Has the Digital Banking revolution finally started? The FinTech landscape in 2018

Spurred on by Open Banking, advocates of FinTech are forecasting a revolution in the financial services sector. But with the change seemingly slow to happen, Tom Erasmus asks will the latest innovations finally overcome consumer inertia?

Has the Digital Banking revolution finally started? The FinTech landscape in 2018

The author(s)

  • Tom Erasmus Financial Services - Ipsos Loyalty, UK
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Anyone involved in the financial services sector in recent years will be aware of claims that FinTech is poised to shake up the dominance of established banks and provide customers with a host of innovative money-management tools created by enterprising startups. The advent of the much-publicised PSD2 legislation in January 2018 has only added fuel to the FinTech fire.

You can bank on us

Large, traditional banks have often benefited from low levels of consumer engagement in the market to retain their customers. Consumer inertia has been identified as one of the major forces shaping the financial services market and slowing down innovation. The length of a customer’s relationship with a bank, the perceived hassle and risk – as well as a lack of market knowledge – result in widespread reluctance to switch accounts or try new products.

Despite an 84% awareness level of the Current Account Switching Service (CASS) and the rise of promising startups, the number of people switching current accounts declined between 2016-2017. Established banks may take some comfort in the results of Ipsos’ latest Technology Tracker that recently found that customer inertia, for FinTech innovation, is holding true for now.

Rise of the machines

In a relatively short period, ‘mainstream’ banking technology has become widespread among UK consumers. One in three (34%) UK consumers use a banking app to check their account online. Given the obvious benefits, from a bank’s point of view in the era of branch closures, this figure is unsurprising following heavy promotion of such apps.

Thanks to backing by major banks and the prominence of smartphones, Mobile Payments have also entered popular use, despite being a relatively recent introduction (Apple Pay launched in 2015 and Android Pay in 2016). One in five (19%) UK consumers report making a contactless payment using their phone in the last 12 months. It is clear a substantial proportion of consumers are willing to adopt new banking technology when it is facilitated and promoted by large and established providers.

As might be expected, certain segments are more likely to be drawn to this type of technology; for example, a third (34%) of females aged 25-34 reported making a mobile payment. As the graph below shows, age is a key factor in the uptake of banking technology. Those aged under 35 are roughly twice as likely as older consumers to have used a bank’s app to check their account or made a contactless payment using a mobile phone.

Viva la (lenta) revolución!

Although we are only witnessing the very early stages of Open Banking, the low uptake rates for newer technology often touted as industry-changing suggest that a revolution (if it is coming) is still some way off. Fewer than one in ten (9%) consumers use a mobile-only bank, despite smooth onboarding and highly-praised user experience.

However, considering that Starling Bank (the first full mobile-only current account) only launched last year, the uptake rate is still impressive. Indeed, Monzo with its half a million customers, only introduced its full current account towards the end of 2017. It is therefore likely we will see a more rapid uptake once the technology becomes established.

Another concept more specifically related to Open Banking has seen a less enthusiastic response; just 3% of consumers used an app to view multiple account details in the same place. Such apps – of which Yolt, with more than 250,000 customers is the most established – currently rely on ‘screen-scraping’ to connect with a customer’s bank account. This is less secure and is likely to have fewer functionalities than a full API-facilitated connection.

It remains to be seen whether the environment provided by Open Banking increases the take-up of these apps. A previous Ipsos study found that one in six (15%) UK consumers saw the prospect of an all-in-one financial app appealing; it may be that benefits need to be more apparent before consumers use them en masse.

Naturally, the take up of newer banking propositions varies between different demographic groups. This is certainly the case with mobile-only banks which are used by 16% of young Londoners (15-35 years old) and 15% of affluent males (social grade A/B). There is also a correlation between uptake of such services and usage of newer technology. Three in ten (29%) of those with a voice-activated speaker such as Amazon Alexa report having a mobile-only bank which indicates tech-enthusiasts could be early adopters for digital banking facilities.

Old dogs, new tricks

UK consumers are more prone to adopt banking technology when it is pushed by larger providers, perhaps to the benefit of established banks. If incumbents are to weather the Open Banking storm, it will be by leveraging the trust they have over startup companies while providing their existing customers with the same technology benefits. However, many of them are held back by legacy systems, often written in outdated programming languages. A general lack of technology expertise at board level in banks also contributes to the difficult position many of them are in to facilitate meaningful innovation.

Perhaps more unsettling to established banks are the sections of the population that have been more willing to experiment with relatively new and untested technology. In contrast with older generations, used to an environment where four large banks dominated the market, the status-quo for Millennials and their successors could look very different. As the Technology Tracker data shows, younger consumers are more accepting of digital banking tools. They have come of age in an era of more choice in the financial services market and have had their digital expectations set by providers in other sectors such as Netflix and Amazon.

As the proportion of digital native, tech-savvy adults increases, the old guard may find that they can no longer fall back on customer inertia.

The author(s)

  • Tom Erasmus Financial Services - Ipsos Loyalty, UK

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