Digital transformation has a lot to answer for. Sure, for end users there’s a vast smorgasbord of innovation out there. Disruption lurks around every pixelated corner. But what of those operating in one of the most important, but notoriously conservative, sectors?
Yup, we’re talking about banking.
While there can be no doubt that the familiar high street banks have doubled down on digital – or more specifically, online accessibility – we can’t escape the fact many of them are on the back foot when it comes to providing a tech-savvy, user experience (UX)-focused service. It’s a similar story from a business banking perspective – even for those providing corporate or company cards.
The trouble is, a new generation of agile, VC-backed, fintech companies are growing rapidly in most major markets. The threat is real and happening at scale. Adapting in this new climate is key to long-term survival – but how exactly should traditional banks and card providers look to level up?
Let’s look at some of the key challenges they face, and consider some ways in which banks and card providers can keep evolving – in line with their customers’ changing needs.
A New Wave Of Challenger Banks
The financial services sector is no stranger to niche players taking market share. For example, over the last few years – particularly in the US – flexible loan and mortgage providers (such as Better.com and Rocket) have continued to disrupt the status quo: through a combination of lower down payments, better rates, and lower barriers to entry.
In a similar way, it now looks as though cards, banks, and payment solutions are now ripe for disruption. But this isn’t a war on access to capital per se – it’s a war that’s being waged on everything that banks don’t provide – specifically UX, technology, and data.
In the UK, the Big Four banking groups – Lloyds, RBS, HSBC, and Barclays; which many of the other well-known banking brands fall under – are now facing competition from the Emerging Three: namely Revolut, Monzo, and Starling.
While it’s clear these and others have some way to go before they can claim to be encroaching on Big Four territory, challenger banks’ growing popularity among the younger generation demonstrates a growing trend. For example, reports show that 25% of UK Millennials and Generation Zs (those aged 37 or under) have a challenger bank account – with Monzo being the most popular.
Similar services exist across the world – in Europe (such as N26 in Germany, Qonto in France, and Bnext in Spain); North America (eg Chime, Simple, and SoFi in the US and Tangerine, Koho, and Wealthsimple in Canada); and Asia (KakaoBank in Korea, Sony Bank in Japan, and WeBank in China).
Clearly, these numbers will continue to rise – but the question remains: what’s driving all of this need for innovation? You guessed it – customers.
Customer Driven Innovation
Any tech innovation worth its salt will be grounded in solid customer strategy, but you don’t have to look very far to realise just how dramatically banking behaviours are changing.
Gone are the days of ‘going to see the bank manager’. The advent of online banking has meant physical bank visits have declined too. Some are even predicting a 30% decrease in the number of branches by 2030.
We’re also moving towards a cashless society. The increased use of contactless payments during COVID-19 is clear evidence of that – and it’s not set to be a short term trend either. However, one major growth area is largely responsible for the fintech revolution – the use of mobile phones and the app economy.
But it’s not just neobanks’ mobile first mentality that’s winning the new customers. What they offer is complete financial oversight. Features such as instant payment and direct debit notifications, on-demand expenditure insights, and low effort transactions, meaning users get a hassle free customer experience.
However, transparency remains one of fintech’s biggest advantages. Most challenger banks allow customers to add details of all of their other banks and card accounts into their user interface – from every other bank they use.
Access to data one gives challenger banks a major advantage. Data can be used to get a complete overview of each customer’s habits, preferences, usage patterns, and income; which means that – from a marketing perspective – communications, offers, and incentives can become a lot more personalised.
Ultimately, challenger banks know how to foster loyalty and realise that collaboration is more powerful than competition. They know exactly what they can and can’t offer. And when it’s clear that there’s something missing, they’re more than happy to ‘add-on’ different third party services – allowing them to simply plug themselves in via APIs.
As a result, there’s every opportunity for traditional banks as well as company and corporate card providers to get in on the act – but how?
Adaptation & Evolution
Perhaps the bigger question – aside from the fact customers are using mobile and online banking services – is what broader behavioural shifts are at work?
Despite a continued rise in digital services over the last few years, there can be no doubt that COVID-19 has upended the way we live and work. For example, we’ve seen a rise in remote and hybrid working for many corporate and office-based roles. Plus with many people furloughed, finding themselves unemployed, or purposely working independently – as part of the ‘gig economy’ – financial awareness is at an all time high. This in turn impacts what both consumers and business owners want from banks – visibility, flexibility, user-friendliness, integration.
So if it’s clear that customers want neobank functionality, how can traditional banks and card providers compete? While it’s true that some are bringing their own challenger solutions to market themselves (remember RBS’ short lived Bo solution?) – others are adopting the add-on services model to close any potential gaps in their service – actively working with white-label providers to ensure that their trusted, well-established finance brand remains front and centre.
For example, take our recent collaboration with a long-standing card provider (if you’re curious, reach out to learn more). We worked with their team in Sweden to establish an expense management solution – one that allows private card holders to separate out any company expenses they’ve made with their personal card. Not only does this allow the card provider to boost their existing solution’s functionality; it also provides additional value to the brand’s customer base – extending their services without deviating from the original.
White-label solutions are designed to be complementary, but, as we mentioned in a previous article, new challenger banks are evolving in this way too – using another company’s tech stack and simply taking care of the front-end operations and building a brand. In this way, they can also gain first mover advantage – and get a faster time to market.
However, if banks and card providers are committed to building ecosystems to give them the agility they need to keep pace, then they also need to consider these services’ place in a broader digital transformation initiative. As referenced earlier, the need for usable, joined-up data is paramount to getting granular customer insight; which in turn leads to greater revenue opportunities.
Ultimately, adapting to the new fintech reality means that banks and card providers need to strengthen their market position without jeopardising their core business. There are many different ways to do this – and they don’t need to create an entirely new proposition to stake a claim. They simply need to understand what their customers want and find a way of incorporating new functionality into their stack.
Luckily, with white-label solutions, this isn’t as difficult as it sounds.