Wake-up call to High Street banks

Some interesting new research from uSwitch, which you can find here.

In a nutshell, disgruntled Brits have a strong appetite for alternatives to traditional banks, meaning that online and High Street favourites like Amazon and John Lewis could find success if they moved into banking.

I guess it shouldn't come as too much of a surprise seeing how 2012 has turned into an annus horribilis for the banking sector. Nonetheless, this research really emphasises the strength of feeling among consumers. In their eyes, the traditional players have behaved badly and been complacent for far too long. The past few months have seen moves from the likes of Marks and Spencer into this area. It'll be fascinating to see who else follows in their footsteps. Amazon? They've established themselves as an innovator in the mobile banking and payment space, so why not take that next step?

Public finally warming to contactless?

As part of its contactless push, Barclaycard has asked behavioural psychologist Donna Dawson to explain the public's conservatism when it comes to new technologies and its fondness for cash. “There are connected issues at work – habit and fear. We’ve been using coins since 600BC, which is a tough habit to break. Because of this, different ways to pay have the shock of the ‘new’, and if we have no experience of something, we fear it. Increased recognition leads to a significant trend developing, and represents the breakthrough of a psychological barrier. So the fact that we’re witnessing this with a technology which is only five years old compared to centuries of cash is remarkable," she says.

Good point about cash, but given the considerable time and resources put into hyping and selling contactless, is the progress made thus far remarkable? This week Barclaycard announced that there are now over one million contactless transactions a month taking place. The company also issued research demonstrating that consumers are increasingly being won around. Populus polled 2,026 UK adults on behalf of Barclaycard during early August. Over 80 per cent of those surveyed – almost double the figure from a year ago – were able to identify the contactless symbol, with people in London and the North West the quickest to adopt this way of paying. Sixty one per cent said they preferred using cards over cash to buy items up to £20.

If I were writing a school report, I wouldn't put remarkable. Perhaps: Good but must do better. B-.

What the end to “free” current accounts could mean for the future of retail banking in the UK

Guest blog post by Rachel Nash, NCR's director of financial services for the UK, Ireland and the Nordics

Banks could be forced by the regulator to introduce charges for basic current accounts according to recent media reports. The move would aim at ending the practice of subsidising “free” banking for those in credit through overdraft charges for those who are not, in addition to fees for withdrawing and spending cash abroad and low interest rates on current account balances. Already we’ve seen customer attrition rates surge in the UK from 16 per cent in 2010 to 35 per cent in 2011 and to 41 per cent in 2012, according to the latest survey by Ernst & Young. Some 48 per cent of Britons switched accounts due to high fees. This trend is likely to continue in light of ongoing competitive and regulatory pressures.

Next year consumers will start to receive an annual statement explaining the interest they’ve missed out in their current accounts by not moving it into a higher interest savings product, putting into force recommendations by the UK government’s Independent Commission on Banking. With increased levels of transparency, consumers will be better empowered to make choices about what sort of banking services will meet their needs.

Banks are responding by looking for new ways to boost service and sales levels. Significantly, over a third of Britons (35 per cent) questioned by Ernst & Young cited a poor branch experience as the main reason for changing accounts. This underlines the need to reinvent a new role for their branches in terms of their location, opening hours, staffing strategy and the availability of self-service touchpoints to improve the overall experience of a visit. Branches are still critical to rebuilding trust, putting a human face to a bank’s brand and remain the single most popular channel for consumers to make purchasing decisions. 

Banks are looking to improve the availability specialist staff, trained for the sale of mortgages, pensions or investments. Online appointment schedulers enable consumers to see the real-time availability of advisors across multiple locations and make instant appointments. One major North American bank using online appointment scheduling has found that wait times have been halved and product sales increase by 25 per cent. Video conferencing could also be used to enable advisors in contact centres to serve consumers in multiple locations.

Consumers want the flexibility to shape their relationship with their bank – interacting with them whenever and however they choose. Banks need to move towards a fully integrated banking experience that combines the advantages of physical branches and in-person interactions with information-rich mobile and online channels to make it easier for consumers to manage their money. This will help banks meet consumer demand for great value products and a great banking experience too.

Alternative payments and new players – what’s next for the payments industry?

Guest blog post by Philippe Eschenmoser, head of business consulting, SIX Payment Services

The payments industry is undergoing a period of overwhelming change, both in technological terms, but also with regards to increased regulation. Furthermore, a growing number of new entrants are threatening the status quo by looking to capitalise on this changing landscape. This has been recently highlighted by what seems like daily announcements of new funding rounds for payment start-ups, such as Stripe, which recently closed a $20 million funding round. Naturally, this has led many to question what these developments mean for the traditional payment players – what chance do the new market entrants have of dominating this market and should our mainstream financial service providers be concerned?

The current drivers of this trend are complex, but ultimately can be broken down into three categories: the financial crisis, regulation and technology. As well as preoccupying banks’ agendas, the financial crisis has eroded public confidence in the traditional players, which in turn has opened the floodgates for new and innovative start-ups to take advantage. The entrance of new payments players has been further facilitated by ever increasing regulatory initiatives such as the Payment Services Directive. Combine this with the significant advances made in technology and the ubiquity of internet and mobile, and it is unsurprising that we are experiencing this state of flux within the payments space. 

Yet, despite these threats, the traditional players still have it all to play for. For one thing, the payments business is essential to banks from a revenue point of view and has become more so since the financial crisis, which has made other previously lucrative revenue streams unviable. At a time when falling interchange fees and customer loyalty is impacting on banks’ profits, financial institutions should be capitalising on technological advances to offer alternative payments as a value-add service. This could increase customer loyalty, brand awareness and provide a boost to revenues.

As consumer interaction decreases, with branch visits on the decline, the transaction business and the ATM withdrawals remain one of the few modes of communication with customers. Therefore, the behavioural insight banks can gather from payments can create opportunities to up-sell and cross-sell. In addition, this market data is crucial from a regulatory perspective just as much as it is for the bottomline. There are huge regulatory demands on banks to harness this data to treat customer fairly, both for UK and European banks, so why not use this opportunity to comply with legislation to also improve margins?

This is an incredibly exciting time for payments – but that does not mean the end of the road for traditional players. Banks should be attentive to the trends, keep an eye on them, but not be a slave to them. The ball remains firmly in the banks’ court – now it’s up to them to decide how they want to play the game.

FStech July/August digital edition

The digital version of our July/August issue is now available, including a datacentres supplement and features on green IT, outsourcing and CRM technologies, plus my musings on contactless cards and the recent RBS IT meltdown.

Our interactive digital format allows readers to easily search, browse and navigate news, features, articles, commentary and adverts. All content is hyperlinked for a richer online experience, which now also includes user-friendly viewing on smartphones and tablet devices.

You can read the July/August issue by clicking here.

Any comments/feedback greatly appreciated.