Study shows need to win consumer confidence over innovation in banking and payments

A YouGov survey of 2,092 adults last month, which was commissioned by Pinsent Masons, the law firm behind Out-Law.com, found that 74% of the public see themselves still banking with a traditional high street bank two years from now. According to the survey, 16% of UK adults are likely to consider banking with a 'challenger' bank within the next two years, up from 13% last year.

Fewer UK adults said they would consider banking with a payment service provider like PayPal than did in last year's survey, 18% compared with 24%, and less than a fifth of respondents (18%) said they would be likely to consider banking with a retailer or other non-banking brand within the next two years, compared to 19% who indicated such a willingness last year.

Many consumers are reluctant to embrace initiatives backed by the UK government or EU policy makers on current account switching, open data and new payment services, the survey found.

According to the study, 60% of UK adults are either not very likely or not at all likely to use banking APIs that the UK government is in the process of finalising standards for. The use of APIs in banking would enable customers to access transaction and other bank account data and share it with third party businesses.

Flagship innovations being facilitated by reforms to EU payment services laws also lack popular support, the research found.

More than half of UK adults (56%) said they would not consider using an app or service that aggregated financial information from across all their financial services providers, despite the planned new Payment Services Directive (PSD2) being framed in such a way to promote such innovation by account information service providers (AISPs). Many consumers (42%) would not consider using the services of payment initiation service providers (PISPs) either, the study found.

The results from the Pinsent Masons-backed survey follow recently published statistics which showed that from July 2014 to the end of June this year, there were 1.1 million current account switches in the UK. Pinsent Masons said this was "only a marginal increase on the year before and still some way below expectation".

Financial services and technology law expert John Salmon of Pinsent Masons said there needs to be a re-think on how to address "public scepticism" over banking innovations.

"A huge amount of time, effort and financial resource is going into shaking up the banking market, but this research indicates that the public remain disengaged at best, and downright sceptical at worst," Salmon said. "If the sector is going to make this work and make all that cost worthwhile, there is a real job of education to be done."

"It's interesting that challenger banks are making some ground, but they still remain in the foothills. The more established players that could have provided alternatives, such as payment service providers and retail brands, remain the most likely challengers to the status quo, but even they don't appear to be making the impact that many would like. The one constant is that approximately three quarters of the population can't see themselves moving beyond the established 'high street' banks in the next two years," he said.

"EU policymakers are very keen on initiatives likes PISPs and AISPs as a means of driving competition. However it is going to be a battle to win hearts and minds and demonstrate the true usefulness of innovations. There is real scepticism around the UK," Salmon said.

Salmon said the survey did highlight a growing willingness for consumers to accept greater complexity in making transactions if it provided for better security. According to the study, 39% of UK adults would feel most comfortable conducting financial activity online, such as online banking or shopping, if multi-factor authentication was used.

"The one area where customers do seem ready to embrace change is around authentication," Salmon said. "The majority of online UK customers seem willing to embrace more complex processes to access online banking services in return for greater security. Even there, however, we were surprised that almost 1 in 4 of the UK population would still feel most comfortable relating on a simply username and password authentication process."