Research by Intelligent Environments suggests that these new services will be a hit with UK banking customers, with one in eight planning to switch their current account to a digital-only provider this year.
The figure reflects a dramatic change in customers’ relationships with their banks, as more people than ever manage their money digitally. According to the research, 81% of Britons prefer managing their money via digital channels than through any other method.
This shift in preference has been highlighted in the UK by the acceleration of bank branch closures. For example, Lloyds recently announced plans to reduce its network by 150 by 2017, citing a sharp increase in digital and mobile banking usage as the cause.
It therefore comes as no surprise that challenger – or digital-only – banks are appearing on the horizon. These entirely branch-free banks focus purely on digital services. Several providers, such as ATOM and Fidor, plan to launch in the UK this year and the research shows strong initial interest from UK banking customers. This is certainly down to the fact these providers are capitalising on changing customer preferences and a hunger for improved digital processes.
Anthony Thomson, the founder and former chairman of Metro Bank which launched in the UK in 2010, is moving over to head ATOM. His aim is for it to be “number one for customer service and satisfaction” and he has pledged that it will “offer exceptional front-end service plugged into a state-of-the-art back end platform.”
The research confirms that people believe these new providers will indeed offer superior services, with 31% believing their digital services will surpass those of traditional providers. This, combined with lower operating and efficiency costs naturally incurred by not having any branches, puts digital-only banks in a competitive position.
Opportunity Lies in Change
So what does this mean for traditional financial services providers, and in particular the future of the branch services they provide?
As new players take advantage of the growing popularity of digital, traditional providers also need to adapt. However, digital-only banks need not spell the end for the branch or for traditional providers.
Various studies have shown that branches still remain a critical part of the banking relationship for many customers, especially for application and advisory purposes. The research still reveals continuing dependence on branch services. More than half (52%) of UK banking customers don’t like the idea of being unable to speak to someone in person if they have a problem, and 44% say they won’t switch to a digital-only bank, as branch services are important to them.
There is now a huge opportunity for banks to merge the offline and online experience by bringing digital in-branch.
Banks are already using software robots to automate time-consuming and expensive manual office processes. They now need to explore how technology can improve and innovate the services they offer to customers in branch.
Some UK banks have already begun experimenting with this. For example, Barclays has installed iPads in branches, allowing customers to open up an account in three minutes – compared with 60 minutes via conventional methods. It also recently introduced printing services for card replacements, enabling customers to instantly replace their cards in- branch, rather than wait for one in the post.
Digital also has the potential to provide specialist services, previously not available. For example, Nationwide Building Society has introduced video conference technology in branches to deliver specialist face-to-face advice on mortgages. Customers at their Oban branch in Argyll previously had two options if they wanted to see a mortgage consultant: arrange an appointment over the phone with the Dumbarton branch or undertake the 200-mile round-trip to have a meeting in person.
Traditional providers are at a crucial point in their history. They now need to seize the opportunity that the imminent launch of digital-only services provides. It is now the perfect time for banks to explore how digital technology can complement and enhance the branch experience. By doing so, providers can drive branch banking forward and create an effective, multichannel service for customers, putting themselves in a strong position to compete with newer entrants to the market.
While many still think the banking sector is characterised by legacy systems and lack of innovation, this could not be further from the truth. 2018 marks the year when a multitude of external factors will shake up the industry once and for all and reinvent the way people bank. Inevitably, this presents a threat, but also an opportunity.
The global economy has seen about eight years of growth, but we are starting to see the end of this which is triggering some volatility in global markets, Stefan Bielmeier, DZ Bank, argued in his keynote speech at the Bellin annual 1TC conference. Other speakers discussed blockchain, cyber crime and netting.
A series of governments are now very worried about the idea of bitcoin and these currencies because customers would be able to make sustainable ongoing transactions and payments without having to ever introduce the use of a typical financial model or banking system. To combat this potential threat, several countries including major central banks like the Bank of England and the Bank of Israel will be launching their own version of a cryptocurrency. This could bring big advantages to customers.
When it comes to the relationship between Europe and Britain – uniformity isn’t a word that currently springs to mind. And that’s not just a reference to Brexit. Whilst the Europe and Britain do find themselves in the midst of a political break-up – their monetary policies are also showing signs of divergence.