By Jesse Swash, Co-Founder Design by Structure Ltd.
In the time of great change we’re living through, this ‘new normal’, where every service we used to visit physically can now be accessed with a swipe, a tap, a click or smile, it’s easy to think that something as established as banking could and should have changed far more than it already has. Yes, there has been change but as with much of the disruption around us, whether food delivery or taxi-hailing, the reality is that the future of banking will still be banking. What will be different is it will not be banking as we know it and it will not be with who we thought I t would be with. All the angles and services, where we borrow money from, where we deposit it, whom we pay via, and transact with are all areas ripe for change.
The very concept of banking, at its most basic, a safe place to hold your hard-earned cash and a means by which to make financial transactions, feels like it’s been around largely unchanged for an extremely long time. In reality, there has always been ‘change’ as people moved cash from their pay packet into bank accounts and on to cash machines and credit cards. Banks rode these kinds of change well, it suited them as they still had a grip on the source and the distribution. They grew into big companies and became significant, trusted brands, a dependable cornerstone of modern society.
In this way, technology has been a friend to these landmarks of our high street. But this time technology and its disruptive twin, customer experience, are back and this time it’s different. This time change is going further and right to the core.
The cracks in the foundations.
Disruptor brands have been picking away at the foundations of the commercial offers to customers, carving out successful niches with narrow service offers on our screens and our phones. This is what the first stage of disruption looks like, a niche player like Monzo promising to not just look after your money but also to ‘make life easier’. And it works. The millennials voted with their feet, well with their smartphones, with 4,544,716 of them (to date) signing up. Think early Virgin Atlantic, Tesla with only the model S, or even earlier Apple with a shiny new iPhone but no app store and you can see the parallels. Now comes the flood.
The difference this time around with this second wave is how we, as consumers, want to engage with and ‘consume’ the products the banks offer. Digital transformation of the existing banks up until now has been about replicating a service in a new channel. This time the driver is in rethinking the service offer completely. The winners in this space are B2C brands like Monzo, Atom, and Starling. B2B brands like iBanFirst and HiPay are already starting the process, fulfilling customer needs with new innovative products and service offers and ever more meaningful and user experience led ways that make the incumbents look like, well just that, incumbents.
Now for the future-gazing. What comes next is a seemingly sudden shift, that in reality has been seeded by the change in other industries, away from the idea of your financial needs and products all in one place, delivered by just one or two banks or building societies. Let’s call this the multiple-choice phase. It’s an important moment. The next generation has been conditioned to want more, better, faster and easier in all their services. Money is no different. It’s their money and they want to access it and use it in ways that suit them. And worryingly for the banks, they don’t care where they get it from and they’re happy to have it stored in multiple places. If you’re shaking your head, just remind yourself that a TV from John Lewis and a TV from Amazon is the same, but one is cheaper and will be delivered faster. And we all know who is winning that battle.
Once the idea of having some money here, some money there or an investment here and an investment there takes hold, the doors are open for new entrants to arrive and offer alternative destinations. At this point, we pass a tipping point where new feels exciting, and it gets harder for the established brands to respond.
New entrants, old friends.
Next to go are the sector lines. Businesses you already know and trust start to dip their toes into finance and payment with new products and offers, building on the loyalty their customers feel to them. It’s already started to happen, our friend or foe (depending on how you see it) Amazon has launched its credit card with rewards and benefits for use on its retail platform, and tech giant Apple’s card is expected to launch in the UK this year with a promise to re-think how we use credit cards. And we haven’t even brought up Google, Tesla, or even Nike. All these brands approach this market in the same way they transformed how we use and engage with their products. The effect of their presence will be profound, fundamentally changing the way we interact, think about, and access and use our money. The not so secret ingredients are trust, loyalty, and creating that feeling of belonging to a better tribe. Mixed and served correctly they will go a long, long way. For Apple, it’s even created the world’s most valuable company.
The smart money won’t be betting on the incumbents to win this competition. After all, how can you compete with an offer that doesn’t look or behave anything like yours? This won’t be a level playing field.
Power to the people
The final shift is in the power of the customer. This is where the acceleration happens. Once the idea of security and trust in established banking names is gone. Once the drivers are firmly established as a convenience, ease of use, and expectations around experience – ‘If I have a good experience financing my car, why not get a home loan from the same company?’ Once it’s clear that what matters is the quality of the product and the ease of experience in usage the doors are wide open. And once the doors are open and the reviews, posts, and ‘refer a friend’ tactics kick in, it’s very hard to see how anyone can compete with that…
After all, you can bet that the Apple credit card won’t be posted in a letter with a glue dab, that with a swipe or a smile you’ll be able to do things banks haven’t even thought of and that it will lead to multiple additional services with rewards and offers the established players can’t get close to.
Out-thought, out-imagined, and outmanoeuvred. That is what this change looks like.
So, where does that leave banking? It will be a fragmented arena with accelerated change with the winners pivoting toward rich, meaningful customer experiences. Competitors are not likely to be traditional institutions, but brands from other sectors, such as retail, with a vested interest in owning consumer financial transactions. We are already seeing global giants, such as Amazon, making inroads into finance. It is comfortably fully immersing itself in people’s lives – shopping, home entertainment – and now the means of payment. With an experienced toe in the water, the opportunity to offer more financial products is an easy transition and an open invitation for others to follow.
Banking brands will have to raise their game and fight to remain relevant when customer loyalty is eroded, rich user experience is rewarded, and innovation and new service offers are expected. In times of great change, only the bold survive. The evidence of what can happen if incumbents don’t respond fast enough is all around us and the competition is experienced and motivated.
The future of banking will be banking, but not as we know it now and unless the established act quickly, not with who we use now.