Are traditional banks doomed?


Before I answer that, let me ask a couple of other questions. How many of us have transferred our nest eggs or life savings to a digital only bank? I suspect the answer to that is an overwhelming majority haven’t. Ok, how about do any of these players claim even 1% of the UK market, 640,000 roughly? Why is that, is there a niggling concern that the new kids on the block haven’t quite got the maturity to handle ‘grown up banking’?

Yes I’m hoping for a reaction from the challenger Banks how about: Tom Blomfield, Ann Boden, Anthony Thomson. Or would the Fintech Mafia like to comment?

The point I really want to make is that whilst the challengers have compelling front end journeys, banking is more than that, especially when things go wrong. Let me give a couple of solid examples from a customer perspective for my case.

I applied to for a “mobile only” new bank account. Having downloaded the app at the weekend, setting up was only 10minutes away, so I was told. Now being a seasoned traveller, I was unable to provide photo-id as my creased passport was not being recognised. There was nothing more I could do online. This bank didn’t have online chat, and a tweet didn’t give me the instant response I had expected. I found a phone number online, great, but having dialled I got a message saying the contact centre was only open Monday-Friday, 9-5! So I sent a good old email. Tuesday I got a voicemail from the bank having picked up the email, and Thursday I got another call saying that they had picked up on their logs that I had problems applying, hardly a “joined up” responsive bank. Ok, not a serious issue opening up an account, it though raise doubts on service, and whether the bank had focused too much on “happy path customer journeys”.

Last week I had been travelling in Asia, and whilst I had a bit of free time thought I’d sort out a few things I’d been meaning to do, one of which was moving money to use up my ISA allowance. I tried to do this online using my debit card, but was declined by my traditional banking provider. After receiving a text and getting an email from my wife that the bank had rung at home, I knew the transaction had been blocked as “suspicious activity” by the fraud department. An automated service had allowed me to unblock the transaction. So I tried the same transaction for my wife’s account, and yet again it was blocked, however now I was on my way back. On returning home, I called the fraud department to get my transaction unblocked, but this time I had got one of my security questions wrong so was advised to unblock it by coming to a branch with photo-id. As inconvenient as that was, I did sit back and think I’m so glad that the bank provides this as a standard part of what they do. It did make me wonder how advanced fraud detection could be in these start-up banks who don’t have as much data, whether a start-ups personnel (when accessible) on phones could be as diligent with handling situations outside “the happy path”. And beyond that, without a branch, how could a digital only bank unblock my account and make me feel safe that anyone with a photo/scanned copy of my passport couldn’t defraud me?

For me the real measure of a bank is not how well they perform when things are going well, but how well they perform when things don’t go to plan. Here it is not just the wealth of historic data that helps traditional banks, but years of running and optimising business processes. Years of handling processes online and off, of training staff (my bank had told me they had questioned the transaction because of my IP address outside of the UK). And whilst much of this is in need of a “digital refresh” there is maturity which we value and hence the vast majority of us keep our savings in traditional banks.

So I don’t believe traditional banks are doomed, but I do believe there is a race for challenger banks to reach maturity and for traditional banks to reinvent themselves without throwing out the baby. In this race, it will be survival of the fittest. I’ll end with what I feel is an apt quote from Thomas A Edison:

“Maturity is often more absurd than youth and very frequently is most unjust to youth.”

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4 Responses to “Are traditional banks doomed?”

  1. Alex Jimenez Says:

    in my experience, the US digital-only banks have superior customer service compared to traditional banks. While I have accounts with traditional banks my main banking has been with a digital-only bank for the past 5 years. My largest investment account is with a roboadvisor, and there I get superb service as well. I did find that digital-only banks had some serious limitations at first but they have surpassed those for some time now. I can’t speak to the U.K. or Europe experience, however.

    • dharmeshmistry Says:

      Thanks Alex, I think investments are different because the main risk with them is they don’t perform. Online I absolutely agree the benefits in terms of fee’s and transparency of performance are greater.

      With day to day current accounts the risk is smaller than with large balances hence I suspect your traditional banks manage any large savings? However with day to day banking have you had many “non happy path” experiences with your digital bank? I’d love to learn how they do there. regards…

  2. Jim Marous Says:

    Really good questions asked of both the legacy and challenger banks. Can legacy banks step up their game to provide seamless digital processes that leverage their massive stores of data? Can challenger banks move beyond great digital basic account experiences to perform well when someone strays from a ‘normal’ customer journey?

    In the meantime, the consumer expectations continue to increase based on their experiences with Google, Amazon, Facebook, Apple, Uber, etc. The road may be tougher for challenger banks, but only if legacy bank culture can shift to providing digital experiences that integrate great data with simplicity of engagement.

    Both categories of organizations have a long way to go.

    • dharmeshmistry Says:

      Thanks Jim, good points. Especially agree about whether traditional banks can shift their culture. I also wonder whether they shift and go beyond standard banking journeys to deeper customer journeys.

      The race is on, though “Tortoise and the hare” springs to mind ;o)

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