We just assembled a group of UK retail bankers for a discussion on The Future of the Bank Account. Against the backdrop of the month-old implementation of the directive that bank switching be seamlessly completed in seven days , banks were keen to understand the implications of changing consumer needs and behaviors, evolving regulations, and new competitors.
Celent see a consumer’s bank account serving three main purposes:
Receiving funds (money in)
Storing and Managing funds
Paying funds (money out)
We were interested in exploring how these key functions might evolve and what banks need to do to respond.
The group crystallized three key notions central to making tomorrow’s bank account a success:
Value added services
Customers must trust their primary account provider to keep their money safe and to do right by them. The opportunity lies, though, in not avoiding breaches of trust, but in seizing the opportunity to do the unexpected right thing – going above and beyond to earn customer loyalty. Trust also implies transparency: being upfront with your customers about how you’re going to deal with them, and demonstrating the value that you provide. It’s all too easy for customers to take for granted something marketed as “free.” Banks need to do a better job demonstrating that there is actually a lot of value in a “free” banking account (which is admittedly much easier said than done).
The psychology of retail consumers generated a good discussion, particularly around the notion of fairness, which in the end comes down to perceived fairness. Tied closely to trust, fairness means that consumers have to feel that they are being treated the way they deserve, not in a series of one-off transactions, but in the context of a continuing relationship.
Finally, because bank accounts (and payments, the most salient feature) are, by and large, commoditized, the opportunity for differentiation comes from value added services. Still nascent, most of these services will revolve around relationships and data (in one form or another). Banks will need to determine what their portfolio of value added services will be.
In conversation there was a clear belief that proponents of the seamless switching scheme, and the potential idea that bank account numbers be make portable if not enough people start to switch banks, may fundamentally misunderstand people’s relationship with their bank. In mandating that everyone have access to a free account, regulators may have inadvertently made it harder to compare accounts on an apples-to-apples basis. Additionally, banks face the challenge of serving these accounts in a cost-effective way, no small task.
Inertia is an extraordinarily powerful force in personal financial services; getting people to change banks or the way they do things with their bank is hard. However, the right value added services might be enough to persuade consumers to switch banks, although the jury is still out. The challenge that many new payments schemes face is, “why is this different than simply tapping your card.”
There was some belief that success and failure will be determined at the bricks and mortar side of the bank, rather than through digital channels. Many would dispute that notion; they next few quarters will give us an indication of whether that’s true.
Clients who’d like to explore this further can read Zil Bareisis’ report, The Rise of the New Bank Account?