Apple’s push into US retail banking is only the latest demonstration of how technology is shifting the sands of the sector.
It’s hard to remember now, but Apple’s launch of the iPhone came as something of a surprise. Mobile phones at the time were clunky, slow to change and the market was led by incumbents who believed their moats were impenetrable. As of last month, Apple has made another move into a market dominated by powerful incumbents, and this one is even more surprising than the phone business: banking.
Partnering with Goldman Sachs, Apple has launched – in the United States for now – a payment card and high-interest savings account, thus parking its tanks on the lawn of the likes of Citigroup, Bank of America and JP Morgan Chase, not to mention myriad regional American banks.
Whether or not it has plans to spread beyond the US, Apple’s recent move into consumer banking services in the US is an indication of how important so-called ‘fintech’, or financial technology, is becoming as a sector.
“The Apple thing is interesting in itself. It’s also interesting that they partnered with someone to do it. They’ve been taking payments for a long time in the app store, but when you see a big giant like Apple doing it, you need to take notice,” said Ciarán Harris, director and principal consultant at user experience design agency Each&Other.
Harris said that Apple’s move was just the latest shift in consumer banking – which, while still stable, is already facing new challengers.
“When the likes of Apple move in, you get ripples, and what’s interesting is it’s already an area that’s had a whole bunch of ripples: you have challenger banks with the likes of N26, Revolut and Starling,” Harris said.
Revolut in particular has had an impact in Ireland, but there is still a lot of opportunity to push for more consumer-friendly change, Harris said.
“I have hopes, with Apple moving into the space, that it gets the banks moving. Irish banks have been very slow,” he said.
Of course, it is impossible to speak about banking without noting recent turbulence in the sector, notably in the United States, but Harris noted that EU regulation was already much tighter.
“I’m genuinely not sure what it tells us, if it tells us anything. Banking has been regulated, and rightly so,” he said.
In the Irish market, meanwhile, the biggest shift has been driven by the exit of Ulster Bank and KBC.
“The time people would have been moving would have been over the last year, at least in an Irish context. But, ultimately, the traditional banks do have to up their game,” he said.
Of course, traditional banks, which rely on legacy IT platforms, do face technological challenges; challenges that can lead them to be slow to deliver the services consumers now want. However, these challenges can now be overcome, Harris said.
“With current banks, a lot of the problems are back end. What they have is an issue getting nice front ends to talk to the legacy backend. The reason we have bad front ends, on the other hand – and some are doing better than others, after investing time and effort into design – is a lack of creative solutions to working with constraints. They could push harder to find solutions that work,” he said.
Nevertheless, for many people the customer journey can now be an entirely online experience.
“For the likes of me, somebody who is reasonably comfortable online, it already is. All of it can be done online,” Harris said.
Indeed, Each&Other’s past experience includes designing a system to smooth previously manual processes.
“We designed an insurance broker app for the Middle East with a lot of automation, including automated underwriting, and got provisioning down from four weeks to a day, as 85 per cent passed through, ten per cent passed through with some amendments, and only the remainder went to manual processing,”
This demonstrates how digital transformation can save money for financial institutions while at the same time make things easier for consumers and ensure that no-one is left behind.
“From our perspective, there’s a definite gap for good design,” Harris said.