contingents of people from technology, customer insight and digital media backgrounds. As a result, they demonstrate a sharper focus at the top level on the strategic issues of the coming decade, the digital transformation of all businesses, including financial service. Legacy banks need to create a multi-pronged approach to the rise of fintechs from innovating internally to capitalising on their experience in the market.
As we have seen over the past few months with Revolut - the bank has been linked to multiple scandals and failed to block thousands of potentially suspicious transactions on its platform for three months last year - challenger banks come with risks. Legacy banks can therefore, capitalise on their stability by reflecting this in their advertising and marketing campaigns.
Most importantly though, banks need to innovate and adapt to new technology. Many legacy banks are recreating the dynamism of fintech startups within their organisations through innovation labs, as well as partnerships with external technology providers. Initiatives such as innovation labs allocate space to incubate ideas internally with considerable time and investment. They also overcome the cultural issues that big organisations create by building small teams in the company to develop new competing platforms.
Fundamentally, banks need to put customers at the center of the picture. In order to deliver a knockout blow to digital competitors, banks need to ensure that they have the time, investment and willingness to develop and improve their digital banking platforms, enacting digital transformation holistically throughout the organisation and embedding a culture of innovation in their business, underpinned by experience and knowledge built over years.
Here Syedur Rahman of business crime solicitors Rahman Ravelli questions the effectiveness of big fines and the likelihood of criminal prosecutions in the future.
Standard Chartered has hit the headlines for the size of the fines imposed on it on both sides of the Atlantic.
But behind all the big numbers and the column inches it is hard not to wonder if such a costly slap on the wrists is now being viewed by the big banks as nothing more than the cost of doing big business.
Standard Chartered has been ordered to pay a total of $1.1 billion by US and UK authorities to settle allegations of poor money laundering controls and sanctions breaching. It is paying $947M to American agencies over allegations that it violated sanctions against six countries and has been fined £102M by the UK’s Financial Conduct Authority (FCA) for anti-money-laundering breaches; including shortcomings in its counter-terrorism finance controls in the Middle East.
These fines had been expected. Standard Chartered said two months before the fines were imposed that it had put $900M aside to cover them. But this isn’t the first time that Standard and Chartered has had to pay out for its wrongdoing.
Seven years ago, it paid a $667M fine in the US. Like its latest US penalty, it related to alleged sanctions breaches. At the time, it also entered into a deferred prosecution agreement (DPA) with the US Department of Justice and the New York county district attorney’s office over Iranian sanctions breaches beyond 2007. That DPA would have expired by now but has been extended until April 2021 in the wake of the latest allegations.
Will this be the end of Standard Chartered’s problems and the start of a new allegation-free era? It is hard to believe so. But it is fair to point out that it is not the only bank to be hit by huge fines for wrongdoing and then be found to be repeating its illegal behaviour. Which is why it is hard to believe that fines are having any real impact on the way that some of the biggest banks function. If they are prepared to keep paying the fines and / or giving assurances about keeping to the terms of a DPA while reaping the benefits of breaking the law it is hard to see the cycle of behaviour changing.
Let’s be clear, any failure by Standard Chartered to abide by the terms of its DPA could see it facing criminal prosecution. And any bank’s weak approach to money laundering is now increasingly likely to be pounced on by the authorities. The Standard Chartered investigation was a co-ordinated multi-jurisdictional effort by the FCA, the US agencies and the United Arab Emirates. And while Standard Chartered’s full cooperation with the FCA saw it receive a 30% discount on its fine, relying on cooperation to gain a lesser punishment cannot be viewed as a safe approach.
The authorities around the world that investigate the activities of banks and other financial institutions are now more coordinated than ever. They have more legal powers than ever before and are unlikely to be reluctant to use them against those in the financial marketplace that come to be seen as repeat offenders.
There is no clear indication or evidence that the era of big fines may be about to pass or that the authorities are set to view convictions as a more effective deterrent to financial crime than hefty financial penalties. There may also be difficulties when it comes to corporate liability which, in the UK, requires proof that those involved in the wrongdoing are sufficiently senior to be considered the ‘controlling mind and will’ of the company.
But if fines continue to be ineffective in curbing the behaviour of certain banks it can surely only be a matter of time before the authorities rethink their approach to enforcement.
