With the competition growing from the United Kingdom’s innovative chartered neobanks, retail banks have been pushed to upgrade their customers’ digital banking experience. The latest developments there could set a template for U.S. banks seeking to increase their own efforts at attracting customers through digital banking.
A new report from Javelin Strategy & Research, Mobile Banking Innovations: UK Lessons for U.S. Banks, looks at what digital strategists can learn from what’s working in the United Kingdom. “Because we have open banking in the UK, the fintechs are able to get a lot more data from the major banks here,” said Lea Nonninger, Analyst in Digital Banking for Javelin and the author of the report. “This allows them to create more innovative solutions that customers can use, so that’s pushing our legacy banks as well to innovate more.”
Innovations in Peer-to-Peer Payments
The report looks at the mobile banking apps offered by one major retail bank, NatWest, and two neobanks, Starling Bank and Monzo. Neobanks rely solely on mobile and online banking to provide their services, without physical branches.
The UK has seen several neobanks arise in the past few years. Starling Bank was founded in 2014 and Monzo in 2015. The UK banking laws make it easier for these banks to get regulated as chartered banks than it has been for similar fintechs in the United States. That has also created more competition and disruptions for the legacy players, which in turn has led to more innovation. Some of these include upgraded peer-to-peer services, added value to transaction ledgers, easing the way for charitable contributions, and showcasing financial fitness.
Lack of Third-Party Apps
UK customers don’t usually use the kind of third-party P2P apps, such as Zelle or Venmo, that have become so popular in among U.S. users.
“Customers can go to their banking app to do any P2P transfers,” Nonninger said. “It is quite interesting to see how their U.S. counterparts support P2P payments from their banking apps.”
Zelle is owned by a consortium of seven of the largest U.S. banks, including Bank of America and Wells Fargo. Nonninger doesn’t see the need for such an app in the UK.
“PayPal operates here, but people use it more for cross-border transactions,” she said. “If I’m transferring something to my friends in Europe, I’ll be using PayPal or something like Wise, but for us, that’s more for when you’re transferring different currencies.”
Without those outside services providers to rely on, banks in the UK are more likely to bring that innovation in-house. They end up developing many of these processes themselves to make sure their customers have Bluetooth payments or can pay someone via a link or with QR payments.
The exchange of information required for open banking has been a boon to innovation and has resulted in many new options for consumers. Paradoxically, though, they have been slow to adopt it.
“We’re still at the beginning of open banking in the UK,” Nonninger said. “I think a lot of people were expecting more out of it, but I’m excited to see what’s to come in the future.”
Helping Establish Fiscal Fitness
Another area where the UK’s banks have developed innovative solutions is in education that really makes a difference for customers. They offer not just products but also tools specifically designed to help customers achieve their financial goals. For example, NatWest has a navigational button right on its home screen dedicated to a financial fitness center, which can then highlight relevant features and integrated educational materials.
American banks offer similar financial fitness tools, allowing customers to set up a goal, like saving for a car or a house. But the support tends to stop when it comes to achieving those financial goals.
“It’s been hard for banks globally to support customers on that front,” Nonninger said. “The UK has created several different examples of how to help customers achieve their goals and focus on financial fitness.
“The examples that I’ve seen here in the UK are about helping you understand what that financial goal really means. If you’re saving for a house, it’s easy to say, ‘I need this amount for a deposit.’ But someone might not be aware of the additional fees they have to pay, like for a solicitor or to understand the brokerage fees. NatWest combines an educational component with your goals, to help customers better set their expectations. The bank doesn’t just offer the option to create a goal but also to help you understand what the goal means for you financially.”
Mobile and online sites are excellent options for presenting such purposeful educational content. Nonninger recommends that banks showcase personal finance principles and advice with every login by housing it on the app or site.
One reason banks have been reluctant to do this is it requires more than just a simple repurposing of the information. It requires rethinking how to portray the content, curating it at relevant moments for maximum impact in digital banking sessions and personalizing experiences to divide the experiences into “help me do it” and “do it for me.”
There are key advantages as well. Because the fitness tools operate through secure channels, the specific customer information allows the bank to curate content, sharpen user insights, specify action steps, determine customer needs and goals, and personalize the search for appropriate products and loans.
The Regulatory Difference
Why has the UK been more progressive than the United States in developing new services in these areas? The regulatory landscape plays a huge role. The Financial Conduct Authority, an independent body that regulates UK financial institutions, is not just open toward innovation but also has been proactive about helping startups, neobanks, and banks in developing new products and ideas.
“Between the UK and the U.S., there are many similarities, and they are going in a similar direction,” Nonninger said. “Many of the differences that exist depend on the regulators and on the options they allow banks to have.”
