Four lessons big banks can adopt from challengers

Digital-first challenger banks and fintechs have reshaped financial services for consumers. In the past, the financial services sector was dominated by behemoth corporations deemed "too big to fail" and whilst many people still bank with them, start-ups such as Monzo, Revolut, and Starling have reignited innovation within the sector. In the UK, the fintech sector attracted record investment of $4.9 billion in 2019, surpassing the $3.6 billion from 2018 and showing the major disruption fintechs are bringing.

There's a lot for traditional banks and financial services firms to learn from the new players and in this article, we break down the top four lessons big banks can adopt from challengers.

1. Get hyper user centric

One thing that finance start-ups aimed at consumers generally have in common is their mission to provide customers with easier, more efficient and friendlier ways to manage their money. Digital natives like Gen Y or later have set high expectations for banks as their digital habits spread across all facets of life, from online shopping to social media to managing all of their administrative needs. The digital-first economy we live in makes seamless, real-time user experience the centre piece for banks and other providers offering financial products. It's about streamlining services and making it easy to open an account or change an address.

For example, with a leading neo-bank, changing your residential address is done via the mobile app and takes less than five minutes. With most of the high-street banks currently, you have to speak to a member of their team before you can update your address which is time consuming and unnecessarily inconvenient. Especially when you consider that current wait times for call centres are higher than ever with customers being unable to visit a branch and instead forced to wait for hours on the phone. Many traditional banks cite security as the reasoning behind not allowing customers to update their address via mobile banking but there's absolutely no need to call the bank to do this when calls can also be conducted by fraudsters. Security solutions such as multi-factor authentication and verification via text message or e-mail covers the risk of fraudulent activity in most cases.

Of course, we all know the regulators will save the banks from disruption and put up moats around fintechs!

2. Win customers over

Being user centric is different to winning customers over and building a brand people love, if you are wondering whether this point is the same as the previous one. Traditional financial services providers have struggled with customer satisfaction for years, and much of that can be put down to the siloed manner in which large institutions operate. Whilst regulations are blamed for "bogging down" the finance industry by setting out specific rules and making it difficult for banking to be 'sexy', there's still room for innovation.

For start-ups, it's incredibly difficult to get into financial services because of the regulatory hoops which are in place for good reason - to protect people from atrocities such as the financial crisis of 2007/8. Yet the fintechs and challengers that have powered through to operate in this challenging arena are full of innovation and pride themselves on putting customers first.

Looking at nowadays famous currency conversion and international money transferring solution providers: their fees can be up to eight times cheaper than a traditional bank to transfer money internationally as they use an innovative technique of making two local transfers in place of a single international transaction.

3. Have brand integrity

The way we live today is radically different than just a decade ago. Technology modernisation has revolutionised products and services, whilst consumer needs are continually evolving. An astonishing 71% of consumers prefer buying from companies aligned with their values. Banking and financial services companies have seen a decline in consumer trust since the financial crisis and for an industry that relies heavily on integrity and reputation, it's impacted the sector considerably. Whilst fintechs have had to build brand integrity from the bottom up, they also don't need to defend their past actions and many have done a good job of building a sense of community and trust.

Several fintechs added charitable giving to their products, making it easy for customers to give to charity. During the Coronavirus pandemic, one of them played a role in providing access to the government's Business Bounce Back Loan Scheme (BBLS) for thousands of SMEs. Another example of building brand integrity comes in the form another, who have built a brand people love by engaging in meaningful conversations with customers through their online community. They involve customers in the co-creation process through their community forum where they listen to customers opinions on new product features and get their feedback regularly.

The efforts many fintechs have made in engaging their audience and providing meaningful discussions and the ability to make an impact on the wider world go beyond day-to-day transactions.

4. Be digitally native

The proliferation of online channels has led to a digital-first approach to banking and finance which means offering end-to-end digital and services, including banking and payments. The challenger banks gained popularity due to their mobile offerings, allowing consumers to access their financial accounts at their fingertips. Whilst this was revolutionary at the time, all of the major banks have caught up and now offer online services and mobile banking to some extent. To gain a competitive edge, financial services companies need to improve their digital maturity and leverage big data fully to better comply with regulations, detect and prevent fraud, determine customer behaviour, increase sales, develop data-driven products and much more. It has been shown that more than 70% of banking and financial services firms that use big data analytics have a competitive advantage against their peers.

How we helped

In partnership with our customer, a neobank with the ambition to become a fully functional and operational bank, we developed digital solutions for managing fraud, finance and operations on the back-end. The IT implementation was a greenfield project, meaning that all the components either had to be developed or a vendor solution had to be integrated. We created real-time data pipelines for their systems and a method to ingest the data into a data lake. Once the data was in the lake, it could be quickly joined together, and reporting was made easy using several data sources.

This solution enabled the company to have an overarching profit and loss report overseeing all entities and datasets. We also worked with the fintech to improve their operations by creating a tool that allows them to visually build operational workflows, define dependencies between them and to run and monitor them. Having end of day processing in place enabled the bank to automate large chunks of manual labour for daily activities around FX transactions, payment settlement and real-time reconciliation.

There are many use cases in financial services for analysing data held across the organisation. Banks can gain insights into cash flow so that managing liquidity is efficient while analysing customer data such as transaction history which can help to manage credit risk for the lending organisations.

Traditional providers are increasingly taking a 'digital-first' approach and must pave the way for longevity so that they can not only continue to survive, but also thrive.

To learn more, check out the full customer success story.

If you want to learn more about how technology solutions can help businesses transform and modernise, please get in touch.