That is why, when the Competition and Markets Authority ordered the implementation of so-called Open Banking almost three years ago, everyone excitedly welcomed the prospect of upstart new banks and other fintech companies using technology to challenge the Big Five. Here Kevin McCallum, CCO at FreeAgent , talks to Finance Monthly about the different ways big banks are making the most of Open Banking.
More than a year after roll-out began, however, it looks more like the little guy is not yet making the inroads expected. In the new Open Banking race, it is the incumbents which are still leading the field.
When the CMA found insufficient competition in banking, it was no surprise - almost 90% of business accounts are concentrated with just four or five institutions, while 60% of personal customers had stayed with their bank for more than a decade.
The central solution was to be Open Banking, starting with requiring banks to allow rivals and third-party services access to customers’ account data - subject, of course, to the necessary permissions. This, the theory went, would spur competition through innovation - we would see banks reduced to interchangeable commodity services, mere infrastructure providers, with nimble, agile third-party services innovating on top, spurring the banks in to action.
In the same timeframe, we have certainly seen the emergence of digital-only challenger banks like Starling, Monzo, Tide and Revolut. While all of them offer 2019 features like savings round-ups, spending analysis, budgeting and merchant recognition, most of the innovation has happened within the walled garden of the traditional account.
Starling and Revolut are already registered for and engaged with Open Banking. Starling is now supported by MoneyDashboard and Raisin UK, while Revolut’s API is supporting connection to many third-party apps. But it’s fair to say the upstarts were expected to dive in to Open Banking faster and deeper than this, some consider them to be behind the curve.
What we have seen, instead, is the big banks leaning heavily in to Open Banking.
HSBC was amongst the first to offer account aggregation, the practice through which consumers can access account data from rival banks, inside a single provider’s own app, initially through a separate Connected Money app. Barclays, Lloyds and RBS/NatWest have since gone as far as offering the facility inside their core apps.
Of course, the big banks are incentivised to pull in rivals’ account data. Being the first port of call for all finance matters is attractive, whilst account data from other institutions can be used to aid product marketing and lending decisions.
In truth, we have begun to see the first signs of innovation amongst third-party services which plug in to those accounts. CastLight is helping lenders more quickly understand customers’ affordability, Moneybox is helping users round up spending in to savings, Fractal Labs uses knowledge of account activity to help businesses better manage their cash. We have even seen a large bank powering such new-style services in the shape of TSB’s loan comparison service, powered by Funding Options, which surfaces products from across providers.
But, even so, these use cases are not a step-change from the kind we already had before, albeit using less sophisticated methods of data collection. At FreeAgent, where we have offered bank account integration through more rudimentary means for several years now, we sense strong customer demand for efficient, API-driven bank account access. Most onlookers, and digital-savvy customers of the new-wave banks, expected more than this by now.
Why has the pace of Open Banking innovation to date been relatively underwhelming?
First, only the UK’s nine largest banks were mandated by the CMA to make account data available through APIs by the January 2018 deadline.
Ironically, the upstarts have been relatively more free to sit back. Indeed, unlike the legacy holders, they have no burning platform they need to quickly save; for them, the future is growth.
In fact, though, as smaller, less-well-resourced entities, they also have to plan out their investment more carefully than wealthier institutions, rather than dive headlong in to costly initiatives. Monzo is on-record as saying it will embrace the possibilities slowly, exploring whether to build features like account aggregation “in 2019”. When you’re a bank - even a cutting-edge, agile one - “move fast and break things” is a hard mantra to follow.
Furthermore, actual technical implementation of Open Banking is, shall we say, non-trivial. Adoption is complex, and far more complex for account providers than for third-party accessing services. In many cases, writing native code to enable integrations, whilst it may be considered messy, has been more straightforward than adopting Open Banking APIs.
Finally, the big banks, the “CMA 9”, have pushed compliance with Open Banking right down to the wire. Whilst they have been first to the punch, had they managed to launch sooner it may have encouraged the upstarts to compete more quickly.
It won’t stay like this forever. The Open Banking timeline has been an ironic inversion of the class of companies we typically expect to be canaries in the mineshaft of technical trailblazing. But banking innovation is about to become more evenly distributed as the balance between big guns and small players levels out.
From September, all banks, even the smaller ones, must be compliant with Open Banking standards. That is going to be an interesting moment for the new wave - can you really be considered the plucky upstart when you are subject to the same compliance framework as the lumbering giants?
Further regulatory compulsions on the big banks - and one in particular - could further spread Open Banking innovation downstream.
