With the number of challenger banks on the London Stock Exchange increasing, banks are starting to feel the pressure to go digital. At this year’s Retail Banking Innovation conference, we heard from 5 top challenger banks who revealed their role in the traditional financial industry and how the customer is their number one priority now.
Chief Executive Officer and Founder of Starling Bank, Anne Boden, highlighted how most of the world does not realise what is happening in fintech today. “A viral effect is needed so consumers can tell each other challengers. Many things that banks did in the 80’s, they still do now and Starling want to change this.”
Boden stated that after the financial crisis, bankers like herself, realised that value should be delivered to customers, rather than be sold an abundance of products. “Customers are better educated than ever,” and their data is important to them. Now that regulations have changed, it is possible for anyone to acquire a banking license and become a “retail bank without branches,” Boden said.
Starling Bank have attempted to put the customer first but just delivering one product, the current account and Boden explained how “it is all about focus and doing one thing well so we can get real insight in one segment.” Boden is targeting those people who “wander down the street looking at their phone, rather than where they are going”.
The future is yet to be told as banks could disaggregate, provide products or “coexist in an ecosystem of financial products that are facilitated by PDS2,” Boden said. “Balancing adherence to the way banking has always been done with innovation will be difficult for banks.” Fintech companies, on the other hand, will have difficulty gaining customers and Boden says that they should concentrate on enabling banks, rather than disrupting.
Aldermore pride themselves on being a bank that is fit for the future and the first challenger bank, having established in 2009. Vicki Harris, Director of Strategy and Marketing at Aldermore explored how the bank is built on a specialist lending model in a commercial setting. As well as this, they are funded by retail and SME deposit savings operations.
Like Starling, Aldermore desires to provide an alternative way to bank after the repercussions of the financial crisis and their focus is now on customer service and transparency. “Customers want to engage digitally and this can be done through innovation in tech,” Harris said.
Harris also described Aldermore’s journey from having virtually no online presence to making lots of noise. Their strategy had two simple principles: “reinforce brand and provide an online lead generation capability”, but now their digital user experience has been established. Aldermore are also deliberately not looking at blockchain technology because there are many opportunities to be found in other ventures, Harris said.
Jason Bates, co-founder of Mondo, showcased his bank, which has been built by its customers, and questioned whether the emergence of challengers is the start of a revolution or just lower cost banks. Bates believed that they are “moving into a multibillion pound market”.
Legacy players have to develop their old core systems to be able to operate in the new world and Bates stated that “with every layer of that onion, comes inefficiency”. Although times have changed - Bates gave the example of how 30 years ago, one gigabit cost $1 million but now, it is available for one cent - regulation and large incumbents are still making it difficult for banks to be more innovative.
Bates explored how banks need to move away from having an app, for the sake of having an app, as it will remain on the second page of a customer’s phone, not really being used. “Digitised products are not the same as digitised services”, and banking will need to change as product selling will deplete.
Mondo operates using three pieces of advice, which Bates shared with the audience at the conference:
Fall in love with your customers’ problems, not your solutions.
Customers are great at telling you what they have done, and are horrible at hypothetical scenarios.
There is no secret sauce, it’s all about execution.
Banks are aware of these three notes but they need to do it and test it, Bates said.
Based in New York, Moven provides frictionless banking and helps people better understand their finances. COO Ramy Serageldin states that expectations are changing, but who is creating an experience that engages customers?
Serageldin takes the same approach as Bates and mentioned how important it is for a banking app to be accessible, useful and valuable. Information shouldn’t be static on the app as it will sit on the page “right next to your Facebook and Uber app”. Another aspect that should be taken into consideration is that it is not the customers who want faster payments, Serageldin said.
According to the Federal Reserve Consumers and Mobile Financial Services 2015 report, 75% said that the main reason why mobile payments are not used is because it is easier to pay with cash or card. Serageldin also shared statistics on how millennials view banks: 71% would rather go to the dentist that visit a bank branch.
In addition to this, Moven found that a main concern for customers was budgeting - 85% of customers cannot budget because it requires discipline and planning, so the challenger has placed a Spending Metre within their app. Serageldin presented the idea that the banking experience needs to be changed to suit the next generation.
For Fidor Bank, application programming interfaces or APIs, is the future of banking. Vice President of European Expansion, Sophie Guibaud, highlighted how the online bank is “based on the principle that customers should be at the decision making”. Fintech companies can be integrated with APIs, but banks can also use the solutions that Fidor offers to launch their own digital service.
Guibaud explored how with the internet and the addition of the smartphone and tablet into our everyday lives, we are constantly connected through social media and GPS. “There are new expectations for all industries and the financial services sector is the same,” Guibaud said. However, as all the speakers from the challenger banks said, innovation will take time to implement within the legacy systems.
She also states that the reason that fintechs have been able to develop so quickly is because of the technology that APIs offer, because it is a specific language that allows two pieces of software to communicate with each other. A Gartner report last year revealed that by 2016, 25% of the top 50 banks (by assets) will have launched a banking application for their customers.
Although we are only in February, this prediction could come true as compliance to PSD2 will help accelerate growth, Guibaud said. Fidor advises coopetition, rather than competing or collaborating as the new regulation will allow for this.