IBSi Blogs

The FinTech industry is constantly evolving, making it a rather exciting sector to be in. New solutions are continuously being developed to transform the way we bank and pay for goods and services both domestically and internationally. However, just like the rest of the technology industry, for many decades, this sector has been dominated by men. Luckily, this is changing.

by Terry Monteith, SVP Acquiring & Payments at BlueSnap

I have witnessed the shift throughout my career. I started my professional journey at a large financial institution. By the time I joined BlueSnap in 2013, I noticed a big difference, in not only the number of women entering the industry in more junior roles but in the number of women who were taking on senior leadership roles with decision-making responsibilities. This has only grown since then, and I have noticed this trend towards equality in many other tech/fintech organisations.

Having said that, there are still some barriers to women entering the industry. It is important that we unpack these hurdles and spotlight the solutions so we can drive more inclusivity within the industry.

The barriers for women in fintech/tech

There is a need to educate people about the various paths into tech. There is a misconception that you need a coding background in order to enter the industry, which isn’t true at all. The people I work with come from various disciplines. Hence, there is more we can do to show people the range of roles available in the industry.

And for those that want to learn to code, there are so many online platforms that aren’t expensive (some are free) that will allow them to develop this skillset from the comforts of their own home. We are happy to see some universities adding Fintech tracks to their curriculums.

A lack of work flexibility can also act as a deterrent for women either entering the industry or climbing to those senior positions. When putting together work policies, it is important that companies consider the work-life balance that people now demand – such as remote workdays and flexible work hours. This will help foster a more inclusive workplace.

How to encourage more women into tech

The key to attracting more women into the industry is by creating a healthy work environment that people regardless of gender want to be a part of and stay in. Having a senior management team with multiple women makes women in all positions more open to your organisation. When the culture is right, it makes it easier to just focus on hiring the right talent.

One of the first things people do when looking for a job or preparing for an interview is to go on platforms like LinkedIn, to understand who the key stakeholders are. Therefore, when they see diversity throughout the company, especially at the top, they will feel more welcome. It’s one of those things where, if you can see it, then you can be it.

At BlueSnap for example, we have created a culture where women feel welcome and are able to rise to very senior positions. Our senior executive team is very balanced between the number of men and women. A third of BlueSnap’s senior executive team are women and it’s worth noting that there are a number of women in senior-level positions, including coding and developing.

Key considerations for women entering FinTech

There is so much to learn about fintech. I would encourage people to think globally. For example, if you are based in the US, where payments are quite a card centric, it is imperative that you know what’s happening in other countries. And learn about those emerging payment trends. Understanding the big picture will place you in a better position to get ahead. The more you know, the more positioned you are to help.

Additionally, payments are a detailed oriented business. You have to get into the weeds of things. So, learn about the little frames that help tell the big picture, and understand the importance of keeping things simple.

Throughout my career, I have strived to be part of what’s next in finance, banking, and payments. I’m inquisitive by nature, so thinking about where the industry is headed has always helped me navigate my career and be a part of the continuous evolution of the sector.

Across the globe, the pandemic massively accelerated the shift towards digitalisation across all sectors. Banks are no exception. The migration of banks’ IT systems onto cloud-native platforms promises to rapidly transform customer experience delivery, business continuity, operational efficiencies and resilience.

by Jerry Mulle, UK Managing Director, Ohpen

However, at what point do the benefits outweigh the status quo – and what are the motivations behind this pivotal transition in the industry? Legacy banking IT systems are increasingly unattractive to financial institutions in the modern world, compared with benefits offered by cloud-native banking, and are making digitalisation more appealing to them. Institutions are looking to evolve and modernise their services to deliver greater customer experiences. What’s more, implementing these new cloud systems can now be done faster, in a modular way and with minimal disruption.

Cut costs, save energy

Some financial institutions are still working with outdated legacy systems, relying on slow, bulky on-site local servers – and even excel datasheets in some cases – to run their processes. These institutions are now realising that they are losing out in doing so. The cost of maintaining such systems or enhancing them to meet new regulations can be immense. Decommissioning old IT systems and switching to a cloud-native platform can enable significant cost reductions – some of our clients, for example, have experienced cost reductions of up to 40% by doing so. Data, server storage and performance power suddenly become on-demand which enables the ability to scale up and down as needed.

