Will 2016 be the most disruptive year ever for the UK’s financial services industry?

Technology is changing the shape of Britain’s financial services (FS) industry extremely quickly, and 2016 will see the sector make serious steps toward a digital revolution. Here are our key predictions for what the UK’s FS industry and its customers can expect in 2016:

Challenger banks will continue to disrupt high street rivals

One of the biggest disruptors to the banking sector in recent years has been the growth of challenger banks. Since 2012, 21 new providers hoping to rival the Big Five have been granted a license by the Bank of England. The latest to be given the green light is Tandem Bank, a digital-only bank due to launch this year. It will join Atom, the UK’s first digital-only challenger, which gained its license in June and which has recently struck a funding deal with Spanish Bank BBVA.

These challengers claim to be more technologically agile than high street rivals as they don’t have to work around the legacy systems prevalent in larger banks. The increased competition will hopefully raise the bar for high street providers, ultimately delivering a better products for customers and big leaps in everyday banking technology.

Security will evolve beyond a mere perimeter system

Cyber-security continued to dominate headlines in 2015. Organisations like TalkTalk and Ashley Madison suffered very high profile hacks and earlier in the year online security experts Kaspersky uncovered  the greatest bank robbery of all time. While most buildings have sensors inside as well as on the door to detect an intruder, surprisingly that’s not the standard in FS technology.

To continue the fight against increasingly sophisticated cybercrime, the financial services industry must change its approach from a perimeter-focused solution to one that can detect and neutralise threats in real-time. Gartner calls this approach Run Time Application Security Protection (RASP), but it’s an underserved market. We believe 2016 is the time for financial services security to evolve, to start using technology that can anticipate and understand the difference between typical user behaviour and criminal behaviour and then have the capability to cope with threats in real-time.

Banking will discover its social side

As banks increasingly seek to attract younger audiences, social media is more important than ever. Banks have been making increasingly creative use of social platforms to engage these audiences. For example, for every 2,000 "likes" challenger bank Fidor gets on Facebook, it reduces its loan interest rate by 0.1 per cent. In early 2015 Barclays became the first bank to enable customers to make payments using just a Twitter handle.

In 2016, these services will mature and become much more robust. They’ll start to embrace typical digital banking processes like checking bank balances and transferring funds. It’s also likely such services will extend to newer social media platforms like Periscope and Snapchat.

Biometric authentication will become more commonplace

To date, biometrics have been somewhat regarded as an emerging security method, but 2016 will be the year we’ll see them become commonplace in financial services, with the potential to one day outstrip the password. The increasing usage of Apple’s Touch ID system saw the use of biometrics explode last year, particularly as a payment method as part of Apple Pay, which launched in early 2015. The system’s popularity has categorically put fingerprint scanners on the map, and has created inroads for further technologies to start being used in day-to-day digital banking processes.

Last year, Barclays launched finger vein scanning capabilities, while Mastercard trialled a selfie smartphone payment app, which uses facial recognition to verify online purchases. When Atom launches next year, it won’t be using traditional passwords at all, instead using a combination of face and voice recognition systems to provide account access. 2016 will see such systems, as well as others such as iris scanning technologies, become increasingly normal methods of authentication, and an inextricable part of the everyday banking experience.

Technology is playing a crucial role in the evolution of the financial services industry in Britain. The rise of the challengers and the disruption they’re bringing to the market is rooted in digital innovation. Given the latest developments and all the new challengers launching next year, 2016 could be the most disruptive year the sector has ever seen.