Here we examine how brand loyalty, convenience and the pandemic all impacted consumer choices regarding financial services and we explain how you can mitigate against challenges by forging the right partnerships.
The pandemic has changed the very core of the way people and businesses operate. As you know, businesses have to digitise or be left behind as consumer loyalty takes a backseat to product innovation. Thredds’ experts, teamed with our cutting-edge technology, means we can help future-proof your proposition.
Here’s how we’ve helped banks and businesses evolve their services to remain current and how we can ensure your business stays ahead of the curve.
Industry consequences of the pandemic
As all of us in the industry are well aware, COVID’s impact on financial services cannot be understated. Social distancing measures, branch closures and digital adoption has forced incumbents and high street banks to pivot from their tried and trusted services in favour of online platforms. The result was a step change in innovation; 59% of financial institutions reported accelerating digital offerings in their business as a direct result of the pandemic [1]. Now the changes brought about by COVID look like they’re here to stay.
The high price of consumer loyalty
When faced with unprecedented change, traditional banks relied on well-established brand images and hard-won customer loyalty to ensure business continuity throughout the pandemic. The trust and security associated with the well-established names of high street banks was a key driver in preventing customer attrition. At a time of peak social and financial uncertainty, when fraud and identity theft increased by a third [2], customers leaned back into the safety of brands they’d known and banked with for decades. In the UK, the annual number of current account switches (where a customer fully closes one account to open another) dropped by approximately 30% [3].
The challenge of convenience
Confronted with neobanks, which were already digitally native, and as such well equipped for the transition to online service, some traditional banks were shaken by society’s shift to mobile platforms. Research showed that consumers increasingly moved towards digital channels to manage their finances and transfer funds. More than 75% of consumers [4] utilised some form of online banking in 2020, with forecasts estimating that the number of people who bank online will exceed 3.6 billion by 2024. [5]
Forecasts estimate more than 3.6 billion people will bank online by 2024. [6]
As a result, masses of customers started to adopt challenger banks, which typically have a high level of user experience and modern digital features. Consequently, key elements such as real-time spending notifications, card controls, flexible overdrafts and mobile live chat - the likes of which were first pioneered by Thredd’s API functionality - became crucial differentiators in the competition for share of wallet. Neobank adoption increased considerably during the pandemic, with US-based challengers seeing 39% customer growth in 2020 [7]. Thredd's customer Revolut trebled gross profit in 2020 as adjusted revenues rose by 57% and customer numbers increased by 45%. It was also crowned the most valuable UK startup after raising an additional $800m in investment [8]. Another Thredd customer, Starling Bank, similarly made positive headlines for being one of the first neobanks to report consistent profitability [9]. In November 2021 Anne Boden, founder and CEO of Starling Bank, said five years was a “very realistic” period over which it could double its share of business banking in the UK [10]. To put this in context, Starling Bank currently holds 7%, while Barclays has 15%.
Consumers and banks; a changing relationship
Apart from the stress the pandemic placed on sometimes outdated systems, the shift towards convenience over loyalty presented two key issues for incumbents. Firstly, the number of ‘zombie’ accounts - in which a customer deposits their salary with a trusted provider, but immediately moves funds to a challenger account - has grown steadily. Maintaining zombie accounts still costs banks time and money but, as you’ll be aware, locks them out of the financial data that makes long-term customers valuable to them and can prevent them from upselling relevant products.
Secondly, and perhaps more crucially, consumers’ relationships with their banks has evolved. Customers started to prioritise features and value for money over their relationships with established brands. This represents a significant challenge for traditional banks, who have typically been able to rely on cross-generation customers. In this new world, where customers can easily compare and switch between bank accounts at will, financial services are increasingly perceived as utilities, where the relationship with the consumer takes a backseat to features and value. So how does Thredd help banks and businesses with these challenges?
'Consumers’ relationships with their banks are evolving.
