When consumers use financial services, what matters most? If they can carry out transactions quickly and efficiently, do they care about how their data might be used? Does convenience trump everything?
We spoke to three partners at Scottish law firm Burness Paull – David Goodbrand, Stuart Murdoch and Callum Sinclair – about the “trust exchange” at the heart of fintech.
How are scandals around the misuse of consumer data affecting the fintech sector?
Callum Sinclair, Partner and Head of Technology: “Scandals involving big social media players like Facebook mean that the misuse of data is very much in the public consciousness – but are consumers prepared to do anything about that... to stop using a platform? In the case of social media giants, the answer at the moment seems to be no.
“We’ve not seen any major financial data scandals yet, although challenger banks like Revolut and Metro Bank have had a few bumps in the road. If we see a real financial data scandal, that will be the acid test for consumers – will they actually switch?
“Millennials love to engage with social platforms but when it comes to their money, there’s still a trust deficit. Some social platforms now offer low-level payment systems and there is speculation that many will try to move towards the Chinese WeChat model, with everything from social media, shopping, payments and other functionality inside the one captive platform.
“I am concerned that the trust deficit is ebbing away with the next generation of digital natives, who are focussed on convenience and don’t seem too worried about what’s going on with their data behind the scenes. There seems to be a lack of critical thinking and challenge, and I fear that it might take a major data scandal and actual harm before my children’s generation really wake up to that.
“There’s no question that TSB suffered after its IT failure, with customers unable to access accounts. A massive data breach or privacy hack in fintech could really change things.”
Do consumers have a growing understanding of the power and value of their data?
David Goodbrand, Partner and Head of Privacy: “There is definitely an increased public awareness and understanding of data and its value as a result of GDPR [the EUs General Data Protection Regulation] – as much due to the vast number of e-mails they received a year ago as anything else.
“Overall, GDPR has given consumers more power over their data and more understanding of who holds it and uses it, and why.
“However, research by The Exchange Lab and Populus revealed an apparent dichotomy in millennials’ attitudes; the vast majority thought GDPR didn’t go far enough in protecting their data, but less than 10 per cent said they would challenge cookie pop-ups or privacy notices.
“There is a disconnect, but the platforms are winning. Consumers seem to think there is a fair value exchange going on; if they get a positive experience, they will consent to their data being stored and used.”
Is convenience the primary driver for consumers when it comes to financial transactions?
Stuart Murdoch, Partner and Head of Financial Services Regulatory: “It looks like functionality is trumping principle. If there is a really easy solution that means you can carry out a financial transaction in ten seconds but also have to sign your data away, many people will do it, especially younger people.
Convenience is an overriding concern. When you are at the end of a purchase – let’s say you’re buying a phone – you are unlikely to stop at the point of payment, because you want that phone. Over time, we might move to a situation where you have several payment options at that point, linked to what happens to your data – fintechs are working on that, but it’s hard to judge how consumers will react to that choice at the payment stage. Do they want it?”
CS: “It’s about how various generations engage; everybody now wants to be mobile-first. It’s not just about quicker on-boarding or better overall functionality, it’s about doing it on a phone.
“Many fintechs can complete identity checks and on-boarding very quickly using the camera on a phone and people don’t always fully understand – or really care – how their data is used.”
How important is it for financial service businesses to offer quality customer experience – to retain existing customers and attract new ones?
DG: If you deliver something that’s clunky and not user-friendly, a competitive market will root you out. Everyone wants convenience and that means good design thinking – solid user-centred design and interfaces are now becoming the default in an increasingly competitive fintech space.
“It’s about removing friction for the consumer. My uncle moved back to Scotland from Continental Europe recently and he has no credit history. It’s almost impossible for a global citizen moving back to the UK without a credit file here to do anything.”
CS: “We are not there yet, but what if we saw Amazon ‘one-click’ for financial services? That’s what really scares everyone else in the market.”
What is the main challenge to making financial services easier to navigate for consumers?
DG: “There are still too many barriers. Even if you have a bank account with the same provider, you might still be asked for income verification for a mortgage. Why should someone have to provide that when the bank knows the information is there?
