For the past 3,000 years payments hasn’t been the most exciting industry, but in the last 5-10 years, there have been dozens of new entrants into the market.
It took 3,000 years to give us pretty much seven payment options: coins, banknotes, debit cards, Diners club, Visa, Mastercard and American Express. In the last ten years, we’ve seen an explosion of disruptive players, all driven through the adoption of the Internet and/or mobile technologies.
Yesterday we hosted an event “The Future of Digital Payments” in London at the magnificent, if slightly warm, Royal Exchange. It was one of the best attended Endava events that we’ve held, despite the World Cup and Wimbledon trying to compete with us!
Four of us spoke at the event, and then we hosted a panel discussion with lots of questions (they just kept coming and coming!) from the audience.
My speech is below. One last point to make – I’ve presented this to some retail banks recently (specifically their innovation teams). If you’d like to get in touch to discuss this, either as a presentation or a round table, please drop me a line, or let’s discuss it on Twitter using #payments.
Innovation is one of the three core tenants, on all our documents, slides and marketing, and it’s great to hear feedback from a client how we’re performing in this space.
I’m Bradley Howard, and I have two roles at Endava. The first is Head of Digital Media, where we produce and manage websites which experience some of the highest traffic on the Internet. My other role is as Head of Endava Labs, our sandbox approach to building proof of concepts and demos for some large clients including retail banks, insurance and payments companies. Endava Labs also helps get start-ups up off the ground.
Today I’m going to talk about a few innovations in financial services that could change your business immeasurably. And if you thought the rate of change within the industry was fast now, I’ll show how the pace of acceleration is set to increase.
The two ideas are identity and APIs.
Let’s start with identity. The Internet is still rubbish when it comes to identity.
In the real world we have driving licences, passports, signatures and PIN numbers. Sometimes, usually when I want to borrow a lot of money, showing someone a print out of my home utility bill is good enough. By the way, between my wife, three daughters and a teenage son at home, anyone who lends me money after seeing one of my utility bills is mad.
Anyway, these forms of identification are all trusted by governments and businesses. When combined, we have what we call two-factor authentication.
But on the Internet, we still don’t have any authenticated identity. Yes I can create an account on a website, but that doesn’t prove I am Bradley Howard and not you (name someone like Chris here).
Businesses transact using SSL certificates to prove they are who they say they are, but sometimes those businesses, or other individuals, need to know we , consumers, are who we say we are. Take AirBNB for example. You don’t want to rent a room from a convicted axe murderer, and you don’t want to rent a room to an axe murder either – you need to trust the tenant or the home owner. Also, if you have a great eBay rating, why do you have to start from zero when you create an AirBNB account? These situations occur because no one trusts anyone else’s digital identity assurance.
Then we have Facebook Connect – which is when a user registers or logs into any website using their Facebook credentials, unsurprisingly that isn’t trusted. Yet. We did some consumer research, and right now, even under 30 year olds don’t want to log into their bank accounts with their Facebook credentials. This is going to change over time, once we get so utterly sick and tired of usernames and passwords, and of course, organisations’ inability to keep them secure. So Facebook Connect isn’t the answer.
Perhaps surprisingly, the answer is likely to come from the government. The UK government is working on an identity assurance platform to solve some of the problems I’ve highlighted, and many more. As a bookmaker, you’ll be able to check with the government whether this person trying to log into my site really is over 18. As a car insurer, you’ll be able to check whether this person applying for car insurance really is who they say they are, and also, how many points they have on their licence.
The government Identity Assurance scheme will enable UK citizens to have their identity physically confirmed by a number of third-party agencies, such as the Post Office (which already performs some of this function for paper based government forms today).
This all sounds great, and could be a game changer. But for me, the icing on the cake, and half the cake itself, is that the UK government has already started working with other governments to ensure its identity assurance scheme is recognised internationally. I’ll come back to this later.
The second concept, of APIs, is also well underway.
APIs are the interfaces which enables systems to talk to each other.
Banks have been building APIs into their systems for the last couple of years, mainly so that they can release mobile apps, which interact with the bank through these APIs.
Some banks’ APIs are more developed than others, but as mobile apps become more comprehensive, so will all the banks’ APIs.
APIs have finally provided the much-needed interface into the dark areas of the bank’s mainframes. For decades, mainframes have been the primary reason banks have been inflexible and resistant to change. But APIs abstract this complexity and provide the much-needed flexibility.
Identity + APIs = New opportunities
So once we have an international identity assurance scheme and APIs in banks, consumers will have the flexibility to do banking globally. Just as I can buy something from Amazon in Italy, Alibaba in China or John Lewis here in the UK, consumer banking could become global too.
Before you ask, regulators are going to have to quickly catch up, because soon it’s going to be quite straightforward for me to open a current account in my local currency, a mortgage where interest rates are really low, such as Japan (where they are 0.1%), and a savings account where interest rates are high, such as Brazil (at 11%).
OK, I’ll want to spread my risk with my savings because I won’t get the Financial Services Compensation Scheme – where the UK government will cover my savings up to £85K. So I’ll spread my savings across Brazil (11%), Turkey (9.5%), India (8%) and Indonesia (7.5%) – you get the point.
There is an irony here of course. What’s the prefix to almost every website you visit on the Internet? It’s “www” of course. And what does www stand for? The World Wide Web. The WORLD WIDE Web was founded roughly 25 years ago – it’s taken that long, (plus another 3-5 years) to really digitally revolutionise banking. By the way – half of the big UK banks replace the www prefix with their own prefix (imaginative names like online, onlinebanking and ibank) – which makes you think they are preempting the move to globalisation!
New opportunities and a new marketplace
Extrapolating beyond this model is what third-party companies can do. For this talk, we’ll call them “Financial Services Apps in 2018”. These Financial Services Apps in 2018 will be automated, and move my money around to get the best savings rates and the best mortgage rates.
And this can be automated ONLY because of the identity assurance the banks’ see from an internal security perspective, and the APIs the banks offer externally.
It really will be the ultimate offset current account!
Another side effect is bank branches. Just like we question the role of libraries today – we can buy books from a penny off Amazon and have them delivered literally to wherever we want to read them, and those are just for paper books. Or we can download and read a digital book in seconds. But we still have libraries.
And bank branches will be the same. ATMs, telephone banking, Internet banking and mobile banking – they’ve all heralded the end of bank branches, but we still have them.
What Next? How does this affect me?
If you’re thinking “What next?” or “How does this affect me?”… the answer is that for all the programmes you are working on, make sure that you are building open APIs as part of the project. Some agencies and industry experts talk about “Mobile first”. At Endava, we say “API first”.
API first is future proof. Whether your customers start using Google Glass, wearable devices, their large TVs at home – as long as your API supports the functionality, it doesn’t matter what the output device or channel is. Whereas coding for a specific device is expensive and likely to be short-termist.
And finally, I recommend you look at the Government Digital Service (or GDS) blog on Identity Assurance. None of us really like the current username and password situation, and GDS looks like the best bet on solving the issue. Together with your own APIs, I look forward to seeing your organisations in the Financial Services App Stores in 2018.
Thank you for your time!