Breaking the bank: how Starling, Revolut et al are disrupting our financial institutions

“It was brutal,” she recalls. “And I couldn’t even have a glass of wine.”

But beneath the pandemonium – the bank runs, the riots, the stockbroker suicides – lurked another threat to Lemkau’s industry. The iPhone had arrived and consumers were getting used to doing things autonomously with their devices, such as shopping, using maps and making reservations.

There was a growing appetite to bank digitally, too, but the banks were ill-equipped to sate it. To some extent, they still are.

“The problem with the old banks is they were built up at a time when data was very expensive to store and pass around,” explains Tom Merry, the managing director for banking at Accenture. “You had systems that captured as little data as you wanted. That legacy is what is holding these big incumbent banks back. Almost every single bank, even the ones considered to be leaders, are still built on very, very old structures.”

Yet the march to digital has been taken on by industry leaders diligently, in a way that has been less begrudging than those in the likes of publishing or retail. Cost plays a part in this: banks are driven by profits, and moving processes such as paying off credit and cashing checks from a staffed, brick-and-mortar storefront to the palm of a consumer’s hand is nothing if not a money saver.

The pressure to digitize these archaic systems was ramped up roughly five years ago when challenger brands – or ‘neobanks’ – entered the market. These were companies that could offer consumers a better interface and innovative mobile tools because they had no legacy systems holding them back in the digital realm.

Additionally, their access to customer data was painless and smart.

“It gives those chief marketing officers a huge advantage,” explains Merry. “Neobanks are able to use data in a really advantageous way – whether that’s targeting new customers, driving loyalty in their existing customer base, cross selling, upselling or making experiences feel like they’re bespoke to the individual.”

The likes of Monzo, Revolut and Starling began to make waves with their branding, too. They had no trust to win back and no rules to play by: Monzo managed to turn a debit card into something of a coral pink accessory across Europe, while Venmo – a payment transfer system now owned by PayPal – has become a verb among millennials splitting restaurant bills on the east and west coasts of America. Starling managed to make headlines simply by flipping the design of its debit card by 90 degrees.

“I guess most of the traditional banks just can’t be bothered to think, ‘how can we change the design, meet all those requirements and make a card that looks beautiful?’” says Alexandra Frean, head of corporate affairs at Starling. “We wanted to do banking differently, and took the trouble to figure out how you could bring about a lot of change while sticking to the rules.”

Good design aside, the financial institutions that survived 2008 are in no real threat from neobanks just yet. For one, they’re taking the process of overhauling their digital architecture “really seriously – and have done for nearly the past decade” notes Merry.

Secondly, while they may have a little more trouble accessing and processing their data, they are sitting on a lot more of it. And they have substantially more cash, too: Accenture observes that consumers hold an average of $450 in neobanks compared to an average of $11,100 in traditional banks.

The general response from the old-guard has been two-fold: build a separate user interface good enough to rival that of its rivals (M&A in the space has been lackluster so far due to the sky-high valuations of neobanks) and invest heavily into brand.

Lemkau, for instance, recently hired a chief brand officer in former Starbucks executive creative director Leanne Fremar who helps her control an eye-watering budget of $10bn. And Chase’s ad promoting its sponsorship of the US Open didn’t speak of credit card rates or auto finance; it featured Serena Williams talking of comebacks and motherhood without even uttering the name of the brand.

Mastercard’s marketing, run by the World Federation of Advertisers’ global marketer of the year, Raja Rajamannar, is hellbent on reaching the masses through all senses. The brand recently unveiled its ‘flavor’ – ‘The First Taste of Priceless’ in macaron form – however its foray into sonic branding was a move directly influenced by the charge toward digital.

“Voice commerce platforms, like Alexa and Google Home, on which people can make payments are bringing us into new territory,” says Rajamannar. “Voice enablement doesn’t have to be restricted to sound-only platforms – it calls for opportunity in the physical world as well: consumers will hear the Mastercard sonic acceptance sound at the end of the transaction regardless of where they are ... online, in stores, at venues, on voice-enabled devices like Alexa…

“A proactive, anticipatory approach has helped us identify opportunities for growth, rather than finding ourselves in a place where we are feeling left behind.”

Voice is a key area of interest for Visa too, according to its head of marketing for India and South Asia, Sujatha Kumar. She imagines a future where banking is mobile, where service providers pose serious competitive threats and voice is built into all payment systems.

“How we seamlessly enable that, in spite of the needed security measures, will be the key to who succeeds,” she says.

It’s impossible to predict who will win out at the end of day: the big banks with scale built on an untenable digital foundation, the neobanks with cool tech but hesitant customers or a left-of-field player, such as Facebook’s Libra or an AI-driven business currently in utero.

“But whatever you believe, the infrastructure that sits behind banking and financial services has to become more digital and there has to be a move towards new architecture to support that,” says Merry. “It’s getting better, but there’s much further to go.”