Zehra Chudry is Head of Content for PayExpo Europe 2016, part of the Payments World Series
Observes Zehra Chudry, organiser of the “Challengers v Legacy banks” debate at PayExpo Europe 2016
The challenger banks who are challenging the traditional high street names are themselves facing an enormous challenge if they are to disrupt the banking market significantly; building consumer trust.
They must not only offer powerfully attractive alternatives and improvements, they must also convince consumers they can be trusted if they are going to drive significant numbers of customers to change banks.
They may be offering far better interest rates and lower bank charges, or easy to use online services, reliable technology and far better customer service. But despite widespread and often deep dissatisfaction and distrust, very few UK customers switch banks each year.
In fact, according to the latest figures from BACS, significantly fewer people chose to move their personal current account (PCAs) in the last 12 months. One million people switched their current account suppliers in the year to October, 11 per cent less than the previous year, even though several banks offered cash incentives of up to £150 to encourage switching.
As, according to the Competition and Markets Authority (CMA)’s Retail Banking Market Investigation in 2015, there are more than 68 million active PCAs in the UK, one million people (3 per cent) changing suppliers in a year seems a relatively small proportion. By contrast, Mintel reports that a quarter of households now change energy supplier each year.
Encouraging for the new banks is news that those who switch usually move their current accounts away from Barclays, NatWest/ RBS, Lloyds and HSBC. However the main beneficiaries are banks such as Santander, Nationwide and Halifax, hardly new names on the high street or the market, with some moving to new banks such as Metro, Fidor, Atom, Starling, Monese, Mondo, Simple, Osper, Hello or Tesco.
Trust is a core issue in the banking sector – and theoretically, a potential opportunity for new banks. It is at a very low level; according to a PwC survey in 2014, only 32 per cent of consumers trust retail banks. However a measure of the challenge that smaller, newer banks face is that a recent YouGov poll showed that only 22 per cent of consumers trust them.
There is encouragement for them in research by Accenture in 2014 showing that a quarter of UK consumers are willing to use digital banks that are accessible only through laptops and mobile devices, to banking with suppliers that have no branches or call centres.
Encouragement comes from research by Fiserv which shows that 80 per cent of Britons will trust a new bank if it has good technology and 56 per cent said that a new bank would have an advantage over competitors if its IT was very reliable.
Young people also offer good prospects for the challenger banks. While most young people (59 per cent) still choose the same bank as their parents for their first account, changing banking technology may well drive the Millennials to look elsewhere and favour newer digital banks. 78 per cent of Millennials want mobile options when picking a bank, according to BancVue, while FindABetterBank reports that Millennials say they are less tied to banks with branches.
Asking industry experts who are working with PayExpo Europe – “What must change if the new banks are to take a significant market share?” they advise that they must:
- maintain a clear, big difference; – much better interest rates, lower charges, more personalised service and experience, online technology – and ensure that millions of consumers are aware of what they offer.
- build trust in their brands, especially in security and technology
- generate extensive positive ‘word of mouth’ endorsement to build trust. According to YouGov, 68 per cent of consumers, positive comments from friends and colleagues are very effective in building trust, whereas only 17 per cent were convinced by price comparison websites
- continue to innovate to make banking easier and more simple, and offer a much better, more interesting customer experience using techniques such as, for instance, gamification
- provide services relevant to the needs of customers, including niche groups
- highlight the cost benefits of changing. The CMA review says by switching to the cheapest current account, on average customers would save £70 a year, some up to £240 a year.
- keep ahead of the traditional banks who, although beset with cumbersome legacy systems, are also innovating – Barclays was the first to introduce personal video banking last year.
- encourage the Government to invest more in its campaign and service to help consumers believe that the process of switching bank is safe and easy. According to the CMA, fewer than 50 per cent believe the current account switching service( CASS) would work without errors
- monitor markets such as energy to see how new suppliers make inroads..
It is a debate that will continue, especially when “Challengers v Legacy Banks” is discussed during the Conference at PayExpo Europe in London on 7 June.
