10. The Evolving Banking Landscape Flashcards
What type of fintech is the most disruptive to traditional banks?
Digital Challenger Banks
What are the main features of Digital Challenger Banks? Consider the following:
1. Who are they established by?
2. How are they funded?
3. What is their focus?
4. What type of infrastructure do they have?
5. How are they accessed?
- Entrepreneurs
- Venture Capitalists
- Focus on doing one thing really well (e.g. current accounts)
- Lean infrastructure
- Accessible by smartphone
Which country led the way with challenger banking? Name three examples of early challenger banks in this country.
UK
Metro, Starling & Monzo
Are challenger banks currently threatening the existence of traditional banks? Why or why not?
Not yet.
Most still don’t use challenger banks as their primary bank account.
Why - usually due to trust issues, resistance to switching & lack of understanding re: what the banks offer
Do most people prefer to use one bank or more than one bank?
Most prefer to be multi-banked
What are the main things that people use challenger banks for? (3)
- Daily spending
- Monitoring
- Accessing deals via marketplaces (e.g. foreign exchange)
What are challenger banks. What are their main features (4)?
A new type of bank set up to compete with large traditional national banks.
Main features:
1. SMALLER THAN TIER 1 BANK
2. Has some DIGITAL ASPECT
3. Uses a PLATFORM or MARKETPLACE as part of the business model
4. Considers BIG DATA BIG BUSINESS
In 2010, which bank became the first new UK bank to get a licence in 150 years?
Metro
Challenger banks come in various forms and sizes. Provide an example of challenger banks which fit the following descriptions:
1. Mid Market Full-Service Challenger Bank (1)
2. Digital Challenger Bank (3)
3. Specialist Challenger Bank (1)
- Metro
- Monzo, Starling, First Direct
- Shawbrook - bespoke lending products
What is Disruptive Innovation?
How does this affect consumers? (1) How does this affect businesses? (2)
When a product/service enters into the bottom of a market offering a more simplified/affordable experience than what is currently on offer. It then relentlessly moves up the market, eventually displacing established competitors.
Consumers - get access to cheaper, simpler products for a larger number of people
Businesses - have to develop a better product to remain competitive. Forced to sell to new markets (outside of usual customer base).
Provide some examples of what is meant by ‘Tech Giants’. Are these perceived to pose more or less of a threat to established banks than that posed to them by challenger banks?
Amazon, Google, Facebook, Alibaba
More threatening.
What are the advantages held by Tech Giants over other banks? (3)
- They have a BIRDSEYE VIEW OF PEOPLE’S SPENDING HABITS
- what people search for/deem important - Use AI/TOOLS to OBSERVE SPENDING BEHAVIOUR
- & RESPOND IN REAL TIME with appropriate financial solutions - CUSTOMERS TRUST THEM
- happy to share their data with these companies
- MILLENIAL DISRUPTION INDEX - millennials prefer to trust tech
Approaches to money change with every generation. Which generation is currently redefining customer tastes in banking?
What percentage of this generation believes that tech has had a major impact on how they manage their finances?
What percentage of this generation believes that openly discussing finances is important?
Millennials
78% - tech having major impact on finances
50% - openly discussing finances is important
What is meant by the ‘customer journey’?
The path of SEQUENTIAL STEPS & INTERACTIONS that a customer goes through with either the company or a particular product or service.
What is meant by ‘customer experience’?
The SUM-TOTALITY of HOW CUSTOMERS ENGAGE with the company/brand (not just a snapshot of time).
What is Amazon Go? What significance does its emergence have for banks?
A retail experience with no human intervention and no debit/credit cards or cash.
Its a wake up call to banks - indicates some of their products/services may not be needed in future.
What is the Payment Services Directive (PSD) & when was it put in place?
EU directive, 2009
What are the Payment Services Regulations (PSRs)? What aspect of banking services do they cover & which parts of the relevant processes are covered?
PSR is the UK legislation which implements the EU’s PSD (Payment Services Directive)
Covers MOST PAYMENT SERVICES, including the operation of payment accounts, when the money is either EURO or STERLING.
The process covered = from the point at where INFORMATION IS PROVIDED BEFORE PAYMENT IS MADE to the REDMEDIAL ACTIONS FIRMS MUST TAKE IF THE PAYMENTS GO WRONG
What are payment accounts? (2)
Accounts where :
1. payment TRANSACTIONS may be made
2. ACCESS TO FUNDS IS NOT RESTRICTED
True or False - fixed-term deposit accounts are usually classed as payment accounts?
False, these accounts usually have restricted access to funds
Which types of firm must comply with Payment Service Regulations (PSR)’s Conduct of Business? (7) Which one of these was only created as a class of firm as a result of PSRs
- Banks
- Building Societies
- E-money issuers
- Money Remitters
- Non-bank payment card issuers
- Non-bank merchant acquirers
- Payment Institutions (PIs)
Who is the UK’s ‘competent authority’? What does this mean?
The FCA - responsible for banking regulations in the UK
Who is responsible for regulating Payment Institutions (PIs)?
The FCA but they are also subject to prudential requirements
Within the Payment Service Regulation’s Conduct of Business, who is responsible for the following:
1. Out-of-Court Redress
2. AML Supervision of Payment Services Businesses
- Financial Ombudsman Service (FOS)
- HMRC
What is PSD2? When did it come into effect? Generally,what were its main features? (2)
Second Payment Services Directive - updated the first PSD
Established in EU 2016, put into UK law in 2018 & needed to be applied by 2019.
New rules surrounding STRONG CUSTOMER AUTHENTICATION &SECURE COMMUNICATION
When did Open Banking come into force within the UK? Which body was responsible for implementing this?
January 2018, The Competition & Markets Authority (CMA)
What were the main reasons behind Open Banking being introduced? (2)
- There was little differentiation between products & services in the UK - CMA wanted to stimulate more HEALTHY COMPETITION with regards to banking products for individuals and SMEs
- PSD2 came into effect and was designed to BOOST COMPETITION and PROMOTE INNOVATION
What is a Big Data Bank?
Banks who hold huge amounts of data
What effect did Open Banking regulations have on Big Data Banks?
They were required to open their data sources to Third Party Providers (TPPs).
This includes other banks but can also be another company such as Amazon
What types of data is shared within Open Banking? (2) Who has control over the information being shared?
- Product data
- Transaction data
Customer is in control of how much of their data can be shared and can stop access at any time
What effect did Open Banking have on Challenger Banks and Fintechs? (2)
- They can benefit from having access to Big Banks’ customer data
- Can use their own technology to develop/provide a number of services that meet current customer demands
What effect did Open Banking have on Non-bank companies such as Amazon and Whatsapp?
Enabled them to offer financial services directly through their platforms, e.g. what is happening in China with WeChat
True or False - Open Banking is safe and secure? Why/Why not?
True - All data is encrypted and all Third Party Providers are regulated by the FCA
What is Snoop?
A fintech money-saving app. Connects your bank accounts and credit cards into one place and creates savings suggestions based on spending habits.
This is all enabled by Open Banking
How was Open Banking used to help individuals and SMEs during Covid?
The Government financial aid packages had a confusing eligibility criteria/application process. Open Banking allowed Fintechs to create solutions such as eligibility apps and interest-free advances via platform banks.
What is Human-Centred Design? What is another name it is known by?
Design which focuses on the human perspective in ALL ASPECTS of the problem solving process. Putting customer needs first, not the bank’s products, profits & targets.
AKA User-centered design
What is the Human-Centred Design Framework? What does it contain information on? (5)
A set of practices which are used to understand users:
- Needs
- Wants
- Constraints
- Contexts
- Behaviours
