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How banks can show us they really care

Making good use of innovations from the FinTech revolution is a great way for banks to restore customers’ trust.

NFC technology applications!

Smartphones, smart apps and smart entrepreneurs have the power to restore our trust in the banking industry – but only if the bankers are smart too. That’s the view of Cambridge Judge Business School professor Jaideep Prabhu, who says the financial technology (FinTech) revolution gives banks a great opportunity to regain the public trust.

“An app, for instance, makes banking engaging and fun and makes us feel we have more control over our money,” he says. “But the capacity for more innovative data collection, analysis and application also give banks the capacity to identify and meet individual customers’ needs.”

However, innovation cannot on its own restore the trust of a cynical public that still treats bankers with deep suspicion. And while the major financial institutions have even greater access to customer data than the FinTech companies, they are perceived as too monolithic to embrace and apply new systems quickly. But marry the innovation of the FinTech start-ups with the power and spread of the big banks and trust can be restored, says Professor Prabhu.

“Even prior to the financial crisis many people believed that banks really didn’t care about retail customers and were simply interested in making money at their expense,” he says, speaking ahead of Judge’s Cambridge Trust in Banking Conference. “That disillusionment led to disengagement, while at the same time a shift in the technology space meant start-ups were engaging people on their smartphones and digital devices.

“Even though banks knew they had to find new ways to engage their customers and rebuild trust, they didn’t make the effort. It took them a long time to make the connection and realise just what a powerful relationship those customers had with their phones. Even being able to check your balance on a phone is more exciting than talking to a bank.”

But having found the connection, the banks still had a problem. “Banks want to set up these technologies themselves but their structures stymie this,” says Professor Prabhu. “R&D departments, planning, finance – all have rigid processes that must be followed, which takes their operations even further away from users. It’s very hard for a bank to innovate in-house. They find it very difficult to be relevant.”

Meanwhile, FinTech platforms have taken the banking industry by storm. From cardless payments, cash transfers to smartphone contacts, P2P lending, market intelligence – they were not only innovating but, crucially, creating products that the banks’ disaffected customers liked and were willing to trust.

“A great way back for the banks, then, was to actively engage with FinTech firms, identify FinTech startups to incubate and build their business models further. This is good for the banks, who can bring all that knowledge and data application in-house, and good for start-ups, who gain the experience and contacts of working within a big bank but retaining their independence.”

Barclays incubates such FinTech businesses for three months in its own accelerator programme before giving them an opportunity to pitch for a long-term partnership – and the innovators’ presence is positively changing its customers’ view of the bank, says Elisabetta Osta, who is Barclays’ Managing Director, Information, Insights and Innovation.

“The FinTechs’ involvement has made us change our innovation process,” she says. “A lot of our innovation was based in relationships with other huge organisations with lots of processes – we had to change the way we did this to work with smaller start-ups. The challenge is the co-existence of different generations of technology. We almost have to learn to speak different languages. It’s been a fantastic learning experience.”

So how do these partnerships actually make customers trust the bank again? “You lose engagement if you are not relevant, or not seen to be serving the customer,” says Osta. “The role of the banker was always an established one in communities – it was a figure you always wanted to talk to for advice, even if it was only once a year. We lost that position and now we need to reinvent that relationship using technology.”

And it’s working, she says. “Since we launched our BMB (Barclays Mobile Banking) app we found it actually made our customers more responsible, because of its fast feedback. Learning immediately that they, for example, can’t afford something meant they didn’t buy it. It is actively helping them in real time – just as that community banker always did. We need to use that technology to play that role we always had. That increases trust in us.”

Banks, of course, retain a major advantage in the loyalty of their customers – but conversely, innovation in the industry may ultimately help consumers to trust them more. “Strangely, customers still put their money in banks they otherwise hate,” says Prabhu. “Very few people switch banks – either because of inertia or out of fear for the security of their money. By contrast, in the phone industry, where new technology is at the very heart of the customer experience, consumers switch all the time and know it’s always worth looking for that better deal. The phone companies always have to be innovating because they know the right product will lure someone away from their rivals. Failure of the customer to do the same with their bank makes the banks complacent.”

“Regulators are currently very concerned by the reluctance of the banks to lend to start-ups. As a result, they may look to open up the whole sector to alternative, innovative ways of banking and other types of firms, including those whose core business is something other than banking such as retail or telecommunications. Ultimately, if given enough choice, and enough motivation to move, customers will go to financial institutions that serve them best – and the ones they can trust. Banks need to embrace innovation to make sure it’s them.”