The calm before the storm

x Sponsored content on Research Live and in Impact magazine is editorially independent.
Find out more about advertising and sponsorship.

There is a storm on the horizon. Retail banks are on the brink of unprecedented change, fuelled by customers’ shifting expectations and developing technologies, but pushed to a tipping point by a radically reshaped regulatory environment.

Incite Marketing Planning and The App Business have carried out joint research into the implications for retail banks of impending regulatory changes; it has identified ‘at risk’ customers – and they are some of the banks’ most important clients, with significant current and future value.

For incumbent banks to remain relevant and prosperous, they must build a mobile offer with services that meet – or exceed – the outcomes these high-value, high-risk customers desire. A one-size ts-all approach won’t work any more.

Yet, on the surface, all looks calm. Recent figures from the BBA, the trade association for the banking sector, show that – even at a time of steeply declining branch visits – the overall number of interactions people have with their bank is rising – up from 2.3 to 3.5 per month since 2011. We’re using our banks more and more in the UK.

Looking at high-street banks’ annual reports shows that digital – mobile rather than web – is now our primary banking interface. Our own research has found that almost 25% of connected customers use their main bank’s mobile app daily, with around half using it at least once a week. Furthermore, of all the app categories on a smartphone, banking ones score highest when it comes to having made the biggest impact on how people do things.

But this does not mean banks’ customers actually care; our research shows almost three-quarters are neutral – or only slightly agree – when asked if they value the service from their bank, or if it is better now than in the past. 

Not great, but not really that surprising. Our expectations of service, and our digital experience, have been set across categories such as media, transport and retail; they haven’t been made in a solely banking context.

When it comes to giving customers a view of their finances, the banks’ proposition hasn’t changed fundamentally for 50 years. Today’s mobile offering is one size ts all – effectively, a shrunken web version of the original paper statement. Not very personalised at all.

What came through strongly in the research was an overwhelming sense of indifference to banks’ digital offerings. Customer-use is driven by necessity and the lack of an alternative. Our growing number of interactions are transactional and are not delivering a meaningful impact on the outcomes we seek.

This is a remarkably familiar story – the same tale of every industry before disruption hits.

Banking challengers are already emerging. The new tranche of licences for companies such as Monzo are evidence that alternatives – focused on a frictionless customer experience – are coming through.

While banks maintain their traditional hold on supply of our data, the risk of customers’ switching is relatively low – but, with open banking, that hold is weakening. The regulatory upheaval will mean more challengers will follow.

Open banking is the trigger for disruption, and refers to two pieces of financial regulation – the Competition and Market Authority’s Open Banking Remedy in the UK, and the European Union’s Payment Services Directive 2 (PSD2 ), aimed at creating more competition in financial services and improving the quality of services on offer to customers.

It means it will be possible for people to allow third parties beyond their bank to read their customer, balance and transaction data. Eventually, if they have permission, these third parties will be able to write data and make payments directly from a customer’s account.