How fintech can 'facilitate' the future of finance - Spear's Magazine
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How fintech can ‘facilitate’ the future of finance

How fintech can ‘facilitate’ the future of finance

Banks don't need to be too afraid of new technology, says Flagstone's managing partner, Andrew Thatcher.

What do you think will be obsolete in ten years’ time? I was recently asked this at a dinner party and I thought to myself…traditional mobile phone contracts? People will no longer trade in how many minutes and texts they have, but how much data they can get. DVDs? Amazon Prime and Netflix have 40 million subscribers globally, a figure that’s expected to increase to 200 million by 2020. Driving licences? With the continued rise of Uber and the first fully autonomous vehicles expected to hit our roads in 2019, it’s very possible that these will become documents of the past.

This got me thinking about what else is likely to be obsolete in the future, particularly in the financial services industry. Cash? Credit and debit cards? Bank branches?

In 2014, the volume of cashless payments overtook cash payments for the first time, and one in 20 people in the UK are already making mobile payments at least once a week When it comes to bank branches, over 600 have closed in the last year, with 3,000 having been shut in the last decade. Metro Bank seems to be the last remaining champion of branch-based banking, having opened 41 since its 2010 launch. The reason for this? Fintech. This phenomenon has been accelerating the pace of change within the financial services industry at a remarkable rate and is reshaping its future forever. Consumers now benefit from instant payments and transfers, real-time updates, stronger security, and in many cases, better service. They can securely access their bank account anytime, anywhere using their voice, fingerprint, or a retinal scan.

In some ways this continued convergence between financial services and technology is a double-edged sword. On the one hand, fintech companies can help banks create better, faster, cheaper services that will make them an even more essential part of everyday life for institutions and individuals. On the other hand, digital disruption has the potential to shrink the role and relevance of today’s banks. Many are fearful that with a larger number of fintech players and digital-led challengers (Atom, Mondo, Tandem, Starling, Fidor…) coming to market, established banks could lose up to a quarter (24 per cent) of their market share in the next five years (according to an estimate by PwC).

I’m not convinced this will be the case. The most recent figures from Bacs show that since the Current Account Switching Service’s launch in 2013, less than three million of the UK’s estimated 50 million current account holders have switched current account. What’s more, is that according to research from the Competition and Markets Authority (CMA), almost four in ten (37 per cent) Brits have been with their main current account provider for more than two decades, while a further one in five (20 per cent) have been with them for 10 years. When it comes to savings products, the figures are equally underwhelming with only 13 per cent having switched in the last three years. This is despite the fact that 14 per cent of all current accounts (that’s over 600 different products) pay less than 0.3 per cent interest, the current rate of consumer price index inflation.

The main reason for this is inertia – no matter how much money people have saved and how much additional interest they could make if they were to move their cash to a higher-interest paying account – they simply don’t have the time or resource to constantly check rates and move money around. This is the issue we’re trying to overcome at Flagstone by enabling individuals, businesses and charities to allocate their cash optimally across multiple deposit accounts at the click of a button. When rates change (which they are doing at an ever faster rate), clients can reallocate the money at the click of a button to ensure it remains optimally arranged. In the majority of cases, clients have been able to increase yields by two to five times, net of fees.

However, this model requires that we work with the banks rather than against them and as such, we consider ourselves as a facilitator rather than a disruptor to them. We appreciate that we have a great deal to offer one another - banks have the large customer base and loyalty (even if it stems from inertia), stable infrastructure, and the finances to fund new projects. We offer the innovative thinking, technical expertise, and agility to adapt quickly to change. Together, we can be far more effective in improving outcomes for our customers, and indeed ourselves, than if we compete against one another. And this is where we see the industry going in the future - more cooperation and collaboration and less criticism.