Over-competition is likely to inhibit customer experience according to a number of incumbent banks.
“I think sometimes when there are inefficiencies in the market there are profits to be made, but then there tends to be a deficit for some lack of collaboration, and that is usually paid for by the customer,” said Wincie Wong, head of Rose Review implementation at RBS, during a panel at FinTech Connect in London this week.
“Collaborations are definitely key in order to create good customer user experiences. Sometimes no one company can be the best at absolutely everything, so in order to create well-rounded products to help satisfy many customer needs there is that need for collaboration.”
Tom Kegode, senior innovation culture and capability lead at Lloyds Banking Group, said bank mentality has shifted towards a greater respect for its customers’ various needs.
“Back in the day we would often talk about share of wallet, what our share of wallet was like – now the conversation is more about how we share the wallet, so how we share it with other providers our customers use, and making sure that we are looking at being part of that rather than trying to own and dominate that.”
According to Megan Coywood, global head of digital strategy at Barclays, the advent of APIs and open banking has created new variables that will play out over the next five years. Open banking, driven by regulation in the UK and industry initiatives elsewhere, is giving customers greater transparency of choice between banks and fintechs. This choice will lead to a distinction between aggregators and other collaborators in the market, said Coywood.
“Customers will have greater transparency of choice, so there will be greater competition, and then they will have an easier ability to switch … As a result of that what we’re seeing is a trend of a number of different players who want to do the aggregator approach … I think a few of those will come out and do really well.” Coywood mentions Starling as one of these players.
“It’s no longer about being an enclosed and siloed app or organisation, but about moving to something open. So as a result of that I think there will be a few category leaders who do this really well, but not everyone can be an amazing aggregator in the same way.”
According to Coywood, the players who do not adopt the aggregator approach will focus more on infrastructure than a customer-facing role.
“It won’t be as much how they manifest to customers because they won’t be the user interface, but they’ll be very price-competitive. I think we’ll see a bit of separation in the market in terms of what people focus on and what they do very well with a few people ending up really owning the user side.”
The panel also discussed the slow take-off of open banking, which Coywood attributed to the amount of time needed for banks to build APIs, and for fintechs to then integrate them.
“The criticism of open banking and its adoption I think is a bit too soon. On the other hand, I would say the fear that’s been around since the start of PSD2 and open banking is that banks have typically made money by incentivising customers to join with a current account … They don’t make money from that. Then you actually make money by upselling higher profit financial products like credit cards, mortgages, and loans.”
Fintechs are able to offer higher profit financial products without being incumbered by regulations, such as those regarding anti-money laundering (AML), which may deter customers from entering into traditional banking relationships, according to Coywood.
“The risk from open banking is not that the fintechs won’t be profitable, but how it will affect the traditional institutions.”
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