This will date me even more than my nostalgia for Bruce Willis in Moonlighting, but I’m old enough to remember when choosing how to run your financial life meant picking the current account that offered the best freebies.
Branded piggy bank, Young Person’s Railcard, or copy of Now That’s What I Call Music: 17?
Talk about choice paralysis.
As for the banks themselves, there was even less to tell between them. One offered a slightly less ruinous overdraft, another might pay you a few quid on any money it hadn’t nudged you into spending. Once cash machine withdrawal fees were ditched in the 1990s, the banks became interchangeable in most people’s eyes – even if we seldom changed between them.
This bland monopoly invited disruption. It took a while for technology to make that possible, but the past few years has seen a wave of competition.
Young people increasingly wave their phones to pay for things or flash luminescent credit cards that double as flirting tools at the bar. They manage their finances using friendly apps that slide into their direct messages when there’s a service outage. They round up their loose change for a rainy day, and see their spending across town visualised as a heat map. In the US the super-popular Venmo service even turns your spending activity into a news feed that you can share with your friends.
Fintech (that’s short for ‘financial technology’) has exploded, and all this is not even to mention a slightly earlier round of innovation, such as PayPal and the peer-to-peer lenders like Ratesetter.
A list of the UK-based new wave alone sounds like the line-up of a music festival where you’re too out-of-touch to know the bands – Revolut, Monzo, Squirrel, Chip, GoHenry, Dozens, Plum, Yolt, Loot, Exo, Divido, TransferWise, Bean, Tide and many more.1
This list is far from complete. And while London is undoubtedly a hotbed for fintech innovation, there are hordes more doing the same thing around the world.
Now I suspect there’s already a vast range of reactions to this post from the Monevator faithful.
Some of you are old hands at shuffling digital versions of your credit cards or – like my ex, which startled me when I first saw it – paying for almost everything with your phone.
Others had been feeling pretty hip because you just used a contactless card for the first time.2
The point is the financial future is here – if unevenly distributed – and there’s zero chance of the rate of change slowing.
Apple plays its card
It’s not only two guys in a WeWork office who are trying to shake up financial services.
The world’s occasionally most valuable company, Apple, just unveiled Apple Card, a fee-free credit card that’s linked to Apple Pay and backed by Goldman Sachs.
Due to launch in the US this summer, the tech giant’s card will pay 2% cashback on purchases made with Apple Pay, rising to 3% at the Apple Store or via its (expanding) subscription services.
There will also be a shiny titanium physical card, for those all-important at-the-bar props. You laugh, but when marketing to a generation that routinely uploads photos of their breakfast, this stuff matters.
Vanity will come at a price, however, as cashback with the physical card will only be 1%.
And incredibly it won’t even have a contactless chip in it.3
Apple shares rose on the news of Apple Card (alongside much else) and Visa shares fell, but this may prove misguided. Most of these services run on Visa and MasterCard’s underlying networks, after all.
I think it’s the fintechs who should be most scared, given screenshots like this:
Automatic categorization of spending and maps displaying where you dropped your dough?
This sort of thing was fintech’s domain. They’re going to find it hard to run ahead of Apple and its billions.
Old money
Figuring out the future of fintechs is tricky, then. But divining the fate of existing financial service companies is equally non-trivial.
Take the banks. They’ve been written off by fintechs as lumbering dinosaurs ripe for the devouring.
Perhaps, but in that case start-ups such as those I mentioned earlier – and mobile-first challenger banks like Starling, Tandem, and Atom – have so far proven to be little more than mosquitoes. They might suck a little blood, but for all their buzz the big banks still hold most of the public’s cash and debts on their books.
Preoccupied perhaps by the effort needed just to meet banking regulations, the challenger banks haven’t so far matched the innovation of financial platforms like Monzo, let alone what’s promised by newer entrants.
The challengers are also yet to attract truly landscape-altering amounts of money.
Meanwhile the fintechs have unveiled endless features – from bots that query your spending to tools that help you shuffle your loose change into savings or freeze your cards with a tap on your phone – but they manage mere pennies, relatively speaking.
Happily a fintech is cheaper to run than a big bank. There’s none of the branches, for starters, and Eastern European tech teams can do much of the heavy lifting. Yet most if not all are still unprofitable, not least because of the marketing cost of winning new customers.
