By Ion Fratiloiu, Head of Sales, Yobota
Rapidly evolving customer demands are greasing the wheels of change within the UK financial services (FS) industry, with retail banking channel preferences shifting unreservedly towards digital.
Progress made in open banking regulation in recent years has catalysed progress on this front, having increased massively in scope since the inception of PSD2 in 2018. Financial services have become more interconnected, and more regularly embedded into the platforms of financial and non-financial businesses alike.
Today, traditional banks and FS firms have a strong incentive to reorganise around digital experiences, particularly in light of the digital-first fintechs and providers competing to deliver more convenient, more efficient, and more value-adding banking experiences. But how have they risen to the challenge?
Progress on the digital innovation front has typically been slower among monolithic and slower-moving financial entities; for decades, the perceived risks that accompanied groundbreaking new ideas outweighed the potential rewards. Yet a new-found urgency to deliver a compelling customer experience in the face of growing competition has spurred these businesses into action, as is evidenced by Yobota’s latest research.
The customer is always right
A strong desire to evolve with the times and put the customer front and centre was uncovered by Yobota’s recent survey of more than 250 decision-makers at UK-based banks and FS firms. The findings revealed an overwhelming trend of businesses updating their offering to better serve their clients, with 77% of respondents stating that their company had begun to engage new customer segments over the past 12 months.
This shift in attitudes seems to have been influenced by greater attention being paid to existing clients’ demands, with 80% regularly seeking feedback from customers on how to improve their offering and 71% working on developing new products as a direct result of customer feedback.
Diversifying their offering has clearly become a priority for financial institutions across the UK. Competition from providers specialising in payments, accounts and credit options tailored to the unique needs of different demographics means that the pressure is on long-standing players to step up their game and ensure their products continue to appeal to a wide range of consumers.
The popularity of Buy Now, Pay Later (BNPL) offers a case in point. If a customer was in need of a credit product to finance a large purchase, their first port of call would be to browse their bank’s limited selection of options before having to seek out an alternative. Today, however, they can explore a range of solutions that are offered to them at their point of need and don’t come laden with onerous terms and conditions – BNPL and branded credit cards offered by brands and specialised fintechs are just two of the avenues now available to them. The onus is on banks and FS firms to keep up and offer alternatives that are just as compelling.
Staying one step ahead
The determination of these businesses to develop new offerings and address the challenges their customers face is promising. But to stay ahead of the competition, financial institutions must ensure they have the infrastructure, tools and culture in place to sustain both the current and future pace of digital innovation.
Of the 250 business leaders polled, 63% admitted that their business is risk-averse when it comes to introducing new products. An even greater number (73%) think their organisation should spend greater resources on exploring how they can expand their offering.
An innovation sprint is clearly underway across the majority of financial institutions up and down the country, but the sustainability of these initiatives remains in question. In order to keep pushing the needle of innovation forward and delivering products and services that will truly excite their end users, businesses must invest the necessary time and capital to sustain long-term momentum.
While there are still some challenges to contend with, the overall outlook for the sector is bright: an overwhelming 83% of UK banks and FS firms are confident in their ability to meet the evolving needs of their customer base. Meanwhile, many (72%) have partnered with technology vendors to launch new offerings over the past 12 months in a bid to leverage the guidance of experienced third parties.
The BaaS opportunity
A trend that is quickly catching on is the rise of embedded finance, fuelled by the development of banking-as-a-service (BaaS). The ease with which banking and non-banking companies alike can now deliver contextual financial solutions to their unique customer base is clearly playing on the minds of FS leaders: almost two-thirds (64%) of the respondents polled by Yobota said they have seen more unregulated businesses starting to offer financial products and services over the past 12 months.
The concept of consumer credit and instalment loans has been revolutionised by BaaS, but BNPL is just the tip of the iceberg where the embedded finance opportunity is concerned. With convenient payment options and loans at the point of sale no longer a luxury but a necessity at checkout, consumers have come to learn the value of seamless banking experiences and the benefits that come with greater choice. Branded credit cards, checking accounts, and loyalty and rewards programs are next in line as customers seek more integrated experiences that make it easier to access banking services all in one place.
Rather than a threat, BaaS is a fantastic opportunity for existing banks and FS firms to reach a greater number of customers by teaming up with non-financial businesses. Thanks to advances in the cloud, open banking, and the API economy, financial institutions can offer core elements of their banking products and operations stack, with BaaS providers on hand to aggregate these elements and distribute them to interested non-banking parties.
UK banks and FS firms do not have to remain in the background of today’s customer-driven financial services landscape. An opportunity has opened to reinvent their services and better meet the needs of their end-users. In order to retain market share, banks must think progressively and embrace a strategic approach that enables them to develop their capabilities and deliver services in line with customer demands.
To that end, focussing on the customer experience must go hand in hand with modernising IT systems. Positively, a third (32%) of the respondents to the aforementioned survey ranked investing in new technologies as a key priority for their business over the coming 12 months, equivalent to the percentage of businesses (also 32%) prioritising their ability to reach new customers.
A great customer experience in today’s landscape cannot be achieved without investing in digital, and it is encouraging to see these priorities on equal footing. UK banks and financial services companies are clearly determined to keep on top of customer demands and innovate for the benefit of the customer – this can only spell good news for the future of the sector.