Traditional banks are lagging behind when it comes to technology and we are increasingly seeing non-financial services companies, like Facebook and Orange moving in into the territory of traditional banks. Below Daniel Kjellén, Co-Founder and CEO of Swedish fintech unicorn Tink, looks at how Facebook is currently adding P2P payments to their services.

You would have to have your head in the sand not to notice that huge change is afoot across the banking and personal finance sectors. Earlier this month, Facebook announced that it was making its first foray into finance in the UK, with the launch of a new service which will allow users to transfer cash with just a message.

Facebook is not the only tech giant moving in on the territory of traditional banks, with Apple also set to launch its own virtual cash payments system and telecoms behemoth Orange recently announcing the launch of its online banking platform. This is just the tip of the iceberg. Fintech firms like Mint, Moneybox and Tink are taking this concept beyond payments, creating a sophisticated consumer led money management ecosystem.

So why is this happening? The launch of Facebook’s P2P payments service is evidence of the wave of technological and legislative driven disruption sweeping toward the retail banking market that change the shape of the sector beyond recognition. Consumers in 2017 are platform agnostic and don’t care whether they manage their money through their bank or their phone company or social media account.

Across the world, we are witnessing a move to the model of ‘open banking’ which will blow open the retail banking sector and create competition in the form of tech firms, who are already making a play for the territory traditionally held by banks. This hasn’t happened in a vacuum, it is just one symptom of the enormous transformation the industry is undergoing.

The fintech invasion

The current wave of tech companies offering in-app personal finance capabilities is just the beginning. The success of fintechs such as Monzo and Transferwise has demonstrated beyond doubt that today’s consumers are looking beyond their bank to manage their finances.

Until recently, banks have enjoyed a monopoly over their customers’ data and have operated in a market which by design, discourages competition and transparency. The result has been a mismatch between people and products, with consumers having to settle for high cost, low quality financial services. It’s not surprising that nimble tech companies are moving in on the space previously occupied by the banks. So long as their investments in fintech yield results, these ambitious and visionary companies will continue to pioneer new solutions that transform our relationship with money.

Banks who don’t innovate and create customer led products, will risk losing their customers who, through tech solutions will automatically be filtered towards a smorgoesboard of banking products which suit their needs. Third party platforms will become the main interface for money management, regardless of who the consumer actually banks with.

A nudge in the right direction

Facebook’s mobile payments feature will be supported by M Suggestions, a virtual assistant which monitors Messenger chats and nudges consumers to use the payments feature whenever the subject of sending money comes up in conversation, aiming for a seamless integration between social interaction and finance. The smart technology which underpins Facebook’s virtual assistant is a glimpse of the future of personal money management.

Today’s apps are nudging consumers in their day-to-day choices, encouraging them to save a little every month, offering tailored advice based on their economic habits, pointing them towards better deals and products, helping them to prepare for life’s big financial commitments - all with the aim of improving users’ financial happiness.

Money on autopilot

Facebook’s payments service aims to remove friction from the transaction - friction in this case being the need to leave Messenger. We are witnessing increasing numbers of tech companies offering these in app capabilities, the ultimate aim of which is to allow users to do everything in one place.

PSD2, which comes into force in January, will open the floodgates for third parties to build financial services apps which aggregate, enabling consumers to do everything in-app from paying their bills to comparing how much they are paying for access to financial products like credit and mortgages.

Technology is ushering in a new era where money management is frictionless and simple. Many people today have a difficult or distant relationship with their finances. There is often a mismatch between people’s needs and the product they are offered by their bank. This means money management can often feel like a chore rather than a choice.

In-app personal finance services such as those offered by Facebook, Tink and Apple, will offer consumers the ability to effortlessly manage their personal finances while going about their daily business. People’s relationship with their money will become a lifestyle choice, with financial decisions being akin to the choices they make about their health or their hobbies. Eventually, money will be on autopilot.

A bank by any other name

Today it is rare to find an individual who is loyal to their bank. With the ties between consumers and their bank becoming increasingly weak, smartphones will become the interface between people and their money. The entity sitting behind this engagement will become little more than an afterthought.

Tech companies who have built a strong consumer facing brand - underpinned by best in class technology - are waking up to the opportunity and are planting their roots in the fertile ground left wide open by the traditional banks. As the line between banks, fintech, social media and telecoms becomes blurred, the banking market as we know it will soon be unrecognisable. The banks who will survive and thrive are those who embrace the disruption and invest in the power to innovate through technology.

Against the backdrop of transformative technologies and the latest regulations, Graham Lloyd, Director and Industry Principal of Financial Services at Pegasystems, identifies for Finance Monthly what types of challenges financial services will have to navigate in their journey through 2018.

Successful social media – The growing discrediting of social media content and its practices comes at an awkward time for banks. The last thing they need is association with anything that could contribute more mistrust to their profile, but they cannot afford to ignore a powerful channel with such reach and strong links to here-and-now impact. It will be interesting to see how banks learn to handle social media with success.

Evolving customer engagement – Social media is just one element of customer engagement and there are far bigger issues on the horizon – digestibility, cost and effectiveness. Data mining is now so huge and its outputs so great that we should perhaps be referring to ‘big insights’ as there are so many of them. For most players, the problem is how to work out which insights to leverage within whatever time and budget constraints prevail.

Time to tackle trade finance – With trade finance risk-weighting kicking in properly in March 2019, we are entering the home straight for finalising the necessary business changes. Most players will presumably look to offset some of the costs of introducing capital requirements in this hitherto largely unweighted portfolio by seeking greater productivity/process efficiencies.

