I received some survey results this week looking at why people are not moving their money to challenger banks at a faster rate.
Turns out that they actually quite rate their banks after all. The study of 1000 people from marketing agency True and research company Strive, found that 86% of people between 18 and 55 scored their current bank at 7 out of 10 or more for satisfaction. And 59% of people agreed that there is little to be gained from switching banks.
Read the full report here.
As we know since the financial services turmoil, which began about a decade ago with the credit crunch, the UK government and the EU have been eager to introduce more competition in the sector. Making it a bit easier for banks to become regulated and introducing a system that can switch a consumer’s bank account quickly are good examples. But there has not been much take-up of the switching services and the challenger banks, as the new banks are known, have not had much impact on taking customers from traditional banks.
I opened an account with a challenger bank to see what all the fuss is about. I must admit the mobile banking experience is fantastic and there is some great functionality. But would I move my main business, which includes current account, savings account and mortgage? No I don’t think so. I don’t have enough reason. Give me a good interest rate combined with the great digital services and then we are talking.
So back to the research. Why do so many people rate their bank highly and why doe 58% see little reason to change?
The research found that new banks might be over estimating the importance of their user experience credentials.
“The era of open banking is upon us and these findings help established incumbents and new fintech propositions understand what they can do to get people to care enough to move their money,” Tim Jones, MD True.
The study included a test of the on-boarding experience of traditional high street giant Barclays and challenger bank Starling. It found that while most people preferred the Starling experience they were reluctant to switch accounts based on that. “The disruptor has to provide reassurance that they are legitimate, secure and worth the effort,” said the True report.
Another issue holding back fintech banks is that consumers want for face-to-face interaction with a real person. It found that. Sixty five per cent (65%) of those surveyed said they thought Barclays, Lloyds and other traditional banks would offer the highest quality advice, with their high street presence.
What does the future hold for the challenger banks? One of the earliest challengers, German bank Fidor, was acquired by French retail bank BPCE in July. Meanwhile all the big banks are investing heavily in fintech to ensure their digital experiences are close enough to the new banks to make switching more hassle than its worth for consumers. A recent Ernst & Young (EY) study of more than 200 of the world’s biggest banks, found that 85% of banks put the implementation of digital transformation as a high priority. Only improving cyber and data security ranked higher (89%).
So where do the challengers go?
Open banking and PSD2 have just come into force which help fintechs get closer to customers by using their banking data to provide relevant services, so who knows the next few years might bring the much sought after changes. Although differentiation on interest rates etc still seems the only way to convince large numbers of consumers to switch banks.
The law of cause and effect might be hard for Donald Trump to comprehend, but experts in areas from transport infrastructure to community development need to apply their expertise to the relationship between digital lifestyles and traditional ways of living.
Digital transformation comes at a price. We have already seen industries shrink and even disappear as digital competitors overrun them. But digital disruption goes way beyond transforming business sectors, with physical infrastructures requiring transformation as well as communities being transformed by stealth.
Ford’s CEO Jim Hackett, recently said cities will have to be rebuilt to cope with changes brought on by digital services trends. He said taxi apps like Uber, driverless cars and the increased need for delivery services as people buy online, will put huge pressure on transport infrastructures.
Urban traffic is expected to triple by 2050, and two thirds of the world’s population will live in cities, compared to 54% today, according to the United Nations.
For transport more people might chose to use services like Uber or Zip Car, which lets you hire cars by the hour through an app, to make short journeys rather than a bus. Then you have the development of driverless cars that will not only mean more traffic on the roads but potentially changes to the infrastructure to accommodate them. And don’t forget the increased digital platforms like Amazon to buy any product imaginable. All this requires delivery.
Cities were designed for a world which is disappearing gradually as behavior changes.
According to the Telegraph, Hackett told an audience at this year’s CES show that city transportation grids will mutate around what the cars need.
But he said this has already happened over the last century with the dominance of cars, claiming car ownership had eroded community life in some towns and cities. “Parking lots overtook community centres. Fast food centres crushed the family diners and restaurants. Technology has been at the expense of our shared sense of belonging.” But today the pace of change seems to get faster and faster. Things unimagionable ten years ago seem normal today.
