This year marks the 10th anniversary of the financial crisis – and the beginning of increasing public distrust towards the industry.
August 2007 saw Northern Rock customers flocking to withdraw their savings in fear of the bank going bust, the collapse of Lehman Brothers, and the bailout of Royal Bank of Scotland and Lloyds/HBOS to the tune of tens of billions of pounds of British taxpayers’ money.
But is the future any brighter for the banks right now? Well, something pretty spectacular is about to happen to the banking sector, in the form of PSD2.
Not to be confused with R2D2, PSD2 stands for Payment Services Directive Number Two, which is being brought into force by the European Union – and it’s set to revolutionise the way we pay for things online and how we use banks.
PSD2 will do away with the banks’ monopoly on their customers’ data. It will allow businesses like Amazon to get your account data from your bank – with your permission – so that when you buy something, they can make the payment for you, without you having to use yet another service like PayPal or Visa.
It will also allow other businesses to hold all your bank account information, however many accounts you may have, all in one place.
Many countries in mainland Europe have already implemented the directive, but everyone else – including the UK – has to make the changes by next year.
It’s good news for us consumers – but less so for banks, who are having to invest a lot of money to make the changes within their systems. Even more worryingly for them, it could relegate their role to no more than that of an infrastructure provider – the guys who provide the back-end money piping, if you will.
Banks are, quite rightly, very concerned about this, in a world where people have increasing confidence in mobile banking, and with branches closing willy nilly. We don’t have the connection with or reliance on whichever brand of bank we’re with.
The traditional ‘bank manager relationship’ feels oddly quaint nowadays, with very little financial guidance and handholding coming from the high street.
And a banking system that has relied over the years on an early snaring of a current account customer, followed by the opening up of a world of additional products and services, doesn’t now appear as clear-cut.
Why do I need any relationship at all with my bank if I’m (hypothetically, for now):
Seeing my live account balance when I open up my browser
Able to transfer money between my wife’s account and mine whilst we’re chatting on WhatsApp
Using a new app to monitor my spending activity and to optimise by monthly outgoings
Pay for goods on say, Amazon, without having to use another platform like Paypal or Visa
This breaking up of traditional banking services will result in new fintech companies winning custom away from banks, or web giants like Amazon hoovering up people through their sheer presence in the online world.
And this leaves banks with a dilemma.
Do they look to rebuild their services so that they can keep existing customers and pull in new ones by providing a compelling, modern, and rewarding experience?
Or do they break their own services up and compete on a micro-services level with the new fintech companies?
This scenario is already playing out across other industries too.
From pharmacies to car breakdown services, we’re seeing businesses think long and hard about how they tackle the disruption and fragmentation they’re seeing.
The RAC, the AA, and Green Flag for example are watching closely to see whether US apps such as Honk and Urgent.ly become enough of a success make their way over here.
And the likes of Push Doctor and Babylon are making the traditional models for GPs and pharmacies look old hat, slow, and irrelevant for modern patient care.
At the heart of this is a need to understand the new priorities of customers, and the new role businesses must play in our fast-paced, on-demand, shiny-new-thing world.
Sure heritage, trust, scale, and history can play a significant role in a customer’s choice of brand, but that is fast being replaced with flexibility, convenience and experience.
And that’s where the need for creative thinking and execution is key to survival for the traditionally big players, as fragmentation takes hold and customer choice exponentially grows.
Investment in the brand, carefully building strong relationships, and continually curating the customer experience is key, because you can no longer rely on inertia to keep your customers coming back.
Banks are going to have to up their game if they want us to keep swiping right on them – and that’s before they even consider the fact some experts are predicting another financial crash, just a decade on from the last…