Technology drives the development of every sector and market, as well as challenging traditional business models and stimulating new processes and models of consumption. Technology for financial services, or “FinTech”, is a good example. It affects all our lives as consumers and business people. It’s powered by electronics and software, and its growth is at the pace of the investment into it and the demands of a competitive and impatient market.
Odgers Berndtson is headquartered in the fastest growing FinTech city of all, London the global leader in the export of financial services and where revenue from FinTech companies will have topped $20bn in 2014.
In 2014 the global remittance industry for example, will have charged in excess of $500bn for its services. We are used to having some form of technology in all our personal or business financial services, however, the proliferation of smart devices, innovation in technology, increased awareness over security and privacy, and a global financial services crisis have all served to accelerate the speed at which FinTech has grown. We are buying more often online, we want to pay less and we want it to be a seamless and easy experience.
Technology is applied to payments, trading and foreign exchange, and crucially it encompasses Big Data, risk and compliance, business information and analysis, and peer to peer lending. Waiting in line at a bank, receiving a paper statement, being unable to have real time data on your cash position and needing days to send or receive money are becoming things of the past.
The pace of change is slowed by the lengthy development cycles that are in place to maximise safety, and the regulatory environment is very complex. Trust is hard won in this sector, but innovation is driving change and enabling new markets such as platforms for peer to peer lending. SME’s are benefitting from those, as they cut the cost of finance and transfers, often for businesses overlooked and underserved by more traditional institutions. The challenge in these new markets is to move the perception of innovative models from quirky to a genuine alternative to the banks.
For the major financial institutions FinTech creates further competition and opportunity. They can harvest patterns of behaviour from vast amounts of data and insight and engage with technology providers to retain and enhance their client base. Their challenge is a balancing act between funding legacy systems that are relied upon and trusted, and moving to more agile and lower cost models based on Cloud and e-infrastructure. Consumers and business clients are more knowledgeable and less patient than ever and it is becoming easier to change a supplier.
Mobile technologies are one of the battle grounds for new customers. Mobile banking uses existing banking and telecom systems and infrastructure, and it must comply with standards for payments and messaging, as well as communicate with banks and their legacy systems. In the developed world multifunction smartphone apps come with built in security, however, in the undeveloped world, where analogue and 2G are still the norm, innovation has created the success of M-Pesa , a mobile phone based money transfer and micro-financing service, that will shortly be available globally.
For the consumer, security, privacy and trust are vital, as they are for the B2B markets who also have to worry about authorisation and liability. Banks are increasingly threatened by telecom companies, IT suppliers and third party services such as Monetise and PayPal. It isn’t hard to imagine your phone and bank statements being provided at the same time as the telecom company becomes a conduit for finance, and the bank the reconciliatory and depository. Phone companies may even need banking licences.
Virtual currencies and credit cards could be close to flourishing, as could the risk of malware. Social media will play its part and consumers will demand digital banking to be fast, seamless, accessible, secure and reliable. We have seen banks spend billions on advertising to create a compelling reason for us to choose them.
Increased accessibility will give them further opportunity to tempt us to use their services. Digital wallets and contactless payments are two of the latest innovations in B2C but not far away are retinal scan authorisations and injectable chip technologies. Why post a PIN number to a consumer when it can be sent by SMS? Why can’t your branch create your debit card? Why do you need a physical card to shop online? Interactive statements could access maps to show where a transaction took place. A fraud button on an e-statement will be faster than a lengthy telephone queue to a credit card company. The list goes on.
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