UK Financial Services: Digital Trends Report 2020
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The 2020 UK Financial Services Digital Trends Report highlights the transformative impact of emerging technologies like AI, blockchain, and fintech on the financial sector, emphasizing the need for firms to adapt strategically. It discusses the increasing importance of data privacy and responsible AI usage, while also noting the challenges posed by cybersecurity threats and the necessity for improved retirement savings plans due to changing demographics. The report predicts continued innovation in digital payments, cloud technologies, and the adoption of robotic process automation, alongside the need for regulatory frameworks to keep pace with these advancements.
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UK Financial Services: Digital Trends Report 2020
- 1. UK FINANCIAL SERVICES DIGITAL TRENDS REPORT- 2020 David Reilly, Let’s Learn Digital
- 2. ABOUT DAVID REILLY 20 years experience in digital marketing, emerging technology and digital transformation Founder of Let’s Learn Digital, delivering quality training and in digital transformation, business strategy and emerging technologies Sector experience includes Financial Services, Insurance, Payments, Utilities, Retail and Automotive 2
- 3. OUR VISION Provide training that inspires knowledge, understanding and new thinking about how technology might shape business in the future
- 4. PURPOSE OF THIS REPORT This 2020 Digital Trends in Financial Services report examines the leading technologies and drivers which are reshaping this sector by bringing clarity to help readers determine which technologies will drive the most value in the future and provides guidance around those worth. We examine the underlying forces which are disrupting the future role, structure and competitive environment, new technologies, new challenger banks, Brexit, the emergence of FinTech and the regulatory framework. The Financial Sector is hugely important to the Uk economy representing 11% of tax revenues and over one million financial services jobs, two thirds of which are outside Greater London. FS companies will need to decide how to respond whether to reshape the future, be a fast follower or manage a strategic defence. Staying the same is not an option.
- 5. ARTIFICIA L INTELLIGE NCE (AI) Interest in AI and Machine Learning will continue to grow in 2020. How customers’ data is used and protected will take on ever greater prominence. While financial services are arguably already one of the most heavily regulated sectors for the use of data, rules must be revised to keep pace with the emergence of new data sets such social media, developments in data science and new analytical techniques. Data privacy and the responsible and legal use of algorithms is going to be a huge topic in finance and the UK will wish to be at the leading edge of its development in finance A key ethical issue of AI is how do we ensure the right parameters are set and data is used so that the machine behaves in the way humans would agree is ethically ‘right’. This has significant implication for financial inclusion, where we need to demonstrate why people get turned down for applications such as personal loans, mortgages or insurance. An issue being discovered in testing is biases contained in the data so that machines in some cases are essentially trained to be racist, sexist or otherwise discriminatory in this decision making. Responsible AI principles, such as fairness, accountability, transparency, security and responsible usage will need to be agreed among the leading authorities including the FCA, Bank of England and UK govt.
- 6. DATA UTILISATION With enhanced sources of data and technology to process insights, there is an unparalleled opportunity to proactively identify consumer needs to match the appropriate products or service. Beyond using a simple demographic, product ownership and risk-based profile, banks and credit organisations can deliver greatly improved results by combining both traditional and non-traditional data Today, financial marketers and product managers have access to incredible rich lifestyle and psychographic data, purchase data, channel preference insights, brand loyalties, geo- location data and even insights from social media use. These enhanced insights, when combined with advanced analytics provide an incredible rich seem of data The result is highly personalized communication delivered to the device or platform the consumer prefers. Executed well, this also can increase the prospect market beyond what was possible before, reaching previously underserved consumers like the unbanked who may only have a “thin file” with less data available.
- 7. BLOCKCH AIN AND DISTRIBUT ED LEDGER Blockchain had a mixed year across industry in 2019 but much of the validated quality user cases are coming from The Financial Services Sector. Blockchain allows the transfer of digital ownership through a constantly growing chain of time-stamped records called blocks, and the proclaimed impacts of this technology seem endless, being touted as disrupting existing banks in areas such as payments, loans and trading Consensus has been gradually emerging that blockchain is an interesting technology that opens up new possibilities for Financial Services. However, it is neither the solution to every challenge nor a replacement to every existing utility, there are hurdles to implementation, including technical, scalability and regulatory barriers In 2020 we expect to see more sophisticated conversations about Blockchain’s limitations. We’ll see fewer experimental proofs of concept (some of which could never become reality at scale and are little more than vanity projects, and more solid examples of how it can really benefit the industry
- 8. OPEN BANKING Open banking launched just over a year ago, a government-backed initiative which means banks must share customers’ information with other authorised providers on request. Banks will only share this data if given explicit permission, and it’s up to customers if they wish to do so, to gain new insights into their finances or to get a better deal on financial products. The objective is to make banking fairer and more transparent and encourage new product development, but it’s taking longer than expected to take off. Although awareness is considered low, and people are rightly cautious about sharing their financial data, the number of people taking advantage of it is increasing. This year we should see banks and fintech's start-ups collaborate better, and communicate the benefits more effectively, hopefully resulting in more people buying into how open banking can help them.
