Technology is changing the very face of banking. Traditional banks face uncertain revenue growth due to pressure from FinTech startups and innovative new BankingTech.
FinTech or BankingTech?
UK-based FinTech startups attracted over half a billion dollars of investment in the first half of 2017 a rise of 37% from last year. In 2019 that figure had reached a record $3.3 billion, and hit $55 billion worldwide.
FinTech covers everything from insurance to investments. However, at its heart lies BankingTech. While blockchain, bitcoin and crypto-currency have turned into headline grabbers, it is innovations in the banking industry that have really broken into the mainstream.
These apps offer a great user experience with painless signups, free overseas withdrawals (mostly), and insights into your spending habits. They all have full, unrestricted banking licences from UK regulators and can hold customer money as well as offer offer current accounts.
In fact, banking on your smartphone has become so popular that JaJa Finance have announced that they’re launching a mobile first credit card.
There are also digital banks like OakNorth who offer lending and debt finance for SMEs. Astonishingly, OakNorth became profitable after just its second year of operations. OakNorth have become so successful that they are now offering personal ISAs at a startlingly competitive rate.
One area that new and traditional banking institutions have in common is the potential for fraud. The introduction of contactless cards and mobile payments, is opening consumers up to a new level of cybercrime.
Cybersecurity is becoming a real issue for modern day banking. Luckily for us, while tech might be part of the problem, when it comes to fighting cybercrime, it is also part of the solution.
Previously, banks placed a heavy focus on how it dealt with fraud after the event. However, they are now investing in technology that predicts fraud and data breaches before it happens.
According to research by the US Federal Trade Commission (FTC), it takes just nine minutes for stolen card and account data to be used on the dark web. Now compare that to the fact that current processes can take around six to 18 months to recognise and alert banks to data breeches and you can see just what can happen to our money.
Mastercard stepped up by launching an Early Detection System to determine to high-risk cards and accounts that have been exposed, and sends an alert to the bank, quantifying the level of risk. This enables the bank to make the right choice of action.
Identifying active criminal trading of account data, or identifying cards being tested prior to being used for fraud, or account data that appears to be at risk, can help put the banks, and ultimately the consumer, back in control.
Many banks, including Lloyds Bank now let you freeze transactions from your banking app, giving customer control (and peace of mind) over their own security.
A mixture of customer convenience and fraud protection is driving a new wave of ATMS.
Service’s like Natwest’s Get Cash and Barclay’s Contactless Cash allow you to enter your PIN, along with a code provided from the bank’s app to withdraw cash with your smartphone rather than your card. This technology is expected to reduce criminal activity like card-skimming, at the ATM. However, it doesn’t stop there.
Chinese banks, such as the Agricultural Bank of China, verify a person’s identity at ATMs with facial-recognition software. Research is suggesting that revenue generated by similar fingerprint, voices, and irises scanning hardware and software is expected to reach $15.1 billion by 2025.
In January 2018 open banking launched in the UK after a ruling from the United Kingdom Competition and Markets Authority (CMA). This meant that the nine-biggest UK banks had give licensed startups access to transaction data (with the account holder’s permission, of course!).
Yolt allows you to see all your bank and credit card accounts together in one nifty app. Plum helps you to save money from your banks accounts so that you can then invest it. It also has a feature that lets you compare and switch their utility bills to cheaper deals. MoneyBox also helps with investing by rounding up your purchases to the nearest pound and then investing that spare change.
Underpinning all of these apps the ability to connect seamlessly with your existing bank accounts and that, in essence, explains the benefits of Open Banking.
Opening Banking isn’t just the frontier of FinTech startups. HSBC UK’s Connected Money allows you to see your accounts together in one app. Lloyds also has an open banking app feature with similar features. One disadvantage of both of these services is, however, that you have to be a customer of the bank to the able to use their apps.
What is the future for BankingTech?
Banking by mobile app is set to overtake online this year. But that doesn’t mean that people are turning to digital banks in droves.
While many millennial have experimented with the benefits of trendy BankingTech apps, most people prefer to use traditional banks. Currently, only one in four millennials and gen-zs are using challenger banks. Only six percent of over-55s have an account with one of the leading challengers.
There are also signs that traditional banks are turning to BankingTech and FinTech startups to keep the rise of digital disruptors at bay. FinTechs are being bought-up at an increasing rate in the US. In the UK, big banks and financial technology firms have created guidelines designed to improve collaboration between startups and traditional financial institutions.
Still, the risks to traditional banks’ fortunes can’t be ignored. Responding to a Accenture study, which revealed that banks’ revenue growth is at risk due to unprecedented competitive pressure from digital disruption, Business Wire described the threat from FinTech and BankingTech to traditional banks as ‘real and growing’.
The next few years should see all banks, old and new, competing to offer their customers new and innovative benefits and experiences. At least that’s good news for consumers!
Note: This article has been updated from an article originally written for Luminous PR in 2017 by Emma Marshall.