Digital banking: Capitalizing on what’s next

Design Director

Digital banking is entering a new stage of evolution, with mobile-only “challenger banks” like Monzo, Revolut, and Starling attracting millions of customers and vying for market share previously dominated by traditional banks. These UK-based digital banks boast the ability to see real-time transactions, easily send money, split bills, and spend money abroad without worrying about fees — all without physical branch locations. As these companies mature they are beginning to spread beyond the UK to other parts of Europe and the US, where they face different sets of regulations and consumer priorities. Traditional banks still have a strong foothold in the industry, and have been keeping pace with their own innovative offerings; launching their own digital servicing applications, creating lounge-like destinations, and investing in their retail footprint with more flexible branch hours.

Smart Design has been working with financial services organizations for decades, from established players like American Express, BBVA, Capital One, HSBC, and Visa to wavemakers like Ding that are changing the way unbanked migrants send money. In order for banking institutions of all varieties to innovate their next generation of digital products, it is important to understand where the biggest needs lie, and how to design towards a clear vision that provides new value to customers.

The next stage of evolution

Digital banks have sprung up to address needs that were typically underserved by traditional banks, but are they really making a dent in the financial services sector? Not quite yet. Accounts are on the rise but usage is generally limited to managing day-to-day expenditures. Monzo alone has more than 3 million account holders, however, a recent study found that almost half of UK bank account holders keep less than £1,000 in them. Larger transactions are still broadly entrusted to established banks, with advanced digital services supported by branches with readily-accessible employees to answer questions and provide accountability. In order to truly disrupt traditional banking, mobile-only banks need to move beyond differentiating solely on the quality of their digital experience, and broaden their services to deliver new forms of value to customers.

The race is very much in its first lap — there’ll be a couple more phases where it becomes much clearer who is actually performing well.

Ricky Knox
Tandem, Chief Executive

Conversely, traditional banks could learn a thing or two from this influx of mobile banking innovation. Savvy customers are more educated than ever and have higher expectations about what a bank should do for them. These banks need to design their digital product as another “branch” of their customer experience—not an add-on for customers to interact with completely differently.

Focussing on what’s ahead

Undoubtably, the banking industry is facing massive changes with challenges. Companies may find that the day-to-day maintenance of their digital products drains so much energy and resources that it can be difficult to focus on the big picture.  Building innovation into the long-term product vision and investing time and resources to look at what’s next will allow them to continue their journey and cope with market changes. So what are the big questions banks should be asking as they look to evolve into the future? We’ve outlined the 5 biggest areas that fintech and traditional banks alike need to be paying attention to.

If you try to be universal but don’t have the resources that the leaders have, it’s going to be very hard.

Revolut Investor Index Ventures

1. Think relationships, not transactions

Banking creates a unique relationship with customers that is frequent, emotional, and personal—something that the new digital banks understood and capitalized on by providing reasons to use the app beyond just transactions. They also used their challenger status to their advantage, creating a social currency that made their customers feel part of a movement or community. Ask any UK banking customer whether they prefer showing off their coral Monzo card or their Barclaycard. Creating relationship-building elements will help banks retain a human touch in a digital-first future.

2. Be prepared for the decline of the cash system

Like any form of industry disruption, the benefits of digital banking have also had unintended consequences. A recent review by the ATM provider Link predicts cash could fall to just 10% of all payments in the next 15 years, leading to the collapse of the cash infrastructure and more than 8 million UK adults struggling to cope in a cashless society. Conversely, the rise of virtual currencies and digital wallets are posing questions about what role banks can play in this new value chain.

3. Rethink the role of the physical branch

The physical branch is not becoming redundant, but its role and importance is becoming more fluid based on demographics and the complexity and risk of certain banking tasks. While digital natives are more likely to manage most of their account activity through digital channels, users at the extremes of the wealth spectrum typically rely more on the security of a face-to-face conversation. Banks need to start grappling with the handover between physical and digital channels, and the way they support each other to create customer trust.

4. Provide tools to manage money better

The digital banks recognized that everyday financial transactions could provide the basis to help people manage their money better and placed it at the center of the experience. Visualizing how people spend to increase awareness of the macro trends around spending habits is a core proof point of the convenience that a purely digital experience can offer. Digital banks like Starling are even offering advanced money management and budgeting tools that go beyond beyond splitting bills to offer services like fraud protection based on geolocation and the ability to block ATM withdrawals and other types of online payments.

5. Look beyond the data

Another issue with digital products already in market is that the amount of data created through usage is both an advantage and a drawback. The advantage is that it provides confidence to base product iterations and measurement on. The drawback is that the focus can become solely on day-to-day performance and micro improvements without looking at new opportunities for innovation that plug the gap in resources that challenger banks have. Using design research methods that build understanding and empathy with your customers will shine a spotlight on new opportunities to innovate beyond where you are today.


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