Adaptability and trust are key ingredients for the future of digital banking

In May this year, Monzo surpassed the 2 million customers mark as it raced to catch up with London rival Revolut. This milestone is significant not only for Monzo, but for the future of banking – and especially digital banking. The emergence of challenger banks has been a topic of interest for some time, as more and more challenger banks become mainstream and gain market share. Clearly, the trend towards digital-only banking isn’t going away anytime soon.

This is partly driven by the demands and expectations of the modern consumer. As customers hunt for convenience, low rates and speed, the sector is being revolutionised by technology, presenting banking with a hugely exciting future. According to research from Fujitsu, 73% of the public believe that banking has already been dramatically changed by technology, while 95% of financial services leaders agree technology is driving change in their organisation.

Technology has transformed financial services. From the rise-and-rise of mobile banking, to the launch of a host of challenger, app-based banks and services such as Starling and Monzo. All of this has been made possible by digital technology and it has caused an industry revolution.

However, while Monzo and other challenger banks are able to leverage the latest tech to gain that competitive advantage, this comes with its own risks. In the race to gain market share, they must ensure that regulation, privacy and security remain a top priority.

So, what are the factors that are shaping digital banking today, helping to meet customer expectations but also broadening their demands, and stretching the limits of what is possible to achieve in banking today.

The speed of change: Survival of the most adaptive

In the coming years, start-up banks will be able to embed new technologies, from Artificial Intelligence to quantum, more quickly. But they do not always have the infrastructure to secure their systems, comply with regulation, or develop the policies needed to ensure that technology meets its potential.

In the modern era of financial services, no organisation is “perfectly” set-up – the speed of change and the transformational nature of it makes that impossible. The key is to be flexible and adaptive enough to be ready for whatever change comes next – be that technological or socioeconomic.

As the future of financial services becomes more complex, brands need to embrace these changes and lean in to the disruption that’s coming. Avoidance is not an option.

Open Banking and the role of trust

The open banking model has not quite taken off yet in the way many thought it would. While SMEs and self-employed people have embraced it to an extent because it gives them the data required to compare costs from different providers and switch between accounts, the wider consumer market hasn’t been as eager in their adoption.

Despite the potential benefits – for example Open Banking can allow consumers, with a few swipes, to find a better mortgage, cancel subscriptions, compare household bills and control direct debits – the service still hasn’t reached the desired level of popularity just yet.

Yet in a recent UKGov poll, only four in ten of the 55+ age group were aware of Open Banking and, especially worryingly, just 14% of 18-24-year-olds, who might be expected to embrace the new apps, had heard of the change.

Why is this? The model is still in its infancy so, to an extent, we can put this down to a lack of awareness, or a lack of maturity in the technology and model itself. But the biggest hurdle is not something that will simply course-correct over time.

Open Banking is being undone by a lack of trust. Consumers have an uneasy relationship with financial services organisations – not helped by the still very recent and raw financial crisis, plus the seemingly endless problems with hacks and data theft/loss. According to PwC, although it predicts more than 33 million people to have signed up to open banking driven services by 2022, customers have been slow to do so because of concerns over companies they’ve never heard of having access to personal data.

Simply forging ahead, releasing app after app won’t convince anyone and adoption will be minimal. The apps need to address a real pain point for consumers and they must ensure that data protection sits at their heart. Financial services firms must build security models that ensure these apps are fortresses.

The future of banking is built on security-based trust

We are at a point of digital maturity which has enabled further innovation. Technologies like the Internet of Things, Artificial Intelligence and robotics are moving from concept to reality and they have driven automation of the financial services. Over the next five years, we will see these technologies take hold of financial services. And they will be joined by an innovation so powerful it will change the face of the industry entirely.

But to take advantage and truly realise the benefit of technology, banks will need to think beyond the tech and embrace the broader changes it will force within their business. Innovation will fail unless it’s built on security-based trust.

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