Each and every industry on the planet in the midst of digital disruption. Changing consumer behaviors and altered business realities leave companies with a core dilemma. To thrive in the future, is it better to be an established legacy player with years of revenue and profit growth? A trusted brand with a physical footprint and large customer base? Or an insurgent tech company propelled by huge sums of VC cash, starting afresh, untethered to legacy systems, removed from old mindsets and clumsy old infrastructure?
The current battle in high street banking doesn’t show a clear winner. Neobanks have become rather like MVNOs (mobile virtual network operators) that provide a hot new brand on the front end of others’ infrastructure. And now that setting up a bank has never been cheaper, we see a plethora of neobanks providing excellent customer service, making lovely apps, but seemingly showing little sign of making profits, and typically losing more money the more customers they serve. If you’re a neobank, advertising to consumers is easy; but are they the right consumers? Is it time to stop obsessing about reaching young people who are looking to share the cost of pizza with roommates and save for a new phone, and shift to a more mature audience you can actually make money from?
Meanwhile larger traditional banks’ hopes seem to rest on closing branches and innovation theater. If they can put enough Pepper robots in physical locations, open a branch in the metaverse, and talk about a voice assistant in their app, surely nobody will point out that legacy systems running 60-year old software are crippling any future growth in functionality.
Traditional banks are more likely to have a more brilliant future ahead, but they need to wake up to three things.
1) Use technology to be more customer-centric
Opening a bank account with a neobank is a delight. Sending money is easy. Seeing what you’ve spent is a delight. What neobanks have done, like all tech companies, is changed our expectations of what’s possible and what the sector can be.
Opening an account with a traditional bank, you feel like you are getting in their way. For years, banks have worked around their own needs. Customers were there to be sold as many bundled productsto as possible. Customer service was a cost center. The dominant viewpoint seemed to be that everything should be first outsourced to a call center in a cheaper country and then to the customer as self-service.
Way before Amazon or eBay, in 1989, First Direct was perhaps the world’s first tech company to disrupt any industry, except it did it using the phone, not the internet. Its core promise was “we will serve you better.” The industry never learned from this.
Every bank today should be starting a brainstorming process where they look at all their customers’ needs and at all the brilliant technology out there, and then seek to provide ways to better serve customers’ current and future ambitions. Technology is a wonderful tool to augment people, not replace them. No more useless chatbots and instead have empowered staff who can help more. How can we make it easier to apply for mortgages?
How can content marketing provide assistance for your customers? How can we make it easier for customers to manage their bills or their now countless subscriptions to streaming companies and news sites?
2) Expand the role you play in your customers’ lives
What tech companies have done well is expand the role they play in their users’ lives. Facebook connects people, then uses this platform to offer marketplaces and messaging, then VR headsets, gaming and more. Klarna becomes a payment app, then a shopping layer, then a Buy-Now-Pay-Later solution.
What should the role of a bank be in someone’s life? Banks have the indescribably powerful stance of being trusted. They have the opportunity to first help customers and then monetize this service. What new products and services can you offer and what existing services can you improve? Can you use the data you have to add more value to people’s lives? At a time when people talk about Web3 and crypto as the new foundations for how we consume information, monetize assets, and access the web, how can banks be the ones to dominate this movement without needing clumsy, complex, slow, and environmentally-destructive blockchain technology, or the dubious, prone to fraud and scams environment of crypto and digital wallets?
3) Capitalize on your most valuable assets
To a customer, a digital wallet like Venmo, Alipay or CashApp is a bank account. To regulators, it’s unrelated and prone to wildly different protocols. For years tech companies have used fuzzy boundaries near regulation as the gray area to exploit, while traditional players with more to lose use regulation as excuses to avoid innovation. With more imagination, more ambition and with playbooks designed to reduce risk exposure, massive, dominant financial institutions could do so much more. If banks truly capitalized on the assets they have–from their expertise to their immense resources to their status as trusted brands and their strong relationships across the industry, they could accomplish far more. Providing embedded finance-to-loyalty mechanisms, serving as a partner in micropayments and as a vault to personal data to aid people in how they navigate the world, are just a few newly-possible avenues to explore.
Future thinking is always tarnished with the misconception that things are changing too fast and that we need to wait until the next big thing is here. It’s an excuse for inertia, a reason to not embrace both risk and possibility. I think we have all the technology we need to be able to bring about deep and meaningful transformation.