As part of conditions attached to its £45 billion government bail-out during the banking crisis, RBS has been compelled to funnel £700 million in previous state aid in to measures supporting business banking competition.
This so-called Alternative Remedies Package includes several pots of innovation funds, and the scheme’s independent administrator has just made the first innovation awards - £120 million to Metro Bank, £100 million to Starling, £60 million to ClearBank. Metro is promising “radically different” business banking, including “in-store debit card printing, lightning-fast lending decisions, fully digital on-boarding, integrated tax”; Starling says it will build “full suite of 52 digital banking products to meet the needs of all sole traders, micro businesses and small SME businesses”.
Even more awards are due to be made through 2019, likely spurring new use cases for Open Banking, and more besides, that many had not yet dreamed of. This level of funding is going to be an enormous catalyst for the kinds of companies that are really well placed to deliver.
The pace of technology adoption doesn’t always happen as quickly as it sometimes can feel.
Sometimes a great idea can take a long time to bubble up and gain widespread adoption. Shortly after the invention of the horseless carriage, Michigan Savings Bank is said to have forecast: “The horse is here to stay but the automobile is only a novelty - a fad.”
Technology becomes successful when innovation becomes normalised, when enough adoption has been seen that what, once, was considered new fades away and becomes part of the furniture.
Although we have spent the last couple of years talking about the Open Banking initiative, and although its roll-out has been slower than expected, this should not distract us from the likelihood that, in a short while, the innovation and adoption cycle around it will have accelerated to the extent we see many, many new use cases all around us spurring more services and more competition.
The ultimate test of Open Banking, then, will not be who is first to market - it will be when we no longer talk about it at all.
If mobile payment apps became as popular in the US as they are in China, banks would lose a projected $43 billion in revenue annually. Bloomberg QuickTake explains how cheap and easy payments by phone are threatening one of the banking industry's most profitable businesses.
Here Alpa Bhakta, CEO of Butterfield Mortgages Limited, explains what factors and characteristics brokers and borrowers need to be on the look out for when selecting a lender. As part of the feature, she'll also delve into how the rise of challenger banks has affected the prime property and mortgage markets.
Between 2016 and 2018, as many as 4,214 new products were introduced into the residential mortgage market. It’s a remarkable statistic, and one that reflects the broadening range of options available to homebuyers.
Today, mortgage lenders have larger product portfolios, with subtle variations in their terms and rates meaning they provide multiple iterations of what is fundamentally the same offering. At the same time, the rise of “challenger banks” means there are more and more new players entering the industry, in turn giving borrowers entirely new companies to approach.
One would naturally assume this is a positive trend, something to be welcomed and celebrated. However, in truth, despite the increase in the number of mortgage products available to consumers and investors, challenges still remain.
As with any market that expands steadily over a long period, the wealth of options to choose from can prove overwhelming. Indeed, filtering through thousands of potential mortgages to find the best product from the right lender is perhaps more difficult than ever.
The value of intermediaries
Earlier this year, Butterfield Mortgages Limited carried out an interesting piece of research delving into the UK’s mortgage market––or more specifically, the UK’s high net-worth (HNW) mortgage market––to establish borrowers’ opinions of the products available.
The independent survey of more than 500 HNW individuals revealed that even for the wealthiest members of society, there are still significant barriers to securing a mortgage. For example, one in nine said they had been turned down for a mortgage in the past decade.
Furthermore, 79% said they think too many lenders are currently employing overly restrictive “tick box” methods when assessing mortgage applications; 60% believe it is becoming increasingly difficult to secure a mortgage for a non-primary residential purchase; and 67% of UK HNWs feel banks do not adequately cater to the needs of property investors and buy-to-let landlords.
The results illustrate how the wealth of options available to mortgage applicants is not always a good thing. In fact, it means there are more unsuitable products and lenders that a borrower must filter though.
Enter the intermediaries. Brokers and wealth advisers have a more important role than ever in guiding their clients, such as HNWs, towards the best and most appropriate mortgage products. Indeed, the aforementioned BML research showed how 73% of HNWs rely on brokers to help them find mortgages.
The larger the mortgage market becomes, the more valuable expert help will be in connecting borrowers to suitable lenders and products.
Choosing the right lender
It’s nearing three years since the EU referendum, and as if anyone needed reminding, Brexit has dominated political and economic discourse throughout this period. In a word, the result of the on-going Brexit saga has been uncertainty.
