The Evolution of Digitally Native Financial Services

Technology is often a glimmering lure. “The next big thing.” Walking the exhibition floor at this year's Mobile World Congress, there were dazzling gadgets and systems on display. It made me wonder how these technologies could be used for services that are traditionally not dazzling, but important in people's daily lives. At Flourish, we are excited by the possibility, in a 5G world, of investing in personal finance solutions that are digitally native and engaging in every way, helping people achieve better outcomes.

Take immersive new interfaces, spatial computing. Imagine a place where every physical surface–the table or the wall–can turn into a user interface that could be manipulated by everyone in the room. That technology makes new services and ways to interact feasible that were impossible before, in finance as well as many other areas. As we have seen with the smartphone, transformative user interfaces have the power to make personal finance more affordable, more intuitive, and more personal.

For example, at Flourish, we have invested in digitally native challenger banks, designed for the smartphone screen, and for the mobile experience. Through a powerful interface and a low-cost model, mobile-only banks such as Chime in the United States have created a new banking experience, helping consumers automate savings, retain financial control, and get ahead.

User interfaces matter to service delivery because they define the nature of the service and how affordably it can be provided. Because most people carry a smartphone, challenger banks can beam the banking experience into our hands, rather than requiring people to walk into a branch. Similarly, in India, where many savers do not have access to investing because of high fees, Scripbox offers a digital-only, mobile-first brokerage with a minimum balance as low as USD $10.

Mobile-first financial services can also do more, such as give you timely nudges, budget reminders, and discounts at the point of sale, also making financial decisions easier to visualize. A more personal user interface enables service providers to better know their customers and provide tailored services and pricing. Steady, for example, combines analytics and social networking. It’s an app that connects workers in the gig economy to flexible opportunities to grow their earnings and achieve their financial goals.

And when digital interfaces are combined with other powerful technology, such as drones, satellites, and IoT sensors, then financial services tied to physical assets (such as insurance) can be provided in new, more affordable ways. Pula, for example, is an all-digital crop insurance provider for smallholder farmers in Africa. It uses real-time satellite imaging to measure rainfall and make rapid digital payments to previously unbanked farmers.

A number of geographies are pulling ahead in creating the environment where such digitally-native businesses can strive. Smaller advanced economies in Europe such as Estonia, for example, have famously created a digital infrastructure and identity regime that accelerates business innovation.

As a leading emerging market, India has created a technology stack on top of a public good: the digital ID program Aadhar. The "India Stack" includes eKYC regulation, e-signature protocols, open APIs, and a low-cost national retail payments system.

These countries show how to build a digitally-native retail financial system on these new technologies and interfaces:

• A combination of infrastructure investments, policy, and regulation that lowers system-costs and creates a level playing field on the supply side;
• Providers that leverage this common infrastructure and compete with superior value propositions at the application layer; and
• Consumers who are empowered by controlling their data and choosing whom to entrust with access to that information in exchange for services much more tailored to their individual needs.

Throughout the history of money, technology has shaped and reshaped finance. New user interfaces, such as spatial computing, will make possible new financial services, and will become the platform for new technology stacks that make traditional financial services more affordable to more people.

The digitally-native financial services that are emerging can improve people’s lives and create opportunities, or they can destabilize the system and create barriers. It us up to citizens, businesses, governments, and regulators to proactively forge a financial system that works better for more people.

(For more insights from Tilman Ehrbeck, follow on Twitter and Medium.)