When banks were invented, they were for the hyper wealthy. The international traders; the gentry; themselves. Then they had to reinvent themselves to take advantage of the opportunities created by emerging middle-classes and ownership, or at least the emergence of consumerism.
They built great buildings, created an entire ecosystem around the trading of money. They controlled people and countries. They facilitated growth. And in doing so became vested in maintaining the status quo. Disasters, wars, crashes could not dampen their success. There were storms but they were weathered. The system trundled on.
But now, we have the perfect storm of free-thinking people; dissatisfaction; accessible technology; alternative sources of supply and creativity. Banks are now either 'traditional' or 'wow'.
In this article we begin to investigate how 'traditional' banks are bringing some of that 'wow' into their systems and fighting back against the pretenders.
‘Neobanks’ are playing by new rules.
Digital-only platforms like Revolut, Monzo and N26 are reshaping the meaning of bank; winning more customers each year.
As digital-first brands, they provide a faster, free(er) and slicker banking experience. As a result, consumer needs are evolving and expectations shifting. A new banking standard has been set; the rulebook rewritten.
A 2019 Finder.com survey found 9% of adults in the UK have a digital-only bank account – that’s 4.5 million people. With 7% intending to open one in the next 12 months.
Clearly, this is a growing challenge for traditional banks. To Disrupt the Disruptors, radical thinking and calculated action is needed.
Here we explore four strategies for traditional banks to win in the age of fintech.
Strategy 1: Beat them at their own game by going all-in on digital.
In our recent consumer research for a tech client in Rio de Janeiro, Brazil, the stark wealth divide, multiple corruption scandals and a difficult recessionary period have caused a dramatic loss of confidence in the 'establishment' - particularly for Millennials - with roughly 55 million people 'unbanked'.
To overcome rising anti-establishment sentiment, Bradesco (Brazil’s second largest bank), built a new digital-only platform called Next specifically targeting young adults.
Since its launch in Q4 2017, it has over 550,000 active accounts and is currently acquiring 5,000 new customers a day – 82% of which have had no previous relationship with Bradesco.
They have a relentless youth focus with an all-digital sign-up and a 5-month free trial. They also have personal financial management tools and partnerships with popular Millennial brands.
Next considers itself a ‘modern digital bank founded on Brazilian tradition’ and therefore are uniquely positioned to meet the changing needs of young people in Brazil.
The opportunity for traditional banks is to harness their knowledge of local communities and customers to create digital platforms that meet their distinctive needs, in a way global Neobanks cannot.
Strategy 2: Change the game by finding new ways to play it.
In the US, Venmo is the dominant peer-to-peer (P2P) payment service. Created by PayPal, it revolutionised consumer transactions and disrupted traditional banking payment services.
To fight back, most of the major US banks including Bank of America, JP Morgan, Wells Fargo and Capital One collaborated to create Zelle, an instant payment transfer system.
By working together, they were able to establish a distinct advantage in the most important area of payments – speed. While it can take between 1-3 days to send and money on Venmo; it is immediate on Zelle.
Staying true to their ‘innovation through collaboration’ ethos, Zelle have teamed up with 200+ financial institutions and technology partners in the US to strengthen their position. Less than two years after launch, analysts predict Zelle will overtake Venmo, in both users and value, in late 2019.
So while it may seem counter-intuitive, collaborating with the competition can be powerful way for traditional banks to change the game and develop innovations Neobanks struggle to match.
Strategy 3: Every employee has the potential to be a game-changer.
Neobanks are serial innovators – they create fast and frequently, constantly releasing new iterations and upgrades.
To mirror this approach, BAWAG P.S.K [Austria’s fourth largest bank] is harnessing the innovative power of their employees through TREND_Lounge.
This is an event, held three times a year and themed around a ‘hot’ need or topic, that invites employees to pitch their product, service or experience ideas to more than 100 pf their colleagues. Ideas are evaluated via a combination of online vote and jury review.
Over 50 ideas have been presented since launch with several being implemented and several more in development. Traditional banks must utilise the collective potential and experience of their organisation by fostering a culture of innovation, and critically, acting on ideas.
Strategy 4: Move the game on with biometrics.
In a 2018 Deloitte Digital Banking Survey, 56% of people said they would use digital banking more if there was stronger data security. As people spend more time online, this desire will continue to grow.
The safest form of security is you. As AI, facial recognition and voice-tech evolves and expands; biometrics will be the new security norm in banking and payments.
In China, Alibaba recently launched its new facial recognition payment system– the process takes less than 10 seconds. In Wenzhou City, a major commercial street is leading the way as 20 shops have equipped this system to encourage greater use of facial payments.
To stay ahead of Neobanks, traditional banks must look to invest in and adopt the most critical next-gen technologies. As data and security become more important, biometrics will be the key to this.
Where to next?
The growing risk to banks is that they move ever-closer to becoming utilities. Money becomes a commodity and therefore ease and speed of access become the benchmark for consumers. This will accelerate and as it does, banks will be disintermediated, replaced by fresher, faster, funkier brands and business models.
If it's true - and we know it is - that people love money and what it enables them to do, not the banks and what 'we' enable bankers to do, 'traditional' banks will need to continue to break free from often self-imposed constraints and revolutionise their approach to everything. Now.