We recently put out a Future of Banking piece where we prototyped aspects of what a good bank should be.
We’ve worked with a fair few of the banks in Ireland over the years and have had some great success with them. We also keep track of trends across various industries, banking included. But the reason I wanted to put the piece together was a bit more personal.
Computer said no, human said WTF?
I wanted to make a pension contribution last October which involved a transfer from my bank to my pension company. I expected it would take no more than a couple of minutes. But logging onto my bank account I was hit with an error – the amount was above “my daily limit” and I couldn’t proceed. That was it. An error message with no way to recover from it.
I rang my “relationship manager”, who seems to be a different person every time I talk to them, to get that limit raised for the transaction only to be told that I’d have to go into my branch. Working from home that day, my branch was 90km away. Nevertheless, my local town has a branch so I drove the 15 minutes in and paid for parking. When I got to the branch I queued for 5 minutes behind some other people, just to fill out a paper form.
The teller told me they’d post – yes post – this form to my branch and that the transfer would take between 3 and 5 days. When I told the teller how crazy this whole thing was, he was as incredulous as I was. Unbelievable, right?
While that was an inconvenience, the next example was the real catalyst for getting our future of banking piece published.
Banking on inertia
I got my annual mortgage statement in the post. A rather humbling document in many ways; not a particularly warmly designed touchpoint. On it, I saw my interest rate, along with how much I’ve left to pay. I decided to look around to see if I could get a better rate elsewhere.
I started this my filling out an online form to request a change to my interest rate, without knowing what I could switch it to. In the intervening period, I did a bit of shopping around. Long story short, turns out I get a better rate, not only from several competitors but also from my own bank.
I called my bank to say that I’d found a better rate elsewhere and that I was thinking about switching to a competitor and only then did they offer me a better rate.
They were able to reduce my mortgage by €400 a month. Yes, you read that right.
Now, I’m obviously delighted to be paying €400 less per month. But this better deal was available to me, possibly for quite a while, and I never would have got it if I hadn’t chased it. Now, arguably, it’s not in their interest to but I really felt unloved as a customer.That they weren’t looking out for me. If measured on this dimension, their customer advocacy score wouldn’t have done so well. That is, how they go about looking after their existing customers.
Instead, they rely on uninformed customers and inertia. And that’s a dangerous, complacent place to be for any business, but banks in particular.
We saw how powerful inertia was a few years ago with the big RBS & Ulster Bank systems meltdown. Despite the massive and ongoing inconvenience it caused, very few customers left. Why? Arguably, there was little competition to go. But that’s changing and will change quite dramatically in under a year.
We’re seeing the unbundling of banking whereby their different services have been taken on by new entrants. Think payments and Apple Pay, Square, Venmo and host of others. International payments, with the likes of Currencyfair making it far faster, easier and far, far cheaper to move money overseas. That’s in the payments space, but we’ve also seen crowdfunding with Indiegogo and Kickstarter which replace the traditional role of the bank in funding entrepreneurship.
Depending on what you read, it’s death by a thousand cuts, at least potentially. But it’s not just slivers of the banks’ service that are being threatened. We’ve also see a new breed of competitors come to the market. You’ve got the likes of N26 across Europe and Monzo, Atom and Starling in the UK. What’s interesting about these is that they’re more-or-less full service retail banks, albeit natively digital and focused on mobile – mobile being an area that banks have under achieved, even by their own standards.
So we’re starting to see viable alternatives for many of the services banks offer.
Banking by Google?
Next, by 2018 banking customers across Europe will no longer be locked into their bank’s financial systems. Your bank will be legally required to allow you to bank via third party services. A small example: if you have multiple accounts with different banks you could be able to view and use them via a single web client, much like you can send and received through multiple emails addresses in Gmail.
This means that if a bank customer wants to pay a friend, compare products, or do any other type of standard financial activity, they have no reason not to choose a new provider to do this for them. Keeping everything in the same place will no longer be a factor in your decision making, because everything can be "in the same place" via APIs and data feeds.
The legislation is what’s called the ‘Payment Services 2 Directive’ and it will open up local markets to exciting new entrants, and many of them won't be banks. As Bill Gates said, these services are proving that “banking is necessary, banks are not.”
Short-term, there’s a risk that banks become the “dumb pipe”. They may still keep their customers, but the new banks will own the “experience layer”; everything from point of sale to balances and transactions will be conducted through the new bank’s interface. The traditional bank will just provide the underlying infrastructure. In losing access to these vital touch-points, banks could lose all of the associated valuable transactional data which is why these unbundled payments apps are so important – they’re the thin end of the wedge.
In my recent mortgage experience, it could be an aggregator or comparison site that tells me there’s a better offer elsewhere and facilitates me in getting it. But I don’t think that better services alone are what really threatens traditional banks. It’s that they don’t seem to have a sense of purpose beyond profit.
We asked what is a bank for?
We wanted to start with a beginner’s mindset – it’s a great place to start when changing something fundamentally. If you started to design a bank with people from banks, you’d end up with just another bank.
So, that’s what we did with our Future of banking piece. We took a ‘bank’ apart and reimagined a couple of the common interactions with the additional lens of “making you better off in the long term”. Here's what that might look like.
A better bank balance
Balance is the first thing most customers look for in their bank’s app. Yet, when you think about it, it’s like a stopped clock being right twice a day. It lulls you into a false sense of security by not showing what deductions it can predict will be coming out later today, later this week or later this month, based on historical spending patterns. If a bank knows more about your cash-flow, shouldn’t it act like it?
Budgeting and planning
Banks offer very few, if any, tools that help people manage their money. In interview after interview, banking customers have consistently mentioned “envelopes” which tells us how people think about their money. Why can’t the customer do things like “put away” money for things they know they’ll need soon, whether it’s a new Fender guitar or their rent? Rather than think in terms of current versus savings accounts, banks could build around their customers’ mental models - and apply configurable rules around money.
Starting a savings habit
While savings can start with a concrete goal like a holiday or a house deposit, it should arguably become a habit without a goal, even for people who feel they can’t afford to even start. The emphasis shouldn’t be on education but on behaviour, helping customers to start in whatever way suits them best. Then, it should reinforce that behaviour through regular feedback.
The killer feature? Customer advocacy
While I’ve described three basic features above, the killer feature is culture. What the features above, describe, are examples of customer advocacy (where companies focus on what is best for the customer). Whether banks are willing or able to adapt to this new culture, what’s clear is that if banks aren’t actively looking out for their customers’ best interests, then someone else will.
Illustration by Tom Cunningham