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Time machine: when yesterday’s world went digital

14 December, 2018Heather Tilston

Post-WW1-bankingWith its Financial Innovation Awards, we have been celebrating innovation in financial services for over twenty years.

Verification, cost control, compliance and risk management that will always need to be done excellently, and can always be done better. The ingenuity applied down the years to solving such problems was both surprising and sometimes charming.

Tally sticks stored in the Bank of England museum, for example, which look more than quaint now, were the method of choice when it came to working out who owed what in a pre-literate age. When tally sticks were still in steady use, the biggest shift that finance saw for several hundred years was probably the advent of double-entry bookkeeping.

The City of London of 50 years ago, with hand-written ledgers and runners delivering messages, would have been familiar to Dickens but is hardly recognisable now. Still, even 20 years ago there were still a lot of paper-based bank products and processes, including CHAPS payments, cheques and changes of address, and nearly all of them required signature validation. Now, people are talking about disintermediating financial services with distributed ledger technologies that take the place of trusted third parties, including banks.

How has this accelerated change been reflected in the Financial Innovation Awards since they were launched in 2000?

Most innovative use of customer database

In 2000, the idea of a centralised signature database was both new and helpful and was put forward for the Financial Innovation Awards. As it happened, it did not make the grade and – as we now all know – signatures have long since been superseded by chip and pin for many purposes. Chip and pin itself will fade over time, but what did win the award?

Speaker Verification – an early use of biometric identification in UK financial services that enrolled 400 customers in a six-month pilot – put forward by Nationwide, was what took the crown in that section in 2000. It was noted that there were “questions surrounding the long-term sustainability of the multiple PIN/password model”, which, of course, is still true.

What is also true is that the use of voice recognition and biometrics more widely is still facing teething problems. HSBC, which was one of the first banks in the UK to introduce voice recognition – at First Direct in 2016 – has found that the software can be fooled by, for example, twins who have similar voices. However, it is still more secure than passwords, which are relatively easy to crack, particularly when so many of us rely on birthdays, ‘password’ and ‘123456’.

Most innovative e-delivery channel – banks

The winner in this category in 2000 was TV banking, put forward by HSBC. It may be hard for us now to envisage a world where an offer that “changes its service…on a weekly basis to keep the service fresh and to tie in with new product launches, national campaigns, the time of the year (such as Easter) and topical events” could be considered genuinely ground-breaking. However, this was a time when broadband internet access was only just about to be launched; 2Mbs was considered a fast speed (now 4G can offer average mobile speeds of 18Mbs and the average fixed broadband speed in the UK is 36.2Mbs); and text messages and email were still relatively novel. It was only in 1997 that Nokia produced the first mobile with a full keyboard (not touch-screen) that really made texting easy.

Who were the other contenders? One of the other entries the judges considered was HFC Marbles, “a credit card that could be managed online or over the ‘phone” – and by that they did not mean a smartphone. Before anyone shakes their head, it should be remembered that, back in 2000, only half of UK adults had a credit card and it was only in 1998 that debit card payments overtook cheque payments. HFC Marbles and its competitors Egg, and Smile, were, back in 2000, genuinely new. At the end of 2016, of course, there were 64m charge and credit cards on issue in the UK, one for every head of the population (and nearly 100m debit cards) and the industry faces the advent of open banking and PSD2.

Although it was only 17 years ago, it seems a much more technologically innocent time. HFC Marbles said in its application “a unique feature of the service is on-line application…this apparently simple process actually involves several computers…”.

Most innovative new entrant

The rise of Fintech – and the introduction of the regulatory sandbox by the FCA – has powered a lot of start-up activity in financial services over the past few years. There are brand-new retail banks – Starling, Monzo and Atom Bank among them – and there is even a new clearing bank – the first for 250 years, Clear.Bank.

Back in 2000, hopes were equally high. “Hardly a week passes without a new entrant, with ever-more innovative ideas, appearing the financial market,” the judges for the most innovative new entrant award noted.

The company that won, and in particular the idea that gave it the prize, may not sound particularly noteworthy now: First-e with its customer council. Six customers, representing a cross-section of the internet bank’s customers under an independent chairman, were to keep tabs on how well it met its customer commitments. One of the most important of these was: “to satisfy all queries within 24 hours”. There was certainly a demand for banks to be more responsive to customers. Over 300 of them applied to be on the council within a week of its announcement. In a world where Twitter provides instant, and highly-public, feedback on customer service, and AI (or so we are told) will soon be able to tailor financial services at the customer level, this does look quaint, but was said to be a first in UK banking at the time.

How times change!

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