Sarah Dear, CEO, Born Ugly
One might think the banking sector had been largely constant and unchanging until about 50 years ago. But the reality is, the sector has been in constant flux for hundreds of years Despite its conservatism, all manner of innovations, crises and developments litter the banking sector’s journey through history. And perhaps because of their conservatism, many institutions have managed to survive that turbulence for hundreds of years.
But can this conservative attitude help banks to thrive in the coming decades, given the exponential pace of change? Or is a more creative approach to solving challenges now the one to adopt?
With new competitors entering the market, it’s a key moment for traditional banks to figure out what they exist for, how to differentiate themselves and how to stand for something, in order to attract customers. Equally, newer contenders need to be clear on what they stand for to survive in what could soon look like a very different world.
It’s not enough to be a generalist anymore. It’s not enough just to make money either. To thrive, banking brands need a tangible purpose beyond making money. They need a point of view, a motivating and lived vision, a clear mission and strongly held values. And for clarity, when I say ‘purpose’ I don’t mean the dumbed down meaning of it relating purely to sustainability. I mean their true purpose; the reason they exist and the unique point of view they have on the world.
Facing the external threats
Many of the new entrants to the sector are likely to be from outside. It stands to reason that an established brand with adoring customers might be looking to branch out from their original roots…
Take Amazon, for example. It started in books, and now does pretty much everything. Or Uber: founded to help people get more value from their car ownership in tough economic times, but now undertaking food deliveries. Apple started in computers and now has over 500 million ApplePay users worldwide. If you look across to China, the super-app WeChat enables people to do everything in one platform, from direct messaging, broadcast, video games, conferencing, shopping and mobile payments.
Competition can come from anywhere when a coffee house is arguably one of the world’s largest cash banks. But with $1.6bn of un-redeemed money on its pre-payment and rewards cards, Starbucks is right up there.
The possibilities for competition are endless, and as the market evolves again with different and bigger new entrants, plus the opportunities presented by AI, change will happen even faster. And in this maelstrom of change, banks… well, they’re still just banks.
Putting customers first
Historically, banks did what they wanted, and customers largely had to work around them. Be that bank holidays or closing times, the banks were in charge, not the customer. And while newer entrants have tried to do a bit more to put customers first, they haven’t really scratched the surface, only tinkering around the edges with tech.
To compound things, recent trends towards putting the customer first were abandoned once Covid presented a once in a lifetime opportunity to get rid of services and drive profit. In this way, banks may have unwittingly opened the door to making themselves obsolete.
Younger generations are growing up with a completely different relationship with banks, having never required the personal service or physical access of in-branch banking. But simultaneously, that demographic is much more demanding of businesses, requiring them to understand their needs, share similar values and demonstrate that their main priority isn’t all about making money.
To that end, they’re likely to be much more demanding. There’s less loyalty in this younger group, and unlike the experience of previous generations, there are fewer barriers to changing provider.
From a brand perspective, Starling was set up to challenge the knotty complication of the banking world and have a positive impact. They’ve tapped into human behaviour to introduce several helpful and intuitive initiatives, like virtual cards, a strong foreign exchange product, recycled cards and paperless banking, making banking simpler and more intuitive.
But even with all these positives, it still feels that there is a long way to go before people place their trust in them in the way they do with other brands.
Although the challenges that banks deal with are many, they are undoubtedly inter-linked. The relationships the banking team could build with their customers, coupled with data, should mean customers are at the heart of what they do meaning that trust with banks increases and cyber-crime is reduced. A richer relationship will mean more loyalty and greater profitability.
With a strong trusted brand for a customer group you really understand, as tech drives integration, the opportunity is there to build other added value services beyond the financial and create a more meaningful role than just storing money. But, this isn’t the journey banks are on.
The Ugly Truth
We always look for what we call the ‘ugly truth’ – the uncomfortable reality that is sometimes known and often ignored – or sometimes not even known.
For banking, the ugly truth is that although we all need banking services, we don’t love any of our providers. And for any brand in any industry, how we feel about brands is fundamental. Inertia used to be the reason we didn’t change banks, but now we don’t need to change. We just need to wait for other brands that we do love to enter the sector to start a whole new relationship with banking.
In a world where customers are looking to brands to help them create a better life and planet, a sector so fundamental to all our lives, and with a track record of being able to adapt and lead change, should be standing up to help make this happen. Banks need to rethink their role in our lives and what value they bring to society.
The alternative is to wait until more brands that people really love to enter the market and at that point it could become a very different place. ApplePay has shown this to be a real possibility, and while financial institutions might be providing the back-of-house service, losing the emotional connection and direct customer relationship will make banks a functional commodity, no longer in the driving seat of creating their own futures. And that would be a sad end for a sector once driven by relevance, creativity and innovation.