I am a bank

Bruce Jennings is strategic development director at FIS

Remember those Microsoft adverts that touted ‘I am a PC’, showing everyday people as happy PC users? What if everyday people could do the same for their finances and say, ‘I am a bank’? What would that bank look like and what services would it offer to meet customer aspirations? writes Bruce Jennings.

Dave Fishwick has seen success with his creation of Burnley Savings and Loans with a focus on offering competitive products and services with the customer top of mind. As Bank of Dave and other new challenger bank entrants seek to obtain a banking license, they are providing a wake-up call to the industry. Traditional bricks and mortar banks are being prompted to review their approach in order to remain relevant to today’s consumers.

Anything you can do, I can do better

The goal of the regulator in lowering barriers to entry and granting new banking licenses is to increase competition and consumer choice. But new entrants aren’t just getting attention because they’re the new kids on the block. They’re gaining profile and prompting the high-street banks to look over their shoulders because they’re going about building their businesses and delivering banking services in a radically different manner. Essentially they are finding a more engaging way to service today’s consumers.

How are these banks making this possible and coming to market so quickly? There are two reasons – the first is that they are nimble on their feet and unencumbered by legacy technology constraints. The second is working smarter. Instead of building the bank from scratch, many have opted for a banking-on-demand approach. This gives them access to a comprehensive range of products and services, available on request, from the day the bank opens its doors.

Voting with their feet

Historically, consumers selected a bank based on a local branch presence – normally this would be the bank their parents used, where they knew the branch manager and received personal and personalised service. Once selected, almost like choosing the football team you support, it was a life choice. For banks, if not football teams, times have changed. The latest uSwitch survey highlights that four in 10 consumers are now more likely to use a new entrant than a year ago. One in six believe that challenger banks offer better value for money. Whilst they might stay with a traditional bank for their current account, they’re busy shopping for better deals elsewhere.

The difficulty for bricks and mortar institutions is that the current account is often a loss leader that they’ve used as a base from which to sell other more profitable products and services. But what was once the hook to hang onto customers is in danger or becoming a money pit. If customers are using free current account services but doing their other banking business elsewhere, the current account provider is providing a basic commodity, but not making money. There’s nothing to stop current account customers voting with feet if they find a better savings rate, loan or mortgage offering elsewhere, or if they’re attracted by a level of customer service that’s more personal and engaging. In this scenario, new entrants who cherry pick a particular market segment targeting them with bespoke products and services can pose a real threat to the traditional bricks and mortar institutions.

Are traditional banks ready for the charge?

While banks have continued to invest in individual channels, the world has changed around them. The result, for some, is that the technology that was once such a powerful engine of growth has become an encumbrance. Many banks with legacy technology are struggling to adapt quickly enough to new business opportunities or to offer the level of service expected in the digital age.

When it comes to banking, consumers don’t care how a transaction is processed, so long as it is. Consumers care about the interface with the bank, both through technology and face-to-face. They care about how they are treated as a customer. Banks need to think long and hard about where they focus their spending. Money spent building the bank behind the scenes isn’t seen by customers. Notwithstanding this fact, the back office must be tended to. The solution? Share the cost of the back office amongst the banks and divert that spend to the front where customers can actually experience the benefit.

Many banks recognise the need for a new approach to IT to meet the diverse requirements of the digital age. Some are already pursuing new collaborative operational models to meet the ongoing challenges of legacy enablement and legislative compliance. With the right partner a bank can insulate itself from technical obsolescence and be assured of ongoing legislative compliance. There is a lot of compelling evidence that supports the business case for working with a technical partner.

As the pace of change in financial services accelerates, banks need to invest more in managing the customer experience without the distraction, risk and expense of running a back office. In uncertain times banks also need to mitigate operational and commercial risk. With the right partner they can do both in parallel.

All change for customer relevant banking

For both new entrants and existing institutions, back office systems aren’t a differentiator. Yes a core banking system is there to calculate interest rates and move money from debit or credit accounts but it’s only there to get the sums right. Historically IT was a major determiner of a bank’s success, but now many banking systems have been an impediment to progress. Incremental changes aren’t enough to meet savvy consumers’ needs.

With a banking-on-demand approach, banks can set up shop once and do it for less. They can reduce their time to market and ensure they are in line with the latest regulations. Rather than worrying about the back end technology they can divert their resources to delivering the products and services customers need, simply and cost effectively.