Banks have long been criticised for being behind the curve when it comes to the latest technology. Among the richest companies out there, we wonder why there always seems to be a spectacular lag between the emergence of the latest computer technology and our bank implementing it. However, it seems that the banks are now, if belatedly, making a concerted effort to not only catch up with technology trends but even be their drivers.
Several of the big high street banks have set up ‘incubators’ and ‘accelerators’ that fund Fintech (financial technology) start-ups and offer them other support in kind, often in partnership with existing programs of this kind, such as Barclays’ arrangement with Techstars. Sometimes this is in exchange for an equity stake in the start-up and other times there are no strings attached. In the second scenario, the incentive for the bank is that it keeps up with the most recent fintech trends and if any of the start-ups come up with a technology-based solution they want to integrate into their services, they are in the best position to acquire them, in whole or part, before their competitors.
Barclays’ Techstars-powered accelerator is a 13-week programme designed to help fintech start-ups refine their products before seeking to raise additional investment. Other retail banks are also funding tech R&D, sometimes inhouse and sometimes through funding start-ups. Nationwide hosts Accenture’s FintechInnovation Lab in their Swindon head offices.
As well as partnering with fintech accelerators, HSBC also has 3000 staff working on digital innovation in their own offices in Southwark, dubbed ‘the beach’, after a discussion area decorated by inflatable palm trees and sharks, presumably because developers feel comfortable in a ‘quirky’ start-up environment. Royal Bank of Scotland have the ‘vault’ in Islington, where their own boffins are working to keep them to the forefront of the digital revolution.
So, what are all these teams working on and how will it change the way we manage our finances in the years ahead? One of the main directions banks’ digital teams and partnerships are working towards is the January 13th 2018 start date of new open banking rules. The crux of the rules change is that if customers wish, banks must release their accounts data to third parties. The first big consequence of this is expected to be the emergence of apps which will aggregate an individual’s finances in one place. For now, only current accounts will come under the new rules change but as soon as later next year, loans, credit cards, mortgages and savings accounts are expected to be added.
This will pave the way for apps to recommend users different financial products and even utilities deals for things such as broadband internet and domestic energy suppliers based on their financial profile and spending habits. HSBC has already launched a beta version of an app that aggregates accounts from up to 21 different banks. Savings goals, financial planning and ‘in your pocket advice’ to prevent customers getting into unmanageable debt are all planned to be part of the functionality offered by the app.
Nationwide are also working on a digital banking assistant that will do things such as warn a user that funds are insufficient to cover a pending bill or ask if they would like excess cash to be moved into a savings account.
RBS head of strategy and innovation, Andy Ellis, believes that these kind of open banking apps will not only mean using a debit or credit card will be optional within 5 years, with a smartphone essentially performing the same functions, but we’ll be able to buy a house through our phones:
“For example, you visit a house for sale, and your bank will see where you are because of the GPS on your phone. It will be able to say, ‘We’ve looked at all your accounts, your assets and liabilities, and we have pre-approved you for a mortgage for this house. It will then say it can offer help with your mortgage, getting a conveyancer, buying insurance or even buying furniture.”
The app RBS will launch next year will have a comparison function so that when someone’s electricity bill leaves their account, it will automatically see what offers are on the market currently for better deals.
Security is usually the first concern that springs to mind when having more and more information on our finances contained within a smartphone is mentioned. However, banks believe that improvements in security technology such as fingerprint, voice, face and iris recognition will mean such concerns will become defunct.