Challenger banks and the future of business banking

Phil Morton is the Head of Strategy at UX design company Foolproof. Here he shares with FinTech Magazine how companies must take advice from challenger banks or risk falling behind:

Defining the future of business banking

Whilst most banks recognise the value of delivering a great user experience in order to win and retain retail banking customers, business banking has been left largely untouched by the disruption triggered by the entrance of mobile-only challenger banks. For many years, the wisdom has tended to be that most business banking users are not necessarily the corporate decision makers, and therefore they don’t have a choice in who they bank with. As long as the fees are competitive, it didn’t seem to matter that the digital experience was poor. The accounts stuck. Inertia prevailed.

That’s set to change, and the pace of that change will be rapid for two reasons. The first is that the lines between retail banking and business banking are blurring. Business users are consumers in everyday life, and their expectations of what makes a ‘good customer experience’ is maturing – they expect to find this in all parts of their life. Secondly, challenger banks are setting their sights on business banking customers, and will bring their customer-centric recipes for success with them. Banks need to take a fresh approach to the products and services they offer to business customers, and restructure their internal teams and working cultures to bring better conceived and delivered experiences to market before their customers vote with their feet.

The challenger banks are coming fast

Monzo and nimbler organisations like Tide are already making business banking more competitive. The recent funding from RBS’ alternative remedies package has helped more players enter the business banking space. Competition is healthy for customers and will help to promote positive change.

Monzo trialled 100 business bank accounts earlier this year, and is rolling out more as a result. This is unsurprising: Monzo has created a great product by taking an iterative approach to experience design and considering the needs of end users across every touchpoint. Monzo’s success in retail banking comes from its culture which retains a relentless focus on customers, including them in the design of new features and services.

Other challengers such as Anna, Tide and Coconut have introduced their own business banking services with varying degrees of success. Fundamentally, Monzo nails the right ingredients and methods at an organisational level (i.e. people and approach) to tackle business banking's problems from a user-first perspective. This formula for success is what incumbent banks fail to understand and is a big part of why their experiences fall short of the mark.

Customer experience reflects organisational experience

Everyone knows that incumbent banks struggle with legacy systems which are difficult to maintain and costly to replace. There are many multi-million-pound digital transformation projects to remedy the technological challenges of running a large bank in the modern age. However, just fixing the technology will not allow incumbents to replicate the success of challengers unless they focus on changing the way that they work as well.

A customer experience is only as good as the organisation that creates it. Banks must improve their internal team culture, skills and capabilities to help teams put customers first. Only by empowering their teams to make decisions that work for the customer as well as for the bank will they succeed in the long term.

Customers ultimately decide whether banks have been successful or not, and no company can create sustainable value for its customers without a deep understanding of human behaviour. To stand a chance, banks must equip themselves with the people, skills and processes to place themselves in a position to make great user experience and iterate on it.

Monzo shows that it’s possible to do this at scale: with almost 2mn customers it still listens to its community to inform product decisions. The challenger bank releases services that aren’t quite finished and feels the backlash, it ships changes to its code base every day. This is only possible with the right internal culture and ways of working. Every employee knows their role is to improve the lives of customers, and teams are not afraid of failing to figure out how to do this.

In contrast, teams in traditional banks often have the best intentions to serve customers but face organisational silos, outdated processes and needless red tape. Reforming their internal design processes and transforming their culture should be a priority if banks want to improve the experience they deliver.

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The opportunity in business banking

Business banking is lucrative and funding is making the space more competitive. Unless they learn from new entrants, established players risk falling behind. Monzo’s strength in retail banking doesn’t necessarily guarantee an easy or quick win in business banking. But their culture will ensure that they translate their commitment to the customer into the business banking domain, and that businesses can look forward to useable, painless and exciting products and services.

Incumbent banks must not be complacent as they were when startups entered the retail space a few years ago. Thinking that business banking is “too complex” or “too hard” for Monzo or its peers to impact is wishful thinking. Incumbents must update their internal culture, ways of working, tools, skills and technology while they have a head-start. This means bringing customers to the forefront of everything they do. If they are to be successful in this space, the needs of people (both customers and employees) must come first. If incumbents can reform their internal structures and ways of working, they can have a voice in defining the future of business banking. Many have the ingredients, customers and data to do so – what’s missing is the right approach. Without commitment of this kind at an organisational level they will see their market share slip away.