Article contributed by Scott Dawson, commercial director at Neopay
The digital era is upon us and there is no denying the impact this has had in transforming the face of a range of industries.
Not only creating change within the industries themselves, increased digitalisation has created a shift in public attitudes and behaviours, and this is no more prevalent than in the banking industry.
And, as a consultancy that helps new e-money businesses become authorised, we were curious to find out more about the changing relationship between consumers and traditional banks. So, we decided to conduct some research and took a survey to 2,000 UK adults to further explore this.
We found that due to frustrations with the slow and often cumbersome traditional banking system, consumers are now becoming more open to considering alternative ways to manage their money. In fact, a quarter of those we surveyed explicitly stated they placed more trust in technology companies than in banks in order to carry out their e-money transactions.
As a result, questions are now being asked as to whether traditional banking is falling behind in a world now dominated by innovation. And, the answer would appear in short to be – yes.
Traditional banks are lagging behind with long, drawn-out processes while fresh, smarter and customer-focused businesses race ahead. These new businesses are able to exploit a traditional system unable to cope with the modern needs and demands of contemporary banking customers. And, as a result, consumers are enjoying improvements in customer service while simultaneously receiving better value for their money.
But that isn’t the end of the bad news for banking. Our research uncovered the younger generations to have the lowest levels of trust in banks – arguably painting a grim picture of the future of traditional banking. Then we must consider the evidence our research found of the weakening relationship between banks and their customers – over half (53%) of those we surveyed stated they hadn’t seen a member of staff from their bank in the past year. Banks look to be losing their relevance.
Beyond consumers, and a weakening relationship with traditional banks, there are also other conditions in the wider industry which have also allowed these new, innovative businesses to thrive.
Financial regulators are becoming more receptive to innovation – actively seeking to award licences to businesses that help drive greater customer value and resolve the issues many consumers face with our current banking system. Consideration should also be given to the solid and trusted European regulatory framework that has managed to withstand the recent instability following the outcome of the UK’s EU referendum. This framework has instilled a confidence within consumers when using new e-money services.
There are arguments that the current banking system is lacking the motivation to innovate. Held back by antiquated legacy IT systems and long-established work practices and culture, banking often looks stuck in the past. Plus, traditional banks already have the majority of us as customers so why would they voluntarily make changes to a fees and charges system that makes them millions in profit each year?
But, the problem for banks is that this is just the beginning of financial innovation – we may well be on the cusp of a digital money revolution. It could be the case that in the coming years the increasing numbers of innovative e-money businesses will chip away at our existing system, and slowly but surely replace the need for traditional high street banks.
That isn’t to say that banks are no longer a vital component of our economy – they most definitely are and will remain so. But, we know that businesses that lose relevance with consumers are superseded by competitors – before Netflix there was Blockbuster and before Spotify we had HMV. It would be wise for those within the banking sector to reevaluate their stance on innovation, learn from the mistakes of other industries and do their bit to introduce some more customer-centric innovation.
Further information on the subject can be found at; http://neopay.co.uk/neopay-research-report-are-banks-losing-the-innovation-game/