Digital transformation is completely reinventing the business world, and the effects are now being felt more and more in the Financial Services Industry (FSI). Customer habits have evolved and they now expect a convenient and tech-savvy service for all their banking needs. However, progress in the financial sector has been hampered by a multitude of regulations, along with ageing hardware, and disparate systems resulting from multiple takeovers and mergers.
“Cloud and mobile technologies, combined with new regulations, have completely disrupted the banking world. Fintech start-ups now have the power to take on the big banks and disrupt traditional business models.”
Recent months have seen a significant shift towards mobile banking, with much of the innovation coming from fintech start-up firms. Mobile banking has been given a further boost by the arrival of open banking and PSD2. These next-gen regulations have opened up the way for a new wave of start-ups and digital-only banks.
Open banking enables start-ups to make use of the data that has traditionally been held only by the big banks. Cloud-based IT infrastructure allows newcomers in the banking world to roll out and scale features based on new technologies at a faster rate. Unlike their traditional rivals, fintech start-ups are not weighed down by legacy infrastructure, which gives them the ability to challenge the established banking institutions. And for consumers, mobile banking means that they can complete their transactions from anywhere with user-friendly apps. These apps enable easy budgeting, complete with payment notifications. And for small businesses, they offer a cost-efficient way of managing finances.
Among the new generation of challenger banks is Starling, which was the UK’s first mobile bank to launch back in 2017. Another well-established example is mobile-only UK-based bank Monzo, which includes in-app budgeting, payment notifications and the ability to pay contacts/friends plus freeze and unfreeze the bank card from within the app. It also offers mobile payments using Apple Pay*. And it’s not only the UK that’s making progress in the mobile banking world – German app-based bank N26 is now operating across most of Europe and is expected to expand into the US in 2019.
While many fintech firms are working in competition with the big banks, many are also forming partnerships. A number of international banks have their own fintech incubators and some are even setting up their own standalone banks with entirely separate branding. London-based mobile bank Revolut* was originally backed by Barclays and later by Lloyds. It currently has more than three million customers.
These success stories offer a glimpse of how the FSI world is changing, but what’s next for mobile banking? As physical branches continue to close at a rapid pace, mobile banking is predicted to overtake online banking in 2019, according to forecasts from industry analyst CACI.1
Open banking has been in operation for just over a year, so 2019 should see existing fintech start-ups fine tuning their products and becoming more established. It’s likely that we’ll see more start-ups entering the field while existing apps will be improved using emerging technologies like Artificial Intelligence (AI). As well as enabling faster transactions by removing inefficiencies from the banking process, AI can help to improve customer engagement by enabling chatbots. AI also enables better personalization for products. Past transactions and habits can be used to provide financial insights and investment tips based on analytics.
As mobile banking evolves, we’ll also see new services beyond existing current account options, which will put further pressure on the traditional banks. New services could include savings accounts and the ability to open an account within an app.
What’s more, the demographic of mobile banking users may begin to expand. So far, challenger banks such as Monzo are being used more by a younger demographic. For older generations to embrace the new technology, it will be necessary to demonstrate that it is just as secure, if not more so, than online banking. The security of mobile banking could well be further enhanced using biometric identification features on next-gen smartphones.
“Cloud and mobile technologies, combined with new regulations, have completely disrupted the banking world", said Mike Blalock, general manager of the Financial Services Industry at Intel. “Fintech start-ups now have the power to take on the big banks and disrupt traditional business models. It’s still early days, and the arrival of 5G will bring even more change to the world of mobile banking, so 2019 is just the beginning.”