How insurance raised the bar for fintech innovations
If I asked you to name a sector which inspires change, motivates others and challenges the norm, I imagine that 'insurance' wouldn't be on the tip of your tongue.
However, the insurance sector has grabbed hold of fintech innovation, on many occasions well ahead of consumer demand, and led the way for others who are now playing a game of catch up.
The way we buy insurance matches the needs of the modern consumer. We want to price-check, we want the process to be clear, fast and efficient, and, most importantly, we want to be able to purchase online at a time that suits us. Providers like Money Supermarket and GoCompare, for example, have been ahead in delivering our home, holiday and car insurance in the slickest format possible. And providers like Trov are breaking it down even further to offer insurance on demand.
As a result, the insurance sector has actually made people demand more from other financial institutions.
Digital solutions are gaining in popularity and it seems almost every week a different fintech developer is announcing a new 'innovative' product for the finance industry. However, adoption of fintech hasn't kept pace with innovation. When properly applied fintech can enhance consumer satisfaction - which is the holy grail of the service industry. Early adoption is also seen as a marker of forward-looking, adaptable businesses.
But in comparison to insurance, banking has been slow to change and still relies heavily on non-digital methods of managing cash and account information. Typically, the sector is risk averse. It is very heavily regulated and many banking systems simply aren't compatible with modern innovation.
To avoid a large investment and beginning again from scratch, many institutions are attempting to 'bolt on' various services to their current offering, without much success. Others are taking the step of purchasing fintech companies in an attempt to keep up with the pace of changing technology. More digital friendly local banks tend to have parent companies which have been early adopters of technology.
All of this could be about to change with the advent of 'open banking' next year, but the onus is on banks to grab hold of this opportunity if they don't want to be replaced by new digital-only providers.
If we are honest, digital disruption of the banking industry can be described as piecemeal rather than wholescale.
In the event when an online banking system crashes, the impact on consumers is much greater than that of the insurance sector, however, for the most part, the benefits far outweigh the negatives. Being able to transfer your money, pay bills and keep track of expenses online or using an app is now expected of most banks.
In America, there have been big steps forward in how mortgage and auto lending is managed, with a much quicker transition from face to face meetings to digital lending.
While this is seen as riskier, it is also something that consumers are coming to expect and demand.
Millennials are a tech savvy generation and at the moment banks aren't catering to them as well as they should. These customers tend not to be cash rich, however this is also the generation that will stand to inherit wealth from their parents in the future.
When this happens, millennials will want to be able to move their cash easily and quickly. Clunky systems, such as the majority of those available at the moment, may only allow for £10,000 a day to be transferred.
PayPal and other alternative payment solutions have recognised the importance of being able to do what you want with your own money when you want to. International banking transfers, for example, on this platform can be made simply and easily, whereas banks tend to make this a far more laborious process.
Fintech will continue to threaten and challenge traditional banking services with the promise that in the future we will have much more control over how we view, move and manage our own money.
- Naomi Gaston is an associate at Carson McDowell specialising in banking and finance and General Data Protection Regulations (GDPR)