Rewiring financial services for education and inclusion

For many years, technology-led innovation in the financial services industry has been a top priority as new fintech propositions disrupt the traditional banking infrastructure. The Covid-19 pandemic also catalysed the uptake of digital financial products and services as consumers generated huge demand in lockdown. 

Collaboration will be a key theme in coming years as all financial services providers, from traditional to disruptive, leverage each other’s expertise with a consumer base that is rapidly changing its approach to financial education and inclusion.

Novel channels

One of the primary driving forces behind innovation in financial services is the acknowledgement that customer inclusion and loyalty are at the heart of huge potential for growth. Methods of developing customer loyalty are changing. Financial institutions are now aiming to connect with the nearly five billion active internet users worldwide, but the success of that connection hinges, in turn, on close focus on the methods customers are now using to get the information they want and need – more than 90% of active internet users are users of social media.

As consumers increasingly look to social media for their financial education, improvements in social media engagement from some of the more traditional major banks, insurers and investment providers will be crucial to holding their position in the industry.

A recent survey by Magnify Money reported that 41% of those aged between 18 and 24, and roughly 25% of investors aged 18 to 40, sought financial advice on social media platform TikTok. The need to distil complex financial concepts for online audiences in an accessible format is gaining traction, particularly with character limits (for example, Twitter’s 280-character limit) set by those media platforms enforcing concision and clarity.

This drive towards inclusion maps the momentum we are seeing more widely in technology innovation. There has been a significant shift towards decentralisation (including Web 3.0, DeFi and non-fungible tokens or NFTs) with all the promises of greater access and privacy, and lower latency. This would constitute a move from single databases and servers towards an infrastructure of applications run on decentralised networks and peer-to-peer nodes, which should foster a more inclusive web. 

Great power, great responsibility

With this exciting new infrastructure comes a variety of new risks and considerations, particularly in relation to the speed with which consumers view and act on information seen online. And it raises concerns about data flows and privacy for consumers as information, particularly sensitive financial information, is shared online.

Additionally, the widespread use of AI technology that underpins the provision of financial services at all stages of the process brings fresh concerns about the level of transparency achievable with respect to this technology, and the appropriateness of its use in more complex or sensitive circumstances. 

Of particular concern is the regulation of online financial services content. Recognising the growing power of social media as communication channels, in March 2015 the Financial Conduct Authority (FCA) published guidance to help providers understand how they could use social media whilst complying with the FCA’s rules. Notably, the guidance addressed the risks associated with character-limited media relating to the provision of too little or misleading information to consumers. The rules also aimed to ensure that firms stay aware of where their promotions may end up – online communications should remain clear even if they reach non-intended recipients. 

Given the drastic changes to and additions of social media channels over the last seven years – TikTok didn’t exist when the guidance was published – we may soon see a call for further consideration by and guidance from the FCA and other regulators in the field.

Leveraging strengths

Traditional financial institutions must carefully consider their position in this evolving landscape. The new fintechs rising up in recent years are digital natives, starting their lifecycle on the cloud. They are in prime position to tackle some of the most salient issues at speed and with good use of data analytics.

Traditional financial institutions, on the other hand, have the brand continuity and legacy afforded by decades of practice in the sector, and the consumer trust developed in part by the regulatory restrictions placed on them. Collaboration between all players in the landscape will be crucial in determining a middle ground in the approach to regulation and consumer safety.

Recent bold movements to foster technology innovations in the financial services sector pose both opportunities and challenges. Financial institutions must adopt an innovative but credible approach to engagement with consumers – one that promotes inclusion and recognises the evolving way that consumers are interacting with products and services while ensuring their safety.

The success of that approach will be dictated by the extent to which these institutions can collaborate with one another to stay abreast of current developments and anticipate those coming down the track.

Luke Scanlon is head of fintech and Marina Goodman is a solicitor at international law firm Pinsent Masons.