The next step for banks
The answer for banks lies in understanding their current strengths and limitations and taking a new approach to partnerships to succeed. The blistering pace of change in fintech currently is such that, features which were once thought to be innovative - spending notifications, account controls and card freezing, for example - are now considered to be the basic functionality of any financial services app. As a result, banks, whose product roadmaps might previously have been developed two to three years in advance, are now having to be more agile in how they integrate new services.
Partnerships will play a key role in this new approach. Incumbents won’t just look for software vendors who can package up and integrate specific solutions, but rather develop long-term relationships with businesses who can help them at every stage of their growth journey. Technological advances such as embedded finance propositions will make the integration between banks and fintechs more seamless than ever before.
Additionally, initiatives such as PSD2 and ISO 20022 are increasing pressure on banks to break down legacy barriers to partnerships and embrace the benefits of collaboration. Implementing regulatory changes to make it easier for financial institutions to share data, could conversely be a challenge initially for legacy banks, whose previous business models have been staked on capturing consumers with one service (i.e. a current account) before ‘trading them up’ to higher return products such as credit cards and mortgages. Embracing these changes ahead of the curve with the right partners however could establish key foundations for international growth.
Embracing changes ahead of the curve with the right partners could establish key foundations for international growth.
Choosing the right partners
Selecting the right commercial partnerships will be the new challenge for businesses as they seek to explore relationships with embedded finance and fintech brands. Working with partners such as Thredd which have well-established credentials, not just domestically, but also throughout a multitude of global markets allows, for example, incumbent banks to improve their services at home, and also sets them on the right path for international expansion.
Partnerships will help drive global growth and provide a launchpad for technological change; through a combination of its own IP and partnerships, for example, Thredd is able to offer forward-thinking solutions such as full-stack mobile FX platforms that banks can leverage and resell.
And you can be certain that you’ll be in safe hands. Thredd are a trusted and proven partner, right at the centre of the fintech ecosystem. Depended on by global brands like Revolut, Starling and WeLab, and proven as a growth enabler, helping companies reach unicorn status - and in our customer Zilch’s case, double unicorn.
Thredd’ security standards mean you don’t need to be concerned about security or durability. On top of our PCI DSS L1 accreditation, we are certified for ISO 27001 (which covers information security) and ISO 22301 (which covers business continuity) and we work towards the latest measures in compliance.
We have a solution that satisfies the rigours and expectations of tier 1 banks as we have passed the test to work with them. As we’ve discussed above, PSD2 and ISO 20022 mean that previous barriers to collaboration are dissolving and the benefits of partnerships are showing with more clarity - particularly the ability for partnerships to help banks future-proof themselves.
In the financial new normal, banks and businesses need to modernise their tech stack and product offering, or risk being left behind by digital-first competitors. Thanks to progression in technology and regulation however, revising or adding to the product stack is no longer the daunting, costly prospect it once was. By working with specialist providers, such as Thredd in the issuer processing space, businesses can deepen their relationships with customers and deliver better services in the short term while - most importantly - laying the foundations for future growth and innovation.
Resources
[1] https://www.fintechfutures.com/2020/12/fintech-digital-transformation-challenges-during-covid-19/
[2] https://www.experianplc.com/media/news/2020/fraud-rate-rises-33-during-covid-19-lockdown/
[3] https://www.statista.com/statistics/417417/number-of-switching-current-bank-accounts-annually-uk/
[4] https://www.statista.com/statistics/286273/internet-banking-penetration-in-great-britain/
[5] https://fortunly.com/statistics/online-mobile-banking-statistics/
[6] https://fortunly.com/statistics/online-mobile-banking-statistics/
[7] https://www.finextra.com/newsarticle/37277/uk-and-us-digital-challengers-see-strong-growth-in-2020
[8] https://www.bbc.co.uk/news/business-57854969
[9] https://www.finextra.com/newsarticle/36987/starling-bank-moves-into-profit
[20] https://www.altfi.com/article/8538_anne-boden-starling-can-overtake-barclays-in-5-years