Running legacy systems also has another long-term disadvantage: a larger carbon footprint. The pressure on financial institutions to move towards more sustainable models hasn’t increased from society and protests alone, but also from their own internal stakeholders. What’s more, with Europe’s top 25 banks still failing to meet their sustainability pledges, according to research by ShareAction, it’s clearly more important than ever for financial institutions to take tangible steps to reduce their environmental impact. Cloud-native banking can play a key role in achieving this.

Institutions can reduce the carbon emissions emitted by their systems by 80% when they switch to cloud-based IT alternatives, according to AWS, moving them further towards meeting their net-zero targets. What’s more, basing systems on the cloud replaces the use of heavily airconditioned server rooms for more efficient software applications and direct integrations with third parties, reducing unnecessary waste.

Unlocking agility and driving innovation

The reasons behind large financial institutions’ incumbency often comes down to the legacy systems they have in place. Sometimes dating back to the early 1990s, these bulky systems greatly reduce banks’ flexibility and capacity for innovation. Deeply ingrained into their overall strategy and ways of working, institutions often fear potential technical issues caused by replacing such systems with cloud alternatives. However, the transformation process is becoming increasingly less disruptive to everyday operations – delivering almost 100% system uptime.

Cloud systems also open doors to significantly more flexibility when it comes to creating new products and offerings. Cloud-native systems are based on an API first strategy allowing institutions to curate their own partner ecosystem as well as inherit best of breed integrations as part of the solution. As a result, banks are empowered with endless levers and combinations to create new propositions.

In addition to this, banking on cloud-native platforms is more accommodative to emerging AI capabilities, which empower banks to increase the efficiency and tailoring of the services they offer to their customers. For example, in areas such as mortgages and loans. Documents such as IDs and payslips, which are considered unstructured data, can be interpreted using AI, while connections into other data outlets like credit rating agencies can enrich application information. This ability to organise unstructured data means that we are nearing the times of one-click mortgages, improving the customer experience like never before.

Cloud-native systems therefore form an appealing prospect for large incumbents: not only do they provide a disruption-free entry point to use more efficient technology, but also offer an enhanced ability to adapt to the unpredictable ways in which financial technology will evolve. Cloud technologies will allow institutions to cement their place in the market by empowering them to tackle unknown challenges in the future – challenges that legacy systems will struggle to solve quickly – while simultaneously putting the customer’s needs first.

A future in the clouds

The solutions that cloud banking offers have both potential and clout, enabling banks to cut costs and empowering them to reduce their energy consumption, deploy AI in more efficient ways and prepare for future technologies. For customers, this means that innovative developments in financial services are becoming more directly available for their use. Customers will benefit from instant services, such as loans and mortgages that are automatically tailored to their personal requirements, all powered by AI. As a result, these elements compelling banks to move towards cloud-native systems, and captivating their customers, are set to keep unleashing innovation across the wider financial services landscape at speed.

Over the last decade, FinTech has transformed UK banking. This was most prominently seen in the rise of challenger banks like Revolut and Starling and remittance companies like Wise. Unencumbered by the need for branches and sensing chronic disillusionment with traditional banking, the newcomers created systems and products that customers wanted, often at better prices than traditional banks could offer.

by Philipp Buschmann, Co-Founder and CEO of AAZZUR

This sent those banks scrambling to frantically bring their products into the 21st century. All so they could offer a customer experience that matched that of the challengers.  This genuine focus on customer experience is FinTech’s most visible legacy. Thanks to the positive customer relationships companies fostered, incumbent banks now face an expectant customer base who are willing to move to get what they want.

That’s just the tip of the transformation. FinTech has reimagined what it means to even be a bank through Banking-as-a-Service (BaaS). This, combined with the data opportunities afforded by Open Banking, is FinTech’s real legacy and where the sector’s new players still lead most incumbent banks.

Traditionally a bank controls every aspect of its services. BaaS allows FinTechs to integrate their systems with each other to expand their own offerings or profit from others integrating theirs. Take Starling for example. It benefits hugely from opening its payment rails to companies like SumUp and MasterCard while simultaneously offering its own customers the services of FinTechs like Wealthify and PensionBee.

