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Consumer banking Part III: Expanding the ecosystem

In the third of our four-part blog series on putting the consumer at the heart of consumer banking, we consider another key line of defence against emerging competitor threats.  Read Part I and Part II.

Banks don’t have to do everything themselves. Existing – but non-banking - consumer brands already enjoy a high profile and good levels of trust. Collaborating with them to expand the banking ecosystem can offer viable routes to market entry and expansion.

Partnering with traditionally non-financial service brands can enable banks to expand their distribution network, while offering customers the choice and convenience they want. Leveraging trusted brands - and their existing customer base - can help in countering the threat from new and non-traditional market entrants. Banks can potentially reach more customers by positioning the trusted brand as the face of the product and proposition, while they concentrate on providing the core banking capability that sits behind it. In this ‘white-labelling’ scenario, both the bank and the non-banking partner do what they do best. And the customer enjoys choice and convenience.

A very viable example of expanding the banking ecosystem to partner with non-banking brands can be seen with the Virgin Group. Virgin Money is now well established in the UK and is already disrupting the norm. Their offer includes pre-paid travel cards and credit cards that generate Virgin Atlantic air miles and offer customers discounts at other Virgin-branded companies. They could however go even further.

Customers could earn air miles from spending on their current account. Or they could be rewarded with a flight upgrade when they reach their annual savings target. With a Virgin Money mortgage, customers could be entitled to free Virgin Media broadband and TV for their new home; or a free Virgin Trains first class ticket when they take out a personal loan. The inter-brand ecosystem is robust, logical and well-aligned. By staying within and making increasing use of the ecosystem, customers are rewarded for many different aspects of their financial choices and behaviour. And remaining inside the system makes more sense, the more of its products and services they choose.

There is no doubt that evolving attitudes drive demand for financial products that are seen by consumers as directly beneficial. Our research showed that interest rates on a savings product, for example, are now ranked as no more than a customer’s basic expectations of that product. Consumers taking part in the research said they wanted more motivation to save than interest alone. Key attractors included more accessibility of funds and more ‘associated benefits’ such as rewards points, discounts, air miles or exclusive access to events. In this consumer demand context, it is clear that a wider banking ecosystem with a built-in capability to deliver a range of rewards will do well.

But, to be effective, the attractors must be seen to be worthwhile. And they have to be readily accessible to every consumer involved. Any barriers to reward and consumer gratification carry a risk of being counterproductive. Consider one high profile example. To obtain an American Express card the customer has to earn a certain amount of money and, in some cases, pay a fee. If they spend over £20,000 a year on that card, they are rewarded with a ‘companion voucher’ allowing them two flights for the price of one. The headline offer is attractive. But redeeming the voucher can sometimes be difficult and the customer can’t always fly to their chosen destination at their preferred date and time.

The initial novelty of direct reward for financial services usage is no longer enough to make just any offer attractive. Customers are becoming savvier and more price-sensitive. For example, the launch of a ‘rewards’ scheme by one UK bank allows customers to earn 1% cashback on all payments made by using contactless card technology. Customers were quick to figure out that, given the transaction limit of £20 for a contactless payment, even using their card every day of the year up to the daily limit would only give them £73 cashback for twelve months!

So the moral is arguably as follows: if you are a bank and you want to make rapid progress in a new market, don’t do all the work yourself. Create a fast track ecosystem where a partner brand can leverage its existing profile to attract consumers. Provide the specialist banking elements. Build a series of logical and complementary offers that recognise loyalty and increasing usage. And, finally, make sure that rewards really are rewards – straightforward, accessible and worth having. Any other course will only prove counterproductive. 



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