It brings home the changes that digital lifestyles bring to the physical environment. When you are ordering a meal on your smartphone it all seems so easy. People are more likely to have the food delivered today rather than visiting a takeaway, as it is all automatic on ordering. But actually the process making and delivering food is the same and we don’t think about the effects of our choices.
I was ordering a takeaway while in a cab the other night and the driver was informing me, as they often do, that I should phone the takeaway and order it that way. This is because it means the takeaway does not pay commission and is more likely to offer you extra. It got me thinking that people lose the personal relationship with the local takeaway by using apps like Just Eat.
Local communities are already being transformed, many believe negatively, by another digital disruption. App based room and property rental services, like Airbnb, are encouraging people to rent out their homes and transforming the people that live in certain areas. The local community is being replaced by temporary residents
With people offering their properties to people for as little as a day through there are accusations that house shortages are resulting because home owners prefer this to long term rental customers. Also prices are going up for locals amid new competition for properties.
In the Netherlands there has already been action by authorities to regulate companies like Airbnb. This was a reaction to the fact that tourists that had booked accommodation heavily populated areas were causing disturbances, and prices were rising for residents due to tourist demands.
I am curious what will happen to the business quarters of the big cities as more and more people take advantage of working from home. I regularly visit offices of businesses b and I am always surprised at how many empty desks there are. When I ask them why it is always that they have flexible working and many people work from home. What will happen to all the big skyscrapers when flexible working becomes the rule rather than an extra? Capital cities will be virtual.
Last month I wrote a story about a UK insurtech startup Honcho which had to find £650,000 when money due from the EU was put on hold due to Brexit. I can report that the company has succeeded in getting the funding it needs, and a bit more, to move forward.
I told the story of how Honcho was trying to raise the money through crowdfunding platform CrowdCube, with Investors getting shares in the company.
North East England based Honcho is a free mobile app that promises to take on the established price comparison websites for car insurance. Rather than the customer looking for the best deal, they put their details into the app and the insurance providers make bids to the customer. Insurers pay £1 to bid and there are three rounds of bidding, with insurers able to see what prices competitors are offering.
When I first wrote the article in early December the company had received £300,000. The good news is the company exceeded its target and has received £850,000 in investments.
Honcho was originally getting funds from the Joint European Resources for Micro to Medium Enterprises (Jeremie). This is part of the European Investment bank fund, which is shared by organisations across the UK. But this was put on indefinite hold due to Brexit uncertainty. This came at a critical time in Honcho’s development and it could not afford to wait.
Honcho’s success in acquiring the funds is a reflection of a hot market for this type of platform. Insurtech is one of the growth areas in the UK at the moment as the insurance sector attempts to emulate what is going on in banking through fintech.
I am interested in hearing from any tech companies that are being affected by Brexit. Please share your views i n the blog or email me on firstname.lastname@example.org
On writing a news article about Google bringing its different payments services under a single brand I couldn’t help revisiting that all so often theory of Google Bank.
This week Google put services including Android Pay and Google Play under a single Google Pay brand.
Like Uber Google has become a default name for digital disruption in industries. But Google, the internet giant, has even been talked of as a potential bank.
But I doubt Google and for that matter any internet giant would want to be a bank. Many of these internet companies experience symptoms ranging from mild headaches to huge migraines when it comes to regulation that questions the stability or morality of their business models. The audacity of that, all they want to do make people’s lives easier. Errr, and make money.
Banks will say the same thing these days as digital banking accelerates. But there is a huge difference between banks and internet companies and tech startups when it comes to regulation.
So despite the term Google Bank often cited as the future (I am guilty of this) is it really going to happen?
One of my contacts, a senior IT professional in the UK banking sector and a keen advocate of digital challengers, thinks Google will cherry pick. “I think Google will do anything in financial services that will generate revenue without the need to meet heavy regulations,” he said.
The new fully fledged banks which have entered the UK since the government made getting a banking licence easier, many of which are driven by digital technology, still had to jump through lots of hoops to get approval.
