Big banks vs startups: Who will the customer choose?

Sarah Williams-Gardener, public affairs at Starling Bank

As customers become more tech savvy and choosy about who they shop with, banks have been criticised for failing to innovate and keep up with changing consumer expectations. According to Forrester’s findings, only 50% of bank customers are willing to stay loyal to their bank.

Should banks act more like startups? Banks should experiment and focus on building a strong relationship with their customers if they don’t want to fall behind startups, according to speakers at Tug’s Human Versus Machine four-day expo, in content partnership with The Drum.

According to the chief marketing officer of Forrester Victor Milligan, customers across generations are seeking richer and more personalised digital experiences. But banks are struggling to convert their data into personalised experiences for customers. He says changing customer behaviour and expectations are “threatening the relevance and productivity of banks current business and economic model”.

One big technological shake-up that will force banks to rethink their current customer strategies will be the Open Banking Standard to be implemented in 2018. The aim of the order, issued by The Competition and Markets Authority (CMA), is to “make banks work harder for their customers”, give customers greater control over their finances, and increase overall competitiveness in the financial sector.

As Terry Cordeiro, head of product management at Lloyds Bank noted: “Innovation is a survival skill”; referring to the impending standard changes, he said it’s more important than ever for banks to keep up.

Speaking in her presentation at the event in London, Amanda Rendle, non-executive director at Tesco Bank outlined the key challenges facing the fintech industry: complying with increasing regulation, preventing fraud, and simplifying customer access. “Will banks simply become the back-end provider for fintech startups?” she posed. Whether you are a startup or a bank, the one who will win will be the one who has the strongest relationship with the customer.

This point is reiterated by Sarah Williams-Gardener, public affairs at Starling Bank, who added: “It’s about who will have a deeper connection to the day-to-day lives of customers and who can help solve today’s problems from the convenience of a smartphone.”

For Simon Harrow, head of digital strategy and innovation at iGO4, what big financial services companies see as radical innovations are just obvious ideas for start-ups. These companies should have the mind-set of constant experimentation and be continually doing rapid testing – as this is the only way to ensure progress and innovation.

“Only about 2% of companies can effectively explore and exploit at the same time, in parallel – but when they do, the pay offs are huge,” he explained.

But with innovation comes risks: the danger of relying too heavily on machines. Almost half of UK jobs across all sectors have been predicted to be under threat of replacement by smart machines over the next two decades.

Lee Baker, commercial director at Seldon, believes humans can train machines to help us. “Machine learning can go beyond suggestions and targeting information – it takes the output and looks to understand the pattern of behaviour,” he said.

One bank that has gotten into the mode of innovating is HSBC. The bank is working on becoming more attentive to its customer’s needs and assisting them through technology with their financial decision.

Henri de Navacelle, ‎head of digital acquisition at HSBC Retail Banking and Wealth Management UK explained: “HSBC is innovating and investing within the limits of our bank and customers with our nudge app which was trialled last year, and our Smart Save app which was part of the first FCA sandbox this year. Thanks to new regulations, we have open standards for data exchange which will unlock wider opportunities that we are ready to embrace.”

The app creation was influenced by the London School of Economics and Politics (LSE) study, which used behavioural science to explore the barriers experienced by people when trying to meet their financial goals. It found that leveraging technology through the form of push notifications would encourage customers to meet their financial targets.

Big name brands can definitely innovate, according to Ed Lecky-Thompson, head of digital technology at Aberdeen Asset Management. He said they have one advantage that smaller names don’t – a trusted reputation. Customers are often sceptical of brands they don’t know.

But he warned it is not enough for banks to rely on their long-standing reputation alone.

“While big brands have the advantage of trust and recognition when launching a new product, failures happen on a more public scale.”

He added: “Don’t pretend to be a startup. Hiring cool designers and having a satellite office in a trendy area of town won’t solve the existing problems in the banking industry. At the end of the day, you’re still a bank – so act like a bank.”

This is the first of a series of articles The Drum will be publishing each month based on the topics covered during the week at the Human Versus Machine expo. These will cover: humans vs. machines: how machines are affecting humanity, disruption and innovation in the retail sector, and how can brands reach ever more tech-savvy audiences?

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