Out-Law News | 08 Dec 2014 | 4:45 pm | 2 min. read
Almost a quarter of the 2,000 consumers surveyed by YouGov on behalf of Pinsent Masons, the law firm behind Out-Law.com, said that they would be "likely" to use an online payment provider for retail banking services within two years. This was higher than the 19% of respondents who said that they would bank with a company better known for non-banking products or services and the 13% who said that they would consider banking with one of the new 'challenger' firms like Metrobank or Virgin Money, according to the research.
Of those surveyed, less than 5% said that it was likely that they would be banking with technology firms such as Google or Facebook within the same timeframe. Additionally, few respondents said that they expected to use bitcoin or other digital currencies to make payments in the future, according to the survey.
"These findings highlight the scale of the challenge facing the banks," said financial services expert John Salmon of Pinsent Masons. "Nobody can doubt that transitioning to a digital strategy is essential for any customer-facing bank given the potential for greater speed, reliability and security of payments and other services. However, financial institutions are going to have to focus on taking consumers with them on that digital journey."
"The good news for the banks is that the vast majority of British customers expect to be banking with established institutions in two years' time, so they have a strong competitive position. But interestingly, the strongest challenge is coming not necessarily from high street brands or technology companies outside of finance, but from payment service providers," he said.
PayPal does not offer full current account services, but allows customers to hold balances and withdraw funds to their bank accounts. They can also link their bank accounts and credit cards to the service, allowing them to send money and to pay for goods and services without sharing financial information. The service can also increasingly be used in high street shops as well as to make online payments.
In his financial services blog on Out-Law.com earlier this year, Salmon suggested that technology companies were well placed to offer banking services in the future. However, steps by the likes of Amazon, Google and Apple into the online payments marketplace had been "no more than tentative", he said.
UK competition watchdog the Competition and Markets Authority (CMA) announced that it would begin a full market investigation into the personal current account and retail banking markets last month. The CMA has said that it is concerned about the low numbers of customers shopping around and switching current account providers, and how difficult it is for customers to compare products. It is also concerned about continuing barriers to entry and expansion restricting the ability of smaller and newer provider to develop their businesses.
The survey by YouGov and Pinsent Masons found a "surprising" reluctance amongst respondents to commit to new technologies, Salmon said. In addition, 65% of respondents said that they were concerned about the security of payments made using technologies like contactless cards and 'apps' on mobile phones.
"It is interesting to note how people envisage themselves making payments in two years' time," he said. "Just 10% envisage themselves using a bank branch or telephone banking. Surprisingly, only 12% of people see themselves using mobile devices to make payments, something which I think will be more common than people anticipate."