Banking goes digital: Game changer?
Digital disruption is changing the face of many industries from retail, transportation through to professional services. It will therefore surprise few that the financial industry has also been making the shift towards digital. This includes the adoption of artificial intelligence, block chains, and machine learning to fundamentally alter how consumers bank. These technologies are rapidly becoming the new normal.
Gone are the days when a consumer would visit a local bank branch to manage their bank accounts. Current trends suggest that bank branches are in decline with an average of 55 closures a month since 2015. According to a survey by MasterCard earlier this year, 64% of UK respondents expect this trend to continue over the next 10 years. Conversely, online-only banks such as Monzo and Revolut have started to take market share away from traditional banks. A recent survey indicates that almost 1 in 10 British adults have an account with an online-only bank. With consumers increasingly making the switch from analogue banking to digital, is their trust well placed?
Public trust in technology
It is easy to see why consumers are increasingly turning to digital. Digitisation in banking has the potential to deliver great benefits to consumers. The use of ‘digital wallets’ has made carrying even the slimmest of cards now seem cumbersome. Likewise, many consumers now choose to use digital fingerprint scanning as a quicker and seamless alternative to remembering long passwords. These technologies have become part of normal life and are well trusted by the public.
On the other hand, there is still a large question mark over the issue of trust in other emerging technologies, such as so-called ‘robo-advisors’. Robo-advisors are powered by artificial intelligence. They will be able to pose questions to consumers and advise on the “best” course of action based on individual criteria. Examples of robo-advisors include nutmeg and moneybox, which both promise to make investing more accessible to consumers. In effect, they replicate the role of human financial advisors, but with a number of advantages. Despite this, research suggests that 53% of people would either be unlikely or very unlikely to trust robo-advisors. However, these views may change as more robo-advisors enter the market. One notable upcoming entrant is investment banking giant Goldman Sachs, which is due to launch their investment robo-advisor in the UK in 2020 through their UK brand Marcus.
Regulatory trust in technology
The Financial Conduct Authority (“FCA”) is the regulator for financial institutions in the United Kingdom. Digitisation is one of three particular factors driving the regulator’s thinking on the future of regulation in the financial industry. In their view, the financial industry has now become a “truly digital industry”.
In light of the above, the FCA is currently addressing whether their regulatory model is still the correct one. Ultimately, they acknowledge that the solution is not easy and there is not a clear cut answer for the changes now facing the industry. Over the coming months, the FCA will engage in public consultations to consolidate their approach.
Trust in Banks
As leading implementers of these technologies, trust in banks is crucial to increase adoption of these emerging technologies. Over the last decade, Banks have been embroiled in numerous high profile scandals including the mistreatment of Small and Medium Enterprises by the Royal Bank of Scotland’s Global Restructuring Group and the HBOS fraud. The scandals attracted large public as well as regulatory censure. Public debates over these scandals are continuing with an independent report conducted by Sir Ross Cranston having just been released on 10 December 2019. The report was strongly critical of Lloyd’s handling in compensating victims of the HBOS fraud and has paved the way for a potential review of all compensation paid to date. For further information on the Cranston Report, please see Ellis Jones’ recent blog on the matter. It is evident that there still remains a big question mark over the issue of trust in the banking sector.
Ultimately, there is a lot of uncertainty facing banking consumers in the face of digitisation. Consumers are weary to trust newer emerging technologies that have not yet percolated the mainstream, and the regulatory framework to safeguard consumer rights is yet to be fully developed. In addition, public and business trust in Banks has been damaged through numerous scandals over the last decade.
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