Despite the rumours of a FinTech revolution, the fact is that for most customers day-to-day banking experiences haven’t really changed all that much in the last few years. Yes, they might now sort out transactions through an app rather than on a desktop, or pay for things with a phone rather than a contactless card. But that’s evolution rather than transformation.
In reality, consumer engagement with the FinTech those in the industry are so excited about has generally been pretty shallow, and limited to a very select group of consumers who are already financially confident, motivated and engaged – not necessarily the group with the most to gain from real-time budgeting and other innovations.
Yet 2016 could be the year when consumer-facing FinTech really takes off.
Firstly, the launch of the Innovative Finance ISA, which will allow individuals to hold peer-to-peer loans tax free. SMF research has shown how the ISA wrapper makes investment more palatable to the public: 59 per cent view stocks and shares as a high risk product, but this falls to 42 per cent when they are wrapped in an ISA wrapper. When we surveyed consumers on product risk last year 49 per cent said that P2P lending was a high-risk option. It will be interesting to see how this changes with the introduction of the ISA wrapper.
We predict that the creation of the Innovative Finance Wrapper will introduce a substantial group of savers to P2P for the first time. For the industry, that’s going to raise new questions about how to communicate with these consumers, particularly over the liquidity limitations of P2P investments, what sort of products are appropriate for them and what sort of insurance provision needs to be put in place.
The Competition & Market Authority’s final decisions on the current account market, due in April 2016, are also expected to focus on technology – particularly ways in which it can be used to prompt consumers to switch and how it can help them navigate the complex current account market place.
Observers of the sector have already picked teams – those who believe that technology and personal data can create real change in this market, and those who think these are more of the same-old demand-side excuses for regulatory inaction. And, notably, the politicians in the Treasury Committee have landed firmly against the CMA’s proposals. Those of us who think competition in the current account market could be completely transformed by technology like midata and automated comparison have an uphill struggle on our hands.
Looking a bit further ahead, 2016 will see providers preparing for the implementation of PSD2 – new EU regulations to be made national law in 2017. One big change here will be to ensure consumers have access to aggregator tools which let them see all their financial services products in one place. To date, the adoption of aggregators has been notably slow in the UK in sharp comparison to the US and Canada; partly because some UK banks take the view that these tools, which require a user’s online banking password to scrape their data from their provider, violate terms and conditions, which can leave consumers potentially liable for any fraudulent activity on the account.
As banks move towards midata2 and prepare to implement the other recommendations of the CMA around making data available to consumers, we might expect a softening towards aggregators too – particularly as use of smartphone payments continue to grow and consumers become used to the idea of budgeting on their phones. Together, these moves to bring financial data closer to consumers and to help them make better use of it could mean FinTech finally makes its way into our pockets.
Katie Evans is an economist for the Social Market Foundation.