Traditional players in UK banking are already getting in on the action. Lloyds is working with Thought Machine, RBS with 11:FS. By integrating with some of the most innovative companies in the world they are able to vastly expand and improve their own offerings with relative ease. The most exciting bit is it’s not just banks doing this. Any retail business can now offer a vast ecosystem of financial products.

What, though, does this mean for investment in the sector? The end of the last decade saw billions of VC and private equity dollars annually pumped into FinTech. But the planet is a volatile place right now. It is this, more than anything else, that will dictate the direction of investment.

In times of crisis, investors seek safety, so expect a shift towards sure bets. In UK banking, this already seems to be the case. The biggest benefactors will be the largest FinTechs. Companies like Revolut, Starling and Wise are now, just like the very banks they were created to challenge, simply too big to fail.

Another big factor will be where traditional banks invest. As they continue to mirror the challengers, innovation seems most likely. Either internally or by partnering with smaller, agile firms like AAZZUR and focusing on the benefits of BaaS and embedded finance.

Further down the FinTech ladder, smaller startups are most at the mercy of the market. If global volatility stays roughly the same or decreases, investment should continue. The level of innovation at some of these companies is too high not to support.

But if something throws the globe – and, in turn, the markets – into prolonged chaos, expect funding to dry up for almost everyone but the biggest names. And if 2008 showed us anything, a few big scalps are still to be expected.

It’s this that makes me so certain embedded finance and BaaS are set to see an investment surge. Both from investors and businesses themselves. Why? Because they allow traditionally sluggish businesses to finally start turning a profit, offering their investors a genuine return. Most importantly, it allows them to detach themselves from investment life support.

Right now, that’s just good business but at some point, that could mean survival.

The pandemic has been a great accelerator of existing digital trends, with none more evident than eCommerce. Global volumes of online transactions skyrocketed with global eCommerce sales growing by more than a quarter in 2020. During this massive shift, embedded financial solutions went from being an emerging novelty to a near-universal feature of online retail, with huge technological advancements alongside Open Banking-friendly regulation paving the way for innovation.

by Tom Bentley, Chief Commercial Officer, Vodeno 

Online stores began offering their own financial products and services, like custom credit options, personalised cards and accounts and even insurance all at the point of sale. The convenience and accessibility of these products marked an indelible shift in customer expectations.

With embedded financial products growing ever more varied and numerous, retailers now need to stay at the forefront of cutting edge financial technology to keep up. And while pre-packaged third-party products offer a quick fix, retailers who integrate them run the risk of ceding both control of their user experience and valuable customer data. Smart brands are relying on Banking-as-a-Service providers who can deliver the technology, necessary licence and regulatory and compliance expertise needed to offer banking products directly within their ecosystem.

The wind is firmly in the sails of embedded finance, but we have only just begun to see the full scope of what it means for online retailers. So, what will its lasting impact be on eCommerce companies? And what should retailers expect in their future?

Behind the minds of retailers

To successfully predict what impact embedded finance will have on retail, we must first examine the driving factors behind its growing uptake. To this end, Vodeno surveyed more than 750 retail decision-makers from across the UK, Germany and Belgium to explore what has motivated the growing prevalence of embedded finance on their platforms, and what their plans are for the future.

Among those surveyed, there was no outstanding single reason for their adoption of embedded finance solutions. 41% selected ‘creating new revenue streams’ as a key motivator, while 40% chose ‘growing the customer basket’, viewing embedded finance as a means of increasing profitability. 40% viewed it as a means of increasing customer loyalty, and 38% wanted to improve customers’ satisfaction with the brand.

The difference between these motivations is indicative of the variety of benefits embedded finance has the potential to offer. It is not just a tool for increasing revenues or making the user experience more engaging – for 39% of respondents, it was primarily a tool for gathering improved customer insights.

When predicting the future of retail, these figures suggest that embedded finance has the potential to revolutionise retail as a whole, allowing businesses to build stronger bonds with their consumers while increasing sales volumes and leveraging data-driven strategies.

Examples of these new strategies are already emerging into the global retail market, with the US department store franchise Kohl’s recently announcing a new branded credit card that offers unique rewards and loyalty benefits to cardholders. With roughly two thirds (66%) of respondents stating that their business had engaged with technology vendors in the last 12 months to create their own embedded finance products, we can expect to see more and more of these types of use-cases in the near future.

What retailers can expect

The underlying technology and regulatory requirements of embedded finance are a major sticking point for non-financial businesses such as retailers.

