A lot it seems. While Chinese consumers are moving to new digital financial services providers en masse, in the UK it seems we're far more loyal to our traditional banks.
Despite the arrival of Open Banking and the UK’s Current Account Switch Service, only 1.5% of us are switching our banks (and by this I mean moving the majority of our transactions - including salary - to another provider).
Not great reading for the new digital banks, who need more customers to make them their main financial institution and raise their average account balances.
So what will make us switch then? The incumbents have traditionally offered big rewards - up to £250 - for switching. But for start-ups, this isn't really a viable option. So in our latest FinTech blog post, my colleague and I have explored some of the options open to banks to encourage switching. In a nutshell, we found:
- Using product verticals to offer a great deal can be an effective way to attract users, but many savvy consumers end up using the cheap product and staying with the incumbent, so it becomes an expensive exercise.
- Owning customer spending by analysing transaction data to offer bespoke rewards based on a customers’ individual spending patterns. This can be a better way of encouraging a full switch and avoids banks paying for the incentives, but you'll need to have a decent bit of tech investment to do it.
- Building a slick Open Banking-powered platform which makes switching easier could be beneficial, but you'll need a fair bit of marketing spend to raise awareness of the offering.
- Making your user experience that good (and easy) compared to your competitors that users increasingly use your platform (this borrows from Peter Thiel's 10X argument).
No quick fixes there. But if digital banks move towards the last few options above and rely on the first one less, we might start to see some movement.
Despite the arrival in January of Open Banking, Britain's implementation of the “game-changing” EU's PSD2 directive which forced banks to share customer data -- therefore allowing challenger banks to contact customers in a bid to improve market share -- it seems UK consumers are still pretty loyal to their good old-fashioned banks.