When Apple Pay launched in the USA in October 2014, more than a million credit cards were registered in the first three days. In the first six months after Apple Pay went live in the UK, more than 3.2 million journeys were made on the London transport network, originating from almost 200,000 smart phones. By January 2016, that had grown to almost a whole one per cent of all pay-as-you-go journeys.
If you were a traditional bank, might you be wondering why the emergence of digital alternatives to traditional banking are proving so compelling to today’s consumer? And what conventional-style banking ought to be doing in order to stay in the game?
Understanding the Consumer
The world of banking will never be the same now that technology companies have started moving in to provide transactional services; simplifying and speeding up the transfer of money or offering alternative payment methods for goods and services. That doesn’t necessarily mean they will take over the market, but they are changing the perceptions of banking and commerce along the way.
But, why are these newer entrants and large technology companies succeeding? First, it comes down to brand experience. Consumers are used to enjoying seamless and stimulating interactions with brands like Amazon, AirBnB, Uber, Apple, and so on. If they don’t get the same experience in dealing with their bank and credit union, they will embrace the alternatives available. Amazon Payments, Google Wallet and Apple Pay are just some of the options, with the great advantage of being strong, trusted brands. These are relatively young businesses, 100% digital, built around the consumer, and with a thoroughly modern understanding of today’s marketplace.
So it’s no wonder that consumers are increasingly persuaded to bypass their legacy banking organizations, with physical facilities and traditional ways of transacting, in favor of using new digital technology firms for certain financial transactions.
The Most Important Focus
The traditional banks are certainly concerned about this gradual erosion of their industry by technology companies and alternatives. They recognize it’s hard for them to change quickly, hampered as they are by legacy systems and processes. But they can also see that the threat is more than just “being digital”.
It is all about the consumer.
Many of the technology companies competing for a slice of banking services begin by putting the customer at the heart of what they do. They can because most of them were born in the digital age and have been able to structure their businesses around their customers. It is harder for traditional banks, built as they are around analogue systems and processes. Of course, they still require new technology to remain relevant to consumers in the digital age, but the single most important thing a traditional bank can embrace and develop is this vital customer focus with a mind on the brand experience.
Metro Bank, the first new high street bank to enter the UK market for a century, opened its first branch in 2010 with a brief driven by brand values, service and convenience. It opens seven days a week, 12 hours a day and says you can get an account in 15 minutes. There’s certainly something to be learned from this.
But new physical entrants are not the real threat. The big disruptors are the technology alternatives because they offer a service that is so quick and simple – and so vastly superior in brand experience.
Digital Brand Experience in Action
Several retailing and commerce sites offer the option to use Amazon Payments. Like PayPal, you simply log in to an Amazon account direct from the retailer’s site. No need to find a credit card and type in the numbers – it is all done with an impressively fast and hassle free experience.
Google Wallet offers a similar service, enabling users to send money via an app or the web if you are in the USA, or Gmail in the UK. You can also buy goods in-store or online using a physical Google Wallet Card in the USA. It’s all about making it simple to manage your money.
One click on the payment icon and you’re asked to add a debit card. Once verified and set up, about two minutes later, you can send money to anyone you choose, even if they don’t have a Gmail account. It’s just as easy as logging on to a bank app or website – more convenient in fact, as you’re often logged into Gmail anyway.
Once a consumer has tried some of these alternative payment and money management options, many will much rather use them than interact directly with their bank. And here’s the crunch. When a consumer uses an alternative payment method, they’re not interacting with their bank or engaging with its brand. If a consumer pays via Apple Pay, Amazon Payments, Gmail or PayPal, the relationship is with these firms and the banking relationship is in the background. And that is bad for banks because ‘brand’ is so utterly critical to the relationship with the customer.
What can traditional banks do to counter this erosion of their business? How can they build loyalty with customers and make them genuinely happy to do business with them? Here, at least, are the basics of where to start.
- Build customer trust. Investigate why people trust Amazon, Google and PayPal more than they trust your organization. But note also how some financial institutions, notably Fidor (in Germany), First Direct in (in the UK), Simple and Moven in the US enjoy trust among their highly engaged customers, because they are perceived as being open and honest. Study them.
- Listen to customers. Engage in conversation with them and facilitate community feedback. Ask customers what products and services they want.
- Make it easy. Customers want quick, simple and easy financial transactions. Understand the customer journey and find ways to simplify it.
- Study the major internet businesses. Learn from what they are doing. Partner with businesses that can offer technology that will take too long to build internally yourself.
- Be clear why you exist. Clarify your brand values and educate internal teams about how they should interact with customers in order to build your brand and reputation. Aim to provide an overall customer experience.