Overcoming the difficulties of regulatory compliance was a primary consideration for 38% of respondents, who picked their vendor because they offered banking solutions independently with little development required on their part, and 34% prioritised vendors who had access to a banking licence for the geography that they operate in.

Given the extraordinary rate of change within consumer expectations today, having products that can be designed and launched at short notice is essential. 37% of respondents who had engaged with a technology vendor to implement their own products felt that being able to enable their retail partner to launch a new product quickly was a key factor in picking their BaaS partner.

What’s next for retailers

Based on the feedback from our survey, we can predict what the shape of the retail sector will be in the future.

We are not simply seeing eCommerce and embedded finance growing in tandem – embedded finance is elevating online retail by creating more engaging and rewarding customer experiences and making shopping online more appealing to users everywhere. We are seeing embedded finance bring brands and consumers closer together, and the attitudes and priorities of decision-makers today offer a glimpse into the retail landscape of the future.

There is limitless potential on offer for retailers who grasp the embedded finance opportunity firmly enough, but those who hesitate too long run the risk of being left behind.

The Indian government has achieved the milestone of inoculating over 150 crore vaccines. With the progressive unlocking happening in the majority of cities and villages across the country, the Omicron-led contagious third wave is anticipated to come under control soon.

by Vishal Maru, Senior Vice President Merchant Payment Services, Loyalty and Digital Payments, Worldline India

Physical shopping is regaining its lost glory as small retail outlets, malls are opening up while native markets are thriving. Amid all this, the requirement for quick, secure, contactless digital transactions remains a top priority for merchants and consumers alike.

Making embedded payment solutions available to all or any merchants across the country can help address these growing needs. Enterprise Resource Planning (ERP) solution has become critical for physical stores to assist in keeping track of inventory, system, and payment ledgers of the business. Today, most digital payment solution providers are realising the benefits of enabling ERP solution providers to integrate their billing software with POS terminals.

How does an embedded payment system work?

The embedded payment is about integrating payments options with enterprise resource planning platforms used by the merchants. This automates the process of entering the purchase amount manually in the POS terminals. It captures the card transaction details within the billing software for merchants. At the physical store, the selected items are added to the cart for billing by the merchant and therefore the system reflects the ultimate price including local taxes and discounts if any. Customers can pay by their preferred digital mode instantly because the waiting time is drastically reduced.

An advantage to the merchants

The Integrated system enables a merchant to supply quicker check-outs and error-free payment acceptance to the cardholders additionally to a quicker reconciliation of card transactions. Embedded payments on Android POS terminals make it a furthermore powerful and useful gizmo for merchants to manage their enterprise end-to-end because it is a mini kiosk with all features like payments, billing, inventory, reconciliation, customer loyalty, credit/cash history, BNPL, etc. on one single platform.

Embedded payments modernising most sectors

Embedded payments are changing the way businesses accept payment. It’s getting adopted across wide merchant categories like retail stores, hospitals and pharmacies, hotels, and quick service restaurants among others. This can not only help merchants to supply innovative payment acceptance but also first-of-its-kind contactless payment but automating their current billing processes and enhancing payment acceptance modes for quicker checkouts.

The growth within the size of the embedded payments is primarily thanks to increased government focus and initiatives that are aimed toward digitising the economy. It’s not to mention the customer-centric innovation that the industry is bringing to the table. As an example, POS terminals aren’t any longer limited to facilitating card transactions, it accepts payments via NFC-powered contactless cards, QR codes, UPI and offers several value-added services like EMI, DCC, among others. Additionally, it offers services like accounting and inventory management, payroll management, merchant financing, etc.

The connected POS helps hospitality players lead sales, invoicing, and orders at restaurants, rooms, activities, meals, and hotel boutiques. It will not only work in a restaurant but also for hotel activities, the boutique, and room service moreover. It ensures a connection between a hotels’ various departments, making it more efficient for the deployer while offering a flawless high-end customer experience.

From better inventory management to simplified invoicing, quick payments, and absolute customer satisfaction, embedded payments are adding value to the business and enhancing customer experience in every possible way for better and greater achievements.

