The UK’s sharing economy, or ‘gig economy’ has exploded in recent years becoming the fastest growing in Europe, increasing by 92% between 2014 and 2015 and transactions almost doubling to £7.4bn in 2015. It is set to expand at 30% per year over the next decade, generating £18bn of revenues for platforms and facilitating roughly £140bn worth of transactions per year by 2025.
The banking industry is one such industry that is being impacted by the sharing economy. Disenchanted with high street banks who can often take up to 2 weeks or longer to approve a business account, many of the freelancers, start-ups and SMEs operating in this space are looking for more convenient, speedier and, frankly, cheaper banking alternatives.
With this in mind, I have made my predictions on what this year will hold:
Financial uncertainty in the wake of Brexit will open more doors to challenger banking models.
Early reports suggest that Britain’s banking giants are being threatened by challengers that have weathered the referendum storm and are investing heavily in new technology. Following our decision to leave the EU, many challengers to banks, not just banks, are capitalising on the pressures faced by the big banking names who will be forced to cut back on innovation. This will allow new, nimbler challengers to make their mark on the industry and break up the oligopoly that banks have had on the network and markets for decades. 2017 will bring a real opportunity to combat lethargy caused by traditional banks, by delivering strong customer engagement and building trust. If you ever needed a proof point, the Bank of England’s landmark announcement in June this year to allow non-banks the ability to access the UK national settlement scheme will provide a foundation in the future to make banking and the payment landscape far more competitive and beneficial to both consumers and SMEs.
But some of these new entrants will fail to deliver…
Innovation is key in this business, but established performers with great ideas, years of experience and rich knowledge of how the payment ecosystem works, will also be the ones that survive. Key players will need to deliver on collateral in order to compete in the market.
New regulation, especially the introduction of PSD2 will have a profound impact on the payments landscape.
Everyone is talking about Open Banking via APIs. Ironically, APIs are an old established concept in the technology world, but Payment Services Directive 2 (PSD2) will bring APIs into the mainstream by giving bank data access to a host of third party payment service providers (TPPs) to enhance the banking experience for customers. Those that will lead will leverage and enhance the financial data that is typically part of a transaction to provide a richer and frictionless payment experience.
Niche banking for millennials and beyond. Customers will no longer have one bank account.
The customer will have bank and payments accounts and will choose the provider that does a particular payment activity the best. Key niche solutions will emerge in bill payment, online purchase (beyond PayPal), travel, and even a niche solution for currency exchange (like Transferwise).
Collaboration will be king.
At APS, we’ve been collaborating with established players like the Post Office since 2015, allowing customers access to banking services at over 11,500 Post Office branches across the UK. Looking forward into 2017, these kinds of partnerships will be crucial when it comes to levelling the playing field between the banks and challengers and truly putting customers’ needs first.
Rise of the entrepreneur.
With UK entrepreneurial performance at an all-time high, it is more important than ever to provide financial support to these great ideas. There is an opportunity for banking challengers to target this area of the market with services tailored towards the startup, easy, fast and simple banking. Successful challengers will not be measured by how much free banking they give away, but instead by creating an enhanced customer experience that has transparent fee structures that are great value.
The 2016 Autumn Statement showed us the real value of the ‘sharing economy’ this year, which increased by 92% in just one year. The industry has been fueled by technological progress allowing companies in this space to provide flexible and convenient solutions to the way people live and work. Set to expand at least 30% per year over the next decade, there is a real opportunity for banking challengers to take advantage of this new rapidly expanding industry and help start-ups to grow, and ultimately deliver strong returns to investors.
Convenience is essential for the on the go entrepreneur.
Being able to manage payments and transfers, get instant access to money or simply arrange overdrafts using the laptop, tablet, mobile browser or by going directly to the mobile app is essential for the busy entrepreneur. In light of this, we have expanded our mobile app functionality to provide a comprehensive suite of banking services available on our recently upgraded online site, including the ability to set up a new account via the Cashplus app.
This year is certain to be a volatile one for the financial markets following the uncertainty of Brexit, however there is plenty of opportunity ahead, from collaboration to further emphasis on peer-to-peer lending, 2017 is set to be a game-changing year for the world of finance.
With more and more start-ups entering the UK sharing economy, such as JustPark, an app which allows people to find, book and pay for parking online, there is a real opportunity for companies and investors to target these start-ups to help them grow and deliver strong returns to investors. As members of Sharing Economy UK, we are able to support workers who often have a need for a low cost, easy-to-open, business current account. We are also able to support platform providers in the sector with an integrated solution which provides new workers with a solution and potentially enables them to make more frequent payments.
So from an influx of entrepreneurship to a shift in the banking market leaders, 2017 is set to be a year of collaboration, new peer to peer lending models and niche, nimble banking.
Rich Wagner, CEO, APS financial
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