CHAPTER 4: DIGITAL DIVIDE

We are shortly to release the 6th edition of the mobile banking app review. In this article, we share an extract of Chapter 4. To find out more and get exclusive material visit our website.

Digital divide widens

The increased consumer preferences for digital will remain in a post-COVID world. This will accelerate the pace of transformation needed to keep pace with these expectations as more people turn to apps for banking.

In a recent survey, nearly 40% of respondents said that since the COVID outbreak, they had discovered digital channels to be more useful than they previously thought and 44% of said they used their mobile banking apps more frequently after the COVID-19 outbreak began[1].

In fact, Virgin Money have announced that from January 2021 it will turn off the online service, forcing its two million credit card customers to use the app instead to manage their account[2].

Bank quarterly results support this trend. Lloyds reported 17.2m digital active users, up 700k, with mobile app users at 12.1m (up 1.4m) showing mobile is growing twice as fast as digital[3]. Average app log-ins also rose to 25 per month per banking app customer, up from 22 in 2018[4]. Similarly, NatWest reported their active digital users were up 0.3m in Q3 2020 compared to Q3 2019, now at 9.3 million.

HSBC show UK digital sales mix pre-social distancing was 71% increasing to 76% post-social distancing, whilst it appears retail sales units are unlikely to recover[5]. The same is true of Barclay’s branch channel interactions down 40% even after lockdown restriction eased.

The empire finally strikes back?

User experience and digital design have never been so important and whilst consumers are attracted to brands for different reasons, they will only stay if experiences continuously meet their rising expectations[6]. With this in mind, we have seen the traditional players up their game, finally closing what had been a growing disparity in feature support compared to their fintech rivals.

Fintechs added an average of ~3 features since the previous study, with traditional providers adding an average of ~4 features in the same period. HSBC have made particularly impressive progress adding 9 features in the past six months, such as the ability to amend and delete regular payments, live chat, manage overdraft and real-time balances. In fact, 90% of current account apps are now supporting real-time balances, up from two-thirds in Q1 2020.

RBS, NatWest and TSB have also strengthened, although in order to access some of the new TSB features (e.g. savings goals and account sweeping) we had to change our account type which required a web based application and several days to complete the transition.

When we look at the last year 12 months progress, Revolut has added over 30 new features, far exceeding any other individual app. This progress is primarily a result of their extensive multi-banking features; however, they continue to set the bar high when it comes to leading on innovation. For example, we recently received a mailer explaining their new feature enabling a customer to add their card details directly to Amazon ‘in just one tap’, another market-first.

RBS, NatWest, Monzo and Starling have showed consistent progress over the year, whilst HSBC and TSB have had a stronger second half, perhaps an acceleration driven by the pandemic?

Covid-19 table stakes

In the previous study we identified key features we see as essential to improve customer experience, limit the need to visit a branch or ease the burden on customer service during the pandemic.

HSBC made the most progress, filling three gaps after adding the functionality to amend standing orders, manage overdrafts and delete direct debits. Virgin Money, rebranded from B, added two new features (update contact details and report lost/stolen) and NatWest and RBS added transaction controls. It is disappointing to see how little progress was made by some providers.

Despite the progress on some of these Covid-19 table stakes, fintechs remain ahead in every feature category.

Missing features

Looking more broadly and beyond Covid-19 specific table stakes, TSB and Virgin Money made real headway, moving from the ‘have nots’ to the ‘haves’ category. Despite HSBC adding three of the table stakes features, it was not enough progress to join the leaders.

Although there was some movement, the fact remains that more than half the market is missing six or more features supported by 66% of providers.

New features

We are now tracking 130 features in the study, an additional 5 features since our last report was published to reflect some changes we have seen in the market, such as dark mode, ‘the charcoal grey colour palette associated with night-time and eyeball-saving’[7]. Some apps including Revolut have added the ability to customise the display within the app itself, including the option of light, dark and operating system (adapts depending on what you have it set in the main device settings). Whereas others, adapt solely depending on the device settings. The majority of traditional providers have not yet made their apps compatible with dark mode but we predict this feature will quickly become table stakes; because people make these choices at a system-wide level, they generally expect all apps to respect their preferences.

We also added virtual card support, custom paydays, refresh consent and authenticate transaction to our assessment.