A lack of clarity regarding what the UK’s financial and political future will look like has resulted in hesitancy among consumers, investors and businesses alike. In the mortgage market, this means further due diligence is required from borrowers and brokers to ensure they work with lenders who are not at risk of succumbing to the challenging conditions currently gripping the market.
Over recent months the likes of Secure Trust Bank, Amicus Finance and Fleet Mortgages have withdrawn from the lending market or frozen their activities. As FT Adviser reported in January, the combination of Brexit and increased competition has forced some companies out of the market, while other lenders are pulling out of deals at the last minute.
One of a borrower’s greatest fears is that he or she will choose a mortgage lender who enters financial difficulties and this, in turn, has the potential to compromise their own finances. To avoid this, one must establish the relative security of different lenders based on the strength and longevity of their funding lines, as well as their past track-record of weathering turbulent periods, such as the 2008 global economic crisis.
The number of products and lenders in the mortgage market is on the rise. Meanwhile, Brexit uncertainty has presented new challenges to both traditional and challenger lenders. Consequently, selecting the right mortgage from the right provider requires more due diligence than ever.
After all, there are specialist lenders with expertise in providing bespoke mortgages for even the most niche borrowers in the most unique situations. Finding them may take work, but ultimately the health of the mortgage market reflects the ever-present demand among both domestic and international buyers for bricks and mortar assets here in the UK, and this certainly is something to celebrate.
Besides, sometimes you have to take a step backward to move forward. The most practical way of dealing with bankruptcy and moving back to solvency is by establishing a saving plan. Saving is an essential aspect of wealth creation. With the right mindset and correct information, individuals can create wealth post-bankruptcy by adopting and neglecting certain behaviors.
Take Advantage of the Pre-discharge Credit Counseling
Bankruptcy comes with a lot of emotional and psychological strain. However, getting help from credit counselors can help you get through. Involving your legal advisor will help you find an approved agency to counsel you through the process. The counseling platform offers valuable financial advice to help you wisely manage your finances in future. It also focuses on income, expenses and strategies to save. Consequently, it covers financial literacy on budgeting and debt management. Budgeting your finances is essential if you want to achieve your saving goals. During bankruptcy, individuals learn to live without credit. Therefore, this experience should be used to your advantage by trying to operate with no debt post-bankruptcy. In case you access credit-cards, it is essential that payments be made before or on dates when they are due.
Increase Your Income Streams
After being declared bankrupt, sourcing for new income streams may be difficult at first. However, individuals can work with what they have, to achieve what they hope to get. For example, monthly income paid to unsecured creditors before being declared bankrupt can help you build up on your savings by depositing it into your savings account. Individuals can also start a business. Not all business ventures require capital to start. For example, Dave Ramsey began a financial advice group in his church after he was declared bankrupt which later became the successful Ramsey Show. Using your experience to educate others can create business opportunities for you, and you can even document your experience by writing a book. You can also take up a second job and save income from that job.
Work on Improving Your Credit History
Although debt is the last thing, you should think about post-bankruptcy, working on developing a good credit history is essential. Bankruptcy records show on your credit score for up to seven years. However, improving your credit scores in three years could make you qualified for a loan. Lenders often look at payment history, hence having years of consistent payments to your savings account shows reliability and commitment. Consequently, a good credit history improves your credit score allowing you to qualify for loans with lower interest rates which also makes it easier for you to save.
Dealing with bankruptcy can be exhausting. However, accepting and working towards financial stability can make it bearable. Personal financial evaluation can help you know where to start on your journey towards normalcy. Adopting better financial habits like living within your means is also good to ensure you remain financially stable.
To help them take the first steps in creating their own strategic approach, Mobey Forum’s Executive Director, Elina Mattila, explores some of the most important and influential developments that banks need to know about the industry today.
Outside of the main financial services realm, a multi-billion-dollar global virtual currencies market has rapidly evolved and continues to gather pace. But, whilst virtual currencies have been ‘on the list’ of banks for some years, to date most have taken a hands-off approach.
This is now changing. Some of the larger financial institutions are beginning to formalize their positions. And, thanks to a combination of factors, now is a good time for banks everywhere to follow suit and move the strategic evaluation of this market higher up the priority list.
So, what are the factors at play and what do banks need to know about virtual currencies to enable them to form a clear, long-term strategy?
