Around 23 years ago Bill Gates suggested that banks would be taken off the high pedestal and shaken to their core as technology has quantum leapt the world forward. After all this time “Banking is necessary. Banks are not” couldn’t more accurate today as it was over two decades ago. The Second Payment Services Directive (PSD2) comes into effect in about 6-7 months and what once seemed like a statement worth debating now has traditional bankers thinking very hard.
In the past, any competitors looking to enter the banking arena were discouraged with substantial regulatory barriers, but now the obstacles in front of them are becoming manageable. PSD2 and other Open Banking initiatives are making things so much more comfortable for new banks to rise and compete. Standards are not dropping before you consider that and convince yourself that is more security with the big banks because the 2007-2008 financial downfall is a testament that this is not the case. New banks such as Monzo Bank, Atom Bank, Starling Bank, Revolut, Monese, N26, and Tandem Money have started a fresh and step by step built banks that the people want to use and be associated with.
Our social lives are digital and online these days. Many a time I have heard “if it’s not on Facebook or Twitter it never really happened”. These days, shopping experiences are also digital, with most of our shopping being completed online, and banking is heading the same way. I grew up in a time where renting a movie from the video shop was the “in thing”. Services like NowTV, Netflix, WWE Network, CinemaNow, Amazon Video, Play Movies, Wuaki.tv and Apple TV have fully embraced the digital and online-only experience making the classic “video shop” a thing of the past.
Don’t get me wrong; I like having a local bank to visit just in case I need to pop in with a cheque or something. I need to concede that when the likes of Monzo, Atom and Tandem etc. start hitting their stride, the other banks will be a risk because they can’t start from scratch and rebuild the bank as they want it to be. Unless there is a considerable investment, I mean ridiculous amounts of investment the current channels of traditional banking and the revenues attributed to them are at risk. No assumptions can be made, however; the new banks that are trailblazing their own paths must work hard and get things right as they go.
Have you ever watched The Chase hosted by Bradley Walsh?
It is a general knowledge game show on ITV. Contestants play against a professional quizzer, known as the “Chaser”, who plays against the team to prevent them from winning a cash prize. The Chasers are Mark Labbett, Shaun Wallace, Anne Hegerty, Paul Sinha and Jenny Ryan. Labbett and Wallace have both been chasers since series 1, while Hegarty joined in series 2, Sinha in series 4 and Ryan in series 9. With the Chaser being a professional quizzer, they have superior knowledge compared to the contestants.
Each episode consists of cash builder rounds, head to heads, then the final chase. If you are not entirely up to date on The Chase, you can check it out here on ITV’s website or check out Wikipedia for the full rundown what the game show is, and how it is played. If you use the links, it will pop up a new window so you can come back here pretty quick.
This is how I see the modern day banking industry. The Chaser is the banks who know it all, and there is no doubt they know a shed load, but with the right team effort, passion, skills, and determination; the new up and coming banks will get incremental wins just like the contestants. That’s when things start to change for the banking industry. It might take several “episodes”, but the new banks will have their day and beat the Chaser.
To be competitive… Before we continue, let’s confirm what that means as I think it’s a term that has lost a lot of value over the years. A quick Google search shows this. “As good as or better than others of a comparable nature”. Even the online Cambridge dictionary states as an example “We have to invest in new technology if we are to remain competitive.” How convenient is that? Thank you, Cambridge online dictionary, you took the words right off my fingertips.
If retail banks want to be competitive, they need to be innovative and be quick about it. My own experience and personal research show me that Tesco Bank is making forward steps regarding CX, as is Sainsbury’s Bank, even Prudential have come on leaps and bounds in their service design efforts and being customer-centric. I hear good things about Clydesdale Bank, which is good because they closed the Bathgate branch a while ago. I have met many people who used to bank with Clydesdale Bank in Bathgate.
No apparent signs of technology advancement but they all have millions of customers and their data to consider. Not an easy task. CX or Customer Experience is not enough though. RBS, LBG, TSB, HSBC, CBYB and everyone else need to put more effort in and get vocal about it. Do not be scared to admit, “We will never be a new bank but want to be a bank that is considered to be modern. We are not where we want to be in terms of being a modern bank but stick with us because we are getting there”. On a side note if your bank is making efforts with CX and Technology, and I have missed it, please let me know in the comments. This blog isn’t intended to be an effort to bank bash.
