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Consumer Banking Part IV - Going It Alone

In the last of our four-part series on putting the consumer at the heart of consumer banking, Dan Jones takes a different perspective. So far, the focus has been on ways existing banks can adapt to survive and thrive in the new consumer banking landscape. Now, Dan looks at a new category of player: the 'non-traditional' competitor. Read Part I, Part II and Part III.

The regulator is encouraging new entrants into the banking industry. In pursuit of greater competition, challenger banks will be guided through the process of setting up. While completely new brands might well find it takes longer to gain momentum and attract new customers, well-established but currently non-banking brands may not experience any such delays. So, who might be some of the likely candidates to take on the existing banks? They will probably already offer trusted relationships with consumers. And these relationships will include a dynamic that's similar in many ways to key elements of financial services. The holiday industry offers a useful example.

The main players in the UK include Tui Group, Thomas Cook, Virgin Holidays, Kuoni and Saga Holidays (the latter has already expanded into provision of a wide variety of consumer finance products and services). They all have trusted brands, millions of existing customers, pre-existing infrastructure, extensive operations and significant branch networks. The products they sell are logically aligned to financial services. Their customers save to travel and spend money abroad, they take out travel insurance products, they exchange foreign currency and they want to do the same thing every year (go on holiday).

With the addition of a full banking presence and services, they could leverage their existing distribution networks and create a diverse consumer banking ecosystem. Their customers could earn holiday reward points on their current account and credit card. They could also place their monthly savings in an account that, instead of earning interest, gave them money off their next holiday.

Net impact? Customers get their holidays faster and cheaper. And in the process they become more loyal to the brand. The holiday company creates more customer interaction with increased touch-points throughout the year. They learn more about their customers and they can more closely tailor their services and offers. Financially, the company uses customers' deposits to smooth their cash flow by counteracting the highs and lows they experience during peak and off-peak holiday seasons. Savings deposits also mean the holiday company can open up a new revenue stream, by investing a percentage of those deposits.

Are there any downsides to going it alone? One drawback is that non-banking players would typically need to recruit specialist banking expertise and invest in the core banking technology needed to sit behind their existing distribution channels. This technology input often comes with a long lead time, while requiring substantial upfront investment. In addition, a significant amount of capital is needed to comply with banking regulations and to make customer loans without starving the company's pre-existing business of cash and investment. Last, but certainly not least, customers need to trust the brand in its new banking context. They must be reassured that their money is safe. This is first base. It also takes time and it requires staff, as the face of the brand, to be highly trained in banking procedures from day one.


Throughout this series on the new consumer banking landscape, we have seen three keys aspects of change. Change is constant. Change is inescapable. Change is here and now.

Bank customers have already changed. They have evolved into consumers, first and foremost. And, as consumers, they will continue to change their expectations as they are exposed to a range of experiences provided in a variety of sectors. Our recent research clearly shows that bank customers want more choice and convenience. They no longer view banks as the only places where they can safely put their savings and manage their finances and loans. Traditional banking propositions are increasingly seen as just first base - a hygiene factor only. Back office attributes of proven process and security are not enough - on their own - to create competitive front office differentiators.

The banking industry and the regulators may be showing caution today with regard to 'packaged' accounts. But the customer is certainly looking for service styles and levels that can satisfy more than their basic banking needs alone. Perhaps most importantly for the shape of the financial services future, customers display a much higher degree of trust in non-banking brands than they ever did in the past. (In a recent survey of the top 120 most trusted brands in the US, not a single bank appeared on the list. Hotels, however, made up 28% of the list and the travel industry - 11%.)

What's the good news in all this? Simply that change needn't inevitably be bad news for banks. In fact, and as we have seen, change presents an opportunity to re-shape banking propositions. This can be achieved by learning from other industries and by partnering with non-banking brands, to diversify distribution of products and services while expanding the ecosystem. Banks should therefore focus on their core capabilities, partnering with companies that can enhance their distribution network and expertly fulfil specific elements of the supply chain.

Is there a 'do-nothing' setting? No. If banks fail to adapt to (and predict) evolving consumer attitudes, change will continue regardless. BUT ... the form it takes will be far less favourable to today's established players. More and more challenger banks, together with non-traditional market entrants, will disrupt the fundamental concepts of banking as bankers know it today. Tomorrow, they will draw customers away to new propositions and new ways of managing their lives and finances.

For that picture to include today's banks, they will need to embrace many of the changes in market distribution, product configuration and service styles we have discussed in this blog series. Bottom line, they will need to put the consumer at the heart of consumer banking. 


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