As personal and business banking customers across the UK adopt digital technology at an accelerated rate in their everyday lives, this raises the industry benchmark for smarter, sleeker, and more innovative banking solutions.

by Jon Munnery, Insolvency & Restructuring Expert, UK Liquidators

The coronavirus pandemic is a testament to business agility, as financial institutions swiftly transitioned to online operations under unprecedented economic conditions and overhauled communication infrastructures to maintain customer relationships virtually. The banking industry witnessed a watershed moment in consumer behaviour as the temporary closure of bank branches pushed those most resistant to change and opposed to embracing digital banking to test the waters.

Now that most Covid-19 restrictions have been lifted, how has this affected the footfall of bank branches?

Is it the end of an era for high street bank branches?

Taking it back to before the pandemic, customers moved to online banking in droves which saw footfall figures gradually dwindle, and further decline when the pandemic hit. This led to a record number of branch closures, with hundreds more set to close in 2022.

According to a House of Commons briefing paper, the number of bank branches in the UK roughly halved from 1986 to 2014. The decline in bank branches can be attributed to the following factors:

• Cost-cutting measures
• Mergers within the industry
• Competitive pressures from new entrants in the banking sector
• Increasing popularity of internet banking.

Which? have been actively tracking UK bank branch closures since 2015 and can confidently conclude that bank branches are closing at a rate of around 54 each month.

The NatWest Group, which comprises NatWest, Royal Bank of Scotland and Ulster Bank, will have closed 1,154 branches by the end of 2022 – the most of any banking group.

Lloyds Banking Group, made up of Lloyds Bank, Halifax and Bank of Scotland, has shut down 769 sites, rising to 830 in 2022.

Barclays is the individual bank that has reduced its network the most, with 841 branches having closed – or scheduled to – by the end of 2022.

The pandemic sped up the shift to online and mobile banking and provided banks with the optimum opportunity to showcase the potential of their digital services on offer. Data gathered by YouGov Custom reveals that over half (56%) of consumers say they will avoid bank branches in the future – thanks to coronavirus.

A new age of cutting-edge banking technology

While the hospitality industry speeds the way in innovative food delivery and the retail industry revolutionises in-store customer experiences – the banking industry is cementing its position as a trailblazer in fintech.

Here are some technological trends in the banking industry that are making bank branches redundant.

• Mobile banking – The continued rollout of mobile banking services has drawn fierce competition from challenger banks responsible for driving away customers from household high street banking giants. The UK is leading the challenger bank revolution as the likes of Monzo and Revolut are best known for dominating the UK market. Revolut recently became the UK’s biggest fintech firm as its valuation peaked at £24 billion.

According to the Which? consumer champion’s current account survey, challenger banks are outperforming traditional high street banks, with users ranking Starling Bank, Monzo, and Triodos highly for their customer service and mobile apps.

The survey also found many traditional high street banks languishing at the bottom of the customer satisfaction table, often ranking poorly for service in branches. This not only diverts customers online, but fuels the takeover of digital banks and therefore, the decline of bank branches.

• Chatbots – Digital humans or robo advisors powered by artificial intelligence are in use by many banking providers to streamline the customer service journey and generate an instant response to customer queries. It also cuts out any necessary time spent by human chat agents to answer non-complex queries, for which answers can be automatically populated from the website.

Artificial intelligence is also being used to improve the efficiency of back-end processes, such as data classification and risk analysis.

• Mobile branches – Although digital banking is accessible for the majority, not everyone can navigate online banking services with ease. The demand for in-person services remains, albeit small, which brings us to the introduction of mobile branches. NatWest and Lloyds provide access to mobile bank branches to allow individuals to carry out basic banking, such as deposits and withdrawals.

While customers no longer need to visit a physical branch due to the advanced functionality of online and mobile banking, the expectation for fast and immediate customer services remains as customer support transitions online. In a world where support can be accessed almost instantaneously through the click of a button, the stakes are high for digital banks, their reputation and customer loyalty.

Open banking is coming up to the fourth year of PSD2 as a regulatory requirement in the UK. We can see the impact it has already had, and the predicted growth for the year to come. In addition, the pandemic has driven the growing demand for flexible financial services, and this has transformed how consumers and small businesses leverage their financial data.

by Travis Spencer, CEO, Curity

Open banking has allowed third-party organisations to access data through APIs to create a frictionless experience with better products and services to manage finances.

As APIs continue to give financial institutions the ability to connect to both customers and businesses alike, security has become more important than ever. It is vital to evaluate the various measures that financial services need to adopt to thrive in a safe and secure way.