As for the big retail banks, they already have roughly all the money. In this sense they’ve already won!
But big bank business models are based on providing expensive loans (when not ripping us off more directly, with say the £35bn PPI scandal), which makes it hard for them to embrace more customer-friendly solutions. They have thousands of costly bank branches to manage down in the face of political opposition. And they have a massive ‘tech debt’, running on legacy systems that might still in places use frameworks devised in the 1950s.
This combination of having most of the money and seeing little need to innovate – especially as it’s so bloody difficult for incumbents – has meant the big banks have mostly sat out the fintech Cambrian explosion.
But I believe 2019 is the year this changes, thanks to open banking.
To oversimplify, open banking is a government-regulated push for banks to make possible the sharing of their customers’ data through a software layer that other banks and third-parties can hook into.
At first the banks seemed to be treating open banking as yet another compliance box to be ticked, but my sense is there’s now a bit of “one for all and all for one” in the air.
Last year HSBC was one of the first major banks to embrace open banking. Its Money Connected enables you to see your savings, loans, and mortgages held with other banks. (Essentially what the fintecherati call a ‘wrap platform’, which have long been popular in places like Australia).
This year I’ve had emails from Lloyds, Natwest, and others talking up similar – and related – services.
Santander, for example, has teamed with MoneyBox to enable its customers to round up transaction amounts and automatically pop the difference into a savings account.
This is just the beginning. No sensible bank will offer up its own data without trying to gobble up and make use of the data of its rivals. So now it’s begun they’ll all be at it.
Fintech will eat itself
This must be frightening for the fintech leaders (though I’ve yet to hear any admit it).
If the big incumbent banks copy all the neat tricks of the newcomers, it’s hard to see why customers will bother moving their money. A pink credit card will only get you so far.
In fact I’ve long expected the first phase of the fintech revolution will end with a massive roll-up by the big banks.
Something similar happened 20 years ago, when lots of high interest savings accounts popped up on the Internet and looked set to siphon away the big banks’ cash deposits. But ultimately their business models floundered, despite lower overheads, and they were snapped up by the established giants.
Seeing the same fate for the fintechs is not quite guaranteed. For a start, rolling them up is more technically challenging.
It might seem that buying a fintech would be an easy way to bolt bells-and-whistles onto an old bank’s customer offering, but the nightmare task of stitching the underlying technologies together could make it too much hassle. (Think of the car crash at RBS when it attempt to spin-off Williams & Glyn or the tech meltdown at TSB, for instance.)
Some of the fintechs were founded on the premise that new technology could do things old tech simply couldn’t do.
There’s also the question of what’s really to be gained by the big banks. The start-ups have attracted only small amounts of money so far, and I think there’s uncertainty even where they’ve done a better job at gaining customer numbers. The likes of Monzo and Revolut boast millions of users, but those customers are obviously more footloose – and probably less profitable – than those of us continuing to stick with the accounts we opened as students 30 years ago. Flighty millennials might not be worth paying up for.
Then again, perhaps this fintech revolution really is just that, and we should throw out our old notions of four or five big companies keeping most of our money in their vaults. Maybe the fintechs will continue to leach away assets from the big banks. In the meantime consolidation could be more fintech eats fintech as they strive to turn a profit.
Either way, I believe we can expect big bank accounts to morph to look more like what’s hitherto been offered by the fintechs.
Perhaps the greatest prizes will therefore go to any start-ups that can change the fundamentals of consumer finance – deeply altering our behaviour, say, or running ultra-lean businesses that are able to make us money faster than their deep-pocketed rivals can outspend them – as opposed to the apps with the cutest gimmicks.
Can fintech afford to be a force for good?
One way or another, fintech-style offerings will soon be ubiquitous. Through consolidation or disruption, I expect to see a crowded shelf of viable services competing to manage your money – whether hailing from banks, tech firms, start-up app developers, or your local coffee shop.
This presents a bit of career-risk for us financial bloggers. Many fintechs seek to automate good financial hygiene, from budgeting and saving money for a rainy day to putting your surplus cash into cheap index-tracking ETFs.
They could make good financial habits into a commodity.
Well, that’s the dream. There are competing incentives that suggest the revolution’s aim to do good could run into roadblocks – not least the need to make money.
