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When physical and digital banking worlds collide

Over the past 12 months challenger banks have started to move their digital banking into the physical world. For example, ‘mobile-only’ bank Starling is partnering with the Post Office. The partnership will allow customers to deposit and withdraw cash through the Post Office’s 11,500 branches nationwide, to tackle bank branch deserts. This is a key moment for the digital revolution of financial services. There are a few reasons why the industry should take note of this step:


The paradox: ‘Mobile-only’ only works with physical access points


When Starling Bank started out, it was the “challenger bank” par excellence that promised to revolutionise the business model of banks up and down the country. Industry observers praised the business model – here was the bank that could build a modern platform from scratch without having to worry about legacy IT systems always on the brink of compliance breaches. On top of this, the digital offering promised to minimise overhead costs.


What is important to understand in this context is that Starling’s latest move is by no means a declaration of surrender for their ‘mobile-only’ model. On the contrary, the promises still stand true, with the new move enabling the digital banking model to be rolled out to wider parts of the country than just those who live in Shoreditch or within the M25.


Time and again, research has shown that all parts of the population will want to have the option to be able to carry out simple transactions, such as making a cash withdrawal or deposit, independent of demographic differences. The fact that three of the UK’s main challenger banks (Monzo, Starling and Revolut) offer cash withdrawal facilities shows that there is still great appetite for this service, even from those who prefer “mobile-only” banking.


A recent Which? Article described a bank not having cash depositing facilities as a deal-breaker for consumers searching for a new current account. This suggests that challenger banks would be wise to incorporate physical cash into their models and services. Without bridges between the worlds of digital and physical banking, ‘mobile-only’ will be a gadget for the elites – not an alternative for the masses.


Bridging the physical and digital banking worlds


While physical bridges are an essential part of the digital revolution, it has also become apparent that most banks will be unable or unwilling to maintain their extensive branch networks. Instead many banks will decide to make use of existing infrastructures on high streets and in town centres. This year, Monzo revealed its partnership with PayPoint - a UK wide provider of payment services in corner shops - to allow deposits. Similarly, Nickel, a French digital bank, decided to partner with 1.4 million convenience stores around the country to offer their customers physical cash withdrawals and deposits. To be successful mobile-only banks must combine the best of both physical and digital banking, whilst avoiding the costly overheads associated with running a branch network. This was reflected in this quote from Starling Bank featured in Forbes: “Our world is more digital than ever, especially when it comes to banking, but we know that having the option to deposit cash into your bank account is important for a lot of our customers and businesses”.


In order to bridge the digital-physical gap, banks must offer facilities that enable consumers to access their services that used to only be available at bank branches. ATMs are the obvious choice, given that they already provide some vital physical banking services round the clock. Innovative self-service machines are already providing some of the banking services that UK consumers rely upon on a daily basis, including cash depositing and bill payment facilities. These machines are not only able to assist consumers directly, they also allow small businesses in rural areas to deposit daily takings. This protects the safety of local business owners and enables them to continue to accept cash payments. ATMs encompass the bridge between the physical and digital worlds of banking to ensure financial inclusion for all, at times when branches are closing and banks are moving their services online.


The UK is at a critical point in its evolution. The government enquiry led by Natalie Ceeney has the opportunity to recommend changes that will deliver a cost effective infrastructure which would facilitate the long term future of cash as a reliable and sustainable payment mechanism for retailers and consumers based upon creating utilities across the cash eco system. However, there is also a valuable extension to this study that would build the necessary bridge between the physical and digital worlds. This needs to be fully explored during the consultation process for sake of all stakeholders; banks, retailers and consumers.


It is clear from the examples set throughout 2018 that success in the banking industry in 2019 will rely on choice. Banks must adapt to consumers’ needs, whilst making sure all groups of society remain included. The obvious route is through innovative self-service solutions, to bridge the digital and physical worlds of banking.


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