What banks have learnt from tech companies

Root of all evil it may be, but as the fury over High Street bank clo­sures demon­strates, our rela­tion­ship with mon­ey is high­ly emo­tion­al. So as banks embrace dig­i­tal­i­sa­tion, they must ensure that pub­lic needs and per­cep­tions are at the heart of their approach. 

In the 24 years since Nation­wide launched the UK’s first inter­net bank­ing ser­vice, apps, video calls, pass­words and bots have all but replaced cosy, in-branch chats with human rela­tion­ship man­agers.

Yet while Covid has accel­er­at­ed the adop­tion of dig­i­tal­i­sa­tion, the fail­ure of banks to regain the trust they enjoyed before the 2008 crash weighs heav­i­ly on a sec­tor where the per­son­al touch is seen as the holy grail.

The Big Four have a prob­lem with iner­tia and lack of inno­va­tion

Stung by the pop­u­lar­i­ty of high-tech, low-fee ‘neo banks’, par­tic­u­lar­ly among the young, the ‘Big Four’ – Bar­clays, HSBC, NatWest and Lloyds – are turn­ing to fin­tech acqui­si­tions and part­ner­ships, seek­ing to cat­a­pult their busi­ness­es into the dig­i­tal-first are­na.

But func­tion­al­i­ty alone – how­ev­er impres­sive – isn’t enough when it comes to some­thing as per­son­al as our mon­ey.  To remain rel­e­vant, old-school banks must see off chal­lengers in terms of speed and con­ve­nience while simul­ta­ne­ous­ly deliv­er­ing a bespoke ser­vice which match­es or exceeds that of the local branch mod­el.

Banking on emotions

Take-up of HSBC’s mobile app has dou­bled in the past four years, with more than 95% of its dai­ly trans­ac­tions now com­plet­ed across dig­i­tal chan­nels. But tech-dri­ven hyper-per­son­al­i­sa­tion won’t be a quick fix for retail bank­ing, says Matt Turn­er, HSBC’s UK head of dig­i­tal. 

“Build­ing loy­al­ty and emo­tion­al con­nec­tion is still in its infan­cy in bank­ing, par­tic­u­lar­ly mobile bank­ing,” he says. “When it comes to deliv­er­ing the type of per­son­al, rel­e­vant expe­ri­ence which gen­er­ates loy­al­ty and advo­ca­cy, we aren’t even scratch­ing the sur­face.”

In time, Turn­er thinks devel­op­ments in per­son­al finan­cial man­age­ment soft­ware – the fea­tures which give you a bird’s eye view of last month’s spend­ing, for exam­ple – will help plug the gap between the touchy-feely human ser­vice of the past and the bells and whis­tles digi-led deliv­ery of the future.  

“Whether we’re talk­ing about track­ing your out­go­ings, boost­ing your sav­ings or rais­ing cus­tomers’ finan­cial lit­er­a­cy over­all, the goal is to deliv­er expe­ri­ences and mes­sag­ing with gen­uine per­son­al rel­e­vance. And yes, we have much more to do to make that hap­pen.”

Short of offload­ing those cus­tomers who refuse to go dig­i­tal, banks have lit­tle choice but to try to please every­one in an omnichan­nel world. Yet bal­anc­ing the needs of tech enthu­si­asts with those of cus­tomers still yearn­ing for counter ser­vice is prov­ing a thorny prob­lem. 

The July relaunch of Stan­dard Life Aberdeen as abrdn in a bid to cre­ate a “mod­ern, agile, dig­i­tal­ly enabled brand” spawned a clutch of mock­ing head­lines about the asset man­age­ment firm’s attempts to get down with the kids.

Not­ing that the free pub­lic­i­ty more than made up for the neg­a­tive cov­er­age around miss­ing vow­els, Charles Wright, glob­al prin­ci­pal at brand­ing agency Wolff Olins – which worked on the cam­paign but didn’t come up with the name – says High Street banks must tread even more care­ful­ly.

“Every­one recog­nis­es that the Big Four have a prob­lem with iner­tia and lack of inno­va­tion,” he says, “and while swal­low­ing fin­techs like crazy – which some are cer­tain­ly doing behind the scenes – looks like the obvi­ous solu­tion, it could sti­fle the fresh think­ing that they need in order to meet grow­ing cus­tomer expec­ta­tion.”

Clunky mobile banking

Describ­ing the big bank dig­i­tal expe­ri­ence as “clunky,” Wright sin­gles out bureau­crat­ic foot-drag­ging for par­tic­u­lar crit­i­cism.

