Through the use of technology and innovative business models, FinTechs have triggered significant disruption in Financial Services. With such potential for disruption, it is always a good idea to scan ahead to see what may be around the corner... Here, Jack Bessell gives us his 'top three trends to watch out for' in the second half of 2019 and beyond:
1. Regulatory Innovation
Things are changing in FinTech regulation, with increasing measures for 2019 affecting Payments Services, RegTech, Cryptocurrency and Crowdfunding. There is also the expectation for the UK’s FinTech Delivery Panel to publish industry standards by the end of the year.
One clear indicator of the ever-tightening regulatory landscape lies in the recent letter by the PRA to the heads of the 20 fastest-growing challenger banks and financial firms. This letter followed the PRA’s concerns regarding weaknesses shown in stress tests, signifying the tightened focus of the UK regulatory body, as well as its emphasis on reducing operational risk. However, as with any increase in regulatory scrutiny, Governments must remain wary of stifling innovation and continue to balance the need for control with supporting enterprise. As with any regulated industry, this is especially important to ensure that competition and the drive for greater consumer value continues to thrive.
One way in which the UK government has addressed this, is through the FCA’s establishment of the Global Financial Innovation Network (GFIN) - a regulatory sandbox for FinTechs. GFIN is a network of 35 international organisations which aims to support financial innovation by improving the efficiency in how FinTechs interact with regulators. It does so by aiding FinTechs in their navigation of foreign market regulation and in the scaling and trialling of their ideas and products, thus fostering a collaborative environment between market participants and regulators. The FCA‘s direction reflects a growing trend for regulators who share the common goals of increasing competition, promoting innovation and creating financial hubs.
2. CX and UX: Yin and Yang
With their scalability, mass appeal and greater access to global financial markets than ever before, FinTechs are raising the bar in Financial Services. Best-in-class user experience (UX) is now the bare minimum expectation, as opposed to its previous status as a key differentiator; products must be instantly intuitive to any user (not just Millennials and Gen-Z), as well as faultless in their functionality. The Yin to UX’s Yang is CX (Customer Experience). While the difference between the two is nuanced, the former relates to the interaction between users and your product or service, while the latter refers to the entirety of the customer’s interaction with a company, i.e. the ‘brand journey’.
Owing to the complexities of legacy tech stacks and lack of agility surrounding operational processes, many incumbents have attempted to improve UX, yet failed to address the wider challenges that result in a poor CX. More often than not, this manifests itself in an aesthetically-pleasing veneer being wrapped around existing services and technology, which inevitably fails due to overly complicated customer journeys.
The lesson here is that UX and CX are intrinsically linked and that developing a robust and engaging CX is essential in creating a point of differentiation in a congested market place. However, designing, building and implementing a compelling and holistic CX requires significantly greater investment, thought leadership and perseverance to ensure success. As with any ‘new kid on the block’, competing with other players in the field comes with inherent risks, but it is the development of truly seamless UX and CX that holds the key to their future success.
3. Inclusivity and Transparency
A key strength of FinTechs is their ability to deliver inclusivity to previously restricted markets – be it by asymmetric information provision or by overcoming barriers to entry. Crowdfunding platforms, such as Crowdcube, offer a host of benefits for both investors and the companies they raise capital for. They provide access to previously inaccessible markets, thereby enabling companies to establish a grassroots consumer base or ‘community’, whilst encouraging the involvement of the average investor. By breaking down barriers to entry and driving greater inclusivity, FinTechs create new markets that would otherwise not exist.
Another example of FinTechs re-defining the status quo lies in the case of serving the ‘underbanked’ or ‘unbanked’. In the UK alone, nearly two million adults do not have a bank account. In this instance, FinTechs are not only addressing a market failure, but also seizing a revenue opportunity. How FinTechs serve these people in a sector strict on KYC, has resulted in innovative and paperless onboarding processes for customers, along with streamlined and cost-optimised processes for the bank. This trend of inclusivity has expanded beyond crowdfunding and online banking, creeping into the equities market with the likes of Freetrade and Robinhood, who offer commission-free stock and ETF trading.
Inclusivity goes hand-in-hand with transparency, as FinTechs aim to demystify financial services and their products through channels such as company blogs and community chat rooms. This in turn has driven greater trust in FinTechs, compared to many incumbents, who are still recovering from the enduring reputational damage of the 2008 crisis. Winning consumer trust will play a pivotal role in any financial institution’s continued success.
The organisation that can anticipate and respond to all three of these emerging trends will be well-placed to attract new customers and capture market share.
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