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Bank to the future

For many consumers, the high street bank is still the preferred method of banking; the physicality of a branch is important for both the availability of real people to talk to and the feelings of security and confidence that a bricks and mortar company exudes. However, younger consumers – especially millennials born between 1981 and 2000 – are starting to shift their financial preferences towards online services that provide fast, convenient access and are available wherever they are. Driven by technological advancements, these changing attitudes are irreversible and banks have to keep up or risk losing out to new entrants offering a more innovative service.  

Of course, it should be made clear from the start that many banks are offering online and mobile services to react to customer demand. Barclays for example, has chalked up over 2.5 million downloads of their Pingit mobile phone money transfer app since it launched two years ago, while the launch of Paym, which allows bank customers to send money using just a mobile phone number, has the backing of a number of UK banks.  

The challenge they face however, is that they are no longer the de-facto choice for many consumers, especially millennials, when it comes to choosing wider financial services. These people have grown up in the age of iTunes and Xbox. They’ve seen – and probably used – a great many companies offering financial services and while they still need banks for the core ‘banking’ functions like current accounts - although there is in truth little difference between them and a digital wallet - they no longer default to them for other financial products such as mortgages and loans. The connection between traditional banks and day to day transactions is weakening as millennials no longer follow the baking choices of their parents.  

Why is this? Arguably a number of factors are at play. Firstly, it’s probably a safe bet to assume that many millennials don’t associate banks with the always-connected, mobile-first lifestyles they lead. Contrast this with technology companies such as Apple, Google, eBay, Amazon etc. who have grown by reacting to (and fuelling) modern lifestyles and it’s easy to see why younger customers – and digitally-savvy older customers to some degree – may consider other companies  above banks for their financial services needs.  

Secondly, there’s the issue of familiarity and trust. In many people’s minds, the global economic recession started with malpractice in the banking sector. Trust – as the saying goes – is hard won and easily lost and while no sector is immune to scandal and crime, companies such as mobile network operators, cable broadcasters, hardware manufacturers, search engines and even supermarkets, have built trust with consumers so that they now feel comfortable in using them for financial services, at the expense of the banks.

So what does this mean for the banking sector? Is it facing a bleak future? The evidence certainly suggests that it needs to be aware of the challenges and respond appropriately. A survey by consultancy firm Scratch shows that one third of millennials believe that in five years’ time, banks will be superseded by tech firms when it comes to who they use to manage their money. While it would be surprising if a company like Apple announced it was to create its own banking offer (gaining a banking license would be a significant hurdle for a start) it seems that many young people would be at least be willing to consider switching to the tech company over their bank.  

As an online payments company, we enable consumers to pay for goods and services across a wide variety of devices and platforms, be that mobile, desktop and even physical retail outlets via our prepaid credit card. While not a bank, we offer many of the day to day transactional services customers require – like money transfers and the prepaid credit card – and we do this quickly and securely. Of course, we rely on banks as the backbone to our business but equally we compete in many areas, and we are not alone.  

So, how can banks react positively to this challenge?  Firstly, they should get closer to their customers. It seems an obvious point but most consumers today have far more daily interactions with the likes of a supermarket or their mobile phone provider than they do their banks and these companies now offer financial services. Crucially they have a deep understanding of what consumers want and - by virtue of having a retail element to their business - they have experience in delivering goods and services. Banks need to get better at both understanding the market and delivering the products and services that will matter to the next generation of customers.  

Secondly, banks must get better at integrating branch and on-line services. If you think about Apple, its in-store experience has become critical to the brand, with its ‘Geniuses’ providing much needed expertise and advice to consumers. We know that many people still prefer some element of physical banking so there is clearly room for innovation here. In many ways this is taking banking back to its roots – providing the personal services around financial matters and building trust and loyalty with customers.  