So if Google wants to do more on the fringes of banking the new rules which come into force next week around the Competition Markets Authority’s Open Banking rules in the UK and PSD2 across Europe could be an opportunity. These regulations, which become law this weekend, will force banks to share customer data, if the customer agrees, to enable other companies to offer services using this data.
For instance a company could offer an app that puts all you financial services from multiple companies in a single financial management platform. Or a comparison company could use the information to offer recommendations about financial products that better suit a consumer.
According to Ovum analyst David Bannister: “PSD2 and the CMA’s Open Banking changes the nature of banking. At the moment you have all of your financial m services roughly with one bank. You are not getting any advice from high street banks. The new regulation allows a whole range of advisory applications, consumer advice generally, offers and things like that all in one place. That changes your consumer or even small business relationship with a bank.
So this is right down Google’s street surely? But Gartner analyst Alistair Newton, said Google usually ranks low when it comes to trust around financial services. “I think Google as a financial services aggregator would struggle in terms of the data we have. They fall well down the list in terms of consumer trust in banking. Many people don’t trust what Google is doing with their data.
He said Amazon is a more likely company to grow in financial services. “People trust them because they keep delivering stuff to their front doors. This is the kind of thing that builds trust.”
As a kid watching The Hitchhiker’s Guide to The Galaxy I was particularly fascinated with the babel fish.
Once inserted into the ear, this leech like creature makes any other language instantly understandable by the wearer.
According to the famous book, written by Douglas Adams: “The Babel fish is small, yellow, leech-like, and probably the oddest thing in the universe. It feeds on brain wave energy, absorbing all unconscious frequencies and then excreting telepathically a matrix formed from the conscious frequencies and nerve signals picked up from the speech centres of the brain, the practical upshot of which is that if you stick one in your ear, you can instantly understand anything said to you in any form of language: the speech you hear decodes the brain wave matrix.”
You can imagine the excitement I had when I received a press release about Air New Zealand using Google technology that translates in real-time for staff trying to help customers that speak different languages.
Wearing Google’s wireless Bluetooth Pixel Buds headphones and using a Pixel handset staff can receive live translation of 40 languages.
This is another example of the supersonic pace of technology advancement. The Hitchhikers Guide to the Galaxy was only written in the 1970s and although real-time translation of all the languages in the universe is still science fiction the babel fish concept is being developed. Imagine where we might be in another 30 years.
Well here is a prediction for just nine years from now. Before Christmas I met up with Chetan Dube, a prominent computer scientist specialising in artificial intelligence .
I asked him about robots and how human they can become. “I don’t think you will be able to distinguish between a human and an android in the next nine years,” he told me.
“Robots no longer have the Michael Jackson moves, they are becoming fairly smooth. They could now easily walk through a crowded mall and avoid people,” he added. “They can take escalators, climb down stairs and they can run fast than humans.”
So the dexterity and mechanical motion is getting there and within five years, at the current rate of technological advancement, robots will move just like humans
But Dube said the big component missing is obviously the brain. He said companies like his IPSoft are working on this. “When you can implant the brain into the android it will be able to walk and talk and have conversations with people.”
“The boundary between carbon based organisms and silicon based organisms will progressively get diffused.”
As the UK government’s reports on how Brexit will impact different sectors were published… Hold on, I will start again. As the government published the reports that were originally supposed to assess the impact on different sectors in the UK, I had a look at those published about the sectors I cover.
While reading the reports on the ICT and fintech sectors I was taken back to being a wayward teenager being forced to complete coursework for my GCSEs.
These reports, which David Davis repeatedly described as detailed assessments of the impact of Brexit on various sectors, would probably sneak a grade C at GCSE at best and just because of the detail. A grade D in my opinion. The top grades would be out of reach due to the lack of analysis. This is the government and one of the biggest challenges ever to face the UK. They are winging it. These studies put UK in banana republic category
As the government clearly rates Wikipedia judging by it “impact assessments” here is the Wikipedia description of a banana republic: “[It] is a politically unstable country whose economy depends on the export of one product in limited supply, such as bananas or minerals (UK services). A banana republic has social classes that are divided by wealth. These include a large, poor working class and a small ruling class made up of the businessmen, politicians, and the military. The ruling class controls and exploits the country’s economy.”