When we examine the evolution of table stakes features, 20 features are supported by two-thirds of market participants, no movement since the previous study although both ‘presentation’ and ‘share account details’ are close to tipping point.

Real time balances are now supported by 90% of the market, after having increased in support from 57% to 71% six months ago.

The 10% remaining were almost there with implementation but lagged with a sticky plaster solution, where either balance did not reflect available but pending transactions were displayed, or vice versa. We retested this functionality prior to publication to reflect any development. Nationwide and HSBC now fully support real-time balances whereas Smile and Tesco Bank reflect the available balance but do not display any detail of the pending transactions(s). This is now undoubtedly a hygiene factor.

Post-script

The market is moving fast and since we cut off the data collection, new features have been added.

• Money management app Yolt has introduced a new contactless card which serves as a new daily spending account. It will be interesting to see the take-up of the card, considering Yolt has over 1.5 million registered users.
• Money dashboard now enables users to edit the name of a transaction, only supported by a small handful of providers. Bunq added a subscription tracker and auto-budgeting feature and TransferWise have added insights for their users on spending.
• Pockit has since added support for standing orders and direct debits, with Dozens also promising these features along with a virtual debit card to use online.
• Halifax and Lloyds enabled users to view their debit card PIN in-app.
• Revolut are following Monzo’s lead with the announcement they’re beta testing ‘pockets’ which sets aside money for users’ regular payments, automatically taking the payment from the assigned pocket when each bill is due.

The end of free banking?

For all their popularity, fintechs need to develop more lucrative revenue streams and therefore have begun ‘bearing down on unsustainable freebies’[8]. Monzo has started charging other fees, for example for cash withdrawals; a 3 per cent fee is to be charged by the bank if a customer withdraws more than ￡250 from UK and European ATMs over a 30-day period. Starling Bank shortly followed suit, introducing pricing changes effective from November 2020, for CHAPS payments and replacement cards.

Monzo’s second attempt at a subscription service appears to be stronger than the first, reporting over 50,000 active users since the subscription service’s launch in July 2020. The Plus service offers extra features including custom categories, virtual cards, advanced round-ups and a credit score tracker. Monzo more recently launched their premium service, offering all the features available on the plus account plus perks such as phone insurance, family travel insurance and a lusted-after metal card, for ￡15 a month. There is a question on how attractive the travel perks are on these types of products whilst we remain in a pandemic?

Snoop has also said that it plans to introduce paid-for services in the next year to help generate revenue, along with their current strategy of partnership deals, switching commission and customer ‘tips’.

It is not just the fintechs looking at revenue streams, HSBC has warned it could start charging for "basic banking services" after reporting a 35% fall in pre-tax profits for the three months to the end of September[9]. Could this signal the end of free banking as we know it? Logically, a simpler model with transparent charges would be fairer, but it’s one that carries a considerable risk of customer desertion — evidenced by some furious back-pedalling from the HSBC press office[10].

Could 2021 be the year that “free-if-in-credit” bank accounts fade away to be for a minority of customers?

With an ever-increasing number of monthly subscriptions for everyday services, it might not be a massive leap of faith for banking in the UK to follow suit and become a monthly-fee based product? Which incumbent will blink first?

We'd love to here what you think of the study - reach out on social media to any of the team with your thoughts or feedback.

[1] https://bankinnovation.net/allposts/resources/sponsored/covid-19-reduces-branch-traffic-spurs-more-mobile-bank-app-usage/

[2] https://www.yourmoney.com/credit-cards-loans/two-million-virgin-money-credit-card-holders-forced-to-app-banking/

[3] LBG Q3 2020 Interim Management Statement (October 2020)

[4] LBG 2018 FY Results Presentations, p14

[5] HSBC Q3 2020 Presentation to Investors

[6] https://www.globalbankingandfinance.com/its-time-for-traditional-banks-to-double-down-on-accessibility/

[7] https://thenextweb.com/basics/2020/10/23/enable-dark-mode-on-all-your-essential-apps/

[8] https://www.finextra.com/newsarticle/36508/starling-bank-follows-monzo-with-new-charging-structure?utm_medium=newsflash&utm_source=2020-9-4&member=79413

[9] https://news.sky.com/story/hsbc-reports-35-fall-in-profits-and-vows-to-speed-up-restructuring-12115677

[10] FT Article, Could negative rates signal the end of free banking? 29th October 2020