“When you com­pare the one to two hours it typ­i­cal­ly takes to open an account at a chal­lenger with the one to two weeks it can take with a tra­di­tion­al bank, you can see a clear dis­con­nect in terms of the dig­i­tal ser­vice on offer across the sec­tor,” he says.

Mud­dled fee struc­tures, exces­sive secu­ri­ty pro­to­cols and “gim­micks” are also in his line of fire. 

“If the bricks and mor­tar play­ers can start to give cus­tomers the speed, flex­i­bil­i­ty and trans­par­ent fee struc­tures they are demand­ing, I’ll actu­al­ly start to believe all the stuff they are cur­rent­ly claim­ing around hyper-per­son­al­i­sa­tion.”

Abrdn’s invest­ment direc­tor Iain Pyle takes a dif­fer­ent view. He stout­ly defends the Big Four’s record on dig­i­tal bank­ing, argu­ing that their tech-led trans­for­ma­tion can only improve over time.

“Bank­ing is a cus­tomer ser­vice indus­try at heart and while it may have been a lit­tle slow in get­ting to grips with some aspects of dig­i­tal, it’s clear that peo­ple do now trust the tech­nol­o­gy.”

Pyle doesn’t see “a great gap between what the tra­di­tion­al banks and the new banks are offer­ing in the dig­i­tal are­na. And while big firms are slowed down by the net­work infra­struc­ture, they have the cap­i­tal and resources to get this right over the long term for all types of cus­tomer.”

The lat­est Edel­man Trust Barom­e­ter indi­cates that our trust in banks and oth­er finan­cial insti­tu­tions has yet to recov­er from the shock­waves trig­gered by the last reces­sion. But luck­i­ly for the Big Four, what we say and do are often very dif­fer­ent. Although neo banks enjoy high rec­om­men­da­tion lev­els, rel­a­tive­ly few cus­tomers have switched their main accounts to them, sug­gest­ing that while they’re fine for bit­coin or for side hus­tle earn­ings, we don’t trust them with our main salaries.

Thin margins 

Some chal­lengers are said to be oper­at­ing on wafer-thin mar­gins. The fear that they will be swal­lowed up by big­ger play­ers or sim­ply go bust – ener­gy mar­ket-style – can only com­pound our reluc­tance to break away from more famil­iar names.

While trust may have dwin­dled, most peo­ple – aside from those who pre­fer to hoard their cash under mat­tress­es – would prob­a­bly agree that their bank can be relied on not to lose or mis­ap­pro­pri­ate their mon­ey. Yet when it comes to the far more com­plex belief that banks can be trust­ed to active­ly pro­tect our long-term finan­cial well-being, this is no longer a giv­en.

So says Fred Burt, founder and chief exec­u­tive of Olix Con­sult­ing, whose recent clients include a fin­tech firm and oth­er finan­cial ser­vices brands.

“We all need to feel in con­trol when it comes to man­ag­ing our own mon­ey and when it comes to relin­quish­ing that auton­o­my to algo­rithms and robots, very many peo­ple, includ­ing techies, have con­cerns about ethics as well as day to day secu­ri­ty,” he says. “If you hap­pen to be a cus­tomer who feels they are being shoved into using the lat­est app because the bank no longer wants to keep the well-used local branch open for rea­sons best known to them­selves, you are very like­ly to feel anger and dis­trust.”

In Turner’s view, the sur­viv­ing bricks and mor­tar bank branch­es will ulti­mate­ly be geared towards more con­sid­ered pur­chas­es like invest­ments and mort­gages, or events such as bereave­ments, which require more sen­si­tive, face-to-face han­dling.

Although access to a human assis­tant will, he says, con­tin­ue to be an option for those who either request or need it, the dri­ving force behind HSBC’s dri­ve towards hyper-per­son­al­i­sa­tion will be whol­ly dig­i­tal.

“I very much see banks being part of a broad­er finan­cial mar­ket­place in the future, one in which a selec­tion of third-par­ty prod­ucts and ser­vices will be made avail­able across a far broad­er range of con­sumer needs,” he says. 

Personal platforms

While Turn­er notes that Face­book has press­ing trust and ethics issues of its own, he notes that the social media giant “has giv­en us an idea of what can be done in terms of suc­cess­ful­ly per­son­al­is­ing people’s expe­ri­ences of a plat­form”.

From ful­ly cus­tomised mobile alerts and in-app noti­fi­ca­tions to per­son­al­ly tai­lored prompts and nudges – per­haps to increase sav­ings towards next year’s hol­i­day or switch to a bet­ter util­i­ty deal – the bank of the future, Turn­er believes, will take a far more proac­tive role in our finan­cial lives.

“As long as all the nec­es­sary con­sents are sought and giv­en, the ser­vice we offer will, through dig­i­tal­i­sa­tion, become more rel­e­vant to our lives than ever before,” he pre­dicts.

