Since the global financial crisis, a lot of the debate about established financial services players has revolved around how to improve return on equity in a new regulatory era, reorganizations and divestments, and ongoing revelations that continue to erode trust in financial institutions. Exciting conversations about the new ways that the world manages money, and might manage it in the future, have been more concentrated within the tech sector.
But things are changing. Financial stalwarts like JP Morgan, HSBC, and Citibank can no longer ignore the trailblazers that have entered and plan to disrupt the financial services sector: global players like PayPal, Apple, and Google, along with an ever-expanding array of agile startups that are born with a new perspective, free from the limits that legacy and established infrastructure can impose.
At the same time, certain past advantages are being eroded, some faster than others. In retail banking, the highly concentrated nature of the industry has historically given customers few options, leading to high levels of inertia. Gradually, however, competition is increasing, with regulators granting more banking licenses and technology breaking down barriers to competition. PwC, for example, in its Retail Banking 2020 report, cited that 55 percent of bank executives view nontraditional players as a threat to traditional banks. Structural change is being accompanied by attitudinal change. Research by Rufus Leonard showed that 99 percent of millennials have stated that they are ready to switch banks, while Accenture’s consumer banking survey in North America revealed that 18 percent of millennial customers switched their primary bank within the past 12 months—compared to 10 percent of customers aged 35–54 and 3 percent of people 55 and older.
Established financial brands have spent decades building trust, but, for many, this has been severely dented by the global financial crisis and subsequent events. Rebuilding trust remains essential, but cultivating the agility to respond to rapidly changing tech innovations and customer expectations is, more than ever, crucial to growth. Only those companies that can build both trust and agility into their businesses will maximize the growth opportunities that new technology will bring to the sector.
Three thought starters for brand and business growth:
From physical to mental availability
In the past, a bank’s market share and physical distribution closely mirrored one another, but the model is transforming. Now, the quality of a bank’s digital interface increasingly dictates how frequently customers interact with it: “home-screen” distribution (i.e., digital, mobile) increasingly supersedes branch distribution as a key driver of growth.
Banks therefore need to shift emphasis from places to ideas, with a combination of brand purpose and digital services that allows a bank to stand for something relevant, real, and distinct.
Owned by HSBC, First Direct helped pioneer the branchless bank movement in the UK, gained a large and loyal customer base, and currently receives higher customer ratings than its venerable parent company. Also based in the UK, online investment company Nutmeg builds and manages intelligent portfolios for customers by defining their financial goals and how much risk they want to take. Accounts are completely transparent, accessible 24/7, and customers can withdraw anytime without exit fees. The company’s visual and verbal brand execution is polished, the online experience is well considered, and, as a result, Nutmeg has garnered multiple awards and grown quickly within the industry.
Building a human touch into its digital brand, new online-only player Atom Bank offers an app-based, highly personalized service and promises efficiency that will evolve along with it customers. And Indian company Faircent stands out with an innovative proposition: democratization. It offers peer-to-peer lending online and through its app. Users pay a basic listing fee, and Faircent does not collect interest, undercutting traditional institutions’ high margins and bringing affordable investment banking to the masses.
Find and solve two-sided problems
The best way to ensure the success of promising innovation initiatives is to ensure they solve “two-sided problems,” i.e., that they connect transformational wins for customers with big wins for the business. For example, by moving more consumers into multimodal banking (transferring more transactions to digital channels), banks can free up branch staff to give personal, value-adding help and advice.
In the UK, Barclays’ “Digital Eagles” initiative offers customer training to willing but non-proficient users of their digital channels. By merging business objectives (shifting consumers to lower-cost service channels) and improving outcomes for customers (greater use of lower-friction channels and better service in-branch), the bank cleverly solved a two-sided problem, delivering a meaningful and memorable service innovation that builds its brand.
The Best Global Brands in the financial services sector will need to foster more disruptive thinking and a culture of innovation that is currently at odds with the ways of working that have helped them succeed in the past. Recognizing the success of Breakthrough Brand M-Pesa, Visa introduced its own mobile payments solution, mVisa. Launched in India last year, it has expanded into Kenya and is moving into Nigeria, partnering with local banks to let users make and receive payments, regardless of their mobile networks. The model makes good on Visa’s message of inclusion and leverages the brand’s heritage: as part of the formal financial services industry, the Visa name lends a unique credibility to its service. As mVisa gains popularity, existing card users are likely to use more of the company’s mobile services and grow with the brand.
Original startup PayPal continues to benefit from its distinctive status as both an establishment and industry innovator. It’s investing in new partnerships, services, conveniences, and an ever-growing customer base that trusts the well-known brand. However, as new cash- and bank-free financial services providers race to beat the leader, PayPal is going to have to continue to stay ahead and enhance its brand by pushing forward its product and service offers, its value proposition, and its customer experience. The “New Money” campaign reflects the brand’s commitment to forward thinking and a focus on creating faster, smarter, and more secure experiences for a rising wave of users.
For the last few years, most financial services companies have focused on digitization and removing pain points in the customer journey. To drive future growth, it will be important to focus on mental rather than physical availability—on ideas, propositions, stories—while identifying and solving two-sided problems and creating an environment that encourages and rewards innovation. Ultimately, this should reinforce a brand’s purpose; enhance authenticity, relevance, and differentiation; and influence choice, in order to grow the brand and the business.