After months of fevered media speculation, evidence emerged last month that Facebook has applied to provide financial services from its Irish headquarters and is working on a money transfer service. This has brought new weight to the predictions that digital challenger brands, such as Amazon and Google, are coming to develop a full service offering in the sector. Born in the digital age and unconstrained by legacy systems, they would be able to create powerful, technology-driven competitors to the incumbents.

This has been illustrated by the success of initiatives like M-Pesa, a payments service in emerging markets. Unbound by the limitations of existing infrastructure, Vodafone has been able to launch a nimble solution that is perfectly tailored to market and customer needs. Accenture’s recent 2020 Banking Report predicted that traditional US banks may lose up to a third of their market share in the next six years to entrants and banks which adopt new business models or partner with brands like Google, Apple or Amazon. 

This comes amid a wholesale change in the way people are using banks. According to a report last year by the Office for National Statistics (ONS), 50 per cent of all adults now access their bank accounts over the internet, compared to only 30 per cent in 2007. They are seeking different ways to engage with their banks, creating a vacuum that challenger brands could potentially fill.

However, this shift could create significant opportunities for banks rather than a competitive threat. Many customers still value face-to-face contact when it comes to their finances, and maintaining branches as a customer service channel while investing in digital will allow banks to straddle the divide between different customer segments and meet account holders’ preferences for engagement.

A recent survey by BT and Avaya found that 55 per cent of people think that banks, building societies and insurers have focused too much on automating services. It also showed that only 17 per cent of individuals visiting a branch were worried they might not be able to get the services they need. This demonstrates the significance and importance of personal contact. Overall, customers used an average of 6.2 channels to contact their bank.

The delivery of financial services also relies in no small part on trust. Despite the financial crisis many people still believe in traditional providers to provide the security they need. There may be an affinity with selected digital brands that have engaging and compelling interactive services in retail for example, but finances have a different character entirely. Newer brands like Facebook lack this established reputation, even if they can offer more interactive or convenient services.

As it may take time for these challenger brands to establish themselves as genuine competitors, banks have an opportunity now to reconsider their customer engagement strategies pre-emptively,  thinking about what technology they can offer which helps to simplify customers’ lives, maintaining a personal touch, and ensuring that every customer contact picks up exactly where the last one left off.