These reports fail to clear anything up for those interested and just collate information and use sentences with meaningless descriptions to fill the void. One particularly fascinating description, pointed out by a Twitter user, was the description of an airplane and another needlessly reminding us that the UK is an Island and as a result reliant on treading over the sea. Then of course there is the revelation that fishing activities happen in coastal towns.
The IT and fintech related reports, which I have read, are truly awful. Embarrassing. It was very telling that all the views from people in the sectors “studied” were not published.
So what did the reports tell us? I think there are three possibilities. The first is that the government lied about their existence and then got some school kids to put something together at the last minute. Or the second option, often muted, is that proper impact studies have been done and are so scary that the government doesn’t want people to see them as it would probably reverse Brexit. Or thirdly the government is incompetent. All three are plausible.
I always used to cringe at the thought that someone like Silvio Berlusconi could be Prime Minister of Italy. Today I feel that way whenever I see the current Ministers running the show in the UK. Sadly it is not just the right of the political spectrum.
New rules being introduced next year by the Financial Conduct Authority, to force banks to publish details of major security and operational incidents, instead of hearing about them on Twitter, is great news in principle but in practice its effectiveness might be limited.
Forcing banks to report security and IT incidents will enable people, who are engaging with banks digitally, to compare the service levels being offered beyond interest rates and charges. With consumers demanding digital services today, and banks promoting them obsessively, it’s time banks were compared of their IT and cybersecurity competencies.
It will be interesting to see which banks have the most IT glitches as there seems to be one or two a month. It should force banks to sort out the cause of these problems, which is often the complexity of their IT infrastructures. New digital first banks could really show how much better they are when it comes to digital services. On cyber security banks tend to stay quiet and sweep incidents under the carpet after dealing with them internally, so it will be good to get a better idea of what they are being hit by.
What might be interesting and up for debate is what constitutes a “major” security or operational incident? One short mobile app outage might be minor but if it happens three times in six months it might be major.
A contact of mine that works in IT in the UK banking sector said he thinks this is a good idea but expects banks will play down incidents so they don ‘t have to be reported. He said an independent organisation might have be involved to decide what is reported and how.
He said it might also lead to bad behaviour as teams try to finesse their operations to make the metrics look good rather than doing the right thing if the two are not aligned. “For example – the case of the blocked toilet [at a bank I worked at]… the helpdesk would close calls when they passed a problem to the maintenance team instead of when the problem was fixed. But the maintenance team had a 24 hour service level for blocked toilets, so the helpdesk received dozens of calls for the same blocked toilet and closed each call within a few minutes as the instruction had already been passed to the maintenance team. The performance metrics for the helpdesk looked wonderful as they had handled a large volume of calls and closed them all within a few minutes. The truth of course was it was only one incident and took a day to fix. So the metrics did not reflect reality at all. The helpdesk reported 50 calls all closed within 5 minutes and the maintenance team reported 1 call closed within 24 hours. Two views of the same incident.”
But he said in principle the FCA’s idea is a good one, although tough to do in practice. “I have been involved in internal reporting with many banks over the years and they struggle to do this as well as they would like as it is more complicated than it sounds. There is a vast amount of data, performance metrics, key performance indicators, balanced scorecards and so on already in use within these firms, but they don’t often measure the same things in the same ways so you won’t be comparing apples to apples. There are several industry surveys that attempt to normalise some IT performance data and share it between participants but it has proven very difficult to do on a like for like basis.”
His two key points are: What is being measured would have to be defined extremely carefully and in great detail to avoid banks interpreting the requirement differently; and to ensure this is done consistently across banks, it would probably need to be done independently rather than rely on the banks to report the
“No bank will want to look the worst so they will do what they can to avoid that, which may include how they define incidents, their ability to assemble data quickly or accurately, statistical adjustments such as omitting exceptional cases that sway the core numbers etc.”
