Phil Brooks, Financial Services Research Director at Harris Interactive
When some of the UK banks aggressively raised their unauthorised overdraft charges by approximately 50% back in 2005 (i), who could have known where it would lead? Although the banks won their case in the Supreme Court, the ruling still left open a number of questions around the transparency of charges and fees, (‘free banking’) as well as switching.
Since then, the UK has suffered the financial crisis and endured an Independent Commission on banking, whose recommendations included a 7-day switching service and greater transparency of fees and charges.
So when we have a more straightforward switching process and tell people once a year how much their bank account has cost them, alongside increased competition – the market will resolve itself, right?
Our own Harris Poll (ii) shows that just 6% either opened a bank account for the first time or switched their account in the last 12 months and just 11% of all account holders say they are likely to switch in the next 12 months. This is off the back of the high profile RBS and NatWest service failures, and new scandals such as LIBOR and money laundering.
The recent decision by the OFT to ‘Wait and see’ rather that investigate the market for lack of competition may be a ‘measured response’, but it also feels like a ‘missed opportunity’. Some may make comparisons with similar events within the telecoms and energy sectors. However, the key difference between those sectors and retail banking is that with the help of comparison sites costs were much more transparent – will the same be the case with retail banking? Will consumers truly be able to make an informed choice?
The threat of challengers and new entrants
Although Metro, M&S and now the Post Office have entered the market, the last three years have been a bit of a hiatus with the fiasco of the ‘branch sell offs’ and the long awaited arrival of both Tesco and Branson.
It is clear that consumers are also waiting for change. Alongside Nationwide and the Co-operative, our research indicates that Virgin Money will be very strong indeed and Tesco will hold their own, particularly when you consider neither has a product to switch to yet! Initial reactions to the Post Office are also supportive with 14% of all account holders (iii) saying they would consider them.
One thing all of their success indicates is that a swelling number of consumers are looking for something different. So what does ‘different’ look like?
It is fair to say there is little difference between the majority of bank accounts on offer. Some may argue for the Santander 123 account and clearly it does appear to have had some impact, but ultimately the key differences come down to perceptions of both service and brand. It is on both these counts that the challengers and new entrants will continue to threaten the establishment.
We all know the industry has an image problem, but ultimately it is up to each organisation to demonstrate how they are different and what is unique about them. Consumers today want to deal with financial services organisations that act responsibly, treat customers fairly, are trustworthy, provide excellent service and demonstrate that they really care about customers. Being ethical, relevant to you personally and a good fit clearly also has its benefits.
Developing the framework of an appealing proposition is the easy part, but actually motivating people to switch and change behaviour is much more difficult.
Encouraging switching and greater engagement
Consumers today have a greater opportunity to engage with their finances more than ever before, the growth in online banking and now mobile is certainly testament to that. However, do consumers really take the time to fully evaluate their banking needs or do consumers simply accept the service levels and benefits they get from their bank without ever challenging or comparing them?
Given how historically low switching has been within the market (just half of us have ever switched), I think there is certainly a strong argument for apathy and the old adage that people don’t value what they don’t pay for. So how can we get more customers more engaged with their account and potentially encourage more to switch?
Free banking is a “dangerous myth”
When Andrew Bailey, then executive director of the Bank of England, described ‘free banking’ (free if in credit) as “a dangerous myth” (iv) it certainly set the cat amongst the pigeons. Whilst his terminology may have alarmed some, I do believe if we really wanted to encourage greater levels of engagement and increased levels of competition then ending ‘free banking’ could prove to be the true ‘disruption’ the sector needs.
As indicated in our Harris Poll (v), the ‘free banking’ system stifles competition and arguably innovation. If every bank charged for a bank account, 38% of all account holders agree they would be more likely to switch with a further 25% somewhat agreeing.
The biggest benefit of removing ‘free banking’ is not the increased levels of ‘claimed’ switching, it is the fact that almost two-thirds agree that they would pay more attention to service levels and benefits they received from their bank, with a further 25% somewhat agreeing.
Imagine what could be done if people actually had a bank account tailored to their needs and that fitted in with their lifestyle. Imagine the additional support, at both ends of the market, that could be provided.
Design new products and services
The current system clearly disadvantages those on low incomes and those who struggle to manage their finances. Whilst it may sound strange to say charging would be a fairer system, it would at least mean that more products and services would be designed around different customer segment needs and concerns rather than the range that we have today.
The criticism the Post Office has faced in the last week for charging for their Basic Bank Account has been grossly unfair. Charging just £5 per month for an account that has no charges for unpaid items should be seen as a bold move and offers reassurance to those most at need. However, getting people to switch into it will be extremely difficult.
A step too far
Admittedly, removing ‘free banking’ would cause uproar and politically it is probably too hot for the regulator to handle. Just look at some of the comments made on a report written by Phillip Inman of the Guardian.
Therefore we need to find other ways to improve the transparency of fees and charges. Just laying out what a bank account has cost once a year in my mind does not go far enough.
