Digital banks – why the resistance?
- 12 Apr
Most of us have grown up believing that one High Street bank is pretty much the same as any other; Barclays, RBS/NatWest, Lloyds, HSBC, and latterly Santander – all spend a fortune on promoting their individual corporate identities, but what’s the real difference between any of them?
The banking crisis proved that, beneath the surface, the answer was “not a lot”. Some were better than others at dodging the bullets that were whizzing around ten years ago, but no one emerged with any great credit from that episode. Indeed, bad news continues to ooze out from a sector that has been badly exposed for cooking the books, bullying business customers and ripping off consumers.
And yet, the majority of people in the UK still put their trust and, more importantly, their money, into a traditional bank. Why do they do this when challenger banks, neo or digital banks, and a whole host of other financial innovators have come onto the market providing people with a multitude of options from which to choose?
In our previous open banking post, we laid out the case for raising awareness and trust in the new digital banks. A recent survey by MoneySupermarket now gives us more insight into the current attitudes of the general public towards digital banking and their High Street counterparts.
While the research confirms that an increasing number of consumers are aware of the existence of alternative providers, with some having dipped their toe in the water by giving them a try for one service or another, the truth is that there has been no mass migration from the old guard to the squeaky-clean new guys bristling with slick technology.
Inertia is one reason. Received wisdom is that it’s a hassle to change banks, but that argument doesn’t hold water because of the Current Account Switching Service, launched in 2013, which means it should only take seven working days to accomplish. In five years, only 4m accounts have switched and that despite the cash incentives – often £100 or more – being offered by some banks to pinch customers from the others.
Even the protection of the Financial Services Compensation Scheme (FSCS) doesn’t seem to carry much weight – only 20% cite this as a factor in their loyalty.
The MoneySupermarket research confirms that, while there is evidence that some consumers are willing to try an individual product that appeals to them – three quarters would be comfortable choosing a digital-only bank for at least one financial product - only 10% prefer to use a digital bank in preference to their traditional bank. The products that hold the most appeal are mobile apps for checking balances, sending money to friends and family or clearing credit card balances. But when it comes to applying for a mortgage, taking out another form of loan or opening a savings account, the traditional banks win hands down.
Open banking, too, although it is supposed to increase competition and reduce the cost of routine services, has so far not gripped the public’s imagination. Given the rise of cyber-crime, almost two in five consumers are uncomfortable sharing personal financial information with companies they don’t know.
As we move towards a cashless society, and with banks continuing to close branches, it is interesting to note that one of the services most valued by customers is free cash withdrawals from ATMs; 42% said that this was a big factor behind choosing a bank.
The inescapable conclusion seems to be that, even if consumers don’t actually like banks, they still prefer them as the devil they know. The ‘Big Five’ know this, but they are also aware that their reservoir of goodwill is running low, which is why they are investing heavily in technology.
RBS confirmed last month that it has been working on plans to launch a standalone digital bank to counter the threat from online competitors.
They must be worried.