Finally, and following on from above, banks should play to their strengths.  They will struggle to be as nimble and agile as a start-up in the financial technology sector, but equally, many of their competitors do not have their wealth of experience and expertise. While trust in the banking sector may still be low, millennials aren’t naive when it comes to money – and it’s certainly important to them. Many will have received warnings over their on-line accounts being compromised (recent high profile examples include a gaming company to an online auction site) and they should respond positively to messages around security and good financial practice. Banks should look to invest or partner where they are weak in terms of service provision but equally they should not be shy in promoting their strengths.  

It remains to be seen whether the findings of the Scratch survey do actually come to fruition and if companies like Apple and Google indeed expand their financial offerings in the wake of increased customer demand. They already hold the financial details of their customers – iTunes for example has half a billion card records on file – and they are in a strong position to further weaken the relationship between the customer and the bank. For example, it will probably be the technology sector that ‘fixes’ the issue around lack of adoption of mobile payments by bringing together all the critical factors of security, speed, user experience, relevance and value.    

Given that the payment process is a critical part of the whole purchasing experience, banks clearly need to take up the challenges thrown down to them by the technology sector and the changes to banking and financial habits that have taken place over the past decade. There is still clearly a lot of demand for traditional banking services and the sector’s historical strengths  - trust, security and reliability – though tarnished by the recession are still worth a great deal. However, millennials are forcing them to adopt a steep learning curve if they want to ward off new competition and remain in good shape to service the needs of their existing and new customers. 


Comments: (6)

A Finextra member
A Finextra member 05 August, 2014, 14:25Be the first to give this comment the thumbs up 0 likes

Mark, I think your right on the money. 

The idea of being omni-present in day-to-day activity provides much more insight into a customer's financial needs.  I've long thought and blogged that Google and Amazon are well-positioned to provide (the brass ring) "advisership-on-demand" precisely because they know who, what, and where you are in the financial lifecycle at any moment. 

Payments providers understand this and the billions in investment in fintech payments seems to corroborate the idea. 

I also agree that banks need to improve their retail experience.  After all, it is their primary differentiator. 

My thought is that hyper-localizing in-branch messages is the cost of entry.  The information presented in branch has to be dynamically relevant to customers.

Step two has two parts: 1) creating bi-directional conversation and opt-in; and 2) getting information to customer mobile devices and putting rich media physically into the hands of customers and prospects.




Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 05 August, 2014, 16:35Be the first to give this comment the thumbs up 0 likes

I get what you're saying but, technically, a tech company with a banking license is a bank, isn't it?:)

A Finextra member
A Finextra member 05 August, 2014, 17:14Be the first to give this comment the thumbs up 0 likes

Technically yes but the whole point is that those tech companies who may become banks, are doing so from a very different prositional and product perspective, not to mention expert product and consumer marketing skills.  So yes, technically a bank but very very far removed from where we are today with 'tradtional' banking players.

A Finextra member
A Finextra member 05 August, 2014, 17:46Be the first to give this comment the thumbs up 0 likes

Banking may decentralize and disintermediate some third parties.  Why not have a more flexible banking system?  There's probably more money and less risk identifying counter-parties to transactions.  Of course, there's traction for creating large peer-to-peer lending environments too. 

A Finextra member
A Finextra member 05 August, 2014, 17:53Be the first to give this comment the thumbs up 0 likes

I think that there will be an increasing shift in terms of how people manage, use and view their money.  I think that new players will start to really deliver tailored financial offerings which are timely, relevant and offer real value back to the consumer.  Technology will enable this but it will be the expertise that these new players have deployed in innovating and launching new products which will differentiate them from the Banks.



A Finextra member
A Finextra member 02 January, 2015, 21:47Be the first to give this comment the thumbs up 0 likes

Increasingly there will also be a dichotomy between traditional banks and payment banks. First payment banks receiving licenses in India just now. Without massive legacy systems and simpler regulatory requirements these should hopefully bring in innovations at a rapid pace.

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