We’ve previously outlined some ways that banks can update their UX (User Experience) to attract customers in an increasingly fierce market. But this is only half of the story. If banks and building societies of all sizes don’t embrace significant digitisation of their infrastructure, they won’t retain new customers, even with a superior UX.
To explain why, we need to take a closer look at the arrival of the Instant Economy and the impact it’s having on the banking sector.
Introducing the Instant Economy in Banking
Instant experiences at the click of a button. Always on, always available. This phenomenon, known as the Instant Economy, is made possible thanks to the rapid digitisation of businesses worldwide.
Better internet connectivity and a greater range of products than ever before have removed the need for customers to bank where they live, something that was once the lifeline of small banks and building societies. But, this also presents a unique opportunity to grow business in ways that weren’t possible before – and it’s all about finding the balance between giving the customer automated speed and convenience for most things, and serving up a real human for the fewer, important things!
The Risk of Failing to Meet Customer Demand
A proliferation of extremely convenient, digital services has created an environment where customers expect more, for less, and faster. And, the digitally demanding customer isn’t just consigned to the B2C world. Business customers also expect easy-to-use, intuitive experiences - we don't cease to be consumers at 9am each workday morning!
Customer demands continue to soar even as their preferences dramatically shift in favour of online experiences, with 57% of consumers preferring internet banking in the Covid-19 era. If smaller banks can exploit the slow responses of their larger rivals, there is no reason why they can’t attract and retain more customers.
So what do smaller financial players need to do to take advantage of the opportunities presented by the Instant Economy?
Banking: When Not to Build
The mistakes that established banks and building societies made in the past centred around trying to create everything in-house. On the surface, the approach made sense as it ensured a level of security and practicality when systems weren’t particularly advanced. But traditional banks are now saddled with cumbersome, complex and dated legacy technology that’s expensive to maintain and difficult to update.
These days, API plug-ins and FinTechs like Modulr are advanced, secure and reliable. According to 58% of bank executives, it takes less than a year to launch a product when collaborating with FinTech partners. By letting FinTechs provide the regulated infrastructure, banks can focus on delivering the best UX for their customers.
Partnering with a savvy, agile FinTech in this way also presents an attractive alternative to the agency banking model whereby smaller banks and building societies have to rely on buying in wholesale banking services from their larger competitors in the form of agency banking.
However, the window of opportunity is closing. Neobanks, new entrants to the market not weighed down by legacy tech, have recognised the opportunity at regional small bank and building societies' fingertips and are aggressively optimising their customer-facing interfaces for increasingly impressive customer experiences.
Beyond Batch Payment Processing: How Small Banks and Building Societies Stay Competitive
In traditional banking, batch payment processing may well be the established method, but it’s everything that the Instant Economy is not.
Customers don’t know when their payments are being processed. Neither, for that matter, do the banks themselves: batch payment processing can take anywhere between 4 to 12 working hours — even longer on weekends — before the funds appear in a customer’s account. As the amount of money due to be transferred increases, so does the digitally demanding customer’s anxiety; in a world where we can see if someone has read our text messages or not, surely we should be told if our large house deposit has been accepted safely!?
If small building societies and banks can leverage new API technologies, provided by regulated FinTechs, they can, not just survive, but thrive and grow in the Instant Economy. If they don’t, there is little doubt that between the more established players and the neobank challengers, their customers will disappear altogether.
Fight Bank Customer Attrition with Next Level, Real-Time Payments
Applying the tenets of the Instant Economy to payments in banking is about more than speed. If small banks can partner with the right FinTech, they can beat the bigger brands where it makes the greatest difference: servicing the digitally demanding customer and freeing their customer teams to focus on giving the in-person, trust-building experiences unique to regional banks and building societies.
The key is to find the right partner that can handle and maintain the infrastructure capable of powering the Instant Economy. Smaller banks can then fight back by creating new products and services at an exciting new pace.
Now is the time for smaller banks and building societies to look at their existing banking provision and bring it into the technological mainstream.
Find out more about how the agency banking model is compromising the digital transformation ambitions of smaller banks and building societies.