Rebuilding Trust in Digital Banking

By Andrew Laxton is the CEO and Co-Founder of Mixology Communications

With the UK officially in recession, unemployment reaching its worse level in a decade and High Street banks bracing themselves for another round of job cuts to cover escalating bad debt, how is the new kid on the block, the digital banking sector, faring in these troubled times?

Not so well, according to recent news headlines.

Revolut, the UK’s highest value fintech start-up at £4.25 billion, recently announced that its pre-tax loss more than tripled to £107 million before heading into the Covid-19 pandemic. Despite the firm’s revenue increasing by 163% and the number of retail customers growing from 3.5 million to 10 million, its costs nearly tripled to £270 million as it invested in new products and growth.

Monzo last month cast significant doubt over its ability to continue as a going concern after losses more than doubled to £118 million. While its Board expressed confidence in its ability to raise capital if needed, the reality would suggest otherwise with the fintech sector globally struggling to raise funding since the pandemic hit. In addition, investors are beginning to turn their attention to brands that have a clear Environmental, Social and Governance (ESG) performance mandate embedded within their business.

Digital challenger bank Starling is the smallest of the three and while also doubling its losses for 2019, looks set to break even this year by putting £1 billion of lending on its balance sheet after taking part in the government’s emergency coronavirus financing schemes. Net interest is expected to deliver Starling about £80 million in revenue, giving the bank a break-even target for 2020.

While domestic spending has increased during the pandemic, the flipside is customer spending abroad has crashed through the floor. This has led to tighter control over cost and significant reductions in discretionary spending.  And with the Bank of England predicting more than one million jobs will be lost by Christmas, it is unlikely consumer spending will continue at its current rate.

With all three digital banks seeing a steep increase in new customers, the importance placed on transparent stakeholder communications and brand reputation is now more important than ever.

The banking sector has always struggled with its image around trust – it is an industry widely perceived as putting profit before purpose and that outdated mindset simply doesn’t fly with today’s values-based society.  Put simply, the banking industry needs a reputation overhaul.

Banks have a well-publicised track record of responding to issues reactively with very little forward planning that assesses the risk to their reputation and most importantly of all – their customers.

This is where digital banks have a massive advantage over their High Street counterparts but have failed to capitalise. Their business model is born from a highly technical and deeply embedded digital infrastructure which makes it easier to identify issues before they become problems and have solutions ready before they become disruptions.

Customer behaviour is also changing as a result of Covid-19. As society becomes more accustomed to working and living from home, ease of access to remote and secure banking services has become of greater importance.

Andrew Laxton

The world in which we now live is also very different, which brings with it another set of expectations from society. This has the potential to play perfectly into the hands of the digital banking sector, but a different approach is needed.

With unemployment continuing to climb and salary reductions widespread, compassionate credit is seen as a sensible hedging strategy to help stabilise society while the economy takes time to recover. We’ve already seen mortgage holidays offered by High Street banks and car dealers are now offering 12-month job loss protection on financing. What role can digital banks play in providing a secure financing model to encourage future ethical consumer spending and continued business investment?

There is also a need for greater inclusion. To connect with different generations and literacy levels, should digital training become part of the onboarding process for every new customer as well as virtual access to ongoing financial education?

And how about a dedicated relationship manager? People have shown they can cope with living remotely but they still want to feel connected to a community or an individual that is familiar with their personal banking history and not an outsourced customer service centre where teleoperators are trained to perform like robots devoid of empathy and emotional intelligence. We’ve seen this work effectively with remote access to GPs during lockdown.

In this era of ‘business for good’, stakeholders demand better corporate behaviour and want to see meaningful community engagement and a genuine desire to make a positive contribution to society. This is where transparent ESG communications will play a critical role in rebuilding trust, strengthening reputation and encouraging greater brand loyalty among customers.

And finally, it is all about the data. Proof points on how digital banks aggregate, analyse and manage customer data ethically and securely will always be of paramount importance.

Stakeholder trust and reputation is lost when brands fail to listen to or underestimate the people who support them. The formula for getting it wrong has never changed.

The future for digital banks is bright but only if their Boards accept their industry, which is already showing signs of fatigue, must change with the passage of time.