The fintech revolution has been born from the coming together of a start-up industry, that is flush with silicon valley funding and disruptive innovation - turning its focus to the deregulation of the banking industry.
Up until recently, the banking world was run by a handful of high street banks that changed very little for generations. The barriers to entry for a newcomer were astronomically high – regulatory hoops had to be jumped through to obtain a banking license plus a chain of high street stores and huge physical infrastructure was required.
The advent of the smartphone changed everything. For the first time, the public had huge computing power, constant internet connectivity, and an intuitive touch interface at their fingertips 24 hours a day. A proliferation of mobile apps then brought disruption to one industry after another; Airbnb, Uber, Deliveroo, Spotify and numerous others shook up traditional business models with faster, cheaper business offerings.
The banking industry was not immune to this disruption. Bitcoin, for example, bypassed traditional banking institutions altogether by creating a currency and a secure transparent transfer mechanism using technology and algorithms, rather than banks and clearing houses.
At the fintech conference The Future of Fin-Tech this month, the founders of Monzo and Starling Bank (both recent fintech startup banks) discussed the industry and the future of banking. It was impressive to hear about how Monzo has achieved such extraordinary growth. People traditionally change life partners more often than their bank, yet newcomer Monzo is growing at 5% per week – passing 500,000 users in late 2017 and on track to pass 2 million users within 2 years – and all this with no marketing or advertising!
So how are startups such as Monzo, on relatively modest budgets, winning against the big banks with their huge resources and infrastructure? A member of the audience asked the CEO of Monzo that exact question, to which he replied that even if the big banks wanted to innovate and change their business models to become more customer focused, their boards would never sanction it. Monzo currently loses £50 per year per customer – as is the case with most startups, they are focusing on customer acquisition first and will figure out how to make a profit down the line. That model would simply never fly in a traditional bank.
Fintech startups don’t actually need to have huge funding reserves to cover years of losses in order to succeed. Centtrip app, for example, provides users with a currency card that is similar to Monzo’s but is aimed purely at high net worth individuals and corporate clients. Red C created a mobile app to enable Centtrip users to easily manage their card and load it with up to 17 different currencies. By aiming at high net worth clients, the company’s average spend is in the thousands and so it is managing to return a healthy profit per customer. The app won the 'B2B Business & Finance App of the Year' award this month at the UK App Awards 2017 and is going from strength to strength.
So what lessons can traditional financial companies learn from fintech startups? Here are a few thoughts:
I’ve lost track of the number of times I’ve been told by financial institutions that their customers are of an older generation that doesn't understand apps. But is that really the case? The CEO of Starling Bank said the thing that surprised him most in launching the UK’s first mobile-only bank was the huge take up in the over 60 age bracket and that these users loved the fact that they could keep track of their money in real time.
The old adage that ‘the customer is always right’ holds more truth now – within a climate of so much digital change – than it ever did. It is commonplace for companies to presume that they know what their customers want, without any validation of those assumptions. I see this quite frequently with projects where a client decides not to do customer research and has a fixed idea of what features an app should have and how it should work. But more often than not, when it’s launched and the feedback isn’t what they wanted. It is then costly and time-consuming to make changes and they will have missed the boat with initial users. Spending upfront time on customer research is always a worthwhile exercise – it is five times cheaper to change a design than a finished product.
The primary role of an IT department is to keep a company’s data secure and make sure all systems are running smoothly. I have frequently observed quite irrational opposition from IT departments when companies consider building a mobile app with data in the cloud. Apps often threaten the IT department’s control on the status quo, so they put up an opposition with all kinds of scaremongering tactics. Such stances are indeed irrational – Amazon Web Services, for example, has been PCI compliant since 2010 and has been securely storing and managing personal credit card data all that time. If you can build your systems in the cloud outside the corporate IT system with API connections to any internal data you need you will save huge amounts of time and money with no loss of security. We’ve built such systems for the MOD and the NHS – so it really is possible in any industry.
The secret of all successful startups is great user experience. The reason people are switching from their current bank with its tradition mobile app – which replicates its online offering – is because mobile banks such as Monzo reimagined banking from the ground up and created a user experience around what people want to do rather than a list of features. They have made it simple, intuitive and easy to send people money, split bills at a restaurant and keep tabs on spending. It is definitely worth spending some time finding out what customers’ pain points are before a project is started. If you create a user experience that solves the problems, your customer will not only come back for more but will tell their friends about it.
Startups aren’t afraid to fail. They are constantly trying new things, testing them and then iterating – they are not held back by the bureaucracy of internal sign-off structures. Working with corporates can sometimes be a slow process, with each stage having to go through several rounds of revisions at different levels. Yet the customer should ALWAYS be the final decision maker and if the board has a difference of opinion, both options can be launched through an A/B test to determine the best solution. This approach takes subjective opinions out of the design process. Copying the startup mentality by gathering a small engaged team to run an efficient project can deliver dramatic results.
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