At a recent event for one fintech raising funding, Dozens, the likeable CEO said he didn’t expect his company to ever provide loans except for sensible purposes like mortgages. All well and good but not particularly profitable. This CEO argues that being built from the ground-up as a super-lean customer-focused company will enable it to forego usurious cash cows such as high-fee credit cards. It is the equivalent of the line from Amazon’s Jeff Bezos, who warned “your margin is my opportunity”.
However if other start-ups turn borrowing money into a fun game, say, and get rich on the proceeds, then more noble-minded firms could lose out to their less scrupulous rivals’ marketing budgets.
We’re therefore likely to see all these services wrestle with doing right by the customer – if only because they have to, because fintech makes managing money so much more transparent – while finding a way to squeeze a profit from us.
Already we’ve seen fintechs drop fee-free foreign cash handling after reaching scale, for example. And big banks have been cutting teaser rates since the beginning of time.
Finally, many of these new services aim to make spending money frictionless – something eagerly embraced by retailers looking to prize us from our savings. What we gain in smart text alerts and automatically investing our loose change, we might lose when airily waving our phones around in a late night out on the town.
Watch this space
So perhaps there will be a future for personal financial advice. As our financial lives get ever more complicated – even if helped by apps that promise to make things easier – there will be landmines and booby traps galore.
I believe that within five to ten years everyone will manage their finances – or at least monitor their finances – using software and systems that only a nerd-dragon would have at their disposal today.
But money and investing will remain a fraught subject, because so much of it turns on our emotions and human frailties – and because the desire for companies to part us from our hoard is at the heart of capitalism.
Boring monolithic banking and money blogging 1.0 is dead!
Long live sexy banking and money blogging 2.0!
For the record I’m a shareholder in several of the fintech firms I’ve mentioned. I’m also considering a small investment in Dozens, which is currently raising money on Seedrs. While we’re at it I also own shares in PayPal, Square, Apple, and a couple of the big UK banks. And breathe! Let me tell you about complicated… 😉
- Note: See my disclosure comment at the end of this article. [↩]
- I’m not joking. I’ve been told by industry types that contactless payment usage plummets outside of London, where we’ve all been trained to accept it by London transport. [↩]
- ‘Incredibly’ in that contactless isn’t a thing yet in the US – they only just got chip and PIN. [↩]
Comments on this entry are closed.
Why would the Apple card have contactless chip if that is not used in the US?
They are not in the chip+pin stage yet over there (you just insert the card and then remove it after it’s approved), let alone contactless!
Struggling to see the draw of the Apple Card – but seeing how people gobble up anything with that logo on, no doubt it will soon be everywhere!
It almost seems like the tech has gone a bit too far in trying to over-complicate banking but maybe that’s just me. I prefer simplicity when it comes to money!
Excellent use of “nerd-dragon”!
It’s strange to think that spreadsheet-loving nerd-dragons won’t be the only ones with lovingly crafted charts and tables about their spending. I do hope they allow the actual raw data to be extracted though. There are few things I find more frustrating than some app telling me how I want to see my data and getting it wrong. I’ve all but given up on Moneydashboard for this reason.
I think the most interesting development I’ve seen is Hargreaves saving product that allows access to multiple savings accounts from their account: removing friction of signing up for the initial good interest rate at yet another institution.
Interesting how this plays out:
In one version of the future instant access rates are identical because its seamless and automated to transfer from one org to another – so the highest paying org wins.
In another version this technology is for rate tarts only – The big banks continue marketing initial high saving rates then lowering and taxing the lazy. There is more fluidity but that’s a good thing because a new rate brings massive capital instantly.
I suspect it will be closer to the latter
Also, it should be said that although in the UK we would give a kidney for a card that gives 1% in all purchases and up to 3% in some of them, in the US this is not exactly a very inciting proposition for people who want to maximize their credit card rewards. Over there, there are a few free cards offering 2% cashback in all purchases, so everything compares to that baseline, which makes this card average, if we’re being nice.
The cards offers other stuff like no late fees and low APR, but anyone that find these appealing probably won’t be reading this website. They also offer no cash advance fees, but I’m guessing they won’t be giving cashback on that, otherwise lots of people would by taking money out with this card, then inserting their bank’s debit card into the same ATM to deposit the money back into their account!
