The Covid shock is far from the only challenge facing Irish banks today: with interest rates remaining at all-time lows, traditional business models have remained under pressure despite their recovery following the 2008 economic crash.
At the same time, nimble so-called ‘neo-bank’ challengers have mushroomed, offering basic current account, and increasingly investing, services while not having anything like the same cost structure as a traditional bank that offers a full roster of services, a branch network and a commitment to legacy IT infrastructure.
And yet, despite the weight that traditional banks must carry they, and are, competing with new offerings, including by rethinking the way they interact with customers.
Brian Herron, founder and director at user-experience (UX) specialist Each&Other said that the key to success began with awareness of the challenge.
There are two distinct mentalities at play. The first is fear; the second is ‘don’t worry, they don’t offer a full service’. However, I think [alongside that mentality] they really are looking at it,
Each&Other works with banks and other financial service providers to develop the solutions that create the seamless customer experience that is expected today. Although the agency is best known for front-end work, and, indeed, front-end revamps are essential, Each&Other also works on internal systems.
Herron said that while Each&Other does not develop financial software, the banking back-end systems amount to more than accounting and batch processing.
“There are the things we all see, the custom experiences like the app and the web page, then there are the [behind the scenes] business tools. Behind that, then, there are the [deep] tools that the bank itself runs,” said Herron.
Each&Other works on the first two categories: the customer-facing front-end, but also making improvements to the software used internally to run the daily business operations. In short: the systems that bank staff interact with, and with a focus on data.
“We work on the tools the teams use internally to expose the data that enables them to make decisions," he said.
Each&Other’s financial services clients have included Rabobank when it was active in the local market, as well as Permanent TSB. Internationally, it works with French giant BNP Paribas and Switzerland-based Zurich Insurance Group.
While the gauntlet thrown down by the neo-banks is real, there is the danger of overstating it: in fact, said Herron, they are not necessarily as innovative as they may seem at first blush.
“Really, they haven’t done that much that is truly revolutionary. They have stellar marketing and good [customer] on-boarding. Then, when you use the app, it feels slick,” he said.
Still, there is no question that the banking landscape is changing, and fast, following the integration of always-on networking into our daily lives. Banks, then, can learn from their new competitors.
In danger of becoming an old saw, Bill Gates’s 1994 quotation that “banking is necessary, but banks are not,” does have at least a ring of truth about it. Few of us are likely to seek mortgages from non-banking entities, but plenty of people are borrowing, investing and paying with them.
“The top three mobile payment platforms in the US are Apple, Google and Starbucks,” said Herron.
Coffee chains are unlikely to break into banking (then again, who knows? Amazon, once a book retailer, is well on its way to becoming one of the world’s largest logistics companies), but the point is that new entrants don’t carry a technology ‘debt’ of legacy systems so although they cherry pick the services they wish to offer, they also do it in nimble, light-footed manner.
Indeed, back in 1970, Ireland was forced to develop non-bank financial services on an ad hoc basis when a lengthy bank strike saw pubs take on the role of guaranteeing cheques. While this is no one's idea of a model for the future, it does show that banking persists even in the absence of banks.
When looking at the more recent, and more planned, land-grab under way across the world today the question is: will we trust technology companies and fintechs – or, for that matter, coffee shops – the way we trust banks that have been around for generations? In time, yes, said Herron.
“Trust is not un-malleable or unchanging; I think that’s the wrong way to look at it,” he said.
Indeed, the US market penetration of insurance company Lemonade, which targets renters and has developed a reputation for fast settlement, shows how the market is in a state of flux.
While these kinds of fintechs can be seen as representing a challenge to traditional financial service providers, they also provide an opportunity for renewal, revealing new markets and the value of improved IT.
Indeed, interestingly, behind the scenes, Lemonade is an insurance broker, a fairly traditional business model, and one that is not so much in competition with traditional players as standing on its shoulders. Perhaps the fintechs, viewed from the correct angle, are as much fin as they are tech.
Herron said that established players have a lot to gain by looking again at their business processes, and software, both customer-facing and behind the scenes.
“The long-term structural changes need to be put in place, as a five-year lag could be a real problem,” he said.