Banking used to be so simple. But the boom and bust from the last twenty years has left the industry reeling, with agile, lightly regulated challengers picking from the tastiest services, while regulators' demands ensure overheads rise for delivering core services.
If ever there was a time for bankers to ask big questions, it is now. I'd recommend starting with “what business are you really in?”
The firm foundations banks once believed they could rely on to retain customers, such as their 100 year heritage, happen to be crumbling. Digital transformation has struck every industry sector hard, yet some have adapted as well as thrived as they have harnessed new tech and embraced new mindsets. Banking has struggled.
Banks aren't simple businesses, though, typically combining '000's of ways to aggregate their basic business model of cross-selling. Open a current account to seize the customer's main income after which add a savings account, investments, mortgage, loans, insurance, etc, etc. Not too long-ago retention was not a problem, customers rarely switched accounts since it was too complicated. That, too, is changing.
Accenture's consumer banking survey in The united states shows in the past 12 months 18 percent of millennial customers switched their primary bank. Match it up with 10 percent of customers aged 35 -54 and 3 percent of people 55 and older and it is clear that millennials are shaping the near future. With Open Banking on the near horizon and increasing competition from challengers, neobanks and fintechs, retention is going to become an issue if it isn't headed-off at the pass.
Millennial-minded brands get higher valuations
It must be galling for banks when a fintech start-up, which does not even have a banking licence, goes out and acquires 1m accounts and a $1bn valuation for delivering one digital service well. Revolut, for example, started with a very useful FX app, a pre-pay debit card and an EU e-money licence and has built a unicorn valuation on those humble beginnings. If they'd like to transform into a successful, fully regulated bank is not clear, but they've won over a lot of millennials in the meantime.
Millennials' expectations are positioned by Big Tech (Google, Facebook, Apple & co). They need highly personalised services and best-of-breed user experiences across all their devices, and they won't think twice about switching to a service they deem better suits their needs. Convenience is key and brand experiences matter for them.
Monzo made its mark having a fluorescent card, a pre-pay account and a groovy app and is now an FCA regulated bank. Many fintechs claim to be reinventing banking, but reinventing payments is most likely closer to the truth. Banking is a lot more complex than a mobile app or money management tool.
However, competing in this new landscape means traditional banks must get smart and transform their brands and cultures in addition to digitise their processes. If there is any more evidence required we need only take a look at organisations in other sectors that failed to do this. Blockbuster, Vine and Blackberry are good examples of companies that failed to spot new trends and adjust to emerging models in time, led by companies such as Netflix, Snapchat and Apple.
Banks must evaluate which business they are actually in and align a brand new vision with a clear value proposition that resonates with tomorrow's consumers.
Brave new thinking
Traditional banks still have time to respond. They have scale, financial capital, regulatory approval, brand recognition, customer data, distribution and, despite their problems, an acceptable level of customer trust. Granted they're also slow, predictable, political, risk-and-change-averse; and mostly remain dependent on thirty-or-forty-year-old legacy technologies.
For the last few years, most financial services companies have focused on 'digitisation' and removing those famous 'pain points' or 'friction' in the customer journey. To drive future growth, more radical thinking is required, with a focus on ideas, propositions and stories, while identifying and solving real-time issues because they occur. It goes without saying that this includes ensuring systems don't crash or are breached, as security is probably the key value customers still associate with banks. This must not be compromised.
Perhaps privacy and trust could be the new competitive advantages
Data is banking's hidden gold and incumbent financial brands must learn to leverage this hugely valuable focal point in better serve individual customers and share value, rather than make money out of selling it to advertisers, as Big Tech does.
With Open Banking soon to make its mark, financial data will end up the new battleground, but questions about data privacy may result in many consumers saying 'it's not for me'. With GDPR shining a spotlight on explicit consent and exposing Big Tech's freewheeling attitudes to non-public data, expect data privacy to become a big topic for 2021. Fintechs uses Open Banking to challenge retail banks, but fears over financial data falling into the hands of Big Tech may inhibit adoption. Imagine Facebook combining what it really knows about you from Facebook, WhatsApp, Instagram and your bank?
However, banks have two advantages within the fintech challengers who are salivating over the prospect of getting their hands on Open Banking data which could tell them where customers shop and just what they spend their money on. The first is historic data, which is invaluable when assessing risk for loans and mortgages; and the second is trust (albeit somewhat compromised following the financial crash).
With trust as a core value, banks' handling of information needs to get privacy right. Up to now retail banks have accumulated numerous data about us, yet barely scratched the top of using this to improve user experiences and their own decision making, still relying largely on credit rating agencies' – often unflattering – profiles that can penalise individuals for a single misdemeanour for approximately six years.
If banks wish to meet their customers' needs and expectations and respond to their fintech challengers, they are going to need to shift their approach to personalisation and make new engagement models, according to frictionless processes, transparency and trust and, perhaps, a return to more 'discretion', particularly in their credit decisions. In a digital world, being treated like a human is valued more than ever.
There is no doubt that we are all more likely to trust a service provider who values our privacy (beyond mere legal compliance) and it is transparent about how our data is used. And trust, of course, encourages loyalty.
The power of brand purpose
Changing customer perceptions of any incumbent bank requires a refreshed sense of purpose and a clearly articulated, differentiating brand proposition. An organised and rigorous branding methodology is key to success, particularly if leadership teams are to engage staff in the process of reinvention, which may be hugely valuable during periods of transformational change. The re-definition of purpose and also the articulation of a compelling value proposition should be at the heart of every brand.
Tomorrow's bank certainly needs technical transformation, but that won't be enough in itself. A bank has to be more than its own processes. If it can deliver a secure eco-system of financial services based on a proposition of trust, transparency and privacy – in a world where everyone else is using stealth techniques to access customer data – you may just have identified a good reason why your 100 year-old bank still should exist.
Peter Matthews is founder and CEO of Nucleus, a completely independent London-based brand, digital and IP consultancy.
A designer by training, Peter is constantly on the personally lead strategic brand creation, innovation and transformation projects for international clients, specialising in financial services, travel and luxury. His rare combination of business, design, digital and IP expertise are highly relevant at a time of digital disruption in banking and beyond.
In financial services he led the user experience team creating First Direct's online bank so long ago as 1996 and more recently has advised Azqore, Crédit Agricole Private Banking, Indosuez Wealth Management, HSBC, NatWest, Standard Chartered, Rothschild & Co and, most recently, two new challenger banks.