Zehra Chudry is Head of Content for PayExpo Europe 2016, part of the Payments World Series
SoftBank telco unit rotates CEO, Son steps down as chairman
By Sam Nussey
TOKYO (Reuters) – SoftBank Corp, Japan’s third-largest telco, said on Tuesday Chief Technology Officer Junichi Miyakawa would become its chief executive officer, effective April 1.
The change at the top of one of SoftBank Group Corp’s largest assets comes after two years of deliberation, with the telco emphasising the need to “pass on the strengths of its current management system to future generations.”
The rotation is likely to lead to speculation over SoftBank Group CEO Masayoshi Son’s own succession plans. The 63-year-old billionaire abandoned a previous plan to hand over the reins and went on to launch the $100 billion Vision Fund.
The son of a Buddhist priest, 55-year-old Miyakawa is a technical whizz driving projects including the wireless carrier’s 5G build-out. He replaces 71-year-old Ken Miyauchi, a key lieutenant of Son, who took up the post in 2015.
Miyauchi will take the post of board chairman from founder Son, who will remain on the board. A household name in Japan, Son joins business leaders such as former Apple CEO Steve Jobs in being the face of the company he runs.
During Miyauchi’s tenure, the telco had a bumper IPO in December 2018 to feed cash to SoftBank Group as it shifted its focus to investing in tech companies. Son has since further reduced the group’s stake after a series of high-profile stumbles.
Miyakawa takes the helm as the industry faces unprecedented political pressure to cut fees, potentially eating into fat margins in its core business.
Looking to grow sales beyond selling mobile and broadband subscriptions, SoftBank is integrating a hodgepodge of companies including online fashion retailer Zozo and message app operator Line Corp into internet business Z Holdings.
Known for blue sky thinking including flirting with the idea of making cars, Miyakawa’s pet projects include an attempt to deliver broadband via drones. Alphabet Inc said last week it was abandoning its own balloon-based attempt.
(Reporting by Sam Nussey; Editing by Tom Hogue, Shri Navaratnam and Subhranshu Sahu)
Over 60’s turning to digital banking up by 90% during pandemic
More than 90% of people aged over 60 have used online banking for the first time during the Covid-19 pandemic, according to a poll by iResearch Services, highlighting the importance of banks getting digital right in 2021.
In comparison, 17% of people aged under 30 said they were accessing services via an app or web browser for the first time.
The findings show how banks must adapt to help service the influx of new digital users and gain their trust, accelerated by the Coronavirus pandemic. With 97% of 18–24-year-olds trusting their bank with their data, compared to only 33% of people aged over 66.
Commenting on the findings, Gurpreet Purewal, Associate Vice President, Thought Leadership, at iResearch, said: “Our study demonstrates the lasting impact of Coronavirus on how people will access banking services from now on. Banks will be required to refocus on really understanding customer needs in order to engage with the different requirements of each individual customer.
“More than half (54%) of respondents said they are less likely to attend a physical branch after the pandemic. This demonstrates a seismic shift in the way people will access banking services now and into the future.”
In other findings, 63% of respondents said their bank acted in their best interests during the pandemic, but a third said they would consider switching their bank for better, more personalised communication.
Purewal added: “On the whole, High Street banks have emerged with great credit from the pandemic for the way they have supported their customers. As the economy rebuilds, it will be more important than ever that they communicate in the right way to help consumers through 2021 by leveraging digital platforms and understanding their needs fully.”
Asked how banks can improve their communication with customers, ‘connecting on a personal level’ ranked highest, followed by ‘more honest and open dialogue’, a ‘demonstration of how they are helping customers’, ‘more creative campaigns’, ‘consistent messaging across channels’ and finally ‘responsiveness to major events’.
Banking on the cloud to create a crucial advantage in financial services
By Rahul Singh, President of Financial Services, HCL Technologies
Once considered a revolutionary technology, cloud is now at the heart of agile and innovative businesses. The financial services industry is no exception, and has been a major adopter of cloud-based Software-as-a-Service (SaaS) for its non-core applications. Functions such as customer management, human capital management, and financial accounting have progressively shifted to the cloud. Several banks have also warmed up to using cloud for services such as Know your Customer (KYC) verification. IDC analysts say that public cloud spending will grow from $229 billion in 2019 to almost $500 billion by 2023, and a third of this will be spent across three industries: professional services, discrete manufacturing, and banking. The time is ripe for an increasing number of financial services providers to consider moving more of their core services to cloud.
