International experience shows that, with the right
questions being asked, traditional banks can meet the
challenge posed by new competitors
Change is not something often associated with the banking industry, and given the desire for banks to demonstrate their stability and continuity this is hardly a surprise. Behind the scenes, though, a quiet revolution has been going on in the technology that underpins banking.
At the same time, Irish banking customers have dipped a toe in the ‘fintech’ waters with current accounts and foreign exchange provided by so-called ‘neo-banks’, online-only outfits that typically operate across the European Union and farther afield syphoning off customers for niche transactions.
User experience (UX) specialist Each&Other has found that the traditional banking institutions, well aware of the threat from new players, are capable of responding.
Prior to joining the agency, Billy Kennedy, principal UX designer at Each&Other, worked on projects in Britain with a new player in the market, Mettle, aimed squarely at taking on the neo-banks, and owned by NatWest.
“They hypothesised changes in working habits, in terms of a switch from the traditional model to the gig economy,” he said.
Kennedy recognised ongoing changes in the economy were having an impact on user behaviour and demands.
Essentially, what we were being asked to do was figure out the behaviour of these groups and what were their banking needs. We found that many of these people don't see themselves as businesses.
Foreseeing potential regulatory changes, they worked to offer a low-cost business account that operated just like a traditional online current account.
“There was an expectation that the law could force these customers to use business accounts, and the requirements for opening a business account are very onerous, so the idea was to try and get ahead of this and automate as much of this as possible for these people, essentially creating a challenger bank for the gig economy,” he said.
Despite the attention given to true neo-banks, and the cloud-type technology that underpins modern banking, Kennedy found that there was a lot of value in trusted brand history. Specifically, being part of, and being known to be part of, a larger institution helped build trust.
“Mentioning the bank’s name gave them an uplift,” Kennedy said.
The same could be said in Ireland, where the names we all know offer a certain amount of confidence. However, Kennedy said Irish banks were in danger of chasing ghosts, in technological terms at least.
They’re offering functionality that most challengers had, in this market, six years ago, and that Wise, formerly TransferWise, had, internationally, 11 years ago.
One thing Each&Other has found is that Irish customers are very aware of the fee schedule and, consequently, will do a lot of shopping around. In time, this could become a real issue for the incumbents.
“The cost of doing financial business in Ireland is quite a bit higher, likely because the customer base is smaller. Europe-wide, challenger banks will see this as an opportunity,” he said.
One shift is already under way: traditionally in business banking there are fees per transaction, but a lot of competitors across Europe are moving to a monthly subscription model.
Ireland’s banks have not stood still, said Kennedy, but they need to do more. Work in automation and artificial intelligence (AI), for instance, has paid dividends.
“A lot are also offering good add-on tech. With a bit of help from you they will learn to categorise transactions, for example. They're doing a good job catching up, but it really is only catching up,” he said.
“Self-serve in many countries means you can do 90 to 95 per cent of what you need in the app. In Ireland, you can do the basics, but then for anything complex you have to get on the phone at the very least and perhaps go into the branch. And, culturally, we like the face-to-face element,” he said.
The lag cuts both ways, though: Irish banking customers themselves have not made clear calls for a broader range of products, for example, investing.
At a time when hype around alternative investments has reached fever pitch – not a day goes by without talk about cryptocurrency and, with inflation a major concern, gold is now being advertised on national radio – it is not surprising that financial services can seem a daunting area.
Some of this is down to Irish regulations outside the control of the industry: for example, exchange traded funds (ETFs) that track share indices are popular in much of the rest of Europe but complicated to own in Ireland.
A worry is that pent-up demand is directed to risky asset classes. But it also shows that Irish consumers may want to do more with their banks.
“People signing up to crypto shows there is a demand for financial instruments. Perhaps it’s not going to the right instruments, but it does point to a demand,” he said.