The UK banking sector may be facing an interesting crossroad soon. With the pace of change getting faster when it comes to the competitive retail banking landscape, new players that want to compete with big banks are rushing to fill in the required paperwork in order to get licenced as banks. Is this the rise of the FinTech banks?
Founded mainly by a combination of ex-financial services folk and digital natives, and financed by shrewd investors and peer-to-peer crowdfunding vehicles, these emerging players promise to transform the way individuals and businesses interact with their finances. Their premise tends to be around creating experiences that better reflect customers’ behavioural patterns and expectations than what is currently available in the market.
I was fortunate to participate in a roundtable at the recent Finextra Next Gen Banking event, in which “traditional”, challenger and FinTech banks discussed the future landscape of banking in the UK and what it might mean for customers.
The debate revolved around what customers currently have on offer and how new challengers plan on improving upon that. With a focus on personalisation, ease of use and “mobile-first”, they focus their propositions on improvements to the customer experience. However, we cannot forget that over the past decade the largest players in the market invested enormous amounts of money in doing exactly that – and while there is certainly always room for improvement, most customers can currently interact with their banks anytime, anywhere, and with great ease.
Where new players could have a competitive edge is potentially in their product release cycle – by building their IT systems from scratch today they are able to make them fit-for-purpose at a relatively low cost, and use them as a platform for innovation and live-testing in a much more cost-efficient way and with a faster route to market.
Getting traction in the UK market won’t be easy, the panel participants from some of the challenger banks agree that customers today certainly have increasing amounts of choice. However, the rise of the challengers is certainly generating plenty of attention across the industry. In fact, earlier that day, Mondo Bank raised the fastest million pounds in Crowdcube history in under 100 seconds. That’s more than £10,000 a second – clearly demonstrating there is enough interest in the market for something game-changing to potentially happen.
During the panel, I made a comment that one of the reasons investors in particular are interested in backing the new players lies in their extremely lean business models. Often, in order for them to break-even they can require a relatively low number of customers to be on board. This is great, however it won’t necessarily translate into customer appetite to join a relatively unknown financial services provider.
I also mentioned that TransferWise, perhaps one of the most famous FinTech success story to date, owes its success not to its lean business model, but rather to the fact they took a real customer problem (transferring money overseas is expensive) and fixed it. By doing that (alongside a strong advertising campaign) they were able to win the hearts of customers and with a very low barrier of entry to their service, they also won their business.
In my closing remarks at the panel, I distilled the topic down to what I think truly matters, and that is the customer experience. Ultimately, the success of the challenger banks will be driven by their ability to solve acute customer problems, whether in interface and interaction, cost, or transparency. UK customers are generally satisfied with their bank or financial service provider so new entrants will have to win them over by providing a more compelling proposition or better service. However, when all is said and done, the true winner of this changing landscape will be the customers – who will benefit from an evolving marketplace in which old and new players alike have to constantly innovate and improve in order to win their customers’ hearts.