The truth is out about challengers! – Thus far, challengers and Fintechs have been portrayed as somewhere between a benediction and a panacea. The great generic USP – “we’re not a traditional bank” – has helped them weather all sorts of issues from low take-up to sub-optimal IT to almost-but-not-quite products, with scarcely a hard question asked. But the honeymoon period may be drawing to a close, and even in combination, they have still to take any serious market share away from big/traditional banks.

Possibilities of PSD2 – In the final run up to PSD2, there are sizeable revenue opportunities for a bank positioning itself as the ‘destination of choice’ for PISPs (Payment Initiation Service Providers). These new players will gravitate towards the banks offering a higher service standard and the least hassle, as the effects will flow through to the PISPs’ own customers and their expectations of security, certainty and convenience. Banks stand to recapture not only some of their own lost transactions, but also some which have flowed out of their competitors.

With abundant statistics that more and more young people are using mobile payments and that hardly any go without using social media, despite a disinterest in finance, there are still plenty of opportunities to invest in the future generations of banking. Finance Monthly here benefits from exclusive insight, authored by Kerim Derhalli, founder and CEO of invstr, into exactly why financial institutions and young people are ever more detached than ever, and how that can be changed.

Banking has an image problem.

Almost a decade on from the financial crash, the big institutions are finding that young people simply aren’t switching on to finance as a career or, for that matter, a passing interest.

The upheaval of financial institutions in the months and years since 2008 has meant that traditional talent pools have been dwindling, while hedge-funds, who tended to snap up the top bank-trained traders, have been left with next-to-nothing to pick from since the Dodd-Frank act came into place.

The industry still suffers from years of scandal and poor reputation which has caused young people to switch off.

Plus, notwithstanding the imminent and widespread deregulation being pushed forward by the newly-elected President Donald Trump, even a retracted Dodd-Frank would take years to have a positive effect on the talent pool.

Financial Times research into the changes in popularity of investment banking as a career option, among students at the top international business schools, shows that interest has plummeted – in some cases by more than 50%.

The banks represent the old way: untouchable institutions, unapproachable for those who aren’t in the right set.

As distrust in the markets has risen, popular interest has dwindled. It’s not just the professionals; where once it was the norm to invest in stocks, it has become a rarity among the person on the street.

In the UK, native individuals own just 12 per cent of shares in UK-listed and incorporated companies.

Mirroring the statistic across the pond, a report released by Gallup last year found that just 52 per cent of Americans now own stocks – that number drops to 38 per cent for those aged 18-34.

Yet, there are opportunities for upstart fintech disruptors to reenergise young people, and encourage a fresh enthusiasm for the markets and investing.

In consumer banking, digital-only start-ups such as Atom Bank are gaining traction – the UK-based challenger recently reported £100m equity investment – by providing a simple, mobile-based proposition which average people, particularly young ones, can identify with.

It may now seem obvious to raise social and mobile spheres as areas of opportunity, but both avenues remain largely untapped by the large banks.

The Office for National Statistics currently reports that the internet is used daily by 82% of Britain’s population, with 70% of adults accessing the web using a mobile or smartphone last year – up from 66% in 2015 and nearly double the 2011 estimate of 36%.

The same report also states that 63% of UK adults use social networks on a daily basis, with 91% of young adults (aged 16-24 years old) engaging in social networking in 2016.

The banks are missing a trick.

Despite massive spending and development power, they have been surprisingly lethargic when it comes to using technology to engage millennials, identify new talent pools and unearth the financiers of tomorrow.

Prompted by a need to identify new talent outside of traditional hiring pools of economics and finance graduates, it was as late as November 2016 when Deutsche Bank became the first major bank to use social media feeds to find promising candidates who may consider a career in finance.

This is where the innovative disruptors have stepped in and found their niche. We’ve seen through our work at invstr, the trading game app which is dedicated to engaging more people in the positive possibilities of savvy investing, that given the right tools, young adults will certainly show the enthusiasm in finance that the big institutions are trying to draw out.

Meeting those young people in the space that suits them – social and mobile – has been one of the key starting points. To date, the invstr app has been downloaded more than 200,000 times, with many of those being young people looking to discover more about finance without the fear of losing real-world money.

We’ve now taken that to the next level with the launch of the Student Investing Championship – a virtual trading tournament which directly engages students from business schools across the globe. The idea is simple: help students learn about the art of trading and investment in a competitive arena, developing the financiers of tomorrow.

invstr has also sought to bridge the gap between the finance employers and the extended talent pool of candidates, by introducing prizes such as access to internships at top companies in London and elsewhere, and connections with finance experts and training partners. The engaging, educational facet of the championship is a crucial theme for the industry to take note of.

The talent is certainly out there. We were impressed – yet not surprised – by the incredible trading talents of those taking part in the championship. For example, the top eight performers in the inaugural tournament in November turned over $13.5bn and made over 140,000 trading transactions in the four week competition period. The second iteration launched on February 6 and we’re excited to see bigger and better results.

Plus, having the possibility to engage business school students directly through seminars and presentations, without the burden of the reputation of the banking olde worlde, has provided invstr with an opportunity to excite young minds with the possibilities of the interwoven worlds of finance and technology.

It’s a beginning, but we’re just one fintech startup example that the big banks should learn from. At the moment, many appear to be running scared of the possibilities that new technology can offer; changing consumer trends could have as big a negative impact as they could have positive, and the public distrust in institutions as a whole (read Brexit and Trump), prompted by the social revolution, have meant that traditional banks have a lot of catching up to do in the reputation stakes.

There may be an image problem with finance at the moment, but with the help of the digital innovators, leading with direct engagement with young people through mobile and social, the industry’s reputation can be repaired and we can see a whole new generation of enthusiastic bankers, investors and financiers ensure its health into the future.