Would you trust a robot to give you financial advice? If you’re aged between 18 and 34, and therefore a member of Generation Y, aka Millennials, the answer is most likely ‘yes’. And, it seems, the more money you have, the more likely you are to trust a robot to tell you what to do with it.
At Telstra we’ve been researching the effects of demographic change and digital technology on the financial services industry. This year we researched the disruptive impact of Millennials on the industry. We studied the financial services mobile app behaviour of 30,000 Millennials across eight countries in the Asia-Pacific region, the UK and US.
In a separate survey of 2,817 Millennials we explored in greater detail their attitudes towards disruptive platform based experiences and financial services providers (traditional and non-traditional). We looked at how they save, spend, borrow and invest.
Two thirds (67 per cent) said they preferred to receive advice on financial products and services from a digital platform (i.e. by providing their details online or through an app). For the wealthier Millennials – those with assets exceeding €300k — the figure rose to 70 per cent.
So, if Millennials are prepared to trust what should be their most important and personal interaction with a financial institution to a digital platform, it’s pretty clear that financial institutions wanting their business will need to make sure their digital platform strategy is on the money – the millennials money. We call this ‘platformification’ or ‘finance-as-a-service’: the provision of a full range of financial services via digital technology with minimal human involvement.
Platformication: the future of financial services
To reach Millennials platformification means, to a very large extent, delivering services via a mobile device, a smartphone or tablet. Millennials spend on average 2.9 hours every day on their mobiles — one and a half times more than all the generations combined.
However, delivering a full range of financial services to a mobile device presents multiple challenges. Of course it requires a great mobile app with an easy-to-navigate user interface. Behind the scenes it requires access to a wide range of banking applications. It requires interaction with these applications to be co-ordinated and orchestrated in real time, and delivered through that single ‘window’ reliably and, most importantly, securely.
At present most financial services organisations aren’t getting this ‘platformification’ right. Research firm Forrester compared the mobile banking offerings of 41 major banks on a range of features and rated them on a scale from zero to 100. The average functionality score was 61, but Forrester found a huge range between the best performer (86) and the worst (36). What’s needed is agility and innovation, and that’s to be found in abundance in the emerging fintech sector.
Fintech is the future of financial services
Over the past five years investment in fintech has grown at three and a half times the rate of the overall venture capital market (201 per cent versus 63 per cent), hitting the US$13.8 billion mark across 730 deals. Fintech startups targeting Millennials have caught the attention of investors attracting 16 per cent (US$3.7 billion) of this funding.
For financial organisations the challenge is finding ways to apply the innovation and skills of ‘Millennial-savvy’ fintech startups to their operations: how to marry their expertise in mobile app experiences with traditional banking applications to achieve ‘platformification’, or finance-as-a-service. Application programming interfaces (APIs) will play a key role in achieving these goals. APIs allow software applications to interact with each other. Through APIs organisations can flexibly expose services and data, enabling these to be exploited to create new and innovative products.
Some banks are seizing the opportunities presented by APIs. BBVA, Citigroup and Capital One, for example, expose a much broader array of software capability and data to outside applications than do most banks. Meanwhile the laggards are coming under pressure to lift their API game.
The UK government commissioned a report on bank data sharing and has formed the Open Bank Working Group, which is due to publish a framework for APIs by the end of 2016. In 2015, the European Commission issued the Payments Services Directive that includes a requirement for banks to give external applications access to customer accounts on customer request, typically through APIs, by the end of 2017 (that’s about a year away). Established financial institutions that want to attract and work with the best and brightest of fintech startups to create finance-as-a-service will need to pay close attention to their API strategies. These strategies will be an important enabler of innovation.
The central role of APIs
The fintech ecosystem is evolving rapidly. Innovative fintech players will quickly become frustrated and look for opportunities elsewhere if their co-operative venture with a major player stalls because of technical limitations with its API strategy, or because of bureaucratic barriers to application access.
They are likely to have plenty of options, either by co-operating with established players that are more accommodating, or competing directly: fintechs represent a significant threat to the established order.
Our research suggests that 50 per cent of Millennials already use or would consider using a non-traditional financial services provider. Among affluent Millennials it’s 70 per cent.
A study by the Economist Intelligence Unit, The disruption of banking 2015, found 90 per cent of bankers believe fintech will have a significant impact on the future of the industry, and 30 per cent believe fintech will win an equal share of, or even dominate, the market.
What this all means is that, for the old guard of the financial services industry, embracing fintech and ‘platformification’ to give Millennials what they want is not an option: it’s a survival strategy. Millennials represent the future of financial services and any organisation wanting to be part of that future will need to re-invent itself to meet their needs.
Rocky Scopelliti, Global Banking Industry Executive, Telstra
Image Credit: Investment Zen / Flickr