From collaboration to further emphasis on peer-to-peer lending, 2017 is set to be a game-changing year for the world of finance. With this in mind, Rich Wagner, CEO of digital banking services pioneer APS financial, makes his predictions on what next year will hold.
Financial uncertainty in the wake of Brexit will open more doors to challenger banking models. Early reports suggest that Britain’s banking giants are being threatened by challengers which have weathered the referendum storm and are investing heavily in new technology. Following our decision to leave the EU, many challengers to banks, not just banks, are capitalising on the pressures faced by the big banking names who will be forced to cut back on innovation. This will allow new, nimbler challengers to make their mark on the industry and break up the oligopoly that banks have had on the network and markets for decades. 2017 will bring a real opportunity to combat lethargy caused by traditional banks, by delivering strong customer engagement and building trust. If you ever needed a proof point, the Bank of England’s landmark announcement in June this year to allow non-banks the ability to access the UK national settlement scheme will provide a foundation in the future to make banking and the payment landscape far more competitive and beneficial to both consumers and SMEs.
But some of these new entrants will fail to deliver… Innovation is key in this business, but established performers with great ideas, years of experience and rich knowledge of how the payment ecosystem works, will also be the ones that survive. Key players will need to deliver on collateral in order to compete in the market.
New regulation, especially the introduction of PSD2 will have a profound impact on the payments landscape. Everyone is talking about Open Banking via APIs. Ironically APIs are an old established concept in the technology world but Payment Services Directive 2 (PSD2) will bring APIs into the mainstream by giving bank data access to a host of third party payment service providers (TPPs) to enhance the banking experience for customers. Those that will lead will leverage and enhance the financial data that is typically part of a transaction to provide a richer and frictionless payment experience.
Niche banking for millennials and beyond. Customers will no longer have one bank account. The customer will have bank and payments accounts and will choose the provider that does a particular payment activity the best. Key niche solutions will emerge in bill payment, online purchase (beyond PayPal), travel, and even a niche solution for currency exchange (like Transferwise).
Collaboration will be king. At APS, we’ve been collaborating with established players like the Post Office since 2015, allowing customers access to banking services at over 11,500 Post Office branches across the UK. Looking forward into 2017, these kinds of partnerships will be crucial when it comes to levelling the playing field between the banks and challengers and truly putting customers’ needs first.
Rise of the entrepreneur. With UK entrepreneurial performance at an all-time high, it is more important than ever to provide financial support to these great ideas. There is an opportunity for banking challengers to target this area of the market with services tailored towards the startup, easy, fast and simple banking. Successful challengers will not be measured by how much free banking they give away but instead by creating an enhanced customer experience that has transparent fee structures that are great value.
Peer-to-peer lending. The 2016 Autumn Statement showed us the real value of the ‘sharing economy’ this year, which increased by 92% in just one year. The industry has been fueled by technological progress allowing companies in this space to provide flexible and convenient solutions to the way people live and work. Set to expand at least 30% per year over the next decade, there is a real opportunity for banking challengers to take advantage of this new rapidly expanding industry and help start-ups to grow, and ultimately deliver strong returns to investors.
This year is certain to be a volatile one for the financial markets following the uncertainty of Brexit, however there is plenty of opportunity ahead. From an influx of entrepreneurship to a shift in the banking market leaders, 2017 is set to be a year of collaboration, new peer to peer lending models and niche, nimble banking.