Carefully managing financial data has always been of the utmost importance for businesses. Failing to do so and leaving sensitive data to fall into the wrong hands can be critical for consumers, businesses, and banks. Financial-grade API security is paramount when it comes to exchanging data and financial information between institutions and third parties such as FinTech vendors and other partners.

Complexities of authenticating

It is important to have solid confidence in the users’ identity. This requires a Strong Customer Authentication (SCA) method, which generally translates to a high Level of Assurance. This is accomplished to some degree by using multi-factor authentication. Similarly essential, users must prove their identity as part of the registration and authentication process. To achieve this, the regulators require standards-based proven methods that ultimately result in a token (i.e., a ticket or memento) that encrypts and secures the identity of the user, their authentication method, and provides assurance that the user represented by that token really is who they say they are.

Users confirming consent

Authentication is important, but, alone, it isn’t enough. Open finance regulations are clear that users must consent to a business accessing certain data or performing an action such as creating a transaction. But it must also be possible for users to manage and even revoke their consent through an easy-to-use user management service.

Protecting users’ data

Securing and protecting users’ data can be a difficult task, but it’s a critical one in open banking. It takes a long time to develop trust – particularly when finances are involved – and it can be slashed in seconds if users lose confidence in a business’s ability to look after them and their data. As well as costing customers time, money, and resulting in extreme dissatisfaction, this can ruin a business’s reputation. Consequently, the safety of user data must be prioritised.

A blend of various procedures, frameworks and processes can be introduced to mitigate the risk of fraud, leaking or manipulating data and violating privacy. This is an opportunity to ensure consistent security practices are implemented across the board. Standards and directives such as PSD2 are designed to protect user data, as well as securing bank services. Businesses need to ensure they are investing in the right technology to adhere to these standards. By choosing solutions that automatically implement these specifications, businesses can reap the benefits of a secure customer database which will help improve the customer experience to build credibility and trust.

Prioritising skills

Businesses must also invest in their teams. It’s not enough to simply put protocols in place. Design and execution require a specific set of skills which, unfortunately, are high in demand and low in supply. Recent research commissioned by the UK Department for Culture, Media and Sport found that half of businesses in the country (approx. 680,000) have a basic skills gap, lacking staff with the technical, incident response, and governance skills needed to manage their cyber security. Meanwhile, a third (approx. 449,000) are missing more advanced skills, such as penetration testing, forensic analysis, and security architecture.

Regardless of being essential – considerably more so as services are progressively digitalised, cybersecurity skills are often poorly understood and undervalued by both management boards and within IT teams. This can prompt a lack of investment in training, mishiring, and poor retention of staff in security roles. This only intensifies the challenge of building a team that possesses the requisite skills.

Hiring can be hard when there’s a deficiency of skills and abilities, so businesses need to be innovative. This means considering new recruitment avenues and, importantly, breaking free from the conventional model of what cyber security professionals look like. Curiosity is vital, so, for more junior roles especially, attitude should be a key qualification. Businesses should trust that many skills can be acquired on the job if the candidate has the essential fundamental knowledge and drive. To help with this, employers should provide training and mentorship.

The future is looking bright for financial services. The way banks do business and how consumers manage their financial transactions will continue to revolutionise. New opportunities and new practices are likely to arise meaning security remains an important factor to combat any future requirements.

As we continue to assess financial-grade security and authentication protocols, success will also rely heavily on expertise and know-how. The skills gap in security needs to be considered to ensure that flexible finance options within open banking and open finance can be utilised without compromising security. Businesses must ensure they are prioritising training for the team to close this skills gap and improve practices across the industry. There is a massive opportunity to push protocols and standards across the board, as it will not only help to ensure a high level of security but also makes skills more transferable in the long term.

While consumers’ online activity had seen steady growth for years, Covid-19 turbocharged this. In retail, internet transactions as a percentage of total sales hit a high of 38% in January 2021, against 20% before the pandemic, according to the ONS. Even a year later, with all restrictions lifted, they remain at 27%.

by Clare Beardmore, Head of Broker and Propositions, & Jodie White, Head of Product and Transformation, Legal & General Mortgage Club 

Meanwhile, online banking was already well developed prior to Covid-19. More than three-quarters of adults in Britain used internet banking in the opening months of 2020. Yet open banking services have also witnessed rapid and massive growth over the past two years. January 2020 saw the number of customers using open banking in the UK pass one million. Nine months later, that doubled. Today, there are five million users.

