Throughout our Future Bank series, we're looking at how individuals will engage with their bank, and what service providers will need to do to succeed in the world of 'Open Banking'.
We've outlined our vision of the bank of the future as a 'marketplace bank' in our latest report, Open banking: How to flourish in an uncertain future.
In a 'marketplace banking' world, the ability of companies to acquire and retain a substantial customer base will be a vital determinant of their success. Great products at fair prices won't guarantee customers.
We hypothesise that a number of players will aim to provide a winning 'marketplace banking' interface, ranging from incumbent banks to emerging players such as FinTechs, established tech giants and price comparison websites (PCWs).
This competition will have three principal impacts on customer acquisition and marketing strategies:
- a potential increase in relative marketing spend, analogous to the marketing 'arms race' among PCWs in recent years
- more personalised targeting of individual customers
- a need for continual innovation in marketing strategies in order to both acquire and retain customers.
Show me the money
Competition from digital banking entrants is likely to drive up the industry's cost of customer acquisition. The experience of PCWs in the UK in recent years is telling. With a number of major operators vying for customers' attention, PCWs are now spending as much as, if not more than, the largest incumbent banks on advertising.1
FinTechs in particular will require a significant upfront marketing spend if they are to attract enough customers to reach scale. While FinTech investors will tolerate initial losses in their pursuit of customers, their patience won't last forever. Most early investors will expect some clear signs of sustainable revenue growth to emerge in the first five years of a business's life.
Big businesses moving to banking from other sectors, such as technology giants, have deeper pockets. And they will need them, despite their already strong brand awareness. Customers banking relationships are currently with the incumbent banks. Despite the recent introduction of 7-day switching, customers have proven to be remarkably 'sticky', representing a formidable barrier to entry.
However, it will not be plain sailing for incumbents – some competitive advantages will fall away. Switching financial services provider might not, in future, involve changing account details, getting new cards, and going into a physical branch. It might be a simple case of downloading an app that provides a banking interface and allows us to manage our financial worldview.
Therefore, incumbents will also need to revamp and potentially ramp up their marketing if they are to acquire and retain customers in a world of greater competition and ease of switching providers.
Focus on the individual
On the digital marketing front, new tools are being made available to marketers all the time, changing the rules of the game.
Improved psychological profiling helps businesses make very accurate predictions about an individual based on their online footprint. As a result, well-targeted ads can be aimed at these individuals.
In contrast, most banks have maintained a reliance on more mainstream, brand-focused, advertising techniques, rather than the aggressive customer acquisition campaigns more typical of start-ups.
The advent of open data enabled by 'Open Banking' will enable individual targeting, and those banks (and challengers) that are best able to acquire and harness this data will be best placed to do this personalised targeting.
This may encourage banks to cut their traditional marketing activities (and budgets), and invest more in acquisition-focused campaigns.
A new approach
As the 'Open Banking' universe unfolds, we should expect to see significant developments in the way banking brands – new and old – focus their marketing budgets, and design their campaigns.
Companies looking to own the marketplace interface may focus their budgets on improving presence in mobile app stores. And technology firms that are able to acquire and harness data effectively and have built strong partnerships with banks and other financial services firms could give themselves a huge advantage by creating a native app, pre-downloaded on the phone.
Mobile-only entrant Monzo has been particularly smart in its courting of Apple, building early integrations with Siri® for example, and reaping the reward of being well featured in the App Store®. And Barclays has recently followed suit, launching a feature which allows customers to make mobile payments via Siri®.
The banking sector can learn from other industries in this regard. In a world where switching providers becomes much easier, brands must find new ways to build customer loyalty. The telecoms industry has, for example, seen an explosion in marketing focused on providing tangential benefits for existing customers, such as free weekly coffee or cinema tickets.
Such perks, however, can only realistically be delivered by organisations that already have large customer bases, owing to which they can secure deals and promotions that offer genuine value.
Who will win?
One thing is clear: the bank of the future will not succeed without a smart, cost-effective acquisition strategy, whilst also delivering trust and awareness.
At first glance, it might feel as if big brands (banks or otherwise) with existing customer bases and trust already established have an insurmountable advantage. But we shouldn't under-estimate the fact that new, largely-untested marketing techniques may be more quickly employed by nimble start-ups.
An unknown brand might just rack up a few million downloads before incumbents even realise how they did it.
The App Store and Siri are trademarks of Apple Inc., registered in the U.S. and other countries.
Footnotes
1 The Top Advertisers in the UK in 2016, Adbrands.net. See also: https://www.adbrands.net/uk/index.html
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