- 9. THE RISE OF FINTECH London’s Fintech or ‘Financial Technology’ has become a formidable disruptive force across the world, challenging the status quo of the fresh approach to on problems faced by customers. An added positive is the regulatory thrust to the adoption of technology in solving long-standing issues of financial inclusion and transparency in financial dealings. As an example the need for widespread fintech adoption in payments is a result of limitations in the current ecosystem to address the need for seamless customer experience. Not only is Fintech facilitating huge innovation it is also creating avenues for digital transformation and by default new sources of revenue for banks. Banks are now being forced to reinvent age old business practices to offer a wider spectrum of services which will allow them to compete effectively with the lean, agile and innovative fintech start ups. Fintech’s influence in FS will only increase over 2020 and beyond
- 10. ROBOADVISERS Roboadvisers in one form or another, like Nutmeg, WealthFront and Acorns, have been around for a while now and have opened up the route to simple investing for many people through technology. This intelligent automation gives processes the power to learn from prior decisions and data patterns to make decisions by themselves reducing the cost of administrative and regulatory processes by at least 50% while improving quality and speed. Robotic process automation in banking also improves compliance processing by keeping detailed logs of automated processes, automatically generating the reports an auditor needs to see, and eliminating human error. Since it’s intuitive and easy to re-configure software robots at any time, tweaking processes to fit new or updated regulations is never difficult. Recent data shows 37 per cent of UK financial services firms have implemented robotic processing automation (RPA) but only 28 per cent of global firms have adopted the technology, (Source PwC Data Oct 2019) We expect in 2020 robotic processing automation (RPA) will become ever more sophisticated and increasingly give people access investment options based on their choices and values.
- 11. SIZE AND SCOPE OF DATA BREACHES CONTINUES The financial system is a constant target for cyber criminals and regulators need to maximise their efforts to keep up with this dynamic threat. This ever increasing problem is destroying trust. , the size and scope of attacks continues to grow based on data breach statistics. According to Experian, there have now been 10,800 data breaches reported over the past 9 years. 2018 was a record-breaking year, but 2019 is now shaping up to be an even worse year for data breaches. It is now more important than ever for organizations to keep up with data breach trends and upgrade their defensive cyber capabilities in response The key part missing in the UK cyber defences today is an industry wide response template to for institutions. Building a strong model for data recovery should be a priority for industry. The financial sector can help small to medium sized businesses manages cyber risks, build resilience and recover from incidents through wider access to cyber insurance products. Safe guarding the financial industry from evolving risks will continue as a serious challenge
- 12. ADAPTING TO CHANGING DEMOGRAPHICS People are living longer in the UK. By 2030 its is predicted more than a fifth of the population may be above 65 and this could rise to over a quarter in 2050. Coupled with this is the rising cost of long term care the burden of which will fall to families. People have to save more to reflect longer retirement periods and will need access to savings products to accumulate wealth and products to help ensure a steady income in retirement This is a serious challenge for the Financial Services sector because quite simply many are not saving enough for their retirement. More than seven in 10 adults have no investments and of those that do, only 35% have in excess of £10,000 and only a third of UK adults make no private pension provision. There is also the growing shift towards the “gig” economy where 3 million work. While flexible/gig economy employment offers a number of benefits to the individual, it does not include employer pension contributions. We expect to see more debate and discussion around retirement security is one of the most important financial priorities
- 13. RISE OF BIOMETRICS Biometrics is taking centre stage as a means to strengthen security without simply adding more forgettable PINs and passwords. Its application in mobile devices is increasingly extending beyond simply opening the device to guarding the applications within them. From open banking apps and digital wallets, to m-commerce and in-app purchases, consumers are rapidly realising the benefits biometrics bring to managing and protecting their financial lives. Banks in particular are increasingly using voice and imaging technology to verify their customers’ identities, for example KFC in China and the retail giant Alibaba have both tested letting people pay by smiling Introducing biometrics can also enable stakeholders to foster greater consumer trust and safeguard privacy concerns. There is potential for this technology to provide an extra layer of security and combat fraud and it’s an area that we believe in 2020 will continue to rapidly develop
