Apps which may seem extraordinarily intuitive to digital natives are often perplexing to those who grew up in the age of pocket calculators and analogue phones, writes One Banks founder and CEO Duncan Cockburn.
The last few years have seen an explosion of creativity and innovation in financial services. Disruptive start-ups such as Klarna, Monzo and Revolut, have shaken up a staid and producer-dominated industry, shifting power dramatically in favour of consumers.
The functionality, responsiveness and flexibility that these fintechs have placed literally in the hands of their customers, through their smartphones, is awesome to behold.
While there is much to celebrate, the financial sector needs to recognise the danger that - in this headlong rush to digitise services - a significant proportion of the population could be left behind.
While many banking, insurance and wealth management customers are all too happy to dispense with the hassle of hanging on the phone, queuing in branches or for ATMs, and manage their financial lives entirely on an app, many are more hesitant. In some cases, with good reason.
We are not just talking about the elderly. Indeed, some of the most enthusiastic users of digital financial services are in their 80s and 90s, although it is true that numbers registered for online or digital banking remain disproportionately low among the over 65s. Surveys show that the vast majority of those on low incomes have no or limited access to the internet. Those with mental illness or learning difficulties as well as physical disability often also struggle with digital services.
Also, there is a significant slice of the population who, for whatever reason, are fearful of digital banking. All in all, anything from a quarter to a third of the population are not digitally enabled, and are therefore doubly disadvantaged. Not only do they miss out on the superior convenience, choice and access to a growing number of financial management tools available via digital financial apps, they are also losing access through traditional channels.
With bank branches closing at an accelerating rate, ATMs disappearing from High Streets, and call centres being run down, anyone who cannot manage their affairs digitally is finding themselves increasingly marginalised.
So far, the Government has focused on the narrower but related issue of access to cash. With consumer groups lobbying for government to impose a universal service obligation, the banking industry is working on a scheme of their own for shared branches offering cash related services such as deposits and withdrawals in communities that have been left without access to a conventional bank branch.
However, there is much less focus on the growing digital divide, which over the long run could be far more corrosive. Increasingly providers are expecting customers to access their products and services exclusively through digital channels.
This is leaving those who struggle with digitalisation out in the cold; lacking credit records that would give them access to credit or the ability to verify their identity digitally - as is increasingly required by financial services providers. Such populations tend to be increasingly concentrated geographically, deepening pockets of deprivation and exclusion and consequently worse health outcomes, crime and social unrest.
Apps which may seem extraordinarily intuitive to digital natives are often perplexing to those who grew up in the age of pocket calculators and analogue phones.
Fortunately, we are seeing successful attempts to combat digital exclusion. Approaches which combine digital channels with human interfaces, or better still, use smart technology to empower people to deliver person-to-person interaction in a friendly, confidence-building way.
With the right kind of support, many of those who are hesitant about entrusting their finances to app-based banking can be helped to overcome their reticence and embrace the online world.
The fact is that however good apps can be, there are always going to be situations and problems which haven’t been programmed for, and are going to need human intervention, probably face to face, if not on the phone, to solve.
The last twelve months have been something of a coming-of-age moment for the fintech sector. No longer seen as plucky outsiders, fintechs are under pressure to demonstrate that their capacity for innovation can be deployed sustainably, profitably, and at scale. With that goes an increasing demand to live up to wider responsibilities, and show that they are serious about tackling fraud, consumer debt, money laundering and financial and digital exclusion.
As the traditional banks learned to their cost in the wake of the global financial crisis, ignoring the needs of society and the ordinary consumer will eventually catch up with you.
The industry is still paying the price for that neglect in terms of tighter regulation and capital requirements that have undermined profitability.
For the moment, the government has chosen to focus on the positives that the fintech sector can bring. But the wider the digital divide between the “have-apps” and “have-nots” gets, the harder it will be to ignore.
The views and opinions expressed are not necessarily those of AltFi.