He said measuring these things publicly may also lead to unintended consequences such as “incidents being played down internally to avoid public reporting, rather than assigning a high priority and fast escalation to ensure a quicker fix.”
“So any reporting will need to be considered very carefully and may well be ignored by the public if it is not independent and trustworthy,”
Banks are scaling down their branch networks at an increased pace.
Banks have put a lot of money behind fintech and to retain branches would appear a contradiction.
But as branch closures continue there will be a tipping point for all customers in that when the nearest branch is too far away they will try out digital channels and quickly become converts. But when does it become more effort to travel to a branch compared to signing up to a mobile banking app, for example? Perhaps if the branch is beyond walking distance.
Earlier this month RBS Group announced the closure of 62 RBS branches and 197 at NatWest. Then at around the same time Lloyds announced 49 closures . Combined about 800 jobs have gone.
Most high street banks have been closing branches for years, since the financial turmoil in 2008 it has been a way to cut costs. But today banks do actually have a point when they say that changing customer habits and the move to mobile and online banking is reducing the need for branches.
The reason I blog about this today is that the local Santander branch where I live is closing down. What makes this interesting is that this is a high street in London. If footfall has reduced enough to justify closing a branch on a busy high street then digital channels must be the chosen method of banking for people in my area at least. Not surprising as London is often vaunted as the capital of digital banking with more people regularly using mobile banking apps and things like contactless payments. Despite there being lots of people walking past the branch few are going in. It is now easier for them to use digital channels.
So Santander said: “We constantly review our branch network to take into account changing customer behaviours and the need to operate an efficient and cost effective branch network. Our review has shown that 70% of customers who use our [this] branch, either at the counter or the cash machines, are also using alternative Santander branches. In addition, 54% of customers also manage their money through online, mobile or telephone banking.” Another coffee shop on its way.
This is not my bank and although my bank has a branch on the local high street I think I have only been in about six times in ten years. Each time to pay a cheque in. I rarely get cheques these days or pay them and if I did I can now put it into my account via the mobile anyway. If I want mortgage advice from a human I can do it over the phone or even via a video conference if I prefer seeing the person that is advising me.
But what about rural areas? Banks have an excuse for closing branches in urban areas because people prefer digital channels. People in these rural areas are less likely to use digital channels according to multiple reports, yet branches have been cut in rural areas for years. Isn’t the answer to the problem giving more support to people in rural areas to get them using digital channels. This might include reducing the reliance on cash in some areas, improving connectivity and providing people with training and computer equipment. Banks should probably offer people smartphones for free as part of their signing up package.
People use gas, water and electricity everyday but never visit the branches of the suppliers. Why should money be any different? You can do everything digitally these days, and cash machine s are there if you need cash.
Branches are still important to some people. But there will be a tipping point when the distance to travel to your nearest branch will be far enough away to push customers to more modern channels. Until this tipping point is reached some banks which have large branch networks are using them to provide showcases of digital services
I am interested to hear from people that still regularly use branches or believe they would be okay without one. When was the last time you used your bank branch and what did you use it for?
Fintech is a movement that is offering organisations a huge selection of digital services for them to choose from.
But they need not be limited by what is being offered on the fintech menu specifically but go out and tell the world what they need and what they are willing to pay for it.
Those that start fintechs are entrepreneurs. They have an idea of how to address a need in the market through an app and get investment to support them designing it and taking it to market.
But why not go off the menu and tell the fintech what you need and promise money to the company that can deliver it. It saves the fintech finding a business need and saves the organisation developing the platform. A real win win. Or even a win win win if you include the benefit to renters.
That is what the UK Treasury is doing. It has announced that it wants a system that can help people that rent build up their credit scores, so they can ultimately get a mortgage and buy a property. It wants rents paid to be recognized when people apply for mortgages. It makes sense that someone paying a high monthly rent would be able to pay a mortgage of the same value.
But the problem is credit referencing agencies don’t take into account rental data. They can’t access it.