In this brave new world, banks will have to ensure that tech­nol­o­gy sup­ports cus­tomers and doesn’t pose prob­lems. For exam­ple, they must guard against auto­mat­ed sys­tems that encour­age us to take on more debt than we can afford to repay or buy into invest­ments which don’t meet our needs.

“It’s all too easy for new­ly dig­i­talised banks to fall into the trap of using their plat­forms and their access to vast amounts of per­son­al data to indulge in mass cross-sell­ing, but this would sim­ply erode trust still fur­ther,” says Wright.

Bank bots 

How­ev­er all-encom­pass­ing the future busi­ness mod­el proves to be, know­ing that your bank can be trust­ed to have your back is essen­tial in rebuild­ing trust. When it comes to deliv­er­ing that promise, how­ev­er, human beings are only one of the options, accord­ing to NatWest, which has more than 7.5 mil­lion per­son­al cus­tomers.

The first bank to launch a chat­bot in the UK, NatWest’s ‘dig­i­tal human’ Cora now han­dles a large pro­por­tion of online queries end-to-end, includ­ing requests for mort­gage and cred­it card pay­ment hol­i­days and new PINs, tasks pre­vi­ous­ly reserved for human staff.

Cora has been trained to recog­nise human emo­tion and can auto­mat­i­cal­ly trans­fer more com­plex ques­tions to a human assis­tant through a fea­ture known as ‘deep link­ing’. How­ev­er, the bank’s approach to dig­i­tal­i­sa­tion over­all is delib­er­ate­ly cau­tious, says Wendy Red­shaw, NatWest’s chief dig­i­tal infor­ma­tion offi­cer, retail bank­ing. 

“I know some cus­tomers see beau­ti­ful dig­i­tal prod­ucts out there and they want their bank to repli­cate them, but every­thing we do dig­i­tal­ly is based on human-cen­tric design and is thor­ough­ly researched and pilot­ed with a range of real cus­tomers before it’s rolled out.”  

Red­shaw agrees that the com­pe­ti­tion to offer the best dig­i­tal expe­ri­ence in the indus­try has become intense, both in terms of keep­ing pace with the oth­er big play­ers and see­ing off chal­lengers. How­ev­er, bricks and mor­tar branch­es are an inte­gral part of the NatWest offer, she says.

“We’re very con­scious of the need to offer a whole con­tin­u­um of ser­vices to cus­tomers with very dif­fer­ent atti­tudes to dig­i­tal bank­ing and we have a rain­bow, or a con­tin­u­um, from branch through to dig­i­tal ser­vices, with both feed­ing cohe­sive­ly into each oth­er.” 

Cora, she says, “will become a gen­uine­ly trust­ed friend” over time, but for now, “humans need humans.” The bank has 15,000 video bank­ing calls every week, includ­ing on-demand con­ver­sa­tions for when it’s urgent.

Although the need to rebuild trust is a key focus for the bank­ing com­mu­ni­ty, Turn­er believes dig­i­tal con­fi­dence is a more press­ing issue.

“While more work needs to be done as regards trust, I think the prob­lem is more to do with lack of ease with using inter­net bank­ing and mak­ing peo­ple more com­fort­able using dig­i­tal is some­thing I can very much help peo­ple with,” he says.

His chal­lenge is to ensure that dig­i­tal bank­ing is as sim­ple and user-friend­ly as pos­si­ble, Turn­er adds. This all starts with good data, includ­ing data on behav­iour across dif­fer­ent plat­forms. How­ev­er, “the only real val­ue data has is in help­ing us improve our cus­tomer ser­vice.”

Fintech catch-up

The big banks have had many suc­cess­es in mod­ernising their offer. How­ev­er, they have much work to do to deliv­er the lev­el of ser­vice and val­ue for mon­ey offered by their dig­i­tal-only com­peti­tors and are still play­ing catch-up with fin­tech firms, says Wright. 

“Although they will weath­er the storm because they’re big and old, they need to accept that they no longer set the cus­tomer expe­ri­ence bench­mark because that posi­tion is reserved for the likes of Net­flix or Uber,” he says.

If he was advis­ing a big bank today, Wright would tell them to pay more atten­tion to secu­ri­ty pro­ce­dures, par­tic­u­lar­ly for cus­tomers who log on via their com­put­ers. The sheer num­ber of pass­codes and PINs involved often con­tra­dict claims around speed and acces­si­bil­i­ty.

“I’d also advise them to make their offer sim­ple, afford­able and con­ve­nient and resist the urge to cross-sell,” he says. “That’s how you build trust.”

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