Embracing the retail banking revolution
Dr Louise Beamont's LinkedIn profile sums up her USP: 'I work with legislators and regulators to drive disruption, with corporates to cope with it and with start-ups to exploit it'. In Jersey to talk about open banking at the International Banking Forum, Future of Wealth conference, Dr Beaumont is also co-chair of the Tech UK Open Banking Working Group. She spoke to JEP business editor Gwyn Garfield-Bennett.
Dr Beaumont provides a stark vision of the future for our traditional retail banks. The bottom line is that disruptors are not only snapping at their heels, but they’re starting to pick off some of their potential golden eggs. Retail banks are struggling to compete with the new banking services, and as we move forward, as new entrepreneurs start to build the corporate giants of the future, it’s not to the incumbent banks that they’re looking to take care of their finances.
One of the issues, as Dr Beaumont sees it, is that retail banks and wealth managers don’t have large research and development budgets. They are trying to say innovation happens outside the organisation and what innovations they are making are small changes to their existing offering. When these traditional services are offered to the new tech start-ups, there’s a mis-match: ‘So they’re then in this bizarre situation where the world’s biggest, slowest-moving and least innovative companies are competing for the time and attention of the world’s smallest, fastest-moving smartest companies; and those innovators, those small smart, fast-moving companies, are now saying, “Which one of these big fat lazy incumbents is capable of working with me in a way that doesn’t kill my business?”’
Dr Beaumont asserts that typically, traditional banks create innovators within their teams, but they don’t have big budgets and are instead just rich sources of press releases.
The hallmarks of the future, says Dr Beaumont, are: ‘Services we never knew we wanted, services we didn’t ask for and services we now can’t live without’ and she adds: ‘You have to remember that for the past ten to 15 years we have been trained by those tech titans, whether it’s Google, Facebook, Amazon, or similar, to adopt technology-enabled services without thinking, and the breadth and stretch of their brand is quite amazing.’
Google and Amazon are not only on our computers and our phones, but their devices are also now in our homes, controlling the temperature or lights. We have become surrounded by these services that even just a few years ago we would never have imagined possible.
Dr Beaumont cites Uber, the taxi app, as an example. Five years ago in London she would have put her arm out and waited for a certain shape of car to turn up, to happen to drive past with its light on, not off. She would have then hoped they were prepared to take her to where she was going: ‘And if you’d asked me five years ago how I’d improve on that, I would have said longer arms, more taxis. So what I would have done is taken the existing process and worked out how to make some incremental improvements in it.
‘I didn’t realise there was an un-met or under-served need that I had which could be simply solved by being able to tell somebody where I was to the metre, by the location device on my phone, to be able to tell them what I wanted. Do I want food? Do I want a cab? Where I am and what I want.’
That’s the nature of a disrupter: ‘Uber has not created a cab-hailing app, what it has created is a data platform that connects people with the things they want in real time. A completely different value proposition.’
One of the new challenger banks is Starling Bank. It’s a digital, mobile-only bank based in the UK which offers both current accounts and business accounts. It’s run by Anne Boden, who worked in banking but was dissatisfied with the services offered by incumbents. She launched a bank that is solely on your mobile phone.
‘It’s so traditional in many regards,’ said Dr Beaumont. ‘Sound, well-run technology, some innovation around it in terms of how those products work for the consumer, ie they actually work for the consumer. They are intuitive, they’re pleasurable, they’re valuable to people and it’s a way of being able to actually understand your financial situation that is absolutely about you; and is there a need for that? My god,there’s a need for that.’
The critical business model means that Starling Bank doesn’t have the cost base of an incumbent, or the head count and branch network of the traditional banks: ‘So it has just drawn a line through all of those things that people actually don’t really want or need and given them a whole set of things which are incredibly useful. But it is still a bank. It is better, it is faster, it is cheaper, but it’s the same core concept. So will those be valuable to people going forward? Absolutely.’
Dr Beaumont works with digital entrepreneurs, investing in and advising start-ups. She thinks that these challenger banks are growing in importance as investors want to see that an entrepreneur has sourced financial services that work, not just gone with a traditional option.
Use of digital-only banks might not be for every consumer and Dr Beaumont conceded that the older generation are an issue for incumbent banks because they still have to serve them traditionally with branch networks and paper statements. However, it’s not just about waiting for the millennial generation, even those of us in our fifties and sixties have been trained by Amazon and Uber to do things differently and we are starting to adopt these new services. It’s also a networking effect with people recommending a service to each other, rather than being held hostage with contracts, for example ‘next-generation services, like next-generation gyms – there’s no membership fee. Why? Because their belief is that they will deliver a good enough service that you will keep coming back and it is their service that is their hallmark, and it’s their brand and it’s the thing that you trust.’
People are using their own data to access services they like. ‘Loyalty is determined by how pleasurable that service is, not by whether you’re locked into a contract and not by whether you got your card stamped for the last transaction,’ said Dr Beaumont.
Companies now know us because we share our data with them and we are willing to give them access to our data in return for personalised services. Trust is being switched around, instead of companies thinking about the client trusting them it’s about them trusting us and good technology means that’s already changing with self-service check-outs in shops.
Open banking is very much focused on the retail side of the industry, but Dr Beaumont has a warning for institutional banking. The drivers towards this open future are not just regulatory, and she says those drivers affect institutional banking. ‘You can ignore them, which is what the retail banks did, only paying attention when they were forced to by regulation, or you can get ahead of it.’