Is the growth of Fintech forcing banks to worry about brand proposition?
As we are all aware, the recent proliferation of “FinTech” has resulted in plenty of conversations across office floors discussing definitions and perhaps what the next step is for each business to ensure they move with the momentum, in an effort to either take advantage of the FinTech opportunity or simply not get left behind. Adoption of tech into established banking processes continues to be high impact, creating a vast space for the promotion and re-thinking of not only how the incumbents can acclimatise, to meet the evolving service expectations of their target markets, but also what this might mean for their brand.
Important to this consideration is how any shift in culture fits with the perception of their brand in society as a service provider first, before looking at approach to retain, engage and attract new clients. In other words, big changes to adopt new tech and keep up with the challengers, changes the brand proposition from more than just a product focused viewpoint.
First mover advantage is a term currently being used to justify a few leaps into the unknown. The potential benefits of being an early adopter of FinTech, would not only provide a potential dominance in market share, as service users take up and engage the enhanced customer experience, but also allow them to benefit from establishing a brand proposition early and help some of the legacy and trust building which will now need to be done. That trust building is imperative to any new business model success.
There has been so much hype around delivering a more enhanced digital experience and positively this has resulted in a huge increase in consumer engagement and focus on customer service standards. According to Deloitte, 57% of millennials would switch their bank relationship for access to better technology platform solutions, which does represent a much bigger brand engagement as consumers shop for the best service provider (Deloitte Study Wealth Management). This tells us that brand engagement is absolutely key to delivering the future visions and the recent proliferation of financial startups are serving to generate larger levels of awareness of brand and who's doing what. A good thing.
As more banks look to either accelerate or incubate new technology ideas internally or collaborate with FinTech startups they take steps in re-defining their brand proposition. Whereas in the past, the bank had the power to decide what products it would want to push onto the customer of all ages, the millennials of today are creating an entirely new set of demands on products and experiences. This, in many ways, is being led by the consumer driving innovation, which represents a real shift in culture and forces the incumbent to adopt a more pull led strategy. This impacts the brand proposition and its value.
Banks are now being forced to change product proposition and marketing strategy as they essentially must now take a more customer-centric approach, focusing on a service led strategy to engage, attract and retain its client base.
Monzo and Atom are a good example of challenger startups who lead the trend in implementing the above from the startup side. The banks have not had to do this before and changing a culture is a hard turn around. Banks are legacy driven and new challenger banks are still defining their brand and can implement changes into legacy systems much more quickly.
From the incumbent side, we have not seen anywhere near the sense of urgency to stop customers having their head’s turned and roll out new brand propositions. Brand loyalty comes at a price, and I don’t believe that simply waiting for everyone else to make their move is going to be enough for a lot of the current established institutions. Traditionally, the incumbents have the infrastructure and money to take investing in innovation to a level most startups cannot, simply because of the funding required. RBS have finally now launched their first investment Robo-Adviser in the UK (through Natwest), marking a great example of a first move into implementing full digitisation of financial advice so we can see there are some big decisions being taken which will have a direct impact on brand engagement.
If we were to take this issue one step further, banks in particular are now taking a more serious look into working collaboratively with startups in an effort to understand how they can make the changes required and keep up, and we see this in the race to the top in incubation and accelerator programs adoption. Increasing competition in these programs should in turn drive forward innovative thinking as the entire sector tries to establish its position in the new market place.
Challenger banks have leveraged this position to really disrupt the efforts of the incumbents to re-establish that order. Loyalty and brand identity are concepts the banks have had years to develop. The emergence of a new wave of competition is now forcing a total rethinking of what the market expects and meeting its demands or face real threat of losing something more important than clients but also relevance in the sector.
Gen X and baby boomers have historically developed their relationship with one bank. This has no doubt enabled banks to establish and build trust with their customers. However, following the financial crash and recent scandals over PPI, interest rate fixing etc. the banks have had no choice but to re-proposition that brand loyalty incentive. With the incoming Open Banking changes, the pressure to review brand loyalty incentives should be higher and hopefully result in some competitive and creative customer engagement strategies.
EY concluded a study which also revealed the impact of the challenger banks on consumer loyalty levels (EY-Global-Consumer-Banking-Survey-2014). It states, that although banks currently (due to their vastly superior access to money) offer best solutions and access to branches and ATM’s etc, these are the areas seeing the steepest decline. The largest area of growth potential being the customisation and personalisation of the user experience, sees the area banks are most vulnerable in. If that trend was to continue, there would be a critical point where the brand identity would not be rescued by a late move to try and catch up. The acquisition of new customers is a much more costly activity vs customer retention. A fact well known by the incumbents.
Notwithstanding the above, the emergence of what are essentially full-service service banks like Metro or Zopa have redefined their proposition to being fully service led and providing the consumer with much more service oriented digital platforms. This may not appeal to the older generations of branch based users, however once those branches are no longer there, that shrinking cohort of customers may simply not be enough to sustain the existing model, let alone brand impacts. It is a careful balance. Some of the less wealthy building societies for example have relied on years of brand loyalty with an ageing customer base. These are the businesses that now face a really tough decision around investment and in some cases taking their first steps to basic digitisation. The risk of further branch closures and the lack of investment into the unknown digital sphere will eventually materialise into fundamental issues leading to the closure of services. A natural impact of competition perhaps?
PSD2 the new Payments Service Directive’s deadline is fast approaching (January 2018). At its core lies the intention to increase competition. The ability for Third Party Payment Services (TPPS) to access banking details and ideally provide simple, accessible data will in turn help some FinTech’s scale up as they understand what their market requires and tailor their services accordingly. This will impact with higher levels of customer inclusion, and lead to the start flag being waved for tech make a much more visible impression on customer engagement of all age brackets and tempt the more branch based, less tech engaged customer bases to know what level of service they could have. Third parties will want to acquire customers from ANY bank to utilise its services once they provide aggregation onto single platforms and so those customers who have the strongest loyalty to brands and are the least likely to switch would be the ones that now might want to keep up with the changes to the digitisation of banking and benefit from the higher levels of service provision from the third parties.
Challenger banks have a crucial role as they have the job of creating new business propositions, making their service provision accessible and known to the existing client bases of the bigger businesses. Ultimately, this serves to threaten the dominance of the existing brand value offered by the incumbents. I believe that the supremacy of the established banks and financial firms is now facing a real threat as once brand loyalty is diminished and consumers across all age groups look to third party brands as their main service provider, the proposition for brand offered by banks in particular who find it too difficult to invest in change, will diminish too. TPPS providers will want to keep loyal customers.
JP Nichols, president/COO of Innosect and co-founder of the Bank Innovators Council, sums up with, "If Banks cannot truly be customer intimate, they are doomed to be just dumb commodities, acting behind the scenes, like utilities."
Banks will need to work closely and in time with Open Banking and API targets of TPPS providers to ensure brand loyalty grows as brand proposition evolves.
Its an exciting time for all sides and next year I hope the opening up of API’s and the over arching principle of Open Banking is embraced and embedded into a more positive culture of banking and brand identity.