As the connected world grows, so do customers in the non-traditional financial space. While bricks and mortar banks still exist, a swathe of digital companies have rolled out their own technology to cater for both the unbanked and the unsatisfied.
Simon Jones, Chief Customer Officer, ClearBank Alex Reddish, Chief Commercial Officer at Tribe Payments
What are the new and emerging banking requests from customers?
SJ: Companies like Facebook, Amazon and Whatsapp are setting expectation levels as we now access so much of our life online via connected devices. Experiences across these applications is very much real-time and people are now expecting this from their financial services providers. We are now seeing consumers and businesses putting greater focus on real-time payments, demanding the ability to be able to make them 24/7/365.
We’re also seeing a substantial increase in the number of contactless payments being made. Last year £80.5 billion was spent using contactless payments, an increase of 16 per cent on 2018. This is a trend that we see building significantly this year with less people using cash and cheque, opting for safe, contactless payments at stores and also for payments made from person to person.
AR: Consumers are now normalised to the user experience that Netflix or Airbnb provides. They increasingly want a digital-first, usually mobile, service that is instant gives them one place to manage their finances and works at the speed and scale of the internet.
Consumers – especially during this crisis – want their money to work as hard as possible. To date, service providers haven’t explored the potential to turn payments data into behavioural data that doesn’t just enhance the experience but can help identify new requirements before customers request them. After all, payments data is unique in revealing value and action, over interest and intention.
One area our banking clients are getting lots of requests in is the convergence of crypto and fiat. Consumers want a digital banking product with access to crypto and fiat currency in one place. And this speaks further to the requirement for services to fit with how people want to manage their balances in one environment rather than separate spaces.
How are non-traditional banks and increasingly non-banks adapting to these requests?
SJ: They need to be well-positioned to deal with the challenge of real-time, and the ripple effect it will have on their businesses. These real-time capabilities need to be available all the time, and this requirement itself will drive great changes within these institutions. Greater investment in financial crime tools, machine learning and operational efficiencies to ensure high Straight-Through Processing rates will all be areas of change.
We’re also seeing increasing interest from institutions that have implemented open banking for account aggregation and bank account transaction data, wanting to move towards payments integration which will require real-time payment capabilities.
AR: Non-traditional banks, and increasingly non-banks that want to provide banking services like a gaming company or telecoms provider, often don’t have the 20 or 30 years of legacy technology that a traditional bank has. And I know that the problems around legacy systems have been discussed ad infinitum, but the reality is that it curbs agility and the ability to adapt. Only two years ago, 92 of the top 100 banks in the world were found to continue to rely on mainframe legacy IT systems.
Non-traditional players – which don’t have the heritage and “too big to fail” trust of incumbents – have to innovate more and deliver more value as part of a great experience. One way they are adapting is by embracing modularity and a disposable tech approach that will future proof against legacy systems.
By implementing modular ‘swappable’ solutions, providers can upgrade their systems piecemeal, opting for an evolutionary approach as opposed to a revolutionary one. This stops the ‘Jenga-effect’ where one change brings systems crashing down. With a modular approach, all programming code is isolated, minimising risk whether you are adding a new service or just tweaking functionality.
What are non-traditional banks and non-banks doing better than bricks and mortar banks?
SJ: Given the current environment, the ability to respond quickly to customer requirements is proving invaluable. Many fintechs offer truly online, highly automated, self-service capabilities with little interaction required through services channels. As an example, over the past two months, ClearBank has seen increased transaction volumes and lower customer enquiries. Many of our fintech partners are experiencing similar levels of automation and this must surely contrast with traditional call centre or chat-based servicing models.
AR: Non-traditional and non-banks are digital-first, they are a lot more suited to this remote working environment we find ourselves in today. Those that have been around longer had to adapt to more over the years, unlike those fintech style businesses who were born through customer demand.
There must be a huge cost associated with the traditional banking model with bricks and mortar stores on the high street, so how do they deliver value during this time? The loss of revenue from having these stores closed right now will be costing them a huge amount.
More so than ever, fintechs are demonstrating their value from being entirely digital. From banking to loans to wealth management and even mortgages and pensions, there are non-traditional players that allow you to do all of this with a tap on a touch screen.
How are consumer attitudes changing towards these non-traditional players?
SJ: With many physical bank branches now closed because of Covid-19 and long waiting times at call centres, consumers are getting frustrated with the challenges of raising queries and requirements through these traditional channels. Non-traditional players are providing quick, efficient and effective services and many people are now experiencing new ways of doing things online. Many of our fintech partners are reporting increased customer sign-ups and we expect consumer trust in these non-traditional players to continue to build.
AR: According to EY research, fintech adoption among consumers has nearly doubled from 2018 to 2019. In addition to the 64% of consumers globally that use one or more fintech services, a staggering 96% are aware of at least one alternative fintech service to a traditional banking product – be it payments, loans, insurance etc.
Consumer attitudes have been changing for a long time and now the COVID-19 crisis is accelerating this change. Government support, increasingly from fintechs set up to disburse funds digitally, is helping to change people’s attitudes to the more digital-first approach to banking. Along with an increase in usage of contactless payments and wearable technology and other digital-first products, end-users know more about the options outside of their normal banking relationships.
Where do you see the future of traditional banks in 5-10 years’ time?
SJ: We expect them to continue to be an important component of the financial services system. However, adapting to new technologies such as real-time isn’t easy and operational systems within traditional banks will have to develop to do so. Becoming highly automated and moving from batch payments will cause real technical challenges and migration nightmares for some. For many, this will prove too far a leap to make, and for those that fail, they will lose market share quickly. For those that do adapt they will be able to compete with what fintechs are offering but the additional benefit of brands that have built trust and recognition over the years.
AR: The ‘buy, build, merge’ mentality that banks have held cannot continue in the same way now that they cannot sustain their customer base on their incumbent product. This situation is accelerating digital transformation by traditional banks so that they can remain relevant.
Shopping in the physical environment is about the experience rather than a necessity, so people will go into stores in the future to have an experience – but this could be the death of the bricks and mortar bank. The traditional banks will increasingly become a platform with a balance sheet that supports a wider ecosystem of non-traditional players that want to access customers and funds in return for delivering a great service and sharing data.
You could argue that a banks’ biggest customer in ten years could be the developers at niche players that they want to attract to their platform. In much the same way, Apple and Google vie for developer attention and investment.
In ten years’ time, the biggest traditional banks will resemble big tech companies that work in collaboration with a universe of third parties to provide a suite of services to consumers, where the money is made not through transactions but through data.