James Butland, VP Global Banking at Airwallex
Businesses will always need banks, but this necessity does not equate to trusting or even liking their chosen provider. The last decade has seen the digitisation of financial services change entirely how people manage their finances and what they want from banking suppliers – from instant contact, API integrations and more importantly, choice in the market.
COVID-19 has presented an optimum time for banking providers old and new to engage with their customers on a human level, rather than simply transactional. Since their rise from the early 2010s challenger banks have gained huge support due to customers no longer needing to physically visit a branch and the high tech digitisation of managing finances. However, traditional providers continue to overwhelmingly dominate market share and retain long-standing customers, whether they trust them or not.
A shift in attitudes since 2008
The years following the financial crash have witnessed an explosion of choice in banking, in turn altering what businesses are looking for when choosing a provider. The effects of 2008 have had a major impact on the structure of the industry. Advancements in technology and increasing competition from newer financial institutions entering the market means that what was once a monopoly for traditional high street banks is no longer the case. With an abundance of new options, it is only to be expected that customer needs have changed.
The arrival of digital-only banks was a blessing for customers hoping to have their own needs put first. Trust is core to UK banking and when customers hear a provider has a UK banking license, or is regulated by the FCA, it’s an immediate proofpoint ticked off the list. New FinTech companies that have come in and disrupted the market over the past decade were born in part from a loss of confidence in the traditional banking sector as customers sought options elsewhere. The crash opened up opportunities to disrupt the status quo of banking, and businesses re-evaluated what was important to them. Something FinTechs have over traditional banks is agility to expand their services to suit customer demand. For example, aside from often being cheaper, faster, more convenient, new financial providers can listen to customer wants and adapt their platform accordingly, more quickly and easily to meet demand, as the technology is not shackled to older legacy hardware and business processes.
The consequences of the pandemic for the industry
COVID-19 has offered banks an apt opportunity to show their customers how best they can serve them during hard times. In theory, this should provide financial providers with an optimum time to gain customer trust, but research suggests there is a notable gap between what SMEs feel about banks carrying out transactional tasks against the level of trust that banks will look after their long-term financial well-being.
Before the pandemic hit the number of physical banks branches were already in decline, especially in Spain, Luxembourg and Iceland. The lessering need for bricks and mortar means a wider array of choice and as we come out the other side of COVID-19, digital only banking will likely continue as the norm, particularly with advice from The World Health Organisation to use contactless payments and avoid handling cash to reduce the spread of germs. Where there are health connotations attached, the lessening of visits to high street bank branches may mean a continual decline in branch use. Lloyds Bank saw a 50 per cent increase in those registering for online banking compared to last year, while TSB has seen a rise of 137 per cent since the start of lockdown.
Business banking needs in 2020
A huge number of businesses have struggled immensely during COVID-19, with more than half of UK SMEs seeing a significant decline in sales, or worse, out of business entirely. Now more than ever business owners need the support of their bank, so the mission-driven ethos newer providers tend to offer will hold an immense amount of significance. FinTechs cater towards changing customer demand quicker than traditional providers because their platforms are built to adapt. If a new feature is being requested they can most likely build it and be much more transparent on progress. For example a public roadmap or regular company updates clearly demonstrates to users what they can expect and when.
Trust is immensely important for international businesses needing to manage money in multiple currencies. The cost of sending money abroad can be extortionate and traditional providers are guilty of inflating the exchange rate, while also adding on high foreign transaction and receiving fees. It is often when businesses realise they have lost out on a significant chunk of money that they are incentivised to search for alternatives. Many FinTech companies are reliable options to ensure businesses do not get ‘stung’ each time they send, spend, or receive money in another currency. Airwallex, for example, provides clients with easy and immediate access to international markets by allowing them to set up local business accounts and displaying a transparent rate at the time of the transaction.
The shock of COVID-19 to the world economy has been huge and affected businesses and consumers alike on a global scale across all industries. Trust was a huge problem in the previous financial crash because it was born out of decades of bad practice and excessive risk-taking, whereas this isn’t the case in 2020. Nonetheless, COVID-19 provided banks with the ideal time to show businesses how their needs were being put first, something that appears better communicated from the newer FinTech providers on the market. And while the shift to fully digital banking/payments is underway, traditional providers are still a long way off being competitive with the technology (and underlying customer demand) of the FinTechs of the past decade.
Whether or not this year has resulted in a growing amount of trust towards banking providers, or positively shifted attitudes is still yet to be discovered. One thing is for sure though, the effect this will have on customers’ futures will be remembered for years to come.
VP Global Banking