By Nicola Hinds, Strategy Director of Great State
Much has been written recently around whether COVID is enough to galvanise traditional organisations to focus more on ‘digital’ as customers naturally migrate away from the high street towards physically ‘safer’ online services.
Will the physical restrictions currently placed on us across the UK finally provide the incentive for traditional banks to focus on investing in the right type of digital products and services to win back, or at least stem the flow of customers flocking to new digital only banks such as Monzo, Starling and the far smaller Atom?
Every traditional financial services CEO has spent the last 5 years evangelising the ‘importance of digital’ at their annual conference, and undoubtably COVID 19 has reinvigorated this message but this is not ‘new’ news, and yet despite relatively healthy investment levels the digital offering from the high street bank has been pretty average.
Obviously, there are nice exceptions here and there, (take NatWest’s recent open banking partnership with Pollinate to deliver Payit) but generally their digital products aren’t game changers.
Meanwhile in the same timespan digital banks have gone from strength to strength, delivering innovative digital products and services to meet the relatively simple needs of their retail users.
What they’re doing is not rocket science, but it is intuitive, digitally end to end – using the tech that everyone has in hand, and most importantly designed around their customer. I mean who wouldn’t want to record a two-minute video selfie to validate you are who you say you are versus a lengthy call with an offshore call centre. It’s this kind of experience that’s appealing to both those who are financially established and those shopping around for their first accounts.
What they’re also very good at is listening to, and engaging with their customers, ensuring they have a sense of ownership of the product itself.
But the big issue for digital banks is they’re currently struggling to make any significant money – especially with the bite of Coronavirus looming. Only Starling Bank is predicting it will break even this year.
Monzo’s recent admission that a record loss of £113.8 million in July 2020 may make operating increasingly difficult, especially in the current depressed financial climate, comes at a time when stability is important. Recession is on the horizon, Brexit is as confused as ever, people’s jobs are hanging in the balance and it begs the question, do people want to be taking a ‘risk’ with their day to day banking no matter how amazing the customer experience is?
In fact, during the pandemic research produced by finder.com and social analytics specialist Brandeye analysing 800,000 social media posts from customers, revealed that digital banks saw a sentiment decline of almost three times that of high-street banks during the pandemic.
Is now the time for traditional financial services to start winning back some of that exodus of customers by building better, more user focused digital services? And if so, what’s holding traditional banks back from seizing this opportunity by acting quickly? Is it as simple as prioritising more digital investment to win back competitive advantage?
At Great State, we recently carried out research looking into the issues blocking digital transformation in traditional organisations – including high street financial services providers. This revealed that delivering true ‘digital transformation’ was being held back by more than just investment decisions.
There were a number of other key blockers that were equally important in ensuring a brand could deliver the type of digital services customers are turning to digital banks for.
Firstly, having the focus to deliver against a digital vision takes some substantial changes in organisation and reward, requiring a reduction in organisational silo’s and prioritising/rewarding shared objectives.
Secondly, nurturing the right culture – one that allows empowers employees, reduces hierarchy, shortens approval processes, and allows risks to be taken. One of the single largest issues identified by those working in traditional organisations is the ‘lack of talent’. Culture isn’t something that can be changed overnight, but traditional banks need to make some very visible changes to attract the type of talent who’s first thought might be to find a position at an exciting fintech or related start-up.
Finally, getting the right technology foundations in place, is critical. The one reason why the new breed of digital banks can deliver the right shaped services, quickly, is because they simply don’t have the type of technical debt built by the high street brands over the years. Traditional banks must find a way around this. Easy to say, very hard to deliver.
The growing number of fintech companies and start-ups is proof of the variety of options, ideas, and processes that traditional banks can emulate to improve their current technology architectures and inform their internal processes. Equally collaboration or acquisition of digital pioneers is clearly another option.
What is clear, is that unless traditional banks can solve some of these significant obstacles and seize the potential opportunity presented to them, the likes of Starling and Monzo (assuming they can get back on a stable financial footing) will always trump the experience, and increasingly the products traditional banks are able to offer and the customer exodus will continue.
