Banks fighting on mobile battleground

By Alex Hamilton | 1 July 2019

Consumers are becoming much more discerning over mobile banking engagement, meaning incumbent and new market participants are battling over digital capabilities according to Mark O’Keefe, director at Optima Consulting.

“The number of technical incidents that the traditional providers – two or three a quarter – are starting to work against them. The challengers are built on completely different technical stacks in the cloud, something much more reliable. Customers are becoming more reliant on the digital services a bank provides. If those [at incumbents] start to creak a bit more, the customers will start to realise that they’re not seeing the same number of outages from the challenges.”

O’Keefe adds that neobanks - those without a branch network and operating solely through mobile and online channels - can be a lot more transparent when technical issues do occur. “They will communicate that there is a problem, show the resolution and what’s happening.”

According to a June report from data consultancy Caci, banking on a mobile phone in the UK is expected by 2021 to become more popular than using a branch. The study also predicts that 71% of consumers will use an app to perform daily financial tasks by 2024, while just 59% will use their local brick and mortar bank.

Banks in the UK have closed two-thirds of their branches over the past 30 years, according to data from consumer group Which?. 7,856 branches were operating in the UK at the end of 2018, down from 20,500 in 1988.

“Traditional banks have always protected themselves in this manner of, ‘we have a branch network, we’ve got real people,’ but customers are saying they don’t want to go into the branch anymore,” says O’Keefe. “They want to chat rather than pick up the phone or go into a branch and do stuff.”

A factor in the uptake of mobile banking solutions, according to the Caci report, is the rise of app-only banks like Monzo, Starling Bank, and Revolut. The three combined have a combined userbase in the UK of around 4m.

Subsidiaries and functionality

An Optima Consulting study of mobile banking apps in 2019, conducted with Visa, found that only 77% of apps have multi-device support, 79% support Apple Pay or Google Pay, and 70% allow users to search for transactions in the their payment histories. 50% of the apps studied feature live chat support, and half now support the ability to ‘freeze’ a card and block further transactions.

The launching of a separate digital brand is often cited as a way traditional banks can compete with new entrants, O’Keefe says. “The only logical solution is to stand up a new infrastructure and allow customers to migrate across to it.”

In early June, JP Morgan Chase announced it would be sunsetting its year-old digital banking subsidiary Finn. Connected Money, an account aggregator launched by HSBC, is set to be brought back into the bank’s main mobile app after a similar amount of time as a lone product. The Optima Consulting study ranked the HSBC mobile app 20th among other incumbents, challengers and fintechs.

“Looking at HSBC and Connected Money you can see that very little was done. Only released on one operating system, iOS, and not much released in terms of functionality. Compare that with Yolt, which is owned by ING but kept separate from the mothership. That separation is key, it creates a separate culture and a point of difference.

“There’s another example in HSBC, which partnered by Bud to create Arthur which is now also sunsetted and incorporated into the First Direct app. You have to ask if the culture is incompatible. Is the main bank strangling the innovation and the agility of the fintech it has partnered with?”

Of the major UK banks, Barclays has the most impressive track record when it comes to innovation according to O’Keefe. “Even then, they are probably hindered by the need to protect their reputation. Barclays has a lot more to lose from a security breach or an IT failure, so even then they are probably a lot more risk averse in the way things are approached.” Barclays is the only incumbent in the top five of the Optima Consulting rankings, coming in fourth. The next-highest ranked major bank apps were Halifax in sixth and Lloyds Bank in seventh.

A fourth place in the rankings doesn’t mean that things can’t be changed. Onboarding with the bank is an example, says O’Keefe. To make the account fully operational after joining on the mobile app, a user has to go to a Barclays ATM for activation.

“That’s great, that’s really secure. But it means that when you onboard as a new customer you have to wait for your card and your PIN to turn up before you can fully utilize the mobile banking app. Compare that to a Starling or a Monzo. You can onboard in three minutes, be up and running and provision it straight into a wallet.”

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