Bank to the future: five ways financial apps are changing banking

Ian McKenna, DigitalWealthInsights.com: consumer revolution is upon us

Less than half a year from now, the Second Payment Services Directive (PSD2) will revolutionise consumers’ access to their own financial information.

In fintech hubs across Europe, bright young people are planning a consumer revolution. Their financial apps and tools are helping customers manage their money far more easily than they have before. So far their impact has been limited but PSD2 will turbocharge their growth as the data on which they rely becomes far more easily available.

Here are five important ways in which they are changing the face of banking.

1. Banks will face stiff competition from new wave of fintech start-ups

The list of these snappily named start-ups seems endless. In the UK it is firms like Bean, Ernst, Moneybox, Pariti and Plum, to name just a handful, and this picture is repeated across Europe.

Look at any fintech hub and you will find similar services. In addition many financial advice firms are using personal financial management (PFM) tools to enhance their advice proposition. Aon has put PFM at the heart of its Bigblue employee benefits service which will be offered to millions of their clients’ employees. Two adviser technology suppliers Intelliflo and True Potential already have eight million and two million consumers respectively who can access such functionality via the systems they provide.

By comparison most traditional online banking services look bland and of limited value. These start-ups offer powerful tools that can help customers find more attractive alternative products and generally buy less expensive credit.

2. New open data initiatives will mean unparalleled access to consumer data

In the UK, PSD2 is being delivered by the Open Banking project. Alongside this the Treasury is running the Pensions Dashboard project, which will liberate customer data on long-term retirement savings in the same way.

Although the Pensions Dashboard project is not due to deliver the full service until 2019, when it is combined with Open Banking it will offer the chance to create holistic views of customers’ entire financial lives. British ministers have repeatedly stated they will compel all pensions providers to supply the necessary data to power dashboards.

3. New services will revolutionise who people trust for financial advice

HM Treasury has said any firm which can demonstrate suitable bona fides will be able to provide a pensions dashboard service. The UK’s financial regulator, the FCA, will also allow non-banks to become registered account information service providers (AISP) and access data from the Open Banking project.

So it is easy to see how new data-rich services will be delivered by a wide range of organisations including banks, insurance companies, financial advisers and fintechs, challenging many traditional banking and insurance relationships. Any financial services provider not offering such capability will be likely to be marginalised in the customers’ eyes in the early 2020s.

Fintechs and other financial technology suppliers are already building a new breed of personal finance dashboards (PFDs) based on these two initiatives. In just a few years, the PFD consumers choose will indicate who they really see as their most trusted financial adviser.

4. Personal finance dashboards (PFDs) will open the way for long-term savings as well as short-term financial management

Many of the current financial apps are linked to a specific financial services provider, are reliant on information the consumer uploads themselves or are based on generic financial advice. But it will be possible to automatically bring together real-time information from a number of different sources.

Pensions dashboards already exist in many other European states including Denmark, the Netherlands and Sweden. Working with the data they can provide offers a foundation to deliver far more powerful financial life planning tools with enormous customer benefits. This will open a huge opportunity to market short, medium and long-term savings products as well as debt.

5. The workplace will be key to the new market

In practice, the workplace is likely to be a highly successful channel for such services complementing employers’ pensions and employee benefits delivery. In the UK, auto-enrolment means nearly all employees will soon be members of a workplace pension scheme. Having been selected by the employer staff will be encouraged to use emerging financial wellness services designed to reduce stress in the workplace. These will be ideal channels through which to market a range of banking and investment products. Aon are just one of many firms building this capability.

Banks may choose to see PSD2 as a challenge to their control of customer information. Alternatively, it can represent a chance to add wider services covering all aspects of a consumer’s financial life. This is an unprecedented opportunity to provide wealth management services to mass affluent consumers and greatly increase the depth of relationships and range of services provided to customers.

By Ian McKenna, founder of DigitalWealthInsights.com and independent member of HM Treasury’s Pensions Dashboards Prototype Steering Group