The factors driving digital transformation in financial services fall into three categories: market drivers, consumer behaviours and technology advancements.
For market drivers, one cannot ignore the booming fintech sector worldwide, if only looking at the current investment figures worldwide. Innovators have created new business models where data is king, large technology companies such as Google, Amazon, Facebook, Samsung, Apple and others have all made moves to enter the sector. This in turn has forced established players to position themselves in the digital age in two ways: firstly, by establishing digital transformation initiatives to rethink their own businesses internally, and secondly, by getting closer to the innovators and driving investment in fintech through their own ventures and incubators to try and establish some sort of control in this rapidly changing landscape. Of course, funding for technology startups has also evolved and kept pace with technology, with the spectacular rise of alternative finance (e.g. peer-to-peer lending, crowd funding, etc.) playing an important part in this booming sector.
The financial services sector has traditionally been very difficult for new entrants to penetrate because of its heavily regulated nature, and this digital explosion has caught the regulators somewhat by surprise, resulting in many initiatives worldwide aimed at making financial services regulations fit for purpose in the digital age. One example of this is the impending European Payment Services Directive 2 (PSD2), with its aim of promoting competition and innovation and making access easier for new entrants.
Consumer behaviours also play a large part in digital transformation. Taking the UK as an example, smartphones have now overtaken laptops to get online, across all age groups, and 50% of bank visits involve no human interaction. In addition, the rise in popularity of contactless transactions in some markets is a significant driver for the adoption of new technologies. With all that, even within a market as mature as the UK for non-cash payments, cash still represents 48% of all UK payments, which means that there is still much scope for innovation in cash displacement and alternatives to card payments, such as Zapp, are starting to emerge. In other markets, such as Africa, where cash is still predominant with a large proportion of the population remaining unbanked, alternatives such as M-Pesa have been extremely successful and similar services are continuing to emerge. The key for financial services digital transformation will be to remove friction from the customer experience, as well as keeping the ecosystem safe and secure.
As far as technology advancements are concerned, the obvious aim is to make the customer experience as frictionless as possible. Such implementations range from the more mundane removal of paper cheques, to the completely out-there toilet paper automatic re-ordering, with almost everything in between. It is undeniable that such technology behemoths as Apple and Samsung have done a lot for making technology innovations in financial services and payments enter the public consciousness. In addition, and according to numerous analysts, the market for wearables is set to boom, and whilst traditionally aimed at the fitness and health sectors, Apple Pay has made wearable payments a reality, and many are set to follow. Not to be left behind, other tech giants such as Twitter, Facebook and Samsung are also trying to make payments disappear within the user interaction. All of this is indeed very good news for less established players trying to enter the market.
About Neira Jones
Neira Jones, Advisory Board Member & Ambassador, Emerging Payments Association, advises organisations of all sizes on payments, cyber risk, information security and digital innovation. She also chairs the Advisory Board for mobile innovator Ensygnia and is listed on the City AM FinTech Most Influential Power List.
About Emerging Payments Association
The Emerging Payments Association brings together companies across the emerging payments spectrum to help shape the future of the payments industry landscape. Our vision is to make the UK a global leader in payments innovation by attracting investment capital and creating a hospitable regulatory environment for innovators, new entrants and disruptors.
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