Great stuff. I’m tired of hearing one-sided echo-chamber propaganda from tech-evangelists – thank you for putting together such a balanced view of things.
Contactless stuff is interesting – I feel like I’m viewed with suspicion handing over cash in coffee shops these days (quite apart from the cash-less one I went to where the young barista guffawed, saying, ‘Nobody uses cash any more’. Let’s see how they feel when their internet goes down… You don’t need it, until you need it).
The investing apps are also interesting – ‘everyone will manage their finances – or at least monitor their finances’ as you say, and also mention the boobytraps.
Personally I’m always shocked at the fee charges all these apps make e.g. those ones advertised on public transport that let you round up your purchases and shove it in a ‘robo-advised-smart-passive-portfolio’. It might be sexy and ‘millennial’, but it’s also going to eat up most of your returns.
But I do think there are certain things that the ‘old’ banks need shaking up on (apart from IT infrastructure) and top of my list would be FX fees/rates, which are shameful and indefensible.
Finally, I continue to wonder if Mastercard and Visa will ever be regulated. They have such an extraordinary duopoly (ignoring Amex as it’s less global), but I have never gone in strongly as I felt that it would be so easy for a government to decide their fees should be capped.
Having sat in a Natwest branch for over an hour attempting to open a joint account, only to be taken upstairs to a friendly man who told me that he actually couldn’t help me and that I’d need to go and wait downstairs again but would “definitely be seen soon”. After waiting another twenty minutes, I downloaded the Monzo app, opened a current account (doing the video verification in front of a Natwest logo flashing in the background), and then opened a joint account, all within the space of five minutes. This, to me, is the difficulty traditional banks will have in the coming years once the people who need branches and can’t utilise technology are no longer around.
I’m going to go for the curmudgeonly old git award but:
1 – anything that makes it easier to spend your money is a bad thing. Particularly when you’re young and it’s beer and eating out IMO. I have a Starling card and sure, it tells me how much I have spent on beer. Used ot be when you ran out fo beer tokens, you stopped drinking…
2 – all this tracking of you are your spending seems to make for a massive attack surface as well as giving a lot of people microdata on your spending and travelling habits.
All that tracking and metrics doesn’t fight the fire where it starts. You nailed it with this
The enemy of good finance looks you back in the mirror in the morning. Pretty much everything in this article weaponises the guys looking to part you from your hoard.
Previous generations let their bills pile up in the hallway unread. Future ones will just ignore the how much you have spent metrics and wave their money away with thei phones.
You will prise my cash out of my cold, dead, hands
‘When the people who can’t use technology are no longer around’
Having watched my dad go from email/web/online banking adept to unable to manage a PIN dependent debit card, just remember that skills can be lost as well as gained…
Their fees are already capped in the EU. 0.2% for debit and 0.3% for credit.
In the US only debit is capped.
Really enjoyed this article, great work!
I am sort of with ermine on the data side of things. One of my accounts gives me the ability to input all my financial data from everywhere – under the guise of keeping track of everything or some such. Two things concern me with this. The main thing is I don’t really want any company to hold all my financial data. Cybercrime, ex-employee casing up my address etc. Though I guess the government has this data by default so maybe I shouldn’t worry so much as they are prone to the same issues and nothing I can do.
The second of course is marketing / sales. I am sure they really want this info so they know whether they can target me to make more money. You have £x in a savings account here, why not give it to us instead, or your net worth is £y so you must earn £z, we can get more out of you. Of course it could work in my favour if they offer to beat the existing rate, but not convinced this is how it would play out. Bit like the pension relief fear monger that happens around March every year by companies that have an interest in you paying more into your pension etc. Nothing wrong with that but I would argue not good if you only pay in because of fear. Maybe I am just overly paranoid about this.
thanks for writing about this. I think that Fintech is an area that has tremendous growth and there’s more to learn about it that’s for sure.
Some of the features and benefits look like they have some merit – but I don’t think I’ll jump on the bandwagon.
I prefer to work out my income, spending, investment values and returns and do it on a monthly basis in a creaky spreadsheet I built myself. That’s my system and I’m sticking with it.