Adoption is already on the rise
Earlier reluctance to move core activities to the cloud has softened, and many banks have put strategies in place to migrate services, including consumer payments, credit scoring, wealth management, and risk analysis. This significant change is driven by factors such as PSD2 and open banking, which require secure and cost-effective data sharing.
Regulators too were once cautious in their approach to cloud technology, but this is also changing. The Australian Prudential Regulation Authority (APRA), for example, whilst acknowledging the risks associated with cloud, also recognised the risk of sticking to the status quo. ARPA trusted the enhanced security offered by the cloud, and updated its cloud-associated risk advice. Wisely, APRA recommended that banks must develop contingency plans that allow cloud services to be provided through alternate means if required.
Rising pressure from new challengers
The other pressure for incumbent banks is from next generation fintech firms. These are cloud-native organisations, and are able to onboard customers remotely in minutes, roll out new services in days, and meet compliance requirements at lower costs.
As a result, the need for traditional banks to upgrade core systems and integrate the latest technologies is stronger than ever. The COVID-19 pandemic has been an additional driver, highlighting the importance of upgrading and migrating core systems to the cloud. Financial services organisations have been forced to rethink their approach to digital transformation, and pay special attention to a cloud-aligned culture. The industry is recognising how the cloud can address new and ongoing regulatory changes, meet different demands from customers, support the roll-out of emerging technologies, and enable incumbent providers to respond to the relentless competition from fintech firms.
New year, new priorities
As we enter 2021, financial services providers will need to reset their priorities, and go beyond using the cloud for scalability and cost efficiency alone. The new areas to focus on will include:
- Creating a robust digital foundation: The cloud market is expanding fast, and there is an ever-increasing number of services on offer. Whilst the big three hyper-scalers are the obvious choice, various other players are also gaining traction, such as IBM, Oracle, and Alibaba Cloud. Organisations will need a robust digital foundation to adopt cloud at scale in a secure and compliant way. A well-architected digital foundation, supported by resilient operations, ensures that organisations have continued access to their systems and data, regardless of where employees are located, or what device they are using.
- Adoption of technology platforms: Enterprises are finding ways to reduce complexity by embracing a platform approach, and increasing the speed of business IT consumption. Physical infrastructure is being abstracted into cloud-based platforms, with data consolidated into data lake platforms. Software products like Apigee are being offered as capability platforms to drive better analytics and intelligence.
- Enhancing IT security: Cloud offers organisations greater security than on-premises servers, if implemented correctly. Financial services organisations have relied on control and compliance-based security for years, but these practices are increasingly vulnerable to cyber threats. Whilst service integrators create robust cybersecurity solutions for financial services organisations, cloud providers are also looking to provision industry-specific security and regulatory measures like end-to-end data encryption – making it easier for financial services organisations to be compliant whilst migrating to cloud.
- Driving innovation: Cloud is the fundamental factor behind the ability of fintechs to innovate rapidly. Using cloud, financial services can leverage new technologies and tools like augmented reality (AR), virtual reality (VR), natural language processing (NLP), machine learning (ML) and the Internet of Things (IoT) to unlock new processes that improve customer interaction and experience with portable real-time services. Whilst fintechs have led the way in cloud-based innovation through open banking platforms, some of the leading banks are also adopting cloud to simplify their business processes, including KYC as a Service, to enhance customer experience.
- Enterprise synchronisation: Effective collaboration, both internally and with external partners, is crucial to success in the ever-expanding financial services ecosystem. Cloud allows businesses to integrate collaboration through shared tools and platforms. This is a critical ability as it leads to faster decisions and improved innovation cycles.
Legacy systems hold banks back from improving revenue generation and restrict their ability to build a responsive and resilient business. Cloud is a key factor in the success of challengers: traditional banks have no time to waste in migrating their core systems to cloud and building a secure future.
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