Up until about twenty years ago, banking was a highly customer-centric industry. Customers would go to their local bank branch for all of their financial needs and would therefore know their local manager and have a feel good personalised experience.
The hyper digital world we live in has shifted the channel in which customer-centricity matters from physical to digital, leaving banks scrambling to regain this customer-centricity in a channel which does not play in their favour.
Unfortunately, the technological, organisational and process factors that are wedded within incumbent banks do not do them any favours in this pursuit of digital customer-centricity. Couple this with the explosion of B2C fintechs and challenger banks, and incumbent banks are now in a tricky position to meet their customers’ digital expectations.
In order to tackle this challenge, we see banks taking a handful of long term plays to meet the digital expectations of customers:
- An acquisition and repackage approach
- The Greenfield / ‘let’s do this ourselves’ approach
- The ‘build on an external BaaP’ approach
- Whitelabel an existing product
1. Acquisition and repackage
This first approach of acquisition and repackage is less common than some of the others and comes with potentially higher risks. While BPCE tried and failed with the acquisition of Fidor, Goldman Sachs is an example of how to do this right with their digital consumer brand, Marcus. GS acquired the online deposit platform of GE Capital Bank (GECB) with approximately $16 billion of deposits, and then built the technology from scratch. It immediately had what most challengers dream of; a customer base, capital, and in-house developed back-end and technology for Marcus.
When Marcus launched in the UK in 2018, it signed up 50,000 customers in just two weeks. This is in addition to the vast success it has achieved in the US, having written over $2 billion in loans in its home market.
From the get-go, Marcus had the deposits and most importantly the customers. They inherited an existing customer base and were available to take on new customers without delay with the re-brand to Marcus. A little over a year later, Goldman trading as Marcus subsequently acquired Bond Street, Final, and Clarity Money for both products and talent.
The secret sauce here is a combination of an existing customer book, with no messy technology integrations, an attractive pricing structure, and tactical acquisitions of both product and talent.
2. The Greenfield / ‘let’s do this ourselves’ approach
In response to the rise of challenger banks, over the past two years we have seen a handful of larger banks announcing the launch of their own challenger brands, including Standard Chartered, HSBC and RBS.
One successful example is George by Erste Bank, which was developed by an in-house fintech team and now has a massive 1.5 million customers in its home market of Austria.
One to watch could be Mettle from RBS-owned Natwest, which was launched for SMEs in the second half of 2018. However, the approach to customer acquisition from Mettle varies from Erste and Marcus.
While Mettle is positioned as a business bank account, the T&C’s state that the card is actually prepaid as Mettle currently only has an e-money license. Mettle appears to be taking a similar approach to the one Monzo launched with, where early users test the product and provide feedback while the full banking license is obtained.
While this prepaid card for Alpha and Beta approach was highly successful for Monzo at the time, it may be hard to replicate this in the SME segment when the challenger banking and SME market has moved on. Early adopters with only a prepaid card will find it difficult to test and capitalise on Mettle’s features, including the “smart tools” for managing invoices and payments. Furthermore, SMEs may be understandably hesitant to use a prepaid account as their primary business bank account.
3. Building on an external BaaP (Banking as a Platform) approach
While in the early days, BaaP was a strategy primarily used by fintechs and challengers who either needed to get to market quickly, didn't meet the regulatory requirements, or wanted to piggyback on an existing infrastructure, we're now seeing more and more partnerships take place between stand-alone BaaP companies and the incumbent banks.
One practical use case for this approach is to reach new markets with new products. Germany’s solarisBank is one of the leaders in this space and partners with the likes of ABN Amro and Albaraka Turk. In both instances the respective banks were able to quickly launch an entirely new digital product on the platform.
ABN AMRO was able to introduce installment loans for its Money You brand in Germany (the only trading brand of ABN AMRO) using solarisBank’s product and parts of their technology. The second partnership, with Albaraka Turk, allowed the Turkish bank to offer its Insha app, a mobile banking solutions targeted to the 20 million plus Muslim community in Europe, by utilising the banking license.
4. Whitelabeling fintechs
This approach is more common, but comes with its own disadvantages. Here we see traditional banks such as ABN AMRO, Swedbank or RBS whitelabeling a fintech product such as Tink, Minna or ezbob.
The result is typically a new brand, e.g. ABN AMRO Grip app, First Direct’s Artha or RBS’s Esme. Let’s look at the pros and cons in detail:
- A sleeker, potentially better-designed platform, product or service. It’s no secret that fintechs have the advantage with design and build and on the whole offer more beautiful, customer-friendly products that solve an actual customer pain point (with notable exceptions, see my article on where fintechs get CX right and wrong)
- Faster time to market, assuming the bank has nailed their procurement process with fintechs, and technical integration doesn’t post an issue
- A newly branded product or service is a great way to acquire non-traditional customers. For example, the RBS and ezbob partnership with Esme, the SME lending platform
- Measuring the success of such partnerships is difficult for banks, given the fact that the partnership model is new, and can be seen as a longer-term play. While we have seen banks whitelabeling without having dedicated fintech teams; the KPIs to measure if a pilot should continue, or what ‘good’ looks like are still in their infancy internally within banks
- Fishing through the hype: There is a lot of hype around fintech at the moment, but ensuring a partner with a good track record, supported with adequate resources and ensuring its solving an actual customer problem are all key in finding a solution that will ensure success
- The waiting game: Although recent strides in the procurement process for fintechs have been made, fintechs and startups still maintain different ideas of what quick onboarding looks like. Banks are slow, and that’s no surprise. While fintechs think and act like startups, they can still struggle with the drawn out process of vendor onboarding with incumbent banks
So what’s the best approach?
Incumbent banks of all sizes are at various points in their digital transformation journey. Couple this with varied strategic visions, digital savvy top-management, existing technology and markets, and there is no right or wrong approach. The aforementioned strategies show that there are multiple ways to set out on a path of increased customer-centricity.
It’s also important not to forget that these strategies are long-term plays. There are countless quick wins banks can capitalise on with existing products and services to increase their digital customer-centricity. Successful long-term plays are also important as they set the tone for how to approach digital, provide momentum for digital transformation and of course, benefit their customers.
Regardless of the approach taken, it’s vital to have an open mind, and choose your tactic based on guiding principles, a coherent vision, and realistic expectations of what can be achieved. Furthermore, the digital financial services industry is in a truly exciting time, where options for partnerships, collaboration and creation are endless. We are particularly looking forward to seeing incumbent banks who begin incorporating non-banking products and services to create a new level of inter-industry customer-centricity.
Meaghan has spent almost 7 years looking at everything and anything related to CX in digital FS. She uncovers and demonstrates best practice experiences for banks, fintechs and company builders, supports in-product and digital experience development and provides strategic research in the data and blockchain spaces. Based in Berlin, she has worked with dozens of brands in FS across the globe.