- 14. CHATBOTS AND CONVERSATIONAL INTERFACES More banks in the industry are deploying AI-driven bots to drive customer service, but success so far is mixed. Chatbots are not yet capable of fully comprehending a user’s request. Slangs, abbreviations, and grammatical errors stand in the way of complete understanding between a client and a digital assistant. Within financial services, start-ups are shaking up the industry by integrating chatbots to deliver immediate and insightful information to consumers. However, next to these start-ups, the use of chatbots in the financial services remains in an early stage. For many companies, it is not easy to create an intuitive chatbot experience that both brings value to wide array of digital savvy consumers. We believe there will be more investment in conversational interfaces but chatbots should only be used as a complementary to the customer experience
- 15. SHIFT IN PAYMENT HABITS Payment habits are changing fast. The proportion of transactions using cash has fallen from six in 10 payments a decade ago to just under three in 10 in 2018 according to UK Finance. Put simply, we are using less cash and the cost of other alternatives like crypto-currencies are looking more and more attractive Payments are the number one area of innovation for big tech platforms and new entrants and UK Fintech is already one of the most vibrant ecosystems for new players in the world. The Uk financial services sector will want to keep pace with customer demands for payments that are seamless, reliable, cheap, and above all secure. In light of the potential for continued innovation, London Fin Tech eco system alongside the FSA Bank will need to keep on top of digital payment developments and make sure the regulatory, legal and infrastructure implications are understood, and financial stability safeguarded.
- 16. THE CLOUD BECOMES THE NORM Cloud technologies have now matured to the point they can meet the high expectations of regulators and financial institutions. Shifting from in-house data storage and processing to cloud environments can also accelerate innovation, enable use of the best analytical tools, increase competition and build much needed resilience. This is important for mid-sized firms upgrading to the cloud which provides the material improvements of cyber-security. The cloud is important for UK financial firms to innovate and compete not just at home but also internationally In 2020 we foresee the scope of the public cloud growing further, incorporating convenient payments enablement, billings, and loan management. Fintech companies will opt for available-everywhere- anytime cloud service instead of using inflexible hardware. The international teams will be the first ones to adopt such systems as this is a comfortable solution for cross- border management.
- 17. AND COMING SOON
- 18. FACEBOOK PORTAL? Facebook’s Portal device is a smart screen/camera that can either integrate with your TV or enable video calling via a screen that is larger than your phone. The smart camera moves and pans to track your movements meaning that users can move around while speaking to the person on the other end, and the camera also automatically widens if there are more people in the shot, making family calls easier to manage. The potential for Financial Services is Video communications can be made via Messenger or WhatsApp, and the hardware has Alexa built in meaning that it can also be controlled by voice. One to watch
- 19. BRAIN-COMPUTER INTERFACES A brain–machine interface (BMI) is a device that translates neuronal information into commands capable of controlling external software or hardware such as a computer or robotic arm. In September 2019, Facebook bought a ‘brain-machine-interface’ startup called CTRL-labs that is working on ways for people to control devices simply using brainpower. Currently, the technology is designed to tap signals that the brain is sending to the hand via a wristband worn by the user, but Facebook believes that this kind of technology could revolutionise how we interface with hardware. One to watch for the future
- 20. QUANTUM COMPUTING The financial sector has many transactions run by algorithms. Using quantum computing would exponentially increase the speed of these transactions, allowing institutions to scale their processing with lower costs as opposed to employing more human or IT resources. Thus, quantum computing is increasingly attracting the interest of financial services firms that are seeking to boost their trade, transactions, and data speed. The future promise of Quantum is faster processing power made possible because, in quantum computing, data is represented using qubits as opposed to traditional binary units (0 and 1). Quantum systems are still in the early stages of their development with its adoption within the financial industry expecting to take at least ten years. One to watch
- 21. SUMMARY FOR 2020 The UK Financial Services sector is transforming more and more into a digital first sector. A digital economy means the use of cash in the UK is declining rapidly. Investments into alternatives like Crypto currency and Blockchain enabled services will continue The use of data is increasing rapidly. Taking a strategic view on data is a fundamental starting point for a digital transformation and this means understanding the role and purpose of data in the organisation, its value and how the organisation wants to use it Continual investment in technologies like AI, Machine learning and conversational interfaces can boost productivity and innovation and meet the ever changing needs in the population The Fintech Eco-system in London will continue to thrive and provide a great link between larger established brands and new start-ups
- 22. Thank you Our digital innovation training courses: https://www.letslearndigital.com/cours es Our Corporate Innovation training https://www.letslearndigital.com/corporate- innovation Contact David Reilly [email protected] 07989 985922