Will Digital Transformation Break Consumer Inertia?


Fintech, Retail Banking

Tim Jones

Managing Director

True Digital


Financial technology (fintech) is revolutionising the banking and financial services industry. British fintech firms attracted $1.8 billion in venture capital investment in 2017, up more than 150% compared to 2016 .

This year is shaping up to be a pivotal year in the financial services industry. For several years now, there has been much talk about digital transformation and the significance of fintech, but this is the year when we will really see things come to fruition with more mature, widespread application of technology-driven solutions. Factors such as the emergence of marketplace banking thanks to API frameworks, blockchain developments and AI are all set to change the face of traditional banking.

We recently looked into consumer inertia in banking and predict, as consumers demand more digital innovation, banks will be incorporating digital initiatives in the following areas, preventing the need for consumers to look at digital-first providers.

1. Emergence of ‘marketplace banking’
The era of Open Banking is now here. As the PSD2 initiative takes effect, banks will have to provide third party providers access to their customers through open APIs. Although there’s scepticism, soon financial providers will be looking at ways to implement third parties such as Facebook or Google to pay bills or transfer payments, while keeping money in existing current bank accounts. However, big tech companies will have to overcome consumer resistance – through our research, The Breaking Consumer Inertia study shows that currently, only 13% of consumers are comfortable with technology brands entering the fray, and 58% wanted to see big banks acquiring fintech start-ups.

2. Next generation chat bots
From HSBC’s ‘Amy’ to the Bank of America’s ‘Erica’ 2018 will see a huge increase in major banks across the globe adopting artificial intelligence-powered chatbots for supporting consumer interactions. Using Natural Language Processing (NLP), these chatbots will help improve customer service, increase personalisation, speed up responses and improve accuracy in decision-making. The report which surveyed over 1,000 consumers showed that nearly a third were excited about the prospect of customer service automation and artificial intelligence tailoring products/ services.

3. ‘Blockchain’ momentum
From a buzzword to the mainstream, ‘blockchain’ is gaining momentum. It was originally developed as a means of securing cryptocurrency transactions, with heavily encypted in-built access keys, it allows for safe and secure trading helping to reduce fraud, increase transparency and speed up contract enforcement. Blockchain-based banking platforms over the next few years will be gaining more awareness amongst consumers, but whether it will be another factor for consumers to stick to the high-street bank it’s too early to tell.

4. A new type of personal banking
Personalisation will be the name of the game in 2018 with banks using the power of fintech to personalise their service offerings across all devices. As consumers, features like changing the appearance of apps based on usage and being able to customise own home pages should be norm over the next few years.

5. Greater adoption of ‘machine learning’
Banks will increasingly use machine learning across a wide range of different applications from improving customer service, risk assessments, fraud detection, trading, etc. Benefits include: higher revenues, lower costs, increased productivity and better regulatory compliance.

6. Cyber security to ‘hot up’
As Clive Humbly put it, ‘data is the new oil’ and with significant levels of data constantly being generated, hackers are continually coming up with ways to get hold of it. Watch this space for banks adoping proactive additional security measures to safeguard data at all stages of the consumer journey including more one time passwords, additional encryption, biometric authentication and more.

7. Crypto currency regulations
Regulators across the world are only just getting to grips with emerging fintech-driven technologies. According to Thomson Reuters, 69% of compliance professionals at financial institutions around the world expect the volume of fintech-related regulatory information published by regulators and exchanges to increase within the next year.

8. Upwardly mobile
Mobile is predicted to surpass desktop as the top digital channel for retail bank account opening. Consumers who, up until now, have used mobile to browse banking services will shift to buying financial products and services on their smartphones in the coming year. It is the millenials who show the most interest in fintech with six in 10 (60%) using third party apps to transfer money and four in 10 (40%) using mobile payments.

9. Think large-scale agile architecture
New digital architecture such as the use of micro apps and micro services will increasingly come to the fore, enabling banks to launch new offerings much faster and keeping disruption to existing services at a minimum.

10. Levelling the playing field
As new networks and platform-based apps and services emerge, the playing field may become more level in 2018 as businesses of all shapes and sizes seize the fintech opportunity and marketplace banking becomes a reality. However, for consumers to try out new fintech providers, a lot of trust building will need to be done prior, as the British public still very much side with traditional banks offering a seamless service.

With The Chancellor signing a bridge for fintech innovation between the UK and Australia, over the next few years we should expect to see a lot more international fintech companies entering the market, whether they be from around Europe or further afield.