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Show 155 – Financial Services and Fintech 2022

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This episode was produced in partnership with FutureBrand to support their FutureBrand Index 2021, a global brand study looking at the top companies in the world by assessing their market capitalisation.

With the world embarking on post-pandemic financial and social recovery, the show explored what the future landscape might look like and what practices financial services and fintech brands will need to do to improve their brand perception.

Host Natalie Silverman was joined by a global panel including:

Simon started by explaining what he thought about the FutureBrand Index findings, suggesting the findings differed quite dramatically between the 2019 and 2021 studies. While obviously bridged by the pandemic, the 2021 study saw a dramatic uptick in terms of innovation and digital adoption by customers on the retail side of banking, which has been driven by behavioural change amongst key consumer segments.

Stuart admitted that the lockdown changed everything, where before they had transformation and digitalisation plans that they saw through fintech’s but after March 2020, the luxury of timescales no longer existed. A lot of what they’d previously done in branches needed to be immediately available to their customers online, they were taught a lot about how to get out of your own way in terms of governing change and making risk-based decisions. Their capabilities were really pushed forward whether it was signing documents digitally or using open banking to facilitate information capture. Shachar explained that Curve is a building operating system for money, a financial super app, that’s enabling customers to collate, manage and control their finances from whatever operating system they use. They have all your cards in one, double dip rewards, finance and budgeting management with insights and tips, along with the ability to go back in time and move transactions from account A to account B even after the transaction has been made. They patented this and started to allow customers to connect more players in the market such as HSBC accounts as well as crypto pots, crypto wallets or Coinbase accounts, which in effect makes the entire ecosystem centred on the customer achieving financial freedom, this is their mission. Their approach differs from what exists in the financial market, which is aggregation. They build a third layer on top of layer two where Visa or Mastercard operate, which sit on top of HSBC and other banks, so they connect smoothly into this one interface.

Shachar disagreed with both Stuart and Simon, he said he doesn’t disagree with the facts because they’re correct, but the pandemic accelerated behavioural change, but that behaviour was always there. He said that in any market where the internet came in, whether that be commerce, fashion, TV, music etc. the same behavioural traits existed. “Customers are always looking for convenience, control and simplicity” he said. Everything in the market can always be developed with technology, for example a new format to distribute music MP3 versus CD’s. Companies such as Pandora, Deezer, YouTube, are all coming into the market to distribute music in a better way that’s faster, cheaper, better for the customer. He said that the CEO of Netscape only knows two ways how to make money, rebundling and unbundling. The pandemic accelerated new distribution channels that have zero cost due to the virtuality that the internet provides, the mobile wallet. But behind the scenes it still operates with legacy providers such as HSBC or Lloyds, and he said Transferwise is a good example, because up until a year ago, behind the scenes it was Lloyds and Barclays providing all the Treasury management and FX. He thinks the behaviour hasn’t changed but there’s now no other choice than to accelerate the behavioural change which is an inevitable outcome.

Digital-Banking Adoption

Stuart said the first mobile banking apps were in 2008/2007 and since then the adoption has been enormous, 50-60% of their customers are active mobile customers, over 90% of their product sales are done in digital capabilities. Although when dealing with a bereavement, going through a separation, or if you are a victim of abuse or a refugee there are still a lot of areas for the human support and a sympathetic organisation can offer a lot of value.

Simon explained that the FutureBrand Index alludes to traditional banks as in a vacuum, and the digitalisation efforts they’ve made have been rewarded amongst traditional customer segments with higher levels of likeability. Traditionally those innovations and trust were hard to shift the needle for, but transactional legacy banks have shifted quite dramatically because customers that were conservative by nature have used digital channels for the first time and liked it.

Stuart thinks it’s key to look at the last 15 years where the global financial crisis disrupted everyone’s faith in their trusted institutions. Then there was a period of conduct issues in Australia, royal commission in the UK, relating to things like PPI etc. where emotional trust was broken. So, a series of events and mismanagement that left traditional customers feeling as though they’d been let down by their banks. He said that the FutureBrand survey is evidence that there certainly wasn’t an increase. Digitalisation has enabled the more traditional customers to get a glimpse of what the bank can do. HSBC distributed £20bn worth of support whether that was through bounce back loans or forgiveness in payments or payment holidays, they weren’t shutting branches or not answering phones, but they did have a great digital presence coupled with a reasonable heart in a difficult circumstance.

Shachar said that banks do have a place, and he’ll be the first person to tell you so, and in giving jobs to banks where they assist in boosting the economy are doing a great job at it. Transactional banking and elements of non-transactional banking is where banks like HSBC win the personal emotions, the connections and they have the competency of a bank that knows how to lend responsibly.

