“Banks still have this mentality that you give gold to them and they keep it and give you a slight premium.”
HEADLINES
“Banks still have this mentality that you give gold to them and they keep it and give you a slight premium.”
1. Is a bank just a home for savings; a source of credit; and a facilitator of payments? Or is it really a manager of information.
2. Client onboarding for most standard banks is 2 – 3 weeks. Challenger banks can do it almost immediately. Moving direct debits can take ages. The Amazon generation are not that patient.
3. At the moment just 5% - 10% of customers move bank. They are not all looking at best buy tables
4. However, there is typically a catalyst which triggers action: a bonus or inheritance. It is at this point that they may do something about it. In other words, you need to be on standby should that catalyst happen either to capture their business or indeed hang on to it. Are you on the front foot?
KEY CHALLENGES
1. Customers Don’t Close Out Accounts - They Just Add New Ones
- Bank switching is on the decline because money movement is so easy, not because large banks have made banking convenient.
- The risk of switching is perceived to be too high and still little to choose between banks
- Key stats, average account balance of Monzo (a strong challenger bank) is £300. This shows that despite challenger banks providing improved customer experiences such as real time transaction monitoring, better foreign exchange rates and easier access, that the traditional banks still hold the power and market share. This is backed up by the fact that Since 2005 the total market share of Lloyds, Barclays, HSBC and RBS has fallen by just 5%.[1]
- Reasons for this are largely that due to the lack of differentiation between banks and the traditional trust that consumers but in their current bank that they in most cases have had since an early age
2. What is the role of a bank moving forward?
- Traditionally banks have made money from consumers holding their salary/income in one bank account.
- With the ease of money movement and further opportunities afforded by Open Banking, an increasing amount of consumers are now moving their money across multiple bank accounts that serve different purposes. For example, having their salary/income paid into their primary current account then instantly moving money to Monzo for their holiday funds, moving money to an HSBC ISA and so on... This presents challenges for the traditional deposit taking bank as they can no longer realise the revenue generated from a traditional singular current account and moreover makes it difficult to perform any customer analytics as they do not have an end to end picture on where consumers are spending money, limiting the ability to cross sell services.
3. Open Banking - API providers and Credit Rating Agencies, who are the winners and losers?
- The introduction of Open Banking is allowing new API providers to access customer information that was previously locked away in the data warehouses of the traditional banks. These services are customer centered and have seen high adoption rates in recent years.
- API providers are not encumbered by legacy banking systems and therefore can quickly spin up services such as a holistic view of a consumers financial accounts. These services are becoming increasingly attractive to a digitally native generation that has an expectation of service akin to their experience of major tech providers- Amazon, Google and Apple etc.
- However, there are still concerns with API providers around data privacy and where liability falls when money goes missing.
- Credit Rating Agencies are feeling threatened by the threat of Open Banking as their business models largely surround access to consumer data that other organisations do not hold. With API’s potentially providing access to that information there is a concern that the scope of their services will be reduced.
4. Moving from Competition to Collaboration
- The future of retail banking- at least in the near term- looks like one of collaboration between traditional banks and FinTechs/API Providers. Based around the fact that together they can provide a synergy of strengths that create an entity stronger than either individual organisation can provide on their own.
- FinTech’s and API Providers offer an innovation mindset, a customer-centric perspective and agility to adapt quickly to changing customer demands enabled through an infrastructure built for digital. Traditional banks lack these abilities, allowing these organisations to serve segments of the market underserved by traditional banks.
- However, there is still a need for traditional banks, as FinTech’s and API providers lack the ability to scale due to trust, security concerns and brand recognition. Furthermore, they lack the ingrained strengths of traditional banks- capital, knowledge of compliance and regulations as well as an established distribution network.
- Thus, the relationship between traditional banks and FinTechs/API providers is moving from competition to collaboration. Ultimately, if these collaborations are successful then it is the customer who will win out.
- Regardless of age human interaction was important
- Hybrid services are the key where clients can use technology for day to day activity but with the backup of the personal touch, the human service.
Expert: Tony Crane, Bank of Ireland
Facilitator: Ed Hamilton, Clarasys
