UK Fintech & Where is the consumer Open Banking opportunity?

1 Introduction

In this report, we reveal crucial insight on the critical areas driving current and future consumer reactions to ‘Fintech’ innovation: Which services are they aware of, and which would they consider using? Which potential providers have they heard of, which would they consider, and which would they prefer to access services through? How ‘digital’ are existing banks? What would drive faster adoption? What are the key barriers to adoption? This insight is based on an online survey Gusto “We estimate the conducted in February 2017, with a nationally representative sample of 1,000 UK adults with Fintech market… to active bank accounts. be worth c. £20bn in annual revenue and growing…” By Mark Gentry Ernst & Young, “Landscaping UK Fintech”, Associate Director Commissioned by UK Trade & Investment, 2014

2 The emergence of a thriving ‘Fintech’ Overall, our research findings align “The question is no longer sector is a success story for the with the emerging supply-side view UK economy, estimated by the UK that consumers are not looking for the “bank or Fintech?” but government in 2014 to generate full-scale disruption of financial service programming interfaces substantial annual revenues. relationships that many commentators foresee being driven by the emergence and calculating costs… Fintech is seen by many as having of the ‘Fintech’ sector. the potential to unlock tremendous While Fintechs started off being quite feisty economic benefits. Nonetheless, this technology has towards the established institutions, we are tremendous potential to drive the The UK Government is actively now seeing a diverse coexistence based on adoption of beneficial new services, pushing ‘open banking’ as the key to competition, cooperation and expanding address unmet consumer needs, generating the innovation, competition the service offering.” and accelerate the evolution in how and investment they see as necessary consumers use their money. to revive the financial services sector. Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank. Introductory address delivered at As with any new technology, the the Baden-Baden Entrepreneur Talks, 22.03.2017 acid test for success is consumer response.

3 The insight in this report focuses on the following key conclusions:

Sentiment is Payment services Banks are the positive overall, drive adoption, but preferred channel… and stronger among aggregation and but online payment younger consumers digital banks are on and card providers consumers’ radar would be considered

New ‘Digital Banks’ Several major banks Concern for security are emerging, but are successfully of money is the most specialist providers positioning themselves important factor are better-known as ‘digital’ banks influencing adoption

Cost savings are likely to drive short-term adoption, but personal support will be needed

4 Sentiment is positive overall, and stronger among younger consumers 60% feel positive Digital technology opens up new Our research confirms that about using new opportunities for consumers to benefit most consumers welcome from closer control over their day-to-day the emergence of new online online financial finances. financial services. services Products promise better value and a better 14% feel user experience, tailoring and responding 14% to changes in individual circumstances. very positive As well as improving the efficiency of ‘back-office’ systems, innovative and disruptive digital services for the consumer Sentiment towards using have also been touted as proffering nothing new digital financial services short of a revolution for how we spend, is broadly positive, particularly save and interact with our money. among those aged 25-34, where VS openness to technology and 81% 28% financial need combine most strongly. of those of those At retirement age, aged 25-34 aged 65+ however, sentiment is far feel positive feel positive less positive, limiting the opportunity for pension decumulation and other services focused on the ‘grey market’.

5 Used/ Payment services drive Consider adoption, but aggregation and using in digital banks are on the radar Aware next 12m

Mobile payment Out of all the new services available, 61% 36% mobile and online payments appear to (e.g. ApplePay) be acting as the gateway to the world of ‘Fintech’ for consumers. We found that around three in five people are aware of these services and more Online money than one in three have either used them, 59% 40% or would consider using them in the next transfer 12 months. Over one in four have already made online money transfers. already used 26% Account aggregation and ‘digital banks’ Account aggregation are on consumers’ radar but are not % % well-established as yet. Over one in three apps/services 39 22 are aware of these services, and around one in five have used/would consider using them in the next 12 months. Over one in three are aware of ‘Peer-to-peer’ lending, however, only one in ten have ‘Digital Banks’ 36% 18% used/would consider using this in the next 12 months. This looks set to remain a niche interest in the short-term. ‘Peer-to-peer’ lending 35% 10%

6 Banks are the preferred channel… but online payment and card providers would be considered

The potential for emerging Fintech to cause Our research clearly shows that consumers and ‘digital banks’ are currently low on the significant consumer disruption has been currently prefer to use established banking list of potential providers, with Social Media the subject of much speculation. institutions to access new digital services. platforms hardly considered at all. Technology providers who keep control Established online payment and card There seems little appetite for a ‘revolution’ of the end-user interface, could potentially providers, such as PayPal and Visa are seen from consumers at present. control the consumer relationship, and as the most likely alternatives. Despite their push traditional banks into the background high profile, mobile technology providers (as infrastructure providers) or replace them altogether.

