【News】Mobile First, Digital Everything’ – The European Experience of Building the Future of Banking

  • 2018-05-21

“I think the success of digital banking is very simple. If you look at traditional banks, they have built up companies over the last 40 to 50 years and I think the difficulty is they are non-digital companies. They have a big workforce and it’s very hard to transform a company that has maybe 50,000 employees into a digital company.

“Also, the shift in user behavior has been massive. Ten years ago, you did your banking transaction on the telephone; today, you do it online or on mobile platforms. Smartphones have had such a strong evolution over the last few years. If you compare current iPhones with older generations, the difference in what you can do with the development language has obviously changed rapidly. We can now have a much better interaction with our customers through the smartphone, which is far more cost efficient than opening a bank with a physical branch. Therefore, we can offer products at a much more competitive price and a much better service,” explained Valentin Stalf, the CEO of a European challenger bank N26.

The share of smartphone or tablet users in Europe who use their device for banking reached 47%, according to ING, and more than 70% of those who use mobile banking in the 13 European countries manage their finances better as a result of mobile banking.

The EU regulatory environment (in CEE, in particular) has been particularly progressive in ensuring a conducive economic and political space for innovation adoption (creating a highly competitive environment in the meantime). FCA and PRA have changed the conditions for obtaining banking licenses by lowering the capital requirements, extending the window for acquiring the necessary capital, and simplifying the process for obtaining a license. BBVA notes that changes made it possible to shorten the time for such processing from over two years to six months.

BBVA (acquired Simple) outlines two approaches to adopting mobile-first model (with challenger banks – mobile-only):

“On the one hand, there are the companies that have no banking license and only offer the customer a relationship-side service, either using a traditional bank for processing transactions or in a partnership model. In such a case, compliance with the regulations is ensured by the bank on which they base themselves. Such companies focus on the value they can offer on a better user experience and place emphasis on tools to help out with financial management (PFM). <…> On the other hand, the second model involves those who seek to become all-in, one-stop-shop banks from the outset, but without branch-based distribution channels and set up as mobile banks.”

At the moment, digital-only arms of institutions are quite limited in the range of financial services they offer, focusing on nurturing healthy financial habits through simple, but interesting features: autosave, easy card block, expense management (analytics), bill payments, etc. Digital-only banking, being a low-touch delivery mechanism, has its limitations for more complex products – wealth management, investing, etc. On the other hand, the success of the likes of Robinhood proves those services to be a great contender for redesign and integration into simple banking apps.

So what FI-powered mobile-only options are available to individuals in EMEA? As it turns out, quite a few:

  • B by Clydesdale Bank & Yorkshire Bank

A regular current and instant savings accounts; one of the simpler versions. Budgeting and analytics is the interesting part. Users can create monthly budgets for any of the different categories that you manage through the B app tagging feature. The B app’s tagging feature lets users sort transactions by category and see spending at a glance. Some tags are automatic, while others can be set up.

Works in five markets; on a more sophisticated side – has securities and other market instruments trading feature. Offers loans in Belgium, for example, and insurance products – for devices, home, and outstanding balance.

Other examples include:

HSBC probably went further than anyone else with its ‘first direct.’ The bank has one of the most interesting features – a painless switch feature. Given that on average, customers stay loyal to their banks for well over a decade (16-19 years in different parts of Europe), the Current Account Switch Guarantee is a very smart idea:


Source: first direct

Other than this curious feature, the bank is packed with services: mortgages, loans & cards, insurance (life, home, travel), travel money, and international payments.

While only Israeli residents can open a Pepper account, it’s still a pretty comprehensive deal: checking accounts, credit cards, loans, checkbooks, savings accounts, fund transfers and, in the future, securities trading.

Overall, some advanced EMEA options seem to be further along in their features in comparison to advanced US alternatives. There are also curious cases of banks reinventing themselves even without extending a digital-only arm. One of the largest Russian banks allows its customers to create several virtual accounts under one main account each of which can be used for transactions in different currencies. The most interesting part is that the customer needs just one card, to which any of those accounts can be connected one at a time (the switch is quite painless, all can be done online) to use the right currency for online purchases, for example.

The idea is to allow users to use appropriate accounts for, let’s say, paying in USD, or in EUR, avoiding the necessity to convert RUR into any of those currencies, losing money on unfavorable exchange rates in addition to a potentially weaker position of one currency to another.

Overall, digital-only offers come out of the pack of same issues for institutions in North America and EMEA alike:

  • Existing IT infrastructures are too complex to play with; value chain digitization with an existing infrastructure would be a time and resource-consuming journey.

  • Existing infrastructure may not be adequate to support digital propositions and the next generation of UI/UX.

  • Talent gap (particularly, in the UX/UI department) and cultural resistance may inhibit and even sabotage the scale of changes that are necessary to adequately respond to a rapidly changing environment.

As professionals precisely note, new technologies and entrants could increase the churn of younger more sophisticated clients out of traditional banks, leaving banks with less profitable clients, or competing on price and services to retain their best clients. To address the potential disconnect with customers, FIs in Europe and around the world are actively jumping into the mobile-only banking bandwagon.