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Breaking the bank: how Starling, Revolut et al are disrupting our financial institutions

The Drum 18 Mar 2020 12:01

When the financial crash sent shockwaves from the epicenter of Wall Street in 2007 and 2008, Kristin Lemkau was pregnant. The banking exec, who is now the chief marketing officer of JPMorgan Chase, was preparing to give birth while simultaneously battling against a tirade of international bad press – reports, and op-eds that pinned the blame of the subprime implosion sometimes squarely on her employer.

“It was brutal,” she recalls. “And I couldn’t even have a glass of wine.”

But beneath the pandemonium – the bank runs, the riots, the stockbroker suicides – lurked another threat to Lemkau’s industry. The iPhone had arrived and consumers were getting used to doing things autonomously with their devices, such as shopping, using maps and making reservations.

There was a growing appetite to bank digitally, too, but the banks were ill-equipped to sate it. To some extent, they still are.

“The problem with the old banks is they were built up at a time when data was very expensive to store and pass around,” explains Tom Merry, the managing director for banking at Accenture. “You had systems that captured as little data as you wanted. That legacy is what is holding these big incumbent banks back. Almost every single bank, even the ones considered to be leaders, are still built on very, very old structures.”

The pressure to digitize these archaic systems was ramped up roughly five years ago when challenger brands – or ‘neobanks’ – entered the market. These were companies that could offer consumers a better interface and innovative mobile tools because they had no legacy systems holding them back in the digital realm.

“It gives those chief marketing officers a huge advantage,” explains Merry. “Neobanks are able to use data in a really advantageous way – whether that’s targeting new customers, driving loyalty in their existing customer base, cross selling, upselling or making experiences feel like they’re bespoke to the individual.”

“I guess most of the traditional banks just can’t be bothered to think, ‘how can we change the design, meet all those requirements and make a card that looks beautiful?’” says Alexandra Frean, head of corporate affairs at Starling. “We wanted to do banking differently, and took the trouble to figure out how you could bring about a lot of change while sticking to the rules.”

Secondly, while they may have a little more trouble accessing and processing their data, they are sitting on a lot more of it. And they have substantially more cash, too: Accenture observes that consumers hold an average of $450 in neobanks compared to an average of $11,100 in traditional banks.

Lemkau, for instance, recently hired a chief brand officer in former Starbucks executive creative director Leanne Fremar who helps her control an eye-watering budget of $10bn. And Chase’s ad promoting its sponsorship of the US Open didn’t speak of credit card rates or auto finance; it featured Serena Williams talking of comebacks and motherhood without even uttering the name of the brand.

“Voice commerce platforms, like Alexa and Google Home, on which people can make payments are bringing us into new territory,” says Rajamannar. “Voice enablement doesn’t have to be restricted to sound-only platforms – it calls for opportunity in the physical world as well: consumers will hear the Mastercard sonic acceptance sound at the end of the transaction regardless of where they are ... online, in stores, at venues, on voice-enabled devices like Alexa…

Voice is a key area of interest for Visa too, according to its head of marketing for India and South Asia, Sujatha Kumar. She imagines a future where banking is mobile, where service providers pose serious competitive threats and voice is built into all payment systems.

It’s impossible to predict who will win out at the end of day: the big banks with scale built on an untenable digital foundation, the neobanks with cool tech but hesitant customers or a left-of-field player, such as Facebook’s Libra or an AI-driven business currently in utero.

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LemkauKristin LemkauJPMorgan Chase