The rise of the machines and other top financial services trends
Disruption. To disrupt is to play havoc with, throw into disorder, make a mess of and/or turn something upside-down.
The ‘something’ in this instance is the banking industry, and the disruptor comes in the form of the new kids on the block: FinTech.
Using a number of expert sources, we have listed some key trends in the financial services industry in the next year, with advancements in technology proving to be one of the key agitators to the old guard of traditional banks.
1. Collaboration is key
Expect to see more and more banks partnering up with FinTech start-ups. The phrase ‘if you can’t beat ‘em, join ‘em’ comes to mind here. Less than a quarter of banks said they have an advantage over FinTech firms when it comes to innovation, according to a recent report by Capgemini and Efma .
Absorbing talented innovators to help them keep up with the latest tech trends is a strategy more banks are adopting. Keeping the talent in-house means one less FinTech start up to compete with.
2. Mobile only banks
Not to be confused with digital banking. Digital banking is where customers interact with their bank through their internet browser. Mobile only banks are accessed solely through an app downloaded to a mobile device.
Mobile only banks, such as Atom, the UK’s first ever mobile only bank, are often open seven days a week and late into the night.
The report by Capgemini and Efma also found that by channel, mobile is second to internet when it comes to banking access in general, but it is gaining on it. Banks should take heed.
As the use of mobile channels increase, internet channels are declining. Internet usage has declined from 65% in 2015 to 59% in 2016.
3. The end of the high street branch?
As a result of Generation Y’s love of all things FinTech, and their general disappointment in the customer service they receive from the banks, the disappearance of high street bank branches has been widely predicted.
As recently as this month, Lloyds Bank announced that it would be cutting 600 jobs and closing 21 branches across the UK.
The UK is actually lagging behind its Nordic counterparts when it comes to branch closures. According to a recent Citigroup report on the effects of digital disruption, the number of branches of major Nordic banks have halved since their peak in 2008-2009.
4. The branch of the future
This is not to say that the high street branch has received a death sentence. Jonathan Larsen, who runs Citi’s Global Retail and Mortgage business, believes that the branches of the future will have to evolve to keep in line with customer’s expectations of the services they should provide.
Jonathan said: “A branch is only one of the distribution channels. It’s playing an important but diminishing role”.
From the Capgemini report, it is clear that consumers in general still trust their banks, especially when it comes to advice on loans and mortgages. With this in mind, the branch of the future could look very different to what we may be used to today. Taking on a purely advisory function, branches would provide an open and comfortable space for customers to discuss financial matters with advisors. This would be a complete move away from any actual transactional role of a branch.
5. Robo Advisors: Rise of the machines
Automated investment advisory is a way for people to receive the financial advice they need without having a face-to-face meeting with an actual human being. Betterment was one of the first 'robo advisor' services to hit the market. It now has over 150,000 customers and has invested more than $4 billion.
The advisor is basically an algorithm. Users fill out a form online and the algorithm will provide financial advice based on certain criteria. Proponents say that this is a great way for people who don’t have a lot of money to start investing as it cuts out the potentially expensive hourly fees of a traditional independent financial advisor.
6. Peer to peer lending
Peer to peer (P2P) lending is not new, but the levels of new lending are increasing. The Peer-to-Peer Finance Association reported that the volume of lending, repaid capital, lenders and borrowers have all steadily increased, quarter-on-quarter, for over a year.
The disruption caused by the rise in P2Ps will most likely put some pressure on the legacy banks to change up their pricing schemes.
Recent years have seen a boom in the number of P2P FinTech companies, such as Funding Circle who has facilitated over £1.3bn of loans to over 15,000 businesses in the UK, USA, Germany, Spain and the Netherlands.
What do you think the biggest change will be to financial services in the next few years? Let us know in the comments below.