This was the question that we posed at our recent event, held at City favourite, One Lombard. Welcoming David Brear of the Think Different Group, we invited him to take a peek under the bonnet of the FS industry to see how well banks and insurers are dealing with the monumental levels of change that face them.
Here is a snap shot of David’s more insightful - and sometimes controversial - comments:
Technology is omnipotent and the way digital natives use and interact with it is very different to how it’s been done before. In an era where kids are learning coding in primary school, how will the FS industry engage with that market? It’s the question that will define if they succeed or fail in the coming decade.
In my opinion, in the last ten years, banks and insurers have focused on “dressing the pig” i.e. they might have plugged on digital apps or introduced a new m-banking initiative, but it’s more a façade – they might talk the talk on disruption and innovation but they are still silo-ised and culturally, haven’t moved on. They have an incredible amount of potential but don’t know how to use it. FS institutions have enviable resources and in terms of customer numbers far, far outweigh the challengers so they are in a sweet spot.
Gazing into my crystal ball, there are four main factors which depending on your way of thinking, can be perceived as a threat or an opportunity for the big FS players.
1. Technology: what’s not to say about technology, but there are some fascinating areas which I think will have a big impact. Mobile is the obvious one, but also take a look at APIs (application programme interfaces) like Uber and Braintree - a new bank could easily be created from existing APIs, one that could prove the real challenger. AI is another interesting area as are sensors. IoT and Blockchain are other key technologies. I think that companies have been side-tracked by “technology” in the last few years when the real answers lie in data and how it is mined and interpreted.
2. Legislation: the FCA has made massive moves in the last few years to create innovation and competition in FS, in making banking licenses much more accessible. Technology and the FCA are making the move into FS much more compelling for would be banks and insurers. The Payments Service Directive II is a piece of regulation that could really open up the market to competition – the directive states that banks will have to open up customer details (with their agreement) to APIs. The big banks are largely against it, but smaller banks like Fidor and BBVA have embraced it.
3. Competitors: In the UK currently there are about 40 banks but the forecast is for 60 by the end of next year. Next year! Realising that they don’t have the marketing spend the big boys do, challengers are largely going for niche markets as with low operating costs and an agile tech framework they don’t need massive customer bases to make decent margins. Loopbank, for example, is targeting students. M-Bank is one of the most innovative and functional banks on the planet, Mondo is the most exciting bank in the UK and eToro is using gamification to attract investors to its “fantasy football-like” investment platform. There’s a challenger out there to do everything the big banks do and they do it better.
4. Political: obviously there are “big” issues out there such as the war on terror and whether the UK will remain in the EU or not – all of these factors will have a big impact on how the FS industry might develop in the next ten years.
So how will it pan out? The big FS players will only lose out if they choose to – the ball is well and truly in their court. But first they need to address two key things. The first is being truly customer centric and harnessing a real understanding of what their customer wants, as the challenger FS companies do very well. The second is culture – they need to get over their legacy cultural problems. They need to think about doing things in a different way and bring challenger thinking into the boardroom. It’s only then will they be able to embrace the levels of change that face them.
By Adam Ripley, chairman and managing director of Certeco.