Who would you consider using to access new types of digital financial services?

66% 59% 57% 23% 23% 7%

Established Online payment Payment A new Mobile Social Media bank or building provider card provider ‘digital bank’ tech provider provider society (e.g. PayPal) (e.g. Visa) (e.g. Google) 45% say they are 14% say they are 13% say they are their preferred their preferred their preferred providers providers providers 7 New ‘Digital Banks’ are New specialist service providers look emerging, but specialist strongly positioned in niche areas. Nutmeg Wealth Management has providers are better-known established a particularly strong level of brand awareness among consumers. Awareness of the Zopa peer-to-peer Atom Bank is most well-known new lending platform and Avant Credit ‘Digital Bank’ at the moment. personal loans is also relatively strong. Established ‘challenger’ banks with strong digital offers (such as ), also Awareness (with prompting) currently have slightly stronger levels of awareness than new market entrants. Nutmeg 29% Zopa 19% Awareness (with prompting) Avant Credit 12% Atom Bank 11% RateSetter 6% Aldermore Bank 9% WeSavvy 6% Charter Savings Bank 7% Orchard Lending Club 6% Paragon Bank 5% Moneyfarm 5% 5% Habito 4% 4% Ontrees 4% Axis Bank 4% Bud 3% Fidor Bank 4% Wealthify 3% 3% Cuvva 3% Tandem 2% Teambrella 3% Ffrees (U account) 2% Bought by many 2% Monese 1% Neos 2% Hampden & Co 1% Scalable Capital 2% Any others? 1% Any others? 1% Not heard of any 76% Not heard of any 53% 8 Several major banks are successfully positioning Do you consider the following banks themselves as ‘digital’ banks to be ‘digital’? *

Major banks are also looking to establish 53% themselves as ‘digital’ providers, to compete with emerging competitors. Santander 49% We found that Barclays is the mainstream HSBC 47% banking institution most likely to be regarded as ‘digital’. 46% Barclays’ recent above-the-line advertising campaign emphasises their online focus 46% very strongly, and may well be helping Virgin Money 46% to establish them at the forefront of the traditional providers. 45% Santander, HSBC, First Direct and Lloyds NatWest 44% have also achieved relatively high levels of ‘digital’ association. Nationwide 40% TSB 36% RBS 33% 30% Co-operative Bank 23% CYB 17%

*Banks that allow you to fully manage your money online using on-line banking portals or apps 9 Concern for security of money is the most important say that improved factor influencing adoption security of their money 90% would encourage them to use services The extensive growth of mobile payments over the last 12-18 months has raised expectations for rapid adoption of new consumer ‘Fintech’ applications. say that concerns that However, these services have to contend their money might with ongoing concerns about security, not be secure would whilst aligning with unmet (and therefore 91% unpredictable) consumer needs. discourage them from We asked people to tell us what was likely using services to encourage or discourage them from using new digital financial services. We analysed both what they said, and how fast they responded, in order to identify the factors that Security of money is the key area had the greatest explicit/ where providers need to reassure rational (strong) and consumers. Strong security is implicit/irrational (fast) seen as a key potential driver of Convincing consumers impact. These are the adoption as well as a barrier. that these services have areas on which providers In both cases, we found strong security levels that match, need to focus in order to explicit and implicit responses, and potentially exceed drive take-up of services. highlighting the enormous influence of security perceptions online banking, is key to on adoption decisions. widespread take-up.

10 Cost savings are likely to drive short-term adoption, but personal support will be needed

Consumers are also implicitly motivated to use services when there are straightforward benefits and limited perceived risks. 84% 83% 90% Saving money on insurance premiums is a key area of potential short-term usage, along with better money management. say saving money on say being able to say not getting the By the same token, fear of not getting the best insurance premiums manage money more best deals would deal can be a strong barrier. would encourage them efficiently in general discourage them Providers will need to reassure customers to use services would encourage them that the cost savings arising from the use new technology are being passed on to them through cheaper prices and better value.

Finally, lack of personal service would be a major implicit To maximise their potential, barrier to service usage. Consumers clearly still need service providers will need to reassurance that they can talk to someone if they need to. develop business models that can say not being able to talk to accommodate the cost of offering someone if they needed help appropriate levels of personal %  would discourage them from support, integrated with service 88 using digital financial services delivery that is largely automated.

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