First published in The Drum’s Financial Services Supplement December 2018.
Digital change is rapidly catching up with financial institutions, both large and small. The recent GDPR drum is still echoing in everyone’s ear. Privacy and data breaches are keeping fintechs up at night and making them think how to gain customer trust. Then, on the other hand, large financial institutions are fighting for customer loyalty and relevance like never before.
Gone are the days when large banks relied on their customers not bothering to change providers due to lengthy application processes, unsurmountable regulation, cash and infrastructure or high barriers to entry for smaller players. Technology has fundamentally changed the game.
But, what will be the ultimate differentiator?
The answer is simple. Making the customer’s journey easier and helping them reach their financial goals. Though this is easier said than done if you’re from a large financial institution with many layers of approvals.
Whilst Brexit is occupying everyone’s minds, until a definite deal has finally been agreed and new legislation has been enacted, the new financial services start-ups retain an advantage. This is because current legislation has enabled fintechs to offer services that were never possible before. Open banking (The use of open APIs that enable third party developers to build applications and services around the financial institution) is enabling companies to initiate payments and access data in a way that simply was unheard of before.
For example, if you’re a small business owner needing a new bank account up and running, traditionally this would usually take 2-3 weeks with a conventional bank. However, with the new ‘future banks’ entering the market, like Tide and Starling, it can now take you 1-3 hours. All without the fuss or filling out lengthy forms.
Large players from different customer focused industries, such as Amazon or Google, are also talking about creating a completely new breed of fintech competition. In fact, it is Amazon’s close relationship with customers which is considered more dangerous by traditional banks than its size.
You’d be mistaken to think that large banks will not go down without a fight
You may have noticed that Barclays are working hard, offering to pull all your different accounts by different providers into one place. Many traditional banks are also stepping up their customer experience and are completely reshaping their workforce to do so. Lloyds Bank has confirmed it is cutting 6,240 jobs and creating 8,240 new ones, as it overhauls its digital services and forms part of the £3bn commitment the group has made to invest heavily in its technology and people over the course of its three-year strategic plan.
The positive result of great customer experience transformation can be seen with Etch and Big Radical’s work on Santander’s Smartbank, transforming the student customer journey, and Hargreaves Lansdown investors much-improved trading app experience. Also, Aviva after being completely and vocally against robo-advisory services, then changed its tune last year by buying a majority stake in Wealthify to defend its long-term future. Santander also outpaced their traditional rivals by recently launching their new ‘Digital Investment Advisor’ app.
In the end, financial service providers need to remember that consumers have bank accounts to make payments, save money and access credit. The banks that choose to focus on how AI and data analytics can help them reach those goals faster by making it as easy as ordering a pizza or an Uber, will help them to stay relevant and fit for the future. Take Polish mbank which approves loans in 30 seconds and allows you to discuss loan options via Skype. The reason is simple: no-one likes to sacrifice their lunch break for an hour-long appointment to meet a mortgage advisor.
Banks need to remember that customers do not care about the back-end complexity nor are they overly keen on changing providers. But, poor service and slow approval processes are simply not going to make the cut any longer. Whilst promising blockchain protocols and Initial Coin Offerings (ICOs) has been challenging the way we invest and access capital in a global market, AI, mobile payments and open banking are changing our day-to-day behaviour in the way we analyse, save and spend our old money. Despite numerous cautionary statements being issued by world governments and money institutions, it won’t be too long before buying and monitoring Ethereum or Tether through our daily bank accounts will be as common as transferring our pounds and pennies into a savings account.
You may be familiar with Hal Varian’s, Google’s chief economist, quote “A simple way to forecast the future, is to look at what rich people have today.”
This leaves us to wonder which rich person would be satisfied with 0.2% of interest on their savings account balance or horrendous fees on international transfers? This could explain the rise of robo-advisory investment services, such as Nutmeg and Moneywise, and why traditional investment firms, such as Quilter (previously known as Old Mutual Wealth) are rushing to follow-suit with their platform transformation programmes. Recently, Quilter launched a brand-new digital home. Developed and created by the Etch Group, this focuses on the customer user journeys, the simplicity of good design and functionality - and the results speak for themselves.
There is much going on in simplifying APIs and connections between different providers, but ultimately, once all the backend complexity has been standardised and taken care of, it will be the front-end user experience, that is based on user needs and the simplification of processes, will separate the wheat from the weeds.
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