I don’t think that (similar to smart meters for gas/elec) that these apps will actually help people save any money at all. I agree with @Ermine, anything that makes it easier to spend your money is not a good thing. that’s me, I’m probably not the target audience anyway for fintech.
Thanks for the comments all, especially the nice ones! 😉
Just a quick pre-bedtime comment to note that some of these Apps very definitely do help people. For example check out the Trustpilot reviews of Squirrel:
https://uk.trustpilot.com/review/www.squirrel.me
That doesn’t mean it or any of them will be for everyone of course.
But a lot of the motivation behind the savings cohort of the fintech universe is very much to take good money habits the likes many of us do near-automatically to a much wider universe. That might make them redundant to existing money mavens, but hardly irrelevant to all. 🙂
First comment, be nice.
As much as we all embrace contactless (although I tend not to use it on London Transport as I fear getting charged he cost of the train) I find the little personal observation interesting
In my little village (officially a town – but its small), one of the pioneers of mobile payments (worked in a senior managerial position for a number of companies in the fintech and high street banking arena, and currently works as one of the heads of clever stuff on mobile devices for a bank)
Every time he paid for his pint or a round in the local pub, the rest of us used contactless.. he used cash
Interesting article, thanks. I imagine the lack of contactless in the card is to encourage people to use Apple Pay rather than an oversight on their part.
As you say, you can already see traditional banks borrowing features from these startups – one of them is running a TV ad that boasts about showing you pending direct debits. Hopefully the challenger banks are making things better across the board…
I went to the Monzo Open Office 2 days ago. It’s amazing how much more efficient these organisations run while scaling. A traditional bank would probably throw more people at the problem rather than solving problems with a tech mindset first (or outsourcing).
So I expect that when the time comes and these firms trade on the stock exchange, there will be a better operations profile (better P/Es, better metrics overall). IF they ever go public, given big tech firms nowadays can manage without for years.
I hope you opted for Now That’s What I Call Music: 17 – tape 1, side B was superb.
I was an early mover to Monzo and the user experience continues to impress me. Having said that, I still don’t have my salary paid into it… I just use it as my ‘London card’, parking my monthly train and lunch budget in there and whittling it down over the course of the month.
I think getting people to use it as their main account is the challenge for them.
@ermine Something a lot of the press has missed is Apple’s very conscious decision on data privacy which Tim Cook is using as a battleground vs Google, Facebook etc. That’s not an easy or cheap decision to make in the current ‘data in the new oil’ backdrop.
The encrypted transaction data is stored locally on the device so “Even Apple doesn’t know what you bought. Or where. Or how much you paid.” Goldman will know in order to operate the card but they are not permitted to “sell your data to third parties for marketing or advertising” (devil in the detail of course). A new card number is generated for every transaction which also makes it difficult/impossible for 3rd parties (e.g. retailers) to track. In any case, there is nothing new in this data. It must have all have been generated from when the first debit card was launched in 1987. You have to know how much was spent, where and when in order to generate a statement.
You might be able to prise cash out of your cold, dead, hands, but your dead thumb won’t authorise a contactless payment 😉
It’s also worth noting that cash is very annoying and expensive for businesses to deal with. It costs ~0.5% to pay in plus cost of a courier/employee to go to branch, you need to cash up every day, theft issues, increased insurance costs, longer queues etc. Reduced costs should be passed to consumers.
A couple of years ago I had to endure a power cut for several hours and was really surprised by how many normal things you couldn’t do, leaving only a few activities like reading paper books or calling someone to talk to if your phone still had any charge. It showed clearly how much more dependent modern life is on electricity than even just a generation before, but equally how vulnerable we are to collapses in the system; so increased risk is the flipside of the convenience coin.
Similarly then, if there’s no more cash, not only are you monitored by anyone who can afford the data from the companies you buy from, but also people are unwittingly putting a lot of faith in the competence of the system as well as its honesty. As those who’ve had their identity stolen can attest, fighting to clear your name or recover your reputation is stressful and can be a bureaucratic nightmare. If a too-big-to-fail institution accidentally electronically wipes out your lifesavings, then isn’t regulated well enough to respond to rectify it, resulting in messing up your life, can most afford the legal services to fight for their alleged rights?
