Digital trends in finance
The financing world is in full speed when it comes to the digital process. From corporate startups to revolutionary user experiences: everything is in motion. Dept’s own Danijel Bonacic and Marcel van der Heijden have listed the three most significant digital trends in finance.
Experience first: the interface wins
From January 1st 2018 onwards, each bank is obligated by the PSD2- regulation to give their clients the option to separate their account data from the interface. This means that you will be able to check into your bank account in a different interface than that of the bank you’re with. You can compare it to the use of an external e-mail client to get into your Gmail account. This change will bring heavier competition on that interface. People don’t usually change banks because it’s too much of an effort. But they will change to a different interface a lot quicker if it offers a better experience. There will also come a time when it becomes a paid service. You’re going to see a lot of apps that provide amazing banking interfaces.
Banks invest in a lot of their own interfaces because it’s usually the only touchpoint they still have with their clients. If competition increases in that area, banks will fear they’ll lose that essential point of contact. That’s why banks are already anticipating this development by adding all kinds of products to their app, such as insurances, mortgages, loans and shares. As a client of ING you can now also add your Bunq account.
Bunq is a great example of a winning interface. Whether you want to open a new checking account or request a bankcard: it all works fantastic. Bunq isn’t really a bank, but a technology company in the finance sector. They’re relatively small compared to major banks, but they outclass all major banks when it comes to the customer journey in our opinion. They change the frameworks. As such, Bunq gives you the option to create a lot of money pots which you can link to your bankcard. However, feedback from the client community showed that it was too much work to constantly have to switch bank accounts when you’re at the check out. In response, Bunq improved the interface by adding different pin codes to each of the money pots. Bunq’s way of thinking is very service-minded which shows in the interface and it’s a sure win. It won’t be long until Bunq uses this strategy on taking out insurances.
The interface will become even more important, because financial products are pretty much commoditized. The content itself hardly differs between mutual providers. It’s increasingly revolving around tailor made service. People are often inclined to take out package deal insurances, but they don’t have a clue what that package includes. We’re switchting from packages to modules. It makes people more aware of the value of what they’re insuring.
By detaching account and interface, people will be make more UX-driven choices. Before, you used to look at the terms of the banks but in the future you’ll opt for convenience. You choose the best experience. That is the area in which financial institutions can still differentiate themselves in the future.
The bank as a launch platform startups
Almost every major bank/financial institution is working on experiments in order to design new products and services from an experience first perspective of which we’re seeing a lot more, such as Tikkie and New10, both ABN Amro initiatives. Rabobank recently launched Peaks (investing with pocket change) and Tellow (an administrative application for freelancers). Then there’s Reaal’s POT for insurances (insurances for freelancers) and then there are the international apps such as the British Revolut and the Polish N26, which is like a larger Bunqs. Banks and insurers are massively invested in fintechs because they know the PSD2 regulation is on its way and they’ll get overtaken left and right if they don’t. It’s a different way to add value to the services they provide.
The US now has Lemonade, an insurer that works from the philosophy that you only pay for what you need instead of paying for an entire package. They’re active in four states and they’re slowly expanding into others. They’re not from the financial sector, but they have developed a product from the interface (that same interface). Major banks are struggling with the idea of doing that through existing interfaces. The same goes for insurers. Lemonade, Trove and Bunq are designed based on user experience.
At this moment, Lemonade is focused solely on home insurance for renters. Their target group consists of urban dwellers. They look at what is happening in the world and see that people nowadays only stay in one place for a very short amount of time which is why they have ultra short insurances on offer that can be concluded in 90 seconds. They fully reason this strategy from the experience, because why would you insure your house for a month or a year when you won’t be in it for that long?
Not all new players on the market will become profitable conglomerates, but they will help major financial institutions to rethink processes in their own organization. Innovation doesn’t necessarily mean starting over, but rather building on existing elements. This has resulted in ABN Amro’s addition of Grip, a Scandinavian startup. The problem with startups is that they have to win over each and every user, whilst major companies already have those clients. People thought that Bunq would overtake existing major banks, but that didn’t happen because banks such as ING and ABN Amro promptly anticipated this development by launching startups outside their own organization, using the know how and financial clout of the parent company.
More trust because of blockchain
At the heart of blockchain technology is building trust in a decentralized manner, so without having to go through a central institution such as a central bank. This has a major impact on the role banks play, but it even goes beyond that. It changes how we will arrange our insurances, how we invest and how we book our holidays.
The most visible form of blockchain technology can be found in cryptocurrencies such as Bitcoin and Ethereum. Anyone that has followed the news in the past few weeks knows that these currencies have risen in value in an unrealistic way. It’s a typical symptom of a technology that is still at the preliminary stage. Bitcoin is an easily understood concept to most people. It’s a coin that increases or decreases in value. But this coin can also disappear within a matter of years. This is why the real value isn’t so much in that currency, but more in the blockchain technology that drives it. The technology is not only significantly worthy to banks in terms of the need for a decentralized monetary system, but also beyond these organizations.
TUI, the biggest travel agency in the world has sold its booking system and invested the money in a new component that will take care of travel bookings through the use of blockchain technology. TUI usually takes the money and data of their customers to an airline, hotel and car rental company. Then, that data comes back to the customer through TUI, but it’s a cumbersome process in which a lot of mistakes are made. They can see that TUI will become more of a facilitator in the future, where the customer can book their travels directly through blockchain technology. That same development will play out in the banking world as well. If someone makes a payment from a Rabobank account to an ABN Amro account, Rabobank transfers the money to ABN Amro through the interbank system. This takes a day. In the future, consumers will arrange payments directly with each other, without involvement of a bank. The role of banks in a blockchain ecosystem will undergo drastic changes. The question is how they will make their money in this new system. Banks know that they have to act on it, but they’re not exactly sure how to do that. You can already see major banks such as the Swiss UBS and the three largest banks in Japan carefully experiment with blockchain.
It is therefore expected that there will be some sort of shake-out in cryptocurrencies in the next few years, in which the technology will become more mainstream. As soon as people start using it more and it is made available as software, we’ll see a lot of new applications. A specific example in the Netherlands can be found in the execution of deeds, such as taking out a mortgage. All kinds of instant financial services will be created that will make a notary or accountant unnecessary. You just click on your house on Funda and arrange your mortgage through Ideal. It’s hard to grasp the concept at this point in time, but in five to seven years this will be considered a safer option than going through a bank.
The same goes for IDIN, the system that is used by banks to identify each others customers. Banks have set this up themselves by using account numbers, but blockchain will make that redundant. This also goes for DigiD. You will be able to identify yourself with just one blockchain ID across all platforms in the near future.
Whether it’s about the interface, (corporate) fintechs or blockchain: the financing world is in full swing and standing still is not an option.
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