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By Jake Ranson, Chief Customer Officer at Freedom Finance

Trends in finance, from Open Banking to the rise of fintech start-ups, are shaking up the industry and putting customers at the heart of the future of banking. With an increasing number of challengers joining the market, competition for the customer is at an all-time high and non-banks have a number of strengths which help them to attract and retain new customers.

 Technology and the speed of adoption is key

Jake Ranson

Jake Ranson

Transparent and competitive pricing has been used to bring significant disruption to several markets including banking, FX and savings. Digital only platforms have also driven speed of adoption and the ability to expand into new geographical markets quickly. Revolut is one example of a company leveraging these advantages to great effect, expanding quickly into all the EEA countries, Switzerland, Canada, Singapore, the US and Australia.

Non-banks don’t have the legacy of the incumbent banks’ infrastructure, which means they can be more efficient, and often, they have the most up-to-date technologies to gather customer and market insights.This allows them to successfully break through the traditional finance market because they understand what their customers value, and equally care less about, so have the dexterity to deliver new features quickly within an engaging UX. Banks are increasingly looking to copy the formulas used by the fintechs – but as adjacencies to their core business, such as Bo, RBS’s challenger bank brand – rather than reform their legacy brand propositions.

Open Banking and PSD2 standards have also led to the creation of new technologies that allow third parties to safely and securely access customers’current account data at their request. Digital banking makes life easier for consumers and people are increasingly enjoying the simplicity of managing all their finances in one place. This means there’s a big opportunity for more fintechs to plug into traditional banks and build new services that are useful for customers.

Partnerships are becoming common

To compete with non-banks, we are seeing more traditional banks forming partnerships with smaller, specialist fintechs. These partnerships have a huge value as they allow incumbents to harness and infuse talent which isn’t on their payroll. It also enables them to utilise and onboard technologies that would otherwise take months to develop, thus giving them greater ability to understand and personalise their proposition. This leads to fewer abrupt endings for perennially underserved groups.

To remain competitive in this market, banks need to enhance what they have available to them – taking stock of their strengths and outsourcing where appropriate. This isn’t to say that incumbent banks can’t build it, but if a fintech already has it, it makes sense to use this to their advantage. Therefore, success will very much rely on smart partnerships.

What will separate the most successful banks?

We see a lot of customers start their Freedom Finance journey having already been declined by a bank, but then go on to secure a loan that’s affordable and right for them – simply because the bank wasn’t able to accurately interpret the customer’s capacity to borrow. These customers tend to fall into pretty well-defined segments: the young, those establishing themselves in the UK, the self-employed and people recovering their financial stability after an event, or income shock.

Traditional banking decision systems may be large enough to securely process millions of transactions, but they can be quite ‘one size fits all’ and turn away customers who don’t exactly fit their mould.The banks that manage to address this will stand a better chance of future success.

The modern finance market has become crowded with options and choice, and customers often lack sufficient support and guidance. What’s most worrying is the knock-on effect this is having. Our research shows that more than a third of us regularly delay or give-up on making important decisions around our finances, such as consolidating credit cards or loans or switching to a more competitive mortgage rate. The cost of this paralysis can be up to a staggering £1,598 per adult.

Rather than benefitting from a healthy and competitive financial services market, consumers are often being blinded by choice and in too many cases it’s making their financial situation worse. This is particularly apparent in the loan market, but we also see it in savings, pensions and other investments too.

For banks looking to succeed, it is imperative to strive to offer customers clarity, not just endless choice. Using the right blend of technology and human support will make these important decisions easier and clearer.

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