This is the dawn of the digital consumer – thus it comes as no surprise that customers expect businesses, who want their custom, to effectively anticipate and respond to their evolving needs. However, despite customers’ rapidly evolving behaviour and desire for greater engagement – the banking and financial services industry has proven notoriously slow in responding to such pressures.
The industry enjoys a competitive advantage due to high barriers to entry but the tech revolution is succeeding in placing this model under threat, lowering some of these barriers. Since 2013 the process to apply for a banking license has been streamlined. The Prudential Regulatory Authority now claims that a new bank can be operating as soon as six months after authorization. And The Economist argues that capital requirements are now significantly lower, meaning that new entrants can act like “classic entrepreneurs” moving quickly to serve niches in products, customers and technology currently unfulfilled by existing banks.
Disruption is also encouraged by consumers’ growing willingness to switch from one bank to another. Between 2013 and 2014, over 126,000 bank switches were made representing a 12% year-on-year increase. Moreover, a recent survey showed that as many as 4 in 5 UK consumers would trust a challenger bank with their savings – a figure that is only going to rise with growing proliferation and use of online and mobile technology to manage finances.
Entrants shaking up the industry – Nutmeg, TransferWise, PayPal, and Funding Circle to name but a few – are all looking to expand their initially niche remits and challenge the traditional status quo across several areas, including payments, deposits, investing, and loans.
Greater choice, transparency, and the protracted distrust towards established banks suggest that despite some lingering challenges, the banking sector is finally ripe for disruption.
To respond to these challenges and remain competitive, I would argue that traditional financial services providers need to advance on three fronts:
- Developing an omni-channel strategy to seamlessly integrate the customer experience across all online and offline channels
- Broadening the portfolio of services on offer with the use of partners and other key players to satisfy more than the customers’ basic financial needs in areas such as health, home, travel, transport and so on – while supplementing these with pre-sale advice, promotions, post-sale support, and cross-sale opportunities.
- Offering digital personalised financial advice to help customers better manage their banking needs, for example by suggesting products and services to save them money.