The year began with headlines predicting the entrance of Facebook and Google into the banking market, following the introduction of new Open Banking rules which forced banks and payment companies to share data with third parties if customers agreed.
The changes were meant to boost account switching and improve price comparison, but some speculated that an unintended consequence of the new rules would be to lure the tech giants into mainstream finance in the UK.
Facebook’s Pay by Messenger and Google Wallet have struggled to gain headway in Britain, but this was predicted to change. Some commentators wrote about Facebook becoming the first “big-brand bank”, describing it as “the future of banking”.
A global survey at the beginning of 2017 by Accenture found that roughly a third of banking and insurance customers would consider switching their accounts to Google, Amazon, or Facebook if they offered financial services.
So what has changed? Two words: Cambridge Analytica.
The recent exposé of Cambridge Analytica rapidly morphed into an existential crisis for Facebook, resulting in its stock price plummeting and a cringing two-day congressional hearing for Mark Zuckerberg.
Facebook’s shares have recovered somewhat, but trust is important in financial services, and the question about whether the public can trust Zuckerberg remains.
Last week, Atos published a useful opinion paper on its Digital Vision for Financial Services. With over 100,000 employees in 73 countries and an annual revenue of €13bn, it is a global leader in digital transformation and a catalyst for fintech across the world.
At the launch of the report, there was a consensus around the importance of fintech and a genuine excitement about its potential. According to government figures, it currently contributes £6.6bn annually to the UK economy, and artificial intelligence alone could add a further £630bn by 2035.
But to protect this jewel in our crown, we must recognise and respond to the threat posed by the Facebook scandal, which emerged after the Atos report was sent to the printers. The impact on fintech will be of longer lasting importance than the political fallout which currently dominates the headlines.
Trust in Facebook has collapsed spectacularly. According to a 2017 survey of US users for the Ponemon Institute, 79 per cent agreed with the statement “Facebook is committed to protecting the privacy of my personal information”. Now it is just 27 per cent. And I suspect UK results would be similar.
So the prediction by ratings agency S&P in January that the likes of Amazon, Facebook and Google will not pose a threat to global banks in the short term will now undoubtedly prove to be accurate. But the forecast that “they could leverage their strong customer bases and networks to potentially constrain traditional banks’ payment services revenues in the longer term” will surely depend on how successful the tech giants are at rebuilding their data privacy credentials.
The overall damage to the fintech sector will depend on the extent to which people’s specific concerns about the Silicon Valley giants tarnish their view of fintech more generally. I suspect it will hit startups harder than the established banks, which are slowly beginning to take fintech more seriously and enjoy greater levels of trust.
Another Accenture survey, from October 2017, found that privacy concerns would prevent a majority of Brits (53 per cent) from changing their banking habits to take up more open services, but it also suggested that established banks were best placed to capitalise on fintech, based on their higher trust scores from customers.
That said, the big banks have been slower off the blocks than the challenger banks, partly because of their more complex legacy systems.
Warm words about fintech (“incubate and collaborate”) haven’t always been mirrored by actions. Five banks missed the Open Banking deadline (including RBS, Santander, HSBC, and Barclays) and some senior personnel don’t yet see the fintech disruptors as a real threat, perhaps recognising how powerful inertia is in retaining customers.
What is clear after the Facebook scandal is that fintech needs to redouble its efforts on data privacy.
Just as the collapse of Lehman Brothers in September 2008 marked the start of the financial crisis, the data privacy crisis will stay in the public consciousness, not least because traditional media outlets have a financial incentive to stoke the story.
We should be proud that the UK is leading the way in fintech, but we should also be mindful that one serious data scare could deflate the sector. Uses of personal data that pass the reasonableness test in Shoreditch are not necessarily viewed the same way in Sunderland. A recent headline about “Why your Facebook profile could stop you getting a mortgage” might once have been deemed to be a scare story – now it is a legitimate concern.
The key objective for fintech must be to rebuild trust.