Q: Do you see a sense of fairness being brought to finance at last?
A: It is starting to happen. Customers are demanding the brilliant experiences they see with other service providers, in other industries, and this is making finance more democratic. It’s making available what were once high-level services to all customers, not just institutional clients or high-net-worth clients. Small financial technology firms are taking the lead in some cases, delivering services direct to the smartphone or online, either working with banks or potentially disintermediating them.
Regulation is driving banks to open up their technology to fintech firms and to other financial institutions. As a result people are becoming less reliant on providers of traditional financial services and having one institution manage all your financial services or your entire portfolio is no longer the most viable model.
Customers will also be given ownership of their data by regulators and financial service providers will need to offer a compelling service to access it. This includes a next generation of banking that will be built around a more mobile-friendly interface which really emphasises the customer experience and focuses on user friendliness. That’s why some fintech firms have become successful so quickly; they are able to provide a much faster, less expensive and more cost-effective experience.
Q: How do you think banks should handle customer ownership of data?
A: Who owns the data and how customers will be protected when data is shared is a big challenge for the financial services industry.
Take the banks, to begin with. Their valuable client data could become available to other players, including e-commerce giants such as Amazon and Facebook, that already benefit from other data sets unavailable to banks. In this environment how will the banks continue delivering the greatest value to customers? How will they maintain the bond of trust that exists between them and these individuals?
Banks will need to rethink their traditional business models. They must join up the flow of data across their business and work out how to make better use of this data to unlock new revenue streams. They may charge third parties for the interfaces to the bank’s data. They may also ask customers to pay for discrete value-added services, which can be charged for individually.
Q: Are the challenger banks at an advantage over the incumbents in this scenario?
A: A lot of them have actually copied the big banks’ proposition, then tried to market themselves as smaller and more agile. There is a price differential because their cost income is slightly better, but at the same time they lack critical mass.
To get over that, challengers will have to leapfrog traditional banking services and offer new ways of working that provide a better customer experience and target particular customer groups.
Therefore, challenger banks will need to compete not just with the tier-ones that currently own the customer relationships, but also new entrants that provide new, brilliant experiences for specific customer segments.
Even so it’s a tough market if you want to win new customers and only a few million in the UK have used the current account switching services. That said, if you look at some of the new organisations, such as Monzo, they really try to position themselves in a different way from challenger banks. For these organisations, it’s all about innovative technology and providing a much better customer experience.
Q: What do you think customers really want among all this competition?
Critically, the operating model and the talent mix should change within banks if they want to get ahead. The high levels of loyalty, or low levels of switching, that have kept banks afloat for many years will start to vanish. Banks will need to work much harder for the same levels of loyalty in the future.