The crypto-crossover with traditional banking
The world now has programmable money in the form of cryptocurrencies, which are being used globally to exchange value outside of the conventional banking system. Crypto makes up the vast majority of volume in the virtual currency market but only a small percentage of the global money supply. Nevertheless, the numbers are large enough for banks to take notice and investment continues at pace.
Digital currencies may know no borders, but banks have always had perimeter control – whether they have chosen to actively engage or not – as they essentially own the transfer of ‘virtual value’ back into the conventional ecosystem, and vice versa. Now, facilities exist that support crypto trading without a wallet, for example, Bitcoin ETFs (Exchange Traded Funds), bank accounts and futures. In other words, anyone can now trade cryptocurrencies easily through banks or new entrants.
Capitalizing on this, some larger traditional players are starting to establish exchange and custody infrastructure for their clients, a trend which could see major banks exerting far greater influence and control.
Regulation is coming
Of course, there is greater risk associated with trading virtual currencies compared to conventional currencies. New regulations like Anti-Money Laundering 5 (AML5), however, are increasing medium-term clarity. The fact that virtual currencies, including cryptocurrencies, have been brought within the scope of new regulation is creating a competitive advantage for banks. A closely regulated environment plays to their deep regulatory experience and will make it easier for them to forge partnerships with other cryptocurrency stakeholders.
At the same time, new regulations are making it easier for virtual currency companies and exchanges to get access to bank services. This has been considered by crypto stakeholders to be one of the sector’s biggest hurdles to overcome, so banks may now begin to benefit from increased demand from these firms.
Regulation is, therefore, effectively priming the virtual currencies ecosystem for banks to engage by increasing transparency, reducing some of the associated risk, and lowering the barriers to entry. All of this will make it easier for banks to establish a role and to design new payment products.
ICOs and investments
An ICO is an Initial Coin Offering, also called a ‘token sale’. It is a public offering of a new token or cryptocurrency where investors typically, but not always, pay with another cryptocurrency, such as Bitcoin or Ether. ICOs are channeling venture capital investment and associated revenues away from traditional banking systems to crypto exchanges. Their growth demonstrates that virtual currencies, together with the technologies that underpin them, can provide more than just an alternative means of exchange. If jurisdictional challenges can be overcome, these have the potential to disrupt other traditional financial services.
With regulation, however, banks may now begin to evaluate ICOs as a possible investment option for customers.
Gaps are being bridged
The development of decentralized exchanges has triggered a recent surge of activity around creation of stablecoins. Put simply, stablecoins are cryptocurrencies that are either pegged directly, backed by another asset or programmed to ascertain stability against another asset. What’s exciting is that they have the potential to bridge between traditional and crypto assets, and promote stability in an otherwise volatile cryptocurrency market.
Stablecoins represent a far more familiar and serviceable industry for traditional banks, offering them the ability to unlock revenue generation from the cryptocurrency ecosystem, as well as the potential to operate traditional services with new efficiencies.
This is an emerging trend that may have implications for banks in the coming years, and so they may see their roles start to evolve quickly.
What’s next?
There are some credible, greenfield opportunities for banks to explore as they define their role within the virtual currencies market. Whilst the exact future remains difficult to foresee, a combination of these factors, and others, means that banks and financial institutions can now start to make decisions about how to move forward.
To support banks in their strategy creation, Mobey Forum, has released a report entitled: ‘What Banks Need to Know About Virtual Currencies Right Now’. This report, created by the Virtual Currencies Expert Group, provides detailed considerations for banks and financial institutions who are looking to get involved in the virtual currencies market.
The most obvious example of this is the criteria you need to meet in order to get a mortgage. Although there are certain assumed standards, each lender has its own criteria. As a consumer, that leaves you in a precarious position of shooting in the dark when submitting mortgage applications.
Things don’t get any better when you look at the data surrounding mortgage rates. Although all stats can be twisted to suit a specific agenda, there are times when consumers won’t know what to believe. For example, if you compare the headlines from the Financial Times and UK Finance in May 2019, both had a different take on the current lending status.
Same Data, Different Conclusions
While lobbying group UK Finance focused on approval rates being up by 6% year-on-year and 2% between February and March, the Financial Times had a different spin. For reporter Imogen Tew, the Bank of England’s Money and Credit report stood out because approvals had dropped by 4.5% between February and March. Even comparing just two news stories, you can see how the market is confusing at times.
