26th June 2017

Banks: prepare to become a wholesaler of financial products/services

Written by Avoka

In 1994 Bill Gates famously said, “Banking is essential, banks are not.”

Fast forward more than 20 years to the current era of smartphones and ubiquitous connectivity. People now expect to be able to connect to the services they need wherever and whenever they want or need to. One such service is banking. Most of the time people need banking services, they’re not ‘in a bank’, they’re somewhere else.

An obvious example of this is the ATM. ATMs give us convenient access to cash in places where we might need it – the high street, a shopping centre and, more recently, in pubs. Even though most ATMs are bank branded, they will accept cards from any bank. There is no need to find an ATM for a particular bank, any ATM will do.

ATMs were just the beginning of banking breaking out from the four walls of the bank branch. Now consumers can tap their phones in a store to complete a purchase of groceries, clothing or anything else.

But let’s look at another aspect of banking: new product acquisition, such as account opening or loan applications. These products help to fulfil a need, but is there actually a need to physically be in a bank to have that need met? Or is it just an extra (unnecessary) step in the process? For example:

  • Why can’t I get a savings account for my daughter’s education through the school when I enrol her for kindergarten?
  • Why can’t I apply for a new credit card on Facebook when I’ve just been given a recommendation from a friend about a credit card through that same channel?
  • Why can’t I get pre-approved for a mortgage at the Estate Agent when wanting to buy a house?

Although many products may be applied for either online or by phone, our latest report shows far fewer banking products are available on mobile devices.

We’re already seeing disintermediation of banks through personal financial management solutions/apps such as OnTrees, Money Hub, Money Dashboard, where users can aggregate information about their banking products from multiple banks through a single user interface.

PSD2 will make this even easier. Facebook have filed a patent for social personal financial management which will allow aggregated banking information in Facebook and spending patterns to be confidentially compared to others.

There are two strategies here for banks…

  • Embrace open banking and APIs and accept that they may no longer be the ‘customer experience’ (which might be Apple, Facebook, Google, Samsung, Amazon…).
  • Focus, focus, focus on the customer experience. Understand what people want and give it to them, otherwise they’ll get it from somewhere else that makes it more convenient.

To effectively offer new banking products in a context or setting where customers are actually considering those products, banks will need to break the tight association between the application process and the bank. This will require a system of engagement focussing on customer convenience which can be dynamically branded to provide a contextual experience for the customer.

We need banking, but if the banks don’t inject themselves into customer situations contextually, the customer will seek to find a more convenient and frictionless alternative.

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