What disruptive banking might really look like...  

So far, not much disruption...

 There is much talk about disruption and challenger banks. But there is currently little evidence of anything disruptive in the pipeline.

Obviously, most haven’t even got their banking licenses yet and haven’t launched, hence it is hard to provide a final opinion on the matter. And by its very nature disruption tends to take industries by surprise.

 But judging challenger banks by what they promise to offer and solely on publicly available information, none bar one, promises anything that qualifies as being disruptive proposition-wise. None seem to plan to offer anything truly different from what existing banks provide.

For most, based on their current PR, positioning and promises, they  sound very similar to what established banks are doing or are in the process of doing.

Why does being disruptive matter for challenger banks?

Being faster to launch the features that the incumbents are working on will enable challengers to capture some limited market share. In all likelihood very niche but they will quickly experience fast rising customer acquisition costs. 

The incumbents will in turn accelerate the delivery of the features seen as in demand in the market. Hence will be able to compete, in a fast follower fashion and they are in a position of strength to do so, having the brand, capital and resources necessary.

Disruption is all about the creation of asymmetric competition, that is when it becomes very hard for an incumbent to respond to the threat posed by the challenger. Hence without disruption the challenger banks won't be able to challenge much. They won't change the banking landscape. That doesn't mean that none will manage to establish a respectable niche market.

Let's not forget that the challengers will start with an inferior digital product offering. They might have some new functionalities, but they won't be able from day one to provide the range of services online, via telephony or face to face that incumbents already provide today and that customers are used to.

Unless challengers can reinvent what the banking experience is, they have little chance of disrupting the established banks

 Let’s start with a few truths:

• Most established banks do provide a pretty good digital banking service.
• Customers are satisfied by the online and mobile offering from the likes of Lloyds and Barclays to mention only a few.
• Not all banks are getting it right (e.g. First Direct to just name one), but for most the service meets customer expectations.

This is demonstrated by NPS scores, app store ratings, comments and customer testing.

So unless a challenger bank demonstrates that they can do much more than what is provided today. It’s going to be an uphill battle for them to acquire customers.

Obviously, incumbents shouldn’t be complacent, and those that are not delivering a good digital service will lose some market share. But don’t expect any substantial changes in the banking landscape if challengers cannot reinvent what banking is about. And so far, no challenger (actually maybe one) offers a credible vision as to how they might reinvent the banking experience.

Let’s look at some areas of user experience that are being explored

Digital on-boarding:

 On-boarding is an area where more has to be done. And new banks have an opportunity to provide a great on-boarding experience since they are not encumbered with a lot of legacy systems and processes.

But this won't provide them with a sustainable differentiator.  Big banks are catching up, and will provide a super easy way to sign up for a bank account online, a loan and whatever else. In most cases they have already made massive strides in this direction.  

Financial health? Sorry I don't mean PFM...

Financial Health is a big theme at the moment. The challenge is how to help customers become better off by using digital means. Please no PFM. No meaningless graphs, no manual categorisation to help customers stay on top of their finances.

That has been tried before, and it doesn't work. People are time poor. They won't invest time and energy in categorising their expenses. If you do that for them automatically, that's a plus. But still the need is not addressed if you provide some fancy and ultimately useless graphs.

The key question is so what? What is the material difference that the use of data (for instance) will make in customer lives? 

Financial health done successfully, an example:

Deep customer insights + Data Analysis+ interaction with 3rd party services + APIs = automatic TFL refunds application.

 One proposition that caught my eye is the promise to automatically apply for TFL refunds for incomplete journeys, as Mondo claims to be able to offer. I have no idea if that's true or just PR.  But if they can deliver that, that's genius! That is disruptive. It goes beyond just banking. It makes customers better and re-positions the nature of the banking relationship from a customer perspective.

To achieve that, you need a few things, and none of this is hard tech, the tech is actually pretty easy.

1) Analytics:

That’s actually pretty easy, and most banking providers should be able to do that today. Identify specific events or patterns. In this case, being overcharged by TFL.

 2) APIs and 3rd Party interactions:

An API platform that enables you to connect to 3rd party service - in this instance something that can create an automatic TFL refund request. Again the technology is not hard. To operate there, a bank need to reassess what the boundaries of banking are. The existing banking backend, and security infrastructure is not geared to easily integrate with third party providers.

 3) A deep understanding of customer needs:

The insights that existing customers have an issue with TFL and the fact they are being overcharged, is never going to emerge from asking them about a new PFM tool, about predictive analytics, etc. It can only emerge by going deep in discussing with them.

Looking at the 3 points above, the most difficult one for an incumbent bank is likely to be 2) both from a technology perspective - because of the legacy infrastructure - and from a risk perspective - as this is not the type of services a bank usually provides. Especially as it’s not only about one 3rd party but numerous 3rd parties, in order to support various scenarios. To do that you need a different operational setup and partnership perspective. I suspect that it would take a lot of efforts internally to convince people that this is the right thing to do. 

This is just an example. I am not stating that anyone launching with only this use case supported will disrupt the established banks.

It is however a example as to how an emerging bank (and potentially an established one too) could rethink what banking is about. The ability to create such propositions fast, and launch them, could end up being disruptive and redefine what customers' expectations of banking ought to be.  

Let me know what you think.

Hakim is a consultant on digital product management, strategy,  proposition development and transformation in Fintech and retail banking. He led mobile strategy and product at Lloyds Banking Group. More recently he was in charge of digital strategy and propositions for small business at RBS. He is also CEO  @Diune, makers of Piktures, the best way to enjoy your photos on a smartphone, and founder @FrenchDigital