The problem with better banking
For those of you that have followed my previous posts you know that I am a big advocate for “experience driven banking” and that I really don’t believe in “better banking”. I know this is a strap line used by Anne Boden’s Starling Bank so I should make clear that this is not a personal dig – I promise Anne! So, what is it about better banking I don’t agree with? Surely banking customers want and deserve better banking?
The way I see better banking is that it’s simply “faster horses”, so clearly if you ask customers how banking can be improved, they will say “I want better banking”. However, the key problem is that it is still “banking” and banking has become like a swiss army knife, a bunch of financial products that you use to manage your lifestyle or life stage needs with little or no assistance from the bank.
Whether you call it experience driven banking or embedded finance as per David Gailbaths excellent paper, firstly the key difference is that customers want more than banking, they want the best possible experiences. In the past, man would carve a flint, tie it to a stick, hunt an animal or fish, kill it, create fire, cook and then they could feed the family. In this scenario the bank product could be the flint, essentially a part of the broader experience of having a meal.
Apart from not providing the overall experience, the other problem in the analogy is that the hunter had to carve the flint for a specific purpose, he would have carved it differently if he wanted to use it to cut a tree down or use it as a knife. In the same vein, although banks have different products (account, loans, cards etc) the products aren’t really focused on managing money for a specific need. And no, a car loan is not a product designed for a specific need really.
Moving on, how is experience driven banking so different from better banking? For me it boils down to three things:
- Being focused
- Owning experiences
- Being engaged
Bank segmentation models have been fairly crude: retail, corporate and wealth. However, such segmentation is pretty coarse leading to products that serve a very diverse set of customer needs. Some banks have tried to target segments based on common profiles for example DINKs (Dual Incomes No Kids). But this too is ineffective if the bank is really only seeking to use segmentation to fine tune messaging.
What’s key is to own the entire experience(s) for that segment. To own the experience, the products, services and processes have to be designed to benefit the customer in a way that is superior to what is available today. For the caveman above that would not be providing the flint but creating a restaurant – the entire experience for a meal.
When it comes to experiences it’s hard not to talk about Uber, but in banking, players like Coconut are really owning the experience of being a contractor by providing them not only banking but other products/services that makes their life easier, such as invoicing, expense tracking and filing tax returns. You can only really own the experience when you understand not only do you have to provide more than banking, but that banking is not your focus, hence it is truly experience driven not product focused.
Once you have your target segment on board the next key is to be fully engaged with them. That means not only responding to their transactional requests but constantly trying to understand and deliver on any unfulfilled needs of the segment.
Being proactive in managing the experience and leveraging data to provide predictive insights that are useful also takes focus on the segment beyond that provided by most banks today. Engagement in banking is often seen as a way to sell to customers but should be much more than that, done properly it is gamified to personalise approaches to suit the individual profile of the customer in that segment. It should be designed so that segment appreciates your contact is genuinely focused on their needs and not on the what you want to sell. The goal for engagement is the deepest loyalty and advocacy you can achieve, not on sales.
Previously I’ve written about MoneyCado, Hammock, Coconut and StorkCard as players leading the movement to experience driven banking. However, two more have caught my eye and certainly worth a closer look at AWSM – a bank for families, and Oxbury a bank for farmers (more about them soon).
There is always room for banks to be more efficient and provide better service, however I’m just saying that soon our caveman will find a restaurant and wonder why others are still hunting. Or he’ll find an electric heater and wonder why others are chopping up wood to create a fire for heat. Thus, in the future we may have not one generic banking relationship, but many experience driven banking relationships, each catered to our specific individual needs and quite possible in a way that we don’t recognise that it’s a bank we are dealing with.
Dharmesh Mistry has been in banking for 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.