Bank consultants question incumbents’ move into digital space

As JPMorgan readies to launch a new digital retail bank in the UK, consultants suggest knowledge of the market is paramount

by | February 9, 2021 | bobsguide

JPMorgan Chase recently announced it will offer UK consumers “a completely new banking choice” with the launch of its new digital challenger later this year, but consultants are warning that those looking into the market must be clear on the path they are taking.

“I’m really sceptical,” says Mark O’Keefe, founding director of Optima Consultancy. “I was sceptical of Bó too when it arrived because I think that anything that is attached to an incumbent raises questions as to whether an old legacy bank can ever genuinely act like a true challenger bank.”

In 2019, JPMorgan was forced to close Finn, its US-based digital retail bank.

Bó, the digital-only bank developed by NatWest Group (formerly Royal Bank of Scotland), was meant to compete against new, nimble UK challenger banks like Revolut, Monzo and Starling, only to be scrapped just six months after it went live.

According to O’Keefe, if there is a lesson to be learned from the failure of Bó, it is to launch smoothly, because when RBS finally landed with their digital-only offering “it was a long time coming and massively underwhelming”.

To avoid transferring legacy systems from its incumbent bank in the US, JPMorgan has built Chase in the UK from the bottom up, with the aim of giving it similar flexibility to a start-up.

“The UK has a vibrant and highly competitive consumer banking marketplace, which is why we’ve designed the bank from scratch to specifically meet the needs of customers here,” said Gordon Smith, CEO of consumer & community banking and co-president of JPMorgan Chase.

Lack of brand recognition

JPMorgan is relying on its “established and trusted” brand and a “new take on current accounts” to entice UK consumers to its digital-only bank, with the lender claiming that “stability and trustworthiness… remains a key consideration for consumers”.

However, brand management is an extremely sensitive area in UK retail banking.

“A major obstacle for JP Morgan will be brand recognition with British consumers,” says Mark Taylor, a banking expert at Featurespace, a provider of adaptive behavioural analytics solutions for fraud prevention and anti-money laundering monitoring. “People active in financial services will know who they are but will the general British public?”

“UK banking is a highly competitive market and to be successful [JPMorgan] will need to put the customer experience at the forefront of whatever they do,” says Taylor. “Existing challenger banks in the UK market offer lots of functionality in their banking apps, so JPMorgan will need to compete in terms of the digital features they offer.”

JPMorgan has appointed Sanoke Viswanathan, the bank’s chief administrative officer overseeing technology and operations in its corporate and investment banking unit, as CEO of its new UK challenger. It has also hired 400 people and plans to bring even more staff onboard as it grows, suggesting that JPMorgan wants to hit the ground running when it launches in the UK.

The new digital bank is headquartered in Canary Wharf, London, and its customers will be served by a purpose-built customer contact centre in Edinburgh. JPMorgan’s new digital challenger will benefit from the experience of not only its US-based Chase team, but also the many external hires it has made from the UK’s retail banking market, including former Lloyds and Citibank chairman Sir Win Bischoff, who will sit on its board and lead its risk committee.

“Our decision to launch a digital retail bank in the UK is a milestone, introducing British consumers to our retail products for the first time,” said Daniel Pinto, JPMorgan Chase’s London-based co-president. “This new endeavour underscores our commitment to a country where we have deep roots, thousands of employees and offices established for over 160 years.”

Stiff competition

The established UK challenger banks – such as Monzo and Starling – first laid roots more than five years ago and continue to have been successful in enticing British consumers away from legacy lenders, according to the latest current account switching data from Pay.UK.

Monzo Bank and Starling saw net gains in customers switching their current accounts over to their brands, with the former onboarding 9,157 in Q3 2020, while the latter secured 12,652 over the same period.

“JPMorgan may have looked at the UK account switching data and thought ‘here is a market where we can potentially grab customers’, but they may have already missed the boat,” says O’Keefe. “Perhaps three years ago, the pickings were a bit fatter, but they look a lot slimmer now.”

Incumbents entering the digital banking space have offered financial incentives to attract customers – a strategy seen less among the challenger community. Getting the strategy right before moving into the market is crucial, with N26 just one example of a bank that tried and failed to make inroads in the UK digital retail banking space – despite spending €26.9m (£23.5m) on its expansion effort.

“[N26] was successful in terms of launching previous digital offerings in Europe, but didn’t have brand recognition in the UK, so had to spend money in terms of marketing acquisition… and still left with its tail between its legs,” O’Keefe says. “Clearly JPMorgan can spend a lot more than that if they so desire, but I’m not sure if that will achieve much for them.”

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