Fortunately, as it often does, technology is capable of cutting through the unnecessary and picking out the relevant. On a basic level, mortgage calculators are an easy way for prospective borrowers to see how much they can get. However, with these calculators using generic data and broad assumptions, the answers are nothing more than a guide. Building on this technology, mortgage brokers offer sophisticated calculators that help determine the best products for a single user.
Using AI-style technology, free-to-use online mortgage broker Trussle matches borrowers and lenders. Unlike generic calculators, the software compares personal details against 12,000 mortgage deals. From there, daily market comparisons are carried out to ensure the user is given recommendations that are based on the latest market conditions. Indeed, it’s this dynamism that counters the complex and volatile nature of the mortgage industry. While it may not necessarily make mortgages any less complex, using tools like this can help simplify the application process.
Streamlining the Mortgage Business
In conjunction with a desire in recent years to streamline the industry, developers have also adjusted their focus to lender technology. Indeed, as the market has become more competitive, lenders with the most user-friendly systems are likely to win favour with the general public. Latching onto this trend, Fiserv launched Mortgage Momentum in February 2019. Described as an “end-to-end” system, Mortgage Momentum is designed to improve the lending experience.
Part of the software’s appeal is that it makes the lending process easier: by simplifying the overall process, the product is able to make borrowing more attractive. In other words, by making it easier for consumers, the lender has the ability to generate more business. What’s more, the product also uses machine learning to understand the market’s shifting dynamics. Using these insights, lenders can refine their products to meet the latest economic and consumer demands.
Mortgages will never be an easy topic to master. Changing interest rates, market forces and economic stability will always ensure a level of uncertainty. However, with modern technology, things are easier to grasp than they’ve been before. Indeed, thanks to calculators, brokers and advanced lending software, borrowers are shooting at slightly lighter targets than they once were.
Decimal Day on 15 February 1971 replaced shillings with pounds and pence. Ireland went one step further when it announced in 1999 that it would swap pounds for euros and this came to fruition in 2002. While the UK remained adamant they wouldn’t join the euro, something else has eclipsed the possibility that we might exchange our sterling for something more continental – the fact that we might not deal with any money whatsoever. There are calls from some people to begin the process of foregoing cash and replacing it with digital payment methods instead. But, will society ever go cashless?
The Argument for a Cashless Society
Since contactless was introduced, almost two-thirds of people in the UK use contactless payments, while June 2018 saw cashless payments eclipse those who used traditional cash methods. Indeed, with the rise of Monzo, customers are encouraged to spend via their card to track what they are spending and where. This allows you to make better choices. Bus companies, such as First, have begun accepting contactless payments on their buses as well as payment via an app, which offers discounted fares. Even vending machines allow card payments, while traditionally cash-centric parking meters also offer you to pay through digital means that bypass cash methods. Many industries already use cashless methods. For example, when you play online slots at Magical Vegas, there are several digital payment options to choose from for depositing and withdrawing any winnings you make, which matches the modern technology used in the video slots. These include Paysafecard, Neteller, Skrill and Paypal as well as Visa and Mastercard.
Why Might Cashless Be Bad?
Of course, the issue with switching to contactless, smartphone payments or even just relying on chip and pin, is that there is a portion of the country who either have no access to this or wouldn’t feel comfortable using it. A fixed address is necessary for a bank account, so those who live without one would be left without the money they might otherwise be able to access. Without physical money, everything relies on big data to ensure our details and bank accounts correspond. With so much money in accessible accounts, crime that mines our personal financial data may increase, especially in the advent of a data breach, which isn’t beyond the realm of possibility. Anecdotally, many say they struggle to manage their finances when they don’t have the actual cash, claiming contactless makes it easier to overspend because the money is less tangible. One of the main concerns for a cashless society is the fact that we would be at the mercy of technology – and that something that might affect this, even a simple power cut, could leave us penniless.
Cashless society may seem futuristic, but we are already making some waves in that area. While there are enough cons to ensure that we will never fully go cashless, instead it will likely be made easier to opt out of using cash as a matter of personal preference.
According to Tony Smith, MD of Business Expert, for the most part, London has bucked this trend by beating even Silicon Valley to becoming the global Fintech hub. The historic financial centre has welcomed thousands of startups via progressive regulation, a forward thinking consumer market for tech products, and a central European location.
