The changing landscape of financial services

Financial services is a constantly evolving industry, and this evolution has picked up pace considerably over the last few years.

Digital innovation is one of the key talking points at Finovate Spring 2022

It should be unsurprising then that digital transformation and innovation within the space are key topics at this year’s Finovate Spring conference being held in San Francisco.

The conference kicked off with a session led by three fintech analysts on the shifting financial services landscape and the opportunities and developments arising from this change.

Aite-Novarica Group’s Jim Mortensen got the discussion underway citing a recent survey that revealed 30% of consumers said they enrolled in digital financial services over the pandemic for the first time, of which 87% said they plan to increase their online usage.

This increase, however, has also led to a surge in cybercrime as malicious actors look to target new digital users and new companies.

Mortensen says an Aite-Novarica survey of financial services professionals revealed the key thing many firms are worried about is synthetic identities, i.e. fraudsters, gaining access to a users’ credentials to then take over or establish new accounts under someone else’s name. He adds that in the last 10 years, “about 30 billion records have been breached”.

“That includes credentials and transaction data, as well as other information that is helpful to fraudsters in terms of being able to take over accounts or establish new accounts.”

Mortensen highlights the rise of authorised push payment (APP) fraud in the UK (a topic that was also in focus at the recent Finovate Europe conference in London), and how the level of APP fraud now exceeds card fraud, which has historically been the biggest area of criminal activity in the industry.

This along with other scams such as phishing attempts has put user authentication at the top of the agenda for many firms.

Mortensen says: “We surveyed financial services professionals and most came back and said the key areas that they’re investing in are identity verification, application controls and authentication. So those are the areas that they’re most concerned about, and I think that’s an appropriate feeling given the environment that we’re currently in.”

Moving on from cybersecurity, Fintech Takes founder Alex Johnson discussed what he refers to as the “gentrification of deposits”, highlighting how the arrival of fintech and the increased usage of Application Programming Interfaces (APIs) has allowed companies to develop mixed-use banking offerings featuring a number of different products, creating fundamentally new structures than what had previously existed.

He says: “Instead of saying, hey, these are the product categories. These are where we have to compete. They said what are the fundamental jobs to be done within deposits and how can we do those in a way that creates new value for customers.”

Johnson boils it down to six fundamental jobs to be done within the deposit space:

• Spend
• Save
• Earn (allowing customers quick access to the money they have coming in, such as earned wage access)
• Planning (helping customers understand their current and immediate financial futures with features such as budgeting tools and retirement planning)
• Investment (long-term investments)
• Speculating (shorter-term investments, usually involving more risk and volatility)

“From a fintech product developer’s perspective, what they want to do is draw from all of these capabilities to design new products and experiences. And that is helped by the fact that now we have all this modern tech infrastructure that makes this really, really fast. If you ever tried to develop and launch a financial services product in the old days, say 10 to 15 years ago, it was really, really difficult. That took a lot of time. Today, you can do it really quickly.”

Johnson highlights that all these products are now available via APIs, and developers can “very quickly and very inexpensively experiment with them and try to find new product combinations that are going to work and be compelling to consumers”.

One example discussed is the blending of savings and investing, with Johnson citing research that suggests many consumers are looking to fintech apps ahead of banking apps for products that offer both automated savings and stock market investment tools.

Johnson concludes: “What consumers are telling us, by voting with their feet, is that’s the experience they’re looking for. They’re looking for a blended, mixed-use experience.

“The impacts that those new product categories are having on financial services relates to a goal that we all have, which is to become the primary financial account provider for as many customers as possible. And all I can tell you looking at the data is if you’re trying to achieve that goal, you’re going to need to offer more than a checking account.”

Finally, Javelin’s Mark Schwanhausser spoke about building credit and the need for banks to provide customers with better and more personalised information on how they can build credit along with integrated offerings.

He states that the reason this is important for banks is because “they are in a digital maturity path” and shifting from a transactional relationship with customers to one of engagement.

“We need things that are going to keep people coming back, but for something more than just checking their balance or looking for transactions. Credit scoring is one of those leading candidates, but ultimately where we want to go is we need to prove to consumers that we’re on their side and that we’re looking out for them.”

He highlights the importance of providing digital advice and cites research that suggests 40% of consumers are now using either online or mobile banking to track their credit scores, with Gen Z particularly active in this area. However, he suggests both banks and fintechs aren’t providing enough relevant information to help individual customers better take care of their own credit scores.

This therefore presents an opportunity for banks to better engage with their customers and provide them with tools and personalised advice to help their individual needs.

Schwanhausser says: “The big picture message is when you look at how firms communicate with consumers is that they are struggling across the industry, whether it’s a bank or a fintech, to deliver really meaningful advice, relevant advice, personal advice.

“Now where we want to go is towards where we’re delivering real insight that has a forward spin. That says here’s what you should be doing. Here’s what we need you to start thinking about. Here’s how you can build your credit. And ultimately we want to deliver advice. Today, advice is typically selling you another product. It’s not about your financial fitness.”

He concludes that firms should look to emphasise credit building over credit monitoring. “It’s one thing to tell people what your score is, it’s another thing to help them feel like they’re gaining control of it and that they’re building their borrowing power.”

He also suggests focusing on younger consumers who are eager to learn more but don’t know where to start, saying companies should look to be more of a financial coach than a “financial librarian”, and adds firms should look to invest in personalisation data to help customers connect the dots.