W&F Issue 5 2018

www.wealthandfinance-news.com 24 Wealth & Finance International - Issue 5 2018 A wave of new competition, new legislation, and a loss of loyalty, is impacting the financial services sector. To survive will require some radical approaches. One solution might mean visiting an issue that many businesses find repulsive. Financial services current business model, assumes a single engagement between a provider and customer will last forever. But the business environment is changing around this model. Which now appears, too slow, too expensive, blind to the latest legislation, and fails to admit endings in the consumer lifecycle. To survive will require adapting to multiple engagements with consumers over decades. In doing so will need to place long term consumer experience and brand equity over short term gains. Amongst this, businesses will start to value endings, an issue they have avoided up until now. Financial services have for decades enjoyed long term customer loyalty that many sectors envy. Before the 2008 crash, people changed their bank account, according to the UK’s Independent Commission on Banking Report, on average every 26 years. It found that 75% of personal current account holders had never switched. The reasons for this loyalty, however, is not so flattering, with 1 in 5 people saying this was because of the hassle and potential risks of switching. Direct debits taking a while to move, and income not being able to stretch over the 30-day period that it sometimes took. Customers found it hard to end a service. Banking still enjoys a historically low churn of 15% for long term accounts with stable loyal customers. But, what is now emerging is the worryingly high churn rate of new customers. 20-25 percent within the first year. Half of which are leaving in the first 90 days. This seismic shift will also disrupt the profit model of many businesses, not least the average bank. To provide a US bank account relies on set-up costs of around $200. Online accounts a little less at $150. The break-even takes nearly 18 months to achieve. Which, given the current short-term churn trend, will dissolve profits. Start-ups are leveraging new technology to challenge many established businesses. The Fintech space is expanding aggressively. Backed by significant funding - $14.2 billion of VC investment over 1,842 companies, according to the London Stock Exchange. These digital native companies are more familiar with shorter loyalty periods of apps. Which can be as high as 76% worth of churn over 90 days. A terrifying prospect for a bank that relies on loyalty of years to make a profit. Adjacent to these trends are changes to legislation in Europe and the UK. Open Banking and the GDPR regulation both require plenty of changes for businesses. More data protection for consumers. More expectations on providers. And the overlooked aspect of more consumer empowerment to end a service. Championed by many, Open Banking allows the consumer to expose aspects of their personal banking data to competitors. Aiming to open up the market for new competition. But, it also increases the likelihood of churn across industry, as people move more often with tempting offers. Could your Business Tolerate a Good Ending? GDPR’s Data Portability, achieves a similar result. Allowing people to share data with other providers. Additional parts of the GDPR law provide opportunity for consumers to halt services by removing consent. And even deleting all evidence that they even used the service through the Right to be Forgotten. The single engagement model is dead. Loyalty is failing longevity. Technology rewards short term engagement. Legislation empowers endings. Established providers in the Financial Services sector have good reason to worry. The new model would see multiple engagements with the same customer over decades. Banks will need to become more agile. Individual engagements will need to be cheaper and quicker. The two year break-even of a product will not work. Profitability will need to be achieved in three months. Products need to be as seamless to off- board as they are to on-board. Endings need to be positive and efficient. With the expectation of a customer returning in the future. The ones who can’t survive long term will fail. A start-up on their first round of seed funding has limited ability to run a multiple engagement model, fought over years. Older, bigger banks have an advantage here. But, the current psyche in business says endings are repulsive. Seeing it as a permanent relationship break-up. In the multiple engagement model consumers will be coming back and leaving often. As such, businesses need to value goodbyes as well as they value hellos. Requiring a cultural shift of some magnitude. A wave of new competition, new legislation, and a loss of loyalty, is impacting the financial services sector. To survive will require some radical approaches. One solution might mean visiting an issue that many businesses find repulsive. Joe Macleod, who wrote this piece, is a designer, author and UX (user experience) specialist. Joe is a speaker at this year’s Camp Digital, where he will be discussing Ends.