So je suis ermine on this one, removing cash will be another milestone towards the death of privacy and full independence; a financial electronic ankle bracelet, for non criminals.
Fintech putative challengers will indeed have to do more than usual to scare the ensconced bankocracy given the latter’s incumbent advantages of apathy and fatigue on the part of ordinary people who’ve heard promises of a shake up all their lives, but seen nothing stirred let alone moved. So something spectacular will be the only thing that’ll move the interest needle therefore; as you infer, a combination of transparency, efficiency and maybe simplicity could work. We mostly carry a wallet full of cards because no one institution does all basic necessary functions required for modern life well enough. Mostly there’s needless complexity to mask a bad service or fool customers into thinking the providers are smart and therefore good at what they do for us, while probably the majority just want a very simple, reliable service they can fully understand.
dont get me started on the inconvenience of using the ruddy “card reader” device for online banking!
Countries with skilled technical teams, such as Poland and Romania, are in Central Europe, not “Eastern Europe” (that would be Russia and Ukraine, for example).
Calling Central European development teams “Easterners” doesn’t really reflect the geographic and cultural reality of the economic area. It’s sometimes done by people who want to create division in Europe, and create fear of foreigners, but it’s not a useful position for a rational investor.
@ RealEstater I’ve already taken the awkward squad ticket on this, but on the security front, really
I kinda like ‘they can’t by design’ rather than ‘they are not permitted”. Bit like the fuel rods in a nuclear reactor, for God’s sake have them fall out when the power stops, rather than some failsafe mech that withdraws them. Unless it fails…
Apple. Security. J Law’s saucy pics. Using an active device that is a general purpose computer that runs all sorts of other programs for all your payments. What on earth could go wrong? I’m sure we’ll find out. At least if any of my credit/debit cards are running third party apps it’s at least not my fault.
Cash is interesting because it was developed in a non-networked world. It is a token of value that has its own ticket to ride. I don’t think it’s impossible to envisage an electronic form of that – blockchain as used in cryptocurrencies seems to come close, I am sadly not clever enough to know if it is susceptible to the surveillance problem.
It’s also nice to still be able to pay people when the power is out or you haven’t got connection to the hive mind.
@TI I bow to your greater experience of the general public’s financial nous, but I went and read those reviews of Squirrel. In the battle of the shield of these folk and the sword of consumerism trying to part them from their money, the sword will always win. FFS, there’s a fail right from the get-go – they are paying £2.30 a week for something that is available for free, from other fintechs. I know that I react to subscriptions like vampires to sunlight, because grounding them was a key part of controlling costs in my lean years, but still, Fail IMO. Money Dashboard is free, though they datamine your spending, but TBH if you go around with a tracking device in your pocket you’ve lost this fight already.
Starling will show you what you are spending on, again for free. Let’s take a look at what all this newfound fiscal control is being used for
Egads, we are saving so much money that we can spend it 😉 I guess it’s slightly less depressing than what I discovered the good people of Britain were borrowing money from Zopa for (weddings, holidays, cars, loan consolidations), but there’s not much in it.
Seeing mention of the newish HL Active savings product – its interesting they are about a year behind Octopus Cash which does the same thing so there may be a trend towards umbrella accounts.
Managing money on my phone has been a revelation to me. In fact most of my home screen apps are banks or finance apps. I have my spreadsheets in a numbers account that I also manage from my phone.
— “Contactless stuff is interesting – I feel like I’m viewed with suspicion handing over cash in coffee shops these days” —
Hmm, strange that I’ve never encountered this sort of attitude at all. I use a debit card for some purchases, but would never dream of using it for something under 10 pounds. Maybe it’s me watching too many dystopian movies, but I don’t like the idea that on a computer somewhere is my name, time of purchase, what I purchased, how many times, and, if used with a Loyalty card, loads more info. So for reasons of security, privacy and data protection, I continue to be a big user of cash still.
Re. the newer banks and pre-paid cards, Revolut has saved me a fortune on traveling around Europe. I calculated that pound-euro conversions are approx 3.5% better than with my usual bank. I don’t have a Monzo account yet and have spent time comparing it with their rival, Starling. The new Monzo savings accounts look interesting but what really made up my mind was the Starling director coming from RBS. Rather like being told that the new baby-sitter for the evening has just been released on parole. 🙂