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Ian McKenna: New tech will drive down costs

Ian McKenna MM blog 2013

Two weeks ago, Finovate, the series of global events that highlight the leading edge of financial services technology, rolled into London for its largest-ever European event. Over two days, 64 organisations presented their latest offerings to delegates from 30 countries.

The show underlined the dramatic extent of change that will take place in the way consumers live their financial lives over the next few years. No one in attendance would have failed to recognise that the days of the leather wallet and paper money are rapidly ending.

Also in the very near future your phone will become your wallet and you will be able to carry out a wide range of activities easily and in seconds, including money transfer and payments, account for expenses, accessing foreign exchange at a fraction of the cost of buying it from your bank safely and securely using the device in your pocket that you used to think of as a phone.

For me, there were a number of unavoidable messages to take away. First, the cost of virtually all financial services is set to tumble, probably by about 90 per cent over the next five years. Whatever your commercial model, today organisations need to start thinking how they can deliver that service digitally for a fraction of the cost.

Dutch digital finance portal eyeOpen, which uses a strapline of financial disruption, threw down the biggest challenge to conventional financial advice with an emphatic statement that it can deliver better advice to consumers than traditional advisers at a fraction of the cost. It would be easy to dismiss this as hyperbole until one realises that the company, which raised 10m euros to fund its European operation and its Netherlands-based independent mortgage portal served over one million customers last year. Personally, I think the service would fall some way short of what the FSA is expecting post-MMR but it was easy to see how such a low-cost service could be attractive to customers.

Organisations more supportive of the traditional advice process  included Financial Simplicity, which demonstrated its outstanding Portfolio Management software and rplan, the D2C investment proposition led by Andy Creak, who will be known to many advisers as one of the primary architects of Cofunds (rplan deserves more space than I can allocate to it in this column so I will explore this in more detail in the future).

I am sure many advisers would rejoice if life offices, platforms and lenders were to implement services like the voice authentication solution demonstrated by Voice Trust. Essentially, this removes the need for passwords or other security questions with the system measuring the caller’s voice biometrics as a form of identification. I have been looking at another supplier of this technology for some time who I think might have the edge over Voice Trust but there is no doubt in my mind there are enormous cost savings to be achieved by any  organisation implementing this technology to support not only inbound calls but especially situations where the provider or lender makes a call to an adviser

A large number of those presenting were demonstrating Personal Financial Management tools, not the sort of planning tools an adviser would use with a client but services to bring together consumers’ personal information from bank accounts, credit cards and other financial services in a single summary.

It is notable that platforms and life offices are for the most part being left behind in this process whereas organisations such as Hargreaves Lansdown and other similar players have the capability to provide data to such services today. Actually, in the short term, this is probably not a major issue but investment providers should be careful not to slip too far behind.

The reason I see this as not a present problem is that by far the majority of those organisations presenting at Finovate failed to understand how to really drive value out of Personal Financial Management. All too often, PFM was being pitched as a way to cross-sell more product to customers. Against this, it is not surprising that presenters often bemoaned the poor take up of their offerings. Consumers in the 21st century see this sort of a product-selling exercise a mile off.

PFM has enormous potential to transform the way that consumers understand and manage their money but the success of such solutions is far from consistent. Having spent a considerable amount of time in the last six months looking around the world at where such solutions are succeeding, it is clear that to deliver value it needs to provide genuine insight to consumers on how they are spending their money and how to manage it better. None of the UK banks which have implemented PFM are using this aggregation capability effectively  so there is a real chance for providers and advisers to significantly differentiate themselves by providing a better service than the customer’s bank. Someone in the UK is going to seize this advantage, I will be interestedto see who it is.

Finally, a mention for an online service that I have seen before at Finovate and am increasingly using myself. Dashlane lets you manage multiple passwords and IDs for online services and can also hold extensive details to prepopulate online stores even if you have never visited them before. A great new feature they showed now allows users to compare which credit and debit cards will provide the best loyalty deals when used with different online retailers. It is not really for business use but a service I would be happy to recommend to any readers.

 Ian McKenna is director of Finance & Technology Research Centre

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