With the shadow of Brexit causing mounting uncertainty in the business community, the question of whether London can retain its title as the Fintech capital is becoming a talking point. More than almost any other industry, the ability to scale Fintech companies relies on access to global talent pools and, with post-Brexit employment laws still uncertain, many fear Britain is going to lose one of its greatest financial assets.
European Capitals Mop Up Fintech Exodus
While Theresa May struggles to push through her Brexit plan, other countries have been busy rolling out the red carpet with tax incentives and easy access to funding as a means of luring potential Fintech talent while the going is good.
Paris is one example of this. Sharing London’s historical reputation as business centre, Paris already hosts banks and large insurance companies, alongside a workforce rich in engineers and data scientists. Efforts are being made to entice tech talent via smoother regulation and a city-wide focus on AI training courses.
The German capital, Berlin, is another contender. Berlin is actively promoting Fintech relocation with it’s slogan ‘Keep Calm Startups and Move to Berlin.’ With cheap commercial real estate, governmental funding support, and 100 Fintech startups already placed, Berlin is likely to benefit widely from the political situation in the UK.
Tallinn, Estonia, while smaller than the major capitals, already has the third highest concentration of startups in mainland Europe. Tallinn is now benefiting from the efforts of the post Soviet government who recognised that technological education could drive the economy of the future. Estonia now has one of the most tech-savvy workforces in the world.
London still has a lot to offer
Despite the Brexit gloom, many pundits are at pains to point out that London is by means on the ropes just yet. In addition to its position as one of the world’s financial centres, a number of universities specialising in artificial intelligence have added to its hub status.
At the recent Amsterdam Money conference, London’s Deputy Mayor for Business, Rajesh Agrawal commented: “London is the greatest city in the world, and it’s no wonder that so many financial tech companies proudly call it home. As a fintech entrepreneur myself, I know that London has the right mix of clear regulation, world-beating talent, and a massive customer base to make it the international fintech capital.”
To put this into perspective, the U.S. banking system alone held an estimated $17.4 trillion in assets at the end of 2017, whilst it also generated a staggering net income of $164.8 billion.
Banks are set to become more profitable in the future too, with advanced technology such as artificial intelligence (AI) expected to introduce more than $1 trillion in savings by the year 2030. This highlights the impact that technology is continuing to have on banking, with this relationship growing increasingly intertwined with every passing year.
In this article, we’ll explore this further whilst asking how the most recent innovations are impacting on banking in the digital age.
1. It has Ushered in the Age of Digital and Mobile Banking
Whereas banking used to require standing in queues and liaising with tellers, most transactions are now completed through digital means. In fact, an estimated four out of every 10 UK customers now bank using a mobile app, and this number is set to increase incrementally in the years to come.
So, whether you want to make an instant payment, transfer funds or open a brand new account with a service provider such as Think Money, the quickest and most efficient way of doing this is through digital means.
Technology is also making digital banking increasingly secure, with methods such as 2-step authentication having transformed the space in recent times.
We’re also seeing a significant rise in the use of biometric security methods, including advanced techniques such as fingertip authentication and facial recognition. These options provide the ideal compromise between high security and a seamless customer experience, and this something that remains at the very heart of banking in the digital age.
2. It’s Using AI to Improve the Customer Experience
We touched earlier on AI, and how this will enable banks to make considerable savings and become more profitable in the future.
AI is also having a considerable impact from a consumer perspective, however, especially in terms of the banking experience that they enjoy.
Take the use of chatbots, for example, which can enhance the onboarding process when positioned as helpdesk agents. More specifically, they can answer the most basic and commonly asked questions and anticipate popular requests, enabling customers to resolve their queries as quickly as possible.
AI can also afford bankers a more detailed look at their customers’ behaviours and financial history, making it easier for them to provide real-time insights and offers that offer considerable value.
3. It’s Improved Data Protection in the Banking Sector
In the first half of 2015, it’s estimated that around 400 data breaches took place in the U.S. alone.
This number has fallen in recent times, as banks have identified the core issues that compromise customer details and introduced measures to provide more robust data protection.
Aforementioned biometric and 2-step authentication techniques have helped to secure users’ passwords, for example, whilst phishing scams and malware are also being combatted by 128-bit encryption and higher.
As a customer, you can also take advantage of secure wireless connections to safely access your bank accounts in the modern age, negating the risk posed by public networks and unsecured Wi-Fi hotspots.
