Consumer trust in banks has plummeted in recent years. The 2008 financial crisis, as well as recent examples of bad practice such as TSB’s IT meltdown which compromised millions of accounts, has led to many consumers questioning whether their bank really has their best interests at heart. Indeed, RBS chief Ross McEwan recently predicted that it could take up to a decade to rebuild lost customer trust following decades of poor treatment.
In fact, as many as one in five customers (20%) no longer trust banks to provide them with a loan – ostensibly one of a bank’s primary functions.
Despite this mistrust, consumer appetite for credit remains high. We’re therefore seeing a rise in alternative lenders offering customers the flexibility and transparency customers desire - and which many traditional banks have conspicuously neglected – which could spell the end of the traditional banks’ role as leaders in the lending sector.
But how has the lending process evolved and what does this mean for traditional banks?
The rise of new consumer lending models
While consumers are willing to borrow outside of traditional banks in the wake of these institutions having cut back on unsecured lending, they will no longer trust a provider which does not operate transparently or ethically – as evidenced by the collapse of Wonga. This, combined with recent regulatory action from the FCA, has heralded a wave of change within the financial lending sector.
Following the lead of disruptive, digitally-focused providers such as Uber and AirBnB in other sectors, a number of fintech disruptors - such as Atom and Monzo - have materialised. These brands have analysed the day-to-day banking issues customers face – such as a lack of transparency and poor user experience (UX) - and designed their services from the ground up to mitigate these issues.
From taxi apps that invite you to register a payment mechanism, to autonomous vehicles that pay for their own parking or motorway tolls, “banking” without the need for a bank will gradually become a more everyday experience. In this vein, so too will consumer lending change through organisations that offer finance at the point of sale itself – both online and in-store - moving from traditional pre-purchase credit to a far more seamless service.
Flexible point-of-sale lending is changing the nature of financial transactions across a range of sectors, including how to fund a holiday, buy a house, and even pay for medical treatments at a rate which suits the customer. The potential of this lending method is huge, with more than three quarters (78%) of consumers saying they would consider using point-of-sale credit in the future.
What does this mean for traditional banks?
People seldom wake up in the morning thinking “I must do banking”. Banks don’t tend to inspire the levels of consumer loyalty seen in other sectors, and they must therefore work far harder to retain customers. Given this, the ongoing reticence of banks, to both lend and offer customers what they want, has created a gap in the finance market, which could be the death knell for traditional banks if left unchecked.
As frictionless point-of-sale lending businesses and customer-centric fintech brands continue to thrive, several key banking functions – such as money management and consumer lending - may be replaced entirely by newer, more agile providers. For example, could the fact that providers are now offering finance in the property sector put an end to the traditional mortgage?
If this growth of smaller, more agile disruptors continues, banks are highly likely to see reduced customer numbers. It was recently predicted that banks could lose almost half (45%) of their customers to alternative finance providers, and if banks do not adapt their offering there is a real danger they may be driven out of the market altogether.
Simply put, if banks do not place a greater focus on what customers want – flexibility and transparency – their status as the stalwarts of the lending market may soon be a thing of the past.
Here Chris Labrey, Managing Director UK & Ireland for Econocom talks to Finance Monthly about the management of long term payment models and how they can play a part in the implementation of cyber security measures.
If businesses have learned anything over the past few weeks, it is that the issue of cyber security has never been more important. Despite the severity of the WannaCry incident — which started off affecting numerous NHS trusts across the UK and evolved into something that affected computers in more than 100 countries — it was a stark and much-needed reminder that no business can truly count themselves as safe, no matter the area or industry.
For those working in the legal sector, the unfortunate truth is that they are more vulnerable than most. On a daily basis, lawyers, barristers, solicitors and more are dealing with highly confidential information — the kind of information that is extremely valuable in the eyes of online hackers. If these individuals were able to infiltrate IT systems and seize this data, the consequences of it being leaked could be disastrous.
With this in mind, it is essential that all law firms put sufficient security measures in place, but there are several obstacles that make this process more complicated than many first anticipate. Firstly, the necessary tools for comprehensive protection often require a significant capital expenditure investment, and many firms struggle to pay this without any negative financial repercussions. What’s more, it is not uncommon that this money comes straight from the pockets of the partners, which results in additional strain for those looking to take a proactive stance against the cyber threat.
Even if the majority of firms could afford to pay the considerable one-off payment to protect themselves, they often fail to consider whether they have the sufficient resources to manage and maintain these various tools and systems. Security is not an automated service —it requires staff that are on-hand to monitor and detect any potential vulnerabilities and then decide on the appropriate action to resolve the issue.
However, flexible payment-over-time models represent a solution that makes the process of deploying these security measures much easier — a solution that reflects our 21st century ‘renter society’ sensibilities, and is being realised by security-conscious law firms. Just like many of us pay for our mobile phones or cars in monthly instalments, the legal sector is beginning to reap the many benefits of using such a model to pay for cyber security protection.
Firstly — and perhaps most obviously — the model means there is no need for a large, one-off payment if businesses want to guarantee protection: instead, the cost is divided into smaller, more manageable chunks that are paid over a pre-determined period of time. Suddenly, the financially-induced headaches that many partners and firms suffer from are alleviated, allowing them the freedom to breathe and implement these new measures without any disruption to regular operations.
Payment-over-time models are also extremely valuable thanks to their flexibility. As the cyber threat continues to evolve and hackers devise new ways of infiltrating IT systems, businesses within the legal sector can continually refresh and future-proof their security measures to ensure they are constantly protected. Outdated systems can be swapped out for state-of-the-art replacements, without having to make another potentially crippling capital expenditure investment.
Fast-growing businesses within the legal sector are understandably wary of spending any significant amount of money on IT systems, especially if they find themselves doubling the size of their workforce in 12 months and find that the systems they spent so much money on are no longer sufficient. Payment-over-time models eliminate this problem entirely, as they allow businesses to scale their estate up or down according to specific business needs and requirements. This approach allows businesses to match the investment costs with the business benefits over time.
The threat of cyberattacks is only going to continue to evolve over time, and so the legal sector is left with no choice but to invest in the relevant security measures to protect themselves. If they fail to do so, they risk enormous financial and reputational damage, as well as the obvious loss of any data that is seized in the process. While putting these measures in place might have previously been tough for many law firms, the popularisation of payment-over-time models is the much-needed lifeline that they need to survive during these tough times.
