Though ‘blockchain’, ‘bitcoin’, and ‘crypto-currencies’ are popping up daily in our newsfeeds, our industry’s grasp of the meanings behind the jargon is negligible. That’s why my team at Atomic briefed me to step outside our office and paint a picture of the future of finance. I decided I’d better speak to someone who knew their stuff. So that’s why I met up with Julian Sawyer, Chief Operating Officer of Starling Bank; a digital challenger frequently referred to as the ‘future of banking’. If anyone is qualified to have a point of view on the future of finance, it’s him. Speaking with him makes clear that there’s a myriad of myths hanging over the financial sector. One by one, Sawyer and I do some diligent myth-busting.
Myth No. 1: Fintechs aren’t banks
I’m quick to learn that the difference between established banks and digital challenger banks is overblown; ‘thinking in terms of fintechs versus banks is the wrong way of thinking’, Sawyer tells me. He goes onto say how Starling Bank made the calculated decision to call itself ‘Starling Bank’ as opposed to just ‘Starling’ when it received its banking licence. Sawyer believes that though people are happy to use financial services from fintechs, ‘the actual idea of banking (paying your salary in) with a fintech is not something most people are happy to do. People still want to bank with a bank.’ That’s why Starling Bank spent nearly two years ticking all the boxes to become a licensed bank. This accreditation was necessary to win customers’ trust.
Myth No. 2: Technology changes everything
Equally surprising is the revelation that people didn’t want banking to be ‘as easy as possible’. Initially, Starling Bank had used biometrics to open current accounts. Indeed, industry reports had forecast an acceptance of biometrics; PWC suggested biometric recognition would become a staple in banking, and Mintel attested that one third of people felt comfortable fingerprint scanning for payments. Starling Bank found that in practice, their customers were uncomfortable with the notion of banking just with biometrics, they re-introduced the humble password (and this still means that an account could be opened in less than 3 minutes); ‘people wanted an element an friction’. If digitally-native ‘early adopters’ felt ill at ease with biometrics, it’s unlikely the banking industry will hinge on this technology.
Myth No. 3: The banking revolution is led by the young
Speaking of ‘digitally-native’, Sawyer explains that the commonality amongst Starling Bank users is not their age or gender, but their mobile phone usage. So often the digital challenger brands are associated solely with millennials; a consumer group who have documented their entire lives with the help of smartphones. However, at Starling, they’ve found that their technology is not exclusively adopted by this younger audience. Instead, the app has been welcomed by a diverse network of people; anyone who lives their life on a smartphone.
Myth No. 4: Branches will cease to exist
Given this wide appeal, there’s speculation over the need to physically visit a bank in the future. Frequent reports cite bank branches closing at an alarming rate; in the past three years, nearly three thousand have closed. However, Sawyer doesn’t think branches will disappear completely, but agrees with a forecast from PWC; ‘branches will continue to exist, but not in their current form’. Sawyer believes that ‘there are some conversations which are better conducted as a two-way dialogue, like mortgages or pensions’. People might not pop into the branch to cash a cheque, make a payment or even open an account, but they will still find value in talking through ‘complex, involved decision making’.
Myth No. 5: Cash isn’t here to stay
‘The UK is still a long way from being a cashless society’. Apparently one quarter of people in 2017 used cash on a daily basis. Despite this, Sawyer believes cash will continue to diminish in importance until it is virtually obsolete. He sees a future whereby, instead of people getting cash out to pay their friends when splitting the bill for dinner, they’ll transfer money to each other in real- time. For those of us using digital banks, this is a habit we’ve already become accustomed to. He believes cash will linger in society because it will continue to pay casual or seasonal labourers. With automation however, this fragile labour-force (and its need for cash) will disappear. For cash to disappear more quickly, internal changes must also be made. The move in 2020 to end minimum card payments of £5 in local corner shops is a significant step in this direction.
Myth No. 6: Cards will remain unchanged
Though there are reams of articles debating the viability of a cashless society, only a few are broaching the subject of a cardless society. Sawyer, a voice of moderation in a sea of people evincing seismic change, insists that cards are likely to remain but will change in format; ‘Aside from ATM access, there is no real need for them to be the size that they are. All that is necessary is the chip and the antenna for contactless connectivity.’ He predicts a card similar to the Tesco Clubcard. Coin and card mechanisms would need to change but we know this can and will happen. Look at the tube. Gone are the days of buying a ticket (with cash) and forcing the flimsy papery thing through the machine.
Myth No. 7: All banking will be conducted on blockchain
On the subject of future technologies, we discuss blockchain and Bitcoin. My impression was that they were inherently good ‘things’ for the banking industry. So I was surprised when Sawyer said he exercised caution in this area; ‘there is a danger in Bitcoin and other crypto-currencies being used, look at the Silk Roads scandal and the ‘mining’ industry’. I’d thought blockchain and Bitcoin offered infallible security and absolute transparency. They don’t. The technology on which they are built on, Distributed Ledger Technology (DLT), does. This is why established banks have partnered with some DLT companies like Ripple, why Japan has its first crypto-currency; and why everyone, including Sawyer is excited about the possibility of working with DLT.
Myth No. 8: Loyalty is everything in the financial sector
The main advantage of DLT is its indisputably accurate transaction history. Those in the banking sector are hoping that it will be this failsafe account of the truth that will win back customers’ trust in the wake of the 2008 crash. Banks have routed their aspirations in the age-old marketing principle of loyalty. For them, loyalty is everything. Sawyer however believes that reliance on loyalty is out-dated because it rests on the assumption that loyal customers will choose to do everything with one provider. ‘The traditional banking model where a single provider is trusted to do everything has been busted,’ Sawyer says. Instead, he believes in the virtues of a competitive marketplace. Starling bank have chosen to build their marketplace in a hub-and-spoke model. Starling Bank is the hub, and all other companies they partner with, the spokes. They do one thing really well; current accounts. If you want to invest, you are handed over to a third party specialising in investments such as Wealthify or Moneybox. Sawyer recognises there ‘is no silver bullet’ solution enabling someone to entirely manage their finances with a sole provider. For this reason, he predicts that people will manage their finances with a range of financial providers.
Myth No. 9: The biggest internet companies will become banks
The revelation that I won’t be able to go to just one place to do everything startles me; I’d believed that Facebook and Google harboured ambitions to become banks. I venture my suspicions and Sawyer agrees with me. However, he does not think that consumers will trust the likes of Facebook (infamous for data breaches). Instead, Facebook and others will partner with digital banks that are already well established and leverage their own brand as a way to win trust from customers.
Myth No. 10: Established banks won’t disappear
The fact that Facebook or Google won’t be able to convince customers to bank with them directly because of their brand, re-affirms our first learning; that being a bank still matters. For this same reason Sawyer does not see the established banks disappearing anytime soon. ‘We are all slow to move away from existing providers’, he muses, and established banks will try their best to accommodate change. Sawyer believes established banks will continue to exist but be known for particular specialisms. The new norm will be for someone to have a current account with Starling Bank and a mortgage with Barclays.
What we’ve learned
Technology is clearly shaking up this category, perhaps more so than any other. Customers want to seamlessly transact in real-time but, fundamentally, they still want to bank with banks. People will need to know who they should go to for a current account, for a loan or for a mortgage. The role for comms then is to help customers differentiate in this saturated and complex landscape.