We must continuously strive to improve the knowledge and understanding of customers, so why only communicate their total costs and fees once a year? Why not quarterly or monthly, i.e. as a reminder why not state the ‘average’ monthly cost over the last 12 months alongside the total cost?
In the same statement, marketing messages can be developed that recommend more suitable accounts based on an individual’s banking habits. At least this way we are providing people with the best information and hopefully educating them to make an informed choice rather than continuing to trade on their lack of understanding.
_ii. Harris Interactive Survey amongst 1,662 bank account holders 4th December to 13th December 2012
iii_. Harris Interactive Survey amongst 1,662 bank 474 account holders 23rd April to 25th April 2013
v._ Harris Interactive Survey amongst 1,662 bank account holders 4th December to 13th December 2012
Phil Brooks is a senior market research director at Harris Interactive and specialises in financial services research. Working across the sector, Phil focuses on programmes that include customer satisfaction, brand audits and product/service developments in the B2B and B2C markets.
UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine
- The technology powering popular consumer app, Dreams – which has helped 460,000 users save over 440M EUR – will be made available to UKRSIBBANK’s users in Ukraine.
- Through the integration of the Dreams platform within UKRSIBBANK’s own digital tools, customers of the bank can set and achieve money-saving goals, track and improve their financial lives.
Dreams (https://www.getdreams.com/en/b2b/), the Stockholm-born fintech empowering millennials to save and feel better about their money, today announces a strategic partnership with Ukrainian commercial bank UKRSIBBANK, a subsidiary of French international bank BNP Paribas Group.
This partnership follows the announcement earlier this year of Dreams’ first enterprise partnership with banking software provider Silverlake Symmetri, and the recent unveiling of a new department in Stockholm dedicated to the development of Dreams’ B2B partnerships. The announcement marks an expansion of the company’s business model as it consolidates its B2B offering and evolves its services as a provider of white label solutions for financial institutions.
Through the integration within UKRSIBBANK’s own digital tools of the Dreams Platform – which is rooted in scientific principles – customers can set and achieve money-saving goals through clever, automated saving features, in addition to nudges and saving hacks.
The Dreams Platform will be included as part of UKRSIBBANK’s digital banking offering for its 2 million+ customers, and is set to grant millions of potential consumers across Ukraine access to products which will help keep their finances on track and improve their financial lives.
The rise in digital self-help tools has long been anticipated by Dreams and forward-thinking financial institutions. The current global economic uncertainty brought about by the COVID-19 pandemic has also placed significant strains on people’s finances, and the demand for better personal finance tools has only accelerated. The partnership with Dreams is welcomed by UKRSIBBANK which is currently striving to equip its customers with the best possible banking solutions whilst helping them achieve a more sustainable lifestyle.
Dreams is firmly established as an authority in its industry, having launched its consumer-facing app in its native Sweden in 2016 and Norway in 2018 – where it has already achieved a 16% market share of all 20-39 year olds.
Henrik Rosvall, CEO and founder of Dreams, comments: “It’s a true honour to be partnering with UKRSIBBANK and BNP Paribas Group, and we’re incredibly excited to be introducing the Dreams solution to UKRSIBBANK’s customers and the wider Ukrainian market.
“Dreams and UKRSIBBANK can now lead the charge, with BNP Paribas Group’s corporate strategy having shifted in recent years to focus on guiding customers towards responsible consumption and sustainable personal finance management. I’m confident that our mission of helping millennials save more and feel better about their money makes us the ideal partners.
“Our financial wellbeing platform – which is built upon behavioural science and personal finance management principles – will provide the perfect tool for UKRSIBBANK to help its customers make better financial choices and become more sustainable in the way they handle their finances. This partnership will also help UKRSIBBANK safeguard the loyalty of its customers and futureproof its digital banking offering against a growing number of challenger banks and fintechs.”
Konstantin Lezhnin, Head of Retail at UKRSIBBANK BNP Paribas Group, comments: “I believe that banks have a role to improve their customers’ lives. Planning and saving for important life events improves our quality of life by reducing stress levels, and we wish to make our customers feel more confident and in-control of their lives.
“UKRSIBBANK has always applied innovative ways to assist our customers in financial planning, so we are very happy to now be working with Dreams, the best European player in behavioural savings. They have an extremely solid track record in Sweden and Norway based on scientific research, so we are confident that this partnership will work positively for our customers in Ukraine. This also demonstrates our strategy to cooperate with startups and innovative companies that seek ways to expand their operations.”
Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society
- More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
- Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
- Fewer SMEs believe nearby branches are important when choosing a bank or building society
- 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
- When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account
Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.
Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied. In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.
When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.
The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.
However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.
In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September. However, the Post Office could be fulfilling the role of branches in some areas.
The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.
While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.
Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.
“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”
The Next Evolution in Banking
By Young Pham, Chief Strategy Officer at CI&T
Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.
The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.
It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.
There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services. This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.
More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.
The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.
Disruptors vs incumbents
The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.
These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.
While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.
Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.
All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.
Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.
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