Natalie then caught up with Brooke and Camilla, and Brooke said the pandemic was an upheaval for everyone especially banking customers retreated to their homes. They saw a big shift in how customers were interacting with the bank, and a big change was the drive to online banking. Thankfully they’d already begun their digital transformation in 2018 and had launched an app faster than they ever had before. The application of digital technology and migration of customer behaviour accelerated the work they had underway in terms of speeding the application processes up for customers and consumers. One thing that she’d note didn’t change was the desire for human interaction even on top of those digital platforms, but they did find most people wanted to do their banking remotely although they still relied on their expertise when it came down to complex discussions around their financial needs. She said they now offer co-browse with video so that their bankers and customers can interact in real time, leveraging digital technology while still being together. She said: “Having the help of humans with digital technology really made that transition, I think, more smooth and more seamless for us.”

Camilla added that US Bank have been doing a tremendous job but pointed out that the customers weren’t always ready for this digital transformation, a lot of them were set in their ways, happy to visit the bank in-store or use an ATM etc. and when covid hit they were forced to move forward with their processes. She said that suddenly it went from being the alignment of the bank having the infrastructure and the products available but to the consumers having an interest and need to use them, and the acceleration happened on both sides.

She said: “Now you have people very much more fluent in digital banking and these different ways of thinking about the services. And so, they’ve also come full circle on that and now they’re going, okay, well this is actually pretty cool. What else can I do?”. What’s nice is that the banks are accelerating their offerings and thinking about how to layer in smarter platforms to service people and different aspects into banking like AI which means you can do more targeted and specific things for a customer.

Backbone of Banking

Stuart explained that banking is a low engagement category, you don’t get excited about going ‘I’m going to phone by bank today or go on my banking app today’. But it needs to be competent, and so when it comes to transactions digital works, but when you’re dealing with complex issues that aren’t just about the bank then you’re faced with a lot of complex emotions, that digital can’t do on its own. He said: “Life is complicated, and unfortunately, or fortunately, banking has to weave itself around someone’s life.”

Simon said he wanted to know what everyone thought about American banks like Chase coming into the UK market with a digital only proposition, albeit backed up by a human call-centre, especially with the lack of branch network considerations. He noted that he was also intrigued on their opinions around Goldman Sachs Marcus saving platform, and whether they thought that it would be a success?

Shachar thinks that Chase in the US is “probably in the top three next to Apple and one of the strongest, most beautiful brands in banking”, he said it doesn’t even feel like a banking brand.

He said that the UK operates in a centralised banking market, with there being seven top banks across the UK, whereas in the US there are 5000-6000 FDIC insured banks and they have a different problem of fragmentation. He said he would never open a start-up and try and compete with Barclays or HSBC in the UK market, but Chase has come into the UK and surpassed the legacy ecosystem that HSBC has which means they can operate at the same level of competency and funding that HSBC has, but they don’t have all the legacy of DNA. Which was the thing that was wrong with the culture of banking versus fintech and the legacy ecosystem regarding ledgers, processing and all the parts of the engine required behind being a bank. They can start from scratch and reimagine everything. He said if he was HSBC or Barclays he would be concerned, because the competition is going to be fierce. But for customers it opens so many various avenues, a customer can have a savings account from Marcus and a checking account from HSBC and a rewarding account from Chase, and that’s where Curve comes in, bringing it all together in one place.

Stuart said of course they’re worried looking at the success of Revolut and Monzo, but when they look at Goldman’s that hasn’t materially impacted the HSBC business. With regards to Chase, he thinks that J.P Morgan are making a play to build a digital offering that they want to export into other markets, but it’s a test and learn because the UK market makes it more challenging, with it being a very regulated market.  

Branding of Fintech

Brooke said that fintechs have been topic du jour for some time, with them doing an exceptional job of understanding specific bespoke customer needs and meeting them with ease. She thinks they’ve learnt a lot from fintechs, and she no longer thinks of them as a stand apart from banking, but for a long time the disintegration was happening and banking was partially slow to adopt some of that technology, but now the partnerships and collaborations with fintechs is happening, which has opened up a lot of innovation for banking services that were rather traditional previously.

Camilla added that with most industries, digital disruptors came in and started shaking up the boat, which forces the big players to accelerate their thinking. She said that fintechs tend to bring a different point from branding too because they get to start from scratch and it’s much easier to start from scratch. U.S Bank in particularly has used this to drive greater value through their storytelling, and are wondering how to tell their story in a more authentic way, ‘What do we do that is different and that offers something unique and exciting to our customers?’ They’re also wondering about how to partner with the right fintechs, brands or companies to help deliver that experience in a better way.