There’s little doubt when it comes to the public’s appetite for digitally-enabled services. Among brokers, however, it’s been more mixed, and uptake varies widely.

But customer expectations are growing. Developments inside and outside the sector are leading to increased expectations for fast, smooth digital experiences. Customers increasingly demand solutions that will make their mortgage journey easier and quicker. And they want to be able to choose how to work with their broker.

Advisers that fail to offer a digital approach and communicate through online channels will only be restricting their ability to reach these customers. In this environment, the bar set by market leaders soon becomes the standard. Those who are yet to offer a range of digital communication channels risk hindering customer retention or may find themselves bogged down with administrative tasks, preventing them from doing what they do best: providing advice.

In short, a strong digital offering is becoming table stakes in the advice sector.

No need to reinvent the wheel

The good news, however, is that brokers don’t have to do this by themselves, and they don’t have to do everything. They’re not technology businesses after all.

Instead, brokers should avoid the gimmicks and look for technology that adds value for themselves and their customers. In most cases, they are one and the same: Technology that reduces inefficiencies in the mortgage process and friction cuts brokers’ costs, as well as the inconvenience and delay for clients.

Any serious adoption of technology must focus on the impact on the end customer. Consequently, a serious examination of existing technology cannot do better than begin with customer relationship management (CRM) systems.

Customer relationship management is critical to the client’s journey. It plays a central role in capturing and managing borrower information and streamlining the loan process. Its importance has meant that a wide range of robust existing systems is currently available. There’s no need to reinvent the wheel – nor even to invest; Legal and General’s Mortgage Club, for instance, provides certain members with free licenses to the Smartr365 technology platform, which includes a comprehensive set of CRM tools.

By automating tasks, eliminating effort, and providing workflows to accelerate the mortgage process, CRM systems are critical to meeting modern customer expectations. However, they can’t and don’t aim to replace the broker.

The human touch

For advice, the human factor is still vital. That’s reflected in the continued dominance of intermediaries in lending. Over seven in ten buyers used an adviser for their most recent purchase. With borrowers facing a sustained rise in interest rates for the first time in a decade, and finances squeezed by rising inflation and a cost of living crisis, that’s not going to change.

CRM technology, however, can boost efficiency and free time for brokers to spend working with clients to find the best solutions. It also promotes continued engagement to enhance retention.

Rather than replacing the broker’s expertise, the technology enhances advice by enabling advisers to apply their knowledge more effectively. To give one example, intuitive checks built into an affordability calculator share a far more complete picture by revealing why certain inbound leads might be failing. That allows intermediaries to offer better-tailored advice to customers.

Crucially, the technology must serve the advice journey, not determine it. The way to avoid that is to integrate digital capabilities in a wider transformation journey focused on using the tools available to meet customer needs and support advice. To do so, brokers must embrace technology, as their customers already have done.

Those that don’t could be bringing the next crisis on themselves.

The banking industry has undergone huge change in recent years, and so too have its players. As such, the time-honoured classifications of ‘incumbent’, ‘challenger’ and ‘neobank’ no longer sufficiently describe a bank’s offering, role or position in the industry;  arguably some incumbents are proving to take more ‘challenging’ strategies than some of their comparatively younger challenger or neobanks. So how will banks be defined in the future?

by Rivo Uibo, Co-Founder and Chief Business Officer at Tuum 

The evolution of banking is partly in response to an underlying shift in the way that people live and work and the demand across diverse demographics for more tailored banking services. Freelance workers have different banking needs to employees; the needs of Gen Z customers, such as saving money and managing subscriptions (including Spotify, Netflix etc.) are far removed from those of older generations. In essence, to prosper in today’s banking industry, banks must now find a means of being relevant to diverse customer demands and desires and provide these banking services in the most convenient way.

In tandem with this trend, the advent of embedded finance, open banking and APIs together with the rise of new entrants to the market including tech giants and superapps and demand aggregators (brands that provide financial services on top of their core offerings such as Alipay, Uber payments or Gusto wallet), are adding further complexity to the banking landscape and the number and diversity of players.