So, through its Rent Recognition Challenge, HM Treasury is offering entrepreneurs £2m if they can come up a system that will enable millions of renters to record and share data about what they have paid in rent.
Stephen Barclay, economic secretary to the Treasury, said “People’s monthly rent is often their biggest expense, so it makes sense for it to be recognised when applying for a mortgage. Without a good credit score, getting a mortgage can be a real struggle.
Most lenders and Credit Reference Agencies are unable to take rental data into account, because they don’t have access to it. The Rent Recognition Challenge will challenge firms to develop an innovative solution to this problem.”
The Challenge will open to applications early in the New Year, and development will conclude in October 2018
This is a great example of how organisations can access software development expertise without hiring the staff internally. It is a form of IT outsourcing that reduces costs and provides agile development teams on a pay for result basis.
Opening a new bank account in today’s digital world should be easy. Visiting a branch and other manual processes should be a thing of the past.
I recently put this to the test by opening an account with one of the new digital challenger banks. I can confirm it is easy. Everything was done through my smartphone using the camera to take an image of an ID document as well as a video recording of me looking into the camera and speaking.
I have to admit it is the first bank account I have opened for nearly 20 year so can’t compare it with any others. I won’t give the name of the bank but I must say it was incredibly quick and easy.
But according to a study from technology advisory company P.A.ID Strategies most traditional banks still expect new customers to complete manual tasks and even visiting a branch in one case. “Visit a branch” I hear you cry. If I was going to open an account with a bank and it asked me to visits a branch I would look elsewhere. Unless you live in a big urban area you might not have a local branch such is the rate that banks are closing them.
The P.A.ID Strategies study covered Barclays, HSBC, Lloyds Banking Group and RBS (including NatWest) in the mainstream. It found that RBS was the only one of these that enabled applications to submit proof of identity electronically. Although it said applicants couldn’t do it via a smartphone or tablet.
“We were surprised to see so few traditional banks had made progress towards a 100% digital experience through the mobile channel. Many failed to offer a fast, secure and digital account application and activation process, including verification of the applicant’s identity. This means the banks aren’t truly digital, degrading the user experience at first point of contact and increasing the chance of abandonment,” said John Devlin, author of the report and Principal at P.A.ID Strategies
This reminded me when I got a mortgage a few years ago. It was with the same organisation I have a current account with. I applied for a mortgage with a division of my retail bank. This is the bank that received my salary every month. Yet the mortgage division insisted I send paper copies of pay slips and my bank statement by post. But that was ten years ago when digital banking was in its infancy.
It also looked at challengers: Atom Bank, Monzo, Revolut, Starling Bank and Virgin Money.
Monzo and Starling scored highest thanks to their 100% mobile-first digital account application taking 9 minutes 50 seconds, and 9 minutes 49 seconds respectively. The traditional banks didn’t take that much longer but some still required manual steps. Customers even had to visit a branch at one bank.
We don’t open bank accounts very often so perhaps people are prepared for it to take a bit longer that ten minutes and people will be prepared to put a bit of effort in to the right bank. But what this research really shows is that the big banks have complex infrastructures and although they would like to offer on-boarding as easy as their digital challengers they simply can’t yet.
“This study’s underlying hypothesis is that the advancement in the analysed banks’ digitalisation of their current accounts and savings accounts could be used as a barometer of each institution’s progress towards a full digital transformation,” said P.A.ID Strategies. “The results clearly show that challenger banks are stealing a march on their traditional competitors across all metrics.”
“Being unburdened by legacy technology and infrastructure is a distinct advantage but more so is the desire to be truly digital, and arguably the understanding of what potential customers are looking for.”
If you want something to help you picture the complexities of traditional banking IT take a look at this article and the diagram within it.
It is a similar story when it comes to fixing glitches in online and mobile banking services big banks have huge and complex IT infrastructures with thousands of interdependent systems. As a result when something goes wrong it takes to e to fix.
I was recently with the CIO of a major bank and asked how far away we are from having artificial intelligence automate the fixing of glitches when reported by customers and he said we are some way off that. But we know the technology is there so it is another case of banking IT complexity holding things up.