Reaching the not-so digital natives

Published in Finance Derivative, March 2020

Banks and financial institutions are in a war against the tech giants. Garry Hamilton, our Business Development Director & Co-founder, looks at whether it's a fight they can win.

Playing catch-up

It’s 2020. There’s no denying that banks and financial institutions have found themselves in a war against the tech giants in recent years. But can they win? Can consumers ever be truly satisfied? Or will institutions in this space stick with what they know regardless of how well it is working? In the digital-first now, FS companies have moved into an uneasy but rewarding landscape. Just as with consumer goods, they find themselves in a space where they no longer innovate ahead of consumer aspiration and demand, instead finding themselves increasingly under pressure to catch up.

"To stay up to speed, FS companies need to understand the shift in consumer demand"

Understanding the real threat

The experiences consumers have with global giants such as Google, Amazon, Facebook and Apple (GAFA) define their expectations for all digital experiences. To stay up to speed, FS companies need to understand the shift in consumer demand as well as the multitude of threats to a business model that’s seen as traditional and staid. In short, they need to prepare.


The paltry, taped-together digital offerings from the incumbent financial service brands no longer stand. However, these brands still go to market with products and services defined by internal processes and limitations, giving little consideration to true service design principles or customer experience.


Thankfully this is changing, in part by credible (and incredible) upstart fintech companies, chipping away at the monoliths. At Equator, we work with several brands in this space, including Santander and Virgin Money, all of whom have realised the tides are changing. Major finance brands are no longer looking for the sharks in the water that come after all they do, instead realising that it’s a multitude of piranhas that pose the most significant threat.

Case in point: TransferWise has demonstrated that something as mundane as foreign exchange can be made fresh; Atom Bank has shown that a lean approach to savings and loans can drive solid business without being so reliant on rate, and Starling Bank has demonstrated that a serious focus on making the tech work can yield excellent results. Consumer choice for financial services has never been greater.

"Banks and financial institutions with historically loyal customers are sitting on a gold mine of data that can be turned into actionable insights."

A wealth of knowledge and data

The hidden threats that GAFA may pose on traditional finance brands are, as yet, not fully realised. Apple has already demonstrated its ambition in the US with its digital credit card offering. Amazon has Amazon Pay and shown interest in the insurance market. Facebook is out there with its (stumbling) cryptocurrency effort, and Google’s feature-creep into aggregation (and payments) indicates a genuine and poorly understood threat from some of the wealthiest and most capitalised tech companies in the world. It’s hard to imagine a reality where consumers reject financial services from these brands.


But for incumbent brands in this space, the opportunity to maintain success lies in two key areas. Firstly, data. While it’s commonly understood that this is the currency that enriches the GAFA businesses, consumers’ financial behaviours are still broadly out of reach. Banks and financial institutions with historically loyal customers are sitting on a gold mine of data that can be turned into actionable insights. Insights that could deepen loyalty, increase relevance and make historically uninteresting and stuffy institutions appear modern and relevant.


Secondly, these organisations have significant human knowledge capital. These people know how the wheels turn, how to negotiate regulation and compliance, and how to manage risk. When you look to the most successful start-ups, their success is less borne of wealth, but more of knowledge and how financial systems operate. That cannot be underestimated. Banks and financial institutions need to strive to keep their staff loyal – not just the traders with their extreme bonuses. They’re not the ones that tech businesses would come after.

"...we’ve assisted many major financial institutions take on tomorrow by helping them innovate and bring new products and services to life."

Thriving through innovation

Getting a financial service off the ground isn’t cheap, but that’s not something GAFA worry about. Instead, it’s the complexity of negotiating the regulations and marketplace. What FS brands need to watch out for is that the fintech piranhas do not become sharks – not necessarily through growth but through acquisition and consolidation. Acquiring TransferWise, Monzo or Starling Bank is still pocket change to these organisations. And they DO have the technical wherewithal to bring autonomous platforms together and make a success of it, something high street banks and insurance companies have proven incapable to see through.


To survive and thrive, financial brands should take advantage of the one thing they’re historically good at – assessing and mitigating risk, with the critical difference being that keeping it the same as it’s always been is no longer the safe option. At Equator, we’ve already seen clients, such as AXA and Lloyds, acquire or partner with fintech start-ups. There’s a real effort from the high street banks to deliver a Monzo-esque functionality to their customer base. And we see real innovation in everything from insurance to loans and savings.


But there is still a long way to go. Regulation in the UK has been reasonably balanced between control and competition since 2007. However, technology continues to outpace the law, and we need to keep the pressure on the regulators to allow for new customer engagement models, new ownership models and new ways to deliver financial products and services.


In the last few years at Equator, we’ve assisted many major financial institutions take on tomorrow by helping them innovate and bring new products and services to life. We’ve helped Virgin Money bring their innovative B banking service to life, pioneered original service design in the most mundane of places for Tesco Bank and a lot more besides. We know that there are many enthusiastic brands out there looking to take on tomorrow and bring digitally-enabled services to life. But the sector still has some growing up to do. Crucially, it needs to accept that the disruption that came after the 2007 financial crash has nothing on what is around the corner.

The Future of Finance

We’re still only really getting off the ground with the second payment services directive. Open banking is creeping in. We’ve yet to see the promised liberation of the payments sector (which should be huge), and it’s fair to say we should expect more niche disruptors to emerge, as money continues to pour into the sector. And that’s not even covering off the effect that machine learning and automation will continue to have in the industry over the coming years. If you ever dared to think finance was dull, get ready for a disruptive and exciting time.

This article was originally published in Finance Derivative, March 2020.

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