She continued by pointing out that banking has had a pretty bad name in the past, and it’s taken it’s hit, but for example U.S Bank’s ethical standards are beyond anything. She said: “that is what we talk about when we talk about connecting what is authentic, about the delivery of an experience or product or a service into something that is a bigger framework to create innovations out of, or to continue to build the future from”.

Brooke agreed with Camilla and said that at U.S Bank they think a lot about their purpose and values, whether that’s how it attracts people to their brand or the impact they have on communities. She said: “what I’ve really enjoyed about the last year is when you think about how the pandemic has disrupted things, the influence of fintechs on the banking sector is just this opportunity to really grab hold of our purpose, our values, and activate it across the organisation”. She thinks about brand as a means for activating their purpose across a range of experiences, products, and services more broadly. It’s a chance for them to align as an organisation not only their ethical standards and values but how they deploy them and use that to make a customer’s life better through the financial services we provide.

Trust or distrust with Privacy and Data

Simon thinks that data-protection is going in the general direction of pro-consumer and opt-in, and within the open-banking rules, trust is key. He said the question you define as trust is the accumulation of positive experiences, and as long as both challengers and incumbents provide agile, relevant customer innovation then the permission and trust will come from customers to opt-in to those brands. He said what would worry him is if brands like Revolut start offering customers access to FX trading platforms and crypto trading, which are not great areas of trust and aren’t that regulated. It depends on how each individual entity plays it, but providing authentic accumulation of positive experiences will always get customers to opt in.

Stuart said that he loves the notion of an authentic accumulation of positive experiences, but the biggest threat he has is related to US banks coming to the UK, getting a foothold, and failing to deliver a consistent customer experience. Emotional trust is something important, and so is rational trust, this is their money, whether that’s life savings or anything else. The longer a fintech goes on it increasingly exhibits that it’s not fragile, won’t be hit by cyber-attacks and they wont frivolously give your data away. He said we need to invest in resilience, cybersecurity and make sure people’s money is safe.

Shachar said there’s a book called The Speed of Trust, that talks about how people perceive trust and define trust, and different cultures define trust differently. When they started Curve and were thinking about trust in the development the biggest challenge was the notion of ‘Well I trust my bank, but it’s hard for me to trust any fintech or new bank with my deposit, salary, and assets’. Then they realised with the banks doing a great job of keeping the money safe, they needed to get an element of trust, but the outcome was simple, don’t be a bank, do something else. What they did is add a technology layer, which means that the trust people instil within their banks, remains with the bank, so the customers remain with HSBC for example, keep using that account, credit, or debit card but they just connect it to Curve. Curve has the interaction layer with all the customers banking, which means there’s less trust needed in the platform, but still an element with regards to customer experience and cybersecurity. He said the speed of trust is really important and it’s going to be hard for any challenger player to come into the market.

Stuart said that one of the banks he’s responsible for is First Direct, and what they are trying to do is exhibit the rational trust there around HSBC along with the customer experience that’s been delivered consistently for 30 years. Along with modernising that to make it relevant to new audiences, especially younger audiences.

ESG Finance

Camilla said ESG used to be something that sat in the same place brand almost used to, there was the core business strategy, and all the other things and brand and ESG were on the side, but none of it was integrated. The key difference now is that integration of ESG strategies into product, services and authentic brand is happening on the banking side.

She thinks there’s an importance around financial literacy, where there’s a redefinition of wealth happening as people start to think about ESG and the values that come with aligning that. A lot of fintech’s were built out of this very targeted space, that included sustainable development goals from the UN, or they’re built around something specific that helps a user understand how to use their finances to invest sustainably. She said on the banking, institutional, corporate side there are regulations and metrics starting to be formed around ESG and people have no choice but to follow suite. On the personal banking side, you’ve got people who want to make decisions based on their own values and how they think about the environment, so there’s pressure coming at it from both sides, which is a wonderful story to tell because its coming from all angles and it’s here to stay.

Brooke agreed and said stakeholders and shareholders are looking for understanding on how they’re tracking and progressing their ESG efforts and consumers have been clamouring it for a long time, looking for businesses who have a shared understanding with them.

Simon added that institutional pension investors will demand ESG compliance from the banks and brands they’ve worked with. When they used to look at brand positioning from a corporate entity, they used to say it needed to resonate with their four quadrants:

  • Customers – Would I buy from you?
  • Potential employees – Would I work for you?
  • Investors – Would I invest in you?
  • Society – Would I allow you to do business?

