Niche appeal and the trust gap - the challenge for digital 'banking' apps

When earlier this year Revolut tweeted that "25% of the population of Gibraltar" was signed up to its platform (see the tweet here), it was one of those stats you immediately identify with as a self-evident truth. Here in Gibraltar, shortly after Revolut launched its prepaid card in July 2015, offering fee-free foreign exchange payments in the millions of establishments around the world where Mastercards are accepted, a local 'Revolut-ion' was set in motion. It wasn't long before 'everyone' had a Revolut card and you started to feel mildly inadequate/embarrassed when you admitted that you didn't have one. I even recall the excitement about the novel packaging in which it was delivered - think 'Apple doing prepaid payment cards' and you'll get the idea.

But what's the big deal? And is it a big deal? Revolut was co-founded by a former investment banker who had once worked for Lehman Brothers and Credit Suisse, Nikolay Storonsky, with Vlad Yatsenko, who, before joining Revolut 'spent ten years building financial systems at tier one investment banks'. Revolut essentially offers its users the ability to make foreign currency payments without incurring the fees traditionally associated with that. It made currency exchange quick, easy and effective.

The product suite now on offer from the digital 'bank' app, includes instant spending analytics, virtual disposable cards (to significantly reduce credit card fraud on its platform), the ability to 'buy' and 'hold' crypto, personal pay as you go travel insurance and device insurance too. The virtual disposable cards allow users to create a card for each online transaction, after which the card expires and cannot be used again. A recent breach of Ticketmaster's servers was a recent reminder of the value of using disposable credit card details

Yet for all its appeal in Gibraltar it is still, according to a study compiled by Ogury and reported in the Financial Times earlier this year, struggling to break through into mainstream awareness ("UK fintechs aren't eating the banks' lunch just yet"). Ogury ran a study of just over 1.5m mobile users and found that the top ten most used 'banking' apps, which include the 'fintech hopefuls' were all traditional high street banks. Transferwise had just 0.5% of the 'visitor share' whilst Revolut had 0.3%. 

Armed with such facts, I ran a quick poll the other day to see which apps people in Gibraltar are using on their smart phones – this was by no means meant or expected to be a scientific poll but one that I thought was likely to make for a fun read in short order. I posted a link to the survey on Linkedin and separately on Facebook.

One thing is immediately obvious: people on LinkedIn don’t go for surveys/polls half as much as those on Facebook. Of the 183 responses received by the time I wrote this, more than 80% of the responses came from Facebook. 96% of respondents are based in Gibraltar, as expected, and the results were as follows:

The results speak to the two challenges that fintech hopefuls like Revolut and Transferwise, amongst others, face in the market. The first is the niche appeal of the products they offer, even in the context of their expanding product line and the benefits of using their platforms. The reason why something like Revolut is so phenomenally successful in Gibraltar is simply this – we are a border community where currency exchange is part of our daily lives. The Revolut solution, like the Transferwise one before it, facilitated something that we had been doing the long, arduous and expensive way for a long time. We had all been spending in Spain with our GBP debit cards for years and we had all been getting burnt by the charges that were being applied every time. When a prepaid card came along which we could manage through an app and we saw that no, it wasn’t our imagination, we actually no longer needed to let ourselves be taken for a ride on foreign currency card payments, we could scarcely believe our luck. Add to that the recent explosion in interest in cryptocurrencies and the fact that Revolut offers a safe and easy way to dabble in crypto, it’s a wonder it’s only 25% of us who are on it.

In the UK, currency exchange is of much more limited reach in the consumer market – when people go (used to go) to Europe (*sobs) on holiday, that would pretty much be the single annual contact with the world of currency exchange most UK consumers might have, meaning the demand for such products is necessarily limited. 

The second challenge the results of the straw poll I conducted point to, as do the findings of the Ogury study, is that there’s a significant trust gap that these fintech companies are still working on bridging. Here, as in the UK, the traditional bank’s app is still King. Locally, and for reasons I’ve mentioned already, most people also have the Revolut app, in addition to the traditional bank account. We still send our salaries to the bank – but we use the Revolut cards for foreign currency transactions. The trust gap means that we’re not yet at peace with the idea of centralising our banking needs in fintech startups, even if the service and the cost considerations are often a far better proposition.

There can be no doubt that, niche though it may be, the appeal of these products is disrupting the financial services markets in ways we couldn’t have imagined a mere three years ago. With an investment of $250m secured by Revolut from DST Global in April, effectively valuing the business at $1.7bn at the time, the race is on to see which ‘fintech hopeful’ becomes the first to break through the virtual glass ceiling to achieve mainstream adoption by the masses.