For decades, banks have set the pace for financial innovation in all its forms leaving customers precious little choice when choosing credit products, payments options or accounts. Today, the rise of challenger banks and the steady stream of fintechs entering the market means those same customers are now spoiled for choice, and their expectations of what banks and financial institutions (FIs) can do for them have been irreversibly raised.
The massive uptick in eCommerce and online retailing that resulted from the pandemic lockdowns of 2020-21 led to a sea change in banking customer experience, as discovering and engaging with new banking products became easier than ever before. The smaller and much more agile players in the financial services landscape – the startups, fintechs and challenger banks – ate up market share and staked their claim in the space, with digital challengers now holding around an 8% share of personal current accounts.
This shift in the market landscape was accelerated even further by the implementation of PSD2 in 2018, where open banking has increased the interconnectivity of financial technologies and led to easier, more seamless banking experiences for all. Today, customers can find financial products everywhere – even embedded in the platforms of non-financial businesses like retailers and service companies.
This sudden and dramatic transformation was a rude awakening for established banks, who had remained unchallenged for so long. Now, the onus lies with them to step up. The days of being deaf to their customer’s needs and expectations are gone, and they must learn to match the speed and care shown by their smaller counterparts or risk losing the throne.
Time for reaction
To uncover the attitudes of long-standing banks and FIs, Yobota has conducted a survey of more than 250 senior decision-makers at UK-based banks and FS firms. Our research showed that banks are, in fact, taking steps to be more attuned to their clients’ needs, are expanding into new areas and demographics, and are learning to respond at speed to fast-changing expectations.
The overwhelming majority of respondents (80%) are regularly seeking feedback from customers on how best to improve their offering, with 71% using that feedback to develop new products that will satisfy their demands.
77% of those surveyed have already begun engaging new customer segments over the past 12 months alone, showing their willingness to fight and reclaim lost ground. These figures show a clear and concerted effort by UK banks and FIs to adapt to the changing landscape and re-establish themselves as the first and most-trusted choice for individuals.
The key, however, to emerging as the frontrunner in the banking arms race is not to simply keep pace with the competition. Banks have the superior resources, far greater experience and industry insight, and all the tools necessary to lead the charge. The key is not just to react to changes in the market, but to pre-empt them, and be the first to adapt to the ‘next big thing’ when it happens. Judging by the rate of change in recent years, that likely will not be long.
In front of the pack
The key to success in the fast-moving, transformative world of today’s financial services is adaptability. Customer demand is a vital yardstick for measuring the prevailing winds of change, but even as banks are beginning to pay more and more attention to what their clients are telling them, if they lack the means of responding to their demands then their feedback will ultimately be wasted.
83% of those surveyed said that they were confident in their business’ ability to meet the evolving need of their customer base. 29% of respondents to our survey stated that speeding up the application and decisioning process was among their top priorities, while 23% prioritised enhancing the online customer experience.
The systems and protocols that banks have in place for adopting new policies and delivering new products must be able to handle the pressure of shifting expectations. In the case of recent, popular products like Buy Now, Pay Later (BNPL), banks should have had the advantage given their access to licensing and knowledge of compliance. What held them back, however, was legacy tech – the agility and adaptability of challengers allowed them to outmanoeuvre their larger counterparts and come out on top.
In the end, size and experience will not be enough to keep banks one step ahead of their challengers. As innovation within financial services continues to accelerate, those who are able to continually meet customer demand and keep their clients satisfied will be the ones who are more versatile and fastest to react.
A new way of doing things
Banks and FIs are clearly feeling the pressure mounting from the competition, as 64% of respondents had seen more unregulated businesses begin to offer financial products as a result of the Banking-as-a-Service (BaaS) and embedded finance trends. 72% had even begun working with third-party technology vendors like BaaS providers to launch new products and services.
If banks are committed to anticipating and fulfilling customer expectations, they must implement the necessary infrastructure to create the customised, novel products that are in demand. Banks should look at BaaS providers as a model for versatility and efficiency in delivering new products – their modular, API-powered platforms can easily handle any manner of new financial services without long development times or delays, while creating products that remain future proof and less at risk of obsolescence.
While customer feedback is vital for charting a path to future success, it is banks’ underlying technology (or access to it) that will determine which players will go on to rule the market. With the right platforms, they can be as nimble and responsive as the most agile challenger, and be able to deliver products that will delight customers and silence the competition.
From launching his financial career at Deutsche Bank, Ion spent a number of years consulting in the equity capital markets space and leading sales growth for FTSE500 company Fiserv and core banking provider Thought Machine. He joined Yobota in 2021 to launch its commercial operation, leading GTM strategy and building a diverse and multi-faceted team to take the company to the next stage of growth.
Ion Fratiloiu is Head of Sales, Yobota