The ‘Utility App’ Trap and How Digital Banks Can Escape It
By Pete Champion, Co-Founder of I-AM
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Executive Summary
- Once the darlings of the industry, the neobank pioneers of digital banking are now struggling to extend those early wins into long-term growth.
- If they fail to move their customers up the value chain into more advanced financial services, they risk become nothing more than bland utilities in their customers’ eyes.
- Future growth will require them to adopt and further reinvent some longstanding practices of their traditional brethren, including community engagement.
The Financial Times recently reported on Monzo’s customers not being ready to break up with their other banks, highlighting the fact that while Monzo continues to grow — it recently passed the 12 million customer mark — too many of those customers use Monzo solely for day-to-day banking while sticking with other banks for their more involved banking needs.
Monzo isn’t the only neobank to struggle with this. Once the rising stars of the finance world, they’ve stagnated in recent years when it comes to moving customers up the value chain.
It’s because their users, Millennials in particular, are reaching stages in life that bring challenges requiring complex financial solutions like mortgages, pensions, and investments, and, like their parents and grandparents before them, they want to sit down and talk to a friendly, knowledgeable person about it. They don’t want to discuss their future with a bot.
Growing up with the Millennials
We experience banks primarily as basic transactions. This makes it hard for banks not to be seen as a functional means to an end at best, a necessary evil at worst. In this shallower context they are just a utility, and utility ‘brands’ struggle to connect emotionally with customers. Who really wants a relationship with their water or energy company?
Admittedly, neobanks like Monzo look good. Their slinky design combines with an appealing simplicity and the lure of the new digital alternative to make them undeniably cool and is why so many younger digital natives sign up. But there’s a limit: Many customers aren’t ready to commit more deeply to that colourful brand in their Apple or Google wallet. And deeper banking is where all the latent value is.
To return to growth, these players need to find a way to grow up alongside, and become trusted by, their customers. The answer is in evolving the complete brand experience to engender deeper, long-term relationships. If we’re going to trust them with our deeper life and money needs, financial brands need to connect with us. In many senses.
The key lies in coming out of the other side of the digital transition, and rediscovering the power of people in places.
Learn more:
- AI Search Is Scoring Bank Reputation. If You’re Under 4.2 Stars, Trouble is Brewing
- Youth Accounts Map a Promising Path Forward for Banking Providers
- How Personalized Financial Services Can Bridge the Generational Divide
Be Present: Banking in the Community
Perhaps banks need spaces, not branches.
We were recently conducting one-to-one interviews with branch teams in Switzerland and the manager of a branch said that once cash has been made obsolete by digital all he will need is a great place to meet clients, and it could be anywhere.
On the same trip, we stayed at Citizen M Hotel in Zurich. Its facilities and feel are exactly what a future bank will need: lounge space, meeting rooms, style, comfort and hospitality. There’s technology there, but it’s to support the human touch, not replace it.
Banks could also invest, be present in, and even provide community facilities much needed by local residents, from sport facilities to wellness centers and community hubs. They could do this with interesting relevant partner organizations.
This life-led™ approach would not only transform banking; it would also bring support to communities that need it.
The potential here is vast. Imagine SoFi as a seamless, useful part of the immersive atmosphere on the seafront in South Beach. Think about what Chime could do with a summer experience in the heart of the Hamptons.
Such ‘residencies’ would stand out from the pack, start conversations with new customers and balance an online offering in a positive way. Rather than being pop-ups in the expected sense, these would be short-term residencies of perhaps three months, testing the water in a new location and forging unexpected new customer connections.
It Begins With a Conversation
Whether its new style activated branches that have a redefined purpose and social draw, or a neobank hosting a summer residence by the sea, or something else, there are many ways neobanks can forge that emotional connection with their customers.
The opportunity is to get beyond the screen of the shallow, day-to-day money basics, to the deeper potential life-value of what might be below the surface.
The first, essential step towards achieving this is to understand the complete picture of their customers’ lives. Get a picture of the issues they need to address and opportunities they want to explore. To some extent you can do this with demographics: a younger audience will be more interested in saving enough that they can get a dog, or getting a mortgage to buy their first house, than they will be in pensions. But to truly understand it you have to talk to them.
The most successful banking brands of the coming years will understand not just the ‘voice of the customer’, but also ‘the life of the customer’. It will allow them to create truly ‘People Inspired Experiences’™ so that, regardless of whether it’s on screen or in person, they’ll connect emotionally with their customers.