Who Ever Failed by Not Investing Though?
Earlier I mentioned the old video shop; Global Video was my local, but Blockbuster was in a neighbouring town and being the more prominent brand, everyone knew their name. Blockbuster CEO John Antioco refused to buy Netflix in 2000. The asking price back then was $50m. Antioco believed that it was too small of a niche marketing and not forward-thinking so passed up the chance to buy and without a doubt must regret the decision.
Netflix is now worth over $30 billion. People question if Netflix would have been as successful if Antioco bought Netflix, some say yes and some say no. John Antioco is a smart and talented guy, he ran a successful business for a long time, so personally, I believe that he would have achieved a lot with the purchase of Netflix, but one thing is for sure it would have kept the company going that had been around since 1985.
Could they afford it though? Back then the answer is Yes. In 2000 their revenue was around $500m and $80m of that was late fees, so really, money for nothing. Blockbuster should have invested $50m of the late fees accrued and the other $30m over a set period to develop Netflix in the Blockbuster way. The now famous black and red would have been blue and yellow. Then committed to reinvesting a large percentage of late fees accumulated going forward into the growth and development of Netflix. I wonder what he would have called it?
My point is the banks that we all know well (and maybe even love) need to invest in the technology used to move them forward and still be competitive with the new banks. They need to also spend heavily on service design, to ensure the service given is precisely what their customers want. Banks will not progress their position if they do not act. A switch from product-focused to a customer-centric model would be sensible for every bank, predominantly focusing on technologies that will help banks interact with their customers more intuitively and seamlessly. It will be vital for banks to focus their efforts in three fundamental areas:
Customer-Centricity through Service Design
Thanks to the increasing number of options and product alternatives benefiting from the infinite space of the internet and other tech-related services, customers have more influence than ever before.
If customers decide that your product is not something they want, it’s easy (and expected) that they will Google what they want and find a library of alternatives. It’s not what they want to hear I know, but it’s the current state of power that customers have these days, and it’s never going away.
Customer expectations are changing continuously, and there is not a lot that can be done about it. The only option is to invest in their people who are looking after the service design and essentially the customers.
Customers Enjoy Technology
People enjoy using this like of Google, Amazon, Facebook, PayPal, eBay and Twitter, so imagine the support they would gain if they decided that they are going to open their own banks. Customers would flock like an army responding to a call to arms for a righteous cause. Not going to happen? It is not a risk any bank should take. Each of the above literally has millions of customers, domestic to whatever country you are reading this blog from and internationally.
PayPal has already dipped its toe into the market. Facebook has worked with the Central Bank of Ireland to gain its e-Payments license. Let’s not forget Apple and Samsung Pay either. What about Amazon looking into telephony services? This is all on the cards as they have or are willing to invest in people and technology.
An API is a technology that allows and manages the interaction between two online/internet connected services. Most businesses don’t need to worry about what API’s are but what they can do for your business. This is not the case for banks. Banks old and new need to know what API’s are and broaden their expertise on how to use them best. Doing so will enable banks to launch new digital channels and apps, offering a flawless, unified experience across all of their channels.
Big Data Steering and Cognitive/Behaviour Services
Big data usage and analytics will be crucial to creating bespoke customer experiences. The majority of customers are willing to pay a premium (small or large) for a better experience with their bank and any other service providers. Don’t believe me, ask the 15+ million customers at Sky if they think their subscriptions are competitively priced, and they will say no, it’s too expensive. Ask them, do you enjoy the service and the experience overall? They will answer yes.
All the information that a company would ever want is right there ready to be used in the right way. Drawing from a wealth of data on spending habits, saving habits, and overall financial health, banks should be utilising this data source to pinpoint customer values and needs. If the old bank chooses not to do this, their competition will as soon as they can. It has been the case for every business small, medium, and large, but the simple fact is data is money.
A significant task I know, and it may take years to do, but banks need to learn from the data. All banks must have faith in current customers as this is where the answers are. Just like anyone looking to improve themselves through personal development or coaching, the answers are always already in them. You just have to work to get them out.