The future of finance is ecosystem-centric

When we think of a future financial world we tend to conjure up images of a market in which all people can access quality, multi-functional financial services everywhere they go, thanks to things like open banking, block chain, and growth in smartphone ownership. 

In this future world, consumers can choose from a wide variety of products and move to other providers if their current ones aren’t serving them well. They are far more successful at saving, investing, and accounting for their money because they have tools to help them do these things more effectively. 

There is something to be said for this vision. I also believe that the future of finance is one of greater choice—and that this is good for consumers. And there are other positive trends, such as the recent shift towards socially responsible finance, including finance that acts in accordance with the Sustainable Development Goals, impact investing, and so on. 

But while customer-centricity is absolutely critical to the future of finance, there are many constraints to how well financial service providers can serve their customers. External shocks such as economic crises, the Covid-19 pandemic,  and environmental issues all restrict our ability to give our customers what they want and need. 

One great example is the recent trend to serve unbanked customers. The goal of bringing formal financial services to those who don’t have them has seen substantial progress made in recent years. The rapid rise in mobile phone ownership makes it far easier for consumers to access financial services, even if they live in remote areas. 

But there is no guarantee that this growth in access will continue to rise. Scarcity of rare minerals and other inputs may increase the costs of mobile phone production, making them harder to access—and therefore also making it more difficult to access financial services.

Environmental issues may also reverse the gains we have made. Climate change is likely to disrupt the global economy enormously and cause a widespread rise in poverty, undermining the goal of using financial services to reduce poverty. 

Governments need to think ahead and factor these external risks into their digital financial policies. Financial service providers would do well to embed such risk scenarios into their long-term strategies. And it’s also worth asking ourselves whether we should focus less on customer-centricity and more on planet-centric design. 

When it comes to creating a good experience for consumers, we also face critical problems in areas like data security, privacy and personal identification. We have seen massive improvements in both technology and regulation for protecting consumers’ privacy, but these may not be enough. Fraudsters tend to innovate faster than security experts, leaving the latter scrambling to patch holes. 

Educating consumers about fraud is challenging because it requires a combination of technological literacy, financial literacy and what we might call ‘scam literacy’. Even if consumers follow recommendations for protecting themselves against fraud perfectly, such as doing regular system updates and protecting their passwords, they can still fall victim to fraud because so much of it involves ‘social engineering’: tricking people into providing information. What would financial education that includes scam literacy look like? 

The complexity of the market for financial services also presents issues for customers. Not long ago customers had few financial services to choose from, but now there are thousands of different services offered by different providers located in diverse places. 

Is this good for customers? Or does it simply produce more confusion, making it harder for them to make good choices and decisions? 

I am optimistic. I do think that market complexity will impact some consumers negatively. Many will simply ignore this diversity, sticking with their tried-and-tested bank accounts; others will end up with too many services, making their ability to understand their own finances harder.

But others will be able to take advantage of this greater choice to manage their finances in more sophisticated ways. In particular, people with low incomes are used to having to juggle financial tools to make ends meet: there is no cash left so you take a loan, you save by entrusting money to a neighbour each week, you pay someone with mobile airtime rather than cash. Digital financial services offer even more flexibility of use, and new ways for people with limited resources to get things done. 

How, then, should we approach this future world? For me, the word ‘ecosystem’ emerges loud and clear. Whether we want to understand environmental effects, market shocks, fraud, or consumers’ changing behaviours, we need to take a step back and look at financial services as an ecosystem with many moving parts. 

Being customer-centric is not enough, and neither is being planet-centric: we also need to be ecosystem-centric.