The future of payments & banking is digital

While working on a recent project for a client in the banking sector, we researched various trends and ideas about the future of banking and payments. That’s what I will try to share with you below.

The driving forces of change

The factors and user needs that are driving change in the banking sector are as follows:
  • The increasing use of, and dependence on, mobile devices (or simply small screens)
  • The need for a 'democratisation of payments'. This in particular has influenced start-ups to create solutions that make it possible for everyone to accept payments by card despite cost and technology barriers
  • Sharing bank account details with other people can be tiresome. Who remembers their account number and sort code by heart?
  • Social media is a place for organisations to engage with their customers but some banks and start ups are starting to use it in more innovative ways
  • The need for financial and budgeting advice
  • Fees are still high for some transactions, whereas speed of transaction execution isn’t satisfactory for international payments
  • Despite all the above, we should never forget the need for better security
So how have these factors impacted on the world of digital payments and online banking?

Mobile payments

How many times have you felt disappointment at your local store for not accepting card payments or applying a charge to transactions on payments under a certain amount? Targeting mostly small merchants who can’t offer card payments because of hardware and IT costs, start-ups have turned tablets and smartphones into card processors. All you need is an app and a small card reader which is attached to the phone. However, is this approach really worth the pain - can business with small merchants be profitable? Rumour has it that Visa have invested in Square, an innovative start-up in this domain. Some big banks, like Santander and Lloyds, are also supporting similar projects. Who’s already doing it? Utilising NFC and other technologies, digital wallets are another form of mobile payments.

Payment without bank details

Searching for bank details every time you want to set up or accept an online payment is tiresome. Some debit cards don't even have sort codes on them! Soon, however, you might only need to know the recipient’s email address or mobile number. Who’s already doing it?
  • NatWest allow their mobile app users to pay their contacts if they too have a visa card. They also have prize draws to motivate users to try it out. This service is powered by Visa Personal Payments
  • PayPal offer payments to email addresses or phone numbers. Again the only limitation is that the both parties (payer and recipient) must have a PayPal account
  • Google offer their Gmail users the ability to send money as an email attachment if they are using Google Wallet

Social banking (Face-banking)

Would you follow a bank on Facebook or Twitter? You might if their posts were relevant to your interests. A few banks have succeeded in creating a content strategy for their social networks to engage and grow their following. For example, BBVA and Barclays gained thousands of followers by posting about football. In between football updates, they also tweeted about their product and services. Following financial institutions on social networks is one thing but how about accessing your account balance through Facebook and even sending money to your friends? Facebook banking apps allow you to utilise the capabilities of web banking without having to leave your beloved(!) profile. Facebook even guaranteed they won’t have access to your financial data... Who’s already doing it?

Financial planning: ‘spend, save and live smarter’

If you want to be fancy in the financial sector nowadays you have to offer tools that help your customers manage their finances in a smarter way. Again, start-ups are leaders in this domain and offer alternatives which are commonly superior to those of traditional financial institutions. Here’s what personal financial management (PFM) tools offer:
  • Track and compare with past spending/saving behaviour
  • Show where money is spent
  • Option to setup saving goals
  • Advice on what is safe to spend and whether spending some money will affect your financial health, e.g. future planned payments or saving goals
  • Making the experience more pleasant with gamified messages and instructions
Who’s already doing it? Some of these services might sound a bit extraordinary or risky (like logging in and banking through Facebook…). The truth is that there isn't accurate data out there to validate the success or failure of these services. Time will tell.

Resources

If you want to keep up-to-date with financial tech news, here are some informative resources I have subscribed to:

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