Banks are therefore under pressure to maintain market share and are looking at different approaches to achieve this. Let’s look at the different business strategies that banks are pursuing today and where these business models are likely to lead to.

High street banks

Even before the pandemic, high street banks were ramping up their digital offerings and reducing their number of branches. But in the wake of the pandemic and soaring demand for digital banking, high street banks face strong competition from online-only banks. As a result, they have radically reduced their number of branches; according to a report by Which? published in December 2021, almost 5000 UK bank branches had closed since 2015 or were set to close in 2022.

That being said, In the UK, high street banks offering personal and business banking (including RBS, Barclays, Lloyds and HSBC) are still regarded as the market leaders and mainstays of the industry. Only time will tell if their (albeit reduced) in-person banking services and industry standing will be enough to survive heightened competition from their more nimble digital counterparts. In the meantime, these mainstream banks will be closely analysing the options open to them to maintain customer share (greater focus on digital/focus on other market segments).

Digital banks

These forward-thinking, online-only banks provide banking services that fully reap the efficiency benefits of modern technological capabilities. Leading digital banks currently include the likes of Monzo, Nubank and N26. These large players, which started out as ambitious neobanks, have succeeded in gaining a sizeable customer base through innovative, digital service offerings. N26 is today one of the most valued banks in Germany and is aiming to be one of the biggest retail banks in Europe (without having a single branch) while Nubank boasts 40 million customers in Brazil.

Aside from these larger successful players, many digital banks tend to be niche players, laser-focused on the banking needs of one specific customer group. These financial service providers are made up of both those who have their own licence and those that depend on other banks or banking platforms for their licence – but both are perceived equally by end-users as ‘digital banks’. Their strategy is to gain maximum traction within their target customer segment and then expand and enhance their service offerings. A great example of a niche digital bank is Jefa, a LATAM bank set up by women for women, offering free accounts, a debit card, and a mobile app to assist money management. With the defaults of banking in LATAM broadly hostile to women customers, Jefa is making headway in a giant untapped market that has been ignored by other banks. Another good example is New York-based Daylight, a digital bank that offers services specifically tailored to meet the needs and assist with the financial challenges of LGBTQ+ people and their families.

Notably, as long as a financial institution is fully regulated and users’ money is protected, customers are beginning to show less loyalty for long-standing banks and are increasingly motivated by innovative services and excellent customer experience from digital banks. The rise of platform players – in the form of next-generation core banking and BaaS platforms are playing a key role in enabling digital banks to quickly roll out new tailored banking services and driving innovation in everyday banking.

Multifaceted banks

These banks succeed in functioning in multiple modes; they successfully provide banking services directly to their own diverse customer base while also opening up their infrastructure to provide the technology and licence to third parties.

Goldman Sachs is a key example of such a bank today. It launched a consumer banking brand, Marcus, in 2016, together with a new transaction banking unit, which amassed $97 billion and $28 billion in deposits by 2020 respectively. Goldman Sachs opens up the underlying infrastructure that powers Marcus and its transaction banking unit to external third parties as well, such as Stripe or Apple. By leveraging both its balance sheet and regulatory expertise as well as a modern platform, it is an attractive embedded banking partner for large sticky brands.

Starling Bank is another (online) bank that together with providing award-winning digital banking services to its own customers (it has been voted Best British Bank in the British Bank Awards for the last four years), it also offers its own infrastructure to other banks and fintechs in order for them to roll out financial services.

As embedded finance and the rollout of financial services by non-banks takes off, banks that can offer their infrastructure and banking licences will become increasingly in demand.

Only time will tell exactly what the banking landscape will look like in the future but what is very clear is that the age-old classifications of banks need reconsidering. And in order to survive and thrive banks themselves need to decide what path to take. We are entering a stage in the evolution of the sector where there is no clear roadmap for a given incumbent or a given challenger bank. Each individual bank needs to assess its strengths and ambitions and re-evaluate its strategy to carve out its own place in the industry.

The growing demand for personalised and relevant services will mean that only a minority of banks will be able to operate on multiple levels because it is hard for a bank to be everything to everybody. In the meantime, advances in banking technology and the growth of platform players supporting digital banks will enable this segment to further expand and diversify while the banks that serve both their own customers and support other third party banks and fintechs will help to drive competition and bring about more choice and more options for customers in the future.