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Is it the tipping point for traditional financial services?

By Joel Biswas, Planning Partner

Aesop

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The Drum Network article

This content is produced by The Drum Network, a paid-for membership club for CEOs and their agencies who want to share their expertise and grow their business.

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March 28, 2017 | 6 min read

In 2003, William Gibson famously noted: “The future is already here – it’s just unevenly distributed.” This rumination is particularly acute when we muse about the future of the financial services industry.

Whither the banks

Whither the banks? It’s a question that can induce glazed stares and exasperated exhalations among even the most evangelical proponents of disruptive innovation. Why? Because although the high water mark of the global financial services industry has long since passed and the case for urgent change seems irrefutable, the innovation agenda of the ‘big six’ continues to take shape slowly. And if it seems unsporting to add another cynical voice to the chorus of general bank-related opprobrium, I would argue the opposite.

Surely by now such widespread dissatisfaction with the sector should have spurred an ambitious, challenger orientated mindset from at least one of the bedrock banks. A radical brand reinvention, perchance a breakthrough product or service, a solution for young folk working in the gig economy, a genuine commitment to financial education? Something – anything – to signal that the banks have the imagination to reinvent themselves and what they do for a different world. Alas, nearly a decade after the financial crisis, there is scant evidence of any meaningful sector transformation – at least from a retail perspective.

Of course, if you were to lose patience with the status quo you can already have every aspect of your financial needs served without ever having a direct relationship with a bank. Look at Nutmeg, a web-based investment portfolio builder that aims to democratise investment through ease of interface and simple dashboard reporting. Then there’s Acorn, a platform that rounds up the money you spend (a penny here, a penny there) into a portfolio to make your propensity to invest into a reflexive habit.

Both are marked by almost entirely digital portals and interfaces and significant use of algorithmic based decision-making, some of which outperforms real flesh and blood financial advisors. But if automation isn’t your thing, you can also indulge your inner Warren Buffett by investing in early stage businesses via Crowdcube, Fundingcircle or Kickstarter, where, if you’re eagle-eyed, you might be an early stage investor with the likes of BrewDog, Pono music players, off-colour boardgame sensation Cards Against Humanity or De La Soul’s first new album in a decade. My return on investment came in the form of an autographed 12 inch.

Meanwhile, the very same enterprising SMEs featured on these crowdfunding sites are wisely spending your investment capital with alternative payment providers like Izettle or Gocardless. com and cutting out that expensive (and slow) accountant with Quickbooks. If they’re successful enough to have overseas customer and suppliers, then Transferwise will gladly handle those transactions for far less cost than a traditional bank.

Speaking of banks, who needs a business account with some stuffy old high street lender when you could bank with Tandem, Starling, Monzo or Atom, all of whom offer a variety of more convenient, personalised digital services? And if even after all this you still need the emotional succour of an actual branch with actual staff, there’s Metrobank.

So, what will it actually take for a credible set of challengers to genuinely overturn the increasingly staid dominance of the traditional high street banks?

First of all, it is important to understand the reality that for all our purported outrage, customers are not yet revolting en masse. The banking sector and its brands maintain extremely low engagement in the minds of the general public, which in some ways works to the advantage of the banks. Switching behaviour remains low. When it comes to current accounts, the supposed basis for a long-term relationship (and upsell to mortgages, ISAs, etc), the numbers aren’t exactly compelling. In fact, since the introduction of the government’s BACS scheme to make switching current accounts easier, a grand total of 2.8 million people have taken the plunge – little more than 4% of the market.

If the banks remain risk averse, conservative and complacent in the face of change, it’s because their customers are too. In an age of increasing financial uncertainty and an ageing population, bright, shiny (but potentially faceless) fintech challengers have a major job to do in old-fashioned brand-building and demonstrating institutional staying power. However much the banks’ reputations may have suffered in recent years, their sheer longevity and awareness levels provide the kind of bedrock certainty that still matters to people, particularly in an area of their life they’d prefer to pay little attention to.

As long as financial services and money remain boring and low engagement, little change will take place. And in this context, if for example a truly exceptional tech player with a brand like Google or Apple were to make a legitimate move into consumer finance and give all that emerging digital magic true authority and trust, we could see things change very quickly indeed. As history delights in showing us, one never knows when the tipping point of truly seismic change will finally occur. The trick is to not be surprised when it does finally happen. The future doesn’t stay unevenly distributed for long.

Joel Biswas is head of brand planning Aesop agency.

This article originally appeared in The Drum Network supplement magazine on 8 March 2017.

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