By Tim Checkley, product owner at The App Business
Could you really say your bank was innovative or digitally progressive? Ask 100 people this question and I think fewer than 10 will give you a ‘yes’. My banking app lets me check my balance, and that’s it. But why is this the case?
Over the past two decades, most industries have been completely shaken up technology. As software has ‘eaten the world’, it has reached places it couldn’t have before, rewriting the rules of almost every business on Earth.
Best-in-class digital experiences have not just disrupted industries but completely turned them on their head; from transport, to travel, healthcare to professional services. In some respects, banking is pretty late to the party. There are a few reasons for this: the costs of conforming with regulation; a lack of investment in technical infrastructure; short term incentive-based pay, and a reluctance from users to change bank have resulted in a relatively sluggish rate of innovation and change. Until now, that is.
Approaching seismic change
Banking and payments are approaching the epicentre of this seismic change, with technology finally overhauling the ways customers perform their day to day financial activities. In the world of payments, the rise of contactless technology exemplifies the recent, rapid rate of change. In 2013, there were 14 million contactless transactions made by just RBS Group cards (who publish their stats); in 2014, there were 44 million. By 2023, RBS forecast 250 million per year [BBA, Way We Bank Now, March 2014].
Apple Pay has been a huge catalyst for this transformation, and Android Pay may prove to be too. Suddenly, your phone or a watch is now a payment mechanism, with retailers and service providers necessarily and urgently rethinking the way they accept payment as a result. Telling someone five years ago that you could use your watch to ride on London’s Underground would have sounded like science fiction; today, not so much.
Innovation in banking, though, is being driven less by the established tech giants and more by hungry new players, challenging complacent incumbents and shattering market inefficiencies. Transferwise has overhauled overseas money transfers, and digital-first banks such as Atom, Simple, and Osper are redefining the everyday banking experience. Meanwhile, money management is finally simple thanks to Ontrees and Mint; savings and investment have been demystified by Nutmeg and Etoro; and personal and business borrowing has been crowdsourced by Funding Circle and LendingWorks.
The trend is clear; innovators are taking on the core services that banks used to provide. In the US, where banking regulation is more relaxed compared to Europe, the unbundling of banking services has been even more pronounced. Recent European Union legislation (in the form of the new Payment Services Directive,) will accelerate the change in Europe, opening up the banking and payments marketplace to even more new entrants.
Banking world under attack
So what does this mean for the banking industry? As their world is attacked from above and below, the traditional high street bank is becoming less and less relevant. A large scale US survey suggests 73% of Millennials would be more excited about a new offering in financial services from Google, Amazon, Apple, PayPal, or Square than from their own nationwide bank [The Millennial Disruption Index, 2014].
The loyalty and inertia that left us with the same bank from birth is gradually eroding. The UK Competition and Markets Authority recently proposed a raft of measures to make switching accounts easier, and ensure the banking sector is more customer-friendly – much to the joy of banking start-ups and the chagrin of the traditional high street banks.
It is not too late for banks in the UK and Europe to change, however. It will be exciting to see which banks respond to the challenge, pivot their services and thrive. Those banks will need to meet customers’ digitally-defined (and enabled) expectations. There is a wide-open opportunity to be a new kind of retail bank, providing best-in-class digital services.
No one can say exactly what that banking experience will look like, but it will certainly: be personalisable; be instant and real time; be available on every platform and device; make it easy to manage your money and budget; be smart and contextually aware; use simple, human interactions; be innovative and define new best practice.
Managing the about-turn
How can banks realise such a substantial about-turn? Some of this change will need to come from within, as their digital strategies become their core business strategies, and they redefine themselves as software businesses. Barclays shows promise here. Other banks are finding their path to innovation by collaboratively co-developing solutions with technical partners. Others will throw money at the problem; we’re likely to see a raft of major bank acquisitions of the most impressive fintech start ups in the coming year or two.
The role of the ‘future bank’ could be completely different to how we see them now. For those that fail to adapt and get left behind by their digital-first counterparts, that role will certainly be narrowed and diminished. The impending change to the industry is seismic, exciting, and long overdue.
And for the time being? Well, at least you can check your bank balance!
The App Business helps companies rethink their business around mobile-enabled customers, delivering exceptional software products, and increased agility.