“We need a holistic approach. Banks are getting better but there’s still some segmentation. A number of fintechs are working to generate better value from that data, and the pace of change will continue to increase as data becomes more accessible and understandable, so banks can tap into that value.
Recently one major UK bank was heralding its first paperless mortgage, but we should really be there already.”
Are the challenger banks ready to take a larger market-share by making banking much more straightforward for consumers?
DG: “It’s very easy to sign up for the challenger banks and that is attractive to consumers.
“However, many people using Monzo, Starling, Revolut or other challengers are also using a big bank and I don’t think we have reached a tipping-point yet. Maybe that’s an issue of trust, as challenger banks have to develop infrastructure and a range of services to win that trust and critical mass of customers.
“Traditional banks are upping their game, building partnerships – such as FreeAgent and RBS –and starting to challenge the challengers. Where the traditional banks might win is the stickiness of the customer base and the trust they are built on.”
SM: Challenger banks are in a bit of a honeymoon period at the moment, and they can’t stay where they are forever. They are doing everything they can to be attractive but stepping up to being a fully regulated bank – to generate deposits and make money – is a big challenge and I think we will see some more failures.
CS: There is an interesting dynamic as some challenger banks suggest consumers shouldn’t trust big banks because of creaky legacy systems and outdated customer service.
“But the problem for the challengers is that their regulatory and compliance systems are not yet as well-developed, and there is a tension in developing that framework. Regulation and compliance does not lend itself well to the pace at which new technology wants to move.
How is fintech starting to affect how we go about our daily lives? Are we moving beyond ‘basic’ financial transactions into more sophisticated decisions?
DG: Fintech is moving in the direction of making a big difference to our everyday lives, but there is a way to go yet. I think in the next two to three years, we will see a lot more technology out in the open and developing.
SM: I think a lot of functionality so far has been gimmicky and not focused enough on price.
“There are a lot of consumer gaps not being plugged by fintech at the moment. One is price transparency; people move – banks, for example – for a particular piece of functionality: a good app, or even a nice-looking app, but it should be about the best deal.
“I think much more can be done in areas like car finance, for example – that’s a massive gap. You choose a car but then probably end up using the finance partner offered by the showroom and might not shop around.
Where is fintech going next to deliver further benefits to consumers?
CS: Bank account aggregation services offer advantages to consumers but they are not very exciting. The next wave of fintech innovation will definitely improve the customer experience and I see it developing around three main areas – affordability, greater financial inclusion and improved customer experience.
DG: “Once consumers get used to being able to deal very easily with their salary and week-to-week expenses, they will want more direct control of their pensions and investments too. It’s not just about aggregating what you have now but where you put your money in future.
“Young fintechs will be at the heart of that decision-making. There are very few consumer-facing pension and investment platforms just now but we will see financial planning without the middle man become much more common.
How can business-to-business (B2B) propositions help drive innovation and improve the consumer experience?
CS: “It is often B2B propositions behind the scenes which facilitate some of the innovation at a consumer level.
“We are involved in advising fintechs with B2C [business-to-consumer] focus and on B2C financial services issues generally, but we also work a lot with great B2B fintech businesses such as LendingCrowd, Modulr, Comcarde, Albaco, Actelligent and others.
“There is real innovation in the B2B space – whether optimising peer-to-peer lending and investing [LendingCrowd], simplifying business account opening and payments [Modulr], or building a new cloud-based challenger bank to drive SME lending, the engine of the economy [Albaco].”
Can fintech in Scotland use trust and transparency as a USP for the sector?
CS: “Yes. Scotland can use trust and ethics to gain a competitive advantage in fintech. We are not going to outspend China or the US but there is a culture of trust and ethics in British – and especially Scottish – financial services. When paired with strong regulation, such as GDPR, and progressive regulators, that can be a major competitive advantage and push us into the top-five fintech ecosystems in the world.
“If there was a big financial data scandal, consumers would increasingly look for an honest broker, and it would be great if Scotland could position itself as that genuine honest broker and pick up customers and business.”