By Mike Orlic is Vice President, TTEC EMEA.
The banking sector has experienced one wave of disruption after another for at least thirty years. When First Direct launched in 1989, it was suddenly possible to engage with your bank anytime – and any day. Nationwide and Royal Bank of Scotland launched their internet banking services in 1997. The co-op launched its Smile brand in 1999, which was the first digital-only bank in the UK.
Since these innovations, there has also been a sea change in the way customers interact with their bank. Applications are now quite normal for most customers and branch networks are reduced. Who would have imagined, back when branches were first challenged by internet banking, that customers would now be chatting with Barclays Bank on Instagram?
Throughout this period of rapid change and evolution, there has been an adjustment in the relationship between the customer and the bank. Ask anyone who remembers banking in the 70s and 80s about their loan application experience and the stories sound like a student being called in front of the principal. Ease of access to banking services has also changed the nature of the customer relationship.
But most banking services have remained essentially the same. A current account offering an online statement, rather than a monthly ream of paper sent by post, is still a current account. Most retail banking services have remained similar to services offered before the advent of the Internet.
The most recent evolution of the banking sector has been largely driven by financial technology (fintech). Some innovative companies, such as Zopa, explored new banking models as early as 2005, but Apple and Google only introduced the App Store concept in 2008, which was the catalyst for faster innovation.
Applications are cheap and easy to develop. Once an app is released in the Apple and Google stores, it has the potential to be available worldwide. This is a hugely important development for many industries beyond just financial services. Anyone with a great idea for a service can launch an app and gain access to a potentially large number of customers. Instagram had just 13 employees when it was acquired by Facebook for $1 billion a decade ago. The “Wordle” pun wasn’t released until October 2021, but it’s already been picked up by The New York Times for “a seven-figure sum.”
Apps have allowed financial services firms to specialize. Instead of going to your current account provider to arrange foreign exchange transactions, you can use Transferwise (now Wise) and get better, faster service at lower rates. Services such as foreign exchange or personal loans could be detached from the usual suite of banking services and offered by new companies. They didn’t have the history or reputation of the big banks, but as long as they were regulated, they were trusted – and they thrived.
These waves of digital transformation continue. Open banking now creates many new services and opportunities that go far beyond the focus on loans or accounts that persisted when retail banks originally went online. Open banking in the UK is now just over four years old and a rapidly growing industry. Many customers now understand that banking can actually be a platform on which many other services can exist – banking as a service.
Here are some examples of how some open banking apps are reinventing the way people can interact with their money:
- Wagestream: allow employers to “distribute” smaller and more frequent amounts of money to employees. Rather than a monthly salary, employees can choose to be paid as they earn – weekly or even daily.
- Piggy bank: rounds up all your debit purchases to the nearest pound and adds the change to a savings account so you’re constantly saving without realizing it. For example, if you buy a coffee for £2.40, 60p will be transferred instantly to your savings account.
- canopy: helps tenants ensure that their rent payment is recorded on their credit score, whether or not their landlord reports the transactions. This can help tenants build a better credit history.
- Kalgera: Share your financial activity with family members (amounts rather than exact details) so you can monitor transactions for possible fraud. This can be useful for adult children to monitor elderly parents – there is no need to identify exact details as the system highlights suspicious activity.
- Mojo: helps clients secure a mortgage from over 90 lenders and uses your real financial data to prepare an application – even advising you if you’re ready to apply with each lender.
Clearly, open banking allows for a much richer level of customer engagement than just basic banking services. Services like Kalgera offer financial protection, especially to people who are still independent but could be entering a period when degenerative diseases become a problem. Mojo helps guide individuals toward the goal of getting a mortgage by showing who will be ready to lend and on what lending criteria.
The level of innovation and customer focus displayed by all of these services goes far beyond what was traditionally provided by retail banks. The combination of traditional accounts, loans and these connected services, using open banking, is really starting to offer a new financial environment that can be summed up as banking as a service.
I think the next steps will be around cryptocurrencies and the metaverse. Many of us will soon be working and socializing in virtual environments that are an extension of what we can already see in games like Fortnite. Transactions are already promoted in many of these environments – for virtual homes, offices and even clothing.
For now, the metaverse is still focused only on early adopters. It may take most of this decade for the public to really buy into greater virtual experiences, but the banking industry needs to look ahead. Open bank transfer in the metaverse and what kind of banking services will be needed in a virtual environment? Can I buy a virtual house with an actual mortgage and who regulates these transactions?
Banking as a service has a long way to go, but today the focus is already on the customer, not the bank, and this is already a very positive change from the past.
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