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    How COVID-19 fuelled the UK’s digital transformation - and what financial institutions can do to pandemic proof their services.

    For many in the UK, summer 2021 hopefully represents the first steps back towards to normality, with social distancing measures easing, hospitality venues re-opening and early indications of international travel starting to appear. As society takes its collective steps back towards re-opening, however, one of the many things that won’t return to normal is our relationships with our finances, and the methods by which we spend, save and manage our money. 

     

    COVID-19 acted as a catalyst for the UK’s adoption of digital payments, and fintech brands rose to the challenge, delivering alternative payment methods (APMs), virtual cards and more, to help consumers navigate the challenges and uncertainty, financial or otherwise, of the pandemic. As a result, customers have come to live by an expectation of immediacy, where products and financial services are conveniently available instantly from their smart device. 

     

    If banks and financial institutions are to succeed in the post-COVID era, they need to understand how these changes came about and which trends are likely to stand the test of time. Moreover, at a time of peak innovation for the financial services industry, regulators need to keep up with the pace of change to better protect consumers and businesses.  

     

    Lisa Grahame, Chief Risk and Compliance Officer at GPS, recently spoke at the PIF Innovation Day 2021 to explore how banks can utilise learnings from the past 18 months to pandemic proof their business and provide better financial services long into the future. 

      

    “The one-click process” 

     

    The widespread adoption of a number of digital-first payment methods perfectly highlights the paradigmatic shift ushered in by the pandemic. Buy Now, Pay Later (BNPL), saw a marked increase in 2020, with 1 in 5 consumers having used the service last year, up from less than one in 10 five years ago.  

     

    GPS customer, Zilch, saw remarkable growth throughout the year, with 125,000 consumers joining their platform each month. BNPL empowers consumers to pay for items on their own terms, allowing for flexibility in a period of financial uncertainty, but also enabling them to circumvent the costs and time-consuming processes associated with traditional credit providers. As more consumers have embraced ecommerce, BNPL has become a central part of buyers’ natural shopping habits, representing a stigma-free alternative to traditional credit. 

     

    Where BNPL has disrupted the retail space, QR codes and embedded payments have provided a lifeline for the hard-hit hospitality sector. Processes such as ordering and paying for drinks and food, and even tipping service staff, have become fully digitised through the use of QR codes, websites and secure embedded paytech. This has paved the way for consumers to enjoy a faster, more convenient, and ultimately safer dining experience, where the majority of payments are made invisibly, and bills are settled after the fact, through dedicated apps or peer-to-peer transfers. 

     

    What both BNPL and QR codes highlight is that, in the post-pandemic society, consumers have more choice – and therefore power – over how they pay for goods and services, and will naturally choose options and payment providers that offer the quickest, most convenient experience.  

      

    Meeting the challenge 

     

    Throughout the pandemic, fintech innovation has not only helped meet the changing needs of consumers, but also ensured that financial services were made easily available to those who needed them most. 

     

    Pre-paid business card issuer and expenses specialist, Soldo, pivoted its offering and expertise to launch Soldo Care to help non-profits and local authorities to distribute COVID relief. Utilising the platform’s spend and expenses management capabilities, the Soldo team were able to rapidly distribute Mastercard cards that could be topped up in real time, with no additional charge. These cards were implemented through partnerships with 800 charities and councils across Europe, allowing consumers quick access to flexible digital payment methods. 

     

    GPS partner, sync. leverages open banking to give its customers a holistic view of their finances via one central app. Open banking initiatives allow the transfer of financial data between a customer’s bank and third-party providers (TPPs) they select, empowering them to better manage their money, and giving them access to new, tailored financial services. Platforms like sync. can enable customers to save money and budget more effectively, both of which proved crucial during the financial uncertainty raised by the pandemic and will continue to promote better financial health long into the future. 

     

    It wasn’t just consumers who benefited from financial services innovation, however, Singapore-based Razer Fintech also leveraged their unique ecosystem to deliver relief directly to businesses. The payment specialist offered a multitude of incentives to help tide business to business customers over during the pandemic, including waiving platform and sign-up fees. The fintech was also able to rapidly extend lines of credit totalling $50 million to its customers via its virtual currency, Razer Gold. 

     

    Examples such as these highlight the agility of fintechs in helping brands, merchants and consumers keep up with society’s digital transformation, enabling wider access to better financial services. 

      

    Regulation versus innovation 

     

    Such rapid technological progress, however, doesn’t come without its challenges and risks, not just for financial services providers, but for regulators too. As we’ve seen previously, progressive regulation can be a force for good in the industry at the time of greatest need, such as the directives implemented in the UK to spur on competition following the 2008 financial crisis. As more recent scandals have highlighted, however, regulators need to evolve rapidly to keep up with the changing fintech ecosystem and properly protect the needs of its customers.  

     

    One key element of protection for both FS providers and regulators will involve investing heavily in automation. Utilising big data or incorporating AI into processes such as lending and cyber security will help protect customers and their finances. It will also lead to a more efficient experience for the end user. Automation will play a crucial part in previously manual processes, allowing for greater protection at a significantly reduced headcount, making it a key operational opportunity for FS providers looking to save on costs. 

      

    Staying ahead of the curve 


    Faced with a period of financial uncertainty, and an unprecedented acceleration in technological development, incumbent banks will have to adapt to survive moving forward. The pandemic gave rise to a situation in which many high street banks turned away new customers. Some said that opening an account through a traditional player became challenging, so that could naturally lead consumers to move to more non-mainstream alternatives. 

     

    Additionally, incumbents face increasing competition on a UX and design front; more agile fintechs are better able to incorporate elements such as mobile FX, spending notifications, biometrics and more into their platforms, leading to a better customer experience overall. Hampered by technologies and systems that are, in some cases, 40-50 years old, traditional financial institutions looking for ways to catch up to capitalise on the mobile-first era.  

     

    One way of doing this is to embrace embedded fintech, where incumbents incorporate services from niche fintechs into their technology stack via a layer of API rich financial fabric, consolidating their product offering with modular services. Working with established partners will be crucial for banks to deliver better services and expand their operations into new demographics and markets. Global Processing Services are a trusted global entity, having supported both tier 1 banks and newly established start-ups on their growth journeys.  

     

    Faced with the current scale of technological development we’re seeing, however, there will come a time when updating piecemeal elements of their technology stack won’t be enough, and incumbents will have to consider wholly revising their systems to future-proof them for the digital age. In doing so, banks will have to leverage partnerships, but will also have to remain cognisant of the long-term benefits and opportunities, past the initial short-term investments. 

       

    Meeting the expectation of immediacy 


    If the past 18 months have taught us anything, it’s that technological advancements which actively improve the user’s experience will stand the test of time. Society’s widespread adoption of digital and contactless methods have proven that consumers are more willing to break with tradition if they see the value in a service. Regardless of whether it’s a virtual card providing relief to families struck by natural disaster, or a BNPL offering that democratises access to lines of credit, there will always be demands for products and services that add value. 

     

    For many traditional players, the mass digitisation of finance has likely accelerated product roadmaps and kicked off challenging conversations around network overhauls and investment into legacy systems. What banks have to understand, however, is that by leveraging partnerships with more specialist players, they can pandemic-proof their current services and open up new potential avenues for both product development and, eventually, revenue.