From the ashes of 2008’s financial crisis arose a new kind of software company.
A far cry from their enterprise vendor brethren, these new financial technology companies, or fintechs, targeted consumers directly. They provided services that looked a lot like those you usually get from banks. They even offered things the banks didn’t, such as splitting a tab with friends, instantly sending money overseas, or automatically investing your savings.
Most importantly, these services were offered without any branches. Riding the wave of the smartphone, these fintech’s offered their wares wherever you were: all in the palm of your hand and wrapped in a beautifully designed digital package.
Over the last decade
In the last 10 years, traditional banks have poured billions into creating their own mobile banking offerings, trying their best to emulate these digital natives who seemed to be out-maneuvering them with each new innovation.
In this article, we survey what David Brear calls the banking battlefield: the theatre of combat where these new fintech upstarts wrangle with the big bank heavyweights to see who will capture the future of financial services.
David Brear is a bit of a celebrity in the open banking space. He’s the founder and CEO of 11:FS, a world-renowned fintech consultancy that focuses on building and launching the next generation of digital propositions for some of the biggest banks in the world.
Over the past four years, he’s advanced the adoption of open banking globally, with the key phrase, “We’re only 1% finished.” David is also the host of the FinTech Insider Breakfast Show and the FinTech Insider podcast.
Our conversation started with the basics. What exactly is the banking battlefield and what does it mean for both financial institutions and customers? David explains:
“The banking battlefield is how we explain all the different confluences of forces that are happening in financial services right now.”
A quick introduction to the banking battlefield reveals that it really started after 2008, where the financial crisis eroded much of the banks’ hard-earned trust. Add to that, the arrival of the smartphone, a whole new channel for banking. And it was the perfect storm.
Since then, scores of startups have emerged. But the banks have woken up too. The smart ones have already realized that they can’t rely on their old product lines. Instead, they’re going to have to learn to do battle in a radically different way.
How banks can make transformational change
An analogy that David often uses to describe the banks’ response to this fintech rebellion is “The Empire Strikes Back.” Although these big incumbent organizations have large teams of talented and solution-oriented people, there is still something stopping them from moving forward. David explains:
“While many people in these organizations will say it’s the regulator or its technology, all it really comes down to is cultural barriers to change. The way in which they’ve always done it is the way in which they feel comfortable doing it next.”
According to David, transformational change only works if organizations have the courage to challenge how they do things today, to try new approaches, and to let them fail, to learn from those failures quickly, and to have the rigor to move ahead.
Enabling this kind of transformation is exactly what 11:FS has been doing in the UK and beyond. The UK’s challenger bank environment is disrupting what’s being delivered to customers while teaching the old dogs (the big banks) some new tricks (great customer experiences). 11:FS is teaching these tricks by applying challenger methodologies to big organizational problems.
The difference between digitize and digital
David often talks about the difference between simply getting rid of paper processes and moving to relationships. Understanding this dichotomy between digitize and digital is crucial to success as a fintech.
Digitize simply means replacing paper. It’s the process of taking a form that is usually printed out and replacing it with a web form. There is no need to make the form simpler or the process faster.
Digital is a completely different animal. To be truly digital, your experience has to be digitally native and built to be digital from the ground up. According to David, that means incorporating six key characteristics: real-time, intelligent, contextual, human, extendable, and social.
A digital service must provide real-time live playback and feedback. It must use the intelligence of all available data. It must also understand the unique context of how users are trying to access the service.
But perhaps the most critical part of what digital needs to do is incorporate humans into the service. Humans can break down complex processes, so they are easy to understand, all while having empathy for the customer. David explains:
“This isn’t about chatbots and artificial intelligence. It’s just about talking to humans like humans. And a lot of organizations have forgotten that.”
Lastly, a digital service must be both extendable and social, allowing customers to have banking integrated into their lives, wherever and whenever they need it.
Build trust by being a trustworthy brand
Even though fintechs are celebrated and have amassed huge numbers of customers in record time, the sad fact is that most of their users simply keep a little money with them.
Still, David encourages challengers to stay the course. The big banks we know started by doing just one thing exceptionally well. It took years for them to build a community around an extensive line of products.
That’s why building up trust is so important for a new fintech entrant. According to David, “the best way to do this is through above the line marketing spend. By creating a brand narrative and promise, challengers can enter the consumer’s psyche and slowly form a trusting relationship with them.”
Now, to keep that trust, you have to stay trustworthy. Enter Wirecard: a European fintech that other fintechs actually depend on to offer their services. Recently, Wirecard went through a high-profile, scandal-ridden implosion.
Fintechs like Curve and Anna Money have responded to the Wirecard fallout through transparent communication with customers, which David feels is in line with why consumers love them as brands.
Diversify products to add value
In other market activity, Visa and MasterCard have both acquired innovative fintechs at price tags in the billions. According to David, this is a smart (and natural) next step. Visa and MasterCard’s existing products are being commoditized, which means they now need to create differentiation and add value.
So, it turns out that the big secret is rather obvious: to get customers, you have to offer real value. To keep them, you have to respect them and earn their trust. Those looking for a shortcut will be disappointed.
Offering real value in a world of endless options where your products are being constantly commoditized is not easy. You have to use your imagination to build new and interesting offerings on top of what you already have. People don’t bank to have a bank anymore. Today, they choose a bank for what it does. This creates a great segue to open banking.
Use open banking to solve consumer problems
For David, the changes in the Open Banking regulatory space have fueled the possibilities for fintechs and big banks alike. Incumbent organizations have always had the resources to expose APIs, but lacked the emotional intelligence to let go of some of that internal and external control.
Now, the open banking movement is inspiring a community of fintechs, banks, and even brands that have no relevance to financial services at all, who want to drive a fundamental reform of what consumer experience is.
When a client asks David and 11:FS what to do about open banking, he first asks what their consumer problems are.
“If you look at the challenges around how most organizations are stuck, it isn’t an ideas problem. It’s an execution problem.”
Through microservice architecture and APIs, small teams can accomplish things that used to require hundreds of skilled people. From there, open banking leads to a different way to serve consumer needs. As David has said many times before, “important not to talk about what open banking is, but rather what open banking is doing.”
At the end of the day, 11:FS’ mission is to change the fabric of financial services. They want to inform as many people as possible about this movement and cultivate a community around it, which will ultimately make the industry stronger.
“We will not change the financial services on our own. But if we find like-minded people and we pull together the community to make it happen, we’ve got a bloody good chance.”
The real winner here is us — the everyday people who need to bank. In the coming years, we will enjoy more variety, more innovation, and more choice in the financial services available to us than anyone ever has before. It’s our job to exercise this choice, using this freedom to help our money go further.
Will the fintech rebellion succeed and lead to a glorious new age? Or, will the mighty Empire rise up to crush them? Perhaps, the coming road lies somewhere in between.
There’s one thing you can be sure of: Open banking will play a critical role in the battles to come, forever changing the face of the banking battlefield.
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