Digital Darwinism has led to a revolution in most business sectors, with established financial giants reduced to bit-part players by the likes of tech companies; Amazon, Facebook and Google.
While in areas such as media and retail, the change has been rapid, in the world of financial services things move a little more slowly. And yet, even in the pin-striped domain of the city, the tide of digital change is quickly rising.
The growth of the digital economy means that e-money (a term that effectively means tools for transferring, storing and spending our money) is starting to target the inefficiencies in our increasingly out-of-date banking system.
What’s more the financial service regulators (the FCA in the case of the UK) are seeking to increase the pace of change to make life better for consumers, by encouraging innovators to enter the market. The driving force behind this change is the need to bring a more customer-centric approach to financial services.
Consumers are increasingly frustrated that even in our always-on, networked economy it can still take up to eight days for a bank balance to be updated when a cheque is deposited, or up to six ‘working days’ and a fee of as much as £30 to send money to a different country.
The opportunity is for innovators who understand the needs and motivations of customers to bring financial services up to date – not an area in which banks have a glowing track record. The UK Government estimates that over nine million UK adults (17% of the adult population) do not derive any benefit from the traditional banking system[1]. This is on top of an erosion of trust caused by scandal after scandal – from PPI mis-selling to computer failures preventing wages being paid on time.
The increasing realisation is that while we need banking services, we do not always need a bank.
As a result, the current innovators in e-money are often non-financial brands focused on building loyalty and providing new and useful services. Starbucks is already using a pre-paid app to be a 'club' for customers. Similar to a loyalty card, but loaded with money, it has regular deals, news and member discounts.
This kind of innovation is opening the door for imaginative new services that make the customer experience better or ways for lifestyle brands to extend their relationship with customers. Take Apple Pay for example, this payment solution allows iPhone users to make contactless payments at the point of sale with their mobile phones via near-field communication (NFC).
More recently, travel companies have created mobile apps for users to buy their monthly travel pass and have it available for inspection on their phone.
The real innovators entering the sector though are the likes of Zwipe, a fingerprint payment card which allows no pin transactions and Kerv, the world's first contactless payment ring.
Whilst these aren’t direct replacements for bank accounts they are enhancing the user experience and bringing payments into the future.
If the cumbersome nature of traditional banking systems has unlocked the door for new providers to enter the market, then that door is being wedged wide open by the positive attitude of regulators.
Regulators are actively seeking to foster innovation and run several initiatives to support businesses that are developing new products and services that could genuinely benefit consumers. With the right help and guidance in discussions, innovative businesses can access and leverage this approach, for example, in eight years of helping businesses gain authorisation, Neopay has a 100% success rate.
The message is clear – if you have something to contribute, the regulator will not put unnecessary barriers in your way.
So where are the major opportunities for brands that think they may have something to offer?
Our research of 2,000 UK adults found plenty of scope when we asked about their frustration with current payment methods.
Top of the wish-list for bank customers are ways to tackle fees and charges, looking at more efficient ways to move money or provide information to customers. Also, of significant interest is creating more responsive ways to track our spending, creating services that offer live balance updates.
Consumers also want to see innovation with new ways to improve the overall customer experience, making it easier and more pleasurable to manage money and transactions. There is also opportunity for finding solutions for specific customers – for example bespoke services for children and teenagers.
The opportunity is clear for those brands with the right idea and offer for customers. Innovation is happening and instant access and convenience will be the major drivers for growth in financial services. Now is the time for brands to start thinking about this sector as a possible area for expansion.
By Scott Dawson, Commercial Director at Neopay, a market leading regulatory specialist in e-money and payments.
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