10. The Evolving Banking Landscape

Question 1

What type of fintech is the most disruptive to traditional banks?

Answer 1

Digital Challenger Banks

Question 2

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?

Answer 2

1. Entrepreneurs
2. Venture Capitalists
3. Focus on doing one thing really well (e.g. current accounts)
4. Lean infrastructure
5. Accessible by smartphone

Question 3

Which country led the way with challenger banking? Name three examples of early challenger banks in this country.

Answer 3

UK

Metro, Starling & Monzo

Question 4

Are challenger banks currently threatening the existence of traditional banks? Why or why not?

Answer 4

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

Question 5

Do most people prefer to use one bank or more than one bank?

Answer 5

Most prefer to be multi-banked

Question 6

What are the main things that people use challenger banks for? (3)

Answer 6

1. Daily spending
2. Monitoring
3. Accessing deals via marketplaces (e.g. foreign exchange)

Question 7

What are challenger banks. What are their main features (4)?

Answer 7

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

Question 8

In 2010, which bank became the first new UK bank to get a licence in 150 years?

Answer 8

Metro

Question 9

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)

Answer 9

1. Metro
2. Monzo, Starling, First Direct
3. Shawbrook - bespoke lending products

Question 10

What is Disruptive Innovation?

How does this affect consumers? (1) How does this affect businesses? (2)

Answer 10

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).

Question 11

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?

Answer 11

Amazon, Google, Facebook, Alibaba

More threatening.

Question 12

What are the advantages held by Tech Giants over other banks? (3)

Answer 12

1. They have a BIRDSEYE VIEW OF PEOPLE’S SPENDING HABITS
   - what people search for/deem important
2. Use AI/TOOLS to OBSERVE SPENDING BEHAVIOUR
   - & RESPOND IN REAL TIME with appropriate financial solutions
3. CUSTOMERS TRUST THEM
   - happy to share their data with these companies
   - MILLENIAL DISRUPTION INDEX - millennials prefer to trust tech

Question 13

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?

Answer 13

Millennials

78% - tech having major impact on finances

50% - openly discussing finances is important

Question 14

What is meant by the ‘customer journey’?

Answer 14

The path of SEQUENTIAL STEPS & INTERACTIONS that a customer goes through with either the company or a particular product or service.

Question 15

What is meant by ‘customer experience’?

Answer 15

The SUM-TOTALITY of HOW CUSTOMERS ENGAGE with the company/brand (not just a snapshot of time).

Question 16

What is Amazon Go? What significance does its emergence have for banks?

Answer 16

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.

Question 17

What is the Payment Services Directive (PSD) & when was it put in place?

Answer 17

EU directive, 2009

Question 18

What are the Payment Services Regulations (PSRs)? What aspect of banking services do they cover & which parts of the relevant processes are covered?

Answer 18

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

Question 19

What are payment accounts? (2)

Answer 19

Accounts where :
1. payment TRANSACTIONS may be made
2. ACCESS TO FUNDS IS NOT RESTRICTED

Question 20

True or False - fixed-term deposit accounts are usually classed as payment accounts?

Answer 20

False, these accounts usually have restricted access to funds

Question 21

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

Answer 21

1. Banks
2. Building Societies
3. E-money issuers
4. Money Remitters
5. Non-bank payment card issuers
6. Non-bank merchant acquirers
7. Payment Institutions (PIs)

Question 22

Who is the UK’s ‘competent authority’? What does this mean?

Answer 22

The FCA - responsible for banking regulations in the UK

Question 23

Who is responsible for regulating Payment Institutions (PIs)?

Answer 23

The FCA but they are also subject to prudential requirements

Question 24

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

Answer 24

1. Financial Ombudsman Service (FOS)
2. HMRC

Question 25

What is PSD2? When did it come into effect? Generally,what were its main features? (2)

Answer 25

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

Question 26

When did Open Banking come into force within the UK? Which body was responsible for implementing this?

Answer 26

January 2018, The Competition & Markets Authority (CMA)

Question 27

What were the main reasons behind Open Banking being introduced? (2)

Answer 27

1. 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
2. PSD2 came into effect and was designed to BOOST COMPETITION and PROMOTE INNOVATION

Question 28

What is a Big Data Bank?

Answer 28

Banks who hold huge amounts of data

Question 29

What effect did Open Banking regulations have on Big Data Banks?

Answer 29

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

Question 30

What types of data is shared within Open Banking? (2) Who has control over the information being shared?

Answer 30

1. Product data
2. Transaction data

Customer is in control of how much of their data can be shared and can stop access at any time

Question 31

What effect did Open Banking have on Challenger Banks and Fintechs? (2)

Answer 31

1. They can benefit from having access to Big Banks’ customer data
2. Can use their own technology to develop/provide a number of services that meet current customer demands

Question 32

What effect did Open Banking have on Non-bank companies such as Amazon and Whatsapp?

Answer 32

Enabled them to offer financial services directly through their platforms, e.g. what is happening in China with WeChat

Question 33

True or False - Open Banking is safe and secure? Why/Why not?

Answer 33

True - All data is encrypted and all Third Party Providers are regulated by the FCA

Question 34

What is Snoop?

Answer 34

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

Question 35

How was Open Banking used to help individuals and SMEs during Covid?

Answer 35

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.

Question 36

What is Human-Centred Design? What is another name it is known by?

Answer 36

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

Question 37

What is the Human-Centred Design Framework? What does it contain information on? (5)

Answer 37

A set of practices which are used to understand users:

1. Needs
2. Wants
3. Constraints
4. Contexts
5. Behaviours