Why big banks must keep up with disruptive fintech challengers
The banking sector is currently polarised between two camps: established high-street banks and the new breed of startup ‘challenger’ banks that are turning the traditional banking model on its head.
The challengers have made some inroads, creating a more competitive market to keep the larger, more established banks on their toes. But does the culture and business as usual (BAU) mentality of the established banks stifle their innovation, or can they be challengers themselves?
It would seem long-term strategies and traditional consulting models are dead, especially within the banking and finance sectors. The high street banks are fighting back, and quickly: there is an emergence of traditional players who are embracing digitisation of the sector and disruptive technologies, bringing their offerings into the digital age. They are building their propositions around the consumer and are thinking and acting differently. By playing to the strengths they have over and above the start-ups, it puts them back in the driving seat. By combining their experience with innovation they have the potential to disrupt on a larger scale.
Traditional banking brands undoubtedly have core strengths that set them apart from the fintech companies moving into their space, for example, by using their physical branch presence and combining it with an improved digital service, banks can offer what the start ups cannot - an all-encompassing customer experience that blends the physical and the digital, spans a range of needs and reaches a broad audience.
The two greatest weak spots of traditional banks, and where focus must be concentrated, are technology and reputation. The challenger banks have been able to start with a blank sheet of paper on both counts. Some, like Atom, have built their bank using gaming software to encourage a competitive environment where deposits and spending on certain items can be ‘rewarded’. But having modern IT systems doesn’t automatically lead to the best customer experience – and it’s those that build reputations. The established banks must work harder to offer account holders an integrated, multi-channel service where branches and online experiences are connected, and banks have the right data to hand at the right time to offer a connected, personalised service.
The time is now
Now is the time to act. Many of the new kids on the block are yet to get a banking license or are still looking for funding. Many simply don’t have the pedigree of employee or investor you’d find in a traditional bank or don’t offer the breadth of banking products or the same customer services that a branch can.
There are four main elements banking organisations need to review and consider to keep up with these fast-paced changes:
- Data – this allows organisations to understand and focus on the current situation and provides insight into customer behaviours and preferences, allowing them to recognise, move and adapt to changing demands quickly
- Technology – this is advancing rapidly and means that both the time and cost to delivery to market have been collapsed which means bad news for traditional consultancies
- Changing customers – it is impossible to predict what modern consumers will want in the future so focus on what they want now in the short term and deliver it quickly and effectively
- Traditional barriers to entry – these are now open doors to fintech startups. There are around 100 new startups applying for banking licenses across Western Europe, which means larger, traditional corporations are having to respond to new technology rapidly and overhaul their short-term planning to make sure they don’t get left behind.
Today’s consumers want banking options that are built around the lives they lead now; convenient, easy to manage and use technology in an intelligent way to help them achieve the things they want. New technologies from apps and wearables, to Facebook messenger bots will change the way consumers bank, shop and manage their money.
But it seems that although consumers like the idea of a truly 100% online bank, they’re also quite wedded to the branches. There is still a human desire to get some reassurance and interaction from other knowledgeable and attentive human beings – especially when there’s risk and money involved. But those branches must embrace technology too - offering a superior customer experience and faster payments.
New ways to pay with B
It’s fully achievable as witnessed last month by the investment in disruptive technology by Clydesdale Yorkshire Bank Group (CYBG). The launch of ‘B’, a customer-design-driven online banking service, is a UK first and promises the fastest account-opening process and a host of features designed to enhance customer engagement and retention. Existing customers can make the transition into mobile banking and younger, tech-savvy users will be attracted by the new experience.
It was achieved through intrapreneurship, the ability of established corporate organisations to combine experience with innovation by being entrepreneurial and innovative. It answers the dichotomy of how to achieve both by taking an approach where teams and individuals are driving new venture ideas from within the organisation. ‘B’ was a direct result of intrapreneurship and a testament to how established banks can play to their strengths whilst adapting to digitisation.
How did they do it? Proposition and design consultancy, Market Gravity helped CYBG place the importance of innovation into their growth strategy using technology to deliver better, sustainable services for customers faster, and in doing so created a breed of ‘new challengers’.
Bank on it
In conclusion, the market is moving faster than ever before and it’s important to recognise that we can no longer predict the future with any certainty. This hails bad news for strategists and traditional consultancy models. We believe that in response to all this change there is a new breed of challenger emerging. They are challenging and transforming their businesses by creating new ‘mission based’ cultures that empower their most talented people to respond to business challenges at pace without the traditional hierarchy and complex decision making processes. They are embracing diversity and collaboration and bringing small teams of people together from across their businesses to solve business challenges.
They are finding rapid ways to bring their new innovations to market in record time, sometimes within 10 to 20 days, so they can learn from their customers and staff before they invest significant resources in building and scaling the solution for a full launch. They are opening up their ecosystems and looking for partners that can help bring new products and services to market quickly without impacting their existing platforms and systems.
With the emergence of new entrants to sector, in the form of completely new brands and new challenger products and services from the more established players, it’s important for banking businesses to stay one step ahead and embrace the technological innovations and digital trends to stay ahead in this competitive and fast-moving marketplace.
By Paul Bowman, Market Gravity.
Start-ups receive $60 billion investment, smash 2020 record
Start-ups on the continent have raised a massive 43.8 billion euros ($60.9 billion) in just the first six months of 2021, according to figures from Dealroom, surpassing the record 38.5 billion euros invested last year..
This is despite the fact that the number of venture deals signed so far is around half the amount agreed in 2020. Only about 2,700 funding rounds have been raised so far this year, compared to 5,200 last year.
Prime examples in times of change
Examples are Swedish buy-now-pay-later firm Klarna which has raised more than $1.6 billion in two financing rounds, the German stock trading app Trade Republic received $900 million in May and British payments provider Checkout.com snapped up $450 million at the start of the year.
The figures suggest that European tech firms are pulling in far larger sums of money per investment than in previous years, which defies the economic uncertainty of the pandemic and boosted online services enormously.
The CEO of Checkout.com, Guillaume Pousaz, said start-ups have often been created in times of crisis, citing the emergence of several new financial technology companies in the wake of the 2008 global financial crisis.
He added that big transformational change was often the time when there is the emergence of a lot of new start-ups, sometimes when people are losing their jobs for associated reasons.
UK leading the charge
Scale-Up Europe, a group that includes the founders of UiPath and Wise, proposed 21 recommendations to help the region build “the next generation of tech giants.” Among the suggestions are tax credits to corporates for investing in start-ups and regulatory changes that adapt to new innovations.
Sebastian Siemiatkowski, CEO of Klarna, said the U.K. leads Europe when it comes to tech policy, and that there were a number of regulatory issues needing to be addressed before the European Union can produce tech giants of its own.
Siemiatkowski highlighted EU regulation of web cookies as an example of “poor regulation.” Yet, as the number of $1 billion start-ups in Europe continues to grow, the number of exits in the continent is also increasing.
This year has already seen some notable acquisitions, including Etsy’s $1.6 billion purchase of U.K. fashion resale app Depop and JPMorgan’s takeover of London robo-advisor Nutmeg.
As for stock market listings, a number of notable debuts have taken place in London in particular, including food delivery app Deliveroo, cybersecurity firm Darktrace and reviews site Trustpilot. Money transfer giant Wise, formerly known as TransferWise, plans to go public in the U.K. capital soon.