Natalie Ceeney: The impact of digital disruption on Financial Services

OPINION / 7th June 2017

Ahead of our event today, our keynote speaker Natalie Ceeney CBE, Chair of Innovate Finance and former Head of Customer Standards at HSBC UK and CEO of Financial Ombudsman Service, shared her thoughts on the impact of digital disruption. Here she talks to us about why now is the right time for FS businesses to rethink their business models, and why FS brands should compare themselves with Amazon, not just their peers.

ORM: Why do you think it has taken so long for the Financial Services sector, especially B2B industry, to undergo a digital revolution?

Natalie Ceeney: The Financial Services sector has been very active in digitising our services for some time – just consider how easy it is to pay for goods and services just about anywhere, check our bank balance remotely, or secure credit in seconds on a mobile. However, a lot of what we’ve seen over the last few decades has been about making the current model work better, faster and in a mobile way. The Fintech revolution is forcing a rethink of the underlying models, putting customer centricity at the heart of financial services products.

There have always been high barriers to entry into Financial Services in terms of both capital requirements and regulation – understandably given the need to protect customers’ money. But the barriers to entry are reducing, meaning that it’s easier now than ever before for new players and start-ups to challenge incumbents.  

ORM: What’s sparked this change now?

NC: We’ve seen a disaggregation of supply chains across most industries over the last decade, and financial services isn’t immune. For example, a decade ago, most customers relied on their bank for most of their ancillary services, whether FX, loans or mortgages. That’s now changed. We shop around for ancillary services, aided by digital tools which allow us to compare products across a range of suppliers. This disaggregation means that smaller players can take pieces of the value chain without needing to become banks or asset managers, allowing innovative models and very different customer propositions.

Some of the biggest enablers of this change are:

  1. The power of technology. No-one thought that Moores Law would be true for over 60 years, but so far it’s held firm, with computing power still approximately doubling every 18 months. That means that the power we now have on a smartphone dwarfs that of a 1980s supercomputer. Technology is already running huge parts of the back office infrastructure of financial services, from assessing risk through to automating trading. Looking forward, the development of Artificial Intelligence and Machine Learning promises to take automation a leap further, and Distributed Ledger Technology (and blockchain) could potentially be as transformative to FS infrastructure as e-commerce was to retail.
  2. The cost of technology: At the same time that tech has become more powerful, it’s become dramatically cheaper. Establishing a FS business ten years ago would have required huge IT investment. But with cloud computing and modern technology, it can cost thousands rather than millions to develop a prototype new service.
  3. The regulatory environment is changing. For many years, and for very good reason, regulators have made it hard to introduce new products and services, with a fear that change will expose customers and the economy to risk. But UK regulators are leading the way in recognising that innovation may create a better, safer and more customer focused FS sector. We’ve got PSD2 and Open Banking just over the horizon, which will require the sharing of customer data through APIs, encouraging the development of new customer focused services. The FCA is openly championing Fintech, actively encouraging new players and incumbents to experiment with Project Innovate and its regulatory Sandbox.  

Positively, change isn’t just coming from new start ups. The smartest incumbents are seeing this as an opportunity not a threat, realising that the development of differentiated and customer focused services is an opportunity to create most value, offer new services as well as to grow share.

ORM: Fintechs have created customer-focused businesses – how is this challenging traditional banking practices?

NC: One of the things we’ve got wrong in FS for many years is assuming that the FS “product” addresses the customer need, rather than understanding what the customer really wants to do.  Many of us have gone through a three-hour mortgage interview process, carefully designed by a bank to be a good customer experience. But when you step back, customers do not want a three-hour mortgage interview, they just want to be approved for a mortgage so they can go and buy a home. Similarly, the customer need is not for a loan – it’s to buy a car, or to go on a holiday. And few customers are really shopping for a pension – what we want is to fund our retirement.

What a lot of Fintechs are doing is redefining the customer need, enabling the creation of a very different customer experience. So, we’re seeing the development of money management products for millennials which help predict their spending and give them savings advice, using APIs linked to their bank accounts. We’ve seen the development of savings services which start by asking customers about their life goals. The integration of payments into chat services, so that we can pay friends that £20 we owe them when we’re chatting online, just as easily as if we were face to face. And there is increasing thinking within some of the larger players about enabling the whole customer journey of (say) buying a car or a house which thinks about all of the interactions that the customer has, not just the mortgage and life insurance.

ORM: What role does trust play in empowering machine led services?

NC: In any industry, we hear major players say of their customers ‘they trust us’ or, ‘they trust our brand’. That’s as true of Financial Services as anywhere. But it’s a mistake to assume that customers are loyal and become complacent – it might actually be inertia; it might be that consumers haven’t been offered anything better. The high levels of consumer trust in HMV didn’t stop it being wiped out by music streaming, nor Kodak and Jessops by the digital camera.

There is also a lot of evidence to suggest that millennial attitudes are significantly different from the over ‘40s.  We’ve all seen surveys which suggest that millennials would trust Amazon or Google to be their bank of choice. And a recent Legg Mason report suggested that 85% of UK millennials are comfortable with robo-advice for their wealth management, vs. just 37% of over 40s. If we focus on the needs of today’s customers, and reassure ourselves that they are happy with what we’re providing, we may miss the needs of tomorrow’s customers.

ORM: Consumers are being given highly personalised experiences from some of the top global brands – is this forcing FS businesses to follow suit?

NC: Inevitably in any sector, institutions tend to compare themselves with other institutions offering similar services.  But that’s the wrong way of looking at it, and doesn’t reflect how customers actually think. I know that I compare my customer experience with all the brands I touch, in whatever sector they are in, such as with Amazon - who knows who I am, has excellent customer service and is incredibly easy to use. There is a big prize for FS brands who can catch up with what the best retail customer experience, because that is what the customer expects. And there’s a risk for those who don’t, as many Fintech players are certainly starting with an excellent customer experience as their starting point.