This post is the first in a series of blogs describing the impact Mobile technologies are having across various industry sectors. If you’re a player in the Financial Services sector, we would love to grab a cup of tea and discuss how we can help you stay ahead of the curve!
Lower regulatory barriers for new entrants
Over the last decade UK regulators have decided to lower barriers to entry and increase competition in the Financial Services industry. The aim has been to promote greater competition and greater availability of consumer credit in a sector dominated by only four major banks since the government bailouts of 2008.
The results are now visible: The Financial Conduct Authority and the Prudential Regulation Authority have recently approved multiple digital startups for licenses.
Established banks use digital channels but this does not result in lower prices for digital-only customers
Established consumer banks have made good progress towards providing multichannel customer experiences, raising their game in the web and mobile channels. 84% of UK consumers now use online / mobile banking and, as a result, branch traffic is in sharp decline – as shown by HSBC’s 30% drop in branch footfall since 2009.
One would expect this shift towards digital servicing to generate significant cost savings for consumer banks, which, in turn, could be passed on to customers. In reality, research shows that established consumer banks have failed to offer attractive pricing to digital-only customers.
Behold a new breed of digital-only banks
4 digital UK start-ups are leading the charge to create new pricing models: Atom, Mondo, Starling and Tandem. Every single one of these “digital banks” wants to offer UK consumers a better deal than they are currently getting from established banks - with full market launch expected this year.
Their Mobile-first and digital-only strategy means they have a very light cost structure compared to existing banking behemoths. They can turn this into a pricing advantage. They have no physical branches on the high street (so they can save on rental and staffing costs) and no legacy IT systems (so they eliminate maintenance costs and integration headaches with newer IT systems).
That’s all good… but how will these four players differentiate themselves, beyond cheaper services? What “secret sauce” are they counting on to attract and retain customers?
According to Harvard Professor John Gourville, for new entrants to stand a chance against existing incumbents their new products can’t just be better. As a rule of thumb they need to be 9x better! Why such a high bar? “Because old habits die hard and new products or services need to offer dramatic improvements to shake users out of old routines.”
We happen to agree with John.
So how are digital banks hoping to offer 9x better banking experiences? Let’s have a look:
● Starling and Mondo are investing in new core IT infrastructure, unlike Atom and Tandem who are re-using existing backend. In the words of Mondo’s founder, Tom Blomfield: “If you want to deliver 21st century user experiences, you need to own the stack. If you were to ask Google or Facebook if they could have delivered on a generic backend and built a nice front end they would have laughed.”
● Gamification: Atom is leveraging the Unity gaming platform to deliver a “completely new banking experience”. Unity is the game engine commercialised by Unity Technologies and used to develop video games for PC, consoles, mobile devices and websites.
● Machine learning / AI: Atom says it will be using machine learning technology to power a self-service customer service chatbot of sorts. While Mondo is planning to leverage AI to better predict banking and spending habits to empower users.
● Money management coaching: The Starling app will let users create insightful infographics to visualise their own financial data, and will offer alerts to help them avoid unwanted fees. Tandem is taking to market a proactive approach to money management – helping customers make their money go further. This will come in the form of notifications if you miss a payment or approach your overdraft.
Meanwhile, Mondo will empower its users with real-time breakdown of their spending habits and integrations with online financial investment advisors Nutmeg.
● Biometric login: Starling and Atom will use face and voice biometrics to log-in to the app, eliminating the need for pin codes and passwords.
So what does this all mean?
These are exciting times. We are about to witness Mobile transform one of the oldest and most change-averse industries in the world - consumer banking. And other Financial Services sectors will soon follow suit: pension plans, life insurance, etc...
Chelsea Apps Factory is proud to be part of this change, working with a diverse range of ambitious Financial Services companies each striving to achieve digital leadership in their respective sectors.