Disruption in financial services goes all the way to the top, with traditional banks in danger of being replaced, soon.
If you have been putting your money in the same bank your whole life, mental fatigue could explain why moving is rarely seen as an option.
It’s too much paperwork. It takes too long. There are hardly any options. They’re all the same.
These four reasons can, in some instances, explain customer apathy. However, that’s changing, and it’s changing fast.
New, nimble, digital banks are emerging all the time. Last year, we looked in detail at how the entire banking industry is in a state of flux: tradition is being attacked from every angle.
Today’s payment structures are a world away from those of even one decade ago. For example, this week, Mastercard revealed biometric credit cards. No more PINs: fingerprints all the way.
Loans, previously the domain of banks or sharks, now see the likes of iZettle offering quick finance on the back of business income – this is established in real time through the company’s payments tool.
Currency conversion has moved on to such a degree that bureau de change offices finally look like relics in many parts of the world.
Savings structures lag someway behind in terms of modern innovation, but the options there are growing, too.
Which brings us to a place in the cloud – a place where there are fewer queues, less hassle and, in general, banking at your fingerprints.
Digital banks are popping up everywhere, with the EU a hotbed of activity. N26 is one of the more noticeable variants.
“We can take 25,000 new accounts in one morning. A traditional bank could never do that.” That was Alex Weber, head of international markets at N26 group, lauding digital banks when discussing the financial services industry on stage at Dublin Tech Summit.
Once the lights dimmed, he reeled in the confidence, admitting that even a purely digital, queue-less, paperless bank like N26 would feel the strain of that kind of influx.
But the idea stands.
Traditional banks need to add staff to increase customer numbers. More branches, more staff, more costs. For digital banks, there are still some costs, though fixtures and major capital are not required.
“OK, 25,000 might be a bit much. Maybe a bit less” said Weber when talking to Siliconrepublic.com. To open an account with N26, customers are faced with a bit of online form-filling and a video to watch.
This takes bandwidth, which N26 needs to invest in. After that, though, automation takes care of the rest. After it’s all set up, the ‘traditional’ costs are absent, except for in one key aspect.
“Yes, customer service,” he said. “For instance if you scale up a lot of customers, at some point they want to call, they have questions. Maybe some don’t. But they need this trust, so customer service has to scale up.”
Trust is an interesting word to use, given that’s the primary appeal of traditional, bricks-and-mortar financial institutions.
However, Weber even thinks that this appeal is vanishing in front of us. “Established bank brands have been suffering for 10 years, since the global financial crisis,” he said.
“One report showed seven-out-of-10 millennials prefer to go to the dentist than the bank. The 60-year-olds who like going to branch – they are fine. They are not our target.
“Millennials have several problems with traditional banks. Like, how hard it is to open an account, or to do money transfers abroad?
“N26 is about giving control – millennials want an Uber, Airbnb, this is the way it goes. We don’t see a problem from a brand perspective.”
One concern Weber does have, though – and it seems true across all of new banking – is how to make savings attractive. As attractive, perhaps, as biometric credit cards or Facebook Messenger allowing users to send €5 to friends with the tap of a screen.
Weber thinks low interest rates have scuppered plans to revolutionise savings structures, with the days of earning off deposits now a thing of the past.
“Now, with the likes of 0.4pc from ECB, banks are stopping paying out on current accounts. There are even negative interest rates in some cases,” he said.
“But we’re looking at it. The problem with savings is it is associated with starting with €10,000 or something like that – a big chunk – and putting it somewhere. So the perception is already of a barrier.
“Savings is about rounding up. If you buy something for €3.99, it takes €4 and puts something away,” said Weber, claiming N26’s savings programmes will be revealed in the near future.
This month, N26 released ‘business’, which allows freelancers and the self-employed to use one account to navigate both their business and private finances.
While it doesn’t have a physical presence in Ireland, users here can access N26’s banking services via their smartphones. The company claims to have around 10,000 Irish customers.
However, there are obstacles appearing in the not-too-distant future, with one in particular that will hit both traditional and digital banks alike: Brexit.
Should the likes of N26 navigate through that thunderstorm of uncertainty, than traditional banks really will be in trouble.