He said he thinks the ESG dimension now covers them all, but it’s absolutely central for a company.

Stuart explained that for his sins he was educated as a physicist at university, and he got to go to Glasgow last year to COP26. He said ‘let’s be in no doubt that this is an existential threat to the globe, and each year from now it’s going to get higher and higher’.

He pointed out that banks finance the economy and ultimately do so under the behest of shareholders, the big pension funds etc. therefore banks have the role to finance the transitions, sometimes unpopular ones. If you’re a big bank like them you have to help those who are high polluters to stop polluting, but that means you’re financing polluters, so you can get yourself into relatively controversial areas.

He said: “But the things about HSBC’s or JP Morgan’s or others, it used to be viewed that they’re too big to care. You could also view that that they’re big enough to make a difference.”

Stuart explained that when it comes to Climate Change, it’s about the environment as well as social cause because it’s going to come from that under well governed regulations and rules. He said: “We have to prove that we’re not too big to care, that we are big enough to make a difference in these things and actually put our money where our mouths are with regard to this. Those that have credibility in this space will win consumer confidence.”

Simon added that his previous pension reference was when he’d seen a stat that says one in every £6 of UK pension investments is in BP.

Stuart said but with the amount of financing they’re going to earn short term with the challenges in Eastern Europe, this is probably a moot point. Whether it’s carbon taxes or whatever else will come in, it will start to erode those historic models, and even some of the exclusive profit motives alongside the climate disaster is going to have to change that, and he thinks it will change faster than people are anticipating.

Shachar said when things they introduced when it came to ESG was that the roadmap that is a customers spend profile is a very good proximity on your carbon footprint, whether that’s if you take an airline, put gas in your car, where you live and so on. They worked with MasterCard to create a conversion from this spend where you can see all your spending across your accounts, and they see all the spending across geography and costs etc. where they then equate a conversion that is aligned with one’s carbon footprint.

Future Plans

Brooke said that for them, improving brand perceptions has a lot to do with customer experience, and a deep understanding for who you are, your purpose and your values. Brand strategy has been for them, an alignment tool, helping them unlock how they can bring that consistent activation, to serve the community, their purpose, and their values.

Camilla added that everything Brooke’s said is so important, but it comes to through the understanding and the delivery of the internal people. This corporate culture that is also a huge part of brand, is so often not thought as part of the brand, but everyone has their corporate strategy and their brand strategy, which is like the human was of speaking about your corporate strategy and business priorities. When that happens, internally people need to be trained and brought along on the journey, whether that’s creating them as brand ambassadors. She thinks U.S Bank have been thoughtful about how the brand appears internally as well as externally, which’ll  have a huge difference on how mindsets are aligned.

Brooke said she loved that Camilla brought up the “inside out nature” because the way the world experiences their business is through their brand and their people.

She said: “Even in this digitally accelerated world we live in, the interactions with the people who wear the U.S. Bank pin or show up in the branches is still so relevant. Even if you’re experiencing someone from the business in your community through volunteerism or other actions that they’re taking, it is important to build inside out”.

She said that they’ve had tremendous success in their DEI programmes over the last few years, where their Chief Diversity and Inclusion Officer, Greg Cunningham reports directly to the CEO and has been building programmes that will help the bank to support their communities and employees.

Stuart explained the more they digitalise simply and end-to-end, the more they can improve the customer experience through “having a bank in your pocket, alongside having those great people in our branches, in our contact centres on our chats, able to deal with the things that fall off the happy path, be that life or indeed banking”. He thinks the second part is that banks need to have a social purpose, broader than just ESG, because banks are afforded a role by the license to operate, to be able to support society. He brought up the cost-of-living crisis, saying that they need to be thoughtful about how to help people deal with the aspects of that. They’ve also recently launched safe spaces in their branches for those that are victims of domestic abuse, along with supporting homeless people to get bank accounts, social issues that matter to people. The third is the lack of internationality, they’re one of the very few international banks in the UK and need to be better at that, so they’re investing and improving their international offerings. He said perhaps they’re learning lessons from the Revoluts and TranferWises of the world. Lastly, he added that how they support the world to wean off their carbon dependency is going to be hugely important.

Shachar said that the focus of Curve over the next 12-18 months is that they recently launched in the US market, so scaling there and achieving results is a goal for them. The other is they’re barely scratching the surface in Europe and want to expand in the UK and Europe, with more products and services. He said their other focus of around Curve Credit or Curve Flex is the trading name, and the goal is to reduce the borrowing costs for their customers to help bridge the gap in society of lending responsibly.

Simon added that using authentic purpose to innovate with empathy is key.